Two quarters of continual growth in the commercial property market

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I Worcester Street Stourbridge – Sold on behalf of the new Lion Medical Practice

The second quarter of 2014 has revealed some more encouraging news with market commentators reporting improvement on most sectors.

Investment in the UK commercial property sector totaled £11.9bn during the second quarter of 2014 – a 10% increase on the first quarter of the year and 45% higher than in the corresponding period last year.

Investment in the regions has mirrored this trend, with a 39% increase in regional UK offices investment in Q2 compared with Q1. This increase in spending has been predominately led by UK institutional investors as the lack of prime office stock and increasing occupier confidence is continuing to put downward pressure on prime office yields.

Demand for prime UK industrial space has soared with take-up of grade A buildings hitting record levels over the last six months, according to latest figures. Supply of high-quality space is not keeping up with demand, pushing up rents and prompting developers to build speculatively in several regions.

In the first half of 2014, take-up of industrial space, including buildings for engineering, food and non-food manufacturing, logistics warehouses and retail distribution centres, reached a total of 15.9m sq ft. Just over half of this – 8m sq. ft. – was grade A buildings, the highest six month prime take-up figure on record.

Of the grade A take-up, 65% was through build-to-suit deals, as the lack of good quality space is causing occupiers to consider this option over existing stock. Already this year there has been 5.2m sq. ft. taken as build-to-suit projects, compared to 4.4m sq. ft. taken across the whole of 2013.

The retail sector has been resurgent in 2014 H1, contributing around half of the total UK take-up of industrial property. This is the highest proportion the sector has taken since 2010 after four years of reduced take up. In contrast, the logistics sector’s contribution dropped to 20.1% of take-up in H1 2014. Requirements in this sector, led by logistics and parcel companies expanding due to the huge growth of online retail, have in part been satisfied for now although it is expected to resume growth in due course.

On speculative investment, the Midlands region is already leading the UK market by having a significant amount of speculative development either completed or under construction which has helped to satisfy some of the occupational demand. However, the shortage of Grade A buildings has meant that rents have started to increase which is good news for landlords, and land values have increased.

Hiring intentions among businesses rose strongly in July to surpass their pre-crisis figure and reach their highest level since 1998, according to a latest Business Trends report which predicts companies’ hiring intentions in three months’ time are set to rise, indicating that job creation will continue to accelerate for the remainder of the year.

A significant upturn in hiring intentions among services firms in particular suggesting that graduates from the class of 2014, many of whom will be looking to start their careers this summer, face the most encouraging job prospects of any graduation class since the onset of the financial crisis.

Occupier sentiment has improved in 2014. Property enquiry volumes have been fairly constant, but are now typically of a better quality, which more often lead to actual viewings and actual transactions – we have 4 property deals in lawyers hands at present in Stourbridge and a number of active negotiations in hand a vastly improved situation from 12 months ago.

Pace of development in Stourbridge continues with the new hotel and pub well underway, and the steel structure of the newly refurbished Stourbridge College coming out of the ground fast.

So let’s all enjoy our summer holidays and look forward to a positive and successful third quarter.

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