The Subplot | A new new normal emerges

This month’s long read

• Trump plus everything else equals business as usual for Northern real estate? Probably not.
• Elevator pitch: what’s going up, and what’s heading the other way this month

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Northern real estate can’t escape The Donald

Five years ago last month Covid lockdowns looked like they would usher in a new normal. Yesterday, President Donald Trump unplugged the global trade network – on top of up-ending trans-Atlantic defence and generally upsetting assumptions about everything. Another new normal has been born.

The generally resilient Northern real estate sector may hope to escape – but is it now too wired into global trends to get away without damage?

By now, you know the worst about President Trump’s mega-MAGA tariff plan. Last night’s theatrical live TV announcement has been well-trailed. So maybe it’s time to get to know what analysts call The Global Pessimistic Scenario, and work out what it might mean for Manchester and Leeds, Hull, Liverpool, and all points in between?

Get into the GPS

Subplot deeply wishes it had invented the Global Pessimistic Scenario – it feels very on brand – but the credit must go to ratings agency S&P Global. In February this year it revealed its latest analysis. This assumed: tighter financial conditions for the US economy; emerging markets’ currencies underperformance, insufficient stimulus measures in mainland China; increasing tensions between Israel and Iran; substantial increase in the military expenses for NATO members, a drag on European manufacturing and a re-emergence of inflationary conditions. The China point is not yet quite proven, but other than that, S&P was on the money – which, remember, is precisely its job.

Bottom three

S&P went on to point out that comparing the pessimistic scenario to the baseline left the United Kingdom (along with Sweden and South Korea) receiving the worst prognosis. If born out by events it meant nearly doubled inflation and a high unemployment rate, leading to lower household utility consumption, and trouble for anyone who depends on it, particularly the utility sector. You can read ‘inflationary spiral’ in their subtext.

Refinancing

Moody’s has narrowed the focus down to real estate and says things are better, but not wildly so. A hypothetical loan originated at the end of 2021 at a 75% market loan-to-value ratio would have an 82% LTV by the end of 2025, it reckons, making it easier to refinance than it was in gloomy 2023 thanks to a steady rise in property values. But it still means a haircut compared to 2021.

The Americans, again

The impact is likely to be felt first on property finance: eased underwriting standards go into reverse, high leverage turns into lower leverage, and so on. Also bear in mind UK real estate in general – and North West real estate in particular – is more heavily dependent on overseas money than it was, because the Americans have a bigger share of a smaller pot.

More of less

To explain: last week we learned that US investors spent £13.6bn in the UK’s commercial property market in 2024, twice as much as in 2023, and a third of all investment in UK real estate. We have the British Property Federation and CoStar Group to thank for this data, which shows US private equity buyers especially active, with the North West build-to-rent and student housing sectors their top targets. A stronger dollar might suck in even more. At the same time, according to the Investment Property Forum’s research on the Size & Structure of the UK Property Market,the value of commercial property has taken a tumble from £1.1tr in 2020 to £949bn on the last acurate reading. Thus, Americans have a bigger share of a smaller pot.

Finance is available

Money is still finding its way into Northern real estate. The last few days have seen Barclays, HSBC UK, Lloyds, NatWest, and Santander UK add another £100m to Bruntwood SciTech’s financing package, taking the group’s total facilities to £580m. Manchester’s Oxford Road corridor and the £1.7bn Sister innovation district at Whitworth Street will both benefit. At the other end of the scale, Mellior Group has secured a £3.6m bridging loan from Recognise Bank to kickstart the 365-apartment scheme in Liverpool’s Fabric District. The developer is rethinking and thus rescuing a scheme that landed in trouble when its developers collapsed in 2021.

A yen to invest

Watch out for investors still looking for the plus-plus grade office floorspace, for data centres, for BTR and for the Japanese who have been making a splash in London and (in the nature of things) will soon begin to look North. Names to watch include Nomura, active in several of those categories, and new arrivals Sotetsu and Yasuda.

Too soon to say

So everything is going to be ok? Commercial property’s new new normal won’t be as bad as all that because the sector can rely on some much-touted relative shortages in some asset classes, and some quality grades? Subplot asked Moody’s if there was an escape hatch for commercial real estate. Would the internal dynamics of property – such as supply and demand imbalances in some sectors – provide an engine sufficiently strong to escape the stagflation risk of Trump’s tariffs? The answer was “too soon to say.” That’s either encouraging or not, depending whether you’re a glass half full person, or glass half empty.

Half full?

The half-full people have some wisdom on their side: the immediate future doesn’t need to be gloomy. ING’s chief economist warned about this when Trump was elected in November 2024 and she made some good points. Seven months later some of them are a little less good than they were, but the warning still stands. On the other hand, economists are pretty much agreed that adding 20% tariffs to everything from everywhere is at the very least a gamble with potentially huge global consequences.

All this adds up to a potential new normal. Or, to pick up a typically upbeat phrase from last month’s MIPIM, the start of a new real estate cycle.

ELEVATOR PITCH

Going up, or going down?

This month it’s all about old timers and endurance, because surviving is sometimes the only real victory. Three cheers for Peel and for Brendan Flood. Going up!

More or less a-Peeling?

Riding the roller-coaster of real estate roller-coaster takes a lot of luck and some powers of endurance: Peel are demonstrating that whatever you say about them – and people say all sorts – they have what it takes.

The Peel strategy might politely be described as a lesson in how to take the long view. Mere clocks and calendars are not relevant: they have their eyes on eternity. Which makes the John Whiktaker-founded sheds and beds via ports to energy business a great sign of what to watch. Last month Peel NRE – the energy arm – acquired 134 acres at Ince, Cheshire. This will help expand the Protos facility next door, and follows the purchase last year of nearby Fiddlers Ferry power station.

While some observers think the utility sector has a rocky few years ahead of it, Peel clearly don’t. This is interesting.

 Flood tide rising

This month Subplot is celebrating 37 years writing about commercial property: amusingly, nothing much has changed in all that time, except the recessions come more quickly these days, the statistics are fancier but more rubbish, and there’s some new names and faces. So it’s very gratifying to discover one name from long ago still here, despite the recessions and the madness. Yes, Brendan Flood is back in town, although in truth he never went away.

Brendan Flood, the eminence gris behind the Gary Neville-fronted proposals for Manchester’s St Michael’s scheme, Booth Street, has bought into adjoining properties at 29-31 and 33-35 Peter Street as part of a JV with BWS Developments (youngsters). Options are said to be in the midst of evaluation but new-build offices might be smart, a hotel yet smarter. A bargain for about £8m.

In a triumph of nominative determinism, Flood has come and gone in mighty waves over the last 30 years, patiently building up Modus, before seeing it smashed into the surf in the great recession, and then there was an interlude in perfume retail which also got washed away. For the past decade he’s been a rising tide behind the scenes.

Peter Street was once the heart of the city – then it drifted to the fringes – and today it’s back, but undervalued. The dead weight of the Great Northern Warehouse at the Deansgate end, and a few too many transitory bar concepts, haven’t helped. Flood has an eye for this kind of thing. For all his vintage years, you can bet he has a grand future ahead of him.