A Property Agent's View
Glenny LLP is one of Thames Gateway London's leading property service companies and a respected commentator on the planning and property industry. Here, Glenny's head of business space, John Bell, gives his views on the current state of the market and the performance of three key sectors over the past few months.
The Occupier Sector
Over the past 12 months, without exception we have seen rental levels and owner occupier freehold capital values at worse remain static and in most regions increase for prime stock across both the office and industrial sectors.
Whilst there has been much talk of the Olympic effect, which has undeniably created an imbalance between supply and demand in east London, we have not, as yet, experienced the huge ripple effect expected in the outlying M25 regions; we believe the activity in these areas to date has been the product of a healthy supply and demand equation, which has in turn had a positive effect on rental values (from a landlords perspective).
We do however expect this position to change over the next six years, leading up to the Olympics as a result of both an upsurge in enquiries from "Cottage Industries" wishing to service the construction process and also when the second phase of CPO's take effect in 2009, in order to facilite the wider land assembly within the non-core Olympic area.
Generally freehold enquiries continue to outstrip leasehold, particularly in the small unit industrial and office sectors, largely as a result of the on-going low interest rate environment and strong private pension (SIPP) markets. Not withstanding this, we have witnessed an improvement in demand for leasehold product of late, reducing the ratio of freehold to leasehold requirements from approximately 4:1 this time last year to circa 3:1 currently.
In terms of sector analysis, typically 80% of all applicant enquiries received to our four regional offices are for industrial/warehouse accommodation and the remainder being predominately office driven.
The Investment Sector
The almost insatiable demand for commercial property investment stock from debt financed private investors, through to sophisticated institutional funds has had a positive effect on capital values throughout the UK generally. However, whereas elsewhere, capital growth has largely been attributable to yield compression, there are very real and genuine prospects of above average rental growth within the Thames Gateway region generally, and in particular east London, as a result of the loss of existing employment land to not only facilitate the Olympic Park, but also to higher value uses, such as residential and retail.
As a consequence, prime yields have hardened considerably, with the average net initial yield for prime stock based on our market intelligence across the office and industrial sectors now below 6% in east London and just above 6% in the outer lying M25 regions.
Development Sector
Consistent with demand, the majority of development stock throughout our region tends to be industrial biased with much being targeted at the SME markets at one end of the spectrum and the Regional Distribution Centre/Big Box warehouse market at the other. Demand for small unit office product remains healthy, albeit this sector tends to be far more price and location sensitive in comparison to industrial.
As competition for prime employment sites intensifies, developers are increasingly forced to maximise site densities, particularly within Greater London, in order to secure a position. Margins continue to be further eroded as a result of increased sustainability requirements in the building process enforced by Central Government.
Whilst the HQ office and Regional Distribution Centre warehouse sectors remain primarily pre-let driven, the small unit market is largely speculative.
