4 minute read
Matthews & Goodman
Journey to the north shore
Commercial property roadmap in 2022
James Routledge Head of National Commercial Property Investment Matthews & Goodman
The government’s long-awaited ‘Levelling Up’ white paper was published earlier this month. It had promised to outline a clear route map for regional investment and economic stimulation. The theory behind the plan is that local economies will be stimulated as large organisations move away from London to less economically vibrant areas, and so become a catalyst for economic activity, innovation, talent attraction, and rainmaking for the countless service and product suppliers these behemoths need to function – from advisers to sandwich makers.
Part of the strategy involves moving 22,000 civil service jobs out of London and the South East by the end of the decade. The government has already announced that by 2025 the Home Office will move 30% of its workforce to metropolitan cities such as Sheffield, Cardiff, and Belfast as well as towns like Salford, Solihull and Stoke-on Trent (home of a new Innovation Centre) by 2025.
Business, Energy & Industrial Strategy (BEIS) plans to move to Belfast, Edinburgh and Preston creating 1,350 new jobs – an increase of almost 60% of roles outside London. The Ministry of Housing, Communities and Local Government will become the Department for Levelling Up, Housing and Communities. It will establish new headquarters in Wolverhampton. HM Treasury and other government departments have announced their intention to create a new economic campus in Darlington.
The concept of government and business moving out of the capital and moving ‘up country’ is known as ‘north shoring’. Not only does it save money, the spread of work benefits communities in the north of the UK. It is good news then that north shoring is not limited to the public sector. PwC opened its largest UK regional office in Birmingham and Goldman Sachs announced that the city would host its new regional hub. BT joined this march to Birmingham announcing its intention to create 1,000 new jobs in the city.
The decision of Channel 4 to locate its new head office in Leeds is acting as a tremendous catalyst for the creative sector in the region. Still in the north, Manchester boasts the country’s fourth largest digital
turnover and Liverpool appears to have become a magnet for next generation tech companies such as AR-enabled gaming (SwotBots), VR tech (vTime) and animation services companies such as Global Coach.
The plan for levelling up is also due to spread – or is already spreading – across to other parts of the country. The Oxford-Cambridge arc life science sector success continues unabated, and the Thames Valley (outside of the capital) has attracted global players including Microsoft, Huawei and Cicso Systems.
Under this plan, it’s not hard then to see how the commercial property sector could flourish. Indeed, forecasters believe that in 2022, commercial property capital values will increase by around 2.9% (total return 7.4%).
The sustainability agenda will accelerate new green property loan products, offering preferential terms to borrowers intending to improve a building’s environmental performance – mirroring residential loans’ differential pricing based on a property’s EPC.
Sector-wise the outlook for commercial property in 2022 is a mixed bag.
Occupancy rates will remain below pre-COVID levels and, whilst hybrid working is now key for many businesses, workspace planning will reflect the trend of building communities with similar interests, skills and expertise – designing people-centric workspaces to meet peoples’ needs and values. Forecasts suggest that 10% less office space will be required – with London most exposed.
Although secondary high street retail and shopping centres will experience further modest falls in capital value, the high street’s demise continues to be exaggerated as ‘brick’ networks play a critical role in enabling new online offerings, e.g. Amazon Fresh has opened its first stores with the network set to grow.
Retail parks will continue to attract strong investment interest given the recent growth in click-and-collect, customer returns, home deliveries (in effect last-mile fulfillment centres) and alternative use possibilities in urban areas. Drive-thru restaurants and associated clusters will also continue to grow.
Alongside residential properties, the urban industrial sector will remain top of investors’ buy list. An inflection point for yields could be close, especially with prime industrials yielding between 3% and 4%. However, constrained supply and competing uses, such as residential, will ensure strong pockets of rental growth given the strength throughout the industrial and logistics sector.
Self-storage is attracting significant inward investment and is seeking more innovate solutions – including office buildings and retail parks where price points are lower than prime industrial locations.
Beyond 2022
The property market has a strong propensity to rotate and evolve as external factors drive the shifting fortunes of every asset class. The medium-term trend is likely to befor shorter property cycles, driven by environmental regulations, technology advances, the need for flexible buildings, and societal requirements.
