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As experts in their fileld, Eddisons have pulled togethe a regional agency market update Q4 2023:
Where are we heading?
We review where the commercial property market sits in the last quarter of 2023 and try to summarise where our Eastern & Midland regions see it heading for the end of the year and the start of 2024.
Our English regional agency business is geared more to the industrial and warehouse markets and sector has been the star performer for the last three years.There are signs that the freehold occupier market is slowing by virtue of rising interest rates. The slowdown has not been as dramatic as feared, simply because of the overall shortage of freehold supply and intense demandThe freehold investment market, however, has slowed especially where investment vehicles have gearing, and many have had to look closely at loan to value percentages with recent valuations showing a marked shift in yield expectations.
Where prime yields have ,arguably, moved from around 3.5-3.75% to somewhere approaching 4.75-5%, this obviously can have a fairly dramatic effect on capital values.
The markets may now start to be factoring in the top of the interest rate cycle, but we don’t see yield shift in a positive direction coming through until well into 2024.
The Midlands and Eastern Regions are, again, dominated by the industrial and distribution markets for Eddisons.It is fair to say that this market remains particularly strong and considerably better than the office and retail sectors. In both regions the freehold occupier market is, understandably, quieter but prices are holding up for now.
It’s noticeable that buyers are making offers below asking prices rather than just simply offering the asking price. Most vendors are, at the same time, accepting that it is a softening market and are being realistic.
The lettings market is patchy and much hinges on location. The increase in rateable value has had some bearing on the smaller end of the market, so we anticipate a tougher end to the year.
From our Huntingdon office, the view is the market is a little quieter following a flurry of activity at the start of the year. We are probably seeing an adjustment to more typical market conditions after several years of sustained high demand for industrial units where demand regularly outstripped supply.
There still remains demand, particularly for new builds, although there is less pressure on space, generally.
With the leasehold market, we are not seeing this result in a reduction of headline rents, but tenant incentives are now being offered in some areas of the market. This seems unlikely to change for the remainder of 2023 through into the early part of 2024.
The demand for office space generally remains subdued while occupiers adjust to flexible working options as the ‘new normal’. This has led to downward pressure on rents and a drive to improve the quality of existing stock.
There seems little evidence that uptake is likely to increase in the short term so little incentive for the development of new buildings, leading to investment in older stock where appropriate.Landlords for older stock need to refurbish and make space presentable as competition between landlords intensifies and so it is imperative that the space is offered in its best light. Again, this seems unlikely to improve ahead of next year.
Looking to the northern parts of our Midlands & Eastern regions, where our recently acquired Banks Long & Co operation in Lincoln sits, Q2 2023 showed an improvement – both in enquiry levels and take-up rates – contrasting with a notably subdued Q1.
However, here we are, perhaps, starting to see a realisation on the part of sellers that they need to be more realistic in their pricing. This has led to more activity in the freehold market when compared to the Q4 2022 and Q1 2023.
With this increased activity, we are starting to see pressure on the supply of new stock, which is not helped by the lag in the delivery of new developments. As such, we are looking at ways of replacing stock but the product needs to be good quality to appeal.
Timings for completing transactions have stretched out, especially when linked to planning permissions and the issue with the performance of solicitors across all sectors continues to drive agents to distraction.This may seem harsh on our legal peers, but longer than expected timeframes being experienced by many agents could be critical for some sellers and landlords during any slight downturn of the market in increasing the risk of price chipping or, worse, default.
It would seem that Summer 2023 was an extended holiday period for the market, insofar as many people were away and little happened during the summer months.
There were signs of an increase in enquiries just after the summer break, but we expect the remainder of 2023 to be more difficult.
For Eddisons national agency market update Q4 2023, please click here.