REGIONAL PERSPECTIVES FEBRUARY 2016

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1 REGIONAL PERSPECTIVES FEBRUARY 2016 Regional The BPF regional committees are vital in ensuring the organisation is able to speak authoritatively to government and civil servants on the impact of national policies across Britain and on the state of regional markets.

2 Newcastle Huge investment in hotels and PBSA Concerns about being left behind in the Northern Powerhouse Office take-up returned to highs Liverpool UKTI is bringing over foreign pension funds and spreading message that the city is open for business The city needs to grow its population, and provide more employment Some excellent examples of place-making and community infrastructure, but delivered alongside areas that remain very deprived Birmingham 2015 was Birmingham s best year, and 2016 looks positive across all sectors More major regeneration projects planned Recently ranked sixth most investable city in Europe Cardiff 2015 a bumper year Slow delivery of National Development Framework No tangible vision for Cardiff s future, and nobody is pushing this forward Snapshot Leeds Increase in development activity Still a lack of inward investment Strong office market Real appetite for public/private working Manchester Still positive outlook Significant movement on Build to Rent Looking for investment in health and social care integration Bristol Strong residential market Office market traditionally under-performed Exciting infrastructure developments No PR machine for city region

3 Introduction In addition to our London-based Committees, the BPF has convened regional committees across England and Wales. These arevital in ensuring the organisation is able to speak authoritatively and knowledgeably to government and civil servants on the impact of national policies across Britain and on the state of regional markets. We have established forums in Birmingham, Bristol, Cardiff, Leeds, Liverpool, Manchester and Newcastle and hold meetings with around 20 local representatives from the real estate market and the public sector on a quarterly basis. The meetings in February 2016 focused on public and private sector working; changes to tax policy and included presentations from local speakers. This paper summarises the key messages from the meetings and provides a snapshot of the regional markets as of February Key points Across the country, attendees remained positive that investment levels will continue to recognise the opportunities outside London. While the mood was generally buoyant, there were several issues which were causing uncertainty: including potential changes to real estate tax; the upcoming elections in Wales; and volatile Asian markets. Concern over the overseas currency markets and unstable external factors caused concerns: will this mean a flight to the security of the UK, or will occupiers get nervous? The upcoming EU referendum was another topic of interest: in the North East in particular, much of the real estate is occupied by manufacturers, oil and gas and is therefore very dependent on EU trade. While the region s dependence on EU funding has declined since the 1980s and 1990s, there is a residual feeling that membership of the EU is positive for the real estate sector and that the region benefits from EU funding. Local authority funding pressures, as well as procurement and planning changes, remained critical issues across the country. Across the country, attendees remained positive that investment levels will continue to recognise the opportunities outside London.

4 Public and private sector collaboration There was widespread agreement and understanding that the public and private sector will need to work together in order to improve the growth of regions; and that a strong shared vision from all parties is critical to success. It was agreed that there were significant opportunities for the public and private sector to work together to deliver new development, particularly housing. For example, it was suggested that the Cardiff Housing Partnership will prove so successful that others will look to emulate the model. While all local authorities in Wales are carrying out an asset review, as required by the Welsh government, the lack of an overarching body such as the Homes and Communities Agency (HCA) means there is a lack of understanding as to what local authorities can do with their land. The quality of Local Enterprise Partnerships (LEPs) and engagement with these varied significantly across the country, and they were seen as less useful when the development industry engages well directly with local or combined authorities. In Manchester, for example, because the combined authority has a strong commercial focus there is little engagement with the LEP. It was agreed it would be easier to have a more consistent approach, although noted that there would likely still be disparity between the quality of staff and therefore investors would go where they were most likely to be successful. There was also strong appetite for public/private working in Leeds, where the LEP is incorporated into the Combined Authority. Attracting investment Members of the regional committees were frustrated in areas where the local or combined authority was not seen as promoting itself (for example, by attending MIPIM) and investors were left to research their own opportunities. It was felt the LEP or local government should lead the way, and assist in attracting investment. The West Midlands Combined Authority (WMCA) is making progress and those in the region are improving at competing and marketing. Selfconfidence is increasing, and there are fewer comparisons to other regions. However, despite the rhetoric around the Midlands Engine it was felt that other regions have better central government support. Liverpool is likely to benefit from the Interational Festival for Business in the summer of 2016, although there was frustration that while international investors are interested it remains a struggle to get people to come from London. Liverpool is also attracting more institutional funding than previously likely a combination of Manchester becoming increasingly sated and increasing confidence in Liverpool s ability. In Cardiff, however, it was felt there is still no tangible vision for the city region s future and that this damages the potential for investment (although announcements on the Cardiff Capital Region City Deal in the Budget may go some way to helping this). In the North East, it was agreed there is a need to better show the region s opportunities and promote itself in a coherent and confident manner. There are significant opportunities for the public and private sector to work together to deliver new development, particularly housing.

