Cars have traditionally underpinned the region’s economy, argues Eugene O’Brien, and it is on the future of this industry that the industrial property market depends.
The West Midlands’ industrial roots are well known. In the late 1960s and 1970s about 40% of the region’s economy depended on metal-based manufacturing, compared with a national average of just 15% or 20%.
However, the 1980s brought considerable structural change. Steel making, heavy engineering and car manufacture all went into decline.
Now, more than 30% of the region’s economy is involved in manufacturing.
Though not all metal based, this is still the highest concentration in the country. At one time, this relative dependance would have caused concern.
However, it now appears that 1993 will see a national economic recovery from recession led by the manufacturing sector, signalling prosperity for the Midlands.
Reports from the CBI’s National Manufacturing Council illustrate the general direction for this sector of the economy. For example, the trade deficit in manufactured goods reached a peak of £25bn in 1989-90. It fell to £14bn in 1992. The importance of manufacturing is clear from the fact that 50% of all consumer spending is on such goods. In 1992, this sector invested £14bn in capital equipment, vehicles and property.
In particular, car production has had a key influence. In national terms, car manufacturing is concentrated in the Midlands. After two decades of decline and structural change, the car industry is now looking healthy.
This turnaround is typified by the fortunes of the Midlands-based Rover Group. Rationalisation, privatisation and continued links with Honda have resulted in good products with a rapidly expanding market share.
The new Toyota plant at Derby represents a £700m investment in the Midlands car industry, with production expected to reach 200,000 cars pa by 1997 – and a new engine plant to follow. Peugeot has invested heavily in its plant at Ryton near Coventry, while Ford is putting £1.6bn into Jaguar.
In addition, the region’s motor manufacturers are served by a substantial automotive component supply industry.
Many major Midlands companies, such as Lucas, Glynwed, IMI and GKN, are now performing well on the stock market.
Requirements for just-in-time delivery patterns and sub-assembly centres located closer to a greater number of busier production lines is producing new demand for industrial property in the region. Indeed, this market appears to be affected by Europe-wide factors, not just a renaissance in the British car industry.
Most property professionals will remember “where they were” on Black Wednesday, when interest rates rose from 10% to 12% to 15%, followed by a fall to 10% and topped with a UK withdrawal from the EC fixed exchange rate mechanism. The result was an immediate 20% devaluation of sterling. Now, however, this event can be seen to be responsible for the recovery in the economy’s manufacturing sector. Only after this could the “green shoots of recovery” be seen. Since then, Phoenix Beard has witnessed a jump in inquiries from engineering companies – with many from continental Europe and North America.
Both BMW and Mercedes have declared their intention to increase considerably the number of components which they buy from British firms. The reasons cited were not only the new-found competitiveness which followed the devaluation of sterling but also an increase in quality of product and reliability of supply from UK companies.
There is, of course, the real danger that devaluation generates inflation through imports. Midlands industrialists believe that inflationary forces are being countered by a reduction in unit labour costs and UK companies are increasingly looking to buy British rather than import. So, the critical competitive edge still seems to be there.
The recession cut demand for some engineering products by up to 25%. As a result, existing companies can expand without having much impact on the property market.
Demand is being created through the establishment of new ventures. Automotive suppliers from other parts of the country are being forced to consider setting up new operations to accommodate the delivery patterns of Midlands car manufacturers, including “just-in-time” standards.
Foreign investment is having a marked effect. The UK attracted 40% of all US and Japanese investment in the EC during the past decade. Much of the engineering came to the Midlands, with Telford, in particular, attracting a number of Far Eastern companies.
In short, structural changes in manufacturing industry and the welcome failure of Government policy appear to be driving West Midlands industry out of recession.
Eugene O’Brien is an associate director of business premises at the Birmingham office of Phoenix Beard.
