JLL reaffirms Manchester office shortage
Manchester has a lower proportion of vacant quality office space than its regional rival cities, according to research from Jones Lang LaSalle.
JLL compared the markets in Manchester, Birmingham, Bristol, Edinburgh, Glasgow, and Leeds. Manchester's quality office portfolio has a 2.8% vacancy rate, compared to an average for the six cities of 3.1%. JLL said quality – or Grade A – offices in the city will run out by 2014. As has been stated throughout the downturn, new building will be led by pre-lets and there are limited Grade A options for larger occupiers.
Chris Mulcahy, director of Jones Lang LaSalle's Manchester offices team, said: "Manchester needs major national and international relocations to fuel its economy and these historically work on a short leadtime. Currently we only have two sizeable Grade A buildings in 4 Piccadilly Place at 110,000 sq ft and the former Halliwells' building in Spinningfields at 180,000 sq ft to offer this market. However, we have construction well under way at the Co-operative Group's new 320,000 sq ft HQ office due to complete this year and the speculative element of 200,000 sq ft at Argent's One St Peter's Square following the pre-let to KPMG which will deliver much needed Grade A space to the city.
"2012 and 2013 will see a period of pre-lets for Manchester and the conurbations and we anticipate this will continue for the next few years.
"Only six new office schemes started speculatively last year across the Big Six cities with just 600,000 sq ft currently under construction. New construction is typically only happening when there is a pre-let in place. These remain rare and difficult with only five pre-lets agreed across the Big Six markets in the last 24 months."
Mulcahy added: "Although some inward investors like Aegis at Bruntwood's City Tower will be satisfied by the provision of good quality secondary space which is well located, others will seek high profile Grade A buildings. Other cities can provide this, either in the UK or Europe, so the city may lose out.
"Looking ahead optimistically, there are some notable indigenous requirements for Grade A space which are driven by lease expiries, including Bupa who are seeking 140,000 sq ft and law firm Pannone with a requirement for 80,000 sq ft. We know that 60% of occupier take up in the Big Six markets last year was driven by lease breaks or expiries and this will continue to be a significant driver of demand.
"Of course, supply-side constraints will continue to support prime rents for the best quality available space which stabilised in Quarter 3 last year at £30/sq ft with generous incentives remaining."
He concluded: "Due to the reduction in Grade A supply this is a market where good quality Grade B refurbishments can prosper. Occupier trends are showing they wish to use their space more efficiently and reduce costs and provided the space is well located, configured and specified landlords of this type of space will feel the benefit."