Ever wondered why Manchester gets more investment than Liverpool and why so many hotels and student flats are being built here?

One of the most important answers sounds dull and might surprise you - it’s the price of office space.

City leaders say Liverpool city centre is so short of office space that it’s damaging our ability to attract new jobs and investment to the city. Other cities have more top-class new “Grade A” space ready to use, but there’s very little here.

Estate agents say rents aren’t high enough to encourage developers to build offices, as those builders can’t make enough money on the deals.

Those developers do feel they can make money from other developments, including student housing schemes and hotels . That's why - to the frustration of many ECHO readers - there are so many of those schemes and so few office developments that create jobs.

First image revealed of the proposed office block at Pall Mall, Liverpool, that will be developed for Liverpool council by Kier Construction and CTP Limited

In fact, many old offices have been converted into homes or hotels, meaning there’s even less space for investors to look at.

The recent row over plans for an office block in Pall Mall, where residents are fighting to protect their green space , has highlighted the issue once again.

Having more jobs and workers could have other benefits for the city centre too, from supporting more bars and restaurants to encouraging a five-star hotel.

Plus, the occupiers of those offices would pay business rates and their occupiers would pay council tax, filling the coffers of our hard-hit councils.

We’ve taken a look at the problem - and how it's happened.

Former Tesco Chief Executive Sir Terry Leahy
Former Tesco Chief Executive Sir Terry Leahy

Why are empty offices so important?

Earlier this year, Liverpool-born former Tesco chief executive told a business dinner in Liverpool about how his home city had missed on investment because of a lack of offices.

Sir Terry led Tesco from 1997 to 2011, leading it to massive growth in the UK and abroad.

Speaking to the Chartered Institute of Securities and Investment about how Liverpool could grow its business sector, he said he had tried to move Tesco’s insurance business to the city but “we didn’t have Grade A space available.”

He warned: “We have to get ahead to get the capacity for those investors when they turn up.”

Sadly, little has changed since that missed opportunity.

Sir Terry Leahy speaking at the IFB2016 event in the London Stock Exchange. Picture Tony McDonough
Sir Terry Leahy speaking at the IFB2016 event in the London Stock Exchange

Bill Addy, chief executive of the Liverpool BID Company which represents hundreds of firms in the commercial district, is worried we are missing out on investment.

He said: “If you speak to the people at Invest Liverpool, it's clear demand is still there. People are looking (to invest) but because we cannot offer them anything, we are losing it.

“We've used up the supply of existing spaces. So we need more Grade A space. People are losing out.”

A recent report from the Liverpool City Region Local Enterprise Partnership says the professional services sector, covering areas including law and financial services, employs 107,000 people across the region at the moment.

What the proposed office block off Pall Mall in Liverpool could look like - as viewed from Bixteth Street
What the proposed office block off Pall Mall in Liverpool could look like - as viewed from Bixteth Street

It says 20,000 more jobs could be created in that sector over the next 20 years. But those people will need offices to work in.

Paul Cherpeau , chief executive of Liverpool Chamber of Commerce, said Liverpool needed to compete with other cities like Leeds or Birmingham when it came to attracting businesses wanting to move out of London - what’s known as Northshoring.

He said: "Office space is critical to that, particularly if you want to attract organisations of the scale and scope to make a concerted economic impact here.

“The recent St Paul’s Square scheme (now home to the ECHO) is very good. That's the calibre of space we need more of. It's quality that will act as a magnet.

“The central business district of Liverpool needs the Grade A space if it's to attract the really big brands.”

Liverpool council itself is a partner in the Pall Mall office block plan. Mayor Joe Anderson, said: “This Pall Mall scheme is of huge importance to the development of our Commercial District as we need Grade A+ office space to attract blue chip companies and highly skilled jobs to the city.”

Legacie Developments wants to convert Reliance House in Water Street into apartments. Picture: Infinite 3D

One street shows the challenges

Water Street was once one of the busiest streets in the city centre, lined with office blocks.

