By Anna Reed, Data Director at EG
Today the East Midlands commercial property sector is thriving, showing positive recovery from the COVID-19 pandemic. Labelled as one of the best places in the country for fast-growing businesses by the Sunday Times, the East Midlands is undoubtedly an attractive location for companies and job seekers, with numerous companies inspiring a jobs boom.
In fact, data derived from EY shows that the region is amongst the best performing in Britain: with the local economy set to be 9.5% larger in 2025 than in 2019. The region reported 121 deals for office space (occupational sales and lettings) in H1 2022, while the average rent on H1 2022 deals was £14.22 per sq. ft and the average space let was 2,338 sq. ft. The region’s largest letting was in Northampton, with logistics pioneer GXO adopting 36,950 sq. ft as its UK headquarters.
Industrial demand is also on the rise, with overall deals (lettings and occupational sales) in H1 2022 running to 5,254,451 sq. ft, just over 70% of the equivalent number this time three years ago. The largest deal of the year to date sees 650,000 sq. ft of space in Corby taken by modular house builder TopHat. The company – which is backed by Goldman Sachs – plans to turn the space into its flagship UK factory, using robotics to manufacture some 4,000 homes per year.
On the topic of housing, the region has witnessed a rising demand for Build to Rent (BTR) developments. Once a small part of the UK commercial real estate market, BTR is consistently increasing and currently accounts for more than 7% of homes being built in Britain.
The history of BTR
Purpose built housing designed for rent rather than sales presents a unique and attractive proposition for tenants, leaving no surprise that demand is increasing. These professionally managed buildings often include shared facilities such as common areas for socialising, bike storage and gyms, and typically offer longer tenancy agreements providing greater security for tenants.
Originating in London around 2012, Build to Rent properties have been welcomed by renters, with the capital now attracting more than half of the overall investment for this sector alone.
Over the past decade the UK has witnessed a rise in demand for Build to Rent (BTR) properties, with a record of 38,000 new BTR homes built in the year ending March 2021. The increasing growth of BTR has seen investors in the market evolve, with financial services provider Legal & General and retailer John Lewis joining the list of new players in the market, alongside longstanding specialist firms that continue to drive the majority of BTR developments.
Whilst the London market continues to go from strength to strength, developers and investors are increasingly looking for the next BTR hotspot.
Zoning in on the East Midlands BTR market
The East Midlands is proving to be a strong performer in the commercial property space, with three urban centres of Nottingham, Leicester and Derby becoming the latest hotspots for Britain’s thriving BTR market. With an impressive 11 developments across the region now totalling 2,900 homes and 18 further developments planned across the next three years, the sector is showing characteristic strength in the region and no sign of slowing down.
In line with wider market trends, developments in the region remain concentrated on urban centres. In fact, the largest project to date is taking place in Merlin Wharf, located on the waterside regeneration area of Leicester. Purchased in 2018 by the Swiss-based Cording Real Estate Group (formerly Edmond de Rothschild), the development contains 384 units for the city’s residents. Since acquiring the development, Cording has confirmed its second venture in the city, with a £24.5m plan to turn Wellington House into 160 high-quality units. ‘Our research forecasts a sustainable high demand for affordable, professionally managed accommodation in Leicester,’ says the company’s director of residential acquisitions.
As more and more tenants look to reside in high-quality, well-managed homes located in city centres across the East Midlands, providers of Build to Rent properties remain optimistic for the future, including local specialists Wise Living. Enthusiasm for the sector comes from investors, developers, and tenants, says its partnerships director Mark Gratton. ‘Interest streams from the buoyancy of the current market as well as predictions for further growth,’ he adds.
Fortunately for investors, high demand for BTR properties is also driving letting times and rental value of BTR properties in Leicester and across the UK. In fact, the average letting time for a BTR property is 30 days in Leicester – the same period as it is in London.
The future of BTR in the East Midlands
Traditionally, BTR developments have taken place in city centres and allowed young professionals to immerse themselves in an urban lifestyle. Yet the UK is set to see a rapid increase in the suburban Build to Rent market in 2022, with the demand for high-quality and well-managed rental accommodation in suburban neighbourhoods rising due to a general pent-up demand from families also wanting to rent following the pandemic. Savvy investors have reacted to the recent property trend and begun to develop in the suburbs. As such, a report from Knight Frank highlighted a surge of interest in suburban projects, such as Goldman Sachs’ £200m partnership with developers Urban & Civic, predicting that the market could be worth as much as £7.8bn within five years.
This shift to the suburbs will likely change the profile of BTR tenants, as families will now be a targeted demographic alongside the existing clientele built up of young professionals, working couples, and students. According to a study by Dataloft and the British Property Federation, families currently represent just 7% of BTR residents, compared to 22% of tenants in the traditional private rental sector.
This presents a significant opportunity for investors, developers and families in the East Midlands, with the future potentially holding similar developments to Ingram Park in Boston and The Old Brewery in Mansfield, providing a new rental property type for families to consider and enjoy.
With investors and developers looking outside of London for opportunities to develop BTR housing, there is no sign of the BTR developments in the East Midlands slowing.
