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South Coast Metropole

October 2014

• The UK economy continues to expand against a background of low interest rates, low inflation and increasing consumer confidence

• Within the Metropole region, growth has been fuelled by a strong residential market, an improvement in both the manufacturing and service sectors and a successful and expanding international port

• A shortage of prime commercial stock has encouraged a series of new speculative schemes across the region to capitalise on growing demand, dwindling stock, following a protracted period of weak market conditions and easier access to finance.

2 | South Coast Metropole – October 2014

Contents

Introduction 3

The economy 4

World overview 4

UK economy 5

Property market overview 6

Industrial market review 7

Office market review 13

Residential market review 20

Retail market review 22

Regional issues 24

South Coast Metropole – October 2014 | 3

Introduction

Across the south there is a rapidly growing interest in new development, and this is reflected in both an increase in demand and recovering capital and rental values. Last year we reported that the recovery was being led by the residential sector. This remains the case, and both the demand for new housing stock and house prices continue to rise. We expect this to continue for some time, although this does depend on interest rate increases, when they start to appear at the beginning of 2015, being introduced gradually.

The outlook for the south compared with other parts of the UK looks bright. A successful and growing port, excellent infrastructure, an educated workforce and an attractive environment will ensure that the region benefits from this period of economic growth, encouraging further inward investment, particularly from London and other parts of the south east.

Michael GreenLead DirectorSouthampton office

A warm welcome to the 19th edition of our annual South Coast Metropole report which we publish at the close of a glorious summer and in an economic climate that is more encouraging than we have witnessed since 2007. Although there are still many potential stumbling blocks including a general election in May 2015, the UK economy has moved from a recovery phase to a growth phase, with GDP predicted to reach 3.1% by the end of 2014. The UK economy is now larger than it was before the economic crisis in 2007, and so far both inflation and wage growth remain modest and under control. The result of the recent referendum in Scotland adds further to a sense of increasing stability.

Our report is set out in three sections; first a review of the global and national issues that will affect the Metropole economy over the next 12 months or so; secondly an assessment of the principal market sectors, and finally an analysis of some of the key initiatives that the region is currently facing.

As expected after such a prolonged downturn, the recovery of the UK economy is neither smooth nor predictable. Generally the service sector is performing more strongly than manufacturing, in which year on year output rose by just 1.2% over the year to August 2014, to stand 7.4% below the factory output peak in 2007/2008. The service sector on the other hand now accounts for 70% of the UK economy, and is driving growth. All this has helped put a spring in the step of the property markets, and we are beginning to see both a shortage of prime commercial stock in most of the large UK conurbations, and a tentative, albeit sensible return to speculative development. The manufacturing sector is stronger in the south of England than the service sector at present, bucking the national trend.


World overviewOver the past year, it has become increasingly possible to talk of a global economic recovery, albeit a modest one. Oxford Economics is now forecasting world economic growth of 2.7% in 2014 – relatively subdued for a recovery phase, although the figure rises to 3.1% in 2015. This recovery is somewhat patchy; many parts of the world are still suffering economic difficulties, notably the Eurozone, where growth is sclerotic and further threatened by the prospect of deflation. Its economy is expected to expand by just 1.1% over 2014. Germany, after several strong years, has seen a notable drop in activity recently, and the second quarter of 2013 saw a contraction of 0.2% in its GDP, although this may be the result of temporary factors.

Global outlook – GDP growth rates

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Geopolitical events are perhaps the most visible threat to the world economy. A pronounced and tragic increase in instability in the Middle East is the most obvious issue, and one with international ramifications given the potential impact on oil prices. Closer to home, the conflict in Eastern Ukraine and the resulting economic sanctions on Russia have damaged growth prospects in both countries, with Russia’s economy expected to shrink by 0.1% over the course of 2015. The dependence of Germany, the Eurozone’s motor, on Russian energy further complicates the situation. Nevertheless, most analysts believe that unless events escalate dramatically they are unlikely to cause any major shocks to the global situation.

Meanwhile, rapid growth in the other BRIC economies (Brazil, Africa and China) can no longer be taken for granted as the driver of the global economy. India’s GDP is expected to grow by 4.7% this year, a modest figure for a developing country with the new government struggling to implement meaningful structural reforms in a country plagued with bureaucracy. Meanwhile, Brazil, burdened by high inflation and political uncertainty, is forecast to manage only 0.7% growth. China is the only bright spot of the large emerging economies; recent data suggests strong export growth is pulling the country out of its recent trough, and it is now on track to grow by an encouraging 7.4% over 2014. However, concerns remain over the Chinese housing market and the state of parts of its banking sector, and the most recent figures suggest a slow down amid weak credit growth. Indeed, its economy is likely to move down to a more sustainable growth path of 6% to 7% as it moves away from investment and towards consumption.

The USA and UK have been, to some extent, the stars of the global economy, at least in the developed world. Employment data in the USA has been very strong for several quarters, and confidence indicators remain high. Recent weaknesses in the housing market and in business investment may explain why the forecast is relatively subdued at 2.1%, slightly behind the global figure and the level normally expected during a recovery phase from the world’s largest economy. A stronger performance of 3.2% is forecast next year, and indeed the second half of 2014 should see further buoyancy.

It is also important to note that monetary conditions are still extremely unusual, and this will have to change over the coming year. The Federal Reserve (the Fed) is set to end its economic stimulus program, Quantative Easing (QE) in October, wrapping up the latest, and last, round of economic stimulus, known as QE3. The Fed is currently buying $35 billion per month in assets, down from a peak of $85 billion. It plans to reduce the purchases in increments at its next three policy meetings down finally to zero. Launched in 2009 during the financial crisis, QE and its successors are the largest financial aid scheme in history. In three rounds, the Fed has bought about $4trillion of Treasury bonds and mortgage-backed assets. QE was designed to keep long-term interest rates down and encourage investors to back stocks or

The economy


UK GDP growth rates

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Nevertheless, following 0.8% growth in the second quarter, the UK economy has only just returned to its pre-recession level, six years after the financial crisis. This makes it the slowest recovery on record, exceeding the three year dip of the early 1980s. The dominant service sector continues to drive growth, with output increasing by 1.0% over the quarter. Manufacturing, which has been relatively strong over the past couple of years, was somewhat weaker at 0.4%, although it is worth noting that confidence and expansion intensions remain strong across this sector.

With productivity growth weak, these strong headline figures are driven by a buoyant labour market – the three months to June saw a record 30.6 million people in work, while the unemployment rate fell to 6.5%, the lowest level since 2008. However, this has yet to translate into pay rises with annual growth in regular pay dropping from 0.7% to 0.6% between April and June 2014, a 1.1% cut in real terms. The Monetary Policy Committee (MPC) expects average earnings to rise by only 1.25% over 2014.

Interest rates and inflation

Interest ratesCPI

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Inflation has been on a downward trajectory since 2013 and at the time of writing it had seen a 0.4% spike over June to stand at 1.9%, still a very low figure by any standards. Inflation is likely to remain modest as a result of small falls in oil prices and a strong pound, which dampens import prices. Oxford Economics forecasts that inflation will fall back to 1.5% over the second half of the year. Retail sales in June were 3.6%

corporate debt in order to stimulate the economy. Stock markets have hit record highs under QE, and there is a risk that financial markets are artificially inflated due to this.

Perhaps most importantly, central bank rates in the US, UK and Eurozone are still at historically low levels, and the signals as to when they will rise remain unclear. Market expectations continue to favour gradual rises starting at the beginning to middle of 2015 and as this has been priced in, it is unlikely to have a dramatic effect in the short term. Changing views on the trajectory of central bank rates over 2015, particularly after a change in policy, are likely to be much more important, however.

The Eurozone saw growth stall completely in Q2, with 0.0% recorded for the three month period. More recent business sentiment surveys suggest that a contraction later in the year is not unlikely. Some commentators have suggested that this means that the crisis in Ukraine is indeed having an effect on the Eurozone economy. However, it is also worth pointing out that the Q2 weakness was almost entirely due to the poor German figure, which in turn was produced by a weather-related fall in construction activity. Other parts of the Eurozone saw an acceleration in activity, and the overall forecast for the year has dropped by only 10 basis points to 0.8%. Oxford Economics believes this will rise to 1.5% in 2015.