5 Devolution While progress has been made, historical tensions remain between local authorities involved and these prevent some from engaging with combined authorities. There were concerns that government s focus on the Northern Powerhouse was leaving other regions behind, and that the iniquity in existence between London and the rest of the country would transpire between the North West and the rest of the Northern Powerhouse. It was also noted that there is nothing in any devolution deal about making local government an attractive place to work; and a feeling of cynicism as to the effectiveness of these deals lingered. There was a feeling from some that the Northern Powerhouse is a political construct, that the region should work with those involved when it will be of benefit to the North East but that there is cynicism as to how often that will happen. West Midlands The WMCA has been convened in the last 12 months, and the new mayor (due to be elected in 2017) will have transport and CPO powers. However, it was recognised that the establishment of the combined authority was deeply unpopular in some parts of the region. While there will be a Land Commission focusing on viability and dealing with the barriers to bringing forward brownfield sites, the WMCA will not have a strategic approach to planning as there was no appetite from local authorities. There were concerns that government s focus on the Northern Powerhouse was leaving other regions behind. Liverpool City Region There will be a Single Investment Fund for the city region, benefitting from 30m a year over 30 years in a gainshare of business rates a first mover advantage for signing an early devolution deal. Liverpool City Region (LCR) will have strategic planning powers, including Mayoral Development Corporations and Mayoral Development Zones. As in the WMCA, there will also be a Land Commission, focusing on a more coordinated release and use of disused public sector land in a way that contributes to the social and economic objectives of LCR. However, there were concerns that the Merseyside pension fund is more reticent to invest in its home region than the London or Greater Manchester funds. North East The North East Combined Authority (NECA) is at the centre of the devolution deal signed in October 2015, bringing together 12 local authorities with a mayor to be elected in It will also benefit from 30m a year over 30 years to create a North East Investment Fund, which will be ringfenced for infrastructure, and there are plans to integrate health and social care provision. An Economic Development and Regeneration Advisory Board (EDRAB) has been established as part of NECA, and will focus on the key drivers for creating sustainable economic growth and increasing investment in the region. There was recognition that the region is struggling to keep up with the level of interest generated by UKTI promotions and that more resources would be needed to meet demand. EDRAB is developing Sector Propositions and an associated North East offer, as well as a Strategic Regional Investment Plan and project pipeline, outlining oven-ready schemes to guide bids for government funding.

