Record take-up for Manchester’s office market

GREATER Manchester’s office market enjoyed a sharp rise in demand during 2010 with take-up rates for space in the city centre, south Manchester and Salford Quays forecasted to reach almost 2m sq ft by the end of the year – a 45% increase on last year, according to a new report.

Lambert Smith Hampton’s Greater Manchester Office Market report states that although the take-up figure was somewhat distorted by the Co-operative Group’s signing of 328,00 sq ft of space for its own new corporate headquarters on Miller Street, even when this deal is stripped out a demand for larger floorplates by relocating firms has increased the take-up of Grade A stock by 37% on last year.

However, the firm’s Manchester head of office agency, David Thwaites, expressed concern for the market’s prospects for next year, particularly with the lack of new developments. City centre office space is forecasted to run out in 2.5 years, based on historical take-up rates of 300,000 sq ft.

There is currently 750,000 sq ft of available space, compared with 900,000 sq ft last year. However, there are no new developments onsite and any new scheme which starts on site is expected to take two years to finish.

As a result, Thwaites is predicting that rent-free periods and other incentives for new space will slowly be cut as supply is absorbed.

However, he added that poorer Grade B stock will continue to struggle to attract tenants – particularly as public sector cuts and relocations free up vacant space.

“Despite the city centre having witnessed an improvement in transaction values during the first half of the year, there has been limited investment activity from across the rest of the sector,” adds Thwaites.

“Worryingly, the average investment yield in the UK property market rose for the first time in 18 months in the third quarter of 2010, potentially signalling the beginning of a period of uncertainty within the investment market.”

In south Manchester, take-up rates are expected to increase to 529,000, ahead of the 12-year low of 459,000 sq ft experienced in 2009. The increased demand has also helped to reduce the amount of vacant space on south Manchester’s business parks to 1.73m sq ft (1.87m sq ft). Headline rents of £18.50 per sq ft have remained stable, but deep discounts remain available for most of the space in the area.

Meanwhile, take-up rates at Salford Quays are likely to be higher than the five-year average of 159,679 sq ft. Rents in the area are likely to remain stable at around £18.50 per sq ft.