2023 was a challenging year for commercial real estate However, Manchester continued to show resilience, remaining the economic and cultural capital of North England. With a £4.8 billion levelling up fund for regeneration and infrastructure development, the region is the most popular location for foreign investment after London. It also has one of the highest employee retention rates of all UK cities, resulting in a high skill base which appeals to corporates. 

With such promise for the North West and Manchester, what can we expect in 2024?

Offices: Bifurcation to continue

The preference for prime office space, with occupiers requiring the best space to attract and retain staff within buildings that satisfy corporate ESG requirements, will continue throughout 2024. Although this provides a strong case for speculative development, rising construction costs, high interest rates and weak investor sentiment towards the sector will result in a tempered development market.  

This will lead to rental growth for the very best accommodation, and we expect to see improved demand for refurbished Grade A stock. Appetite for poorer stock will remain weak, potentially shining light on alternative uses, resulting in significant opportunities for the “value add” investor.

Cashflow constraints will continue to see relocation decisions move slowly with subdued take up in H1. However, the growth of demand for fitted, flexible space is likely to continue and become an ever more dominant proportion of active demand. 

Industrial & Logistics: A year of rental growth

The available supply of buildings in the North West is increasing as second-hand space is returned to the market. However, many of these units are of poor quality or in unsuitable locations. As sustainability regulations tighten, we will continue to see occupiers favouring Grade A accommodation. 

Despite the rise in supply within the region, the vacancy rate remains low at 6.69 per cent and may now have peaked; we anticipate it to start falling by Q2. Volatility in the investment market, and a slowdown in the funding market, means that speculative development stalled in 2023. This, coupled with a low vacancy rate, will result in continued regional rental growth.

Co-living – A city for students, apprentices and graduates

In the UK, the number of first-year graduates is forecast to reach one million by 2030, leading to a shortfall of 450,000 student beds according to research from StuRents. We are therefore expecting more activity in the PBSA sector as investors continue to seek high yielding assets, and Manchester is a great place to start.

As the city attracts, it also retains, with a 50 per cent graduate retention rate and 32,000 graduates entering the job market every year, more than Liverpool, Leeds and Sheffield combined. In 2024, we anticipate more co-living schemes aimed at 18-35 year olds to aid in bridging the gap between the number of students and graduates, and available accommodation units. 

Hotels: Conversions and consensual sales

During 2023, hotels traded strongly, especially in good city centre locations, supported by strong leisure activity. Cities such as Manchester are benefitting from wider developments such as the Co-op Live arena, which will continue to strengthen demand.

Transaction volumes this year are also anticipated to be boosted by refinancing situations and larger amounts of “consensual” sales, resulting in a continued correction in pricing. Finally, given the challenges within the office market, we also expect to see greater conversion activity as hotel developers seek out repurposing opportunities.

Overall, market headwinds are likely to subside throughout the year. The first half of 2024 will probably remain challenging, particularly with occupational demand subdued and focussed towards prime stock in the office and industrial sectors. Nonetheless, in H2, as pricing recalibrates and monetary policy likely loosens, we anticipate greater liquidity. It is therefore evident that 2024 will be a year of opportunity, for those liquid and brave investors.

Further information

Contact James Evans

Savills Manchester