Southgate said: "Agreeing to sell James was a difficult decision but I think it is the right one.
"We made it clear to him that he would be very welcome to stay if that was what he wanted to do, but credit to James because he wants to play regular first team football, which was something we couldn't guarantee him.
"James is a young player and we know our locally-born players are a big part of the club's heartbeat.
"But it's my opinion that the Academy should serve two purposes - to provide players for our first team and to also provide players that can be sold on for a profit.
"James is the first of our Academy products that has fulfilled both of those roles in that he progressed to the first team and had done quite well there, but has also now been sold for a profit that should increase over time.
"Overall I think it's a good move for the player and it's a good deal for the club."