For a quick view of where the UK & European commercial property market currently stands I wholeheartedly recommend the preliminary results announcement released by Tr Property (LON:TRY) today. Here is an excerpt:
With the exception of the best (Grade A) office buildings in capital cities and units in the very choicest retail pitches, fragile is the best description of tenant demand across the whole of the UK and Europe. In the UK, published rental indices record a decline of 10.8% in average rental values since March 2008, of which 5.9% occurred in the twelve months to March 2010. These statistics are based on headline rental values rather than net effective figures and therefore miss the impact of rent-free periods and other landlords? incentives which are in very widespread use. If these are taken into account the true decline in average rental values may be closer to 20%. Today, the speed of decline has slowed in most locations. In a minority of locations rents have found a base and rent-free periods are declining. Occupier enquiries are rising, but as yet, rental growth is only being evidenced in the core Central London office and retail markets.
In the market for business space (as opposed to retail space) most tenant demand is the result of rationalisation or consolidation. Businesses are taking the opportunity of lease expiries to move into higher quality space without increasing their rental outgoings – trading up rather than down. Agents are reporting higher turnover at the gross level in almost all areas but net absorption remains neutral to negative, and so vacancy rates remain high despite increased activity. However the almost total absence of new construction starts means the supply of Grade A space is shrinking and thus the vacancy problem is moving down the quality ladder. This is forcing landlords of older or outmoded space into proper and costly refurbishment before they can hope to find an occupier. At the very bottom of the quality ladder, demolition, spurred on in the UK, by the inequitable empty rates levy, may be the most practical solution. This action does, at least, reduce the vacancy rate. Green issues appear to be a factor of increasing importance in the office sector. The operating efficiency of buildings is of increasing concern to potential occupiers, as is the availability of public transport. That shiny, twenty year old, out of…
