Access to funding, the ongoing supply shortfall, Mayfield Station’s regeneration, and refurbishment trends were all discussed at Place North West’s Manchester Offices Briefing, sponsored by Curtins.
See below for images and presentation
Around 100 readers attended the briefing, held at Deloitte’s offices in Spinningfields. The panel for the event featured John Hughes, managing director of Ask Real Estate; Ken Bishop, development and agency consultant at JLL; Guy Illingworth, operations director at U+I Group; and Jon Matthews, director of 5plus Architects.
Despite an expectation that June’s Brexit vote would slow activity, according to the panel the market performed well in 2016 and was on target to hit the 10-year average of 1m sq ft let over the year.
A key topic was Manchester’s future supply challenge, with high occupier demand but a slow development pipeline.
Bishop began the event with an overview of the city’s office market. So far, 93% of offices due to complete this year are already let, and around 50% of 2017’s stock is either let or under offer. With no new builds due in 2018, the market is going to be “a desert”, he said.
“The average take-up of Grade A office space is about 350,000 sq ft per year. We’ve got 280,000 sq ft left for the next two years. That is going to create a problem.”
“It’s no longer about location, but access to funding,” Bishop told the audience, and stressed that finance issues were the main reason why the city would see such a drop in office supply.
Of the eight offices currently under construction in the North West, all apart from one had benefited from local authority support in some form, Bishop said.
He added: “The question is whether that local authority support is going to be there for the next couple of years. If it isn’t, then we have to ask, where is the money is going to come from?
“It is a major challenge for the construction industry. It is probably a bigger problem than the skills shortage, and a solution needs to be found.”
While Bishop suggested that investment from the Far East was an option for backing more office schemes in the future, the panel agreed that Chinese investors were more comfortable investing in residential projects, which offer a clearer long-term return than commercial developments.
Next stage for Ask
John Hughes, managing director of Ask, said the funding landscape had improved, at least in recent years.
“I think the quantum of development that is being delivered, or is due to be delivered, shows that there hasn’t really been a funding challenge in the last two years particularly,” he said. “But the real funding challenge preceded that.”
The biggest deal in the Manchester market this year has been Swinton Insurance, taking the entirety of Ask Real Estate’s 101 Embankment in a 165,000 sq ft deal.
Hughes said Ask now aimed to be on site with its next phase, the 160,000 sq ft 100 Embankment building, by April 2016, with completion due in early 2019.
One year on from Ask’s acquisition by construction giant Carillion, Hughes said the deal was a “natural fit” as the two companies had already worked closely on bringing forward Embankment. According to Hughes, it was Carillion’s backing that enabled Ask to acquire the 1.74-acre former Bauer Millett car showroom at the base of Beetham Tower earlier this year, now earmarked for 250,000 sq ft of offices alongside residential and a hotel.
Jon Matthews, director of 5plus Architects, proposed that Manchester would have to follow in the footsteps of other cities and introduce mixed-use office schemes as available sites become limited.
However, he conceded that more complex schemes would make funding and trading more challenging.
“We have worked on office buildings which have been traded two or three times before they have even been built,” he said. “For it to be tradable then it has to be really simple. People who are buying or selling the buildings want a very simple product.
“In the future we have to consider mixed-use office buildings which have schools, residential components, leisure components and go higher and become denser. We are not there yet, but when you look at the hyper-dense cities around the world, that is the way their office buildings operate.”
Matthews also provided an update on 5plus’s work for M&G on the redevelopment of Brazennose House. Following approval earlier this year, he said that demolition was expected to start in 2017, with completion in 2019 or 2020.
The panel agreed that the £800m Mayfield Station development was essential for long-term office supply in the city, with Bishop stating “we need this scheme”.
U+I Group was named preferred developer of Mayfield in September. Guy Illingworth, operations director, said the company was progressing with revisions to the strategic regeneration framework for the 24-acre site, which could see the number of residential units rise from the planned 1,300 to 1,500 homes, and commercial space increase from 750,000 sq ft to 1m sq ft.
“The review is ongoing and should be completed by the early part of the next year,” said Illingworth.
U+I’s plans to retain the old station building would create the opportunity for food and beverage outlets and an event space, he explained.
“The first thing we need to do is some placemaking. Outside of the property profession Mayfield isn’t well known in the city. We need to reinvent it.”
Illingworth said realistically offices at the site wouldn’t be available before 2020.
Refurb the answer?
Discussion turned to refurbishments, which the panel agreed could play a role to fill the supply gap, but said that rents were being pushed up by expensive refurbishment costs.
Prices of between £28 and £30/sq ft are being paid for some refurbished offices, compared to £34/sq ft for new developments.
Matthews said: “We’ve had a lot more opportunities in refurbishment over the last five years and that goes back to funding for new builds.
“The other key issue is supply of good sites. Every site I’m aware of in the city centre core is either developed, has got a plan to be developed, or has been purchased. There has been a lot more opportunity to create that secondary stock. The engine of the market is the secondary stock where young companies go in, grow and then finally end up in primary stock Grade A space.”
Click any image below to launch gallery