Manchester’s office market has been on a roll recently, with take-up topping one million sq ft in 2017 for the fourth consecutive year. This has been driven by a combination of factors, including strong indigenous demand, an economy weighted towards growth industries and a track record in attracting footloose national requirements.
Looking purely at macro-economic drivers of office demand, the prospects for the next decade are equally strong. According to Oxford Economics, the professional, scientific and technology, and administrative and support sectors will see the largest growth. Expansion of these industries implies more need for mid-priced Grade A office space, though slowing projected growth of the finance and insurance sector will relieve some of the demand pressures at the absolute top end of the market in quality and rental terms.
Currently, demand for Grade A office space in Manchester is so high that it’s spilling into secondary stock, pushing up Grade B rental values. Shortages of all grades are emerging, but it’s most acute when it comes to 'affordable' rents. While 71 per cent of office demand in Manchester over the last three years was for space below £25 per sq ft, just 59 per cent of available supply is at this price point. There now remains only approximately six months’ supply of office space at £25 per sq ft and below.
The development industry generally reacts well to shortages of new high quality office space by building more or refurbishing existing buildings, but shortages of affordable space are seldom so easily remedied. Indeed, supply of cheaper offices is also being limited by change of use. While Manchester doesn’t have an Article 4 Direction in place to limit the change of use from offices to residential under the permitted development rights regime, it did secure an exempt area.
The latest research by the British Council for Offices shows this approach has been reasonably successful: only 39 notifications have been received in Manchester to date, 28 of which were granted, five refused and six went ahead as they didn’t require prior approval.
The current office supply/demand situation is by no means critical. We expect the continued rise in serviced office provision in Manchester and Salford will reduce pressure on supply at the more flexible and affordable end of the market. Furthermore, the rising popularity of light touch refurbishments will mean more Grade B and C quality space can be brought back into use for comparatively affordable rents.
Another factor that will be important in satisfying the city’s future need for office space will be the steady expansion of the core area. Submarkets such as Oxford Road, the Irwell corridor and Ancoats, previously considered fringe, will become more core due to improving infrastructure and occupier perceptions.
Read more: Manchester: Where are the gaps?