A cross section of commercial agents tells us how the first half of 2010 was for them, gauging the occupational markets and telling us what shape agency teams are in.
Steve Perrett, partner, Cheetham & Mortimer
The bulky non-food retail sector is very tough with huge oversupply of older retail warehouses and few acquiring retailers. Better retail parks with open A1 [retail] consent are fairing quite well with reasonable demand, although the better retailers, eg M&S, Boots, Next, are inevitably looking for attractive packages to tempt them onto schemes.
The food sector is still very strong with the 'Big 4' becoming more flexible on size, and stronger acquisitions from Waitrose in the North adding to competition. Co-op also seem to be starting to acquire having digested the Somerfield portfolio.
Rental movement is very much dependent upon the product. Generally rents on the better schemes are remaining stable, but the level of incentives required to entice tenants onto schemes seems to be the biggest variable. On secondary schemes, rents seem to still be in decline.
One or two developers have speculatively developed retail warehouse schemes, eg Derwent Holdings at Walkden and Anlaby, Hull but are very much in the minority.
The biggest issue facing our business is making the most of the fewer transactions that are happening, keeping an eye on costs in the expectation that income is not going to significantly rise in the foreseeable future.
Nick McAllester, director, Colliers International
In much of the North West we are seeing continuing demand for large space from the likes of Store 21, Poundland, B&M and 99p Stores which are acquiring properties they turned down last year as there were other, better opportunities on their radar. The continuing desire by these retailers to grow their business coupled with little or no new stock coming to the market is resulting in a number of prominent vacant, or temporarily let, shops being occupied by acquisitive national multiple retailers. For those landlords that have been able to keep up loan repayments this is good news. In some instances we are seeing healthy competition for shops that have been troublesome voids for some time and seeing terms agreed that are, in relative terms to the past two years, much more landlord friendly.
With the lack of new stock coming to the market due to no new development, Bury's The Rock apart, and fewer retailer administrations than anticipated, the retail market may be heading for a period of stagnation where there is demand from retailers for new stores but with no suitable space available. Whether or not this will encourage developers to dust off previously proposed development plans will largely depend on the ability to borrow money which will itself be predicated on the levels of rent, length of lease and incentives packages retailers will agree to. A veritable Mexican stand off will ensue.
Manchester City Centre Offices
Rob Yates, director, DTZ
We are currently observing the tail end of the office development pipeline in Manchester. Those schemes that were committed at the end of the lending boom are in the final stages of their post-completion letting campaigns. There is only c.650,000 sq ft available in 16 major schemes.
The significant letting success in 2009 has eaten into the supply of Grade A accommodation, particularly those schemes offering large floor plates. A further 150,000 sq ft of Grade A accommodation is currently under offer. Average take-up levels would suggest there is about two years supply of Grade A space available, albeit some of these buildings offer smaller floor plates will not appeal to larger occupiers seeking horizontal occupation. Since it will be at least two years before a new development can be delivered, it can be seen that the demand and supply equation will soon be in equilibrium and move swiftly to a shortage of supply thereafter.
Conversely the supply of Grade B accommodation in the shape of major refurbishments has increased to a record level of c.1.6m sq ft. This is partly due to the return of buildings as traditional Grade B occupiers have taken the opportunity to upgrade to Grade A space due to the competitive deals available during the recession.
The office development pipeline has come to an abrupt end and there is limited prospect at best for speculative office development in Manchester presently.
What are we really going to witness in 2010?
It is doubtful there will be any solid commitment to speculative development but we may see the emergence of new players in the market, larger developers and possibly funds entering the market for the first time in 15 years. There will be some strategic positioning, with many key sites available via distressed owners or receivers. This will be with a view to building out over the coming years with no real delivery until 2013 at the earliest.
Most developers are currently focusing on the pre-let market, seeking to engage with large occupier requirements to anchor schemes and instil more confidence from lenders. However, only the best developers will succeed.
Liverpool City Centre Offices
John Brown, senior surveyor, Knight Frank
We understand that take-up within the first six months of this year was in the region of 100,000 sq ft within the city centre.
