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News - 01/01/0001

Northern Powerhouse office markets hit record high

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The North has seen another record year for office occupier and investment activity, according to the latest Northern Powerhouse Office Market Report from national commercial property consultancy Lambert Smith Hampton (LSH).


Strong take-up across the board

Despite Brexit-related uncertainty hanging over the market, positive momentum has not only been sustained but has gathered pace since 2017.

The research shows that 2018 is set to be a record year for the Northern Powerhouse office markets of Leeds, Liverpool, Manchester city centre, Newcastle, Salford Quays, Sheffield, South Manchester and Warrington, with 5.8m sq ft of space anticipated to have been let or sold by the end of the year. This is 13% above the 2015 peak and 37% above the 10-year average.

Star performers include Manchester city centre and South Manchester, which are likely to witness their strongest ever annual take-up at 1.7m sq ft and 1m sq ft respectively. This was underpinned by’s 225,000 sq ft pre-let at Enterprise City and Royal London’s 140,000 sq ft commitment at Parklands in South Manchester.

TMT to the fore

For the first year on record, the Technology, Media and Telecoms (TMT) sector made up the largest share of take-up across the eight Northern Powerhouse markets, accounting for 21% of total activity. This trend is likely to continue with Channel 4’s announcement that its new headquarters will be in Leeds.

Activity has been largely driven by expansion, which accounts for 41% of deals above 5,000 sq ft. Location continues to be the primary driver for office moves and the report says this will become more important as HS2 plans unfold.

Another year, another fall in supply

The report shows that healthy occupier demand has driven a fourth successive year of falling office supply, with every location apart from Manchester city centre now having less than one year’s supply of grade A space.

Conversely, development activity in Manchester city centre is booming - accounting for 70% of total space under construction in the Northern Powerhouse region – but few schemes are nearing delivery elsewhere, prompting LSH to issue a “significant health warning” on growth prospects.

With over 1,400 known lease events totalling 7.3m sq ft across the Northern Powerhouse between 2018 and 2020 and 2% office-based employment growth forecast over the next three years, the report says refurbished buildings are likely to be the saviour for occupiers looking to relocate.

With schemes yet to put a spade in the ground a minimum of two year’s away from delivery, the short-term pinch in supply is likely to accelerate rental growth throughout 2019, as occupiers’ battle for limited available space.

Highest quarterly investment volumes since credit crunch

2018 also looks set to be a record year for the Northern Powerhouse office investment market, with £1.4bn of assets transacted to Q3 and the highest number of quarterly deals since the credit crunch.

While investor demand has led to prime office yields in Manchester and Leeds moving closer towards their 2007 lows of 4.75% and 5.00% respectively, there is still a strong appetite for high quality, well-let stock, as evidenced by the depth of demand for Aviva's One City Square sale, reportedly under offer to APAM over £2m above asking. 

Reflecting the high level of confidence felt by investors in the region’s office market, Sheffield has also risen to prominence following a number of big ticket deals including M&G’s £24m purchase of 3 St Pauls Place and the sale of Acero by Scarborough Group for £26.6m, on which LSH advised.

Oliver du Sautoy, Head of Research at LSH, said: “Despite the uncertainty posed by Brexit, the major cities of the Northern Powerhouse are firing on all cylinders with strong levels of activity in both the occupier and investor markets.

“The steady evolution of the region’s economies is clearly manifesting itself in market activity. The region’s stalwarts of professional services and public sector occupiers have been joined by a new breed of occupiers, namely in technology and media,   which now accounts for the largest share of take-up.

“While Manchester often steals the headlines, the news that Channel 4 is heading to Leeds is a major coup for the city and we expect this to be a catalyst for further activity. Developers in the region must respond to this growth opportunity by delivering buildings that reflect their alternative space utilisation requirements.

“The only note of caution in an otherwise buoyant report is the level of grade A supply, which must be urgently addressed to continue this positive growth.”

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