Opportunity knocks in the regional office market
As the most active region outside of London, Manchester’s office market is on a roll. Continued investment by national and international funds as well as new market entrants are fuelling demand as they seek to achieve greater returns compared with the capital.
According to the Manchester Office Agents Forum (MOAF) take up in Manchester in 2017 hit 1.2 million sq ft and 2018 looks set to show similar numbers. During the first quarter of 2018, take-up more than doubled compared to the same period last year reaching 442,083 sq ft. This activity has seen prime headline rents reach £35psf and prime yields stand at sub five per cent, seemingly unaffected by any Brexit wobbles.
But behind these numbers is a dwindling supply of Grade A space, which is likely to all be absorbed within the next 12 months. The new build pipeline is drying up too with no development planned until late 2019 when 125 Deansgate, 11 York Street (40 Fountain Street) and Landmark are scheduled to complete.
With this lack of supply unlikely to change in the foreseeable future, the market is beginning to shift and that’s creating opportunities in the surrounding regions.
The shortage of Grade A space is so acute in the city centre that occupiers will have to cast their net wider in terms of location.
This trend is seeing areas such as Salford Quays and around Manchester airport attract a growing number of businesses as the rents are lower, but the quality of the space is still high. Atlas Business Park at Manchester Airport is a case in point. We’re asset managing it on behalf of Aviva and have already secured approximately 40,000 sq ft prior to launching the scheme to the open market.
The impact of the city-centre space shortage is also filtering down to smaller towns which have previously seen limited office take up. In Denton, East Manchester, we have recently let a 6,000 sq ft office building in a scheme called Orbital 24 within just six months in line with a spike in demand for higher-quality office space in the area. In Hale, we have just re-geared two leases at our Westgate office scheme achieving record rents of £24 psf.
There is also a growing demand for refurbished office space. Developers are already responding to this by investing in their Grade B stock, upgrading it to high standards and ensuring it can attract a broader range of businesses, especially in out-of-town locations. This includes a focus on futureproofing buildings in line with the ever changing world of work.
The flexible working sector is expanding rapidly with co-working space taking an increasingly larger slice of the office market. Tenants are demanding better connectivity, more amenities shorter leases, and a greater use of technology. Landlords will need to ensure that they can accommodate these needs now and in the future to ensure tenancies are sustainable – both in the regions and city centre.
As the fight for space continues in Manchester city centre, both developers and occupiers should be keeping a closer eye on the regional office market. While new build development remains far away, opportunities are opening up for those willing to broaden their investments, futureproof their buildings, and consider an office location that could be much closer to home.
Rob Peill is Head of Offices at Alliance