Where are the development and investment opportunities in Manchester in 2025?
The market in 2025 continues to be tough due to a backdrop of ongoing geopolitical and economic uncertainty that is rattling occupier, investor and development sentiment across several sectors. Despite this, we remain upbeat about the prospects for real estate in the city over the next few years.
Manchester’s property scene continues to outperform other regional cities on multiple fronts, attracting both domestic and global investors despite the challenges seen in transactional markets. Capital availability and cost of construction remain the major sticking points across the board. Importantly, these are cyclical, not structural challenges, which should start to ease, but polarisation is increasingly distinguishing the best performers from stranded assets in urgent need of intravenous investment. Here’s a cross-sector round-up of the state of play as we head into summer.
Offices
There is currently 1.23m sq ft under construction, of which 82% is major refurbishment. However, the pipeline is rapidly being diminished, with all of this set to complete in 2025 and nothing yet started beyond that. While supply constraints persist in the short term, there is a strong case for speculative development, if viability can be surmounted, especially for prime and green stock. GPA (Government Property Agency) has had 0.9m sq ft recently approved for the partial redevelopment of Central Retail Park, which will bring 7,000 civil service jobs to the city centre, but this won’t relieve the pressure from the private sector. Having seen investment yields move out, buying of prime stock is a compelling proposition if the opportunities arise, albeit turnover is still 80% down compared to pre-Covid. This is more about lack of supply than lack of demand, with multiple bidders seeking value on good stock that comes to market, and there is more on the market in early 2025 than all of 2024.
A number of prime developments under construction or close to completion are pre-let, and occupier demand in the city centre remains positive. Take-up in 2024 was 1.2m sq ft, markedly up on the previous year and 2025 looks to follow suit, with Q1 showing the highest level since 2018. Several significant deals, such as Auto Trader and Bank of New York, have recently completed or gone under offer on key locations like Circle Square, Island and NOMA, and consequently, the supply of prime office space is eroding. While there remains around 1m sq ft of active unfulfilled tenant demand, supply constraints are likely to tighten, with new build viability appraisals difficult to balance. Prominent schemes are pre-letting well; St Michael’s recorded a new top rent of £45 per sq ft, and One Spinningfields saw a top refurb rent of £42.50 per sq ft. Our expectation is that new-build rents will exceed £50 per sq ft in key locations when opportunities present themselves.
With so little new build prime stock coming to market, Grade A refurbs are increasingly in demand, but we anticipate a bottleneck within 12 months as this stock will also become limited. In both cases, this will inflate rents, eventually unlocking developments already in the pipeline that have stalled on viability grounds. However, rents still need to get to levels not yet seen in the city, and in too many cases, inflation continues to keep viability just out of reach. With a further 10m sq ft in or post-planning but yet to start on-site, significant opportunities are on the horizon for occupiers and investors alike if the viability hurdle can be surmounted. The key question is, who will be next to put a spade in the ground?
Retail/Leisure
The city centre continues to transform as a leisure destination. Overall, city centre F&B provision doubled in the ten years to 2024, with an additional 940,000 sq ft designated to this use. More than 200,000 sq ft of retail and leisure space completed in the last two years, representing a 12% increase year-on-year and a 52% increase from 2021. An equivalent amount is due to complete in the next three years. Retailers are seeing the city as a viable and more affordable alternative to London when growing their brand’s presence, with a steady influx of high-profile operators coming in, including Represent and PURESEOUL, Flat Iron, Blacklock, Lina Stores and Big Mamma - each buoyed by Manchester’s international reputation and the growing vitality and population of the city centre.
Prime stock remains constrained and expensive for occupiers, but significant lettings in 2024 show investment and confidence from prospective tenants remains for the right stock, with void rates in a consolidated prime pitch at around 3%. Outside of this area, vacant floorspace has reduced 2% in 12 months but remains at 18% across the city centre as a whole, indicating that challenges remain off-pitch. Just as ‘flight for prime’ remains a key trend in other sectors, there are significant opportunities coming through from major mixed-use regeneration sites providing better quality units in renewed areas of the city centre. With 300,000 sq ft of retail and leisure space currently under construction, these new urban neighbourhoods in alternative sub-markets have strong demand from convenience and F&B occupiers.
Within the wider visitor economy, Co-op Live’s delayed opening has not thwarted its success – 1 million tickets were sold by the end of last year. In the hotel market, Mollie’s Motel & Diner, Soho House, and W Hotel are all earmarked for completion in the next 18 months, with the total pipeline increasing room supply by almost 10% once brought to fruition. The announcement of Nobu Hotel in the city centre and Radisson at the Etihad cements Manchester’s premium market growth. Furthermore, the breadth of the market serves to demonstrate the confidence from investors, appeal to overnight visitors additional to its home population, and the strong links between the cultural and entertainment sectors in the city.
Industrial & Logistics
Occupational demand remains strong, but there are supply constraints here for Grade A stock. The planning process and the constrained funding position continue to restrict the development of space in key North West locations. Demand has been driven, in part, by the rise of e-commerce and omnichannel retailing, but we shouldn’t forget the importance of other industrial and manufacturing sectors for which the region remains strong. Supply levels have increased by 19% over the past year, as 1.35m sq ft of low-quality second-hand space has been added to the market. The market, therefore, has too little of the highest and too much of the lowest quality stock available. The onward drive for ESG-compliant units will again be the focus for many occupiers, and we will continue to see a two-tier market emerge.
At the top end, as a consequence of elevated take-up and less development, the ‘development-ready’ landbank is the smallest of the UK regions. Savills expects rental growth in this region to outperform the rest of the UK, with our baseline forecast predicting a 5.3% rental growth per annum over the next 3–5 years. The North West has 6m sq ft of vacancy, but this is not spread evenly. The supply constraint in Manchester is partly driven by land being consumed by other non-industrial development. The squeeze on logistics hotspot Trafford Park has consequently seen rents more than double in ten years. Meanwhile, in Merseyside, there is both availability and land, and with Liverpool’s freeport status, there are opportunities.
Residential
Residential development remains the dominant force in the city centre, and BTR is still the predominant type. Last year, 4,500 homes completed, and 11 new schemes started, with a total of 11,000 homes in construction for delivery in the next four years, but a broader spread of accommodation and affordability is needed. So what is ‘affordable’? Manchester’s city centre living looks cheap to the most wealthy compared to other international or London opportunities, but expensive to most young professionals, with wage growth lagging behind rental growth (up 11% last year). This polarised renter profile is driving up tower construction while pushing others out of the city centre into other suburban locations.
However, diversification of product is happening, with affordable options becoming more prevalent across the city. Several co-living schemes have started to take off, providing affordable shared accommodation for graduates; typically in 3–4 bed flats, with a blend of communal social spaces and amenities, including lounges, cinema, gym, co-working space and games rooms. Union in St John’s and Acer Tower in First Street both delivered last year, with more to follow – over 5,000 homes have either completed or are in construction. Student accommodation is also coming forwards at pace. And while no new student bed spaces were delivered last year, there is renewed activity around the Oxford Road Corridor and First Street. The market is rapidly shaping up, with 3,000 bed spaces in construction and a further 10,000 proposed or in planning.
Additionally, affordable products are also being sought via the Manchester Living Rent (MLR), an initiative introduced by the Council that sets rental levels at or below the Local Housing Allowance (LHA) level. For example, No.1 Ancoats Green has 119 apartments and 10 townhouses, with 30% of these homes to be made available at the MLR. The policy is being delivered via ‘This City’ and there are a number of further sites that will be brought forward through this mechanism, including Postal Street which will soon go in for planning for 126 homes.