A word of warning: as investors rush to find a home for funds that have rippled out of London, there is a danger that some of the fundamentals are being overlooked.
Buildings are being purchased at such low yields that in our opinion, they will not be easy to relet when voids appear and will also not show the rental growth expected.
Manchester rents are rising and incentives are hardening on both grade A and grade B space, but this trend cannot be applied across the board. Each building, each location — macro and micro — is different. One yield does not fit all and in Manchester, that’s always been the case. But when the market overheats, some investors and, dare I say, some of their agents, choose to overlook this.
There are, however, some exciting schemes in Manchester and the buzz is definitely back. Starwood Capital’s purchase of Manchester’s historic Royal Exchange could well be an inspired move as it looks to get right under the skin of the building, rather than tinker around the edges as has been the case in the building’s recent history. Demand from new tenants is already very encouraging.
In Salford Quays, Hunter REIM’s purchase of Exchange Quay also looks well-timed, as with a steadily improving occupier market and a £10m investment in the fabric of the scheme, tenant demand is also on the rise. This rise is part of a general trend in Salford Quays, where we still don’t believe that the knock-on effect of MediaCityUK and the BBC has been truly seen.
Barwood is also looking strong on Manchester Green adjacent to Manchester Airport, where it bought a moribund scheme at the right time and at the right price. With speculative investment, the value can be unlocked. Chiesi took the first building to be refurbished (18,500 sq ft) immediately after completion of works and Barwood is pushing ahead with the next.
Mark Canning is director at Canning O’Neill, on Manchester’s most exciting projects