Welcome to our first newsletter which we hope will give you some insight into our views on commercial property across the South Coast.
In this edition, we focus on a number of areas, starting with reviewing the recent announcement regarding proposed changes to permitted development rights and moving on to our views on the end of the soft deal, some recent instructions and the significant shift in fortunes for Portsmouth this year.
Temporary Permitted Development Rights to become permanent
On 13th October, Housing and Planning Minister Brandon Lewis announced that the temporary introduction of PDR in 2013 will now not be phased out next year.
The announcement means developers can tap into the potential of underused buildings to offer new homes for first-time buyers, thus breathing new life into neighbourhoods, particularly in some of the densely populated towns and cities across the South.
Under the original plans almost 4,000 conversions have already been given the go ahead in just 15 months. Importantly, Mr Lewis said that those who already have permission will have three years in which to complete the change of use – ending potential uncertainty for developers regarding timescale for conversion.
There are areas, including parts of East Hampshire that are currently exempt from the office to residential permitted development rights. Local authorities have until May 2019 to make Article 4 direction (a special planning regulation adopted by a Local Planning Authority to provide additional powers of planning control in a particular location) if they wish to continue determining planning applications for the change of use.
The Soft Deal – a thing of the past
At the height of the economic crisis, landlords were in a very difficult position with space becoming vacant more quickly than it was being filled as business failures increased in number. With business rates still payable on void units, ever favourable incentives were being offered to tenants to try and ease the pressure. Whatever the sector, retail or office, warehouse and industrial, peppercorn or even rent free periods became commonplace and lease lengths could be at the tenant’s choosing.
The last 18 months or so has seen a dramatic shift in favour of the landlord. With economic confidence across the south close to an all-time high, commercial space is once again at a premium with very little Grade A or even quality space available for those occupiers looking to expand or relocate. The biggest change in 2015 has been the extent to which incentives have hardened in landlords’ favour. Investment in fit-outs is perhaps disguising the overall incentive package, but the outright rent-free periods have reduced.
We are also now seeing deals being agreed off market as we are increasingly being able to approach occupiers who couldn’t find what they wanted 18 months or so ago with options that are potentially coming to the market. Where we believe there is a good fit, these properties are getting snapped up before details are even drafted.
We have received instructions over the last quarter totalling in excess of 80,000 sq.ft. However, less than 10% of this was for offices as availability continues to be scarce with just over 6,000 sq.ft across three instructions Portsmouth and Petersfield. On the flip side, we have received instructions to market some 66,000 sq.ft of warehouse and industrial space, much of which is well located and of a high specification. Retail units across the South come up on a relatively frequent basis and Q3 has seen a good mix of both location and size.
Key instructions include:
- In excess of 40,000 sq.ft of industrial over two sites in the Petersfield area; and
- An opportunity to redevelop a day care centre in Portsmouth under permitted development rights
A Market Shift
There has been a significant shift in the commercial property fortunes of the South Coast, with Portsmouth benefiting from the continuing uplift in demand and economic confidence.
One of the most significant developments of 2015 has been the level of occupier activity, both in the city centre and across the wider M27 corridor as the numbers of enquiries has steadily risen. The resultant upwards shift in prime rents is now beginning to be seen and employment levels are also increasing.
The Conservative Party’s unexpected majority result on 7th May has been seen as a positive one for commercial property and should provide greater stability for growth across all sectors. However, against this positivity, it has to be noted that demand for quality space from businesses looking to expand is causing a major stock shortage, especially in the city centre as many buildings are fully let, in some cases for the first time in over five years.
This well documented shortage has meant that out of town business parks, such as North Harbour, have benefited as those occupiers unable to secure city centre space have been forced to move further afield. With Lakeside almost fully occupied, phase II is currently under development and likely to be ready for occupation by early 2016. Occupier demand has led this northern end of Portsmouth to be seen as the increasingly popular commercial hub as businesses’ requirements cannot be fulfilled within the city centre.
The knock-on effect we are seeing is that other towns such as Havant and Gosport are beginning to see occupier demand and in both cases, speculative industrial and office development is close to being a reality; something not seen for many years.