Get out of town

Property developers are quitting London in droves – and regional brokers are delighted about it.

The “mini nationals” such as Oval have gained some of their most lucrative commercial property business from clients defecting from London brokers.

London is the traditional epicentre for the commercial property market, with foreign and home-grown businesses believing that to make it in the UK, they need a presence in the capital.

But a W1 address is no longer the be-all and end-all for property developers. So what’s changed?

For one thing, stunning commercial developments are springing up in the nation’s regional centres, from the quayside in Bristol to Spinningfields in Manchester and Brindleyplace in Birmingham.

This rush to the regions has public sector backing too, with a government-commissioned report by Sir Michael Lyons urging departments and agencies to relocate to cheaper offices outside London. The BBC is leading the way with plans to move thousands of staff to Salford.

All of which is great news for regional brokers. In London they might be small fish in a big pond. But on home turf, they know the markets and consider themselves one step ahead.

“Our infrastructure is built around the regions and Manchester, Liverpool, Leeds and Birmingham are on our doorstep,” says Paul Moors, chairman of Bollington Insurance Brokers, which is based in Macclesfield, Cheshire, and has 10 more offices outside London.

“By the time a global player has got his ‘north of Watford’ road atlas out and found where Leeds is, we’re already knocking on the door.”

Once the potential client has answered, he or she will get a more personal service from a smaller broker, according to Moors.

“By the time a global player has got his north of Watford road atlas out and found Leeds, we are already knocking on the door.

Paul Moors, Bollington

“The advantage a provincial broker would bring is that any large development would receive the attention of senior directors and would be more likely to get bespoke covers,” he says.

“It would be a high priority for senior managers as it is likely to be a large construction project, which would mean more to a provincial broker than to a global player.”

Mike Townson, divisional director for Oval Insurance Broking, says brokers like his company tend to have a more diverse client base than the global players. This means they can pick up business that the bigger firms might overlook.

“Some large brokers do have that expertise but I think they will focus on the very large organisations, whereas I have a client base that includes embryonic companies through to my largest client, which has a portfolio in excess of £1bn,” he says.

He adds that the company would not usually target clients with just a couple of buy-to-let properties on their portfolio, but would be looking at clients bringing in premiums of £25,000 to £50,000.

Peter Foster, director at Norwich-based Hugh J Boswell, agrees that intimate service is key to the appeal of regional brokers.

“We find it very easy to network among our clients and give them a personalised service, which the national brokers can sometimes fail to give,” he says. “So when working against a national broker, we will invariably win that business or retain it.”

Hugh J Boswell has 42 staff. Its commercial team is made up of 25 people, all of whom deal with property transactions. Foster says word of mouth plays an important role in business development, with 75% of new clients coming via referrals.

“The question in my mind is how they [global brokers] position themselves against us. They are generally geared up for global clients who pay large fees,” he says.

One area where regional players can fall short is specialist teams that are dedicated to commercial property insurance. Unlike their larger counterparts, they might not have the resources for such a concentrated team.

“It is not just about the big headline building. There is a lot of development and a lot of agents involved. We find the regional brokers have quite a lot of property owners business.

Tony Hutchins, Allianz

But by being agile and spotting opportunities when they arise – such as the exodus from London – smaller brokers can still expand their portfolios and improve their specialisms.

It helps when insurers lend a hand. RSA, for example, is supporting brokers by providing facilities such as vacant building inspections and valuations.

“We’ve tried to help the local brokers get closer to the clients by offering more services than just insurance placement … it gives the local broker something to differentiate themselves,” says Chris Withers, customer development director, property investors at RSA.

“It helps [local brokers] to have an all-round offering. It’s not just about an insurance policy. There are other ways for them to influence the customer, particularly in this time when we’re not seeing huge amounts of property growth and new money,” he adds.

There is plenty of potential for smaller brokers to win insurance contracts from SME companies, with global players not always geared to handle smaller business.

Withers says landmark commercial projects across the UK are still predominately placed with multi-national brokers.

“The global brokers would have the larger customers. In customer numbers they have less penetration than regional brokers but in terms of premium volume they [global brokers] would probably make up a third of the income,” he says.

In the past, blue-chip companies tended to deal with insurers directly. But Withers believes the market has altered significantly in recent years, with the biggest players preferring to deal with global brokers.

“Until about 10 years ago, the blue-chip companies would have traded with us and our competitors on a direct basis,” he says. “Increasing regulation in the insurance market has meant brokers are playing an increasingly important role. And it’s the global brokers who have allegiances to these blue-chip companies through other parts of their business.”

But there’s more to the business than corporate headquarters and mega-projects, says Tony Hutchins, commercial property manager at Allianz UK.

“We find it very easy to give our clients a personalised service, which the national brokers sometimes fail to give.

Peter Foster, Boswell

“It’s not just about the big headline building. There is a lot of development and a lot of agents involved. We find the regional brokers have quite a lot of property owners’ business,” he says.

“I think there is growth outside of the national brokers in terms of property owners’ business … but it will be interesting to see what the effects will be as a result of the economic downturn.”

The credit crunch could work in regional brokers’ favour, however, if it sends more property developers scurrying away from London. The dark cloud that has settled over the City is difficult to ignore. The collapse of Lehman Brothers last week will free up a lot of commercial space in Canary Wharf. Other financial institutions may have to shed staff and offices.

But Nick Symes, property investors manager at Reich Insurance Brokers, says demand for office space is still strong in Manchester.

“The take-up for office space remained the same this year as in 2007,” says Symes. “Despite approaching 1 million ft2 of additional office space this year, research shows occupancy rates for premium quality office space remains in excess of 90%.”

He believes regional brokers are well positioned to handle that demand. “There is no doubt that having relationships with Manchester lawyers, banks and insurers gives the regional broker the upper hand.

“Generally, the client sources the finance and appoints a lawyer before considering the insurance aspects. In our experience, the banks and lawyers will recommend those brokers who have assisted them or provided good terms and service previously. At Reich, we ensure we keep close to these companies.”

Kevin Simmons, head of property investors UK, Zurich, also sees plenty of potential for regional developments. Zurich’s largest areas of growth outside London are Leeds, Manchester and Birmingham and the company has ambitious plans to expand its regional portfolio in the next couple of years.

“Just over half of the income of the property investor’s team originates outside of London, and that is quite a significant turnaround in the last four or five years,” says Simmons.

From Leeds to Lewes, medium-sized brokers are smiling.