UK Commercial Property News: September 2010

Wednesday 1 September 2010

Southampton Looks Ahead

While the office market in Southampton is at a low ebb, the city council is offering its own positive image for the future. It has appointed David Luck Associates, urban planners, for an ambitious development plan to be achieved by 2026. This envisages 325,150 sq.metres (3.5 million sq.ft.) of offices, a substantial amount of retailing and 5,000 residential units.

The focus of this will be a 133 acre site from the train station to the Royal Pier on the Southampton waterfront which is likely to be the first part of the scheme. One element in the council’s ambitions has been achieved with a £7.2 million Arts Council grant for a new arts complex, which will be built by Grosvenor as part of a wider scheme on the site of the former Tyrrell and Green building in Guildhall Square at the heart of a new cultural quarter. Councillor Royston Smith, leader of the council, commented: “As well as the emerging centre, we are on course for a massive new retail centre with Watermark WestQuay, as well as development of the Royal Pier.”

As far as the current office market is concerned, Jason Webb of King Sturge reports a dormant office market in which take up has been only 6,317 sq.metres (68,000 sq.ft.) so far this year with no large deals in the city centre. Webb said: “There are no new developments on the horizon, although there are plenty of sites, because of a lack of appetite for funding speculative schemes. There is a glut of second hand space in the city centre partly due to the offices Carnival left for its new headquarters.” “The out of town market is faring somewhat better,” said Webb, ”with half a dozen or so active enquiries seeking accommodation of over 2,787 sq.metres (30,000 sq.ft.) mainly wanting space along the M27 between Chandlers Ford/Eastleigh in the west to Portsmouth in the east.”

The enquiries are agent led and should some of them convert by the end of the year, it will probably mean the difference between an average and a bad year in terms of take up.

The South Coast Central Commercial Property Register

The South Coast Central Commercial Property Register for the South Coast is a leading UK business property publication from Martin Austen Publishing. The aim of the publication is to offer a simple and effective means of finding Offices Space, Serviced Offices and Commercial Property along the South Coast of the UK. You can also find the latest commercial property news for the South Coast region.

Bournemouth Office Space Market is Lively

In Bournemouth, judging by recent transactions, the picture is more optimistic, said Bill Parker of Goadsby. “We have seen strong interest in prime office space, exemplified by the 2,369 sq.metres (25,500 sq.ft.) 2 Poole Road which was bought by Troika Developments a year ago and has now been Goadsby has achieved four deals in the property which are either completed or in solicitors’ hands at a quoting rent of £172.16 a sq.metre (£16 a sq.ft.). Parker said: “The success of this deal has persuaded Troika to refurbish the similarly sized Waverley House.” “There is demand for the right product because older offices have become more costly to manage. The problem is that banks are not providing the funds for refurbishment.”

The other positive transaction on the south coast was Southampton City Council paying £25 million for the 6,689 sq.metres (72,000 sq.ft.) One Guildhall Square in Southampton. “With no new construction due to start, there has been speculation that the lack of prime office space will ease downward pressure on rents for Grade A space and high quality Grade B space as the market will be led by a general decreasing supply of quality stock towards the end of 2010,” said Parker. Goadsby has also achieved success at Arcadian Estates’ Capital House with lettings of 2,193 sq.metres (23,600 sq.ft.) and a further tranche under offer. Andrew Hodgkinson of Goadsby said: “It is a real success story for Southampton. Several of the floors have been let to companies who previously did not have a presence in the city, which is an undoubted boost to the local economy.” The quoting rent is £91.46 a sq.metre (£8.50 a sq.ft.).

The South Coast Central Commercial Property Register

The http://www.compropregister.com/southcoastcentral.aspx"> South Coast Commercial Property Register is a leading UK business property publication from Martin Austen Publishing. The aim of the publication is to offer a simple and effective means of finding Offices Space on the South Coast, Serviced Offices on the South Coast and commercial property on the South Coast. You can also find the latest commercial property news for the South Coast region.

Industrial Commercial Property leads the way on the South Coast

Trilogy is now under offer.”The surge in demand points to a growing shortage, but rents have yet to respond although free periods are coming in a little. According to Moyler the rise in activity has prompted SEGRO to start the process on sites it has at Merlin Park, Portsmouth that will lead to a planning application. London Clancy’s David Heda noted that the shortage of large industrial units has been made more acute by the absence of new development. This view was reinforced by Matthew Poplett of King Sturge who said: “There are no buildings of over 4,181 sq.metres (45,000 sq.ft.) available between Portsmouth and Southampton and only a speculative unit at Apex House, Fareham, under construction.

