Lambert Smith Hampton’s (LSH) latest Northern Powerhouse Office Market Report has revealed 2017 to be a record year for the North, indicating that its economy is thriving against an incredibly challenging political backdrop.
The property consultancy’s research, launched this week, shows that office take-up for the year is on track to reach a record level of 5.2m sq ft for 2017 – 26% above the ten-year average.
Among other key findings published in the report:
- The first three quarters of 2017 witnessed almost 1,000 deals across the North’s eight key markets, up 13% on the same period of 2016;
- SMEs continue to dominate office letting activity, accounting for 82% of transactions, while the public sector underpins volume;
- Improving confidence spurs investment volume, with Q3 2017 among the strongest quarters on record;
- Prime yields are back under pressure following EU Referendum blip.
- While Leeds and Salford Quays were the only locations to record an increase in prime headline rents during 2017, Manchester, Sheffield, Newcastle and Warrington are expected to see growth over the coming months.
The vibrancy of the region’s office markets is reflective of a number of landmark deals in 2017, including the Government Property Unit taking 378,000 sq ft at Wellington Place in Leeds and 270,000 sq ft at India Buildings in Liverpool, as well as Warrington Council’s £200m purchase of Birchwood Park in Warrington. The report also shows that the diversity of the region’s economic capabilities, with employment high across the North in areas such as professional services, public sector, technology and media, and science and engineering.
But, with demand for office space shown to be increasing, more development will be needed to keep up, LSH warns.
Total availability since the start of 2017 has contracted by 12% and several locations, including Manchester city centre, South Manchester, Newcastle city centre and Sheffield, now possess supply at record or near-record lows. Speculative development is also markedly down from where it was a few years ago, with just 800,000 sq ft (net of pre-lets) under construction at the end of Q3, a fall of 55% from its peak in 2014.
This contraction in supply has prompted a steep increase in rental levels for existing space in some markets and is boosting the case for refurbishment.
Speaking ahead of the launch of the report, Northern Powerhouse Minister Jake Berry MP said:
“Lambert Smith Hampton’s report clearly shows the strength and diversity of the Northern Powerhouse economy. More importantly, it reinforces the role that SMEs and other high growth industries play alongside the major corporates and institutions, in instilling a sense of confidence within the commercial property market; a factor which is fundamental to the long-term growth of the regional economy.”
Oliver du Sautoy, Head of Research at LSH, commented:
“While 2017 will be a tough act to follow, healthy levels of active demand and an analysis of forthcoming lease events point to another year of above-trend activity and take-up across the region in 2018. Investors and developers must therefore take heed of the rapidly changing dynamics within the Northern Powerhouse office markets if we are to continue to support home-grown businesses and attract greater inward investment.
“Solid asset management strategies and refurbishment of poorer quality stock will be key to securing the best occupiers and boosting returns in the coming 12-18 months.”
Head of North Region for LSH, Matthew Scrimshaw added:
“Despite the ongoing political and economic turbulence, the message from the North is abundantly clear: our economy is thriving.
“Detailed insight is key to making informed and accurate property decisions that will support its continued growth and Lambert Smith Hampton’s Northern Powerhouse Office Market Report is the industry’s ‘go-to’ barometer for the health of the region’s office markets.”
