Manchester city centre office take-up last year had fallen 3% below the five-year annual average of 855,000 sq ft to 830,000 sq ft, according to a CBRE report.
Within CB Richard Ellis' 2009 Office Market Review it said demand for Grade A space during the year was significantly above average, with a total of 400,000 sq ft of lettings. At the end of 2009, availability in the city centre stood at 2.5m sq ft, up from 1.7m sq ft in 2008.
Prime rent in Manchester continues to be £28.50/sq ft although occupational costs increased during 2009 as a result of a reduction in rent-free periods from five years on 15-year leases at the start of the year to approximately three and a half to four years at the end of December. CBRE expects the prime rents to remain at £28.50/sq ft for the remainder of 2010 and for incentive packages to continue decreasing on prime new build accommodation.
Will Kennon, associate director of office agency at CBRE, said: "2009 was a good year for the North West occupational market, with robust demand and take-up in Manchester city centre from both private and public sectors. 2010 will see only 30,000 sq ft of uncommitted new build Grade A accommodation complete in Manchester city centre but demand remains positive for good quality stock.
"Accordingly Grade A supply which currently stands as 565,000 sq ft, equivalent to 18 months Grade A take-up, will further diminish throughout 2009 due the fact that there is no additional speculative development scheduled to begin in 2010 and we are likely to witness a shortage of prime office accommodation by 2011."
CBRE said investment in the North West office market in 2009 was £203.4m across 24 transactions, compared with £233.9m over 30 transactions in 2008. Prime assets did not come to the market due to significantly depressed capital values in the early part of 2009. A significant improvement in investor sentiment in the second half of the year pushed Manchester prime yields down to approximately 5.75% at the end of the year.
Simon Wood, senior director of capital markets at CBRE, added: "As a result of the sharp increase in capital values in the second half of 2009, healthy performance in the occupational market and an increase in investor appetite, we expect investment activity to improve during 2010."