There is also a lack of development sites along the M27 corridor and we expect no new construction for between 12 and 18 months.” Jerry Vigus of Lambert Smith Hampton said: “While it is obviously encouraging to see the increase in demand for large units, if there is no supply for future demand then there could be significant long term consequences for occupiers.” He points the finger for part of this problem to the government’s empty rates policy. “We have a number of developer and institutional clients who are well aware of the shortage but due to funding issues and - more importantly - empty property rates legislation, there is no incentive for them to build speculatively.”

The South Coast Central Commercial Property Register

Commercial Property Confidence Returns Slowly To Scotland

What is happening in Scotland is mirroring the rest of the UK with a recovery in lettings and investment sales but a growing shortage of Grade A offices in the major cities. Although improving, confidence is fragile. Even so, the market is improving and CB Richard Ellis reported “a marked increase (in take up) in the first half year. Glasgow performed well with a doubling of leasing to 28,037 sq.metres (301,800 sq.ft.) compared with the same period of 2009. Aberdeen and Edinburgh also saw “impressive increases.”

Also similar to the other major cities of the UK, the market is dominated by smaller deals and the lack of new development brought a reduction in the amount of space available. The CB Richard Ellis view is that it is set to continue “with few new developments in the pipeline. However, this undersupply may encourage developers to go into construction in the near future.” Rents have held up well and even increased in the oil city of Aberdeen. But overall performance in terms of capital growth and returns to investors declined in the second quarter of the year, although retailing was more resistant to the slow down. Industrial property also displayed some resilience with total returns of 2.8% and capital growth of 0.8% in April-June.

Aileen Knox of CBRE said: “Economic recovery appears to be at a slower pace in Scotland than the rest of the UK and this has affected the commercial property market. However the Bank of Scotland PMI survey points to an improvement in GDP growth in the second quarter of the year.” “This is important for Scotland as there was no growth in the first quarter and it is likely to feel the effects of ongoing austerity measures introduced by the new government due to a large number of public sector jobs.” On the other hand, the investment market is healthy enough (even though a bit down on the rest of the UK) with Property Data reporting transactions of £670 million (led by UK institutions) in January-June compared with £290 million in the same period of 2009.

The Scotland Commercial Property Register

The Scotland Commercial Property Register for Sctoland is a leading UK business property publication from Martin Austen Publishing. The aim of the publication is to offer a simple and effective means of finding Offices Space, Serviced Offices and Commercial Property in Scotland . You can also find the latest commercial property news for Scotland.

Commercial Property Investors like Glasgow

Glasgow has enjoyed a considerable recovery in the pace of the investment market, sharing renewed interest by institutions and private buyers. The latest large deal is the sale by Lloyds Bank and the Paradigm Real Estate Managers of the 55,740 sq.metres (600,000 sq.ft.) Skypark, which has planning permission for a 50% increase in space. There has been a considerable interest in the office facility and the front runner is Moorfield at a price of £55 million, under the asking price of £58.4 million. The property was developed by Kenmore before it collapsed. Another major transaction is the sale of the 2,923 sq.metres (31,462 sq.ft.) Allan House, 21-25 Bothwell Street, Glasgow through Ryden for £6.33 million, a yield of 7.16%. This is a prime location and includes a restaurant on the ground floor. It has been bought by Threadneedle Property Investments from Royal London Property Fund. Also on the market is Scarborough Property Holdings’ 110 St Vincent Street (again, a prime location) for £40.4 million and a yield of 6.1%. The 9,290 sq.metres (100,000 sq.ft.) office block is the Glasgow headquarters of the Bank of Scotland (now part of the Lloyds Banking Group) on a 15 year lease that commenced in 2007.

Edinburgh commercial property rut shows potential 2011 upswing

Edinburgh is going through a slow period with the office market stuck in something of a rut although the tightening supply situation indicates an upswing in 2011. Stewart Taylor of CB Richard Ellis said: “The current phase of slack water which the market is in will prevail for much of this year but this is, in itself, an indicator of changing conditions.” “The most encouraging characteristic of the year to date has been the reappearance of some larger requirements which were almost completely absent throughout 2009. This, coupled with stabilisation within the financial sector and retreating fears over accommodation release, should contribute to the changing tide.” In fact the first half take up of 25,084 sq.metres (270,000 sq.ft.) was reasonable and, according to Ian Lochhead of Drivers Jonas, there is only 55,740 sq.metres (600,000 sq.ft.) available. He noted that “with offices part let it is hard for occupiers to find large spaces so that someone with a 9,290 sq.metres (100,000 sq.ft.) requirement would have a problem finding it.”

