Manchester. Office Market. Planning for an uncertain future. Inside this edition:

Greater Lambert Smith Hampton Issue Two / 21 Manchester Office Market Planning for an uncertain future Inside this edition:» The next Spinningfields?» Manchester lays claim to top spot, but for how long?» Greater Manchester office market overview» The public property of Greater Manchester» The future s bright, the future s Green? www.lsh.co.uk

Greater Manchester Office Market / Issue Two / The next Spinningfields? Greengate Embankment, Manchester The next Spinningfields? In the wake of the unequivocal success of Allied London s Spinningfields Manchester s very own Canary Wharf the City s stake in the European economy has been firmly cemented, enabling it to compete with the likes of Barcelona, Milan and Munich. But, with demand for office space predicted to outstrip supply as soon as 213, where will the next big wave of development come from? Over the last 1 years Spinningfields has dominated Manchester s office market, with sustained development on an unprecedented scale outside of London. Its success has been underpinned by the provision of office buildings of exceptional quality, with large floorplates, and an unrivalled public realm. However, with 1.5m sq ft of space now developed within eight office buildings and let to a variety of multi-national corporations, there are only a handful of sites left within Spinningfields that are capable of developing a further 6, sq ft of commercial office space. Shortfall of space While it is extremely encouraging to see high-quality occupiers committing to the future of the City Centre, the pressure on 2 / Lambert Smith Hampton large floorplates is likely to intensify further over the coming years. The City therefore needs to invest in its next generation of development sites in order to address the likelihood of a shortage of the highest quality functional Grade A accommodation. As it stands, the total Grade A availability in Manchester City Centre is approximately 75, sq ft, down by 13, sq ft from 12 months ago. This includes the unexpected addition of 17, sq ft returning to the market at 3 Hardman Square as a result of the demise of Halliwells. With developers remaining reluctant to start speculatively on site without first having secured a substantial pre-let of approximately 3-4% of a total building, the anticipated shortfall may occur as soon as 213. There remains several unsatisfied requirements within the market, including Lloyds Banking Group (22, sq ft), Pannones (7, sq ft), and KPMG (7, sq ft); the majority of which are likely to require highly-efficient solutions, reducing the size of their current occupational space and introducing modern working practices. The pursuit of design and build will lead to a less volatile letting market with a greater emphasis on quality, specification and location. However, the lack of acceptable schemes will ultimately affect the City s ability to attract inward investment, as some corporates will not be prepared to endure the long lead-time s associated with design and build. Wave of opportunity So where will the next big wave of development come from to satisfy the existing and yet unidentified demand, who will build it and, more importantly, what impact will it have on the future growth of Manchester s thriving commercial landscape? There are currently three key sites capable of being developed on such a large scale over the next 1 years, each of which will be keen to lay claim to the accolade of the next Spinningfields.

Greater Manchester Office Market / Issue Two / The next Spinningfields? Next wave of development St Peter s Square The most high profile and central development site within the City is St Peter s Square with Argent s One St Peter s Square the proposed redevelopment of Elisabeth House (pictured right) forming the centrepiece of the site. Along with Manchester City Council s plan to reinvigorate the area, the development will create one of the most impressive square sites in the City Centre, and will include the redevelopment of the Town Hall and Library buildings. A number of buildings situated in and around St Peter s Square are also likely to be developed on the back of the scheme. Most notably the old Odeon Cinema site, where planning permission for 175, sq ft of office space has been granted. The site s central location will effectively expand the City Centre s acknowledged central office core and, with a wide range of public transport links within close proximity, is widely regarded as the most likely scheme to commence. Victoria The Co-operative Group s relocation into a 328, sq ft purpose-built HQ building in 211 will act as a major catalyst for growth in an area situated north of the City Centre, within close proximity of Victoria Station. The sheer size [The Co operative Group s land holding totals 25 acres] and ambition of the site may well enable it to rival Spinningfields over the next decade. The scheme will also include the upgrade of a number of existing listed buildings. Other notable development sites within the Victoria area include Ask/Network Rail s Greengate Embankment scheme (pictured left) and the Muse/Network Rail development of Victoria Station, both of which are situated within close proximity of each other. As has been the case with Piccadilly Station and the development at Piccadilly Place, it is clear that investment in the station and public realm around Victoria will be required in order to create a well-serviced, well-linked, working environment. Piccadilly The 3-acre Mayfield Site, situated within close proximity of Piccadilly Station, was earmarked by the previous Labour Government as the Whitehall of the North, with plans to deliver a super campus of up to 7, sq ft of office space housing approximately 5, civil servants. However, it is not yet clear if the change in government and subsequent accelerated cuts in public sector spending will adversely affect the likelihood of relocations under the Smith Review. One St Peter s Square, Manchester While this would be an undoubted coup for Manchester, and Piccadilly in particular, the notion of a single hub for all governmentled relocations inextricably affects the rest of the market, with other areas likely to miss out on what has historically been a significant sector of activity for the City Centre office market. There are several other mixed-use development sites within the Piccadilly area. Most notably Piccadilly Basin, another key mixed-use development site totalling 13 acres, which benefits from existing planning permission for 9, sq ft of new build offices at Eider House. Other significant mixed-use development sites that are likely to compete with the above over the next 1 years include: The BBC s existing site on Oxford Road; The Granada Studios site on Quay Street, which could effectively extend Spinningfields; and Ask s First Street site the gateway site to the southern corridor of the City. While none of the above projects are yet to come to fruition, high-quality office space is becoming more of a premium. Therefore, development needs to commence rapidly if Manchester is to grow its economy and continue to rival other key European cities. David Thwaites, Associate Director Tel: +44 ()161 242 88 Email: dthwaites@lsh.co.uk Lambert Smith Hampton / 3

