It’s been a good year for the regions – and not just in the recent Budget announcements. Stacey Meadwell reviews the successes of the past 12 months.
1. First metro mayors elected
2017 marked a step change in local government for England when six metro mayors were elected as part of individually negotiated devolution deals in Greater Manchester, Liverpool City Region, Cambridge and Peterborough, Tees Valley, West of England and the West Midlands.
It was not only a statement of how local authorities are working together, but also a vote of confidence from central government in giving more powers locally to make strategic decisions.
The confidence is no doubt embedded in the fact that the mayors have accountability. As Simon Jeffrey, policy officer at Centre For Cities, says “they carry the can”, which is reassuring for central government and fosters a level of trust.
It is too early to tell how effective the new mayors are, although the second devolution deal for the West Midlands, announced in the Budget, is attributed to mayor Andy Street’s efforts.
What this second deal also highlights is that fact that these deals can evolve, they aren’t the be all and end all, so there is even more to play for locally. Greater Manchester has already added to the initial deal signed in 2014.
North of Tyne is the latest devolution deal to be signed, with mayoral elections scheduled for 2019.
Related story: What can property expect from the new metro mayors?
Related story: West Midlands races ahead with second devolution deal
Related story: £600m North East devolution deal agreed
2. GPU deals
Long-talked-about deals to the Government Property Unit started to land this year. As part of the government’s rationalisation of its property portfolio, deals amounting to 1.07m sq ft were signed by the end of Q3, according to Savills, equating to 32% of the total take-up for that period.
EG data shows that by the end of November, the top five biggest deals outside London were all to the GPU (see table).
Leeds saw the biggest deal – 378,000 sq ft at Hermes Investment Management and Canada Pension Plan Investment Boards Wellington Place – with Edinburgh, Birmingham and Cardiff also securing substantial deals.
It masked what was an otherwise so-so year for office deals, with the uncertainty surrounding Brexit and the cooling economy no doubt playing a part in occupiers’ reluctance to sign up for space or rather preferring to sign up to shorter term space (see tech and digital).
Related story: GPU completes largest Leeds letting
3. Planning applications fall
The number of planning applications tumbled in parts of the UK, most notably in Northern Ireland and the North East.
Total applications filed in the first three quarters of the year fell 22.5% in Northern Ireland and 14.6% in the North East year-on-year.
Scotland, with an 11.8% increase on 2016, was the only region where the number of applications grew by double digits.
Every other region that registered any growth in activity – Wales, the West Midlands and Yorkshire and Humberside – was more subdued, at no more than 2.7%.
The overall number of planning applications outside London fell 2.2%, which was a relatively strong performance compared to the capital’s 3.8% fall.
4. Overseas buyers – and the pension funds
A weak sterling continued to attract overseas investors looking for better value to that found in the capital to the regions.
According to Savills, by the end of November the amount of money invested in regional offices by foreign money was already 13% up on the £2.7bn total for 2016.
Deals included the Hong Kong equity-backed purchase of 115,286 sq ft of offices on York Street, Glasgow, by Wirefox for £48.5m – a yield of 6.5%.
Pension funds followed suit, moving away from London to the regions. For example, Aviva signed up to fund Allied London’s two 36-storey PRS towers in Manchester. In fact, PRS proved to be a trend in its own right (see below).
Related story: Aviva nears first major PRS deal at Allied London’s Nickel & Dime
5. Growth in demand for serviced offices
Given the rise in the number of tech and digital deals outside London and the increasing demand for flexible office space, the rise in serviced offices and co-working space is no surprise.
Notable names picking up space included WeWork, which signed two separate deals in Manchester – one for 60,000 sq ft at Allied London’s No.1 Spinningfields and another for 40,000 sq ft at Deka Immobilien’s One St Peter’s Square.
Allied London also launched its own co-working brand, All Work & Social, in Manchester.
As-yet-unsatisfied requirements from the new generation of businesses include Amazon’s 70,000 sq ft office requirement.
According to Savills, serviced office take-up had reached a record 254,000 sq ft at the end of Q3 2017, accounting for 5.6% of the market. The firm also reported average lease lengths across the regional cities has fallen by 3% on the previous year.
Related story: Flexible workspace demand boom in Manchester
6. HS2
The phase 2 route of HS2 was announced, which included the all-important locations of new stations, giving a bit more certainty to those looking to maximise the economic benefits and bring forward development.
Leeds, Manchester Piccadilly, Manchester Airport and Toton in Nottinghamshire will get new stations, while the battle between Meadowhall and Sheffield city centre to be on the route was won by the latter, although trains will stop at the existing station rather than a new one.
Leeds announced a £1bn masterplan on the back of HS2 investment, Cheshire East Council drew up a masterplan identifying the opportunity for 6.4m sq ft of commercial development at the Crewe hub, and plans for a hi-tech research hub/headquarters plus 6,150 new homes on brownfield land around Toton were also drawn up.
Solihull is on phase 1 of the route but is gearing up to maximise the potential economic benefits, unveiling plans for a £4.1bn mixed-use scheme around the station. Urban Growth Company, the organisation responsible for the station, formally applied to the government in August to expand the design in a move intended to unlock thousands of acres of development land around the new terminus.
Chancellor Philip Hammond added to the confidence surrounding the project, announcing a further £300m of HS2 investment in the Budget.
Related story: Leeds to double in size on back of £1bn HS2 plan
Related story: HS2 to unlock £4.1bn Solihull regeneration
7. Big PRS drive in major cities
Investors and developers turned their attention to the private rented sector outside London, setting up funds and drawing up plans for schemes including some towers as yields in the capital tightened.
Sigma Capital announced the launch of a £250m PRS REIT, the first to purely focus on the sector. The fund will target mainly family homes across England, with a focus on the largest employment centres outside London.
Manchester continued to attract attention from investors, but nets were thrown wider to cities such as Nottingham, Leeds and Sheffield.
Deals included Cording Real Estate’s first build-to-rent investment in the UK committing more than £40m to forward-fund the 350-home Saffron Court in Nottingham, plus Legal & General’s purchase of the Mustard Wharf site in Leeds from U+I for a 250-home rental development.
Research by the British Property Federation at the start of the year found that of the 16,506 units under construction, 10,244 were being built outside London and there was detailed planning for 22,000 homes.
Related story: Sigma Capital launches PRS REIT
Related story: Cording makes first UK PRS investment
Related story: L&G heats up Leeds PRS market with Mustard Wharf buy
To send feedback, e-mail stacey.meadwell@egi.co.uk or tweet @EGStaceyM or @estatesgazette
