Manchester’s prosperity is being driven by fast-moving start-up companies, which need to offer staff a working environment that’s a bit more than a boring office block, writes David Thame
KEY POINTS
- Manchester SME turnover growing 15% annually – more than double that of London
- Office space too “grey carpet” for millennials
- Landlords need to adapt to fast-changing business requirements
Sam Bentley has had a frustrating few months. “The offices,” he sighs. “They were all so…” and he pauses to pick his words. “It was all grey carpets.”
Bentley is the young chief executive of Unilad, a Manchester-based tech business of the kind that is driving the city’s growth. In the month of August alone its videos – the kind of viral stuff everyone watches – scored a staggering 2.9bn views, and the business is growing like mad. Unilad has already expanded into London and is looking at New York and Melbourne.
But where to relocate to in Manchester? And how to afford it?
A search of the Manchester options left Unilad’s top team dispirited. Like many growing tech and digital businesses, they know the time has come to spend a little on property as they step up to the next level. The problem is… well, let Sam explain.
“We spent six months looking, and it was a struggle. We have young people working here – they don’t drive to work so we need to be close to transport, and finding a base with the right personality in the city centre is hard. Then there’s cost – total occupational cost of, say, £17-£20 per sq ft rent, £3-£5 per sq ft service charge, is about right for us,” he says.
That Unilad operates on a 6-12 month business cycle – meaning every 6-12 months it reinvents itself – doesn’t help, either. For Unilad this is going to mean producing its own content, which in turn means tech studios and other things standard offices don’t have. “We have to keep ploughing ahead, so we need flexibility, things change so quickly,” Bentley says.
Unilad’s story has a happy ending. Canning O’Neill brokered a deal on 3,044 sq ft at Conavon Court, Blackfriars Street, M3 – paying an aspiration-stretching £22.50 per sq ft. But for others the ending is not so quick nor so happy.
“I talk to my pals in the TMT sector and I know this isn’t about raised floors and air-conditioning coils – it’s about office space that offers an experience”
All this matters because Manchester’s GDP per head is rising at more than 10% a year – compared with a UK average of about 1.5% – and, according to Barclays, small- and medium-size enterprise turnover is growing at 15% annually, compared with just 7% in London. Companies such as Unilad – mid-size businesses in the tech/media sectors and the life sciences – seem to be driving it.
Some fear Manchester’s office scene has become stuck in a noughties time warp, fixated on big-floorplate blocks for professionals, and a classic case of driving with the rear-view mirror. As a result, it risks missing the upcoming trends that will dominate the city in the next 10-15 years.
Tim Heatley is one of those with worries. The Capital & Centric co-founder is presiding over a £750m Manchester development pipeline that doesn’t look anything like traditional office space. It includes the 47,000 sq ft Foundry, Ordsall Lane, Salford, where people are as likely to be found making a film or brewing artisan beer as they are to be sitting at a desk.
“The property sector is one of the last to be innovative: it reacts late, and has a herd mentality,” says Heatley, confessing that Unilad’s plight is by no means unusual.
“I talk to my pals in the TMT sector and I know this isn’t about raised floors and air-conditioning coils – they don’t give a toss about all that – it’s about office space that offers an experience, because that’s how millennials judge their lives,” he says.
Hybrid offices, co-working space, and anything else occupiers want ought to be part of the office market agenda, says Heatley. What’s more, developers and agents would find it more enjoyable.
“It’s miles more fun, miles more rewarding – but, OK, the route to profit is more oblique,” he says. Buy an older property at £80 per sq ft, work your magic, know the customer’s needs and Bob’s your millennial uncle.
The signs are that Heatley is pushing at an open door. Mike Ingall, chief executive at Allied London and noted purveyor of big-floorplate corporate blocks, says he is already through the door, up the stairs, and about to put on the T-shirt.
He points to the 157,000 sq ft XYZ building, M3, the first phase of the St John’s development, which will include refurbished period blocks with 30,000 sq ft floorplates, and more than one hundred 100 sq ft starter units – and everything in between. In all it will total more than 600,000 sq ft.
“We have already seen the phenomenal growth of these businesses – we have one tenant that has grown 400% in four years,” says Ingall, whose Manchester business is being decisively refocused on less orthodox office occupiers, particularly growing businesses.
Rents will be pitched accordingly. “We’ll probably start at about £10 per sq ft,” he says. “Maybe look at £12-£20 per sq ft for the smaller spaces, £25-£26 for the larger floorplates.”
This is the kind of pricing that cheers the heart of occupiers such as Unilad’s Sam Bentley.
“These will not be Spinningfield-style glass boxes,” Ingall adds.
Talking to Ingall, you get the feeling big office blocks are so last decade, but at Peel’s MediaCity, M50, big blocks are the future. Paul Newman, TV-AM war reporter turned MediaCity director, thinks more focus on growing mid-size companies would do the office market no harm. “It’s demonstrably true the mid-size companies are growing fast. We have 250 at MediaCity and you need only to look at their recruitment to see it is significant,” he says.
“Landlords need to be flexible, but they should also remember media is all about life beyond the office. The bar, the restaurant – it all complements office activity – and, in fact, media work actually happens in bars and restaurants, because media has odd hours and people like to chew the fat,” he says.
Newman says the next three to five years will see the first of the half-dozen new office blocks that are part of Peel’s 540,000 sq ft phase two office scheme. A big corporate deal will probably be needed to anchor them – but the hint is that smaller occupiers will be encouraged to take the rest.
Manchester’s economy is changing and it’s doing it in the way Manchester has always changed: very fast, and with no concessions to those who can’t keep up. So the city’s office property market had better get moving. Now.
Top tips from Artisan
Manchester landlord? Thinking of trying the mid-size tech and media sector? Listen to Artisan Investments, which has been working at it for 20 years.
Managing director Moya Ball, who presides over Express Networks, Vulcan Mill and Albion Mill, says: “Get the rent right – we start at £9 per sq ft – and get the legals right. Then be flexible, providing everything from serviced space upwards. Flexibility, and lots of it, is what you need so when you throw out the net you scoop lots of people into it. These kinds of schemes only work if you get that diversity.”
Landlords ready?
Andy Timms, director at Edwards & Co, says it’s easier for Manchester landlords with large estates to adapt to the changed market. Hermes at Noma, Allied London, Peel, Bruntwood – they can all afford to diversify into smaller space for potentially growing clients. But outside that charmed circle Timms’s complaint sounds eerily like Sam Bentley’s.
“We had a client looking for 5,000 sq ft. We looked at 16 suites, and they were all very disappointing,” says Timms. “Manchester has the right historic buildings, it’s just getting the right landlords that’s the problem.”
The arrival in the city of developers with experience in London’s emerging tech locations – such as LJ Partnership, with its £28m redevelopment at Albert Square, and Boultbee Brooks’s £16m Manchester buys – gives him heart.
Chris Cheap, senior director at Bilfinger GVA, says the market would do well to refocus on the city’s growing businesses. He points to landlords such as Catalyst Capital and BMO, who have refurbished with smaller suites in mind, and have been rushed off their feet at rents around £30 per sq ft.
Wise landlords are bringing voids back onto the market as quickly as they can. “But no grey carpets,” he insists.
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