OUT OF TOWN NORTH LIVERPOOL CITY FRINGE OUT OF TOWN WAVERTREE

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1 LIVERPOOL COMMERCIAL OFFICE MARKET REVIEW 2013

2 WATERLOO NORTH LIVERPOOL BOOTLE CITY FRINGE KNOWSLEY ST HELENS CITY CENTRE RIVER MERSEY WAVERTREE LIVERPOOL CITY REGION MAP SOUTH LIVERPOOL SUMMARY Combining the Central Business District, and the city fringe and out-of-town markets, reveals total Liverpool City Region office market take-up in 2013 was 534,100 sq ft, just slightly below the 534,730 sq ft take up in The figure remains significantly higher than in Total CBD office take-up in 2013 was 316,964 sq ft which was 22% higher than in With a 108 transactions, the total was more than double than in 2012 and the highest in 10 years. A continuing demand from Liverpool s creative and media sector in the city fringe areas such as the Baltic Triangle, and then progression into the Central Business District, has been shown as the sector now accounts for 21% of take-up in Liverpool s office market in After showing significant activity in 2012, the shipping and distribution sector has seen more modest take-up down from 111,503 sq ft to 46,133 sq ft in A slowdown in the public sector s take up in the out-of-town and city fringe down to 46,133 in 2013, from 85,535 sq ft in 2012, has been levelled out by further takeup in the Central Business District, where the sector now accounts for 11% of the market take-up. A major 68,000 sq ft deal by solicitors in the Central Business District has helped the professional and financial sector to more than double its take-up in the centre from 2012; up from 62,049 sq ft to 148,536 sq ft. The sector has also picked up pace out-of-town and in the city fringe. An active future is anticipated across all sectors as the major development of Liverpool Waters takes shape over the coming years. Grade B* office space has been created to differentiate newer, refurbished and higher specification office space, with features such as air conditioning and raised flooring, from un-refurbished Grade B space. At the end of 2013 there was 586,546 sq ft of Grade B* space available in the city region.

3 WELCOME to the Commercial Office Market Review for Professional Liverpool, Liverpool Vision and the Liverpool Commercial District BID are pleased to report on the activities that have occurred in the office market for Liverpool and its regions over the last calendar year. The information included in this report has been researched on a structured and objective basis compiled from data sourced from the property agent members of Professional Liverpool with help from some of the region s major stakeholders. This year the re-grading of some Grade B offices to Grade B*, to recognise the higher quality refurbished accommodation, will help to provide a more focused and detailed analysis of the city s commercial office market. The figures show an abnormally large number of transactions have occurred around the city in 2013 although, apart from two major new occupational deals, the majority have been for office suites of less than 1,000 sq ft. The increase in small office take-up demonstrates that existing and new businesses are reacting to the way that the economy has diversified during recent years, and are recognising opportunities in the city. Whilst the market remains challenging, take-up for 2013 is higher than the average for the last five years. Although new development schemes are thin on the ground there is hope with the advent of Liverpool Waters on the horizon along with potential substantial new offices at Pall Mall. We hope that the review provides not only a useful source of reference for analysis on previous years but a valuable insight into the current market. Our thanks go to all parties involved in the review who have been accredited at the end of this report. We would welcome your feedback. STUART KEPPIE Chairman, Professional Liverpool Property Group MAX STEINBERG Chief Executive, Liverpool Vision BILL ADDY Chief Executive, Commercial District BID property group

