Manchester will go into 2018 on the back of a record-breaking year of deals, which is expected to total 1.4m sq ft, having outperformed the last three years for office take-up, writes Gayle Taylor of Lambert Smith Hampton.
The city can expect to see continued rental growth, rising from £34 to £36/sq ft, with grade A demand outweighing supply and the increase of other high quality developments. There will be continued focus on the office product itself, with location a more subjective and footloose requirement, and as such rents will become less location-specific. However, enhancements to local infrastructure such as the Ordsall Chord, will help to influence location as a choice and support wider development across the city centre area.
Next year there will be a focus on ongoing refurbishment of existing stock as landlords and investors try to capitalise on the absence of any new grade A supply coming to the market in 2018. We expect this to push rents up by 5-10% and keep incentives down at pre-recession levels with greatest uplifts seen in the remodelled grade-A sector, rather than new build.
Refurbishments such as Windmill Green and others in Manchester city centre, show what is possible in reinvigorating secondary stock and it’s likely that other institutional investors will follow suit in search of greater asset management opportunities.
The rise of the technology, media and telecom sector and northshoring will continue to make demand for traditional office space wane as the modern occupier wants more, particularly in relation to technology. We’re already seeing this, with growing interest in buildings with Node functionality – instant ‘plug-and-play’ capability for broadband and phones – as those on the move expect to be up and running quickly.
The ongoing diversification of occupier trends will continue in earnest too, as the growing popularity of co-working operators creates demand for something more dynamic and collaborative. We’re already seeing this with a number of landlords turning previously vanilla reception spaces into vibrant shared amenities in order to activate and animate their ground floor frontage.
The appetite for smaller flexible spaces will stay strong, accounting for 80% of the market, although this will not only come from start-ups and instead will include more established occupiers wanting to reduce their balance sheet liabilities, mitigate risk and build more flexibility into their operations.
Although London is at saturation point for co-working, Manchester is ripe for opportunity. However, until there have been enough transactions and success stories, landlords won’t be fully confident of the risks or returns of this model. Next year will see that change, with much greater co-working activity in Manchester city centre. As a result of a huge increase in SME activity, which accounts for 96% of all UK businesses, this will only fuel their growth.
- Gayle Taylor is head of North West operations at Lambert Smith Hampton
The North West in 2018 series features guest contributors looking ahead to next year and is published throughout December.