The commercial property development world is set to recover after taking a bit of a hammering during the recession says Andrew Archibald, Director at Keygrove Chartered Surveyors. “We have seen very few commercial developments for about 5 years. This has been partly as a result of the lack of bank funding and also the risk of having to pay empty property rates as both have caused values and rents to be driven down, as well as lack of confidence and cost cutting from business occupiers”. It has meant that new “speculative” developments have not been not happening and this is inevitably going to create a shortage of quality offices and industrial buildings as the economy continues to improve – “speculative” means buildings being constructed before a purchaser or tenant has been found; the alternative is building “to order”. For “Speculative” office and industrial developments to start again we need a number of improvements in the economy and there are encouraging signs that these changes are taking place.
Bank lending is getting a bit easier. There are many hurdles for borrowers to overcome such as increased loan set up charges, reduced loan to value ratios, cautious valuations etc but at least the banks now have money to lend.
Empty business rates is an unfair tax and perversely is payable on new commercial buildings that have never been occupied. The government have belatedly realised this is holding back development and in the last budget introduced a new empty rate holiday on new commercial buildings. The length of the rate holiday is not enough to tip the balance in favour of development but at least it is a step in the right direction.
Gaining planning permission has always been a frustrating and costly exercise. The average man in the street does not realise the tremendous bureaucracy and cost in securing planning permission and then the development taxes that are imposed on developers/landowners that frequently make developments unviable. The coalition government have tried hard to encourage development to help stimulate the economy and have introduced many measures to make it easier to gain planning permission. “Nimbys” fear this will mean building over the countryside but to many of us in the development industry we just want a realistic chance of being granted planning permission within a reasonable time. The latest change to allow conversion of redundant offices into residential use without the need for planning permission will be another welcome stimulus.
The key missing ingredient for commercial property development is confidence and sufficient demand for new buildings from owners and occupiers. This has been depressed over the last few years but the good news is at my firm Keygrove Chartered Surveyors we are seeing more activity in the commercial property market in Southampton and around South Hampshire as demand picks up. Our team at Keygrove has seen increased sales and lettings over the past 12 months across all sectors: shops, offices, industrial units, open storage land, garages and care homes. This is encouraging for landlords and developers as it will hopefully feed through to improving values and bring commercial property developers back from their long hibernation.