4 OFFICE TAKE-UP IN THE CENTRAL BUSINESS DISTRICT FOR 2013 SQ FT ,602 YEAR 316, Total Central Business District office take-up in 2013 was 316,964 sq ft, 22% higher than the 259,602 sq ft recorded in 2012 and 268,298 sq ft in The main driving force behind the improved take-up in the CBD was the return to normality for the professional services sector, which was responsible for 47% of all take-up including two substantial transactions of 29,795 sq ft and 68,000 sq ft. This is double the take up figure for 2012 and back on par with 2011 which was notable for the sector. There is also evidence that the creative/media sector is increasingly spreading from the city fringe into the main city core with 32,655 sq ft of deals recorded in 2013, representing 10.3% of take-up in the CBD. While the largest creative/media sector deal was 10,362 sq ft most were below 1,000 sq ft, indicating greater availability of flexible offices within the CBD allowing SMEs and start-ups to migrate into the city centre. This is a trend seen across all sectors, where offices between 0-1,000 sq ft in size made up over half of the 108 deals in 2013 and has encouraged the highest number of transactions recorded since the inauguration of the Commercial Office Market Review in At the other end of the scale the largest single occupational transaction was 68,000 sq ft, up from 22,500 sq ft in 2012 but still below the 94,000 sq ft letting from Developments like the Cotton Exchange (above) allowed more deals with SMEs and start-ups. OFFICE TAKE-UP OVERALL SQ FT The total office market take-up for the Liverpool City Region, combining Central Business District, city fringe and out-of-town markets was 534,100 sq ft. This shows similar levels of demand compared to 2012 s take-up of 534,750 sq ft and remains significantly higher than 382,592 sq ft in 2011 and 393,441 sq ft in The 2013 total demonstrates growing activity in the office market and returning confidence albeit primarily from indigenous occupiers , , YEAR Edward Pavilion OFFICE TAKE-UP FOR 2013 IN THE CITY FRINGE Total city fringe take-up was 59,662 sq ft, down 10% compared to 2012 but still higher than any of the individual out-of-town locations. The main driving force behind city fringe deals continues to be demand from the digital, media and creative sector, accommodation for occupation of many of the smaller, refurbished offices in areas such as the Baltic Triangle and other small business incubator hubs. The sector for 2013 now makes up 51% of all city fringe deals, up from 37% in The maturing digital sector is in contrast to the professional sector, where take-up in the city fringe was 10%, totalling 5,543 sq ft, only 10% of the total. This is lower than recorded in 2012 and is affected by the increase in professional sector firms moving within the city centre boundaries in It has now been overtaken by training businesses which now makes up 12% of city fringe deals compared to just 3% in 2012 as more Grade C and Grade D office space is vacated in the city fringe. 9.96% 2.55% 24% 12.13% 51.27% TOTAL TAKE-UP (%) 0% Public Sector 9.96% Professional 2.55% Financial 12.13% Training 51.27% Creative 24% Other LIVERPOOL COMMERCIAL OFFICE MARKET REVIEW 2013

5 OFFICE TAKE-UP IN OUT-OF-TOWN International House Mere Grange Take-up in Liverpool s out-of-town office markets was 157,474 sq ft in Although this is lower than 209,200 sq ft in 2012 it is still significantly above the low point of 2011 of just 63,684 sq ft. The slowdown in 2013 can be attributed to a significant reduction in take-up in Wavertree in particular, which decreased from 109,506 sq ft in 2012 to 40,553 sq ft in This may be partly attributed to the significant public sector letting of 32,900 sq ft in The majority of Wavertree deals continued to take place in the creative and digital sector with seven deals in total, six of which were at Liverpool Innovation Park. The highest level of office take-up outside of the city centre and city fringe came in South Liverpool, with ten deals amounting to 47,252 sq ft and just over a fifth of all out-of-town take-up, as it accounts for 22%. Communisis taking 25,864 sq ft at International House represents the biggest out-of-town deal in 2013 compared to the 34,500 sq ft in St Helens fared better by returning to 2011 levels of take-up with 