Rebalancing the regions: How cities can help drive investment

The Gherkin in 2006: more than a decade on, London still dominates the UK commercial property market. Image: Getty.

  

In this sponsored post, the head of housing delivery and strategy at Capita Real Estate & Infrastructure talks about rebalancing Britain’s economy.

Attracting capital investment is vital to local authorities. City and regional authorities strive to create places where people want to live and work, and they cannot do this alone without commercial property investment.

With devolution and city deals being finalised, councils are looking to attract investors aligned with their values to help stimulate economic growth, and create new jobs and homes.

And yet new research has again revealed that, outside of London, places with the potential for enormous growth are still struggling to generate the levels of investment they need to be able to build communities for the future.

Centre for Cities and Capita have revealed more than half of all investment in Britain’s commercial property market – worth more than £43bn – was spent in London. This was significantly more than the South East, the second most successful region, which secured just under £5bn of investment, equivalent to 11 per cent of the total share across Britain.

The North East and Wales gained less than £1bn of commercial property investment each last year, with Wales attracting just 1 per cent of the total share of investment across Britain, the smallest amount of any region.

So, what can local authorities do to ensure they are attracting the level of investment necessary to meet the needs of their communities, both now and into the future?

Local authorities want to develop their understanding of what motivates investors and developers, allowing councils to unlock value in their region to stimulate economic growth.

And our report has highlighted five key characteristics investors say they are looking for: a strong economy with growth potential; excellent transport links; a pro-investment leadership; a strong focus and record on delivery; and a distinctive reputation which draws on the history or culture of a city.

While these characteristics may already be clear to city authorities, what is often less clear-cut is how to go about developing these favoured traits to get the attention of potential investors.

The report sets out the following roadmap for authorities:

  • Deploy the right resources: seek expert investment advice;
  • Know your product and audience: understand strengths and weaknesses;
  • Build networks to sell your product: investment industry is built on relationships and who you know is important;
  • Close the deal: Make it easy for investors to consider your opportunities by providing detailed information about each one.

Many cities around the UK are already making great strides in securing significant outside investment. Two examples, Blackburn with Darwen Council and Southampton City Council, have both been working with Capita for a number of years to help create better places for their communities.

Blackburn worked hard to attract investors and its new place based partnership with Capita, launched just a year ago on the back of 15 years of successful partnership, is all about promoting growth and being developer-friendly.

Through innovative shared management arrangements, the authority has gone from being a housing market renewal area with more demolition than growth, from net growth of only 17 houses a couple of years ago to now 460 on site with planning permission for 1,200. Meanwhile the regeneration of the bus station and Cathedral Quarter has resulted in a much more attractive city centre for visitors and residents alike and has contributed to it being a winner in the Great British High Street awards in the ‘Town Centre’ category in 2016.


Southampton’s approach to attracting investment has shifted from a laissez-faire approach, to proactively seeking investors and strategically planning the exact developments required to achieve the city’s vision. This approach has secured £2bn of city centre investment. 

The city has focused on raising the profile of the city amongst investors and agents, while its Masterplan has provided investors with certainty over the city’s future evolution.

While our research has revealed there is still a significant disparity in levels of investment around the UK, it’s clear that investors are ready to commit to cities given the right set of circumstances. Local authorities and city leaders up and down the country are working hard to deliver innovative investment for the future.

You can read the report here.

Deborah McLaughlin is head of housing delivery and strategy, Capita Real Estate & Infrastructure.

 
 
 
 

A new wave of remote workers could bring lasting change to pricey rental markets

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus. (Valery Hache/AFP via Getty Images)

When the coronavirus spread around the world this spring, government-issued stay-at-home orders essentially forced a global social experiment on remote work.

Perhaps not surprisingly, people who are able to work from home generally like doing so. A recent survey from iOmetrics and Global Workplace Analytics on the work-from-home experience found that 68% of the 2,865 responses said they were “very successful working from home”, 76% want to continue working from home at least one day a week, and 16% don’t want to return to the office at all.

It’s not just employees who’ve gained this appreciation for remote work – several companies are acknowledging benefits from it as well. On 11 June, the workplace chat company Slack joined the growing number of companies that will allow employees to work from home even after the pandemic. “Most employees will have the option to work remotely on a permanent basis if they choose,” Slack said in a public statement, “and we will begin to increasingly hire employees who are permanently remote.”

This type of declaration has been echoing through workspaces since Twitter made its announcement on 12 May, particularly in the tech sector. Since then, companies including Coinbase, Square, Shopify, and Upwork have taken the same steps.