Greater Manchester Office Market / Issue Two / Manchester lays claim to top spot, but for how long? Manchester lays claim to top spot, but for how long? The Manchester City Centre office market has witnessed an exceptional year in terms of occupier activity, substantially outperforming its regional competitors. Having overtaken Birmingham, and sitting comfortably above the likes of Leeds, Edinburgh, Glasgow and Bristol in a recent survey of the best European cities to locate a business, it would appear that Manchester s claim to the unofficial title of the UK s second city has been fully endorsed. In terms of pure statistics, Manchester boasts a 1 year average annual City Centre take-up of 93, sq ft well above its nearest rivals of Edinburgh (71, sq ft), Bristol (68, sq ft), and Birmingham (625, sq ft). Last year, take-up was approximately 82, sq ft a reduction of 1% on the long-term average placing the City behind Glasgow and Birmingham, both of which performed better in comparison to their respective long-term averages. So far, 21 has been a much stronger year for Manchester City Centre. Take-up in the year to date is currently in excess of 1,25, sq ft already 1% above the long-term average with a further 3, sq ft predicted to be let in the final quarter. However, following an unprecedented development boom during 28 and 29, construction across Manchester City Centre has now dried up, with little prospect of it being replenished in the immediate future. So much so that only 75, sq ft of Grade A space is currently available across Manchester City Centre, equating to less than three years supply based on average annual take-up figures. Conversely, several other major UK cities possess a significantly larger supply, including Leeds and Birmingham, which have 83, sq ft and 1,11, sq ft respectively. Given their now potentially advantageous positions for securing future inward investors, Manchester s reign as the UK s second city could be under threat if speculative development does not get underway soon. Mark Bamber, Associate Director Tel: +44 ()161 242 777 Email: mbamber@lsh.co.uk Chart 1 Big Six office take-up 2-9 sq ft 1,4 1,2 1, 8 6 4 2 2 21 22 23 24 25 26 27 28 29 Manchester Edinburgh Bristol Birmingham Leeds Glasgow Source: LSH Research Chart 2 Big Six take-up v 1-year average 2-9 % difference 18 16 14 12 1 8 6 4 2 2 21 22 23 24 25 26 27 28 29 Manchester Edinburgh Bristol Birmingham Leeds Glasgow Source: LSH Research Chart 3 Big Six 1-year average annual take-up sq ft 1, 8 6 4 2 Manchester Edinburgh Bristol Birmingham Leeds Glasgow Source: LSH Research 4 / Lambert Smith Hampton

www.lsh.co.uk ics Greater Manchester Office Market Statistics G 21 December 21 December 21 December 21 December 21 December 21 Overview Although the economy is still suffering the effects of recession, the Greater Manchester office market showed strong signs of improvement during 21. Combined take-up figures in the three sub-markets of Manchester City Centre, South Manchester and Salford Quays are predicted to reach almost 2m sq ft by the year end against a figure of 1.3m sq ft from the previous year, reflecting a sharp increase of more than 45%. Lettings to the end of the third quarter amounted to 1.55m sq ft, two-thirds of which was attributable to the City Centre. While this figure is somewhat distorted by The Co-operative Group s signing of 328, sq ft of space at its new BREEAM Outstanding building on Miller Street, the increased take-up has also been driven by the demand for larger floorplates. As predicted, the development sector remained muted. However, total Grade A office space in the three combined markets increased from 1.45m sq ft in 29 to 1.58m sq ft at the end of the third quarter of 21, a rise of almost 9%. With no new development expected to complete within the next three years, there are concerns over the looming shortage of Grade A space, particularly within the City Centre, which has only 2.5 years supply based on the five-year average annual take-up figure of 3, sq ft. It is anticipated that incentive packages will begin to harden and net effective rents increase as Grade A supply is gradually absorbed. Refurbished or poor quality stock will continue to struggle to compete with Grade A space and pressure will remain to keep these rents at a discounted level. While it will have a significant impact on the growth of future take-up levels, the contraction of the public sector is unlikely to wield a devastating impact on the long-run averages across the three markets. This is clearly demonstrated by the high levels of take-up recorded this year despite reduced activity from this sector. However, it should be noted that future demand from the public sector is likely to be fuelled by downsizing. Despite the City Centre having witnessed an improvement in transaction values during the first half of the year, there has been limited investment activity from across the rest of the sector. Worryingly, the average investment yield in the UK property market rose for the first time in 18 months in the third quarter of 21, potentially signaling the beginning of a period of uncertainty within the investment market.

