Star date: 24th March 2021

NO TAKERS FOR £72MILLION 'UGLY SISTER'

100 Embankment, the second of the so-called 'ugly sisters' office blocks opposite Manchester Cathedral, owned by Salford City Council at an investment cost of £72.392million, remains empty after a prospective purchaser pulled out of a deal.

However, an upbeat Council report states that "100 Embankment is well placed to take advantage of pent up demand as we emerge from the pandemic in the next six months". Really?

Full details here...

As soon as plans were published showing two huge black glass buildings to be built opposite Manchester Cathedral, they were immediately dubbed the 'ugly sisters' by planning bloggers.

The first building, 101 Embankment, was completed in 2015 and ultimately occupied by Swinton Insurance. The second ten storey building, 100 Embankment, was completed almost a year ago at an investment cost of £72.392million by Salford City Council, and remains empty.

A Council report on its office blocks notes the pandemic timing of the completion... "A full-scale launch of the building to potential occupiers at that time was considered to be unwise" it understates.

"In parallel, the Council was aware of firm interest from a multinational company in purchasing the building which pre-dated the lockdown" it adds "An exclusivity agreement with the prospective purchaser was signed, and whilst they expended considerable time and money in undertaking due diligence on the property, their interest has ultimately waned."

Even with companies looking to downsize offices with more people working from home, the Council is incredibly upbeat about the fate of the 'sister', citing 'strong occupier demand'..."Interest in 100 Embankment remains extremely positive with a high volume of open enquiries and head of terms in play" it states "There have been initial enquiries from M&G as to the Council's position on a sale of 100 Embankment and we will explore this option further in the coming months.

"Overall, the decline in tenant demand is less severe than the decline in Grade A supply in the Salford and Manchester market and 100 Embankment is well placed to take advantage of pent up demand as we emerge from the pandemic in the next six months" it concludes.

Time will tell whether it is wise for local councils to gamble with public money...not knowing what is around the corner.

Meanwhile, the Council report is also incredibly upbeat about all of its office properties. It currently controls 479,500sqare feet of grade A offices, of which only around half - 244,500square feet - is either 'let or committed'.

Over in New Bailey, One New Bailey "is generating a surplus of over £470k per annum" states the report, while 2 New Bailey is still within the 'rent free period' for clients, which include solicitors Eversheds Sutherland and BLM, that occupy six and half of the ten floors. Sainsburys is set to open a ground floor store this month. The report states that the Council is "ahead of both the projected level and pace of lettings resulting in an improvement in the original financial forecast..."

The Council doesn't own these New Bailey buildings, which were investments by Aviva and Legal and General, but took on the leases which are then rented out to other companies...or not as the case may be.

The report states: "In return for signing these leases at a rent below the market rent for office occupiers, the Council receives a lump sum 'dowry' made up of an amount for rental cover and an incentive payment to reflect the letting risk being taken on by the Council". The 'dowry' received for "One New Bailey in 2016 was £14.6million, of which £3.9million remains, and for 2 New Bailey Square, £31.2million was received in November."

While the report is upbeat, it also notes that rents might decrease in future years, while "The other unknown factor is the impact of Covid on market rents and this will only become clear as reviews across the office market take place over the next 12-24 months."

During the pandemic, the Council lost £1.075million in rent at 2 New Bailey when a  company pulled out of potentially renting two floors. 

Other office blocks let include 3 New Bailey, which will have the HMRC housed, and a reduced sized building for BT. The Council report states that business rates from completed buildings bring in around £3.45million per year, although this has to be weighed against the cost of acquiring the sites, building the blocks, rent-free periods, empty floors and possibly future empty buildings as the post-pandemic nature of work changes. 

However, the Council report concludes that "despite the unprecedented situation caused by the pandemic, there remains confidence in the Manchester/Salford office market.

"...The investments which the Council has made in grade A office properties are performing in line or ahead of the forecasts which supported the original interventions. In terms of revenue income, the properties either currently or will generate surplus revenue as a result of the legal agreements completed to date..."

Time will tell...

For a full background see previous Salford Star articles on the Embankment and New Bailey – click here and click here and click here

Photos of New Bailey by Anya Samantha