BIRMINGHAM – Scott Rutherford, Partner and Head of National Office agency at Cushman & Wakefield comments: “Given both record and generationally low levels of available Grade A supply and a strong and improving level of named enquiries in excess of 75,000 sq ft, the prospects for significant activity in the pre-let/pre-completion market are very promising in 2019 in both the CBD and M42 office markets. This is particularly the case in the core CBD with 103 Colmore Row, 3 Snowhill and 2 Chamberlain Square all offering high quality accommodation.
There will be a continued march by the international managed office solution providers and we foresee a number of transactions of significance in this sector.
Generally though, given the paucity of supply of existing brand new or previously unoccupied space, a number of business service occupiers are looking to secure the best space well ahead of contracted lease events as they seek to establish ‘first mover advantage’ over existing supply.
Landlords and tenants will see opportunities to expand and contract through the availability of ‘grey space’ in the market as deals are put together ‘off market’ in a constrained supply environment.
Political and economic activity aside, we should see a strong performance with new milestones reached in headline rents and a reduction in incentives as the market becomes more favourable to those holding available accommodation.”
BRISTOL – Andy Heath, Partner in Cushman & Wakefield’s Office agency team in Bristol comments: “2019 promises to be a seminal year in Bristol as we enter 12 months with no grade A product being delivered, demand increasing from both inward investment and organic growth, a demographic that is one of the youngest and strongest in the country and a booming tech sector.
We anticipate the rental growth witnessed in the past 24 months (24%) will continue with headline rents anticipated to be in the mid-high £30’s psf which will have to come from pre-lets. The supply pipeline is beginning to re-emerge with some of the most exciting schemes to be seen in Bristol due to come on line from 2021 onwards, which is established on the back of occupiers demanding more from their buildings as the war on staff retention and recruitment intensifies, particularly within the tech sector.
Infrastructure improvements within the city are now progressing which, together with the electrification of the West Coast Mainline reducing journey times from Temple Meads to Paddington to 1 hour 20 minutes, gives everyone confidence that Bristol is now beginning of realise its full potential.”
CARDIFF - Andrew Gibson, Head of Cushman & Wakefield’s Capital Markets Team in Cardiff comments: “The surge in office take-up which has been experienced in recent years has significantly slowed as a result of a lack of Grade A office availability due to a gap in the delivery of new speculative office schemes. In fact, with the majority of the remaining Capital Quarter office buildings now rumoured to be fully pre-let, Cardiff will have virtually no brand-new stock available in 2019.
2019 is likely to see a slow start in the occupational and investor markets, with all the uncertainty ahead of the 29 March outcome providing an opportunity to review strategies. However, regardless of the outcome of this process the re-positioning of the High Streets will continue to be a focus for retail landlords and investor strategies will still be drafted for multiple outcomes. I believe that the result is likely to be a stronger second half to the year as investors with differing views on the risk and value associated within the UK, start to action these strategies in disposing or acquiring assets accordingly.
With such a significant level of uncertainty across the UK, the Welsh Government has a huge responsibility in 2019 to assist with the attractiveness of working within Wales and in particular, our centers of commerce Cardiff, Newport and Swansea. Newly appointed Mark Drakeford, First Minister of Wales needs to consult fully with major employers, business leaders and professional bodies as the previous lack of engagement led to the 2018 introduction of Land Transaction Tax Wales which devalued real estate across the country and has seen a significant reduction in commercial property transaction volumes. Vacant Land Tax is another potential negative blow for our industry, if poorly implemented and if the opportunity to attract wealth into Wales is not taken as part of the new Income Tax powers in April 2019, it will be a significant opportunity missed.
On a very positive note, 2019 should start to see the fruits of some real City Deal investment across Wales and if major projects such as The South Wales Metro can continue to gather momentum, this will further enhance the economic benefits that should be seen from the removal of the Severn Bridge tolls…I just hope the Welsh Government’s New Year’s resolution is to sign off the M4 relief road.”
LEEDS – Keith Hardman, Head of Cushman & Wakefield’s Leeds Office comments: “Relocations from south to north (Burberry, Channel 4, Talk Talk to name a few which have announced or implemented plans in the past 12 months) will gather pace as businesses look to improve staff retention, reduce operating costs and improve competitive advantage against the backdrop of economic uncertainty in the post-Brexit era. The South Bank area in Leeds will be one of the main beneficiaries of this.
