Cost-conscious office occupiers grab discounted deals – CBRE
In our second look at CBRE’s research into regional office markets, we start with Manchester, where take-up of office space at the end of the first half of this year was 296,000 sq ft, which is 21% below the long-term half-year average, CBRE says. Increasingly cost-conscious tenants are taking advantage of competition between landlords to grab discounted deals, particularly in the Grade B segment, but are also taking the chance to upgrade to Grade A space.
Supply of Grade A offices in Manchester is tight at 550,000 sq ft, CBRE notes, with the supply in prime locations even tighter than this. But outside this segment supply is generous at 2.5m sq ft – hence the competitive market conditions. Prime headline rents of £30 per sq ft for Manchester offices are 5% above the peak level set in 2006/07, the firm says, and upward pressure is expected as the remaining Grade A office space in the best locations is absorbed.
CBRE expects higher take-up of office space in Manchester during H2 compared with H1, and says that the limited supply pipeline “indicates a requirement for more sites to be brought forward in the short term”.
Demand for office space in Liverpool strengthened during H1 2012 with take-up at 71,201 sq ft – almost double the amount seen in H1 2011 – although this is still well below the long-term half-year average of 120,000 sq ft, CBRE notes. Activity has come from small and medium-sized businesses, especially in the professional and financial sectors, with the public sector still absent. The firm expects H2 demand to be much better – but adds that it could hardly be weaker!
Given the slow demand, and no development completions, the supply of Liverpool offices has remained stable at 1.90m sq ft in total, with Grade A stock accounting for 12.7% of this figure. Prime rents remain at £20 per sq ft. “While there may be slight negative movement on rents later this year there is little room for any further downward revision,” CBRE adds.
H1 take-up of office space in Leeds reached 217,681 sq ft after a particularly strong first quarter, to produce a total for the first half in line with the long-term half-year average of 224,023 sq ft. Occupiers have been drawn towards large floorplates and attractive deals and “many have sacrificed prime locations to achieve these criteria,” the firm notes. Total availability of Leeds offices is now down 7% from end-2011 at 1.38m sq ft, with 448,386 sq ft of this being ready-to-occupy Grade A stock.
Prime rents for offices in Leeds are stable at £24 per sq ft and for fringe Grade A space they are around £20 per sq ft, CBRE says. The firm expects these figures to nudge upwards as stock continues to diminish during the year.
