Old Trafford: An Open Goal Or A Market In Injury Time?
Does it herald the birth of a new district dominated by city living and the bars and restaurants that go with it, or is this the last nail in the coffin of an office market that has now outlived its purpose?
Here is how the work/life balance is shifting in the city fringe.
You cannot escape Manchester United in Old Trafford. The stadium — at the end of Sir Matt Busby Way — dominates everything. Today that influence is about to extend even further as Class of '92 stars, led by Gary Neville, press ahead with UA92. The new college will offer Lancaster University degrees in subjects lincluding business, sports excellence and media from September 2019.
UA92 arrives at a time when Old Trafford is changing fast. Just across the local government border from what was then high-taxing Manchester, the neighbourhood flourished as an office district in the 1970s and 1980s. Today it is a shadow of its former self. Annual office take-up is around 63K SF a year (rather less than Ancoats).
Why the decline? Competition from Salford Quays has repeatedly dealt blows to Old Trafford by offering cheaper, better floorspace. The bland, amenity-starved office blocks that dominate Old Trafford are not in fashion among office occupiers. But the real change maker has been the residential sector, where permitted development rights make the conversion of office blocks into apartments appealingly straightforward.
According to data from Canning O'Neill, conversion by residential developers means the Old Trafford office market has lost 40% of its stock — around 400K SF — in the last two years.
Smaller But Better Office Market?
According to Canning O'Neill partner Conrad O'Neill, the effect on the office sector has been to produce — eventually and painfully — a leaner, keener and more appealing market.
“Competition from Salford Quays blighted Old Trafford in the 1990s, and the Quays did it again until recently, as Salford landlords discounted heavily whilst offering better specified buildings and more amenities," O'Neill said. "It’s been tough for Old Trafford, and it has been really difficult to let offices in the area. Rents have hovered around £10-£11/SF, but with refurbishment at around £40/SF it doesn’t add up for landlords."
But losing about 40% of the office stock means the buildings that remain are markedly better quality. Bruntwood have taken the decision to sacrifice 6K SF of office space on the ground floor of Trafford House to convert into a business lounge, providing the kind of amenity tenants love. "Before it was a struggle to get lettings, now it’s letting quickly,” O'Neill added.
Around 104K SF is vacant equating to about 18 months’ supply: a lot in some markets, but in Old Trafford that is enough to help inflate rents. Bruntwood own about 285K SF of the 620K SF Old Trafford office stock, are gunning for £12 to £13/SF at the 134K SF Trafford House, still a long way from the £20/SF touted in some Salford Quays locations, but enough to give landlords hope.
Is rental growth enough to inspire new build or refurbishment? That is less certain. “I’m not sure it will ever be viable to begin speculative development in Old Trafford, but it might justify refurbs,” O’Neill said.
The Living Dead?
So does the Old Trafford office market just potter on, until the existing office stock dwindles through residential conversion, or because nobody will take unrefurbished floorspace?
This would be a kind of living death — but according to some observers there could be a more exciting sequel. And at this point the residential market and UA92 re-enter the story. If their impact is as predicted, the pace of change could be rapid, as the sale of Marcol's 100K SF West Point office block shows.
“West Point was 30% let to office tenants — a going concern — and they told us they would only consider selling to residential developers if we could achieve a certain price,” said Savills Development Director Ed Rooney, who advised Marcol. “And we got it — we got that price, because the price residential developers can afford to pay is too attractive to landlords.”
Combine the price of empty business rates and the investment needed in refurbishment if office rental values are to be maintained, and it is easy to see why Marcol decided to off-load.
More sales are in progress or just agreed, like the 3M disposal by Northern Trust of the 30K SF Warwick House. Clearly the area’s office stock has not yet stopped shrinking.
However, Rooney offers a potential upside. “I think we’ll find that the regeneration of Old Trafford has been helped by residential conversions," he said. "As an office district Old Trafford has been pretty soulless. But UA92 and apartments will bring leisure use, restaurants, bars — and that in turn will reignite Old Trafford as a desirable office location. The move from offices to residential and then to offices again could be circular, and Old Trafford could come back as an affordable office location."
Student Housing Opportunity
Trafford Council certainly hopes Rooney is right. The council have tweaked the existing Stretford masterplan to take advantage of the opportunities and is pushing on with the UA92 plan.
The council acquired the former Kellogg’s office site in 2017 and will secure vacant possession in April now that Kellogg’s have relocated. Detailed design work is currently being finalised for the full refurbishment of the current building prior to the submission of a planning application in spring. The campus building will be let by the council in a 50/50 joint venture with Bruntwood to UA92 and Microsoft. If all goes well the first stage of refurbishment should be finished by summer 2019, ready for the first students.
There could be 6,500 students by 2028 and this presents opportunities for a new student housing sector in Old Trafford.
“We don’t know too much of the detail at the moment but the marketing collateral is very good," Cushman & Wakfield Student Accommodation Associate David Feeney said. "Opportunities to work with bright grads will potentially be attractive for the office market, especially in terms of startups. And there’s no student residences out there so there will be a need for accommodation.”
Trafford council is already preparing to use its compulsory purchase powers to acquire Charlton House and said it has identified nine plots of land in Stretford Town Centre for the delivery of 1,700 beds of student accommodation to be brought forward in phases from September 2019.
Rebirth or Funeral?
So is this Old Trafford’s rebirth as a city fringe destination — or its funeral as an office location? With the football stadium, the cricket ground, new hotels, bars and beds, could it be about to become a force to be reckoned with?
“Old Trafford is quickly becoming one of the most attractive options for businesses outside of more expensive hubs like Salford Quays, South Manchester and Manchester city centre," JLL Offices Director Richard Wharton said. "With an increase in the availability of high quality stock, and the fact that Old Trafford is very accessible, the area’s prospects are good.
“The legacy of oversupply of poor quality office stock is no longer an issue — buildings have been sold for residential conversions and landlords are committing to refurbishment work to upgrade commercial space to include better amenities. We’ll likely see the occupier market in the area strengthen over the years to come as office stock modernises.”
Residential developers are rushing to complete buys in the area, fearing permitted development rights in Old Trafford may soon be extinguished. Soon that rush will be over. But until office rents show real signs of heading into the late teens, office landlords will still have reason to pause before investing.