The Manchester office market is set to continue to be split into two tiers for the remainder of 2010. The latest Manchester office reports that while demand remains strong for the diminishing levels of larger floorplates, there has been a distinct lack of interest from occupiers in smaller floorplates of sub-10,000 sq ft (929 sq m).

James Evans, Office Agency Director, comments: "Office take up in Manchester has significantly increased from 2009 levels however, it has been mainly focussed on the larger floorplates resulting in a noticeable divide in the market and fierce competition between landlords for smaller enquiries.

"This is set to continue in the short term although with no new completions set for 2010, looking forward we expect that those occupiers seeking to relocate will need to compromise on some of their criteria, the main one most likely being the ability to relocate to one floorplate. This should provide some welcome light at the end of the tunnel for landlords of smaller properties."

The Manchester office take-up figure for H110 is 318,004 sq ft (29,542 sq m), which is 37% up on the same period in 2009. 34% of this space was Grade A with the professional sector dominating demand accounting for 24% of the take-up. Research predicts that the end of year take-up figure for 2010 will be in excess of 1 million sq ft (92,900 sq m), although this figure will include the proposed Co-op commitment to 328,000 sq ft (30,471 sq m) within its new development.

With regard to current supply, the only larger Grade A space currently available is at Piccadilly Place, although research notes that this is likely to change when Credit Suisse places up to 180,000 sq ft (16,722 sq m) back onto the market at 3 Hardman Square.

Headline rents for offices in Manchester have remained fairly resilient according to Savills and currently stand at £28.50 per sq ft (£306 sq m). With a muted development pipeline expected over the next few years, the firm expects prime Grade A rents to increase with incentives reducing. However, smaller secondary space is expected to experience further downward pressure on rents in the short term with incentives firmly set in the tenants favour.

When assessing the office investment market in Manchester, Savills found that it is still almost exclusively dominated by the institutional and equity rich buyers, although there still remains a shortage of stock.

Oliver Foster, Investment director, says: "Most funds returned to the market during the final quarter of 2009 as their cash weighting position increased. This augmented demand coupled with a lack of available good quality office stock has inevitably resulted in a hardening of prime yields, which we predict are currently 5.75% based on the recent sales of 40 Spring Gardens and Direct Line House. This shows a year on year hardening of approximately 125 basis points."