We are seeing signs of the smaller office requirements entering into the market, such enquiries were severely lacking during the course of 2009 and early part of 2010. As previously, the larger enquiries have continued to be in the market place, with many searching the market place prior to their existing lease expiries due to the general sentiment that deals are offered by landlords to secure lettings. The market has been lacking enquiries particularly between 2,000-10,000 sq ft but this has also picked up slightly within the last three months.
In terms of the second half of the year, this will be dependent on some larger requirements being secured for the region and is likely to lead to a total take-up of between 250,000 sq ft and 300,000 sq ft for the city centre [compared to 520,000 sq ft for 2009]. This is dependent on at least two of the larger enquiries within the market place being satisfied leaving much of the underlying take up to be on the smaller end of the scale.
Headline rents of £15.00-16.00/sq ft are being maintained for refurbished offices with new development grade A still headlining at £20.00/sq ft. However, as supply diminishes with no new build other than 4 St Paul's Square, the incentive packages are, on the balance of probabilities, going to tighten and headline rents continue to be maintained.
In terms of speculative development, there is only one development of this type within Liverpool City Centre currently under construction, 4 St Pauls Square, providing 109,000 sq ft. The NWDA has released the opportunity for developers to come forward to provide up to 410,000 sq ft behind Mercury Court.
A high priority issue for the business is the lack of transactional work actually coming to fruition within a reasonable timescale. The difficulty of coaching clients in this turbulent market to manage their expectations and for them to understand that transactions are taking longer than ever to conclude.
Will Sadler, associate director, Legat Owen
This year kicked off with three high-profile transactions. Firstly, one of the largest ever office transaction within Chester achieved by Liberty Properties with the sale of 80,000 sq ft of Grade A offices at HQ to Cheshire West and Chester Council for their new headquarters. In quick succession, came the announcement by Chester University of a multi-million pound investment in the city with the purchase of County Hall for use as a business incubator centre. Hard on the heels of these two deals came the highest yet headline rent of £20.00 sq ft at Winster House, on Chester Business Park, a 12,000 sq ft speculative refurbishment undertaken by Atmore. The property was acquired shortly after practical completion by Widex, a multinational Danish company opening their UK headquarters.
These transactions have led to a lack of grade A stock, and a number of landlords are capitalising on this and undertaking speculative refurbishments of both city centre and business park premises. Of particular note is The Steam Mill, a 55,000 sq ft property undergoing a rolling programme of refurbishment by Threadneedle and Poplar House, a 24,000 sq ft property refurbished by PD Properties. Agents report healthy enquiries for both schemes.
There are a number of design and build opportunities within the city to cater for the larger requirements, including Diamond Point by Morbaine, at 80,000 sq ft, Tower Warf, CTP also 80,000 sq ft, Parkside 1, Liberty 45,000 sq ft and Barlows' Fountains Roundabout, 60,000 sq ft. In the long term, the provision of a new city centre business district centred on Chester railway station will provide a further fillip to the local economy.
Steve Capper, industrial agent, Drivers Jonas Deloitte, Manchester
Whilst our order book has increased in recent months and enquiries are on the increase we are still finding it tough to finalise deals. The market remains flat with supply still outweighing demand. However, at the smaller end of the market – around 5,000 sq ft and below – we've seen a steady rise in enquiries over the last few months. Much of this interest is from local SME's looking to expand their operations – a promising sign in the current climate.
Prospective occupiers are also inherently aware that with so much choice of secondary stock, they have the opportunity to secure the most favourable terms from Landlords who are keen to erase their increasing holding costs. As an example we have seen a 12-month rent-free period on a three-year lease with the rent reduced by around 25% from just over 12 months ago.
On a positive note we've taken on a number of new acquisition instructions from both public and private sector clients, including manufacturers, who are keen to take advantage of current market conditions.
Waste and energy sectors continue to provide strong transactional opportunities – a substantial development site we are bringing to the market in the North West has already attracted strong interest from both these sectors.
Andrew Aherne, head of industrial and logistics agency at Lambert Smith Hampton
The North West's big shed market has witnessed its highest-ever second quarter take-up, reaching nearly 1.9m sq ft, an increase of 38% on the previous year's figure.
