London property downturn sees Berkeley target Birmingham
High-end builder’s new division to take part in ‘large-scale regeneration’
Luxury London housebuilder Berkeley Group is looking to the English provinces as a source of future growth as the market for high-end properties in the capital undergoes a downturn.
It has opened a new division in Birmingham — its first venture outside London and the south-east in more than a decade — as the Brexit vote and tougher property taxes cool prices of luxury London homes.
In a market that has been driven higher by international investors, average prices for prime properties in the capital have dropped an average 12.5 per cent since the 2014 peak according to Savills, the estate agent. Gloomy sentiment has pushed Berkeley Group’s share price down by a fifth in the past year, causing it to drop out of the FTSE 100 index in 2016.
The new division is a departure from the group’s strategy since 2005 of focusing purely on London and the south-east, although historically it has built homes in cities across the country including Birmingham.
“Birmingham is on the rise, with a can-do council that seems keen to encourage development,” said Rob Perrins, chief executive of Berkeley. “We want to bring a distinctive approach to the local market.”
He said the new division would develop homes including family housing, affordable homes, luxury homes and student accommodation, using “our expertise in large-scale regeneration”.
It will be headed by Angus Michie, chairman of the group’s St Edward business — a joint venture with the Prudential insurance company that focuses on high-end luxury homes, including a flagship development on the Strand in central London.
Anthony Codling, analyst at Jefferies, said: “There is a view from some investors that having all your eggs in the London and the south-east basket is a double-edged sword, and it’s swinging one way at the moment. It can potentially be viewed as a negative.
“[In the West Midlands] they have identified areas that fit their current product mix and where the demographics are similar to areas they know and understand.”
A person close to the company said the Birmingham move did not represent a reduction of its business in London and the south-east, where all of its land bank is currently located.
Berkeley’s move comes as an oversupply of new-build apartments in the capital is looming, according to documents from researchers at Molior London seen by the Financial Times.
Their research shows that the number of construction starts of new homes in inner London have been higher than those sold since 2012, resulting in an estimate of more than 10,000 unsold units by the end of 2016.
Berkeley said in December that its sales reservations had dropped by a fifth since the UK voted to leave the EU in June. It also amended a planned five-year dividend policy in favour of an enhanced share buyback programme to return more value to shareholders. It said most of its recent land purchases had been in outer London and the home counties, rather than the faltering inner London market.
The group’s strategies are closely followed in the market, thanks to the reputation of its chairman and former chief executive, Tony Pidgley, who successfully weathered storms including the 2008 financial crisis.
The group has also said it will focus on modular construction, sometimes known as prefabrication, and last year launched a house design that can be largely built off-site and then completed on site within 14 weeks.
Berkeley previously operated in Birmingham after buying the Manchester-based housebuilder Crosby Homes. Its projects there included the residential elements of Brindley Place and the Mailbox, two city-centre regeneration schemes, but it sold the Crosby business in 2005.