Edinburgh, Glasgow, Manchester, Birmingham, Leeds and Cardiff are heading to Cannes in force this year hoping to grab a piece of the overseas investment action that has buoyed London
At this year’s MIPIM international property convention in Cannes, France, the London pavilion will again be the centrepiece of the UK’s showing.
Next week more than 235 companies and 750 delegates will cram into the seaside marquee vying to catch the eye of overseas investors, who are currently snapping up nearly half of all new-build homes in central London. Throughout the economic downturn foreign money flowed relentlessly into the ‘safe-haven’ capital, protecting it from the worst of the recession.
But is there anything beyond the UK’s ever-buoyant capital on offer for the 20,000 architects, developers and city chiefs (an increase from last year) going to the 25th annual property jamboree?
Seasoned MIPIM attendee Nick Johnson, the former Urban Splash director and now head of Altrincham Market, doesn’t think so. He won’t be going.
‘London-centric euphoria may be a cause for celebration for those looking at the recovery of the UK economy through capital-tinted glasses – and no doubt MIPIM will fan those over-excited flames to the sound of self-congratulatory backslapping,’ says Johnson.
‘[But] the lack of intelligent debate about the restoration of regions, their realignment, their redefinition and their role in revitalising our identity, our culture and our wealth, is one pithy issue that we continue to ignore at our peril.’
However, Johnson’s pessimism is not shared by everyone and there are signs that investment, in particular cash from overseas, is trickling out to the regions. This nascent shift was first spotted last year (AJ 21.03.13) and in recent months reports have emerged of Chinese investors snapping up buildings in Birmingham. And Chinese state property and infrastructure fund Gingko Tree Investment is taking a 49 per cent, £142 million stake in One Angel Square in central Manchester.
David Partridge, joint chief executive of Argent, explains: ‘The sovereign wealth funds have come into the UK. Chinese, Middle Eastern and Canadian pension funds are chasing the grade-A London properties. This has made them very expensive and driven down yields.
‘Six to seven months ago people who knew the UK market better – UK pension funds and also the German pension funds, which are more sophisticated than many – began buying outside London.
‘Then, three to four months ago the sovereign wealth funds caught up; they realised they were going to have to move out of London.’
Partridge cited Argent’s own involvement with Chinese developer Beijing Construction Engineering Group (BCEG) on Airport City in Manchester as evidence of this.
While rents in London remain almost double those being commanded in the regions, Partridge said the key attraction for overseas investors was the gulf between building and development costs in the regions compared with London. Yet, despite cheaper build and land buying costs in the regions, yields remain on a par.
Partridge adds: ‘On the commercial side you are looking at yields from London office stock of 5 to 5.25 per cent. Manchester and Birmingham maybe 6 per cent or just below.’
He also predicts that Edinburgh, Glasgow, Manchester, Birmingham and Leeds will be the beneficiaries of the trickle-down effect – with other cities not even in the picture.
OBI Property director Will Lewis agrees. He says: ‘The past 12 months has seen a rise in interest in Manchester from international investors and large opportunity funds, not just with the large funding deals such as Airport City but in the purchase of office buildings in the city centre.
‘US private equity house Benson Elliot, investment manager Lothbury, WP Carey and Oaktree have all made debut investments in Manchester and there are other new investors actively seeking opportunities within the region.’
Renewed confidence in the regions has resulted in significantly bigger contingents from cities signing up for this year’s MIPIM. Liverpool has returned after a two-year absence and Cardiff is taking more people to the south of France than ever before.
Nigel Roberts, chairman of Cardiff Business Council, says: ‘Cardiff has a stronger programme this year, with 14 companies including leading architects Hassell, Holder Mathias and Purcell forming part of the delegation. We can compete with other UK regions such as Manchester, Birmingham and London and show that we are a leading European capital that is open for business to the international market.’
Frances Chaplin, partner at PRP’s Manchester office adds: ‘MIPIM is no longer just about London. The savvy investors, including those from overseas, are seeing the massive potential in the regions – a trend which began to emerge last year.
‘Manchester is sending a huge contingency to MIPIM in 2014. This speaks volumes.’