Office market exposed by lack of big deals

The latest annual Liverpool Commercial Office Market Review, published by Liverpool Vision and Professional Liverpool, shows a slump in take-up in 2010 due to the paucity of larger lettings.

Here is an extract from the report

Combining the Central Business District and the out-of-town markets reveals total Liverpool office market take-up in 2010 of 393,441 sq ft.

Total Central Business District office take-up in 2010 was 207,515 sq ft.

Grassroots demand showed signs of recovery. In 2010 take-up by occupiers of suites less than 40,000 sq ft in the Central Business District was up by 30.3% compared with 2009.

The creative, media and digital sectors continued to grow rapidly. In the Central Business District the sector out-performed its best year yet, Liverpool's year as European Capital of Culture in 2008. Combining the out-of-town, city fringe and CBD markets shows total take-up from the creative industries of 46,349 sq ft, up 8.9% compared to 2009.

Download the full report below

The creative industries are now responsible for 12% of total take-up across all Liverpool's office markets. One in every eight sq ft of floor space let is to this sector.

2010 saw Liverpool's indigenous corporate sector return to the city centre occupational market, buoyed by exports and by the gentle recovery in the UK manufacturing sector. In total the corporate sector accounted for 92,958 sq ft or 44% of take-up.

A total of 173,178 sq ft of Grade A office space is empty and ready for occupation in Liverpool's CBD. This is consistent with gradual reductions from 221,944 sq ft in 2008.

The supply of Grade A office space in the city fringe and out-of-town markets is falling. A total of 392,497 sq ft of Grade A office space is available and ready for occupation in the out-of-town and city fringe markets, representing 32.3% of supply, a sharp drop from 2009.

Central Business District

Central Business District office take-up in 2010 was 207,515 sq ft, down from 519,274 sq ft in 2009. The 2009 figure – higher than any year since 2005 and the city's best year ever – was an anomaly, as we indicated last year, and makes a poor basis for comparison.

This is because two exceptionally large and long-anticipated deals finally completed in 2009 [UK Border Agency at The Capital and Merseytravel at Mann Island], producing a one-off 360,000 sq ft distortion in short-term trend figures.

A safer basis for comparison is to exclude both of these 2009 deals and to reflect instead on the trends revealed by underlying demand from the wider pool of CBD occupiers.

In 2009 we reported underlying demand of 159,274 sq ft. The 2010 total of 207,515 sq ft represents a significant improvement albeit from a low starting point.

As well as growing, the underlying market has returned to a more normal and encouraging mix of occupier types than we reported in 2009, with both local corporate occupiers and the steadily expanding creative, media and digital sector showing strong signs of growth.

Combining the Central Business District and the out-of-town markets reveals total Liverpool office market take-up in 2010 of 393,441 sq ft. The annual average since 2007 is 625,995 sq ft.

These figures reflect an almost total dearth of transactions in excess of 30,000 sq ft in the Central Business District or out of town.

City fringe

Total city fringe office take-up in 2010 was 53,846 sq ft, down from 70,695 sq ft in 2009. The network of historic terraces and modern conversions close to the city centre continues to prove attractive to creative, media and information technology sector.

However, take-up in 2010 appears to have been influenced by the availability of affordable office space in the Central Business District. As a result, creative industry occupiers accounted for 10,622 sq ft (20% of take-up) compared to 24,016 sq ft (34%) in 2009.

The market for newly-built Grade A office space remains – proportionately – stronger here than in the city centre, and grew yet more dominant in 2010.

We calculate that 44% of take-up (23,957 sq ft) was for Grade A buildings – a substantial increase in floorspace reported in 2009 (15,233 sq ft). This compares with Grade A availability in the city fringe of 90,713 sq ft.

Out-of-town

Out-of-town office markets remained stable in 2010. Office take-up in the business parks of North and South Liverpool, Wavertree and Knowsley totalled 132,080 sq ft in 2010, barely changed from 131,220 sq ft in 2009.

Some sub-markets staged modest recoveries in 2010. The core Liverpool out-of-town markets of South Liverpool and Wavertree saw take-up rise from 70,961 sq ft to 93,987 sq ft as occupiers took advantage of their relative strength to upgrade their offices.

Knowsley's business parks endured a disappointing year; with take-up slumping from 56,899 sq ft to 28,165 sq ft. Analysis of supply in Knowsley suggests a shortage of appealing opportunities may have depressed demand from occupiers.

• Download the Liverpool Commercial Office Market Review 2010