The Subplot | The Lincoln’s issues, Blackpool pleasure, retail resilience

THIS WEEK:

• David Thame is away. This week, senior reporter Dan Whelan takes over with a look at why M&G’s 100,000 sq ft Manchester office is still empty 18 months after completion
• Elevator pitch: Your weekly rundown of what is going up and what is heading the other way

WHY IS THE LINCOLN STILL EMPTY?

M&G’s Manchester headache?

The investor’s 100,000 sq ft office building in Manchester’s Lincoln Square has pretty much everything you would expect to see in a 21st-century workspace: a prime location, attractive design, and bags of amenity space.

However, almost 18 months after completion, The Lincoln’s basement yoga and wellness suite and the six floors of offices above remain unused.

The consensus is that this barren period cannot last forever, but the question remains, what’s the hold-up?

A tough market

A Manchester-based office developer tells Subplot the delay in letting activity may be down to the type of tenant M&G is trying to attract.

“It is geared towards the corporate occupier, which is the area of the market that seems to have had the biggest drop off,” he says.

While tech and creative firms that rely heavily on collaboration have flocked to the likes of Enterprise City and Circle Square in recent months, large corporates have been less active in the market.

Much of this inactivity is put down to hybrid working, a pandemic-driven necessity that is here to stay. Some staff would rather work from their spare bedrooms than make the trip into the office.

The inability to entice staff back to the workplace has forced some companies to shelve their office strategies for now.

And the big firms that are looking to relocate need less space than years gone by.

Take Deloitte. Before the pandemic the Big Four advisory firm occupied 67,000 sq ft in Spinningfields. Its footprint at new home 100 Embankment is 43,000 sq ft.

The price is right

Deloitte looked closely at The Lincoln and it was a blow to those trying to let the building when the company signed a 10-year lease at 100 Embankment.

In the aftermath, some accused the agents of putting all their eggs in that Deloitte basket.

This is refuted by David Porter, head of Knight Frank’s Manchester office and one of the agents acting for M&G on The Lincoln, along with Savills and Cushman & Wakefield.

“The building is open for all,” Porter says.

M&G declined to respond to Subplot’s request for comment.

Some commentators speculate the deciding factor in Deloitte’s move was cost. The quoting rent for 100 Embankment is somewhere in the early-to-mid £30s, whereas rents at The Lincoln start at £38.50/sq ft, about par for new Grade A space in the city.

Porter says rumours that agents are asking for £45/sq ft at The Lincoln are just that, rumours.

Is it green enough?

While our rival developer friend thinks the rental levels being offered are “about right”, others disagree.

An office agent tells Subplot they would expect more from a building in terms of sustainability for the rents being sought.

The Lincoln has BREEAM ‘excellent’ accreditation, which is the same as its list of competitors, including Aviva’s 11 York Street and Barings’ Landmark.

However, while The Lincoln has an EPC rating of B, both Landmark and 11 York Street are proud holders of EPC A ratings.

Those rival buildings have attracted several high-profile occupiers and demand some of the highest rents in the city.

Work to boost The Lincoln’s EPC rating up to an A is ongoing. The sooner it happens the better.

Added extras

While M&G’s building isn’t as energy efficient as some offices coming forward, its amenities are surely market-leading.

The basement was originally going to be a 50-space car park. This was reduced mid-construction to 14 spaces, making way for a gym and separate fitness studio that match many facilities you might find in high-end apartment developments.

This pivot, Porter claims, is an example of M&G reacting to market sentiment and occupiers becoming more discerning.

While the basement is impressive, the entrance lobby is less so, at least in the view of one of one agent. “It could do with a few quid being spent on it,” he said.

Bloody skateboarders

A lot has been made of the presence of skateboarders in the adjoining Lincoln Square. Some commentators think the wannabe Tony Hawks make for a negative first impression to prospective occupiers.

“I just think a big garden with some seating outside or very soft landscaping would have probably made it look a bit more inviting,” Subplot’s rival developer source says.

