Backing Birmingham: Funding future construction

Contextual challenges for construction

Despite the positivity deriving from the expansion of the city centre, it would be remiss to ignore the challenging economic and geo-political context framing this year’s construction activity. Deloitte’s latest UK Chief Financial Officers Survey found that geopolitics topped the external risk list once again. Continued conflict and rising tensions in the Middle East and Eastern Europe are applying ongoing pressure to global supply chains of goods, materials and energy, and accordingly, the global economic outlook remains cautious. Global inflation remains volatile, whilst in the UK, the inflation dial remains teetering on or above target. The Bank of England responded with a steady reduction in interest rates over 2024, although it is unlikely that we will see rates reduce to those we were accustomed to pre-pandemic in the short term.

With these challenges, we are also seeing change in the political landscape. Globally, 2024 saw a number of major political elections including across the pond in the US. In the UK, we saw a change in government with labour elected, and, in the West Midlands, a new metro Mayor, Labours’ Richard Parker. The government has implemented a new budget, and consulted on and published the new National Planning Policy Framework (‘NPPF’) before seeing in the New Year. The NPPF reevaluates the national approach to house building targets with direct impacts to strategic spatial development in Birmingham and the wider West Midlands local authorities. 

Birmingham City Council continues to navigate its own financial challenges, with commissioners working throughout 2024 to help balance the books. Although cuts and tax rises have been implemented, in the New Year a deal was realised with unions on the long running equal pay dispute. Despite this backdrop, and as we reported in our Birmingham Crane Survey 2024, Birmingham remains open for business. In 2024, it attracted foreign direct investment, new business occupiers and major new lettings, welcomed new market players, and entered new markets. 

Cautious confidence in construction

In 2024, our Survey recorded 24 completions and 36 schemes under construction, 11 of which are new starts. A second bumper year of completions was expected in 2024, as the schemes which restarted or commenced construction in 2022 after the pandemic pause were reaching completion. However, new starts have been muted, with levels returning to those last seen in 2019 and 2020, despite the increased survey area.

The residential sector continues to lead with the highest total of new starts, six, across the city, while the student residential and office sectors provided two new starts each. There were no new starts in the education sector, and following the 2023 trend, nor were there any in the hotel, retail and leisure sectors. HS2’s Curzon Street station represents the final new start as a major transport infrastructure project (however, please note that floorspace is not recorded for the station in our survey).

What is influencing the muted new starts? Funding construction is becoming increasingly difficult. Restrictive financing and high construction costs and the difficulty of estimating them, along with a slower reduction in the cost of borrowing are all key factors influencing the construction market. The outlook for construction over the next five years remains challenging. The BCIS forecasts that construction and tender costs are likely to rise further with a 17% and 19% increase, respectively, over the next five years. Additionally, the shortage of skilled labour remains a challenge and aforementioned political uncertainty will further impact the appetite for risk. 

Foreign direct investment (‘FDI’) could bolster the outlook for the city and the wider West Midlands. In 2023-24, the West Midlands secured 133 FDI projects which created 7,581 new jobs. In 2023, this represented a 72% uplift compared to 20227. This attractiveness is likely sustained by public sector investment into the region, including through establishing the West Midlands Investment Zone and an award of £600m of Levelling-Up Fund grant monies from the government in May 2024.

The status of construction project financing may have stifled new starts, but it has not stifled ambition. Reaching for the skies in 2024 are: 

• One Eastside and The Octagon at 51 and 49 stories, respectively, are the tallest buildings under construction in our survey. 

• Woodbourne Group’s 53 storey build to rent scheme, Curzon Wharf, received planning permission. 

• Submitted to planning in 2024 were purpose-built student accommodation (‘PBSA’) and residential-led mixed use schemes the Goods Station from Vita Group, and Edgbaston Street Gardens from Hammerson, at 49 stories and 63 stories, respectively.

Aside from bold ambitions for building big, the pipeline of development in Birmingham remains substantial. There are currently 7,743 new homes under construction with nearly 33,000 new homes either at pre-planning and planning application stage, or with planning approval and on cleared sites and not yet under construction. The outlook is also bright for other sectors, with developments at these pre-construction stages totalling c.6 million sq. ft. of office floorspace, c.2 million sq. ft. of education and innovation floorspace, c.2500 hotel beds, and c.11,700 student bedspaces. 

Funding future construction

To see the pipeline unlocked, both public and private sectors need to work together to:

• Creatively solve construction constraints, including that of financing and making viable the construction of the ambitious developments on Birmingham’s horizon. 

• Leverage public sector funding and grants to support the unlocking of new schemes to kickstart construction and the delivery of beneficial impact and catalytic change. 

• Collaborate to attract further inward investment, both domestic and foreign. 

• Consider new and alternative delivery models to bring forward complex developments that will deliver much needed homes and economic growth. 

• Consider the importance of early investment into infrastructure to enable growth and assure developers and investors. 

In 2024, positive steps have been taken towards public-private sector collaboration and the provision of grant funding to help unlock development. In March, applications opened to developers for the West Midlands Combined Authority's (WMCA) £200m funding pot to support the delivery of housing and regeneration schemes. The WMCA also launched its Strategic Place Partnership with Homes England, which will leverage up to £400m through the devolution deal to invest in affordable homes in the region. This commits both organisations to work together to remediate and unlock stalled complex regeneration sites.

The strong positioning of West Midlands with the new government to secure funding through enhanced devolution should result in a greater focus on delivery. In 2025, we may start to see both new and stalled major regeneration schemes come forward that have a real chance at starting on site thanks to these collaborative efforts and the availability of enabling grant funding.