The UK’s regional cities are finally dusting themselves off from the world financial crisis and are seen not only as an increasingly attractive alternative to London but as a destination in their own right.
Investment outside of the capital rose by 35% to £34.4bn last year, helping investment in UK commercial property hit a record high of almost £55bn.
There are many reasons to invest in UK real estate: the relative attractiveness of property as an asset class, the lesser risk of deflation in the UK than in other eurozone countries, and a likely increase in consumer demand driven by lower oil prices, to name but three.
But it is also clear that real estate’s regional renaissance is based on more than just a ripple effect from an “overheated capital”, with ambitious infrastructure projects such as HS2 and HS3 on the horizon, almost £3bn now allocated to the regional growth fund and George Osborne declaiming the merits of a “northern powerhouse”.
Strengthening occupier markets are generating rental growth, particularly in retail. There are signs of urban renewal. And investors now recognise that there are better yields on residential property, if not the capital growth achieved in London.
The general election is a source of uncertainty, but it also has the potential to create significant opportunities: all parties have pledged to free cities from the grip of Whitehall, so whoever wins, the devolution agenda will continue.
This is likely to be beneficial. Recent history suggests that the centre is reluctant to give up too much power too quickly – devolution has been at the pace of the slowest, with bespoke deals for those, such as Manchester, with vision and a proven track record of delivery.
At the BPF, we are clear that real estate is not only a beneficiary of growth, but is essential to generate growth too.
To harness the full potential of our industry, the next government must create the right conditions. This means reviewing business rates, and particularly ensuring that rates are revalued. It means reforming development taxes such as the community infrastructure levy so that they encourage, not prohibit, investment. And it means freeing local areas to take advantage of innovative funding mechanisms, such as tax increment finance, that can provide the infrastructure necessary for growth.
At a local level, we would like to see leaders given powers and incentives to overcome barriers to growth and attract private sector capital. This means that initiatives such as City Deals, enterprise zones and local enterprise partnerships should be transparently appraised and developed in line with local needs.
Our message to government, this one and the next, is therefore simple. Devolution has the potential to boost the role of real estate as a driver of economic growth, and allow UK cities to emerge from London’s shadow for good.
Melanie Leech, chief executive, British Property Federation
