Given the extraordinary weight of international capital, which by amounts to some $32 trillion, there exists a ‘once in a generation’ opportunity to channel investment into the development of infrastructure assets that will deliver long term economic growth for our regional cities, according to property consultant Colliers International.
The Northern Powerhouse offers compelling numbers when evaluating regional economic potential. Presenting on the Liverpool Stand at MIPIM 2015 on Thursday 12th March, Colliers International’s Chief Economist Walter Boettcher will unpick these numbers and discuss the opportunity they bring to the regions.
The Northern Powerhouse is home to 9.2 million people, with an economy over three times the size of Manchester or nine times the size of Leeds. Average productivity is estimated at £50,000 per full-time job, which generates around £170bn in GDP, or about half the contribution of London. If productivity were improved, through greater investment in business, training and infrastructure, to levels similar to London (£77,000 per full-time job) then contribution to GDP in 2013 would have topped £250bn or about 80% of the size of the London economy.
Walter Boettcher, Chief Economist and Director in Research & Forecasting at Colliers International, said: “Productivity is the key to unlocking the UK’s regional economic potential and public policy choices should be aimed at bridging this productivity gap through targeted infrastructural investment, to create integrated regional economies. Greater specialism, economics of scale, agglomeration gains and network effects all lead to higher productivity and greater prosperity, attracting greater amounts of labour and capital in the process.”
In addition to the need to better connect our regional cities, Colliers has indicated that there is a once in a generation opportunity to channel investment into the development of productive assets that offer long-term value across the economy. Infrastructure projects such as airports, universities, hospitals and care facilities have lengthy lead in times and large capital requirements, but offer the long regular paybacks that appeal to institutions.
Jonathan Mills, Director in Colliers’ North West Investment team, added: “The creation of the Northern Powerhouse is a complicated large-scale exercise in economic planning, land-use planning, finance and real estate development. The Northern Powerhouse movement comes at a time when regional property markets have seen little development across all asset classes since the development pipeline was effectively shut off in 2007. Slowly, financiers and developers are beginning to look into opportunities to generate the next generation of facilities to house UK businesses as the economic growth cycle accelerates.
“Enabling the development of a new generation of facilities, fit for the expansion of new and increasingly sophisticated businesses, must be an essential ingredient in regional policy formation and most certainly in the creation of a Northern Powerhouse.”
With the burning question on the lips of many property professionals now being: ‘How long will this current property cycle last?’, Colliers has produced a paper which looks at the key drivers of the property investment market and considers what factors could come into play to either elongate the cycle or bring it to a potentially catastrophic end.
Walter Boettcher concludes: “The real concern for this particular property cycle is that there is too much money chasing the same product – are there sufficient standing investible assets to satisfy steadily increasing demand? If you think strictly about real estate offering secure long-term income that can be used for annuity liability matching, the answer is probably not, especially given the trend towards short commercial leases.
“Infrastructural development creates the necessary framework for the formation of new geographies that will in turn provide fresh opportunities for the delivery of individual real estate assets. The lasting real estate opportunity is to reshape the curve instead of simply moving along a well-trodden path, which requires the industry to take the bold step of considering new opportunities that will facilitate economic growth and with it demand for technically fit, modern commercial real estate.”
Colliers International has demonstrated its commitment and belief in the Northern Powerhouse movement by opening a new Liverpool office in January this year. Colliers International is now represented across the Northern Powerhouse region, with offices in Manchester, Leeds and Liverpool.