More encouraging news for Stourbridge with the RICS Commercial Market Survey for Q3 2014 reporting that the recovery in the commercial property market is becoming more balanced, with momentum building to areas outside London and across the different sectors of the market. Tenant demand in the occupier market remains firm, with the industrial sector exhibiting the strongest results. At the same time property availability appears to be contracting at the fastest pace on record, particularly in the office and industrial sectors, with the supply of offices being reduced by conversion of office space into residential. The value of incentive packages offered to tenants continues to fall, for the fourth period in succession. The Bank of England’s summary of business conditions for September, to which we are a contributor, reports housing market activity had stabilised at lower transaction levels than at the start of the year, following a softening in Q2. Demand had been dampened by the implementation of the Mortgage Market Review (MMR) — principally because of the lengthening of mortgage processing times. Underwriting standards would be tighter over the longer term as a result of the MMR, although overall, we feel the longer-term impact on housing market activity would be relatively limited. House price inflation had slowed, especially in areas that had seen significant earlier increases in prices. This reflects a more balanced market, with supply in the secondary market gradually improving, although shortages of properties for sale at lower stamp duty( below £250,000) is causing a lack of available stock with a “hungry” buyers’ market. Elsewhere in the Midlands we saw a rise in the number of transactions of commercial properties being sold with Permitted Development Rights (PDR) to be converted into residential properties during the second quarter of this year. This trend is now being shown across our patch and have a number of developers and investors considering the conversion of office buildings of various sizes.
We have recently launched The Old Library in Hagley Road to promote the sale of the building and also the potential to convert into residential apartments, this would be a spectacular development due to the stunning architecture and its listed status. The demand for offices also improves and the Old Library currently converted into offices is proving more attractive as the market improves. UK-wide, a net balance of 49% of respondents said the activity was having a “moderate” impact on commercial market activity, while almost one in five (net balance of 18%) said it was having a “substantial” impact, according to the RICS (Royal Institution of Chartered Surveyors) UK Commercial Market Survey, Q2 2014. We have also just launched a major redevelopment in Brierley Hill, the original Royal Brierley Crystal Glassworks offices and workshops in North Street dating back to the 18th century. The buildings have been fully refurbished into stunning apartments and houses to be named “The Royal Glassworks” – early interest is strong and the fully fitted show home is now open for viewings. The picture across the country, however, was more polarised, with respondents in the north being less affected by PDR transactions (net balance of 49% saying it was having “no effect” on the market, compared with 32% of respondents in the south saying it was “substantial”).
Further compounding shortage issues, overall availability of commercial property declined at its fastest rate since the commercial market series began in 1998 (net balance of 33% more surveyors reporting shortages), with sharp declines in office and industrial space availability and the lack of supply to the commercial market pushing investors away from prime location investments and towards B grade investments. The impact of the changes to Permitted Development Rights to allow offices to be converted to residential is only now starting to have an effect on the commercial property market. Since the changes came into effect in May, 2013, very few office buildings have been converted but, as the economy has continued to recover, so too has the housing market, creating extra demand for residential properties. Developers and investors have recognized this and are now beginning to snap up office buildings with Permitted Development Rights for conversion to residential. RICS chief economist, said: “The latest results provide clear evidence that the economic recovery is broadening out across the country, with rising employment increasing the demand for space in all sectors of the market. As a result, the balance of power is now shifting back to landlords, with rent expectations turning increasingly positive” Interesting days ahead as we go into autumn and worth considering are these changes in planning going to change the face of our towns and cities forever.