Strong demand for quality business space from expanding companies in Hampshire is causing a severe stock squeeze.
They are being hampered in growth plans by a marked fall in the supply of quality offices, warned a sector specialist.
The acute shortage has been flagged up by Russell Mogridge, the business space expert at commercial property consultancy Hughes Ellard, which has an office in Ocean Village, Southampton, and at Cams Hall business park in Fareham.
He said: “The issue is prevalent in Southampton and Portsmouth and is of strategic concern to companies who face little choice but to relocate further afield if they have outgrown their current head office and need larger, better premises for staff.
“We have seen a sudden fall in office supply on the back of the recovering economy, meaning a lack of quality stock is available.
“Furthermore, the issue is compounded because no speculative offices have been built since 2006, which means cash-rich companies don’t even have that option. In short, there’s no pipeline.
“There is also another factor coming into the supply equation – offices which underperform in yields face being earmarked for conversion into residential apartments, under permitted development rights.
“Whilst out-of-town business parks are vital to the economy, it is always preferable for cities to have strong office-related employment because of public transport links and the benefits to local traders. There are several firms that have, or are, relocating from the city centre because quality space wasn’t available.”
Pressure is also being felt on out-of-town business parks – Solent Business Park at Whiteley has an all-time low in vacancy rates, at just 10%, and 1000 Lakeside North Harbour, on the north-west edge of Portsmouth, is fully let. Both parks, with Grade A accommodation, are occupied by scores of companies.
Due to pent-up demand, a second phase at North Harbour is set to be released at the tail end of this year or early next.
Russell added: “North Harbour is proving a runaway success, while the city centre in Portsmouth is similar to Southampton as regards a distinct lack of office supply.”
Examples of out-of-town activity, from occupiers previous in Southampton city centre, include HSBC signing 70,000 sq ft at Forum 1, Whiteley, with Hughes Ellard acting for landlord M&G Real Estate and CBRE for the bank.
Professional services firm KPMG has taken 12,400 sq ft at Grade A-refurbished Gateway House, Chandler’s Ford, with Hughes Ellard acting jointly with CBRE for landlord Troika and Vail Williams acting for KPMG.
Law firm Trethowans moved into 24,000 sq ft at The Pavilion, Hedge End. Hughes Ellard, joint letting agents with CBRE, acted for Helical Bar, which acquired the vacant property in a joint venture with regional developer City Estates.
Meanwhile, speculative development to ease the pressure on demand for industrial space along the Solent Corridor is on the cards, with plans for Kites Croft at Segensworth, School Lane at Chandler’s Ford and Test Lane at Redbridge, Southampton.
Improved investment yields are helping drive development. Russell said: “We are seeing rental growth in this sector, with rents pushing on from £7 per sq ft to £8-plus.”
Regarding the retail sector, vacancy rates are reportedly falling, with shopping centres performing on the back of consumer confidence due to record employment, rock-bottom interest rates and low inflation. Fareham shopping centre, for which Hughes Ellard is a letting agent, is up for sale freehold amid benign conditions.
Not all good news, though. Russell pointed out that Portsmouth has taken a regeneration hit after developer Centros pulled the plug on a plan for mixed-use shopping, leisure and residential at the city centre’s Northern Quarter.
Hughes Ellard, which has 22 staff, has recently doubled the size of its asset management team, lead by Tim Poynting, and topped the Estates Gazette office league table for the second year running.
Figures released by the commercial property ‘bible’ showed that just under 633,000 sq ft was disposed of across the M27, up 1% on the previous year. Figures were based on data supplied by agencies from September 2013 to August 2014.
Student accommodation development remains strong in all cities, reported Russell.
