Holding up

It may surprise the more pessimistic forecaster in the UK, but the regional commercial property market is holding up well and is set to at least match last year’s outcome.

Among the major cities, Manchester has the best balanced market, helped by the scale of its economy and strong entrepreneurial spirit as exemplified by Media City and Spinningfields.

What is happening is that the downturn in the UK economy is providing a test for all regional economies and markets and those with the greatest resilience are emerging as stronger entities. To some extent the fierce competition between Manchester’s two football teams illustrate that spirit.

Analysing the first nine months’ figures for regional office markets, Jones Lang LaSalle (JLL) expects aggregate take up by the year end to equal 2010. JLL notes that in the third quarter rents in Manchester increased by 5.3% on the
previous three months and the Grade A vacancy rate is only 2.1%. Given the tough market, those are impressive figures. Even so, Peter Skelton of Lambert Smith Hampton said: “The market is extremely quiet and it appears that a short term approach has returned bringing a lack of decision making.

That contrasts with the start of the year when there was expectation that we were overcoming the financial problems in the UK.” In his view, the office market lacks direction and there is no confidence that it has reached the bottom. One of the future problems could be the amount of property that will be released by the banks holding it because of bad loans.

So far, financial institutions have been unusually careful in the release of this property but some is being filtered out, notably from Irish sources. In fact, the overall picture of the market can be painted in brighter colours because of planned new development and demand from large companies. An indication of the demand is that there are requirements for at least 27,870 sq.metres (300,000 sq.ft.) of Grade A offices, led by BUPA with a need for 13,006 sq.metres (140,000 sq.ft.).

The impetus is that a majority of its leasing contracts end in 2015. Another major requirement is from Jacobs Engineering for a regional headquarters of 9,290 sq.metres (100,000 sq.ft.). In this case there is the question of whether the company takes existing space or goes for the option of design and build. Also in the market for a large office is the insurance company Aviva.