Time for property developers to be brave
18th June 2014
At last: general economic signs within the economy show gathering momentum. There are the rumblings that Mark Carney, the governor of the Bank of England, is set to raise interest rates in Autumn, and unemployment continues to fall month on month. Things are definitely on the up.
Our figures mirror these encouraging trends, with commercial property take-up across all asset classes better than last year .
We’re used to a “however” in the commercial property world over the last five years, and now is no different. Supply across office and industrial continues to fall however, and, with little or no speculative development, this makes me nervous about the stability of the market going forward.
In our experience at NG Chartered Surveyors, demand seems to be quite high at present. As a result most landlords are now becoming a little bullish which I think may bring about an artificial high in rents/prices.
So, whither speculative development? Peel has said it will kick off on its Unity Square development adjacent to Nottingham train station in 2015, but this has been brought about by an intervention from the City Council and is still the exception to the rule.
Over the next 12 months I expect office development to remain flat. However, speculative industrial schemes could be brought forward. Developers need to be brave, as whoever puts their spade in the ground first could easily see their scheme fly.
So, how can you make money out of this upturn if you’re not a developer? New figures from the IPD show that investors will be encouraged by significant value gains right across the UK market in Q1 2014, both by sector and by region. The office sector led with a total return of 4.9 per cent for the quarter, based on the strongest capital value growth of 3.6 per cent, re-enforcing the lead it has held over the last six quarters. Industrials were just behind, returning 4.8 per cent, though this owed more to their higher level of income return at 1.6 per cent for the quarter when combined with value growth of 3.1 per cent.
Retail was the lowest-returning of the sectors with 2.6 per cent for the quarter, but crucially saw positive rental value movement following over 20 quarters of continuous decline since Q3 2008. Reviving consumer confidence is at last boosting retailers’ demand for space. Will we see this replicated in Nottingham? Probably not due to the ongoing issues surrounding the development of our two main shopping centres.
As far as what kind of stock we are seeing investment in; our experience is that most investors buy secondary investments as opposed to prime investment stock. This is largely due to the sometimes unrealistic yields expected in prime stock.
The message here to developers is: grasp the mettle. We need to create a virtuous circle of development and investment. What’s more, With the commercial property market having now seen a continuous 12 months of rising values, the attractiveness of the broad range of property types across the region looks undiminished.