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London Stalling

As far back as early 2014 , there were the beginnings of general investment undertones in commercial regional property markets that sentiment was moving away from London as yield compression started to ‘bite’ in the capital .The year produced unleveraged returns of close to 20% for UK Real Estate. This trend was due to a number of reasons, namely, weight of money, low inflation, low interest rates, and strong GDP and general feel good factor compared to other G7 Economies. Something not taken for granted in 2013, but very apparent in the upswing of the 2014 London Market.

The growth in  London 2014 was as a result started also by the emergence of the capital as a ‘magnet’ for international accountancy , law , media , financial and tech companies, resulting in office vacancies pushed down to pre-crisis levels as supply constraints and demand fuelled increased prices.

Normally this would lead to firms relocating to London fringe and regional markets for cheaper space, but with a highly trained skill force centrally, companies relocated to the centre to take on these skilled workers even if it meant increased occupancy levels. Developers would normally ‘feed’ on this demand, however they were curbed by banks inability to lend due to capital adequacy rates. And finally office stock was diminished by profitability of residential as opposed to office schemes underpinned by foreign money.

Central London retail rents also are climbing as young professionals are choosing to live in inner London rather than the previous generation move to the suburbs

In 2015 the ‘trickle’ to the regions in previous years has surged as occupiers and investors are seeking better quality of life, cheaper accommodation and investors no longer want to pay yields of 2/3% for commercial investments leaving the feeding frenzy to overseas demand for the capital’s property . 

The regional cities of Manchester, Bristol, Leeds and Edinburgh have enjoyed increased inward investment. Directly elected mayors, HS2 and the Northern Power House, all signal the Government’s desire to build up the regions northwards of London and the South East as the economy grows and risk appetite increases, so will the provincial cities.

Here in the West Midlands if HS2 does go ahead Birmingham would be the first stop and for some years, the only stop, on the northbound service from London cutting the current 85 minute train journey to 50 minutes.

The new-look Birmingham New Street station opened on Monday.  It is the busiest station, outside of London, in the country.  The £750m refurbishment has seen a new concourse, huge atrium and Grand Central shopping complex built. John Lewis, opens its doors this week, with 170,000 square feet of selling space it is one of the company’s biggest stores.  Andy Street, managing director of John Lewis, said it was a great time to come to the city and the new store would draw in shoppers from across the Midlands and beyond.

The headquarters of the personal and business arm of HSBC bank will relocate from London to Birmingham.  Antonio Simoes, of HSBC, described Birmingham as a "growing city" with the "expertise and infrastructure" to support the bank.

City planners have also  given their backing to the first three phases of construction work on the £500 million Paradise development in central Birmingham.  An office-led project, due to be completed in the mid-2020s,  will comprise a hotel and eight separate buildings geared towards serving Birmingham's growing reputation as a key destination for corporate occupiers. 

The demolition of the landmark NatWest Tower will change Birmingham’s skyline forever.

A new 26-storey block which will be built by 2018.   At 105.5 metres (346 feet) high and with the apex to stand 246 metres above sea level, the new tower will be the tallest office building under construction in the UK outside London. Work is due to start next year on  One and Two Chamberlain Square, which will together have more than 350,000 sq ft of office space.

Michael Reeves, Partner in Commercial Investments at Andrew Grant LLP, sees the commercial future growing outside the capital as sentiment is bridging the Watford Gap with investors looking increasingly towards the regions.

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