Manchester City Centre Executive summary Take-up is expected to reach approximately 1,3, sq ft the second highest year on record. The market has been dominated by the 328, sq ft relocation of The Co-operative Group and substantial lettings within the legal sector. Take-up of Grade A space is at a six year high, while second hand space is at a record low. No new office developments have completed during 21 and there are no developments due to complete within the next two years. As a result, the historic oversupply of Grade A space is shrinking and is likely to lead to a position of undersupply in the short-term. A number of schemes are in a position to start on site but are unlikely to do so without a substantial pre-let. The most popular schemes will start to see incentives harden as supply dries up. However, less attractive schemes will continue to offer record incentive packages. For more information, please contact: Mark Bamber, Associate Director Tel: +44 ()161 242 777 Email: mbamber@lsh.co.uk Demand The first three quarters of 21 have already witnessed an improvement in activity over the previous year, with take-up totalling approximately 1,25, sq ft. Total take-up for the year is expected to reach approximately 1,3, sq ft the second highest on record and nearly 4% above the 1 year average of 93, sq ft. Take-up was dominated by the 328, sq ft relocation of The Co-operative Group into a new BREEAM Outstanding building on Miller Street adjacent to its existing campus. 21 has been an active year for the legal sector. The fallout from the collapse of Halliwells has led to lettings in excess of 3, sq ft to both Barlow Lyde & Gilbert and HBJ Gateley Wareing. In addition, DWF has completed on approximately 7, sq ft of space at Spinningfields. Take-up in the year to date has been dominated by the Grade A sector, which has accounted for 57% of the total market, the best performance in six years and above the five year average of almost 38%. The market for second hand, poorer quality space has fallen to a record low of 14%, substantially below the five year average of 43%. Manchester City Centre office market take-up sq ft 1,4 1,2 1 8 6 4 2 21 22 23 24 25 26 27 28 29 21 Supply Unprecedented levels of development took place in the City Centre throughout 28 and 29, with over 1.6m sq ft released to the market. While 21 has seen no new stock completed, the demise of Halliwells has resulted in the unexpected addition of 17, sq ft returning to the market at its former headquarters at 3 Hardman Square. There is currently around 75, sq ft of Grade A space available within the City Centre which, based on average annual Grade A take-up levels, would only be able to satisfy demand for a further two to three years. This is down from over 9, sq ft in the same period last year. With no new stock likely to come available in the next two years, the market is approaching a period of potential undersupply. The recent trend by occupiers to release future expansion space to the market or consolidate into less space as witnessed by Lloyds Banking Group, BDO and Cobbetts appears to have bottomed out. However, the moves by both central and local government to cut costs, coupled with The Co-operative Group s relocation to new premises, may prompt the release of secondary space onto the market over the next few years. Manchester City Centre office market Grade A availability sq ft 1, 9 8 7 6 5 4 3 2 1 26 27 28 29 21 Lambert Smith Hampton Research 6