Remote work is much more accessible to white and higher-wage workers in tech, finance, and business services sectors, according to the Economic Policy Institute, and the concentration of these jobs in some major cities has contributed to ballooning housing costs in those markets. Much of the workforce that can work remotely is also more able to afford moving than those on lower incomes working in the hospitality or retail sectors. If they choose not to report back to HQ in San Francisco or New York City, for example, that could potentially have an effect on the white-hot rental and real estate markets in those and other cities.

Data from Zumper, an online apartment rental platform, suggests that some of the priciest rental markets in the US have already started to soften. In June, rent prices for San Francisco’s one- and two-bedroom apartments dropped more than 9% compared to one year before, according to the company’s monthly rent report. The figures were similar in nearby Silicon Valley hotspots of San Jose, Mountain View, Palo Alto.

Six of the 10 highest-rent cities in the US posted year-over-year declines, including New York City, Los Angeles, and Seattle. At the same time, rents increased in some cheaper cities that aren’t far from expensive ones: “In our top markets, while Boston and San Francisco rents were on the decline, Providence and Sacramento prices were both up around 5% last month,” Zumper reports.

In San Francisco, some property owners have begun offering a month or more of free rent to attract new tenants, KQED reports, and an April survey from the San Francisco Apartment Association showed 16% of rental housing providers had residents break a lease or unexpectedly give a 30-day notice to vacate.

It’s still too early to say how much of this movement can be attributed to remote work, layoffs or pay cuts, but some who see this time as an opportunity to move are taking it.

Jay Streets, who owns a two-unit house in San Francisco, says he recently had tenants give notice and move to Kentucky this spring.

“He worked for Google, she worked for another tech company,” Streets says. “When Covid happened, they were on vacation in Palm Springs and they didn’t come back.”

The couple kept the lease on their $4,500 two-bedroom apartment until Google announced its employees would be working from home for the rest of the year, at which point they officially moved out. “They couldn’t justify paying rent on an apartment they didn’t need,” Streets says.

When he re-listed the apartment in May for the same price, the requests poured in. “Overwhelmingly, everyone that came to look at it were all in the situation where they were now working from home,” he says. “They were all in one-bedrooms and they all wanted an extra bedroom because they were all working from home.”

In early June, Yessika Patapoff and her husband moved from San Francisco’s Lower Haight neighbourhood to Tiburon, a charming town north of the city. Patapoff is an attorney who’s been unemployed since before Covid-19 hit, and her husband is working from home. She says her husband’s employer has been flexible about working from home, but it is not currently a permanent situation. While they’re paying a similar price for housing, they now have more space, and no plans to move back.

“My husband and I were already growing tired of the city before Covid,” Patapoff says.

Similar stories emerged in the UK, where real estate markets almost completely stopped for 50 days during lockdown, causing a rush of demand when it reopened. “Enquiry activity has been extraordinary,” Damian Gray, head of Knight Frank’s Oxford office told World Property Journal. “I've never been contacted by so many people that want to live outside London."

Several estate agencies in London have reported a rush for properties since the market opened back up, particularly for more spacious properties with outdoor space. However, Mansion Global noted this is likely due to pent up demand from 50 days of almost complete real estate shutdown, so it’s hard to tell whether that trend will continue.

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus, but many industry experts say there will indeed be change.

In May, The New York Times reported that three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — have hinted that many of their employees likely won’t be returning to the office at the level they were pre-Covid.

Until workers are able to safely return to offices, it’s impossible to tell exactly how much office space will stay vacant post-pandemic. On one hand, businesses could require more space to account for physical distancing; on the other hand, they could embrace remote working permanently, or find some middle ground that brings fewer people into the office on a daily basis.

“It’s tough to say anything to the office market because most people are not back working in their office yet,” says Robert Knakal, chairman of JLL Capital Markets. “There will be changes in the office market and there will likely be changes in the residential market as well in terms of how buildings are maintained, constructed, [and] designed.”

Those who do return to the office may find a reversal of recent design trends that favoured open, airy layouts with desks clustered tightly together. “The space per employee likely to go up would counterbalance the folks who are no longer coming into the office,” Knakal says.

There has been some discussion of using newly vacant office space for residential needs, and while that’s appealing to housing advocates in cities that sorely need more housing, Bill Rudin, CEO of Rudin Management Company, recently told Spectrum News that the conversion process may be too difficult to be practical.

"I don’t know the amount of buildings out there that could be adapted," he said. "It’s very complicated and expensive.

While there’s been tumult in San Francisco’s rental scene, housing developers appear to still be moving forward with their plans, says Dan Sider, director of executive programs at the SF Planning Department.

“Despite the doom and gloom that we all read about daily, our office continues to see interest from the development community – particularly larger, more established developers – in both moving ahead with existing applications and in submitting new applications for large projects,” he says.

How demand for those projects might change and what it might do to improve affordable housing is still unknown, though “demand will recover,” Sider predicts.

Johanna Flashman is a freelance writer based in Oakland, California.