Levelling up is a mystery to many people in UK property, but Sirius Real Estate’s acquisition of workspace group BizSpace for £380m last November has opened my eyes to the potential for the government’s initiative across the UK.

Andrew Coombs 1

Andrew Coombs

Our FTSE 250 group owns and operates property with a book value of around €2bn (£1.68bn), the majority of it in Germany, where we own an extensive portfolio of self-storage industrial and office space.

BizSpace, the UK’s leading regional flexible workspace provider, adds 72 sites and more than 4m sq ft to our portfolio, from Manchester to Sunderland, Newcastle, Leeds, Nottingham, Stoke, Cardiff and London.

In Germany, the federal system of government means power is highly decentralised, with 16 federal states, all with a high level of autonomy. There are advantages and disadvantages to this, with states sometimes pulling in different directions. Despite this, wealth from a geographical perspective is more evenly distributed in Germany than in the UK.

Through levelling up, there is the potential for regional towns and cities to thrive

Perhaps this is because, according to Centre for Cities, the cost to the UK of truly levelling up would be €2trn – roughly what Germany spent on reunification in the 1990s between east and west.

Reunification has undoubtedly been a success for Germany, and at Sirius we reflect the breadth of the country’s real estate market by investing in and around the edge of seven of the largest cities: Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich, with almost 6,000 customers in our assets in these locations.

In the UK, through levelling up, there is the potential for regional towns and cities to thrive and for us to see a true renaissance in UK regional markets. In Manchester (pictured), there is already a tremendous feel-good factor, something we demonstrated to City analysts on a BizSpace property tour in February.

You only have to look at the cars in the car parks of BizSpace’s assets to realise that something is stirring in the North West, even before the impact of the government’s levelling-up agenda is truly felt.

This northern, small and medium-sized business revival is being driven by three huge and inter-related macro factors – first, nearshoring, which means that a whole range of items from coat hangers to other basic goods that would have been imported at some expense from China and other Far East locations, are now being profitably made by home-grown business supplying goods locally.

Manchester skyline

Source: Shutterstock / Ingus Kruklitis

The temporary closure of the Suez Canal, reduced trade flows due to Covid and now rising inflation mean UK companies are scouring the country for local suppliers that, not surprisingly, need new space to expand as close as possible to their core markets.

Wave of start-ups

Second, there is a ready supply of start-ups willing to satisfy this manufacturing and service demand. According to Companies House data, 80 new businesses were created every hour in the first half of 2021, accounting for 340,534 companies – a 32% rise compared with 2019.

Third, there is a revolution in not only how Britain shops, but also how we eat, with ecommerce deliveries continuing to grow from all types of warehouses, while food delivery and dark-kitchen groups flourish across the country.

This is reflected in the rental performance we have seen at BizSpace between August 2021 and December 2021, with its annualised net operating income rising by 11% to £27.84m.

Many of these businesses want longer leases than their current flexible arrangements to give them greater security of tenure as they ramp up operations to meet customer demand, while understanding that the space they need is increasingly in limited supply.

We also expect to see significant benefits to the regions and regional real estate markets through another key component of the levelling-up agenda: freeports. Eight are planned, at Humber, Liverpool, Teesside, East Midlands Airport, Felixstowe and Harwich, Plymouth and South Devon, the Solent and the Thames Gateway.

In these areas, the government is proposing a range of incentives, from business rates relief to simplified, faster planning and relief on national insurance, stamp duty land tax, capital allowances and structures and buildings allowances. Just as development corporations cut away red tape in the 1980s to deliver regeneration, so freeports have the potential to reinvigorate forgotten towns and cities, attracting new occupiers and becoming strong real estate locations.

Whether you admire the government or not, the prime minister and his team have struck a chord with the levelling-up agenda. From our experience with Sirius in Germany, decentralisation of growth can be a powerful economic factor, which, as long as we ensure we don’t ‘level down’ London, can only be a big benefit to the UK.

Andrew Coombs is chief executive of Sirius Real Estate