This year saw several hefty transactions as institutional money moved up from London to Manchester, a trend that will continue into 2015, writes Matthew Stretton, investment partner at Cushman & Wakefield.
After the stellar performance of the prime Manchester city centre office market where, including deals reported to be under offer, the annual figure is likely to exceed £1bn of transactions, it is anticipated that with the weight of money seeking to find a home, the market will continue unabated particularly in Q1 and into the beginning of Q2.
The General Election next May is likely to take some steam out of the market but with interest rates unlikely to change markedly even with a change of Government, I believe that prime yields will hover around 5%. The difficulty is the lack of available stock given that a significant number of prime buildings including five in Spinningfields have – or are about to be – traded over the past 12 months.
As a consequence of the lack of prime stock, I foresee speculative funding playing a larger part in 2015 particularly where there is a pre-let element to schemes. No new office schemes will be delivered to the market in 2015 which should help drive prime rentals to in excess of £31.50/sq ft and help reduce tenant's incentives.
Time will tell how many of the city centre development sites will be brought forward, although if occupier demand continues to grow at similar levels, we are likely to see up to 1 million sq ft being committed over the next few years.
2014 has been quiet on the investment side for Salford Quays with no notable transactions. The occupational market is improving as evidenced by Media City where there is now limited stock available. We anticipate the market picking up and deals are likely to happen in 2015.
There has been reasonable activity at the smaller end of the market with deals in and around Cheadle Royal and Altrincham. However, there have been no larger deals. We anticipate that this is likely to change in the near future as money seeking to be deployed in the city centre will need to look further afield.
I believe 2015 will be the year when we see strong rental growth in the industrial sector. Rental growth is generally only seen in moderation in this sector, although the Midlands has already seen strong growth over the latter part of 2014 and similar growth is likely to take place in 2015 within the North West. The lack of new build distribution units available in the North West, is likely to create some speculative development in 2015, as there is the occupational demand to support this.
Investment supply has been limited in the industrial sector compared to city centre offices, although this is likely to improve as opportunistic investors take advantage of the weight of money. Loan sales will remain an important source of additional product. Secondary sales are also now increasing as a result of previous loan portfolio sales, where investors are now taking forward their business plan with an active sales programme.