Jack Street on why the office market shift favours Manchester

Inflation, which peaked at 4.1% in 2025, eased to 3.5% by the end of the year. While still above the Bank of England’s 2% target, the direction of travel has become increasingly clear and central to government policy decisions. The bank’s primary objective remains the steady reduction of inflation, and this has translated into a deliberate reluctance to cut interest rates prematurely.

Monetary policymakers have signalled that rate cuts will follow once inflation shows more pronounced and sustained downward momentum. Markets appear to agree: short- to medium-term swap rates have begun to soften and one- to five-year gilt yields have fallen below 4%.

The movement is not confined to the UK. US Treasury yields have fallen sharply from 4.5% to 3.6%, reinforcing a global recalibration in fixed-income expectations.

This monetary backdrop intersects with notable fiscal constraint. The UK’s GDP-to-debt ratio, sitting at 96%, has added urgency to the government’s ambition to narrow its deficit without further expanding public debt. Rather than leaning on additional borrowing, the Treasury has signalled a preference for revenue generation through tax. This shift was formalised in the latest Budget, which implemented higher tax contributions across the system. Simultaneously, the government has trimmed its planned bond issuance for the coming fiscal year from £100bn to £70bn, signalling an intent to limit debt accumulation.

The combined impact of lower inflation expectations, reduced government bond supply and falling sovereign yields is reshaping the investment environment. With fixed-income returns compressing, the natural consequence is a renewed hunt for yield among asset managers and institutional investors. Capital, in other words, will not sit still: as gilt yields drift downward, the comparative attractiveness of alternative asset classes strengthens.

As sovereign yields retreat, institutional capital rarely remains static. Fund managers are compelled to rotate into investments that preserve income while offering protection against inflation. In this new environment, we anticipate that real estate yields will start to re-normalise in line with longer-term averages, and even with the typical 2% spread over bond returns, yields will harden and real estate values will increase. When pricing dislocation coincides with capital rotation, the conditions for accelerated repricing emerge.

Property set to benefit

One market already positioned to benefit from this shift is UK real estate, and particularly Manchester’s buoyant office sector. After an extended period of price softening, asset values appear to be stabilising, signalling that the market is bottoming out.

Prime rental growth in the city has remained robust in recent years at circa 5% to 6% per year, as occupiers continue their flight to quality. We see 2026 as a ‘correction’ year when prime headline office rents will jump between 15% and 20% into the mid-£50s/sq ft, before reverting to more common rental growth levels from 2027. This divergence between rising rents and muted capital values has temporarily widened yields beyond their long-term equilibrium.

A cyclical reset of pricing could make Manchester’s office market a standout real asset opportunity

As the broader investment environment pushes capital away from low-return government securities, real estate yields are likely to compress. And as rents and asset values begin to realign, this convergence will harden yields and potentially trigger a period of accelerated capital growth.

For investors, the combination of rental growth momentum and a cyclical reset of pricing could make Manchester’s office market one of the standout real asset opportunities of the coming cycle. A limited supply pipeline underwrites a sustained period of rental growth for the sector.

British bank stocks climbed after the Bank of England reduced its benchmark for system-wide bank capital requirements – a move that could potentially free up more capital for lending and shareholder returns.

Monetary easing, fiscal discipline and global bond repricing are setting the stage for capital rotation. With fixed-income returns falling and real estate fundamentals strengthening, the ingredients are in place for a notable resurgence in sectors that can provide both income resilience and capital growth. Manchester’s office market may well emerge as one of the most compelling beneficiaries of this new macroeconomic alignment.

Jack Street is head of data and analytics – transactions and asset management at OBI