Space race

Manchester's office market continues to demonstrate remarkable resilience, and dynamism yet faces a critical challenge in its supply pipeline. According to Deloitte's Crane Survey data, in 2025, 821,559 sq. ft. of commercial office floorspace was under construction, which is 400,000 sq. ft. lower than our recorded average over the last 20 years. Critically, only one new-build office, Republic at Mayfield, commenced construction in 2025.

Despite the positive delivery of 1.26m sq. ft. to market in 2025, the highest since 2008 (1.42 million sq. ft.), this pipeline figure highlights a potential shortage of new supply. During 2026, only 112,000 sq. ft. is expected to complete, representing the lowest amount of new or substantially refurbished space since 2015. However, the planning pipeline of 5.34 million sq. ft. of unimplemented permissions means that there is no shortage of schemes that could come forward.

The current bottleneck in new supply is due to supply-side financial challenges for new build and refurbished office projects, rather than a lack of demand. The space race exists both in terms of prospective tenants snapping up remaining high-quality space, as well as developers securing available funding to start construction and deliver space to market before their competitors.

Supply vs. demand

Robust demand is evidenced by the region’s continued economic growth and its magnetic appeal as a hub for talent. Since devolution in 2015, Greater Manchester has become the UK’s fastest-growing city-region with average annual growth of 3.1 per cent. The size of the economy has increased by 28 per cent over the same period - growing by £19 billion and recently going through the £100 billion mark for the first time.

As a result, Greater Manchester's regional centre is not just competing with UK peers like Birmingham or Glasgow; it is increasingly outperforming established European hubs such as Dublin, Paris, and Lisbon. This is evidenced by its Prime vacancy rate of just 2.1 per cent and Grade A under 3 per cent (compared to a 5.3 per cent average across other 'Big Six' cities). This performance is driven by consistent tenant demand for quality, sustainability, and character in office environments.

Major lettings throughout 2025 provide direct evidence of strong demand, as Q3 2025 saw take-up reach a robust 351,000 sq. ft.; a significant 20 per cent leap over the ten-year average, with Prime and Grade A space accounting for 52 per cent of total activity. Wider take-up suggests 68 per cent of the 1.25 million sq. ft. of space delivered in Manchester and Salford during 2025 was let prior to completion, which is cause for some optimism.

A significant new demand driver is the 'levelling up' of government functions, with the relocation of 2,600 civil servants to First Street in February 2025 and a further 7,000 civil service jobs planned for Ancoats. This reinforces Manchester's emergence as a 'centre for government' in the North, providing a steady pipeline of public sector demand.

This clearly signals a flight to quality and a strong appetite for best-in-class office environments from a range of sources. Large corporates, tech organisations, government entities, and high-growth businesses are still actively seeking premium, amenity-rich spaces that align with their evolving operational models and critical ESG commitments. This is only typically met by substantial and large-scale refurbishment or retrofit projects or high specification new builds.

Although demand for space of this nature has intensified since the downturn caused by the COVID-19 pandemic, the supply is set to fall behind in the coming years based on current construction levels. Undersupply limits expansion opportunities or forces compromises on location or specification, potentially impacting the ability to attract and retain top talent; the current positive economic trajectory relies on a continuous supply of modern, adaptable workspaces. The primary reasons for the constrained pipeline of new build office developments are rooted in economic realities:

• Increased Cost of Capital: Elevated interest rates compared to an extensive and unprecedented period of 0 per cent Bank of England base rates directly impact development viability, making new projects riskier and less attractive for traditional financing. In recent years, lenders remain "selective with new borrowers" and anticipate "credit losses", making debt harder to secure for speculative developments.
• Construction Inflation: Prolonged periods of above average inflation associated with construction costs have eroded required development margins, seemingly rendering many new office schemes financially unviable unless headline rents achieve the required uplifts. While essential for long-term decarbonisation efforts, stringent ESG requirements have increased upfront investment. New builds target top-tier BREEAM and NABERS ratings, while refurbishments focus on EPC improvements and embodied carbon savings.

It takes time for revenue per sq. ft. to realign with costs of development influenced by the above factors, which is largely dictated by tenant demand and their associated purchasing power. Commentators cite that rents will need to get beyond £55 per sq. ft. to support the viability of the highest specification of new build; a significant jump from current headline rates in most areas and only affordable for the largest of organisations.

This year is anticipated to be a pivotal year for rental correction, with market commentators expecting the £55.00 per sq. ft. mark to be surpassed, most likely within the first six months. This will be driven by amenity-rich projects offering features like rooftop terraces, F&B, gyms, and wellness hubs. This could represent the structural change in rents the city has been waiting for, essential for unlocking new development viability. Channels of investment react to these market signals so that development can generate new momentum, but delays in a market response can easily create problematic bottlenecks. Excluding fit-out, bringing space to market takes at least 24 months from the start of construction.

