The £50m loan is the largest to date for Puma Property Finance. It also marks the eighth deal between Puma and McGoff Group.

Downtown Victoria North will bring 77 one-bedroom flats, 149 two-bedroom apartments, and 11 three-bedroom homes to Manchester. The apartments are spread against two blocks, the tallest of which is 13 storeys and the shorter being 11 storeys.

Downtown Victoria North was designed by Jon Matthews Architects and also includes a resident gym, lounge, and underground parking.

McGoff is eyeing an early 2026 completion date for the BTR project.

Puma director Tony Throp described Downtown Victoria North as being in “a prime location in Manchester”.

He also described why the BTR market is one that Puma wants to continue to invest in.

“The imbalance between supply and  demand in the UK rental market is well known, with many people having to push back home  ownership aspirations because of higher interest rates and unaffordable property prices, and private  landlords also leaving the market,” Throp said.

“Meanwhile renters are desiring higher standards of living than previously. The BTR sector therefore has a critical role to play in bridging this gap.”

Chris McGoff, director at the McGoff Group, said his company was glad to work again with Puma.

“The Puma team demonstrated great flexibility in a tight timeline to deliver this deal, and we look forward  to continuing to work with them throughout this development and in the future,” McGoff said.

The post Puma pumps £50m into McGoff’s Manchester BTR appeared first on Place North West.

DeTrafford sold 331 apartments within the £75m No1 Castlefield scheme off-plan but has failed to deliver a single one, leaving investors and lenders wondering where their money has gone. 

Investor woes 

A report into the company’s affairs by administrator Interpath Advisory, appointed to DeTrafford No1 Castlefield last month, paints a grim picture for investors, some of whom are owed more than £100,000.

In total, individuals who have paid deposits are £13.4m out of pocket, Interpath’s report states. 

A group of investors, whose contributions to the project total £9m across 206 flats, are expected to receive some repayment, subject to asset realisations. How much remains unclear, according to Interpath. 

These investors hold UN1s with Land Registry over the Ellesmere Street site, making them secured creditors.  

The other individuals who have paid £4m in deposits for the other 125 apartments sold off-plan do not hold UN1s and are ‘highly unlikely’ to get anything, the report states. 

While some investors asked for the deposits back due to a lack of progress, the sale of apartments within the scheme continued despite DeTrafford having “no working capital”, according to Interpath. 

Interest rates bite 

Endless Bridge, the company that lent DeTrafford £9.8m for No1 Castlefield in November 2018, is also hoping for a return on its investment. 

The Endless Bridge facility was due to be repaid on or before 21 November 2019.  

However, DeTrafford was unable to keep up with repayments and the balance of the loan at the time of Interpath’s appointment is £37.3m, almost four times the original amount, according to the report. 

Interpath expects some distribution to be made to Endless Bridge but anticipates a “significant shortfall”. 

DeTrafford had attempted to secure additional funding to pay back Endless Bridge and kick start the project but failed to do so, the report states. 

Manchester City Council’s planning committee granted planning permission for No1 Castlefield in November 2017, but almost six years on, the site remains undeveloped. 

DeTrafford dominoes 

DeTrafford No1 Castlefield’s collapse is the seventh company in director Gary Jackson’s empire to fall.  

Most recently, a pair of SPVs that control one of the two proposed blocks that make up the DeTrafford’s 366-home Gallery Gardens scheme in Manchester was placed into administration.    

Just a few days before the collapse of Gallery Gardens, the vehicle behind the developer’s completed 166-apartment Sky Gardens was put into administration.  

Last August, Place North West revealed that the company behind Wavelength, DeTrafford’s proposed 421-home development at Salford Quays, had gone into administration.   

Creditors on this scheme, which has never been built, are owed almost £11m, according to a report by administrator Kroll.   

In September, BDO was appointed by lender Maslow as administrator to DeTrafford St Georges Gardens, the vehicle behind the completed 138-apartment development of the same name.    

The following month, Maslow once again instructed BDO, this time over DeTrafford City Gardens, the company behind a 109-flat development.   

In December, a report by BDO on City Gardens and St George’s Gardens revealed the companies owed a combined £26m to creditors.   

The collapse of the Sky Gardens vehicle means the companies behind three of the four completed blocks within the Castlefield masterplan are in administration. Roof Gardens is not in administration. 

DeTrafford was contacted for comment.

The post DeTrafford owes £50m to No1 Castlefield investors appeared first on Place North West.

THIS WEEK

• Supply-side inflation: like so much else, student housing development is getting squeezed
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

STUDENT HOUSING TAKES A SUMMER BREAK

Pipeline problems

A Singapore investor backs a York student housing scheme. Yet something funny is going on in the pipeline for purpose-built student accommodation.

It’s only days since Singapore private equity business Q Investment Partners backed S Harrison’s 300-bedroom PBSA scheme in York, as Place Yorkshire reported. It will be ready for the 2025 student intake and operated by the Prestige Student Living brand Homes for Students. The deal came as a 212-bed student tower at Wade Lane in Leeds topped out while developer Integritas launched a new phase of its Bijou student housing scheme in Bradford.

You love PBSA

This reads like the familiar story of the last five or six years: investors loving PBSA because it provides assured long-term income based on solid demographic shifts. If you’re Big Money and you’ve had a belly full of risk, PBSA feels like the sweet spot.

