In recent times commentators may have disagreed over detail but have generally held a broad consensus over market performance and future trends. Today, there are a range of diverse indicators that makes it difficult to assess what the current state of the commercial market is. The interpretation of May’s performance figures, what they might mean for second quarter results, what that means for the first half of the year and the predictions for the second half and entire year vary by sector, segment, asset class and region.
Having said that, the one thing that everyone does agree on is that the delay and uncertainty around Brexit (and the potential for a general election) is harming the sector. It is skewing the market as economic fundamentals become replaced by caution and deferred decision making.
Let’s take London, normally the bellwether for the rest of the country. For offices, the market looks like its holding up as new construction starts in the first five months of the year exceeded those for the same period in 2018 and that’s a positive. Reports indicate that occupier demand remains strong, also good news. However, reports also suggest that the pipeline of grade A space is diminishing and investment into Central London office assets would have fallen by 40% in the first half of the year, driven by Brexit uncertainty. So, what are we to take from this?
Let’s look at the industrial Sector. Some published reports indicate that growth in the three months ending May 2019 was over 20% higher than the previous three months, good news. But when compared to the same period in 2018, the growth is marginal and therefore not such good news if you take the year on year position. The sector segments are also performing differently with warehousing, logistics and distribution showing more demand than other asset classes. There is a regional dimension to this too with West Midlands, South East and North West more active than the other UK regions.
The challenges faced by the retail sector are well documented and demand for space is falling and vacancy rates are increasing, but again this is not the same for all segments. Food retail remains strong but general high street retail, fashion and clothing in particular, is ailing.
How to sum up? Well, this is nicely done in the recent RICS Property Market Survey. Occupier demand for offices is broadly stable but there remains a clear split between prime and secondary space. Demand for industrial space rose and the number of vacant units continues to decrease. Retail demand from occupiers continues to fall with vacancy rates increasing. Simples.
Meanwhile use: here to stay
The last 5 years or so have witnessed significant growth in the provision of “meanwhile use” space in our town centres as building owners and developers take the opportunity to find alternative, temporary uses for their empty buildings. Meanwhile use can be defined as the short-term utilisation of temporarily empty buildings such as retail units or offices until they can be brought back into commercial use.
Our high streets can quickly become blighted as shops and commercial premises close down and our town centres consequently lose footfall and vibrancy. It has recently been observed that there are over 20,000 empty commercial buildings in London alone. In a similar way, redundant buildings or vacant development sites can remain unoccupied or unused for considerable periods of time awaiting permanent re-development, again blighting neighbourhoods and local communities. A temporary use can often bridge between the old and the new by maintaining an active presence that engages with the local community and provides opportunity for employment. It can also be used to showcase or prototype future development proposals and promote local input.
Meanwhile uses are generally for the benefit of the local community. This does not just mean replacing retail with retail but with a diverse range of uses including workplace start-ups, incubator space, cafes, community space, events and sporting facilities. This diversity brings with it a whole range of occupiers such as local enterprises, entrepreneurs, artists and artisans. These ingredients, together with the rather unusual spaces that are utilised, create hubs of innovation and activity.
The success of these hubs has been embraced by some of the UK’s best-known regeneration specialists such as Argent at Kings Cross, U+I at Preston Barracks, Brighton and The Deptford Project in London and elsewhere.
As well as making best use of vacant building stock, meanwhile hubs can be purpose built using pop up’s or, like the concept created by Boxpark, utilising shipping containers, or even a railway carriage as at The Deptford Project.
Of course, the meanwhile trend requires a change in the traditional way that landlords transact with occupiers, and vice versa. A more flexible, collaborative approach is often required from both parties but there are benefits too. For the landlord, an income stream can be secured from an otherwise redundant facility – and if there is no income there are the savings gained for empty property business rates, security and safety liabilities. For the occupier, often a new business with little access to capital, there is the benefit of reduced rents and service charges in locations that would otherwise be unaffordable.
The government has also been supportive over this period having changed planning legislation and relaxed the controls on change of use class together with publishing standard leases for the occupation of redundant town centre properties.
It is clear that these temporary usages have proven to have been a great success and where originally planned for a life of two to five years they may be retained for much longer periods and perhaps as semi-permanent facilities. As the high street continues to face the challenge from on-line retailers, the vacancy rate is likely to continue at its current pace and so the development of meanwhile use is likely to grow and be around for some good time.
Containerville at Cambridge NFE
Faithful+Gould has been working closely with our client U+I and their development partner “We are Town”, and the JV landowners Anglian Water and Cambridge City Council on a residential led masterplan named Cambridge North Fringe East. This 46 hectare masterplan will include strategic road and utilities infrastructure, 5,600 homes, one million square feet of commercial and retail space, a hotel and 3 schools, together with extensive blue and green public realm. The masterplan will unlock a wider development in line with the council’s Area Action Plan to create over 8,600 homes over 20 years and up to 24,000 jobs.
Our initial task was to work alongside the client team and help prepare an application to Homes England for a £227m grant from the Homes Infrastructure Fund, and in March this year the Chancellor announced in his Spring Budget that the application had been approved. We are now moving forward with progressing the masterplan, design code and planning application.
One of the first deliverables for the scheme will be a meanwhile use facility – “Containerville” - to bring activity and employment to the site whist the wider masterplan design and planning activities are managed out and development starts in earnest.
Containerville will be sited on a redundant car park on the southern boundary of the development and will be made up of 77 recycled shipping containers, stacked and arranged around a series of social courtyards and partially covered under a lightweight roof. Car parking and external lighting will also be provided with some reinforcement of the existing trees and green landscape. Defined spaces will be given over to co-working, eating and social, events and community areas. There will also be the opportunity to engage and promote collaborative working with the adjacent science parks. The plan arrangement will provide a sequence of spaces that “allows for serendipitous encounters between users and cross-fertilisation of ideas”.
Detailed design and planning submission are proceeding according to programme for the facility to open in 2020.
Faithful+Gould are appointed as project managers and cost consultants for both Cambridge NFE and the Containerville projects.