Office transactions in the UK’s third largest city increased by 8% in the first half of 2016 compared to the same period last year with Manchester becoming a key focus for commercial property investors.
Transaction volumes in Manchester’s office investment market totalled £304 million in the first six months of the year, some 3% higher than the five year first half average of £295 million, according to international real estate advisor Savills.
The firm’s latest Manchester Office Market Report says that overseas investors showed particularly strong demand for the city’s office assets, accounting for 70% of all transactions with deals worth £212 million.
This is well above the long term first half average of 37%, according to Savills. Examples include the £115 million acquisition of 3 and 4 Piccadilly Place by US based Ares Management and the £85 million purchase of XYZ in Spinningfields by Germany’s Union Investment Real Estate.
‘The outcome of the European Union referendum is now sinking in and some office transactions will be inevitably be delayed or renegotiated as investors take stock. However, we expect the increased depth of overseas interest in Manchester to help stabilise the market as foreign buyers take advantage of the weaker sterling and reduced competition,’ said Peter Mallinder, investment director at Savills.
Despite the lack of trophy letting deals recorded in the first half of 2016, Savills reports that office take up reached 415,257 square feet, in line with Manchester’s long term average and the third quarter started positively with law firm Freshfields committing to around 80,000 square feet at One New Bailey.
A number of other key leasing deals including to Swinton Insurance at 101 Embankment are expected to complete in the third quarter, with take up for the full year reaching one million square feet. This follows a total of 1.3 million square feet in 2015.
Savills highlights the diverse nature of Manchester’s office occupier base, which does not overly rely on the public sector or banking and finance, as one its key strengths. The TMT sector has shown particular growth in Manchester and accounted for 21% of all take up in the first half of 2016 with deals totalling 85,307 square feet compared to 17% of deals in the full year of 2015.
In terms of size, more than 51% of office space let in the first half of the year was through deals below 5,000 square feet compared to a long term average of 32%, driven in part by the abundance of TMT firms and start-ups moving to the city.
‘Office take up in Manchester has been significantly in excess of the long term average in recent years, which puts the city in a good position going forward and activity levels since the referendum result are encouraging,’ said Richard Lowe, office agency director at Savills.
He added that headline Grade A rents have risen from £28.50 per square foot in 2010 to £33.50 per square foot in the first half of 2016, and with just over one year’s supply of space on the market the firm expects this upward pressure to continue in the short term at least.
