Manchester and Salford's resilience: Navigating challenges, driving growth

A city built on adaptability 

Over successive Crane Surveys, Manchester and Salford have demonstrated remarkable resilience, weathering economic fluctuations and adapting to evolving landscapes. This success stems from a strategic focus on economic diversification, social equity, and environmental sustainability. 

The UK construction sector faced another challenging year in 2024, grappling with geopolitical and economic uncertainty, regulatory reforms like the Building Safety Act, insolvencies such as ISG that have impacted the risk appetite of major contractors, and labour and skills shortages that are continuing to exert inflationary pressures.  The recently announced increases of 6.7% to the National Minimum Wage and 1.2 percentage points in employers' National Insurance contributions will also impact developers and the overall cost of construction.  

Despite these headwinds, cranes remain prominent on Manchester and Salford's skyline, a testament to the region's diversified and resilient economy, cultivated over recent decades.   

Today, the Crane Survey area has a thriving innovation ecosystem, anchored by the Oxford Road Corridor, which continues to attract investment and drive advancements in high-growth sectors, further solidifying Manchester's economic strength.   

The UK Biobank at Manchester Science Park (MSP) will soon join Graphene Engineering Innovation Centre (GEIC) and Royce, the UK National Institute for Advanced Materials, as specialist research hubs in the Oxford Road Corridor.  Late 2024 saw the launch of Sister, the Corridor’s flagship innovation district, emerging from the former UMIST campus vacated in 2023. Together, these are forming a powerful engine for economic progress. 

Key to success has been the powerful partnerships between civic leadership, the city’s key institutions and the private sector, and the commitment to getting things done, always seeking to ensure place before politics.  Indeed, Deloitte’s Growth 35 initiative recognises the importance of public and private sector partnerships in driving investment, jobs, innovation, and technology over the next 10 years, which highlights Manchester’s potential to be a UK economic growth and prosperity leader. 

Navigating the office market dynamics 

Office completions in 2024 reached the highest level since 2020 at 1.07m sq. ft. This was expected following a slower year in 2023. Whilst the floorspace under construction remains healthy at 1.56m sq. ft., new activity on-site is predominantly smaller in scale.  Although six new office schemes started on-site in 2024, one above the five-year average, this equates to circa 400,000 sq. ft. of new floorspace. By comparison, the five new starts in 2022 added 1.1m sq. ft.  

Our Survey found that activity in refurbishments continues to dominate. In fact, the only new build scheme to start on-site in 2024 comprised of a research and development scheme at MSP, facilitated by a distinct combination of the specific relocation needs of its anchor tenant, public sector funding, and Bruntwood SciTech's long-term custodianship. Construction of traditional new-build offices therefore came to a standstill in 2024 and now represent only 32% of the total floorspace in the pipeline under construction.  

Occupier demand, however, remains robust. The slowdown in new build office stems not from a lack of interest, but from the challenging economics of new development. 

While shifts towards remote work contribute to the evolving landscape, the primary hurdle is the inability of headline office rents to keep pace with construction inflation. Build costs have surged 35% since 2018, coupled with interest rates leaping from 0.5% to 5% over the same period, rendering many new office developments financially unviable.  Indeed, to make new build office development viable again, it is generally quoted by the leading office agents that rents need to reach £55 per sq. ft. 

There is room for optimism in the Manchester commercial property market with recent significant lettings. These lettings demonstrate continued confidence in the market, indicating a positive outlook despite economic uncertainties. A prime example is Auto Trader's decision to relocate its headquarters to a 130,000 sq. ft. space at No. 3 Circle Square. This move, driven by the region's exceptional digital talent pool, signifies a considerable expansion for the company and highlights the attractiveness of Manchester to growing businesses, particularly in the tech sector. 

This positive momentum is further bolstered by other major lettings, including those to S&P Global (fintech), BNY Mellon (finance), Virgin Media, and Arm (microchip design).  

The record-breaking headline rents of £48 per sq. ft. achieved at St. Michael's in 2024 further underscore this positive trend, setting a new benchmark for the city. 

Manchester and Salford retain their appeal for businesses seeking growth opportunities. The depth of their talent pool, robust social infrastructure, vibrant cultural scene, excellent connectivity, and relative affordability compared to London continue to attract major players. 

The rise of quality and flexibility 

The success of Manchester and Salford's office market hinges on providing high-quality, flexible spaces that prioritise employee wellbeing and collaborative working practices. Occupiers are drawn to buildings with strong ESG credentials, particularly those boasting certifications like NABERS, BREEAM, and WELL. However, accommodating these desirable features within a context of inflationary pressures poses ongoing challenges. 

The rise of coworking spaces reflects an increasingly agile workforce and has spurred demand for flexible, high-quality work environments.  Cubo, Gillbanks and Koba are examples of shared office providers that have all taken space in the last 12 months.  This trend presents both opportunities and challenges for traditional office spaces.   

Indeed, the UK and Ireland has more coworking spaces per capita than any other country in the world and Manchester is a leading coworking hub with 74 coworking spaces. This is reshaping the city centre’s offering, as traditional lower-specification office spaces struggle to compete with the quality and service offerings of coworking environments. Looking ahead, for outdated stock – particularly those with inherent design constraints and located outside core office areas – this shift may increase pressure from landlords and investors for more conversions and redevelopment proposals for alternative uses.  

Refurbishment: Breathing new life into existing spaces 

Against this context, Manchester and Salford’s ability to act as a destination for major occupiers in the immediate future is being challenged. However, with construction inflation easing – for example, BCIS reports that material cost inflation has moderated since its peak in 2022 – and rental levels on the rise, there is some cause for optimism.   

