New research published today (Friday October 14) shows that property markets are performing well in the South Coast Metropole region following the Brexit vote and, although there will be a period of uncertainty as negotiations get underway, the region is well placed to withstand this.
JLL’s South Coast Metropole report, which incorporates Southampton, Portsmouth, Bournemouth and Poole, shows that the fundamental principles that apply to the region’s property market combined with a new approach from Government presents long term economic opportunities for the region. The lack of supply across all property sectors and consistently high demand for space will stand the region in good stead in the face of the Brexit uncertainty.
Early indications show that the Government has taken on board the need to rebalance the UK’s economy to deliver investment into regional cities and towns in response to the division of wealth that has been acutely highlighted by the EU referendum. This presents new opportunities for areas such as the South Coast which is already in negotiations with Government to expand the value of the Solent Growth deal by £161 million, and could lead to more infrastructure investment in cities such as Southampton and Portsmouth.
Michael Green, head of office at JLL in Southampton, said: “Early indications following the EU vote show that there hasn’t been a major change in occupier activity or deals being renegotiated, and enquiry levels are still strong across our region.
“Similarly, while commercial property investment levels are likely to dip, confidence is still well above Global Financial Crisis levels and places such as the South Coast which offer a good return on investment will remain attractive options.
“The region’s transport links, proximity to major export markets, universities and talent pool will remain whatever the outcome of EU negotiations, so there is good reason for optimism.”
JLL is predicting however that the long period of uncertainty could last for several years and unlike other events, such as the 2008 recession, the economy isn’t going to react quickly principally because no one knows yet the terms of the deal we will broker with the Eurozone.
“We think 2017 could be difficult as negotiations may make slow progress as a result of the presidential elections in France and Germany. There may be a mild rise in unemployment levels as recruitment is put on hold. In addition, construction activity across all sectors may slow, the effects of which may not be really felt for another three or four years.
“Public sector incentives to stimulate development and ensure infrastructure improvements continue would be an effective measure in helping to ensure investment continues through this uncertain period.”
Demand for office space in the Metropole region remains high although the lack of quality space is driving larger organisations from the major cities in the region to out of town locations.
Permitted Development Rights which enable offices to be turned into homes continues to put additional pressure on the lack of supply. Nevertheless, demand from occupiers remains and 2016 so far has seen a 16 per cent increase in office space take-up from this time last year.
Michael added: “If the Grade A supply is further reduced over the coming year to a critical level, rents could be forced up to a level where speculative development is viable. JLL would welcome new development of high quality space to attract occupiers to what is already a strong and diverse market.
“We also expect office space which allows occupiers greater flexibility to do particularly well during this uncertain period. 2016 has seen the continuation of speculative industrial development with more in the pipeline for 2017. Although there has been a decrease in take-up of industrial space in the Metropole region to 3,000,000 sq ft (500,000 ft below last year), this is related to the lack of available space rather than an easing of demand.”
In the housing market, Brexit is likely to result in reduced sales volumes and a reduction in the rate of house price growth over the next three years but JLL believes that a structural undersupply of housing in the UK will mean that house prices will remain broadly stable, except in some parts of London.
A number of new Government initiatives to encourage house building are in the pipeline and the Homes & Communities Agency is going through an aggressive round of acquisitions, targeting sites that have been stuck in the planning system or have viability problems with the aim of enabling private sector development.
In the retail markets, JLL says that the retail economy will be led by consumer confidence, and in particular how consumers react to the Brexit story as it unfolds.
Michael said: “Regionally, we have seen a mixed picture in the retail markets. Activity in secondary retail centres continues to be weak although in tourist areas and prettier locations, we have seen a sharp increase in demand from small independent retailers, particularly at the high end. This trend may continue post Brexit as a weaker pound will increase tourist spending significantly.
“Prime retail centres continue to flourish, and this year sees the completion of Hammerson’s long awaited West Quay Watermark scheme in Southampton. Combined with an increase in the number of cruise ships visiting Southampton, this will add significantly to the city centre retail offer and will strengthen existing trade.
“There are exciting plans in the pipeline for our region, including the redevelopment of the former fruit and vegetable market in Southampton and ambitious plans to redevelop the troubled Bargate Centre have now been submitted. This £100 million scheme will include boutique shops, cafes and restaurants. The opportunities for our region remain as we head into Brexit negotiations.”
