Functional business: Commercial premises

The experts provide insights on the current trends shaping the commercial premises landscape and their forecasts for the year ahead

The South East’s commercial property market is a complex and dynamic environment, shaped by diverse sectors such as office, industrial and distribution, retail and rural properties. Each sector presents its unique challenges and opportunities, influenced by shifting working and living practices, particularly in the wake of the pandemic. 

Charlotte Laherty, director and head of commercial property management at Caxtons Property Consultants, situated in Kent, notes that while some sectors have experienced positive changes, such as the increased demand for warehouses driven by the surge in online retailing, others, like the traditional high street, face significant challenges. Despite this, retail warehouse schemes continue to thrive, highlighting the adaptability of the market.

Charlotte Laherty

With the rise of flexible work arrangements, the commercial property sector is witnessing significant shifts in demand and utilisation patterns. Some employers are happy with hybrid working, and most need to offer a degree of this if the job is to be attractive in a competitive market, however, many are still trying to persuade staff back to the office for a few days a week to encourage collaboration and mentoring, and in some cases, improve productivity. Charlotte explains: “Surveys report that more people are returning to the office, and one of the ways companies ‘persuade’ workers to return is by providing a quality workplace – sometimes retaining the same amount of space for fewer office-based employees. As a result, there has not been a rush to secure smaller spaces, although some companies have done so, or are, like Saga, providing hubs across the county. Some offices have been refurbished to appeal to companies seeking better quality space, and new co-working spaces are emerging, often combined with community facilities such as gyms, cafes and yoga studios.”

In terms of noteworthy trends, Charlotte pinpoints how artificial intelligence (AI) is revolutionising the commercial property industry with software capable of streamlining tasks like meeting minutes and data extraction from documents like leases. Dynamics 365 from Microsoft serves as a customer service-based AI, handling queries and requests, while virtual auctions and “click to buy” options gain momentum.

Charlotte adds that lease trends have evolved from long-term commitments to shorter, more flexible terms, with the emergence of “lockdown clauses” during the pandemic. “Generally, landlords are becoming much more open to flexible leases which suit the tenants’ needs, including, in some cases, turnover rents. Both landlords and tenants are also having to work much more closely together on issues such as minimum energy efficiency standards to achieve the common goal of compliance with the latest regs. So, on the whole, cooperation is key and this is certainly a positive trend which emerged over the last few years.”

Looking ahead, Caxtons anticipates sustained demand for warehouses in the coming years, driven by evolving consumer habits and e-commerce growth. Similarly, offices are poised for refurbishment and conversion, particularly in light of impending environmental regulations. However, the future of traditional high streets remains uncertain, with a potential shift towards mixed-use developments and residential projects.

For business owners seeking new premises, careful consideration of factors such as space requirements, location, sustainability and lease terms is essential. Fortunately, the South East offers a diverse range of options for businesses seeking commercial properties – from traditional office settings to unconventional conversions like mills and churches. “The South East is close to London and the M25 yet costs for property services as well as space are considerably cheaper, and the location offers a better quality of life too,” says Charlotte. “Distribution and logistics choices vary from large to small facilities on small local sites or major sites such as Medway One and Loc8 close to junction 8 M20, with new phases becoming available, likewise at Click Aylesford at junction 5 M20, and on the retail front, there’s a wide choice of town centres and thriving retail parks.”

Flude Property Consultants, an independent regional firm of chartered surveyors with offices in Brighton & Hove, Chichester and Portsmouth, has experienced a flurry of activity in recent months, particularly in the East Sussex region. In December, the team successfully concluded the leasing of a prominent self-contained E-class corner unit located in the vibrant Kemptown area of Brighton. Positioned at the junction of Upper St James’s Street and Charlotte Street, amidst numerous hotels and just a stone’s throw away from Brighton Pier, the seafront and the town centre, the property found a new tenant—a hair salon—following an unexpected lease surrender. “We swiftly advised our clients on how best to re-let the unit and promptly found new tenants,” explains Flude surveying executive Aaron Lees. “The Kemptown area usually attracts good interest from independent and often local occupiers so we were confident this would let quickly.”

The new year saw another successful letting from the Flude team – Unit 4 Brighton Trade Park on Crowhurst Road—to Team Frames, a specialised manufacturer of doors, windows and roofing products catering to the trade sector. Brighton Trade Park, developed by Hanbury Property on a four-acre site, represents a significant redevelopment of the former Newsquest premises in north Brighton. This recent letting complements an already robust tenant line-up, featuring prominent names such as Screwfix, Howden Joinery, Henfield Storage and Harwoods Jaguar Land Rover.

Andrew Halfacree, director of Flude Property Consultants, commended Hanbury Property’s bold approach to redeveloping the site to suit the trade counter market. This latest letting is a welcome addition to the tenant offer at Brighton Trade Park,” he remarked. “We anticipate that Team Frames will enhance the trade of the current tenants and vice versa. It also demonstrates the fact that there continues to be activity in the market despite the more challenging environment.”

