Tight supply in the grade-A office market is set to lift rents and values across North England, according to the owner of Manchester’s freshly redeveloped Lincoln scheme.
Chris Perkins, the fund manager’s head of capital markets, expects the regional office market – and particularly that of Manchester – to prove its resilience in 2022.
“As a city, [Manchester has] completely reinvented itself as a major office location for financial services,” Perkins said. “It has a young, vibrant, energetic, ambitious population of well-skilled people coming out of Russell Group universities and a whole bunch of other colleges. It’s a good place for us to put money and to invest significant amounts into best-in-class offices.”
The 100,000 sq ft Lincoln development (pictured) – formerly Brazennose House – adds to a sizeable city portfolio for M&G, which has more than £1bn of assets in Manchester. Whether the terminology refers to the Northern Powerhouse or levelling up, Perkins said the company is a “firm believer” in the opportunities. The fund manager also owns 101 Embankment; a Spinningfield asset said to be on the market; a chunk of the Arndale shopping centre; and is now pushing ahead with a 55,000 sq ft office redevelopment at 50 Fountain Street.
Perkins is bullish on the office outlook, even as ongoing restrictions cast a shadow over occupancy trends. “We believe that rental growth will continue, and it will be the norm to see £40-plus per sq ft on high-quality office buildings,” he said.
“We believe in the office sector, we believe in the growth story. I think we’re going to break £40 per sq ft in Manchester with the Lincoln building, and we’re being given a very strong message from occupiers that the hybrid model will indeed evolve. We’re expecting many employers to have their staff in for three days a week and maybe two or one working from home.”
Perkins believes that next year will see increasing interest in “future-proofed” assets in central business districts, with a growing gap between those and potentially “stranded” sites that would require high levels of investment to bring up to the necessary quality. And the best will increasingly attract attention from international as well as domestic investors, he added.
Beyond the Lincoln building, Perkins and colleagues are moving ahead with 50 Fountain Street. Perkins said it’s another opportunity for M&G to “put their signature on the best-in-class new development”, comprising seven storeys of what he acknowledged was a “pretty scruffy” building behind a listed facade.
“The chance to maintain the heritage feel of the of the exterior of the building whilst also creating a best-in-class office internally – it’s those sorts of investments that we like,” he said.
Weathering the storm
In the retail sector, Perkins said M&G has been “very encouraged” to see the Arndale weather the storm of rising internet shopping and Covid, helped by a hybrid ‘bricks-and-clicks’ offering. Last month, fashion retailer Boohoo, which bought the Debenhams brand when the retailer collapsed, opened its first Debenhams.com store there.
“It’s a bricks-and-mortar investment for us, but it relies on being very supportive of the bricks-and-clicks piece as well,” said Perkins.
Regional last-mile logistics is also on the radar. “If you can find the right location and site, you are going to be well rewarded by investing in the last-mile logistics industrial investments around Manchester,” he said. “There are some very full prices, you have to understand the underlying rental growth potential. We would continue to invest in that sector if we felt the fundamentals were right, that you’ve got the local workforce, the connectivity with motorway networks, and the critical mass of an urban population.”
With residential and student housing also a “compelling” story, Perkins and colleagues have plenty of options for growing the portfolio heading in to 2022. And if it takes schemes such as 50 Fountain Street, which the company drives itself, he says it’s ready to do so.
“We want to create some of the opportunities, meaning we need to develop from the start and they take two, three or four years sometimes to come to fruition,” he said. “But it does demonstrate our long-term commitment to Manchester and that will continue. We are looking for assets across Manchester, which allow us to essentially do what we have done in other big cities across the UK where we place-make, we regenerate, and we do it at scale.”
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