Airport office space is flying high after nearly two decades in which it largely dropped off the workspace search list. Is this the result of sudden atmospheric pressure in the property market, or a real shift in sentiment? David Thame reports.
Suddenly, the office market is airborne. And this is not just a metaphor. After a decade in which the lustre appeared to have worn off airport-linked office development, a series of deals and developments suggests that the glamour of air travel is triumphantly back.
Earlier this autumn, Internet retail giant, The Hut Group, ended a summer of speculation by announcing that it would occupy a 1 million sq ft campus at Manchester’s Airport City business park. A 280,000 sq ft first phase would begin the development of the 16.8 acre site, to be completed in four phases over the next three years.
To say jaws dropped is to underplay the reaction. This is Manchester’s largest occupational deal in living memory – perhaps ever – and a real sign of the airport business park’s pulling power.
A planning application has been submitted, with construction scheduled to begin in early 2019. The hope is that it opens the door to up to 2 million sq ft of further development on the remaining 60 acres.
The site’s promoters, a consortium lead by MAG Property, got the ball rolling with plans to build a 92,000 sq ft speculative office building next to The Hut Group’s site, with the option to add another 92,000 sq ft. The move comes as the south Manchester office market enjoys record take-up, with lettings in the year to 30 September of 683,000 sq ft. To grasp the scale of the market, bear in mind that the entire city of Birmingham transacted just 478,000 sq ft in the same period. With demand this good, MAG Property thought they were onto a winner, says Adam White, MAG Property Director of Commercial and Business Development.
‘Airport City will bridge the market between Manchester city centre, the wider GM conurbation and Cheshire, complementing their offer with strong car parking ratios, up to nine trains an hour to the city centre and a significant price differential,’ he says.
Manchester is currently in the midst of a cork-popping economic and property boom, so maybe the rebirth of airport property there is not a reliable guide to the appeal of airport sites? So to assess whether airport offices really are back, turn instead to Birmingham and Solihull and, as it happens, there is an imminent opportunity to test the issue at Arden Cross – a 350-acre slice of a much larger project to develop land next to Birmingham Airport and the new HS2 station (due to open in 2026). A decision last month by Birmingham City Council to add their 99-acre part of Arden Cross to that of other private landowners has opened the door to real progress. A new joint development business has been formed with the city council’s dynamic Economic Development Director, Waheed Nazir, in the chair. After a long and, to some observers, frustratingly slow build up, action now seems likely.
The move comes at a time when the office market in the immediate airport neighbourhood is strong: Q3 2018 was the best quarter of office lettings in the Solihull and M42 office market for more than three years. Solihull’s office vacancy rate is about 3%, and although estimates vary from the 7% rate at the nearest big business park, Birmingham Business Park, is perfectly respectable, data from local agents KWB shows. Serviced office provider, Instant, signed the largest deal, taking 21,217 sq ft.
Andrew Berry is Associate with Cushman & Wakefield in Birmingham. He says today the airport matters, but only because it is part of a mix of amenities.
‘The airport has a significant impact, not necessarily on its own, but because the area also has railway stations and the M42. So office occupiers cluster there for the connectivity and the amenity that goes with it,’ he says.
‘The key to success at Arden Cross will be to offer amenities, not just to talk about the airport and the trains. Today you can see how much of a difference it makes because, whilst the vacancy rate in Solihull is low, at the Trinity Park site immediately next to the station, it is effectively zero. Occupiers like the connections and the fact that they can get out at lunch and buy a sandwich.’
If Arden Cross is to succeed, Andrew advises the development of low-rise, standalone blocks of 60-80,000 sq ft in the traditional business park mode. Nigel Tripp, of KWB, agrees that Arden Cross could be a winner – and also agrees that, whilst the airport appeals to some, it is the entire connectivity package, including rail and road, that really attracts occupiers.
‘In the last six months we’ve seen three German-owned businesses opt for offices close to the airport, because that matters to them – so it does matter,’ Nigel says.
‘The office market is now seriously short of supply, so developers are dusting off old plans, encouraged by the way headline rents have risen to £25 a sq ft, which makes development viable.’
Nigel thinks Arden Cross needs the kind of boost Waheed Nazir’s appointment will give it. ‘I would expect it to develop in a similar way to Airport City at Manchester. The appeal of being able to walk to either the airport or the HS2 station will be considerable, so there are real opportunities there. Waheed’s appointment is the catalyst we need,’ he says.
Other UK cities are exploring similar developments: Glasgow will be worth watching.
Airport workspace is flying high and, for so long as the economy is growing and there is a shortage of newly-built floorspace, they will be in a holding pattern over the office market for some time to come.