2017 will be a positive year for the M3/M27 property markets with occupiers driving returns across all sectors.
The economic and political background will continue to provide some turbulence, but not enough to affect overall transaction levels, which are likely to stay around the 2016 figures.
Headline rents will remain stable overall, but may require increased incentives from landlords in order to be sustained. The exception will be new builds, where the continuing shortage of stock across the region will push rents forward. This augurs well for the 60,000 sq ft Florence office building being speculatively developed at Basing View, Basingstoke, Mountpark’s 480,000 sq ft warehouse scheme at Junction 5 of the M27 and Kier’s 108,000 sq ft Logistic City in Basingstoke.
Capital values for smaller lot sizes are likely to be maintained by ongoing strong demand from private investors and owner occupiers, taking advantage of the continued availability of competitive finance. Whilst the steady returns and sound market fundamentals within the region will attract the larger investors, as illustrated by the sale of The Forum at Solent Business Park to Tristan Capital Partners last year for £45m and the acquisition of The Mall Shopping Centre in Camberley for £86m by Surrey Heath Borough Council. Further substantial investments by Local Authorities across our area are expected during the year.
There will also be challenges for the commercial property sector in our area, such as the continuing significant loss of employment buildings and sites to residential and the imminent Rating Revaluation, which in some cases is projected to increase rates liabilities by more than 20% in April.
In 2017 the industrial and warehouse sector in our region is likely to once more perform the best, with steady demand from the increasingly varied logistics sector and improving demand from manufacturers placing pressure on rents to increase from the current levels of £11 per sq ft for Grade A space in the upper M3 Corridor and £9 per sq ft in Southampton.
The office market will continue to experience diminishing stock levels, as PDR residential conversion erodes town centre opportunities, and resulting in Grade A rents being supported at headline levels between £20 per sq ft in Southampton and £25 per sq ft in the Blackwater Valley.
The retail property sector in our region may be one of the few “winners” under the Rating Revaluation and this could result in improved occupier demand, particularly for secondary properties. Much will depend upon ongoing online competition and any changes to consumer spending power.
In summary, 2017 is a year for cautious optimism for the commercial property market in the M3/M27 Corridors with continued confidence in the region from occupiers and investors sustaining activity. It will be a year to recognise the strength of the market and as ever maximising returns through the taking of the right specialist regional property advice.