Posted 18 October, 2013 OBI BLOG
The Manchester city centre office market continued to gather pace through Q3, reflecting the confident mood among the city’s office agents. Take up totalling 200,337 sq ft was recorded for the period from July through to September, an increase of 11% from 179,930 sq ft in the same period during 2012.
A number of notable transactions were recorded during this period, the most significant of which was a 17,000 sq ft pre-let at 1 Hardman Street, Spinningfields to Mediacom. Allied London, advised by OBI, commenced construction of the building, which fronts on to Deansgate, in July with the building due for completion in April 2014.
The central core proved the most popular area for occupiers with 28 transactions amounting to 57,826 sq ft (29% of Q3 take up). The average headline rent was £15.80 per sq ft, with the highest rents being achieved at The Pinnacle and 1 New York Street, at £30.00 per sq ft and £29.00 per sq ft respectively.
The increase in confidence amongst occupiers is perhaps best reflected by the number of transactions completed at rents of over £20.00 per sq ft. With a total of 9 transactions being recorded in Q3, this was a notable improvement from the five transactions recorded in the previous quarter.
As expected these deals were all restricted to the central core and Spinningfields, save for the long awaited announcement that Jacobs had committed to take 23,526 sq ft at First Street at a rent of £22.50 per sq ft, a deal which had been expected to be concluded earlier in the year.
In the Northern Quarter, Argent Developments, The Hive went on a run of good form concluding three deals totalling 15,563 sq ft. The largest of these, at 7,128 sq ft, was to Join the Dots who were represented by OBI Property. The continued strong performance in the Northern Quarter, where 8 transactions were completed during Q3, comes as development gathers pace at the eagerly anticipated Sevendale House. The building when completed will provide over 60,000 sq ft of Grade ‘A’ accommodation at an affordable mid-teens rent.
It is OBI’s view that 2013 take up will exceed the 5 year average of 891,778 sq ft, with significant transactions currently in solicitors hands including Barclays (80,000 sq ft) and Arup (20,000 sq ft) at Piccadilly Place and with the the much awaited ‘Project Tomorrow’ rumoured to be inching ever closer to conclusion. This would further enhance the desirability of Manchester amongst UK and foreign property funds who continue to see Manchester as the place to invest in outside of London.
With further named demand in the market from a range of professional sector occupiers, particularly lawyers, there remains a real risk of Manchester starting to suffer from a lack of Grade ‘A’ accommodation.
Whilst it remains unlikely that any Landlords/Developers will be willing to start new development on a fully speculative basis, a number of potential pre-let opportunities could see one of a handful of schemes being brought forwards in the near future. One such development is Allied London’s No. 1 Spinningfields which will replace Quay House and when completed will provide over 250,000 sq ft of space.
For occupiers with immediate requirements, better quality refurbished buildings, such as Bruntwood’s Elliot House may be the only option.
The effects of the lack of grade ‘A’ space in the top tier of the city centre office market are beginning to filter through to the refurbished sector. It is our view that rental values and incentive levels are beginning to harden as the demand and sentiment amongst occupiers continues to improve. Where 35% – 40% discount has historically been common place for occupiers willing to commit to a 5 year lease, better quality buildings that are realistically priced can now hold out for lower concessions equivalent to 20% – 25%.
Richard Lace is an Associate Director in the OBI Property Offices department. Please do not hesitate to contact Richard or colleagues Will Lewis or Emma Powell if you would like to discuss the city centre market in greater detail.