Posted 3 November, 2020 OBI BLOG
Despite Office take up in Q3 2020 remaining subdued at 80,448 sq ft across 29 transactions, headline rents continued to grow in the city centre. OBI were involved in two ‘off market’ transactions setting new headline rents for Manchester City Centre reflecting occupier’s drive for quality.
No 1 Spinningfields
Following the lockdown in March, the market was effectively placed on pause. However, with the relaxation of COVID-19 restrictions towards the end of Q2 2020, a number of businesses, primarily SME’s who had initially placed their requirements on hold, started to progress their office acquisitions as they recognised the importance and value of reuniting their workforce.
It was previously anticipated that September would be a turning point for businesses returning to the office, but the increased restrictions due to COVID-19 pressed pause again for many occupiers undertaking their planned return to the workplace.
Occupiers who are relocating, continue to focus on quality, with employee wellbeing being placed increasingly high on the agenda. Relocations have also provided an opportunity to refresh the way businesses utilise their workspace in a post-COVID-19 world, with a move to more flexible and agile work concepts.
Pre COVID-19, most businesses operated on a simple 1 person per workstation ratio, with a small percentage of more forward-thinking, agile aware occupiers adopted slightly more flexible ratios of up to 1.2 persons per workstation.
Post COVID, we are seeing businesses, including those from the more traditional sectors, rethinking the way they utilise their offices, with a move towards desk ratios of up to, and in some cases in excess of, 1.6 persons per workstation.
We expect these trends to continue to accelerate, as larger corporate requirements are reinvigorated, with many expected to reduce the size of their requirements due to this more agile way of working. Whilst this may see an overall reduction in the amount of workspace occupiers may require, is likely also to result in a flight to quality.
Developers will seek to differentiate the next phase of new buildings commencing onsite in the city centre, by delivering a workspace product that is tech enabled and are either WELL accredited or designed to WELL accreditation standards.
The market pause from larger businesses is evident with only two transactions above 10,000 sq ft completing in Q3 2020. However, there is continued resilience from Manchester SME’s, which is evidenced by transactions of sub 5,000 sq ft representing 86% of deals completed in Q3 2020.
Much of this demand has been satisfied at schemes where landlords have delivered fitted out and ‘turn-key’ solutions. This has been in response to the growing trend of businesses recognising the benefits of taking fitted solutions, providing speed and ease of access, minimal upfront capital expenditure, and flexible, all-inclusive lease agreements.
OBI’s market-leading research software confirmed that the average speed of letting for fitted suites of 7 months was considerably better than suites finished to an open CAT A standard which had an average void period of 14 months in Q3 2020.
G2V acquiring space at 55 Princess and Interquest taking space at Bonded Warehouse are prime examples of occupiers who relocated into fully fitted solutions during Q3.
G2V – 55 Princess Street (Left) / Interquest – Bonded Warehouse (Right)
The city centre remains attractive to businesses from a wide range of sectors, but we expect the demand for workspace in Manchester to continue to be underpinned by the TMT, Digital & Creative, Financial Services & Legal sectors.
The recent lockdown measures announced by the government may create a short term pause in the market. However, we expect that occupiers who are under offer or actively negotiating on new workspace to continue to press on with their acquisitions with a view of delaying their lease commencement until early in the new year. As soon as restrictions begin to ease, we expect SME’s to be proactive on returning to the office and continue to be the driving force behind office demand.
Due to the number of larger businesses who have paused relocation plans in Manchester, it could lead to pent up demand once the current restrictions are relaxed, with occupiers continuing to review their occupational requirements against the backdrop of more agile working practices.
Four New Bailey, New Bailey, Salford
We expect to see a recovery at the start of 2021. This is already evident with BT committing to a 175,000 sq ft pre-let at New Bailey. With completion of the building approximately 2-years away, it is a clear indication of occupier’s confidence in the market and the long-term requirement for city centre offices in a post-COVID world.
There remains a healthy pipeline of live requirements with demand coming from a deep pool of indigenous local businesses, supported by potential inward investment to the city on a regional, national and international level. We have already started to see further signs of businesses ‘North Shoring’ and expect this to continue in 2021, with occupiers in the e-commerce, fintech and cyber sectors being attracted by Manchester’s digital and tech talent.