The South Coast as with many regional markets enjoyed a stellar 2021;
With record levels of take-up and rental growth. This trend of decreasing availability has broadly continued into 2022with the successful letting of many major schemes, albeit not at the same ferocious pace witnessed during the pandemic era.
Most markets are enjoying the lowest vacancy rates in a decade and rents are at notable highs following an estimated 7.2% rental growth over the last 12 months.
Predicted rental growth 3.5% -4% per annum over the next 4years is underpinned by the delivery of stock c.36% below the average 5-year take up. Fuelling this has been the change in longer-term structural trends with B8 (storage and distribution)benefiting from the rise of eCommerce services and subsequent demand for warehousing. What remains unclear is how the rising cost of living combined with the looming fuel crisis will impact discretionary consumer spending and the subsequent knock-on to tenant demand.
Overall the retail sector has witnessed a drop in year-on-year sales volumes of c3.4% from2021. Interestingly the proportion of online purchases remains at around 25%, down from mid-pandemic highs but still higher than pre-pandemic levels. It is clear from this that the industrial sector will be correlated with the retail markets and consumer confidence more significantly than in the past. Although the sector and region will be cushioned by a tight supply line and currently tenant demand remains robust, in truth it is unclear what these economic headwinds actually mean.
Looking forward and reflecting changing occupier demands we are seeing an increased focus on ESGofferings within the industrial sector. Air source heat pumps, solar technology, LED lighting, high BREEAM and EPC ratings, energy monitoring, rainwater harvesting and electric vehicle charging points are becoming common and helping to sift the definition of ‘prime’ towards sustainable assets. Taking this further, we expect to see future developments targeting Net ZeroCarbon as the industry takes positive steps to match ambitious targets from both landlords and tenants.
The confirmed Solent Freeport will incorporate sites across the Solent region including, Fawley, Waterside, Marchwood, Redbridge, Southampton Airport and Dunsbury Park should be viewed as an opportunity for the industrial sector. Key benefits of the Freeport status are highlighted below:
- SDLT relief on land and building acquisition in the tax sites
- Enhanced Capital Allowance Benefits on construction and renovation of buildings as well as on plant and machinery
- National Insurance Contribution relief for new employees up to the threshold of £25,000
- Business rates relief of up to 100% for new and certain expanding businesses
- Relaxed planning environment aimed at simulating development. Significantly all business rates generated in the wider Freeport zone will be pooled and retained for local investment for the next 25 years – this amount to c£500m of an additional focused resource. This allows local authorities to plan and forward fund major projects and significant infrastructure improvements.
Why the South Coast
The South Coast has a number of outstanding attributes that make it attractive to industrial occupiers and investors. The ports form vital gateway economies for the rest of the UK. The strategic location means container ships make their first stop on entry and last stop on exit when connecting Europe with the rest of the world; giving a manufacturing advantage. For example, £71bn worth of goods go through the Port of Southampton alone, so their significance spreads far beyond the regional markets. This ensures the market is well-placed in a varied economic climate.
Southampton has also been listed as a new Investment Zone by the chancellor*, although details are yet to be released the following benefits have been suggested:
- No SDLT on commercial and residential purchases
- No business rates on newly occupied premises
- Businesses to pay no National Insurance on new employees’ salaries up to £50,000.
Both the Freeport and the Investment Zone should benefit the region significantly and represent a genuine opportunity for the industrial sector as well as enhance the existing economy.
FOR THE FULL INDUSTRIAL MARKET UPDATE PRESENTATION FROM THE SOUTH COAST COMMERCIAL PROPERTY SHOW, CLICK HERE
* (At the time of the presentation, Chancellor Kwasi Kwarteng was in situ)
Jonathan Trice, Director Omega RE, a commercial real estate advisory firm based in Southampton, covers the South Coast and national acquisitions, specialises in cross-sector leasing and investment agency as well as development consultancy with a particular focus on ESG.
Should you require support in your industrial expansion, or consolidation or would like to know more about the benefits of being situated on the South Coast to take advantage of Solent Freeport and the Investment Zone, then we would be very happy to have a conversation with you.