Reasons to be cheerful

So is everything going well? Up to a point, yes. But look a little further into the future and the picture is mixed. Data shared exclusively with Subplot by rental platform StuRents shows a sharp and sustained fall in the volume of planning applications for new student housing development. Planning applications continue to decline, down 33% year-on-year in the first quarter of 2023. The numbers have been falling steadily since 2016 (from annualised 75,000 to about 35,000) although there are strong regional variations. Richard Ward, head of research at StuRents, says: “Due to construction industry constraints and interest rate hikes, delivery of PBSA has slowed in recent years.”

Young people

What makes this puzzling is that the demographics point in the opposite direction – to more, not less, forward-demand for PBSA. “A recent report from UCAS indicates that by 2030 there could be 30% more applicants compared with 2022, with growth driven largely by changes to UK demographics that will result in more 18-year-olds,” says Ward. At the same time as demand goes up, so the supply of alternatives to PBSA falls through the floor. Savills looked at the shared rental housing stock, in particular five-bed properties of the kind students go for, and says there are 31% fewer than the pre-2020 average (thanks to landlords pulling out of rental, mostly).

Less not more

All this ought to mean tonnes more planning applications – but it doesn’t seem to be working like that. Savills says there are just 144,000 beds in the UK pipeline and barely 35,000 of those are under construction. As a result, occupancy levels are at record highs, supporting rental growth of around 7%, according to Unite and Empiric, which is expected to drive continued strong investment returns over the coming years. Durham is increasingly hot, whilst Manchester is super-hot. The market is strong enough in Newcastle and Sheffield for Investec Real Estate to stump up £85m to refinance and refurbish Global Student Accommodation’s PBSA in both cities (and in three other locations).

Demographic bubble

So, time for explanations, which is where it gets tricky. There are two strong possibilities. Number one is those demographics. Says Ward: “Looking further ahead, the 18-year-old population is set to decline significantly post-2030 – something that investors should be looking at when making long-term decisions about PBSA.” Is that it, then? A bubble in the supply of 18-year-old students – here soon, gone soon after – is causing investors to play cautious?

Dollars matter

Or is this all about money, and where it’s coming from? A staggering £7.8bn was invested in PBSA in 2022, an increase of 89% on 2021. The overwhelming bulk of that money came from two places: US (47%) and Singapore (24%). The dollar-sterling exchange rate makes UK real estate cheap(ish), and the exchange rate is more favourable for dollar investors today than in 2022. A long-term view, plus good maths, explains QIP’s investment in York. But, be honest, if you’re a bit twitchy, and the world is your oyster, would you invest in the UK just now? Well, exactly. You’d wait.

Wait a little

Savills said in early May 2023 that it expected overseas money to return to PBSA later this year as rising rents offset increased operational and construction costs. But the mood on inflation, interest rates, and recessionary risk has soured sharply in the last seven weeks. Construction costs don’t appear to be crumbling, although input price growth is slowing according to the latest PMI data. While there’s plenty of capital waiting to invest in the next three years, you’d have to assume most of it will arrive closer to 2026/2027 than 2023/2024.

In the meantime, rents will keep going up. And that – drum roll – is what deep-set, endemic, supply-side inflation means.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A good time to invest in hotels, a bad time to accept cooperation from Whitehall. Doors closing, going up.

Hotel excitement

A rash of hotel proposals suggests the leisure sector is as busy, and as supply-constrained, as yesterday’s inflation figures seem to suggest. The latest crop includes progress on Ask:Patrizia’s 344-bedroom, dual-branded 181,000 sq ft Novotel and Ibis hotel at Baltic Quarter on Gateshead Quayside, and proposals for an aparthotel at Leeds Kirkgate Market and the refurb of George Hotel in Huddersfield.

Revenue per room (RevPAR) is rising in most places, with Hull scooping a place in the Top 5 according to Colliers’ regular review of the sector, which you can download here. Hull was also given star billing as the UK’s most favoured growth centre, easily trumping distant rival Plymouth. York remains the North’s star performer and one of the UK’s most favourable places to build if you match land and development costs against potential revenue.

Whitehall listening

Whitehall’s latest snub to the North’s transport ambitions has a distinct whiff of Yes Minister, the 1980s political TV comedy. The story so far: pending a massive government rethink, Northern Powerhouse Rail is probably dead but it continues to live a ghostly afterlife in the minutes and agendas of Transport for the North, the supra-regional quango chaired by former Tory transport secretary Patrick McLoughlin. TfN is justifiably angry that it has been side-lined and wrote a stiff letter to the Department for Transport explaining how valuable regional input could be. Talks with Whitehall followed and a careful reading of a report to today’s TfN board is sadly hilarious.

TfN wants to “co-sponsor” the NPR project in a more meaningful way. DfT responded with an assurance that it valued TfN’s advice and that the quango was welcome to write with its views whenever it liked, eg it offered precisely nothing. TfN officials then counter-offered: how about we have regular face-to-face chats and you let us share what comes up with local councils, in confidence? A modest ask, but departmental officials sucked their teeth and said (paragraph 3.8) that they will have to ask ministers what they think – which implies they didn’t bother up to this point, and that the whole teensy-weensy-itsy-bitsy concession may be withdrawn anyway (subtext: so don’t push your luck, you regional upstarts). This little episode – warm blah blah, but a fuss over the meanest cooperation – tells you Whitehall is definitely not letting go.

