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South Coast: LSH reports property market solid despite uncertainty

19 February 2019
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Finance

Lambert Smith Hampton (LSH)’s South Coast Market Index Review shows generally positive trends in the industrial and logistics sectors, with the office and retail sectors facing tougher times. Investment levels remain steady.

Despite headwinds in the property sector, LSH reported a buoyant 2018. The sectors covered in its latest annual south coast review held up despite uncertainties driven largely by Brexit. LSH’s predictions for 2019 were generally upbeat.

Industrial and logistics

“2018 was a fantastic year for the industrial and logistics sector on the south coast. Both take-up and availability levels increased. We anticipate a strong end for 2019 once there is clarity over Brexit,” said Guy Jackson, director at LSH.

The increase in take-up was due mainly to a rise in new prime location stock becoming available. Big movers to primary locations included freight operator Charles Kendall to larger premises in Chandler's Ford and drinks wholesaler Matthew Clark’s relocation in Southampton.

Office sector

The going was tougher in the south coast office sector where various factors impacted supply and demand. These included ageing stock converted for alternative use and agile working patterns requiring less space. The workplace expectations of generations X, Y and Z, plus demand for more energy efficient buildings, also influenced the office market.

LSH’s review notes the supply of office space is falling, having decreased about 58% over the last decade. “We see opportunities for rental growth as supply continues to tighten. The south coast continues to offer a discount to other areas in the south east,” said Andy Hodgkinson, director at LSH. “There is a need for new build office space to come on to the market in the relatively near future.”

A notable trend is companies needing larger offices moving to out-of-town business parks. “One of last year’s big winners was Solent Business Park with its city centre amenities in an out of town location. Lakeside in Portsmouth is also building its brand,” said Hodgkinson.

Although some office space is being lost to residential conversions this is supporting urban regeneration. “It attracts a younger, dynamic workforce and is encouraging businesses to locate in city centres,” said Hodgkinson.

The review doesn’t cover offices under 2,500 sq ft, however LSH noted that demand from SMEs is being met increasingly by serviced and co-working offices.

Retail sector

Online business continues to have a pervasive effect on the retail sector. Property vacancy rates, especially in out of town retail parks, were up in 2018. “We envisage the vacancy rate will increase further over the next six months,” said Alex Hirst, associate, director at LSH.

Discount and value-led retailers like Aldi, Lidl and B&M are muscling in on retail parks traditionally anchored by DIY stores. “Discounters are aggressively opening stores and we expect this to increase over the next 12 months,” said Hirst. “Roadside retailers like McDonalds, and drive-through Costa and Starbucks outlets are also expanding aggressively.”

LSH predicts retail market transactions will focus on re-gearing and restructuring existing leases rather than new lets. “There will be further rationalisation of retailers’ portfolios in the next 12 to 18 months as they look to balance ‘bricks and clicks’,” said Hirst.

Investment activity

Capital investment is focusing on retail warehousing for redevelopment to industrial or alternative uses. “This trend reverses that of 10 years ago, where industrial space was being converted to retail,” said Jerry Vigus, director at LSH.

The volume of deals undertaken nationally in 2018 was the second highest in the last decade, with the largest buyers from overseas. “Industrial is the ‘go to’ sector, with many investors looking for a safe haven away from the retail sector,” said Vigus. “Other popular sectors for investors include hotels, care homes, student accommodation and private rented.”

LSH expects investment will remain solid in 2019. “However, Brexit is having an impact and we are already seeing some funders reluctantly selling industrial assets and retail warehousing, although this could create opportunities if rents remain low,” said Vigus.

  • For more information or to request a copy of Lambert Smith Hampton’s South Coast Market Index Review email Charlie Gray at LSH on [email protected].

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