The Chancellor will introduce more radical funding measures to address the decline of many town and city centres and to expedite the changes required to reverse this. Measures will go some considerable way beyond the £675m announced in November’s Budget for the Future High Streets Fund. A sales tax will be introduced with a Business Rates offset i.e. targeted at online retailers, where the tax revenues will be directly invested in transforming town centres.
Leeds United will also win promotion to the Premier League!”
MANCHESTER – Caroline Baker, Head of Cushman & Wakefield’s Manchester office and Partner in the Development & Planning Team comments: “It is not difficult to predict that 2019 is likely to be another difficult year for the retail sector. However, the key to success in 2019 will be to see this as an opportunity to reposition our town centres.
I predict that 2019 will be a year when the institutions and investors – which have so far only been interested in the regional centres - start to look at the next tier of town centres. The key is to focus on those towns that have great connectivity, access to jobs and access to local services combined with unique assets which make them standout. Where partners come together and set a new vision for these towns with a passion and commitment to work together, transformation will happen.
We need to get more people living in our town centres but many lack quality homes or have limited choices. We need to deliver modern homes which attract a wider range of occupiers – young families, down sizers etc. Savvy developers will start to develop residential products which respond to the desires of those residents who get the benefits of town centre living or maybe don’t have the resources or desire to live on the 25th floor of an apartment block in Manchester or Liverpool. Where this starts to happen the bars and restaurants will follow and our towns will be vibrant again.”
Caroline Baker has prepared strategies to support the transformation of towns including Altrincham, Leigh, Preston and Crewe and is currently working on strategies for Barrow, Kendal, Stockport, Macclesfield and Stalybridge.
NEWCASTLE – Greg Davison, Partner in Office agency at Cushman & Wakefield in Newcastle comments: “2019 already looks like it could be a busy year. The first speculative office scheme in the region since 2016 will be completed at the Beam in Sunderland, followed by The Lumen at Newcastle Helix in December. Whilst there is a now an established pipeline, there are several larger requirements in the market which, if they all move, could absorb that new stock.
Regarding rental levels, we have seen a strong period of rental growth in prime city centre rents, driven primarily by lack of supply. We can certainly expect to see £25 per sq ft achieved on the best space during 2019, but I also expect a greater weight of activity in the tier just below that, where I believe we will start to routinely see rental levels reach £22.50- to £23.50 on good quality refurbished space in locations such as Grey Street. This will have a knock-on effect and we expect to see incremental uplifts in rental levels throughout the market.
The out of town market has been subdued in terms of large transactions; this could change once there is certainly over the UK’s future relationship with Europe, when it is hoped there will be greater opportunity driven by north shoring and re-shoring projects. We expect rental levels in this market to hold firm at around £16.50 per sq ft. Savvy landlords will look at being more proactive with their buildings and delivering a more diverse product offer.”
SCOTLAND – David Davidson, Chair of Cushman & Wakefield in Scotland comments: “The main (only?) topic of conversation currently is Brexit. It is an undoubted black cloud on the horizon for occupiers and investors alike, but its impact will be felt across the whole of the UK and not just Scotland.
A short-term benefit of the Brexit negotiations has been some investor caution on the London market and the high pricing levels there relative to the risks of future market adjustment.
Aided by the UK’s weak currency, this has created a wave of new investors coming to the UK regions in 2018 seeking higher yields. At Maxim Business Park, near Glasgow, which we sold for £38m in September, we had new investors inspecting from Australia, South Africa, India, Singapore, and Northern Ireland, in addition to the usual investors from our local market and from London.
2018 has seen a surprisingly strong occupational market for offices, with high take-up and rising rental levels. Investment levels are up and international interest in the market is strong.
So, with my ‘Brexit will be ok – because surely it has to be?’ glass, what do I predict for 2019 in Scottish Property?
• More office pre-lets – with no new supply coming through, tenants are having to look at longer term commitments. The Government Property Agency (formerly GPU) will lead the way but watch out for at least two large corporates to sign pre-lets in the Central belt.
• Speculative space to commence – In addition to ‘the Haymarket’ office element starting on site at least three other schemes will start construction in 2019.
• PRS – At least three developments start with UK Institutional fund backing. The economics for PRS for main stream investors has not worked so far in Scotland. This is going to change as pressure to invest increases.
• Retail – Increased trade in the Shopping Centre market – pressure is growing for a re-pricing of secondary and tertiary retail centres which will then create buying opportunities for developers and opportunity Funds.
• Aberdeen market activity to increase - Whilst the economy is diversifying and less reliant on oil and gas, the much-improved oil price will lead to increased confidence and activity across all sectors. Aberdeen looks under-priced.