Commercial Property News
This year is likely to be remembered for the “credit crunch” which has affected the financial property markets in the UK and across the western world. Everyone now knows the problems of sub prime mortgage lending in Middle America – and we’ve probably withdrawn our savings from the Northern Rock! However, what has been the real impact on the commercial property market in the region?
In general terms, 2007 has seen stable if unremarkable levels of demand across the property sectors, but with pockets of higher activity in some areas. There continues to be a shortage of supply of serviced development land across the Cambridge region and strong demand from both occupiers and developers to acquire such opportunities.
At Lancaster Way Business Park, for example, we have secured detailed planning consent for four occupiers totalling around seven acres, with strong interest for more. At Landbeach, on the A10, the former Duffields Volvo site of two acres was sold recently to a developer, Glenmore, at a price in excess of £1.25 million.
During the first half of the year there was continuing strong demand for small freehold industrial buildings, and new developments to cater for this demand have been completed in various locations across the region including Milton, Papworth and Saffron Walden. Office demand has been steady and similar to 2006 at around 350,000 sq ft. There has been a reducing supply of Grade A quality offices leading to gradual rent increases over the year with prime city rents now at around £23.50 psf.
The retail scene in Cambridge has been dominated by the pending completion of The Grand Arcade and Christ’s Lane development which will change the shopping scene in the city completely. The additional floor space and arrival of top new brands will firmly re-establish the traditional city centre as the prime shopping area. This may have repercussions for other areas of the city and create opportunities for independent retailers to come into the centre.
Where we have seen the effect of the “credit crunch” has been in the freehold market, both in terms of the investment and owner occupier sectors. Institutional investment virtually came to a halt in the second half of the year as yields rose (and values fell). Property industry insiders see this as a readjustment following many years of capital growth, brought about more by the weight of money pouring into the market, rather than any real prospect for dynamic income growth. The secondary investment market has seen yields rise between half a percent and two percent over the last six months. Prime property yields have held firmer, but there is now a good opportunity for many investors seeking decent returns to come back into the market.
We have seen a noticeable change in the freehold owner occupier market as money becomes harder to borrow and the general feeling of “wait and see” has begun to emerge. Many businesses we talk to are now considering leasing premises rather than buying, giving them greater flexibility into the future.
So how about the outlook for 2008? It is very much hoped that the financial markets will begin to settle in the New Year, with balance coming back to the property market. Occupier demand remains pretty robust and underlying business confidence remains strong. Commercial property in the Cambridge region will remain a valuable asset as the long term economic future for the region is assured.
Changes to Capital Gains Tax legislation may lead to a number of freehold sales taking place before April and we have already seen a number of new instructions brought forward by these tax changes. Property owners and occupiers should also be concerned with the changing legislation regarding business rates which will come into effect from April 2008 making the cost of holding empty property much higher.
For further information please contact Philip Woolner on 01223 213666.