30th July 2020
Commercial property market shows early signs of recovery
Agency & Commercial Development • Investment Agency • Residential Development
The region’s commercial property market is showing encouraging signs of recovery following the relaxation of the lockdown, says property consultancy Alder King in its latest market report published today.
Market Monitor Update 2020, which reviews the state of the industrial, office, retail, investment and land markets, shows the sector was enjoying a very positive start to 2020 when the coronavirus pandemic and subsequent lockdown hit the UK at the end of March. Transactional activity was immediately impacted, with the majority of uncompleted transactions put on hold.
Since early May, some but not all sectors of the market have seen renewed activity. A number of paused transactions have been reactivated and the volume of enquiries and viewings is increasing. Some high profile transactions have completed since lockdown, confirming an underlying confidence in the region’s property market.
The industrial and logistics market is the strongest performing sector of the market, both before and since lockdown. Bristol and Gloucester in particular saw strong take-up, with Greater Bristol recording over 620,000 sq ft at the half year point, broadly in line with last year’s H1 figure of 660,000 sq ft. This was driven particularly by demand from e-commerce operators, the NHS and its suppliers and logistics operators looking for short-term swing space to service existing contracts.
The office sector is also seeing increasing activity. Take-up in Bristol city centre in the first quarter of the year reached 220,000 sq ft, the best Q1 figure for over a decade, and while take-up dropped significantly across the region in Q2, activity levels including enquiries and viewings grew steadily through May and June. Rental levels on recently agreed deals remain at pre-Covid levels and some developers on new space are suggesting that they will be on site by the end of the year.
The region’s investment market also delivered some notable transactions in H1, notably Tesco Pension Investment’s acquisition of Halo in Bristol for £70 million. This transaction which completed in June demonstrates solid investor confidence in the Bristol office market. With limited future supply and low vacancy levels, Alder King says the benefits of real estate will continue to attract long-term investors, with well-capitalised investors able to secure attractively-priced assets as liquidity levels improve.
As has been well-reported, the lockdown has exacerbated difficulties in the non-essential retail sector and more CVAs are unfortunately expected as the year progresses. Landlords will need to consider more flexible terms including turnover rents or a cheaper overall model to attract occupiers. As a direct result of the pandemic, there has been growing interest from independent and local retailers, as well as community groups and pop-up operators which could help bring greater variety and vitality to our high streets and retail centres.
While there have been positive reports about house sales activity and values, this has not yet translated into a resumption in activity in the development land market. Interest in sites, particularly sub-100 unit sites, is strong but offers are conditional on planning consent and in many cases deferred payment terms. The market for promotion agreements has been least affected by the downturn, with promoters keen to agree terms with landowners on sites of 20 units up.
Simon Price, senior partner at Alder King, said: “We are fortunate that the regions in which we operate enjoy diverse and resilient economies. Following a strong start to the year which left some markets with very restricted supply, we are hopeful of a sustained recovery, albeit with a few bumps and false starts along the way.
“Of course, the ‘new normal’ presents challenges for us all. Our property management, building consultancy, lease advisory and asset recovery teams, with their depth of specialist experience, are helping clients deliver safe working environments, navigate the emerging legislation and policy frameworks and negotiate successful compromises between competing economic pressures. Our teams have adapted well to the challenges of recent months and are fully engaged supporting clients.”
Market Monitor Update reviews the performance of the industrial, office, retail, investment and land markets across the South West of England and South Wales and looks at the prospects for the sector’s continued recovery.