What’s happening with the Commercial Market?
What’s happening with the commercial market? With Rishi Sunak now in charge to bring a bit of stability hopefully, the turmoil of the last few weeks appears to have subsided a little, although clearly there will be a lot of belt tightening in the next year or two.
The Office market is still patchy, with the St Albans market actually seeing a resurgence in enquiries for space from about 5-10,000 sq.ft, but smaller lettings have gone down in demand. In Hemel Hempstead there are still enquiries for under 2,000 sq.ft but enquiries over that size are few and far between. London is still seeing a general slowdown in enquiries but the best quality buildings that meet the best Energy Efficiency standards for ESG are still achieving high rents. In St Albans the latest letting at 10 Bricket Road, owned by Legal & General, is circa £40 per sq.ft
The Industrial market is still strong, with a new development at Borehamwood by Panattoni achieving pre-lets to Sky Studios and UK Power Networks at a record rent for the area whilst Tritax Symmetry, developers at Aston Clinton only have one unit remaining of 115,000 sq.ft on their major distribution park just off the A41, with the 2 other units of Phase 2 pre-let to Rexel and Pangaea, although they are in discussion with a number of parties. They are not quoting a rent as rental levels are still being expected to increase. With very few properties available inside or close to the M25 area rents are expected to continue rising, with Watford already being quoted at £25 psf for a new development planned at Colonial Way, and Borehamwood at £22 psf. However, we do expect values to flatten off as other costs apply pressure, not least of which is energy.
In Retail, the market is still reasonably strong for key towns on retailers’ hit lists, such as Birmingham, Manchester, Oxford, St Albans, Leeds, Cambridge, Bath. However, other strong Market Towns such as Berkhamsted, Amersham, Hitchin and Chelmsford etc are also seeing good demand and short supply. We have recently put 7 shops in a secondary shopping centre in Hitchin on the market to let and have received acceptable offers on 5 of them within a week without really advertising. We are however seeing a bit of a slow down in enquiries and expect rent free periods to start to rise, especially for prime properties. However the yields for retail are likely to, and already have, started to rise
In the investment markets, we had started to see quite a few properties come on to the market in the last few months as we suspect that many people were calling the top of the market. However as interest rates have risen sharply, many more people are trying to decide whether to offload now or retain their property. With the Bank of England base rate at 3% and expected to rise to around 5%, and most borrowing rates at 2-3% above base rate, the potential is there for investment companies borrowing costs to rise dramatically in the near future even if they don’t sell. In our opinion the next 12 months are likely to be turbulent for many, and the key point is to be able to react quickly after receiving professional advice
We reported last time that many property owners were considering conversion of their properties to residential use. However, the residential mortgage market is being similarly affected by the rise in interest rates, and expected values for flats are now being predicted to drop in some areas where there are too many flats being built. This linked with continued rises in conversion costs is making residential conversion less profitable.
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