An Agent's View

Commercial property is beginning to recover?
By Colin Herman, Kemsley LLP

Well it's probably too early to be sure, but there are some encouraging signs!

Kemsley LLP are a leading firm of property consultants and chartered surveyors in east London, Essex and the Thames Gateway. With 4 offices across the region, we are in a good position to offer an insight into how the commercial market is reacting to the recession and it's certainly far from doom and gloom!

East London/City Fringe
The East London market has remained active despite all the negative press over the last 12 months. That said, corrections have been seen in terms of sale prices and rents although perhaps not as significant reductions as have been reported on a national basis. Landlords are being more flexible in the length of leases being offered and the incentives they are prepared to give such as rent free periods and stepped rentals. Tenants are asking for more incentives and flexibility. Mutual flexibility is the key to getting deals done as short term lettings or mutual breaks are benefitting both parties where the medium to long term goal is to buy, sell or redevelop.

The job losses in the City have not all been bad news. We have seen increased start up businesses, including retail, looking at available space where people are taking their redundancy monies and using it to set up their own businesses. Others are taking the opportunity to get flexible lease terms and lower rentals to set up businesses. Also, businesses are still expanding by merger or other reasons, whilst others contract, but the economy is not standing still thus enquiries remain active. Some companies have served notice on their leases 12 months ago with a view to buy but due to restricted finance or fears of the market, are no longer able or willing to buy. These people are now looking to rent.

Old Spitalfields Market is indicative of the relatively buoyant market where flexible terms have been offered. At the end of February, early March, we had several (8) shop units available. All are now either let or under offer to a variety of operators. All 5 food court kiosks are also under offer or fitting out ready to add to the variety of food on offer in the market already.

With the Olympics works continuing to progress there are still companies tendering for contracts relating to same and this is continuing to generate enquiries for industrial properties albeit some are limited to short term lettings and for future dates with landlords reluctant to tie property up whilst they see increased activity. 5 industrial units on Orchard Place, E14 are now under offer or occupied on short terms lets with deals agreed on short term basis.

Metropolitan Essex
Along the A13 corridor, we have been particularly active having acquired 35 acres at Dagenham Dock over the last 12 months on behalf of the London Thames Gateway Development Corporation. This major land holding will become their flagship development, a Sustainable Industries Park. This will be a major opportunity for London's environmental technology businesses. A facility has already been developed for Closed Loop, who recycle plastic containers for the likes of Marks and Spencer and Coca Cola.

Between the North Circular and the M25, the market has bounced back in the last 2 months after a slow start to 2009. This has provided a pleasant surprise and means that the majority of new industrial units in the remaining development schemes have been either sold, leased or are now under offer on 3 estates in West Thurrock, Rainham and Romford. All of these schemes had a range of units either for sale or lease. At Thurrock Trade Centre which was slow to start, in the past couple of months several deals have been agreed on behalf of the landlord (RREEF/Deutsche Bank). There are now only 5 units remaining available out of a total of 22. It is a similar storey at Redwing Court, Romford. This is a two storey office scheme by O Twelve where a spate of recent deals has left all units sold, let or under offer.

At the nearby Falcon Business Centre, developed by Bournelodge and Frogmore Property Company, there are only 2 single storey industrial units and 2 two storey business units remaining, again on a 22 unit scheme.

With much of the new stock taken up, there is growing interest in second hand modern property. By definition, rental and capital values are less and this sector has seen much activity. In March 2009 we completed on the sale of the Beaver centre, Selinas lane, Romford. A recently refurbished 2 Storey office building with five 1950's self contained light industrial units totalling 17,510sqft, 2 of which were let producing a good income for the landlord. We then sold the site to an owner occupier/investor for £1.1m.

Retail deals have been harder to come by, the only real activity has been from food retail operators in the secondary market. The retail sector has been hit hardest by the recession. That said, in March 2009 we completed on a 3,600sqft retail unit, 64 Longbridge Road, Barking where a 20 year lease was taken at a commencing rent of £45,000pax.

Southern Essex 
The year started well with the sale of Unit 1, Dolphin Park, West Thurrock to an owner occupier. This is a modern headquarters warehouse with offices, situated to the M25 (Junction 31). The warehouse comprised a self contained facility, totalling approximately 66,394Sq.ft (6,170Sq.m), the sale completed in February for £5.15 Million.

To follow this success we were invited to advise on Unit 10-11, Thurrock Park Way, Tilbury a 17,120Sq.ft (1,590Sq.m) self contained industrial/warehouse with an additional 5,100Sq.ft mezzanine. We implemented an extensive marketing campaign securing and agreeing terms on a new lease with a passing rent of £65,000 pax.

The investment market has been relatively flat and is continuing to go through a trying time, however we again advised on Church House, High Street, Billericay being a Semi-detached Grade 2 Listed building totalling 1,481Sq.ft. An attractive building in a good location, the investment attracted lots of attention and the freehold was sold for £432,500 to a private investor.

Our most recent leasehold deal was located on Chapel Street, Billericay being 1,282Sq.ft purpose built office with excellent parking provisions. The instruction was taken late February and by early March a leasehold deal was in solicitor hands and completed this month at a passing rent of £21,500 pax (£16.70Psq.ft).

The market remains buoyant with a  good level of enquiries at the smaller end, ranging from 1-4,000Sq.ft for industrial and 750-3000Sq.ft for offices. The freehold market has certainly taken a turn for the better and we hope this is sign of continuing confidence in the market place.

Conclusion 
The above provides an interesting snapshot of commercial property activity across the region. Whilst you may have noticed an increasing number of yellow and green Kemsley sales boards in your area, you will also see a growing number of "UNDER OFFER", "LET" and "SOLD" slips as businesses take occupation. Whilst we anticipate that the remainder of this year will continue to be challenging, there are signs of increasing activity as business confidence begins to return.

Colin Herman BSc MRICS
www.kemsley.com