Solent: Chronic shortage of office space highlighted as demand grows

In its latest property market update, Southampton-based property adviser Vail Williams LLP takes a look at the property market in the Solent, exploring levels of demand and supply, and what this might mean – whether you’re an investor, or an occupier.

Office Space

Since 2008 a number of existing office buildings in the Solent have either been demolished or converted for alternative uses, primarily for the benefit of the residential sector. This, combined with the lack of any new construction of office space, has led to a chronic shortage of office space in the Solent.

As a result of uncertainty surrounding the General Election, the number of enquiries for office space did reduce slightly last quarter. However, in spite of recent uncertainty and ongoing concerns around Brexit for some businesses, we are, in fact, now starting to see the number of enquiries pick up – particularly for smaller office spaces ranging from 1,500-3,000 sq ft.

These are generally smaller companies that are looking to expand, which is positive news for the local economy in the Solent and surrounding area.

When it comes to rental levels for office stock, we have seen newer stock achieve up to £21.50 per sq ft, for example at Lakeside, North Harbour. However, rents for un-refurbished stock remain at £16-£17 per sq ft.

What does this mean?

Headline rents are increasing and there is little difference between this and net rents, so rent incentives for occupiers are likely to become more scarce. Lease incentives on new builds are common, but if current construction levels are anything to go by, then occupiers shouldn’t hope to expect a variety of options. 

However, it is by no means doom and gloom for the office market in the Solent.

While there is very little in the way of newly constructed offices in the area, we are seeing secondary stock being refurbished to a very high standard.

This is beneficial for the occupier, seeking an increasingly high specification, but is also good news for the investor or landlord, who is able to achieve higher rents – something we’ve witnessed at recently refurbished Grosvenor Place and the White Building.

Industrial space

 As we’ve seen through our work advising on Pioneer Park, there is a buzz around the industrial market in the Solent, as some developments defy expectations.

While good news for developers and landlords, the opportunities for occupiers to get a good deal on an industrial lease are decreasing amid increases in headline rents.

Rents for un-refurbished secondary stock are between £5-£6 per sq ft. For refurbished and newer stock levels it rises to £8.00-£9.50 per sq ft, which is being achieved at Mountpark, Pioneer Park and Railway Triangle.

Occupiers can expect to see little difference between headline and net rents, and the prospect of leases at longer terms, such as 10 years or more, with shorter rent free periods.

Why?

Part of the reason for this is demand and supply. There is still a lack of industrial stock after construction waned following the recession.

If it weren’t for speculative developments like that of Pioneer Park, demand would be through the roof – a nice problem to have if you’re a potential developer, but not if you’re looking for a home for your business.

Such increases in demand, coupled with lack of availability have increased rents, and made it a much more competitive market.

Having said that, the number of enquiries for industrial and warehouse space did go down after the general election, and in spite of an initial increase, are once again plateauing – perhaps a symptom of ongoing uncertainty surrounding Brexit.

While there has been very little in the way of newly constructed industrial stock in the Solent, Pioneer Park, the first post-recession speculative development in Portsmouth, has proven demand.

Take-up there has been good and there remain just two units from nine. Construction at Dunsbury Park is also underway, but these are being built on demand. Merlin Park, at Portsmouth, will be developed later this year, and Alpha Park and South Central are currently underway in Southampton.

This increase in future stock is much needed and will, it is hoped, free up some of the secondary stock, which is being refurbished to a high standard in order to achieve higher rents.

We expect this, and future demand to continue, as things look up for office and industrial property supply across the Solent.

Alexandra Page, surveyor at property advisers, Vail Williams LLP