The post The Subplot | Student housing, Whitehall trouble, happy hotels appeared first on Place North West.

Urban Splash Residential Fund’s new £20m facility, which has a further £20m accordion, will allow the company to “accelerate its acquisition strategy to build an institutional-scale portfolio of design-led rental homes across the UK”, according to a statement. 

So far, the fund has acquired site across the North West in Prestwich, Altrincham, and New Islington in Manchester. 

In the past year, the fund has expanded its portfolio by more than 30%, acquiring 80 homes in Manchester and beyond from developers and institutional landlords including Places for People, Oval Real Estate, and Javelin Block. 

Since being established in 2017, the fund has raised £150m of equity from institutional and high-net-worth investors and owns and manages 307 homes. 

The portfolio features a range of homes from studio apartments to four-bedroom townhouses and has an average rent of around £1,100 per month. 

Barclays’ resi facility comes less than a year after Urban Splash secured a £43m, eight-year facility with Aviva Investors to spend on commercial properties in Manchester and Liverpool. 

Earlier this year US signed a £10m deal with Grosvenor to buy land and assets across the country.   

Fund manager Akeel Malik said: “After five years of solid growth, we are delighted to have nurtured another positive relationship, securing this facility with Barclays. 

“The support of such a prominent financial institution helps create a solid foundation as we see attractive off-market opportunities to bolster our nationwide portfolio.” 

Jason Constable, head of real estate at Barclays Corporate Banking, said the deal “underlines [the bank’s] ongoing commitment to the UK housing sector.” 

GunnerCooke, Gorvins, and Deloitte advised Urban Splash, while Barclays was represented by Osborne Clarke and JLL. 

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­THIS WEEK

• Succession: Northern film and TV studios hope to pick up where London and the South East leave off
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

WHAT LOGAN ROY WOULD HAVE WANTED

The Great Northern Studio Stampede

So many studio development plans, so few actually delivering. Why is the stampede running into so much quicksand?

It costs about £2m an hour to make a high-quality TV drama, and a lot more to make stunners like HBO’s Succession – whose jaw-dropping finale (no spoilers, promise) aired last week. So it is no surprise Northern real estate wants a piece of the action in a UK film production business that recently ballooned to about £69bn a year.

There’s no space

The opportunity, and the problem, is a massive shortage of good quality studio floorspace, as figures released Tuesday by CBRE seem to show. The brokerage talked to film and TV professionals and heard 53% of respondents say they expect to use more studio space next year. On-set office space, broadcast studio space, and conversion stage space are expected to see the greatest increase, with eight out of 10 respondents saying they expect to use more or the same amount of this type of space over the coming year. Many reckon the studios they get offered are poor quality.

Northern stars

The North is no also-ran in this business. Asked to name their top three production locations, the industry leaders in this poll named the North East and Yorkshire (both 20%) – only a shade less cited than Southern locations (21%). Strangely, East Anglia and the East Midlands came top.

Stampede!

No wonder every landlord with vaguely suitable space is chasing studio opportunities. Some hugely ambitious plans abound – not just in Liverpool (the former Littlewoods Pools HQ in Edge Lane) but in Yorkshire (330,000 sq ft of studio space as part of very mixed-use plans at Scotch Corner) and a truly Titanic proposal for 1.6m sq ft in and around a former submarine dock in Sunderland, developed in association with Kajima Partnership. The first phase of the Sunderland plan slid unobtrusively through planning in November 2022, and the talk is of completion by 2027.

Big inputs, small outputs

We can put all this excitement into numbers thanks to CBRE, which says there are currently UK development proposals for 11.2m sq ft, all at various stages of preparation, but just one new scheme is expected to become available in 2023. That’s the puzzle: why is so little popping out at the far end of the pipeline?

Not good

Answer option one is that a lot of the proposals were quick-fix or rubbish. CBRE’s studio occupier lead Simon Calvert acts for the big production companies, and is far too polite to say it out loud. Even so, the subtext is clear. “There is a real need for developers to ensure that new studios that are in the pipeline reach the quality standards demanded by occupiers if the UK is to maintain its position on the global production stage. Developments which are not well located or do not provide suitable stages, production spaces, and amenities risk being under-occupied,” he says.

Tricky clients

Option two is that this is complicated and it’s easy to go wrong. Thus, demand for full sound stages is good, but weaker than demand for other things like workshops and offices. Or that post-production space is a real constraint, or the amenities aren’t good enough. CBRE head of research Jennet Siebrits tells Subplot: “The nuances are interesting. Productions want to be in a cluster so they know the specialist people they need will be available, which is why space at Elstree or Pinewood is super-oversubscribed and there’s a waiting list.”

Gold rush

Option three is that this is a gold rush and mostly froth, as bunny-in-the-headlamps developers search for real estate options that don’t look automatically hobbled by recessionary risk. Subplot is old enough to remember a similar time in the late 1980s when specialty retail was the Hot New Thing that might work, when all around was ashes, and every site of every description everywhere suddenly grew a boutique mall. Naturally, they got nowhere (see Manchester’s Great Northern Warehouse) and where they got built, they failed (see Tobacco Wharf). Siebrits doesn’t like this explanation. “Investors want to make money on credible schemes and developers want to be successful, and demand is huge, and the UK really does punch above its weight in TV and film production,” she says.

