Wild Ideas: Manchester's Summer Plague Of Undeliverable Property Projects

In an exuberant market some wild ideas are worth exploring: feasibility studies, architects drawings, perhaps even a tentative approach to the funding market.

But is Manchester seeing an unprecedented flood of over-optimistic, unviable schemes in the residential and office sectors?

Ahead of the Manchester Build To Rent Boom event on 6 September, Bisnow decided to find out.

Good property development ideas come in two varieties: those that can be delivered, and those that can't. The trouble is that in rising — giddy even — markets, telling the difference between them can be hard.

Late last month Manchester City Council's planning committee approved 177 storeys of new residential development in one brief afternoon: that tally is a little above average, but representative of the city's humming development scene. Data from Deloitte suggests that as the year turned, 41 residential schemes, set to deliver a total of 11,135 units, were under construction, 60% more than the same time in 2017. Seven months ago Deloitte could see a further 6,000 units being delivered in 2019 and 2020, but the rash of planning consents during 2018 makes that figure seem slender.

The office market is in nothing like such an exuberant condition, but even here developers are spotting opportunities and moving in fast to catch them. JLL are tipping the city as a hot spot, whilst Knight Frank point to the £1B invested in the city office market in 2017, with 2018 likely to be stronger still.

Going Up: The Office Towers That Didn't Make It

In this market ideas come and go fairly rapidly, ideas that in more placid times would never have made it past the brainstorming stage. Meanwhile the four-year-long battle to build on the Bootle Street/Jacksons Row site, recently won by Gary Neville and his consortium, illustrates the difficulty of building in a city centre tightly constrained by listed buildings.

Perhaps this explains the failure of plans to place a 290K SF office tower immediately next to the Grade I-listed City Art Gallery at Moseley Street. The tower, designed by Calder Peel, would have been slightly off-set from the street on a plinth, but its effect on the setting of the Art Gallery would have been substantial. You can take a look here.

Calder Peel did not respond to Bisnow's invitation to talk about the skyscraper plan but the site at 67-75 Mosley St., acquired with two other properties by Boultbee Brooks for £16M in 2015, has since come down in the world. The planning permission allowed a 7K SF extra floor to create a 66K SF refurbishment.

Can Every Residential Tower Really Pay?

Few residential schemes can claim to be as ambitious as Allied London's Trinity Island. The scheme, to include a 67-storey skyscraper, would see 1,400 residential units along with 150K SF of commercial space. A first phase of 1,000 units is planned after Allied London's February launch of the hunt for a development partner.

The development at Trinity Way is representative of a slew of large-scale, often skyscraping, residential schemes around the ring road.

“Edge of centre schemes are difficult. They are often great concepts, high rise with inspirational architecture, but they are very expensive to deliver,” Lambert Smith Hampton Executive Director Nick Mullins said.

“They could be game changers, but how do you make it add up? Assume build costs of £250/SF, add in land values, funding costs, professional fees, it’ll be £350-£375/SF, and to generate a sensible profit developers need to sell at £425-450/SF which you’ll get in the centre of town, but it’s a bit toppy in fringe locations. Its just difficult to generate that kind of value.”

Allied London said it is confident of success. “Discussions are progressing with joint venture residential development partners to deliver the first phase of Trinity Islands,” Allied London Project Director James Sidlow told Bisnow.

“When we developed the residential element of Spinningfields, the 500-unit Left Bank development, we adopted the same process; following planning consent approval we sold a long lease to an experienced, well-known residential developer to build the development, keeping the commercial element.

“This is a really exciting opportunity to secure a prominent development site in the heart of Manchester and our priority is to see the site developed by the right partner.”

Mullins said he doubts today’s market is more likely to see unviable ideas than any other — it is simply that today they are likely to get further before they hit the buffers.

“There have always been mad ideas, whatever state the market is in. You regularly get the emails from people who think they’ve got a take on the market nobody else has, and a lot of those emails come from people with no record of delivery,” Mullins said.

“Often you look at schemes and your wonder how that all came together — today the difference is that the developer, or the contractor, or the funders believe they can make this work.”

It’s all down to belief, then?

The Answer: Money

No, says Sourced Managing Director Stephen Moss, it is actually all down to money. Sourced is often a conduit for overseas money looking for a home in Manchester real estate, most of it from small-time investors.

“There’s a strong feeling about Manchester, and everyone is pricing for growth — as a rule I’d say there’s a 15% premium for Manchester at the moment," Moss said.

“The landowner instructs an architect to put together a scheme and make it look as shiny as possible to attract retail buyers, which in turn attracts developers, and all the time the size of these schemes is growing — 200 units used to be normal, now it's 500.”

“And as the scheme gets bigger, a basic valuation problem gets worse, which is that valuation is an art not a science. You get values by putting ranges on the value of apartments — up to £20,000 plus or minus — and then you multiply that by the number of units, and small variations in valuation suddenly magnify into huge differences in value for the scheme, which then breaks back into huge land values.”

All of this adds up to a warning to be careful, Moss said, especially in sectors like student housing where he believes supply is dangerously high.

LSH’s Mullins agrees. “There’s a huge weight of money coming in Manchester property, and it is great to have, we want city to grow — but it is worrying if the market begins to look like its being driven by investors, not by occupiers. That would not be a sustainable approach.”

To join the conversation at the Bisnow Manchester Build to Rent Boom event on 6 September, register here.