26,403 sq ft compared to a dip of 14,929 sq ft in Alfred H Knight taking 12,788 at Mere Grange in two separate deals helped to boost take-up in the region and continue its upward trajectory as the last of its Grade A stock (22,781 sq ft) was snapped up. The Bootle and Waterloo area saw a decline in take-up from 22,378 sq ft in 2012 to 14,982 sq ft and represents a particularly low level of activity in relation to the size of this market % 12.16% 6.9% 13.03% 21.76% 18.68% AREA (%) 21.76% South Liverpool 18.68% Wavertree 13.03% Knowsley 0% North Liverpool 6.9% Bootle/Waterloo 27.48% City Fringe 12.16% St Helens OFFICE TAKE-UP TRENDS IN THE CENTRAL BUSINESS DISTRICT SQ FT , , , , , YEAR Total office take-up in the CBD exceeded 300,000 sq ft for the first time since 2009 (519,274 sq ft) when Liverpool s largest letting of 220,000 sq ft was recorded. The 2013 figure contrasts favourably to 259,602 sq ft in 2012 and 268,298 sq ft in 2011, suggesting a tentative recovery in the market. The 2013 take-up figure of 316,964 sq ft takes it above the five-year average of 310,340 sq ft influenced principally by the number of overall deals which was at its highest level recorded over the last 10 years. While Liverpool traditionally sees a handful of deals over 25,000 sq ft, there were none in 2010 and However, 2013 saw a return to form with 4 deals in excess of 25,000 sq ft, the largest of which was 68,000 sq ft to Hampson Hughes for Edward Pavilion. Overall there are signs confidence is returning to the city centre market and developments such as Exchange Station and Edward Pavilion have attracted larger deals in the past 12 months. The renovation of the Royal Liver Building and the India Building, boasting Liverpool s largest single Grade B floor plate (35,000 sq ft) will help to improve the quality of available accommodation. At the other end of the scale the market we saw a huge increase in smaller lettings, 55 of which were for less than 1,000 sq ft. contributing significantly to the overall record number of transactions for Small office conversions at the Cotton Exchange and One Old Hall Street accounted for 28 deals with an average size of just 357 sq ft. India Building LIVERPOOL COMMERCIAL OFFICE MARKET REVIEW 2013

6 TAKE-UP BY SECTOR DISTRIBUTION AND SHIPPING When the total take-up from the shipping and distribution sector was calculated for the first time in 2012, following its growing significance in the market, it had shown a considerable take up of 34,709 sq ft. in the CBD. In contrast, 2013 take up has been more subdued. However with the recent and proposed initiatives to bring new development to Liverpool s waterfront areas, there is every chance that the sector will see further growth over the coming years. The Port of Liverpool Building PUBLIC SECTOR In recent years the public sector s impact on the Liverpool office market has diminished as a result largely of the diversifying local economy and government cut backs has been no exception accounting for just 11% of take up in the CBD showing a marginal rise on This is mainly due to the Crown Prosecution Service relocation for 27,226 sq ft space to Walker House, whilst in the out-of-town and city fringe markets take-up is down. Total public sector take-up in the Central Business District combined with that in the out-of-town and city fringe markets has almost halved overall, from 111,503 sq ft to 46,133sq ft, showing the sector is levelling out. 3.53% 2.64% 10.3% 5.48% 12.42% 7.46% 11.3% 46.87% DEALS BY SECTOR CBD (%) 11.3% Public Sector 46.87% Professional 12.42% Financial/Banking 5.48% Training 10.3% Creative/IT/Media 2.64% Distribution/Shipping 3.53% Outsourcing/Call Centre 7.46% Other 33.53% 4.75% 35.66% 17.32% TAKE UP BY SECTOR CITY FRINGE AND OUT OF TOWN MARKET (%) 3.8% 4.93% 4.75% Public Sector 4.93% Training 17.32% Professional 35.66% Creative 3.8% Financial 33.53% Other PROFESSIONAL AND FINANCIAL SECTOR Following the slowdown in take-up in the out-of-town and city fringe in 2012, 2013 has seen an increase across the board showing that some confidence may be returning to the sector. In the Central Business District, the robust rise in take up from 62,049 sq ft to 148,536 