The currency union has had a notably less activist monetary policy than the UK, US or Japan. In contrast to the Fed and Bank of England, the European Central Bank (ECB) cannot buy member countries’ public debt outright, but has used mainly Longer Term Refinancing Options (LTROs) to stimulate growth, which essentially provides liquidity to banks. This has resulted in two rounds of loans of €429 billion and €529 billion respectively. Recent weak growth has led to mounting speculation that the ECB will take further action, with the overall aim of reducing the value of the Euro. However, key figures continue to point to the need for structural reforms in member states, particularly around labour market flexibility and public spending.

The most dangerous scenario for the Eurozone would be a mirror of the ongoing problems faced by Japan, where GDP fell by 1.7% in Q2 2014. This severe contraction is mainly the result of a steep fall in private consumption produced by April’s consumption tax hike, although investment also suffered. Despite aggressive monetary policy (‘Abenomics’) and Bank of Japan plans to purchase assets worth 10% of GDP over 2014/15, the economy is still struggling with deflation. A tightening labour market and improving net exports should provide some relief later in the year, with 0.9% growth expected overall in 2014 and 1.0% in 2015.

UK economyEconomic growth in the UK has been surprisingly strong over the past 12 months; indeed GDP growth has been among the strongest in the developed world, exceeded only by Australia. UK GDP growth is expected to continue over 2014, with the forecast for the full year at 3.0%. 2015 is expected to be only slightly lower at 2.6%. This is rather more bearish than the Bank of England’s own forecasts, which now stand at 3.5% for 2014 and 3.0% for 2015.


Property and bond yields

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The investment market goes from strength to strength. After a very strong year in 2013 at £55.3 billion, up from £32.4 billion in 2012, UK investment volumes in the first half of 2014 were, at £23.6 billion, up 25% on the same period in 2013. The regions were already resurgent last year, with investment volumes outside London doubling to £27.4 billion. This strengthened even further over the first half of 2014, with the regional share reaching 58%. This is undoubtedly prompted by both low yields achieved in London and the internationally driven competition for prime assets.

Total returns by sector

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Rising domestic interest has also accompanied the return to the regions, with domestic investors accounting for 67% of volumes, up from 55% in 2013. However, international investors are increasingly looking outside the capital. As a result of the interest, prime office yields from most regional centres have reduced by 75 bps, although the spread between London and these centres is still high by historic trends. Nevertheless there is downward pressure on yields across all sectors. The wider market as measured by IPD shows limited rental growth outside London and some major centres, with yields relatively flat as the margin over base rates compresses.

higher than the same month in 2013, despite falls in clothing volumes caused by the good weather. This should continue to strengthen over the year, driven by strong GDP and employment growth.

As a result of these mixed indicators, there appears to be divergent views within the MPC on when base rates should be increased. Indeed, the public comments of Governor Mark Carney flit from dovish to hawkish on a regular basis. Nevertheless, the overall tone suggests that it is unlikely that rates will rise in 2014, with most forecasters expecting a rise in the first quarter of 2015.

As long as increases are slow, this should have little initial effect on the economy as the market has already priced in this trajectory. Margins for both interest rates and property yields are high by historic standards. There may be more of an effect on the booming housing market, where prices have risen sharply over the past year, as households begin to appreciate the effect that rising mortgage rates will have on their household finances. The indirect result, a reduction in consumer spending, could provide a temporary setback.

In the UK, the BoE bought £375 billion of government debt during the crisis, primarily long dated gilts. The Governor of the BoE, Mark Carney has made it clear that any unwinding of Quantative Easing (QE) will only be after numerous rate adjustments, with the possibility that some holdings will remain with the BoE in perpetuity, as the low inflationary environment makes it less of an imperative to unwind QE.

On a regional basis, London is expected to significantly outperform the UK as a whole, with GVA growth forecast to average 3.4% over the 2013-2018 period, compared to 2.5% for the remainder of the UK. This is mainly driven by strong growth in employment (9.7% over the five years, compared to 4.2%). However, the South Coast Metropole area will also outperform the UK average, with GVA growth in the combined area of Southampton, Portsmouth, Eastleigh, Fareham, Gosport and Havant forecast to average 2.6% per annum over the period. Further to the west, Bournemouth is slightly higher at 3.0%. The Metropole region is also expected to outperform the UK average on employment (4.4% growth over the five years) and office employment (6.9%).

Property market overviewThere has been a notable increase in leasing activity nationwide over the past year. It is strongest in the London office market, but is discernable across most regional markets as well. The return of confidence is prompting many to make investment decisions that they have delayed for several years, while others are implementing, or at least considering expansion plans. There is now a growing shortage of product across most sectors, with speculative development returning to hitherto dormant sectors such as distribution warehouses and manufacturing. Concerns over structural changes forced by the growth of internet and mobile shopping is still weighing on the retail sector, but some limited buoyancy has returned here, particularly in major centres.


The UK industrial market has improved significantly over the last 12 months, with take-up figures now recovered almost to pre-recessionary rates. The industrial sector also outperformed the office and retail sectors across the Metropole region. This is in no small part due to the lack of speculative development across the region since 2007, reducing the supply of prime stock against a period of rapidly rising demand.

JLL’s Southampton team transacted 800,000 sq ft of industrial and warehouse space across the region to July 2014, in a total of 41 transactions. 38 of these were leasehold with three freehold deals. Lot sizes varied from 3,696 sq ft at Herald Industrial Estate to 112,000 sq ft at Hounsdown Business Park.

DS Smith Hounsdown

Over the last 12 months to August 2014, the average transaction size has reduced to 20,000 sq ft, down from 25,000 sq ft in the previous 12 months. This is due to an increased volume of transactions and an increase in the take-up of smaller units in line with increased business confidence. We have also seen an increased level of demand for freehold acquisitions by owner-occupiers, especially in the lot size of 5,000 sq ft to 10,000 sq ft. Bank lending for freehold acquisitions remains challenging, but has eased slightly for those companies able to demonstrate good trading over the last three to five years and a healthy balance sheet.

Incentives available to tenants on prime stock have decreased over the last 12 months from an average of two years rent-free on a new ten year lease, to between nine months and a year. This is even lower in cases where there are two or more parties are bidding for the same building. On five year leases this has similarly reduced down to between six and nine months. Secondary stock in poor condition continues to be difficult to let and incentives in this sub-sector remain high.

We are seeing the market polarising between refurbished and non-refurbished stock. Landlords who invest in refurbishing vacant stock perhaps unsurprisingly let these much more quickly, and at a higher rent and with less incentives than un-refurbished buildings.

Speculative development still remains difficult, with achievable prime rental levels only just beginning to make new build viable again but this is against a backdrop of rapidly increasing construction costs. We expect the lack of supply to drive the speculative market as we move into 2015 however, with prime rents beginning to edge up to £8.00 per sq ft for the best stock close to the motorway junctions.

Highpost, Amesbury

Looking at the market across the region we are seeing increased activity in all the principal urban areas. Starting in the east, Rolls Royce is in detailed negotiations to build a new facility in Bognor Regis

Industrial market review


225,000 sq ft estate has just three units vacant, two of which are under offer. This follows two lettings at the very beginning of 2014, including a 17,341 sq ft unit to KSI Lighting at £6.50 per sq ft and 12,551 sq ft to Formaplex in May 2014.

Hazleton, Horndean

Further west in Portsmouth there has been a flurry of activity over the last 12 months. SMEG UK Limited has taken a new 10 year lease on a 37,621 sq ft unit at 5 Interchange Park. There remains one site on the estate of 1.5 acres capable of accommodating a new unit of 35,000 sq ft. Nearby, following the acquisition of Merlin Park from SEGRO in late 2012, Canmore continues to market this 6.79 acre scheme, which can accommodate up to 180,000 sq ft. SEGRO now has only one major scheme in Portsmouth, Voyager Park South, with 12.9 acres currently available. The scheme, a joint venture with developer Roxhill, has seen three acres sold to Royal Mail and the construction of a new 70,000 sq ft unit on a design and build basis to Rimor over the last 12 months, with Rimor taking a new 15 year lease. Elsewhere in Portsmouth part of the former Raymarine facility at Anchorage Park has been let to a car supermarket, PG Motor Group. The group took a new lease on a total of 112,600 sq ft. Also in Portsmouth Craigard have acquired the former Remploy unit at 22 Rodney Road, and intends to redevelop this as a trade park. At Railway Triangle a 5,394 sq ft unit has been let to Victory Graphics Limited at a rent of £35,000 per annum (£6.48 per sq ft).

