THP Solicitors polled over 100 commercial property surveyors and agents in Thames Valley to get their insights into current trends in the local market. This is how the different property sectors were shaping up...
Unsurprisingly, with the majority of office-based workers currently working from home, 63% of agents had seen a decrease in new enquiries for rented office space both in town centres and more provincial locations. Where there were new enquiries, these were centred around serviced office/flexible workspaces (30%) or the ability to demand more flexible lease terms.
Flexible working will undoubtedly be one of the legacies of the pandemic. It will have made many occupiers evaluate their office requirements and reflect on how much of the traditional workspace space they need to run their businesses. Whilst for many ‘home working’ maybe be losing some of its charm after numerous lockdowns, a hybrid of home/ office agile working is expected, and landlords and office space operators will have to be equally flexible in their offerings to remain relevant. Social distancing, staggered shifts/ work bubbles, a non-reliance on public transport to gain access etc will all play a part whilst the immediate effects of the pandemic remain the shift to home looks set to stay as our habits change permanently.
We asked if the survey participants had seen any trends emerging in the industrial sector and over 66% had seen an increased demand for rented industrial premises and 50% increased demand for industrial units to purchase. This they felt was reflected in the value of industrial units on the market with over 40% seeing an inflation in prices.
The industrial and logistics sector has been on a tremendous run over the past few years fuelled by many factors including the UK government encouraging manufacturing and the need for storage/warehousing and logistics space to support the e-commerce sectors. This trend doesn’t look like reversing anytime soon.
Regional distribution centres that serve not only the shops but smaller logistics hubs close to major towns and cities, which in turn serve home deliveries, are in high demand. Multi-let industrial estates benefit from the stability the diversity of their tenants bring, as they often span a number of industries and business types. The increased demand for industrial units, especially those that are small /medium sized, may result in rents increasing as demand for space exceeds supply following the end of lockdown.
The transactions the commercial property team at THP Solicitors are handling include taking increased space for manufacturing clients and also an appetite amongst our investor clients to look to acquire industrial sites in the South East to increase their portfolios.
We asked participants what were the most common enquiries from tenants of retail spaces. By far, enquiries relating to exercising break clauses and/or regearing leases were the most common with 50% of the vote. Next came enquiries regarding early termination for tenants who cannot see a sustainable future. Interestingly there were very few enquiries regarding the option of a turnover based rent, but this may be due to tenants not realising this could be an option and/or landlords not wishing to share more economic risk.
Some investors will be looking to offload their retail investments and rents and capital values are expected to continue to fall across the sector, especially in expensive prime locations, as more retailers focus on their online offerings. At THP Solicitors we are also seeing a clear trend of retail units being re-let as food and drink orientated businesses and the application of the new use class E has assisted in this.
But whilst the vacancy rate trend is likely to continue as the impact of the pandemic is worked through, hopefully it’s not all doom for the retail sector. A reduction in office commuting, change in shopping habits, and increased attraction of independent traders, if sustained, may see retail reinvent itself in the suburban shopping parades/ retail centres as spend is reallocated locally. However, these retailers will be at the smaller end, wanting secondary units and they are likely to demand shorter retail leases with more frequent break intervals. Landlords may also favour letting to tenants in ‘essential retail’ such as convenience stores, takeaways, and pharmacies.
In good news for the property sector, only 20% of those surveyed reported instances of developers looking to defer land purchases until more clarity emerges in the market and/or deferring payments based on development or planning achieved. The overwhelming trend (70%) was in developers looking to purchase commercial sites to convert to residential with 60% being asked to look for land to acquire opportunistically. That being said, 40% reported that developers were looking to take options rather than purchase sites. There were no reports of any developers looking to develop non-residential building projects.
Based on this investor and development activity, those who responded to the survey felt the top 3 influencing factors for development projects in the Thames Valley would be the trend of people moving out of London into commuter belts such as the Thames Valley (90%), followed by the relaxation of planning laws (64%) and finally government incentives to stimulate the demand for residential developments such as the e.g. mortgage guarantee scheme.
THP Solicitors have a strong working relationship with a number of active developers in the Thames Valley and all have been actively seeking developments during the pandemic. We have acted on a significant rise in both conditional and unconditional purchases as well as options as the thirst for development continues despite some of the other challenges to commercial real estate as a whole.
If you are an investor, landlord, tenant, or developer and would like legal advice on any commercial property transaction please contact Frances Watts, Head of Commercial Property on email@example.com or 0118 9209499.