Amazon’s arrival in Manchester shows rising interest in city from national and international businesses

Peter Gallagher, director, national offices at the Manchester office of Colliers International

The decision by online retail powerhouse Amazon to open an office in central Manchester reflects increasing interest in the city by national and international businesses as a strengthening development pipeline eases the shortage of available Grade A office space, according to the latest research by real estate advisors Colliers International.

Amazon will create at least 600 jobs in Manchester by occupying 90,000 sq ft across the six floors of Hanover in NOMA, employing specialists in software development, machine learning and research and development at its first UK corporate office outside of London.

Colliers’ office market update showed that the longstanding imbalance between demand for and supply of Grade A office space in Manchester’s core was finally being addressed.

In the first half of 2018, 400,000 sq ft of new Grade A space was under construction across Manchester.

That total increased in the third quarter to about 1.2m sq ft underway in 10 buildings including Landmark, 125 Deansgate, 11 York Street, 1 and 2 Circle Square and 1 Brazennose Street.

In addition, more space on the edge of the city centre is being delivered at Two New Bailey Square, Riverside House and 100 Embankment.

Peter Gallagher director, national offices at the Manchester office of Colliers and real estate advisor on the 20-acre NOMA development, said: “The exciting emergence from the ground of a number of new Grade A office developments will help to ensure Manchester regains its rightful place on a global stage by being able to offer real choice to national and international occupiers, as witnessed by the recent decision by Amazon to open its first UK corporate office outside of the capital. This type of in-move is not only ground breaking for our scheme at NOMA but also for the city as a whole.”

Colliers reported that media, technology and business services firms were the most prolific acquirers of office space in Manchester in the third quarter of 2018, occupying 361,930 sq ft, or 75 per cent of total take-up in the three-month period with media and technology operators alone taking 63 per cent of available space.

The largest deal involving media and technology in Q3 saw the pre-let of 225,000 sq ft by at St John’s, while other substantial moves included Odeon leasing 26,500 sq ft at 8 First Street, Farm Group pre-letting 22,500 sq ft at the ABC Building and In-Touch Networks taking 22,000 sq ft at 3 Hardman Square.

Colliers’ analysis showed the largest investment transaction of the third quarter of 2018 was the £54.2m purchase of four buildings at Manchester Business Park by Dimah Capital (Kuwait) at a net initial yield of 6.13 per cent. While the second largest transaction involved the acquisition of 76 King Street by Harmsworth Pooled PUT for £18.25m with a 4.85 per cent next initial yield.

In the absence of medium to long-term secure income, investors are acquiring buildings with vacant space at what Colliers’ describes as prime rack rented yields – illustrated by Royal London’s acquisition of 3 Hardman Square, Spinningfields at a net initial yield of 4.10 per cent, moving to five per cent when fully let.

Peter said: “Prime yields in Manchester are between 4.75 per cent and five per cent and have been so for several years. Continued occupational and investor demand and sustained rental growth leads us to believe that prime yields will move in further and capital values will increase through rental growth.”

Overall leasing activity in the first three quarters of 2018 amounted to 1,248,755 sq ft, four per cent up on the 1,212,572 sq ft let in the whole of 2017, including 479,637 sq ft leased in Q3, a 47 per cent increase quarter-on-quarter and an eight per cent rise year-on-year.

Such demand supports recent forecasts of office take-up levels for the whole of 2018 hitting a record high of 1.5m sq ft.