Merlin Park, Portsmouth

In Fareham, Oceanic Estates has nearly completed the refurbishment of its 165,000 sq ft former manufacturing facility on the A32, Fareham Road. Fareham Trade Park is the largest speculative scheme undertaken in the region since 2007 and sits on a site totalling eleven acres. The existing buildings have been completely rebuilt with only the portal frame which was extended remaining and the scheme also includes a six unit trade

on the newly constructed Bognor by-pass. This warehouse facility compliments the existing manufacturing facility at Goodwood which has seen a rise in production as demand grows worldwide for this luxury product.

In Chichester, Glenmore is actively promoting its 10.34 acre business park with units available from 20,000 sq ft to 180,000 sq ft. To date, three acres are under offer to an owner-occupier, and plans are in place for an additional small unit scheme of 34,000 sq ft in 2015.

Glenmore Business Park, Chichester

In Havant, the Homes and Communities Agency’s (HCA) 13 acre site in Harts Farm Way has attracted strong interest with three plots under offer, achieving in excess of £400,000 per acre. Close by Hargreaves is marketing its Solent Trade Park in Solent Road alongside an existing Jewson store. The three acre scheme includes a terraced trade park of 26,300 sq ft and an adjoining industrial estate. Also in Havant the former Pfizer factory (160,000 sq ft) in New Lane is finally under offer to an owner-occupier, further eroding the supply of large units in the region. Close by in Waterlooville the former BAe site at Hambledon Road has been granted planning permission for a new leisure scheme (bowling alley, cinema, hotel and restaurants). The scheme will give a huge boost to the town and includes new sports facilities and an Aldi foodstore.

Harts Farm Way, Havant

In Horndean, the refurbishment of the Industrial Property Investment Fund’s Hazleton Interchange (IPIF) is nearing full occupancy. The


8.21%. Also in Hedge End a 32,000 sq ft unit at 3 Royal London Park has exchanged on a leasehold basis to Peter Cooper and in Bishops Waltham the William Kelvin Building in Claylands Road (31,560 sq ft) has been sold to an owner-occupier.

Southampton, the largest commercial centre within the Metropole region, has also seen significant activity over the last year, reflecting the city’s importance as a major international port and cruise terminal. Southampton City Council has sold its 16 acre site in Test Lane South to Evander, with funding from Rockspring. A planning application has been submitted for a speculative industrial scheme with units ranging from 40,000 sq ft to 100,000 sq ft.

At Oceanic’s Marchwood Industrial Estate cult skateboard company Absolute Boards has taken a new five year lease on two units totalling 28,954 sq ft at a rent of £6.50 per sq ft.

Marchwood Industrial Estate, Marchwood

Close by at Adanac Park, Nursling, close to Junction 3 of the M27 the owners have submitted a planning application to enable the site to be used for B2 industrial and B8 warehousing uses. To date the site has been restricted to B1 office uses only. Adanac Park is home to the recently relocated Ordnance Survey world headquarters.

At Eling Wharf, west of Southampton, Autoserve has taken a lease on a 32,393 sq ft unit including a one acre yard, and Dudman has taken a new lease on an open storage yard of 0.83 acres.

Eling Wharf, Totton

park totalling 31,536 sq ft on a main road site of 2.4 acres, together with two drive-thru restaurants, one of which is let to KFC. Two of the trade park units are also let, one to Formula One Auto Centres and one to a national trade occupier. The scheme which totals 120,000 sq ft has been remodelled to provide 7.15 metre eaves height.

Fareham Trade Park, Fareham

Also in Fareham there are three units available at IPIF’s Matrix Park and one site remaining in Aviva’s Kites Croft development. Aviva, taking advantage of the current lack of supply, will probably build out a speculative 26,000 sq ft unit on this site in 2015/16.

In Gosport the HCA, working closely with the Local Enterprise Partnership, have made huge progress in promoting the former HMS Daedalus project. The former military airbase of 450 acres has seen over £20 million of investment in new infrastructure, new entrances and a new business park, currently under construction. A new technology college, CEMAST, opened in September 2014, and on an adjacent site a new Innovation Centre is currently under construction. The business park at Daedalus East is 50% under offer mainly to engineering companies and aviation suppliers. The HCA is also releasing a further 80 acres in the autumn of 2014 for marine led mixed-use development on a site fronting the Solent.

Daedalus, Lee-on-the-Solent

In Hedge End, Import Services has taken a new 10 year lease at £6.00 per sq ft on a 112,000 sq ft unit. The unit on a site of 6.74 acres is situated in Tolbar Way, Hedge End. The Stobart Group sold on the investment to Threadneedle Property Investors at a net initial yield of


Moving westwards MAG Developments, who owns Bournemouth International Airport, has launched a new business park within the existing airport estate in Christchurch. The 200 acre estate can accommodate new units of up to 210,000 sq ft.

In Portland the HCA continues to successfully market the former Olympic Sailing Venue at Portland, with plot sales achieved over the last year to Tidebank, and the former police station, the Victoria Building, sold to a local college. A planning application has been submitted on the northern end of the estate for a new residential development, following landscaping works on the site surrounding the existing Royal Yachting Association headquarters.

Weymouth Osprey Quay, Portland

The industrial investment market in the region has experienced an extraordinary bullish run, with yields still falling and several key transactions completed over the last 12 months. The Aalco unit at Nursling Industrial Estate (58,700 sq ft) sold for £5.13 million with an initial yield of 7%. CBRE Investors acquired the Murrills Industrial Estate in Portchester at 8% net initial yield and the Hounsdown Business Park in Southampton has recently been sold at £9.75 million.

In Eastleigh, Travis Perkins has taken a new lease on a 36,158 sq ft unit at 16/17 Parham Drive. Also in Eastleigh, adjoining Southampton International Airport, UTI International has taken a new 10 year lease on a 30,557 sq ft high bay distribution warehouse at Unit 2, Airways Distribution Park in Wide Lane. F&C Reit is the landlord. Close-by the closure of the former Ford Transit factory has provided an important development opportunity in the city from 2015 onwards. The site has the potential to be used both for employment and residential use, subject to planning. Further north in Chandlers Ford Hampshire Constabulary has sold its Alpha Park facility on a site of 8.5 acres in the region of £6 million. The site will be redeveloped in 2015.

Unit 7 Boyatt Wood Industrial Estate, Chandlers Ford, was let on behalf of Aviva Investors to Charles Kindell Freight at a rent of £7.00 per sq ft. The quoting rent was £6.50 per sq ft and JLL achieved a higher rental on a 10 year lease with a five year break. This demonstrates an increasing rental tone against a back drop of decreasing quality stock.

In Andover, on-line food retailer Ocado has taken a new lease on a 235,000 sq ft distribution warehouse on the Walworth Business Park. This is the largest warehouse letting in the region since a 468,000 sq ft letting to the Co-op in 2011 at Goodmans Andover Business Park. Nearby, JLL is working with Kier Property on the re-launch of Walworth Business Park. Kier was selected by Test Valley Borough Council to regenerate the estate through proactive asset management and the development of vacant plots. Dormy House has recently acquired Plot 27, and Kier intends to build out a speculative unit of 50,000 sq ft on Plot 37, probably in 2015. In Amesbury, TJ Morris has purchased a 65 acre site at Solstice Park and are currently building out a new 700,000 sq ft distribution warehouse for House Bargains.

