Rental growth in prime office market slowing

Jun 25 2008 by Tony McDonough, Liverpool Daily Post

RENTAL growth in Liverpool’s prime office market is slowing, according to a new study.

GVA Grimley’s latest Office Market Commentary report shows that Grade A rental growth in the city’s prime office core had averaged 5.6% per annum between 2002 and 2005, but the figure for 2007 was just 1.8%.

Back in 2002, Grade A rents were around £16.50 per sq ft. In 2006, law firm Hill Dickinson signed up for 130,000 at St Paul’s Square, setting a new record at £18 per sq ft.

Since then, the figure has edged up and now averages £20-£21 per sq ft. Archi-tects Broadway Malyan recently took space at 20 Chapel Street at £22 per sq ft but with the letting size totalling just 3,750 sq ft, it is not seen as significant enough to push up the average.

The rise in Liverpool’s Grade A rents is seen as a positive economic indicator. Higher rental returns encourages devel-opers to build to a higher specification, which helps to attract blue chip tenants.

But, despite the rise since 2002, Liver-pool still lags behind other UK cities. In particular, Grade A rents in Manchester average around £30 per sq ft.

GVA agent Ian Steele told the Daily Post that a major factor in the slowing of Grade A rental growth was the much higher quality of refurbished space now on offer in the city, with rents typically around the £16-£17 per sq ft mark.

“We are now seeing a number of existing buildings being refurbished to Grade A standard,” he said. “In particular, we have Bruntwood’s the Plaza, Downing’s the Capital and UK Land’s Horton House and Walker House.

“They are now offering strong competition to Grade A space at places like 20 Chapel Street and St Paul’s Square – this has not happened before.

“Also, you have to remember that from around 2002 when new speculative space began to appear, Liverpool had to play catch-up with other cities.”

Mr Steele says for Grade A rents in Liverpool to push on again more grade A speculative space needs to be built.

The GVA still predicts growth in rentals over the next three years despite the drag on the economy from the global credit crunch.

Total office market take-up in 2007 was 463,000 sq ft – higher than the 10-year average (1998-2007) of 400,000 sq ft.

Grade A space accounted for 58% of this total – around 225,000 sq ft. This was above the annual average of 175,000 sq ft.

tonymcdonough