Q2 Market Update – OBI secure 82% of leasing activity across subdued quarter

As anticipated, the impacts of COVID-19 on the Manchester office market were realised in the second quarter of 2020 with many businesses temporarily pausing their office relocations. However, despite office take up figures being subdued at 72,357 sq ft and 20 transactions, taking into account the unprecedented economic backdrop, Manchester still performed better than anticipated and outperformed other regional cities.

Throughout the previous quarter, OBI remained active having been responsible for 82% of all space transacted on a leasehold basis in the city. We avoided furloughing any of the team which paid dividends as we were involved in all of the significant transactions which completed in the quarter including international law firm CMS’s 18,000 sq ft deal at 1 The Avenue, Spinningfields which saw the firm expand its Manchester presence by 40% during lockdown.

 

Other significant transactions included Ashfield Health leasing 9,059 sq ft at Schroders owned City Tower.

Prior to the developments surrounding the outbreak of COVID-19, a trend was already emerging where occupiers were prioritising suites, which offered minimal upfront capital expenditure, speed and ease of access, transparency of occupational costs and flexibility in lease terms. This occupier trend has accelerated during Q2 2020 with 50% of suites leased during this period containing an element of fit out.

Historically, demand for fitted out solutions has been on smaller suite sizes, primarily sub-2,500 sq ft. However, post lockdown, larger businesses will also seek to be nimbler in their approach to real estate. This shift is evidenced by the transactions OBI completed to IntelliCentrics and Ageas at 55 Spring Gardens which were all fully fitted offices above 7,000 sq ft. Within the previous quarter, we completed the only transaction above 10,000 sq ft where Trusted Mortgages took 14,172 sq ft at Cardinal House.

Headline rents continue to be resilient with 83% of transactions completing at a headline rent of £20.00 psf and above; an increase from 73% of transactions in Q1 2020. In the third quarter, a deal has already exchanged that will represent a record rent for the city, further illustrating the city’s resilience.

As the lockdown restrictions have started to ease much of the demand is being driven by primarily smaller, homegrown agile businesses who have the ability to control their own real estate strategies and can make swift decisions locally.

We have seen a shift in sentiment with these locally owned businesses and stakeholders seeking to reoccupy their offices and kickstart the local economy. This was supported by OBI’s recent survey of our extensive occupier client base which illustrated the value businesses place on the office and their long-term commitment to the city. 100% of the respondents said that social interaction and collaboration were the main elements they missed most about the workplace and only 5% were seeking to work remotely full time.

We anticipate that September will be a turning point and the market will rebound robustly with demand being driven by occupiers seeking fitted out and flexible solutions while they continue to review their true footprint requirements as a result of blended working.