Walworth, Industrial Estate, Andover

In Winchester the former Bendicks factory, comprising 66,000 sq ft, has been sold twice in the last year, achieving £1.5 million in December 2013 and is now again under offer to an owner-occupier. At Wessex Gate a 12,308 sq ft unit has been let by Legal & General to antiques market operator Molly’s Den, and on IPIF’s Sun Valley Business Park Unit 10 has been let to Red Cat Brewery. The 3,000 sq ft unit will be used as a micro-brewery.


Large industrial and warehouse availability – South Coast area

AddressSize

(sq ft) Description TenureRent

£/sq ft 0292 Airport Service RdPortsmouth, Hampshire

43,658 Second hand industrial warehouse unit with large shared yard

New FRI lease term to be agreed £4.50

High Post Business ParkSalisbury, Wiltshire

228,000 Second hand modern warehouse capable of being split

New FRI lease term to be agreed or freehold purchase

£4.50

Andover 303, East Portway Andover, Hampshire

94,994 Second hand refurbished industrial warehouse unit

New FRI lease term to be agreed or long leasehold interest purchase

£4.50

Unit 1 / 2 Admiral ParkPortsmouth, Hampshire

23,302 Second hand refurbished units. Secure yard. 6.5m eaves height


Havant Distribution CentreHavant, Hampshire

160,118 Second hand industrial warehouse unit New FRI lease term to be agreed or freehold purchase

Under Offer

Cross Street, PortsmouthHampshire

38,880 Self-contained warehouse unit with a 9.12m eaves height and 0.5 acre yard


£3.25

Former NHS WarehouseRobinson Way, Portsmouth

34,512 B1 industrial building. Stand alone with yard on 1.63 acres

Long leasehold to purchase £195,000

1 Royal London ParkHedge End, Southampton

59,600 Standalone warehouse with large forecourt, loading area. 10m eaves. 6 loading doors.

New FRI lease term to be agreed. £7.50

230 Fareham ReachFareham, Hampshire

21,467 Former manufacturing and warehouse complex broken up into smaller units


620 Fareham ReachFareham, Hampshire

26,230 Former manufacturing and warehouse complex broken up into smaller units


Fareham Business Park154 Fareham RoadFareham, Hampshire

113,000 Refurbished existing building or new 12 metre high bay B1, B2 and B8 use.


£5.50

Stoke Park, EastleighHampshire

27,804 Modern high bay warehouse with 2 storey offices, part of unit remaining


6 North Barton ParkEastleigh

27,490 Second hand light industrial unit under refurbishment

New FRI lease term to be agreed Under offer

Unit 1 Strategic ParkHedge End, Hampshire

68,348 Modern second hand warehouse/industrial unit


Unit 1 Hamilton Business ParkNew Milton, Hampshire

32,940 Second hand warehouse industrial unit New FRI lease term to be agreed £5.25

D’Oriel HouseHolton Heath Trading ParkPoole, Dorset


New FRI lease term to be agreed or freehold £5 or£3,815,000

Unit 2 Cobham RoadFerndown Industrial Estate Wimborne, Dorset


Freehold £3,500,000

Building A, Rollalong SiteWoolsbridge Industrial Estate Poole, Dorset


79 Condor CloseWoolsbridge Industrial EstateWimborne, Dorset


5 Sopwith ParkSegensworth, Hampshire

20,285 Modern 8 metre eaves building available Sublease for duration of the term 23 March 2023

£7.06

Omega Business Park 64,583 Recently refurbished with secure yard New FRI lease term to be agreed £7.50


Industrial land supply – South Coast area

AddressSize

(Acres) Description

Phase 2 Southampton International AirportSouthampton, Hampshire

47 Cleared land-locked site to the northern edge of the existing airport

Marchwood Industrial Park, Southampton, Hampshire 160 Site on western side of Southampton Water for new developmentTest Lane, Nursling, Southampton, Hampshire 14 Planning submitted for 40,000, 60,000 and 100,000 sq ft industrial/warehouse buildingVT Woolston, Southampton, Hampshire 6 Waterfront marine-related developmentS2 Solent Business Park, Whiteley, Hampshire 17 Existing planning consent in place for up to 250,000 sq ft of business spaceFulcrum, Solent Business Park, Whiteley, Hampshire 4 B1 employment landFareham Business Park, 154 Fareham RoadFareham, Hampshire

1.4 Former manufacturing and offices premises with potential for redevelopment of a B1, B2 and B8 use from 10,760 up to 220,000 sq ft

Brockhurst Gate, Heritage WayGosport, Hampshire

11 An 11 acre site positioned on the corner of the A32 Fareham Road and new Privvy Hard Link Road

Daedalus, The Solent Enterprise ZoneLee-on-Solent, Hampshire

450 Daedalus has outline planning consent for employment-based development(B1, B2 and B8) and is in an Enterprise Zone

Dunsbury Hill Farm, Waterlooville, Hampshire 50 Mixed use employment site with outline planning permissionE2 Land, Old Park Farm, Waterlooville, Hampshire 14 Mixed use employment siteNewlands, Waterlooville, Hampshire 18 7.29 hectares of employment land with other mixed usesHarts Farm Way, Havant, Hampshire 13 Outline consent for B1, B2, B8. 75% under offerThe Teardrop, Port Solent, Portsmouth, Hampshire 4 Up to 108,000 sq ft B1, B2 and B8 development landMerlin Park, Portsmouth, Hampshire 6.79 Outline consent for B1, B2, B8 up to 112,000 sq ftVoyager Park, Portsmouth, Hampshire 12.79 Cleared site identified within the Local Plan for employment usesGlenmore Business ParkChichester, West Sussex

10 B1, B2 and B8 development site capable of being developed as a whole or in parts available on a leasehold or freehold basis

Chichester Business Park, Chichester, West Sussex 18 B1, B2 and B8 employment siteLink 31, Christchurch Road, Ringwood, Hampshire 13 Mixed use development siteAviation Business Park, Bournemouth, Dorset 35 Design & Build options from 10,000 to 150,000 sq ftPoole Trade Park, Yarrow Road, Poole, Dorset 3.68 Design & Build opportunities may be considered from 15,000 sq ft to 75,000 sq ft B1, B2

and B8 useFormer BK Bluebird Complex, Mannings Heath, Poole 18 Potential mixed use employment site for B1, B2 and B8 usesCobham Gate, Wimbourne, Dorset 25 25 acre business park; Design & Build options availableWeymouth Gateway, Weymouth, Dorset 15 B1, B2 and B8 employment siteOsprey Quay, Portland, Dorset 10 B1, B2 and B8 employment usesWalworth Business Park, Andover, Hampshire 35 Mixed use development site including industrial and distributionAndover Airfield Business ParkAndover, Hampshire

50 The total site is 50.55 acres (20.23 ha) with 37 acres (14.97 ha) remaining after the 13 acre (5.26 ha) land sale to Stannah and 47,275 sq ft letting to The co-operative

Site 6, Fulcrum Business Park, Fareham 3.39 Suitable for Design & Build properties up to 70,000 sq ft

Adanac Park, Nursling, Southampton 75 Planning for mixed use scheme. B1, B2 & B8 consent sought to extend existing consent, expected Q4 2014


The office market across the Metropole region is beginning to benefit from the ongoing economic recovery, and this is being translated into an increase in the take-up of existing accommodation, particularly within the in-town markets. Over the last 12 months to August 2014 there have been 27 transactions in excess of 5,000 sq ft in the region, compared to only eight in the previous 12 months.

A total of 200,785 sq ft of office space let in 2013, and in the first three quarters of 2014 422,626 sq ft has been transacted, an increase of circa 50%, with one quarter still remaining. However, the figures have been distorted somewhat by Parkway School’s acquisition of the former NATS office building in Bournemouth which comprises 92,000 sq ft and the sale of the Connect Centre in Portsmouth to AutoWindscreens comprising 66,000 sq ft.

NATS Building, Bournemouth

One of the most interesting developments over the last year has been the introduction in May 2013 of Permitted Development Rights (PDR). These rights, a relaxation of existing planning regulations, enable the change of use of buildings from B1(a) offices to residential (C3). This avoids the need for an express planning permission, and is intended to provide a solution both for redundant office space and to relieve the pressure on the UK housing market. There are qualifications, as the changes only apply to B1(a) offices, and not to financial or professional services offices (A2) or research and development/light industry B1(b) or (c).

