Over-supply threatens Manchester office market

Economic uncertainty continues to delay deals in Manchester's city centre office market, raising fears of over-supply, according to Lambert Smith Hampton's latest research.

LSH said demand for high-quality Grade A new offices in Manchester is strong but the market must wait to see if indigenous enquiries of 440,000 sq ft are satisfied as the UK outlook remains mirky.

Peter Skelton, head of office at LSH Manchester, said: "It remains to be seen whether or not local professional firms seeking new offices will decide to put plans on hold in the current economic conditions. We are finding that the circumstances mean many potential moves are being delayed or plans changed altogether."

Take up in the city centre is expected to be similar to the last two years, with the final figure likely to be 850,000 sq ft by the end of the year, regardless of what happens to outstanding requirements. New Grade A buildings already completed are benefiting from limited competition, says LSH, although next year the supply of completed Grade A buildings will reach 1.1m sq ft.

Despite the overall healthy levels predicted for 2007 there have been few large deals; instead a batch of 20,000 sq ft to 30,000 sq ft deals dominates the top of the take-up list, such as the recent completions of Regus and Pinsent Mason at Spinningfields.

Skelton added: "Rents for new build Grade A large floorplates have levelled at £28.50/sq ft and looking ahead, the amount of new supply coming on the market is likely to weaken the growth in prime office rental levels. Tenants will be in a position to negotiate generous packages for a minimum ten year lease term."

Levels of activity in South Manchester are improving gradually, LSH said in an accompanying report on the out-of-town market, with the speculative new build freehold market remaining active.

South Manchester is still over-supplied with around 2m sq ft of space available. More than 25% of this is Grade A space, mainly in speculatively built offices, some of which have stood empty for several years. However, the speculative new build freehold market remains active, with new schemes from Muse Developments at Oakfield, Cheadle Royal and a joint venture between Property Alliance and Royal London at Hercules Business Park, Stockport. Freehold values have increased this year, with £230/sq ft achieved at Cheadle Royal.