Another positive month with increased activity across the board but again a preference for freehold property correctly priced in the right locations. This month Walton and Hipkiss have agreed 5 significant sales in both land and commercial property and are seeing the main Banks’ lending albeit under highly specific and risk based analysis – the Banks also are still very “picky” in which funding they will agree to.
We are seeing stronger investor interest in the commercial sector on well let mixed retail / commercial and offices at lot sizes up too £500,000. The Royal Institution of Chartered Surveyors quarterly report, to which we are a participant, confirms retail remains very much the same with little signs of any real activity in the Black Country and North Worcestershire – prime retail areas are showing some signs of movement e.g. Merry Hill and Kidderminster.
There is a lack of supply in the market with a dearth of new development in recent years. Without development, we are in big trouble, as lack of supply in all sectors – including offices – is now seeing phenomenal take-up in Birmingham with the announcement of HSBC’s Retail Bank relocation from London to Birmingham. Without consistent supply, we will enter a bull market and the usual boom and bust pattern may repeat.
With a brief period of deflation now behind us this level of demand is set to continue and now spreading out to the regions. Locally in Hagley for the first time for some years all of the office and workshop space available at Hagley Mews and The Old Woodyard in the grounds of Hagley Park are fully occupied with a number of new tenants about to move in.
A few commercial investors are again showing interest in buying retail (secondary) units but are seeking mixed use retail/residential premises with multiple/dual income streams – presumably to reduce the sector exposure.
The Bank of England’s Summary of Business Conditions June 2015, to which we are a contributor, reports the number of transactions nationally had remained lower than a year ago. Sales of new homes had held up better than those in the secondary market, where shortages of properties for sale were the most frequently cited cause of weakness in activity. Contacts reported that those shortages had partly reflected vendors’ reluctance to offer properties for sale prior to the general election. Since then, the London market had showed signs of stronger activity, most notably in the highest price bands.
Residential sales through our Stourbridge office were averaging at about 10 per month however this is rising towards 15 for May and June with a distinct lack of stock although since the election more houses are coming to the market.
Construction output growth had continued to ease. House building growth had been more modest than a year ago, partly due to skills shortages. There were reports that election-related delays had affected construction output in some public sector related projects. But, overall, steady growth in commercial construction and infrastructure was reported. There had been some signs of a shift of activity away from major schemes in London and the South East towards smaller projects in other regions.
Focusing on the occupier market, demand for leasable space increased at the all-sector level for a tenth quarter in succession. This now represents the longest period of uninterrupted demand growth since the survey was launched back in 1998, improvement quickened within all areas of the market in the first quarter of the year. Alongside this, available space continued to fall right across the board. Indeed, while decline in the retail sector was more modest, both the industrial and office segments experienced a steep fall in availability.
Anecdotal evidence from contributors frequently highlights lack of supply as an issue, especially in the office sector, where conversion of units into residential property has reduced stock significantly nationally, although not so much in the regions. These increasingly tight market conditions are driving strong rental expectations, which edged back up during Q1 to equal the highest reading on record.
Within this, near term rental projections are strongest in the office and industrial sectors, while retail continues to lag behind (although still in positive territory). However, feedback regarding the twelve month outlook for retail rents is much more upbeat, particularly for prime assets. Nonetheless, the office sector is projected to post the sharpest rental growth over the year ahead and to continue to do so over the next three years. When viewed at the regional level, expectations for rental growth remain more elevated in London than all other parts of the country.
So let us hope the sun keep shining and we all have well-earned holidays in the hope that the economy keeps performing, inflation remains controlled and the commercial property market continues to shine on us.