The new normal?
Stock in the Midlands industrial and distribution market is drying up, according to CB Richard Ellis, after strong take-up rates in Q4 2009 and the first quarter of 2010.
Mike Stephens, valuation advisory director at CBRE’s Birmingham office, told an audience of local property developers at the firm’s Midlands Market Insight Seminar earlier this month that active enquiries from retail and logistics operators were “all looking for design and build solutions, which frankly is the way the market is going. There is no sign of speculative development on the horizon whatsoever.”
The Birmingham office market is also unlikely to see any speculative development, thanks to a surplus of Grade A space, developers were told. The scale of government cutbacks is also likely to have a significant effect on the local market, which has become overly reliant on the public sector – it accounted for 50% of office take-up in the city in 2009.
Stephens added: “Hopes are now pinned on the private sector taking up the city’s surplus of Grade A space. There will be a flight to prime space as corporates consolidate, but rents are unlikely to reach their £33 per sq ft peak until stock reduces. There are already signs, however, that the market is stabilising.”
Investment activity in Birmingham and the region is likely to pick up in the latter half of the year. Stephens predicts that UK institutions will be the most active players while German funds, who were the dominant purchasers last year with the acquisition of One Snowhill and 2 St Philips Place, are likely to scale back. Stephens thinks the UK investment buyers will focus on leases of more than 10 years, in lot sizes of £15m-£40m, and will target prime assets in traditional sectors.
Peter Damesick, CBRE’s head of UK research, said that after a volatile couple of years, the property market was starting to acclimatise to a ‘new normal’. He said he didn’t anticipate a double dip in the economy, though there would be a few “dips in the road”.
He added: “Things are starting to settle down and we are beginning to get a flavour of how the markets are shaping up. Value rebounds are fading; debt unwinding will take some time; there will be a greater differentiation between local markets and property assets; development opportunities will start to emerge as supply shortages increase; rental growth prospects are variable. This all adds up to a positive medium-term outlook for property returns. Welcome to the ‘new normal’.”
