South Coast Metropole South Coast Metropole - King Sturge

More documents

Recommendations

Info

King Sturge: South Coast Metrolpole 2008 Introduction A warm welcome to the 14th edition of our annual South Coast Metropole Report, which we publish at a time of great uncertainty in the world economy, and also at a time of great opportunity. We attempt to analyse the current situation with a cool head, sensibly avoiding the scare-mongering and hyperbole in the press, to determine what all this really means for the property industry in 2008. Although the capital markets remain cool, albeit active, the occupier market in the Metropole region has remained buoyant across all sectors, with the office market leading the way against a background of poor supply of good quality stock. We expect to see this continue over the next 12 months and beyond, together with increased activity in the capital markets and a recovery in the underlying value of commercial investment stock. The sector has been hit hard over the last three quarters and an over-correction in values has been an inevitable consequence. The trick is to get back into the market quickly focusing on bargain quality stock, and there are plenty of examples of this happening, particularly in the retail sector. Our report is set out in three main sections: first an assessment of the global and national issues that will affect the Metropole economy over the next 12 months: secondly an assessment of the principal market sectors, and finally an analysis of the submarkets within each of the towns and cities in the Metropole area. We have, as always, also reported on all the key transactions across the region over the last 12 months, and taken a careful look forward to the likely levels of activity across the sector in 2008/09. So, the long bull run is finally over and the press is full of stories of bank runs, credit-crunches, stock market crashes and falling house prices. Certainly two banks have failed and it is true that the value of property shares has plummeted. But curiously the world is still turning. Occupiers still need space, unemployment levels are low, interest levels are low, inflation is in check, there is no over-supply of stock as in 1991 and the world is awash with money looking for a return. The only thing to fear is fear itself, and there is plenty of that around at the moment. The Metropole region reflects the realities of the current market conditions perfectly. We have seen a good take-up of space across all sectors, with some impressive office deals leading the way. Ordnance Survey have received planning permission for their new world headquarters at Adanac Park. Carnival, the owners of P&O Cruises are building out their new offices in Southampton and in Portsmouth Highcross have re-launched over 25,000 m² of refurbished office space in part of the former IBM headquarters. If further proof were needed, the retail sector is also facing up to increasing demand across the region with a series of new initiatives. The longawaited redevelopment of the Tricorn Centre in Portsmouth is now inevitable following a decision by John Lewis Partnership and Marks and Spencer to anchor the scheme. IKEA are opening a new store in Southampton, and even the luckless Swan Centre in Eastleigh is undergoing a make-over. Regeneration projects across the region are injecting a significant boost to the waterfront. SEEDA’s regeneration of East Cowes has received a major boost with the appointment of Waitrose as the main occupier, and further projects will follow on the former VT Shipyard in Woolston and the former RAF Hythe base to the west of Southampton. The residential sector has seen a lot of activity over the last 12 months and although the mortgage market is tighter than it has been for several years, there is still a structural under-supply of stock across the region. Barratt are building out 550 units in Whippingham, there are 500 units consented in East Cowes, 200 units planned for the Mayflower Plaza in Southampton and 300 units completed in Telephone House and the French Quarter. Lower interest rates should keep the market ticking over in 2008/09, but with some erosion in value inevitable over the next 12 months. Michael Green Partner 2
The economy Overview Although this is a very difficult time for the UK and global economy, it is not a disaster, far from it. After a period of unprecedented growth the credit crunch has taken everyone by surprise, and the markets have reacted predictably. But there is too much money in the world looking for a home for this correction to last very long. The main issue facing the global economy in 2008 is confidence. A sustained period of volatility is beginning to make even the most optimistic investor nervous, and it is all down to one issue. If you divorce risk from responsibility then sooner or later the train will leave the track. As the mist lifts, it seems quite extraordinary that the collateral debt obligations sold to investors as mortgage-backed securities were built on such secrecy, confusion and lack of credible financial risk assessment. The question now being asked is how these asset-backed vehicles were sold to pension funds and sovereign wealth funds across the world without revealing (or investigating) who pays the interest charge on the security. As we now know, significant sums were being generated from “sub-prime” mortgages in the United States. When the interest payments on these mortgages started to falter, so did the banks’ ability to pay interest on the securities sold months, even years, earlier. By placing the securities “off balance sheet” the banks lost track of exactly how much and to whom they owed money. The Solent In retrospect, the credit crunch disasters that have occurred at Northern Rock and Bear Stearns were accidents waiting to happen. No-one appears to have asked this fundamental question. Where does the interest come from upon which the asset’s capital value is based? To date the banks, credit rating agencies, regulatory bodies, central banks and actuaries have all failed to adequately address this issue. Recession, depression or neither? So, is this major asset price correction likely to lead to a recession or even a depression in the UK? Depending on how you read the figures (a recession is normally defined as two consecutive quarters during which economic growth is slower than the previous quarter), the USA may have been in recession or close to it from October 2007. The unlikely Armageddon scenario is that the global debt problem is so bad that no single bank or a combination of central banks or government(s) can underwrite the debt default and the global financial structure collapses like a pack of cards. Then we could face a major recession. One week in mid-March 2008 summed up the current problems: one day the US Central Reserve Board pushed out $2 billion into the market to create liquidity and agreed to take back mortgagedbacked securities as collateral. By the end of that same week it had underwritten the rescue by JP Morgan Chase of Bear Stearns, the second-ranked US investment bank – one of the largest finance houses in the Western World. These are big economic issues and they tend to spook nervous markets. But we need to put all this into perspective. In many ways the current problems are not nearly as bad as in the 1970s when there was a systemic collapse of secondary banks, and property markets across the Western World, resulting from the trebling of oil prices. In those days the Bank of England became the “lifeboat” of the property industry. Another parallel might be the collapse of the dot.com bubble in 2000. This was also a very nasty time for the UK and the global economy, but it was not catastrophic. As Alan Greenspan, the retired Federal Reserve Board banker, has famously said, such major 3
Page 1: South Coast Metropole 2008
Page 6 and 7: King Sturge: South Coast Metrolpole
Page 32: King Sturge: South Coast Metrolpole
Page 35 and 36: Plans to redevelop the 12.54 hectar
Page 37 and 38: End, Southampton. Custom TV Ltd hav
Page 39 and 40: Grade A office accommodation in Oce
Page 41 and 42: McAleer & Rushe, the Irish property
Page 43 and 44: Rok have completed a £1 million mi
Page 45 and 46: Birchmere have let Building D.22 at
Page 47 and 48: Other commercial sectors Fareham In
Page 49 and 50: Dutton Gregory have taken the third
Page 51 and 52: to Her Majesty’s Court Service (H
Page 53 and 54: Isle of Wight Industrial Office Ret
Page 55 and 56:
Weymouth Industrial Office Retail P
Page 57 and 58:
Notes 55
Page 60:
LOCATIONS UK England • Scotland
show all

South Coast Metropole South Coast Metropole - King Sturge

Create successful ePaper yourself

Delete template?

Save as template?