Manchester City Centre www.lsh.co.uk New development West Properties 62, sq ft Origin and Property Alliance Group s 73, sq ft Axis the two most deliverable developments in the City Centre are both on hold. As such, there is unlikely to be any short-term increase in the level of supply. However, Argent's proposed 27, sq ft redevelopment of Elisabeth House in St Peter s Square is one example of an opportunity with institutional backers that could be completed by 213 with a significant pre-let. A number of potential schemes remain in the pipeline including Eider House, Piccadilly Basin (87,5 sq ft), The Landmark, Oxford Street (175, sq ft) and the former London Scottish House (circa 15, sq ft). In addition, a number of sites are vying to become the next Spinningfields (see article on page 2) including Greengate Embankment, Victoria Station, Mayfield Station and the former Boddington s Brewery. However, these are unlikely to be developed in the short-term and do not help to ease the potential undersupply. Manchester City Centre office market Grade speculative construction sq ft 1, 8 6 4 2 28 29 21 211 212 Market rental values and yields Grade A rents have continued to remain stable over the last 12 months as the most popular schemes in the City Centre, including Belvedere House and 3 Hardman Street, continue to increase occupancy levels. The most popular Grade A developments will look to maintain headline rents, increase lease lengths and reduce incentive packages from the current record levels. Less popular Grade A buildings will continue to struggle and, as such, pressure will remain on landlords to offer discounted rents and increased incentives. Although 21 has been a more successful year for good quality, refurbished buildings with take-up nearly double that of 29 landlords are expected to remain under pressure to heavily discount rents; which have fallen from their peak quoting levels of 28. per sq ft in 28. In some circumstances, transactions at a discount of nearly 5% of the previous quoting prices have been recorded. 21 has seen more activity in the City Centre investment market, with recent sales including Glen Arrow UK Property Fund s 183.5m purchase of 3 Hardman Street in Spinningfields and Langtree s sale of 4 Spring Gardens. Net initial yields have hardened as a result of the continued lack of quality stock. 8 7 6 5 4 3 2 1 Manchester City Centre office market net initial yields % Yield 26 27 28 29 21 Forecast As the Grade A supply continues to fall, net effective rents will increase and incentives harden. A two tier market will remain as less popular buildings continue to struggle to attract occupiers. Without a significant pre-let, further development within the City Centre is unlikely to commence. As the most popular developments such as 3 Hardman Street and Belvedere House reach capacity, we anticipate fierce competition between the few remaining good quality, larger floorplate buildings in the prime core and Piccadilly. Manchester City Centre office market Grade A rental values forecast per sq ft 29. 28.5 28. 27.5 Refurbished stock levels will increase as 27. second hand space is released to the 26.5 market in light of occupiers upgrading to 26. new accommodation. Competition from 25.5 Grade A stock will continue and pressure 25. will remain to keep rents at a discounted level. 24.5 26 27 28 29 21 211 212

South Manchester Executive summary Occupational demand in South Manchester has increased throughout 21, compared with the 12 year low experienced in 29. Total annual take-up for the year is expected to reach approximately 525, sq ft, a significant improvement on the 459, sq ft recorded in 29. As at Q3 21, the market had recorded 157 transactions compared with 12 transactions for the corresponding period in 29. The average transaction size has also increased, albeit marginally, from 2,43 sq ft in 29 to 2,634 sq ft. The lack of owner occupier demand has caused freehold activity to slump to a 1 year low, accounting for only 6% of the total take-up, compared with 3-35% pre-credit crunch. The oversupply of business park office stock is beginning to ease, owing to the ongoing lack of speculative development. This has contributed towards a reduction in the total vacant office space, from 1.87m sq ft in 29 to 1.73m sq ft. Headline rents for Grade A stock have remained stable at 18.5 per sq ft; however, this has only been achieved for a handful of buildings. Heavily discounted rents are still being negotiated for the majority of stock within the region. Continuing from 29, investment activity remains muted, with very few notable deals having taken place during the past 12 months. For more information, please contact: David Thwaites, Associate Director Tel: +44 ()161 242 88 Email: dthwaites@lsh.co.uk Demand The increased take-up during 21 was largely attributable to several large transactions completed at the start of the year. Most notably John Lewis (19,376 sq ft) and SPX (37,258 sq ft) both at Towers Business Park and BskyB (23,548 sq ft) at St Peter s Square, Stockport. Following a strong start to the year with H1 take-up amounting to 37, sq ft we anticipate a slow-down in activity during H2. Total annual take-up is expected to reach approximately 525, sq ft. Although an improvement on 29, this is still lower than the five and 1 year averages of 562, sq ft and 582, sq ft respectively. Grade A take-up has fallen to 21% of the total take-up compared with 34% in 29. This is a reflection of the growing shortage of Grade A stock across the region. Didsbury has proven to be a popular location during 21, having contributed towards three of the 1 largest transactions within the South Manchester region. The continued lack of finance and highly incentivised terms for leasehold premises have accounted for the significant reduction in freehold take-up, causing it to reach a 1 year low of just 6% of the total market. South Manchester office market take-up sq ft 8 7 6 5 4 3 2 1 21 22 23 24 25 26 27 28 29 21 Leasehold Freehold Supply Office availability at Q3 21 totalled approximately 1.73m sq ft, significantly less than the 1.87m sq ft for the corresponding period in 29. Total Grade A supply accounts for approximately 26% of the total available office stock within the region, the majority of which is situated within the business park environment in and around Manchester Airport. Total office availability represents approximately 3.3 years supply based on the take-up forecast for 21. This is reduced to 3.1 years when compared with the five year average take-up figure. South Manchester office market availability sq ft 2, 1,5 1, The increased take-up during 21 particularly within the Grade B market has led to a reduction in the availability of Grade B/C refurbished stock, which has fallen from 762, to 533, sq ft. 5 26 27 28 29 21 Total Grade A Grade B+ Grade B/C Lambert Smith Hampton Research 8

