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South Coast Central Commercial Property News - Friday, June 4, 2021

Issue #43

Bouncing BACK

South Coast Central News

Contrary to expectations, the commercial property market in the region performed soundly during the pandemic and appears ready for a significant improvement.

Yet the pandemic has shifted the market in various ways and the full extent of the impact is ahead of us.

However the initial changes can be monitored to some extent.

 While people are returning to work in offices, it looks as if a hybrid pattern will emerge in which employees work a portion of their week from home;  Office life will still play a major role in business, as much for social reasons as anything else;  That means the trend to modern, all encompassing layouts in offices will continue to influence development but new developments are taking place and old offices will still be converted to residential use;  The easing of lockdown has brought increased high street shopping, though home deliveries will remain a significant part of the market, in turn boosting the industrial property market (the star turn in the past year).

 Local authorities will have to grapple with the decline of high street spending and the empty properties, a sad feature along the south coast.

One of the features of the market in the past five years has been the expansion of serviced offices, which has certainly been boosted by the pandemic. That has coincided with a trend for companies to consider locating in suburban areas away from city centre (and their reliance on commuters).

That emerged strongly in a survey by Media Vision whose CEO commented; “The commercial property industry was in a really strong position pre-pandemic, and despite a dip in searches for commercial space when COVID first hit, we’re seeing impressive recovery across the board”.

RECORD quarter

South Coast Central News

For a number of years the industrial sector has been the most buoyant part of the property market, underlined by record first quarter investments.

According to Colliers International, the record breaking fourth quarter of 2020 at £5.6 billion was followed by a strong January-March in 2021 with £3.4 million invested.

Len Rosso of Colliers International commented: “After a phenomenal year, some might have expected that investment would begin to slow down, but it shows no sign of abating. There is a wide range of buyers’ interest in this sector right now”.

He added: “Investors can see that logistics is going to be the key for the future as consumers are likely to maintain many of the habits they have begun over the last year."

Rosso notes that rents will increase by 2-3% while London and key south east markets (of which the Solent region is one) will increase by 4% this year.

As Cushman & Wakefield point out, the buoyancy has been translated into a high level of deals with a 115% increase in the first quarter compared with the same period of last year.

The total was 1.16 million sq.metres (12.5million sq.ft.). C&Wsaid “demand was driven by retailers, parcel delivery and 3PLs accounting for more than 70% of the quarterly take up”.

What is important for this year (and the wider economic recovery) is that 1.18 million sq.metres (12.7 million sq.ft.) of speculative space has either been delivered or will be this year. Even then, C&W said “that availability has declined by 18% in the past year”.

WE HAVE A FreePort

South Coast Central News

What will also help the region is a successful bid for a Solent Freeport which the Solent LEP said has the potential to attract investments of £2 billion.

The intention is that it would help to lift the poorer communities and create jobs in high growth industries, building on the extensive maritime facilities and historical experience.

When the Freeport bid was shortlisted by the government, Brian Johnson, Chair of Solent LEP said: “The region has a very proud maritime heritage, but we don’t live in the past. The wide coalition of public and private partners brought together by the LEP puts us in the strongest possible position to bring this vision for a Freeport to reality”.

Adrian Whitfield of Realest said: “The Freeport should benefit the wider market and bring further inward investment as the appeal of the Solent region heightens”.

He quoted current examples of developments that will benefit, such as Salmon’s scheme for three units at Nursling, a prime logistics location next to the port of Southampton.

“In my 30 years in the market logistics agents have never been busier”, he added, listing a host of properties under offer such as a 75,000 sq.ft. unit at MountPark and a 101,000 sq.ft. unit at Nursling, let in May only 2 months after being vacated.

InBrief #1

South Coast Central News

Solid backing for the performance of industrial property has come with a variety of reports covering consumer spending and confidence levels. The accounting firm Cornerstone Tax said “business confidence is high and consumer sentiment is generous”. PwC’s charts show consumer confidence at its highest level since its records began. A 53% of those polled want to spend their money locally, while 13% indicate they want to start their own business.

Build MORE

South Coast Central News

“The key for the South Coast industrial market is a period of new development, to address the issue of a lack of supply”, said Dan Rawlings of Lambert Smith Hampton.

