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News Release

Manchester

Grade A space set to run out in Manchester in 2014

City could lose its competitive edge in the national and international relocation market


Manchester, 15th March 2012 - Manchester is now below the average vacancy rate in terms of Grade A office space across Jones Lang LaSalle’s Big Six regional markets – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester.  At 2.8 per cent, as opposed to an average of 3.1 per cent, high quality offices in the city will run out by 2014 according to new research by the property consultants, with the only new development activity driven by pre-lets. Already there are limited options for larger occupiers.

Chris Mulcahy, director in Jones Lang LaSalle’s Manchester Offices team, said: “Manchester needs major national and international relocations to fuel its economy and these historically work on a short leadtime.  Currently we only have two sizeable Grade A buildings in 4 Piccadilly Place at 110,000 sq ft and the former Halliwells’ building in Spinningfields at 180,000 sq ft to offer this market.  However,  we have construction well under way at the Co-operative Group’s new 320,000 sq ft HQ office due to complete this year and the speculative element of 200,000 sq ft at Argent’s One St Peter’s Square following the pre-let to KPMG which will deliver much needed Grade A space to the city.

“2012 and 2013 will see a period of pre-lets for Manchester and the conurbations and we anticipate this will continue for the next few years.

“Only six new office schemes started speculatively last year across the Big Six cities with just circa 600,000 sq ft currently under construction.  New construction is typically only happening when there is a pre-let in place.  These remain rare and difficult with only five pre-lets agreed across the Big Six markets in the last 24 months.

“Although some inward investors like Aegis at Bruntwood’s City Tower will be satisfied by the provision of good quality secondary space which is well located, others will seek high profile Grade A buildings.  Other cities can provide this, either in the UK or Europe, so the city may lose out.

“Looking ahead optimistically, there are some notable indigenous requirements for Grade A space which are driven by lease expiries, including Bupa who are seeking 140,000 sq ft and law firm Pannone with a requirement for 80,000 sq ft. We know that 60 per cent of occupier take up in the Big Six markets last year was driven by lease breaks or expiries and this will continue to be a significant driver of demand.

“Of course,  supply side constraints will continue to support prime rents for the best quality available space which stabilised in Quarter 3 last year at £30 per sq ft with generous incentives remaining.”

Chris concluded:  “Due to the reduction in Grade A supply this is a market where good quality Grade B refurbishments can prosper. Occupier trends are showing they wish to use their space more efficiently and reduce costs and provided the space is well located, configured and specified landlords of this type of space will feel the benefit.”

The research shows that the UK’s regional investment market was characterised by overseas influences last year with overseas investors accounting for 63 per cent of the total invested in the six regional markets, compared to just 24 per cent In 2010. Jones Lang LaSalle expects this trend to continue over the medium term as investors priced out of the London market seek value in the regions.  The prime UK regional office yield was unchanged at the end of 2011 at 6.00-6.25 per cent.

Simon Merry, director in Jones Lang LaSalle’s National Investment team, concluded: “London will always stand out as the primary focus for investors due to its continuing dominance as a global business and financial centre.  This makes investor competition increasingly fierce and prices some investors out of the capital.

“We believe there is the potential for more overseas investors to migrate to key regional markets for core assets as they are perceived as good value.  However, secondary properties are likely to remain more challenging as investors will continue to be asset specific in their selection, preferring multi-let core buildings with limited capex.”