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Kent, Surrey & Sussex Commercial Property News - Thursday, June 21, 2018

Issue #56

Flatpack FURY

Kent, Surrey & Sussex News

The continuing development of roads and housebuilding across the three counties is bringing increased pressure on resources as well as protests from local residents.

At the same time commercial developers are finding it increasingly difficult to access land for developments, particularly industrial schemes. This applies strongly along the south coast.

The problem goes back decades to the time when governments starting putting pressure on the local authorities to increase the amount of housebuilding in rural areas, a policy identified with former Secretary of State John Prescott.

The latest battle is on a site in Lancing where New Monks Farm Development, a subsidiary of Brighton and Hove Football Club, wants to build an IKEA store and 600 homes.

The site, close to Shoreham Airport, is zoned for development in the Adur local plan and it generated considerable controversy when it was included. Even so, the number of people registering their support for an IKEA is larger than the opponents, whose organisation is called Adur Residents Environmental Action (AREA).

Its Chair, Barb O’Kelly, said: “There is a growing awareness of the congestion and pollution problems that would be generated by the additional two million extra journeys a year from IKEA alone”.

This congestion problem now applies right along the south coast and is a hindrance to commercial development.

Local authorities are under considerable pressure to increase the rate of housebuilding they allow throughout the south east.

One example is Arun which is required to construct 20,000 new homes over a 20 year period.

That often means employment land being used for housing, notably the large horticultural complexes in the three counties. Large numbers of greenhouses have been demolished to make way for housing and some villages such as Angmering have become small suburban towns.

Meanwhile, agents complain about the shortage of land for industrial development, particularly for logistics use to cater for the increased amount of on line shopping, which is also bringing changes to the retail scene.

IKEA and the Monks Farm development will be a test of all this.

TOUGH SUMMER FOR construction

Kent, Surrey & Sussex News

As fierce as the debate is about property development, whether it be lack of industrial or too much residential, the fact is that the construction industry is having a difficult period.

Blane Perrotton of Naismiths said: “Despite the low interest rates environment and abundance of finance available, developers are increasingly doubling down, concentrating on completing existing projects rather than commissioning new ones. There is likely to be more pain to come and there is little sign of an end to the limbo which is prompting investors in London and the south east to sit on their hands”.

In his view the slump in output is the worst for six years, having been hit by low confidence, softening investor demand and rising input costs.

The question is to what extent Brexit has damaged confidence among developers and brought a long term decline in output. Yet the majority of the agents in Kent, Surrey and Sussex point to a healthy demand for industrial property, as they do further west in Southampton and Portsmouth.

THE right size

Kent, Surrey & Sussex News

A 2,415 sq.metres (26,000 sq.ft.) warehouse in Bexhill has been let through SHW to Skinners Sheds.

David Martin of SHW said: “Buildings of this size with a yard are rarely available which was borne out by the number of enquiries which were from a wide range of different users attracted principally by the extensive yard”.

According to SHW, this size of warehouse is in most demand among occupiers in the Bexhill/Hastings area.

HOTELS ARE popular

Kent, Surrey & Sussex News

One sector enjoying growth is hotels which remain popular with investors aswell as existing operators.

An example of a typical deal is the sale of Stanhill Court Hotel in Horley, Surrey through Christie & Co for £4.8 million.

It ticks all the boxes in being a popular wedding venue as well as conference centre set in 35 acres with a five acre amphitheatre overlooking the South Downs National Park. It has 34 bedrooms as well as 10 conference rooms and can accommodate up to 360 guests.

It has been sold to an existing hotel operator in Kent who plans to invest substantial capital in the business. Andrew Moore of Christie said: “This is a significant property in an enviable location which we sold on behalf of Mr and Mrs Antonio Colas, who are now retiring”.

InBrief #1

Kent, Surrey & Sussex News

The 3,615 sq.metres (39,811 sq.ft.) Conqueror Court in Sittingbourne has been recently sold to London & County, the property investment and development group who, unlike many landlords, have adopted a flexible approach to leasing as well as selling both vacant and fully let units on the 12 office park as investments.


Kent, Surrey & Sussex News

It could be argued that Shoreham has greater potential as a commercial centre than it has so far achieved.

That is because it has both an airport and a shipping port, even though neither is of great size.

However, the location is a positive one as both have easy access to London as well as the populations along the south coast.

In fact, Shoreham Port has thrived in recent years with the significant help of the Coast to Capital Enterprise Partnership0 (LEP) which has provided investment and business support to increase productivity and generate growth.

The result has been increased cargo handling and an expansion of the port’s commercial property portfolio and the past investment has allowed an increase in cargo capacity at the Power Station Quay.

A key part of the property portfolio was the purchase of Maritime House, a business centre, with the help of a £1.1 million grant from Coast to Capital.

