As Trowers & Hamlins celebrates a milestone - the 50th anniversary of our Manchester office – Matt Holbrook and Anna Metham are taking the opportunity to look back at the development of the Manchester office market and consider trends that may influence the city's office market in the future.
Over the past half-century we have, amongst myriad other successful projects, supported clients through an array of major office transactions across the city. From Angel Square to Circle Square, from 39 Deansgate at one end of that street, to Elliott House at the other (and New Bailey and Spinningfields in between).With that in mind, we thought it apt to use this opportunity to look back at the development of the Manchester office market and consider what the future may hold, whilst also reflecting on our own history in the city.
There are certainly parallels to be drawn between the expansion of our own Manchester office and that of the city's wider office market during the past 50 years. When we first opened our doors in Manchester in November 1973, the office occupied a small premises on King Street and had just a handful of employees, exclusively serving one major client, The Housing Corporation - an early guise of what we now know as Homes England, which remains a client to this day.
As recently as November 1998, when we celebrated our 25th anniversary, the office still only employed 27 staff and had a client base which still largely comprised the region's housing associations. Since that date, in a similar vein to Manchester itself, the office has grown exponentially and today has over 150 staff (and counting), providing full service commercial law expertise to an extensive local and national client base.
Geographically-speaking, the firm hasn't strayed far. Our initial stint on King Street was shortly followed by move to a new address – Heron House on Albert Square – replete with era-appropriate avocado toilet facilities and lifts questionably adorned with integrated ashtrays. There has since been a further move, to our current home at 55 Princess Street, which took place in 2015, driven by the need for more space and the desire for an enhanced level of amenity to complement our expanding practice.
So, what of the city more widely?
Much like our own, the story of the growth of Manchester and its office market over the last half-century has not been one of a gradual upward trajectory. Instead, much of the city's current vibrancy has accrued since the late nineties, with one unlikely – and unintended – major catalyst being the Provisional IRA's bombing of Corporation Street in 1996.
The bombing, which thankfully resulted in no loss of life, resulted in a groundswell of collective determination to re-build Manchester as a modern, regional powerhouse, with leisure, retail and office space being the principal beneficiaries. Although it would be reductive to attribute a direct causation to the events of that day – and clearly much of the city's expansion would have occurred regardless – the rapid acceleration of development post-1996 is, nonetheless, striking.
Only 115,000 square foot of new office space had been constructed in the city centre between 1989 and 1996. By contrast, in the 20 years which followed, there was an incredible 5.4 million square foot of new office development, with the re-development of Barbirolli Square setting the precedent for the many landmark projects which have followed, from One Piccadilly Gardens to Spinningfields, to One St Peter's Square and NOMA.
The city today certainly has a lot going for it. In 2022, Manchester was ranked 28th in the EIA renowned annual "global cities" report, positioning it as the UK's top-ranked city by a distance. Long renowned as a centre of cultural, sporting and industrial importance, Manchester is now booming as a centre for professional services, home to major banks, most national law firms and the big four accountancy practices.
Between the 2001 census and the 2011 iteration, the metropolitan population increased by 19% and then a further 9.7% by 2021. Most notable, though, has been the growth of the city centre which, from being home to literally just a few hundred residents in the early nineties, now boasts a population density akin to that of central London.
All of this growth has helped establish a diverse, skilled workforce that is continually reinforced by the strong levels of graduate retention from the city region's five universities (which together contribute to a student population numbering in excess of 100,000). It is this ability to attract and retain talent that is unparalleled outside of London and which sets Manchester apart from other regional centres as a destination for employers, developers and investors.
However, although it would be tempting to simply sit back and reflect on the successes of the recent past, it is also important to recognise the challenges and try to understand what the future may hold for the city's office sector. As we see it, the challenges are several.
