The subplot | Bristol office market lessons, Liverpool fantasies
welcome to The subplotyour regular slice of commentary on the Northwest business and real estate market Northwest Square analysis editor, David Thame.
- Why Bristol matters to Manchester: the first of a two-part benchmarking exercise for the Northern capital. Next week, Leeds.
- Elevator pitch: your weekly recap of who and what is going up, and who is going the other way
WHY BRISTOL MATTERS TO MANCHESTER
Lessons from cider country
Compliant cities (and businesses and people) always end up collapsing. So are there any lessons Manchester can learn from successful British rivals like Bristol? Absolutely yes.
Bristol’s office market is booming. You shrug your shoulders, don’t you? Or pull out a big Lancastrian harrump? Yes, that’s right, Bristol’s city center office market is about half of Manchester’s, but Bristol is giving up more floor space in a smaller market, fetching higher rents and being a size larger transaction average – all signs of a rocket fuel market. So put aside your shrugs and grunts. It’s serious.
TL; DR there are two lessons. Firstly, in the age of tech occupiers, don’t bet the house on Grade A corporate offices, as Manchester did, but spread the love in quirky renovations. Second, getting big has a price, and Manchester is paying for it now. The city has its work cut out for it.
They make money
Facts first. Laid-back Bristol has achieved what hyperactive Manchester has yet to, namely a visible rise in rents beyond £40/sqft. Bristol office rents have fallen from £38/sqft during the year (according to Savills) to £42.50/sqft by the end of the first quarter (according to the Bristol Office Agents Society). That’s an 11% rise in three months, and it’s definitely not a flash in the pan, as Savills calculates the average Class A rent paid in 2021 was £36.60/sqft – up 18.9% from pre-pandemic levels set in 2019.
And sign agreements
Bristol’s demand is overtaking Manchester – and remember, this is an office market of around half the volume, which makes recent stellar performance much more interesting, not less. First quarter 2022 take-up in Bristol city center was 234,000 square feet, a record performance in a good way. In Manchester, it was 207,000 square feet, down sharply from 347,000 square feet in Q4 2021, below even the terrible Q1 2020 quarter and the worst Q1 performance since 2016. The size of the Bristol transaction is also larger. In Bristol, the first quarter saw 30 transactions, an average of 7,800 square feet, well above the city’s five- or ten-year average. In Manchester, there were 70 transactions averaging 3,000 square feet, miles off the average.
A case of groupthink?
The first lesson for Manchester is that maybe (just maybe) everyone got carried away with speculative office buildings? Manchester has approximately 577,000 square feet of Grade A floor space ready for occupancy, with (excluding pre-lettings) 600,000 square feet under construction. Bristol has 172,000 square feet, a tiny number even though it’s larger than the smaller numbers in 2019 and 2020. A further 568,000 square feet are under construction, JLL says, as Bristol’s plans have been cautious. A prime example is AXA IM Alts which completed 200,000 square feet in Assembly Bristol, sold it early last year for £135m (4.6% yield) and started in October 121,000 additional square feet. Small, pleasant and safe steps.
On the other hand
In other words, developers have been slower to get started in Bristol. The usual answer is to say that Manchester having plenty of empty Grade A floor space is actually a good thing, not a bad thing, as mobile occupants know they can walk straight in. Which is true up to a point.
On the other hand, on the other hand
What makes this questionable is that the lack of ready-to-occupy Grade A floor space in Bristol has obviously not hurt it over the past few years, as many tech and media companies arriving or grow in the city do not need Class A floor space. Renovations, many to a high standard, have worked just as well. The use of technology, media and telecommunications offices in Bristol has increased by 271% in 2021, a figure to talk about.
The answer to the conundrum is that developers in Bristol spent far more effort on renovation than on new construction for the better part of a decade. It was largely because they had to – it was a safer bet in a city where just one untimely new build could flood the market. In Manchester, the math worked the other way. Plus, Bristol is a short trip, geographically and culturally, from some of London’s trendiest areas.