South Manchester www.lsh.co.uk New development Due to the ongoing uncertain economic climate and relatively low levels of occupational demand, no new build development activity has taken place during 21, a continuation from the last six months of 29. While the oversupply of Grade A stock within the region is gradually being absorbed, it is unlikely that any new build development will commence over the next 12-18 months. This is a result of the below long-term average take-up figures and ongoing need for large inducements in order to satisfy requirements. Major refurbishment projects have been undertaken on several older buildings, significantly enhancing their specification and subsequent disposal prospects. Bruntwood s Sale Point is one such example, having enjoyed considerable success in 21 following a comprehensive refurbishment. South Manchester office market speculative construction sq ft 25 2 15 1 5 26 27 28 29 21 Market rental values and yields Headline rents remain in the region of 18.5 per sq ft, which has been achieved at Towers Business Park in Didsbury and the St Peter s Square development in Stockport town centre. The region s more affluent towns, such as Wilmslow and Altrincham, have typically commanded higher rents on all inclusive deals for smaller transactions. Grade B rents continue to struggle owing to the general lack of activity within the Grade B Market. This is compounded by the significant deals currently being offered for Grade A stock. A number of buildings that have been empty for some time have achieved lettings purely by agreeing to rents significantly lower than those being quoted. Tenant incentive packages for Grade A stock have stabilised throughout 21. In the case of 1 year lease terms, examples of high rent-free periods of up to three years remain visible; however, there are signs of this trend reversing. Significant inducements are still being achieved for the majority of Grade B stock, which has also suffered from significantly reduced net effective rents. Continuing from 29, very few notable investment deals have taken place during the past 12 months, owing to the general economic uncertainty. At the time of going to press Manchester International Office Centre near the airport was being marketed at a net initial yield of 8.28%. South Manchester office market net initial yields % Yield 8 7 6 5 4 3 2 1 26 27 28 29 21 Forecast Prime headline rents are expected to remain stable during 211 due to the easing of the oversupply of Grade A stock throughout the region. There is also the possibility of rental growth returning to the market in 212. The relatively small number of buildings capable of satisfying large requirements should see inducement packages for Grade A stock decrease. Inducements for Grade B stock will continue to be significant. South Manchester office market prime rental values forecast per sq ft 2.5 19.5 18.5 17.5 16.5 15.5 There are a number of sizable requirements 14.5 within the market due to complete in 211. 13.5 However, activity is likely to be similar to that experienced in 21 as opposed to the long-term averages. 12.5 26 27 28 29 21 211 212

Salford Quays Executive summary Despite the challenging economic climate, take-up levels in the Salford Quays market soared during 21, rising by 89% from the previous year s figure to record 113,897 sq ft by the end of Q3 21. It is anticipated that the total take-up for the year will break the five year average figure of 159,679 sq ft, with a significant transaction to the public sector expected to complete during Q4. The average deal size for leasehold premises rose significantly from 2,65 sq ft to 8,136 sq ft. Once again, there has been no freehold activity within the Quays. At the end of Q3 21, total availability for Grade A space remained unchanged from the same quarter last year. It should be noted however that while MediaCityUK delivered just less than 225, sq ft of Grade A office space to the market in two buildings, this will only be let to media-related businesses. Whether the occupier is media-related or not, Salford Quays is now supplied with 625, sq ft of accommodation, equating to just less than four years take-up when compared against the five year average. Market conditions are unlikely to change in the short-term; however, demand is expected to improve by mid 211, easing the current oversupply of Grade A stock. Depending upon the overall rate of absorption, it is anticipated that rent-free periods and incentives will reduce rather than headline rents increase. For more information, please contact: Adam Jackson, Senior Surveyor Tel: +44 ()161 242 765 Email: ajackson@lsh.co.uk Demand After last year s disappointing activity, 21 has witnessed an impressive improvement in fortunes for the Salford Quays market. Take-up to Q3 21 amounted to 113,897 sq ft, which was completed in 17 separate transactions. This is compared with the 21,616 sq ft achieved by Q3 29. Based upon ongoing market activity, final year take-up is forecast to be in the region of 17, sq ft; exceeding the five and 1 year averages of 159,679 sq ft and 146,893 sq ft respectively. A noticeable change has been the increased activity by larger occupiers, with the average deal size for leasehold premises having risen significantly from 2,65 sq ft in 29 to 8,136 sq ft at the end of Q3 21. The most significant transaction and the only Grade A deal so far this year was completed by Satellite Information Services, which acquired 25, sq ft at MediaCityUK. Think Money Banking, Morgan Sindall and WYG have all acquired significant amounts of space, with deals equating to 21,498 sq ft, 12,435 sq ft and 1,565 sq ft respectively. As with 29, a large proportion of this year s take-up can be attributed to the Grade B+ sector, with 55% of deals completed within this category. Once current market activity is satisfied, it is expected that this figure will rise to approximately 7%. 45 4 35 3 25 2 15 1 Salford Quays office market take-up sq ft 5 21 22 23 24 25 26 27 28 29 21 Supply Despite improved take-up, the market remains oversupplied with approximately 625,5 sq ft of office accommodation. The completion of the Blue and Orange buildings at MediaCityUK has added an additional 225, sq ft of Grade A accommodation to the market. However, this accommodation will only be offered to media-related businesses as MediaCityUK strives to become the media hub of the north. Therefore, its contribution towards the total Grade A availability should be considered carefully. Grade A availability has remained relatively stable and equates to 163,43 sq ft. At 72,557 sq ft, BAM s Metro development makes up a significant proportion of this. Orbit Development s Broadway Quays still provides 21,411 sq ft of Grade A office accommodation and a further 39,641 sq ft can be delivered with relative ease as the sub-structure of Curzon House has been completed. Following the recent acquisition of Digital Park by Northern Way Property Company, the 35,824 sq ft of available accommodation is set to be reduced as a letting of Building One completes. Both Grade B+ and Grade B accommodation witnessed reductions in supply. However, the completion of the Blue and Orange buildings at MediaCityUK has distorted the overall availability figure. Salford Quays office market availability sq ft 7 6 5 4 3 2 1 26 27 28 29 21 Grade A Grade B+ Grade B Lambert Smith Hampton Research 1

