THIS WEEK

• SPECIAL REPORT: New Towns and nutrient neutrality. Labour and Conservatives float planning reforms. Are they worth your time?

FLUSHING OUT PLANNING REFORM

New Towns and nutrient neutrality

Both the Conservative government and Labour opposition are floating potential ways to mend what pretty much everyone agrees is a broken planning system.

You can tell a general election is coming: this week Labour was trailing a return of New Towns, the Conservatives took a swing at restrictive nutrient neutrality rules, and both were mulling the merits (or otherwise) of a switch towards a zoning/permitted development rights planning system. Let’s start with the controversial stuff.

New Towns encore

A call for more New Towns has a nice, decisive ring to it, recalling the era of post-war growth and optimism. Plus most people know what a New Town is – hiya Warrington, Skelmersdale, and Peterlee. Better still, since many will assume it means all the housing they don’t want on their own doorstep will go somewhere else miles away, it allows politicians and the public to be pro-housing without committing themselves to anything they might not like – so it’s brilliant politics.

Missed target

But is it a good idea? Kevin Logan’s team at Maccreanor Lavington is advising on Birkenhead’s rethink and the masterplan for Manchester’s Red Bank. He thinks intensification is a better idea. “My view is, we need to be actively building back into our towns and cities, utilising intensification and compact urban growth approaches. We need to prioritise existing communities, augmenting them with considered growth, which would bring vitality, social, and economic opportunities, and deliver the resources that are needed,” he says. “We need to stop now building on greenfield or the countryside – this space is crucially required for the growth of ecology, biodiversity and resilience. We need to wild the hell out of the countryside, and grow communities and their ecologies within their existing urbanity.”

Time consuming

Or try this. “New Towns rarely work – they can too easily become large soulless areas of residential development. We would be better directing policy and funds towards intervention in existing towns and cities,” says Kate Pix, regeneration director at Kajima Europe, currently at work in Rochdale and Knowsley.

Hugely expensive, very complicated to deliver, requiring masses of political commitment over several parliaments, diverting money and attention from existing run-down towns, and maybe not universally successful first time ’round – Subplot didn’t find anyone in the Northern planning or property world who thought the New Town idea had legs. Feel free to add your comments below the line.

Applause

However, what people did like was Labour apparently thinking hard about the planning system. “At least it shows a direction of travel from a potential new government that planning is a serious matter to be grappled with,” says Colliers head of planning Anthony Aitken. He adds that you could achieve much the same with urban extensions to existing towns, a proper five-year housing target, a review of Green Belt, and a rule requiring councils to keep their local strategic plans up to date. All of that is said to be in Labour’s mind too.

And the Conservatives?

Relaxing nutrient neutrality rules is regarded as an easy win. Developers say the rules have held up plans for 92 houses in a single scheme in Carlisle, and the government reckons in total up to 100,000 houses could have been stalled or stopped. To recap: EU rules dating from 1992 required planners to think about the impact of nitrates and phosphates created by new development (meaning fertilisers on land, and effluent from your toilets). Everything was fine until 2018 when the European Court re-interpreted this to mean if there was any risk of a bad outcome, you couldn’t do it. Soon afterwards Natural England issued guidance that amounted to a moratorium on new building, and here we are today. Labour doesn’t seem to object.

Removing the gold plate

Ministers have tabled amendments to the Levelling Up Bill to take us back to where we were before the gold-plating began. “Nobody is saying nutrient issues aren’t important, but no one concern can stand above everything else. There has to be some clever thinking here,” says Harry Bolton, senior director and planning lead at CBRE Manchester. According to Colliers’ Aitken the real issue here is not property or planning, but the investment strategy and funding model of the water companies. Developers are caught in the crossfire with environmentalists.

Day Zero

Maybe a much bigger planning reset is required? Centre for Cities is among those promoting the idea of a zoning system, as used in much of the rest of the world. There is serious interest from politicians, particularly Northern Labour ones such as Stretford and Urmston MP (and former Trafford Council Leader) Andrew Western.

PDR with knobs on

It works like permitted development rights: each zone allows you automatic permission if you tick all the right boxes. The government writes the rules for what a zone allows, and councils prepare a map of which zones go where. After that, planning is simply about fitting the right building into the right zone. Simple, predictable, uncontroversial – at least, that’s the idea.

Coherent thinking

The big win is that you have genuine spatial planning, which means housing and jobs can be fitted into transport infrastructure, health, the lot. Anthony Breach, senior analyst at Centre for Cities, laughs genially at the idea that this is a return to 1960s central economic planning, but doesn’t exactly say it isn’t.

“Local plans today… don’t really think about the relationship of development with infrastructure and transport. But you could merge zoning in with local transport plans,” he says. “Zoning is more like how the rest of the world does planning…planning [in England] is a huge barrier to deliver whatever politicians want to do – from NHS reform, to carbon emissions, to disparities in income… and there’s now greater intellectual grasp of the need for reform.”

Not so keen

Politicians and policy wonks may like this idea, but the property business not so much. CBRE’s Bolton says the idea is “treating the symptom, not the cause, which is that planning has been chronically underfunded and just waving a wand or simplifying won’t help.” He also suspects zoning is solving a problem that doesn’t exist: compliant schemes being stopped. “A beige scheme, which is absolutely compliant with the rules, is going to be fine under zoning– but they tend to sail through the planning system as it is at the moment anyway.”

Hard cases

Suppose you want to build a storey higher than the zone allows, or go a few hundred yards outside a zone boundary, how does a zoning system cope with that? “Developers will always test the feasibility of what’s on offer, and it’s right that they should,” Bolton says. He suggests you could deal with this by having tightly written rules, with few exceptions, but thinks that won’t erase the tension. According to Breach if developers push the envelope in a zoning system then the local council would likely have discretion, as they do today – so we’re back to square one.

Never stop fighting

And then there’s the courts. If angry residents can’t win their case in front of the local planning committee, they won’t just roll over. They will fight it in the courts, a tendency that has increased as the English planning system has become more systematic and rules-based. “It’s a fact we’ve seen a huge amount more litigation over the last few decades,” says Bolton. Once again, we’re back to the uncertainty and time-consuming processes of today’s system.

All hail the new document

The most significant imminent change may have gone unnoticed, and is in the Levelling Up Bill already: newly minted National Development Management Policies will be important. These will be practical what-to-do versions of the high ideas found in the National Planning Policy Framework, and in effect instructions to local councils about exactly what gets built. NDMPs are to be read alongside (and count ahead of) local plans. The idea represents a potentially massive centralisation of planning policy, not entirely unlike zoning. “NDMPs will simplify planning considerably, they could be quite beneficial and unlock development effectively,” Breach says.

Get your act together

But what everyone wants is for the politicians to sort themselves out on planning. A cross-party consensus would be nice. Says Kajima’s Pix: “You can’t ask politicians to take the politics out of development, but we do need longer-term approaches that consider legacy as well as instant electoral returns. Development cycles and political cycles do not run concurrently and therefore on long-term projects, just when some momentum is being achieved a change in personnel or policy can immediately scupper this, which can add years onto when communities can expect to receive the desired benefits.”

The post The Subplot | Nutrients and New Towns appeared first on Place North West.

THIS WEEK

• The doubtful future of the 400-store Wilko discount chain poses a challenge to Northern high streets. But there is hope
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

WILKO LESSONS

A bad time for high streets just got worse

Wilko’s woes place a question mark over 2.5m sq ft of Northern retail floorspace. With retail still on its knees, and a cost-of-living crisis beginning to bite, does anyone want it?

Four bidders (probably) met yesterday’s deadline to acquire Wilko and its 400 UK stores (around 100 of them in the North). B&M, Poundland, Home Bargains, and The Range were reported to be in the frame. It’s hard to believe – given the location of their own stores – that any potential owner will want to keep all Wilko stores open. Maybe all of them will close.

Numbers, please

Some facts. The average Wilko store size is 25,000 sq ft, and about four-fifths is on the high street or in shopping centres and precincts. About one-fifth of the Northern portfolio is in retail parks, according to CoStar data. The impression is that most leases are relatively short-dated: five years or 10 years with a break at five, and a few at 15.

The good stuff

The focus of interest will be out-of-town. “The floorspace within retail parks is likely to attract the strongest interest from other retailers. However, the remainder of shops are on high streets and in shopping centres, where footfall has tended to be lower, and units previously occupied by the likes of Debenhams or Arcadia brands have taken longer to re-let,” Giles Tebbitts, CoStar Group’s director of market analytics in Manchester, tells Subplot.

Woolworths revisited

As for the 2m sq ft of Northern high street floorspace, there are two recent precedents for large-scale retail collapse. Debenhams folded in 2021. Since then, many of its stores – well located, big, interesting – have been repurposed at pace. Manchester’s Art Deco block is the star example of a long list which includes leisure, build-to-rent housing, and much else. Woolworths, which fell down a well in 2008, saw 807 stores repurposed or re-let but a lot more slowly. “This may be more like Woolworths than Debenhams,” says Allsop’s head of commercial investment Richard Brooke.

The difficult cases

A fairish chunk of that floorspace won’t lend itself to repurposing. “Every asset is different, of course, and where Wilko had a multi-floor building it could lend itself to residential or student housing. But the big floorplates in shopping centres will be harder. That said, Wilko is often well located in town centres or roadside, so there will be interest,” says Brooke.

Show time

So the Northern towns anchored by Wilko stores needn’t give up hope. A vision of the future is already visible in Rotherham, where the 20,000 sq ft store shut in 2022. Rotherham Council bought it (for a song) ahead of demolition. The replacement, a new theatre, sounds nice. Blackpool will be hoping for a similar performance. Wilko signed a 15-year lease on a 22,000 sq ft unit at the council’s Houndshill Shopping Centre (bought in 2019 for a lot more than a song – about £48m). The Wilko deal was part of a rethink for Houndshill.

We are watching

“Whilst the extent of [Wilko’s] insolvency procedure remains unclear, the successful delivery of the Phase 2 project at the Houndshill remains a top priority for the council, and we are in discussions with the tenant to ratify their long-term position within the town centre. We will then reassess our options as necessary,” said a council spokesperson when approached by Place North West earlier this month.

