The chronic shortage of Grade A office space in central Manchester will cause headline rents in the city to rise to £40 per square foot before 2019, according to real estate advisors Colliers International.
The firm itself set a headline rent of £34 per sq ft in 2015 with its move from No 1 Marsden Street to Chancery Place and is now forecasting that the continuing lack of ready to occupy Grade A space will only increase upward pressure on rental levels.
Peter Gallagher, director, national offices at the Manchester office of Colliers International, said: “The top rent in the city centre at the end of 2015 was established at £34 per sq ft, with £35 per sq ft now achieved in isolated instances and being sought as an asking rent in a number of other locations.
“We expect prime Grade A city centre office rents to have fully reached £35-plus by mid-2016 and £40 per sq ft by the end of 2018.”
With annual rental growth in Manchester standing at about 3 per cent since the late 1990s, Manchester is set to show the strongest rental growth of the so-called ‘big six’ regional cities in the UK over the next five years.
In its Manchester Office Research and Forecast Report for Q1 2016, Colliers repeats its warning from earlier this year that the current level of Grade A office take-up and the completion of lease transactions under offer, will leave Manchester with an unprecedented absence of ready to occupy Grade A space from mid-2016 until the third quarter of 2017.
Another key consequence of the shortage of space is the impact on prime office yields in central Manchester – currently at 4.75 per cent and expected to tighten further over the coming 12 months, says Colliers.
Q1 2016 saw almost 200,000 sq ft of city centre office space being let in 50 deals with the prospect of several large size occupations being completed by the half year.
There is currently a total of 200,092 sq ft of existing Grade A office space available in the city centre including 95,369 sq ft at 1 St Peter’s Square and 75,000 sq ft of five to 10-year-old Grade A offices to let at 40 Spring Gardens and 3 Hardman Street and 3 Hardman Square in Spinningfields.
The need for occupiers to plan ahead to reserve new space under construction or ‘in-build’ has caused the emergence of a ‘true pre-let’ market in Manchester – for example, Global Radio, law firm Shoosmiths and cyber security consultancy NCC Group all secured lettings in the XYZ Building in Spinningfields and law firm Squire Patton Boggs is in legals to take 27,500 sq ft in the building.
Of 1.062m sq ft of Grade A office space currently being built, in excess of one third or 418,000 sq ft is already pre-let or let during construction, leaving some 643,470 sq ft available in five buildings – 101 Embankment, 2 St Peter’s Square, 1 Spinningfields, One New Bailey and #8 First Street.
Peter added: “As a result of activity in 2015 and other deals known to be in the pipeline, we expect 100 per cent of the currently ‘in-build’ Grade A stock to be let before practical completion, fuelling the establishment of a fully-fledged, large space pre-let market.
“Although there is a total of 1.395 million sq ft of consented schemes it’s expected that a lack of readiness/funding will result in only a limited race to speculatively bring space to the market. In Manchester city centre we expect this to comprise less than half of the total consented schemes, resulting in a continuing shortage of Grade A office supply.”
