An overview of the commercial property market in Manchester

Being the United Kingdom's second largest economy, Manchester enjoys an active and prosperous commercial property market. Following a sharp decline in transactions in 2007, activity levels been rising steadily since 2009, and annual rental growth values are forecast to grow by an additional 3 per cent by 2015.

Over the past two years, demand across all sectors of the commercial property market in Manchester has hit record highs. In fact, the latest research published by GVA property consultants suggests that Manchester is very likely to experience severe under-supply towards the end of 2013, as demand is expected to continue growing before the completion of new developments is achieved.

In this respect, the Manchester market is also known for its high rates of development activity, especially when it comes to office space. The commercial property market in the city has proven to be resilient to the economic downturn, and this has contributed to attracting both national and international investors to the city. While deals for future development are taking some time to materialise, the general consensus is that the commercial property market in Manchester will continue to develop and expand over the next five to ten years.

Office space in Manchester

Following exceptional take-up rates of office space in 2010, the office market in Manchester continues to show above average take-up levels. During the last quarter of 2012, take-up rates reached 132,000 square feet, a figure that puts Manchester's rates in the second place at national level after London and Birmingham.

Researchers have also noticed that during 2012 there was a significant number of transactions for secondary (or refurbished) office floor space. An upward trend has also been detected in terms of occupancy and demand for out of town locations, as take-up rates for this kind of office space exceeded 247,000 square feet during the third quarter of 2012. In fact, four of the top-5 largest out of town transactions this year have taken place in Manchester.

Given the strong levels of lettings activity, availability of office floor space in the city centre has decreased by almost 50 per cent when compared to the figures for 2011. During the past year, 328,000 square feet of office space were constructed, although most of this stock has been built under pre-letting schemes.

Average headline rents in Manchester are calculated at £29.50 per square foot, and have remained more or less stable over the past four years. As the Manchester office market approaches under-supply, it is reasonable to expect that prime rental values will increase to the point of exceeding the record prices of 2008, when they reached £30 per square foot. The incentives offered on long leases have also increased over the past year, and currently, occupiers signing up to a 10-year lease can expect to receive a rent-free period of up to 30 months. These incentives bring the net effective rental costs down to £22.86 per square foot.

Prime yields for office properties in Manchester currently stand at 6.25 per cent, after having dropped slightly from the previous year average of 6.5 per cent.

At the time of writing, the only scheme under construction was the 275,000 square feet development at One St Peter's Square, whose completion is due in the spring of 2014.

Retail space in Manchester

According to property consultancy DTZ, the local retail property market is set to outperform London as an investment hotspot. Approximately 39 per cent of the total number of property transactions that took place in 2012 were related to retail stock.

Retail vacancy rates in Manchester's city centre were among the lowest in the region at 2.55 per cent, although the pictures is quite different for retail locations in some parts of Greater Manchester, like Stockport or Cheetham.

Zone A prime rents average £250 per square foot or £1,268 per square metre per year. The latest transactions for retail property in Manchester have brought average costs to £228 per square foot in secondary locations. Rental forecasts are set to remain stable in the short term.

Looking ahead, it is expected that average annual rental growth levels in the retail property market will reach 3.5 per cent before 2015.

Industrial space in Manchester

While other regional markets have experienced a slowdown in the demand for industrial space, the local property market in Manchester is considered to be one of the strongest in the country.

The majority of industrial properties available in the market range between 1,000 and 5,000 square feet, although there is good supply of larger properties too (20,000 to 50,000 square feet). The highest take-up rates belong to industrial properties whose size ranges between 5,000 and 10,000 square feet.

Prime industrial rents average £5.75 per square foot, showing no changes when compared to last year's figures.