‘Pressure is on’ for buildings to be delivered

By Charles D’Auncey, director at Harris Lamb

2017 may have been a year of political uncertainty, housing crisis concerns and an unstable EU standing, but with the Bank of England raising the base rate of interest for the first time in a decade and unemployment falling to its lowest level since 1975, the economy is in a stronger state than it has been for some time.

With money on the table and a demand for both residential and commercial property, the pressure is now on the Government, housebuilders, developers and investors to deliver the buildings people are clamouring for.

Eighteen months have passed since the controversial Leave vote, and still we await a deal that will see the UK go it alone; but those eighteen months have seen the marketplace strengthen as investors and developers plough funds into new and existing commercial sites, while the Government pledged – not once but three times – to boost the amount of affordable housing across the country.

And the West Midlands is perfectly placed to benefit from increased investment and high interest levels in both sectors. A flurry of reports have been released, documenting the number of workers migrating from London to head to the second city and its surrounding area, where their salaries will afford them a better quality of life, while employers too recognise the lure of lower rents, quality of stock, central logistics links, and the ever-increasing pool of skilled professionals to recruit from.

Demand for residential sites in the region has been high: so much so that we formed a dedicated residential land team in 2017 in order to best service the land-promoters and developers requiring our support to source and promote major land opportunities throughout the UK; something that we’re looking to expand and invest in over the coming months to meet the much-documented demand for increased UK housing.

Recent successful land sales included Ardath Road in Kings Norton and Back Lane, Congleton to St Francis Group and MCI Developments Ltd respectively. We also have a number of other sites under offer throughout the Midlands, including a 110-unit site in Malvern and the former Hall Green Dog Track.

The industrial marketplace is strong: demand remains high for good-quality new-build warehouses and for secondary stock refurbished to ‘as-new’ standards. Investors keen to capitalise on the shortage of stock are snapping up industrial opportunities, landlords are ploughing funds into high-quality refurbishments to appeal to a higher calibre of tenant and attract longer leases, and occupiers are acting quickly to secure the remaining opportunities as they reach the market.

Occupancy rates are high, with numerous Midlands trading estates reaching full capacity or reporting record low vacancy levels over the course of the year. A number of estates including Baker House Trading Estate in Stourbridge, Minworth Trade Park, Kelvin Way Trading Estate in West Bromwich, Argyle Business Centre and Cuckoo Trade Park in Birmingham were all fully let, while two of the Midlands’ largest business parks – Kings Norton Business Centre and Hartlebury Trading Estate – each reached their highest occupancy rates as occupiers scrambled to secure key locations within the region.

In terms of the investment market, we continue to see strong levels of investor demand for both prime and secondary industrial/warehousing property. The logistics sector especially is gaining interest from both domestic and international capital with a number of new entrants seeking to gain a foothold in the sector.

The strength of the investment market partly lies in a good occupational story of strong rental growth, falling supply and limited speculative development, coupled with structural changes in the market – such as the growth of online shopping – which has resulted in growth and a demand for parcel hubs, and high levels of interest in city logistics. These strong fundamentals have seen yields sharpen over the last few years.

Whilst the market witnessed a short pause both before and immediately after the referendum, the industrial sector responded well as the dynamics referred to above continue to match investor requirements; namely long dated, secure income and a robust growth story.

With that in mind, the ongoing speculative industrial development throughout the Midlands is proving a major draw, with recently completed speculative buildings being let, including Liberty 45 at Worcester 6; extending to 45,000 sq ft and DC3 extending to 214,000 sqft at Prologis, Fradley.

As it stands, 2018 looks set to continue to build on the positive foundations laid within the sectors over the past three years, with high demand, a willingness to meet it, and widespread investment.