Regional cities – set for lift off…?

2015 is out of the starting blocks. For me, it has begun the same way as 2014 ended and by that I mean very busy! Business activity across the company is increasing. This is a positive sign for a service company, meaning that our clients are busier. Growth for UK companies seems to be back on the agenda, with favourable operating conditions, positive economic fundamentals and healthy balance sheets all supporting new investment.

Companies with an expansionary mind-set are realising that now is an opportune time to take stock of future real estate needs and work to align strategy to support the core business goals. Longer term real estate strategy will involve (re)assessing existing locations to understand whether they are truly delivering cost effective and value added solutions to a business. Further discussion of location strategy can be found in our recent publication Offshore, Nearshore, Re-shore? The evolution of enterprise footprint optimisation. It’s probable that this process of reassessment will lead to a greater consideration of UK regional cities to locate offices and staff. This opinion is also shared in our recent JLL Property Predictions 2015. Here’s why:

Rising costs in Central London

Tight supply in the central London core office markets – especially for larger volumes of prime floor-space will lead to significant rent increases. Average prime rents in the West End are forecast to reach £130 per sq ft by 2018.There will therefore be increasing cost-driven pressure on occupiers to seek discounted property solutions outside of Central London – perhaps retaining a small head office presence in London, whilst moving the majority of staff ‘out of town’.

Improving infrastructure

Considerable investment is being made into regional infrastructure, enabling better connectivity between regional cities and the capital. Examples include the HS2 rail connection, redevelopment of Reading station, M4 congestion measures and Western rail access to Heathrow and Crossrail to name but a few. These improvements will reinforce the attractiveness of regional markets to occupiers and enhance competitiveness. However it should be noted that there is a lengthy gestation period for delivery of some of these projects and political obstacles to overcome.

War for talent

The ongoing trend of urbanisation (see our Urban Tendency report), increasing ability of regional cities to attract growing and younger populations will mean larger talent pools plus greater demand for goods and services which are very attractive to occupiers.

Sector hubs

Specific cities are known for certain sector specialisms and occupiers can benefit from positive agglomeration effects, i.e. access to specialist expertise and highly qualified staff. Oxford and Cambridge for example form part of an area known as the ‘golden triangle’ which has a high density of pharmaceutical and medical companies. Other examples are: ‘Media City’ with the creative, digital and new media sector seeing rapid growth in Salford (following relocation of the BBC in 2011), an aerospace hub in Bristol and Bath, an oil and gas hub in Aberdeen, gaming hub in Birmingham etc. Also important to note is that new hubs can develop quickly. Sometimes all it takes is one large occupier and others will follow. One to watch out for from this perspective: HS2 have recently taken a large quantity of space in Birmingham. This may encourage other engineering firms to locate nearby.

So, the drivers for regional city take-off are there. Does occupier take-up data fit the positive prognosis? I think it does. 2014 was a pretty strong year in the regions. Take up in Glasgow and Edinburgh reached a 10 year high and Bristol, Birmingham and Manchester all had strong years too (final figures being counted!). The Western Corridor did not have such a strong year although expectations are far higher in 2015 as deals carry over from last year and named active demand stands at over 5 million sq ft.

So in summary I would say the attributes are broadly positive. However it should also be acknowledged there is some risk to the positive picture I paint here – the biggest being the upcoming general election which could serve to dampen down the speed of investment decisions until a certain outcome is reached. I can’t wait to see how things progress this year. I think a more even distribution of commerce across locations (other than London) would be very good news in social, cultural and economic terms for the UK . After years in the doldrums during the global financial crisis it certainly feels great to be discussing future growth for occupiers as well as regional locations.

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