“Demand has been persistent since November”, he said, “but the lack of supply is proving to be a constraining factor and is leading to rental increases on both prime and good quality refurbished secondary kit”, He notes that there has been a rise in demand for larger units of 6,505 sq.metres (70,000 sq.ft.) but smaller units have done well, such as the 24 units at Glenmore Business Park, Holbury where only 4 are still available to rent or buy. Rawlings added that “the south coast is a strong industrial and logistics market, its resilience demonstrated through its performance over the last few testing years”. Matt Poplett of Hellier Langston, also involved in Glenmore Park, said that units on the park were sold for £1,990 a sq.metre (£185 a sq.ft.), a price which indicates the strength of demand.

The buoyancy of demand for new space has inevitably led to refurbishment of older stock, principally by financial institutions, said Poplett. “With stock so low that is a sensible response and they are refurbishing to a high standard comparable to new build”, he said.

Office RESURGENCE

South Coast Central News

While the office market has failed to match the performance of industrial property, momentum has picked up this year and a number of new schemes come forward.

One of these is Kingsbridge Estates’ £1.2 million refurbishment and extension at Charlotte Place, a prominent office building in Southampton.

This includes the addition of a first floor business lounge in the 7,435 sq.metres (89,000 sq.ft.) property together with new breakout and collaborative space and other facilities, such as secure cycle parking and showers. These types of improvements are now considered to be essential for developers wanting to attract occupiers and have been intensified by the lockdown and working from home.

Chris Fry of Kingsbridge said: “Quality office space in the city centre is in very short supply and with the ending of lockdownwe are anticipating increased demand for flexible space”. Vail Williams and Realest are letting agents on the scheme.

Martin Hastelow of Savills commented that “the pandemic has brought in to focus a move to more flexible working practices that was already happening prior to COVID-19 but this is still a long way removed from being the death of the office.

Individual requirements may have reduced in size but there is a definite trend towards higher quality space, as companies seek premises that will provide attractive working environments for staff. This demand and limited supply is putting upward pressure on rents. The signs are that office take up in Southampton City Centre in 2021 will exceed annual take up in each of the last 5 years”.

This optimistic view is also endorsed by Andy Hodgkinson of Lambert Smith Hampton who said: ”We are on our way back to a decent recovery in the office market with take up in the first quarter about 75% of average and a number of deals in hand. We are optimistic for the year and there is greater clarity in all sectors on space requirements. In particular, corporates are clearer about their decisions that they want less but better offices”.

Some of them are now planning 2 or 3 years ahead and because of supply constraints, that indicates new developments. Hodgkinson noted that life sciences, insurance and TMT were the driving forces in the market.

With the intense debate on what percentage of people will work from home at the end of the lockdown, Nella Pang of Omega RE said: “Real estate cost is one of the most expensive costs on a company’s balance sheet and the pandemic has adjusted our perspective to being able to work from anywhere, so there are some huge cost savings to be had. There will be a focus from leadership teams and they will have to question what is the true purpose of an office for our business?” Another view on the future of the office comes from Steven Williams of Realest whomade the following points;  We are seeing staff keen to come back to the office but will want greater flexibility around how they work;  More flexibility for staff and people working from home or remotely look certain to continue and a hybrid approach of home and office based working is likely;  With the workforce splitting its time between office and home working, how offices are occupied is set to change with a greater focus on collaboration space and multipurpose use accommodation

SETTING THE style

South Coast Central News

As befits the latest concepts of the office, the 64,000 sq ft Twenty3 Brunswick Place, Southampton combines sustainability and a user friendly group of facilities achieving a BREEAM excellent rating.

The development is situated in the city centre and will feature a new fourth floor with private roof terrace, offering views of Southampton Water. The building, owned by Fidelity UK Real Estate Fund, is being comprehensively refurbished with completion expected in Autumn this year, Russell Mogridge of Vail Williams, joint letting agents with CBRE, said: “This redevelopment will be the city’s most iconic offering for the 21st Century and will be a sought after location. It has sustainable features such as a highly efficient cooling and heating system”.

ON THE right Tack

South Coast Central News

A new development being proposed by Portsmouth City Council could create more than 2,000 newjobs and apprenticeships in themarine employment sector.

Phoenix Quay is proposed as part of the £1 billion plus, car-free waterfront neighbourhood at Lennox Point, on the Tipner West Peninsula, which will be developed just off the M275 in Portsmouth, subject to planning and other approvals being granted next year.

The marine employment hub at Phoenix Quay is planned to address the decline in shipbuilding, with a significant range of manual and skilled jobs and training opportunities in the marine sector, from superyacht building and engineering, to maritime research and green technology.