Two of the most recent significant transactions being JD Sport's commitment to 615,000 sq ft at Kingsway in Rochdale and Fowler Welch's agreement to lease 500,000 sq ft at Heywood Distribution Park in Manchester, which increased the amount of warehousing space the fresh produce distributor owns at the site to more than 1m sq ft.
While this is fantastic news for the region, the big shed market can only continue to prosper so long as there is sufficient product suitability and competitive terms to satisfy the demand. With no speculative development having taken place over the past 24 months, further supply is dependent upon second-hand stock becoming available.
Tesco is about to release almost 1m sq ft of space onto the market following the restructuring of its North West supply chain operations, which will relieve any potential shortage for the immediate future.
The retailer has appointed LSH to dispose of three high quality warehouse/distribution facilities; a 460,000 sq ft and 180,000 sq ft unit in Middlewich, and a 300,000 sq ft temperature controlled unit in Middleton.
Encouragingly, there continues to be a number of larger enquiries in the marketplace. However, the significant up-front costs associated with fit out works can often deter potential occupiers. The fact that these three properties have already been fitted out to a high standard and are available for immediate occupation is a major point of difference, which is reflected in the good level of interest we have already received.
Matt Hardy, senior surveyor, Edward Symmons
The impact of the credit crunch on the buy-to-let residential market in the North West has not meant that the bottom has fallen out of the market, but has shaken things up, with some investors in a position to profit and others facing insolvency. This movement has brought a large number of small residential portfolios to our books, the majority of which have quickly generated interest with multiple offers for the portfolio at a discounted quick-sale price.
However, individual property values are typically low – frequently between £40,000 and £70,000 – meaning a discount across the portfolio can equate to a considerable loss on the value of each property. Therefore, in many cases -for low-value terraces in less popular areas – we have taken the decision to decline these offers.
In a recent case, and with limited marketing, a portfolio of seven houses received more than ten offers. A prime example of low lot values, we sat tight, taking time to split the portfolio down into single assets which we marketed for auction. The auction saw sales of six of the seven properties, at an average of 10% above reserve, already securing a higher figure than the best offer for the portfolio.
Even if we had given the last property away, we would have done better than with a job-lot sale, so when we then sold the last property out of auction, the total realisation reached approximately 15% above the best portfolio offer.
Lancashire Business Space
Danny Pinkus, partner, Robert Pinkus & Co.
If anything, we're busier as we have more properties to service. However, general levels of enquiries are still lower than we hoped.
The secondary market is reasonably busy. At times like this costs become far more relevant. We have one client doing speculative development and that's always extremely welcome. However, we're approaching the time when there is a serious undersupply of good quality development. This will change when the banks start lending again but we're hopeful for the future.
Staff levels have remained the same but our order book has increased slightly. This is due to business casualties. From our point of view we want to be dealing with as much quality stock as possible but the business casualty hasn't happened at the rate we thought. Banks are tending to work with the customer more. In terms of how we've had to change our working practice, we've had to learn to back off in the negotiation process and negations have now started to be more in favour of the tenant.
North Wales Industrial
Chris Prescott, partner, King Sturge Liverpool
The industrial market, particularly to the east of North Wales, is showing some positive signs of activity in the last few months with a number of deals completed in sales and lettings terms. The area has been greatly assisted by the grant-funding regime, it has to be said, and that has been a prime factor in its success thus far.
Demand for freeholds of the right size and realistically priced is good and we are just about to compete a sale in Wrexham on a six acre site to an owner occupier which is great news for the town. At Ruabon, we have just sold a 73,495 sq ft unit at Wynnstay Technology Park to Oakland Farms Eggs Ltd acting jointly with Knight Frank.
On behalf of Grant Thornton, we have also concluded a sale to a private individual on a 7,550 sq ft unit in Manor Lane, Hawarden.
In the same area, Hawarden Business Park, which lies close to Hawarden Airport which attracted the multi-million pound investment by Airbus, has been particularly busy with two sizeable transactions recently completing. Aerotech Design Consultants took 8,120 sq ft and Airbus took 10060 sq ft last April and the Park is still attracting a good level of interest.