Prime stock is limited, and the recent tendency has seen demand for Grade A space outstrip supply. In Q4 of 2022 the prime rent for Manchester-based office space reached £40.00 per square foot, representing an increase of 8% on the 2019 average, pre-Covid. In all likelihood, these rents will continue to rise throughout the remainder of 2023 and into 2024, driven by a decrease in Grade A availability.
Moreover, whilst many occupiers inevitably aspire to those spaces which represent the pinnacle of amenity, the reality is that the prime new developments which have come to market are simply beyond the financial reach of many. Consequently, owners / developers will need to embrace the upgrading of existing properties as the response to this multi-tiered demand.
Drawing again on our own history, the 2019 retrofitting of our former home, Heron House, has ostensibly been a major success. The building has been comprehensively and tastefully overhauled, inside and out, to create a stylish and modern Grade A office space, which is now occupied by Manchester City Council and GCHQ.
Whilst by no means the largest scale retrofitting project Manchester has seen, it nonetheless serves as a symbol as to what can be achieved if older office stock is appraised with a little foresight and a healthy dose of architectural ambition. Given the finite amount of development space available within the confines of the city, the further proliferation of this burgeoning retrofitting trend is now a necessity to ensure demand is met. It is also pertinent to note that retrofitting is, on average, less-costly than re-building and surely will be vital in achieving our transition to a net zero economy by 2050.
On a broader scale, current macro-economic factors can't be downplayed. Indeed, whilst the office sector had initially shown encouraging signs of recovery in the wake of pandemic, the subsequent economic headwinds, resulting from a combination of domestic and international upheaval, have stunted that resurgence somewhat. Spiralling energy costs, higher interest rates and sharp rises in the cost of both labour and materials have understandably led to caution amongst developers, investors and occupiers alike.
It is perhaps arguable that the very worst of the cost of living crisis may be behind us, but concerns remain as to the prevailing market conditions and Manchester, although better placed than other cities to withstand the turbulence, is certainly not immune.
Added to that, there are the ongoing question marks about the adequacy of the city's transport infrastructure. Metrolink has been an undoubted success, but the rail links to and from the city continue to buckle beneath the pressure as commuters are increasingly encouraged to abandon their cars. The controversial recent cancellation of the northern leg of HS2 will only be looked upon favourably if the concomitant cost savings translate to direct investment into the existing rail infrastructure of the North and the Midlands.
Another major challenge for the city is to continue establishing itself as a hub for tech and innovation, both nationally and beyond. Considerable progress has been achieved in this regard – it is generally now acknowledged that Manchester is the UK's second largest tech economy, after London. Even with more than 1,600 start-ups and the likes of Amazon now established in the city, there is a feeling that there is a considerable amount of potential still to be realised.
The relevance of the tech sector as a driver of office transactions is increasing rapidly and Manchester arguably needs to do more to establish the critical mass that will allow major tech occupiers to see it as more than simply an ideal place for professional firms to outsource back-office functions.
By means of just one example, demand for AI and machine learning specialists alone is anticipated to grow 40% in the next five years. If it is to capitalise on this trend, by convincing the best talent and the best occupiers to come here, Manchester will need office spaces which are geared towards the requirements of that industry. This will mean a focus on connectivity, collaborative space and ESG, with the resurgence of flexible workspace undoubtedly having a role to play.
After an extended period of inactivity following the onset of the pandemic, when many developers abruptly put a hold on new acquisitions, take up in the serviced office sector is booming. Occupiers are attracted not only to the flexibility it affords, but also the more relaxed, collegiate working atmosphere.
This flex model will be fundamental to attracting the next generation of occupiers to the Manchester market. Whether that be start-ups looking for a steppingstone towards a more permanent base, or multi-national corporations (as we've seen with the likes of HSBC and Deloitte) who are looking to maintain a presence in the city, without necessarily wishing to be constrained by the rigidity of a traditional FRI-lease.
Of course, the above is to only scratch the surface. However, whilst these developments present challenges, there are also opportunities and we're excited to continue playing our part in shaping the future of the city's office sector, and that of the city as a whole. Here's to the next 50 years…
