Liverpool commercial district is likely to see no new grade A office space come onto the market for at least the next two years – putting inward investment at risk. Tony McDonough reports

St Paul’s Square was Liverpool’s most recent grade A development. Picture by Tony McDonough

Metro Mayor Steve Rotheram has pledged to increase foreign direct investment (FDI) into Liverpool city region by 25% – but this target may be undermined by a chronic lack of office space.

It is now more than a decade since the last significant investment into grade A office space in Liverpool’s central business district (CBD). That was the St Paul’s Square development off Old Hall Street.

A number of schemes have threatened to emerge from the ground in the years since, most notably proposed office developments at Princes Dock in Liverpool Waters and Pall Mall, but none have become a reality.

Even the quality refurbished space pipeline has had its troubles. The much anticipated Martins Bank transformation now appears to have stalled. Owner Karrev remains silent on the prospects for the 210,000 sq ft scheme.

Agent on the project, Avision Young, has released its latest quarterly Big Nine survey which analyses the nine biggest UK regional office markets outside London.

There was a small bit of good news for Liverpool in the survey. Take-up in the third quarter of 2024 totalled 76,839 sq ft. This was double the figure in the second quarter but 48% below the 10-year third quarter average.

Key deals with a 24,672 sq ft lease for the Home Office at The Capital and accountancy firm Mitchell Charlesworth’s 11,103 sq ft lease at The Plaza. 63,650 sq ft of refurbished space has been completed so far in 2024.

However, the overall picture is a gloomy one with no grade A space set to come online in Liverpool’s CBD for at least the next two years. In contrast, Manchester’s development pipeline until 2026 totals 812,500 sq ft, with most already spoken for.

A key issue in Liverpool is headline rents. This figure matters to funders of office schemes because it offers a measure of a return on investment. If headline rents are too low then there is little incentive to build speculatively.

Work on Martins Bank Building appears to have stallled. Picture by Tony McDonough

Liverpool’s headline rent is £28.50 per sq ft. This is 12% higher than a year ago but it remains the second lowest in the Big Nine, just ahead of Cardiff which offers £28 per sq ft. Manchester’s headline rent is £44 per sq ft with Bristol top at £50 per sq ft.

This makes Steve Rotheram’s target of a 25% increase in FDI by 2030 more difficult. If major investors are to be persuaded to come to the city they will want to have the option of grade A space.

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Chris Cheap, principal and managing director of transactions at Avison Young, said: “The office markets across Leeds, Liverpool, Manchester and Newcastle are very different but one thing appears to be a consistent challenge across them all – the shortage of grade A stock.

“Developers remain cautious, with borrowing and construction costs still high and limited downward pressure on yields. Supply across regional markets in the short to medium term will be restricted without public sector intervention or significant market shift.”