Are we creating a ghost town?

Oct 24 2007 by Tony McDonough, Liverpool Daily Post

Firms are on the move to new offices – but what of the empty spaces left behind? Tony McDonough investigates

LIVERPOOL’S city centre office market is now enjoying a period of rental growth not seen for many years, but questions have been raised about the sustainability of some of the older accommodation.

The rental record for Grade A space has, in the last few weeks, been broken for the third time in two years. Architecture firm Broadway Mallion has taken 4,000 sq ft at 20 Chapel Street at £22 per sq ft.

The momentum began in 2005 when Liverpool law firm Hill Dickinson agreed to take 130,000 sq ft at £18 per sq ft at the new St Paul’s Square development.

Lettings at £20 per sq ft followed – Ernst & Young and Panmure Gordon at 20 Chapel Street and law firm DWF at St Paul’s Square.

The significance of these deals cannot be underestimated. For many years, the city centre market lay in the doldrums. Rents were so low there was little incentive for developers to build speculatively and without a stock of new offices Liverpool didn’t stand a chance of attracting blue chip tenants.

To prevent market collapse the public sector stepped in, in the shape of European Objective 1, offering gap funding to developers.

The medicine seems to have worked, certainly in terms of Grade A space, but there are some murmurings of discontent.

Hill Dickinson and DWF are both law firms already based in the city, and when they relocate to their shiny new homes they will leave behind them a considerable amount of empty space.

With this shift in the focus of the central business district towards Old Hall Street, there are fears of a “ghost town” effect in the Castle Street/Dale Street area. Hill Dickinson will leave its current headquarters at Pearl Assurance House, on Derby Square, empty when it moves.

In the Daily Post a few weeks ago, Ian Steele, a partner at commercial agents GVA Grimley, said an action plan was needed to prevent this from happening.

“There is real issue over what to do about the space that is being left behind,” said Steele.

“There are buildings in Castle Street that are listed and in some cases refurbishing them to an acceptable standard for modern office use is not sustainable.”

There is currently around 275,000 sq ft of secondary space ready to be let in the city centre but Merseyside Property Forum insists the market for the space is alive and kicking.

The forum cites the large investments in buildings such as the Plaza, The Capital and Exchange Flags but also add they expect demand for space around Castle Street to remain high.

“What you have to remember is that the small and medium enterprise sector is a big part of the market and despite the talk about the bigger lettings, most requirements are actually under 5,000 sq ft,” said Stuart Keppie, of property agency Keppie Massie.

“When existing stock becomes vacant, we are finding that landlords are now being very proactive in upgrading the space to attract new occupiers. Exchange Flags (recently acquired by UK Land & Property) is a good example of that.”

Figures from city centre regeneration agency, Liverpool Vision, back up the view that the market for SME lettings is healthy.

The data shows that during 2006 there were a total of 86 transactions in the city centre and that 59 of those were for requirements of 2,500 sq ft or less. Nine deals were for requirements of between 2,500 and 5,000 sq ft and a further eight for between 5,000 and 10,000 sq ft.

The above transactions accounted for around 160,000 sq ft of the 405,000 sq ft let in the city centre during the year.

The agents also agree that the standard of refurbished space now being offered by landlords like UK Land, Downing and Bruntwood helps ensure that other property owners will raise their game on quality. Brian Ricketts of Hitchcock Wright, said: “Occupiers, even smaller firms, won’t accept the standard of accommodation that may have been offered in the past.”

Nick Rice, of Irving Rice, added: “Those requirements under 5,000 sq ft are now just as discerning as the bigger ones and we should see that as an opportunity.”

Relocations are important because if Liverpool didn’t have the quality stock then there was a real risk some businesses could actually leave the city. The vacation of older accommodation also gives an opportunity for up to date refurbishment, they add.

“Hill Dickinson sent out a major signal when they agreed to take the space at St Paul’s Square,” said Chris Connor, of Mason Owen. “This was the biggest private sector let in the city in the last 30 years and it is a major commitment.

“There was no decent stock in the city back in the 1990s and now we have it.

“Whether the tenants come from inside the city or from outside, we now have the product that ticks all of the boxes.”

Keppie added: “What Liverpool needs to do more is project itself both nationally and internationally – we have been on the short-list for some major requirements from outside, but we are not quite getting there just yet.

“At the Property Forum, we want to be in a position to help the market place by providing potential investors with considered factual information.”

tonymcdonough