sq ft is principally due to the occupation by Hampson Hughes; the solicitors firm moved into a 68,000sq ft space within Edward Pavilion on Albert Dock. Meanwhile the sector has become more prominent in the out-of-town and city fringe markets, with an increase from 11,927 sq ft in 2012 to 37,605 sq ft in CREATIVE AND MEDIA COMPANIES A steady rise in take-up by creative and media companies within the city s out-of-town and fringe areas demonstrates the impact that the sector is having in upcoming areas such as the Baltic Triangle. The area has provided small office units for creative start-up businesses with a view to such companies growing and seeking accommodation in the CBD. Whilst the sector accounts for 51% of take up in the city fringe, the CBD has also seen office take-up increase from 15,083 sq ft to 32,655 sq ft. Baltic Creative LIVERPOOL COMMERCIAL OFFICE MARKET REVIEW 2013

7 OFFICE SUPPLY IN THE CITY CENTRE 21.23% 34.4% 6.95% GRADES A D (%) 6.95% A 25.56% B 11.86% B* 34.4% C 21.23% D 11.86% 25.56% Total office stock in the Central Business District area was 7,023,024 sq ft, a fall of 180,000 sq ft compared to 2012 which was 7,203,705 sq ft. Our data shows the amount of total vacant office space has fallen from 2,438,940 sq ft in 2012 to 2,295,053 sq ft in Vacant office space was 1.96m sq ft in 2011 and the market s inability to significantly reduce stock in 2012 can be attributed to low conversion of unusable Grade D and low-quality Grade C properties into residential or leisure developments. However, government changes to planning measures in early 2013 to reference restrictions when converting offices into residential units along with hotel conversions has contributed to the removal of 71,000 sq ft of unusable pre-war stock from the market in the past 12 months. Meanwhile, the supply of vacant Grade A space has fallen to 159,557 sq ft, down from 209,051 sq ft in 2012 and 257,283 sq ft in The decline in available Grade A space highlights the lack of Grade A development in the city centre over the last two years, combined with recent take up. Grade A space now comprises just 7% of vacant stock in the city. Exchange Station The biggest change comes in the availability of Grade B* office space (better quality refurbished space with features such as air conditioning, raised flooring and a higher specification) accounting for 586,546 sq ft. Total vacant Grade B space for 2013 is 861,836 sq ft compared to 700,851 sq ft in 2012, indicating the extensive improvements undertaken by landlords in the last 12 months and a particularly positive sign for OFFICE SUPPLY: CITY FRINGE & OUT-OF-TOWN Overall there is 1,534,171 sq ft of vacant space in city fringe and out-of-town markets compared to 1.2m sq ft in The amount of vacant office space has increased for the fourth year in succession. There is now 431,678 sq ft of office available in the city fringe, showing little change from 422,144 sq ft in Over 250,000 sq ft of Grade A office space remains available in the city fringe and out-of-town markets. This is significantly down from 345,816 sq ft in 2012 and 431,950 sq ft in 2011 and highlights the dwindling supply of Grade A offices in the region. Strong performance in St Helens saw the last of its Grade A supply taken. Wavertree and Knowsley now also have zero Grade A office supply % 28.14% 22.98% 2.86% 15.69% 9.59% 6.70% OFFICE AVAILABILITY (%) 14.04% South Liverpool 15.69% Bootle/Waterloo 22.98% Wavertree 2.86% St. Helens 9.59% Knowsley 28.14% City Fringe 6.70% North Liverpool TAKE-UP BY GRADE OF OFFICE 25.62% 1.36% 3.41% 69.61% DEALS BY GRADE OF BUILDING IN CBD (%) 3.41% Grade A 69.61% Grade B 25.62% Grade B* 1.36% Grade C There is a continuing trend for occupiers to seek economical good quality office space which has compressed demand at the higher end of the market and with little activity for poor quality stock. Grade B office space once again dominated the market with 70% of the total take-up in the CBD. Whilst lower than last year s 87%, the two figures are not directly comparable due to the addition of Grade B* (built before Jan 2008 but recently refurbished to a higher specification) in this year s report. This new