Manchester’s office market has been on a roll in recent years, with 2017 likely to be the fourth consecutive year of more than one million square feet of take-up. This has been driven by a combination of factors, including strong indigenous demand, an economy that is weighted towards growth industries, and a good track record in attracting footloose national requirements.

Looking purely at the macro-economic drivers of office demand the prospects for the next decade are equally strong, with the average annual growth in office-based employment for Manchester and Salford projected to be 1.7% per annum (compared to 1.4%pa over the last decade). This equates to a 34,123 rise in the number of office-based jobs, and a gross increase in office occupation of at least 2.9m sq ft.

^{Source: Oxford Economics}

According to Oxford Economics the areas that will see the largest growth are the Professional, Scientific & Technology and Administrative & Support sectors. Growth in these industries implies more need for mid-priced Grade A office space in the city, though the slowing projected growth of the Finance & Insurance sector will relieve some of the demand pressures at the absolute top end of the office market in quality and rental terms.

This change in the structure of the demand for office space in the city is already being seen in the take-up numbers, with 2017 seeing less activity from Finance and Technology, Media & Telecoms than has been the case in recent years.

^{Source: PMA}

Strong leasing activity, particularly of Grade A office space, has led to a continued fall in the availability of Grade A offices across Manchester and Salford. This is particularly acute in the centre of Manchester, where we estimate that there is only 340,235 sq ft of Grade A office space available compared to average annual take-up of such space of 350,588 sq ft.

Shortages of all grades of office space are emerging, but this is more acute at 'affordable' rents

While the office supply/demand imbalance might appear less acute when we look at secondary space, the shortage of Grade A in the city has dragged up the rents on Grade B space. This means that at present only 59% of the available office space in Manchester & Salford can be leased at a rent of less than £25/sq ft, while 71% of the recent demand for office space has been at that price point.

^{Source: Savills Research}

While the development industry generally reacts well to a shortage of new high quality office space by building more of it or refurbishing existing buildings, shortages of more affordable office space are seldom so easily remedied. Indeed, the supply of cheaper office space is also being limited by change of use. While Manchester does not have an Article 4 Direction in place to limit change of use from office to residential under the PDR regime, it did secure an exempt area. The latest national research into change of use from office to residential by the British Council for Offices shows that this approach has been reasonably successful for Manchester, with only 39 notifications being received, 28 of which were granted, five refused and six that went ahead due to not requiring prior approval.

The current office supply/demand situation is by no means critical, and we expect that the continued rise in serviced office provision in Manchester and Salford will reduce some of the pressure on supply at the more flexible/affordable end of the market. Furthermore, the rising popularity of light touch refurbishments will mean that more Grade B and C quality office space can be brought back into economic use for comparatively affordable rents.

Another factor that will be important in satisfying the city’s future need for office space will be the steady expansion of the core area. Submarkets such as Oxford Road, the Irwell corridor and Ancoats, that were previously thought of as fringe, will become more core due to improving infrastructure and occupier perceptions.