While a mini green park may be asking too much, a touch of ground floor activation could do wonders.

All three of The Lincoln’s ground floor commercial units are reportedly under offer, which could give the square the animation it is currently crying out for.

The vision is a European-style piazza, where the ground floor occupiers can spill out into the square, generating positive vibes.

If they get this right, it could be the difference between securing a tenant or waving goodbye to one.

What do the agents think?

While one agent labels the building “unremarkable” and “behind the curve”, another said the problems facing The Lincoln are par for the course (see Subplot, 1 September).

“Office development is rarely simple,” he says. “It requires patience and in some respects The Lincoln is typical.”

The building is by no means the first office to struggle to break the post-completion inertia, especially in a downturn.

A third agent put The Lincoln’s struggles down to an accumulation of “little things”.

“It has been on lots of people’s lists, but never at the top,” they say.

Reasons to be cheerful

Office take-up in Manchester is on the rise, which is good news for Porter and the other Lincoln letting agents.

In the third quarter of the year, 326,000 sq ft was transacted, up 30% on the previous three-month period, making Manchester by far the best-performing regional city.

If this level of activity continues, it might not be long until M&G is rolling out the red carpet for its first occupier.

Perhaps the most compelling factor The Lincoln has going for it is that it is built and ready to move into.

The cost of developing an office has gone up from £200/sq ft to around £300/sq ft in the past two years, which means that some projects that have planning permission may be shelved until the market returns to something like normal.

This leaves The Lincoln in pole position to benefit.

“I think they have just got to hold their nerve,” the developer source says.

“It will definitely let eventually because everything does and nothing is going to get built any time soon.”

ELEVATOR PITCH

Going up, or going down? This week’s movers

Retail bucks the trend as values hold firm and Michael Gove acts decisively to boost Blackpool’s regeneration hopes.

Shopping centres

Since we couldn’t go anywhere, online shopping boomed during the pandemic. Many predicted that this would be an enduring trend, another nail in the coffin for the beleaguered high street.

But that is not the case, according to Mark Allan, chief executive of Landsec.

“Online shopping has effectively fallen back to pre-pandemic levels,” Allan says.

“Retail has been hugely oversold and the sector’s resilience is under appreciated.”

Landsec filed its half-year results this week, swinging to a £193m loss from a £275m pre-tax profit year-on-year. While rising inflation and interest rates hit the value of its office portfolio, retail remained resilient. The value of Landsec’s retail assets, which include a combined 1.6m sq ft across two centres in Leeds, increased 0.4% in the period due to a 6.3% growth in sales year-on-year.

This is great news for the likes of the Trafford Centre and Liverpool One. Retailers are trimming the fat from their portfolios, ditching smaller, poorer-located stores and reinvesting in larger outlets in shopping centres, Allan says.

Northern examples of this trend can be found at Blackpool’s Houndshill Shopping Centre and Manchester Arndale, where Mike Ashley’s Sports Direct is increasing its presence.

Levelling Up

There are rumours circulating that the next round of Levelling Up Fund cash may be delayed yet again.

While councils across the country must wait even longer to find out if they have been successful, a clever bit of accounting means that hurdles blocking the path of Blackpool’s largest regeneration project have been swept aside.

Progress on Nikal’s £300m Blackpool Central leisure scheme was stuttering because plans to relocate the town’s Magistrates’ and Crown Court had reached an impasse.

The courthouse is located slap bang in the middle of the development site, meaning Nikal’s proposed flying theatre has no space to land.

Enter Michael Gove, recently reinstalled as Levelling Up Secretary, who pulled £40m from the back of the departmental sofa and gifted it to the Home Office to pay for a plush new courthouse somewhere else in Blackpool.

Gove’s can-do attitude demonstrates why his reappointment was warmly welcomed by many in the property community, and why he is widely regarded as a man who knows how to get things done.

Get in touch with Dan Whelan: dan@placenorthwest.co.uk

The Subplot is brought to you in association with Oppidan Life.