As we pass the half year a number of respected surveys are now being issued showing further signs of improved activity in the commercial market following a clear improvement in the residential sales and development market. So although the football was an unmitigated disaster this has not cooled the sentiment in the market with a bright summer ahead.
Despite a slowing of the residential sales market over the last months, mainly as a result of the stronger mortgage lending criteria and a slowing of the housing market in the south east this has not dampened the burgeoning commercial market. The Q1 2014 RICS UK Commercial Property Market Survey highlights a continued strengthening in both the occupier and investment sectors. This improvement is becoming increasingly broad based in both sectorial and regional terms; this is no longer just a London offices story.
At the all-sector level, occupier demand increased while availability fell. With the market tightening, rents are expected to pick up further and the value of tenant inducements are falling. This broad pattern is also evident across the three subsectors (retail, office and industrial) and the survey’s broad four regional groupings (London, the South, Midlands/Wales and the North).
In the investment market, buyer enquiries accelerated further at the all-sector level, pushing up survey respondents’ confidence in the outlook for capital values. Again, the regional and sector breakdown of the results indicate that this improvement is taking place not just in London and not just in the office sector. The survey comments bear out a few interesting anecdotal points. First, while conditions in some secondary markets clearly remain challenging, there is a growing sense that some office tenants are beginning to revaluate the economics of renting prime versus secondary office space. Second, availability in some markets is falling not just because of strong tenant demand, but also because part of the stock is being converted for residential use. Over the next twelve months, rents are projected to rise by around 4.5% in the office sector, by approximately 5.5% in the industrial segment and by just over 3% in the retail sector. On the same basis, capital values are forecast to increase by roughly 5% and 6% in the office and industrial sectors respectively, while retail sector gains are expected to be a slightly more modest 3%.
In a general round up of our regional area, comments from the major institutions and our own surveyors say we are now seeing signs of speculative development for industrial and warehouse. Offices will lag behind, but there is now very little quality available, plenty of poorer quality. Slight recovery in prime property, traditional High Street unlikely to recover in small towns and villages with Retail parks and internet posing too much competition.
Demand for freeholds has come back strongly and there is already a shortage of freehold opportunities. Values are still below pre-recession levels. Demand to purchase smaller/medium sized industrial warehouse units remains strong but lettings market weaker. Still signs of improvement in retail premises generally.
The positive uplift in attitude has resulted in measurably increased enquiries and viewings. We have yet to see a proportionate increase in “deal agreements” but this is coming with a steady take up of vacant stock which will lead to a demand/supply imbalance in some local markets within the next 12 months. The supply of void offices has declined which is significant.
In Stourbridge and the surrounding areas we are seeing a much more active commercial market in particular freeholds both office and retail. We now have agreed the sale on one of the former Doctors premises in Worcester Street and have two offers on the remaining property; we have completed the sale of the former Cuisine East restaurant Lower High Street, soon to be reopened as an Indian Restaurant. We have sold the former Swinford Timbers property in Oldswinford which is now being converted to a coffee lounge, no doubt to take advantage of the major expansion of the Stourbridge Campus of Birmingham Metropolitan College as works are well underway.
It has been many years since we have seen any real construction activity and cranes again on the horizon but with the development of the new Premier Inn, extension to King Edwards College and the expansion of Stourbridge College Campus this is set to be a hive of activity over the next few months.
Slightly further afield we have finally completed on the complex acquisition of the former Prince of Wales pub and 19 residential properties from the Highways Agency and for those who have driven past will now witness the demolition of the pub to make way for 12 new executive homes and a number of vacant refurbishment and investment properties, we have sold over 50% of the properties within 2 weeks of completing the acquisition, sure signs of recovery in the residential refurbishment and investment markets.
So let’s enjoy the summer holidays with our young people now on their school breaks and lets come back in September with renewed vigour and appetite to make an impact in the last part of the year. Happy Summer.