Beech Holdings has been developing private rented sector (PRS) accommodation in Manchester for the past 20 years and is now looking to lay the foundations for the next 20 by capitalising on the government’s levelling-up agenda.
Stephen Beech, chief executive of Beech Holdings and Abdulaziz Albassam and Wasim Choudhury – chief executive and director respectively of AIMS Investment, the firm’s Saudi Arabian backer – talk about the strengths and weaknesses of the Manchester market compared with London.
SB: We’re quite fortunate that the residential sector was one of the few sectors that came through the pandemic quite well. Our occupancy remained intact at virtually 100%. It was close to that before Covid.
The opportunities simply aren’t there in London to make any decent returns, so the focus is up north, and we have got a lot of yield compression. We’re very well occupied for 2024 already.
We do mostly classic PRS and we either redevelop older, loved buildings or buy old plots and put new skyscrapers in, but they’re all specifically designed for the rental market.
Occasionally, we’ll sell to an international investor or to someone buying an apartment off plan, but it’s still for a rental investment.
SB: We have definitely seen an upturn in people coming up from London. You can get an apartment twice the size for half the price and the employment opportunities in Manchester have really grown.
We’ve got one of the best universities in the world and one of the highest graduate retention rates in the world. So the talent that goes through the Manchester universities stays and is retained.
WC: I think what we’ve seen in the past four or five years is also much more institutional flight. You’ve seen what’s happening in Salford in terms of MediaCity, but also our developments have benefited from significant companies moving their headquarters to or opening branches in Manchester.
The storyline around London just doesn’t hold anymore. London has become a place where if you want to park cash, you put it there.
AA: For institutional and international investors, the easiest place to buy real estate is London. But the thesis we have is that there’s a lot of value in the north of the UK, which institutional investors have not capitalised enough on. It doesn’t make sense for the economy. There’s a lot of value to be developed, created and sustained in a lot of cities other than London.
WC: Although it’s seen as a bit of a political gimmick to go with all the other catchphrases, in terms of our own investment thesis, this is something we were looking at before Boris Johnson invented the term.
It also makes economic sense. If you think about the amount of concentration of wealth and talent we had in London, it’s very rare for a developed economy to have that level of concentration.
Also, an essential component of what we do is for our banking partners to come with us. A few years ago, it was very difficult to talk to banks about financing projects in cities like Newcastle or Sheffield, whereas now, those markets have become institutionally acceptable.
In fact, now, in many cases it’s preferable to funding something in London, just given the amount of risk that goes into a typical project in London, due to the size and value of those projects. Pretty much all our banking partners are comfortable in the places where we’re investing.
SB: The major focus of levelling up is infrastructure and connecting the northern cities, starting off connecting Manchester to London with HS2 – that’s very much welcomed. What we’re finding, and why we only invest in city centres or the fringes, is young people really want to live where they work.
Connecting all the regional cities such as Sheffield and Leeds is very much welcomed. That will connect all the cities and really create a northern powerhouse, and Manchester will clearly be the capital.
SB: It’s mainly in terms of energy efficiency. For example, in Newcastle, we bought a building that wasn’t fit for occupation as it unfortunately had Grenfell-style cladding on it.
We repurposed the office block, put new cladding on and then once it’s occupied, it’s really about the energy retention. So having air-source heat pumps and a super-insulated building means that maybe 10 days a year you might need to put on some heating, but the rest of the time you wouldn’t need to use any energy.
From an operational point of view, we like it because it has super-low operational costs.
SB: There’s two ways of handling it. Manchester typically takes Section 106 contributions in a prime, central location. It could be argued that it’s a better balance to give £500,000 to affordable housing, like we did on our skyscraper in Ancoats Gardens, which can be put in an area where you can actually buy more land and develop cheaper properties.
I think it comes down to supply and demand. The government needs to give more planning powers to local developers, which can develop more easily. We developed 600 apartments under permitted development rights and delivered them to market quickly.
AA: With the rising interest rate environment that we live in, the cost of capital for us is increasing. This is why time is becoming very expensive, and why speeding up the process would actually lower the cost for everyone in the industry and would, therefore, mean a lower cost for the end user.
SB: The government needs to give more resources to planning authorities. It’s unfair as I don’t think Manchester City Council has had a new planning employee for 10 years and yet there are three times more applications.
WC: You can expect to see a continuation of our commitment to Boris’s levelling-up agenda. We are committed to bringing what we think is a very good residential product into other cities in the country and taking our original business model, which includes our property management arm, to go national with us.