Judging by the agents’ listing for industrial property there is a healthy demand for letting and sale, with a notable level of purchase for owner occupation but much of this space is small. That said, Graves, Son & Pilcher have sold or let a number of larger units, such as a 2,589 sq.metres (27,869 sq.ft.) unit at Cecil Pashley Way, a popular location at the airport.

The same agent also acquired a 4,180 sq.metres (45,000 sq.ft.) unit on Dolphin Road, Shoreham for a company that will use it themselves.

Graves, Son & Pitcher are also dealing with three other units on Dolphin Way totaling 1,302 sq.metres (14,000 sq.ft.).

As far as offices are concerned, the airport (also known as Brighton City Airport) has plenty of space available, such as three suites within the Grade II listed terminal building as well as along Cecil Pashley Way. Clearly there is potential at the airport but to be fair road access needs improving, particularly from Shoreham and the port.

Were the roads in the immediate area of the airport and port improved, there is a real potential for commercial development.


Kent, Surrey & Sussex News

Kent is well served by science parks and they have a good record of nursing small companies into faster growth.

That is certainly true of Discovery Park, Sandwich which continues to pull in new occupiers and see its existing tenants expand, proving the doomsayers wrong about its future after a large part of Pfizer left.

Six new companies have joined in the past year while three existing occupiers have expanded. The new occupiers include Invicta Health Community Interest Company, formed by a group of GPs; Trinity Mirror Group, a newspaper publisher, and Exroid Technology.

One example of an existing occupier expanding at Discovery Park is A4P, which specialises in the management of outsourcing for bioanalysis and logistics.

Richard Hucker of A4P said: “We have recently expanded into a larger office at Discovery Park because our client base is continuing to grow and existing clients are expanding their requirements of us. The dynamic nature of the pharma science sector is an environment where the organisations investing in drug development need to source flexible specialised outside expertise”.

“One of the secrets of the firm’s success is that it can provide services to other companies at Discovery Park, creating a virtuous circle”.

Graham Howieson of Discovery Park commented: “A4P is an example of the global footprint that many of the companies here enjoy. This is a place with worldwide connections that thrives in collaboration both on and off site with a skills base built up over decades”.

UNDER THE hammer

Kent, Surrey & Sussex News

Selling commercial property through auctions appears to have become more popular, judging from the performance of Clive Emson.

At its recent auction in Maidstone, a mixed use block in Dover with four commercial units and 29 flats was on offer at a guide price of £3.5 million and in Brighton Great Thorndean Farm, Haywards Heath for £1.1 million (it has two holding residential planning consents). James Emson said: “A trend we are currently noticing is a demand for versatility and flexibility, perhaps in the form of mixed use commercial and residential properties or good quality development and investment stock.

Portfolio holders are widening their investments in 2018 as they monitor trends, attempt to predict the future and consider options, and the auction room remains the best place to do this”.

InBrief #2

Kent, Surrey & Sussex News

Another part of the improvement to the A27 road, the vital south coast road, has been chosen with the Arundel bypass but it still faces considerable local opposition. Highways England examined a number of routes and argues the proposal, which goes through Binsted village, is the best option. The £250 million project could start in 2020 and will unlock a notorious traffic bottleneck in Sussex.

Ashford LEADS

Kent, Surrey & Sussex News

Ashford is one of the local authorities leading the charge into expanding their commercial property portfolio to compensate for the loss of government funding.

To achieve this, the council has moved to operate more like a business which means transforming from a traditional local authority to become a commercial organisation. In particular, it takes an entrepreneurial approach in the quest for financial self sufficiency built around a corporate real estate strategy.

Ashford is not alone. Canterbury is buying property and land to regenerate the city centre to provide cash flow to offset government cuts.

This has meant taking full control of Whitefriars Shopping Centre after buying out global fund manager TH Real Estate’s 50% holding for £75 million.

The council plans to run the shopping centre for at least the next decade and ownership gives it the ability to redevelop.

Colin Carmichael, the Council Chief Executive, commented: “The shopping centre takes up such a large part of the centre of the city and ownership gives us the opportunity to influence the regeneration of Canterbury in the future”.

In fact, the move by local authorities to buy shopping centres has grown throughout the UK as funds and other owners are willing to sell in the face of the changes in shopping patterns. According to BNP Paribas, local authorities accounted for 70% of the purchases of shopping centres in the first quarter of the year, spending £255.15 million on shopping centres in January-March.

Another good example is Shropshire County Council buying three shopping centres for £50.75 million in the centre of Shrewsbury to support economic growth. The logic for councils is that they can borrow cheaply from the Public Works Loan Board, an arm of the Treasury.

There has been some criticism of the councils buying shopping centres at this stage of the property cycle.

For example, James Findlater of Colliers International said: “Councils have come in and will pay yesterday’s prices for assets they are not well placed to manage”.

Canterbury acknowledges its need for management expertise but points to its low borrowing costs as providing positive cash flow from the Whitefriars income.

The Ashford model is more embracing and involves the council in the early stages of development.

