market insite - innes england · 2 - market insite 2019. at a time when facts and certainty seem...

MARKET INSITEGREAT COMMERCIAL PROPERTY DECISIONS 2019

2 - MARKET INSITE 2019

At a time when facts and certainty seem hard to come by, I hope our latest review of the East Midlands brings you a true analysis of the region’s commercial property market.

The problem for the property market is that the decision-makers can be fickle. Market sentiment can change at the drop of a hat. While we can’t reliably predict the future, we can certainly report on what has gone before. It seems to me that the figures we report today show a familiar picture; stock remains low which has helped values remain resilient.

I can also confirm that our brilliant teams have all had a busy and successful 2018. We’ve done some amazing deals across the patch and nationally, and we’ve also helped our clients make great decisions in non-transactional work. Our building consultants, management surveyors and valuers are all running at full throttle.

We continue to invest in our staff and now have more graduates in the team than at any other time.

I was also delighted that we were able to raise over £10,000 for Guide Dogs UK last year. The picture below isn’t me with a wet nose, but rather the first of our sponsored guide dog pups Harvey (he’s way cuter than me – apparently!).

In an uncertain world, we’re relatively confident that Harvey will go on to make a positive change to the life of a blind person somewhere in the UK.

Whatever the future brings, let’s hope the East Midlands thrives.

WELCOME TO MARKET INSITE 2019

A FAMILIAR PICTURE IN UNCERTAIN TIMESThere’s no doubt we’re living in extraordinary times. As I write this introduction, the country is still in the grip of the twists and turns of Brexit. In the words of The Clash, the question ‘Should I Stay or Should I Go’ seems no closer to a resolution.

Mowgli, Nottingham | Picture: Cactus Images

Tim Garratt Managing Director


DERBY


3

21

Notwithstanding a challenging year for the city’s global powerhouse employers, there has been plenty of good news.

Derby’s commercial property market has shown resilience. 2018 saw a flurry of local authority activity with St James Securities selected as preferred developer for the former Debenhams building. Subsequently, the Council acquired seven adjacent properties in a move to extend this ambitious regeneration scheme. The local authority also disposed of the former Cattle Market in a high-profile sale to Inchcape.

Industrial take-up was in line with the long-term trend although this sector saw the biggest gains. Secondary rents rose sharply due to a lack of stock. Supply increased Q4 albeit half availability is in two buildings; Solex 55 and First Panattoni’s Derby 370. Most transactions have been within the small to mid-size shed market, which has been thriving. Local developer Ivy Grove continue to dominate this sector, having disposed of 80% of their units at Eagle Park. The largest industrial letting was ATL’s acquisition of 66,000 sq ft from the Harworth Group at Sinfin Commercial Park.

Although we have seen no new office build, supply has increased due to the availability of 85,000 sq ft at the former Webhelp Building on Pride Park. The largest letting was the Smith Partnerships acquisition of a new City Centre HQ at Norman House.

The retail market continues to face the challenges of changing shopping habits with notable closures. The city has, however, welcomed recent investment by Clowes to create the Tram Sheds on St James Street and a branch of Annie’s Burger Shack. Prime retail rents have remained unchanged since 2014.

OVERVIEW

1. 2 Friar Gate Square | Picture: Cactus Images

2. CGI of Webhelp

3. Annie’s Burger Shack | Picture: Cactus Images


OFFICE INDUSTRIALTake-up improved by 19% on the previous year but activity remained below the 10-year average for the third year running. Supply increased for the first time since 2013, due to two larger second-hand buildings coming back onto the market. Grade A availability remains constrained, making up only 3.4% of overall supply. Prime rents have remained stable at £16.50 per sq ft since 2008, while secondary rents rose by 5.9%.

While total lettings were down by 13%, the take-up of units of 20,000 sq ft and below increased by almost 60%. Overall, take-up fell back from the previous year, primarily because of fewer larger lettings. Supply edged up by 9.2% to 890,663 sq ft, driven largely by newly-developed Grade A space, which more than doubled from 2017. Prime rents rose to a new record of £6.50 per sq ft.