Mike Ward, Managing Director of Marina Projects Ltd., said: “The marine and maritime sector plays to Portsmouth’s strengths and traditions, and the skills of the local workforce. Phoenix Quay will reinforce Portsmouth’s place in the heart of the Solent maritime economy and create a diverse range of maritime job opportunities, also providing for skills development, apprenticeships and training. It will provide a real growth opportunity for the local economy and is an incredibly exciting prospect for the sector”.

Proposals for Phoenix Quay include a dredged channel to provide access at all states of the tide, major boat hoist facility, large boat sheds, maritime training campus to provide facilities for research and development. Enterprise Zone status will support development of new business, and premises such as workshops, offices and stores.

Big box GOES

South Coast Central News

One of the largest industrial buildings in the region, the Tesco let shed (325,000 sq.ft.) at Nursling has been bought by Tritax Big Box for £44.2 million and a yield of 5.24%.

The building’s attraction is that it has extensive cold store capabilities and is close to the major port of Southampton. Nursling Industrial Estate is a pre-eminent location for logistics in the region.

Tritax lists other positive features such as excellent road, rail and port connectivity together with a low vacancy rate in the Southampton area due to high demand.

These advantages underpin Tritax’s opinion that the logistics facility offers growing income through current market rental reversion together with future growth in a structurally undersupplied location. There is also scope for development on the 20 acre site.

Colin Godfrey of Tritax said: “this is a rare asset acquired off-market in a prime location next to the M27 motorway which is close to the port and benefits from a strong existing tenant and robust underlying market."

That view is more than confirmed by Lambert Smith Hampton’s Industrial Market Pulse report which said: “Strength and resilience have been fundamental attributes which businesses have had to draw upon, and these factors are resounding traits which the industrial market on the south coast has demonstrated throughout 2020, particularly in the last quarter. This has resulted in some of the most robust statistics we have witnessed across all sectors”.

JADE IN Christchurch

South Coast Central News

The extensive geographical reach of foreign investors in UK property is highlighted by the Kuwaiti owned Jade Merchant Bank buying BAE Systems 13,940 sq.metres (150,000 sq.ft.) industrial complex in Christchurch, Dorset.

Jade paid £29 million for the complex, where BAE Systems has 10 years remaining on its current lease. The site offers both commercial offices and R&D space.

InBrief #2

South Coast Central News

The pressure of the pandemic has, of course, impacted on many businesses, and in some cases has led to mergers, such as Vail Williams combining with Dorset based Cowling & West.

Cowling & West is a three partner practice which has been established for 35 years. Matthew Samuel-Camps of Vail Williams said: “The merger provides a natural opportunity to extend our geographical reach to the west of our south coast region."

Vail Williams already operates widely in the Bournemouth area and is marketing several buildings for development, such as Grange Road Business Park, Christchurch on behalf of BAE Systems (now bought by Kuwaiti owned Jade Merchant Bank), Waverley House and County Gates House in Poole.

The merger fits into a steady expansion of Vail Williams throughout the south and a year after it acquired the property advisory firm Trilogie CRE and three years from the merger with Hughes Ellard, which created the largest office agency team in the Solent region.

Another recent appointment by Vail Williams is Steve Berrett to head up its agency team in the Gatwick region and add another peg to the expansion plans in West Sussex.

Canmoor have placed a 123,631 sq.ft. industrial warehouse unit on the market. The unit, formally occupied by Booker, at Walworth Business Park, Andover, will be refurbished and is for sale or rent. Agents on the Unit are Doherty Baines and Realest.

TWO NEW schemes

South Coast Central News

All the market pointers and economic data provide a firm footing for a period of development and growth in Southampton.

This has been boosted by the approval of planning for both the Leisure World and Bargate developments, as well as the council’s approval of a ten year strategy for sustainable growth.

Council leader Christopher Hammond commented: “After one of the most challenging years ever faced by a city, we are ready to bounce back. These two developments represent a combined investment of about £350 million and will create over 1,000 jobs during construction”.

“Each will provide new homes and leisure facilities and help provide connectivity, showcase historic walls and green public space will be created”.

The aim of Leisure World is not only to provide a range of new facilities but also improve linkages between the train station, Mayflower Quarter and the waterfront.

