It's time to renovate the older buildings Mr Landlord

Things have become a little more settled as the new Government announces its plans for law change and parliament is officially re-opened. The industry plods along enjoying relative growth and optimism but still a vision of caution as we see industry known names succumb to administration.

There should be a renewed excitement about the market as demand continues to rise but with Grade-A office supply being extremely short does it mean we should simply throw up more high rised glamorous buildings or think a bit more innovatively.

If you look out across most Northern cities, and I’m sure this applies across the country, there is an abundance of buildings in good locations that simply need a bit of TLC (or a lot of TLC depending how half empty or full your glass is). Rather than admit defeat and look for ways to offload these older assets landlords could and in some cases are attract modern investors by creating innovative space from this second-hand space.

Maybe my love of the older building makes me bias here but surely with demand for Grade-A office space soaring exponentially it makes sense. The challenge for the landlord is how do you create a space that attracts an occupier – simple, you need to make it a resilient future proof site making technology, design and innovation at its heart.

If you take say a design or architectural firm, having a more unusual office building can be a big attraction and combining this with good incentives will attract the right people. Thinking about how you can work with potential tenants to create a space that works for them. If I think about my client base there are some in modern office buildings in prime locations but a growing proportion are in more abstract buildings which contain a lot of character.

My overriding advice is make it work for your occupier and by doing so it will work for you.

But why is there a need? Well the evidence speaks volumes with new lending to commercial property reaching a six year high in 2014 driven by non-traditional lenders entering the market to fuel the current commercial real estate market. I read recently that over £45bn of loans were granted in 2014 compared to £49bn in 2008 – hopefully the market is in a safer place now though than back then.

With the commercial real estate market recovery well underway and as older outstanding loans reduced significantly it does create a much more fluid and exciting market place. Creating a mixture of new and renovated old will add character to the city and provide flexible working spaces for all types of business.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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Housebuilders win, housing associations lose

The first fully Conservative Government for a number of years and it is interesting to reflect on the construction industry particularly the winners and losers that come out of the election.

The main policy on housing revolved around extending the right to buy to housing association tenants, which would allow up to 1.3 million more homes to be bought by their current tenants. This does raise questions about creating a “rich” versus “poor” effect on the streets but will also, hopefully, raise vital funds to replace the housing association stocks. They have also committed to building 200,000 starter homes for first time buyers – again a good thing but what about those that aren’t first time buyers.

The first sign of a good decision comes from the stock market – clearly very happy with housebuilders and estate agents share price rising well. Two reasons would drive this, firstly we have a majority government which provides security over the next five years but also the continuation of the help to buy scheme and with no Labour mansion tax or imposed rental cap providing further assurances to overseas buyers.
The flip side to the argument though is that while housebuilders brief a sigh of relief housing associations don’t. The Conservatives’ plans to extend the right to buy have been opposed by housing associations and we can expect the issue to be one of the most contentious of the next parliament. They key argument being that forcing charities to sell off their stock will need laws to address and govern it and what happens to the underlying debt – this would need to head back to the Government balance sheet.


It is early days as the new government settle in and plan the next five years and undoubtedly there will always be winners and losers. I see both sides of the argument but think there are ways to address this. It needs to be clearer how Right to Buy will work and how the government can work with housing associations to ensure sufficient social housing is available to those that need it. The national housebuilders drive housebuilding so security for them will hopefully push them to take on more risk and really help meet the housing targets but promotion of smaller developers needs to occur.


Despite all this excitement, to me the most innovative and exciting news was that Liverpool University is forming its own construction company. Liverpool University is planning to build a major part of its £100m-a-year capital spending programme in-house after forming its own construction company.


The university is considering giving more work to its in-house special projects team, which was formed in 2013 when the university took on staff from failing contractor Ocon. The university is lining up the company to build its planned £90m Greenbank Halls project, which gained planning consent earlier this month, and a separate £25m teaching facility.


The basis is simple – private and public coming together for construction. The public sector has large elements of lands and development required with limited funding while partnering is a key focus for the construction sector to reduce overall risk. More public sectors should consider this approach – whether housing or development.


Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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Local developments and the Government portfolio

It is interesting waking up and not yet knowing officially who our next Government will be but being pretty sure it will be the colour of blue. In all honesty not really bothered, it will be whoever it is and we’ll have to just wait and see. I spent last night at the amazing Variety Property Awards in Harrogate. It was a great night but more over such optimism in the room that I haven’t seen for a while. Whether it’s new developments, the future Government or speculation of the next big deal it puts a smile on your face but got me thinking about local developments but also the wider Government portfolio.

 

I do love a good fact and although this didn’t necessarily shock me just seeing it written down made it look shocking. The Government’s investment property portfolio is currently valued at more than £13bn (larger than British Land, the UK’s largest REIT). Now I say it doesn’t shock me purely because the Government is everywhere, every town but largely in London. Over recent years the portfolio has strongly benefited from growth in rental yields and general capital appreciation. It’s quite interesting that such a large portfolio is sat benefiting the Government one way but could this asset be used a different way? Radically why not place part of the portfolio out to external investors – a very strong covenant would provide a large capital injection and if structured correctly control could be retained.

 

The portfolio spreads further though with £49bn of land, £91bn of residential and £218bn of buildings. There is a further £42bn of assets under construction. Just to make the numbers really sound big there is £278bn of infrastructure assets. So let’s just sell it all and solve all our problems – well not as simple as it only just covers the pension deficit of the NHS (approximately £391bn). But it is amazing to think of Government Asset plc, a new REIT. We’d need to be careful though as we can use these assets to provide some capital inflow but losing control of them means we put the private sector in control.

