Confidence soaring in Northern Powerhouse office market
OCCUPIER and investor confidence across the Northern Powerhouse office markets is riding high, according a report published by property consultancy Lambert Smith Hampton.
The Northern Powerhouse Office Market Report 2015/16 shows strong performance in 2015 with combined take up expected to reach 5.2 million sq ft by the end of the year, compared with 4.6 million sq ft in 2014 and 30% above the 10-year average.
“Manchester city centre is undeniably leading the way and is on track for a record year, with almost 1.4 million sq ft of office space expected to be let or sold by the end of 2015 – well above the 10-year annual average of 966,000 sq ft,” it says.
The picture is also extremely positive in Leeds, Newcastle and Sheffield, with only Liverpool predicted to see activity fall short (albeit marginally) of its annual average in 2015.
LSH’s national head of office agency Tony Fisher said: “The office market across the Northern Powerhouse is undoubtedly in a strong position.
“Confidence is high and the best performing cities are benefiting from strong demand. Both in the traditionally dominant sectors of finance and professional services, as well as emerging sectors like Technology, Media and Telecommunications (TMT).
“With a rise in the number of London-based companies looking to rebalance their regional operations, largely to avoid the rising costs of the Capital, it bodes well for sustaining the Northern Powerhouse initiative in the coming months and years.”
In Manchester city centre, demand is high with 2015 take-up forecast to reach its highest annual total on record. Strong occupier demand is also providing scope for more development and refurbishment activity.
In Leeds, take-up is forecast to be 30% higher than the 10-year average and in Sheffield, near record take-up is being driven in part by the city’s two thriving universities.
Alongside strong take-up though, there is a shortage of supply in some areas across the region – particularly in Sheffield and Newcastle.
The five core Northern Powerhouse cities of Leeds, Liverpool, Manchester, Newcastle and Sheffield have seen more than £1bn of office assets change hands from Q1 to Q3 2015, and the figure looks set to run close to 2014’s £1.42bn record.
LSH’s head of capital markets in the North West Abid Jaffry said: “Investment in the region is high, which has unsurprisingly been led by Manchester.
“However, pricing in the city is now reaching record levels. As a result it is likely we will see more investment in the other Northern Powerhouse cities in the near future as investors chase value through the emerging yield gap; as evidenced by the recent sale of Ventana House in Sheffield for £14m.”
As well as analysing the region’s office market, the report looks at the importance of investing in the region’s transport infrastructure, the changing workforce and how the Northern Powerhouse can take advantage of the region’s highly-skilled talent pool and relative cost effectiveness in comparison to London to forge new global centres of excellence.
The region’s track record in fostering high-tech, high growth knowledge intensive business services clusters – such as MediaCity in Salford and the Advanced Manufacturing Park in Rotherham – is a source of competitive advantage and must be driven forward, says the report.
While there is just above 1.2 million sq ft of space (net of pre-lets) under construction across the core Northern Powerhouse cities, grade A take-up for the first three quarters of 2015 amounted to more than 1.6 million sq ft.
If demand continues at the same pace throughout 2016, the current development pipeline will be absorbed in less than a year. As such, the case for further speculative development is becoming increasingly compelling, the report says.