Salford Quays www.lsh.co.uk New development Speculative construction at MediaCityUK reached completion this year and no new development is planned within the Quays, as illustrated in the graph opposite. Salford Quays office market speculative construction sq ft 15 12 9 6 3 28 29 21 211 212 Market rental values and yields Prime headline quoting rents have remained static at 21.5 per sq ft at BAM s Metro, reflecting the quality of the product on offer and the building s BREEAM Excellent status. It is understood that the deal to Satellite Information Services at MediaCityUK was in the region of 19.5 per sq ft. Peel s Grade B+ accommodation at Quay West secured WYG on a respectable headline rent of 15.5 per sq ft and it is understood that the deal to Morgan Sindall at the Anchorage was completed with a headline rent of 15.6 per sq ft. Despite these headline rents, rent-free incentive packages have remained consistent over the last 12 months in response to weakened occupier demand and the increased burden of the empty property rates liability. There has been no investment activity within Salford Quays owing to a large proportion of the office stock being owned by investors and owner occupiers. As such, no current yield evidence for the Quays exists. Forecast Although take-up levels for 21 have been impressive, the figures comprise a number of deals that had been in the market for some time. Caution should therefore be heeded going into 211, as occupier demand will undoubtedly be affected by the Spending Review the full effects of which are unlikely to be known until well into 211. That said, the relocation of the BBC to its new accommodation next year will bring additional life to MediaCityUK and the Quays in general. While 21 take-up will exceed the expectations of many, the market remains oversupplied and, as such, rental growth will not occur in the short-term. Prime headline rents for Grade A accommodation with large floorplates limited to BAM s Metro and MediaCityUK are therefore forecast to remain stable for the next two years at 19.5 per sq ft. This headline rent is considered appropriate in the short-term given supply and demand dynamics. Additionally, organisations seeking larger floorplates of 18, sq ft are likely to consider alternative markets such as South Manchester and the City Centre. With no speculative development underway, incentives will reduce over the short-term if demand is sustained or improved throughout 211. It will take time for the full effects of the Coalition Government s Spending Review to emerge but it is considered that occupier demand will begin to improve from Q2 211 onwards. Salford Quays office market prime rental values forecast per sq ft 2.5 2. 19.5 19. 18.5 18. 17.5 26 27 28 29 21 211 212

376428_Brochure.qxd:376428_Brochure.qxd MediaCityUK Image supplied by Peel Media 3/11/1 11:38 Page 12

Greater Manchester Office Market / Issue Two / The public property of Greater Manchester Greater Manchester Police Divisional HQ, Central Park, Manchester The public property of Greater Manchester Despite the fact that the UK economy was still emerging from the depths of the worst recession since the Second World War, office take-up across Greater Manchester s occupier markets was significantly boosted by public sector relocations towards the end of 29. The City Centre saw the most prolific levels of demand, with public sector take-up representing almost one-third of total office activity last year. But just how reliant are the Greater Manchester markets on a sector that is facing radical cuts? Unsurprisingly, public sector activity in the City Centre amounted to just 1.5% of total take-up to the end of Q3 21 a significant decline from the 31% recorded in 29. However, if take-up for the last four years is analysed in greater detail, long-term public sector activity across Manchester has consistently averaged between 8% and 9.6%, as illustrated by the adjacent chart. So, can the Greater Manchester markets breathe a sigh of relief in the realisation that office activity is not quite so reliant on the public sector as perhaps thought? Unfortunately, the answer is not so clear cut. Uncertain times Although the Comprehensive Spending Review stipulated a figure of savings to be made, very little clarity has been provided as to how this will be achieved. The potential loss of up to 5, public sector jobs, estimated to extend to 94, when private sector redundancies are taken into account, will inevitably result in space being released back to the market. This will only be compounded by local and central government departments rationalising their estates in order to drive further efficiency savings. The Government s plans for boosting local economic growth through the introduction of Local Enterprise Partnerships (LEPs) is also at the centre of further uncertainty, in so far as no one fully understands how they will be funded or implemented. However, on closer inspection, the outlook may not be as bleak as predicted. % Manchester City Centre take-up: public sector v private sector 27-Q3 21 1 8 6 4 2 27 28 29 Manchester City Centre temporary relocation Public sector Private sector Q3 21 Any austerity measures will be managed over a longer period of time than envisaged and, with the hope of an upturn in economic activity and a freeing up of access to finance, the take-up of vacant space may be able to absorb some of the voids. Public sector relocations from larger, older premises to efficient new build stock, albeit smaller, will also provide future redevelopment potential as existing stock is gradually absorbed. Looking ahead With so much uncertainty surrounding the public sector at the present time, it is difficult to predict what future impact it is likely to have on the commercial property sector. However, in a strong city region like Manchester, which boasts an extremely diverse economy, the effects will be less severe. The same, unfortunately, cannot be said for many other isolated towns or communities that have become heavily dependent on the public sector and are therefore at greatest risk of decline. It is these sub-regional economies that will require the most support over the coming years if we are to maintain the stability of Greater Manchester s commercial property markets. Adam Jackson, Senior Surveyor Tel: +44 ()161 242 765 Email: ajackson@lsh.co.uk Lambert Smith Hampton / 13