Prime Rents (£ sq ft)

2018

Secondary Primary

0 2.5 5 7.5 10 12.5 17.515

2017

2016

2015

2014

£8.50

£9.00

£8.50

£8.50

£8.00

£16.50

£16.50

£16.50

£16.50

£16.50

Take-up (000 sq ft)

2018

Grade A Good second-hand Poor second-hand

0 50 100 150 200 250 300

2017

2016

2015

2014

8

43

51

107

113

117

105

92

57

89

88

88

96


2018

Secondary Primary

0 1 2 3 4 5 76

2017

2016

2015

2014

£3.25

£4.00

£3.25

£3.00

£2.75

£6.00

£6.50

£5.75

£5.50

£5.00

INVESTMENTInvestment values remained strong across the East Midlands at £1,389m. Investment doubled between 2013 and 2014 highlighting the increase in volume and 2018 runs close to the 5 year average of £1,467m. The Industrial sector in Derbyshire was the most active, mirroring the UK market in general. Prime yields moved below high street retail yields for the first time in history.

Value of Investment Transactions (£m)

500

700

2014 2015 2016 2017 2018

400

600

300

200

100

0

£589.9

£318.6

£178.6£153.2 £107.6

RETAILThe main retail activity remains focussed around intu Derby. Last year saw the return of TK Maxx into the City Centre with them taking 22,000 sq ft on Albion Street and Mike Ashley purchased the former BHS on St Peters Street. Edge of town activity saw the introduction of College Retail Park anchored by Aldi.

Prime headline rents

per sq ft£16.50


per sq ft£6.50

Secondary rents

per sq ft£9.00

Secondary rents

per sq ft£4.00

Take-up (000 sq ft)

2018


0 500 1000 1500

2017

2016

2015

2014

177

131

376

69

217

286

509

240

119

239

86

137

21 76 423

Availability (000 sq ft)Grade A Good second-hand Poor second-hand

2018

0 500 1000 1500

2017

2016

2015

2014

173

470

69

155

380

185

306

280

340

262

236

299

198

406

5

Transactions completed

£107.6m

High Street & Centres (£ sq ft)

2018

0 10050 15025 12575 175

2017

2016

2015

2014

£150

£150

£150

£150

£150

Prime Retail Rents

Out of Town (£ sq ft)

2018

Bulky goods Open A1

0 155 10 20 25 30

2017

2016

2015

2014

£25.00

£25.00

£25.00

£25.00

£20.00

£30.00

£30.00

£30.00

£30.00

£25.00

Prime Retail Rents

Prime High Street

per sq ft£150

Prime bulky goods

per sq ft£25

Prime open A1

per sq ft£30

Prime YieldsOffice Retail Industrial

9%

2014 2015 2016 2017

8%

7%

6%

5%

4%

7.00%6.50%7.25%

6.00%5.50% 5.50%

5.50%

5.75%

5.00%5.00%5.25%

7.00% 7.00%

5.50%

5.25%

2018

Availability (000 sq ft)

2018


0 200 400 600 800

2017

2016

2015

2014 91

162

215

288

144

142

261

406

251

221

512

23

18

DERBY

7% Office

7% Retail

43% Other (inc leisure)

43% Industrial

Investment by Sector


LEICESTER

At last the market has responded to the long-term shortage of new industrial and warehouse development to the point where we can expect to see new stock, both large and small, later this year. This will not only continue to support the big box market but will also provide opportunities for smaller organisations wishing to improve their image and profile locally.

Overall, the distribution market continued to be the largest contributor to overall take-up, which remained above the 10-year average in 2018, helped by lettings to GEODIS at Optimus Point of 277,000 sq ft, and 320,000 sq ft to DPD at Hinckley Park.

On the retail side, the major redevelopment of Highcross Shopping Centre is nearing completion, with House of Fraser departing and a new leisure and retail offering bringing much needed new occupiers into this sector in the city. Zara opened a new flagship store and JD Sports are also committed to the scheme, along with other restaurant and leisure concepts. This brings a welcome boost to these challenging times for the retail market.

The biggest office story of the year was the significant letting of 80,000 sq ft to Access Group at Loughborough Science Park, which will be the organisation’s new national HQ. The property is currently under construction and due to be completed in summer 2020. In addition, we now see speculative development underway at Great Central Square, totalling 33,000 sq ft of much-needed Grade A office space in the city centre, which should go some way to addressing the major shortage of good quality accommodation.


