Keppie: Liverpool office market needs fundamental change
Office rents in central Liverpool must increase by at least 20%, from £21/sq ft to £25/sq ft, to encourage investors to replenish the stock of quality new space, according to experienced office agent Stuart Keppie.
Stuart Keppie, a founding partner at independent surveying practice Keppie Massie, also believes plans by Liverpool City Council to build new offices in Pall Mall won’t be enough to satisfy demand for quality office space among professional users as he highlighted the increasing shortage of decent refurbished space available to tenants in the city.
He was responding to the 12th annual Liverpool City Region Commercial Office Review, which is a barometer of the commercial property market, prepared by office agents from the Professional Liverpool Property Group, supported by Professional Liverpool, Commercial District BID and Liverpool Vision.
Whilst it shows demand for office space in Liverpool’s commercial business district was up 13% on 2015, it highlighted a dramatic fall in top quality grade A office space, which is vital to attract big employers. The report shows there is just over 50,000 sq ft of vacant Grade A space available, which is down from 91,869 sq ft in 2015.
Keppie said: “Worryingly, there is no new-build in the pipeline, other than Peel’s proposed 85,000 sq ft build at Princes Dock, and no scheduled refurbishments. We need to have that quality stock, and we haven’t got it.”
He said rental prices will have to increase in order to encourage developers to build new high quality office stock: “Rental levels need to be over £25/sq ft, compared with the current highest level achieved of around £21/sq ft, which has been static for a while.”
Liverpool City Council is planning to develop new office space in Pall Mall, but Keppie doubts this would satisfy current requirements, or that its location would tempt a sufficient range of new tenants. He explained: “The new build on Pall Mall won’t be available until at least 2019, and currently it would be regarded in the market and by professional users, as ‘off pitch’. It might be extending the core, but it’s not the main nub of the commercial business district and we don’t just need that one scheme, there’s a wider picture here. Viability is the key and rents need to rise for there to be an improvement and expansion in the stock.”
Keppie also believes there is a continued need for incentive schemes to support landlords as the office market has been skewed by the European grant regime that has been in place for the past 35 years which has now been heavily restricted. He went on: “There have been massive rent-free offers for up to 40% of the duration of a lease in some cases which has also acted as a deterrent to investing in Liverpool’s office market. This has also been seen in Manchester, but has been reined in recently, and this needs to happen in Liverpool.”
By comparison, Manchester’s prime rents are £34/sq ft according to recent figures from CBRE and the pipeline of new office developments underway or proposed is much stronger.
Keppie said a fundamental change is needed to retain big corporate players, such as lawyers, accountants, and bankers, in the Liverpool core.
He added: “Liverpool has been weaning itself off the grant culture, but to encourage investors and developers to generate good quality office space there needs to be a serious initiative to support the local market if we are to avoid the risk of losing established occupiers looking to expand and upgrade in the market, quite apart from attracting new companies to the area.”
Another factor reducing office space in the city has been the conversion of commercial stock to either residential or hotel use.
“Too much stock has been taken out of the market for alternative use, like residential or hotels, such as 2 Moorfields, or more recently, Reliance House.
“We have lost an awful lot to residential and hotels, which may never be retrieved due to the multiple investor participation that has been used as a model, where properties are being sold off to investors in units. This is also affecting opportunities to refurbish and upgrade older office stock to bring space back to the market,” he said.
This is illustrated by the Liverpool property sector’s own ‘Cannes Do’ event, which attracts around 600 people and follows the annual global MIPIM property show on the French Riviera, which is due to be held next week.
Keppie said: “The Cannes Do was always held in refurbished or new office space, ready for occupancy, as a showcase for the market.
“Now there’s no such space, and last year, and again this year, it has had to be held in the Titanic Hotel to accommodate the numbers.”