Copyright: David Lawson- Property Week Sept 1999Home page
A whiff of panic is drifting up from the high streets of middle England. Agents resigned to the annual black hole called summer are beginning to fear a more deep-seated problem that could stretch into the Millennium.
It is not lack of demand. The economy has defied doomsayers, deciding not to slide into recession. This is raising expectations by occupiers for expansion. But they are hard-pressed to find somewhere to go. The country is running out of property. Lack of supply means fewer deals, which hits the pockets of agents who rely heavily on commission.
The problem arises from a complex intertwining of old and new factors. Developers and banks were so traumatised by the recession that when the economy began to recover a couple of years ago they were reluctant to re-start speculative development, says Peter Damesick, UK research director at Richard Ellis St Quintin. This strengthened when bodies like the CBI forecast recession. Now growth is expected, and buildings are in short supply.
New forces are adding to this dislocation of the traditional property cycle. Planning is in disarray, with potential controls on private transport still unresolved and housing is being pushed back into towns, taking sites normally reserved for jobs, says John Bowles at Fuller Peiser.
'It is a quagmire of uncertainty, with developers reluctant to move and occupiers caught in the middle,' says Stephen Mallen, research director at Knight Frank. Even traditionally anti-development councils like Surrey are starting to worry about lack of property to serve the business community.
But is it a crisis? Not according to big wheels like Gerald Kaye, development director of Helical Bar. 'Markets are in healthy balance,' he says. Most analysts are also reluctant to panic. If shortages were critical, rents would be soaring, says Lambert Smith Hampton's research director Mark Charlton. last week's survey of its network of offices shows remarkable stability, particularly for industrial property. 'It is a mismatch in certain hotspots rather than a crisis,' he says.
That does not help those in those hotspots. The usual suspects are involved, with agents in the south facing an increasingly torrid time finding land and buildings to let and sell. The West End of London is the most extreme example.
The market could be stifled by next year if demand picks up, says REStQ director. Philip Dawe. Availability has already fallen to less than half the last six month's takeup. Reluctant funders are the blockage, added Knight Frank's Archie Cowan. But he saw them as 'sensible' rather than stupid.
A close second is the Thames Valley, which has virtually run out of land, says Bruce Usher, UK leasing manager at Slough Estates. That puts in perspective the firm's enthusiasm to pay a top price for sites like Farnborough. 'That will take us ten years to do,' he says. The fight to takeover Bilton also takes on new meaning, as he is planning forward almost as long on some of its sites.
The broad band along the M25 is stretching tight as a drum, while Kent is finally becoming a part of the south-east phenomenon rather than a backwater. Bristol has rejoined this category after years in the wilderness.
The city lags the south-east, so the Eighties office surplus did not run out until 18 months ago, says Martin Booth, of DTZ Debenham Thorpe. Development is now coming through but modern, high-tech companies are not willing to commit themselves to long leases. 'They don't know what they will be doing in two years, let alone 25,' he says.
On the other hand, they are making agents frustrated by demanding immediate accommodation - making the shortage appear severe. He says agents are their own worst enemy for not educating occupiers that they cannot walk in off the street and find premises - a view widely repeated around the country.
The industrial is just as frustrating, says Malcolm Gunter of Edwards Hardwick. Three developments have come out of the ground in the last year, offering around 300,000 q ft of new space but he forecasts this will merely accelerate takeup which has been constrained by short supply.
In Dartford, Steve Richmond of Edwin Hill sees shortages right through the north Kent corridor. Warehousing at Crossways is snapped up before the cement is dry. 'And this is before the Bluewater Centre has had time to influence demand,' he says In the next 12 months there could be a rush for distribution space on the doorstep of the giant shopping complex.
Around 1m sq ft of offices are available in Milton Keynes but much of that is old and in any case is less than a year's supply, says John Fowler of Lambert Smith Hampton. CNP and English partnerships are blamed by locals for releasing land too slowly but a surge of big lettings after years of slumber are as much of a problem.
Electrolux took 300,000 sq ft in one lump at Stratus Park and Amazon Computers 500,000 sq ft of Marston Gate, off the M1. Three office schemes have started in the town centre but these are not expected to satisfy demand.
Developers have showed confidence around the M25, resulting in 2m sq ft of new offices coming on stream in the last six months, according to REStQ. Yet availability is still at historically low levels, says Damesick. Again, this is not considered critical - but for how long?