As new developments start to come online and headline rents begin to rise again, Place North West and partners held an event to take the pulse of the office market across the region, attended by more than 100 people.
Following Schroders' purchase of City Tower from Bruntwood for £132m earlier this year, the asset manager hosted the event on the 28th floor of the Manchester office tower with views across the city.
Offices NW was sponsored by Colliers International, Schroders and Hill Dickinson, with speakers from Colliers, Auto Trader and Sheppard Robson giving landlord, advisor, occupier and architect perspectives.
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Speaking on his first day in his new role at Colliers, Jonathan Mills, head of investment, led the proceedings with an overview of client Schroders' decision to spend more than £100m on one regional asset. Mills is a key advisor to Schroders.
"Schroders exited the Manchester market a few years ago, but they're on their way back with a whole new team," he said. "They took a helicopter view – there are low void rates in the city, it is recognised nationally and internationally by investors, and headline rents look likely to hit £32.50/sq ft plus by the end of the year. When you're a fund, you want to add significant value to an asset, and there are very few buildings like this outside of London. City Tower is 12% void, is in a prime location but current rents of £17/sq ft do not reflect that."
While other regional cities are on the up, Manchester is still the one to watch, according to Mills. "Leeds and Birmingham are on the radar in terms of the industrial and office market, but Manchester will remain at the forefront."
Giving an overview of the current dynamic of occupiers and investors, Michael Hawkins, partner and head of office agency at Colliers, echoed that view. "From the overheating of London we are seeing a displacement of traditional investors towards the North West," he said. However, he gave Manchester City Council the credit for creating a stable environment in which to do the deals.
"The last seven years have been unprecedented. Businesses were looking at redundancies of up to 15%, but couldn't offload the accommodation. Now, there is rising take-up, but minimal product supply. For investors, we are seeing prime yield of 4.5% and 5.25%, which some see as aggressive pricing, but only if you consider it in the context of a provincial market. Manchester is a truly international city, and the prices need to reflect that.
"Incentives for occupiers are reducing, but you don't need incentives for a well-designed quality building. Incentives are used to hide the flaws."
While Manchester appears to be well into a new development cycle, encouraged by the low office supply, Hawkins warned occupiers against rushing into signing for a new-build office. "New developments come with a huge health warning. You can't develop a building without extensive due diligence, right to light rules etc, and in many cases developers are not doing the groundwork properly and can't actually bring forward a building. New developments are a very distinct asset class."
However, Hawkins did highlight some of the schemes occupiers could feel confident with, "brought forward by established players, as products allowing existing Manchester businesses to expand – such as 2 St Peter's Square, 24 Mount Street and NOMA."
Alison Ross, operations director at Auto Trader, took to the stage to give an overview of why the company decided to relocate 600 of its employees from disparate locations across the region into one Manchester city centre office – No. 1 First Street.
The move was linked to Auto Trader's transition from magazine publisher to solely online, with all revenue transferred from print to digital over the last decade. Ceasing its print output had led to Auto Trader contracting its offices from 39 in 2002 to 10 by January 2014. The main office was in Newton-le-Willows, which Ross said was hard to get visitors out to, and an increase in home-working habits had left many of the offices largely empty.
"We needed to relocate to a large floor plate to enable collaboration through colocation," said Ross. "We decided we were more 'Cornerhouse' than 'Spinningfields', which led to our decision to go to First Street."
Consultation with Auto Trader's employees revealed a commuter increase of 30 minutes for 90% of people, however according to Ross the company decided to remain resolute in the move, as it was seen by directors as extremely important to the firm's future growth.
"We originally thought home-working would be the answer to our property problems, but creating good tech meant we needed to be working in one place.
"We feel like a different business now," said Ross. "The staff have said that it was all worth it – we now feel like we're part of something greater."
Joining the speakers for a panel discussion was Tony O'Brien, partner in architecture practice Sheppard Robson, which has been appointed by Schroders to advise on City Tower. Topics covered included predictions of the state of the market in 2050, the trend away from home-working, the dynamic between Liverpool and Manchester and the rise of the telecomm, media and technology sector.
One of the main drivers in the current office market is this change in working practices. According to Mills, "productivity is key, it's not about clocking in and clocking out", and Hawkins agreed: "If the recession taught us anything, it's that successful companies work as a team. We need to bring people together in a vibrant working environment."
While TMT was leading the way in demand for modern, flexible office space, asset managers should avoid just seeing the growing sector as an easy win, according to O'Brien. "You still need to make what you do strategically viable – you can't just give buildings a lick of paint, get in a TMT occupier and charge £25/sq ft."
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