YBS Commercial Mortgages team sees host of investment opportunities in our region: Tom Simpson
High streets in many towns and cities have faced a challenging decade; the most recent years posing the toughest hurdles yet thanks to the headwinds caused by the pandemic, the spike in energy prices and the ensuing knock-on effect on the wider economy. For some it’s been unsustainable, with big-name casualties in the retail sector, as well as numerous smaller businesses sadly closing for good, but for others it’s provided opportunity.
The rising interest rate environment afforded many commercial property investors a period of time to take stock; to reconsider their portfolios and to consider what’s most important to them. In some cases, this has meant diversifying their assets to spread risk, for example.
An emerging trend has been a definite move by investors towards higher-quality, more energy-efficient properties. Although transaction levels in the region may be lower, where investment is taking place, this seems to be of most importance. According to CoStar data, this is certainly the case in Leeds, with a recent example being Lloyds Banking Group moving into a property in Wellington Place which has been labelled one of the most energy-efficient office buildings in Yorkshire, according to outstanding Building Research Establishment Environmental Assessment Method (BREEAM) ratings.
This trend towards energy efficiency also explains why some owners are still struggling to let or sell older office blocks and other, lower-quality property. However, we’re definitely seeing a surge of interest in prime workspaces, as businesses seek to make their surroundings more attractive to employees – not just when it comes to energy efficiency - but also in terms of more collaborative workspaces, in keeping with heightened expectations post-pandemic.
Leeds is well-regarded as a financial services hub, as well as a home for media and technology-based firms, and, although there’s no doubt that investment in these has slowed down since the Covid-19 pandemic, the bottom line is that office space – despite the onslaught of home, or hybrid, working – continues to attract investment – as long as it’s the right type of property with the right features.
But it’s not just about office space. The North is a hotbed of opportunity for a whole host of other sectors too – from leisure to industrial and everything in between.
The data we monitor and market insight from our team on the ground tells us there is opportunity even in sectors which have struggled. For example, retail footfall recovery in Leeds and Manchester is better than in London.
Warehousing is also proving an attractive option, as demand for online shopping continues to drive quality builds along key transport links including the M62 and M1.
Industrial property, too, remains in demand thanks to limited supply.
As for us – as a lender we’ve seen year-on-year commercial property approvals rise 150 per cent and, since we fully launched YBS Commercial Mortgages in 2020, we’ve backed investments in the North to the tune of £100 million.
We’re similarly committed to our North regional team to support this, creating jobs in the region - indeed, a recent recruitment drive has doubled the team.
We’re plugged into the market, speaking to brokers and investors daily, and it’s clear they’re still as interested in the region as we are.
Despite an uncertain and tumultuous economy, regeneration in the North is clear for many to see.
Skylines dotted with cranes point to the resurgence in our local economies and demonstrate the demand from investors keen to capitalise on the vibrant, diverse locations we have to offer.
As for investors taking advantage now, while property prices are slightly lower, they may benefit in the longer term, leading to improved capital-raising potential as the value of their investment increases.
There’s no reason to suggest the short-term outlook will change much; it will remain a challenge in some sectors while providing great opportunity in others. The fact the North has proved its resounding resilience during such challenging years - and we are continuing to see growth all around us - rightly paves the way for renewed optimism.
As for the scrapped HS2 line from Birmingham to Manchester – transport and infrastructure investment is vital to help grow the Northern economy, attract investment and talent, and will help us to achieve our net zero ambitions as a country – one for the government to consider further as we move into 2024.
So long may the country continue to watch the North - for all the right reasons.
Tom Simpson is managing director of YBS Commercial Mortgages – the commercial lending arm of Yorkshire Building Society