The industrial and retail sectors have been the star performers in the commercial property market in the Eastern region with the spotlight off the office market except in select locations where speculative building is making a return.
That’s the verdict reached by PAI member Barker Storey Matthews in reviewing the evidence of the deals done in 2017 by its four agency offices which span the region from operational co-locations in Bury St Edmunds, Cambridge, Huntingdon and Peterborough.
In compiling its year end review of 2017 and preview of the market in 2018, the property agency concentrates on the ‘sheds and shops’ sectors where occupier demand remains strong against the backdrop of evolving markets in both sectors.
The impact of the 2007/2008 financial crisis is playing out in the ‘shed’ sector a decade on. This sees a lag in supply of modern units where warehouse and depot facilities, as well as industrial and manufacturing buildings of significant size and scale, are sought to accommodate the increasingly automated nature of logistics and distribution fulfilment.
Occupier demand for industrial, warehousing and distribution space has remained relatively strong in 2017 and is expected to maintain at this level in 2018. A shortage, along with improved trading conditions, has driven rents and capital values – the latter of which has been further pushed by falling yields.
The appetite for investment in industrial property in the Eastern region has continued apace in 2017 and prices are now, in most cases, substantially higher than they were only three to four years ago.
In Bury St Edmunds, the squeeze is on availability of small and mid-sized industrial units, particularly freeholds.
The retail market is changing in response to changing shopping habits. The Internet as a marketplace has led to pressures on the high street with many retailers downsizing floor areas and store numbers. The discounter market remains strong but consolidation is in the air as 2017 ends and 2018 begins as operators’ property portfolios mature.
‘Healthy’ high streets have started to evolve with the food and beverage sector coming to the fore in regional locations that were once seen as non-prime by the operators, according to Barker Storey Matthews’ experience of 2017.
In the office market across the region, Barker Storey Matthews’ experience is that the occupational market has begun to slow, perhaps due to the lack of clarity surrounding the ongoing Brexit negotiations.
There has been a noticeable air of caution with tenants not prepared to commit to increasing expenditure either through moving costs or taking additional space. Where lease renewals are being negotiated, Barker Storey Matthews’ agents are often seeing requests for tenant break clauses at two or even three years.
In representing landlords too, its agents’ advice is to take a robust view. While uncertainty leads to a lack of commitment, an overall shortage of space helps sustain rents.
Commenting on 2017’s industrial and retail star performers in the region’s commercial property market, Simon Burton, Director, Barker Storey Matthews Bury St Edmunds (pictured above), says, “The spotlight has been on sheds and shops this year in response to our changing lifestyles which are, increasingly, steered by technology.
“It is hard to see how this will change in the coming year unless household expenditure is severely curtailed.
“However, consumer habits of successive generations are becoming deeply ingrained. This would appear to militate against a dramatic compromise in our day-to-day lifestyles in the short to medium term and so property demand for sheds and shops is likely to endure for the rest of the decade.”