Curtains

Not many tears will be shed for the real losers: a handful of already weakened Northern landlords. If they already had high loan-to-value ratios, and were relying on Wilko rental (and covenant strength) to shore up their position with lenders, then the next few weeks could be the final straw. Loans will sink underwater, covenants will be breached. Today’s habit of virtually real-time portfolio valuations – quarterly, or more frequent – leaves stretched landlords with no way to smudge their balance sheet bothers. Lenders will notice. For some town centre landlords, Wilko’s woes will mean curtains.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Subplot’s twin elevators are both rising smoothly to the good-view floors. Flex floorspace can make money after all, says a Leeds operator, while Liverpool’s Spine dodges a bullet.

Low-impact flex floorspace

Subplot reported last week that WeWork and IWG were struggling to make money from serviced flex workspace. Leeds has turned out to be a laboratory for an alternative approach whose operator insists it isn’t a struggle at all. Spacemade, which partners landlords to create their own branded offering, say it’s going like a dream. Co-founder Jonny Rosenblatt has been in touch to say occupancy at Park House, Leeds, fluctuates between 98%-100% and has done during the two years since opening. He wants to expand in Leeds.

“Until a year or so ago, there was an undersupply of well-managed flex space and this is a definite gap as we’re seeing a strong market of – particularly – young creative businesses coming to Leeds, possibly because the rents are that bit cheaper than London or some of the more established Northern cities like Manchester,” Rosenblatt says.

• Learn more about the state of the office market at Place North West’s Offices + Workspace conference on 11 October. Book tickets.

Spine dodges bullet

The Spine, a 155,000 sq ft of Liverpool City Council-backed office in Paddington Village, has had to take a certain amount of incoming fire. The latest was a Sunday drive-by on the state of the site showcasing graffiti, litter, untidy flower beds. The bigger problem has been 70,000 sq ft of stubbornly vacant floorspace.

That could be about to change. Subplot hears that a 34,000 sq ft letting is in prospect (and it’s not wealth manager Rathbones, in case you wondered). Sources nod and wink towards Cashplus Bank, which expanded into a full floor in May, but public sector/NHS occupiers are also fancied.

More deals will follow. One floor is being divided to provide smaller units. Another three floors – so 33,000 sq ft, give or take – is being fitted out to Cat A or Cat B standard, with rents starting at a shade under £24/sq ft.

The council continues to take a kicking for its approach to property investment and regeneration – see below-the-line comments on the latest effort to ginger up the narrative. But in 2016-2018, when the Spine idea was first brewing, everyone thought it was just the bold forward-thinking move Liverpool needed. Of course, if it had been built on Old Hall Street it would have been fully let long ago, but that’s another story. It’s hardly The Spine’s fault that the city centre new-build market is a mix of daydream and nightmare.

Cllr Nick Small, Liverpool’s cabinet member for growth and economy, confirms to Subplot: “The recent flurry of stories highlighting problems at The Spine are well wide of the mark. The RCP is thriving, as is its award-winning event space. All of the serviced space managed by Sciontec is full – with a number of customers planning to expand -– and of the remaining floors, three are in legals and three are being fitted out to meet current market trends.”

The post The Subplot | Wilko lessons, Liverpool’s Spine, flex makes money appeared first on Place North West.

THIS WEEK

• Stuck on amber: Rail and road projects, including the long-awaited A66 dualling between Penrith and Scotch Corner, are at risk of failure
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

STUCK ON AMBER

Big transport projects are waiting at the lights

The infrastructure investments that could open up the North’s economy and property markets are going nowhere fast.

Monday marked a big moment for Northern transport. Seven years after government said it truly meant to dual the A66 between the M6 at Penrith, and the A1M at Scotch Corner, an inspector submitted the relevant paperwork to the secretary of state. He has until 7 November to make up his mind. The road hasn’t been touched since the 1970s, and is one of the busiest freight routes in the land. In short, it matters.

Green is good

Will it be the green light in November? Green didn’t feature heavily in the recent analysis of the £1.4bn project’s prospects filed by the Infrastructure & Projects Authority. The IPA has been tracking progress since 2020/2021, at which point civil servants reckoned the road expansion was on track. By 2021/2022 things were sliding and today it is rated as “amber.” This means “successful delivery appears feasible but significant issues already exist, requiring management attention. These appear resolvable at this stage and, if addressed promptly, should not present a cost/schedule overrun.”

Funny name

The A66 dualling project is a trial run for an initiative called Project Speed – clue in the name – which is meant to halve the time big road schemes take to complete. So far it’s potholes not roadblocks slowing things down, such as the Planning Inspectorate refusing to rubber stamp a route realignment around Warcop, on the Cumbria side (the inspectorate will announce a final decision on 29 August), and Costain pulling out of a four-way contractor arrangement for the scheme with Balfour Beatty, Keltbray, and Kier.

And the floorspace?

Uncertainty hasn’t helped the spin-off commercial property prospects that the improved A66 ought to deliver. Scotch Corner would make a sensible place for big sheds – the 2012-2028 Richmondshire Plan said so – but there’s nothing much to see by way of progress since. The plan – written years ago – woefully noted: “Although well located for both the A1 and A66, only a small amount of employment development has taken place at Scotch Corner. Planning permission was first granted for a major seven-hectare employment development next to Scotch Corner 20 years ago and remains a planning commitment, but development has not yet started.” That said, a designer village is in progress (opening next year) as is a 107,000 sq ft shed providing 37 units. So, something, but not a major logistics hub.

Turning orange

The A66 upgrade is one of an embarrassingly large number of major Northern infrastructure schemes rated as amber or red by the IPA. Ready? The East Coast Digital Programme, which will improve rail signalling from Grantham South, has had three consecutive years in the amber category. The East Coast Main Line Enhancement Programme, an effort to increase capacity and reduce journey times, scored a green in 2018/2019 and has been amber ever since.

Or red

And more: electrification of the Midland Mainline from Wigston to Sheffield
and Nottingham (MML3) is also in its second year of amber while HS2 phase 2a (Birmingham to Crewe) has moved smoothly from green to bright red. Red means “successful delivery of the project appears to be unachievable. There are major issues with project definition, schedule, budget, quality and/or benefits delivery, which at this stage do not appear to be manageable or resolvable. The project may need re-scoping and/or its overall viability reassessed.”

Too much amber

And more: Phase 2b (Crewe to Manchester) is doing slightly better, and is stuck on amber, along with Northern Powerhouse Rail and the Transpennine Route Upgrade, both on amber for the last three years. The last is the low-fat version of a high-speed rail line including electrification, new track, digital signals, and increased opportunity for freight between Manchester, Huddersfield, Leeds, and York.

­ELEVATOR PITCH

Going up, or going down? This week’s movers

Flexible workspace remains a loss-maker; science property is in the midst of a massive chemical reaction. Stand by for one, or the other, to vanish in a puff of smoke. Doors closing, going down!

Laboratories

The scramble to capture Manchester’s science, tech, and life science occupiers just got serious. Kadans Science Partner, the Dutch sci-tech floorspace giant, has submitted a detailed planning application for a life science building on the former Citroen dealership in Upper Brook Street, part of Manchester’s university district. Kadans Science Partner and McLaren are gunning for 215,000 sq ft of laboratories and 740 student beds in a 23-storey block.

Next door, Property Alliance and Moda are looking at 470,000 sq ft of life science accommodation and 1,100 student beds. Up the road at the former UMIST campus, Bruntwood SciTech and the University of Manchester are getting their planning ducks in a row ahead of a 4m sq ft development.

Demand for labs is said to be good, and growing, and nobody is quaking at the prospect of so much floorspace in what is still an experiment in a novel property sector. But as with any chemical experiment, getting the mix right will be everything.

WeWork woes

Is anybody making any money from providing flexible serviced workspace? Despite the good vibes, and a post-pandemic boost, big names are still taking a hit. This week US-based giant WeWork declared “substantial doubt exists about the company’s ability to continue as a going concern.” This followed a 4% increase in revenue but a stonking increase in quarterly losses, up from £234m to £311m. Membership also dropped back. The firm has four offices in Manchester (and 50 in London) and says it needs to see cheaper rental deals.

It was the same story over at IWG. Revenues at the Regus and Spaces operator were up 16% to £1.7bn, but profit was unchanged (there wasn’t any, pre-tax) because costs went up. It has plenty of debt, the cost of which turned an H1 operating profit of £90m into a pre-tax loss of £70m.

Analysts reckon IWG will move into profit before too long, but optimism in the flexible workspace world seems to come a lot easier than a reliable surplus of income over costs.

The post The Subplot | Infrastructure woes, flexspace, laboratories appeared first on Place North West.

THIS WEEK

• Tech trauma: is the tide coming back in for the tech sector? There are signs it might be
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

TECHIES HEART MORE DESKS

Is the tech sector finished with sacking people?

… because if the meltdown is over, it probably means they will be back in the office market. A massive Manchester requirement seems to prove it.

Apple, Alphabet, Palantir, Meta, X, the firm that runs Slack – tech giants have been laying off staff, thousands of them. Smaller firms (OneWeb, Zepz, Deliveroo, Luno) have also let plenty of people go. This follows a giddy hiring spree – some of it to meet pandemic market needs – which left them vulnerable as the economy reshaped. The meltdown took a major player out of UK property markets. Some big names – Facebook, Google, Slack – off-loaded large chunks of floorspace, while others – Amazon, Microsoft – put property plans on hold.

Big problem?

Let’s not get this out of proportion. According to the most-used list of tech job layoffs, so far this year about 11,500 have gone in the UK, all but about 500 in London, the rest in Birmingham, Bristol, and Edinburgh. Manchester, Leeds, and Liverpool (home to a thriving gaming sector) aren’t on the list at all – zilch, nada – meaning either the list isn’t comprehensive, or the three cities’ tech sectors are hanging on to staff. So far Google is still in Peter House in Manchester and Amazon is expanding into its base at NOMA. So the global giant vibe is good.

