An increasing number of pre-let office deals in Manchester and Salford during 2018 provided further evidence of increasing pressure on the market, according to the Manchester Office Market Overview 2018 by real estate advisors Colliers International.
In the past 12 months the two cities witnessed a rise in pre-let transactions as potential occupiers moved to secure Grade A space in a market characterised by a longstanding imbalance between demand for and supply of prime office locations.
Among the major pre-lets of buildings yet to be started and those in construction during 2018 were:
- 225,000 sq ft to Booking.com at The Goods Yard, St John’s;
- 157,000 sq ft to GPU Government Hub at Three New Bailey, Salford;
- 89,500 sq ft at Hanover, NOMA to Amazon;
- 22,500 sq ft at the ABC Building currently under refurbishment to Farm Group;
- 45,000 sq ft at Two New Bailey, Salford to Eversheds Sutherland;
- 53,839 sq ft at First Street, to WSP;
- 26,500 sq ft at 8 First Street to Odeon.
While there is 196,202 sq ft of ‘ready to occupy’ Grade A office space in eight, of which 39,000 sq ft is under offer, the imbalance between supply and demand will be redressed by a 1.191m sq ft pipeline of new ‘in build’ Grade A office space in nine new buildings, of which 441,000 sq ft is due to be delivered over the next year.
The nine new ‘in build’ buildings and their completion dates are Landmark, St Peter’s Square (third quarter 2019), 125 Deansgate (mid 2019), Two New Bailey Square, Salford (fourth quarter 2019), 100 Embankment, Salford (second quarter 2020), 1 and 2 Circle Square (second quarter 2020 and second/third quarter 2020 respectively), 1 Brazennose Street (fourth quarter 2021), Riverside House, New Bailey (fourth quarter 2019) and 11 York Street (second quarter 2020).
Peter Gallagher, director, national offices at the Manchester office of Colliers International and real estate advisor on the 20-acre NOMA development, said: “While Manchester has been suffering growing pains for several years with demand from potential occupiers for Grade A office space outstripping what’s available, we expect to see the ongoing renaissance of the city pick up pace as a strong pipeline of prime locations complete during 2019 and into 2020.
“There are a number of large city centre requirements in the market place and in 2019 we expect to make presentation pitches to more than 750,000 sq ft of large occupations, to be occupied between late 2019 and 2022.”
Peter added that other ‘planned’ new developments for estimated completion in 2022 were becoming evident.
Colliers’ research also showed that proactive landlords of Grade B office space had exploited the lack of Grade A accommodation by offering refurbished and remodelled buildings. This activity caused Grade B rents to rise to £27.50 per sq ft and consequently impacted on Grade A rental levels reaching £36/£37 per sq ft.
Key Grade B office deals included Lloyds Bank taking 39,418 sq ft at 11 Portland Street, Key Travel leasing 18,928 sq ft at St James, Manchester City Council occupying 33,233 sq ft at 1 City Road East and WeWork leasing 76,174 sq ft at Dalton Place.
Colliers’ recorded a full year total of 314 deals for a record 1,750,276 sq ft of office space across Manchester and Salford.
Despite the persistent and ongoing uncertainty about Brexit, Peter said investor demand for prime let stock in Manchester remained ‘buoyant and diverse’ – attracting most capital from UK and European funds and overseas investors still ‘circling’ major regional centres including Manchester.
There had been a ‘step change’ in investors’ thinking about committing funds to Manchester because the city had matured as a global investment proposition, with the availability of office stock being the only factor holding back trading volumes.