South Coast: JLL reports resilience in Metropole region despite Brexit uncertainty

JLL’s South Coast Metropole report, which incorporates Southampton, Portsmouth, Bournemouth and Poole, shows that property markets are performing well in this region in the face of the Brexit uncertainty. 

A new approach from government would seem to present long-term economic opportunities for the region; and the lack of supply across all property sectors and consistently high demand for space will also stand the region in good stead.

Early indications show that the Government has taken on board the need to rebalance the UK’s economy and deliver investment into regional cities and towns in response to the division of wealth which has been acutely highlighted by the EU referendum. This presents new opportunities for areas such as the South Coast which is already in negotiations with the Government to expand the value of the Solent Growth deal by £161 million, and which could lead to more infrastructure investment in cities such as Southampton and Portsmouth.

Michael Green, head of office at JLL in Southampton, said: “Early indications following the EU vote show that there hasn’t been a major change in occupier activity or deals being renegotiated, and enquiry levels are still strong across our region. The region’s transport links, proximity to major export markets, universities and talent pool will remain whatever the outcome of EU negotiations, so there is good reason for optimism.”

JLL is predicting, however, that a long period of uncertainty could last for several years; and that unlike other events, such as the 2008 recession, the economy will not react quickly, principally because no one knows yet the terms of the deal which will be brokered with the eurozone.

Green commented: “We think 2017 could be difficult as negotiations may make slow progress as a result of the presidential elections in France and Germany. There may be a mild rise in unemployment levels as recruitment is put on hold. In addition, construction activity across all sectors may slow, the effects of which may not be really felt for another three or four years.

Demand for office space in the Metropole region remains high although the lack of quality space is driving larger organisations from the major cities in the region to out of town locations. Permitted Development Rights which enable offices to be turned into homes continues to put additional pressure on the lack of supply. Nevertheless, demand from occupiers remains and 2016 so far has seen a 16% increase in office space take-up from this time last year.

Green commented: “If the Grade-A supply is further reduced over the coming year to a critical level, rents could be forced up to a level where speculative development is viable. JLL would welcome new development of high-quality space to attract occupiers to what is already a strong and diverse market.

“We also expect office space which allows occupiers greater flexibility to do particularly well during this uncertain period. 2016 has seen the continuation of speculative industrial development with more in the pipeline for 2017. Although there has been a decrease in the take-up of industrial space in the Metropole region to 3,000,000 sq ft (500,000 ft below last year), this is related to the lack of available space rather than to an easing of demand.”

In the housing market, Brexit is likely to result in reduced sales volumes and a reduction in the rate of house-price growth over the next three years but JLL believes that a structural undersupply of housing in the UK will mean that house prices will remain broadly stable, except in some parts of London.

A number of new government initiatives to encourage house building are in the pipeline and the Homes and Communities Agency is going through an aggressive round of acquisitions, targeting sites that have been stuck in the planning system or have viability problems, with the aim of enabling private sector development.

In the retail markets, JLL says that the retail economy will be led by consumer confidence, and in particular how consumers react to the Brexit story as it unfolds. 

Green commented: “Regionally, we have seen a mixed picture in the retail markets. Activity in secondary retail centres continues to be weak although in tourist areas and prettier locations, we have seen a sharp increase in demand from small independent retailers, particularly at the high end. This trend may continue post-Brexit as a weaker pound will increase tourist spending significantly.

“Prime retail centres continue to flourish, and this year sees the completion of Hammerson’s long awaited West Quay Watermark scheme in Southampton. Combined with an increase in the number of cruise ships visiting Southampton, this will add significantly to the city centre retail offer and will strengthen existing trade.

“There are exciting plans in the pipeline for our region, including the redevelopment of the former fruit and vegetable market in Southampton, and ambitious plans to redevelop the troubled Bargate Centre have now been submitted. This £100m scheme will include boutique shops, cafes and restaurants. The opportunities for our region remain as we head into Brexit negotiations.”

To read the report, click here.