The South Coast market has remained buoyant in the first half of 2019, in spite of a slightly slow start to the year, writes James Brounger, regional managing director, CBRE.
The rise in e-commerce and, with that, the increase in technology use have been key drivers across the South Coast, with an encouraging resurgence of occupier enquiries, which in turn has been positive for pricing.
There continues to be a lack of supply both of employment land and occupiable space and we believe the current development pipeline is unlikely to be able to satisfy this, particularly if the exit of the customs union means that the ports of Southampton, Portsmouth and Poole are forced to run at an increased capacity.
There has, however, been a significant increase in developer activity with a number of schemes under construction. Proxima Park in Waterlooville is being developed by Equation Properties with funding from LaSalle Investment Management to provide 13 units ranging from 3,000-20,000 sq ft as well as a design and build phase yet to commence. Oceanic Estates has recently started work on its Adanac North scheme based just off the M271 which will provide over 30 units ranging between 3,434-26,985 sq ft once complete in Q2 2020. This is one of three schemes being speculatively developed by Oceanic Estates in and around Southampton.
Investors and developers remain confident in the resilience of the market with 2019 seeing the sale of a substantial 10.98-acre development plot in the centre of Poole to St Modwen Properties and another 2.5 acres to Kingsbridge Estates in Havant. Their reward has been sustained occupier demand which has culminated in important deals including the pre-let of 45,000 sq ft at Proxima Park to Coopers Fire.
The year started with a good level of enquiries across all size ranges both in Southampton city centre and out of town.
However, with a relatively quiet end to 2018, the level of deal completions in the first quarter was low – only four over 5,000 sq ft – Aztec at Forum 4, AT&T at Lakeside, BDB Pitmans at 2 Grosvenor Square and GB Time acquiring the freehold at 1550 Parkway. These deals total 52,160 sq ft. Regus acquired Four500 which pushed the take up to 109,060 sq ft to the end of Q1.
There have also been several new entrants to the Southampton market including Starling Bank. Starling Bank recently completed on the old restaurant space at Town Quay which is being extensively refurbished to create a unique space with a large glazed elevation overlooking the water. The rent was agreed at £22.50 per sq ft, the highest achieved in the City.
The city centre has seen more activity with AVASK acquiring Oceana House and WSP taking space within 2 Grosvenor Square. At the end of Q2 take-up was in line with the average at 150,000 sq ft.
Further across the South Coast, Sereco completed on 9,720 sq ft at Shore House in Portsmouth and Unity Technologies agreed a 10-year lease as headline tenant at the newly constructed Brinell Building in Brighton.
There remains a positive sentiment within the region with a continued pipeline of new development which will see the completion of Hermitage Park in Havant and Phase 1 of Proxima Park in Waterlooville. Oceanic Estates is close to finishing work on the final phase of its development at Woolston and has now confirmed planning consent for further development at Adanac Park.
It is expected the improved enquiry levels enjoyed in Q2 will lead to strong levels of take-up during the second half of the year. This may see rental growth slow as the level of supply begins to catch up with occupier demand.
Looking ahead at the offices market, the signs for 2019 are still positive albeit enquiry levels have reduced. Lack of available stock has seen rents move upwards and competition is limited. Like many other UK regions, ready to occupy Grade A office space in Southampton remains low, with 97,000 sq ft available at the end of Q2. This space is contained within a few buildings: Mountbatten House, Charlotte Place and 1 Dorset Street. The fourth floor of Mountbatten House is the only city centre building to offer a single floor plate over 14,000 sq ft.
The only speculative development scheme is Nelson Gate which will see FI Real Estate bring 42,000 sq ft of office space to the market in a mixed-use scheme expected to complete towards the end of 2020 or early 2021.