Regional Focus West Midlands

Size: px

Start display at page:

Download "Regional Focus West Midlands"

Madeleine Gilbert
6 years ago
Views:

1 Regional Focus West Midlands Gleeds Corporate Research & Development 1 Snowhill, Birmingham April 2014

It comprises the counties of Herefordshire, Worcestershire, Shropshire, Staffordshire, Telford and Wrekin, Warwickshire and the West Midlands (Birmingham, Coventry, Dudley, Sandwell, Solihull,

2 Region Profile The West Midlands has a population of just over 5.4 million. Geographically, it is the smallest region by area following London and the North East. The West Midlands is the only land locked region in the UK, bordering the North West, East Midlands, South East, South West and Wales. It comprises the counties of Herefordshire, Worcestershire, Shropshire, Staffordshire, Telford and Wrekin, Warwickshire and the West Midlands (Birmingham, Coventry, Dudley, Sandwell, Solihull, Walsall, Wolverhampton). There are five areas of outstanding natural beauty the Shropshire Hills, Malvern Hills, Cannock Chase and parts of the Cotswolds and the Wye Valley....the construction industry is becoming increasingly optimistic Bewdley High School Regional Focus West Midlands Over recent years, real estate activity has generated the largest contribution to the region s economy. Employment and industry in the West Midlands has been dominated by manufacturing, however employment in this industry has recently declined (partly due to a drop in the production of motor vehicles although this is rapidly reestablishing itself with the growth of Jaguar Land Rover). A number of big employers continue to be based in the region including the aforementioned car manufacturer, Wedgewood, JCB and Cadbury. Transport links are good via road, rail and air. Motorways include the M5, M6, M40, M42, and M54 and Birmingham International Airport is the largest outside London, serving 180 destinations. egional Construction R Market Outlook Gleeds Q Economic and Regional Inflation Report suggests that the construction market in the Midlands is improving rapidly, with the education, manufacturing and residential sectors in particular contributing to the rising workload. At present, one of the main inhibitors to UK construction market growth is the capacity of the supply chain to meet demand. The construction workforce has contracted throughout the recession and an industry wide skills shortage is now apparent. There is a limited availability of experienced tradespeople (particularly bricklayers and steelwork fabricators) as well as a shortage of professional staff. Lack of recruitment and training of apprentices to replace those retiring is adding to this pressure. The West Midlands is looking to address this via a growing migrant labour workforce. Responses to Gleeds latest Market Intelligence Survey suggest that the construction industry is becoming increasingly optimistic. Materials prices are rising and lead in times are longer for key materials such as bricks, blocks and some steelwork components. These resource issues may result in short term price spikes. Regional Focus West Midlands 2

3 In general, contractor respondents consider that it is crucial to understand the capacity and capability of the supply chain when bidding for projects. Bidding approach strategy needs to be carefully managed, especially for high value/ long duration projects. If timescales are tight, clients could look to engage with the market. This approach gives the supply chain advanced understanding of requirements and programme, otherwise contractors could potentially turn down opportunities through lack of prior knowledge and inability to dedicate already scarce bidding team resources. In terms of tender prices Gleeds anticipates that the next 12 months will see price inflation of circa 4.5% for the West Midlands (against a backdrop UK average of 3.9%). Figure 1 - West Midlands Construction - Value by Sector 2013 (Glenigan) 170m 179m 235m 107m 114m 146m 251m Education Private Housing Hotels and Leisure Retail Social Housing Health 263m 576m 298m Utilities Industrial Infrastructure Community & Amenity Offices 324m KEY SECTOR ACTIVITY Residential Activity in the residential sector has been increasing over the past 12 months. The momentum behind sustained demand is growing confidence in the market along with financial incentives of the Government s Help to Buy and Mortgage Guarantee schemes. This uplift is evident UK wide and has kept sales and price expectations relatively high. Like much of the UK, the message for the West Midlands is that market conditions are improving. Developers are starting to get projects underway in response to the market push. However, housing supply remains insufficient with new build development falling behind the pace of demand. In addition, not enough existing properties are entering the market. Construction activity is likely to increase steadily as market conditions improve and residential sites become unlocked. It is important that while this confidence continues to grow, a cautious approach is taken. The latest RICS Residential Survey (Q1 2014) indicates that the West Midlands market is buoyant with buyers at all levels becoming increasingly confident. In addition, the recent Government Budget announced that there will be 200,000 new homes built across the country, with a number of schemes and incentives to further help boost the housing market. However, despite these improving conditions, purchasers are maintaining a level of caution and will not pay over the odds. Some localised areas within the region have been adversely affected by recent flooding, which is deterring some purchasers. Key residential schemes planned for the West Midlands include: 2,000 new homes as part of the Curzon Street Masterplan 28,000 new homes planned to be built in South Worcestershire by extra care apartments in Coventry for Extra Care Charitable Trust Regional Focus West Midlands 3

