Peak Office? Not Likely, Say Manchester Developers
Manchester’s office take-up for 2018 is racing toward a new record high of 1.5M SF, easily outpacing rival regional centres and nearly 50% up on 2017. So does that mean the market has peaked?
Three developers working in different sectors of the city centre office scene answered a resounding no, in a panel discussion moderated by Gowling partner Michael O’Shea.
In the refurbished workspace sector, in the growing tech enclave of the Northern Quarter, and in the competitive market for larger Grade A floorplates, there’s no evidence of a market slowdown. But the Bisnow panel nonetheless detected reasons to tread carefully into 2019. The most prominent concern was sluggish trading in the office investment scene.
CERT Property director Howard Lord said the Northern Quarter has to rise to the challenge of meeting growing demand from office as well as residential development. “It’s difficult because the historic buildings are often smaller, but I think we’ll find that residential development has peaked in Manchester and we may start to see some residential schemes in the Northern Quarter being redesignated for mixed-use. So we will see more offices in the area, and I don’t think the office market has peaked at all. Manchester has a long way to go and we will find that take-up of 1M SF a year is the new normal.”
Ask Real Estate managing director John Hughes said Manchester’s office market was enjoying an agglomeration effect. “We’re seeing businesses pulled into Manchester from other cities, and this in turn makes the city a place yet further businesses want to get a piece of," he said. "I’m not sure I agree that Manchester city centre residential has peaked because it is linked to take-up in the office market, and to an extent residential is still playing catch-up with offices. Though eventually there will be a slowdown.”
Leading the discussion, Gowling partner Michael O’Shea asked: “Has Manchester broken away from London’s office market orbit, and is it now standing on its own feet from the point of view of the investment market?”
According to Ask’s Hughes, the answer is a slightly equivocal yes. “Lot sizes in the office investment market are growing, and we’re dipping into a pool of international capital. But I don’t see Manchester competing with London. The fact is that London is a global city, and we’re a regional city with global competitiors in Europe and in the U.K. Proof is that when we sold 1 Embarkment it went to an investment vehicle that was 75% Japanese capital. The same was true at the sale of No 1 Spinningfields.”
“The danger is that we’ve had rather thin trading this year, investors have sat on their properties and not sold them, because they’re taking a long-term view and not trading.”
LJ Real Estates founder Sam Lawson Johntson agreed. “We’ve seen Manchester total transaction volumes fall from something like £1B to £200M, and that is causing some worries about the liquidity of the market, thanks to the volume of transactions.”
Howard Lord added: “Lack of trading is inhibiting the marketing, it's causing investors to hold back.”
According to Lawson Johnston, policy-makers could improve the market environment with a new emphasis on new parks and green spaces.
“There is a very obvious lack of green space in the city centre, which is really gutting, because even in crowded cities like Singapore it is possible to include gardens, and we’ve got to explore this as developers. The alternative is guerrilla gardening — just to get out there and get more trees planted.”
