New paths to urban regeneration through independents

Independent property developers could be key players in successful urban regeneration, suggests a new study of urban property development funded by the Economic and Social Research Council (ESRC).

While current policy measures focus on encouraging institutional investment in regeneration, policymakers also need to recognise alternative forms of property development and investment processes, argue Simon Guy of Newcastle University and Professor John Henneberry of Sheffield University.

"While institutional investors will continue to make an important contribution to urban regeneration," says Simon Guy, "our study suggests that we should re-focus national and local policy efforts to encourage more independent and locally-based forms of property investment and development."

A significant proportion of UK commercial property is owned by institutional investors and large property companies. Most of these organisations are based in and around London. They constitute a nexus of influential, metropolitan decision-makers whose activities often adversely affect development values and profitability in other regions and cities. Typically, the larger, institutional property investors over-price property investments in London and the South East and under-price them elsewhere. Professor Henneberry argues that "Because of the scale of their UK commercial property holdings, the investment decisions of the institutions have important implications for urban regeneration."

Research findings suggest that London-based institutional investors have a restricted view of development opportunities outside London and the South-East. "Basically, the further you travel from London the harder it is to attract investment," says Professor Henneberry. "Core regions and cities are relatively well provided with new development and investment compared with peripheral regions and cities."

Why should this be so? In analysing the investment decisions of major institutional investors, researchers found that institutions concentrated on investing in specific types of property within markets which possess certain characteristics to satisfying pre-determined investment criteria. For example, lot size (the value of the property), the strength and quality of occupier demand, and market liquidity (the ease with which properties can be sold) are vital considerations. Investment in many peripheral regions and cities is fundamentally unattractive to UK institutions because the properties on offer rarely satisfy these investment criteria.

Moreover, interviews with leading London-based financial decision-makers suggest further reasons for an unwillingness to increase investment beyond the South East. "In addition to criteria which appear very rational and scientific, institutional investors indicated that other considerations form part of their investment decisions," explains Simon Guy. For example, investors seem to be most comfortable investing in those cities and sectors with which they are familiar. Also, it appears that much of the activity of overseas investors centres on London because investors can travel there easily and are familiar with London�s facilities. "There is a psychological aversion from some overseas investors to areas outside of Central London," admitted one overseas banker.

Researchers believe that existing urban policy will have little effect on the views of institutional investors regarding investment in peripheral regions and cities. However, the project identifies an alternative vision of urban regeneration based on local, independent developers. In Manchester, for example, �maverick developers�, says Simon Guy, " have trodden where institutions fear to tread, in the marginal development zones of empty buildings where rents fall below �10 per square metre". Indeed, independent developers often favour the very properties � on the basis of small size, fringe location, multiple tenancy and mixed-uses - which are anathema to institutional investors.

Independents, Simon Guy concludes, often have a very different vision of urban development. "While institutions tend to extrapolate previous trends in investment performance when evaluating likely profiles of risk and return, independents strive to develop a different urban future. Policymakers need to recognise these alternative development pathways and provide more support to locally based forms of property investment and development."

For further information, contact Simon Guy, School of Architecture, Planning and Landscape, University of Newcastle. Tel: 0191 222 5408 Email: [email protected] Or, Professor John Henneberry, Department of Town and Regional Planning, University of Sheffield. Tel: 0114 222 6911 Email: [email protected]. Or, contact Lilian El-Doufani, Lesley Lilley or Karen Emerson in ESRC External Relations. Tel: 01793 413032.

NOTES TO EDITORS

1. This research was undertaken by Simon Guy and Jon Coaffee (University of Newcastle) and Professor John Henneberry and Dr Steven Rowley (University of Sheffield) as part of their study of the process of urban property development in Newcastle, Manchester, Leeds, Reading and London. The project formed part of the ESRC Cities, Competitiveness and Cohesion Programme. Further details of this Programme can be obtained from the European Institute for Urban Affairs, Liverpool John Moores University. Tel: 0151 231 3430. Website address: http://www.livjm.ac.uk/cities/.

2. The ESRC is the UK�s largest funding agency for research and postgraduate training relating to social and economic issues. It has a track record of providing high-quality, relevant research to business, the public sector and government. The ESRC invests around �46 million every year in social science research. At any time, its range of funding schemes may be supporting 2,000 researchers within academic institutions and research policy institutes. It also funds postgraduate training within the social sciences, thereby nurturing the researchers of tomorrow. The ESRC website address is http://www.esrc.ac.uk.