Brunswick House, Southampton

Since the relaxation of the rules JLL has seen 212,000 sq ft of existing office stock removed from the market for alternative use in the Metropole region. Add to this the 274,500 sq ft of development land with the potential for offices now being utilised for non-office use and the overall impact on office supply across the south is significant.

The development sector is beginning to realise that these changes are leading to a potential shortage of office stock, particularly in-town, and this has led to a number of freehold purchases of existing vacant stock, with the intention of refurbishing specifically for office use. The rise in demand for offices, coupled with the reduction in supply, particularly in-town will see more refurbished stock coming to the market over the next two years. Queens Keep in Southampton city centre is a recent example. Ashville plans to create a vibrant working environment to include extension of the ground floor reception, creation of cafe, gym facilities as well as a potential roof terrace. It will be marketed at competitive rents quoting £13.50 per sq ft.

Office market review


at £16.50 per sq ft. In turn, Capsticks acquired Coffin Mew’s previous building at Kings Park House. Trethowans has relocated its practice out-of-town to Pavilion House in Hedge End, taking circa 16,000 sq ft on a new straight 10 year lease at a headline rent of £16.50 per sq ft from August 2014.

Cumberland House, Southampton

Pavilion House

As previously reported, the office market is polarising between good quality refurbished stock where quoting rents have recovered to pre-recession rates, and poor quality accommodation. It is likely that only a handful of unrefurbished stock will let in the current cycle, and the balance will go either to an alternative use or be refurbished.

Prime rents in Southampton city centre are currently at £18.00 to £19.00 per sq ft with the out-of-town market falling slightly behind at circa £16.50 to £17.50 per sq ft. Secondary rents continue to come under pressure from weak demand, with city centre poor quality stock achieving circa £8.00 sq ft with very limited take-up. Lease incentives on the best Grade A and B stock have begun to stabilise, with an average of between 12 and 18 months on leases of five years term certain.

Queens Keep, Southampton

Headline rents are for the first time approaching the £20.00 per sq ft mark with Irwin Mitchell taking Grade A space at Tagus House, Ocean Village at £19.00 per sq ft from June 2014. Tagus House is situated within a rapidly improving area, close to the new Admirals Quay residential development, and with generous parking levels at a ratio of 1:189 sq ft. We expect to see further increases in headline rentals in this area as further refurbished stock comes to the market over the next 12 months.

Tagus House, Southampton

There has been further activity in the legal profession with a number of companies merging and in some cases expanding across the south coast. Coffin Mew’s acquired 6,427 sq ft on the third floor of Cumberland House in September 2013, taking a new five year lease


Charlotte Place, Southampton

As new businesses are created in this cycle, and the trend towards flexible space continues there has been renewed interest in the serviced office sector. Arena Business Centres, in particular, has been very active, opening three new serviced operations in the last 12 months alone. In addition Basepoint, with a 92% occupancy rate, is also seeking to acquire new facilities along the M27 corridor. Average occupation time in serviced office space is higher than expected, running between six to seven years, and particularly suits companies who are usually not client facing, require flexibility (usually one month’s notice) and modest rent deposits, typically 1.5 months. Average occupation costs are around £22.00 per sq ft all inclusive.

McNicholls has relocated out of Hounsdown House, occupied under a traditional lease, taking 5,000 sq ft of serviced offices in Wessex House (Arena Business Centre) on a five year term with annual break options.

Wessex House, Southampton

Oceana House, Southampton

The speculative office development market, which has always been luke warm throughout the Metropole region, is unlikely to materialise for the foreseeable future despite an extraordinary shortage of Grade A space in Southampton city centre. There are two consented sites, The Bond in Cumberland Place seeking £25.00 per sq ft for a total of 150,000 sq ft and Aqua, a 60,000 sq ft opportunity quoting £23.00 per sq ft. Neither of these sites will see any activity speculatively, and are probably set to sit idle for some time before a pre-let is found. This inertia will keep prime rents in Southampton at or below £20.00 per sq ft for some years despite the lack of supply. However we should see some impact as the PDR scheme starts to erode even further the supply of existing vacant stock.

Aqua, Southampton

Charlotte Place in Southampton, a speculative building built out nearly eight years ago, has benefited from the recent improvement in demand, with the remaining 35,000 sq ft currently under offer. The balance of the space is under offer to three separate occupiers, all relocations within the city boundary. Rents achieved have been on a stepped basis at between £12.00 per sq ft to £15.00 per sq ft.


The out-of-town market, following a national trend, has not performed as well over recent years. The issue has been compounded on the south coast by a number of out-of-town offices coming to the market at the same time. However, rumours of a large letting on Solent Business Park suggest that after a very lean period some activity is beginning to emerge in the current cycle.

The Forum, Solent Business Park, Whiteley

At the western end of the M27 corridor at Chandlers Ford the market has seen Ageas House comprising 67,000 sq ft come to the market following Ageas’s relocation to Portswood House. (The accommodation is to be refurbished and marketed at £18.50 per sq ft.)

In Portsmouth the former IBM headquarters now known as 1000 Lakeside saw 31,747 sq ft let in the first two quarters of 2014, to Wiggle, Hellishrat and Path Intelligence acheiving rents ranging from £16.00 – £18.00 per sq ft, and the sale of 66,000 sq ft to Auto Windscreens at the Connect Centre. Traditionally the Portsmouth office market has been weak, primarily because most of the stock was in very poor condition. However, the success of Lakeside has helped change the perception of the wider Portsmouth area as an office location, and a second phase of circa 100,00 sq ft is scheduled to be released from 2015 onwards.

1000 Lakeside, Northarbour, Portsmouth

100 Holdenhurst Road, Bournemouth

In Bournemouth, 100 Holdenhurst Road has had another successful year, being yet the largest office letting in Bournemouth since the Arthur J Gallagher letting at 100 Holdenhurst Road in 2013 taking 23,429 sq ft in 12 months. The building is a major landmark of the central Bournemouth skyline and is located in the heart of the commercial area of the town only a few minutes from Bournemouth railway station.


M27 office transactions

Date AddressIn/out of town Grade

Accommodation size (sq ft) Details

Rent/sale price (sq ft)

Occupier/ purchaser

Aug-14 100 Holdenhurst Road, Bournemouth

In B 20,907 10 year term 5 year break £11.00 McCarthy & Stone

Aug-14 Charlotte Place, Southampton

In A 10,000 Lease details unknown NYK

Aug-14 Charlotte Place In A 7,000 10 year 5 year break £15.50 Your MoveAug-14 Pavillion House Out A 16,547 Straight 10 year £16.50 TrethowansJul-14 8-13 Brunswick Place In B 27,500 Empiric Student Property has

purchased for Student scheme Empiric Student Property

Jul-14 Surety House, Old Redbridge Road, Southampton

Out C 6,280 An undisclosed buyer has purchased self contained office building with part income from Enterprise Cars

£500,000

Jul-14 Tagus House In A 5,000 5 year term at £95,000 pa with a tenant break at 3 years. Fully refurbished suite

£19.00 Irwin Mitchell

Jul-14 1000 Lakeside Out A 10,116 Lease details unknown £16.00 WiggleJun-14 1000 Lakeside Out A 5,802 Lease details unknown £18.00 HelistratJun-14 1000 Lakeside Out A 7,445 Lease details unknown £18.00 Path IntelligenceJun-14 Heliting House, 35 Richmond

Hill, Bournemouth In B 3,530 Lease details unknown £11.75

Jun-14 Forum 3 Parkway Out A 7,444 10 year term at £104,216 pa with a tenant break at year 5. Refurbished space with additional incentives provided by the outgoing tenant.

