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Building Activity Bodes Well for Belfast and Other Secondary Cities

March 3, 2017Article by Paul Avery

‘Northshoring’ is the trend whereby UK businesses move all or part of their operations to regional cities as rents and staffing costs rise in the capital. New data released this week highlight just how entrenched this shift has become, and how it is influencing the property market in dramatic and not entirely predictable ways.

Deloitte’s annual Crane Surveys point to a building boom seemingly immune (so far) to the threats associated with Brexit. But the picture is far from consistent nationwide: what we are witnessing is a redistribution of new construction rather than a blanket increase.

Looking beyond the capital

London is only waning slightly. Its 14m sq. ft. of office space in development represents an eight-year high but also belies an unusually large proportion of refurbishments and projects delayed in previous years. Vacancy has increased from 3.9% at the end of March to 4.8% today, and unlike hotspots such as Kings Cross, where 98% of space under construction has already been let, many developers are concerned about flagging demand.

At the same time as London braces itself for a dwindling financial services sector, Birmingham is building offices at the highest rate since measurement began in 2000. New construction is up 50% on the previous year and just one in 200 planned office moves were abandoned since the referendum in July, according to one developer.

Boosted by a glut of regeneration projects and the impending arrival of HS2, Birmingham office developments have shot up sevenfold from a low base and a healthy 2,338 residential units are expected to be delivered by 2018.

Infrastructure spending and northshoring are driving similarly strong levels of activity in Liverpool, Leeds, and Manchester – where housebuilding has almost returned to its pre-recession peak. Yet the most compelling and interesting case among the Crane Survey cities is Belfast.

Hotels and Universities in Belfast

Unusually, residential building in Belfast has yet to catch up with other sectors that are posting the kind of dizzying growth rates which tend to catalyse residential demand. For instance, more than 1,089 new hotel rooms will be added to Belfast’s stock this year. For perspective, that is more than a quarter of the present total (around 4,000) added in just one year. It is also more than Manchester’s new additions (1,040), and three times the amount under construction in Leeds (385) – both of which are ten-year highs.

Belfast is enjoying a serious tourist revival, with Game of Thrones and a new Titanic museum, which won Leading Visitor Attraction at 2016’s World Travel Awards, drawing much bigger crowds than usual. In response, new hotel projects include the conversion of Windsor House, Belfast’s tallest building, into a 304-room hotel, and numerous boutique offerings orbiting the Titanic Quarter to mop up demand from city-breakers and young professionals.

The second construction sector reshaping the city is student accommodation. 2,571 bed spaces are currently in the works, driven mainly by the expansion of Ulster University into the town centre, which will add 12,500 student places. The Belfast Crane Survey explains that “universities create talent, and through graduate retention more jobs are going to come to the city.”

Business in Belfast

Indeed, demand for hotels and student quarters both reflect the strength of an economy and directly add to the pool of jobs and employees. The city has sensibly set a target of 1.5m sq. ft. of additional office space to be delivered by 2021. It is roughly on track with 209,000 sq. ft. completed last year, and a further 365,000 sq. ft. currently underway.

A historic cut in the corporation tax rate and an influx of startups and fintech companies has already pushed up rental levels for grade A space from £16 per sq. ft. to £20 per sq. ft in the last few years, while major employers like Deloitte and Tullet Prebon are announcing 540 and 300 new jobs respectively.

Belfast’s Housing Shortage

Yet what makes Belfast’s case so unique, in the context of this surge of activity, is that residential building is not keeping pace with demand. Deloitte’s Crane Survey counts just 56 new residential units under construction across the entire city, after just 84 were completed last year. This is in the capital city of a country that, even before its recent gains in business, tourism, and education, was expected to require 11,200 new homes each year by 2025 (NIHE).

Belfast has had an unlucky streak of delayed and cancelled developments lately. Though other projects are expected to break ground in the latter part of the year, all 56 units actually under construction right now are in one building: The Sandford, a new high-end apartment complex at 35-55 Bridge End, in between the historic centre and the trendy Titanic Quarter.

The Sandford itself experienced some early delays, but is now well on track. As the agent for the project, we have examined its construction timeline and expect it to complete as planned in 2018.

The mismatch of supply and demand in Belfast was a key reason for our decision to target the city originally, and investors in The Sandford will be pleased to hear that new data suggest the gap is only widening – it bodes very well for tenant demand and future price growth. We believe the case for investing in Belfast will only get stronger in 2017.

Author

Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.
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