Something strange is happening on Manchester’s leisure circuit. “Earthy” and “grungy” were words once euphemistically uttered by agents trying to talk up locations better described as “dirty” and “seedy”. Now they are being used to describe the Northern Quarter, and they are meant as a compliment.
Although the local property industry is keen to quash comparisons with London’s Soho, it is hard to ignore the similarities. The area is grimy and gutsy, but stylish – a combination that is fast making it a haven for independent shops and bars. It is also being hyped as Manchester’s new leisure pitch.
There is little doubt what operators come here for. With rents at half those of the city’s prime pitch, the area is cheap enough to trial new concepts but sufficiently run down enough to discourage multiples. As Jonny Hayes, owner of the Common bar puts it: “It’s meant to be Manchester’s Soho or Shoreditch, but I came because the rents are low and I could get a five-year lease.”
He is not alone. Janet Tse, along with her two sisters, has invested in 175 residential units in the city centre. Now they are to try their hand at commercial property, and have bought the Sweet Mandarin Chinese restaurant. “It’s not easy to get deals for residential units, and there’s a new bar opening up here every week,” she says. “We decided to buy the freehold on Sweet Mandarin because it made financial sense. Our mortgage is half what the rent would be.”
That is not good news for the property industry. Developers and investors are not generally known for their love of cheap rents and the covenants of independent operators. But with bar and restaurant chains stepping back from expansion plans, and talk of saturation still dogging the mainstream Manchester leisure market, will landlords have to be patient, balance rental growth with a quirky tenant mix and watch their assets grow?
Ician, a joint venture between AMEC and Crosby Homes, and a key developer in the Northern Quarter, is keen to do its bit. In partnership with Manchester council, it has helped to spearhead a £50m regeneration of the Northern Quarter. Redevelopment of the former Smithfields fish market has been completed and plans are afoot to add a total of 600,000 sq ft of homes, shops, restaurants and a 200-bedroom hotel on the 5.5-acre site over the next five years.
The developer has already sold restaurant and bar Bluu its freehold in a bid to set the tone in the area. This gamble seems to have paid off, with the venue quickly becoming a popular destination and rumoured to be turning over around £40,000 per week.
Others are keen to come on board, says Matt Crompton, development director at AMEC. But Ician intends to carefully watch the tenant mix. “We’ve made a conscious decision to avoid purely wet-led operators,” he says. “We are after operators with passion, imagination and vision.”
Encouraging independents
Bluu has been swiftly followed by others, such as Sweet Mandarin around the corner. And it is keen to increase its exposure with plans to open up a bar next door. New York-style deli Love Will Save the Day recently reopened in bigger premises on Oldham Street, complete with its red flashing neon “Sexy Food” sign.
Ician is now progressing on site with phase 3 of the development, in line with its commitment to build and fill 145,000 sq ft of space. Over the next 12 months, Ician will develop 120 flats and 25,000 sq ft of ground-floor commercial space.
Around 20% of the commercial space for the whole scheme will be devoted to offices. Solicitor Jack Thornley has already signed up to let 7,000 sq ft in the first phase. All but two units representing 2,500 sq ft have now been filled, and prelets for 4,000 sq ft in phase 3 are under negotiation with a local gym operator and an art gallery.
But intentions are one thing, and Northern Quarter landlords would do well to study Canal Street’s evolution. Stuart Burdon Bailey, director at Jones Lang LaSalle, explains how, like the Northern Quarter, Canal Street grew from independent entrepreneurs. “Then the big nationals came in, and rents got a bit hairy ,” he says.
John Agnew, director at SY Moorhouse Wright, agrees. “Canal Street certainly isn’t the area it was five years ago,” he says. “It used to be full of independents and the only place for late licenses, but the corporates went in there, and the word is they are struggling.”
Rents are already tipped to rise in the Northern Quarter, albeit from a low base. Agnew estimates that units in the area trade at a 60% discount to the city centre’s prime pitch of £25 per sq ft. And if trading remains tough among the national multiples, rental growth in the submarkets could be a reality. “The best places are the evolving places where it is much easier to go from £12 per sq ft to, say, £17.50 per sq ft,” he claims.
Others are blunter about the area’s prospects. Anthony Lyons, a solicitor at Kuit Steinart Levy, which represented many of the tenants entering the Northern Quarter, admits: “The creep of nationals is inevitable, in the same way that Canal Street lost its identity.”
AMEC is alert to the problem, but says it has relatively little control over the situation. “It’s tricky to police,” says Crompton. “There’s no diktat we can hand down, there’s no planning legislation or legal contract that says you can only have trendy operators.”
But Crompton believes that the Northern Quarter could avoid the nationals, since the likes of Nando’s and Living Room are not interested in the area. If that is the case, will landlords and institutional investors ever take the quarter seriously?
Pointing to Bluu, Crompton believes an investor could achieve a yield of around 10% today. “That’s quite soft, but, over time, as Bluu becomes a better covenant, it will harden, and the returns will come,” he says.
Ician entered into a profit sharing partnership with the council, and although Crompton is shy to state numbers, he describes returns as “sensible double-digit, but not outrageous for the risk involved”. Others will get a chance to access those returns, with 90% of the completed space up for sale to investors.
It is early days for the Northern Quarter and the area is still evolving. But it will need careful management and patient investors to make sure that its buzz is sustained, without mutating into something too corporate.
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Unlike bar owners, retailers have been slow to sign up for the Northern Quarter. But individual clothes shops and furniture retailers are starting to appear. And Ilva, a Danish version of Ikea, has just signed up for a 120,000 sq ft outlet at Town Centre Securities’ nearby Piccadilly Basin. This will become a destination shop, believes Warwick Smither of Cheetham & Mortimer. But he does not believe the area will benefit from more retail on the back of it. Smither describes the area as having “wonderful character”. But he says: “They won’t get widespread retailing. The stock is old warehousing with raised ground floors, and that’s a problem that could get quite expensive.” Developer Ician has already tackled this problem with its redevelopment of the former Smithfields fish market. The firm’s development director, Matt Crompton, says it has been careful not to destroy critical dimensions of the buildings and to preserve frontages. “That required us to be a bit more imaginative, but sometimes it helps because not everyone wants a box, and that means we can individually price them and charge a premium.” Retail rents trade at a 40% discount to the city-centre’s zone A level of £200 per sq ft, says, John Airey, director at Dunlop Heywood Lorenz. “Values have shot up and it’s harder to get a bargain now. But it will probably take five years for the area to get established,” he says. The presence of the sex trade in the area cannot help progress, and Ician is aware of the problem. Crompton says the developer will do its best to help improve the area. But, he stresses: “We don’t want to destroy the character. We don’t want to turn this into a formulaic high street.” |
