North East Connected

Demand for commercial property in the North East rises as investors pick-up pace

RICS UK Commercial Market Survey, Q4 2016

Demand for commercial property in the North East rose during the last quarter of 2016 (Q4) as enquiries from potential investors picked-up pace, according to the Q4 RICS (Royal Institution of Chartered Surveyors) UK Commercial Market Survey 2016.

Despite some concern surrounding potential relocation of companies based in the region – post the EU vote – commercial chartered surveyors in the North East reported an increase in demand for all commercial property types during Q4. Industrial property proved the most sought after, with 32% of respondents seeing a rise in demand for such space (up from 13% in Q3), whilst 21% of respondents saw a rise in enquiries for offices (up from 5% in Q3) and 16% reported an increase in demand for retail space (up from 4% in Q3).

On the supply side; availability of commercial property fell across all sectors except for retail, where 9% of commercial chartered surveyors in the North East reported a rise in available leasable space (up from 5% in Q3). Respondents also reported a lack of development starts in the region across all commercial property sectors.

Consequently, this rising demand compiled with a lack of available commercial property, has led to commercial chartered surveyors in the region anticipating that rents for all commercial property types will rise over the coming 12 months. More respondents expect rents for prime industrial space and prime offices to increase, with 59% expecting industrial rents to rise and 50% anticipating rents for offices will increase. Interestingly only 16% of respondents expect rents for prime retail space in the North East to increase over the coming year – this is most likely due to the competitive nature of the retail sector and the need to attract and maintain good tenants.

Near term capital value expectations remained positive across all commercial property sectors in Q4, with 21% more respondents in the North East projecting values to rise (rather than fall) over the coming quarter. Over the next 12 months, 38% of respondents anticipate capital values will increase across the majority of commercial property sectors, led by the prime industrial market and prime office sector.

Alex Wannop of PD Ports in Middlesbrough said: “We have seen the port locations going from strength to strength in terms of inward investment which is driving rental growth and creating jobs in the region. The new MGT Power Station at Tees Port is a prime example of this. Longer term leases remain the trend amongst our tenants who bring significant investment to the site.

“The Port sites are certainly the prime areas in the region. If we look further north there is a lack of supply of high quality commercial and office properties in the areas of County Durham and Newcastle. Supply seems to have fallen behind demand. I think it’s certainly evident that investment in infrastructure linking the North East to the rest of the UK is pivotal to the success and rejuvenation of the area with HS2 stopping short of the area.”

Kevan Carrick of JK Property Consultants LLP in Newcastle upon Tyne adds: “More demand from occupiers is still needed to help fuel the markets. Funding from foreign sources is more readily available but there is little appetite for speculative development. The rejection of devolution and the fragmented approach to marketing the region is worrying.”

Simon Rubinsohn, RICS Chief Economist, concludes: “The results for the Q4 survey suggest that the commercial property market is continuing to attract investor interest despite ongoing concerns about pricing and the prospects for the economy more generally.

“The results highlight the resilience of the economy in the wake of the vote to leave the EU but also clearly demonstrate the demand for large warehouses to support the development of the distribution industry as consumers are increasingly going online to make their purchases.”

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