Avison Young’s latest Big Nine report shows Liverpool’s headline rents are still too low, but BT’s expected 100,000 sq ft letting could push them up and spark a new era of development. Tony McDonough reports
Liverpool’s office market may be on the verge of a breakthrough with a crucial rise in headline rents leading to a new era of development.
According to Avison Young’s Big Nine, a quarterly report into the nine biggest regional office markets outside London, communications giant BT is looking for 100,000 sq ft of office space in Liverpool as it seeks to consolidate staff in one regional hub.
It is believed the company has narrowed its search down to two locations. One is The Spine, a £35m, 160,000 sq ft scheme in Liverpool’s Paddington Village which is also be the northern headquarters for the Royal College of Physicians. That is under construction with the ‘topping out’ ceremony having been held this week.
LBN understands BT’s other option is Pall Mall, a £200m, 400,000 sq ft project in the heart of Liverpool’s commercial district which has yet to come out of the ground. A pre-let deal with BT would be the catalyst for the scheme to get under way.
And, according to Ian Steele, principal at Avison Young’s Liverpool office, the deal could see headline rents for grade A office space pushed up from the current £21.50 per sq ft to as high as £24 or £25 per sq ft.
Liverpool has the lowest headline rents for grade A accommodation among the big nine regional cities. The second lowest, Newcastle, has now climbed to £26 per sq ft, while Manchester is racing ahead at the top with £36.50 per sq ft. The average across the nine is £31 per sq ft.
Headline rents are a crucial figure for developers and investors. If they are too low, as they are in Liverpool right now, there is too little incentive for developers to build speculatively. So a rise in rents to £25 per sq ft could spark a new era of development in the city, which has seen its pipeline of new office accommodation run dry.
“At the moment we are in a pre-let market in Liverpool,” Mr Steele told LBN. “At the current level the headline rents mean speculative development simply isn’t viable. So a rise in rents would be really significant.
“The newest office space we have in the commercial district is at St Paul’s Square and Mann Island and both of those are now around nine year’s old. What we could see this year is a new benchmark that would push up rents and see new developments come out of the ground.”
As well as Pall Mall, Peel Land & Property has planning permission for a 106,000 sq ft office building at Princes Dock, part of its £5bn Liverpool Waters project. Until now that has been unlikely to go ahead without a pre-let of between 40% and 60% but a rise in headline rents could change that dynamic quickly. It would offer floorplates of 12,500 sq ft.
Mr Steele added: “I think this year we will see an improvement in the occupational market in Liverpool. It will encourage more inward investment and will be great for the economy of the city.”
According to the Big Nine, Liverpool saw a strong end to 2019, with second half take-up far exceeding that achieved in the first half of the tears. This was primarily due to a number of large transactions during Q3 and Q4 which included the sale of Bibby Group’s former headquarters at 91-105 Duke Street to CERT who will retain the 57,000 sq ft office space and Instant Offices taking 40,000 sq ft at The Plaza.
The other significant deal was the Disclosure & Barring Service taking 18,500 sq ft at No1 Tithebarn. This surge in city centre activity meant total take-up recovered to 510,000 sq ft, although this was still 5% below the 10-year average.