Or this

The fourth and final option is the happiest. “I hope things are moving slowly because developers are being cautious and diligent about what they build, and that slow movement is a good sign,” says Siebrits.

Someday soon we’ll find out.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Plans to free billions of pounds from the pensions industry get stuck between floors, whilst the logistics sector shows no sign of cooling – yet. Doors closing!

Big bang 2.0

Regular readers will be following the fate of Solvency II-linked reforms from which Boris Johnson’s government intended to release £14bn in pension and insurance funds to pay for a huge levelling-up infrastructure boost and capital for growing businesses. Politicians of all parties love it because it’s monster money that doesn’t come from taxes, but everyone else suspects it’s too good to be true. By spring this year (Subplot 16 March), the idea wasn’t faring well: it didn’t get a mention in the Budget, with announcements pushed back to the autumn, while the Bank of England seems dead against it, warning the chances of pension and insurance companies going bust is too high to tap them even a bit.

Given that the preferred route seems blocked, or tricky, or comes with a high price, ministers are now reported (by the FT) to be toying with a plan to coax some of the UK’s 5,000 private sector defined benefit pension schemes into a new umbrella which could do the investing instead (or as well, this is all very cloudy). These pots contain about £1.4tn. Even a small proportion of that could be worth having if it allowed the schemes to do things that, as company schemes with impacts on company balance sheets, they otherwise could not. The downside is it requires legislation, membership won’t be compulsory, defined benefit pensioners are in uproar, and there’s no way you could tell the new super-fund to invest in whatever the government wanted because it would have the same duty to beneficiaries that the old company schemes have.

It all sounds a mighty faff, particularly since lack of money isn’t really the problem: the government has lots of dosh that it could spend in the North, if it wanted to, while researchers say viable high-growth businesses have no trouble accessing capital, just lots of doubts it’s worth the bother.

Shed shifters

Peel-Glencar press on with 240,000 sq ft at Bootle, while funders back 210,000 sq ft at Ellesmere Port – the last few days brought another good crop of announcements about the still fairly hot shed market. But there’s also a small straw in the wind. BNP Paribas Real Estate has calculated that over-optimistic tenants have returned 4.1m sq ft of new warehouses to the market, via subleases. So far this has been overwhelmingly in the East Midlands, where they stand the best chance of subletting to a wide pool of prospective tenants.

BNP Paribas Real Estate reckons that there’s around 5m sq ft available in the North West, of which just 235,000 sq ft is offered on sublease or assigned terms. In Yorkshire, there’s 3m sq ft, of which 580,000 sq ft is available on sublease. So nothing to worry about yet. But worth watching.

The post The Subplot | Succession, Big Bang 2.0, shed frenzy appeared first on Place North West.

THIS WEEK

• They’re optimists: unique data provides a glimpse inside the minds of North West and Yorkshire investors. It’s mostly sunshine in there
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

WE CAN SEE INSIDE YOUR HEAD

Northern landlords want to get spending

A unique regional drilldown into the thinking of North West and Yorkshire landlords shows a lot of optimism and opportunistic spending as late 2023 promises to deliver distress-priced bargains.

Core inflation is still rising, up from 6.2% to 6.8%, according to yesterday’s ONS figures. That means interest rates will probably have to rise above 5%. None of this is good. So will the North’s landlords sit on their hands, or is this a moment to seize the day, and buy? Unique data from banking company Handelsbanken, shared exclusively with Subplot, shows that despite economic uncertainty the North’s landlords are in a confident mood.

They really want to buy

Six out of 10 North West investors are set to acquire more properties in the year ahead, and five out of 10 in the North West think valuations will rebound fast and that their portfolio is going to grow in value by 20%. On both sides of the Pennines, diversification is the key – and buying in the North West is a top aim for both locals, and the cousins from Yorkshire. But buying in Yorkshire is not too high on the list.

Who are we talking about

The survey questioned 17 mid-sized investors based in the North West, and another 17 in Yorkshire & The Humber. It’s a small sample, but a significant one: eight had portfolios of between £20m and £50m, two of more than £50m, and 11 were in the £5m to £10m category. They were divided roughly 50:50 residential and commercial, and within commercial about one third each are into offices, retail, and sheds. Between them, this select sample represent the backbone of the regional markets in question.

Valuations to rebound fast

Every single North West and Yorkshire respondent expected the value of their portfolio to increase over the next 12 months. Nationally 39% predicted it will grow by 20% or more, and in the super-confident North West, some 47% thought they were in for a mighty portfolio boost. In Yorkshire, just 24% thought the same – and if you like cliches about Yorkshire pessimism, then fill your boots. Yorkshire’s majority thought portfolios would, inflation adjusted, decline in value, growing by just 5%. This was a view shared by a few in the North West, though the mega-optimists remained dominant.

