Savills: Manchester’s office rental growth set to rise

Rental growth in Manchester is expected to move into a more positive territory in 2011, according the latest UK office market report from the real estate advisor.

Savills forecasts that the city, along with Cambridge and the areas around the M25 motorway are set to benefit from significant rental growth, between 5.3% and 6.5% during the next 12 months, as a result of a restricted supply of Grade A space.

Patrick Joynson, director of office agency at Savills in Manchester, said: "With one of the lowest vacancy rates across the UK, Manchester saw rents stabilise during 2010 and landlord incentives started to reduce for the first time in five years. We expect this to continue throughout 2011 with the reduced grade A stock placing upward pressure on rents for the best space. The main question moving forward is where the supply of large new floor plates will come from? The time lag associated with big developments makes it difficult for a market to quickly react to increased demand.

"The public sector austerity will undoubtedly cause some uncertainty in the medium term but those towns and cities dominated by the private sector can expect to see the greatest levels of upward rental pressure."

The research forecasts that headline rents in London and the West End will lead this trend with an increase of 14% and 20% respectively by 2011, again following a shortage of Grade A stock.

Looking at the supply pipeline, Savills reports that current office availability across the majority of the UK fell over the course of 2010 with the average years of supply currently standing at 2.9 years, compared to 3.3 years at the same time in 2009.

In addition, the firm states that the UK office vacancy rate has fallen to 13.3% from its peak of 15.8% in 2009. This, combined with a stagnant development pipeline throughout most locations, will result in a significant shortage of office space from 2011 onwards.

In terms of the office investment market, Savills research indicates that pricing recovered substantially at the beginning of 2010 and while transaction volumes have not yet returned to the larger pre-recession figures, investment levels increased throughout 2010 particularly in Birmingham and Leeds.

Clare Burke, associate director in Savills commercial research team, added: "The majority of office investors remain relatively risk averse focussing on acquiring prime, well secured assets displaying strong property fundamentals. Prime yields hardened throughout 2010 and we have seen some stabilisation over the last six months with current prime yields standing at 6.03%."