Property investment driven by prime assets
THE North West office market is turning a corner, and is being led by a demand for prime property assets.
So say experts from three of the region’s top property agents, which have all just published their latest market reports and forecasts.
In property investment, capital values in the office market fell sharply in 2008 and some more in 2009, but will return to growth in 2010.
Keith Stevenson, head of UK research for BNP Paribas Real Estate, said: “There will be some recovery in capital values, which fell 44% from June 2007 levels by July 2009. The upward lift hardly compensates for that but it is a turning point of sorts.
“The next five years will be dominated by a lack of demand, and the demand that is left is for prime and not secondary stock.”
Peter Damesick, head of research at CBRE, agrees that the investment market looks as though it may have turned a corner.
“Things have eased and finally we had the first capital growth in July that we have seen for two years,” he said.
All agree a distinctive feature is the polarisation between prime and secondary assets.
Where demand is building it is for good quality assets, but those assets are not being put up for sale in the volumes many expected, so there is a mismatch within the market.
Mr Damesick added: “People were hoping they would be able to snap up distressed sales. But we have seen no great volumes being made available.
“In the boom the gap between primary and secondary in shopping centres, for example, was squeezed but in the downturn that gap has widened. Primary yields are returning now where secondary continue to drift.”
On the rental side, take-up in Manchester’s office market was 57% down at 209,397 sq ft in the first half of the year, compared to the previous six months, according to a report by Colliers CRE.
The number of deals in excess of 10,000 sq ft fell from 15 in the second half of 2008 to just five in the first half of 2009.
Despite there being more than 1 million sq ft of Grade A space available across central Manchester, headline rents are steady at £28.50 a sq ft.
Rupert Baron, director of Colliers CRE in Manchester, said: “While prime rents have remained stable, net effective rents continue to come under downward pressure and are being propped up by generous incentive packages.”
He added that the second half of 2009 is already seeing an encouraging increase in activity, and the agency is predicting the potential for Grade A supply shortages in 2011.
“Developers have a small window to take advantage of such a scenario,” he said.
