Savills: H1 office transactions buoyed by foreign funds

Investment in Manchester’s office market totalled £304m in the first half of this year, according to pre-Brexit figures in Savills’ latest office market report, with overseas investors accounting for 70% of transactions.

The figures for the first half of 2016 show an 8% increase on the £282m seen in the same period last year, and 3% higher than the five-year first half average of £295m, said Savills. For the entirety of 2015, office transaction volumes totalled £640m.

In H1 2016, Savills’ research showed that foreign investors spent £212m on Manchester office assets, making up 70% of all deals recorded, and almost double the long term first half average of 37%.

However, the larger deals took place around the first quarter of this year, before uncertainty before and after the EU referendum in June slowed activity.

Transactions included the £85m purchase of XYZ in Spinningfields from Allied London by Germany’s Union Investment Real Estate, and the £115m acquisition of 3 and 4 Piccadilly Place by US-based Ares Management from Carlyle Group, both in March.

Peter Mallinder, investment director at Savills, said: “The outcome of the EU referendum is now sinking in and some office transactions will be inevitably be delayed or renegotiated as investors take stock. However, we expect the increased depth of overseas interest in Manchester to help stabilise the market as foreign buyers take advantage of the weaker sterling and reduced competition.”

Office take-up in the first half was 415,257 sq ft, 37% down on the previous year, but in line with Manchester’s long term average. The third quarter has seen law firm Freshfields committing to circa 80,000 sq ft at English Cities Fund’s One New Bailey in Salford, after first announcing the move at the end of 2015. It is hoped that a number of other leasing deals including to Swinton Insurance at Ask Real Estate’s 101 Embankment are expected to complete in the third quarter, with Savills predicting take-up for the full year will reach one million sq ft. This follows a total of 1.3m sq ft in 2015.

The TMT sector accounted for 21% of all take-up in the first six months of 2016, with deals totalling 85,307 sq ft, compared to 17% of deals in the full year of 2015. In terms of size, more than 51% of office space let in H1 was through deals below 5,000 sq ft, compared to a long term average of 32%, driven in part by the TMT firms and start-ups moving to the city. The largest prime office transaction was Squire Patton Boggs’ acquisition of 28,000 sq ft at Allied London’s No.1 Spinningfields.

Headline rents have risen from £28.50/sq ft in 2010 to £33.50/sq ft in the first half of 2016.

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