But now most of those buildings are being rebuilt for other uses.

8 Water Street has been converted into apartments.

Developer Legacie is currently converting Reliance House into more apartments. The old bank building most recently known as Il Palazzo is also being turned into residential accommodation.

India Buildings in Liverpool city centre
India Buildings in Liverpool city centre

The old Drury House is being converted into a student housing scheme called Gravity Residence. Next door, the upper floors of West Africa House have been turned into flats.

Work has just been completed to convert more space in Tower Building, on the corner of The Strand, into more apartments.

Meanwhile the stunning Martins Bank headquarters was set to be turned into an hotel, though those plans are currently up in the air .

One historic block will stay as offices. India Buildings is currently being refitted to house thousands of HMRC staff, who will move from other offices locally.

Rae Brooke, chief executive of the Community Foundation for Merseyside, centre, presenting the Corporate Social Responsibility Award to Mark Forman and Emma Carey from MSB Solicitors at the ECHO Regional Business Awards 2018
Rae Brooke, chief executive of the Community Foundation for Merseyside, centre, presenting the Corporate Social Responsibility Award to Mark Forman and Emma Carey from MSB Solicitors

To Emma Carey, managing director of fast-growing law firm MSB Solicitors that’s now based in St Paul’s Square, the changes in Water Street illustrate the wider problem.

MSB’s managing director Emma Carey said: “In the last few years there has been a huge transformation in Liverpool’s commercial district with its centre moving towards Old Hall Street following new-build projects, such as St Paul’s Square.

“The older office buildings left behind by this shift, in particular Castle Street and Water Street, have themselves been transformed via conversions to either residential or hotels and restaurants.

“Our former office at Silkhouse Court is being turned into apartments. You only have to look at how vibrant Castle Street now to understand why those conversions are so great for Liverpool.

“However, it means we have lost around 1m sq ft of office space in the past two years. The professional services sector is on an upward growth trajectory and if we are to attract new occupiers from outside the city, and satisfy the demands of local professional firms looking to relocate, then we urgently need more office stock.”

Why are we so short of space?

The office market has been squeezed from both ends.

Little new Grade A office space has been built in recent years. Meanwhile, lots of older office space has been converted into hotels or flats.

The most recent Liverpool City Region Commercial Office Market Review , produced by the BID and by Professional Liverpool, shows the amount of office stock in the commercial district has fallen by a MILLION sq ft since 2014, with total space remaining of 5.6m sq ft.

The report warns this” is a major concern for the sustainability of the district”.

A CGI of what the Paddington Village area of Liverpool could look like including the new The Spine building

Grade A refers to offices that are under five years old. Below that is Grade B* space - refurbished offices of a similar standard - with Grade B referring to other refurbished offices. Grade C space is unrefurbished, while Grade D offices would need substantial refurbishment before they could be reused.

Neil Kirkham, of property giant CBRE’s Liverpool office, said there was around 340,000sq ft of Grade B and B* space available in the city and "that's eroding by the week frankly”.

In 2017, the BID and Professional Liverpool report said, the total office take-up in the commercial district was 396,436 sq ft.

Mr Kirkham said: “We have essentially got one year's worth of office accommodation that's ready to move into.

“Sitting behind that we have got opportunities with Grade C and D space for refurbishment. But a lot of the opportunities for refurbishment have been eliminated by office and residential and hotel schemes that have happened in the last five years or so.

"We are potentially out of stock in 12 months.”

You’ve got to speculate to accumulate

There are broadly two types of office development.

One is built to order, for an owner or tenant that is prepared to invest years in advance.

And the other type is speculative, where a developer builds a block and then looks for tenants. That’s the kind of development that only makes sense when rents are high enough. And in Liverpool, those we’ve spoken to say the rents aren't yet big enough to make “spec” development sustainable.