Come out swinging

Commercial landlords and investors were extremely keen to buy more. In the North West 59% thought they would expand their commercial portfolio “significantly” in the next 12 months, another 24% thought “slightly.” In Yorkshire, ever looking for the sunny side, they planned to do a lot more buying despite having a generally rather modest view of valuations: the numbers an astonishing 76% “significantly” expanding and 18% “slightly”. For the record, the number of Yorkshire investors who thought their residential portfolio would grow significantly was a cautious 18%, and in the North West a more upbeat 35%.

They love student housing

Diversification – regionally and by sector – was the main reason. Student housing was amazingly popular on both sides of the hills – about 75% planned to increase their exposure. Surprisingly, about half wanted to increase their exposure to offices and retail – so either bargain hunters, or they know something the rest of us don’t. Leisure, healthcare. and the former star of real estate, sheds, were all a bit less popular but had their fans.

Bargain hunting

According to James Sproule, UK chief economist at Handelsbanken, investors are getting ready for a bargain-hunting spending spree in autumn, as distress in the economy (at last) forces property sales. “Residential prices will fall 7%-8% in nominal terms, commercial property prices slightly more, and we’re maybe halfway through that decline right now,” he tells Subplot. “Many of our landlords can see good bargains beginning to appear later this year, and they are organising themselves to step in smartly when they see opportunities from September onwards.”

However, don’t forget this

Two footnotes. First, tenant distress is a real problem, and massively more so in Yorkshire than the North West if the volume of overdue or late payments is the measure. Just 18% of North West landlords confessed to late rental payments, compared to 64% in Yorkshire. Second, investing in greener, cleaner buildings: local landlords are overwhelmingly not planning to spend a lot, mostly far less than £200,000 this year across their portfolios. One Yorkshire developer had no idea it was no longer legal to let buildings with an EPC rating below E.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A long-awaited Liverpool scheme wins significant funding; whilst clarity could be ready to descend on the increasingly byzantine Teesworks scheme. Going up!

Mersey money

Merseyside Pension Fund’s Catalyst Fund has agreed to loan £60m to Legacie Developments to redevelop Heaps Rice Mill, Liverpool, into 620 apartments, as well as an underground spa and museum. The development is touted with a capital value of £140m, and nobody has a bad word to say about the site.

The deal is good news for a troubled site that has stood empty for 18 years, and survived several ill-starred attempts at redevelopment. But the better news is that the fairly picky Merseyside Pension Fund is ramping up its local game. It has long aspired to a role in the backyard similar to that of Greater Manchester Pension Fund – heartening to see this happening.

Teesworks clarity

After much back-and-forth, the government has reluctantly agreed to a formal audit inquiry of the Teesworks development in Redcar. In a letter to Tees Valley Mayor Ben Houchen, secretary of state Michael Gove wrote that his department had not seen any evidence of wrongdoing, but that the inquiry was to address the mounting allegations of corruption. For the investigation, Gove has opted to ditch the National Audit Office in favour of an independent panel of his choosing.

The issue resolves around 4,500 acres of former steel works and neighbouring land, at first in the hands of the South Tees Development Corporation. The site didn’t see much development action and, in an effort to ginger things up, was announced as a freeport in 2021. The questions are: how did so much of it end up under the control of local developer DCS Industrial, were the terms wise, and have state aid/subsidy rules been breached? There are also many itchy side issues to complicate the picture, which is a nightmare to untangle: it’s all well explained here.

The post The Subplot | Investors’ brains, Teesworks, Liverpool appeared first on Place North West.

Having initially signed for 6,000 sq ft within office space managed by Sciontec, Cashplus Bank has now expanded, taking an entire 12,000 sq ft floor at the Spine. 

The company’s expansion is part of its drive to create 150 new jobs in the North West by 2028. 

“The business case for expanding our second headquarters in Liverpool, and doubling down on our commitment to the Northwest, was straightforward,” said Colin Webb, operations director at Cashplus. 

“This is a dynamic city and one of the UK’s biggest financial centres with a wide community of financial services and technology experts, not to mention an excellent future talent pool with two leading universities.” 

He added: “Over the next few years, we hope to further continue to grow our presence in Liverpool, bringing jobs and opportunities to the area.” 

Cashplus, which was founded in 2005, moved into the Spine in September, joining occupiers including the Royal College of Physicians, Clatterbridge and EcoOnline. 

Leanne Katsande, head of commercial at Sciontec, said: “Attracting Cashplus Bank to The Spine was a significant moment for Sciontec.

“Having a fast-growing, leading UK Fintech brand located within the Sciontec AI space has not only added to the dynamic ecosystem, but is a driver for even greater job creation, economic growth, and innovation in the coming years.” 

The post Cashplus doubles footprint at Liverpool’s Spine  appeared first on Place North West.

THIS WEEK

• Cosmic forces: dark star office buildings dragging the market down, and a valuation black hole. Together could they swallow the office market?
• Elevator pitch: your weekly rundown of what is going up, and what is heading the other way

DARK STARS AND BLACK HOLES

The office market’s negative energy problem

Should we be worried by death stars and black holes in the property market? Up to a point, yes.

Dark stars – otherwise known as stranded assets – have been a talking point in the office market for a year or two. Typically these are larger 1980s and ’90s buildings in fringe locations which would be all but impossible to repurpose profitably, and where residual value is low. There they sit, radiating negative energy in their immediate locality, and undermining wider office market confidence. Plus, of course, they represent a massive financial headache for the owners, particularly if they have debts secured against them. There’s a real problem in the suburban South of England – the FT points to Uxbridge.

