Industrials are strong but G9 group cautious over outlook

CAUTION surrounds the outlook for the North East’s commercial property sector next year.

Gavin Black, chairman of G9 and a partner at Gavin Black & Partners

CAUTION surrounds the outlook for the North East’s commercial property sector next year.

That’s according to the second annual survey of G9 group of commercial chartered surveyors in the region, which was put together after the demise of One North East to look at inward investment in the North East.

The poll of representatives from BNP Paribas Real Estate, DTZ, Gavin Black & Partners, GVA, Jones Lang LaSalle, Knight Frank, Lambert Smith Hampton, Naylors Chartered Surveyors, Sanderson Weatherall, Storeys Edward Symmons and JK Property Consultants, found the sector was still dogged by issues.

These include problems with funding, developer inertia, falling values, low occupier demand and general market fragility with no real signs of business recovery.

They believe that too many elements of the perfect storm of 2007/08 remain in place with the eurozone continuing to dampen short-term confidence.

As a result, the offices and retail sectors are likely to continue to be challenged during 2013, though there is little Grade A space in either sector over-hanging the market which could represent an opportunity for refurbishments and renovations of older space.

The strongest sector in 2013 is expected to be industrials. Manufacturing and engineering businesses are strong and the region is the only net exporter in the UK.

This performance is driving demand for space with shortage of stock likely in some areas.

Nissan continues to stimulate supplier demand and the forthcoming establishment of the Hitachi Rail Europe facility at Newton Aycliffe is eagerly awaited. The oil, gas and renewable sectors are also driving the sector.

The barriers to development are felt by G9 to centre on low occupier demand, falling rental levels and shorter lease lengths which makes it difficult to source the money from investors to support new development other than by pre-let.

For occupiers there is a lack of confidence based on their own cost pressures, uncertainty about the UK economy, increasing occupational costs on the back of rising energy and fuel costs, high business rates and shortage of bank lending for expansion.

As a result development will continue to be a slow process concentrating on bespoke projects only, which will inevitably lead to a shortage of high-quality new supply which in turn will reduce options for occupiers including new-to-the-region inward investment that is essential to increase the regional economy.

With the public sector-led inward investment process scoring just 35%, there is a perception of fragmentation of response coupled with a lack of both expertise and coordination with the private sector represented by the region’s chartered surveyors.

The absence of the unified approach that is seen in Scotland, the North West and powerful city regions such as Leeds and Manchester, all of which are well ahead of the North East in terms of marketing profile, is seen as a serious issue.

Gavin Black, chairman of G9 and a partner at Gavin Black & Partners, says the first year of G9 proactively sought to engage with many involved in inward investment and job creation to assist in attracting businesses to the region.

He said: “We have addressed the issues in depth and there is much still to do as we adjust to the changed marketing approach for inward investment in the absence of One North East and the acknowledgement that the region needs to attract inward investment.

“For our part the members of G9 have pledged support by bringing our expertise to play, in particular on identifying strategic sites and the delivery of property advice to those engaged in the regional economy.

“The closure of One North East highlights the need for a coordinated approach by both the public and private sectors working together through the seven local authorities and the North East LEP to restore our position on the global inward investment stage.

“We have several strengths such as our manufacturing base, good demographics, cost-effectiveness and lifestyle.

“Our role in 2013 is to emphasise the need for strategic sites and premises data to be assembled and made available and to continue to talk with our colleagues for the betterment of the region.”

 
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