 

The estate does however come at a cost – a pretty large running cost. So how can this be managed, well with over 5,000 assets, there is some gain by selling small parcels to cover running costs (and also reducing the annual bill). An overall plan to me would be selling equity stakes which provide a steady income stream but retaining control to allow for future flexibility that suits the Government.

 

Moving on from such a large estate to something a little smaller but more local. Firstly there is the 56 acre Kirkstall Forge development by Commercial Estates Group. The current plan is impressive with a new railway station providing easy access for up to 1,000 homes and 300,000 sq. ft. of offices. The development, expected to be valued at £400m will have access roads completed later this year allowing the progress to be made. The idea of a new community is always exciting and be definitely keeping a close eye on this one.

 

Montpellier Estates commenced and now Caddick are taking forward. City One, with its 9.5 acres of office space, residential tower, hotel and even a casino (potentially) it certainly sounds like another impressive Leeds development. My only feeling is that it maybe a few years before we see anything really commence.

 

One which I am keenly following is Holbeck Village area around Globe Road and Water Lane. These 5.9 acres of land is earmarked for mixed use, though I suspect more commercial than residential given the development occurring around Wellington Place. As far as I know no specific developer signed up yet but do let me know if you know different which leads on nicely to the former Yorkshire Post building where the S106 agreement has been signed and 540,000 sq. ft. of offices and 200 flats. For this development though MEPC has the upper hand with strong interest in Wellington Place with impressive lettings at the current buildings.

 

To me there is a lot to be excited about in Leeds but not forgetting Sheffield and the wider Yorkshire region. Whatever the outcome from the polling it isn’t going to dampen this new appetite for development.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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Technology, partnerships and diversity is the future for the construction industry

Overall there has been a decline in global economic growth compared to a year ago, a PwC survey has found,  which isn’t surprising given the fall in oil prices, the instability in the European Union, fiscal deficits in a number of countries and also the current Ukraine situation. This is on a global basis but when construction CEOs were asked about their own business it was clear they saw growth with key drivers being good visibility of pipeline and order book and a clearing down of the backlog. A lot of businesses are also seeking to expand into emerging countries and take advantage of increased infrastructure spend.

 

So let’s have a think about what is driving economic growth – well it comes down to emerging economic growth, demographic changes and increasing urbanisation. All of these are underpinning growth with 41% of CEOs expecting to enter new sectors to seek better margins and reduce or spread the risk.

 

What is interesting to see is how the industry is making use of partnerships, technology and diversity to grow their business.

 

Technology

BIM is a key development which will have significant implications for the industry particularly construction costs and waste; but will also facilitate monitoring the whole life operating costs and performance of projects. This advancement although in early stages of actually being used will have far reaching changes to how businesses approach projects. The use of technology will also provide for increased data on construction projects and operating costs and undoubtedly present significant opportunities for the owners of that data. And let’s not forget the advancement of the 3D printer advancing the industry. This does still leave the challenges of cost, being more efficient and making use of these advancements and the overall skills required in the sector.

 

Partnerships

Moving away from your normal trade or geographical area can increase the risk to a business but what many are doing is spreading the risk by partnering – this is facilitating expanding into new markets, cutting costs and sharing the risk. The new markets are bringing new customers and the sharing is allowing for larger projects to be bid for. One area you see this more and more is bids for government contracts – showcasing a  number of partners tends to bring a mixture of skills.

 

Diversity

The industry is waking up and moving forward and it no longer feels solely like a “men’s club”. This promotion of diversity and inclusiveness is helping the industry in a time of skills shortages particularly engineers and other skilled trades. Its early days but I’m starting to notice more women in the industry and actually hearing about new ideas as a result.

 

So do I think in a years’ time all will be well, of course not as the above three items are long term investment. However the sheer recognition that these can support growth is all the industry needs to move in the right direction.

 

There is only one week until the Election Day so here are a few final thoughts on the topic:

 

Conservatives – Very strong promotion of a Northern Powerhouse and the recent budget took steps to make that clear. The idea of HS3 is okay, actually starting it will be the key – doing is better than saying. My concern is that private renters will lose out and poor performing housing associations will win under Right-to-Buy effectively reducing the housing stock for those who can’t afford even the reduced prices. Now the argument will be that the sales fund future developments, I guess I’m just a cynic that actions again speak louder than words – how many affordable homes are built a year again….Recently the Institute of Fiscal Studies warned that this scheme risks dividing communities into rich and poor, has uncertainties around actual revenues it can raise and doesn’t appear to be winning over the public. The Brownfield Regeneration Fund should though help specialised developers bring forward some fairly innovative schemes on previous poor land.

 

Labour – The party for the SME house builder, the saviour of the industry if only they could get finance, well fear not Uncle Ed is coming to your rescue however the mansion tax is silly, just silly. Yes they can afford it but we want to retain this people in the UK not have them move residency to other European cities. My key concern to Labour is “Use it or lose it” feels too iron fist at the moment but initiatives to help increase smaller sites available to SMEs makes me smile. The other issues is the lack of clarity around some key points – like how will you build 200,000 homes and how are you actually going to funnel Help-to-Buy ISAs into your Future Homes Fund – potentially crowd pleasers with no detail. Think we may be worse off.

 

Liberal Democrats – Sounds lovely doesn’t it – developments focussing on walking, cycling and public transport. Sounds very lovely if it wasn’t a pipe dream as for starters you need to sort out public transport! And the Mansion tax crops up again (call it what you want it’s just the same!). The stand out is 300,000 homes per year and a housing investment bank. I am however doubtful of being able to deliver without more details and the idea of garden cities, well as a Northern is unknown because it just feeds the south.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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