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UK Regional Markets - Reasons to be Fearful?
Date Posted: 03/05/2011
As we move towards the end of the year, there seems to be an encouraging level of optimism within the UK property market for 2011. Many property professionals will be glad to see the back of 2010, hoping that next year will restore a certain degree of normality to the property arena. At Foundation Recruitment, we have seen this renewed sense of optimism really gather pace in the last quarter of this year but is it a false dawn? The property and construction sectors in the UK will certainly feel the pain of government spending cuts and this is likely to have a knock on effect on the whole economy. The Royal Institution of Chartered Surveyors is warning that when the property sector hurts, the whole economy hurts more.
After one of the worst UK recessions in recent times, big cuts are on the horizon to reduce the UK's budget deficit by £83bn and the axe has already been wielded. The Government is preparing to increase the efficiency of its own property portfolio by disposing of any of their surplus assets. It is estimated that the Government occupies around 115m sq ft of office space throughout the UK, with 12.5% of this space in the North West. Efforts to make savings and raise capital are already under way, but it is by no means a straight forward task. We find ourselves in a market where office capital values remain more than 25% down on the peaks of 2007. Whilst the London office market continues to improve, the outlook for the regions remains bleak.
The Governments' cost cutting exercise is already closing quangos and reducing the workforce. It has been confirmed that all Regional Development Agencies are to be closed by March 2012 at the latest. Whilst there is still a possibility that some of the RDA's current functions will continue at a national level, this is an extremely unsettling time for the 2,700 people who currently work within RDA's. At Foundation Recruitment we are speaking to an increasing number of former RDA employees. Whilst the Government insists that all staff remain committed to delivering their current program of work during this period of uncertainty, we are meeting a large number of unsettled surveyors seeking career and market advice. With a distinct lack of development and investment led opportunities in the regions, many candidates are open to the possibility of relocating either to London or overseas.
It is widely anticipated that the North of the Country will be hit hardest by the spending cuts, deepening the country's north-south divide. The North West Development Agency has already stated that all uncommitted projects will not receive NWDA funding in 2010/11, there will be no new financial commitments in 2011/12 and operational funding for most partner organisations will not be renewed. This will affect over 50 proposed projects in the region, halting any new recruitment into the property arena. By 2012, the organisation that played an integral role in the development of MediaCity will be no more.
It is very difficult to predict how the next 2-3 years will play out for the UK's regional property market. The government has confirmed that a Regional Growth Fund of £1bn is to be made available across 2011/12 and 2012/13 to support private sector growth in areas where the private sector is currently weakest but will this lead to the creation of new jobs within the property arena? It is too early to say but the creation of Local Enterprise Partnerships (to be in place by 2012) may offer a small degree of hope to the UK's unsettled regional property markets.