Tide turns

Among the smaller tech businesses, the surge in lay-offs over the winter seems to be easing: recruitment consultancy Robert Walters says the public sector, banking, and finance are recruiting tech again, with overall tech vacancies up 10% in May and 26% in June. These are London figures but it’s the same in Northern cities. “I’d say we’re up 25% on the start of the year,” says Leif Radford at Manchester specialist recruiter The Candidate. “Financial services and agencies are big growth areas – agencies because some still haven’t the confidence to recruit full-time, so buy in skills from agencies.”

What this means for property

In short, the tide is turning, with banking and finance getting wet first. “It was a quiet winter for the tech sector, and I think it’s going to stay like that for the next six months,” CBRE’s senior director and Northern tech property specialist, Joe Rigby, tells Subplot. “But the office market generally has been propped up by the professional, banking, and finance sector and that’s true for tech, too. Banks are really important to tech demand because they are chasing talent in the city, trying to hoover it up. Towards the end of 2023, and into 2024, tech employers will take a sterner view on working from home, adjust to redundancies, and be back out looking. So, next six to 12 months, they will be back in the property market.”

For example

Keep your eyes on Bank of New York Mellon, which has a massive tech operation in Manchester and a requirement for 200,000 sq ft (up from 150,000 sq ft). Lease events in 2023 and 2026 mean things are brewing for the US giant which does a lot of its tech in the North, and is said to plan an awful lot more. Bruntwood SciTech’s 267,000 sq ft No3 Circle Square completes in 2025, which is excellent timing. Circle Square is already home to Hewlett Packard Enterprise, Roku, Uber’s Autocab, Accenture, Northcoders, and Xero.

Also for example

Total Manchester tech-linked requirements are around 500,000 sq ft and maybe half as much again in Leeds and Liverpool. According to Robert Walters’ data, shared exclusively with Subplot: 18% of all new tech roles advertised come from companies in the North, up from 13% in 2022. So it’s not an over-heated imagination, there’s really something going on.

The Candidate’s Leif Radford points out that with tech employers no longer as willing (or able) to compete on wages, which are often eye-watering anyway, the focus of the battle for talent has moved decisively to terms (flexible working) and the quality of the workplace. Landlords and property developers, take note ahead of 2024.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Leeds’ office market presses penthouse and rockets up; plans to rethink Manchester’s Piccadilly Gardens plunge down to the loading bay. Doors closing!

Piccadilly Gardens

There must be massive sighs of relief at West8, Planit-IE, and Studio Egret West. Their good fortune is to lose out in a competition to redesign Manchester’s Piccadilly Gardens. Poor old LDA Design, the current preferred contractor, won.

Pity the winner, because the £25m redesign, due to reach planners next year, is a nightmare waiting to happen. A perfectly nice rose garden was removed to make way for de-humanising concrete between 2001 and 2003, and since then it’s been all downhill. The rose garden went because of anti-social behaviour, allegedly, and various further rethinks have fallen foul of variations on the same complaint. Recent iterations left the gardens feeling less like an oasis of calm, and more like the ideal location for public executions.

The connecting thread is that this is a high-footfall, high-inclusivity environment and yet nobody wants to pay the daily cost of patrolling and keeping it nice. Hence each time it’s rethought the answer is a low-maintenance area that soon gets trashed. Until the bus station is moved, and someone agrees to pay for proper upkeep and security, all redesigns, however thoughtful, will go the same way.

Leeds offices

More evidence that Manchester’s pre-eminence as the Northern office market du jour is under threat. This time last month Birmingham’s first-half office take-up seemed to be growing at a time when Manchester was stagnating (or sliding backwards) (Subplot, 13 July). Now Leeds joins the party.

The city racked up 146,000 sq ft of city centre deals in Q2, taking the H1 total to 413,000 sq ft. This was up 53% year-on-year. A reminder that central Manchester scored 390,000 sq ft in H1, and is generally a substantially larger market. Another straw in the wind.

The post The Subplot | Tech traumas, Leeds offices, lucky losers appeared first on Place North West.

THIS WEEK

• Teesside teaser: can a change in political power, and a new mayoral development corporation, begin to resolve Middlesbrough’s property problems?
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

TEESSIDE TEASER

Muddlesbrough untangled?

There’s a genuine shortage of good office and industrial floorspace in Middlesbrough. Can new council leadership, and a new mayoral development corporation, cut through?

There’s a story to tell about Middlesbrough beyond the usual cliches about huge industrial facilities and lots of empty space (see local view above). Demand for new office and industrial floorspace is good – excellent, say some – and whilst volumes won’t blow your mind, it’s genuine and unmet. This is an opportunity, surely?

Nice little market

First, the good news. The commercial property market is back in business. Centre Square will create 200,000 sq ft of prime town centre offices in six buildings – two are complete so far. It’s the kind of space that local occupiers like AXA Insurance rather enjoy – having taken a 40,000 sq ft building, completed by Ashall Projects and funded by the Tees Valley Mayor and local council. In the industrial sector, Tees Advance Manufacturing Park’s 180,000 sq ft first phase has been scooping up tenants. The council is the main mover here along with the Tees Valley Mayor and partners including Cleveland Property Developments.

Supply issues

“TeesAMPS and Centre Square show commercial property can work. There’s limited supply and real demand,” says Dodds Brown senior partner Stephen Brown. Top office quoting rents are about £21.50/sq ft, which is £5/sq ft short of viability, give or take. Tees Valley Combined Authority figures show the supply of office space was down 10% between 2016 and 2021, during the permitted development rights period.

Unhappy

So what’s the problem? Whilst Middlesbrough Council has clearly pulled its regeneration weight, it has done so against an unsettled background. The council recently lost its chief executive in what amounted to a coup d’etat, and what’s left has been given a written warning by the government for wasting money and bad “cultural and governance” issues. The council has until January 2024 to show it can improve, otherwise, ministers will take matters into their own hands.

Cleaning the streets

A new Labour Mayor, Chris Cooke, backed by a new Labour council majority replaced the Independent/Conservative regime two months ago. They have a big job ahead.

The worry is about routine capacity and long-term vision. For instance, it’s dandy to build new offices but if the surrounding area isn’t maintained, and the town centre fails to thrive, then shiny new office blocks won’t stay full.

“Office occupiers need to know their car is safe,” as one bone-dry observer put it to Subplot. Put this another way: “What’s needed is a deliverable, sustainable plan to take things forward once building work is completed,” says Brown. His concern is that the focus is on residential at the expense of commercial use in the town centre, and the wrong mix could be damaging.

Opportunities

These concerns – and question marks over the future of council-owned retail assets the 400,000 sq ft Cleveland Centre and the 120,000 sq ft former House of Fraser department store – raise questions for investors or occupiers. When approached by Subplot, the council said it planned to continue to manage the (viable) shopping centre, and wanted to sell or let the department store. There are folk in the town who wonder if that’s good enough. The new development corporation strategy could put those fears to rest (see below).

Clarity needed

Problem two is HM Government’s plan for an investment zone in the town. It sounds promising, and everyone loves the idea, but as Subplot reported last week (13 July), the details of who gets what are still sketchy. It’s early days. For now, Subplot has heard tales of investors deciding to sit on their hands, and occupiers pausing requirements for Centre Square thinking that, if they wait, they’ll qualify for investment zone capital allowances or tax breaks. This is not ideal.

Two tribes

Behind these concerns sit doubts that the council and the new mayoral development corporation can work together. Middlesbrough Mayor Cooke and Tees Valley Mayor Ben Houchen sail under different flags, and Middlesbrough Labour hasn’t been a massive enthusiast of Houchen’s corporation. The new MDC board – including Cooke and Houchen – met yesterday to consider strategy. You can read the full text here. Arup advised.

The new plan

Highlights include new digital and media properties in the Boho cluster (already prepping a 35,000 sq ft extension, as Place North East reported), and redevelopment of the ex-House of Fraser store, former Debenhams, and Civic Centre; a new school of art campus anchoring the Centre Square neighbourhood, and a historic quarter. It all sounds clean and bright and good.

Cold water

Where does this leave us? Subplot spoke to one of Yorkshire’s big regeneration brains, and an acknowledged development corporation expert.

“Politicians see a fashionable regeneration idea and they want to have it – but that’s the wrong way round,” the expert says. “The delivery vehicle has to follow the function, what you want. You have to know what you want. And it requires strong leadership, which goes beyond electoral cycles. I mean, if this were easy, it would already have been done.”

Could politics and the desire to deliver results quickly, in time for elections, screw up what might otherwise be an appealing and achievable town centre regeneration? As Stockport’s MDC shows (Subplot, 13 July), politics is often decisive for the success of development corporations. Middlesbrough has a big challenge ahead.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Manchester’s Factory International plunges to the basement car park loaded with new borrowing. Levelling up money also goes missing somewhere near the ground floor. Doors closing, going down!

Factory International funding

Another £20m of Manchester City Council (borrowed) money gets tipped into the huge hole that is Factory International, mooted in 2014, now double its original 2017 budget of £110m, and still not finished. Covid was a pain, and rising inflation hasn’t helped, nor did a rush to have something ready for the 2023 Manchester International Festival. Why the rush? Because the project was already two (or four) years late.

A council report also blames the “complexity and uniqueness of the building.” Maybe somebody should have thought of this because concert halls are not uncommon, art galleries are pretty well understood, and complexity is an obvious cause of financial risk in any building. If all this complexity produced a stunning eye-catching landmark of global appeal then maybe it’d be worth it, but judging by below-the-line reactions to Place North West’s coverage, it hasn’t.

The big question all through has been: who is or was in charge of this monster (Subplot, 21 February 2021)? The latest council report lists five – five! – responsible senior officers, which maybe tells its own story. It isn’t very encouraging that the £330m Manchester Town Hall project is also heading into years of delay.

Towns fund, affordable housing, etc, etc

A footnote to last week’s update on HM Government’s investment zone plans. TL;DR if you were hoping the levelling up agenda would turn into a wonderful work stream, think again. Last week, the Department for Levelling Up, Housing, and Communities returned £1.9bn of unspent 2022/23 funding, a large slug of which was meant to unlock affordable housing. Apparently, it can only be spent when the property market is doing well, which seems the exact reverse of how it ought to be, but who are we to judge the ways of Whitehall?

