Increased take-up of office space in Manchester as Brexit influences investors

One St Peter's Square ManchesterTake-up of prime office space in central Manchester is on course to hit 1 million sq ft in 2016 and could be influenced by the impact of Brexit. The latest research by Colliers International suggests that overseas investors retained an interest in prime Manchester office space partly because of the devaluation of sterling following the Referendum vote for the UK to leave the EU – as proven by the recent £164m acquisition of the 288,000 sq ft One St Peter’s Square by global real estate investor Deka Immobilien. There have been a series of other major deals, including an insurance firm taking 165,000 sq ft of Grade A office scheme, a global law firm moving its global centre into an 80,848 sq ft development; and a government department negotiating a 60,000 sq ft deal. The legal sector accounted for almost 25 percent of total office take-up so far in 2016, followed by media and technology (16 percent) and business services (15 percent). However, all this activity may result in a lack of ready to occupy space in the city by early 2017.

Colliers forecasts that Manchester city centre take-up for the whole of 2016 will achieve one million square feet because of major deals such as:

  • Covea/Swinton Insurance agreeing to take the entirety of 101 Embankment, the 165,000 sq ft of Grade A office scheme in Salford being delivered by Ask Real Estate in a joint venture with Carillion and Tristan Capital Partners;
  • international law firm Freshfields Bruckhaus Deringer exchanging contracts with English Cities Fund to move its global centre into 80,848 sq ft of One New Bailey in Salford;
  • the Department for Work and Pensions (DWP) reportedly being about to secure a 60,000 sq ft requirement at St Peter’s Square;

and a number of deals for other Grade A office space in the hands of lawyers.

This surge in demand follows a 35 percent fall in occupation in the first nine months of the year compared to 2015, when take-up in the first three quarters of 2016 reached 681,901 sq ft, some 35 per cent lower than the figure for the equivalent period of the previous year. The research also showed that the average deal size in 2016 was 3,791 sq ft, some 19 per cent smaller than in 2015.

Peter Gallagher, director in the National Offices team at the Manchester office of Colliers International, said the Deka transaction had boosted investment volumes in the Manchester office market by about 50 percent.

He reiterated the real estate advisor’s previously stated concern that the “acute shortage” of immediately available Grade A office space in central Manchester would result in an “unprecedented complete absence” of ready to occupy space by early 2017, lasting until at least the third quarter of 2017.

“While the number of new schemes in Manchester due to complete before the end of 2017 represents the largest pipeline of new stock in the city since the recession, over half of the supply currently in-build has already been pre-let.

“Other than Castlebrooke’s Landmark in St Peter’s Square, which will steal a march on the market and deliver 180,000 sq ft of prime grade A offices in the first part of 2019, there is little sign of any of the other consented schemes waiting to be built actually starting.” said Peter.

Consequently, the city centre office sector will continue to develop as very much a landlords’ market with rents for prime space set to increase from the current headline rate of £35 per sq ft to circa £40 per sq ft by the end of the decade.

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