Leicestershire Commercial Property Market - Qtr 4, 2007
24th October 2007
“Recent headings concerning the commercial property market in Leicester have been dominated by projects under the Leicester Regeneration Company’s master plan” comments Malcolm Grayson, partner at Andrew and Ashwell Chartered Surveyors.
Such projects include Highcross Leicester (500,000sq ft new retail for next September), the Office Quarter (500,000 sq ft now part built by Goodman), Abbey Meadows Science Park, several city living projects including the Waterside. Added to this is the expansion of the Leicester University and De Montfort University, the National Theatre, £19m City Council re-paving, and many significant private projects. It is fair to say that the city is changing.
Market conditions have been favourable over recent years and this has helped with the speed of transformation. These long term projects are critical for the future of Leicester so that it competes on par with comparative centres. However, the economy has stumbled over the last two quarters and questions are naturally being raised concerning the impact on the commercial property sector. Malcolm Grayson provides an overview of the current commercial property market experienced in Leicestershire.
“For the first time during the last three years, investors and occupiers have questioned whether prices could fall back. This is of course for good reason. Interest rates were increasing and predicted to rise further, the housing market slowed, and the infamous sub-prime loans hit the UK, with Northern Rock being a highly publized casualty of a potentially bigger money markets problem.
So where does this leave the commercial property market in Leicestershire? Like the rest of UK, the property sector reacts to wider economic conditions so we are tentatively listening to the news with a keener ear. However, there is some sense that at least part of the storm has passed. The bank of England held interest rates last month at 5.75%, the FTSE 100 is around 6500*, and the money markets are beginning to settle* (*at the time of writing!).
The investment market has been in remarkably good shape. Demand is still fairly strong, although less bullish, while stock remains in short supply. Any expectations we had of picking up cheap investment property will have to wait. E.g. - Sale of a Barclay's leaseback in a Leicester suburb, sold at auction 16th October off a net initial yield of 3.65%.
“Lack of supply” best describes the industrial sector. Freehold demand is strong, leasehold is more difficult. Record price levels continue to be achieved, and with very limited supply coming through, purchasers remain confident. The combination of lack of stock and little commercial land coming through provides some comfort that a mini-crash in the industrial sector is less likely.
The office sector has really moved on in Leicestershire over recent years as evidenced by the upsurge in small office parks, e.g. Lutterworth, Coalville, Market Harborough, Kibworth, Hamilton. A good specification is important, but the question at the top of most occupiers’ lists is “How many car parking spaces do I get?” There is now some stock on the market across the size ranges and therefore developers are more careful about adding to the supply until some of the existing buildings are absorbed. The level of demand has slipped back compared to the start of the year although the overall number of transactions is still holding good.
The retail sector is obviously sensitive to consumer spending patterns, and therefore occupiers are understandable nervous at the prospect of any economic slow down. The market in Leicester city centre is more complicated due to the Shires extension which will give a massive lift to the city's retailing. The net result is that lettings are slow, because tenants are waiting to see how the market unfolds. We can expect much of the same for 2008. Conversely some of the secondary suburban locations and county towns have been trading strongly.
Conclusion. Leicestershire looks well placed to weather an(y) economic slow down and is expected to compete better with other regional centres in the medium term.”