Whilst one spending pot atrophies, a couple more are in limbo. The £2.6bn UK Shared Prosperity Fund, intended to replace EU regional money, is moving glacially, and on a very modest scale. A list of grants awarded in June isn’t likely to cause a stir or spread much prosperity – could Liverpool City Region contain its excitement at getting £1.4m? – and the whole idea seems to be on ice.

The Towns Fund got off to a flying start but has since landed heavily. A second round of funding isn’t looking likely. The website died in late 2021.

The post The Subplot | Muddlesbrough untangled, Towns Fund, Manchester arts appeared first on Place North West.

THIS WEEK

• Mayoral methods: are mayoral development corporations the future of high-profile urban regeneration?
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

MAYORAL METHODS

Political ambition meets economic reality

Can mayoral development corporations deliver the economic transformation that city region mayors – and Michael Gove’s Levelling Up Department – want to see? Or is Stockport a standalone success?

City region mayors are under pressure to produce economic results, so they are throwing regeneration strategies at the wall to see what sticks. Greater Manchester, Liverpool City Region, West Yorkshire, South Yorkshire, and Tees Valley have gone down different routes. So far only one approach has been tried in more than one region: mayoral development corporations – bodies with statutory powers to guide development and investment in their areas. Is the experiment working?

This is tricky

Answer: it’s complicated, as a glance at the existing MDCs in Stockport and South Tees quickly reveals. South Tees MDC has spread much happiness so far. The touted £3bn opportunity at Teesworks attracted criticism, and is now enduring a government-commissioned review into how it shuffles assets around. The project itself has a long way to go: the Teesside Steelworks was demolished only a few weeks ago. The site is also a Freeport.

Stockport meanwhile is scooping up deals and developments like every day’s a birthday. The latest are a 15-storey apartment block and a commitment to another 65,000 sq ft of offices.

Why the contrast?

There are two theories. Theory one says it’s largely about the political context. In Teesside, the corporation is part of fierce party-political conflict, but in Stockport it was born in cross-party consensus. Cllr Mark Hunter, the recently reinstalled Lib Dem Leader of Stockport Council, says: “I’d reject any comparison with Teesside, but from the get-go – and never underestimate this – Stockport’s MDC had cross-party support, and that’s crucial for developers and investors. Without it they might have had second thoughts, but we all lined up behind it and that is a distinct advantage.”

Or maybe this

Theory two is that MDCs are simply not well adapted to monumental tasks like turning wastelands into economic powerhouses. What they are good at is promoting sensible opportunities to which the market was already rather taking a fancy. Put this another way, MDCs struggle to handle market failure on a large scale, but are ideal for managing market movement on a smaller scale.

Hunter isn’t so sure about this theory, but doesn’t completely reject it. “Stockport was already going places before the MDC – but what the town centre regeneration needed was a spark, which the MDC gave us,” he says. Hunter agrees infrastructure spending is key – and recalls the pledge to send Metrolink trams to Stockport.

Very rare

If MDCs had proved their value outside of a fairly limited set of circumstances – eg well-defined (in time and space), oven-ready commercial opportunities – we’d expect to see lots more of them in the North. But we aren’t seeing them.

Maybe Labour politicians can’t overcome long-held antipathy, but in West Yorkshire there are enterprise zones, of course, and individual projects in “spatial priority areas” but there’s no separate delivery vehicle or governance structure like an MDC. South Yorkshire is heading towards a government-backed investment zone for the Sheffield-Rotherham corridor but again nothing like an MDC. Liverpool City region has a Freeport and a management board to run it. Most telling of all, the Greater Manchester Combined Authority has no current plans to create another MDC (Subplot asked). The focus now is on Bury-Rochdale-Oldham’s Atom Valley and Tameside’s Ashton as “mayoral development zones.”

Instead, let’s try something else

Will mayoral development zones like Atom Valley make a good alternative to MDCs? Ashton and Atom Valley will have boards to run them, but it’s all very homemade: no separate statutory power is being used, the board has no special powers of its own, and when the project needs some legal or financial oomph the combined authority will provide it. The fact that landowners are already working with Bury, Oldham, and Rochdale councils – so this isn’t about marketing sites, it’s more about infrastructure – seems to be at the root of the choice to create something resembling a forum or clearing house, and not a delivery vehicle. Read the GMCA’s rationale.

Bit old-fashioned?

MDCs share the strengths and weaknesses of urban development corporations experimented with in the 1980s and ’90s. Creating a development corporation involves a statutory process leading to the conferral of independent powers from an ‘a la carte’ menu of options: planning, compulsory purchase, money, and so on. It is the exact opposite of light touch. In contrast, MDZs are whatever the mayor and council leaders want them to be. They are very 2020s.

Puzzling enthusiasm

Which makes it perplexing that Levelling Up Secretary Michael Gove has a retro-chic enthusiasm for development corporations – and has championed new MDCs in Hartlepool and Middlesbrough. If Cllr Mark Hunter is right – and political consensus is necessary for a development corporation to work – then the Middlesbrough plan got off to a rocky start. A lot of Labour councillors are unhappy. Is this why hardly anybody else in the North is creating MDCs or aspiring to do so?

Stockport begins to look like the exception, unless MDCs can transform Hartlepool and Middlesbrough soon.

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ELEVATOR PITCH

Going up, or going down? This week’s movers

Manchester city centre office take-up is going down, and the anxiety-laden world of co-development is heading the other way. Doors closing, going up!

Co-development

Are you familiar with the principles of co-development? You’d better be if you want to submit a successful bid for £80m investment zone funding, according to government guidelines published this week.

The technical note explains that this means “locally led” proposals where “co-development will be genuinely iterative.” This seems to mean councils suggest ideas, and then there’s lots of back-and-forth with Whitehall on whether the ideas are any good. Once something is agreed the government “will set broad but clear criteria and agree specific outputs and outcomes against which to hold places to account for progress.”

All in all, it reads like HM Treasury fears the whole thing is a value-for-money disaster waiting to happen, and a tight grip must be maintained. It also comes with a big warning: “We reserve the right to reject an investment zone proposal even after it has passed through all the gateways.”

The first sifting comes this summer to determine “if we consider agreement unlikely in good time ahead of the financial year 2024/2025.” Note the upbeat positive tone.

Manchester offices

Too soon to declare this a slowdown, but there’s a modest slackening of pace in central Manchester’s office market. Second quarter data from Manchester Office Agents Forum shows take-up down to 179,000 sq ft, from 211,000 sq ft in Q1 2023, and down almost a third compared with the same period last year (251,000 sq ft in Q2 2022).

None of this is a disaster, but bear in mind that in Birmingham things are heading the other way. After a few years of sluggish take-up, the market is on a charge. In a smaller market, central Birmingham also scored 179,000 sq ft in Q2 2023. The first half total was 331,000 sq ft, more than double the H1 2022 total and well up on H1 2021, and comparing well with Manchester’s H1 total of 390,000 sq ft. Straws in the wind, perhaps.

The post The Subplot | Mayoral methods, investment zones, offices appeared first on Place North West.

THIS WEEK

• Senior living: prosperous pensioners are attracting developers to build for them, but will everyone else get the senior living options they need?
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

GREY POUNDS, BRIGHT PROSPECTS

The ultimate Boomer property proposition

There’s a new three-letter acronym for you to get used to: integrated retirement communities (IRC). We’ll see lots more of them in the North.

You better get used to IRCs. Ranging in size from modest to monster, integrated retirement communities provide senior living from supported homes right up to care beds, sometimes even dementia care. In the past few months plans have popped up for substantial IRC developments at the Dore Moor Garden Centre in Sheffield by Inspired Living; Bootham Park Hospital in York by Enterprise Retirement Living; and Boughton Heath in Chester by Retirement Villages Group.

Nimby trouble

But it’s not a smooth ride. There would have been one at Alderley Park, under Vita Group’s Symphony Park brand, if local councillors hadn’t decided it wasn’t to be permitted in their back yard, despite officials recommending approval. Many IRCs are described as “luxury” (the Alderley Park scheme, for instance) and plainly some neighbourhoods don’t welcome them. Today just 1% of the over-65s live in IRCs, amounting to 88,000 units, according to Cushman & Wakefield. Back in 2021, Subplot reported on the difficulties and opportunities here: things have moved on, but the scale of development hasn’t.

Money talks

Yet the weight of money means the IRC market is likely to keep growing because it’s a good bet for the big-money investors – funds, institutions, private equity, Americans, and Asians – now scouring the land for opportunities. A recent analysis for the British Property Federation suggested £6.5bn was ready and waiting in 2022/2023. Actually spending it – see the Alderley Park example – turns out to be harder than many expected.

Microscopic

It’s a new and tiny market. There are just over 600,000 senior housing units of any description in the UK (yes, isn’t it mad?), and all but a handful are dated or dating. Just 7,000 additional units are built each year, about 4,000 in IRCs, the rest various kinds of public sector projects. Bear in mind that there are more than 12m people aged over 65.

Business case

The appeal of IRCs is clear: nice regular income. For investors, the appeal is similar to BTR and student housing, and the pool of potential investors is widening just as it has for BTR and student housing: once dominated by patient capital, but now private equity wants a share of the action.

Not just for the rich

But will the wider senior living sector get moving? Or will IRC remain a niche, and a very tiny niche at that? And remember even the iciest business soul wants this to go mass market because that improves the market’s growth prospects and liquidity, more buyers, more sellers… whereas a microscopic niche suits no one. The British Property Federation report was authored by a team at Cushman & Wakefield, so Subplot asked the consultancy’s specialist researcher Millie Todd what we should expect in the North.

It’s coming

“What’s been delivered so far has tended to be higher end, for sale or rental. But a middle market is emerging with a couple of providers – Audley, Birch Group – aiming for mid-range. I expect this will work like the BTR market, with a start at the prime end because it’s easier to get the numbers to stack up, given high land prices and debt costs. But there is huge demand and I would expect more provision in the mid range as the market matures,” she says. JLL thinks there’s demand for 725,000 housing-with-care units by 2025. Compare this with the 7,000-a-year annual output and you begin to grasp the problem.

