CBRE: Manchester prime office yields contract

Just ten office investment sales were completed in Manchester city centre in the first half of 2009, according to CB Richard Ellis.

The total spent on office assets was £46m during the period, the largest deal Vision Developments' move for 53 King Street for £5.75m reflecting a yield of 11%.

CBRE said prime yields for Manchester increased by 50 basis points to reach 7.50% during the first quarter of 2009 but are now improving for the absolute best stock let on very strong lease terms. This is the first contraction of prime yields since mid-2006.

Simon Wood, director of investment at CBRE, said: "Although transaction levels are still low, there has been a noticeable improvement in investor sentiment. However, this has failed to translate into actual transactions during the first half of the year due to a lack of investment opportunities on the market.

"Owners of prime stock are reluctant to sell because a large proportion of buildings were only bought within the past two years while owners of secondary stock are unwilling to sell at a loss following the decrease in values over the past 18 months."

Wood added: "Since the peak in 2007, capital values for North West offices have fallen by 32.3%. Yields on secondary buildings in particular have been hit hard as investors have become increasingly concerned over the risk-profile of tenants in this challenging economy. However, there are signs that this caution may be easing in the city centre as we have seen two buildings with high-void rates that have been transacted."

More than £70m was transacted on office building sales in Manchester city centre in the last month of 2008 with buyers from both the UK and German Funds.

Wood said similar activity was likely from this type of buyer as well as cash rich private investors through the remainder of the year.