6 Commercial All city regions had a positive commercial outlook with strong rental values. Committee members in Newcastle and Leeds felt optimistic about returning to pre-recession levels of take-up. Many saw their city regions as serious contender for organisations or government departments looking to relocate or consolidate, with Cardiff, Birmingham and Liverpool in particular looking to attract these due to the commercial focus of their local governments and their competitive pricing. There was significant disparity within regions for example, in areas outside of Bristol commercial development is difficult, and likewise Cardiff is an outlier compared to the rest of Wales. Cardiff Capital Region had a bumper year in 2015 with the region at the front end of the development cycle, and schemes coming forward still see huge demand with rental values are the highest they ve ever been. However, yields and prices have peaked since then and little compression is expected. The Cardiff Central Square scheme will have a huge impact on the city region, and with delivery expected in four to five years those involved are aiming to emulate something like Spinningfields in Manchester with a mixture of offices, retail and residential. The office space takeup has been huge, and the BBC committing to the prelet has given others confidence. Residential The availability of homes is a challenge for every city, in different ways. The Bristol Property Board, for example, is working closely with the HCA, which has formed a Developers Panel. This allows deals to move quickly (with one progressing in only two weeks), but there is only an opening every four years and a full OJEU is required to sit on it. The balance between commercial and residential in city centres was a key issue, with concerns in Birmingham that there is a lack of residential in the city centre. In Liverpool, the city council was aware of the need for a strategic balance to avoid losing all potential future commercial sites to residential (particularly with the extensive use of permitted development rights). The business district there is becoming increasingly attractive to live in, and some of the permitted development sites coming forward are real opportunities for people who would not get the chance to live in such a place in other cities. In general, it was felt that Liverpool is attractive to institutional investment. However, the housing range is not competitive enough: 80% of homes in Liverpool are in council tax bands A and B. Build to rent The build to rent sector is progressing at various speeds across the country, with Manchester and Birmingham benefitting from more investment in this sector than elsewhere. It was felt that government s attitude towards the sector is disjointed, with a plethora of disconnected incentives. In Bristol, there were hopes that the local authority would be amenable to more build to rent as it offers significant opportunities. In Cardiff there was concern that the city lacked the density of demand and initial critical mass to support the market in being able to fill build to rent developments year after year. Newcastle, for example, has seen limited interest in the sector due to the relatively low residential values. Student accommodation Unsurprisingly, the purpose-built student accommodation (PBSA) market is booming across the country in cities with strong educational institutions: Bristol, Cardiff and Newcastle are all seeing huge demand. In Cardiff it is felt that while this could have some impact on the housing market by freeing up family homes traditionally in multiple occupancy, the developments coming forward are largely targeted at wealthy overseas students. In Newcastle, a significant amount of office stock is being converted to PBSA and there are concerns the market could become oversaturated although this does offer the opportunity for some of it to end up being build to rent.

7 Industrial There is significant demand across the country for industrial land, with concerns around the lack of availability raised not just in the traditional Midlands heartlands but also in Bristol and Liverpool (where freight logistics are critical as the super-port comes forward). Attendees in Birmingham expressed clearly that a lack of industrial land supply will stymie the growth of the region and, more broadly, that of UK plc. Several areas predicted the demand for urban logistics would rocket, as it has done in London. Tax and finance Conclusions and next steps The regions are performing strongly, and remain of real interest to institutional investment. However, changes to government policy can have a more detrimental effect in areas with lower margins, and changes to the tax and planning systems can have unintended consequences. The next round of meetings will be held in May, and there will be a series of networking debates in June and July followed by meetings in October. For more information or to suggest agenda items please contact Rachel Campbell on or rcampbell@bpf.org.uk. Business rates were discussed extensively, with general support for the principle of devolving rate setting to local authorities caveated by concern over the detail and the loss of funding for certain areas. For example, Bristol s City Deal is, to a large extent, dependent on business rates funding so the changes are of particular interest there. In places where returns are lower, it was felt that business rate void rates are punitive, especially for new entrants. There was a suggestion that new entrants should perhaps be exempt for a period, either for five years or until the first letting, as this would in fact bring forward new development. The introduction of the OECD s recommendations on base erosion profits shifting, and particularly limiting the tax deductibility of interest, was discussed across the country. There was strong agreement on the impact it would have on the sector. It was felt these impacts would be felt much more strongly in regional cities where the viability is often very marginal, and that the potential changes would hamper new development coming forward.

8 OUR KNOWLEDGE AND ADVICE ON NATIONAL POLICY IS HELPING THE UK REAL ESTATE SECTOR GROW AND THRIVE Just one of the benefits of becoming a BPF member. British Property Federation St Albans House 5th Floor, Haymarket London SW1Y 4QX T info@bpf.org.uk