More than 2 million sq ft of office space was taken up in Manchester for the sixth year running in 2019, an extraordinary 12% more than the ten-year average according to figures released in Avison Young’s latest Big Nine report.
The figures totalled 2.36 million sq ft across the city centre and out of town markets with flexible workspace remaining a dominant trend in 2019. A healthy 15% of lettings were secured in this sector during the year, and it is predicted to remain one of real estate’s hottest growth areas in 2020.
However, it was the legal sector that led Manchester take-up activity in Q4 of last year. The largest city centre deal was BLM’s 70,800 sq ft letting at Two New Bailey Square, while Willis Towers Watson and Mills & Reeves took 11,590 sq ft at No 8 First Street and 10,200 sq ft at Circle Square, respectively.
In the out of town market, the stand-out deal was web security firm, Portswigger’s 62,000 sq ft letting at Booths Park in Knutsford.
Chris Cheap, principal and managing director of UK regions at Avison Young, has analysed the figures and looking forward to the year ahead, he said: “Hearing about the outstanding performance of the central Manchester office market has become a January standard over the past five years or so. We know the market is strong, has great depth and unique cross sector appeal but what will 2020 bring?
“The flexible workspace sector has flourished as the major operators flooded the market last year. As things stand, the drawbridge seems to have been pulled up in this arena, as the likes of IWG and WeWork place an indefinite hold on new acquisitions.
“This potential void is likely to be filled by large corporate ‘hub’ consolidations in the communications, public and financial services sectors. The central Manchester market will continue to forge new fronts in terms of geographical growth to accommodate these major requirements, especially to the east and north east of the city centre, where significant projects are planned. These will need their own self-sustaining infrastructure and along with residential development will create new communities.
“The biggest theme of the year is likely to be rental growth in the prime sector though, as Manchester will potentially break through the £40 per sq ft per annum ceiling. This growth is underpinned by an occupational market that is prepared to pay higher rents for office space that supports talent acquisition and retention and allows a business to express its personality. There will remain a healthy spectrum of rents to meet all types of demand in terms of design and specification requirements.
“I absolutely believe that we will still be celebrating success next January, however looking back on some significant and positive dynamic changes in the marketplace.”
As referenced in Avison Young’s 2020 Forecast report, flexible offerings currently account for 5% of space across most major office markets and this is set to increase to 15-30% over the next ten years. So, it is unsurprising that Manchester has performed so strongly in this sector over the course of 2019. For this year though, we expect both established landlords and flexible workspace operators to offer a range of managed agreements to occupiers who are seeking both flexibility and cost certainty.
On the whole, the UK’s office investment volume was down 2% on the ten year quarterly average and Manchester too recorded lower figures than in previous years. However, with £105 million invested, it was still the second highest performing city of the Big Nine cities, with Birmingham coming out on top.
Looking ahead to the rest of 2020, indications are that the magnitude of office transactions in the Manchester market is expected to continue and the investment market is predicted to return to form, with many assets earmarked for sale this year.
“There are still some large requirements in the market and occupiers have an extensive choice of speculative space coming forward this year,” added Chris. “There is currently 1.48 million sq ft under construction across Manchester, with 500,000 completing in 2020 and we’ve not reached saturation point yet. There is still demand in the market for quality space and occupiers are prepared to pay a premium for it.”
Prime rents are currently at £36.50 per sq ft, with remaining space at One Spinningfields near £38 per sq ft.
Avison Young’s Big Nine report analyses office trends in largest cities outside of London, including Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester and Newcastle.
Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its Principals. Founded in 1978, with legacies dating back more than 200 years, the company comprises approximately 5,000 real estate professionals in 120 offices in 20 countries. The firm’s experts provide value-added, client-centric investment sales, leasing, advisory, management and financing services to clients across the office, retail, industrial, multi-family and hospitality sectors.