The comparative scarcity of under-construction high-specification new-build or major refurbishment options means larger corporates now face intense competition for prime space. This current phase of constrained new supply and rising refurbishment activity can be viewed within the longer-term cyclical patterns of the regional office market, which our 25 years of Crane Survey data illustrates. These periods of adjustment often precede new growth, suggesting a market poised for renewed momentum once viability challenges are addressed.

The mid-market, comprising smaller businesses and scale-ups, also faces an acute undersupply of suitable space based on schemes under construction. While their requirements differ slightly from large corporates, with less emphasis on ESG, they too demand well-connected locations often coupled with more flexible lease terms and affordable options.

This is key to understanding the upcoming shortage as we move into 2026, and the market response observed during 2025.

The market response

The current challenging environment can take comfort in strong pre-let activity; strong tenant commitments are a crucial lever to de-risk projects. That said, speculative office developments are necessary to ensure supply continues to meet demand. The market is responding to this challenge through a combination of strategies:

• A strong focus on refurbishment of existing stock and repurposing non-office spaces.
• Private sector development leveraged through new public sector investment streams.
• Technologically savvy operating models maximise efficient use of space and returns.

Investments in flexible co-working spaces, such as the Upper and Lower Campfield Markets in St. John’s or Renold Building in Sister, are good examples of the first strategy. They provide adaptable and amenity-rich options that cater to smaller businesses, which are aligned with curated occupier strategies that seek to leverage the benefits of co-locating synergistic businesses. Office agents’ report in Manchester cite the growth in fitted and furnished space, let on hybrid leases offering a blend of flexible and conventional terms, is also on the rise and featuring larger lettings. While previously seen in smaller lettings (around 5,000 sq. ft. or less), there is now healthy demand for spaces up to 10,000 sq. ft., indicating a broader shift towards flexible, ready-to-occupy solutions.

The market has also seen the emergence of 'Grade B+ or Grade A refurbished' as a distinct classification, representing high-quality, amenity-rich refurbishments that offer Grade A features in refurbished stock at a more accessible price point. This underscores occupiers' demand for flexible, destination offices that prioritise employee wellbeing and ESG credentials over brand new space, given landlords focus on what makes spaces lettable. For example, The Metropolitan (formerly 1 Hardman Boulevard) and 3 Hardman Street in Spinningfields are not necessarily providing more space but are undergoing comprehensive upgrades to improve environmental performance and amenity offerings. Their large floorplates and generous floor-to-ceiling heights within buildings originally constructed approximately 20 years ago could cater for any area of the occupier market.

While new builds struggle to get out of the ground, refurbishment has therefore become the market's immediate response to meeting demand. This is a longer-term trend, as we have recorded an uptick in refurbishments post-COVID. Our research shows that refurbishment, with notable projects like Rylands, now constitutes over 68 per cent of Manchester's office pipeline, up from 30 per cent a decade ago. An acceleration in the refurbishment of sub-prime space supports city-wide decarbonisation efforts and allows landlords to meet modern standards without the expense of new Super Prime or Grade A developments.

'Super-prime' is a classification now officially recognised by the British Council for Offices (BCO), representing the absolute best-in-class product, such as No. 2 St Michael’s and Landsec’s Republic at Mayfield, which are expected to attract blue-chip deals and set new rental benchmarks. This refurbishment trend has been driven by factors such as right-sizing, relocation within existing tenancies, and lease events post-COVID. Landlords were more readily able to secure vacant possession to undertake meaningful refurbishment, thereby capitalising on the disparity between supply and demand for high-quality commercial space in the best locations.

The dwindling demand for secondary space, which accounts for more than half of the city's total availability (approximately 1.5 million sq. ft.), poses a significant risk of 'stranded assets.'  This risk is exacerbated by a potential tightening MEES regulations, requiring EPC 'C' by 2027 and 'B' by 2030, which will render secondary stock unusable without substantial investment. To mitigate this, some secondary office stock is being redeveloped for alternative uses, such as hotel uses or serviced accommodation, demonstrating a market response to avoid obsolescence.

However, addressing the supply-demand imbalance and supporting further economic growth requires a multi-faceted approach, unlocking private investment by leveraging public sector funding. The Greater Manchester Combined Authority's (GMCA) £1 billion Good Growth Fund and the Evergreen Fund are prime examples of this.