4 A shortage of office space is pushing values upwards 212 extra care apartments in Bournville for Extra Care Charitable Trust 110 executive apartments in the Jewellery Quarter Birmingham one of the first speculative developments of this size in Birmingham for 5 years 300 new homes on the redevelopment of land to adjacent Edgbaston Cricket Ground 280 speculative up market luxury apartments in Sutton Coldfield A growing area of focus for future development opportunities is the private rental market, with developers and investors looking at significant developments either through new building or conversion of unoccupied office accommodation. Commercial The RICS note continued improvement in the commercial occupier and investment markets which is likely to encourage higher rental and capital values. The West Midlands market appears to have taken an upturn, although activity remains tentative. Continuing demand, particularly for new office space, is likely to prevail throughout Certain pockets of the region are performing better than others. Evesham for example is going through a period of disruption due to the replacement of one of its bridges. This has adversely affected the town s economy which will consequently impinge on capital values and rental value expectations of local commercial property. Conversely, the Birmingham market is looking more positive and stock shortages of office space are considered to be pushing values upwards. There is only a limited amount of much needed speculative development coming through, so the immediate priority is to address the lack of suitable space available at present. In the longer term, infrastructure may provide a base for further development, particularly the connection to London and the rest of the country via HS2. This could encourage occupiers and investors from the London market to consider Birmingham as an alternative. This may also capture the high number of London s overseas investors. Key commercial developments in the region include: The recently completed Two Snowhill, in Birmingham s central business district offering 300,000 sq ft of BREEAM Excellent Grade A office space Plans were submitted at the end of 2013 for a further development a mixed use scheme at Three Snowhill, to include office, leisure, conference space and retail space Planning approval has also been granted for the 240,000 sq ft Lumina Tower Building by M&G Real Estate and Sterling Property Ventures which follows on the back of the recent approval for a new 13 storey office block by West Register as a replacement for the Peat House offices in Livery Street, Birmingham. The retail sector generally remains depressed with rental values low, however, a pipeline of work is starting to come through: Work has commenced on the 50m redevelopment of The Mailbox in Birmingham, creating a high end shopping destination with a flagship Harvey Nichols store and three screen cinema The construction of the 650m redevelopment of New Street Station incorporating the Grand Central Retail development is due to complete in late 2015 with other developments currently being re-appraised including Martineau Galleries and Battery Park Argent is currently bringing forward bidding for the 450m Paradise Circus scheme a mixed use scheme in Birmingham city centre, including shops, offices, a concert hall plus further leisure and culture facilities. Regional Focus West Midlands 4

5 The scheme is located between the city s Centenary Square and Chamberlain Square. Start on site for the first phases is expected to commence in late 2015 The former Central TV studios on Broad Street, Birmingham is also facing redevelopment to create a 400m office, retail, leisure and residential complex. Infrastructure The largest infrastructure scheme planned for the West Midlands is High Speed 2 (HS2). The recent Budget announced that HS2 Ltd has been commissioned to develop proposals for accelerating the project and opening up the line to Crewe by 2027, six years earlier than planned. Birmingham New Street Station will be a central hub for the high speed line, connecting the North West with the South East of England. The station is the busiest outside London providing a central, world class transport and shopping centre in the heart of the city. The station is currently undergoing redevelopment works - the first section of the new station opened in April Works are scheduled to complete in Further infrastructure projects planned for the region include: The Birmingham Curzon HS2 Masterplan - this seeks to maximise the regeneration and development opportunities for the area around the City Centre terminus including 14,000 (net) private sector jobs, 600,000 sq m of additional employment floor space, 2,000 new homes and an uplift to the economy of 1.3bn each year Worcester Integrated Transport Project - a 200m package of investment to improve the road and rail networks in and around Worcester Midlands Metro Birmingham Extension - the tram line linking Birmingham to Wolverhampton is to be extended from Snow Hill railway station to New Street Station. Work commenced in July There are also a number of motorway improvements schemes to commence including works to the M6 and M40. HS2 Ltd is developing proposals for opening up the line to Crewe by 2027, 6 years earlier than scheduled Education The West Midlands education sector looks buoyant with a number of key schemes coming forward: New Campus Buildings for Birmingham City University at Millennium Point Major development programme for the University of Birmingham 350m Masterplan investment for the University of Warwick Phase 1 and Phase 2 Campus development for University College Birmingham 2,400 room Aston Student Village Residential Apartment Development for Aston University, nearing completion Ongoing Priority Schools programmes for Birmingham City Council. Health A new 380m hospital is to be developed on a brownfield site between Sandwell and West Birmingham. The project is due to go out to tender for contractors in April The new hospital will comprise A&E, maternity, children s services, critical care, diagnostics and other acute treatment services. The new 40m Birmingham Dental Hospital is being built on the site of the old BBC Studios at Pebble Mill, together with a planned private hospital on an adjacent site. Regional Focus West Midlands 5

