Economic impact – the boom time is over…
The current global recession is clearly having a significant impact on all sectors of the UK property market. Property values in some industrial areas have come down 30% in the last twelve months with the expectation these could still fall a further 10%-20%. Land prices in particular are suffering as the appetite to develop dries up completely. Positively, rents have not dropped proportionally in the same period with the reduction in values limited to 5-10%, though the incentives that tenants are now being offered have certainly improved.
The economic downturn has been exacerbated by the change in empty rates (property tax) legislation in April 2008. The impact of this was slow at first but there are now an increasing number of deals being done which are effectively rates savers on large stock. Some landlords are agreeing short term, six week deals which enable them to gain a subsequent six months rates free period and mitigate their losses. Deals to charities (who benefit from reduced rates liabilities) and other occupiers who are looking for space and do not have significant set up costs are becoming increasingly common.
Big sheds – big incentives…
The effect of declining retail sales will impact most on the big warehouse market where up to 90% of large sheds are fed through the high street. We can therefore expect some bigger units to become available by the second quarter of 2009 to compete with existing landlord stock. Large developers including Prologis and Gazeley are already offering significant incentives such as tenant fit out options, rents at the same level as second hand space and flexible lease terms beyond
anything that have been seen in the past.
The time of the tenant…
The changes triggered by the credit crisis and the rating legislation are clearly favouring tenants who have gained much greater flexibility when negotiating leases. The modified market has undoubtedly provided an opportunity to shift the balance of power in a way not seen since the early 1990s.
From an occupier’s point of view, the opportunities have never been greater. Landlords need them and the market is very much on their side. Not all locations are riddled with oversupply but the general perception is that the balance is now on tenant’s side. There are opportunities for cost-effective short term deals that mitigate Landlords’ rates liabilities, opportunities to buy vacant land at significant discounts and of course to buy distressed new product as well, offering an economic opportunity to upgrade.
There is no doubt that 2009 will be a difficult year but a return to stability in early 2010 is a realistically optimistic outlook.
There has never been a better time to ignore generalisations. As market comparables become obsolete within days, each and every individual deal is based on unique circumstances, frequently incorporating distressed landlords and oversupplied locations.
Green issues – we almost forgot…
Economic woes have distracted from the ‘Green agenda’ and sustainability issues which will no doubt be pushed back into our minds by Government legislation in the next twelve months. We have already seen Energy Performance Certificates (EPCs) become a statutory requirement prior to a letting or sale; however while sentiment has certainly been affected there is no firm evidence as yet that companies are placing any value on the grading achieved where more traditional property considerations are also a factor (location, location, location). The BREEAM coding still needs analysis but we would expect this to become a differentiator in the market place at some point.
Green industries and SMEs (small and medium enterprises) are certainly areas of the market which are alive and in which there are requirements (industry green power generation) being satisfied. However, green industry requirements are bespoke in many respects, and existing stock therefore has to be adapted with various permits being necessary to conform to statutory conditions, complicating the issue slightly.