The latest Deloitte Crane Surveys for Birmingham, Manchester and Leeds clearly highlight that development has returned, not least of all in the office and residential sectors. Developer confidence and momentum had been building over recent years in the northern cities, and our results show that Birmingham has now caught up. Together, the three cities have recorded a total of 46 new development starts, up 27% on the long-term annual average. Spurred on by low-levels of supply and increasing demand, 2015 was the year where construction activity in these regional cities turned a corner.

Office development at its highest level since 2008

The current level of office construction across the three cities is a result of several driving factors all coming into play at once.  Tenant demand has increased over the past couple of years, with both Birmingham and Leeds achieving record levels of take-up in 2015.  The continued squeeze on the amount of available office space has limited tenant choice, leading to an appetite for pre-letting.  Add in a rise in developer sentiment into the mix and the result has been 2.9 million sq ft of offices that are currently under construction.  This is the largest level since 2008, representing an increase of 177% over the year.  While the uplift in office development in Leeds came in 2014, with a further increase in 2015, it is the new high volumes in Birmingham and Manchester which have chiefly shifted the volumes in the latest results.

Expected rise in city centre living

The residential sector is a further area of the market that was significantly impacted by the economic downturn, with construction activity reduced dramatically in 2009. Yet results from the latest Crane Surveys shows that development increased in 2015. There are currently 3,798 units under construction across the three city centres, representing a 166% increase on the previous year.  A rise in volume was almost inevitable, especially as new residential schemes had eluded both Birmingham and Leeds since 2013.  The return of construction is a result of the improving market conditions, in terms of values for rental, sales and also heightened demand. 2016 will see the largest level of new residential schemes delivered to the market since 2009. Given the healthier economic outlook for these cities, it is expected that further schemes will come forward over the coming months as developers and city authorities alike will seek to keep pace with demand and investor interest.

Construction boosted by new hotel schemes

Increased demand for hotel rooms across the three cities has led to a number of schemes to start construction. Hotel occupancy rates continued to rise in 2015 and over the past five years the rate has increased on average by 8%.  Manchester, which recorded close to 80% occupancy in 2015, has the most number of schemes under construction (3) delivering 779 rooms over the next couple of years.  This is closely followed by Birmingham with 693 rooms under construction and Leeds with 224 rooms.  The current level of development has boosted over all construction activity in the short-term and with further schemes in the pipeline, it appears that the hotel sector will continue to contribute to new development volumes in the short term.

Counterbalancing the UK economy

The latest boost in construction activity comes at a time when Birmingham, Manchester and Leeds have had the political and economic spotlight focused on them. Momentum continues to gather behind the Northern Powerhouse concept and Birmingham's central role in the High Speed 2 rail link. Greater devolution is expected to allow for more regeneration, regional infrastructure projects and an increase in powers could well boost future construction activity. 2015 recorded a marked improvement in investment volumes across the cities, reaching £2.6 billion, the highest level since 2011. In particular, Leeds and Birmingham recorded double-digit growth on the previous year, 51% and 28% respectively. With both UK and foreign investors now seeing potential in these regional cities, the appetite for assets outside of London looks set to gain more traction.

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