The Royal Liver Building

That 2017 office report showed rental levels for Grade A space “have remained remarkably consistent to the previous four years with headline rents at circa £20.50 per sq ft.”

Mr Kirkham of CBRE estimated that developers would want to know they could charge a headline rent of £25 per sq ft before building an office block speculatively, particularly as that building could sit empty for a while before an occupier arrives.

The lack of high-profile Grade A space has combined with the fact rental rates have remained very low since the recession, driven down in part by rent-free periods offered to tenants.

Mr Kirkham said: "You cannot justify new builds on the back of that."

The concourse at Liverpool's Exchange Station
The concourse at Liverpool's Exchange Station

But Mr Kirkham said there had been good news recently, with rises in headline rents at the refurbished Grade B* space in the Royal Liver Building and at the refurbished Exchange Station.

Now, he said, the city needs more Grade A space to be built to "reset the bar" for rental levels in the city.

Mr Kirkham pointed to the success of One City Place, built speculatively near Chester station by Muse Developments with European backing.

He said: "Within 12 months that was pretty much fully-let. That just emphasised there was pent-up demand for quality office space in that market." And he said headline rents in the city rose as a result.

The One City Place office block is the first of seven buildings planned as part of Chester’s £100m Central Business Quarter
The One City Place office block is the first of seven buildings planned as part of Chester’s £100m Central Business Quarter

Bill Addy of the BID says Manchester has seen developments such as the Spinningfields district shoot up to house many offices. Because those developments have been successful, more offices have followed.

He said: “Drury House in Liverpool is being sold for residential development, but if it were in Manchester it might be replaced by a Grade A office block. Because if you want Manchester office space you'll pay £30 per square foot.

“That's why Manchester is leaps and bounds ahead of us commercially.

“Why is Manchester more expensive? Because people want to be there. Because there's quality space available. People will pay those top-end rates.”

Pall Mall development has sparked debate

This lack of space is why Liverpool council has been backing plans for an office complex in Pall Mall.

The project has been talked about for some time, though developers Kier Property and CTP insist they are close to making it a reality.

The current Kier/CTP plan would see a £200m development including 400,000 sq ft of Grade A+ office space.

From left, James Nicholson, director for Kier Property North, Mayor Joe Anderson and David Topham, Chief Executive at CTP Ltd at the site of the proposed office block at Pall Mall, Liverpool

The scheme is controversial because it involves building on Bixteth Gardens, one of the few green spaces in the commercial district.

The developers say the scheme will include green space, but residents and workers have told the ECHO they are worried about losing a much-needed recreation space.

David Topham, of CTP, said discussions over the scheme were still ongoing. There are more public consultation events next week.

The latest image of how the green space at the proposed Pall Mall office development in Liverpool could look
The latest image of how the green space at the proposed Pall Mall office development in Liverpool could look

Manchester-based CTP has worked on developments including Granary Wharf in Leeds and the St Paul’s Place office and leisure scheme in Sheffield.

Mr Topham said CTP’s own research had shown there was a business opportunity in building Grade A space in Liverpool.

He said: “We would like to fill that gap and consolidate the Central Business District.”

Mr Topham said Pall Mall could be used by existing businesses in the area, choosing to upgrade or consolidate their offices. But it could also attract new firms.

He said: “Without that space we cannot even begin to think about attracting these people.

"It's a bit of a chicken and egg situation.

“There are only a certain number of pre-let, where a company decides it's interested in a location, a city, and asks if someone will design a space for them.

There are concerns over the future of Bixteth Gardens in Liverpool City Centre because of the planned Pall Mall Exchange development

“Nationally only a small part of the market is made up of that kind of transaction. Not many companies have the time or patience.

“It's a cart and horse situation. You've got to have a worm to catch a fish.”

Mr Topham said it was too early to announce a detailed funding package for Pall Mall.

But he said: “Working with the council we have already started constructive discussions. but Kier and CTP are experienced at delivering these projects.”

