Monthly Commercial Blog 

Well we are all excited the weather is great – the Royal Wedding is upon us but are the green shoots of recovery now coming into bloom?

The Royal Institution of Chartered Surveyors (RICS) Spring Commercial Property Market Survey shows a varied picture in the West Midlands commercial property market, with pronounced sector differences.

Five per cent more surveyors in the West Midlands expect new commercial sales and lettings to increase in the next three months, a rise from Q3 2010 (+3). This is the best reading since the first quarter of 2010.

Meanwhile, only four per cent more reported a fall than rise in occupier enquiries (compared with -44 previously), while the figure remains negative it is a marked improvement from the previous quarter.

Less positively, demand in the West Midlands remains low, with 10 per cent more surveyors reporting falling rather than rising demand. Surveyors in the region cited uncertainty over the prospects for the economy as a drag on the market.

Turning to supply in the West Midlands, 10 per cent more surveyors saw an increase rather than a decrease in available occupier space (down from a reading of +22 in Q3).

However, in the retail sector, available space registered a zero net balance, the lowest since Q1 2007 –suggesting a more positive outlook for the retail market in the region. In the industrial and office sectors available space continued to edge up - albeit at a lesser rate than previously (+12 and +23 respectively).
 

On the investment side, 30 per cent more surveyors in the West Midlands reported capital values fell rather than rose. This is now the lowest reading since Q3 2009 and reveals that buyers are less interested in looking to invest in the region.

Looking ahead, expectations for commercial rents in the West Midlands fell to a net balance of -18 per cent, however, this is an improvement from the previous quarter.

The RICS say “The commercial market in the West Midlands still faces significant challenges, with the outlook on rents and capital values holding firm at the moment and broadly reflecting the emerging economic recovery. Not just in the West Midlands, but across the country, offices could become of particular concern as the private sector will be relied upon to take up the vacant space made available by anticipated consolidation in the public sector.

On top of this, the general lack of speculative new projects being initiated outside of the capital has important ramifications for regeneration in large parts of the country. Here in the region, the shortage of new build developments.

The lack of commercial development, particularly speculative stock, is very worrying. There are only very few new (never-occupied) building’s in our area and that is a poor one. There is no industrial/warehouse construction underway and we cannot see there will be rent and capital inflation over the next 24 months. The market as a whole continues to be flat.

There are however areas of optimism, particularly with small businesses and individuals in start up situations, where there is demand. Small shop units in the good locations for example continue to attract interest and there has been a steady flow of lettings, we are seeing small business units being sold well and a small retail unit in Hagley has had over 700 hits on our website with a dozen viewings – offers received and only on the market for a few weeks. Larger shop units and those in modest secondary or tertiary locations remain difficult to move.

However, rental levels and incentives might dictate take up over the next year or so. With redundancies looming it is considered likely that there will be increasing numbers of individuals seeking to take control of their lives and set up or buy businesses. This should produce movement in various sectors of the market. Large offices are difficult to let because of poor levels of demand, although small starter suites continue to attract tenants, albeit in modest numbers.

An encouraging issue for small business is the rate relief potentially available. Eligible properties with a Rateable Value of up to £6,000 receive 50% rate relief. This percentage decreases on a sliding scale where the Rateable Value is above £6,000 and up to a Rateable Value of £11,999. In addition the rate bill will be calculated using the lower Small Business Non-Domestic Rating multiplier rather than the Non-Domestic Rating Multiplier which will applies to non-eligible properties.

From 1 October 2010 to 30 September 2011 the amount of Small Business Rate Relief available has increased. Eligible ratepayers who occupy a property with a rateable value of £6,000 or less will receive 100% rate relief for this period, ratepayers occupying a property with a rateable value of between £6,001 and £12,000 will have their relief calculated on a sliding scale decreasing from 100% to 0%.
 

Not the time for big celebrations but perhaps worth putting a bottle of bubbly in the fridge !!

 

Alan K Knight FRICS Head Of Commercial Walton and Hipkiss – Stourbridge   01384 397 797