Estates Gazette

13/09/200

Rare gem Developers are unlocking the potential of Manchester’s Northern Quarter. Can the area retain its unique appeal? By David Quinn

Manchester’s Northern Quarter has long been a haven for the city’s creative underbelly. The home of such mystical institutions as Afflecks Palace and the Dry Bar, the area retains an outsider status that disguises its true position, just a minute or two from the Arndale Centre.

The property industry has finally spotted the Northern Quarter’s potential. Office blocks and boutique hotels are moving in, Afflecks is now owned by Bruntwood, while consultants have highlighted the Northern Quarter’s potential to become part of a new, enlargedcity-centre retail circuit.

As development steps up a gear, the question is whether the area can retain its unique charm, and what regeneration means for its future.

The first signs of developer interest were seen when Ician, a joint venture between Muse Developments and Crosby Homes, began a £100m mixed-use scheme at Smithfield in 1999. Its fourth phase, including a 230-bedroom Crowne Plaza hotel, is due to open this month.

In general, the area has seen only sporadic activity among mainstream developers during the past decade.

“The Northern Quarter is not an area that the market has been keen to run with because of low rental values, difficult land ownerships and a lack of public realm caused by tight streets,” says Colin Williams, associate partner at planning consultancy DPP in Manchester.

The funding market has also tended to favour more familiar pastures.

Richard Heggie, head of structured property finance at Investec in Manchester, which provided funding for Brookfinch’s Margolis office development on Turner Street, says: “Most banks would tend to say they don’t understand this kind of emerging district. Funders tend to prefer what they understand, and often aren’t that innovative.”

Nonetheless, larger developers are sensing the growth potential.

Work on Argent’s Hive scheme on Lever Street has now begun after Manchester council agreed to buy the phase one freehold from the developer (see box).

The first phase includes 77,000 sq ft of naturally ventilated offices, fitted to shell, at rents of around £17.50 per sq ft. This approach, described by Argent joint chief executive David Partridge as “low-tech”, should attract creative occupiers. The Arts Council has taken a prelet of 17,000 sq ft.

Phase two

A mix of freehold office units and two hotels are proposed for phase two. Argent is in talks with hotelier Sinclair Beecham about the site.

The council’s involvement in the Hive illustrates its commitment to starting development in the Northern Quarter.

As well as the Argent investment, it has formed a jv with NCP to oversee the £55m redevelopment of the Church Street multi-storey car park. Manchester Ship Canal Developments will work up a scheme, including 65,000 sq ft of retail, 35,000 sq ft of office space, a hotel and a 745-space car park. Two buildings, including one of 13 storeys, are proposed.

Dave Roscoe, head of city-centre regeneration at the council, says the Northern Quarter has a “vital role to play” within the council’s strategic plan for the city centre.

“The creative, independent character of the Northern Quarter makes it a powerful brand, with strong potential to attract further investment and complementary activities,” he says.

The quarter has also been highlighted in a report commissioned by city-centre management company Cityco – authored by Drivers Jonas, Lunson Mitchenall and Benoy – as having the potential to become part of an enlarged city-centre retail circuit. This would see the area linked more closely with Market Street to form a pitch for “edgy, bohemian” retailers.

Nick Cole, senior planner at Drivers Jonas in Manchester, says: “The Northern Quarter could – and should – become one of Manchester’s most competitive retail investment opportunities. A fashionablenight-time economy has flourished, but specific policy interventions by the city would unlock its full potential.”

By unlocking that potential, with investment such as that already seen at the Argent scheme, concerns arise about whether the Northern Quarter’s uniqueness will be diluted, raising values and forcing the bohemian types out.

“The challenge is to develop the Northern Quarter ‘brand’,” says Williams. “As creative industries find it less affordable, the essence of what makes it attractive as a brand is brought into question.”

Argent’s Partridge acknowledges there is a fine balance to be struck.

“It’s always difficult. If everything was £5 per sq ft then the Northern Quarter would keep its edge, but you have to have progress, otherwise the whole place just falls to bits,” he says.

Meanwhile, the council seems attuned to the sensitivities of development.

“Much of the Northern Quarter is a conservation area, so developers have to demonstrate that their proposals will maintain or enhance its character,” says Roscoe. “The area has huge potential to support the growth of the city centre. But this can only be realised by reinforcing, not replacing, its distinctive identity.”

Innovative Hive deal creates a buzz

Manchester council agreed in June to buy the freehold of phase one of Argent’s Hive scheme on Lever Street in an innovative deal to help kickstart development.

In exchange for de-risking the scheme by reducing Argent’s land acquisition costs to zero, the council took a 50% profit share on the development and 5% of the rent on a long-term basis.

David Partridge, joint chief executive of Argent, says the HKR-designed scheme could not have got off the ground without the council’s assistance.

“Yields in the Northern Quarter are perhaps 1% softer than in the prime city centre,” he says. “With yields moving out by a further 1% or more in the past few months, we were looking at around 7%. In those circumstances, development wouldn’t have stacked up – so we had to offload the risk.”

The purchase price is undisclosed.