The success of levelling up will hinge on regional BTR
The relocation of civil servants will require the right housing in key UK cities to attract talent away from London, an ambition of several governments over the years.
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Historically, relocating civil servants out of London and into regional cities has been a slow process. A report by the think tank Onward, released this month, found that civil service jobs located in the capital have grown at twice the rate of other regions since a review of government buildings was announced in 2018. Moreover, nearly two-thirds (approx. 66.6%) of senior civil servants are currently based in London, up from 60% in 2015. To reverse the trend, the report has advised that the Government should aim to have no more than two-thirds of staff located in London by 2030.
Things do seem to be improving. Recent relocation announcements include a new economic campus in Darlington to house officials from the Treasury and other departments, HMRC’s move to Newcastle as a base for up to 9,000 employees and the Department for Business, Energy & Industrial Strategy’s decision to relocate or grow its presence in places like Salford, Birmingham, Cardiff, Belfast, Edinburgh and Darlington. Other public bodies are also making headway. Earlier this month it was reported that the Bank of England is on the hunt for a new 100,000 sq ft office in Leeds, as part of its plan to set up a new northern hub in the city. Leeds is also home to the newly-formed UK Infrastructure Bank.
While relocating both government and non-government roles outside the capital will spread opportunity more equally around the country, the hope is that it will also broaden the range of talent in regional towns and cities, lead to more job creation, and put a stop to regional brain drain.
One of the most important factors to helping achieve this is investment in infrastructure, large-scale regeneration and adequate housing provision. Build to Rent (BTR) can play a key role here, providing high quality rental housing for new and relocating workers.
Knight Frank examined the impact of the relocation programme on regional office markets in our recent UK Cities report. The report noted that improving regional employment opportunities will be an immediate outcome of relocation, but attracting the right high-quality workers to fill the roles will be critical if relocation is to succeed long-term. The wider social opportunities and living standards will need to match what is on offer elsewhere, particularly if employers are to tap into a similar pool of talent to the one they have access to in London.
That means a need to provide high-quality accommodation, which presents a huge opportunity for BTR investors. Many of the markets discussed – such as Birmingham, Cardiff and Edinburgh – already offer the strong fundamentals required for BTR investment, and the prospect of a growing employment base will only add to their appeal.
Promisingly, investment into BTR has been rising year-on-year in secondary hubs. Knight Frank data shows that, in 2021, 76% of the record £4.3 billion spent in the sector was directed outside of the capital.
Analysis of the development pipeline of schemes currently under construction or with planning granted identifies a further 72,534 units due to be delivered in regional markets. It means that, in total, more than 60% of the BTR pipeline is located outside of London. Currently London is home to around half of all completed BTR units. The North West accounts for nearly 16% of the future pipeline, followed by the West Midlands at 11%, but while these are the two regional hubs, all regions now boast a pipeline which far exceeds existing stock.
For investors, the appeal of these markets is clear. Lower land prices, less competition from the sales market and more attractive entry yields for starters. However, with housing affordability less of an issue outside London, the right demographic needs to be in place at sufficient scale.
It will be interesting to see how plans progress, but, as we noted in our UK Cities research, it is clear the Government is keen to cement the foundations of economic equality. There is a huge untapped opportunity to ramp up the delivery of BTR accommodation across the UK. If designed and delivered properly, this could play a key role in the ongoing levelling-up agenda.