The East Midlands commercial property market should begin to pick up over the next few months, as we have seen increasing numbers of commercial property transactions since December 2013. However, prices remain flat. By contrast, our rural team have seen land prices quadruple since the early 1990s.
There is demand from businesses wanting to buy their own premises, but little likelihood of a surge at the top end of the market with the supply of premium office space exceeding demand across the region. Retail has particular problems, while demand for rural offices is tightly linked to the availability of broadband internet connections.
Tenants for Grade A office buildings may be hard to find, but more modest properties that are reasonably priced are likely to find buyers because of the region’s large pool of prospective owner-occupiers. Perhaps because we have a greater proportion of small and medium size businesses in the East Midlands, there is always demand from businesses wanting to buy premises, even though the returns are not fantastic. There is a lot of money around that companies have been hoarding rather than investing during the downturn, and property is always seen as a safe place to invest. Yield isn’t everything.
We see a slight improvement in the East Midlands office market in terms of the number of transactions but as yet there are no price increases. Nottingham’s market continues to be different from Leicester with tenants looking for bigger premises, and the market in Derby is improving, too.
We're very unlikely to see much major office development in the near future. There is very little incentive for developers with the true rental level no higher than £15 per sq ft, even if headline figures suggest £16.50 per sq ft. We think there is certainly enough existing and planned Grade A space in Leicester, Nottingham and Derby, and there is a lot of availability in Northamptonshire. There is a chicken and egg situation. Does the fact that there isn't a great deal to choose from deter people, or is the space not there because of lack of demand?”
With regards to retail property, we saw a mini bubble in retail premises 12 months ago, but demand is confined to provincial towns as city centres have yet to adapt. There is a dynamic change that means catering for people who still want to go to shops - this means being very service based, providing premium end goods that you can’t buy on the web and creating a coffee culture.”
Over the years, we've seen interest in rural offices rise and fall, and today their popularity is again on the up thanks to faster broadband connection in out-of-town locations.
A typical example of the successful new generation of rural offices is The Manor at Tur Langton, a converted dairy farm in rolling south Leicestershire countryside.
The range of rural office developments on offer across the East Midlands runs from desk space to entire buildings. Popular locations with a good choice of properties include south Leicestershire and to the north Charnwood forest.
The key to success is now very dependent on broadband. In one Leicestershire village, there was zero interest from businesses in some offices to rent until broadband became available. Then they were snapped up.”
About the author
Andrew Robinson is a specialist partner in commercial agency and property management with Andrew Granger & Co.
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