Lessons From A City In A Second Lockdown: Why Recovery Will Be K-Shaped And Slow
The March to June lockdown wiped out the chances of success for the first bar on the mixed-use site, and the landlord took over to run Mecanica in-house, opening in September. For a month, it thrived.
Then in late October, a month before the rest of the UK, Manchester entered a second lockdown, and now the bar is shuttered. Despite a continuing trade in home-delivery vacuum-pack martinis, it won’t be returning to life anytime soon. The same goes for the coworking suites upstairs branded as ClockWork.
Mecanica’s down-up-down 2020 reflects that of Manchester. The city in north west England — famous, among other things, for football, and its vigorous music and youth scene — was western Europe’s boomtown in the 12 months before the coronavirus pandemic emerged in March 2020. Manchester boasted more skyscraper development than any city in the Anglosphere except Toronto, as locals and overseas investors fought for a share of its city living scene.
Meanwhile the office market boomed on the back of a surge in tech investment and Far Eastern money. If anywhere could bounce back from the combined economic and social shock, surely it should be Manchester?
Yet talking exclusively to Bisnow, Manchester City Council leader Sir Richard Leese predicted a three-to-five-year recovery before the city returns to its March 2020 strength. Meanwhile the city’s business advisers say Greater Manchester (the city region with Manchester at its core) will suffer a much-feared K-shaped recession and recovery, in which some parts of the economy roar back into life and others endure a long, slow, continued decline.
If these assessments are right, and a thriving city endures a lopsided recession and recovery, then it’s a fair assumption that less favoured cities can expect their recession and recovery to be longer, slower and even more painful.
But this isn’t the real news from Manchester. Because behind the gloomy projections lies one of the biggest discoveries of the lockdown experiment: Damage the intricate, almost invisible ecosystem of small businesses, risky ventures and bright ideas that makes up the city’s food, beverage and cultural sector, and you quickly end up damaging everything else in the property market. The fear is that the wound the lockdown has created could be very slow to heal.
An ever-replenished stock of young, enthusiastic and well-trained workers has been at the heart of Manchester’s economic success, as is the case for any modern city. Manchester has one of the largest student populations in Europe, and high levels of graduate retention, which is a magnet for employers and investors.
Graduates are prepared to stay in the city in part because they can build a career in Manchester: There is sufficient depth to the local economy to make it unnecessary to move London if you want to reach the top. But they also stay because they can have fun in the city whilst they work their way up the career ladder.
Richard Jeffrey is director at GC Business Growth Hub, the economic and business support organisation for Greater Manchester. Jeffrey has spent the last six months helping local businesses navigate the coronavirus pandemic and what he says about the combined effect of two lockdowns is telling, because it shows disproportionate damage to the part of the economy valued by young graduates.
“During the first lockdown, government measures largely softened the blow," Jeffrey said. "Around 70% of Greater Manchester businesses took some form of government support. We had about 400,000 people on furlough, so about one-third of the entire workforce. We still have 100,000 on furlough today.
“Second time around we’re seeing more insolvencies, up from 9% of businesses with red-flag risk up to 15% today, but what is interesting is that it is not even across the economy — where it is hurting is in the creative and cultural sectors, hospitality, tourism, food and beverage."
Those sectors will struggle to come out of this, Jeffrey said. If they have a large organisation behind them maybe they will survive, otherwise they will have cashflow problems.
And the damage done to the graduate-facing part of the economy matches damage to young people’s employment prospects.
“What hasn’t had the level of focus it could and should have is the erosion of opportunities for younger people," he said. "People at the early stages of a career. A whole raft of standard opportunities just aren’t there, from that first bar job, to the drop in apprenticeship numbers, which is really worrying. And nobody knows how far the night-time leisure economy will recover. We have no evidence it will be quick.”
Whilst the leisure and hospitality sectors slide down one leg of the K-shaped recession, Jeffrey predicts that the health innovation and tech sectors will race up the other. Devolution of health powers to Greater Manchester four years ago has spurred an already large biotech and life sciences sector, and hopes are high.
Evidence came this week with new data showing Manchester was now beating rivals like sciences-based Cambridge as a magnet for tech investment. The city, with a digital-tech workforce of more than 100,000, is now second only to London.
This will provide young graduates with motives for staying in Manchester. But Jeffrey cautions that this may or may not help the food and beverage, cultural and night-time economy to recover. “It depends how people use the city centre,” he said.
For some, perhaps many, of the independent leisure and cultural businesses that make the city an appealing graduate-friendly space are already in crisis.
Band on the Wall, the city’s leading independent music venue, would have been open in the run-up to Christmas earning the revenue that would keep it going through the thin months of the summer. Although a £3.5M refurbishment programme, already funded, is still going ahead, chief executive Gavin Sharp has real fears.