Vail Williams provides comprehensive commercial property advice catering to occupiers, landlords, investors, developers and lenders. When considering acquiring new premises, the team emphasises the importance of forward-thinking regarding operational needs and encourages flexibility in both approach and geographical scope.

Vail Williams partner Charlie Nicholson, based in the Woking office, highlights a more positive and stabilising state in the market after a period of upheaval following the challenging mini-budget delivered by then-Chancellor Kwasi Kwarteng in September 2022. “There is definite opportunity this year and much more positivity in many ways because of the now lessening effects of inflationary pressure,” he explains. However, Charlie cautions that the adjustment to new interest rate levels is still ongoing. As uncertainty diminishes, decision-making resumes, prompting market activity and business confidence, particularly in the office and industrial sectors.

Charlie Nicholson

Reflecting on current market trends, Charlie underscores the scarcity of industrial stock over the past 15 years, noting instances where spec-built accommodations are being sold off-plan. “Businesses can no longer demand that they wish to be on a particular industrial estate,” he says. “Therefore, a wider field of vision on your location search is a must. Despite ample potential development land, industrial spaces aren’t prioritised due to land use pressure. Consequently, new stock isn’t being constructed as expected.”

Regarding offices, Charlie dispels the misconception that numerous “For sale” signs in town centres or business parks equate to abundant choices. He explains that businesses now have specific size requirements and demands for office environments, with Grade A, ready-to-go office stock not as readily available as assumed, especially depending on the location.

Steve Berrett

So, what does the future hold? Vail Williams’ Steve Berrett, a Crawley-based partner of the firm, sees businesses having to make tough decisions to rationalise their property holdings and potentially dispose of assets which are surplus to requirements. “There is an opportunity to repurpose secondary or older office stock to residential or other suitable uses, as well as the potential to refurbish and create optimal environments for business operations. There is certainly right-sizing, which in many instances means downsizing, but because they are taking less space, they can take better quality space and they are not afraid to still pay a higher amount to get the right quality because they are paying less on an overall per annum basis. They are investing in the environment for work to make it an exciting and collaborative place to work.”

In the bustling arena of commercial real estate in the South East, Oldfield Smith & Co is a steadfast presence. Operating across East, West and mid-Sussex, as well as Surrey and Kent, the RICS-regulated team, boasting over 75 years of combined experience, is committed to assisting business owners in navigating the ever-evolving property market.

Richard Oldfield, director and head of the agency department, recognises that the South East, an affluent region teeming with entrepreneurial spirit, continues to witness a robust demand for smaller units of commercial accommodation across various sectors, including industrial, warehousing, office and retail. This trend, characterised by entrepreneurs willing to invest in their ventures, has shown resilience throughout 2023 and shows no signs of waning, he says.

Conversely, Richard points out, the retail sector, particularly concerning larger units of accommodation, has faced challenges in recent times. “With the loss of companies such as Wilko from the high street, shopping centres and retail parks, other national retailers are not looking to expand and fill the space they have vacated but rather concentrate on streamlining their own business and closing branches that are not profitable. This has resulted in a number of vacant units of a larger size being available, particularly in the larger towns and cities.” However, the trend is not one of despair but rather a shift towards leisure-oriented tenants rather than conventional retail.

The aftermath of the pandemic has catalysed transformations in the office sector, and Oldfield Smith & Co has seen many businesses opting to continue remote work arrangements. Consequently, larger office buildings remain underutilised, prompting business owners to explore alternative uses. “Businesses are not generally suffering as a result as staff are just as productive working from home as they were working in the office environment. Rather than leaving larger offices empty or partially occupied, they are being sold to developers who have then carried out a conversion to create residential flats, which are in high demand. There is likely to come a time when the situation needs to be reversed with people wishing to work closer to where they live but there being a lack of suitable commercial space to accommodate this. A future consideration that perhaps needs reviewing at this time.”

Richard Oldfield

For business owners seeking commercial premises, Richard highlights that several non-negotiable factors come into play: location, size, price and broadband speeds. However, amidst strong demand, the availability of suitable premises remains a pressing concern. The scarcity of small industrial workshop spaces coupled with escalating rents for existing units underscores the challenges in meeting the current demand. “Moreover, developers’ reluctance to construct smaller units due to economic constraints further exacerbates the situation,” explains Richard. “Rising land costs and increased building materials and labour expenses incentivise developers to focus on larger-scale projects, leaving smaller requirements reliant on existing market availability.”

All considered, the commercial premises landscape in the South East reflects a dynamic interplay of shifting market demands and evolving business strategies. From the adaptability of retail warehouse schemes to the embrace of hybrid work arrangements, businesses are navigating new paradigms with resilience and innovation. As the market evolves, opportunities for repurposing and refurbishment emerge, underscoring the need for forward-thinking and flexibility in securing optimal spaces for future success.

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