Greater Manchester Office Market / Issue Two / The future s bright, the future s Green? The future s bright, the future s Green? European Government has continued to drive the importance of Green issues for commercial property. Although the long-term implications of the Government s Comprehensive Spending Review (CSR) have caused a sharp downturn in business confidence, stricter regulations and the introduction of a 1bn Green Investment Bank are both unmistakable signs that environmental concerns remain very firmly on the political agenda. So what does this mean for the commercial property sector? With almost one-fifth of the UK s carbon emissions originating from non-domestic property, the challenge to reduce these requires co-operation with all who design, develop, manage, occupy and own commercial property. The momentum may have slowed somewhat in recent months, as the uncertain economic climate has forced occupiers to consider bottom line operating costs and profitability. Investors on the other hand, have focused on maintaining cost effective asset management in a bid to attract and retain tenants, rather than spend monies on capital improvements which show no immediate signs of securing a return. Changing sentiment Throughout 21, an increasing number of Manchester s businesses took the decision to secure long-term financial savings through the acquisition of efficient office accommodation. In doing so, they now occupy less space in more sustainable buildings, that have been designed to consume less energy and waste. While the Green agenda may well have played a minimal role in the decision making process of these occupiers, the desire to secure modern premises on advantageous terms was, in many cases, the key driver. 14 / Lambert Smith Hampton

Greater Manchester Office Market / Issue Two / The future s bright, the future s Green? However, there are an increasing number of The Co-operative Group s new BREEAM Outstanding HQ on Miller Street occupiers led by the Government that have raised the profile of BREEAM and the agenda Approximately 328, sq ft of open to secure a more sustainable cost effective plan accommodation including offices, property. restaurant and café. The development will be of passive This flight to quality is reflected in LSH s design and incorporate a central atrium research, which found that over half of the and winter gardens to each floor take-up in Manchester City Centre during creating an inspiring environment. Q3 21 was for Grade A accommodation. Designed to achieve BREEAM Outstanding and an EPC rating of A. While financial reasons may have prevailed overall, this is an impressive and positive step The site will utilise rainwater harvesting, in Manchester moving towards its target of renewables and sustainable materials. becoming a Green city by 215. A mandatory emissions trading scheme for the The most pertinent example of this is the UK designed to reduce carbon emissions by proposed relocation of one of Manchester s 4m tonnes a year by 22, the CRC applies most forward-thinking businesses The to businesses whose total annual half-hourly Co-operative Group to its new HQ in 211. metered electricity use in 28 was above the The BREEAM Outstanding building will be an threshold of 6, MWh. In monetary terms exemplar of Green credentials, showcasing this equates to an annual electricity bill in leading-edge sustainable technologies such excess of 5,. as recycling, low water consumption, heat recovery and energy generation. Changes to Part L (Conservation of Fuel and Power) and Part F (Means of Ventilation) of Forward-thinking legislation the Building Regulations also came into force European Government has continued to on 1 October this year, following a period of drive the importance of Green issues for consultation. The changes address the energy commercial property, and in May this year efficiency of new build and refurbishment the European Parliament and Council projects alike, with Part L setting out standards published a new Directive containing that must be realised over the next decade amendments to the Energy Performance (see breakout box below). of Buildings Directive (EPBD). These three pieces of legislation will The original Directive resulted in the fundamentally change the direction of introduction of Energy Performance commercial property development and Certificates (EPCs) designed to grade the refurbishment projects going forward. energy performance of buildings and Display Energy Certificates (DECs) designed to raise A matter of choice public awareness of energy consumption To many, going Green is still perceived as within public buildings. being beyond their reach. However, with occupiers becoming increasingly aware of the The CRC Energy Efficiency Scheme (formerly environmental impact of the buildings they known as the Carbon Reduction Commitment) occupy, a two tier market is likely to emerge also came into force in April of this year. over the coming years. Changes to the Building Regulations 21 Newly enforced changes to the Regulations will improve energy efficiency by 25% compared against 26. 213 The Regulations improve energy efficiency by 44% compared against 26. 216 The Regulations improve energy efficiency 1% compared against 26. 219 All new non-domestic buildings to be zero carbon. Zero Carbon A building is considered to be zero carbon when the net carbon dioxide emissions resulting from all energy used within the building is zero. While appearing more expensive on the face of it, sustainable buildings be it new build Grade A accommodation or substantially remodelled existing space may prove more cost effective in the long-run. The reasons? Older, inefficient buildings, while offering the immediate advantage of discounted rents, are likely to incur additional operational costs over the duration of the lease, owing to increased service charges covering repair and refurbishment works in accordance with current and future Green legislation. From a landlord s perspective, this is also likely to result in increased void periods and lower investment returns. The situation will arise when running costs of a property will become a cost factor as important as rent and rates. Landlords and tenants therefore need to begin reviewing their buildings and assume they are compromised by failing to recognise that the expectation of sustainability will become increasingly relevant. The advocacy of current and future legislative measures, together with the progressively forward-thinking attitude adopted by occupiers, developers and investors alike, is therefore likely to lead to an increase in sustainable refurbishment projects over the coming years. The result? A brighter, Greener future for all! Adam Jackson, Senior Surveyor Tel: +44 ()161 242 765 Email: ajackson@lsh.co.uk Lambert Smith Hampton / 15

