If you ask generative AI to come up with a future vision of our cities, chances are it will create a slightly dystopian image filled with high-rise tower blocks. In fact, you don’t even need AI to draw it. An old school Google search will come up with picture after picture of densely packed tower blocks, reaching high into the skies. Some may have pockets of green, albeit not at ground level, but will be grey or neon in colour. They will look cool, but not overly inviting. Think Blade Runner. Is that really what our city centres are moving towards?
While workers may be heading back to offices at a more pronounced level than we have seen over the period since the Covid-19 pandemic changed the working world to a degree not seen since the industrial revolution, our city and town centres are unlikely to ever be the same again. Big shiny office towers and clusters of high-rise corporate headquarters may once have been the economic dream for many of our cities, attracting both tenants and investment, but this traditional view of a central business district cannot continue.
Here, we take a look at what is driving activity in our city and town centres, where demand is coming from and how a mixed-use future is key to unlocking value across the UK.
Changing trends
At the start of 2024, office occupancy across the UK started to pick up. Every day another company announced plans to bring its staff back to the office more regularly, with many tracking presence and reprimanding those not hitting minimal levels.
Figures from Remit Consulting showed UK office occupancy rates rising to more than one-third capacity in the second and third weeks of January – a healthy figure but still well below the pre-pandemic norms of 60-80%.
Four years on from the first lockdown in the UK, it is clear that how we work, the environments in which we want to work, and where we want to work have changed dramatically and permanently. So too, however, has the type of work driving the UK economy.
According to data from Avison Young, there has been a big shift between 2022 and 2023 in the industries looking for space across the UK’s big nine regional cities – Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester and Newcastle.
The TMT and creative sectors have shown the biggest decrease in take-up over the period, down from almost 700,000 sq ft to less than 450,000 sq ft, followed by professional services (down from 1.4m sq ft to 990,000 sq ft) and business services, down from 265,000 sq ft to just 157,000 sq ft.
Being beholden to one sector is quite high-risk. You need to be cross-sector focused and create a patchwork for your cities – Chris Cheap, Avison Young
Instead, demand has grown dramatically from the government and services sector, up by almost six percentage points to close to 970,000 sq ft, and from manufacturing and industry, which saw take-up nudge close to 500,000 sq ft in 2023, up from 436,000 sq ft a year earlier. Flex offices, too, are on the up in terms of take-up, increasing from 235,000 sq ft to almost 300,000 sq ft.
The numbers show a change in demand of type of worker, the space they demand and the amenities that need to come with that space, says Chris Cheap, principal and managing director for Manchester and Leeds at Avison Young. What Avison Young’s figures also show is that big is not always better anymore. When looking at number of deals, take-up is actually healthily above the five-year average.
With 1,857 deals done in 2023 across the big nine, deal flow is 5% up on the five-year average and only 2% below the 10-year average.
However, when based on volume of space taken up – just over 7m sq ft, according to Avison Young – the picture is less than healthy, down by 6% on the five-year average and by 17% on the 10-year average.
Cross-sector focus
While areas like Spinningfields in Manchester, Wellington Place in Leeds and Canary Wharf in London, may have offered a shining beacon of HQ space and investor-ready product for domestic and international tenants and capital alike, are they now the best future for a city?
“When cities are looking at their economic strategy, it is very easy to see why everyone would want a new Spinningfields or Wellington Place,” says Cheap. “But an office-led CBD isn’t the way forward anymore and that economic strategy needs to include a broad range of workspaces.”
For cities big and small the great workplace reset has meant that placemakers – investors, developers, advisers and local authorities – need to look more widely at where demand is coming from.
“Being beholden to one sector is quite high risk,” says Cheap. “You need to be cross-sector focused and create a patchwork for your cities.”
Cheap cites Upper Brook Street in Manchester as an example of how a new vision for driving both growth of industry and an investible product has been developed. Upper Brook Street is a circa 10-acre site along Manchester’s Oxford Road. It sits to the south of ID Manchester and next door to an area of the University of Manchester estate that has been identified as a potential cluster of growth within the science, research and innovation sectors.
Life sciences expert Kadans Science Partner, developer and contractor McLaren Property, Property Alliance Group and student housing company Moda have come together with a mix of plans to create a new place in the city.