6 Other Key Developments Other key developments in the area include: Ministry of Defence will build 51m army barracks Beacon Barracks in Stafford, providing 346 homes for soldiers Eastside Regeneration Project, Birmingham the largest physical regeneration project in the West Midlands comprising Eastside City Park, Millennium Point, Hub of Educational Excellence, Birmingham Science Park and Warwick Bar Conservation Area A number of developments taking place at the University of Birmingham s Edgbaston campus, including a new 55m sports centre with Olympic sized swimming pool, a library, cultural hub and student accommodation. The West Midlands market is moving in a positive direction, with opportunities emerging & demand increasing through investment & development. Over the last six years, the size of the supply chain has shrunk considerably. Clients must bear this in mind when planning their developments to ensure time, quality, performance & cost are still achieved. lindsay mccombe, Director, Gleeds birmingham Conclusions & Predictions London and the South East have led the UK regions in market growth and heightened activity is becoming more apparent across the UK, with investors and developers seeing value in property and construction outside London. Market growth is definitely on an upward trajectory however issues such as financial constraints and uncertainty are still present and continue to influence speculative development. The industry wide skills shortage is apparent and this may worsen before the workforce is replenished to a sufficient level. Additional pressures on the sourcing of materials is leading to longer lead in times particularly bricks and blocks in those areas with high housing demand. These pressures could potentially amount to project costs being pushed upwards or potential pricing spikes until the market stabilises. As projects come forward, we may see both contractors and consultants being more selective about tendering opportunities. Gleeds view is that clients may be required to adapt tendering and procurement strategies to suit the changing nature of the competitive market. Our research suggests that main contractors would like to move away from single stage competitive tendering towards single source negotiation or two stage tendering. Regardless, it may be prudent to engage with the market earlier on in the development process in order to ensure the right supply chain response. The attractiveness of a project will determine interest and pricing levels along with capacity of the supply chain to deliver. Accordingly, when pricing works the character of individual projects needs to be carefully considered taking into account location, scope of works, programme, complexity and profile of both the project and client. In summary, construction market prospects are good for the West Midlands. A number of key schemes plus infrastructure enhancements will further add to the attractiveness of the region for investment. Regional Focus West Midlands 6

7 Gleeds UK Offices Edinburgh Glasgow Newcastle Whitehaven Leeds Manchester Liverpool Birmingham Cardiff Bristol Cambridge London Tunbridge Wells Southampton Warrington Nottingham Birmingham Office Contacts Lindsay McCombe, Director M: E: Ross Evans, Director M: E: Alan Hooley, Director M: E: Download the Gleeds Economic and Regional Inflation Report here For more information contact: Helen Thompson Corporate Research and Development gleeds.com gleeds.tv Legal disclaimer: This paper was prepared by Gleeds and is for general information only. Neither Gleeds nor any of their partners, directors, employees or other persons acting on their behalf makes any warranty, express or implied and assumes any liability with respect to the use of the information or methods contained in this paper to any person or party. This document is subject to copyright and must not be reproduced. Regional Focus West Midlands 7

Delivering and Investing in Future Infrastructure Projects

Delivering and Investing in Future Infrastructure Projects Inside Government 29 th March Ian MacLeod Assistant Director Planning and Regeneration Birmingham City Council Scale of Growth Housing 150,000