SETTING AN example

Kent, Surrey & Sussex News

The first phase of the Commercial Quarter in Ashford, a development by Quinn Estates and George Wilson, has now opened and provides the prime example of public involvement in the development.

The council underwrote the cost of two floors in the 7,432 sq.metres (80,000 sq.ft.) office block. The council’s portfolio of commercial property also includes the Park Mall Shopping Centre and a Wilko retail unit, the Elwick Place cinema, a hotel and restaurant complex, Ellingham Industrial Estate and retail units at Stanhope.

Most recently it has bought the former Odeon building in the lower High Street which is the home of Mecca Bingo.

Cllr Graham Galpin said: “The adoption of this strategy is another milestone in our journey towards becoming a commercial, self sufficient organisation. We are seeing significant returns from our acquisitions”.

“In the 2016-17 financial year, International House delivered a return on investment of 12.6% and Ellingham Industrial Estate 12.3% I am confident this new strategy will help us to continue delivering terrific results on behalf of our local residents”.


Kent, Surrey & Sussex News

A new partnership of Linton Group and Henika has bought its first two properties at 9-11 Wellesley Rd, Croydon.

The partnership will focus on commercial sites with asset management potential in London and the south east and the 5,574 sq.metres (60,000 sq.ft.) Croydon properties present various options, such as development potential.

Gary Linton of Linton said: “We are expecting big things from Croydon and fully believe in its potential as one of London’s emerging commercial and residential hotspots”.

The properties are at the centre of Croydon’s £5.25 billion regeneration programme, which seeks to change perceptions of the area by turning it into one of London’s cultural centres.

In particular, it is close to the £1.5 billion Westfield retail and leisure complex by Westfield and Hammerson.


Kent, Surrey & Sussex News

The continuing loss of land for industrial development is pushing new schemes eastwards from Greater London further into Kent.

That is the view of Glenny LLP whose latest research shows the challenge for industrial occupiers across south east London and Kent caused by the loss of 500 hectares of industrial land in Greater London between 2010-15 with a further 233 hectares expected to be lost from 2016 to 2041.

The push eastwards, said Glenny, is bringing the focuses on Belvedere, Erith and Dartford.

“Dartford has always been a favoured location for logistics due to its close proximity to J1A of the M25 and the Dartford River Crossing offering excellent communications”, said Glenny.

Glenny said: “As with much of the M25 corridor around London, Dartford has seen rents continue to rise as displacement from central London radiates outwards and as new stock is slow in coming forward, further increases are expected. Rents on the new schemes top out at £156 a sq.metre (£14.50 a sq.ft.)”.

Glenny Managing Partner John Bell commented: “The depth of the demand for industrial space has intensified over the past few years and the dynamics of the market have changed substantially.

Demand has been outstripping supply for three years now and rents have been driven up as a consequence”.

Glenny’s Richard Seton-Clements agrees and added: “We are optimistic about activity for the remainder of the year, with a number of new industrial schemes expected to be completed”.

This view is shared by Richard Turnill of Watson Day, who said: “Dartford is experiencing a strong period of take up and rental levels across the region have strengthened over the past 36 months with both prime and secondary rents on an upward trend, largely driven by a lack of stock”.

“Speculative development has been a feature of the local market in the past 24-36 months, with schemes such as Questor 60 being pre let and there will be further development there over the next 18 months”.

He added that the supply of good quality stock throughout north west Kent is seriously limited and there are no standing new buildings available in Dartford.

Altus Group’s Peter Davidson agrees that the main issue for the Dartford market is lack of stock across all size bands. He said: “The majority of the institutionally owned industrial estates have been trading with very little void and where units have come back at lease expiry, they are very often under offer prior to completion of refurbishment works”.

Glenny notes that recent development has focused on larger logistics occupiers such as Berendsen which has leased 8,640 sq.metes (93,000 sq.ft.) at Capacity where a further unit of 6,782 sq.metres (73,000 sq.ft.) is to be developed speculatively but the area is not short of new schemes across the size ranges.

Speculative development is due to provide 74,320 sq.metres (800,000 sq.ft.) of new build industrial units across eleven schemes in the next twelve month period. These range from the small and medium sized units being offered at Wrenbridge’s Quadron Park and Chancerygate’s Panorama development to the larger units which will feature in Prologis’ The Bridge, which should commence later this year.

InBrief #3

Kent, Surrey & Sussex News

It is a sign of optimism in Dartford that the Grade II listed Court House pub in the town centre has been sold through Christie & Co to a local operator, Yvonne Rickards. It has been closed for a number of years. James Hughes of Christie said: “ We will now see this iconic pub re-open its doors with a successful operator at the helm”.

The largest industrial scheme in south east London and Kent, the 41,805 sq.metre (450,000 sq.ft.) Belvedere Wharf is to be marketed by Savills, Glenny and DTRE. The first building is complete and a further large site is on offer on a build-to-suit- basis in the development by First Panattoni and Savills Investment Management.

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