Our National Office Network Birmingham Tel: +44 ()121 236 266 Bristol Tel: +44 ()117 926 6666 Cambridge Tel: +44 ()1223 276336 Cardiff Tel: +44 ()29 249 499 Chelmsford Tel: +44 ()1245 215521 Dublin Tel: +353 ()1 676 331 www.lsh.ie Edinburgh Tel: +44 ()131 226 333 Fareham Tel: +44 ()1489 579579 Glasgow Tel: +44 ()141 226 6777 Guildford Tel: +44 ()1483 538181 Leeds Tel: +44 ()113 245 9393 Leicester Tel: +44 ()116 255 2694 London Tel: +44 ()2 7198 2 Luton Tel: +44 ()1582 45444 Maidenhead Tel: +44 ()1628 6761 Manchester Tel: +44 ()161 228 6411 Milton Keynes Tel: +44 ()198 6463 Newcastle upon Tyne Tel: +44 ()191 261 13 Northampton Tel: +44 ()164 66255 Northampton Building Consultancy Tel: +44 ()164 664366 Nottingham Tel: +44 ()115 95 1414 Oxford Tel: +44 ()1865 2244 Reading Tel: +44 ()118 959 8855 St Albans Tel: +44 ()1727 834234 Sheffield Tel: +44 ()114 275 3752 Southampton Tel: +44 ()23 833 41 Swansea Tel: +44 ()1792 728 Greater Manchester Office Agency contacts David Thwaites Tel: +44 ()161 242 88 Email: dthwaites@lsh.co.uk Mark Bamber Tel: +44 ()161 242 777 Email: mbamber@lsh.co.uk Adam Jackson Tel: +44 ()161 242 765 Email: ajackson@lsh.co.uk Peter Skelton Tel: +44 ()161 242 75 Email: pskelton@lsh.co.uk Details of other Lambert Smith Hampton research material can be viewed on our website at http://www.lsh.co.uk Due to space constraints within the report, it has not been possible to include both imperial and metric measurements. Lambert Smith Hampton December 21. Regulated by RICS This document is for general informative purposes only. The information in it is believed to be correct, but no express or implied representation or warranty is made by Lambert Smith Hampton as to its accuracy or completeness, and the opinions in it constitute our judgement as of this date but are subject to change. Reliance should not be placed upon the information, forecasts and opinions set out herein for the purpose of any particular transaction, and no responsibility or liability, whether in negligence or otherwise, is accepted by Lambert Smith Hampton or by any of its directors, officers, employees, agents or representatives for any direct, indirect or consequential loss or damage which may result from any such reliance or other use thereof. All rights reserved. No part of this publication may be transmitted or reproduced in any material form by any means, electronic, recording, mechanical, photocopying or otherwise, or stored in any information storage or retrieval system of any nature, without the prior written permission of the copyright holder, except in accordance with the provisions of the Copyright Designs and Patents Act 1988. Warning: the doing of an unauthorised act in relation to a copyright work may result in both a civil claim for damages and criminal prosecution. National Property Advisers of the Year 29 www.lsh.co.uk