Office of the Month: Zenith Building, Manchester

ALTHOUGH the recently-released figures by the Manchester Office Agents’ Forum suggest that 2011 isn’t shaping up to reach the heights experienced last year – even with the Co-op’s huge HQ letting stripped out – Manchester’s office market seems to be faring reasonably well.

Two major new projects have been announced within the past month – Prupim’s redevelopment of Brazennose Hose and Axa’s £50m plans for Peterloo House, Moreover, KPMG’s decision to choose Argent/GMPVF’s One St Peter’s Square scheme for its new HQ should mean that it emerges from the ground sooner rather than later.

Coupled with this, there have been several major investment deals, including Henderson Global Investors’ £24m purchase of the 64,770 sq ft Zenith Building from its Manchester-based developer, Wrather Group.

Marcus Langlands Pearse, the director in charge of making the investment on behalf of Henderson’s open-ended UK Property Unit trust, is bullish about its prospects.

Speaking at the building’s recent re-launch, he said that Zenith was his first investment in Manchester despite taking an interest in the market for many years.

“Given that we’ve invested and disinvested around £2bn during the good and bad periods, we were always looking up here,” he said.

“I looked at a number of buildings at Spinningfields, but interestingly enough in 2005/06 in my view it was too expensive. (It had) similar kinds of yields to central London where, in my view again, there should always be a differential.”

Langlands Pearse said that assets in London now appeared to be fully priced, and that when analysing opportunities in other regional cities “Manchester was my absolute prime target – everything else came a shabby second”.

Moreover, he argues that Spring Gardens is a very good location as it is in the city’s traditional prime core and is close to major amenities.

The Zenith building was effectively rebuilt by Wrather Group in 2007 and although Langlands Pearse said  that “it was very clear to me that Bill was very proud of this building” he also felt that this attachment may have influenced his views on rents.

“I’m aware that in the downturn you can’t get too personalised about a building and its very easy to lose focus about where your rents are going.”

However, he argued that  this was where he saw the opportunity in acquiring the building – 40% of which currently lies vacant.

“Looking at the area, to me there is absolutely no reason why this building shouldn’t be 100% let and I’m told by my agents that within six months it will be.”

He intends cut its historic prime quoting rent of £28.50 on all but the building’s top floor.

“In my view they were perhaps pitched a little bit too high,” he said. “My simplistic business plan for this building is to bring the rents down to a market level and then drop them a little bit further and we’ll work from there.”

Rents on three floors each containing 5,140 sq ft have been reduced to £23.50 per sq ft. Meanwhile, the 9,126 sq ft first floor has been cut to £17.50 per sq ft, and a 4,826 sq ft mezzanine floor has been reduced to just £12.50 per sq ft, although the lack of natural light from windows on that floor will put some firms off.

Langlands Pearse said: “I understand there are some 1970s buildings out in Trafford quoting that. If you look where we are, look at the quality of that mezzanine floor then that is a bargain.”

Existing tenants in the building include Cushman & Wakefield, insolvency firm Zolfo Cooper and ACE Insurance.

Joint letting agents for the building are CBRE and Knight Frank.