Death star searching

Subplot had a diligent look for dark stars in the North and didn’t find many, although maybe readers wish to get in touch and reveal a few. This absence is the happy consequence of the chronic lack of new office building in the North in the 1980s and ’90s. There’s a couple of prospects in the not-spots of South Manchester, likewise suburban Leeds, but generally both cities’ larger suburban blocks are still more-or-less viable. Both cities’ potential dark stars – thanks to high land values and goodish office demand – are still worth repurposing, or a punt on repurposing. Oval Real Estate’s plans for Albert Bridge House, Manchester and Property Alliance Group’s rethink of Reedham House, King Street West, are cases in point.

Offices are okay

The North’s dark stars are mostly retail properties, and the office market – rather than being swallowed – is a potential saviour. Recall, for instance, plans to transform Manchester’s Debenhams and Kendals department stores into funky workspace. Meanwhile, developers such as Land Securities inch ever closer to a 2023 start on the first 320,000 sq ft office phase at Mayfield (although, interestingly, plans for MediaCity seem to have vanished into the long grass of 5-10 years away). But what Landsec’s decision reveals is that the big threat is not dark stars, but black holes.

Fear black holes

To find black holes look at the balance sheets, which are having the life sucked out of them by the invisible but irresistible force of revaluation. Thus Landsec’s results show asset sales down 10% on last year’s book value – that’s a lot in one year – and the entire portfolio was written down by £848m, roughly 7% which is truly awful but looks good compared to the write down on disposals. Landsec is AA/AA- rated, has cut its loan-to-value ratios and has a viable escape plan – so we probably don’t need to worry about them – but there’s no disguising that this is value destruction on a mighty scale.

Wow

There’s plenty of eye-popping value destruction going on locally, too. The 76,800 sq ft office building at Dalton Place, Manchester, would once have been a star asset, not least thanks to 15 years of outstanding lease to WeWork. Even though flex office space is still super hot, WeWork is not, and a block reputedly on the market for £44m last year is now said to have changed hands for £28m. Wow. This is even more wow-worthy when you look at the accounts for the tenancy special purpose vehicle, and realise £42.8m in rent is still owing over the life of the lease (£24m shorter-term). It suggests somebody doesn’t rate that income as very safe.

Wow squared

Or try this. Abrdn is asking £53m for the 175,000 sq ft One Tony Wilson Place block at First Street, also Manchester. That’s a breathtaking £20m less than was asked in May 2022, and translates into a yield that hasn’t just moved out, but ricoched into outer space, travelling from 5.75% to a barely believable 8%. The current guide price is around £13m less than Abrdn paid for the building when it was acquired from Patrizia in 2016, and remember the building is scarcely an old crock. It’s BREEAM Excellent and exactly the kind of block everyone is supposed to salivate over. All of which has to be double wow.

Extinction event

If you aren’t over your ears in debt – and in these examples the owners are okay – this kind of black hole event is regrettable, and painful, but absorbable for most landlords, providing it doesn’t turn into a rout. Maybe it’s just a paper write-down of the crazy valuations of the recent past, in which case it’s a big shrug and move on? But for landlords with high loan-to-value ratios, or loan covenants to worry about, or curious liabilities, or unbalanced portfolios, this is a potential extinction event.

The real danger

Death star chatter in the North seems overplayed. Much of it was imported into the UK by US private equity suits whose attitude is heavily influenced by the US office market, which is in a dreadful mess, crowded with death stars. The angst is so out of control that serious people wonder if New York’s days as a major office centre are over, and it’ll just be a Fun City from now on. Nobody in their right mind sees risks on this scale in the UK but black holes are popping up all over the place and some landlords and their shareholders are going to be pulled in, never to be seen again.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Car parks are very now, very contemporary, in Blackpool, where time has stood still. And if you think the supply of good private rental properties is about to go up, Subplot has a bridge to sell you. Doors closing, going down!

 Car parks

Local councils can do amazing things, and if they have imagination and can seize the day, now is a good time to sort out some long-term issues. Wirral Council, for instance, wasted no time buying the 585,000 sq ft of retail space in The Pyramids and The Grange from Mars Pension Fund. In Blackpool, though, it’s all about car parking. The council grabbed its chance to buy another lot on King Street, with car parking in mind. It already has plans for a 700-space car park further up the road.

As the Place North commenting community was quick to point out, a bus station might have been more useful, and it’s not clear existing car parking provision is well used. Large empty lots do not an appealing night-time environment make and anyway, THIS IS 2023. The sense of a town trapped in the past grows ever harder to resist.

 Rental reform

The government published its Renters Reform Bill yesterday. Having flunked abolition of the leasehold system and its replacement with commonhold, there isn’t much left to do. The sad centrepiece is the right to have a pet in your flat. Yet what was meant to help beleaguered tenants will probably do the opposite, if early reaction is born out. How come? It’s all about minimum rental lengths, typically the six-month short-term assured tenancy.

