Manchester office market ‘swinging back to landlord’

Diminishing office supply in the city is beginning to generate signs of a recovery in rents and a reduction in incentives, according to Savills.

The office vacancy rate now stands at 11.7%, compared with 12% in the fourth quarter of 2011, with 730,049 sq ft of quality space available.

Savills said tension between restricted development and increasing demand meant 'the pendulum of power [is beginning] to swing back in favour of the landlord.'

Research by Savills found that prime office rents in Manchester currently stand at £30/sq ft following the QBE Insurance letting at Chancery Place, which is a 7.1% increase on the highest rent achieved in 2011.

Patrick Joynson, head of Savills Manchester, said: "There are currently a number of large corporate requirements circulating Manchester's office market, which if progressed, could devour much of the current available office stock. This, combined with a highly restricted development pipeline, will place upward pressure on rents, which we are already seeing in the sub-10,000 sq ft market. We expect this trend to continue over the next two years. Pre-let rents however will continue to remain competitive with the greatest influence on these being down to the cost of building and investment appetite."

Savills said Manchester saw take-up of 176,000 sq ft in Q1 2012, down from 246,000 sq ft in Q4 2011. After a poor year in 2011 Savills said it expected the office market will see a gentle recovery in demand back to average annual take-up levels this year. Mat Oakely, head of commercial research, said: "Manchester remains a diverse market in terms of occupier types and the fact that it doesn't rely too much on either the public sector or banking and finance should ensure that take-up recovers sooner than some other markets."

In terms of Manchester's investment market, Savills reported that prime yields for assets with approximately 15 years security should reach a level of 5.75% to 6%. It also confirmed that the gap between prime and secondary continues to widen and now sits at between 200 and 400 basis points, depending on location.