£14.00 Aztec

Jun-14 17-18 The Avenue In C 2,875 Purchase £470,000 £470,000 Choice Financial Jun-14 Fulcrum 4 Solent Way Out B 3,022 5 year lease at £35,510 pa £11.75 Aqua Platinum

Projects LtdMay-14 Connect Centre, Portsmouth In C 66,000 Freehold sale to AutoWindscreen

details undisclosed AutoWindscreen

May-14 Gurnard House Out B 11,498 Sublease half rent until end of the term 2017

£6.00 Matchtech

May-14 Unit 7 Manor Court, Barnes Wallis Road, Fareham

Out B 3,458 10 year lease at £34,580 pa with a tenant break at year 5

£10.00 Bilfinger

May-14 18 East Links Out C 2,741 Purchase £325,000 £325,000 Riomed Limited May-14 Pavillion House Out A 6,576 10 year lease at £108,504 pa with a

tenant break at year 5£16.50 White Green

May-14 Kilgraston House, 21 Southampton Street, Southampton

In C 8,679 Pennington has purchased for residential conversion

Pennington

May-14 Brookside Centre, Southampton

Out C 9,000 10 year lease at £90,000 pa, with a tenant break at year 5. Premises indeed of significant modernisation

£10.00 Spire Healthcare Limited

May-14 Old Bond Store, Back Of The Walls, Southampton

In C 5,941 An disclosed buyer purchase the detached offices.

£200,000

Apr-14 41 Castle Way, Southampton In C 3,474 United the Union has purchased the self contained offices

£370,000 United the Union

Apr-14 Waverley House, Holdenhurst Road, Bournemouth

In B 3,660 10 year lease at £53,070 pa with a 5 year break

£14.50 Quostar Solutions

Apr-14 70-72 London Road, Southampton

In C 14,019 A private investor purchased the property for residential use

£850,000

Apr-14 Manor Farm, Barn Z, Flexford Road, Southampton

Out C 3,327 10 year lease at £50,005 pa with a tenant break at year 5

£15.50

Apr-14 Parkway Out B 2,700 5 year lease at £27,000pa, with a tenant break at 3 years

£10.00 England Associates Ltd






Occupier/ purchaser

Apr-14 Chilworth Point, 1 Chilworth Road, Southampton

Out B 4,405 15 year lease £17.50 Rothman Pantall

Apr-14 Enterprise House, Southampton

In B 5,000 Lease details unknown Anders Elite

Apr-14 Spectrum 1600 Parkway, Fareham

Out B 2,730 5 year lease at £34,125pa, with a tenant break at 3 years

£12.50 Incomm Europe Ltd

Mar-14 Forum 3, Parkway, Fareham Out A 8,000 Regear and took an additional 3,000 sq ft

Datacard

Apr-14 Wessex House, Southampton

In B 5,000 Five years, with annual breaks Mc Nicholls

Mar-14 Forum 3, Parkway, Fareham Out A 5,963 5 year lease, tenant break at year 5. Refurbished space with additional incentive provided by outgoing tenant

£14.00 Interbay

Feb-14 1000 Lakeside, Portsmouth Out A 1,083 Lease details unknown £17.00 IBRLFeb-14 80-100 Holdenhurst Road,

Bournemouth In B 9,709 Lease details unknown £9.00 Glenmore

Consultants Feb-14 Red Cross House,

WinchesterOut C 6,337 A private investor purchased a

detached office building from British Red Cross Society

£927,900

Feb-14 Unit 1 Acorn Business Centre, Portsmouth

Out C 4,467 Lease details unknown £450,000 Frontline Communications Limited

Feb-14 Horsefair House, Romsey Out C 4,850 Petra Developments has purchased the freehold interest to be converted for residential

£625,000 Petra Development

Jan-14 Burlington House, Grange Drive, Hedge End

Out B 3,200 5 year lease at rising rent starting £9.00 psf to £18.50 psf. Average rent £14.60 psf

£18.50

Jan-14 Queensway House, New Milton

Out C 20,577 10 year lease at £103,196 pa, tenant break at year 5

£5.02 Peverel Services

Jan-14 Queensway House, New Milton

Out C 13,428 10 year lease at £67,408 pa, tenant break at year 5

£5.02 Peverel Services

Jan-14 Elan House, 7 Little Park Farm Road, Fareham

Out B 10,860 Brought by private investor. Details undisclosed

£1.25m

Jan-14 1 - 2 Segensworth East, Kingdom Close, Fareham

Out C 4,978 10 year lease at £29,600 pa. Break at year 5

£5.94 Moog Insensys

Jan-14 NATS Bournemouth Out B 92,000 Sold to Parkfield School Unknown Parkfield School

2014 take up sq ftOOT In Town

Grade A 68,976 22,000Grade B 133,873 75,306Grade C 75,985 100,988Total 278,834 198,298 Total take up 477,128 sq ft






Occupier/ purchaser

Dec-13 Turnpike House, Tollgate Business Park, Chandlers Ford, SO53 3TG

Out B 8,523 Assignment of lease expiring 2018, with £250,000 reverse premium (equating to 18 months rent free)

£19.34 Kier Construction

Dec-13 Avalon House, Chesil Street, Winchester

In A 12,335 15 year lease with a 10 year break. Premises stripped to shell and comprehensively refurbished

£19.50 Southern Health NHS

Oct-13 Part 2 Charlotte Place, Southampton

In A 6,024 Taken in two leases (760 sq ft expansion) 8 year leases with 3 year break. First lease headline of £12.50, second ar £15.00

£12.50 Shaw Trust

Oct-13 Part Enterprise House, Ocean Village, Southampton

In B 15,000 Traditional lease to serviced office provider with profit share

United Business Centres

Oct-13 Southbrook Rise, Millbrook Road east, Southampton

In B 38,526 Sold in shell condition for residential development under permitted development rights

£47.00

Oct-13 Part 1st and part Gnd Floor, Stoneham Gate, Eastleigh

Out B 7,221 5 year lease with a 3 year break. Headline £14.50 per sq ft, but not paying rent on smaller gnd floor suite of circa 2,000 sq ft

£10.00 Premier Foods

Oct-13 Houndsdown House, Houndsdown Business Park

Out B 13,941 6 year sublease with rent rising to £13.75 sq ft. Tenant break after 3.5 years

£11.25 Switch Concepts

Sep-13 Trafalgar House, Winchester In C 15,113 Sale to investor developer AshvilleSep-13 Capella House, Cook Street,

SouthamptonIn C 13,906 Sold to residential developer for

conversion under PD rights£48.00 Roxan Construction

Sep-13 Part Cumberland House, Cumberland Place, Southampton

In B 6,427 New 5 year lease on refurbished building

£16.50 Coffin Mew solicitors

Aug-13 Pt 2nd Floor, and 1st Floor, Enterprise House, Portsmouth

In B 7,800 Assignment of two leases from Serco with circa 3 years unexpired

£10.60 Citymain Administrators Ltd

Jul-13 Pt 2nd Floor, Mountbatten House

In B 6,088 New 10 year lease with a 5 year break £17.00 Hays Recruitment

Jun-13 Unity Building, Fort Fareham Industrial Estate, Fareham

Out C 5,794 Freehold sale £33.66 Ideal Window Solutions

Apr-13 Cando House, Bournemouth Road, Chandlers Ford

Out C 10,239 Freehold sale - building in shell state requiring comprehensive refurbishment

£30.00 Condor Office Solutions

Apr-13 Pt 3rd Floor, 1000 Lakeside, Northarbour, Portsmouth

Out B 12,500 New 10 year lease Portsmouth News

Redclyffe House, Gosport In C 6,710 Bought by undisclosed purchaser £477,000 - £71.08 psf

1 High Street, Totton, Southampton

In C 21,797 24 year sublease - confidential terms Hampshire County Council

Mar-13 Ground & 1st Floor Royal Court, Winchester

Out A 7,095 10 year lease, break at 5th with break penalty £70,950. 6 months rent free, followed by reduced rent of £70,950 for 2 years before reverting to full rent of £141,900

£20.00 Pegasus New Build Ltd

Mar-13 6th Floor, Charlotte Place, Southampton

In A 5,265 10 year lease, confidential terms not known Davis Langdon

Mar-13 Fusion 1, Solent Business Park

Out B 9,500 New 5 year lease with a 3 year break. Penalty of 9 months on the break

£18.50 sq ft Hampshire Police

2013 take up sq ftOOT In Town

Grade A 7,095 23,624Grade B 51,685 73,841Grade C 16,033 57,526Total 74,813 154,991 Total take up 229,804 sq ft


After an astonishing period of house price growth, led by unprecedented rises in Central London, capital value growth in the residential market is showing the first tentative signs of slowing down. This doesn’t suggest the market has peaked, far from it, but rather that we are in for a period of more sustainable modest growth after a pretty crazy 18 months.

