The Subplot | THG campus mystery, Manchester resi, BTR

THIS WEEK

• Take-off delayed: Airport City’s office ambitions and the THG campus – both seem to be going nowhere
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

TAKE OFF DELAYED

THG campus, Airport City: still on the runway

The 1m sq ft THG campus at Airport City Manchester seems to be going nowhere. The same goes for Airport City’s office ambitions.

It’s not good news for Manchester, or the North West, when a big, long-nurtured project gets stuck. Airport City is meant to be 5m sq ft of offices, logistics, hotels, and retail – all delivered over 10-15 years at Manchester Airport. The £1bn project appeared to be heading for the skies. Now it begins to feel more like it is parked on the tarmac for ever.

Location, location

In truth, Airport City was always likely to be difficult. Attempts to build large-scale office space around the airport have either ditched, crashed, or underwhelmed over the last 30 years: the arrival of a potential 1m sq ft deal with THG (previously, the Hut Group), announced in 2018, seemed to prove the doubters wrong. Four years later, that deal seems to be stuck, and according to one well placed source, either dead or on critical life support. The word on the street is it’s been shelved.

THG feeling a-okay

The campus depends on THG being in the right headspace to need and to pay for such a lot of floorspace. Since its ill-starred flotation in 2020, this has got more complicated. On Tuesday, THG published a third-quarter trading statement for the period ended 30 September 2022. Revenue in Q3 was up 2.1% compared to last year, and in core markets it performed appreciably stronger. A new three-year banking facility from BNP Paribas, HSBC, and NatWest provides £156m, which provides some headroom, while a logistics shake-up has helped stabilise stock levels, which in turn means “a steady unwind of the working capital investment made in the previous two years.” This is all good news. Year-to-date revenues are £1.59bn, which is 8.8% up on the previous year. This argues THG might feel like giving the campus a go after all.

Yet also this…

That said, last week saw tech mega-investor Softbank, whose backing helped propel THG into the big league of tech businesses, offload its last shares, selling to chief executive Matthew Moulding and Qatar Holding, which had a huge role in supporting the £5.4bn flotation. THG spun this as a sign of Moulding’s faith in his business, but you could plausibly see the £34m deal in other lights.

Shelved

In March this year, there seemed to be some movement on the THG campus plan: Place North West reported that Bowmer + Kirkland and Goldbeck were close to being appointed to build the first phase of the e-commerce giant’s global headquarters, starting with the 288,000 sq ft office and 1,400-space multi-storey car park. Since then: silence.

Silence

Subplot regularly asks THG what’s going on at Airport City and was told this week: “We have no further updates to share on the Manchester Airport campus at present.” This follows an April 2022 response to a similar request, which was that there was nothing to add, and one in October 2021, when THG promised to add Subplot to its media mailing list (it did), in case the company had anything to add (it didn’t). Subplot asked both Bowmer + Kirkland and Goldbeck what has happened since March, the first preferred not to comment, the second did not respond.

And how about the developer?

If the occupier side of the equation looks iffy, the developer side doesn’t look a lot better. Since a £400m-plus share buy-out in summer 2020, Airport City is effectively under the control of its backer Columbia Threadneedle. Perhaps no surprise, then, that developer MAG (Manchester Airport Holdings) Property dropped off the map in 2019: its Twitter feed stops at that point, as does its website. More surprising is the state of Airport City’s website. Although more up to date on news, calling the main contact number (0800 849 9747) resulted earlier this week in an instant announcement that the other party has hung up. Several attempts failed. Then Subplot noticed the same dud number appears on the MAG Property homepage.

Anybody home?

There’s more. Subplot understands there’s a lively dispute about whether there are any retained letting agents despite the contact page listing CBRE and JLL as “retained”. We may never discover the exact relationship here, it turns on what “retained” means, but it adds up to the suggestion that, in some fairly basic ways, Airport City isn’t being marketed. Subplot has spoken to well-placed insiders who say just that. “This one really isn’t active,” Subplot was told. Long-standing organisational and cultural problems in airport property are also cited – “blame culture” got mentioned – and there was some sighing and strong language.

Questions to answer

Subplot asked Columbia Threadneedle to comment on the THG position; the sighing source’s suggestion that marketing was invisible, the non-functional telephone number, and to update on its last statement from January 2022 – which said there was no change on the October 2021 announcement that work on site would hopefully begin in the first half of 2022, a date that has long gone. There was no substantive response by the time Subplot shipped.

Something surely is happening

What to make of all this? Columbia Threadneedle’s team are not fools, and £400m is a lot to spend on a pig in a poke, so we must assume something more sophisticated is going on. Presumably it has plans, or is mulling something? Maybe it will junk or shrink the office element if and when THG is clear about what’s going on? Or perhaps it is just biding time, waiting to sell a purchase that now looks misconceived? If so, it just missed the moment to get the best price.

At the end of all four years of doubt and uncertainty, it is fair to ask whether being in a government-backed enterprise zone made any very obvious difference to the headline outcomes in the office sector at Airport City. Is it another illustration of a basic lesson that governments never learn: tax breaks and a helping hand on planning don’t make the location any better, and further proof that in business, much of the time, downside risk matters more than upside risk?

Those designing ‘investment zones’ might like to take note.

ELEVATOR PITCH

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

It’s all about the build-to-rent housing market this week. Apartments are about to shoot up to the penthouse, but the direction of single family rental is harder to read. If only lifts went sideways.

BTR 1.0

It looks like Salboy will ditch offices in favour of apartments at the Viadux scheme at Albion Street in Manchester. Out goes as much as 263,000 sq ft offices, in comes another resi tower perhaps matching the 375 apartments in tower one. Was it ever a good location for offices except in a super-hot market? Salboy has a history of faster-than-the-eye changes of plan in response to rapidly changing markets – in 2020, it jumped from hotel/resi to offices at its Shudehill site. And it makes sense given the shortage of supply of Manchester rentals, and comes as the UK build-to-rent apartment market enjoys an Indian summer.

New analysis published yesterday by the British Property Federation shows that the total number of BTR homes either in planning, under construction or completed in the UK is up 15% between Q3 2021 and Q3 2022, rising from from 209,313 to 240,202. Still tiny, of course, but sharply up. Growth in Q3 was a little slower in the regions – which mostly means Manchester and Leeds – at 8% compared with 15% when you include London. The regional year-on-year increase in the number of BTR homes under construction was 22%.

BTR 2.0?

Straws in the wind: everyone looks out for them, but deciding what they mean is trickier. It depends on wind speed, direction, and whether you are the person whose straw is blowing away. Which makes it hard to be quite sure what to make of mega investor Goldman Sach’s decision to offload its recently acquired North West single family rental portfolio. The rental houses are in scattered around 15 Merseyside and Greater Manchester locations, and the price tag is said to be £190m, a very healthy margin on the purchase in 2020.

This is a good straw in the wind, in the sense that it shows single family rental (SFR) is a money-spinning venture of the kind that big investors can make money on – perhaps even the Next Big Thing (Subplot, 4 August). It’s a less good straw in the wind because, so far, Goldman Sachs has been the star investment name, and if it takes its profit and runs, it makes one wonder what it is thinking? SFR has some tricky issues – building rental houses in an overheated for-sale market is often unviable – so does this sale mean those issues will not be resolved, or that they will and Goldman Sachs is getting out while the scarcity equation and first-mover advantage is firmly on its side? Your call.

Get in touch with David Thame: david.thame@placenorthwest.co.uk

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