Out-of-town sites offering opportunities
AS PROPERTY professionals we live in a cyclical world. Over the course of each property cycle, we witness the usual peaks and troughs often influenced by macroeconomic factors out of our control, yet commercial property continues to uphold its reputation for providing long-term reliable income.
This time around, however, the Midlands’ out-of-town commercial property market is experiencing a slightly different dynamic, whereby rising build costs has meant virtually no speculative development, resulting in record low vacancy rates and increasingly attractive rents and yields for investors.
The total vacancy rate for out-of-town property across all grades of accommodation has been falling year on year since 2011, peaking at 20 per cent and now seeing a historic low of 9.9 per cent. In the last property cycle (2000-2008), we saw the introduction of numerous new speculative office schemes coming through around the M42 and M5, otherwise referred to as Birmingham’s ‘motorway box’.
The difference currently compared to previous cycles is that while rents are already five per cent higher than the last cycle’s peak, build costs have risen at a far faster rate, which has prohibited most developers from commencing speculative schemes unless they are in super prime locations.
This lack of speculative development in out-of-town locations is keeping a tight lid on vacancy rates, which is likely to help push rents up even further over the next 12 months and beyond, above the record levels of £23 per sq ft seen last year.
So, what does this mean for landlords and developers with out-of-town stock and, more importantly, how is the market’s attractiveness for inward investment impacted? Well, this unprecedented dynamic presents excellent opportunity to reposition existing 1980s and 90s out-of-town office stock across the region to enhance rental tones and ultimately improve their long-term investment value. Douglas Bonham, Director, National Offices, Colliers International Sponsored column