But it depends on politicians

Cushman & Wakefield says there are developers and operators interested in all levels – from super-prime to affordable – and all locations (though not every location is going to get every level). The difficulty is that local councils don’t seem very bothered – see Alderley Edge again. “Some have no senior housing allocation at all,” says Todd, of local authority planning strategies. “Without public policy intervention we won’t get products fit for everyone’s financial and locational needs,” she adds.

A market to watch, but until local and central government focus on the sector, it is likely to remain focused on upscale IRCs, and the kind of locations that can support them, and therefore marginal to most pensioners’ housing needs.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A levelling-up policy idea is languishing in the basement: it doesn’t matter how many times you press that button, this one’s going nowhere. However, hotel development is racing towards the penthouse. Doors closing, going up!

Hotel development

Last week Subplot flagged data showing hotel room rates looking good. This week saw more real-life data – qualitative and quantitative – to suggest the sector still has room to grow.

Adrian Ellis, manager at the luxury Lowry Hotel Manchester, and chair of the city’s hoteliers’ association, tells Subplot the huge surge in new city hotel beds in 2022 (up 1,500 in a single year) hasn’t hurt room rates or occupancy.

“Events in the city are generating a lot of leisure traffic and the conference business is also back. Perhaps corporate activity is still a bit slow, but not as bad as we thought it would be. Hotel development is at a frenetic pace, but we’ll all survive,” he says.

The new specialist Manchester Accommodation Business Improvement District (Manchester Abid), which is using a tourist levy of £1 a night to raise funds to inspire yet more visitor-generating events, has had a smooth landing since its launch in April, Ellis tells Subplot.

Deloitte says the 2023 and 2024 Manchester pipeline is 500 and 188 respectively, which is sober by comparison with 2022 but still perfectly respectable.

There’s real growth in Leeds, too. Deloitte suggests there are around 390 beds under construction in 2023 and the same due in 2024: in the context of a fairly sluggish local market, this is a frenzy, the best on record since 2006.

Jam tomorrow

Could be a false alarm, or a re-announcement of things we’ve already heard, but rumours are floating around that chancellor Jeremy Hunt will use his annual Mansion House speech to city financiers to announce movements on the long-trailed plan to change pension and insurance rules to allow these funds to spend more, and keep less on hand.

At first, the idea was to rejig the regulatory regime to provide a big slug of infrastructure money without having to put up taxes, and thereby promote levelling up. As Subplot has been reporting over the years, the Solvency II slash Big Bang 2.0 slash Boris’s Levelling Up Golden Bullet plan has so far come to nothing (1 June 2023, and follow the links back).

The project now seems to be reframed as an effort to allow funds to invest in riskier growth stock – start-ups and tech companies, basically – and rather less about levelling up. The snag is that pension funds are not really big on risk, for obvious reasons. The rule change wouldn’t force them to do anything anyway, and it’s not clear sensible start-ups struggle to get funding. Keep your eye on the news in the next few days for signs this one has vanished up its own policy backside.

The post The Subplot | Boomer property, hotels, policy failure appeared first on Place North West.

THIS WEEK

• Supply-side inflation: like so much else, student housing development is getting squeezed
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

STUDENT HOUSING TAKES A SUMMER BREAK

Pipeline problems

A Singapore investor backs a York student housing scheme. Yet something funny is going on in the pipeline for purpose-built student accommodation.

It’s only days since Singapore private equity business Q Investment Partners backed S Harrison’s 300-bedroom PBSA scheme in York, as Place Yorkshire reported. It will be ready for the 2025 student intake and operated by the Prestige Student Living brand Homes for Students. The deal came as a 212-bed student tower at Wade Lane in Leeds topped out while developer Integritas launched a new phase of its Bijou student housing scheme in Bradford.

You love PBSA

This reads like the familiar story of the last five or six years: investors loving PBSA because it provides assured long-term income based on solid demographic shifts. If you’re Big Money and you’ve had a belly full of risk, PBSA feels like the sweet spot.

Reasons to be cheerful

So is everything going well? Up to a point, yes. But look a little further into the future and the picture is mixed. Data shared exclusively with Subplot by rental platform StuRents shows a sharp and sustained fall in the volume of planning applications for new student housing development. Planning applications continue to decline, down 33% year-on-year in the first quarter of 2023. The numbers have been falling steadily since 2016 (from annualised 75,000 to about 35,000) although there are strong regional variations. Richard Ward, head of research at StuRents, says: “Due to construction industry constraints and interest rate hikes, delivery of PBSA has slowed in recent years.”

Young people

What makes this puzzling is that the demographics point in the opposite direction – to more, not less, forward-demand for PBSA. “A recent report from UCAS indicates that by 2030 there could be 30% more applicants compared with 2022, with growth driven largely by changes to UK demographics that will result in more 18-year-olds,” says Ward. At the same time as demand goes up, so the supply of alternatives to PBSA falls through the floor. Savills looked at the shared rental housing stock, in particular five-bed properties of the kind students go for, and says there are 31% fewer than the pre-2020 average (thanks to landlords pulling out of rental, mostly).

Less not more

All this ought to mean tonnes more planning applications – but it doesn’t seem to be working like that. Savills says there are just 144,000 beds in the UK pipeline and barely 35,000 of those are under construction. As a result, occupancy levels are at record highs, supporting rental growth of around 7%, according to Unite and Empiric, which is expected to drive continued strong investment returns over the coming years. Durham is increasingly hot, whilst Manchester is super-hot. The market is strong enough in Newcastle and Sheffield for Investec Real Estate to stump up £85m to refinance and refurbish Global Student Accommodation’s PBSA in both cities (and in three other locations).

Demographic bubble

So, time for explanations, which is where it gets tricky. There are two strong possibilities. Number one is those demographics. Says Ward: “Looking further ahead, the 18-year-old population is set to decline significantly post-2030 – something that investors should be looking at when making long-term decisions about PBSA.” Is that it, then? A bubble in the supply of 18-year-old students – here soon, gone soon after – is causing investors to play cautious?

Dollars matter

Or is this all about money, and where it’s coming from? A staggering £7.8bn was invested in PBSA in 2022, an increase of 89% on 2021. The overwhelming bulk of that money came from two places: US (47%) and Singapore (24%). The dollar-sterling exchange rate makes UK real estate cheap(ish), and the exchange rate is more favourable for dollar investors today than in 2022. A long-term view, plus good maths, explains QIP’s investment in York. But, be honest, if you’re a bit twitchy, and the world is your oyster, would you invest in the UK just now? Well, exactly. You’d wait.

Wait a little

Savills said in early May 2023 that it expected overseas money to return to PBSA later this year as rising rents offset increased operational and construction costs. But the mood on inflation, interest rates, and recessionary risk has soured sharply in the last seven weeks. Construction costs don’t appear to be crumbling, although input price growth is slowing according to the latest PMI data. While there’s plenty of capital waiting to invest in the next three years, you’d have to assume most of it will arrive closer to 2026/2027 than 2023/2024.

In the meantime, rents will keep going up. And that – drum roll – is what deep-set, endemic, supply-side inflation means.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A good time to invest in hotels, a bad time to accept cooperation from Whitehall. Doors closing, going up.

Hotel excitement

A rash of hotel proposals suggests the leisure sector is as busy, and as supply-constrained, as yesterday’s inflation figures seem to suggest. The latest crop includes progress on Ask:Patrizia’s 344-bedroom, dual-branded 181,000 sq ft Novotel and Ibis hotel at Baltic Quarter on Gateshead Quayside, and proposals for an aparthotel at Leeds Kirkgate Market and the refurb of George Hotel in Huddersfield.

Revenue per room (RevPAR) is rising in most places, with Hull scooping a place in the Top 5 according to Colliers’ regular review of the sector, which you can download here. Hull was also given star billing as the UK’s most favoured growth centre, easily trumping distant rival Plymouth. York remains the North’s star performer and one of the UK’s most favourable places to build if you match land and development costs against potential revenue.

Whitehall listening

Whitehall’s latest snub to the North’s transport ambitions has a distinct whiff of Yes Minister, the 1980s political TV comedy. The story so far: pending a massive government rethink, Northern Powerhouse Rail is probably dead but it continues to live a ghostly afterlife in the minutes and agendas of Transport for the North, the supra-regional quango chaired by former Tory transport secretary Patrick McLoughlin. TfN is justifiably angry that it has been side-lined and wrote a stiff letter to the Department for Transport explaining how valuable regional input could be. Talks with Whitehall followed and a careful reading of a report to today’s TfN board is sadly hilarious.

TfN wants to “co-sponsor” the NPR project in a more meaningful way. DfT responded with an assurance that it valued TfN’s advice and that the quango was welcome to write with its views whenever it liked, eg it offered precisely nothing. TfN officials then counter-offered: how about we have regular face-to-face chats and you let us share what comes up with local councils, in confidence? A modest ask, but departmental officials sucked their teeth and said (paragraph 3.8) that they will have to ask ministers what they think – which implies they didn’t bother up to this point, and that the whole teensy-weensy-itsy-bitsy concession may be withdrawn anyway (subtext: so don’t push your luck, you regional upstarts). This little episode – warm blah blah, but a fuss over the meanest cooperation – tells you Whitehall is definitely not letting go.

The post The Subplot | Student housing, Whitehall trouble, happy hotels appeared first on Place North West.

THIS WEEK

• Early birds: there are some juicy bargains to be had in regional office markets
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

RETURN OF OFFICE INVESTMENT

Bargains to be had, deals to be done

By the time you read this, it may already be too late: early bird investors are tugging at the worms. Even nine-figure deals, like the sale of the Co-op HQ, are back in play.

One Angel Square, Manchester is back on the market, in a second attempt after last year’s effort to unload the 330,000 sq ft block ended in disappointment. The owner – a vehicle controlled by RREEF Investment, part of Deutsche Bank, and Bedell Corporate Trustees, a Jersey Property Unit Trust – repriced at £165m, down from £210m. The owner paid £142m in 2013.

