City centre office rents could smash the £40 per sq ft barrier this year

Headline rents are expected to increase to £38.50 per sq ft for Grade A new-build workspace in Manchester this year.

That’s the view of property firm OBI, taken from the predictions contained in it’s 2019 Manchester Office Market report, with the commercial real estate consultancy also predicting that 2020 will see Manchester’s first Well Building or Fitwell accredited building delivered.

Richard Lace, who works in the transactions and asset management team at OBI, also expects typical lease lengths to reduce as occupiers continue to seek flexibility.

He said: “Our data shows us that there is set to be an increase in headline rents to £38.50 psf for Grade A new build workspace. Some specific schemes could exceed this with a new record rent of £40 psf a possibility during this year.

“During 2020 the next phase of new build workspace will also commence on-site, with speculative development expected at schemes including First Street, Enterprise City at St John’s, Circle Square and Mayfield.

“We also expect to see the sustainability agenda and carbon neutral building design to move to the forefront of new refurbishment and development schemes, driven by both developers, but also corporate occupiers who are looking to relocate.”

He added: “Wellness and smart building design will increasingly feature as landlords and developers seek to differentiate their workspace product.

“With that in mind, OBI expects to see Manchester’s first Well Building or Fitwell accredited building to be delivered in the city centre.”

Founded in 2010 by Will Lewis and Dominic Horridge, OBI is active in the consultancy market. Its landlord and occupier clients include Aviva Investors, Schroders, Allied London, Bruntwood, Kinrise, ARM, Booking.com, AO.com and The Hut Group (THG).

Following a record-breaking 2018, 2019 saw OBI transact 38% of the total office space in Manchester city centre.

The commercial real estate consultancy also expanded into Leeds and opened multi-functional café bar and business venue The Difference, located a few doors away from the firm’s Manchester headquarters on Mosley Street.

OBI has also undertaken a major project which saw the business develop a bespoke software package that includes a database of every available commercial workspace in the city centre.

This software allows OBI to not only measure and analyse demand, but, more importantly, the absorption of workspace and void rates for different districts, grades, rents and sizes of suites across the city centre.

Richard Lace said “Looking back on 2019, the office take-up data illustrated that the sub-5,000 sq ft size band was the most active, with 74% of total transactions completing in this size band.

“Undertaking further detailed analysis into the average speed of letting, by specification and rent band, the data illustrates that period refurbished suites are the quickest to lease across the city, taking on average 7.6 months from completion of the refurbishment to lease completion.

“Both Grade A and Grade B workspace buildings comprising character features continue to be popular amongst Manchester’s businesses, particularly those from the digital and creative and TMT (technology, media, and telecom) sectors.”

OBI also expects investor sentiment to improve, with strong demand for well-let assets in good locations from a diverse range of investors.

Looking ahead to the rest of the year, Richard said that occupancy levels in managed workspace will remain above 85%, as occupiers continue to place flexibility at the heart of their real estate strategy.

“We believe that typical lease lengths will reduce as more occupiers continue to seek flexibility.

“This will be evident across all size bands within the market, including on larger transactions of 10,000 sq ft plus, where occupiers have typically committed to longer terms.

“Space transacted by emerging business sectors, including cyber security and life sciences, will increase,” he added.

“The result of this will be the development of new clusters around Manchester city centre.”

Other predictions from OBI’s Manchester Office Market 2019 report include the changing occupier expectations which stem from the rise in managed workspace operators.

“Occupiers now expect more from front-of-house building management teams,” said Richard.

Richard Lace

“Because of this, landlords will increasingly aspire to provide hospitality-level building concierge services rather than a traditional security. In return, occupiers will be willing to pay higher service charges.

“Take-up levels from managed workspace operators will reduce compared to 2019, due to fewer leasing opportunities being available and increasing scrutiny from landlord’s into the operators looking to take space.

“Management and revenue share agreements will need to be become an accepted vehicle to keep momentum of operators taking space.

“As a result, those operators with live requirements will have to consider smaller scale acquisitions or commit to space in new developments pre-completion of the construction works.”

Richard added: “Finally, we predict an increase in landlords undertaking speculative CAT A+ fit outs, as they seek to capitalise on occupier demand for solutions that comprise a hybrid offering between managed workspace and conventional accommodation with customisable, fitted out space.”