Posted 24 November, 2014 OBI BLOG
As many of the city’s most prominent office buildings continue to change hands and new investors flood in to Manchester from the “over-heated” London region, we take a look in this latest blog at whether occupational demand is keeping up with the lightning pace of the investment market.
Following a bumper Q2 of office lettings, the healthy level of demand continued in to Q3, albeit at a slightly reduced rate, with 171,824 sq ft of take up recorded over 58 transactions.
The overall take up for Q1 – Q3 2014 now stands at 968,338 sq ft which already outstrips total take up recorded during the whole of 2013!
Although not yet legally committed, Q3 also saw a number of larger lettings make significant headway at schemes such as One St Peters Square (DLA Piper), No.1 Spinningfields and Cotton Building and 2 St Peters Square (EY) which are likely to boost the overall take up figures for the full year.
The 3 months take up from July to end of September lacked any significant deals over 20,000 sq ft with the largest being the 16,479 sq f lease we agreed on behalf of Allied London with HCC Solicitors committing to HQ building at Old Granada Studios.
Allied London opened its doors to the workspace element of the Old Granada Studios in June and has adopted a flexible leasing model. Longer term plans are in place to transform the estate into a £2bn mixed use scheme, with planning due to be submitted shortly.
The only Grade A deal to be agreed during the quarter was to EC Harris who took 7,376 sq ft of expansion space at 3 Piccadilly Place and this will be soon be followed by Nugen’s 15,000 sq ft acquisition in the same building. Other grade ‘A’ deals in solicitors’ hands include AXA at 82 King Street (6,500 sq ft), Stripes Solicitors at 1 Marsden Street (5,000 sq ft) and there is strong interest in the remaining space at Vantage Point, Spinningfields.
The most popular area of the city this year has been the central core which has recorded 49 transactions since January resulting in a total of 194,665 sq ft of take up. This compares with 170,404 sq ft which was recorded for the same area during the whole of 2013.
The most active area for the quarter was the western part of the city including Leftbank, Spinningfields, Parsonage Gardens and the Salford Regeneration area with 59,992 sq ft of take up across 18 transactions.
Q3 2014 also saw the completion of One St Peters Square which has delivered 195,000 sq ft of available grade A space to the market. DLA are close to agreeing a lease on 40,000 sq ft of space at the building and with other major deals already being completed during October take up for 2014 is likely to exceed 1.2m sq ft, up 27% on 2013.
Grade A availability in Manchester is currently standing at approximately 280,000 sq ft. With occupiers including PwC, EY, Nugen, Addleshaws, Gazprom and NCC in the market for new space, a number of new speculative office schemes have commenced. The most notable is Allied London’s Cotton Building in Spinningfields which when completed in April 2016 will deliver 148,100 sq ft of flexible workspace to a market seriously lacking in supply.
Muse have also commenced the construction of One New Bailey, which although strictly in Salford, will still be considered by many as a good option for occupiers seeking new space in Manchester city centre. This 125,000 sq ft building will be completed in the autumn of 2016. Finally, Ask in JV with Tristan Capital has begun construction of 101 The Embankment at Greengate and this first phase of development will extend to 170,000 sq ft when completed in Q3/Q4 2016.
Galvanised by strong demand, the continued reduction in concessionary discount rates being offered to tenants and the expected increase in headline rents, a number of Landlords have commenced speculative refurbishment of existing buildings across the city.
These include; Catalyst Capital and Starwood’s, 26 Cross Street which when completed in January 2015, will provide 21,208 sq ft of space over 8 floors with the typical floor extending to 2,800 sq ft, CBREGi’s 55 Spring Gardens providing 53,775 sq ft of space over 8 floors and Bruntwood’s York House which provides 9 floors of approximately 3,080 sq ft.
There is no doubt that headlines rents in the prime end of the market are beginning to show signs of increasing and that tenant concession packages have hardened during the year with discount rates now standing at 15% to 20%.
A number of major deals have already been completed in Q4, such as Ticketmaster who took 22,764 sq ft at Sevendale House in the Northern Quarter. With further transactions due to be finalised before the end of December, 2014 is shaping up to be an excellent year for the central Manchester office market endorsing the major investment being made in the city.
OBI Property are extremely active in the Manchester office market and we would be delighted to discuss the market or any specific queries in further detail – please do not hesitate to contact a member of the Offices team 0161 237 1717.