WeWork, High Rents And Northshoring: 3 Questions For Manchester in 2020

Office take-up is strong, overseas investors are enthused, and Manchester's appeal to corporate occupiers appears unquenchable. So everything is fine in the Manchester office market?

As any entrepreneur can tell you, the most dangerous moment is when success seems assured. Hubris, pride, miscalculations ... all these hidden dangers lie in wait.

So is Manchester in danger of overestimating its strengths? Bisnow sat down with Avison Young UK Regions Managing Director Chris Cheap to uncover three of the icebergs floating Manchester's way.

1. Victim Of Succes

Expectations of Manchester have grown. It is no longer enough to buck the trend that said northern cities were finished as economic powerhouses. Now Manchester has to demonstrate (and maintain) the highest international standards.

“The UK regional office markets are uneven, and there are big differences of scale," Cheap said. "Of the Northern cities Manchester stands out as way ahead on economic criteria, and on the level of office take-up it outstrips everyone else. But the big risk for Manchester is its raw materials, meaning workforce skills and its cross-sector appeal. The danger is that others can make an equivalent offer at a discounted price and I'm sure other cities will make capital out of this.”

The lesson here is that Manchester cannot afford to assume its economic appeal is unchallenged. Rather than compare Manchester with Leeds, compare Manchester with Munich.

2. Rents Are An Issue

Today's top Manchester rents are £36.50 per SF, the UK's highest outside London and the South East. The penthouse suites at Schroder's No 1 Spinningfield are on offer at £38 per SF and Cheap expects that target to be reached. So if 'northshoring occupiers' make a budget-value location their top priority then Manchester is probably not where they will look. “Watch Belfast, Newcastle, these are the places footloose occupiers will be studying,” Cheap said.

The solution is to press ahead with big schemes on the city fringe: U+I's Mayfield and Manchester University's ID:Manchester could be key, Cheap said.

“The big sites will help Manchester retain its competitive edge because the boundaries between prime and non-prime locations are already blurring. Look at law firm Freshfields going to New Bailey in Salford, or WSP going to First Street, or Hewlett Packard to Circle Square, all on the fringe of the existing core but coming with a discounted rent. Sites like NOMA in the north of the city and Middlewood Locks in the west might offer even more attractive discounts,” Cheap said.

The expanding city centre also caters to those many relocators who compare Manchester to existing London bases, who can be reassured that they need not pay the top prices.

“You can rent at No 8 First Street from £31.50 per SF which is a real discount on the top prices today, and occupiers recognise this,” Cheap said.

3. WeWork Is The Future, Despite Everything

WeWork has some well-advertised problems which the latest $1.5B SoftBank fundraising is intended to ease. Landlords in some cities — most recently FORE Partnership in Glasgow — have begun to adopt a safety-first approach to deals with the crisis-hit flexible workspace business.

Cheap said the immediate future of WeWork in Manchester is assured because the firm is using up the last of its generous (three year) rent free deals. Meanwhile landlords with relatively modest exposure to WeWork have no concerns about the business, figuring they could re-let the floorspace rapidly, perhaps on better terms than WeWork agreed.

Yet despite the problems WeWork and its peers are the future of Manchester workspace, not thanks to the coworking offer, but thanks to their offer to corporate occupiers, who prefer to deal with a property retailer rather than directly with wholesaler-landlords.

“WeWork's business model is less about people in skinny jeans hanging around the beer pump, and more about enterprise solutions for corporates," Cheap said. "That kind of long-term corporate engagement is the future, and we're seeing it in Manchester with Amazon's decision to partner WeWork, and BT's to work with Spaces. Corporates want someone sitting between them and the landlord who can produce a nice clean deal with no complexities like dilapidations. And they want this even if it costs them a little more.”