At least there is some hope on supply with Edinburgh Council giving the green light to the £85 million expansion of the international conference centre in a design by architects BDP. This will increase the conference space by 9,290 sq.metres (100,000 sq.ft.) and double that amount in speculative offices which are likely to be very welcome when completed in 2013. Kenny Waitt of Jones Lang LaSalle commented: “Nothing else of this stature, quality of site and location is expected to come out of the ground in Edinburgh over the next three years, so it is going to effectively be the market.”

The investment market remains firm and one of the latest deals in the offing is the Swiss investor Afia paying around £20 million (yield 7%) for the 3,948 sq.metres (42,500 sq.ft.) second building in Gladedale’s £450 million development of the former Royal Infirmary site. The building already has a tenant in the law firm Morton Fraser.

Financial Business District Enhances Business Friendly Glasgow

For a number of years Glasgow has proved to be one of the best business locations in the UK which has underpinned a strong office market. The virtues of the city have been displayed again in the first half year with the doubling of take up. This performance is no accident and owes a great deal to the encouragement given to businesses to locate in the city and the readiness of developers, notably at the International Financial Services District (IFSD) to provide the suitable Grade A space.

Figures from Jones Lang LaSalle show that the first half saw large lettings of Grade A offices to blue chip companies which has brought a 14% reduction in availability in the second quarter of the year. JLL’s Mike Buchan said: “It is very positive for Glasgow, as the city continues to perform well in a difficult economic climate. It is very pleasing to see high quality occupiers committing their future to the city and see a large amount of stock absorbed. We expect to see further Grade A lettings throughout the year as there remains a number of unsatisfied requirements.” Audrey Dobson of CB Richard Ellis commented: “Take up during the first six months was polarised with significant activity at the smaller end of the market fuelled by new start ups.

Occupier demand was also healthy at the larger end, particularly among the professional sector.” There is no doubt about the boost to confidence and the widespread view among property professionals that the performance in the first half has long term implications. David Smith of Lambert Smith Hampton said: “The level of uptake of Grade A offices, coupled with the impending lack of new supply and the continuing high interest from investors in acquiring these properties are all a strong signal to banks and fund managers who will, hopefully, now loosen the purse strings to finance the next wave of new development that will help Glasgow maintain its position as one of the UK’s most successful inward investment locations.”

SEGRO scores at Heywood

The largest industrial deal in the North West this year (SEGRO selling a 46,450 sq.metres (500,000 sq.ft.) unit at Heywood Distribution Park) underlines the resilience of the sector in the face of the recession. It has been purchased by Fowler Welch Coolchain, a consumer goods supply chain organisation who already occupy a unit at Heywood (a fifth of the size). SEGRO’s David Bridges said: “The sale of the Hub emphasises Heywood’s status as the number one destination for businesses in the North West.” Stuart Murray of Savills emphasised that the deal signalled a change in the strength of the industrial market in the North West.

This is commensurate with the recent economic information. Putting flesh on the bones of the recovery, Jones Lang LaSalle (JLL) said “occupier demand for large units made a strong recovery during the first half year with a 67% increase to 947,580 sq.metres (10.2 million sq.ft.) compared with the previous half year.” Richard Evans of JLL commented: “We expect that occupier demand will level out in the second six months as concerns surrounding the UK economy growth prospects continue. Nevertheless, total 2010 industrial and logistics take up for large units could increase by 60%.”

The main driver for the improvement is from retailers and there is also a rise in development, mainly through design and build coming at a time when there is a growing shortage of large units, heralding a rise in rents. The better market will be music to the ears of those companies with a large portfolio of industrial and business parks such as Northern Trust and London and Cambridge Properties (L&C). L&C has a longterm policy of upgrading its estates and has now appointed Mason Owen and Altus Edwin Hill to market its refurbished properties at the Pimbo Industrial Estate, Skelmersdale. The improvement has been extensive, including a new roof, cladding and electrically operated shutters to office windows on Unit 8 plus a new ground floor office layout and better lighting. Margaret Hopkins of L&C said: “These units offer a high standard of business accommodation for production or warehousing in a well established area of Skelmersdale.”

The North West Commercial Property Register

The North West Commercial Property Register is a leading UK business property publication from Martin Austen Publishing. The aim of the publication is to offer a simple and effective means of finding Offices Space in the North West, Serviced Offices in the North West and commercial property in North West. You can also find the latest commercial property news for the North West.

Big Commercial Property Projects Planned for the Wirral

Far from being overwhelmed by the scale of Peel’s proposed Wirral Waters £4.5 billion project, the local council planning committee has embraced the far sighted plan and given it the green light. This was no overnight decision but has evolved over four years as the local planners and Peel have gone through “partnership working.”

