By Neil Tague
As the property industry prepares to gather in Cannes for MIPIM, the world’s largest property convention, we spoke to a group of developers and professionals at the offices of communications agency Influential to discuss what the market has in store for 2016.
Around the table (left to right):
Mark Connor, chief executive, Vermont Capital.
Paul Houghton, development director, Downing.
Neil Sturmey, experienced client and tax partner, Grant Thornton LLP.
Barbara Rollin, partner, Shoosmiths LLP.
Guy Butler, Glenbrook Property.
Steven Knowles, regional director, St. Modwen.
Matt Crompton, joint managing director, Muse Developments.
How uniform is the resurgence of commercial property across the Northern cities?
Matt Crompton: There is a lot of cause for optimism. If you see property as going in ten-year cycles, we’re still only a quarter of the way into this one. The warmth is spreading from the South East. We’ve already seen institutional confidence rise, and now we’re seeing occupier confidence as well.
Barbara Rollin: We are seeing widespread development – there are tower cranes appearing across all the Northern cities.
Paul Houghton: I don’t think the recovery is as clear in some Northern cities as others, however. A lot of the tower cranes we’re seeing are on student accommodation, university projects and hospitals, rather than on commercial projects. It’s still a mixed picture – it doesn’t feel like the economy has fully recovered in comparison to London and the south coast.
Neil Sturmey: Liverpool is improving in line with other cities. There’s always been a tendency to compare Liverpool with Manchester, but it should focus on itself. Look, for example, at the £1 billion worth of projects in and round the Superport, with a biomass plant and other associated developments.
Steven Knowles: There is definitely a revival of confidence. Yields for investors have sharpened over the past six months and the occupier market has the scope to get better.
Mark Connor: There has been an upturn over the past two years, with Manchester in particular now having critical mass.
Guy Butler: In the last 18 months we’ve gone from being able to buy land cheaply but not being able to get anyone to fund development, to people queueing up to fund stuff but no one being able to buy land.
What are the main development trends?
GB: The private rented sector (PRS) is the obvious one. I see it as similar to the way student accommodation has gone, in that it’s a formalising of the rented sector: intensive management, a quality environment, higher standards. It’s quite an elastic market, although I don’t think that applies to the bolt-ons added by some developers. It will drive people out of poorly built, poor-quality stock. There are two schemes in Liverpool, and Manchester definitely has capacity.
MCo: In a way, we’ve been doing PRS for 20 years without knowing it. There has been a cultural change, as before 2007 a lot of people were renters out of necessity, but we’re now looking at “renters through choice”. The rental market is here to stay – there’s been a change in mindset for young people. I think we’ll now see local developers quicker on their feet winning sites, while institutions which take time to do due diligence lose out.
BR: Historically it’s been the case that people want to get on to the property ladder as quickly as possible, but the younger generation don’t want to buy – they want flexibility. Planning departments can be quite smart with this – there might be a change to insisting that 50 per cent of a scheme is PRS. With the changes to Stamp Duty Land Tax affecting buy-to-let investors, it could be a big change.
PH: We’re struggling to see how PRS stacks up financially in a lot of Northern cities.
MCr: It’s gone further up the risk curve, hasn’t it? What we’re seeing with the residential elements of our schemes is that investors now have more sophisticated modelling.
Is social housing still being delivered?
NS: The registered social landlord (RSL) market has had its funding cut significantly and is a sector where there might be more mergers to come. What might happen is that more boutique operators emerge who can deliver housing along with the social and health facilities that are also required in a lot of areas. It’s hard to see where the resources are at local authority level.
MCo: We’ve been trying to engage with the local RSLs, basically encouraging them to “get with the programme” and see where things are going in terms of what the Government wants to see, which is them adding value in covering that social care element. They tend to be reactive to legislation.
GB: There has been some element of RSLs not grasping the nettle.
Will getting a devolution deal, or not getting one, affect where property developers want to work?
MCr: It’s not changed our views – we will always look to work with local authorities that are proactive. I think the principle that people closer to the issues on the ground should decide where investment goes is absolutely right.
SK: The biggest threat is the resource to deliver at that level – how many councils now have regeneration teams? All the councils are talking a fantastic game about what they can deliver, but do they have the resources?
NS: A lot depends on governance structures and the ability to be practical and to make compromises. The Government clearly trusts those cities with which it has agreed devolution deals, so the trust is there. Although there are new funding streams, the jury’s still out on this – but I’m more optimistic for Liverpool than I’ve ever been.
BR: Manchester has pulled together its neighbouring local authorities in a way that Leeds hasn’t managed to – there are still authorities fighting their own corners first and foremost. It’s important that each city region can tell investors what differentiates it.
Is transport the number one priority?
NS: The Transport for the North group is making the case that the eastwest connections between our cities are as important as routes to London.
GB: The gap between transport spending in London and transport spending in the North is huge. London is disappearing into the distance, with Crossrail 2 already looking likely. With the sham that is the Northern powerhouse sitting there as a sop, it really is disgraceful. The time it takes to travel between our cities is ridiculous.
What is the biggest opportunity – and the biggest threat – to your business in 2016?
MCr: The biggest threat is the construction market: costs, quality, resources. The opportunity is the wall of money facing property – we’re a resourceful region and there’s plenty of this cycle left to make things happen.
BR: The biggest challenge in our sector is new entrants to the market, with London firms “north-shoring”. The opportunity is the upsurge in property markets and the growing need for our services.
NS: The North West’s opportunity is in being the UK’s biggest target outside of London for international markets. The difficulty across all markets is skills.
SK: The construction industry’s troubles are the largest threat – as an industry, it has been devastated since 2008. The Northern powerhouse can be a huge opportunity.
MCo: I think we all agree skill shortages are the threat.
PH: The Government’s immigration policy is not doing university cities any favours – it is having a negative impact on student numbers and on people who want to invest. International investment is the big opportunity.
GB: The opportunity is in funding, while the biggest challenge is infrastructure.
Chester means business
Chester is well known as a heritage and tourist destination, but the city is also newly emboldened to talk up its credentials as a business centre – and the Chester Growth Partnership, which drives this regeneration, is targeting large corporates to locate operations within the city.
Guy Butler, a developer from Glenbrook Property who chairs the Chester Growth Partnership, is now taking the city’s story to this year’s MIPIM.
“We have an investment map which shows that for over 20 years Chester has been home to a cluster of major financial services businesses,” he says.
“These have been joined more recently by Bristol-Myers Squibb, Tetra Pak and Virgin Money. UKTI [UK Trade & Investment] has also recognised Chester as part of the North West Financial Centre of Excellence, alongside Liverpool and Manchester.”
Current investments in the city total around £700 million and Mr Butler says there is more in the pipeline. The regeneration of Chester’s business quarter has begun with the completion of One City Place – a 70,000 square-foot office building beside Chester railway station.
By 2028, it is intended that Chester will offer 500,000 square feet of Grade A office space, housed in ten buildings and creating around 3,500 jobs. The seven-and-a-half-acre site will include 200 homes, along with restaurants, leisure facilities and car parking for the station and for office workers and residents.
A new cultural centre and library is also under construction, with a retail complex on Northgate Street set to follow. “Everyone can see solid progress being delivered,” says Sally Pilott, a property lawyer at DTM Legal and a member of the Chester Growth Partnership investment team.
“There’s much more to come that will help to ensure the city remains an attractive place to live and work. We are not going to keep this story to ourselves, and MIPIM will give us a good platform.”