The Subplot | Battle of the burbs, office bounce
Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West’s analysis editor, David Thame.
- Working from home: thirtysomethings’ reluctance to return to full-time office work poses a 1m sq ft problem for the market
- Elevator pitch: your weekly rundown of what is going up, and what is heading the other way
NEVER GOING BACK
The million square foot question no one can answer
Mid-ranking staff’s desire to work from home is screwing up office requirements and giving landlords a headache – one that could make a difference to Manchester take-up.
Barings didn’t want to talk about its conversations with Deloitte over taking one floor (or two) at the 180,000 sq ft Landmark building on Oxford Street in Manchester. The word on the street is that having experimented with 35,000 sq ft flexible workspace at Hanover Buildings the firm is now finding it hard to make the transition back to old fashioned leasehold.
Desk by desk
Why? Plenty of mid-ranking staff aren’t keen to go back to work. This isn’t a problem unique to Deloitte, which has already slashed its floorspace need from the 67,000 sq ft it occupied at Hardman Street prior to the Hanover switch mid-pandemic. Unhappily, the process of deciding how much (expensive, long-term) floorspace Deloitte needs is a tricky human resources issue, almost a remuneration issue. Negotiations proceed desk-by-desk in a piecemeal way that make it hard to put a number on what will be needed. Maybe it’s 20,000 sq ft. Maybe 30,000 sq ft. The firm wouldn’t tell Subplot, but we do know it slashed one-third off its London office floorspace so something equally drastic is quite probable.
That number-crunchers like Deloitte have had some issues – and might be out by a factor of 30% – highlights a much wider dilemma for landlords. A vast swathe of occupiers are in the same plight. Back-of-envelope calculations suggest about 2.5m sq ft of relocation or lease event conversations are in real, live, progress today. Subplot is told many, if not most, occupiers are pondering the wisdom of cutting their requirements by around one third.
The missing million
In reality, once all the sentiment surveys and wellbeing interviews have been completed, that 2.5 million sq ft could turn out to be barely above 1.5 million sq ft. While potential occupiers carry out their well-being studies, and interview individual staff members about their homeworking preferences, nobody knows whether it’s the bigger number or the smaller number. Perhaps 1m sq ft could go missing. Or more.
Your country needs you
The government is trying to signal that a return to work as normal is now appropriate. Dumping the presumption in favour of flexible working, which was to have been included in the Employment Bill, is part of this campaign. The bill, expected every year since it was announced in 2019, is not expected to make it into May’s Queen’s Speech.
Been there, done that
Property people know all about these kinds of problems, which pre-date the Covid pandemic. JLL slashed its footprint by about one-third to take 14,000 sq ft at One Piccadilly Gardens as far back as July 2019. “We’ve occupier clients with lease events in the next 12-18 months and they are all debating how much space they need, doing staff sentiment surveys, floor space use analysis and looking at wellbeing issues,” says JLL office agency director Richard Wharton. “Personally, I feel a lot better coming into the office than working at home.”
Wharton’s guess, and the market’s big hope, is that any downward flex in the floorspace required by professionals will be balanced by an upward flex among tech and media occupiers. “Occupiers who depend on graduate requirement want them in the office, and the graduates want to be in quality office environments too,” says Wharton. The rapid filling up of Bruntwood’s Circle Square is taken as proof: 390,000 sq ft let so far, and work now starting on another 216,000 sq ft.
Landlords are naturally watching anxiously, particularly if their pitch is into the professional services sector. Diversifying into telecoms media and tech, or adding serviced floorspace, is a popular solution for those able to take that route. While there’s no evidence (yet) that rental growth is slowing in response, it can’t be ruled out in some cases. Progress to top Manchester rents of £40/sq ft – thus matching Edinburgh and Bristol – may be slowed, but probably not by much.
It will be an anxious spring and summer for landlords, and a confusing one for office workers and their bosses. One day soon we’ll know how many square feet the new normal genuinely needs.
Going up, or going down? This week’s movers
Developers are riding to the top floor in their efforts to find local council development partners, whilst tech occupiers are waiting for the doors to open in Daresbury.
Battle of the burbs
The battle to be the go-to regeneration guy for Greater Manchester boroughs is now on. Muse Developments, whose involvement in Oldham, Salford, and Stockport seemed to have this wrapped up, is now seeing a serious challenge from Bruntwood, which has added Bury to its existing Trafford tie-up. The deal will help refashion Mill Gate. Muse already had a toe in the door at Bury, at a project in Prestwich, which makes the Bruntwood win that bit more interesting.
Chris Roberts, chief development officer at Bruntwood, told Subplot: “Our decisions on which councils to work with and areas to focus on, are very intentional….But they also correlate with where we had an existing regional presence – for example our workspaces Trafford House, Lancastrian and Station House across Trafford and our links to The Met in Bury.”
An alternative explanation is that Bruntwood is good at talking the language of Tory swing-boroughs. Thus it goes down like a Boris Johnson conference speech in Bury, which elected two Red Wall Tory MPs, and in highly competitive Trafford, but lands like a Boris Johnson bring-a-bottle party in more traditional Labour areas. In such places Muse, with an earthier vocabulary, makes a more comfortable fit.
But for both developers – and others like Capital&Centric, which is moving rapidly into more suburban locations – the outer boroughs promise workstreams with lower risks and easier entry fees than the city centre. At a time of uncertainty that is extremely welcome.
Fears the occupiers won’t come
Worth pausing to note that the surge in high-tech and science property is turning out to be no flash in the pan. The 43,000 sq ft Violet development at SciTech Daresbury is still in its early days – the latest phase is only a few months old – but it has already scored a Chinese and an Australian occupier taking 25,000 sq ft between them. More deals are promised and the more ambitious 180,000 sq ft Ultraviolet development will be along soon.
The deals are a vindication for the Liverpool City Region Combined Authority, which provided a £2.5m loan from its Urban Development Fund along with £5.9m from the Chrysalis Fund. Investors are falling over themselves to get a share of this kind of floorspace and a hugely profitable exit is there for the taking.
Get in touch with David Thame: email@example.com | 01544 262127
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