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News | Independent Commercial Property Agents | PAI

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2018 - A challenging time ahead

Friday, 12 January 2018

2018 - A challenging year ahead

A preview of the 2018 Commercial Property Market in the M3/M27 Corridors

By Mark A Clancy, Director at PAI member London Clancy

2018 will be a challenging year for the M3/M27 property markets but also one for optimism given the surprisingly strong resilience and out-performance shown during the last twelve months.

Although the ongoing Brexit negotiations will provide an uncomfortable backdrop for business confidence and property decisions, the corresponding impact within our region and for the majority of property transactions is likely to remain limited and may well improve as the way forward hopefully becomes more clear.

Headline rents for prime property will level off after the growth of the last twelve months, albeit that the continuing shortage of Grade A space is likely to keep upward pressure on rents, particularly in certain sectors such as industrial/logistics and offices. This is potentially good news for speculative schemes currently being developed within our region, such as ITT/St Modwen’s Junction 6 + 7 M3 200,000 sq ft warehouse and business space development in Basingstoke and the 341,000 sq ft Phase II of Mountpark’s warehouse scheme at Junction 5 of the M27.

Capital value growth will be slower during 2018, as yield compression falls away and underlying rental performance becomes the main driver. The investment market will remain strong, buoyed by low interest rates, competitive returns and demand from a mixture of substantial private, overseas and Local Authority investors. This is illustrated by the Fraser Group of Companies recently acquiring business parks in Farnborough, Basingstoke and Camberley for a reported total price of £359million.

Occupiers will continue to demand flexible and efficient floor space, capable of satisfying ever changing customer requirements and providing a work environment that will attract and retain staff in an increasingly competitive labour market. Landlords will also need to address the Minimum Energy Efficiency Standards which finally become effective as from April this year.

In 2018 the industrial and warehouse sector in our region is positioned to once more perform the best in both rent and capital terms and given the limited stock and sustained demand from urban logistics operators, manufacturers and traditional warehouse users. Rents will increase from the current levels of £11 per sq ft for Grade A space in the upper M3 corridor and from £9.50 per sq ft in Southampton.

The recent improvement in the office market will be sustained with Grade A rents potentially moving forward from the current headline figures of £22 per sq ft in Southampton, £24 per sq ft in Basingstoke and £27 per sq ft in the Blackwater Valley.

The retail property sector in our region will have another tough year as online alternatives continue to compete for more restricted consumer spending power and certain shopping centres and High Streets become saturated with coffee shop and restaurant culture. Out-of-town and retail warehousing will probably see the best performance.

In summary, 2018 is set to carry on the positive market of the last twelve months within the M3/M27 corridors, building on capital and rental growth and generally showing resilience against the wider political and economic uncertainty. It will be a year of continued confidence and investment in our region and as ever achieving the best returns through the taking of the best specialist regional property advice!