Bid for billions, top economist tells property sector

PROPERTY sector bosses are being urged to approach projects in the Northern Powerhouse with much greater ambition by bidding for billions of pounds from the newly-created National Infrastructure Commission.

The call comes from Colliers International’s chief economist Walter Boettcher who has delivered a keynote speech to the Royal Institute of Chartered Surveyors (RICS) North West conference in Warrington.

“For me there are a lot of people who are tired of hearing about the Northern Powerhouse, but here is what is involved to make it actually happen,” he told TheBusinessDesk.

“This is where the local property people really need to start feeding in and where devolution is so important.
 
“I spoke to inward investment people at MIPIM (in London) recently and technically their ambitions were far too low.

“They’re looking for £15m here, £25m there. I think I told the guy, ‘you’re coming to the wrong place here, nobody wants to hear about £10m, £15m or £20m’.

“They want £250m, £500m or £1bn. We need big projects. That’s what this money is all about. It’s too hard to administrate in £25m segments.

“So now is the time where you begin to create these combined local authorities so you can cook up these projects that are of sufficient scale, so they can, firstly, contribute significantly to the local area you’re trying to develop and, secondly, attract the funds that are available globally into these sorts of investments.”

Boettcher said the creation of the NIC, the appointment of Lord Adonis – who had previously worked as part of Tony Blair’s Labour Government – at its head and the allocation of £100bn over the next five years for infrastructure projects was when he realised that Chancellor George Osborne, the architect of the Northern Powerhouse, “knew what he was doing” and “was not particularly political about it”.
 
Boettcher highlighted the retirement cycle for the baby boomer generation 2015 to 2035 which will be pivotal with regard to investment over the next 20 years.

“What this means is that the amount of funds going into institutions for pensions are going to increase over this period,” he said.

“So you’ve got a 20-year cycle where there will be vast amounts of money available for investment. Theoretically, it should mean that interest rates are going to stay low for a long time.

“So all these funds are going to be super hungry for long term annuity libability matching investments. That’s what infrastructure is. It’s long term investment and if you get maybe 5% return you’re doing well because you know it’s secure.

“On the back of that you do your infrastructure investment, you open the door for property guys to come in and produce the next set of assets.
 
“Given the demographics, which shows the population growing in Britain faster than the workforce, compared to Germany where it’s shrinking, there are huge opportunities to address both the qualitative increase in population but also the qualitative changes.
 
“That has to be done because we need to lay the ground work for the next 50 years.”

And he had a powerful message to the Northern property sector when he said: “Quite frankly, I would hate to see a huge amount of international cash, which is available at low interest rates, being  used to just drive up asset values on existing stock and assets.

“I would really rather see long term property investment so that the property industry can come in on the back of infrastructure and build a whole new generation of assets that’s designed for the emerging economy that’s coming out of the Northern Powerhouse, whether it’s more tech based or whether its pharmaceuticals or applied sciences, or whatever.”

Meanwhile, studies undertaken by Colliers, which has offices in six major cities, including Manchester and Liverpool has revealed the Norther Powerhouse region currently has 9.2 million residents.

“That region is generating something like £168bn a year, which actually means it has got scope internationally – bigger than the Rur Valley in Germany, which is the traditional industrial heartland of Germany.”

Boettcher underlined his message when he said there was the equivalent of about £21 trillion in international funds that could be allocated to property in the Northern region.

And he added: “Allocations are going to property at a pretty big rate because the interest rate environment is so low. These guys are looking for yield, so they are going increasingly cross border.”