A Warm Future Forecast for Southampton

Posted on 22 October, 2011 by MOVEHUT

As summer is finally blown away by the autumnal winds, some areas of the UK, such as Southampton, remain destinations of choice, at least for those in commercial property.

Jones Lang LaSalle has released the South Coast Metropole, a report evaluating the commercial property potential of Southampton and its neighbouring areas. Commercial property in Southampton is set to benefit from “significant growth opportunities and is a key investment target for post-recession regeneration”, was the conclusion of the report.

Promising signs in the commercial property market around Southampton are said to indicate “the essential ingredients necessary for sustained recovery. That is, investor confidence, a low supply base in all commercial sectors and occupier demand.”

Detailed examination of the world’s economies leads to looking at the impact on the UK commercial property market. Planning reforms, currently the subject of much debate in Parliament and residential and commercial property media, are highlighted. A compromise between commercial property developer interests and green belt activists is predicted.

Looking at the UK commercial property sector, the forecast is for ‘a mixed future as we head towards 2012’. London is expected to lead the way, while northern areas will face ‘challenging’ conditions.

A ‘win-win’ scenario exists for commercial property in Southampton and the Metropole area, says Jones Lang LaSalle. Southampton has been found to have a lack of industrial commercial property, meaning landlords have the advantage over occupiers when renegotiating leases. In Southampton there is talk of re-gearing leases, providing income security for landlords and above-average incentives for commercial property occupiers.

A lack of commercial property funding for industrial development in Southampton means this trend is anticipated to continue. Occupier demand for commercial property in Southampton is now regarded as being back at fourth quarter 2009 levels, following the acknowledged 2008 and 2009 economic difficulties. The need that commercial property landlords feel to incentivise tenants in Southampton’s industrial and warehouse markets seems to have been reduced from an average of 24 months rent free to 12–24 months on a 10-year lease.

Secondary commercial property in Southampton is divided into “a two tier market between refurbished and un-refurbished buildings”. Commercial property landlords in Southampton who refurbish empty buildings after occupation are shown to sell quicker than landlords with un-refurbished commercial property units with a smaller rent-free period.

Looking at the market for offices, the first eight months of 2011 registered “record take-up” throughout Southampton and the South Coast. The data is qualified by admissions of lengthy rent-free periods and talk of commercial property headline rents being “under severe pressure, with some landlords slashing quoted rents by up to 50% to attract occupiers” in Southampton.

Out-of-town space in Southampton is benefitting from a “bias” in commercial property lettings, including two commercial property occupiers who took on 7,500 sq m in a Southampton business park. This is compared to transactions in central Southampton, where most came in under the 465 sq m mark.

The outlook for retail commercial property in Southampton is described as “extremely challenging, and will present considerable risk to retailers occupying the middle ground in 2012”. The VAT increase, spending cuts, inflation, rising commodity prices and a failing exchange rate are all cited as contributory factors. Food retailers in Southampton “continue to perform strongly”, although a lack of commercial property development in Southampton “is one of the key issues currently facing the retail property market”.

Southampton City Council are praised as “finally engaging with the private sector in a genuinely proactive way. This is encouraging, as it is the only way to achieve meaningful regeneration.” Commercial property appears set to play a major role in this regeneration in Southampton and the Metropole area.

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