The Yorkshire Industrial and Office markets will see a boom in speculative development this year to meet increasing occupier demand, according to Cushman & Wakefield.
The firm anticipates that 2019 will see the return of much needed speculative development in the logistics and industrial market within both the Big-Box and Mid-Box markets, with the sector continuing to be the ‘shining star’ of asset classes in the region.
The findings were presented at Cushman & Wakefield’s annual Property Outlook event for the Commercial Property Market for 2019 and beyond held at the Everyman Cinema in Leeds.
Jacques Esterhuizen, Associate at Cushman & Wakefield said: “The Industrial & Logistics market witnessed a strong year in 2018 driven by the online retail sector and this looks set to continue this year, most recently demonstrated by the 731,000 sq ft pre-let at iPort in Doncaster to an on-line retailer. In addition, there is currently 930,000 sq ft of speculative ‘Big Box’ development recently completed or under construction in the region.”
In the Offices market, Adam Cockroft, Partner and Head of Office agency at Cushman & Wakefield identified Leeds as a leading occupier ‘hot spot’ which has resulted in Grade A availability reaching its lowest point since 2016.
Adam said: “Speculative construction is likely to increase to keep up with demand. Mirroring the national outlook, we are also seeing occupiers seeking more flexibility and experiential spaces with many deferred to the serviced office sector which is rapidly growing. We are also seeing the renaissance of some out of town locations such as Thorpe Park and White Rose Office Park which are able to offer quality buildings, class leading amenity and excellent transport links.”
In the Investment market, Yorkshire & Humberside witnessed a bumper year with transaction volumes up 35% on the previous year to £1.9bn, driven by ‘exceptional’ years in the office and industrial sectors.
Richard Brooke, Partner, Capital Markets at Cushman & Wakefield said: “Q1 2019 transaction volumes have reduced by about 15% when compared to the same period last year. The slowing of activity is most notable in the larger lot sizes as some institutional investors are slowing their acquisition strategies amidst uncertainty. Market activity is currently focused on the smaller deals being driven by private investors, property companies and some of the regional local authorities. We anticipate Q2 will follow a similar trend to Q1 but deals to pick up in the second half of the year, particularly Q4.”
The residential market has seen an increase in new build housing in the region, but this still is not meeting delivery targets.
Philip Roebuck, Partner, Residential at Cushman & Wakefield said: “Whilst Help to Buy has underpinned 44% of new homes sales in the region, the current scheme ends in 2021 and the replacement scheme has much tighter eligibility criteria which will require housebuilders to adapt. We are seeing an increasing supply of city centre and suburban PRS schemes, which have had limited delivery in Yorkshire to date but we anticipate 1,000 units to be delivered this year.”
There were also presentations from Greg Mansell from Cushman & Wakefield’s UK Capital Markets Research team who discussed ‘Opportunities Amidst Uncertainty’. He highlighted that despite concerns over Brexit and Global trade, UK business has ‘held its nerve’.
Greg said: “The impact of Brexit on UK financial services and real estate has been over-stated with fewer firms relocating staff into EU countries than had been forecast. The threat of trade wars and protectionism is likely to have a far greater impact on the real estate sector, although Brexit may cause short-term disruption.”
He continued: “As Brexit and other sources of uncertainty dominate the headlines, we can get fixated on the ‘here and now’ but real estate is a long-term game.
“Over the coming years, there are many non-cyclical trends that will create opportunities for investors and occupiers who stay ahead of the curve. These trends will be in place regardless of global trade volumes, Brexit or any other external force.”
These opportunities include the next generation of tenants, the rise of Coworking and Alternative real estate, such as healthcare and student living, which accounted for an all-time high of 32% of regional investment volumes in 2018.
Greg concluded: “Markets that have strong fundamentals will stay popular with core investors. Meanwhile, the more challenged parts of the market will see pricing drift until they look good value for opportunistic investors looking to redevelop and repurpose assets. There is plenty of capital looking for these opportunities.”
Chris Hancocks and Caroline Dyson from Cushman & Wakefield’s Futures team concluded by discussing the impact digitisation will have on real estate over a longer horizon. They considered the potential for activities currently carried out using real estate to be substituted by digital alternatives, and posed the question, ‘Could this mean the end of real estate?’
“In short, no,” said Caroline Dyson, Futures Community Manager “however, we in the industry need to treat this as a wake-up call. The same trends we see today in retail, have the potential to bleed into other sectors. Digital business models tend to have cost and convenience advantages. This sets a challenge for real estate investors to reposition their assets and portfolios to focus on real estate’s inherent strengths, such as end-user engagement and experience. For the best innovations in this space we need to look increasingly outside of our industry, and be willing to challenge long held paradigms of the role of real estate.”