There’s no guarantee they will get the new lower price – there’s empty floorspace and that will spook some potential buyers – but the renewed sale effort comes at a super-interesting time for regional offices.

But this

Why so interesting? Two reasons. First, the big funds spot a yield gap. We’ll come back to that in a moment. Second, because smaller funds spot a once-in-a-generation opportunity to turn some of the office market’s sow’s ears into silk purses. Here’s how it works.

We’re going shopping

Dan Green is a partner at investment and asset manager Tri7 and he’s recently been spending a lot of time in the North looking at small floorplate, multi-let office blocks in city centres – the kind of property many would regard as far from the heart of the action. He’s about to buy one close to us (Subplot gives you two guesses on location) and another in the South. More will follow. The Big Six regional cities are his target in what he reckons is a three-to-five-year play – buy now and sell around 2027.

Bargains

“Pricing on regional offices has drifted too far,” Green tells Subplot. He believes the sub-£20m blocks he’s after are typically 10%-20% underpriced. “There’s an opportunity because the funds are looking to dispose of these offices, buildings at the lower end of the EPC ratings that need capital expenditure to bring them up to scratch. But if they are well located, these smaller floorplate, multi-let offices offer a diverse income stream.”

Buy, improve, sell

The play is to buy these blocks off the big funds today – because the funds don’t want them – to improve them, grow income, and sell them back to the funds who, by the second half of the decade, will have come around to the idea of shorter leases and multiple lets. After all, the build-to-rent sector and student housing depend on exactly that – lots of short leases – and investors think that’s the Holy Grail. Why not in the office sector?

Nice little earner

If this works, Tri7 can grow a £50m-£60m portfolio in the next year or so, nurse it gently, and turn a handsome profit come the day. “Once the big funds get their heads around shorter leases, the yields will come back, and then these blocks will appeal to investors once again,” says Green. Obviously, current gloomy expectations about interest rates might interfere with the timetable – 2025 has been scrubbed off the wall planner – but hang on a bit longer, and bingo?

Getting competitive

The proof that this is an actionable plan, not just a strategy brainstorm, comes from the sale market for these poorly regarded office blocks. Earlier this year, serious bidders came in ones and twos. Today Tri7 is meeting three or four competitors. The normal rule of thumb is that by the time you read about plans like this, in places like this, the hot properties have already been snapped up by early bird investors. Fortune favours the brave.

You do the maths

While the smaller-but-ambitious investors are on manoeuvres, the bigger funds are also studying regional offices with care. Why? Because the yield gap between London and the regions has narrowed dramatically and is now at a 13-year low. This is a fancy capital markets way of saying that the regions look a lot better value than they did.

Data from CoStar makes the point: see the way the red and blue lines converge, partly because the regions get sharper, partly because London gets blunter? Big money knows this, and thinks it’s interesting, not least because the big regional office markets – Manchester and Leeds high on the list – have consistent demand and a strictly limited supply of new offices. In short, the maths look good if (big if) the price is right.

A recent study about initial yields over time in the UK. Credit: CoStar

So, back to One Angel Square. The yield is about 7%, sky high compared to the 4%-4.25% yields of the recent past. But for buyers, it’s all good: a sufficiently modern building with income. And for that reason, an opportunity for those who wish to offload, and might have done so earlier if it hadn’t been for the wild ride we’ve all been on, to sell into a relatively competitive market. Make no mistake, the regional office investment scene is back in business.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A bit of bad luck for the Liverpool office market, and a slow-moving spa day in Trafford Park. Doors closing, going down.

Liverpool offices

Liverpool’s office market has been grim, but to the surprise and delight of many, it began to look like things were improving: 2022 take-up figures ended feeling okay. But no, the gods must have their sport, and now the law firm behind one of the largest lettings is in administration.

In February 2022, High Street Solicitors took 14,875 sq ft at No 1 Tithebarn, in a relocation from Cotton Exchange around the corner in Old Hall Street. The firm signed a 10-year lease at £16/sq ft, the largest deal for about a year. In April 2023, Doncaster-based CM MediCall Aid petitioned for winding up, following a failed attempt by Bury Council the year before, and last week administrators were appointed.

Spa days

Therme has announced that its £250m wellbeing resort at Trafford Park is to be re-thought, as Place North West reported. Consultation ahead of a new planning application is now underway.

The latest announcement comes after a steady stream of announcements since summer 2019. And yes, it hasn’t been an easy world in which to develop anything, but assuming the latest rethink is approved by October, and assuming the two-year construction begins immediately, it won’t open until 2025. It was supposed to open in 2023, despite Covid delays.

Therme does quite a lot of announcing: recent disclosures include new schemes in Washington DC, Toronto and South Korea. Subplot hasn’t been able to find quite so many announcements about openings. According to the project map on the spa operator’s website, nothing has opened since Bucharest in 2016.

Therme’s spokespeople say: “Therme Manchester will be funded with a typical mix of third-party construction financing, alongside funding provided by Therme Group. Whilst we cannot disclose the details of our financing arrangements, we will release more information about our development programme as soon as the details become available.

“As a privately held group, Therme Group does not publicly share its financial statements. However, certain information about the group can be found at the Austrian Company Register: justizonline.gv.at.”

Therme’s UK holding company recently changed its controlling party from an Austrian joint stock company to Therme founder, Romanian citizen (and resident) Dr Robert Hanea.

Therme spokespeople tell Subplot: “Dr Hanea acquired last year an additional share of Therme Group RHTG AG, therefore he is listed as the ultimate person with significant control. However, we can confirm that Therme Group Holding UK Ltd continues to be wholly owned by Therme Group RHTG AG.”

The post The Subplot | Office investment, spa days, bad luck appeared first on Place North West.

THIS WEEK

• Living forever: this summer, are residential developments like build-to-rent going to flourish when all around wilts?
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

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LIVING FOREVER

The build-to-rent and student housing sectors are unsinkable, yes?

A big Rochdale BTR deal, agreed at a sporty price, suggests that the living sector is bulletproof. True?

­Genr8 Kajima and Rochdale Council’s 242-apartment Upperbanks development in Rochdale town centre has been sold to Ancoats-based BTR operator Livingway for something more than £30m, Place North West reported. It’s a big number for Rochdale property, and a proof-of-concept for BTR in town locations. The bigger story is that it comes at a slightly odd time for UK build-to-rent: everyone has their fingers crossed that the residential sector is as safe as houses at a time when too much of the commercial market looks wobbly, unpredictable, or just plain defunct.

Funny numbers

Resi lenders think that the tide of economic distress will have to reach unfeasibly high before it sinks the sector. Yet even upbeat money people are asking searching questions: this week Subplot spoke to several lenders and intermediaries and was told, repeatedly, that too often assumptions on rental growth and capital value were unreasonable or fantastic.

Careful spenders

That, plus rising debt costs and softening yields, explains the sudden crash in the volume of BTR transactions. Simply put, it would be hard to generate enough rental income to pay off the debt. Total investment in the sector was a record-breaking £4.3bn in 2022, but the first quarter of 2023 managed to scrape just £820m, the lowest start to the year since 2018 (source: Savills data).

Or these numbers instead

You can cut this cake in a variety of ways, but the result is always the same. Alternative data from BNP Paribas Real Estate puts Q1 2023 at £1.1bn, that’s sharply down on £1.5bn in Q1 2022, so we wind up in the same place. JLL’s take, which embraces a slightly wider pool of asset classes, is even gloomier: investment in UK build-to-rent, student, and healthcare in Q1 2023 totalled £2.1bn – half the amount for the same period in 2022. (See Elevator Pitch below for more on health property.)

Opportunity cost

It’s not so much that the living sector is going off the boil, but that if you have to invest now there might, at this precise moment, be other places to put your money to greater effect and with more liquidity. For instance, the Investment Property Forum spring 2023 consensus forecast gets fairly steamy about retail warehousing.

Wait and see

The Rochdale deal is well deserved, a great vote of confidence in out-of-city centre BTR, and no doubt the maths make sense. Demand in BTR, and student housing, is well attested as is the lack of supply. But with overseas investors largely sitting this out, and local players having to be careful about debt, we might not get many more deals like it until early next year. Assuming, of course, the economic future is easier to read then than it is now.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Turns out generating rental income is a lot easier than maintaining capital values in health property. Meanwhile, cracks are appearing in the Green Belt consensus. Doors closing!

Health property

Health property – particularly GP surgeries – was one of the big niche alternative property investment sectors of the last decade, built on the promise of safe, regular income. Is it still such a good bet? Assura, now moving into a new Altrincham HQ, has had a tough time.

Rental income (less costs) is growing nicely, up 12.4% in the year to April 2022, but the value of the portfolio has taken a hit. As a result, the ratio of net debt to net asset value – loan-to-value ratio, if you like – has risen from 52% three years ago, to 71% in the latest figures. No doubt it will get worse. Like so many indebted businesses, if it weren’t for all that lovely rental income pouring in you might ask yourself if everything was okay. Indeed, the stock market is doing exactly that, pricing Assura shares below the REIT’s net book value, never a happy sign.

Even so, the health property sector is still attracting money. This week OneMedical Property secured a £30m facility from OakNorth Bank to help it develop a medical centre in Wigan (and two in the South East). Unlike Assura, OneMedical builds and bundles-up and sells on, so lenders know there’s an exit ramp. A market worth watching.

Nimbys

Cracks are appearing in the public consensus on Green Belt according to a poll commissioned by Cratus, the public affairs consultancy. The regional breakdown of the results has been shared with Subplot.

Cratus asked two questions about Green Belt; both need reading carefully. First, would you support Green Belt development if it only affected brownfield plots, or the replacement of existing buildings? Note: this wasn’t a question about fields. The national average was 57% saying ‘yes’, but it edged up a little in the North West (57%) and North East (61%). Yorkshire, however, was by no means so keen (49%).

The second question: which party is most likely to protect Green Belt? Nationwide the answer was overwhelmingly Greens (44%), with everyone else way behind including Labour a distant second (18%). Surprised it wasn’t the Tories in second place? Subplot was. But in the North West and North East the Labour Party scored unusually high (24% each, extending their lead over the third-placed Conservatives) suggesting that the North’s ruling party has a modest but real local reputation for opposing Green Belt schemes.

