Office market could see rise of the refurbs
MANCHESTER’S skyline is unlikely to see a return to the days when it was littered with cranes building new office buildings in 2012, according to DTZ.
Ken Bishop, head of the office agency in Manchester, has said the outlook for new office building remains fairly weak as a result of wider economic conditions.
“As 2011 has seen the start of only one speculative office development in the North West – No 1 St Peter’s Square in Manchester – it would not take much for 2012 to deliver an improvement.
“However, given the reality of the global economy, its impact on the property market and the general lack of finance, it is hard to foresee a significant increase.”
The firm has been giving its predictions for 2012 and although the lack of recent completions means the supply of Grade A space is dwindling, schemes remain dependent on pre-lets before they are built.
Bishop predicts an increase in major refurbishments to existing buildings, such as the Waterhouse scheme recently completed at 41 Spring Gardens or Merepark’s conversion of 80,000 sq ft of space at the former Lewis’s department store at Central Village in Liverpool.
“In general, 2012 is likely to be similar to 2011, though perhaps with more positive prospects for the future,” he said.
Gino D’Anna, associate director of the firm’s professional advisory services team, argued that opportunities for occupiers to “take advantage of recent market conditions” by trading up to superior premises or renegotiating rents were diminishing.
He argued that the lack of new office development meant rental growth is likely to be achieved for premium space and added that the industrial market had hardened due to the fact that 2m sq ft of space was let in the third quarter of 2011.
“This means that of all the available space in the region, only 7.5% of the supply is of Grade A quality. This is the second-lowest proportion in the UK, and supports our view that tenant-friendly terms on new industrial units will be harder to negotiate as we progress through 2012.”
Valuation associate Russell Hefferan said that the funding climate for property investors will remain highly dependent on the quality of the asset.
“Banks continue to take a very cautious approach on short-term income and vacant accommodation. However, there has been increased activity from lenders for well-secured investments due to the emergence of new entrants, such as Virgin Money and insurance companies such as Legal and General, Aviva and Canada Life increasing their lending appetite. Mezzanine finance providers have provided further options for borrowers on prime stock.
“With continued weak occupier markets, rising unemployment and further global uncertainty we would expect the yield gap between prime and anything else to continue to widen in 2012.
“Prime rents are likely to remain flat, with potential further falls in secondary and tertiary markets in retail, office and industrial.”
He added that the three property areas which are expected to outperform the rest of the market in 2012 were supermarkets, medical centres and data centres.
