THE ANSWER TO PROPERTY’S GROUNDHOG DAY

Market Overview News

There are times when commercial property begins to resemble a scene out of Groundhog Day. You wake up, scan the property press, turn on the radio and find yourself digesting what sounds like the same story you heard yesterday: the economy is weak, demand is falling away and no one’s building anything new.

I’m sure it’s the same in many sectors of business, but I get fed-up of it. Yes, we all know the economy has got problems and that the good old days aren’t coming back any time soon.  Yes, we know that demand is weak and that developers are struggling to find the money to stick a spade in the ground.

But there are people out there who do need to move, and there are properties available which could fit the bill.  So let’s delve beneath those headlines to find out what the options really are – what clients want to hear is not what they’ve already seen and heard, but how we can work round it.

If we understand the precise nature of the problems the market faces then we’re on the right path to doing that. You’d think the market might be awash with unsold industrial warehouses right now, but it isn’t: because demand is weak, supply is thin.  The reason why demand is thin is that businesses are struggling to prise money out of risk-averse funders.  My experience is that this isn’t the whole story: at FHP, we have been handling a steady stream of deals around the Nottinghamshire-Derbyshire border which involve what I’d call the ‘business bedrock’ – very carefully-run businesses who conserve cash and are not necessarily reliant on funders to make a move.

Another reason why there’s still steady activity in the border territory is that there has been some decent second-hand stock available – typically, locations like the Nyland Graphics site on Alfreton’s Clover Nook Estate. It is a modern, oven-ready building, the site has room to expand, and it’s only a stone’s throw from Junction 28 of the M1. With all those boxes ticked, we sold it in the space of four weeks!

The supply of industrial property in Nottingham is more of an issue.  There’s plenty of older, second hand leasehold stock around, but a dearth of modern, well specified premises with good space, good yards and good access to the road network.

No surprise, then, that most of the activity is happening around the M1 corridor. But this activity is slowly eating up a dwindling supply, with only a small number of speculatively-built sites still available.

So what are the options when supply and demand appear to be fighting each other to a standstill?  Are we looking at a tipping point where businesses looking for, say 50,000 sq ft upwards have three simple choices?  Those choices are to look elsewhere, sit tight and do nothing, or explore a design-and-build option.

Looking elsewhere is not an easy option. Other areas may well face the same supply-demand dilemma, and most established businesses see shifting lock, stock and barrel to somewhere different as significantly disruptive to the business as some staff may struggle to make the move. Sitting tight and doing nothing appears a less risky option, but you have to consider whether it could cramp business growth and your ability to meet client demand. And is an older property going to become a money-pit?

So what about the design-and-build option? There has been activity here at the higher end of the market, and it has involved some of the most experienced developers around at sites like Blenheim Park at Junction 26, Castlewood at Junction 28, Access Point at Junction 28, EMDC at Junction 24A, and Gazeley’s G Park site at Newark.

At these design and build sites our developer clients know the economy is tough and that cost is usually the key relocation driver. Therefore, it is these clients who are winning the race to secure design and build occupiers through listening to their needs and structuring clever deals that enable financial efficiencies to be achieved, often making design and build options as financially attractive as options on existing units, with of course the added benefit for occupiers of taking a bespoke property.

So design and build projects can work and some notable deals are being done at locations likes Clowes Developments’ sites at Castlewood and EMDC, with occupiers identifying efficiencies which make these projects work for them.

But away from those headline deals I think we are inevitably looking at supply lagging behind demand for a while. The bad news is that I think that could well hamper economic growth, and government may need to consider whether investment in infrastructure (notably the A453!) could unlock the kind of development which we know there is an appetite for.

For the foreseeable future, what the business bedrock needs is information and advice about good quality second hand stock.  The answer to that?  You know where I am!