Latest analysis from CBRE, published in its recent UK Office Property Perspective report, highlights solid results for both the North West cities of Manchester and Liverpool despite the timing of the EU referendum. Manchester beat its five-year average by 16% with a bumper final quarter. The city chalked up the highest investment volume of all the key regional cities in 2016, with more than £663 million spent in 30 transactions. Liverpool meanwhile saw a strong take-up in 2016 and erosion of office stock. Both cities show healthy prospects for 2017.
Several key features have dominated the UK market in 2016, which also inform the North West story. Despite the sharp depreciation of sterling, falling roughly 15% since June 2016, regional office markets have proven resilient – across the 10 regional city markets monitored by CBRE, overall take-up was 5.6 million sq ft. Requirements still continue to circulate, so it remains to be seen the extent to which the EU referendum result will dampen down occupier demands in the regional sector.
Despite concerns about Brexit, occupier activity annually, however, appears to have not unduly deterred occupiers from looking for new space or prompting decisions about office moves.
Manchester
The city saw a year of two halves, with a slow start boosted by a strong second half of 2016. Manchester beat its five-year average by 16% with a stand-out final quarter. More than 633,000 sq ft of office space was taken up, the highest quarterly level of take-up since 2010. Key stats for the city in the last half of 2016 include; over 1.3 m sq ft of take-up in H2 2016, availability of circa 2.6m sq ft and prime rent of £34 throughout the year with prime yields at 5%.
John Ogden, MD of CBRE’s North West business said; “Following the vote to leave the EU, there was an increase in the number of office moves, most notably Irwin Mitchell and Swinton Insurance, the latter taking 165,000 sq ft at 101 Embankment.
“Quality supply is very much in demand in Manchester and the completion of newly refurbished product entering the market in 2017 will help provide much-needed stock. Availability rose 13% from the end of 2015. There has been a steady increase of Grade A enquiries, although much of the supply is already pre-let, meaning a shortage of brand new product entering the market”.
A handful of speculative city centre starts are expected in 2017 at 100 Embankment, Landmark, 125 Deansgate, Two New Bailey Square, 11 York Street and Middlewood Locks.
Prime rents were steady at £34.00 per sq ft throughout 2016 and incentives also remained stable. Some headline rents may exceed £35.00 this year.
Colin Thomasson, Executive Director, Capital Markets at CBRE continued; “Manchester chalked up the highest investment volume of all the regional cities in 2016, with more than £663 million spent in 33 transactions. Despite the uncertainty created by the referendum result, volumes were relatively consistent. The largest deal of H2 was the purchase of St Peter’s Square by DEKA for £164m at a yield of 5.25%. After initial Brexit jitters, confidence quickly returned and the market is consistently witnessing investor interest outweighing stock. Prime yields remained static at 5.00% and look set to stay at this level for the first half of 2017. This year looks set to be a relatively stable in price terms, although the market is likely to remain constrained by lack of supply.”
Liverpool
Liverpool’s office market saw another very positive year, with healthy occupier demand. Take-up volume of more than 340,000 sq ft in the CBD was 10% higher than the annual average. The largest proportion of demand came from business and professional services, together accounting for 67% of all take-up activity. Office supply has been falling and the real challenge for the next three years is lack of available stock.
Key stats for H2 2016 in Liverpool were take-up of 341,020 sq ft, availability of just 444,000 sq ft of occupiable Grade A and B Stock, prime rents of £20.5 and prime yield of 6.50%
The stand-out story of 2016 in Liverpool was the HMRC/GPU 240,000 sq ft requirement, likely to go to India Buildings, and a huge shot in the arm for Liverpool city centre. Looking ahead, Peel’s 81,000 sq ft development at 5 Princes Dock is currently the only office scheme with planning permission in the city centre. Liverpool City Council has now confirmed CTP and Kier Property will act as joint venture partners on their proposed 400,000 sq ft Pall Mall development.
In terms of rent, CBRE predicts that incentives will come in rapidly and the market will see further growth in rental levels.
Liverpool’s investment market has been very active compared to recent years. Volumes have risen significantly with around £232m transacting in 2016. Three major buildings on the market, including the iconic Royal Liver building which has now sold for £48m to Luxembourg-based real estate investment manager, Corestate Capital, are attracting strong interest.
On the back of another strong leasing year, CBRE expects to see continued investor interest throughout 2017. Solid demand, along with shortage of available Grade A office space, will be an attractive combination. Supply shortage will put upward pressure on headline rents, driving rental growth. CBRE expects current supply and demand dynamics in the Liverpool office leasing market to boost investor confidence and attract new entrants to the market.
Neil Kirkham, Director of Office Agency at CBRE’s Liverpool office, said; “To surpass the ten year take-up average in 2016 was a really positive step for Liverpool’s office market and we have already started to see upward pressure on headline rents and incentives reducing through the diminishing supply of quality stock in the market, accompanied by improved demand. With no sign of speculative development and little opportunity for large-scale refurbishment projects, we are anticipating incentives to reduce further and rental levels to grow throughout the year.”
