Thursday 15th April 2010

Green shoots of recovery?

Green shoots of recovery in the commercial property market - true or false?

As seems to be appearing regularly within the national, regional and local press, there are continued suggestions of green shoots of recovery in the commercial property market - true or false?

Whether such statements are being issued as political spin in view of the forthcoming election is perhaps one view, but being at the sharp end of the commercial property market in Yorkshire and Lincolnshire, we are well placed to perhaps give a more realistic view on such statements.

In 2009, particularly in the first two quarters of the year all sectors of the commercial market were very slow, both in terms of transactions completing and new enquiries being received.

Over the summer months and into the autumn there were certain pockets of activity particularly in the office and industrial sectors, although retail and leisure remained extremely flat.

In the office sector, a number of significant transactions were completed with around 150,000 sq ft sold or let in the last 4 months of the year, but this involved larger transactions that had occurred in the previous year, with floor areas ranging from 4,000 sq ft up to 30,000 sq ft being taken.

This significant take up of office space in a relatively short period has now put strain on availability within the market, where the choice of quality space has reduced and there has not been the usual increase in availability which has traditionally occurred at the start of each new year.

A number of these transactions have been as a direct result of company expansion, but others have been relocation and upgrading of space from existing occupiers within the area, although there has been one or two new companies moving in, which has given the added bonus of new job creation.

The industrial market has steadily improved over the course of the last 6 months, with the first 3 months of 2010 being particularly active. In the last few weeks we completed the largest industrial transaction in the East Riding so far with the letting of 67,000 sq ft of refurbished warehouse accommodation to HCK Group Ltd at Goole. Other notable transactions include the letting of 10,000 sq ft on Sutton Fields Industrial Estate and the sale of 31,000 sq ft also on Sutton Fields.

The volume and quality of enquiries for industrial space is improving week on week. The vast majority of enquiries being registered are for leasehold space, with occupants typically looking for shorter more flexible lease terms and requesting, although not always getting, additional incentives to complete deals. These circumstances show no signs of abating in the foreseeable future.

In the first quarter of 2010, we are pleased to report that there has been continued activity in both these sectors of the market, although interestingly unlike 2009, there has been an improvement in the smaller end of the market, especially small to medium industrial and office units.

It is this change within enquiry levels at the smaller end which perhaps constitute real signs of green shoots and it is the smaller growing companies or newly formed groups that help stimulate the market, whereas in some cases for the medium to larger units it is simply companies moving around either downsizing or increasing the quality of the space when either leases come to end or they have the opportunity of exercising a break clause.

There are some positive signs of recovery within the commercial
market, but whether it is fair to say that these represent true green shoots is
very debatable.

From a chartered surveyor's point of view it is difficult at the moment to predict trends within the market as within one quarter you can have significant pockets of activity at the higher end, such as the last quarter of 2009 for the offices, but then the following quarter is difficult.

These are unusual and challenging times for us all, but in North and East
Yorkshire as well as Lincolnshire the market does seem to be holding up a little bit better than most other regions and hopefully if existing larger manufacturing concerns can remain stable during this period, then it would give a good platform for economic recovery throughout the remainder of this year and 2011.