Article Summary

Introduction

At the onset of the year, Manchester witnessed a total office space uptake of 211,000 square feet, marking a modest 2% increase compared to the previous year. However, this figure fell approximately 29% below the five-year average. Notably, prime and Grade A space transactions, totalling 150,000 square feet, accounted for 70% of the total take-up during this period, underscoring the demand for high-quality office spaces in the Manchester market.

This trend in transactions reflects a decreasing availability of Grade A and prime spaces, down by 10% and 7%, respectively. As of March 2023, the total available office space in Manchester stood at 3.13 million square feet, with an overall vacancy rate of 12.4%.

Prime rental prices

Regarding prime rent in Manchester, it currently remains at £40 per square foot, but an increase to £42.50 is anticipated by the end of 2023.

In terms of sector activity, the Technology, Media, and Telecommunications (TMT) sector emerged as the most active, with transactions totalling 51,000 square feet, constituting 24% of all deals. The largest transaction within this sector involved cloud productivity platform Matillion at Two New Bailey, a project set to be delivered by Oktra later this year. Additionally, the professional sector saw 16 transactions up to March 2023, with the largest deal encompassing 11,000 square feet at 100 Barbirolli. This marked a substantial 129% increase in activity for the professional sector compared to the five-year average. Public services, Education and Health (15%) and Insurance and Financial services (12%) also featured prominently in terms of new deals.

The demand for high-quality office spaces in Manchester has been on a consistent rise, with Grade A take-up dominating the office market transactions. An emerging trend is the need for more space, particularly among companies that downsized to adapt to new work models. However, this poses a challenge as the demand for Grade A space is expected to outstrip supply, with around 3,000,000 square feet of office space up for renewal in the next two years, while new developments are significantly fewer.

Recent market activity has been influenced by a greater emphasis on spaces with strong ESG (Environmental, Social, and Governance) credentials, reflecting the desire for higher-quality amenities to attract employees back to physical offices. Tenant expectations for improved building amenities and sustainability certifications have led landlords to refurbish their assets, enhancing communal facilities such as cafes, collaborative areas, and well-being spaces.

Recent trends

With hybrid working becoming a long-term solution for many businesses, early predictions of downsizing and reduced space requirements have stalled, with activity trending in the opposite direction. Landlords are expected to continue refurbishing spaces to meet the demand for top-quality office space. Plug and Play spaces are anticipated to remain popular among new tenants, providing landlords with efficient solutions to reduce vacancies and rent-free periods.

The outlook for Manchester’s office space is positive, with headline rents predicted to reach £42.50 by the end of 2023. The five-year forecast suggests a 16% growth in top rent, reaching £46.50 per square foot by the end of 2027. The preference for quality office space is expected to persist as tenants seek prime locations in and around the city, while the demand for lower-quality commercial spaces continues to decline. As more businesses transition away from remote-first working, there is a notable shift back towards office-based work.

Exciting developments are already underway in Manchester, including the £400 million mixed-use project at 1 St Michael’s, set to offer 75,000 square feet of office space in addition to proposed residential and entertainment facilities. This development is poised to be the city’s first fully Net Zero Carbon commercial development, with phase one scheduled for completion in 2024.

Conclusion

In summary, the strongest office space uptake was observed in the out-of-town market, surpassing the 10-year average by 27%. While location remains crucial, current trends highlight that the quality of space is a driving force in real estate activity. Rent rates and office space costs will continue to be significant factors for tenants in their decision-making process, but emerging trends indicate that businesses are unwilling to compromise on space quality.

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