CBRE on The Manchester Office Market

The Manchester office market has witnessed strong levels of

both occupier and investor demand in recent years, with large
corporates increasingly looking to the city which boasts a
talented labour pool, growing population and significantly lower
occupational costs in contrast to the UK’s capital.

This year was due to be one of exceptionally strong growth for

the Manchester office market, with 1.8% growth in office-
based employment expected, equivalent to adding 9,000 new
office workers to the market. Since the outbreak of COVID-19,
we have downgraded the forecasts to 0.1% growth. Whilst this
is disappointing, it still represents growth within the context of
an extremely challenging economic backdrop and an out-
performance on the UK average.

In the immediate short-term, the office market is likely to be

disrupted by COVID-19, with occupiers prevented from
conducting tours of buildings. We have developed creative
solutions including virtual viewings, but these blocks will limit
take-up in the near term, perhaps lasting until the end of Q3.
Large occupiers driven by lease events have a longer-term
outlook and have remained active within the market despite the
disruption.

However, for smaller occupiers, or those whose requirements

are based on expansion, requirements have been put on hold.
Following the Global Financial Crisis, deals in this size band
dropped to a historic low of 187,500 sq ft in 2009, against the
long-term average of a 350,000 sq ft and a decline of 36% on
the previous year. While the market is set to see a similar
decline of smaller deals, the emergence of north shoring, in
which large corporates have moved operations out of London,
has resulted in an increasing amount of larger deals, with
recent levels of 100,000 sq ft transactions outpacing the long-
term average. We expect to see this trend continue with
London-based occupiers looking to reduce occupational costs.

Diversity of occupiers has increased in Manchester since the

GFC with an increased presence of creative industries and
consumer services sectors, now responsible for over 30% of
the market compared with only 5% in 2007. Flexible office
providers have taken a significant amount of space in
Manchester over the last three years, accounting for 9% of
total take-up. We expect a drop in this figure but the demand
for flexible space from corporates is increasing with a further
100,000 sq ft of space required over the coming years.

Grade A space in Manchester is becoming increasingly

constrained, with 50% of the development pipeline already let
and an additional 1m sq ft of Grade A requirements in the
market. This, coupled with significant rental growth over the
past 10 years, has resulted in many refurbished schemes
matching or quoting higher than Grade A rents. We expect this
to put upwards pressure on the refurbished market while prime
rents stagnate, and greater incentives are offered. 

While the trends defining the future of work are still developing,
it is clear that Manchester is well placed to weather the storm.