commercial property
Regional market proves resilient By Simon Perkins, CEO, McKay Securities
Real estate as an asset class for investors continues to benefit from the low interest rate environment, particularly in the globally established London and South East markets.
One particular trend over the past year or so is that the risk appetite of overseas and institutional investors has reduced, re-introducing a more apparent gap between the value of prime and secondary properties, especially offices and distribution centres. We at McKay see this as a real opportunity.
While the Brexit-infused environment remains uncertain we have shown that the markets that we operate in and know well continue to prove robust and our assets are well placed to deliver further property value.
The volume of South East office lettings, particularly in the Thames Valley, has remained steady post the EU referendum despite wider economic concerns. In addition, 2017 investment in the South East recorded its second highest year on record of £4 billion. And while in the first
half of 2018 the volumes were lower, they were not much lower than the average over the past 10 years.
The London and South East markets have proved resilient thanks to an historic undersupply of high-quality office space, buoyed by consistent levels of demand. The pace of rental growth has levelled out, but shortfalls in certain centres provide the scope for further growth as occupiers in older obsolete buildings, or businesses looking to expand face an increasingly limited choice. Rent-free incentives are stabilising after the 2017 spike in development completions, but the steady levels of take-up highlight that fit-for-purpose buildings of the right size and in the right locations are letting.
In the City, pre-lets this year are at their highest for a decade emphasising the lack of supply; a trend which may move to the Thames Valley. Total occupational costs in prime West End locations are now circa £175 psf compared to central Reading of circa £60 psf.
Looking ahead, the appeal of the Thames Valley will increase further with the Elizabeth Line service to London and the quick access to Heathrow which the Western Rail Access to Heathrow will deliver.
A clear focus on the South East remains core to McKay’s success as a provider and landlord of flexible high-quality business space. It ensures we remain acutely aware of occupier needs, as evidenced through our latest developments in Reading, which have all attracted quality tenants. At 9 Greyfriars Road, Reading, we achieved a single letting of the whole building to co-working brand Spaces, while at 329 Bracknell, we are fully let or under offer with tenants drawn to our high-quality, flexible space.
Industrial demand is also strong and our development of a speculative 134,150 sq ft warehouse scheme at Theale is now under way and we expect to generate strong interest from logistics occupiers drawn to its strategic location just off junction 12 of the M4 motorway.
Innovation, culture and governance: key ingredients
for successful cities CBRE has released Our Cities, Knowledge for the Future, a thought- provoking project on how British cities might look and feel by 2040
The research examines what will make a successful city through a collection of insights on diversity, culture and sport, the economy, sustainability, governance, health, transport and placemaking. In doing so it identifies innovation, culture, and governance as being crucial to the success of British cities.
Innovation – cities are usually at the centre of innovation and technological advancement. Southampton is no exception to this with its top-class universities and skilled workforce graduates. According to the UK Powerhouse Report, Southampton’s year-on-year employment growth in H1 2018 was 1.9%, 2nd behind Leeds. In the six years to 2016 high-tech employee numbers grew 25%.
Culture – city culture is a generator of success because it provides a higher quality of life and richer exchange of ideas. Businesses need to understand how the
cultural offer of a city might evolve, how a city can stay edgy and relevant in cultural terms, and how investors can spot where the momentum is.
Governance – cities are growing, at least in population terms if not in spatial extent, and they’re getting more complex. Businesses must identify the quality of city governance and understand how to engage with it; and the quality of that governance is connected to its skill in being able to engage effectively with the private sector.
James Brounger, south central managing director CBRE comments: “In our recent report on Technology Hotspots, Southampton ranked fifth in the “Super Cluster” category ahead of both Cambridge and Bristol, with high-tech employment continuing to grow above the UK national average.
THE BUSINESS MAGAZINE – NOVEMBER/DECEMBER 2018 James Brounger
“We don’t believe that the British city of the 2040s will be radically different from how it is now, although possibly cleaner, greener and safer. One of the best guides to how fast our cities might change in the 20 years from now is to look at the change in our cities from 20 years ago. The cities that do best will be the ones that focus on vibrant innovation, a rich culture and strong governance.”
James Brounger 02380 206336
james.brounger@
cbre.com
cbre.co.uk
businessmag.co.uk
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