“Manchester has built some big shiny things, but the occupants of Bristol’s TMT don’t want big shiny ones, they grow up fast and prefer to move two or three times, if they have to, and to be sure they have something cool and quirky,” says Alex Jordan. , Director at IV Real Estate. Jordan spoke to Subplot fresh off the sale of its 37,000sqft renovation in Corn Street for £20.7million (5.75% yield), following a 28,000sqft rental through Huboo e-commerce.
He knows his market
“Huboo could easily have taken a shiny glass box, but that wasn’t what they wanted,” says Jordan, explaining why he and others renovated quirky spaces while Bristol’s shiny box developers were left behind. sitting on their hands, most of them afraid to make the first move for fear of accidentally throwing too many schemes at once. The result has been developers like CEG and Salmon Harvester sitting on prime sites for the better part of a decade, while genius renovations have gone unchallenged.
Also, Manchester have identity issues
Soapworks is another big success in Bristol’s tech renovation. According to Barry Jessup, managing director of Socius who developed the mixed-use scheme, Bristol have an advantage that Manchester have lost. “The Bristol office market has an increasingly clear geographic center of gravity, and businesses all want to go there,” says Jessup. “Manchester developers, however, felt more confident in development and so they lost that center of gravity, or now have a lot of centers of gravity, and maybe some of them have less identity. You walk into some and you don’t know where you are, and it seems to me that the success of the rentals seems to reflect the location more than the quality of the building.
The lessons are twofold. First, Manchester put too many eggs in the big glass box office (because they could), but in Bristol the developers were more careful (because they couldn’t) . This has helped push up prime rents while stimulating a good supply of well-renovated TMT space. Second, Manchester needs to work to give some of these new office districts a sense of identity, because you can’t just assume they will have one.
For now, Bristol is reaping the rewards. Manchester take note.
SUMMARY IN SECONDS
Up or down? This week’s movers
Eeeeeek! This sudden plunge into the basement goods bay is due to Liverpool advisers playing fantasy planning politics. Meanwhile, the water is rising towards the penthouse.
Two decisions this week show that environmental concerns can bite – and the teeth marks are visible. Water issues provided the impetus for both.
Salford City Council rejected plans for a modest trading post scheme in Broughton Lane on the grounds that the risk of flooding was significant. Normally the Irwell is a calm thing and groundwater runoff manageable, so the idea that this plot could be two meters below the surface came as a shock (and surely means Salford Greengate is even more at risk?)
In Cumbria, phosphate runoff from farmland (chickens, manure) is causing huge problems in rivers and has inspired a moratorium on plans for 2,500 new homes in Cumbria (and another 100,000 nationwide). The outcry was audible as far south as Preston.
The future of Liverpool
If you read the comments below the line on Location North West you’ll know there’s a strong undercurrent of frustration about Liverpool City Council’s approach to planning. The burden of the complaint is that it is narrow and hostile to development. Surely a bit harsh, do you think? If the rejection of the 105 apartment and 63 student apartment projects off Falkner Street is any guide, maybe not.
This program from Elliot Group, but soon to be Legacie Developments, obtained consent in 2019, going all the way to Section 106 and legal agreements. Then came Covid and the permit expired, so a better plan – with more twin beds and more generous national space standards applied – was resubmitted. Yet councilors rejected it because there’s too much of that around Falkner Street and (a nice retro sight) the youngsters all have cars, which would screw up on-street parking in the neighborhood. Remember: the redevelopment of this site has been pending for 22 years. You can read the officer’s report here.
Liverpool are proud of their radicalism, but they are beginning to feel that a deeply conservative strain is gaining ground. This approach sees students as dangerous and focuses its hopes on comforting illusions about the economic power of football, theme shops and bars (Debenhams, I’m looking at you). Good political leadership could solve this problem, but if leaders are only rewarded for telling fairy tales, the chances of this happening are slim.
Contact David Thame: [email protected] | 01544 262127
The subplot is brought to you in association with Oppidan Life.