Transport connectivity is intrinsic to real estate value. You may own the UK’s fanciest office building or its most efficient warehouse but if your employees or your goods cannot easily access the property then it is functionally obsolete. The London-based headquarters of Goldman Sachs sold for £1.2 billion in August. Imagine the difference in value if that building were located in the Outer Hebrides rather than Central London! You can understand why transport is so important to price.
London owes its very existence to transport connectivity. The first settlement sprang up at a crossing point over the Thames and its location was later crystallised by the creation of a port around where the City is today. The rest is history.
Infrastructure as a core investment theme
New transport infrastructure can thus generate significant real estate value for locations that will benefit. Conversely for those locations that are left behind it can destroy value. The invention of modern air travel decimated many UK coastal towns that had relied on domestic tourism for example.
With that in mind infrastructure is one of our three investment themes. This theme covers all types of infrastructure – including housing and power grids – but the major focus is transport. We currently monitor over 130 transport projects across the UK of various sizes, delivery stages and modes. For each of these we try to work out the likelihood of delivery and the resultant implications for occupational demand on real estate.
Timing is crucial. Once the impact of a transport project is fully priced in by the market, the first mover advantage is lost. It is those mispriced buildings and locations that we seek to identify as investment opportunities.
Solihull: one of the UK’s most connected locations
Whilst we keep our infrastructure analysis close to our chest, one well documented location in which we have been investing heavily is Trinity Park, Solihull. Out-of-centre business parks are not usually on our buy list but Trinity Park is different. It is situated at the confluence of four major transport nodes: the M42; Birmingham International Airport; Birmingham International rail station; and the future Birmingham Interchange HS2 station.
Figure 1: The Solihull Transport Hub
Googlemaps/ Mayfair Capital, 2018
Birmingham International Airport already has significant expansion capacity within its existing operation. It has bold ambitions to ramp up activity in order to absorb overflow passenger demand from London’s constrained airports. According to the Department for Transport this could see 44% more passengers using the airport by 2030. To accommodate this a £33m runway extension was completed in 2014.
Once the Birmingham Interchange HS2 station opens in 2026 it will take just 38 minutes to reach Central London – a quicker travel time than London Stansted (45 minutes) and only 8 minutes slower than London Gatwick. This will make Trinity Park one of the UK’s most connected locations. Major housing, commercial, retail and amenity infrastructure is planned and this will greatly increase its attraction to households and corporate occupiers. This in turn should be positive for the value of local real estate.
Crossrail: winners and losers
Another high-profile transport scheme is Crossrail, London’s new £15bn east west rail link. This will bring an extra 1.5 million people within a 45-minute train ride of Central London. It will increase the desirability of locations with a Crossrail station as places to live, work and invest.
Figure 2: Crossrail route
Mayor of London/ Transport for London, 2017
However, opportunity may well be consolidated along the Crossrail route at the expense of other locations in the Thames Valley and Essex that could be viewed as comparably less connected once Crossrail services commence. Many of these locations are reliant on vehicle-borne accessibility. This is less popular with the younger workforce who have lower car ownership levels than previous generations and depend more on public transport, ride-sharing companies like Uber, cycling and their feet.
Investment strategies must consider transport
In this manner both the positive and negative implications of transport changes need due consideration by real estate investors. Strategies like ours that seek to protect, create and grow income must fully understand and continuously analyse the impacts of multiple transport infrastructure projects on locational real estate demand.
Senior Analyst - Investment Strategy and Risk