Grade A office space in Liverpool is at "historically low levels" while Manchester's market is continuing to improve, Avison Young's (AY) new Big Nine report has shown.
The strategic real estate advisor's quarterly study has revealed a contrasting tale of two cities - with Manchester's figures reporting a slow but steady recovery, while its North West neighbour is struggling with an increasing shortage of quality office space.
However there is a "lifeline" for Liverpool - with the imminent completion of The Spine in Paddington Village followed later in the year by business hub Hythe at Wirral Waters - which will both be "critical for boosting supply".
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Following pre-lets to The Royal College of Physicians and Clatterbridge Cancer Centre, there is still approximately 60,000 sq ft available at The Spine and an additional 25,000 sq ft at Hythe.
Building A2, a 58,000 sq ft development in Birkenhead town centre, which is currently in for planning, will also help to bring more quality space to the market should it be approved by committee later this summer, however, it will not complete until at least mid-2023, AY said.
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The Big Nine report, which looks at office market take up and investment across the nine largest cities outside of London, has revealed that availability of space in the Liverpool City Region is at a quarter of its 2014 peak, meaning the new schemes will be a "welcome addition to supply".
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AY added that with a number of active requirements in the market, the largest with Pinnacle, Liverpool John Moores University and Orega, there is greater emphasis for developers and landlords to boost both the development and refurbishment pipeline to attract more businesses into the city region.
Office take-up in Liverpool during Q2 amounted to 50,297 sq ft in the city centre and 23,277 out-of-town, which overall was 43% down on the ten-year average.
Ian Steele, principal at Avison Young, said: “The increasing shortage of good quality office space in the Liverpool City Region has been part of a huge debate in the market over recent years.
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"Whilst it’s encouraging to see developments such as The Spine reaching completion, it is critical that solutions are found so that more new space is delivered to the market to ensure that the city region is able to compete with other regional centres to try and attract high calibre occupiers.
“Understandably, there has been a 'slow-down' in both demand and transactional activity throughout the year to date, but interestingly at the end of Q2, according to Avison Young’s 海角视频 Cities Recovery Index, Liverpool’s Return to Office Index experienced the strongest growth of 2021 so far.
"This demonstrates that there is growing demand from employees and employers alike to now start spending more time back in the office.
"With a number of large requirements currently live in the market, we expect this slow return to normality to act as a catalyst to reenergising those searches.”
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Meanwhile, in Manchester, the city continues to recover after a "year that impacted the region like no other".
Although still below its ten-year average, the market has seen a take-up of 220,183 sq ft and 153,355 sq ft in the city centre and out-of-town markets respectively.
Despite the lower-than-average performance, the Manchester market received the Q2 highest investment figures out of all the cities featured in the Big Nine, as well as the highest 12-month quarterly average following significant deals such Number 8 First Street and the second phase of Muse Developments’ New Victoria scheme.
The report showed a trend in sub-5,000 sq ft units that has been continuing to gain traction, as occupiers leaned towards "a more agile approach to their space during uncertain times".
AY said landlords had become more accepting of shorter leases as the rise in flexible working continues to mount.
The quarter saw an increasing amount of former retail department stores such as M&S and House of Fraser being repurposed into mixed-used schemes to accommodate office space requirements.
Both are due to complete in 2021, and were launched as a result of the changing landscape of the retail market due to lockdowns and restrictions.
It comes in addition to around 460,000 sq ft of speculative developments due for completion this year, including former BBC site Circle Square, which will also be repurposed into a mixed-use development.
Chris Cheap, principal and managing director of Avison Young’s Manchester office, said: “The past 18 months have been a prolonged period of extreme uncertainty. Delayed advice from the Government has meant that the much-anticipated return to office has been stalled a number of times, which has caused a staggering of deals before the end of the quarter.
“However, there is a desire to adopt new adapted working patterns, with a huge population of workers craving some of the regularity of the pre-pandemic working week.
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"So, despite being under its usual average, a 220,183 sq ft take-up is a testament to Manchester’s resilience within the office sector and the overall need to return to the office, in whatever guise that may be."
He said it was no surprise to see the flexible working model gain more traction - and that the growth of short to medium-term managed agreements can't be ignored as a clear market signal of what the future may hold.
He added: "The same can also be said about the rise in retail space conversions: a slow-growing trend that was accelerated by Covid-19.
"Our grand old department store buildings are going to be front and centre in the office market in the coming years and with careful curation they can provide space that works for a variety of occupiers.
“It is clear that from now onwards, the experiential nature of our work, leisure and retail spaces will be central to how we refurbish and develop real estate. Creating engaging mixed-use environments that speak effectively to a variety of audiences and are underpinned by a range of offers will be fundamental to helping people fall in love with our towns and cities again.”