South Hampshire commercial property review

21 February 2011

There are interesting times ahead for South Hampshire's commercial property market and whilst uncertainty remains as to the economic climate there is cause for optimism in some sectors of the market.

Whilst the latter half of 2009 and the first half of 2010 saw a drop in business confidence, we saw signs towards the end of 2010 that confidence was returning and this has certainly continued into 2011.

Commentary within the national press has focused on rising inflation and it was interesting this week to note that the service sector has also shown improved figures, which has the greatest impact on the rising inflation levels. However, these positive signs of growth are constrained by the continued tightening of fiscal policy and rising unemployment. What impact will this have on interest rates? Many 'experts' are now of the opinion that an interest rate rise is inevitable by May/June of this year, albeit still at record low levels, rising to no more than 2% by the end of 2012. The question is, what impact would these interest rate rises have on a businesses ability for growth and will this cause a set back in both growth and business confidence? It is undoubtedly a difficult decision for the Bank of England.

Back to the positives… within the commercial property sector we are certainly seeing a renewed confidence and increased level of offers and transactions taking place. The strongest sector is undoubtedly the industrial market, where supply of good quality accommodation is being restricted by lack of new development and the continued uptake within this sector. Already we are seeing a tightening in respect of tenant's incentives being offered and pressure on rents to increase for new or good quality refurbished accommodation. It would not be a surprise to see rents in this sector begin to rise in the second half of 2011.

The office sector along the M27 Corridor seems to have divided into two markets. The City Centre office market continues to suffer from over supply and a lack of demand mainly driven by the general poor quality of accommodation and restrictions on allocated parking. This has seen a flight to quality and a surge in demand specifically for 'out of town' locations. A plethora of deals has taken place throughout the M27 Corridor region from Romsey in the west to Solent Business Park in the east. This upturn in demand has been driven by tenants with breaks in their lease or with leases coming to an end, taking the opportunity to upgrade to better quality office space and with good parking provision. For the better quality accommodation rents have stabilised in this market, although generous rent incentives are still common place in this sector. That said, the out of town market still also suffers from an oversupply of secondary accommodation and this has continued to drive rents down for this type of accommodation. We are unlikely to see a change in the demand for the office sector within the next 12 months, although if the service sector continues to grow then the office market should start to improve in 2012.

The retail market continues to have its challenges with A2 sector in particular struggling. That said a healthy demand from sectors such as convenience stores, discount retailers and bookmakers are bucking the trend. There is also an appetite from sections of the leisure market with a number of the restaurant chains actively looking for accommodation and benefiting from taking vacant space in good locations on excellent terms.

So are there signs for optimism? YES - There is certainly an increased level of activity within the market and this indicates a growing level of confidence and recognition of businesses to seize the opportunities for excellent deals that are available in the market. However, this confidence remains on a knife edge and should interest rates begin to rise in the second half of the year this would undoubtedly put pressure on this renewed optimism. Let us hope the Bank of England get their timing right!

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For further information:
Contact: Andrew Hodgkinson
Telephone: 023 8021 0142
Email:Andrew.Hodgkinson@goadsby.com
Website:www.goadsby.com