LEICESTERSHIRE COMMERCIAL PROPERTY UPDATE MARCH 2010
10th March 2010
Commercial Property Market Conditions
The commercial property market in Leicestershire has begun the year with a surprising upturn for the industrial and office sectors.
There is no single explanation for this welcome level of activity, rather a combination of factors, including cheaper deals, improving confidence, greater liquidity and simply perceived optimism for the start of a new year.
Following a rapid fall in prices during the economic turbulence of 2008, the Leicestershire property market stabilised in mid-2009 to a level at which values seem to have reached the bottom plateau. For businesses that have managed to weather the economic storm in good shape with expanding property requirements, it appears 2010 is the trigger to relocate.
Commercial Property Development
Property development last year was virtually non-existent. While conditions in 2010 still look difficult, now may be the time to start planning new schemes. Base rates have just celebrated 12 months without change at a record low (0.5%), although the cost of borrowing and liquidity are only just starting to improve. Building costs are at last reducing, while the stock of existing quality property supply in the county has also reduced. Should prices creep up during 2010 - which has already happened for some property during the first quarter - developers might well be back in business with conservative projects during 2011.
Commercial Property Investment
During the last year, the property investment market has fallen into two camps:
*Good covenant with long lease on sub-6% yield.
*Everything else 9 – 10% + yield.
The latter group has been influenced by multiple negative factors, for instance, void rates, falling capital values, questions over tenant future trading, weak occupier demand and lack of funding.
Now the market has somewhat stabilised, there are substantial opportunities to purchase. This is certainly the case for cash investors, where money in the bank is gaining little. The yield gap with commercial property investment against cash in the bank is extremely large. Leicestershire benefits from established demand for certain commercial property, so providing the purchase price offers value, future returns are looking good.