Northern construction is buoyant but momentum must be maintained
By Giles Taylor, head of property and construction in the North of England at KPMG.
You don’t have to look far to find evidence of the health of the northern construction sector. Across the region, some of the most substantial residential and commercial property developments happening in the UK today are well underway.
It’s great to be able to say that the industry is still buoyant. Its vitality is a tangible symptom of the region’s economic success, the growth of our cities and a trend towards urban living.
Demand for office space in the north alone is evidence of a market that’s showing no sign of slowing, underpinned by a number of exciting, growing sectors like healthcare, technology and media, as well as ‘north shoring’ London companies and major international players looking for a stronger foothold in the region.
In Manchester, Bruntwood’s Neo building and One and Two St Peter’s Square are all almost fully let. While across the Pennines in Yorkshire, the success of Thorpe Park Leeds is testament to the rising demand for out-of-town addresses.
New build student accommodation is another market that’s come on leaps and bounds in recent years. Developers, such as Select Group, have been quick to address what was once a shortage of this category of accommodation and we’ve seen a surge of projects crop up all over the region’s university cities, including Newcastle and Liverpool.
More broadly, the north’s contractors are using the latest technology, such as automation, to increase productivity and meet increasing demand. They’re also embracing innovative construction methods like modular building to approach the need for a high volume of residential property in a fresh, forward thinking way.
However, as we consider whether the sector can sustain its upward trajectory, it is important to consider the barriers and headwinds that businesses leaders and policy makers alike must address.
Obstacles to overcome
Financially, an expectation that interest rates are set to rise, coupled with inflated land prices, could put contractors, who are known for working with tight margins, under pressure.
It is also impossible to ignore the political uncertainty that’s affecting every industry, not just construction. There is an ongoing danger this could hamper investment and exacerbate an existing skills challenge the industry must address.
Saturation is also a potential pitfall. For example, the Private Rented Sector (PRS) remains a growth area and an attractive asset class for investors both in the UK and overseas. Operators like Moda Living are leading the charge, undertaking innovative, highly subscribed projects across our cities, from Manchester to Leeds.
It is so popular developers and their funders must be careful not to create excess supply. There is a strong demand for this sort of high spec accommodation from city dwellers, but their numbers are inherently finite.
To keep the construction sector moving in the north there needs to be close collaboration between the private and public sector, underpinned by a good understanding of what the region truly needs from a development perspective.
Greater Manchester has excelled on this front. The combined authority has a very specific vision for each borough of the wider city region. Spinningfields, for instance, has become one of the UK’s most exciting business hubs thanks to private sector development, led by a strong public-sector vision.
This needs to be mirrored across the north. Clarity of vision will help us zone in and address challenges, both at a macro, and micro level.
Residential property is a good example of a market that will need to broaden its focus. While the burgeoning PRS market is keeping contractors busy, it is largely a feature of our metropolitan areas, serving a limited demographic. We need to ensure there is a diverse, affordable range of housing to suit every person in the North’s requirements.
And just as the property industry is evolving, construction must also transform too. As it grows, the sector will need to ensure that it is developing the skills it needs for the future, creating a sustainable pipeline of talent. Fundamental to that, is the need to encourage apprenticeships and collaboration with the region’s universities, and plans to take active steps to retain talented people.
Cultivating an environment where people from all walks of life want to live, work, and ultimately, invest is an important way to deliver this.
More practically, as the market becomes more crowded, quality of proposition and design will become increasingly important as a competitive differentiator. Continuing to explore new technology is an important way for contractors to stay head of the game and stand out from the crowd.
But ultimately, if the construction industry is going to maintain momentum, while wading through an uncertain environment and tackling a skills challenge, developers and policymakers need to work together to identify and tackle barriers. If they do, we can expect to see cranes dominating our skyline for the foreseeable future.