The Covid pandemic has had a devastating impact on the commercial property sector – with every quarter of 2020 seeing significant downturns in activity across most UK cities.
Manchester and Liverpool have not been exempt from that rule, with the volume of space involved in deals plummeting to new lows due to uncertainty, economic decline and companies looking to alternative ways of working.
Here, with the help of Avison Young’s (AY) quarterly Big Nine reports, BusinessLive runs through each of the quarters of 2020 for the North West’s two biggest cities.
In Q1, Manchester’s office take-up performed broadly in line with the ten-year quarterly average – amounting to 309,000sq ft, with the full impact of the pandemic not to hit home until mid-March.
Activity included a “broad mix” of sectoral activity across professional and financial services, manufacturing and industry.
The biggest deal of the quarter was construction equipment specialist Hilti leasing 42,559sq ft of space on the second, third and fourth floors of No1 Circle Square in March.
At the time, Matias Järnefelt, managing director of the firm’s Northern Europe and Great Britain operations, said: “The move marks our commitment to Manchester with its international airport, reputation for innovation, thriving construction industry and great universities.”
Another big deal during Q1 was the Co-operative Group leasing over 40,000sq ft of office space at Arndale House.
At the time, Scott Linard, director of asset management (retail and leisure) at M&G Real Estate, said on behalf of the joint owners: “The Co-operative Group’s decision to take 41,500 sq. ft. at Arndale House is a testament to its excellent location and superb transport links.
“The fact the building is now fully let highlights the demand for quality office stock in Manchester city centre as it continues to benefit from business investment and stronger connectivity.
“We are living through unprecedented times, but we are continuing to focus on how we can future proof our office space and ensure it meets the needs of our occupants.”
Other significant deals in Q1 included CBRE’s flexible workspace offering Hana securing 26,000sq ft at Windmill Green, and Bet365 taking a 25,000sq ft space at The Core on Brown Street.
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The Covid crisis began to take its toll on Manchester’s office deals in Q2, with total take-up down by 53% from the previous quarter and far below the quarterly average as the UK entered a national lockdown.
That’s despite the out-of-town market seeing something of a surprise uplift. The biggest deal saw USDAW take 38,900sq ft at the Voyager development at Manchester Airport in an owner occupier sale of £12m, while Marlowe Fire and Security took 25,568sq ft at 5 Central Park.
Despite the lockdown, a total of 26 deals were done over the three months – five over 10,000sq ft – with the largest city centre deal being Trusted Mortgages taking 14,200sq ft at Cardinal House.
There were four other city centre deals above 5,000 sq ft involving firms from the legal, computing and insurance sectors as well as Ashfield Health taking 9,100 sq ft at City Tower.
AY described Manchester’s office takeup in Q3 as “very subdued”, amounting to 69,100sq ft in the city centre – and 84,400 sq ft out of town. That came in as 70% below the ten-year average, with the bulk of deals below 5,000sq ft.
However there were still transactions of some significance – in Salford Quays, 23,580sq ft was taken by IT company Tech Mahindra at The Vic in Media City, with the largest deal in the city centre being the Spanish Consulate taking 11,000sq ft at The Chancery.
Many medium to large requirements were still either on hold or progressing at a slow pace, as occupiers reviewed their space strategies due to even more uncertainty.
At the beginning of September, confidence was returning to the market but this was suppressed following the Government’s renewed lockdown restrictions and reservations over a return to the office.
AY said in its Q3 roundup that it did not expect a return to greater activity before 2021, particularly given Manchester’s Tier 3 status.
It also detected signs of an increase in the availability of existing space with occupiers not renewing leases, or downsizing via a lease re-gear.
While AY has not yet released data for Q4, a number of significant office deals have taken place in Manchester suggesting there may well be optimism on the horizon for the city’s office market.
The biggest of those saw BT Group commit to bringing 2,000 workers – more than four times the current number based in Manchester – to the Four New Bailey scheme near Spinningfields, across 175,000sq ft of space.
Announced in October, it was said at the time to be Greater Manchester’s largest regional office deal of the year to date, with BT announcing plans to move in from late 2023.
That followed Auto Trader Group in September announcing it was to relocate to the next phase of Ask Real Estate’s office scheme on First Street.
The online car dealership took 80,000sq ft of space at the proposed new-build block.
Then, in November, Deloitte agreed a deal with WeWork for a new ‘flexible’ workspace spanning 35,000sq ft at its Hanover Building on Corporation Street.
It plans to begin occupancy in early 2021, subject to Government national restriction guidelines.
Also in November, law firm Fieldfisher agreed a deal with Schroder Real Estate to occupy over 11,000sq ft of office space at No. 1 Spinningfields.
During the entire Q1, take-up in the city region slumped to 70,000 – half the ten-year average.
Most activity took place during the first two months when occupier sentiment was more positive – and there were a healthy number of large requirements in excess of 10,000 sq ft, including BT (100,000 sq ft), MAERSK (15,000 sq ft) and Firesprite (20,000 sq ft), all of whom were actively seeking to acquire space.
But that confidence was soon scuppered by the Covid-19 outbreak and subsequent lockdown as occupiers adopted a ‘wait and see’ approach.
Leasing activity was generally focused in the city centre, which accounted for 70% of the total.
There were only two transactions more than 10,000 sq ft in Q1 – 16,017 sq ft to lawyers Carpenters at No 1 Tithebarn and Plus Dane Group took 15,000 sq ft at Atlantic Pavillion.
At the end of the period, AY said supply in both the city centre and out-of-town locations was already its lowest level in 20 years.
A difficult Q1 was followed by an even tricker Q2, with city centre office take-up dropping further still to just 20,000sq ft.
The largest deal saw Taylor Wessing take 12,700sq ft at Edward Pavilion, with the “significant impact” of Covid on the city centre market truly taking its toll.
AY said the majority of occupiers either delaying or putting their occupational requirements on hold, with many reassessing their spatial requirements.
There were also a number of small lettings in the out-of-town market, totalling 15,000 sq ft, most of which were sub-2,500 sq ft in locations such as Wavertree and South Liverpool.
City centre office take-up in Q3 was half that of Q2 – down to 10,000sq ft, with the out-of-town market seeing slightly more activity at 15,000sq ft.
AY said there had been a handful of small lettings in the sub-2,500 sq ft category, while the majority of medium to large-size occupiers continued to undertake strategic reviews of their occupational requirements, resulting in them either looking to downsize or putting requirements on hold for the foreseeable future.
It said that due to occupiers looking to reduce their overall occupational footprint, large amounts of “grey space” would return to the market over the following six to 12 months.
There continued to be a “huge amount” of uncertainty in the occupational market, AY said, resulting in a “significant reduction” in both demand and transactional activity, which was unlikely to change until 2021.
With Manchester’s apparent uptick in activity in Q4, the same doesn’t appear to have happened in Liverpool – although there have been several deals of note.
Those included in December, when law firm Bond Turner took 5,000sq ft at No 1 Old Hall Street, a development run by Downing.