Northern Light

by Anh Nguyen

Manchester’s sales market is suffering along with the rest of the country, but the capital of the North’s lettings market is proving resilient, thanks to the local university students.

A recent study found that Manchester is the second happiest place in Britain, despite its reputation for being one of the rainiest spots in the country. It is certainly a happy place for local estate agents operating
in the regeneration areas of the city who, unlike their property developer peers, are enjoying relatively healthy transaction levels.

Dean Sanderson, managing director of Sanderson James, which has offices in regeneration areas including Gorton, Droylesdon and Levenshulme, says: "It is where people can afford to buy. If anything, it is the areas where you've got money."

But it is a different story in the more affluent areas of the city. "The more expensive you get, the more difficult it is [to sell property]", says
Sanderson. "I've dropped my own house by nearly £100,000 to £80,000
in Cheadle [an affluent area of Manchester] and it's still not sold."

Stuart Law, managing director of Stockport-based property investment group Assetz, is finding the sale of mid-market property, worth between £400,000 and £800,000, equally slow but he says that, in contrast, high-end properties valued at between £1m and £5m are selling well.

"Prices here [in the mid-market] don't seem to be adjusting much, unless the person has to sell," he says. "It does not seem to be that
people genuinely think property is over-priced - rather, it is an issue of
the availability of finance."

Student attraction

Manchester, much to the chagrin of large neighbouring towns, is often referred to as the capital of the North due to its cosmopolitan appeal. With its lively and varied nightlife, combined with a plethora of shops, it caters for young people particularly well, so it is unsurprising that it is the second biggest student centre in Europe, after London. But the city, a major player in the 18th century industrial revolution and home
to the first computer, does not cater solely for students - excellent transport links no longer mean that being ‘up North' is tantamount to being in the middle of nowhere.

London is a mere two-hour train journey away and more than 100 airlines at Manchester Airport offer direct flights to 225 destinations
worldwide, ensuring that the North West city is a prime location for
business as well as tourists.

But the modern, clean lines of the city centre landscape that exist today were not possible without two major catalysts. An IRA bomb hit the city in 1996 and, in addition to the reconstruction period that followed in its aftermath, Manchester hosted the 2002 Commonwealth Games, which provided an incentive to rejuvenate the entire city,
helping to give Manchester its international status.

John Broadbent, a partner at Knight Frank's Manchester office, attributes the national and international investor interest to the Commonwealth Games. He says that the Irish were especially strong investors, though interest came from as far afield as Dubai, the US
and Australia.

In fact, the investor interest experienced between 2002 and 2006 meant that demand for property out-stripped supply, resulting in a splurge in high-rise property constructions in the city centre.

"When we first commenced in city centre sales [in 1998], property was priced at about £180 per square foot, which means that a one-bed
started at just under £100,000 while two-beds were around £125,000,"
says Broadbent.

"Over the space of a five or six year period, that rose by between
20% and 30%."

Today's prices are substantially lower, with city centre development
process having suffered a steep decline. Some developments have fallen in excess of 30% within the last 12 months.

Broadbent says: "I think we probably saw the signs of a changing market this time last year. The full extent of that did not come through until March or April this year.

"Comparing July and August with last year, the enquiry levels are probably far stronger than they were because certain developers have needed to generate cash, so they are willing to discount - in some instances, very significantly."

But this was not enough to prevent Knight Frank from having to close an office. As The Negotiator reported on August 29, the agency
has been forced to close its city centre resales office as a result of
the market downturn.

Buyers' paradise

Law says bargains are now plentiful in Manchester, with two-bedroom properties that would have sold at £160,000 last year now selling for around £100,000 at auction.

Manchester's most popular developments include brand new
high-rise developments, such as the UK's tallest all-steel residential
building, No.1 Deansgate, and conversion properties reflecting Manchester's cocktail of industrial history and contemporary lifestyle, such as the Grade II-listed Chorlton Mill. The Smithfield Buildings, located in the Northern Quarter, are also highly sought after.

No surprise then that Knight Frank's clients tend to be young,
recently qualified professionals looking to take advantage of living
and working in the city centre. But not all first-time buyers can afford
to live in the centre; rather they are opting to live on the outskirts.

Sanderson, who caters for buyers house hunting in the outskirts of the city, claims his sales volumes are stable, despite suffering a fall. "We are 39.4% down on sales across the company since last year. We're down year-on-year about 49% in revenue."

His Levenshulme office has suffered the most severe decline in revenue, down 71%. "The area went up [in property value] and was becoming the new Didsbury - quite a posh area - but it just didn't happen and the market just fell."

In terms of unsold stock, Sanderson James now has 30% more than last year, so much so that some of its branches have stopped taking
instructions. Sanderson says properties with more than three bedrooms are proving difficult to shift, in line with his theory that people are steering clear of higher priced properties.

The decline in his sales volumes has prompted Sanderson to make some shrewd, albeit minor tweaks to his business, including the cancellation of his subscription to property portal PropertyFinder which he had relied on to generate leads from the South of England. But Sanderson's leads from the site plummeted from around 40 a month to just 12 in July.

Meanwhile, following the closure of its resales office, Knight Frank is concentrating on cash buyers. "The enquiries that are coming in [for city centre property] are people who have got cash, as opposed to before when we were working with people who probably had to take a significant proportion of borrowings," says Broadbent.

Lettings

Manchester is enjoying its share of the UK's lettings growth. Sanderson's lettings business, which is in line with the general
lettings market boom, has experienced a 40% increase in income year-on-year.

David Tomlinson, area lettings director for Your Move, says rent ranges from £400 a month for a one-bedroom flat in the area, rising to £750 a month for a three- or four-bedroom house, with the average tenant below 35 years of age.

Tomlinson, who manages offices in the outskirts of Manchester, such as Bolton, Radcliffe and Bury - otherwise
known as Greater Manchester - says the lettings market is peaking
to highs unseen in his 20 years' industry experience.

"If you look at 2007, [the] Bury [office] was launched last year and
it did 12 lets in the whole year. This year it has done 21 so far, so it has more than doubled its business in the first seven months, and half of that has been produced in July."

Law attributes the strength of the rental market in peripheral areas of Manchester to the city's universities - Manchester and Salford. There are approximately 110,000 full-time and part-time students in Manchester, with only enough university accommodation guaranteed for around 80% of first year students - the remainder are forced into the private rental market, hence the market growth.

"They [students] are paying serious rent," says Law. "Some are paying more than they would pay for a normal two-bed apartment because they want to be on campus or on a student street. We've seen cases where they're paying well over £100 a week for a room in a university's private hall when they could be in a one-bed apartment a bit further out for about £400 a month."

Yields in the student rental sector are between 7% and 9%, compared with property in the buy-to-let market, which has typical yields of 5.5%.

The BBC's relocation to Salford, which is due to take place this time next year, is expected to drive further growth in the local property market. By this time, Broadbent anticipates that the market will have imploded and be on the road to recovery.

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