So recall the problem: the government (via Help To Buy, nimby-ish restrictions on supply, and loose money) stimulated the For Sale market, hugely pushing up prices, while simultaneously doing various tax-based things that deterred buy-to-let. No surprise that many private landlords decided to take their capital growth winnings, sell up and get out – polling by research consultancy BVA-BDRC found that in Q1 2023, 33% of private landlords in England and Wales said they planned to cut the number of properties they rent out, up from 20% this time last year. Result, huge rental inflation because the supply of rental properties plunges. Meanwhile, many of the landlords who remained twigged it was possible to make more money in a less regulated environment by letting via AirBnB and equivalent holiday let platforms.

So it’s odd that the Renters Reform Bill seems designed to stimulate the holiday let alternative to socially-useful long-term rental. “At present, assured shorthold tenancies can be no shorter than six months, so as a landlord, having gone through all the preparation for a new tenant and expense of advertising the property, you know you will be guaranteed at least six months of rent,” Ian Fletcher, director of policy at British Property Federation tells Subplot.

“Our understanding is the Government’s proposals will have no minimum period, so on day one of the tenancy, the tenant could serve notice, which is normally two months, and be gone. There are already lots of incentives to do short-lets – tax and regulatory. One of the few incentives to let out property for the longer-term is that guarantee of six months, but that will be gone,” Fletcher adds.

This omission – if it sticks – is either careless, or deliberately designed to screw things up, or just a sign of a seriously incompetent government.

Get in touch with David Thame: david.thame@placenorth.co.uk

The post The Subplot | Dark stars and black holes, renters reform, Blackpool appeared first on Place North West.

Place North West’s Industrial + Logistics conference was sponsored by Aew Architects, Lexington, JMW, Panattoni, Waterman, Turley, and Cole Waterhouse

Health check

Andrew Pexton, senior director of JLL, said high inflation and interest rates have impacted everyone. The supply chain is starting to move again though, with operators now realising that the ‘just-in-time’ supply chain doesn’t work when supply chains come under pressure.

“Everything went in a poor way in late 2022. But this has started to bounce back.

“While there’s a clear imbalance between supply and demand, and only a 12-month supply at the moment, speculative development will return,” he added.

Despite some discouraging statistics, he went on, such as issues in the size of units available and limited stock on the M6 corridor, there are signs that reflect the strength of the economy.

See gallery below

“Companies that have a need to move have seen past this, which is a positive takeaway for today,” he said.

Another positive takeaway is the resilience of the mid-box and multi-let sector.

“Specifications of buildings are more expensive, planning is probably slightly more difficult – but the market is really strong and it’s a major part of the sector across the region.”

Jack Brister said infrastructure needs to improve. Credit: PNW

State of the market

The first panel discussion began with the participants’ thoughts on the importance of sites’ accessibility.

There’s a lack of supply along the M6 corridor, said Julian Stott, development director of Muse, and accessibility is key for attracting and retaining staff in a competitive market.

Jack Brister, managing director of development of Wain Estates, agreed, and called for investment in infrastructure to allow well-located sites to come forward.

The event was among the busiest Place has held in the past two years. Credit: PNW

Current challenges

Over the next 12 months, the challenge will be getting the market moving again, said JLL’s Andrew Pexton.

There was consensus on the planning process being an issue for the infrastructure industry.

“Viability is a big issue for industry and logistics,” Brister said. “But it’s taking longer to make planning decisions, which isn’t helping supply and demand.”

Meeting power requirements is another huge challenge at the moment for developers, said Stott.

“Trying to quantify the power requirements for a site means taking into consideration the tenant mix and how the buildings might be used – whether occupiers will be looking at potentially electrifying a vehicle fleet.

“You want to overestimate so you have enough power to service the site, but when you make the application to the local provider, it’s eminently clear there’s not enough power in the National Grid,” he said.

“This means developers are trying to reserve power to safeguard a site – residential as well, where you’ve got the need to have electric charging points at nearly every home. We need to think carefully about power allocation, the age of our infrastructure and how to safeguard future power for sustainable development, which is all about electrification,” he said.

Regulations around the Green Belt are another challenge at the moment, because they’re outdated, and are stymying development, said Nick Jones, director, Richborough Estates.

“The idea [of the Green Belt] was to prevent urban sprawl…some of the larger capable logistic sites we’re looking at weren’t around at that time, in the 1930s, ‘40s or ‘50s. Green Belt status has no relevance here.”

As a result, he said, “Applications are built on the premise we might be going to appeal because of ill-educated planning committees.”

Stott agreed. “You know you’re in for the long-haul at the outset.”

From left: Julian Stott, Muse; Tracy Clavell-Bate, Barnfield Construction; Jack Brister, Wain Estates. Credit: PNW

Occupier demand

The panel agreed that occupiers are increasingly concerned about how a site will enhance the wellbeing of its workforce.

“The expectation is a good quality environment where staff have amenities around them,” Stott said. “It’s about attracting staff, but also retaining them in a competitive environment.”

Brister said this was also the case for the communities living local to new developments.

“Developers now need to look at local communities and make sure they add value to that. We want to positively impact in the areas we develop,” he said.

“As a sector, we’ve been good at driving sustainability. The next focus is the social impact – making sure, as developers, we create spaces so they can create workspaces where health and wellbeing, and local communities, are a priority.”