Two separate but collaborative plans were given the go-ahead in early 2024. McLaren and Kadans will deliver 490,000 sq ft of purpose-built student housing across two buildings, providing 737 beds as well as 216,000 sq ft of life sciences space. Property Alliance Group and Moda will deliver a further 550,000 sq ft of life sciences accommodation and 983 student beds.
Together the masterplan is expected to deliver close to 6,000 new jobs and GVA of £138m to the local area through the construction phase alone.
“This is about curating a city in an effective way that makes the demand futureproofed,” says Cheap. “If you want longevity, you’ve got to bring young people in and create that whole ecosystem.”
In Manchester, that ecosystem or patchwork, is being delivered across Spinningfields (professional services), Upper Brook Street (life sciences), ID Manchester (knowledge) and Circle Square (tech), adds Cheap.
Wider benefits
For Shoosmiths real estate partner Liz McKillop Paley, IPUT’s Wilton Park in Dublin is another example of the changing nature of city centre development. She says the scheme focuses on social, economic, cultural and environmental benefits in equal measure to ensure that it is not only delivering for the investor itself but the place too.
Wilton Park is a 600,000 sq ft, office-led development in the heart of Dublin’s CBD. IPUT has developed the scheme with the ambition of setting a benchmark for impact investing in Ireland and demonstrating the power of people-focused design and public realm activation.
Alongside the office development, with space already taken up by LinkedIn, the scheme will provide shops and leisure and a new one-acre park.
When LinkedIn agreed to prelet 430,000 sq ft across two blocks at the development on a 25-year lease, the tech giant said: “The location of the office will always be important but it’s now much more about experience.
“For our team in Dublin, we see Wilton Park offering not only a rich array of amenities on the doorstep for their wellbeing and social experiences, but also the chance to be part of a community.”
For McKillop Paley the scheme is an example of how cities, investors and developers need to work together to allow regeneration to happen. She is confident that we will see more mixed-use cities, if planners allow it.
“It’s about bringing the cultural and social aspect of place together with the economic,” she says, adding that investors want to see this mix of development and focus now too. “We’ve got to create destinations that are worth the commute.”
Student living
For Jennifer Chatfield, senior planner in the real estate team at Deloitte, mixed-use is the key to making it worth it and bringing people back to our cities.
“The diversification of city centres is key to driving footfall and, in turn, creating thriving and sustainable places that people want to visit and live in,” says Chatfield. “Students and retained graduates play a crucial role in this.”
Developers are seeing the benefit of diversification. Deloitte’s most recent regional crane survey showed a real shift in city centre uses, with more and more residential and student bedrooms being added in the development cycle.
Student housing deliveries more than doubled year-on-year across Belfast, Birmingham, Manchester and Leeds, found Deloitte, with 2,724 bedrooms completed in 2023 compared with
1,020 in 2022.
There has also been a 40% year-on-year jump in the number of student homes under construction to 8,193 across the four cities in 2023.
The development of student homes hit a record for the second year running in Leeds, with 3,704 bedrooms under construction across 10 schemes, while Belfast saw nine schemes completed last year, adding more than 1,000 new student bed spaces across the city centre, with a further 774 due for completion this year.
It’s about bringing the cultural and social aspect of place together with the economic. We’ve got to create destinations that are worth the commute – Liz McKillop Paley, Shoosmiths
“It is encouraging to see that developers are responding to the demand in the cities where students choose to work, rest and play,” said Chatfield. “The challenge will be to deliver affordable student products, as well as the provision of amenities and social infrastructure to not only attract but retain the talent in its region.”
Delivery of affordable homes, affordable student accommodation and affordable workplaces has to be part of the change our cities are going through, adds Avison Young’s Cheap. Ensuring that secondary and tertiary grade offices continue to be provided – at affordable prices – is vital. These workplaces support swathes of jobs, but are most likely to be the real estate that is most in need of upgrading to meet net-zero standards.
Cheap believes the real estate community is now at a tipping point. This is the great workplace reset, with the ability to forge a new future for our towns and cities up and down the country.
As the world settles into its new way of living, as new technologies bring different working patterns and different industries, real estate – in partnership with local authorities and communities – has an opportunity to deliver a utopian future for our cities, filled with a mix of uses, and with people living, working, and playing together.
Let’s see how long it takes a generative AI to come up with that.
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