CBRE: Manchester shows recovery in office values

Manchester city centre's office market has seen a robust recovery in office values, according to a CB Richard Ellis report.

Within CB Richard Ellis' H1 2010 Manchester Offices Market View, covering the first half of the year, it said £316.7m was invested in the North West office market, which was a substantial increase on the £46m of transactions in the same period last year, within its H1 2009 Market View.

CBRE said the most significant deal to complete was Aerium's £180m purchase of 3 Hardman Street in Spinnigfields from Allied London Properties, reflecting a net initial yield of 6.25%.

Rehan Zaman, associate director in the capital markets team at CB Richard Ellis North West, said: "The market in the first half of the year saw a robust recovery in office values. The recovery in Manchester has been stronger than in other regional cities as vacant space has become so limited, creating scope for real rental growth. Manchester has therefore become the firm favourite for investors seeking office assets outside central London."

In terms of take-up, CBRE expects 2010 to be a record year, with figures set to exceed 1m sq ft for the third time in ten years. CBRE said city centre take-up reached 337,800 sq ft during the first half of the year, compared with 247,000 sq ft in the same period last year, with Grade A take up accounting for 102,500 sq ft, and a further 225,000 sq ft under offer.

With prime city centre Grade A options becoming increasingly limited, the agent estimates that there will be approximately 500,000 sq ft of pre-let demand in the market.

At the end of June this year, CBRE said the total availability in Manchester was 2.5m sq ft, up from 2.4m sq ft twelve months ago. However, although supply remains high by historic standards, CBRE added that second hand space accounts for a significant portion of available accommodation, while the supply of prime new-build city centre Grade A space is beginning to tighten. With no speculative space under construction, CBRE expects that the emerging shortage of new-build stock may act as a catalyst for the next development cycle as occupiers turn to pre-let to satisfy their requirements.

Will Kennon, associate director of office agency at CB Richard Ellis North West, added: "At the end of H1 2010, there was evidence that net effective rents were on the increase for Prime Grade A accommodation, with the market shifting to a shortage of supply for large CBD floorplates.

"However, with the possibility of an unexpected addition of up to 180,000 sq ft returning to the market at 3 Hardman Square, it is likely that this anticipated market shift may be slightly delayed."

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