Offices bring other benefits locally

Castle Street was once full of offices. Today it’s full of restaurants. But ironically, those restaurants need more new offices to open nearby to keep them busy.

Bill Addy, of the BID, said: “The commercial district is very sensitive to demand. We've just lost Cau due to issues with the chain. Izakaya has closed.

“Everybody says Castle Street is a great success. It is. But it's a delicate balance because we haven't got sufficient employment nearby.”

Castle Street

Many hotels are being built in Liverpool, as revealed by the ECHO recently . Despite that, we still lack a five-star hotel. Even that, Mr Addy says, can be explained by our lack of offices.

He said: “People say Liverpool should have a five-star hotel. But there's no corporate market.

“A five-star hotel would not operate on hen parties. They work off the corporate market that's willing to pay £200 a night.”

Liverpool city centre is by far the most important office centre in the area. In 2017, 61% of all office take-up in the whole city region was in Liverpool’s Commercial District.

So new offices - and therefore new businesses - could boost the whole city of Liverpool and the city region.

Those businesses would pay rates, helping cash-strapped Liverpool. Meanwhile any incoming workers would need places to live - and they’d be likely to look across the region, boosting council coffers through extra council tax.

Paul Cherpeau, of Liverpool Chamber, said: “There are 46,000 businesses in the city region. 96% of them are SMEs. We want them to scale up, pay more rates, pay more taxes, to pay for things like adult social care and the NHS.”

What if you build offices and they sit empty?

Building an office block doesn’t necessarily mean it will fill up. That’s the risk a developer takes.

But those we’ve spoken to are confident that having more space will attract occupiers.

Two of those we spoke to, only half-jokingly, said: “If you build it they will come,” a line inspired by Kevin Costner’s character in Field of Dreams.

There is still some empty office space in the city that was built relatively recently, but Mr Kirkham says we should still encourage development.

The proposed Pall Mall office block, in Liverpool city centre, would be built on the green land to the right in this picture of Bixteth Street
The proposed Pall Mall office block, in Liverpool city centre, would be built on the green land to the right in this picture of Bixteth Street

He said: "We've got some developers saying there's still space in St Paul's Square and that was built 7 years go. There's still space in 20 Chapel Street.

"But what we found is that during the recession it was much more budget-driven. The local occupiers will generally seek quality at a competitive price and therefore will be happy to stick to a B* refurbished 60s building for a few pounds less.

“Where the blue-chip occupiers will be a little more discerning. Adding that extra per square foot to get a new building, with all the benefits of efficiencies and runnings costs that come with that, that cost pales into insignificance compared to the costs of running their business.”

20 Chapel Street building in Liverpool city centre

Mr Kirkham said employers looking to attract Millennial talent wanted more than just high-quality offices - they also wanted facilities such as rooftop terraces, gyms and even yoga studios.

"That generation wants to be in city centres," he said. "They also want restaurants, bars, and that kind of thing nearby.

"Their employers' strategists will be analysing various cities. They'll be asking the likes of me to provide information on office stock available. And if there's no office stock that meets their requirements then very quickly that comes grinding to a halt.

"There aren't that many occupiers looking three years in advance. Most occupiers will have a short decision-making timeline. We have to have readily available stock.”

As for Pall Mall, Mr Topham of CTP said: “We are confident that the supply of new office space will be taken up. We wouldn't do it otherwise.

“But it does take time.”

How The Spine building at Paddington Village i Liverpool's Knowledge Quarter could look

Good news at the Knowledge Quarter

As we wait to see if Pall Mall comes to fruition, there is good news elsewhere.

The £1bn Knowledge Quarter development, for example, is steaming ahead. And the new “The Spine” building is set to include a new Northern home for the Royal College of Physicians as well as high-quality office space for other firms in the health and life sciences sectors.

Mr Kirkham of CBRE said: “I don't think you can underestimate the true value of that - an occupier of that magnitude in that sector will have such a great effect on that location. That' a massive coup for Liverpool."