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Increasing occupier and investor demand forecaste for 2015

Increasing occupier and investor demand forecast for 2015

2015 will see better fortunes than 2014 due to increasing occupier and investor demand though continuing improvement may be held back by lack of space says the G9 Group of chartered surveyors.

In its third annual ‘Sentiment Survey’ the research shows that while confidence has improved in both the occupational industrial and office markets there are issues relating to the provision of much needed new developments as both office and industrial sectors are challenged by a lack of stock.

Overall sentiment for the sector scored by the G9 members participating in the survey, namely BNP Paribas Real Estate, DTZ, ES Group, Gavin Black & Partners, GVA, HTA Real Estate, Knight Frank, Lambert Smith Hampton, Sanderson Weatherall, Sykes Property Consultants and Naylors Chartered Surveyors – was 66%.

This overall score reflects some caution over the issues facing the UK in 2015 and specific regional issues such as the aforementioned lack of supply of Grade A office space in Newcastle’s city centre and the critically low level of available industrial stock with limited new stock being built as construction costs are too high.

Looking at the strongest and weakest sectors during 2015 the majority of respondents said that industrials would be the strongest sector based on strong growth in the regional manufacturing sector including Nissan’s supply chain continuing to expand and the supply chain around Hitachi Rail Europe to come on stream.

Optimism for this sector is due to the strength of the manufacturing sector in the region and a lack of good quality space which is increasing rents and capital values. There will, however, be up to 250,000 sq ft of industrial development completed or on stream in 2015 which is a good start but nowhere near enough to satisfy the backlog of enquiries.

There is optimism in the office market where take up during 2014 has been in excess of the five year average and in 2015 this is likely to continue. Out-of-town has had a good year with Cobalt demonstrating it is a good location for corporate with Cobalt for example letting nearly 200,000 sq ft to companies such as Siemens.

The low availability of Grade A space should start to witness reasonable rental growth and perhaps due to this growth and therefore development viability, the sector could see a number of developers considering their sites and start planning for development.

So far projects have required public intervention to assist with funding, some of it innovative such as Stephenson Quarter. It is a question now of who can break the mould and start speculative development with traditional funding?

The weakest sector by a clear majority - 78% - is retail which is seeing increasing competition from on-line retailers and price cutting due to the growth of the discount retailers. Customer expectations are changing quickly fuelled by online competition and discounters both of whom will increase market share. This has already had a detrimental effect upon market towns and sub-centres.

High street retail will continue to be difficult with a fundamental shift in the dynamics of the retail economy, together with an oversupply of space and over renting of many properties, meaning this market still remains very difficult with, in some cases, rental values continuing to fall. However it is not all doom and gloom – major centres have recovered while some lost ground and vacancy rates in these locations remains low. Certain sectors are very buoyant such as convenience store development. There is continued oversupply generally in the UK given the structural changes which will continue to have an impact on smaller centres and secondary locations.

Over-riding the region’s economy and the commercial property sector, which still awaits a beneficial ripple effect from London and the South East, are continuing uncertainties due to the situation in Europe with a trade sanctions in a tit-for-tat between Russia and the West causing uncertainty in an important export market for the North East.

On this macro level the forthcoming UK general election, the underlying UK budget deficit, falling economic growth across most of the world particularly the EU where there is also uncertainty regarding the UK’s EU membership. With regards to the latter, the UK should remain in Europe to protect our export trade but only if the terms of our membership can be amended to help ensure a level playing field with other member states.

Much of the North East’s reputation in Europe is a consequence of Nissan’s presence in Sunderland. Given that Nissan and most other exporters have developed their entire corporate strategy around the fact that the UK has access to the single market underlines the risk associated by an EU exit.

That said, a great deal of innovation could be funded from the UK’s contributions to the budget of an organisation whose financial accounting is extremely poor and whose reputation is in such doubt and this could well open up exciting possibilities. No political party has properly outlined the risks and rewards of the impending vote, or how it would take Britain forward to new levels of prosperity out of the EU.

The European Union commenced life as a free-trade grouping that has developed into so much more with an ongoing involvement in the social structure and fabric of the UK. Whilst it will be possible for us to operate out with the European Union we run grave risks for companies such as Nissan if we do not have the benefit of at least a free-trade involvement with Union.

Since its inception G9 has been consistent in its view about the region and its ability to compete for inward investment. The latest survey continues to underline its doubts. There is a lack of a cohesive approach to inward investment across the region and there is little tangible evidence that the level of enquiries from inward investors is actually equal to the hype as the region faces competition from north of the Border and cities such as Sheffield, Liverpool, Leeds and Manchester.

There is a clear need for a regional approach to securing inward investment into the North East. The G9 view is that this should be under a city region or Greater Newcastle banner, and be a collaboration between public and private sector. This is the best way that our region can compete on both a national and international level.

The availability of premises is a major issue – no one can move if there are no premises. The inward investment conduit is confusing – it’s the same faces, it’s marketing by committee. There are negative external perceptions of the region and poor marketing of the region. There needs to be improved branding, creating one voice for the region through stronger leadership.

Funding for development is another key area. The NELEP needs to do more to communicate what funds are available but also set aside money for speculative development. A return to ‘gap funding’, where public money helps to initiate development, would be beneficial.

Tax driven funds such as those that invest in Enterprise Zones are available as indeed are other funds but there will need to be more innovative approaches such as that taken by Newcastle City Council in respect of the Stephenson Quarter development. The region’s public sector can take a lead to effectively gap fund development or find new mechanisms that mimic the gap funding regime.

Ends

This was posted in Bdaily's Members' News section by Knight Frank .