It’s a bit early for post-General Election predictions, but on the strength of this evidence, it’s going to take a lot of work for developers to chip away at Green Belt in Yorkshire, while in the North West and North East developers may encounter localised Labour opposition, despite the official Labour pro-development policy on housing.

The post The Subplot | BTR, Nimbys, health property appeared first on Place North West.

CBRE’s Which City? Which Sector? report, released Monday, looked at 50 of the country’s largest regional towns and cities outside of London to evaluate which was best suited for growth in the housing, office, retail, life sciences, and industrial scene.

To craft its listing, CBRE looked at a variety of factors including GDP, employment growth, demographic trends, property supply pipeline, housing affordability, and local universities.

How did Manchester do?

It is safe to say that if CBRE’s predictions are accurate, Manchester is ripe for investment securing top spots on the consultancy’s ranking for growth cities in the office, urban logistics, student accommodation, self-storage, single-family housing, and multi-family housing.

Much of that is due to its projected population growth – with CBRE estimating the number of people living in Manchester could increase by nearly 6% within the next decade. More people means more money, with CBRE putting the city’s growth in consumer spending within the decade at 24.7%.

When it was not in the top spot of the CBRE study, Manchester was high in the rankings. When it came to the top growth cities for life sciences, Manchester came in third – behind only Oxford (second) and Cambridge (first). CBRE noted the 2m sq ft of lab space that is set to come online in the area by the end of the decade.

• Don’t miss your chance to learn about the life sciences property sector at Place’s Labs of the Future event

Manchester was second for senior living, with CBRE noting that the city is set to face one of the highest increases in the number of people 65 years old or older.

Retail saw Manchester rank third, behind Birmingham and Bristol.

Manchester was fifth when it came to having the most potential for growth in the leisure, food, and beverage sector – as well as affordable housing.

The sector Manchester performed least well in was hotels, with CBRE ranking the city’s growth potential as seventh best.

“To see Manchester outperform the other regional centres in these six key sectors is a coup for the city and demonstrates the strength and resilience of the North West property market,” said John Ogden, managing director of CBRE North.

“Crucial research such as this enables us to identify trends and forecast with certainty for our diverse client base and as a business we continue to thrive in this vibrant and forward-thinking growth city,” he continued.

Jennet Siebrits, who is the UK head of research at CBRE, described Manchester’s recipe for success.

“The way towns and cities evolve is mirrored in their local economies, natural resources, and cultural history and as a result, no two UK cities are the same, and subsequently different real estate sectors thrive in different locations,” she said.

“Manchester is supported by its diverse industry base, thriving retail, tourism, and hospitality sectors, strong demographic, economic fundamentals and boasts one of Europe’s largest student populations and remains a front runner for city investment and growth over the next decade and beyond.”

• Learn more about the undisputed economic powerhouse of the North at Place’s Greater Manchester Development Update

What about Liverpool?

Liverpool secured two top 10 spots on the CBRE growth cities lists, coming in seventh for offices and ninth for self-storage.

Though ripe with potential for offices, CBRE said that the city’s top growth sectors were actually life sciences, student accommodation, and leisure, food, and beverage.

The life sciences sector in particular is set to grow – with a 15% increase in life sciences employment predicted to occur over the next decade.

• Get up-to-date on the Liverpool property scene at our Liverpool City Region Development Update

What’s the verdict on Leeds?

Leeds is filled with potential, securing a top 10 spot on nine of the growth city lists due to its projected GDP increase of 15.7% over the next decade.

According to CBRE, the city’s top growth sectors are student accommodation, offices, and life sciences. The city was ranked sixth for offices and student accommodation, but was ninth when it came to life sciences.

Leeds’ best performance in the rankings focused on retail, where the city came in fourth.

Other key sectors included leisure, food, and beverage (where Leeds was sixth), urban logistics (ninth), affordable housing (seventh), senior living (tenth), and hotels (eighth).

How about Sheffield?

Sheffield has the most potential when it comes to urban logistics, single-family housing, and retail according to CBRE.

Sheffield came third, fifth, and eighth in the growth cities ranking for each of these, respectively.

The city area’s potential for multi-family housing was also highlighted, with Sheffield being ranked seventh.

Aiding the residential potential of Sheffield is the fact it has one of the lowest house prices in the cities CBRE examined. Coupling that with the fact Sheffield has seen an 11.5% increase in house prices over the past year makes its housing prospects even greater.

Sheffield also landed in the top 10 rankings for offices, coming in the ninth position.

Any intel on Newcastle?

No one should sleep on this North East city, with CBRE listing Newcastle among the top ten growth cities for the hotel, student accommodation, life sciences, and leisure sectors.

Looking just at Newcastle, CBRE decided its top three growth sectors were single-family housing, student accommodation, and life sciences. Justifying its reasoning, the company cited the 13% increase in life sciences employment that is expected to hit Newcastle over the next 10 years. Newcastle also has a projected increase of 14.4% over the next decade, according to CBRE.

The post Manchester dominates CBRE’s ranking of UK growth cities appeared first on Place North West.

­THIS WEEK

• Succession: Northern film and TV studios hope to pick up where London and the South East leave off
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

WHAT LOGAN ROY WOULD HAVE WANTED

The Great Northern Studio Stampede

So many studio development plans, so few actually delivering. Why is the stampede running into so much quicksand?

It costs about £2m an hour to make a high-quality TV drama, and a lot more to make stunners like HBO’s Succession – whose jaw-dropping finale (no spoilers, promise) aired last week. So it is no surprise Northern real estate wants a piece of the action in a UK film production business that recently ballooned to about £69bn a year.

There’s no space

The opportunity, and the problem, is a massive shortage of good quality studio floorspace, as figures released Tuesday by CBRE seem to show. The brokerage talked to film and TV professionals and heard 53% of respondents say they expect to use more studio space next year. On-set office space, broadcast studio space, and conversion stage space are expected to see the greatest increase, with eight out of 10 respondents saying they expect to use more or the same amount of this type of space over the coming year. Many reckon the studios they get offered are poor quality.

Northern stars

The North is no also-ran in this business. Asked to name their top three production locations, the industry leaders in this poll named the North East and Yorkshire (both 20%) – only a shade less cited than Southern locations (21%). Strangely, East Anglia and the East Midlands came top.

Stampede!

No wonder every landlord with vaguely suitable space is chasing studio opportunities. Some hugely ambitious plans abound – not just in Liverpool (the former Littlewoods Pools HQ in Edge Lane) but in Yorkshire (330,000 sq ft of studio space as part of very mixed-use plans at Scotch Corner) and a truly Titanic proposal for 1.6m sq ft in and around a former submarine dock in Sunderland, developed in association with Kajima Partnership. The first phase of the Sunderland plan slid unobtrusively through planning in November 2022, and the talk is of completion by 2027.

Big inputs, small outputs

We can put all this excitement into numbers thanks to CBRE, which says there are currently UK development proposals for 11.2m sq ft, all at various stages of preparation, but just one new scheme is expected to become available in 2023. That’s the puzzle: why is so little popping out at the far end of the pipeline?

Not good

Answer option one is that a lot of the proposals were quick-fix or rubbish. CBRE’s studio occupier lead Simon Calvert acts for the big production companies, and is far too polite to say it out loud. Even so, the subtext is clear. “There is a real need for developers to ensure that new studios that are in the pipeline reach the quality standards demanded by occupiers if the UK is to maintain its position on the global production stage. Developments which are not well located or do not provide suitable stages, production spaces, and amenities risk being under-occupied,” he says.

Tricky clients

Option two is that this is complicated and it’s easy to go wrong. Thus, demand for full sound stages is good, but weaker than demand for other things like workshops and offices. Or that post-production space is a real constraint, or the amenities aren’t good enough. CBRE head of research Jennet Siebrits tells Subplot: “The nuances are interesting. Productions want to be in a cluster so they know the specialist people they need will be available, which is why space at Elstree or Pinewood is super-oversubscribed and there’s a waiting list.”

Gold rush

Option three is that this is a gold rush and mostly froth, as bunny-in-the-headlamps developers search for real estate options that don’t look automatically hobbled by recessionary risk. Subplot is old enough to remember a similar time in the late 1980s when specialty retail was the Hot New Thing that might work, when all around was ashes, and every site of every description everywhere suddenly grew a boutique mall. Naturally, they got nowhere (see Manchester’s Great Northern Warehouse) and where they got built, they failed (see Tobacco Wharf). Siebrits doesn’t like this explanation. “Investors want to make money on credible schemes and developers want to be successful, and demand is huge, and the UK really does punch above its weight in TV and film production,” she says.

Or this

The fourth and final option is the happiest. “I hope things are moving slowly because developers are being cautious and diligent about what they build, and that slow movement is a good sign,” says Siebrits.

Someday soon we’ll find out.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Plans to free billions of pounds from the pensions industry get stuck between floors, whilst the logistics sector shows no sign of cooling – yet. Doors closing!

Big bang 2.0

Regular readers will be following the fate of Solvency II-linked reforms from which Boris Johnson’s government intended to release £14bn in pension and insurance funds to pay for a huge levelling-up infrastructure boost and capital for growing businesses. Politicians of all parties love it because it’s monster money that doesn’t come from taxes, but everyone else suspects it’s too good to be true. By spring this year (Subplot 16 March), the idea wasn’t faring well: it didn’t get a mention in the Budget, with announcements pushed back to the autumn, while the Bank of England seems dead against it, warning the chances of pension and insurance companies going bust is too high to tap them even a bit.

Given that the preferred route seems blocked, or tricky, or comes with a high price, ministers are now reported (by the FT) to be toying with a plan to coax some of the UK’s 5,000 private sector defined benefit pension schemes into a new umbrella which could do the investing instead (or as well, this is all very cloudy). These pots contain about £1.4tn. Even a small proportion of that could be worth having if it allowed the schemes to do things that, as company schemes with impacts on company balance sheets, they otherwise could not. The downside is it requires legislation, membership won’t be compulsory, defined benefit pensioners are in uproar, and there’s no way you could tell the new super-fund to invest in whatever the government wanted because it would have the same duty to beneficiaries that the old company schemes have.

