United Kingdom Property News

Savills predicts supply driven rental growth in Manchester office market

According to the latest Manchester office market report from Savills, the diminishing office supply in the city is beginning to generate signs of a recovery in rents and a reduction in incentives. The international real estate advisor notes that with supply in Manchester appearing to have peaked, the vacancy rate now stands at a reduced figure of 11.7%, with grade A availability just 730,049 sq ft. With a restricted development pipeline and demand for new space in the city increasing, Savills expects the pendulum of power to begin to swing back in favour of the landlord.

Savills report notes that prime office rents in Manchester currently stand at £30 per sq ft following the QBE Insurance letting at Chancery Place, which is a 7.1% increase on the highest rent achieved in 2011.

Patrick Joynson, Head of Savills Manchester, comments: “There are currently a number of large corporate requirements circulating Manchester’s office market, which if progressed, could devour much of the current available office stock. This, combined with a highly restricted development pipeline, will place upward pressure on rents, which we are already seeing in the sub 10,000 sq ft market. We expect this trend to continue over the next two years. Pre-let rents however will continue to remain competitive with the greatest influence on these being down to the cost of building and investment appetite.”

When assessing demand and take-up, Savills confirms that Manchester saw take-up reach 176,000 sq ft in Q1 12, which is down from 246,000 sq ft in the final quarter of 2011. The firm expects that the office market will see a gentle recovery in demand back to average annual take-up levels from this year. Mat Oakely, head of commercial research, says: “Manchester remains a diverse market in terms of occupier types and the fact that it doesn’t rely too much on either the public sector or banking and finance should ensure that take-up recovers sooner than some other markets.”

In terms of Manchester’s investment market, Savills reports that prime yields for assets with approximately 15-years security should reach a level of 5.75% to 6%. It also confirms that the gap between prime and secondary continues to widen and now sits at between 200 and 400 basis points, depending on location.