The £250 million scheme by Sovereign Centros has a number of key elements in a four phase project, starting with leisure and hotel development:  Cinema, casino, leisure and wellbeing facilities;  650 new homes;  Two 150 room hotels;  80 serviced hotel apartments;  Modern workspace and a new public realm.

John Marsh of Sovereign Centros said: “There has never been a more important time to bring forward investment in our regional cities.

Our plans seek to rejuvenate this strategic site by creating a mixed use city centre destination and is one of the most significant developments Southampton has seen for a long time”.

Similarly the Bargate scheme of Tellon Capital seeks to have an impact on the structure of the city in a ‘linear park’ that encompasses a desire for more sustainable lives by creating a space where all essential shops are within a safe walking distance. And it aims to showcase the city’s historic walls.

The core elements are a linear park from Bargate to Queensway; 519 residential units and 2,515 sq.metres (27,000 sq.ft.) of retailing with construction commencing this year and due for completion in 2025.

James Burchell of Tellon said: “We are keen to promote healthier and greener living and this scheme will deliver environmental benefits."

Another development in Southampton is a plan by Drew Smith for 200 affordable homes, off Paulet Close in Townhill.

Brighton SHORTAGE

South Coast Central News

Like so many office markets Brighton has a lack of space because of a lack of new developments in recent years.

While demand for freehold buildings is firm, again there is a shortage of suitable stock, said Thomas Neal of Vail Williams.

However it has been able to do a number of deals, such as a rare freehold on Lancing Business Park which is now under offer.

Neal said: “We are aware of occupiers seeking extra space to accommodate staff no longer wanting to travel to London. And rents in Brighton are now above £322 a sq.metre (£30 a sq.ft.)”.

One recent major deal by Vail Williams was a commercial site in Southwick which sold for £2.5 million.

Dunsbury Park ANNOUNCES NEW MASTERPLAN

South Coast Central News

Now construction is well underway on the new 120,000 sq.ft.

headquarters building for Bio Pure Technology at Dunsbury Park.

Portsmouth City Council, the owner & developer, have also refreshed the Park’s masterplan.

This will provide a range of detached industrial or logistics units from 18,000 to 100,000 sq.ft. with 3 units being ready for occupation by Summer 2022. Dunsbury is just off Junction 3 of the A3M and is home to FatFace, DPD and VW Breeze. Lambert Smith Hampton and Avison Young are letting agents on the scheme.

RURAL renaissance

South Coast Central News

Grabbing every opportunity for development and improvements appears to be the watchword of the Dorset LEP which has delivered the government’s Local Growth Fund on time, and on budget.

It has combined £98 million from the UK government as part of £169 million investment of public, private and third sector funding into 54 projects across the county.

According to the LEP, this created jobs, and unlocked prime employment land and commercial space as well as boosting skills and improving connectivity.

Cecilia Button, Chair of Dorset LEP, said: “We have demonstrated to government that they can have confidence in us to deliver national capital growth programmes locally and with great success.

Among the wide range of its projects has been:  Improved access around Bournemouth Airport and Poole through major road construction;  Creation of new Centres of Excellence in construction, engineering and motor vehicle technology at Weymouth College;  Construction of a new Mary Anning Wing at the Lyme Regis Museum  A new Institute of Medical Imaging at Bournemouth University; Plans for a new Defence Innovation Centre at Dorset Innovation Park Enterprise Zone.

An investment road map aims at delivering a £24 billion uplift in the Dorset economy in the next 10 years, which includes 480,000 sq.metres (5.16million sq.ft.) of commercial space and 8,600 new homes.

The map details how key sectors in the county, including health, finance, defence and aqua culture, can evolve and attract new investment. The LEP is also asking the government to formalise recognition of the Bournemouth Christchurch Poole region as a city.

BUILDING more

South Coast Central News

Themarket resilience has been translated into a surprisingly strong performance by the construction industry.

Gareth Belsham of surveyors Naismiths said: “The construction industry still stands head and shoulders above all other sectors as the fastest growing part of the economy. A 1.6% monthly jump in output in February would be impressive at any time but coming in the middle of a nationwide lockdown, it shows just how well the industry has managed to adapt to social distancing and speaks of the deep reserves of pent up demand."

Housebuilding, followed by infrastructure, have led the way and Belsham said: ”Strong progress across the industry as a whole is creating growing pains,withmaterials’ prices surging as the supply chain struggles to keep up with demand.”

BOOST THE balance sheet

South Coast Central News

The pandemic offered some companies opportunities to strengthen their balance sheets through the purchase of the buildings they occupied.

