Why commercial real estate is vital to levelling-up

What are the opportunities and challenges for commercial real estate in encouraging and enabling levelling-up across the UK? Here are some of the things we learned during our webinar.

CRE supports four pillars of levelling-up

Commercial real estate in the UK contributes more than £60bn of added value to the economy and more than £15bn of tax revenue every year. It also employs more than 1m people. As a vital part of the economy, it has a key role to play in the UK’s levelling-up agenda.

Dr Megan Walters FRICS, Global Head of Research, PIMCO Prime Real Estate GmbH - UK Branch, outlines the four pillars of levelling-up:

1. boosting productivity, pay, jobs and living standards by growing the private sector
2. improving public services, particularly where they are weakest
3. restoring a sense of community, local pride and belonging, and
4. empowering local leaders.

Improving connectivity and the job market to attract investment

Increasing the density of inner cities and making them more desirable for people to live in is a key challenge, says Jon Neale, Head of UK Research at JLL. In most cases, UK city centres are less dense than their continental counterparts. For example, central Manchester and Birmingham have much lower population density than, say, Lyon or Lille. In these British cities, more people live further away from the centre, and fewer are able to access it by themselves or by public transport.

Travel networks have been a big part of rejuvenation over the past few years, says Jon. Research and development spending is also very important, although in the UK it is skewed towards London, Oxford and Cambridge, he notes. Levelling-up is about placemaking in the regions, so people can find good-quality jobs in their own towns. This will also result in money coming into regional hinterlands, says Jon. He believes this offers a huge opportunity to grow the economy.

Investing in transport and a sense of place will help stem the swell of graduates moving from regional universities to London, retaining skills in the regions and encouraging more employers to locate there, Jon comments. Training opportunities among the working-age population in these areas must be improved to increase the attraction for companies, he adds.

Infrastructure and structural factors influence company location

Companies generally start looking into the suitability of a location some two years before making a commitment, says Jill Skidmore, Real Estate Transactions Director, Global Workplace Solutions, at Coca Cola. Among the criteria considered, she says, are talent availability and its cost. There should also be good public transport links into the city centre because not everyone will own a car, as well as amenities nearby. Real estate availability and cost is another factor in the decision-making process.

There are also several structural factors such as business objectives and needs, the complexity and cost of tax relating to operations, for example, and – where a new company is being set up – legal requirements. With a manufacturing company, for instance, good road networks to other parts of the country would be high on the agenda.

‘For a large corporate, ESG [environmental, social and governance considerations] and sustainability [are] the … priority,’ comments Jill. ‘Corporates are looking for a sense of community, accessibility and security for all profiles of talent when choosing a location,’ she says.

Belfast 2035 goals offer model for growth

By 2035, Belfast has set itself the goal of building 31,600 new homes, developing 550,000m2 of employment floor space and increasing its population by 66,000, outlines Cathy Reynolds, Director of City Regeneration & Development at Belfast City Council.

It’s about creating a more attractive, accessible, safe and vibrant city, and increasing competitiveness from both an employment and living perspective, she says. Game-changers include waterfront regeneration, investing in transport, infrastructure, innovation and smart districts, as well as increasing city centre living, she comments.

Belfast has recently had a £1bn city deal focusing on innovation, tourism, and new and better jobs. One of its core projects is to create an iconic city centre tourist destination. Belfast is also proving attractive to direct investment from overseas, particularly in areas such as financial tech and health, she adds.

Investors take realistic, long-term view

From an investor point of view, it’s important that certain fundamentals are in place, states Chris Perkins, Head of UK Capital Markets at M&G Real Estate. He stresses: ‘Investors are very much part of the levelling-up agenda, and have invested significant amounts over the past decades. But ultimately, we need attractive risk-adjusted returns … we can't be purely altruistic. We need to be accountable to our policyholders and shareholders. I think in partnership with local areas that is very achievable.’

What’s important, says Chris, is taking a long-term approach. Investors need to be able to invest with confidence, spanning government terms, so cross-party support is required he says. Collaboration partners such as local operators and councils should also take a long-term view.

He maintains that there should be some central government coordination as well. ‘Silo thinking doesn't work. You don't want … two cities both competing for the same outcome. That's unhelpful. You want them to be complementary,’ he says.

The ESG agenda is at the core of commercial real estate investment, as much at occupiers’ instigation as that of landlord investors, says Chris. We need to futureproof the developments we create as well as looking at repurposing where we can, he adds.

Echoing earlier points made, Chris reiterates the importance of good jobs and housing to retaining skills locally and creating an environment that provides for workers and their families. But he adds that, for placemaking to appeal to investors, local authorities need to set realistic land values so those who are providing the capital see a decent return.

Over £60 billion in GVA. Over £15 billion in tax revenue. Over 1 million people employed. The UK’s Commercial Real Estate sector is vital, impactful and far-reaching, yet has the ability to go even further and power the UK Government’s Levelling-up agenda.

In this session the panel explore the latest opportunities and headwinds, as well as what actions can be undertaken to drive Commercial Real Estate forwards. They discuss how cities and towns can successfully compete on an international stage and showcase Commercial Real Estate as a crucial vehicle for people, places and prosperity.