London still leads the way, with average property prices in the capital rising for 45 consecutive months to August 2014, and three year capital growth now exceeding 40%. It is questionable whether this can continue and we expect this to level out over the next 12 months, particularly when interest rate rises start to kick in and with some economic uncertainty in the run-up to the general election in May 2015. We also expect the Government to look again at the sector, as there are fears that lower price rises and growing debt could stall the current recovery, and even put the country back into recession. Although this is unlikely, both the Bank of England and the Government are able to introduce effective measures to cool the market if necessary through interest rate rises or by curtailing the Help to Buy scheme respectively. There is a delicate balance to be struck here however, as the Help to Buy scheme has widely been seen as assisting new development by giving real opportunities for first time buyers. The scheme to date has enabled over 40,000 people to buy a home, and its extension to 2020 has been well received, particularly by the volume house-builders.

Cardinal Park, Southampton

Over the 12 months to July 2014, house prices have risen by 11.5% in London and 5.7% in the rest of the UK, now standing at around 5% short of the 2007 peak. However, there are significant regional variations with London and the south-east faring much better than the North and Wales. We are also seeing a narrowing of the gap between London house prices and the Home Counties, suggesting that Londoners are transferring their capital gains from Central London into the commuter belt. House prices in the Home Counties are now on average 5% above their 2007 peak. There are some signs that this trend is beginning to positively affect house prices in the south, especially at the high end, but as the region is on the very edge of the daily commuter run, the affect is diluted.

We are also seeing a continuation of the trend towards urban living, with city prices growing much faster than homes in rural and village locations. This is a cultural trend that will continue globally, as will the demand for single occupant housing and a rise in the rental sector. The affordable housing sector continues to evolve in a climate where the availability of grant funding for new development has been dramatically cut, and is likely to remain so indefinitely. The HCA grant funding for the sector dropped by 60% in the most recent Comprehensive Spending Review. The affordable housing providers have reacted by reinventing themselves, taking on many of the activities traditionally associated with mainstream private housing developers. This blurring of the gap between the affordable and private sector will continue, with many Registered Providers now undertaking traditional for-sale construction to part fund their affordable housing programmes and even entering the private rental sector. The Bond market also provides sources of funding, albeit not without significant risk. The next step could be direct investment into the sector from the institutional market, but there is still some way to go before effective financial structures are in place to facilitate this. However, the recent and successful investment by the institutions into the private rental sector may pave the way for a similar move into affordable housing.

Residential market review


Cranes across southern skylines

A number of new schemes are underway in the region, and encouragingly for the first time in years the skylines across Southampton, Portsmouth and Bournemouth/Poole are filling with cranes and new developments. In Southampton, Allied Developments bold decision to build out the first phase of high rise apartments at Ocean Village has paid off handsomely, catching the market at the point at which demand is strong and supply is weak. Grosvenor will shortly complete its much awaited scheme on Above Bar, Southampton, and there are also new developments underway in Queensway on the site of the former New York, New York (sic) nightclub, and within the suburban hinterland.

Admiral’s Quay, Southampton

Crest Nicholson, Woolston

Regionally, the recovery of the housing market has led both to an increase in development activity and a rise in land prices. The volume house-builders have led this trend and have been aggressively acquiring sites and building out schemes across the region. Average greenfield residential land prices rose by 7.8% in the year to July 2014 compared to 4% in the previous year. This is driven mainly by an increase in demand of course, but is underpinned by both a lack of sites actually ready for development (with implementable planning permissions) and faster selling times which in turn increase profitability and the price house-builders are prepared to pay for sites. The most worrying trend however, is the rapidly rising cost of construction and a shortage of both building materials and skilled labour. This is preventing developers deliver a sufficient supply of new dwellings to tackle the structural undersupply of housing that has plagued the UK since the 1950s.


Despite significant structural changes in the retail sector, led by the growth in online sales, and a protracted economic downturn, the demise of traditional retailing has not come about as some commentators predicted. In fact, sales volumes have risen steeply in the year to July 2014, with non-food sales outstripping food sales by a ratio of 3:1. An improving housing market has also helped to boost the sale of household goods and as a consequence, helped to bolster the out-of-town market. Further encouraging news on GDP growth, which could be as high as 3.4% by the end of 2014, falling unemployment and low inflation add to an overall reasonably positive picture.

On the occupier side the strongest retail market remains in the capital, with new businesses still targeting their first store in London, which is leading to an increase in rents and limited supply in prime locations. However, a widely reported raft of lease expiries over the next three years will lead to a number of fashion stores (Next, Topshop etc) reducing the number of stores they occupy, but also increasing the size of those stores they retain.

In the regions there is a very mixed picture. In the weakest locations vacancy sites are still as high as 30%, and it is unlikely that some poor secondary locations will ever recover to pre-recession levels. Over time these areas will be redeveloped for alternative uses, fed by the housing sector. However, in the strongest towns and cities, demand has recovered well in prime positions, albeit lease lengths are generally now around five years, or ten years with a break at year five. Outside of central London, it is rare to negotiate a longer lease, and this is a trend that will continue through the current economic cycle. We are also seeing continuing competition between the food retailers, particular in-town, and the ceaseless rise of the discounters, led by Lidl and Aldi. This has put pressure on the mainstream food retailers, Sainsbury’s and Tesco, who have seen their market share erode as the discounters increase their floorspace across the country. Interestingly, we are also seeing a demographic shift upwards amongst the discounters customer base, as consumers get to know their products, and realise, as the Germans have always known, in most cases are of equal quality or better than their UK mainstream competitors.

Lidl

Retail market review


The development sector is responding to the current economic conditions with 2013/2014 seeing an eight-fold increase in new shopping centre floorspace, from 32,000 sq ft to nearly 2.79 million sq ft. Long lead-in times will ensure that new schemes within the current cycle are unlikely to come out of the ground before 2016 at the earliest, but they will come. Regionally that is likely to include Hammerson’s Watermark scheme in Southampton and the redevelopment of the former Tricorn centre in Portsmouth, known as the Northern Quarter. British Land/USS opened their 320,000 sq ft Whiteley Shopping Centre in Fareham at the end of 2013 and this is trading above expectations. Similarly, we are seeing increased demand in the retail investment sector, with average prime yields hardening by as much as 0.75% in the retail warehouse sector to 4.50%, matching prime shopping centre, foodstore and high street yields. Demand is continuing, focussed on prime locations, large shopping centres and the out-of-own market.

The rise in online retailing continues apace, but the rate of growth is beginning to slow and as retailers and consumers have become comfortable with both physical and online shops, the two outlets are learning to work together far more cohesively. But it is not just online retailing that is changing people’s shopping habits, but also changes in technology making the actual process of buying far less physical. Mobile phone technology is evolving so rapidly that soon most purchases will be possible through an App, allowing everything from supermarket scanning, hotel and airport check-outs and the next generation of intelligent vending machines. Apple is at the forefront of this technology and have abandoned traditional sales counters in all their outlets.

Other trends include the rapidly developing polarisation of retail goods, with expensive luxury goods at one end and economy goods at the other. This is not necessarily an affluence related trend, but rather a move away from middle range products which are no longer seen as desirable. Consumers are increasingly mixing purchase decisions from a £10 T-shirt one day and a £200 pair of jeans the next. Retailers such as Marks & Spencer are particularly badly affected by this trend, which is linked to a broader erosion of the middle class in western society.

We are also seeing retailers shifting emphasis towards the baby boomers generation as this demographic approaches old age, taking advantage of a market that is now four times larger than the under 25s age group. As this sector approaches retirement, there is an increase in demand for everything from gardening products through to ocean cruises.