The attractions for Wirral are that the mixed use scheme will bring substantial regeneration benefits through sustainability and each of the planned areas (education, culture, residential and so on) function as a composite whole. Another attraction for local councillors and the planners is the way the scheme is centred around water. There is also the positive factor of the creation of 20,000 jobs, just as job creation has been the case with Peel’s schemes in Salford Quays and MediaCity. Lindsey Ashworth, Peel’s Development Director, commented: “We are absolutely delighted that the Wirral Planning Committee has reached this decisive decision, it is what the public wanted and what the area is crying out for.”The plan was supported by all four local MPs who sent letters in support. Peel is now hoping that the huge local support means that the Government will not decide on a public inquiry. It will market the project internationally, including at the 2010 Shanghai World Expo.

As if this project and MediaCity were not sufficient new developments to keep Peel busy, it is to develop a new 31,586 sq.metres (340,000 sq.ft.) business park, Astley Business Park, in Wigan, close to the A580 East Lancs Road. Andrew Aherne of Lambert Smith Hampton said: “Astley Business Park is one of the few sites in Wigan which is immediately available for development.”Wearing its other hat of Peel Ports, the company has bought the former site of the Bridgewater Paper Company in Ellesmere Port, Cheshire from Ernst & Young, the Administrators. The site has an existing berth on the Manchester Ship Canal and has excellent rail and road connections to the motorways. Peel Ports’ Stephen Carr said: “This acquisition fits in well with our strategy of continuing to develop the Port of Liverpool and the Manchester Ship Canal as a key logistical hub in the UK.”

The North West Commercial Property Register

North West Commercial Property Market Outperforms UK Economy

Until the law firm Halliwells collapsed, the Manchester office market was on course for a general improvement. Momentarily, perhaps, the arrival of 17,007 sq.metres (183,000 sq.ft.) of Grade A space on the market has brought some caution. The continued success of Media City and planning permission for the massive Wirral Waters scheme has provided underlying comfort to the market, particularly as there are a number of large deals in the offing.

The rapid improvement in London will also spread to the North West, which does have its own broadly based market that is benefiting from the better economy. This is illustrated in a survey by Markit which said that while private sector output and new business at the start of the third quarter had slowed, “the region continues to outperform the wider UK economy.” In fact the improvement has been proceeding for 16 months. Steven Broomhead, Chief Executive of the North West Development Agency (NWDA) said: “It’s very pleasing to see the region continuing to outperform the UK economy.” Mike Hawkins of WHR points to the success of MediaCity “where more than 50% of the space is pre let to a broad range of occupiers, some of which are not in the media business. This is a big chunk of space that is as much as the whole of Salford Quays and Spinningfields and represents a long-term vision for the region.”

Another important influence on the market in Manchester is provided by the new Co-operative Group’s £100 million, 30,193 sq.metres (325,000 sq.ft.) headquarters where construction by BAM has now started. It illustrates the presence of large national groups and will act as a landmark for the city. The Co-op and Manchester City Council now plan a competition to find a design team for the public realm element of the master plan for the 20 acre site around Corporation Street and Miller Street.Lynda Shillaw of the Co-op said: “We want the area to enjoy an international reputation for having raised the bar for environmentally sustainable commercial development.”

The North West Commercial Property Register

London’s Financial District Encourages Investment

All the pieces of the jigsaw puzzle are falling into place as London proves its status as the major global financial centre. A steady flow of large lettings, combined with financial institutions wanting new large buildings, has prompted developers to move ahead with major schemes, notably at Broadgate in the City. Underpinning the improvement has been a hunger by investors, particularly foreign inveters, for buying Grade A offices in London. The shrewd buyers who moved back into the market in late 2008 and early 2009 have reaped the benefits. Also profiting from the situation are a number of developers, such as Irvine Sellar with the Shard of Glass at London Bridge and Gerald Ronson in Bishopsgate, proving their optimistic perception of a turnaround in London were correct. Rents have responded to the stronger market with substantial improvements. The question now is whether this progress will continue. At the moment there seems no reason why the market should not continue its improvement because there are clearly enough investors wanting to buy and companies to occupy space to keep it moving ahead. Cushman & Wakefield (C&W) is clear about the strength of the current situation, saying:

Office space leased so far in 2010 is more than double compared with the same period last year;

- However the second quarter was quiet in the City as tenants take stock of a new government and emergency budget

- The lowest level of office construction since 1993 is causing availability to fall steeply;

- A large number of leases expire in the next five years, which could act as a catalyst for increased demand;

- A growing shortage of prime space has led to increased pre lets.

