Despite much of the negativity in the media, 2022 actually proved a largely successful year for the majority of the commercial property sector.
The investment market was undoubtedly the most volatile and proved a tale of two halves of the year. The beginning of 2022 followed on positively from the levels achieved in 2021, based on strong occupier demand, a short-age of stock and low levels of borrowing costs. However, as interest rates began to rise, a level of caution crept into the market during the second quarter, as rates rose from 0.5% to 1%. This caused the level of investment deals being completed to slow down, although it took until Q3 for this to start having any signifcant impact on values. An already cautious market was then hit with ‘Trussonomics’ and interest rates jumped further from 1.75 to 2.25% in the space of a month. This turbulent economic period, together with rising other costs and the wider international climate meant capital values and investment yields certainly took a hit in the third quarter of the year.
Savills research figures for last year suggest that provincial office yields have slipped from circa 4.75% to 5.75%, whereas prime industrial and warehouse yields have moved out from 3.25% to 5%. It is, however, important to remember that rents have risen throughout this period, which means the overall impact on capital values may not be as sharp as it might appear. In addition, these statistics suggest that values and yields started to level off during Q4, maintaining a consistent level throughout October, November and December, as the economy settled down again and occupier demand remained strong.
There were still a few noticeable investment transactions in the area in 2022. These included Brackmills Trade Park, which comprises 66,000 square feet of multi-let trade counter space, which changed hands at 3.8%. Another one at the very start of the year was Swift 34 in Rugby which Drake & Partners had advised on and secured the tenant. This single-let, 34,000 square foot unit achieved 5.2%.
The occupational market in our region remained upbeat throughout the year. The fundamentals have remained consistent for the last couple of years now, which is a steady demand combined with an increasing lack of supply.
The office market was undeniably impacted by COVID and the knock-on effect this had on people’s working patterns, but 2022 was the year people returned to the office. Companies’ working policies have changed, staff are often able to work from home a few days a week, but increasingly staff and businesses still want an office presence and staff benefit from being there.
The result of this has seen a gradual increase in office demand at the same time that there has been very little new office development. With the increasing focus on staff welfare, it has been the better-quality office space that has seen the most take up. Buildings with facilities like cafés, breakout areas, gyms, shower and changing areas and external space have proved the most popular. In addition, Grade A space generally has better energy efficiency credentials making them more appealing to businesses who have one eye on rising energy costs, coupled with ESG targets.
Second hand office rents and values have remained at a lower level, but good-quality Grade A rents have shown consistent growth. In Northampton these grew from circa £18 psf to £19 psf plus over the course of the year and are starting to reach £20 psf in some instances.
The most significant office lettings in Northampton, both of which were agreed by Drake & Partners, were at Lancaster House, located next to the new University campus. GXO Logistics have taken 36,600 square feet and HCR Hewitsons agreed lease terms on approx. 9,000 square feet. The other deal of note was at the View, The Lakes, where Roeslein & Associates agreed terms on a new Grade A building comprising circa 10,000 square feet.
Turning to the industrial and warehouse market, this is one sector that has continued to see regular new development when the sites have been available. Rising constructions costs, coupled with the previously mentioned supply and demand, have led to record rents and values throughout our region. The increase in demand for online retail warehouse space has been well documented but we have also seen strong occupier demand across a range of other business sectors, such as manufacturing and engineering.
Grade A rents on larger industrial space in Northampton have grown from circa £8.50 to £9.00-£9.50 psf, with rents on smaller units now comfortably into double figures. It is probably safe to say that rental growth in this market is likely to slow down from the levels that we have seen as occupiers face rising staff and energy costs, plus an increase in business rates from April this year, but the continued constrained supply means that rents are unlikely to fall, showing how resilient the sector remains. Some of the largest deals in the region over the last 12 months have been outside of Northampton, with several new developments in the east of the county. Tritax have had success on 300,000 square feet at Symmetry Park in Kettering, agreeing terms with Iron Mountain. GLP have let 650,000 square feet on their scheme in Corby to Top Hat, and Drake & Partners have agreed deals on behalf of St Modwen on the Stanton Cross scheme in Wellingborough, letting nearly 150,000 square feet to Transglobal Freight Management and Premier Paper Group, who also took another 330,000 square feet at Prologis’ Park Farm development.
There remains an element of uncertainty and we wait to see the real impact of rising business costs, energy prices in particular, but there is also a sense of cautious optimism, as the dynamics of the occupational market remain positive. As ever, it is difficult to predict exactly how the year will pan out but we are currently not seeing the doom and gloom often portrayed across the national media.
Drake & Partners