It is worth noting that presently all Welsh Assembly Government owned sites or supported schemes require BREEAM Excellent building ratings to be achieved which coupled with the current economic conditions makes speculative buildings very difficult for developers.
Although our industrial lettings team including Helen Moss and Louise Bardsley are very busy, we are finding the office market difficult with only small enquiries with requirements below 2,500 sq ft emerging and the larger public sector requirements no longer in evidence, which is not surprising given the current economic climate and the constraints that this sector is experiencing.
One potential 'hotspot' could be Point 4 at Llandudno Junction which lies between Llandudno and Colwyn Bay. The site is next to the new Welsh regional HQ and the planned scheme aims to attract office occupiers who want to be close to this facility.
There is already some interest but as yet no large enough enquiries and requirements to warrant a start on site but we are actively marketing this for Carlton NW now and remain confident in its occupational appeal.
Another area to watch is Holyhead. The closure last year of the major smelting operations of Anglesey Aluminium Metals, jointly owned by Rio Tinto and Kaiser Aluminium, was a blow to employment in the area. However, AAM has been working with Ynys Mon Council and the Welsh Assembly Government to identify new employment generating opportunities for their land holdings and a number of initiatives are now in place to attract inward investment with King Sturge advising AAM.
North Manchester Business Space
Mike Redshaw, director, Nolan Redshaw
We do not expect the market to improve in the short-term, however, we believe there will be an increase in activity in the final quarter of 2010, but this is from a very low base.
Effectively, the market is still frozen through a lack of debt finance, and until the banks start to lend again at sensible levels there is unlikely to be any change. Where there has been some speculative development, such as Axis Point at Heywood by Seddons, excellent results have been achieved. We are experiencing at this stage in the cycle part of a classic economic model, which will lead to a significant under-supply of development by 2012/13. It is, however, an almost impossible situation for developers. On paper now the schemes won't stack up, however, by the time the numbers stack up, the market will be demanding properties for occupation and the build cycle will lag significantly behind, resulting in a significant increase in values through pent-up demand.
The surprise within H1 has been the level of take-up in smaller industrial units that we have been able to achieve and, in particular, the success we have had with Max Property's Industrious portfolio, where we have let 33,600 sq ft within five months. The evidence here is clearly pointing towards a recovery coming from the bottom up, with demand for the smaller industrial units leading the way but, surprisingly, there is no similar smaller uptake within the office market, where activity remains sluggish.
Over the last 12 months we have recruited two new members of staff to bring our total staffing levels to ten. Our Agency Department is now larger than many regional offices of national firms, so we are in a good position to grow when the market returns. Our turnover was down by 35% in 2009 with no sign of any change for 2010.
Llyr Emanuel, director, Legat Owen
The last 12 months has been a very interesting time for retail with a number of high profile casualties nationwide, however, Chester has seen the introduction of several new big name retailers in this time replacing the old with new. A brief highlight includes TM Lewin who have taken the former Viyella on Eastgate St, Carluccios who have taken the former Yorkshire Bank on Bridge Street, Republic moving into the former Zavvi store on Foregate St together with the new Primark Store in the former Woolworths. Currys digital have also re-sited and taken new space in the former USC on Eastgate St, which leaves a very limited amount of quality stock in the City. There remain a couple of vacant units on Northgate St, but advanced discussions are underway with a number of other high profile retailers. Following the Currys deal, the prime Eastgate Street is now fully occupied.
There are still a number of large requirements for the City and until the Northgate scheme starts to move forward, there are limited opportunities for these retailers to secure representation.
The retail parks are also looking healthy with very few voids following the opening of Tesco Home and Peacocks in the former JJB. Land securities have made a planning application to extend the Greyhound retail Park and it is understood there are a number of parties looking at this space.
All of this looks positive for the city, which is holding up well given the recession and new competition in the way of Liverpool One and Eagles Meadow in Wrexham, with many people still preferring the character shopping of Chester and what the city has to offer.