Refurbishment projects continue to emerge as an important solution to bridge the gap in supply. Investors are also increasingly drawn to retrofitting existing buildings to enhance sustainability performance, whilst reaping the benefits of lower embodied carbon compared to new builds, to attract environmentally conscious tenants. The successful transformation of the listed estate at NOMA has exemplified this trend in recent years, showcasing the appeal of character-filled, sustainable, and future-proofed spaces. 

In previous surveys, we discussed the elevated stranding risks that many offices face due to the signalled tightening of the Minimum Energy Efficiency Standards (MEES) and how, without refurbishment, the risk of value erosion intensifies. 

In 2024, 68% of the total floorspace under construction comprises refurbishments. This includes the conversion of the Grade II Listed Rylands Department Store into circa 300,000 sq. ft. of office space, with a new build rooftop extension. Work also continues on Pall Mall Court, providing a 90,000 sq. ft. innovation hub. Major new starts for 2024 include the Upper and Lower Campfield Markets (86,000 sq. ft. in total) as a hub for creative, media and tech occupiers, as well as the conversion of the Renold Building to create an innovation hub designed to support the growth of start-up businesses at the heart of the emerging Sister masterplan.  

There are several further major refurbishment projects that are yet to start on-site but are poised to reshape the city centre. This includes the conversion of Kendals, the revitalisation of the CIS Tower, and the reimagining of One Hardman Boulevard. This latter project is an example of how a relatively new office building (constructed circa 20 years ago) in a core office location (Spinningfields) requires significant modernisation to meet the evolving needs of occupiers. 

An advantage of refurbishment projects in the current inflationary environment is that they capitalise on potential shorter construction periods, as well as the inherent character of many existing buildings, particularly those with historical significance, to create unique and highly desirable work environments.

A resilient economy poised for growth 

Despite challenges in the office market, Manchester's broader economy exhibits strong signs of adaptability and resilience. Data from the Office for National Statistics (ONS), as reported in the Economic Strategy for Manchester, reveals significant employment growth in construction (83%), property (50%), and public administration and defence (50%) between 2015 and 2021. This highlights Manchester's attractiveness for diverse businesses and investors. 

Furthermore, over the same period there is a notable shift towards knowledge-intensive occupations. Research and experimental development in natural sciences and engineering surged 108%. Architectural and engineering activities experienced 83% growth, as did accounting, bookkeeping, and auditing activities. This trend towards a knowledge-based economy, coupled with growth in diverse sectors, positions Manchester and Salford favourably to navigate future challenges and seize emerging opportunities. 

The residential market: Adapting to new demands 

Manchester's city centre housing market has reached a new stage of maturity and density. This has led to improved connectivity with surrounding neighbourhoods, either through existing infrastructure or planned developments. Additionally, the market is diversifying with a greater emphasis on affordable housing options. 

Despite inflationary pressures, the residential market remains strong, fuelled by rental growth. This has spurred 11 new construction starts in the Crane Survey area in 2024. With 10,788 homes already under construction, the projected completions of approximately 4,700 homes in 2025 and 4,300 in 2026 are on track to meet the identified average annual demand of 3,533 homes in Manchester for the next two years as identified in the Greater Manchester Places for Everyone Joint Development Plan 2022 to 2039. This pipeline, alongside anticipated future construction starts, indicates a commitment to addressing these identified housing needs, and the overall need for 175,000 new homes across Bolton, Bury, Manchester, Oldham, Rochdale, Salford, Tameside, Trafford, and Wigan Councils by 2039, 50,000 of which will be affordable. 

Our Survey indicates a high prevalence of Build to Rent (BtR) apartment developments including a number of tall buildings adding to Manchester’s skyline.  The new starts also include several affordable housing schemes within Manchester at Store Street and Laystall Street and at Peru Street in Salford with new homes also designed to Passivhaus standards in that case.   

Manchester and Salford’s resilient residential sector is notable given the introduction of the Building Safety Act, which, while essential, has added complexity and lengthened timelines for residential projects with Gateway 2 approvals post planning taking a reported 12 to 18 months.  This was part of the reason for a dip in residential new starts in 2023 (to seven), the lowest for 10 years. 

Manchester and Salford's ability and willingness to support adaptations to approved schemes via its planning system to accommodate these new regulations demonstrates their commitment to providing safe and sustainable housing. 

Amenity spaces within BtR schemes also highlight the importance of adaptability in the built environment.  In 2014, during the embryonic stages of the BtR market, there was little differentiation in the amenities provided to residents by rival schemes.  A broader range of BtR products are now available, with carefully considered amenity provision that is tailored to meet the needs of operators’ target market.  This often includes high-quality coworking spaces, which is unsurprising as the home is now the second most common primary place of work and applies to 74,000 people in Manchester alone. If you are self-employed or similar, there could be a benefit of living in BtR to save on separate office costs by using the shared or private facilities available. The highest end accommodations are increasingly differentiating themselves with facilities one would previously associate with a five-star hotel.   

Continued evolution 

Manchester's strength lies in its ability to adapt and evolve. The city's success depends on its responsiveness to market dynamics, its embrace of innovation, and its commitment to creating a high quality of life for its residents. By remaining agile and forward-thinking, Manchester is well-positioned to navigate future challenges and maintain its position as a thriving hub in the UK. Implementation of Greater Manchester Combined Authority (GMCA)’s new Trailblazer Deal in April will also provide a step-forward for devolution, providing more control, powers and investment decisions at a Combined Authority level to help drive economic growth across the city region.