West Quay, Southampton

Marks and Spencer, Southampton

Whiteley shopping centre, Fareham


Regional issues

Southampton city centre is set to see two very significant new developments within the current economic cycle. Hammerson has received planning permission for its Watermark scheme, a mixed leisure and retail extension to its adjoining West Quay shopping centre. This will be the third and final phase of a project that will include a new ten screen cinema and bowling alley, together with restaurants and bars. ABP, Morgan Lovell and Southampton City Council are also drawing up detailed plans for a large redevelopment on the waterfront adjoining Town Quay. The scheme, if it goes ahead, will provide a much needed link between the existing town centre and the waterfront and provide a new home for both Red Funnel’s vehicle and high speed passenger terminals. It is also intended to provide a permanent home for the annual Southampton Boatshow.

Red Funnel, Southampton

Following the departure of BAe from Portsmouth naval docks at the end of 2013, a search has commenced to identify an occupier for the former shipbuilding facility. The Ministry of Defence’s property arm (Defence Infrastructure Organisation) has shortlisted eight organisations from the UK and mainland Europe to acquire the site, in an attempt to find an economic use for the facility, preferably for shipbuilding.

Grosvenor is under construction with its second regional project outside of London (the first is in Cambridge) on the site of the former John Lewis department store in Above Bar. The mixed-use development situated opposite the Civic Centre will provide 38 apartments, a total of seven restaurants and a new Arts complex. The Arts complex received grant funding and is supported by Future Southampton and the Southampton Cultural Development Trust. It will also provide a new home for the John Hansard Gallery (Southampton University’s art gallery), the Performing Arts Centre and City Eye.

Guildhall Square, Southampton


After plans for the redevelopment of the former Tricorn Centre in Portsmouth were ditched during the recession, plans are being drawn up for another scheme in the Northern Quarter, the developer, Centros, has changed the design following John Lewis’s decision not to take a store in the location, with the new plans incorporating retail, leisure and residential accommodation. The scheme will include both a landmark residential tower and a new public realm setting for St Agatha’s church.

On the Isle of Wight the HCA has launched a major new marina project in East Cowes, with three operators shortlisted. The 400 berth scheme, which includes significant landside development, is due to commence construction in 2015 when the preferred developer is appointed. In the meantime a new outer-breakwater is currently under construction at the entrance to the River Medina, which will transform the area by protecting the harbour from northerly gales.

East Cowes

Work has continued apace at the former HMS Daedalus airfield site in Lee-on-the-Solent, one of 21 Enterprise Zones created across the UK. Fareham College opened a new Centre for Engineering and Manufacturing Advanced Skills Training (CEMAST) in September 2014, followed by a new Innovation Centre, due to complete in March 2015. Daedalus has also seen significant infrastructure works undertaken over the last 12 months, including new entrances, new estate roads and the construction of a new business park. 50% of the plots within the new scheme are currently under offer.

The extension to Southampton Solent University’s campus in East Park Terrace has commenced construction. The scheme includes a mix of teaching facilities and student accommodation in a city centre location. Students from the universities various property degree courses, including construction management and architectural technology have been involved in both the design and implementation of the project.

East Park Terrace, Southampton

Southampton University continues its aggressive expansion programme, with two large new student housing schemes nearing completion, one close to the main campus in Highfield and one in the city centre. The city centre scheme adjoining the Mayflower Theatre provides over one thousand rooms, and includes a gym, convenience store, laundry and 24 hour reception. Both schemes will be ready for the start of the 2014/2015 academic year.

Mayflower, University of Southampton

In Ocean Village, Allied Developments bold new residential scheme is nearing completion, including the city’s largest residential building at 26 storeys. The three block scheme has seen unprecedented demand with the first two phases selling out almost immediately following release. Interestingly 40% of purchasers have come through the Government’s Help to Buy scheme, with the balance split evenly between investors and local residents. A series of restaurants will occupy the ground floor units, creating a new lease of life in this waterfront marina location.


Sir Ben Ainslies’ bid to enter the next America’s Cup has led to a flurry of activity and speculation over the last 12 months, as both Southampton and Portsmouth vied to secure the project within their own city boundary. In the end, supported by a £9 million government grant, the UK team has secured a site at Camber Quayside, right in the heart of Old Portsmouth. The site enables the project to have immediate access to the water for trials and to enable public access.The Marchwood Military Port in Southampton is to be sold by the Ministry of Defence. The 330 acre facility which is under-utilised has a railhead and has traditionally provided provisioning to the Falkland Islands. Interest in the site has come both from Associated British Ports, who wish to use part of the site for car storage and Liverpool based Peel Ports. Local objection to intensification of use on the site is expected to be fierce.

Inland Homes has submitted plans to redevelop the former Meridian Television Studios adjoining the Northam Bridge in Southampton. This is the second proposal for the site following the previous owners, Oakdene, going into administration in 2009. Royal Bank of Scotland subsequently sold the site to Inland Homes and 350 new homes are now proposed on the site, subject to planning.

The Grand Harbour Hotel, Southampton, sold by De Vere in 2013, has undergone a much needed re-fit including new bars and restaurant and renovation of all 173 rooms. The hotel market in Southampton benefits from huge demand from the cruise market which has grown exponentially over the last five years, leading to a major expansion of hotel facilities across the city.

The DeVere Hotel, Southampton

The long awaited redevelopment of Silver Hill in Winchester is due to be the subject of a revised planning application in the autumn of 2014. It is extraordinarily difficult to obtain planning permission in Winchester city centre for new development because of, in our view, fabulously articulate nimbyism, but Henderson has now persuaded the Council that the original scheme approved in 2009 is no longer viable. If it goes ahead the scheme will provide a much needed boost to a retail offer in the city centre that is both tired and outdated.

Winchester city centre

The Port of Southampton, operated by Associated British Ports, continues to expand, and is currently in the midst of a further £150 million investment programme. Import Services, located in the docks have just completed a 60,000 sq ft extension of its 140,000 sq ft warehouse for container distribution.

© COPYRIGHT JONES LANG LASALLE 2014. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Contacts Southampton Our team based in Southampton acts for investor, developer and occupier clients across a range of disciplines and can also draw on a wider range of specialist expertise across the country. If you would like to find out more about our services in the Southampton office please contact:

Agency David McGougan Director +44 (0)238 038 5628 +44 (0)7710 [email protected]

Nella Pang Associate Director +44 (0)238 038 5611 +44 (0)7738 625431 [email protected]

Eleanor Hussey Senior Surveyor +44 (0)238 038 5612 +44 (0)7813 338526 [email protected]

Buildings and Construction Simon Nicholls Director +44 (0)238 038 5622 +44 (0)7967 688012 [email protected]

Mark Trewin Director +44 (0)238 038 5607 +44 (0)7967 192678 [email protected]

David Bassett Associate Director +44 (0)238 038 5610 +44 (0)7966 614694 [email protected]

Claire Ramsay Senior Surveyor +44 (0)238 038 5627 +44 (0)7791 491609 [email protected]

Kerry Sutherland Associate Director +44 (0)238 038 5618 +44 (0)7816 998793 [email protected]

Professional Advisory Malcolm Barber Director +44 (0)238 038 5605 +44 (0)7889 162938 [email protected]

Planning and Development Kevin Hunt Director +44 (0)117 928 1647 +44 (0)7971 [email protected]

Ben Ponting Senior Planner +44 (0)117 930 5684 +44 (0)7841 199873 [email protected]

Affordable Housing and Residential Valuation

Emma Eaglestone Director +44 (0)238 038 5606 +44 (0)7855 814553 [email protected]

Stephen Knight Senior Surveyor +44 (0)238 038 5631 +44 (0)7841 199842 [email protected]

Gina Boyton-Salts Graduate +44 (0)238 038 5617 [email protected]

Valuation Advisory Steven Farndell Director +44 (0)238 038 5620 +44 (0)7973 656542 [email protected]

Corporate SolutionsDonna Pickett Senior Surveyor +44 (0)117 930 5753 +44 (0)7808 102188 [email protected]

Michael Green Lead Director - Southampton +44 (0)238 038 5613 +44 (0)7976 634864 [email protected]

Jon Neale Director - Head of UK Research +44 (0)207 087 5508+44 (0)7800 874733 [email protected]

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