OVERVIEW

1. Great Central Square | Picture: APB Property Consultants

2. Leicester Distribution Park | Picture: J2

3. Highcross Shopping Centre | Picture: Cactus Images

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2018

Secondary Primary

0 2.5 5 7.5 10 12.5 2017.515

2017

2016

2015

2014

£10.50

£11.00

£9.00

£8.00

£8.00

£17.50

£18.00

£17.50

£17.50

£16.50


2018


0 250 500 1000750 1250 1500

2017

2016

2015

2014 158

369

376

297

386

970

188

144

323

236

176

76

67

62

98

Take-up (000 sq ft)

2018


0 100 200 300 400 500 600

2017

2016

2015

2014

91

77

193

204

223

225

257

66

109

142

177

52

33

104

81


2018

Secondary Primary

0 1 2 3 4 5 76

2017

2016

2015

2014

£5.25

£5.25

£4.50

£4.25

£4.25

£6.50

£6.75

£6.00

£6.00

£5.75


500

700

800

2014 2015 2016 2017 2018

400

600

300

200

100

0

£730.5

£172.6

£322.8

£256.0

£412.7


9%

2014 2015 2016 2017 2018

8%

7%

6%

5%

4%

6.25% 6.00%

7.25%7.00%7.50%

5.50%5.00% 5.00%

4.75% 4.50%

5.00%5.50%

5.00%5.00%5.25%

Secondary rents

per sq ft£11.00

Secondary rents

per sq ft£5.25


per sq ft£18.00


per sq ft£6.75


£412.7m

2018

0 50 150100 200 250

2017

2016

2015

2014

£216

£225

£200

£200

£195

High Street (£ sq ft)Prime Retail Rents

2018

Bulky goods Fosse Retail Park

0 6020 40 80 100 120

2017

2016

2015

2014

£110.00£45.00

£45.00

£45.00

£45.00

£40.00

£110.00

£110.00

£105.00

£105.00

Out of Town (£ sq ft)Prime Retail Rents

Take-up (000 sq ft)

2018


0 1000 2000 3000 4000

2017

2016

2015

2014

565

1036

1178

972

1132

1668

443

285

439

323

247

671

743

1989

126


2018


0 20001000 3000 4000

2017

2016

2015

2014

1478

1000

1372

2281

149

230

255

304

350

788

565

476

979

2024

83


63% Retail

22% Industrial

2% Office

Investment by Sector

Prime High Street

per sq ft£225

Prime bulky goods

per sq ft£45

Prime Fosse Retail Park

per sq ft£110

OFFICE INDUSTRIALTake-up rebounded strongly, with activity increasing by 42% over the previous year. Activity has been above trend in four of the past five years. Availability has remained stable at just over 600,000 sq ft for the past three years, with second-hand space dominating supply, and accounting for 84% of total stock on the market. Prime office rents rose to a new high for Leicester of £18.00 per sq ft.

Take-up remained above the 10-year average for the sixth successive year, with 2.2m sq ft of space acquired. Activity was dominated by larger lettings, with two thirds of take-up being 50,000 sq ft and above. Several new developments boosted supply, which was also dominated by larger units accounting for 81% of stock. Prime rents have now grown by almost 5% a year since 2013.

INVESTMENTInvestment values remained strong across the East Midlands at £1,389m. Investment doubled between 2013 and 2014 highlighting the increase in volume and 2018 runs close to the five-year average of £1,467m. Total transactions in Leicestershire were up by 61% on the previous year - boosted by Hammerson’s sale of a 50% stake in Highcross for £236m to Japanese bank Norinchukin.

RETAILHighcross showed an increase in headline rents for the second year backed by lettings to new retailers including Zara. Rents remain strong out of town with the extension to Fosse Park now underway on the former Everards Brewery site and construction of new units due to be completed in 2020 with tenants including Next, Debenhams and TK Maxx.

LEICESTER


NOTTINGHAM

12 - MARKET INSITE 2019 1. Unity Square|Picture: Sladen Estates

2. Demolition of Imperial Tobacco Horizon Factory|Picture: Cactus Images

3. Broadmarsh Redevelopment Site|Picture: Ian Hodgkinson, Picture It, Nottingham Post

3

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Cranes will finally be returning to the Nottingham skyline following the announcement that HMRC has committed to take 275,000 sq ft at Sladen Estate’s Unity Square scheme for a new regional GPU. Nearby, Bildurn has secured Vita for a 323-bed student scheme as part of the 11 Station Street development which incorporates 50,000 sq ft of much-needed Grade A offices.

There is also good news on the horizon for Nottingham’s retail scene as the long-awaited £86million refurbishment of the Broadmarsh Shopping Centre has finally seen Sir Robert McAlpine appointed as contractors with work to start in Q1 2019.

The refurbishment, along with the construction of the new Broadmarsh car park, bus station and proposed City Library, while sitting alongside the Southside regeneration area will make the southern gateway to the city much more attractive to visitors.

