January 2014 dawns with a great deal more optimism in the minds of property folk than in any New Year since 2007 when the Land Registry recorded that house prices in the North East had been increasing at nearly 2% per month in the last quarter of 2006, writes Bill Naylor, director at Naylors Chartered Surveyors.
“Seven years on and a lot of pain later, it was becoming clear at the end of last year that at last prices were on the up and I anticipate that this will continue in the coming year,” he said.
“A steady sustainable increase in housing values is always good news for business and the commercial property sector generally, because it’s such a powerful barometer of overall confidence. For commercial property, a better housing market always rub off positively.
“That said, the commercial markets are still in a difficult position and we predict that the year ahead will be one of further consolidation.
“This is due to the fact that although there is increased demand for commercial space, with values having fallen back significantly since 2008 in many locations and asset classes, most new development remains unviable given that building costs continue to increase year on year.
“However, on a positive note, 2014 will certainly see the first new speculative industrial development in the core Tyne and Wear area since 2008.
“With the industrial market generally being short on supply and with unfulfilled demand this will be the first sector to show a recovery and Naylors is already working hard to bring a number of projects forward for Ravensworth Developments, Hellens Group, UK Land Estates and The Northumberland Estates. Rental values always depend upon size and specification but should exceed £6 per sq ft for good quality new space of 5,000 sq ft and above.
“The market for city centre offices will also further its recovery in 2014 although it will remain a tenant’s market with plenty of good space available at excellent rental rates from £10 per sq ft upwards.
“Brand new space is in short supply and with the first phase of Stephenson Quarter the only new accommodation currently being built, but with completion not due until 2015, no new offices will hit the market this year.
“Out of town, the market remains difficult but it’s not all bad news. UK Land Estates, for example, had a good year in 2013 at Newburn Riverside with around 35,000 sq ft having been taken up following refurbishments.
“Although the rental picture on the business parks will remain much as it has been for the past few years, with a significant oversupply continuing to impact on rental levels, there is always interest in those buildings where a good level of investment has been maintained.
“But despite some problem areas, optimism remains and the property market has to be seen in a wider general business context.
“For example, while some parts of the office property market have suffered from oversupply, overall occupancy levels have held up pretty well particularly when the improvements in computer capabilities are taken into account.
“The growth in electronic filing, a trend which has some way to go yet, means that the existing office stock is now capable of employing more people than was previously considered possible. If that had not been the case then the uptake of space which is improving would have been greater and the fact that the market is surviving this change is encouraging.
“Similarly, the warehousing and distribution parts of the industrial sector have shown growth due to burgeoning internet sales, a trend that is also bound to continue.
“So all in all, we look forward to 2014 as a continuation of the work in progress set away last year.”
Bill Lynn, who heads the Newcastle pffice of Storeys Edward Symmons, was also upbeat. “The North East’s commercial property market is generally improving,” he said. “Better availability of decent stock is a welcome boost to the market and we hope demand will continue to go in the right direction. The uptake in the offices market will improve steadily, although I don’t think we’re going to see any dramatic leap in the amount of space taken up.
“However, any improvement will be welcome in what has been the most severely hit of all the markets. It’s unlikely that we’re going to see any major public sector growth, so it’s all going to have to come from the private sector, but again I think it’ll be selective.
“I expect that the industrial sector will continue to thrive as the North East manufactures its way out of the recession. The issue here is going to be the lack of quality available accommodation in the right locations. Developers have avoided this sector for several years, with the fear of paying empty property rates proving an extra deterrent. Let’s hope we see some good accommodation being built to fill the gaps in this exciting market.
“I expect retail property to remain split with good high streets and shopping centres continuing to do well, but with increasing pressure on high streets and locations lower down the food chain. The leisure market will steadily improve. We’ve seen a spate of high-end restaurants opening in Newcastle, with names including Carluccios, Jamies and Café Rouge and this will continue if operators can find the right accommodation in the right location.
“We hope that the investment market is where we’ll see the most improvement, with greater availability of finance and on the back of that, more people willing to sell to capitalise and look at new opportunities. There’s unquestionably demand, the issue is lack of supply.”
Darren Baker, head of Lambert Smith Hampton’s Newcastle office, said that towns and cities look poised for a period of sustained growth in 2014.
His comments followed an LSH report which shows that Newcastle has risen to 14th in the company’s UK Vitality Index which ranked 65 of the largest towns and cities outside London.
The report, which placed Cambridge, Guildford and Brighton in the top positions, provides a view of the health of the local economies and identifies which are best placed to support economic growth.
Tom Leahy, associate director of Research at LSH, said: “The results of the UK Vitality Index are a reminder that amid some of the well-publicised problems faced in the regions, such as the structural decline of high streets, many local economies are thriving. Considering 78% of UK GDP is generated outside London, the successes of the regions can be overshadowed by the capital.”
The top 10 positions are dominated by the South East of England, with only Warwick (eighth) and Edinburgh (joint 10th) away from the South.
Commenting on the Newcastle result, Barker said: “It is pleasing to see that Newcastle is sitting comfortably within the top 20 UK cities at 14th because the region offers a great platform for economic growth with its five universities, its increasing number of successful business start-ups and the general ‘can do’ attitude of the average North Easterner.
“We are also fortunate in having a large amount of developable land in the wider North East region, backed by the will to bring it forward, so if the indicators are correct, I feel we should soon be seeing a positive uplift in the commercial property sector.”
He said that after three successive quarters of GDP growth, the improvements in the regional economies are starting to feed through to the property market.
The residential property market outside London has seen a real turn-around in fortunes in 2013: the latest Q3 2013 data shows that house prices in all parts of the UK grew in comparison with Q3 2012. Regional commercial property investment volumes in the first nine months of 2013 have already eclipsed the whole of 2012.