Posted 17 September, 2013 OBI BLOG
The summer is over and everyone is gearing up for the busy run in to the end of the year. Often the summer months can be quiet for many involved in commercial property but 2013 has been very different to the past four of five summers.
There has been positive press surrounding the general state of the economy and there is real feeling that we are seeing true green shoots of recovery, putting the recession behind us. Over the course of the past few months, it has been a really busy time for the city centre office market and those who have enjoyed a long break in the sun must be thinking that they have returned at some point in the distant future. Someone has pressed the fast forward button and now we find ourselves in a market short of supply but brimming with large occupier requirements for Grade A space.
There is probably around 600,000 – 800,000 sq ft of live requirements in the market from a range of sectors including financial services, legal and even banking! We are also seeing a number of inward investors and this is extremely positive for the city.
In August we concluded a pre-let on behalf of Allied London at Spinningfields. This will see a new building being developed for MediaCom, Jacobs have finally signed a lease on circa 25,000 sq ft at Ask’s First Street and Barclays look to be making a commitment for circa 80,000 sq ft a 4 Piccadilly Place where Arups are also believed to in legals to take a floor of c 20,000 sq ft in 3 Piccadilly Place. Busy times!
In addition to this there is a group of large occupiers now engaging with developers for new build stock as large existing options are now really limited to 3 Hardman Square (ex Halliwells), 58 Mosley Street (ex Cobbetts) and First Street now the Council are moving out. Argent / GMPVF’s One St Peter’s Square is taking shape and is expected to be completed by the middle of next year, supplying a much needed 200,000 sq ft of available space. The building already has KPMG on the hook but this deal precludes them from courting any other major accountancy firm.
So what options are available for these occupiers seeking large offices in the city centre? Well, on the face of it there are quite a lot actually. However, how many options are serious propositions? Let’s assume a game of ‘top trumps’ for Grade A new build offices – the categories could be: location, developer (track record), aesthetics, floor plate, specification, rent, car parking and deliverability. Developers and their advisors need to be honest with themselves when putting forward their proposition – is it really a prime location or just an average one, is it really £30.00 + psf and can it be delivered without a significant pre-let? Even in the boom years we witnessed a number of schemes being developed in pioneering locations and some of these still have void space 4-5 years on.
We all want growth in the city but there needs to be a sense of realism to avoid the same mistakes being made again. It was interesting to hear one developer using the analogy for a competing scheme “if your clients want to turn up to Old Trafford and watch the game on a big screen in the car park then fine, but let me know if they want to actually come in and watch the action for real”. It was a good way of putting things – the side of a street, some tram lines, or a neighbouring building can make a location “off pitch”.
It is exciting times at St Peter’s Square – there has been a lot of due diligence undertaken in addition to the capital investment made by the city council in the public realm, their refurbished offices and the Central Library. One St Peter’s Square should be successful, hitting the market at the right time and being in a prominent spot with large floor plates. In total there is in excess of 400,000 sq ft of additional space earmarked in the immediate vicinity across three buildings benefitting from various degrees of profile and prominence. Is there scope for all of them? Fred Done is reportedly in bullish mood and 2 St Peter’s Square will be built in the near future, even if it is on a speculative basis.
The rise of Spinningfields’ leisure and retail offer over the past few years has made it the complete package, particularly when considering the existing calibre of office occupiers based on the estate. Interestingly, Allied London are developing two very different office propositions and can deliver new build space on their Hardman Boulevard site at rents nearer the £26.00 psf mark. The proposed new build on the Hardman Square site is stunning and will be their most impressive building yet.
There are also major developments in the pipeline, such as NOMA, New Bailey and Greengate but this surge of occupier activity is probably too early for these longer – term proposals.
The Manchester office market is looking really well -placed. We have seen concessions harden in the refurbished sector, lots of interest in the pre-let market and there has been a surge of acquisitions from new market entrants on the investment side with Benson Elliot, RREEF, WP Carey, Moorfield and Oaktree Capital all making their debuts in the city.
Time to grab the skate board and body warmer – it is going to be a busy time.