The work to the Broadmarsh is anticipated to enable Nottingham to climb back up the rankings and break into the top 10 retail destinations in the UK – which will be an important factor in attracting new and exciting retailers into the city.

On the industrial front, horizons are also making headlines. In this sector, it’s the news that demolition has begun on the former Imperial Tobacco Horizon Factory to make way for Henry Boot’s 48-acre industrial scheme.

Out of town, First Panatonni demonstrated their commitment to the region with speculative construction at their 715,000 sq ft Panatonni Park Nottingham at J26 of the M1.

OVERVIEW



2018

Secondary Primary

0 5 10 15 20 25

2017

2016

2015

2014

£14.50

£14.50

£13.00

£13.00

£11.00

£20.00

£20.00

£19.50

£19.50

£19.50


2018


0 500 1000 1500 2000

2017

2016

2015

2014 453

331

312

403

532

697

139

110

207

199

223

318

351

265

179

Take-up (000 sq ft)

2018


0 200 400 600 800

2017

2016

2015

2014

286

159

188

263

138

237

232

81

101

63

66

122

209

370

194


per sq ft£20.00

Secondary rents

per sq ft£14.50

High Street & Centres (£ sq ft)

2018

0 50 150100 200 300250

2017

2016

2015

2014

£275

£275

£250

£257

£230

Prime Retail Rents

Out of Town (£ sq ft)

2018

Bulky goods Open A1

0 2010 30 40 50

2017

2016

2015

2014

£39.00£25.00

£25.00

£25.00

£25.00

£25.00

£42.50

£42.50

£35.00

£35.00

Prime Retail Rents


2018

Secondary Primary

0 1 2 3 4 5 6 7

2017

2016

2015

2014

£4.75

£5.00

£4.50

£4.50

£4.25

£6.25

£6.25

£5.75

£5.75

£5.50


per sq ft£6.25

Secondary rents

per sq ft£5.00


2018


0 500 1000 1500 25002000

2017

2016

2015

2014 82

515

643

1020

939

729

236

99

498

362

879

51

16

34

68


500

2014 2015 2016 2017 2018

400

600

300

200

100

0

£302.7

£267.3£297.7

£510.2

£226.6


8%

2014 2015 2016 2017 2018

7%

6%

5%

4%

3%

6.00% 5.75%6.00%6.00%6.25%

6.00% 5.25% 5.25% 5.00%

4.75%4.75%

5.00%

4.75%4.75%4.75%


£226.6m

11% Industrial

76% Office

4% Retail


Investment by Sector Prime High Street

per sq ft£275

Prime bulky goods

per sq ft£25

Prime open A1

per sq ft£42.50

Take-up (000 sq ft)

2018


0 400200 800600 12001000 1400

2017

2016

2015

2014

55

41

629

414

569

640

775

356

421

318

227

388

164

130

22

OFFICE INDUSTRIALTake-up reached a record level of 733,600 sq ft, helped largely by the HMRC deal which accounted for almost 40% of activity. Overall, levels remained in line with the previous year with the market expressing a strong preference for the city centre. Supply continued to tighten; the most noticeable decline being in Grade A space which stands at just under 30% of total availability.

Supply remained tight, with a particular shortage of Grade A accommodation. Second-hand space accounted for 97% of the year’s activity and take-up was down to 857,300 sq ft, the lowest for five years. Prime industrial rents remained at £6.25 per sq ft in 2018, largely due to the lack of stock, while secondary rents rose to £5.00 per sq ft, up 5.3% on the year.

INVESTMENTInvestment values remained strong across the East Midlands at £1,389m. Investment doubled between 2013 and 2014 highlighting the increase in volume and 2018 runs close to the five year average of £1,467m. Investment in the Office sector in Nottinghamshire increased by 170% due to the forward funding of Sladen’s development of 275,000 sq ft for HMRC.

RETAILThe main town centre activity centred around intu Victoria Centre with the refurbishment of the catering quarter and the main letting to McDonalds. Out of town, JD Sports have acquired two new units taking part of the former Toys R Us at Riverside and the former Oak Furniture Land at Victoria Retail Park, who subsequently upsized into the former Carpetright unit.

NOTTINGHAM


Derby 01332 362244

Leicester 0116 255 5455

Nottingham 0115 924 3243

©2019. The content of this brochure may not be copied, reproduced or distributed without permission of Innes England.

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Cover Image. Highcross Shopping Centre, Leicester | Picture: Cactus Images

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