“We put staff on furlough, and we flipped the venue into sleep-mode, but we can’t carry on like that indefinitely," he said. "Thanks to the rebuilding, which was already planned, we have contingencies to take us to reopening in September 2021, but the ecosystem of bars and hospitality that feeds us has already suffered deep and longstanding damage. The night-time economy dropped like a stone and will only climb back slowly. We might be back to normal trading in the next five years."
The office property market is watching the same process with mounting concern.
The data from the Manchester office sector is not good but according to Avison Young’s Manchester-based UK regions managing director Chris Cheap, bad as they are, the figures could be flattering the market.
“Take-up data shows that the central Manchester marketplace has reflected just 20% of the five-year quarterly average of 350K SF, in both the second and third quarters of the year," he said. "We know that Q4 of the year will have its highlights in central Manchester, with the signing of major pre-lets at Four New Bailey and Ask Developments’ First Street, with deals amounting to 175K SF and 80K SF, respectively, but these deals were agreed some time ago. Improved take-up figures may not tell the whole story.
“What the figures show is that there’s been a huge loss of capacity in the office market, and the office market is a huge driver of the Manchester economy. There’s a reluctance to tell it as it is, but you would be crazy not to see that the next two-three months will be a challenge and that the reduction in the demand trajectory will continue.
“Yes it's great that we have big pre-lets from BT and Autotrader, and that they are pressing on with them when they might have pulled out, and BT did pull out of a deal in Liverpool. It’s good that they see a long-term future here. But you would be foolish to just say everything is rosy and Manchester will automatically come up trumps.”
Cheap hopes (and expects) that the office market will prove to be on the rising leg of the K-curve, but is keenly aware that many parts of the city centre ecosystem are on the downward leg. So long as the graduates keep coming, and the labour pool is strong and diverse, there is every reason for hope. Yet even here there is a tremor of warning. “The office market will come back, but not quickly if the lights go out forever in the bars and restaurants,” he said.
Manchester City Council leader (and Greater Manchester deputy mayor for the economy) Sir Richard Leese is the most optimistic observer, even if his prediction of three-to-five years of recovery leaves some dismayed. “In the medium to long term Manchester’s economic fundamentals are still right,” he said.
Leese is bullish. Speculation that the government is planning a large-scale civil service relocation to the city is not denied. Manchester has the large, skilled workforce relocating and expanding corporates want, he said.
“In the food and beverage sector, I think we’ll see things coming back with a bang, though it will be more the independents that come back, not the big chains,” Leese said.
Yet asked how long it could take to recover from the coronavirus lockdowns, Leese is not comforting. “This is very different from the 2008 crash, which took us four or five years to recover. Today Manchester has a more diverse and resilient economy and we have the fundamentals here which prevent more serious damage, but we’re probably still looking at three to five years of recovery,” he said.
Back at Mecanica, landlord (and, more recently, operator) Gareth Harold is horrified by the sudden change in the Northern Quarter. What had been Manchester's buzziest district is now among its quietest.
“Without a question the Northern Quarter is a ghost town," Harold said. "Thomas Street was bursting, now there is nobody there and it's shockingly sad to see a place that was once so vibrant now so quiet.”
Mecanica is closed and will remain so; ClockWork, the coworking space, is also shut. “Legally we could remain open but what’s the point if there are no guests?” Harold said. “Manchester has always been a hubbub and its jarring to hear how quiet it is. The city is on hold.”
The good news for Harold is that Oppidan, the co-living space associated with Clockwork and Mecanica, is busy. “It’s going great guns, every unit is let, and we’re looking at three more schemes to follow,” Harold said. “Nobody wants to be lonely, especially in lockdown.”
Confronted with the possibility of a K-shaped recession with a three-to-five-year journey back to recovery, Harold is both shocked and curiously inspired. “I wouldn’t want that to be true,” he said, adding: “Manchester is a city that is good at adapting. Look at our recovery from the 1996 terrorist bomb that devastated the city centre, of the 2017 bombing of Ariana Grande’s concert at the Manchester Arena when 22 people died.
“There’s a saying isn’t there? This is Manchester and we do things differently here. And I hope we do. I hope we’ll manage recovery much quicker than three-to-five years. The city’s symbol is a worker bee and there’s a reason for that.”
Harold is right, Avison Young’s Cheap said. “There is no other city in the UK I’d rather be in if you’re looking for hopes of a bounceback,” he said.
“The raw materials underpinning Manchester’s economy haven’t gone. That means a broad, talented, cost-effective labour pool. And we can’t use previous recessions as a guide because the world works so differently now. I know this doesn’t help the Northern Quarter bar operator who is hurting badly, and they might not reopen, but the big picture is that the trams and buses that deliver people to work in the city — the lifeblood of the city — will start pumping again.”
Once that lifeblood gets flowing the Manchester leisure ecosystem will regenerate. But the process could take a worryingly long time.