Manchester: Where are the gaps?

Manchester: Where are the  gaps?
An ambitious Northern stronghold

29 November 2017, by Savills Research

Commercial and residential property supply must diversify to meet growing demand


It’s an exciting time for Manchester. Seemingly immune to the destabilising influence of Brexit negotiations, property demand from Mancunian businesses and residents has grown steadily and looks set to continue on that trajectory. Manchester’s ambition and strong economic outlook were some of the key drivers behind the North West’s strength in our house price forecasts, and investment in HS2 will drive growth in the longer term.

If it is to meet that property demand and retain its competitiveness, Manchester needs to develop more property across all use classes. Here, we consider those uses nearest the top of the local agenda: residential, offices, hotels, and logistics, focusing on the city centre within and around the inner ring road.


Manchester city centre

Gaps in the market

Manchester’s residential pipeline may be large, but it’s not scary – the 7,000 homes identified under construction in the city centre make up just over two years of the city’s need. Those schemes are also being targeted at a range of occupiers, from owner occupiers to young renters to students, which will help the market to absorb this accelerated level of supply. However, we do see potential risk in the concentration of new supply at higher price points, where the depth of resident demand is shallow. Developers may find their homes slow to sell or let if they keep competing to drive the biggest premium.

Demand for Grade A office stock in Manchester is so high that it’s spilling into secondary stock, pushing up rental values there. We are also seeing lower grade office stock eroded by conversion to other uses, leaving affordable office supply as thin as the graphene Manchester invented. This means that while 71% of office demand in Manchester is for stock below £25/sq ft, just 59% of available supply is at this price point. Serviced offices and “light-touch” refurbishment will help bring in more affordably priced stock in the short term. Longer term, we expect to see the core office market expand into areas previously seen as fringe.

Hotel development in Manchester and Salford is finally starting to meet supply, and the pipeline looks strong for the decade ahead – if all the beds in the pipeline are completed, that will equate to a 20% increase in supply by 2020. With supply and demand in balance, we expect revenue per available room to grow less quickly. This will give hotel operators less wriggle room in their margins.

Need for speed

Next day delivery is so last year. The trend now is for consumers to demand ever shorter delivery times, with some companies offering one hour delivery to the customer’s door. With speed and ease of delivery the new battleground for retailers, demand for urban logistics space will be sure to increase.

Small, edge of town industrial units are growing more attractive to both occupiers and investors, but competition with industrial to residential developers may squeeze supply. With that, expect to see retailers and distributors becoming more adventurous in their choice of space.


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