A special report in association with Hill Dickinson, The Co-operative Bank, Morris & Spottiswood and Emplacement
▼First half in numbers
1.5% growth in North West GDP predicted for 2010, compared to 0.9% for the UK. In 2009 the region saw -4.0% against UK -4.5%. Next year is forecast to produce 2.3% growth in North West and 2.2% UK. All figures: Oxford Economics and Cushman & Wakefield
26 months average rent-free incentive that office tenants can expect in the North West, says Jones Lang LaSalle 653,000 sq ft Manchester city centre office take-up, including the 325,000 sq ft Co-operative Group HQ start on site, according to DTZ. Forecast for full year: 1m sq ft (2009: 809,000 sq ft)
110,000 sq ft Liverpool city centre office take-up, according to Knight Frank. Forecast for full year: 300,000 sq ft (2009: 519,000 sq ft)
5 banks active in development finance, according to Savills' Financing Property report. Those banks, looking for the "very best residential or fully pre-let commercial schemes, are Barclays/Barclays Wealth, Close Property Finance, Investec, HSBC/HSBC Private Bank, RBS/NatWest/Coutts
101 Projects going through grant process told funding was no longer an option from the North West Development Agency
36 'Sub-regional organisations, urban regeneration companies and cluster organisations' told NWDA funding would cease
16 HCA kickstart schemes once approved in principle now under review
30 residential units expected to complete in Manchester city centre in 2010, compared to 2,050 in 2009. Source: Drivers Jonas Deloitte
5 new starts on developments in the city centre recorded in the annual mid-year Manchester Crane Survey from Drivers Jonas Deloitte, compared with nine 12 months ago, 19 in 2008 and 32 starts in 2007
Construction. Peter Linford, director at Nobles Construction, a small-to-medium construction firm in Liverpool: "We have won £7.6m of new contracts since January and have a bid pipeline of more than £18m.
"Trading is strong across all divisions, particularly health and education, with turnover up 5% on this time last year.
"The order book is looking very healthy, we secured around 40% of our 2010 forecast revenue in quarter one of our financial year. Going forward we expect more refurbishment and redevelopment work as government spend is cut and improvements to existing buildings are made to enhance facilities."
Nobles is currently working on 15 schemes across the North West, these include the Baltic Triangle, Kingsley Primary School in Toxteth and Glenroyd Medical Centre in Blackpool.
Building consultancy. Phil Higham, regional managing partner of Rider Levitt Bucknall, the global specialist in quantity surveying and project management with offices in Manchester and Liverpool: "Our actual performance across all elements of our balanced scorecard – people, service, customer and profit – is on or slightly ahead of plan and we are forecasting that this position is set to continue for the second half of the year.
"There is enormous uncertainty in the market at the moment and this looks set to continue for the foreseeable future. Good things happening for us include work being done in the UK on overseas projects in the Caribbean, Middle East and Mainland Europe – up to 20% of annual turnover for some offices. Our strong sector specialisms are holding up well: Nuclear / Energy, as are long-standing relationships with existing key customers including Tesco, Royal Mail, MoD, IKEA and Defra where we are standing shoulder to shoulder with our clients helping them to respond to the 'new normal' market conditions that they are experiencing.
"Buying Solutions [Public sector procurement body] bidding activity remains high but is beginning to slow down. There is evidence that winning margins continue to tighten as the public sector begins to dance to the tune of the new coalition government."
Funding. "Manchester is the second finance centre in the UK after London," says William Newsom, national head of valuation at surveyors Savills. "Almost every bank we spoke to for our Financing Property survey of debt finance said if they had a second office it was in Manchester.
"For the last ten years the average loan to value ratio has been 80% across all sectors and geographies. Nowadays prime can expect to get 70% and the rest maybe 65% LTV.
"Senior debt funding for property development is very scarce indeed and very expensive."
Newsom's colleague in Manchester, director Jonathan Langstaff, added: "Banks willing to consider development are clearly risk-averse and will be highly selective.
"There are some examples of funding in the student residential and distribution sectors in the North West. Some of the key lenders are aggressively building up their teams again and see the North West as one of their main areas for lending activity.
Banks in general say they have money to lend, the problem is matching up product with lending criteria. There is not a lot of product around. The really prime product is snapped up by institutional funds or cash buyers. The development buyers with bank debt can't compete with the prices.
"The market was in danger of getting overheated in the last nine months because people were chasing the same stock.
"The market seems to be taking a breath at the moment and the heat is going out which might make it easier for debt-backed buyers."
Employment. Emplacement Solutions directors, Steve Rossiter and Jon Kelly: "What we witnessed in the property and construction market over the last 10-15 years was almost unprecedented. Massive explosion in activity in the construction of new buildings has been followed by the economic uncertainty and resulting recession which began in 2008. This led to jobs being left unfinished and good, talented people losing their jobs as the finance feeding the industry dried up. But times are changing and cautious optimism is starting to spread.
"Recently, we've seen a dramatic increase in the requirement of personnel to the property and construction market, especially in the North West. This is reflected nationally too, according the Recruiter magazine, growth in May 2010 was 28% over May 2009, the billings in 2009 were over 60% below the equivalent position in 2008. This isn't just short-term contractors, but significantly, permanent personnel for the long term too.
"Other signs in industry are also feeding this optimism too. Government initiatives and direct pressure on the banks is leading to more finance finding its way to market making it easier to recruit staff, whilst the predicted doom of a new Government slashing expenditure in the public sector has not been seen in our market yet. This could well change, which is the prudence to "cautious optimism". Autumn 2010 when the Government's spending review is revealed will reveal this more fully.
"We're reading all the time that businesses of all sizes are investing in the North West. This is really good news and is excellent for the prosperity of the area."
Residential. Ian Thomlinson, head of Jones Lang LaSalle's residential development and investment team in Manchester: "We anticipate that the full year will see a mixture of price rises and price falls and the housing market will be heavily influenced by the impact of new governmental policy. Overall we forecast annual house price gains in the South flattening, with Midland and Northern areas seeing slightly greater falls. Towns and cities exposed to the highest rate of public sector employment are likely to be more vulnerable to price decreases.
"The outlook for the housing market remains strong over the medium-to-long term. House builders are certainly back in the market to develop between 50 and 100 units albeit they are site specific. We anticipate demand, activity and pricing will build through 2012-2014 encouraged by further lender and developer participation. By 2013 we can expect house price inflation to accelerate towards double-digits, partly fuelled by the structural undersupply of new housing in the UK."
Investment. Bruce Poizer, investment director at DTZ in Manchester: "Some prime yields have stabilised and some have even moved out 0.25%. However, a pricing differential for anything other than 100% prime has become apparent, despite the ongoing shortage of opportunities. Concerns about the economy, post-General Election, the impact of the eurozone sovereign debt crisis and the fall in share prices over the quarter continue to dampen investor confidence.
"Given the increase in values that we saw at the turn of the year it is not surprising to see that pricing has stabilised in the last month or so, although we continue to see strong demand for prime assets. We are also starting to see increased levels of demand for secondary assets now that they are being priced more realistically, but the banks remain cautious about lending against this sector."
Martin Davis, head of UK Markets Research at DTZ, added: "We expect the regional office market to continue to be subdued over the medium term. Demand from the public sector is set to be severely limited following the impending cuts in public expenditure. Many local private sector firms rely on the public sector, which could also have a knock on effect. The investment market is likely to pick up later in the year, as institutions look to spend allocations by the end of the year, thereby boosting transaction volumes."