North West powerhouse?
Brexit will pose a challenge for those providing property services, but with business booming in Manchester, North West law firms are well placed to ride out any market volatility, believes Mary Nowell
We will remember 2016 for many things: Brexit, Donald Trump, Leicester City winning the Premier League, and the public voting to call a polar research vessel ‘Boaty McBoatface’. One thing was clear in the run-up to the referendum – Brexit, that is – was that investors had growing concerns about the possible impact on the UK’s property market in the event of a Leave vote. This was demonstrated by the addition of ‘Brexit clauses’ to contracts.
The pessimism was not tempered when George Osborne warned that in the case of a Leave vote, house values would take a 10 to 18 per cent hit and mortgages would become more expensive. So, just over 12 months on, what is the state of the North West property market and how is it impacting the UK legal services sector and, by implication, recruitment into property-related disciplines?
Residential property
There was real fear in the run-up to Brexit about the potential impact on the housing market. Many experts predicted falling house prices, expensive mortgages, and a lack of supply of much-needed affordable housing in the event of a recession. The outlook was grim, with many predicting a stagnant recruitment market for conveyancing departments. However, the experts were perhaps too pessimistic. The most recent survey from the Office for National Statistics shows that average house prices in the UK have increased by 4.1 per cent in the year to March 2017 (down from 5.6 per cent in the year to February 2017). Yes, it is true there has been a general slowdown in the annual growth rate, but if you look at June in isolation, then UK house prices rose for the first time in four months. The average price of a UK home was up 1.1 per cent at £211,301 following a drop in prices in the previous three months.
In the North West, the picture is also positive, though perhaps not as rosy as it is for some. House prices rose by 4.1 per cent versus the strongest performing 8.1 per cent in the East of England and the worst performing 0.8 per cent recorded in the North East. If we take figures from the last quarter in isolation, the North West was the second strongest performing region, even out performing London.
House prices are one factor, but perhaps a more important indicator when it comes to work levels in the legal market is transaction numbers. This is perhaps where we need to operate with slightly more caution. According to the Bank of England Agents’ summary of business conditions for May, housing market activity was subdued on both the demand and supply side. On the supply side, the Royal Institution of Chartered Surveyors (RICS) reported that new sales instructions remained negative for the 14th month in a row. It also reported that average estate agent stock levels remained close to record lows. Further, RICS reported that “an acute shortage of stock remains a key factor underpinning prices for the time being”.
So what does all this mean for the flow of work into conveyancing departments? We can’t avoid market reality – the supply of housing stock is an issue and clearly lower numbers of transactions are not good news for those looking to grow – but there are opportunities for the savvy. While the 3.3 per cent fall in monthly transactions is disappointing, monthly sale numbers still hovered above 100,000 and so there is plenty of work to go around. Law firms operating within the conveyancing sector need to be confident and innovate to ensure that they can compete on both price and quality. Looking at the trends, there is a real momentum for first-time buyers as lenders look to plug the gap left by a decreasing number of buy-to-let applications, due to legislative change and low interest rates.
The Financial Times reported in June that “more than two-thirds (67 per cent) of mortgage applications made by first-time buyers were completed in the first three months of 2017, up from less than half (48 per cent) a year earlier”. This is one opportunity that our region’s firms need to look to and ensure that new products are aimed at technology-savvy first-time buyers who will invariably want a quality service at a competitive price. My Home Move (the UK’s biggest residential property law firm) is one example of a niche firm approaching this situation with positivity. Doug Crawford, the firm’s CEO, says: “Current market conditions form a good springboard for a positive year for the sector.” Economies of scale lend an advantage but having a clear product focus is equally as important.
BCL Legal is seeing no real let-up in recruitment demand from both high-volume property providers and more traditional high-street firms. We have experienced no real decrease in new vacancies (save for a short-term drop-off in the immediate Brexit aftermath) and across the market there is a feeling of ‘business as usual’. For any experienced conveyancer, there is no shortage of opportunities, and most will have a choice of employer and job role. In addition, there is still a ‘war for talent’ and so firms of all shapes and sizes are having to think of ways to accommodate flexible working, incentivise performance through bonus schemes, and find ways of making themselves an ‘employer of choice’ by differentiating themselves from competitors.
Real estate
Manchester is now the UK’s second city, a booming economy with a landscape dotted with cranes hovering over the new developments surging into the skyline. The city’s economy is estimated to have grown by 2.9 per cent during 2016, an impressive performance given the referendum result, and well above the UK average of 1.8 per cent. Commercial property departments within the North West offer a variety of services, including landlord and tenant, commercial and residential development, and real estate finance; all rely upon job creation, new developments, and companies investing in additional office space to house increasing employee numbers.
Manchester is expected to see faster office-based employment growth over the next five years than Greater London and all of the key UK regional cities, which is all great news for our region’s law firms providing much-needed landlord and tenant work. In addition, exciting residential and commercial developments are planned and taking shape. Worthington Properties, funded by the North West Evergreen Fund, is behind 125 Deansgate, one of Manchester’s most eagerly awaited commercial developments providing 113,500 square feet of grade-A office space in the heart of the city.
Airport City Manchester has embarked on a £15m infrastructure investment that will support the development of the landmark £1bn project. Construction of the new link road, Enterprise Way, will connect the office and hotel development plots to the rest of the site and the wider transport network. This is a just a snapshot and there seems to be much more planned, underpinned by expansion within a variety of key industry sectors such as the growth seen in MediaCity.
This sustained activity has fuelled continuing demand for commercial property lawyers across all niches. The newly qualified market has indicated an increased demand for resources, with a huge number of vacancies for external and internal trainees. There is certainly a range of opportunities available for ambitious, aspiring lawyers. The same can be said for more experienced lawyers, especially those with four to ten years’ PQE looking for a mid- to senior-level position.
In addition to positive market conditions, demand within Manchester has been further fuelled by the continued growth of firms such as Berwin Leighton Paisner, which operates a niche property offering providing services to key London clients. The firm solidified its commitment to the city’s market by appointing key partner Damian Fleming to the Manchester office to spearhead the continued growth. Fleming is positive about the outlook post-Brexit and indeed the part that the North West can play. He comments: “In the post-Brexit world, some investors who have previously focused only on London may look beyond the capital, and regional hubs, particularly the key North West cities of Manchester and Liverpool, could become more attractive investment destinations.
“Broadly, the UK market was dipping pre-Brexit in terms of volume of transactions. However, yields for prime assets still remain close to pre-Brexit levels, mainly due to a lack of supply and a lot of foreign capital still wanting to invest in the UK.
“It is difficult to make predictions but even with Brexit, those other global cities who are competing with London all have their own challenges, for instance the potential implications of national elections in Germany. Speaking broadly again, in the next five years we predict that the traditional UK real estate market is likely to remain flat, though there may well be an increase in infrastructure and alternative investments in the coming years.
So, the message is cautious optimism. We can’t make sweeping predictions about what the UK will look like post-Brexit, but we must approach the challenge positively and not allow a lack of confidence to take hold. There are plenty of opportunities and by thinking innovatively and driving efficiencies North West firms can continue to flourish.
Yes, Brexit will be a challenge for firms providing property services but there is every reason to be optimistic, and the North West is well placed to ride out any market volatility. With all of the press around Northshoring and the Northern Powerhouse, politicians are no longer ignoring the need to rebalance the economy and recognise the positive impact that can have on the UK as a whole.
Mary Nowell is director of the NorthWest Private Practice team at BCL Legal
