Downturn moves in With developers increasingly unwilling to commit to speculative schemes, the outlook for the market is bleak. By Daniel Cunningham
Offices
The East Midlands’ office market is getting tougher. Although DTZ statistics show that Nottingham’s total take-up to the end of September was 320,000 sq ft, making it possible to still match last year’s total of 435,000 sq ft, agents across the region admit that occupiers are increasingly hard to find.
Developers are cautious about committing to speculative schemes.
In Derby, Wilson Bowden, Cedar House Investments and Bolsterstone collectively have planning consent for 200,000 sq ft of space, although none have started on site.
“Some proposed developments are stalling,” says Russell Rigby ofDerby-based Rigby & Co. “Twelve months ago, we had hoped to see two of the three schemes on site by the end of the year, but all three developers are reviewing the situation.”
In the longer term, the local NHS trust plans the redevelopment of the20-acre Royal Infirmary, which could include 300,000 sq ft of office space.
In Nottingham, Peel Holdings is due to submit a planning application soon for its 200,000 sq ft Southern House project. Wilson Bowden also has consent for 100,000 sq ft on Wilford Road, but is yet to commit to an on-site start.
One developer that is on site in Nottingham is Southreef Developments with the first 54,000 sq ft phase of its Southreef scheme, which is scheduled for completion next spring. It is aiming for a rent of £20 per sq ft, which would move the market on from the £18.75 per sq ft that Specsavers paid for 34,000 sq ft at Miller Birch’s ng2 scheme this summer.
But is a rental increase realistic? Southreef’s agent, John Proctor of Fisher Hargreaves Proctor, says: “We do not have a problem with oversupply and yields have gone the wrong way, so, to make schemes work in Nottingham, rents will have to move.”
Headline rents in Derby have increased by £2 per sq ft to £16.50 per sq ft, with record deals at Pride Park, while Leicester’s headline rents are stable at that level. In the investment market, Victor Ktori, investment agent with Savills, says that prime yields have moved out from 6.75-7% to 7.25-7.5% over the last year.
Retail
The East Midlands’ retail landscape has been dramatically altered with September’s opening of Hammerson and Hermes’ Highcross Leicester, which has pushed the city up the national rankings (see p144).
Meanwhile, it is a year since the opening of Westfield’s and Hermes’ Westfield Derby development, and the dust is yet to settle in the retail pitches outside the scheme. For instance, Debenhams’ former 75,000 sq ft store on Victoria Street is still vacant after Tesco walked away during the summer from proposals to build a supermarket and department store-led scheme there. Developers, including Miller Birch, are now said to be considering bids for the site.
In Nottingham, Jonathan Emmerson, partner with Nottingham-based HEB, admits that the market for mid-to-large shops is in limbo pending news from Westfield regarding its proposed £400m revamp of the Broadmarsh shopping centre. Debenhams and Marks & Spencer have already signed up for the scheme, but there is no start date as yet.
Emmerson says: “Everyone is waiting for the Broadmarsh effect and news about whether Westfield will press ahead.”
Zone A rents in Nottingham are up by £10 per sq ft to £260 per sq ft. Derby’s are around £180 per sq ft, and Leicester’s top rents have risen from £200 per sq ft to £250 per sq ft.
Industrial
Sheds have proved to be a highlight of the East Midlands’ market so far this year. Top rents have seen growth, with £6.20 per sq ft recently achieved in Nottingham, up by around 50p per sq ft on 2007. Locations such as Northampton have remained stable at £5.75 per sq ft.
Innes England director Craig Straw says: “Between the office and industrial markets, industrial has proven stronger. Although enquiry levels are down, there is still activity and there is a lack of quality supply in some areas.”
Agents say a churn of medium-sized lettings has kept the market afloat, along with exceptional deals, such as Kuehne & Nagel’s letting of 540,000 sq ft at ProLogis Park in Wellingborough.
On availability, King Sturge’s latest industrial floorspace survey reveals a 2.4% rise to 20m sq ft between the end of 2007 and June 2008, 40% in lot sizes of more than 100,000 sq ft.
But developers still have faith, with 1.8m sq ft of speculative stock in the pipeline within 10 schemes. In July, Greatline Developments’ 524,000 sq ft Crackerjack building in Corby was completed. Prime sites, such as the privately owned 25-acre Colwick estate near Nottingham, are also coming forward for development.
Savills’ Ktori notes an increase of industrial properties for sale, due partly to the rates on empty buildings legislation. Yields are found around 7.25%, and the region witnessed negative capital growth of -9%.
