It has been a legal requirement for some years to have an EPC (Energy Performance Certificate) on commercial property to be let or sold. The law is changing and owners and occupiers should be aware of the consequences, this will be known as Minimum Energy Efficiency Standards (MEES).
Minimum Energy Efficiency Standards (MEES) represent one of the most significant environmental policies to impact the commercial property sector in several years making it vital that agents, landlords and tenants are sufficiently informed and act before the deadline. It will unlawful from April 2018 to let buildings in England and Wales which do not achieve a minimum EPC rating of ‘E’ and while ‘E’ rated properties can still be let, they could be at risk, with the minimum rating set to rise in 2023.
In 2016 out of 67,217 non-domestic properties logged on the register, 31 per cent were awarded a minimum EPC rating of E, F or G.
The recent Commercial Property Market Survey, to which we contribute, shows a mixed message with Worcestershire and The Black Country seem to buck the overall mood in the south-east of markets slowing considerably and sentiment for negative growth. We are witnessing a good level of interest in freehold properties in the good locations with the rental market also improving, albeit very slowly and more so in the commercial and industrial markets whilst the retail market prime and secondary is still poor.
The residential market goes from strength to strength and properties are going very quickly with an improved turnaround time.
On a national and regional basis looking at the investment market, the headline investment enquiries gauge remained modestly positive, with 10% more respondents to the Property Market Survey citing an increase in demand during the second quarter of the year (as opposed to a decline). Having said that, the all-property figure masks significant variation, with enquiries stagnant in the office and retail sectors, but rising in the industrial area of the market. Even so, overseas investor interest did increase across the board, albeit at a more modest rate than in Q1. Alongside this, the supply of property for investment purposes continued to decline in each area of the market.
Nonetheless, near term capital value projections turned marginally negative in the retail sector and are now flat in the office sector. In each instance, expectations were the weakest since the immediate aftermath of the referendum (in net balance terms). Conversely, expectations in the industrial sector remain comfortably positive.
In terms of the twelve month view, the secondary retail market is the only area in which capital values are anticipated to decline, although projections are flat for secondary office values. The industrial sector continues to exhibit the firmest expectations, albeit projections were scaled back slightly relative to the Q1 results.
During the second quarter of the year, there was a noticeable shift in perceptions regarding the current stage of the property cycle. Indeed, although the largest share (narrowly) of 29% of respondents feel conditions are consistent with the middle stages of an upturn, 27% feel the market is in the early stages of a downturn (13% in Q1)
There is frequent mention of political uncertainty as an impediment to market activity. Indeed, Brexit negotiations and the General Election resulting in a hung parliament are both seen to be clouding the outlook for commercial property. Very difficult to predict, when Brexit is negotiated, and there is political certainty in Westminster, we can start to predict. Until then, it is lucky dip. Demand to buy small, medium sized workshops and especially warehouses remains as strong as ever. A definite bright spot in the commercial property market locally.
Generally there is more anticipation of something happening in all sectors and then the optimism fades as a deal falls through or drags on for so long there is relief rather than celebration when it completes. Investment buyers still can’t find enough at what they see is the right price and sellers think they are not being offered enough. Occupiers still seem to be keen to start up or expand in all sectors but they are careful with the offers they make.
The supply of land to the market in last quarter is down 42% compared to the first quarter of 2016, and down 38% compared to the long-term average. Demand for land remains robust – especially from investors looking for more than a ‘safe’ investment in uncertain times – and this together with a diminishing supply, may help strengthen land values
Following the Mayoral elections for the West Midlands Combined Authority our biggest neighbour it is not clear how the proximity to the “Midlands Engine” will fit into the West Midlands Combined Authority, and indeed the effect on Worcestershire and The Black Country. It is fair to say that the focusing of new investment the new positon will create with Birmingham, as the region’s pre-eminent creator of employment and wealth, hopefully a positive effect on other regional centres including Worcestershire and The Black Country.
Walton & Hipkiss, established in 1929 is proud of its long family history, now with offices in Kidderminster, Stourbridge and Hagley successfully selling and letting homes, commercial property and land in and around North Worcestershire, Wyre Forest and The Black Country. We are experiencing very busy activity across all markets.
It is critically important that owners, occupiers and investors of industrial and commercial properties are aware of the real values, as these can have real impacts on sales, acquisition and investment strategies. Please remember to take professional advice on all aspects of your commercial properties, talk to us about a free property health check and look at the future potential of your property.