Lack of development underpins rents in slow office market

THE take-up of office space in Manchester and Liverpool combined during the second quarter of 2011 was 164,179 sq ft, which the firm said was close to the three-year average since the property slump ensued in 2008.

The firm’s latest ‘Big Nine’ report of the major regional cities outside London said headline rents for Grade A space were being sustained, particularly as supply continues to tighten. The firm argued that each of the regional markets would eventually reach a tipping point where demand for Grade A outstrips supply.

It predicts that this will occur first in Bristol by the end of this year and then in Manchester, Glasgow and Edinburgh next year.

It added that the out-of-town market remained slow, with just 72,249 sq ft taken up in Manchester and only 5,000 sq ft in Liverpool.

Ian Steele, director of GVA’s Office Agency team in Manchester, said: “There has been very little in the way of transactional activity across all markets during the past quarter, which is predominately due to the cautious approach many occupiers have adopted towards relocation as a result of the continued economic uncertainty.

“Demand levels in both Liverpool and Manchester city centres have fallen over the past 3-6 months but there are signs that demand levels will improve during the second half of the year.”

A report by Colliers states that the 147,492 sq ft of office space taken in Manchester during the first six months of 2011 had pushed occupancy in the city’s central business district up to 83.1% – its highest for two years but still below the 88.3% achieved at the height of the boom.

Although 43% of the space taken up was Grade C stock, the 25% of Grade A space taken up further reduced the amount available on the market – a trend which has now continued for the past three years.

However, there remains more than one million sq ft of Grade A space available in Manchester, with seven floors offering more than 20,000 sq ft of space and 24 offering units of 10-20,000 sq ft.

Rupert Barron, national director of offices at Colliers in Manchester, said: “Manchester still has Grade A office stock available but a flurry of recent activity in the market means that stock is being occupied and with so few cranes on the skyline, fresh space to satisfy future demand is not being constructed.

“Recent research by Colliers International shows that positive employment growth in Greater Manchester will create further demand for space so we need to see a return to speculative development for the city to fulfil its economic potential.

“The news that German real estate fund manager Union Investment Group  is set to speculatively forward fund a new 350,000 sq ft office block at 1 Hardman Square Spinningfields and the recent purchase of the Zenith building by Henderson Global Investors are further signs of renewed confidence in the regional property market.”