At an almost 8:1 leverage ratio, the total funding for commercial schemes in the Crane Survey area comprises approximately £169.1 million to leverage over £1 billion total investment and supports 1.56 million sq. ft. of commercial space. These are all loans, demonstrating confidence in the city’s continued growth trajectory. Key projects include:

• Kendals department store (Deansgate): £44 million (GM Good Growth Fund) to support 450,000 sq. ft. of new city centre office space.
• Sister (Global Innovation Hub): £20 million (GM Good Growth Fund) to support 500,000 sq. ft. new office and lab space for advanced manufacturing, materials, life sciences, low carbon, green technology, and digital/tech sectors.
• Upper Brook Street: £22.1 million (GM Good Growth Fund) to support 81,000 sq. ft. of life science lab and office space.
• Mayfield: £13 million (GM Good Growth Fund) to support 92,000 sq. ft. of new office space and a transport hub.
• 35 Fountain Street: £11 million (Evergreen Loan) to support 65,000 sq. ft. of office space.
• 50 Fountain Street: £18 million (Evergreen Loan) to support 54,000 sq. ft. of office space.
• Great Northern: £20 million (Evergreen Loan) to support 145,000 sq. ft. of office space.
• 39 Deansgate: £13 million (Evergreen Loan) to support 40,000 sq. ft. of office space.

This list reflects both a reinforcement of the CBD alongside the emerging rich tapestry of locations that now caters to a wide array of occupiers, fostering a vibrant and competitive market. Geographically, each area is developing its own USP to attract specific growth sectors, which is reflected in current occupiers and targeted prospective tenants:

• Central Business District (CBD), St. Mary’s Parsonage, Spinningfields and New Bailey: This area remains the heart for established Financial and Professional Services, offering premium Grade A space and excellent connectivity. New Bailey now seamlessly connects from Salford, providing a prime offering for Professional Services. The St. Mary’s Parsonage area, in particular, is poised for catalytic transformation, evidenced by a significant pipeline of schemes with planning permission. Key developments such as the redevelopment of Kendals and its adjoining multi-storey car park, Albert Bridge House, The Alberton, Cardinal House, and Reedham House are driving its emergence as a prime hotspot for future growth.
• Oxford Road Corridor including Manchester Science Park & ID Manchester: A magnet for Life Sciences, Health Innovation, and Deep Tech, leveraging unparalleled university research and talent. Sister is a key example of this focus, particularly when coupled with activity on Upper Brook Street via Kadans.
• St. John's and Circle Square: Two critical hubs for Digital, Tech, and Creative Industries, fostering a collaborative ecosystem with a mix of office, residential, and leisure spaces. Both areas are fully occupied with commercial tenants, reflecting how strategic decision-making around target occupiers pays dividends.
• NOMA & Northern Quarter: The NQ, offering a more characterful and often more affordable alternative to the prime core, attracts a blend of Tech, Creative, and smaller Professional Services. Adjacent, NOMA blends specifically designed modern commercial office needs, recently attracting the Bank of New York, with curated smaller format spaces in its listed estate.
• Mayfield: Positioned as a new urban commercially-led neighbourhood, it aims to attract a mix of occupiers, alongside residential and leisure, capitalising on its proximity to Piccadilly’s regeneration, Ardwick and Sister, and its unique backdrop of new green spaces.

The dynamic landscape of Manchester and Salford's commercial office market presents a compelling picture: robust, sustained demand driven by exceptional economic growth and a magnetic appeal for talent. While the detailed analysis highlights a critically constrained new supply pipeline due to financial bottlenecks, Greater Manchester is demonstrating a highly proactive and innovative approach.

The immediate market response has strategically pivoted towards comprehensive refurbishment of existing stock, with projects like Rylands and The Metropolitan (formerly One Hardman Boulevard) setting new benchmarks for scale and amenity, effectively addressing the flight to quality. Crucially, the innovative leveraging of public sector funding, such as GMCA’ £1bn Good Growth Fund and the Evergreen Fund, is proving instrumental in de-risking projects and unlocking private investment, thereby ensuring the long-term viability of new, high-specification developments and major refurbishments.

This "space race" is not merely about securing the future of prime locations but about fostering an environment where Manchester can continue to outcompete established European hubs, as evidenced by its superior vacancy rates. The strategic specialisation of districts, from the financial heart of the CBD to the innovation clusters of Oxford Road Corridor and the creative hubs of St. John's, demonstrates a sophisticated understanding of modern occupier needs and ensures a diverse offering.

Despite global economic headwinds and the challenges of increased capital costs and construction inflation, Greater Manchester maintains a distinctly positive outlook. The region's confidence stems from strong activity levels across property markets and sure-handed work on key issues underpinning growth. With fundamental economic factors heading in the right direction, including strong GDP growth outstripping and stabilising gilt yields, the investment landscape is becoming increasingly attractive.

This proactive approach, coupled with ongoing innovation in funding models and a clear commitment to delivering diverse, high-quality, and ESG-compliant spaces, positions Greater Manchester to sustain its impressive growth trajectory and maintain its competitive edge, attracting and retaining the businesses and talent of tomorrow. Indeed, the market anticipates a significant structural change in rents, with the £55.00 per sq. ft. mark broadly expected to be surpassed, most likely within the first six months, reflecting the city's continued advancement and dynamic business community and providing the necessary viability for future developments.