JLL’s Pexton painted a mixed picture of the current logistics landscape. Credit: PNW

International image

The country needs to work on its brand, the panel agreed, to make it more attractive to investors.

“The government needs to show commitment to the economy and invest in infrastructure and power and show confidence in Britain, which will start to attract investment,” Brister said.

But if we’re sending out a positive message, we need to be able to walk the walk, Pexton warned.

“We’ve got to be able to back it up with sites we can get occupiers to come to. We’ve got to be able to have these sites – if not fully available – at least where companies can come to and locate there and know what the parameters for them to build are.”

But the UK is already at an advantage in some ways, he added.

“A lot of the UK market already factors in the interest rate rise. What happened pre-Christmas was a major repricing model that the rest of Europe is catching up on, so I think we’ve gone through the pain.”

We must remain positive, Tracy Clavell-Bate, head of development & acquisition, Barnfield Construction, urged. “This is a period of revaluation, and things will recover.”

Occupiers are coming back strongly, according to Tritax Symmetry’s Kate Howe. Credit: PNW

Industrial futures

Kate Howe, development director of Tritax Symmetry, delved into some of the findings from research carried out by the developer into the occupier market. While confidence was low at the end of 2022, this year 91% of occupiers said they were are looking to maintain or increase warehouse space in next two years.

“The long term view of the industrial and warehouse sector is going to be continued demand for space in the UK,” she said.

“Unprecedented rental increase is telling us that there is stability in the market, which is really important. Our perspective is that yields will stabilise.”

Occupiers are taking ESG credentials more seriously than ever before, Howe said.

“We need to meet future needs of occupiers, how we safeguard the future of a building. Two highest elements on occupiers’ lists are green energy and onsite renewable energy generation and storage.”

In response, the explained that Tritax Symmetry has just built its first on-site energy centre at Symmetry Park Biggleswade in Bedfordshire.

“It lets occupiers know we’re doing everything to meet their needs,” she said.

Tritax’s ambition, she added, is to build energy centres on each of its sites.

Panellists laughed off with confidence the challenges facing the industry . Credit: PNW

Innovation

The panel opened with a discussion about the biggest changes coming to the industrial market over next 15 years.

“The sector has issues with transport infrastructure, energy security, a skills shortage across every sector and land shortage,” Diane Corfe, director and national ecology service lead of Waterman, summarised.

“Growth is imperative, but we have the finite resource of biodiversity, and we all know we’ve not met any of our global biodiversity commitments,” she said.

This includes looking at last-mile delivery solutions, said Anna Relph, director of Turley, because this part of the supply chain contributes the most of carbon emissions.

“A lot of developers and operators are starting to think about this,” she said.

Some companies are using electric vehicle fleets or drones, which leads to different types of site requirements, Relph added, while others may look for urban sites close to where goods are being delivered to.

For freeports, one of the key focuses of innovation is decarbonisation of freight movements, said Giles Jones, project manager of Liverpool City Region Freeport.

“We feel, as a freeport, if we’re facilitating trade, we’ve got a responsibility to do that in as sustainable a way as possible. We’re starting to see investment that supports this among fleets, so it feels like there’s momentum in this area.”

There are also many ways to make older buildings more biodiverse, said Tritax Symmetry’s Kate Howe. Developers can think about adding electric charging points for electrical cars, and thinking about waste disposal, for example.

“Bigger elements, such as retrofitting green roofs, might be trickier depending on the structure, but there’s no reason why that can’t be implemented,” she said. “It may be seen as more difficult to get through planning but biodiversity, if thought about from the outset for repair and refurb opportunities, is absolutely doable.”

From left: Kate Howe, Tritax Symmetry; Diane Corfe, Waterman; Anna Relph, Turley; Giles Jones, Liverpool City Region Freeport. Credit: PNW

Out with relics

The panel had a lot to speculate on when asked what will seem outdated 50 years from now.

Waterman’s Diane Corfe, this includes how the industry currently sources materials for construction, and how it designs buildings.

“We haven’t got an infinite amount of land, so we have to be careful where construction is placed. But in future generations, we’ll say ‘It’s not that hard, we know what we have to do, we have the skills, technology and AI. It’s whether we’re willing to use it’”.

For Turley’s Anna Relph, the biggest bygone will be planning logistic spaces around roads.

“This attitude will shift. Who knows how we’ll be transporting goods in 2073? In the shorter term, we’re seeing a shift with transporting goods in more environmentally friendly ways.”

She added: “In future, I’d like to think we’re making developments self-sufficient and sustainable in their own right.”

The panel ended on what they’d like to see in the future for the industrial sector. In order for it to survive, Howe said, it needs a strong workforce.

“We need a good quality, available workforce at reasonable prices to make the UK competitive for manufacturing.”

And in the future, she’d like to see that sites are generating their own energy. She’d also like to see sites being “pleasant for people to be in”.

Slides

Kate Howe, Tritax Symmetry

Andrew Pexton, JLL

What’s next?

Wednesday 24 May | Liverpool | Artificial Intelligence in the Built Environment: Friend or Foe? | The use of AI in the construction industry is rapidly increasing, and it has the potential to transform the way we design, build, and operate buildings. However, as with any disruptive technology, there are also concerns about its impact.

Register now 

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