Research - 12/12/2019

TMT sector drives growth across Northern Powerhouse office markets

The TMT sector played a key role in driving growth across the Northern Powerhouse office markets* in 2019 our latest research has revealed.

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Media storm

Our Northern Powerhouse Office Market Report found that occupiers in the Technology, Media and Telecommunications (TMT) sector accounted for a record 25% of total take-up in 2019, twice the level seen during the last cycle. 

Fuelled by the sharp rise in the number of media businesses across the region, with Manchester and Salford combined witnessing 128% growth since 2010, compared with 50% across the whole of the UK, this proliferation is driving activity at the smaller end of the office market and supporting rise in demand for more flexible space.

Solid if unspectacular year

More generally, the eight key office markets of the Northern Powerhouse are on track to witness a solid, if unspectacular 2019, with total take-up predicted to reach 4m sq ft by the end of the year. This is in stark contrast to the record-breaking 5.7m sq ft transacted in 2018.

While the majority of the markets remain on par with their long-term averages, Manchester city centre is the only location to outperform its own trend level, with take-up likely to reach in excess of 1.1m sq ft by the year. The city is also home to 43% of the region’s 30 deals above 20,000 sq ft.

Supply ebbs to fresh low

One major factor that has hindered performance is the lack of supply. Total availability across the Northern Powerhouse office markets contracted for a fifth consecutive year in 2019, standing at just 8.9m sq ft; down 8% on 2018 and almost half its peak level in 2012. Of the key markets, Sheffield is the only location to have seen an increase in supply during 2019, albeit marginally.

A tale of two deals

Political uncertainty has severely impacted the investment market in 2019, with office investment volume across the eight key locations down 40% on 2018, currently standing at £860m.

Furthermore, more than 50% of total volume was taken in just two long-income deals, Quarry Hill House and 7&8 Wellington Place – both of which were in Leeds.

Adam Varley, Director of Office Advisory - Leeds, commented:

“As our report states, demand for office space in 2019 remained resilient, if slightly unspectacular, compared to previous years. With very little development in the pipeline, the shortage of supply looks set to remain tight, which will adversely affect occupiers’ choice as we move through 2020.

“If we are to build on the Northern Powerhouse’s existing reputation as a thriving TMT hub, then the property industry must respond accordingly; not just by delivering much-needed space but ensuring it is designed and positioned to meet the sector’s unique occupational requirements.”

Luke Symonds, Director of Capital Markets – Yorkshire and North East, said:

“While the value-add and long-income markets continue to witness strong demand, inertia around decision-making is holding back multi-let, mid-income opportunities, which traditionally form the bulk of a city’s office stock. This polarisation has held back the Northern Powerhouse markets in 2019, as evidenced by the muted investment volume.

“Once we’ve overcome the uncertainty surrounding the General Election and started to see the intricacies of Brexit unfold, buyers will begin to revisit their pricing models and likely find that the occupier markets have continued to perform well. This will hopefully provide the catalyst for more stock coming to the market and the return of institutional capital to regional offices, which will significantly boost activity.” 

The LSH Northern Powerhouse Office Market Report combines granular detail of the region’s key locations along with insight on trends and opportunities. To download a copy, please click here. Alternatively, email us to request a printed copy.

*Northern Powerhouse key markets: Leeds, Liverpool, Manchester City Centre, Newcastle City Centre, Salford Quays/Trafford, Sheffield, South Manchester, Warrington.

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