Carter Jonas, the UK property consultancy, in conjunction with its international network of strategic alliance partners, has provided an update on recent developments and trends in the commercial property markets from across their regions – UK, Germany, the Netherlands and Ireland.
Scott Harkness, Head of Commercial, Carter Jonas, said: “Over the last twelve months the performance of the commercial office market remained resilient. Whilst take-up levels decreased in some regions, a number of substantial pre-lets recorded in 2017 were actually delivered last year. Additionally, there was some understandable quietening of activity, which has extended into this quarter, as 29 March and the date of Britain’s purported departure from the EU looms.
“That said, one of the most pressing issues impacting the market is a shortage of quality stock. Whilst occupier sentiment remains strong, this continues to have an upward impact on rental levels and for Grade A space is creating a landlords’ market that offers fewer tenant incentives. Across most of our markets availability has decreased. As an example across Oxfordshire, total availability fell from 840,000 sq ft to 646,600 sq ft in 2018 and there is now little space available on the county’s three main science and technology parks.
“In many of the country’ major business hubs, the pace of delivery is a key issue. Whilst more stock will come forward in the medium to long-term, in the short-term a lack of accessibility to prime space, in the right location, is a pressing concern for many occupiers.
“Investor appetite remains strong, particularly in our university and research and development centres. More than £1 billion transacted across the Leeds City Region in 2018, a significant increase on the £765 million invested in 2017 with 25% of transactions in 2018 being by overseas investors. In Cambridge investments in 2018 totalled £315 million, a significant increase on 2017 figures.
“Life Sciences continue to be a critical growth area for the U.K. and substantial steps have already been put in place by the government to cultivate the sector.
“However, it is critical that there are steps taken which support the provision of affordable housing, particularly in high-value locations, alongside the more obvious requirements for enhanced transport infrastructure and the further development of collaborative environments between research, academia, business and developers.
“Despite the Brexit headwinds, demand for commercial space, especially in areas where there are strong knowledge-based economies, remains undented. Having advised a number of investors on their development strategies, we expect to see the growth of key science and technology hubs across the country.”
Guido Nabben, German Property Partners, said: “International investors will continue to take considerable interest in the German real estate market. Political and economic risks such as Brexit or the simmering trade conflict with the USA help to reinforce the impression that the German real estate market is a “safe haven” in Europe.
“Accordingly, institutional investors will continue to direct a ‘wall of money’ into cities such as Frankfurt and Berlin, thus enlivening the markets there. Not only that: irrespective of the recent rises in top rents for commercial properties in Germany’s top seven cities, rates remain reasonable compared with what is demanded in other countries. The sturdiness of the real economy and unabated demand for space are keeping rents up.”
Ron van den Berg, Partner, Van Gool Elburgs said: “Within Europe, the Dutch economy is one of the strongest growing. This is set to continue in the coming years, though a slight easing is expected. Over 2018 growth was primarily driven by domestic spending and export, which will also be the drivers for the coming years. Therefore the outlook is fairly favorable, albeit it that potential pitfalls like Brexit will have an impact on the economy. The extent to which the Netherlands will benefit from Brexit or not is very much dependent on what sort of deal the UK and the EU come up.
“Looking at the commercial property market, over the last couple of years national and international investors have been very active in Dutch real estate. A positive sentiment over the course of the last four years has led to a stable income return, albeit with big regional differences. Private equity have purchased mostly value add real estate and now are able to exit on improved conditions. Over 2018 investment volumes have been high which has led to a further tightening of prime yields. Interest in Dutch real estate will continue over 2019, however the overall volume might lag that due to shortage of product. In some locations a shortage of quality offices is visible. Further demand of office space at the prime locations has led to a shift from a tenant friendly to a landlord friendly market. As a result rent prices increase and incentives levels have dropped. Since the pipeline of new developments cannot keep pace with demand, further pressure on the market will continue. An increase in the volume of companies moving to the Netherlands only adds pressure to this situation. Despite the fact that Brexit is creating some uncertainty in the investment market, direct negative consequences are not likely.”
Duncan Lyster, Managing Director of Lisney said: “Activity levels in the office occupational market remains extremely strong. 2018 had the largest take-up on record and at 360,000 sqm was the fifth consecutive year where it was stronger than the 20-year average (205,000 sqm). To put 2018’s figure in context, it represents 9% of the total office stock in Dublin. Some activity relates to Brexit but a greater proportion is due to Dublin’s continued strength in attracting FDI, particularly North American tech companies. What is notable is the large amounts of space being taken by such occupiers. Over half of all accommodation transacted in Dublin last year was by tech companies and their average lot size was 60% greater than all other sectors combined. The largest office letting in Irish history was completed towards the end of the year when Facebook took over 80,000 sqm of accommodation at the edge of the CBD. All global tech giants have a presence in Dublin and if two of the best-known companies are combined, Facebook and Google, they occupy or own 5.9% of Dublin’s office stock; and could expand further in the short-term. Based on our experience in the first two months of 2019, demand will remain very strong this year. However, a falling vacancy rate and insufficient construction means that supply will be the biggest issue. Occupiers seeking large amounts of space may need to engage in a pre-letting agreement to fulfil requirements.
“Recent reports show that Dublin is topping the list for financial services companies relocating activities from the UK with close to 30 firms having committed to moving some operations to Dublin as a result of Brexit. High profile names include Barclays, Bank of America Merrill Lynch, XL Insurance, Morgan Stanley and Aberdeen Standard Investments. While this is positive for the Dublin office market, it should be noted that many of these companies already had a presence in Dublin and are only expanding their footprint. Additionally, most are only taking relatively small amounts of additional accommodation. The Central Bank of Ireland has confirmed that it has received more than 100 Brexit-related applications for authorisations for banking, investment, trading and insurance activities to sell into the EU. We understand that just 30% of London-based companies have so far publicly committed to a relocation destination and as such, there remains opportunities for the Dublin office market to attract some of these in 2019.”