A lack of quality industrial stock has the potential to cause a very major headache if demand for all kinds of commercial property continues to increase, says Haydn Thomas, Director, Hutchings & Thomas, Chartered Surveyors
Demand for industrial units, between 3,000 and 5, 000 sq ft, has been sustained even, to a degree, during the economic downturn mainly in South East Wales and along the M4 motorway.
We’ve seen strong signs that owner occupier demand is beginning to increase on the back of a marked improvement of activity in the manufacturing sector and an overall general improvement economic activity.
However these local green shoots could wither and potentially die and even pop up further down the M4 corridor and other parts of the UK, if the lack of supply of units between 3,000 to 5,000 sq ft persists and the lack of availability of units of 1,000 sq ft persists.
Meanwhile capital values for industrial buildings have remained fairly buoyant in some areas, in particular South East Wales.
The ubiquitous and pressing question which is on most people’s lips but few seem able to answer is if the economic upturn, which is widely predicted and which we are seeing evidence of, does indeed happen from where exactly is the required increase in units, supply side, going to come?
In years gone by the lamented Welsh Development Agency (WDA) were the drivers of industrial development. The units they built across Wales remain as testament to their foresight and are some of the best quality that remain available today.
However, the WDA curtailed their speculative development in the early 1990s, although they did continue bespoke developments after this time. The big question and the challenge that is thrown out to the private sector is, are they willing or indeed able and do they have the wherewithal and the appetite, to take up the slack and bridge the arching disparity in demand and supply?
There are some speculative private sector industrial developments being undertaken in the area although these are few and far between and are normally self-funded.
Private sector developer confidence is still low and this, linked with high development costs and persistent lack of bank lending for such developments, leads us to believe the situation is not going to change soon.
Any private sector development is driven by return and also keeping costs to a minimum. Is, taking that equation into account, the quality of the new build good enough to attract the high value, value added calibre of occupant we need to draw in to this area?
Can the Welsh Assembly Government assist the private sector and seize the initiative in attracting and keeping industrial occupiers to the region? Can the Welsh Government start building again?
If the current supply/demand situation remains then this could have an inflationary effect on both rents and capital values. It may only be at this point that private development is triggered.
A downside of the imposition of rates on empty industrial properties is that it has had a marked and deeply detrimental effect on the psyche of industrial owners who, in their droves, have decided not to undertake any speculative development without the comfort and security of a pre let in place. This has also affected the purchase market where investors, who would normally look to acquire industrial accommodation, are reluctant to do so unless the property is let and is income producing.
Meanwhile recent figures show that the city of Newport has one the highest empty shops rates in the UK.
The figure of 29.65 of vacant shops places the city in the top 10 regions in the country for empty shops,
Despite these worrying statistics experts believe there is a reason for the slump and that the future fortune’s for the city now hang on the successful start of the £88m Friars Walk Scheme.
The project, which is proposed to start in the new few months, will deliver some 390,000 sq ft of retail and leisure space for Newport opening up the river bank area in the process.
The city’s indoor market has been revamped and a new bus station is being created
But how has the city of Newport got into the parlous state in the first place and what are its prospects?
The problem, as I see it, for the city of Newport, with its high per centage of empty shops, has been compounded by a number of key factors which have all combined to create a perfect storm in terms of shop vacancy in the centre.
The first of these problems is the growth of out of town retail centres which now encircle the city centre. Newport Retail Park, at Spytty, with its massive new Tesco and the M&S, which recently re located there from the city centre, is proving to be a major draw. Harlech and also Maesglas Retail Parks all serve to attract custom away from the centre.
The second problem for the Newport city centre is the continued uncertainty over the Queensbury Development Friars Walk retail scheme which promises to bring a new retail experience to Newport City centre and revitalise the Usk riverfront. The uncertainty over this serves to halt any prospective retailers from making a decision over locating to the city centre until they know exactly what is going to happen with this very important scheme and, indeed, if it will happen at all.
There is also an issue over the lack of parking in the city centre which causes Newport to lose out to near neighbour Cwmbran with its offer of free parking. The city also falls into the category of being the poor cousin and in the shadow of supremely successful retail centres as Cardiff and Bristol, on either side, which are in the top echelon of retail locations.
However it’s not all bad. The imminent opening of the new Admiral Insurance office block, opposite the railway station bringing hundreds of jobs right into the centre of Newport, offers a strong ray of hope and optimism.
This optimism is particularly relevant in the case for the service and leisure sector, pubs, bars, cafes and restaurants that will be looking to benefit from the hundreds of new people coming into Newport to take up the jobs being created at Admiral. This may in turn spur main stream retailers, who as I have said seem to be holding back from making a decision on locating to the centre awaiting the start of the Friar’s Walk scheme, to reconsider Newport city as location in which they can prosper and do profitable business.
For more information visit: www.Hutchings-Thomas.co.uk
