Market 2021 | Offices to rebound, ‘clock ticks’ on retail
Who would want to predict what might happen in 2021? Fortunately, property professionals are a hardy breed, and Place North West asked those at the sharp end how conditions in commercial real estate are likely to evolve over the next 12 months.
Offices in the North West – and across the whole country – have suffered the biggest shock of all in 2020. A sector that especially in its key Manchester market has enjoyed prolonged success, with companies investing in workplaces to win the talent war, was suddenly faced with its customers wondering, “If we can all work at home, why would anyone pay through the nose for an office?”
But with vaccines now being rolled out, the industry is hoping for a resurgence in companies looking to get on the front foot, and at least find a middle ground for their workforces in 2021.
Chris Cheap, managing director of UK regions at consultancy Avison Young, said: “We certainly expect a return to form for central Manchester. The raw materials that underpinned [the market’s] stellar performance over the last 10 years have not gone away – people enjoy city centres and the access to talent is greater. Once we gain certainty from the vaccine roll-out, ‘muscle memory’ will kick in.”
Will Lewis, OBI co-founder, reckons the numbers might start to spin quickly. He said: “There’s a certain amount of pent-up demand from 2020 that should firm up if the [vaccine] roll-outs are successful, and we’re already seeing a step-change in confidence. There could be a surge in demand for better space, where companies can create the environment they want.”
How might the workplace change? Cheap said: “All occupiers are evaluating their needs and it’s clear that occupiers will take less space but continue to focus on the environment they create.
“We have seen a gravitational pull towards greater flexibility in lease terms for a number of years, and the pandemic may well accelerate this. That said, long-term leases are far from over as there remain confident businesses prepared to commit to the right space in the longer term.” Incentives remain for bold souls, he added.
Mark Bamber, partner at Knight Frank, said he, too, believes conditions could get back to a ‘sort-of’ normal. He said: “It needs to be done safely, but I expect the Government will place more emphasis on a ‘Work from Work’ message in early 2021. While flexible working is here to stay, many employees, certainly younger staff , want day-to-day interaction with colleagues.
“We have continued to see a fair level of enquiries and viewings. While it is still difficult getting deals completed, we expect confidence to return in 2021.”’
The one sector that has seen deals surge in 2020 across the UK is industrial and logistics. The North West logistics market saw 1.4m sq ft transacted in Q3 alone, and it has a widely reported supply problem.
With stock being soaked up at successful locations such as Logistics North in Bolton and Omega Warrington, several large-scale projects were being primed for further development to meet demand. However, Tritax’s Symmetry Park in Wigan, St Helens’ Parkside and Harworth’s Wingates have all been called in by a Secretary of State who has already rejected major schemes by Stobart and Peel L&P. So what is the way forward?
One emerging possibility is H-Park in Heywood, a development by Russell WHBO that is seen by many as the only site with outline consent that has the capacity to take the larger ‘big box’ requirements.
John Sullivan, director at Colliers International, said H-Park “will become the prime logistics park in the North West and one of the main sites that occupiers will be considering in 2021”.
As to how things might go next year, he said: “Demand in 2021 will be high, but not to the levels of 2020. Given that there is now very little grade A stock available, we may see occupiers having to consider design and build options,” he said.
While the high street’s woes will see some large secondary stock become available, Sullivan added that “this will ultimately be taken up by the ever-increasing e-commerce market, which will dominate take-up in 2021”.
After a year in which even the mighty Trafford Centre has seen its value squeezed, the long-embattled retail sector can surely go no lower. There is now widespread recognition that the traditional retail model is broken: places need to find another way.
Thus, by the end of 2020, we have started to see examples of new approaches being trialled across the region, to win back shoppers and boost footfall. Stockport Council intends to carve up its old BHS unit and Oldham Council is buying the Spindles shopping centre to introduce market stalls and flexible workspace.
In the short term, things might bounce back, according to Colliers International, which said in a statement: “A rise in consumer confidence and demand will help the recovery take place at a quicker-than-expected pace. Occupational demand will be led by discount food, homewares, discounters, sports and ‘brand statement’ stores.”
The clock is ticking, though, and Colliers added that it expects there to be continued pressure on rents across shopping centres, high street and out-of-town locations next year, particularly after the business rates holiday comes to an end in April 2021.
For investors, Colliers believes that supermarkets are the retail asset of choice, and that retail warehouses will continue to be popular. The fortunes of shopping centres, however, are segmented between sustainable and non-sustainable assets, it said.