It’s not the sort of thing you expect from an estate agent. But there is much that is unexpected about Sheffield. “You’ve got all the students staying on, and the growth of local IT companies, which is fuelling the market,” says Tearle Phelan, head of the estate agency Knight Frank in Sheffield, “and then, of course, you’ve got the Arctic Monkeys.” They are not the only band to put Sheffield on the map. Pulp did it in the 1990s. Before them, the Human League made this tough South Yorkshire city the spiritual home of men in eyeliner.

There has always been a creative undercurrent beneath the grime that hallmarked Sheffield as Britain’s steel-making capital. Now even the disused cooling towers beside Tinsley viaduct on the M1 have been nominated for a makeover by Channel 4’s Big Art Project and have made the shortlist. The novelist Wendy Holden, who lives 20 minutes’ drive away in the Derbyshire Dales, raves that Sheffield “is the best city in the North. There’s an edgy atmosphere, but it’s also got this fantastic John Lewis.” The department store will move to a larger site within the city in 2010; new retail development is also planned for the Moor area of the city centre within the next five years.

It was inevitable that Sheffield’s moment as the next big thing in northern regeneration would come. Cynics scoff that they have seen it all before; in the 1970s Sheffield city centre was seen as the future. Much of it is being rebuilt. The developer Urban Splash has submitted outline planning for an overhaul of Park Hill council flats in Sheffield, the largest, and possibly the ugliest, Grade II* structure in Britain.

In the Seventies, pedestrian underpasses turned into alleys for muggers, Castle Market became tatty, the wind whistled down the main retail drag, and the station was marooned across dual carriageways. Then, in 1990, Meadowhall shopping centre opened next to the viaduct. Any remaining heart was ripped right out.

How will those charged with rebuilding Sheffield create a sustainable place to live and work? “Our approach is to keep it simple,” says John Mothersole, executive director of Sheffield City Council. “In the past we separated people from traffic, put roofs over streets to keep the rain out; there was a lot of concrete. But the more we separate shops from houses, the more problems we create. We’re jumping back almost to the era before the 1960s and 1970s, to a time when things were more joined up.”

Mothersole credits the regeneration company Sheffield One with the renaissance; its work includes refurbishment of the City Hall and the creation of the Peace Gardens. Controversial planning consent was granted in October for a 32-storey, 322-flat tower at Arundel Gate by the developer Conran & Partners.

But all these fancy apartments aren’t much good if there is no one to live in them. By 2015, 4,500 new units are planned. The city centre population is at present 9,000. Research by Knight Frank forecasts that this will increase to 14,000 by 2015. Sheffield, unlike Leeds or Manchester, does not benefit from an established diverse economy. Only recently have large organisations such as the Home Office and the law firm Irwin Mitchell moved in. A prediction of 5,000 new residents seems quite modest. But where will they come from?

Bring on Sheffield’s secret weapon: students. More students are believed to stay in Sheffield after graduating than anywhere else in Britain. Thirty per cent of students leaving the University of Sheffield stayed in the area, either in jobs or further study, in 2003-04. Many rent rather than buy. Traditionally, graduates have bought Victorian houses in areas such as Nether Edge, nicknamed “Pasta Valley”. A decade ago the average cost of a property there was £52,180 (January-March 1995-96, Land Registry figures). Now it’s £176,669 (October-December 2005). But a first-time buyer could pick up a one-bed flat in a city centre conversion such as Steelhouse Apartments on Castle Street for £89,950.

Rachel Topham, 27, graduated from Sheffield Hallam University with a degree in communications in 2000. She works in marketing and rents a flat in the West One development near Division Street for £300 a month. “I’m looking for somewhere to buy, preferably a two-bedroom flat for about £150,000 to £160,000,” she says. “I want to stay in the city centre. I love the convenience of being in the middle of it all. I moved out to Birmingham for three years to establish myself, but I really missed Sheffield. It’s a bit rough round the edges, but it’s innovative.”

Sheffield Hallam’s location has helped to revitalise the “Cultural Industries Quarter”. Once home to “little mesters”, self-employed cutlery-makers, it is a mixture of working factories, car repair shops, restaurants and clubs. It’s not far from the former Wards’ brewery, now apartments. When the latest phase was released in March, one investor, Manoj Raithatha, sold on within a week all the 139 apartments that he had bought off-plan. “Sheffield has one of the most buoyant city residential property markets, with property priced at around £250 per sq ft and a vibrant lettings sector,” he says. “The market compares favourably with cities such as Leeds and York, where city centre prices are about £300 per sq ft and £280 per sq ft, respectively.”

Close to Wards’ brewery is a huge new Waitrose. Sheffield has a better chance of marrying essential services with city living than more sprawling cities such as Manchester. New infrastructure includes thousands of car-parking spaces, an extension to bring the ring road into the city, and the relocation of the market, with accommodation for students on top. “Some people complain, ‘there’s so many student buildings going up’ ,” says Phelan. “But I like them. They go into an area where private residentials might not, and they give life and vitality to that area, a buzz. Whatever you say about students, they’ve always got cash to spend, which is great for the little bars and cafés that get a new area going.”

And great for a city that, this time around, has to get its experiment in urban regeneration right.

Steelhouse Apartments, Castle Street, Saxton Mee, 0114-276 1877, www.saxtonmee.co.uk

Wards’ Brewery, Knight Frank, 0114-241 3913, www.knightfrank.co.uk

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