One of these is Langdowns DFK, an accountancy practice, which has bought Fleming Court, Eastleigh through Maughan Mitchell. Graeme Lovell of Langdowns said: “Fleming Court, which we have occupied for a long time, is ideally located, close enough to the business hub in central Southampton but with better transport links than are available nearer the city. We have major refurbishment plans”.

Richard Nevines of Keygrove, who acted for the private vendor, said: ”Fleming Court is a landmark listed building at the gateway to Eastleigh adjacent to Junction 13 of the M3 and the long leasehold was marketed at £1.6 million”.

BACKING science

South Coast Central News

Naturally enough, science has been at the forefront of media coverage during the pandemic, emphasising the importance of business parks geared to research and development.

An example is the Southampton Science Park which has received a grant of £61,000 from Hampshire County Council for the Catalysts Business Accelerator, together with other funding, to help early stage technology companies, helping them to produce a viable business plan for attracting investment.

Dr Robin Chave, CEO of the science park, said: “Access to funding is absolutely critical and unfortunately this is the reason that many start up businesses, even those with the most exciting ideas, novel technologies and credible entrepreneurs at the helm, ultimately fail”.

A NEW ERA FOR Bobby’s

South Coast Central News

With so many landmark department store buildings closing, many along the south coast, a development of the former Bobby’s store in Bournemouth offers a solution for local authorities.

Verve Properties, which has a track record in the town of intelligent schemes, aims to refurbish the store for multiple uses and restore its historic features. Now one of the Debenhams stores being closed throughout the UK, Verve aims to attract local and independent occupiers to Bobby.

Its initial plans call for parts of the store to reopen in July with the Beauty Hall, traditional ice cream and coffee parlour, art gallery and a dog café in Lower Gardens.

The first floor will house a food and market hall, including street food outlets and later a spa. On the second floor will be another art gallery and a garden area created together with a micro brewery bar.

Further plans envisage a 4th floor restaurant and terrace bar, all with a focus on the local community.

There are two key elements in Verve’s plans catering for the local population and using art galleries as the focus for rejuvenation. Offering art facilities and new museums has been a common factor in the regeneration of a number of coast towns, such as Margate and Folkestone.

Ashley Nicholson of Verve said: ”Bobby’s has historically always been at the heart of the town centre and the community. When we researched its history, we kept unearthing how bedded into the community the building was”.

“If shoppers are going to be tempted back into town centres, then retailers need to value three key elements in any new structure and design; what kind of shopping experience they will want and, second, how to make that experience an enjoyable one while the third is to remember that town centres are there to serve the local community”.

A positive assessment of Bournemouth has come from local agent Goadsby, who recently let the former Samsung unit at the Avenue Centre to Saltrock Surfware.

A further indication of town centre health is that a further seven units are under offer.

Grant Cormack of Goadsby said: “We have seen a significant increase in requirements for the town centre during the first quarter, resulting in a number of lettings being provisionally agreed”.

LETTINGS bonanza

South Coast Central News

An overnight parcel and pallet delivery company and an agricultural technology business have moved to new premises in Concorde Park, Segensworth, a scheme by developer Kingsbridge Estates.

Delivered and Agform join tools and equipment specialist Key Blades and Fixings and car wrapping business Amigo Wrap as occupiers at Concorde Park. Russell Mogridge of Vail Williams commented: “With a further 2 units about to be signed we will be over 50% let, which is a remarkable achievement having completed the scheme in December during lockdown 3, demonstrating the pent up demand for industrial & warehouse space on the M27 corridor”. Vail Williams & CBRE are agents Concorde Park, Segensworth on the development

InBrief #3

South Coast Central News

Predicting a strong year for commercial property investment, Cushman & Wakefield predicts that the favoured sectors will be logistics, life sciences and residential while self storage scheme and data centres are expected to continue the strong growth of the past year.

Apart from consumer confidence, the market is being driven by low interest rates, abundant liquidity and a lack of positive investment options, commented C&W.

In their recent Industrial report Lambert Smith Hampton (LSH) pointed out that the online share of total retail sales rose from 19.2% in 2019 to 27.9% in 2020 and hit a new high of 36.3% in January 2021. “While online retail’s market share will scale back when restrictions are eased, a permanent boost to online activity will remain, elevating demand for logistics space over the long term”, commented Robin Dickens of LSH.

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