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14 February 2019

Strong end to 2018 shows demand for South Coast industrial property remains steady despite challenging market conditions

Demand for industrial commercial property along the south coast remains steady despite challenging market conditions and uncertainty over Brexit, according to the latest Market Pulse from Lambert Smith Hampton

LSH’s South Coast Industrial Pulse Q4 2018 report showed commercial property enquiries in the last quarter of the year were down slightly, at 133 compared to 150 in the previous quarter – but remained consistent with the last quarter of 2017.

There was a good level of enquiries for large industrial properties at 50,000 sq ft or more during the quarter, and a strong finish to 2018 saw a 14% increase in take-up of prime and secondary stock against the same quarter the previous year, with a total of 574,999 sq ft transacted.

These included significant deals at Mountpark in Southampton and Merlin Park in Portsmouth, where rents are hovering around the milestone £10 per sq ft mark.

Availability of property increased in Q4, notably at Hermitage Park in Havant, where 21,515 sq ft was on the market, and The Nelson Centre in Portsmouth, with 29,989 sq ft.

Adrian Whitfield, Director – Industrial at LSH’s south coast offices, said: “There is no denying that there are challenges ahead, but this is an encouraging insight – especially the increase in take-up of prime stock, which demonstrates confidence in the region with some large speculative schemes serving continued high demand.

“Due to wider economic factors, we expect take-up in the first half of 2019 to be lower than previous years – however, as we witnessed in 2016 following the Brexit referendum, we are confident that the market will rally to produce a strong finish to the last two quarters of 2019.”

The Pulse report noted significant activity in the investments market, with £75.4m of south coast transactions in the final quarter of 2018 bringing the year’s total to approximately £231m.

A significant transaction was the £29.5m acquisition of Marchwood Power Station by CBRE Global Investors, for which LSH acted on behalf of the seller, Oceanic Estates.

Jerry Vigus, Director – Capital Markets and Industrial and Logistics at LSH, said: “There remains a large amount of capital targeted at in the south coast as investors remain buoyed by the strong rental yields achieved in the region. Much of this activity was driven by multi-let estates where £145.7m was transacted throughout the year as investors proactively and competitively targeted this thriving sub-sector.”

The Q4 report was presented at a breakfast briefing hosted by LSH at The Spark at Solent University, Southampton, where LSH’s office and retail teams also took the opportunity to update guests on their south coast markets.

In the office market, 2018 saw a recovery in take-up of space in the second half of the year following a difficult first half, to reach 260,821 sq ft – but the year still finished 24% below the 10-year average of 342,819 sq ft. Supply has fallen sharply with 869,329 sq ft available at the end of the year – a drop that contributes to a decrease of 58% over the last 10 years.

Meanwhile, the percentage of “Grade A” office space (new or high quality office refurbishments) has risen from 11% to 31% over the past five years in acknowledgement of the demand from occupiers for better quality office space.

Andy Hodgkinson, Director – Office Agency at LSH, said: “Encouragingly, enquiry levels in 2018 increased by 4% from 2017 to 185 for the year. This increase came predominantly for enquiries for offices of 20,000 sq ft and over, which could mark a welcome return of some larger transactions in the region during 2019.

“The constitution of office supply has evolved as we have progressed out of recession, partly due to occupier demand along with the introduction of permitted development rights and growth in other sectors such as student accommodation, hotels and build to rent. Many of the secondary and tertiary office blocks that are no longer fit for purpose for modern business have been converted to alternative uses, whilst buildings with strong office fundamentals in terms of location, floor plate configuration and size have been bought by developers, extensively refurbished and remarketed at new prime rents.”

Alex Hirst, Associate Director – Retail Agency, noted that online retailing continues to have a huge impact on the sector, with increases in online spending resulting in a decline in footfall. Shopping centres were hit with a 3.9% decrease in footfall in the five-week run-up to Christmas, while high streets and retail parks recorded a 2.1% drop.

There was, however, continued activity by discount and value retailers such as Lidl and Home Bargains, and a growth in roadside retail schemes driven by drive-through coffee and fast food schemes.

Alex said: “We fully expected discount and value retailers to embark on a significant store acquisition spree in 2019 as they look to pick off low hanging fruit brought about by various retail casualties such as the closures of stores by Toys R Us and Homebase.

“Fringe locations will become even more marginal as retailers will only take the best locations, and we will see retailers making a choice between in town or out of town locations rather than retaining both – as we have seen with the imminent closure of M&S store in Bournemouth. The closure of John Lewis’s Knight & Lee store in Southsea is a sign that retailers are carefully considering the geography of their stores to serve more of a regional customer base rather than a very local one.

“While traditional retail park schemes with a DIY anchor and a terrace of bulky goods store are on the decline, smart retailers will adapt and make the most of the changing opportunities in the market.”

Lambert Smith Hampton, which has offices in Fareham and Southampton, is a multi-award-winning commercial property specialist and has the largest transactional team in the Solent region, with 13 specialists working in the industrial property, office space, retail, leisure and investment markets.

For more information see www.lsh.co.uk and find the full Q4 report here


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Lambert Smith Hampton is a commercial property consultancy with a network of offices across the UK and Ireland.