It is the beginning of a new era for Manchester. It is all change for the council as its leader Sir Howard Bernstein steps down. The focus will now be on the new head, Joanne Roney, who is taking on the job described as the 'biggest and best in local government'.

Roney is starting her new role with a positive economic outlook. Manchester's economy is estimated to have grown by 2.9% during 2016, a strong performance given the result of the EU referendum. This is well above the UK average of 1.8%, according to figures from Oxford Economics.

With Manchester’s economy well balanced across all sectors and more resilient to Brexit, we see this as a compelling case for further northshoring, This will offer alternative and cheaper property costs away from the capital. Universities are also key in attracting jobs to Manchester and supplying skilled workers.

We expect this to have a positive effect on office based employment figures over the next couple of years.

Although there is no clear timetable for the UK’s exit from the EU, tenants will not be able to put off making decisions indefinitely. They may demand more flexibility when signing new leases, but occupiers will continue to seek space. Low supply and a very limited development pipeline is likely to keep the office markets buoyant.

Manchester is expected to see faster office based employment growth over the next five years than Greater London and all of the key UK regional cities. Office based employment is expected to grow by 6% over the next five years, significantly above the UK average of 3.5%.

This positive sentiment has been felt by employers and according to Deloitte’s CFO survey, 11% of CFOs expect to increase hiring over the next 12 months. This is a marked increase on the 1% who expected to increase hiring immediately after the EU referendum.

The strength of the economy is reflected in the occupational markets. Last year saw take-up reach an impressive 1.3m sq ft with almost 70% of these signing post-referendum. Anecdotally at least, the early indications are that 2017 has started in the same vein. We expect around 550,000 sq ft to sign in the first half of the year.

Key deals for 2016 include Swinton Insurance, who completed on the whole building (165,000 sq ft) at 101 Embankment, consolidating their two offices into one. This consolidation has enabled them to dramatically change their business model going forward.

The relocation of Freshfields was the other significant deal of 2016. They took 80,000 ft at No 1 New Bailey.

Grade A availability for 2017 is around 500,000 sq ft with circa 70,000 sq ft of this currently under offer to DWP. The city is once again starting to look under-supplied of office space. There is only 18-months worth of available stock based on the five-year average take-up.

^{Source: Savills Research}

Refurbishments lead the way

Due to lower development levels, the city is seeing refurbishment opportunities becoming more and more attractive. With only 125 Deansgate under construction, they can ‘plug the gap’ while the city waits for new development to complete.

The refurbishment market has made up 62% of the total take-up in Manchester over the last 10 years, making it a significant sector in the market. In the absence of Grade A space we have seen a number of Grade B buildings being refurbished. These include: 11 Portland Street and Arkwright House both offering around 100,000 sq ft and 31 Booth Street offering 20,000 sq ft of space.

In addition refurbishments, can be the value option for occupiers who perhaps don't want to pay Grade A rents, are looking to cut costs or require greater flexibility.

Refurbished space can also help satisfy the trend for unconventional office space. The ‘defurb’ was typically the home of the creative or start-up. However, more traditional occupiers such as lawyers, accountants and engineering firms, are now looking for a more creative fit out to inspire and engage staff.

UK wide activity also points to growing demand from sectors such as Technology and Media, which are estimated to see around 4,000 jobs created in the region over the next 10 year. We expect the refurbishment market to capitalise on this going forward.

Prime Grade A headline rents have remained steady of the last 12 months at circa £34 per sq ft. However, rental pressure continues to develop on good quality refurbished space across the city, as illustrated by Bruntwood’s successful refurbishment of Neo, which has secured a number of pre-lets. Rents are currently pushing between £25 - £30 per sq ft.

^{Source: Savills Research}

Overseas investors pick up pace

Overseas investors were the dominant investor type during 2016, acquiring a record £489m in Manchester offices in 2016 – an impressive 72% of the total.

We expect overseas investment to remain the key contributor through 2017, as investors take advantage of weak Sterling.

However, given that the UK institutions now have money to spend, we expect them to increase their investment during 2017. Essex County Council Superannuation Fund has already purchased 201 Deansgate for £29m in 2017.

Total office investment levels remained robust in 2016 reaching £678 million. This is 6% above the previous year but an impressive 87% above the long-term average.

A significant deal which signed post-Brexit was Deka Immobilien's acquisition of One St Peter’s Square for £164m. This was via the owning joint venture vehicle from Argent and the Greater Manchester Property Venture Fund.

We continue to see strong demand for opportunities in central locations where assets can be repositioned to satisfy the gap left by the limited development pipeline.

Prime yields currently stand at 5% where we expect them to remain for the first half of the year.

^{Source: Property Data, Savills Research}

Expert view

Nick Okell, director of investment in Manchester, looks behind the statistics

The question everyone wants to know the answer to is “what’s this year going to hold?” Analysts, Fund Managers, Agents and Property Directors are all reaching into the bottom drawer to find their crystal ball. Never have there been more known unknowns, but for a moment lets go back to what we do know.

The regional economies continue to perform well, and chief amongst these is Manchester. For the last few years, the Greater Manchester economy has grown by around 2.9% in 2016 and is forecast to continue to do so at an average of 2.3% until 2027.

In addition, unemployment continues to fall and is expected to stabilise at around 3% while a further 91,000 jobs are expected to be created by 2025.

Investment demand remains strong. 2016 saw approximately £678 m of transactions in Manchester City Centre, 87% more than 2015. Although the number of regional transactions was approximately 10% lower than the long term average, reflecting an increasing trend for lack of supply.

For the first time, 2016 was characterised by the dominance of the overseas investor as the UK institutions took stock of the changing political environment. The acquisitions of the XYZ Building in Spinningfields and One St Peter’s Square by Savills on behalf of Union and Deka respectively are prime examples.

So what does all this mean? Well, for those who acquired over the past five years the weight of money looking to invest has never been stronger and it may be time to take advantage. Equally, the occupational markets remain confident and for the right building good opportunities still exist.

One thing, however, is certain, if ever a market was set to absorb some bumps in the road then Manchester could not be better positioned and should look forward, as it always does, with a sense of optimism to deal with whatever the winds may bring.