It all sounds a mighty faff, particularly since lack of money isn’t really the problem: the government has lots of dosh that it could spend in the North, if it wanted to, while researchers say viable high-growth businesses have no trouble accessing capital, just lots of doubts it’s worth the bother.

Shed shifters

Peel-Glencar press on with 240,000 sq ft at Bootle, while funders back 210,000 sq ft at Ellesmere Port – the last few days brought another good crop of announcements about the still fairly hot shed market. But there’s also a small straw in the wind. BNP Paribas Real Estate has calculated that over-optimistic tenants have returned 4.1m sq ft of new warehouses to the market, via subleases. So far this has been overwhelmingly in the East Midlands, where they stand the best chance of subletting to a wide pool of prospective tenants.

BNP Paribas Real Estate reckons that there’s around 5m sq ft available in the North West, of which just 235,000 sq ft is offered on sublease or assigned terms. In Yorkshire, there’s 3m sq ft, of which 580,000 sq ft is available on sublease. So nothing to worry about yet. But worth watching.

The post The Subplot | Succession, Big Bang 2.0, shed frenzy appeared first on Place North West.

Following a competitive tender process, a total of 61 specialist firms – 64% of them SMEs – have secured a place on the framework which has been developed to support public sector organisations, including housing, education, and healthcare providers.

The framework covers internal and external refurbishment, construction, new build and modular buildings.

Peter Francis, executive director of operations at Fusion21, said: “Having responded to member and supply chain feedback, we have created a commercially efficient framework solution that will support the delivery of regeneration programmes, modernisation and upgrade works as well as the expansion of public sector estates.

“Fusion21 members accessing this compliant framework will benefit from support given by our technical procurement experts and an experienced supply chain, measurable efficiency savings, flexible call-off options – including direct award and geographical coverage across the UK down to a regional and local level – and social value delivery aligned to organisational priorities.

Among the North West firms included is Bamber Bridge-based Eric Wright. The firm’s construction director James Eager said: ”We are absolutely delighted to be chosen. It is extremely positive that clients know that they have pre-procured sustainable construction partners who can work collaboratively to deliver their vision.”

Successful suppliers appointed to Fusion21’s national Refurbishment, Construction, New Build and Modular Buildings Framework:

• A&E Elkins
• Ammcass
• Apex Contractors
• Arc Group London
• Bann
• Boom Construction
• Borras Construction
• Breyer Group
• CLC Contractors
• Cablesheer

• Carmelcrest
• Clark Contracts
• Classic Builders (South West)
• Conamar Building Services
• Diamond Build
• Dodd Group Midlands
• Domino Commercial Interiors – Sheffield
• Durkan
• EW Beard
• Eco-Gee – Liverpool

• Emanuel Whittaker – Oldham
• Equans – Newcastle
• Eric Wright Construction – Lancashire
• GB Construction Herts
• Greenmount Projects – Newton-le-Willows
• Guildmore
• Higgins Partnerships
• Ian Williams
• Integra Buildings – Hull
• Irwin M&E

• J Harper & Sons Leominster
• J Tomlinson
• Jackson Jackson & Sons – Rochdale
• Kind & Co Builders
• Lawtech Group
• LCB Construction
• Logan Construction South East
• Lovell Partnerships
• Mascott Construction (Europe)
• Maurice Flynn & Sons

• Michael Donaghy Painting & Decorating
• Mulalley
• Novus Property Solutions
• P McVey Building Systems
• P Casey (Casey Group) – Rochdale
• Quartzelec
• R&M Williams
• RE:GEN Group – Sunderland
• Re-gen UK Construction
• Saltash Enterprises

• Seddon Construction – Bolton
• Sewell Construction – Hull
• Sterling Services – Knowsley
• The Wiggett Group
• Thomas Sinden
• Trios Facilities Management
• TSG Building Services
• United Living (South)
• Vinci Construction UK
• Wates Property Services
• Wernick Buildings

Celebrating its 21st anniversary this year, Fusion21 is a national social enterprise specialising in public sector procurement and social value services. The “procurement with purpose” provider was created originally by and for the housing sector in 2002 but has since diversified into other sectors including local authority, education, NHS and blue light.

The post Fusion21 names £305m framework winners appeared first on Place North West.

THIS WEEK

• They’re optimists: unique data provides a glimpse inside the minds of North West and Yorkshire investors. It’s mostly sunshine in there
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

WE CAN SEE INSIDE YOUR HEAD

Northern landlords want to get spending

A unique regional drilldown into the thinking of North West and Yorkshire landlords shows a lot of optimism and opportunistic spending as late 2023 promises to deliver distress-priced bargains.

Core inflation is still rising, up from 6.2% to 6.8%, according to yesterday’s ONS figures. That means interest rates will probably have to rise above 5%. None of this is good. So will the North’s landlords sit on their hands, or is this a moment to seize the day, and buy? Unique data from banking company Handelsbanken, shared exclusively with Subplot, shows that despite economic uncertainty the North’s landlords are in a confident mood.

They really want to buy

Six out of 10 North West investors are set to acquire more properties in the year ahead, and five out of 10 in the North West think valuations will rebound fast and that their portfolio is going to grow in value by 20%. On both sides of the Pennines, diversification is the key – and buying in the North West is a top aim for both locals, and the cousins from Yorkshire. But buying in Yorkshire is not too high on the list.

Who are we talking about

The survey questioned 17 mid-sized investors based in the North West, and another 17 in Yorkshire & The Humber. It’s a small sample, but a significant one: eight had portfolios of between £20m and £50m, two of more than £50m, and 11 were in the £5m to £10m category. They were divided roughly 50:50 residential and commercial, and within commercial about one third each are into offices, retail, and sheds. Between them, this select sample represent the backbone of the regional markets in question.

Valuations to rebound fast

Every single North West and Yorkshire respondent expected the value of their portfolio to increase over the next 12 months. Nationally 39% predicted it will grow by 20% or more, and in the super-confident North West, some 47% thought they were in for a mighty portfolio boost. In Yorkshire, just 24% thought the same – and if you like cliches about Yorkshire pessimism, then fill your boots. Yorkshire’s majority thought portfolios would, inflation adjusted, decline in value, growing by just 5%. This was a view shared by a few in the North West, though the mega-optimists remained dominant.

Come out swinging

Commercial landlords and investors were extremely keen to buy more. In the North West 59% thought they would expand their commercial portfolio “significantly” in the next 12 months, another 24% thought “slightly.” In Yorkshire, ever looking for the sunny side, they planned to do a lot more buying despite having a generally rather modest view of valuations: the numbers an astonishing 76% “significantly” expanding and 18% “slightly”. For the record, the number of Yorkshire investors who thought their residential portfolio would grow significantly was a cautious 18%, and in the North West a more upbeat 35%.

They love student housing

Diversification – regionally and by sector – was the main reason. Student housing was amazingly popular on both sides of the hills – about 75% planned to increase their exposure. Surprisingly, about half wanted to increase their exposure to offices and retail – so either bargain hunters, or they know something the rest of us don’t. Leisure, healthcare. and the former star of real estate, sheds, were all a bit less popular but had their fans.

Bargain hunting

According to James Sproule, UK chief economist at Handelsbanken, investors are getting ready for a bargain-hunting spending spree in autumn, as distress in the economy (at last) forces property sales. “Residential prices will fall 7%-8% in nominal terms, commercial property prices slightly more, and we’re maybe halfway through that decline right now,” he tells Subplot. “Many of our landlords can see good bargains beginning to appear later this year, and they are organising themselves to step in smartly when they see opportunities from September onwards.”

However, don’t forget this

Two footnotes. First, tenant distress is a real problem, and massively more so in Yorkshire than the North West if the volume of overdue or late payments is the measure. Just 18% of North West landlords confessed to late rental payments, compared to 64% in Yorkshire. Second, investing in greener, cleaner buildings: local landlords are overwhelmingly not planning to spend a lot, mostly far less than £200,000 this year across their portfolios. One Yorkshire developer had no idea it was no longer legal to let buildings with an EPC rating below E.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A long-awaited Liverpool scheme wins significant funding; whilst clarity could be ready to descend on the increasingly byzantine Teesworks scheme. Going up!

Mersey money

Merseyside Pension Fund’s Catalyst Fund has agreed to loan £60m to Legacie Developments to redevelop Heaps Rice Mill, Liverpool, into 620 apartments, as well as an underground spa and museum. The development is touted with a capital value of £140m, and nobody has a bad word to say about the site.

The deal is good news for a troubled site that has stood empty for 18 years, and survived several ill-starred attempts at redevelopment. But the better news is that the fairly picky Merseyside Pension Fund is ramping up its local game. It has long aspired to a role in the backyard similar to that of Greater Manchester Pension Fund – heartening to see this happening.

Teesworks clarity

After much back-and-forth, the government has reluctantly agreed to a formal audit inquiry of the Teesworks development in Redcar. In a letter to Tees Valley Mayor Ben Houchen, secretary of state Michael Gove wrote that his department had not seen any evidence of wrongdoing, but that the inquiry was to address the mounting allegations of corruption. For the investigation, Gove has opted to ditch the National Audit Office in favour of an independent panel of his choosing.

The issue resolves around 4,500 acres of former steel works and neighbouring land, at first in the hands of the South Tees Development Corporation. The site didn’t see much development action and, in an effort to ginger things up, was announced as a freeport in 2021. The questions are: how did so much of it end up under the control of local developer DCS Industrial, were the terms wise, and have state aid/subsidy rules been breached? There are also many itchy side issues to complicate the picture, which is a nightmare to untangle: it’s all well explained here.

The post The Subplot | Investors’ brains, Teesworks, Liverpool appeared first on Place North West.

Construction risk management consultancy Dalbergia Group joined forces with Place North for a drinks reception at Revolution de Cuba. More than 200 property professionals came out to enjoy the event.

UKREiiF brought thousands to Leeds for three days of discussions focused on the built environment.

Click image to launch gallery