Liverpool lettings hit an all-time high in 2009, but that is not the full story. Tony McDonough reports

WHEN success comes your way you don’t knock it, so the fact that Liverpool city centre’s office market has enjoyed a record year for lettings should be celebrated.

In 2009, the city’s central office core secured 519,274 sq ft of lettings – its highest ever figure.

However, just two lettings – both public sector – accounted for more than two-thirds of that total.

The UK Border Agency is taking 220,000 sq ft at The Capital, in Old Hall Street, and Merseytravel has taken 140,000 at the new Mann Island development.

Go beyond those two deals and the picture looks less positive.

According to the newly-published Liverpool Commercial Office Market Review, during 2009 there were only three deals above 10,000 sq ft, a drop from five in 2008.

The report was commissioned by Liverpool Vision and compiled by the Professional Liverpool property group.

It revealed total office lettings for the city as a whole, including Knowsley, came in at 721,189 sq ft.

This was higher than 2008’s figure of 542,997 sq ft but below the 2007 peak of 846,195 sq ft. However, take-up of office space excluding the city centre plunged 33.3% to 131,220 sq ft.

On a brighter note for landlords, there hasn’t been as much downward pressure on rental levels as a result of the recession as was first feared.

Grade A rents had touched £22 per sq ft in 2007 and have now dropped back to £20.50 per sq ft, but this is in common with every other UK city.

The high quality of Grade B refurbished space in Liverpool’s office core has helped keep rental levels to around £16 per sq ft, similar to 2007.

The report estimates that out-of-town rentals have fallen by between 10% and 15% from their 2008 level of around £14.50 per sq ft.

The report also acknowledges that the increased use of incentives, including “ever-longer” rent-free periods, makes it more difficult to analyse rents with too much certainty.

Liverpool, of course, cannot be taken in isolation.

The whole of the UK is only just emerging from the worst recession in decades.

The market for office letting was badly hit across the country, with the North-West taking a particular battering.

But as the recovery gathers pace, what can Liverpool do next? What steps can be taken to stimulate the lettings market?

One thing the city has not done so well in recent years is attract blue-chip clients from elsewhere in the UK. Liverpool Vision chief executive Jim Gill acknowledges this, adding that the recession has not helped.

But he believes that at last the right offer and the right product are in place and is optimistic that, as the UK economy recovers, there will be a pipeline of deals.

He said: “The issue obviously is that without the two big public sector lettings, the performance reflects the problems which started at the back end of 2008 when the credit crunch turned to crisis and the bottom fell out of the market.

“It has been lucky for us in Liverpool that the people doing the deals have done two very good deals which allowed us to keep the headline figure up.

“There were some positives, too. The out-of-town market in Knowsley held up well and, sector-wise, there were also good signs from the creative industries.

“The thing to remember is that Liverpool’s commercial district is relatively small compared to other cities and we need to make sure we keep the momentum going.

“The final phase of St Paul’s Square is a great new development which will be completed by 2011 when hopefully the market will be a bit better.

“The Mersey Partnership (TMP) is working very strongly on addressing the London market, particularly in terms of back office functions.

“Liverpool’s offer is very cost-effective. We have the quality of labour, lower wage costs, lower staff turnover and a great quality of life.

“All that underpins how we market the city, and I think that message is now accepted and understood.

“I think we perhaps don’t always do enough collectively. We are now working to put together promotional material that tells the story of what Liverpool has to offer and how the commercial core works.

“That will offer the property companies like Downing, Bruntwood and ECF the opportunity to give a consistent message.”

Mr Gill believes things will improve after the forthcoming General Election.

Not only will it give the wider economy more certainty, but it may also lead to more enquiries in relation to the possible relocation of Government departments to the regions. He added: “I would not expect 2010 to exceed 2009, but I would expect more confidence to return to the market. Hopefully we will see the return of local demand for space – what the agents call churn.

“We also, of course, want to see an increase in inward investment into the city.

“The General Election will be a big factor and I think the picture will be clearer after that.

“I think the underlying message is that we should recognise how much better things are now.

“Average annual take-up in the city is now around 450,000 sq ft – that’s double what it was back in the 1990s.”

The report reveals that take-up of Grade B, or second hand, space in the city’s commercial district was up to 352,000 sq ft from 237,000 sq ft in 2008.

However, it added: “The overall figures masks a dramatic fall in the number of transactions, thanks to the UK’s continuing recession. The collapse in occupier activity is most apparent in the market for Grade B office space.

“In 2008, there were a total of 64 Grade B office transactions, but in 2009 this figure fell to just 37.”

The report says vacancy rates in the city centre have stayed constant in an economic environment where it would have been expected to increase.

It added: “At November, 2009, a total of 7.1m sq ft of office space of all ages and types is recorded in the central business district.

“This compares with 7.09m in 2008, itself barely changed from 2007.”

Brian Ricketts, a partner at Liverpool agency Hitchcock Wright and Partners, believes the city does have the right offer in place and it is a matter of waiting for the economy to pick up again.

He said: “I think what we have seen in the market is a symptom of the current economic climate.

“We have the right offer here now. We have the quality of product and the right spread in terms of the different sizes of accommodation.

“Grade A supply will be supplemented by the completion of the third phase of St Paul’s Square.

“The situation at 20 Chapel Street is now improving. We have had the recent letting by Liverpool Football Club and there is another 4,500 sq ft letting due to complete shortly.

“The only area we are slightly exposed is if a major Grade A requirement were to come this year.

“The only criticism, I think, is the city’s failure to attract substantial occupiers from elsewhere – that has been disappointing.

“But I think we have the right strategy now, and we have the right product, and it is a matter of waiting for the economic climate to improve.”

tony.mcdonough