Qualis Developments attended the Deloitte Crane Survey this week. The annual report produced by the multi-disciplinary firm is published in the first quarter of each year, detailing the development activity that has taken place over the last 12 months. 2019’s event was introduced by Simon Bedford, head of Deloitte’s Manchester and Leeds offices, who commented on how strong 2018 was for the sector.
Bedford began by discussing the Construction Purchasing Manager’s Index (PMI), the inflation indices which track the UK construction industry’s performance, which indicated a sluggish 2018 for the industry. Importantly, though, he concluded that this trend hadn’t been seen in Manchester, a city which saw growth in construction output, highlighting the strength of the regional cities compared to the rest of the UK. This is a key finding, which is to be explored in more detail in our commentary below.
Melissa Wilson, Assistant Director at Deloitte, then presented the report which highlighted the unmistakable trend of growth in the industry. There were 44 new development project starts in 2018, up 37% from the 32 started in 2017. The report was broken down to four main areas; residential, office, retail and student development.
Below is our commentary on the report and its findings.
The residential market in Manchester is the fastest growing sector and leading the development activity in the city. Based on the construction data presented last year it would have been fair to assume 2018 may have been a slow year, with economic and political uncertainty being key worries for the industry. But the residential market continued to grow at a rapid pace in 2018;
• Between 2007-2018 there were a total of 13,439 residential units completed.
• In the three-year period from 2019-2021, 14,480 units are due to be completed.
This alone shows the rate of residential development in Manchester. There is certainly a concern that this level of delivery will create an oversupply and drive down prices and rents as the vast number of residential units in the pipeline are due to complete over the next year.
But interestingly, in 2018, we saw the greatest distribution of residential delivery which is spreading out from the central core: two thirds of all the units being delivered are in Salford and the Southern Arch. The districts around the city centre are beginning to develop their own neighborhoods and identities, illustrating a real expansion of Manchester as a whole – not just a growth in the traditional residential districts such as Ancoats and the Northern Quarter. For example, plotting the project start numbers with population data shows Salford will become the second largest residential district in population size by 2021.
Office Space –
It was also an excellent year for the Office sector, with the highest level of new project starts since 2007. Manchester saw 2.1m sqft of office floor space delivered in 2018, up from 1.3m sqft in 2017. Furthermore, 85% of the new space being built is to Grade A standard. Unsurprisingly, the City Centre district has seen the largest growth in office development, but this was closely followed by Salford.
Growth in the office market is often linked to a good economic environment, these numbers show Manchester is continuing to attract business, Deloitte note the growth in the creative and digital sector as a driving factor.
Our favorite statistic presented in this sector is the office pre-let numbers. In 2017, 10% of the office space being constructed was pre-let before completion, in 2018 that is up to 25%. This shows the strength of the city’s economy and reputation, occupiers are speculatively taking space either to grow within or move into Manchester to do business. This is much higher than other cities and shows the confidence in Manchester’s economy even in these uncertain times.
Student, Education and Research –
There was no delivery of student accommodation in 2018, but three new projects were launched. These new projects show the changing demand and appetite in the student market for high quality facilities-based living as Manchester now hosts over 100,000 students from 180 countries.
2018 also saw the largest number of project starts for research and education developments since 2014, mainly fueled by both the University of Manchester and Manchester Metropolitan University investing heavily in their campuses. Their plans for growth are also translated in predictions for growth in this sector over the next few years.
In 2018 there was a rise in graduate retention rates, which is now up to 51%, again illustrating the growing strength of Manchester as a destination to live and work. Growth was also seen in the innovation and research sector, with further expansion of the Manchester Science Park and the launch of the Henry Royce Institute being the main drivers.
Retail, Hotel and Leisure –
Hotel development continued to grow in 2018, with a record number of 2,129 beds under construction across the city, showing the growing appeal of Manchester as a leisure destination. In 2017 Manchester Airport received 2.1 million passengers from the top 20 business destinations across the world, in 2018 this increased to 4.2 million! New direct routes to China and India are fueling this growth. Be it business or pleasure, there is an undeniable demand to visit and stay in Manchester.
Despite being in the press recently for its lack of success and succumbing to the threat of the online retailer, Manchester’s retail economy showed steady results. As the city’s residency rates grow so does the demand for retail and leisure amenities, this comes hand in hand with expanding communities and Manchester has a lot of that in the pipeline.
To conclude, 2018 was a very positive year for Manchester, which is continuing to grow at an impressive rate, overtaking most other UK cities. This is testimony to the power of the circular economy: as educational institutions grow and retention rates go up, the city’s skilled workforce grows, attracting more businesses and in turn more homes are built to house the growing population; and so the cycle continues.
The outlook for the coming year looks positive, Salford has performed very well in 2018 and seems to have stolen the show with its growth in the residential and office sectors, which is why it remains a favorite district for Qualis Developments to target development and push forward with our newly acquired projects in the area.