C&W’s James Young said of the City: ”Occupiers are still cautious about sanctioning moves in the current economic climate, but they realise the supply squeeze is going to lead to a lack of options, and so pre lets will start making a return.” Matthew Elliott of Drivers Jonas Deloitte commented: “There has been a huge rental growth since November in some parts of London. We have already seen increases of 15% in the City and this will continue but only for the best new buildings.”

The London Commercial Property Register

The London Commercial Property Register is a leading UK business property publication from Martin Austen Publishing. The aim of the publication is to offer a simple and effective means of finding Offices Space in London, Serviced Offices in London and commercial property in London. You can also find the latest commercial property news for the London region.

Commercial Property Developers Hammerson Speed Up Activity

Pundits doubting the strength of the recovery in the City office market should pause and examine the faster activity from Hammerson, always one of the major developers in the Square Mile. It is now planning to redevelop St Alphage House on London Wall, which had originally been lined up for JP Morgan who subsequently opted for Canary Wharf.

The new plan is for two towers with open space between them. This, said Hammerson, offers the option of developing it in phases. The developer and architect (Make) are discussing their plans with the Barbican Association, who were opposed to the JP Morgan scheme. Apart from this new scheme, Hammerson has been steadily buying major properties. It is paying Union Investment Real Estate £175 million, a yield of 5.75%, for the 24,154 sq.metres (260,000 sq.ft.) 10 Gresham Street, EC2 through its joint venture with the Canadian Pension Plan Investment Board. James Beckham of King Sturge commented: ”Even though the Union is capturing short term gains through the tactical sale of the property, there are opportunities for strong returns from this prime asset.” Hammerson’s David Atkins said: “This acquisition is in line with our strategy to capitalise on attractive opportunities in the London office market.”

Apart from this, the company has also paid the Receiver £65 million for the 10,122 sq.metres (108,955 sq.ft.) Leadenhall Court which is located on the corner of Gracechurch Street and Leadenhall Street. It is certainly an appropriate time to be active in the City with the improving market, as shown by a spate of lettings including the first tenant for Gerald Ronson’s Heron Tower in Bishopsgate, which will be the tallest in the city at 755ft. The law firm McDermott Will & Emery is taking 2,323 sq.metres (25,000 sq.ft.). Tony Joyce of GVA Grimley said: ”We are seeing a lot of deals for Grade A lettings at over £538 a sq.metre (£50 a sq.ft.), a level we did not have until recently. There is a growing shortage of Grade A offices and the reality is that the vacancy rate for them is under 5%. Developers are building again, which means that the City will have the new space to maintain its global position.”

The London Commercial Property Register

Growing in all directions

One of the significant trends in London in the past decade has been the expansion of the business area to encompass districts that were never considered important locations. The development of Paddington Basin is a case in point and now we have Kings Cross and the South Bank.

An example of the change is that Publicis, the owner of Saatchi & Saatchi, is seeking 18,580 sq.metres (200,000 sq.ft.) in the West End with the likelihood the requirement will be met in Kings Cross or Paddington, allowing it to move from a number of offices in the West End. Craig Norton of DTZ extols the virtues of Kings Cross which has “lots of tourists and plenty of viewings for offices. We are talking to major companies about taking space there.”

The latest organisation to consider taking offices in Kings Cross is the Diocese of London which wants 5,574 sq.metres (60,000 sq.ft.). Also in the frame for the emerging area is the Aga Khan Foundation that wants to build a 27,870 sq.metres (300,000 sq.ft.) educational and cultural centre.Norton points to the success of Paddington “which is now a maturing market that has moved into a second tier phase.” That has been helped by Marks & Spencer taking space there. As far as the core West End market is concerned, Norton notes the growing shortage of prime space. This view is echoed by Jonathan Stern of Mellersh & Harding who said: “There is a shortage of good quality offices in the rental range of £538 to £645.60 a sq metre (£50-£60 a sq.ft.).”.He suggests that developers are now “looking at new schemes.” British Land’s success with Regent’s Place, where Norton is acting, illustrates how once fringe locations have come into the mainstream.

There have been a series of lettings with the latest being Bovis Lend Lease with 7,432 sq.metres (80,000 sq.ft.), a third of the space in 20 Triton Street, NW1 where energy group GazProm has also taken space. Norton said that a further 3,716 sq.metres (40,000 sq.ft.) is under offer, leaving only 1,394 sq.metres (15,000 sq.ft. in the current phase). Debenhams is another potential tenant, this time for British Land’s final phase at Regent’s Place on Hampstead Road which could accommodate its requirement of up to 13,935 sq.metres (150,000 sq.ft.)

The London Commercial Property Register