category makes up 26% of total office take-up, leading to a combined Grade B total of 96% a notably higher proportion than in Take up of Grade C office space has been falling in recent years. This downward trend has continued into 2013, with just 4,299 sq ft let, only 1% of the total CBD office take-up. This compares to 3.7% and 5.3% in 2012 and 2011 respectively. The take-up of Grade A office space has been known to fluctuate subject to the availability of new space. In recent years this was markedly demonstrated between 2008 and 2009 by a differential of 29%. For this year the figure stands at 10,819 sq ft, translating to 3% of the market. The out of town market is far more balanced between Grade A and Grade B than the CBD. Similar to 2012, the Grade B office space take-up is 51%. Last year, Grade C was unusually high at 28% due to a heavy make-up from the Wavertree market. This year it has reduced vastly to just 3%, with a higher proportion of Grade A take-up at 45%. Take-up in the city fringe market is following a similar pattern to that of the CBD, with Grade B accounting for a dominant 85% up from 73% in LIVERPOOL COMMERCIAL OFFICE MARKET REVIEW 2013

8 TAKE-UP BY SIZE OF OCCUPIER A continuation of recent years results see the trend continue of smaller lettings becoming more prevalent, suggesting a thriving grassroots culture within Liverpool s economy. Last year s findings saw 54% of deals within the Central Business District were for less than 25,000 sq ft, up from 47% in The trend continues into 2013, with 77% of deals under 25,000 sq ft, meaning that smaller occupiers are dominating the commercial market. There were 10 larger deals in excess of 5,000 sq ft in 2013 which may seem relatively low, compared to the 16 in However, whilst the total size of larger deals in 2013 accounted for 63% of take up compared to 71% of 2012, the amount of take up was 198,732 sq ft for 2013 compared to 184,022 sq ft for 2012 Of the total 108 deals in 2013, there were just 4 deals in excess of 20,000 sq ft, similar to However the total size of these deals were well over double the amount - 152,773 sq ft in 2013 compared to 64,629 sq ft the previous year. The Hampson Hughes occupation of 68,000 sq ft at Edward Pavilion makes up a large proportion of the total increase and demonstrating an underlying confidence in the market. 14% 26% 1% 4% 4% 51% % % % 2013 DEALS BY AREA IN SQ FT (%) 4% ,000 1% 10,001 20,000 4% 20,000+ RENTAL VALUES Rental levels have remained largely consistent over the last 2 years in the city centre with a marginal increase for Grade A and Grade B* accommodation, with Grade A achieving 21 per sq ft and Grade B* 17 per sq ft respectively. The out of town market has seen greater downward pressure on rentals due to low level of take up with typical rents being below 11 per sq ft, although it should be noted that there is very little Grade A accommodation which has been transacted. CAPITAL VALUES There has been no true evidence to support prime investment yields over the past two years and just one major office investment transaction, No 1 Tithebarn, occurring in 2013 which is difficult to analyse due to the proportion of vacant space in the building. 4 St Paul s Square NOTE ON TERMINOLOGY For the purposes of this research, Grade A space was defined as office space completed since 1st January 2009; Grade B space as office space completed before 1st January 2009 or other accommodation recently refurbished or due to be refurbished. Grade B* is higher specification including air conditioning and raised floors. Grade C as unrefurbished but ready for occupation. Grade D is office space which could not be occupied without substantial refurbishment, and where no plans exist for such refurbishment. CONTACT INFORMATION Professional Liverpool Tel: johnhall@professionaliverpool.com Liverpool Vision Tel: info@liverpoolvision.co.uk Commercial District BID Tel: kevin.whittaker@liverpoolcdp.com ACCREDITATION This report has been compiled by members of the Property Group of Professional Liverpool with assistance from Liverpool Vision and the Commercial District BID. Our special thanks go to: Words, design and production by The Design Foundry.