November 30, 2017
Representing North East Times, I was the only journalist present at The Property Network Group’s lunchtime but not only did this Handelsbanken, Ward Hadaway, RSM and Lambert Smith Hampton sponsored event produce an open platform for views, it was startling in some respects in that an event in November 2017 matched a series of articles I wrote in the Estates Times nearly 22 years ago, where one theme then – “just the nature of politics of the area” – surfaced again during this outstanding seminar held at The Baltic last month.
Just what is the ‘nature of politics’ in the North East? Seemingly we expect too much from central government and when it doesn’t happen we also blame the government. Rather than a ‘win win’ philosophy it is more ‘lose lose’.
Twenty-two years ago, I quoted an Urban Development Corporation senior executive who complained that the 10 year tenure of the UDC was effectively cut short by some 30 per cent simply because of local politics. The first problem was the desire not to turn our backs on traditional industries.
“There was still a lot of feeling that the glorious years of steel, ship-building and coal were just around the corner,” he said, adding that not a single development site “should be given up from industrial purposes”.
What should be allowed to drive the region forward are the region’s entrepreneurs, those who are behind the region’s industrial successes. There has been government action, possibly too much with 18 industrial strategies since World War II, but local authorities remain a major obstacle. Yet there are successes with Gateshead singled out as one of the best local authorities in the country – it’s astonishing what they have achieved.
BREXIT’S 6.2m sq ft price tag
Since the surprise Brexit referendum result, the level of significant commercial property investment deals as reported by CoStar has been regular, consistent and at times involving very significant sums of money.
Is there not a down side? Seaforth Land thinks so in its inaugural Real Estate Search which takes a principal investor’s approach to understanding the commercial real estate market.
It argues that the UK market is provided with regular take-up statistics by the agency community and this is often perceived to be the definitive measure of occupier demand.
However, take-up is misleading. Why? Because take-up ignores vacancy and can only ever be a positive number which only tracks new and renewed leases – even leases signed years before occupancy. Investors require something more meaningful.
Net Stock Absorption (NSA) is a far more accurate measure of total leasing activity as it excludes forward commitments and nets out vacated stock. The chasm between the two methodologies is glaring – in 2016, where take-up of Central London offices was positive at 12.1m sq ft, NSA over the same period actually fell by 3.0m sq ft – meaning tenants vacated 3.0m sq ft more than they occupied.
To quantify the impact of Brexit, Seaforth developed a statistically robust model that explains historical net absorption employing variables such as stock, rents, employment growth and space per employee.
Had there been no Brexit, NSA would have been positive at 2.4m sq ft. However, in reality tenants gave up 3.0m sq ft more than they leased in 2016. The total 2016 price tag of Brexit was a loss of 5.4mn sq ft of NSA. If the additional negative 800k sq ft NSA that occurred in the first half of 2017 are included the number rises to almost negative 6.2mn sq ft.
At the time of writing, only one senior chartered surveyor responded to my invitation to comment on Seaforth’s report.
Bill Lynn, director of Capital Markets at Lambert Smith Hampton, says: “I cannot dispute the comments and wouldn’t dream of doing so but this looks like a view very much centred on the South East and peripheral markets.
“On one hand I am not surprised that there has been some retrenchment, after all most national news since the Brexit decision has been investor driven. Some occupiers will be nervous and holding tight until there is a clearer picture but significant lettings are still taking place.
“In the North East we are seeing tenant activity against a lack of supply of Grade A space. Rents are holding up well. Supply of space however is very much focused on Science Central and Legal & General and that will take some time to reach the market by which time the macro view will be clearer. The North East is not over committed or exposed which cannot be said for a number of competing centres.”
Tony Wordsworth, director at GVA, in Newcastle, says: “Newcastle has not seen the impact of large scale government office take up, with relocations primarily being accommodated in existing stock. There has been a steady level of activity with a handful of medium size deals.
“If this continues in the last quarter it will bring the total for 2017 in line with the five-year average,” he adds.
Key occupiers of the new city centre office space include The Princes Trust, lawyers Norton Rose Fulbright and computer gaming company Ubisoft. In the out of town market, engineering consultancy Siemens, Isocom Components and County Durham Police all completed deals over 10,000 sq ft.