The WeWork effect: How can Manchester landlords adapt?

As more than half a dozen flexible office providers target Manchester, the co-working market has forced landlords and agents to rethink how they let space in the city. The number of serviced office providers considering Manchester continues to grow. These include The Office Group, which has appointed Cushman & Wakefield to advise it in its search for at least 40,000 sq ft in the city. Other operators include Runway East, Shoreditch-based events and office space provider Protein Studios and Servcorp. With five locations in London, Runway East is opening its first office outside the capital this year in Bristol and has been looking at options to expand further. Natasha Guerra, chief executive of Runway East, says: “Manchester is a tech and enterprise hotspot, not just nationally but globally, too. Interesting high-growth start-ups and scale-ups have been pouring out of – and into – Manchester over the past few years, and as the city’s start-up sector continues to grow, more and more founders are looking for office spaces that can offer them the flexibility and support they need when starting out and eventually expanding. “Naturally, this makes it a city on our radar.” Further locations WeWork, which occupies about 100,000 sq ft across Schroder Real Estate’s No.1 Spinningfields and Deka’s One St Peter’s Square, continues to search for further locations. It has been in talks to partner with Amazon to lease Hanover House at Hermes Investment Management’s NOMA development and is understood to be looking for a total of five sites within the city. However, Leni Zneimer, general manager for UK and Ireland at WeWork, says: “Right now, we’re focusing on our current community in Manchester. With two locations open, we’re seeing a huge demand from existing members, so our hope is to continue to expand in this thriving city.” Like WeWork, serviced office provider Work.Life is already in the Manchester market, having taken 12,540 sq ft at 30 Brown Street at the start of the year with CBRE advising, and was at the time already considering a second location. Regus, another existing Manchester occupier, has also been in the market for circa 20,000 sq ft. Interesting high-growth start-ups and scale-ups have been pouring out of – and into – Manchester over the past few years, and as the city’s start-up sector continues to grow, more and more founders are looking for office spaces that can offer them the flexibility and support they need The growing presence of serviced office providers has yet to have a significant impact on take-up in the under-5,000 sq ft market – with the number of deals in that bracket remaining steady in the first two quarters of the year compared with 2017.  However, John Nash, director at Manchester-based agency Canning O’Neill, says these operators are forcing landlords to adapt their offer to occupiers. Although the number of deals has been consistent, he says “it hasn’t felt as buoyant on the smaller suites”. He adds: “I’ve got clients who even nine months ago were saying, ‘We want a minimum of three years on this, we may offer a break at two, see what you can get to.’ And we’re now saying, ‘We’ll offer you 12 months.’” Another Manchester-based agent adds: “These flexible offices aren’t a permanent solution for occupiers – but, yes, leases are getting shorter and that’s what they want from any kind of office space now.” Added flexibility That added flexibility alongside a more hands-on approach to fit-out has made it possible for traditional offices to compete for occupiers, particularly occupiers who have already been in flexible offices and are looking to move out. Nash says: “There have always been people coming out of serviced office space, but previously people have tried to tie them in a bit longer when they come out and it can be a bit more of a difficult jump going from a serviced office to a three-year lease.” This is particularly relevant as more tenants use serviced offices to get a foothold in the Manchester market before setting up a permanent base. Moneysupermarket, for example, recently agreed to take 130 desks at WeWork’s One St Peter’s Square as a temporary location as it continues its hunt for about 25,000 sq ft in the city centre. Although the list of operators considering Manchester is growing, the serviced office market has nowhere near the presence it does in London. Just 3% of total office take-up in the first half of the year in Manchester city centre was from serviced office providers, according to Savills. Not quite a revolution But despite landlords looking to tweak their offer to meet the demands of occupiers used to flexibility, Nash says: “I’m not quite sure it’s a revolution.” He says both types of offices are evolving, and the growth of the flexible office market in Manchester is likely to be driven by traditional landlords – companies like Bruntwood that offer flexible space within their developments and are looking to grow in that sector. Meanwhile, the number of serviced office providers looking to expand into Manchester is likely to continue to increase. If you were a serviced office provider, Nash says, “You would be mad not to be looking.” Who has set up shop in Manchester and who is considering it? The Office Group – looking TOG’s workspaces centre on diversity. Although the space it offers is not a far cry from other providers – ranging from co-working spaces to private offices – the company says it has one of the most diverse workforces in the country, including a “smorgasbord of start-ups”. Regus – five offices The most established name in flexible offices in Manchester, Regus has five offices in the city centre and 14 across Greater Manchester. Depending on the location, it offers smaller meeting rooms, larger board rooms alongside conference facilities and exhibition space. Runway East – looking With its origins on Old Street, Runway East targets only start-ups. It offers them a range of offices depending on their stage of development, ranging from single desks and private offices for up to 30 people to “scale-up” space for up to 100. Protein Studios – looking The Shoreditch-based operator offers studio space for events ranging from exhibitions and photoshoots to workshops and meetings. Members also get a fixed desk, and they are working on a flexible desk option as well. Servcorp – looking Prestige and extreme flexibility are Australian operator Servcorp’s main selling points. Each of its offices is in a prime location – from the Cheesegrater in London to the One World Trade Center in New York – and fitted out with “granite, marble, leather and original artwork”. Leases start at one month. WeWork – two offices By becoming the biggest occupier in London outside of the government, WeWork has become synonymous with co-working. The operator offers works with start-ups, SMEs and major corporates like Microsoft and Amazon. Work.Life – one office “Thank God it’s Monday” reads the tagline for Work.Life, which wants to combine working and living even more closely than other serviced office providers. Outside of the usual work offer – flexible leases, hot desking space and shared offices – the provider also has weekly yoga classes, beer and pizza nights and complimentary breakfast.  To send feedback, e-mail karl.tomusk@egi.co.uk or tweet @ktomusk or @estatesgazette