Transaction volumes in Manchester’s office investment market totalled £304 million in H1 2016, marking an 8% increase on the £282 million seen in the same period last year and 3% higher than the five year first half average of £295 million, according to international real estate advisor Savills.
The firm’s latest Spotlight: Manchester Office Market Report states that the city was a key focus for investors in 2015, with office transaction volumes totalling £640 million compared to a 10-year average of £428 million. In H1 2016, overseas investors showed particularly strong demand for Manchester 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 from H1 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.
Peter Mallinder, investment director at Savills, comments: “The outcome of the EU 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.”
Despite the lack of trophy letting deals recorded in the first half of 2016, Savills reports that H1 office take up reached 415,257 sq ft (38,577 sq m), in line with Manchester’s long term average. Q3 has started positively with law firm Freshfields committing to circa 80,000 sq ft (7,432 sq m) 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 1 million sq ft (92,900 sq m). This follows a total of 1.3 million sq ft (120,770 sq m) 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 H1 with deals totalling 85,307 sq ft (7,925 sq m), compared to 17% of deals in the full year of 2015. In terms of size, more than 51% of office space let in H1 was through deals below 5,000 sq ft (465 sq m) compared to a long term average of 32%, driven in part by the abundance of TMT firms and start ups moving to the city. The largest Grade A transaction was Squire Patton Boggs’ acquisition of 28,000 sq ft (2,601 sq m) at No 1 Spinningfields.
Richard Lowe, office agency director at Savills, comments: “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. Headline Grade A rents have risen from £28.50 per sq ft in 2010 to £33.50 per sq ft in the first half of 2016, and with just over one year’s supply of space on the market we expect this upward pressure to continue in the short term at least.”
