Catella - General - Catella/IPMI Autumn Regional Property Market Rental Indices

Date: 04 Dec 2000

Catella/IPMI Autumn Regional Property Market Rental Indices published this week show that in the past six months, retail rents have become static in all but two of the 21 centres surveyed.

“The Indices give a clear picture of the turmoil in the High Street”, says Catella’s Gordon Wood, “Despite the slow down in the High Street, retail warehouse rents are surging ahead with areas such as Liverpool showing a 33.5% rise, though there are warnings that the rents being achieved may not be sustained”, he adds.

Industrial property has seen some significant rises across the country but it is in the office sector where most gains have occurred with nearly half of the centres surveyed showing uplifts.

Retail
Out of the twenty-one centres surveyed in the retail sector, only two showed rises and these were relatively small at Oxford (4.5%) to £2,476 per sq m (£230 per sq ft) Zone A and Peterborough (2.5%) to £2,153 per sq m (£200 per sq ft) Zone A.

The static nature of the prime rents reflect the lack of transactions, and the general nervousness in the High Street, following Arcadia's decision to put a further 150 shops onto the market and C&A's decision to pull out of UK retailing. The last time there was such limited movement in the rental trends was at the height of the recession in the early 1990s.

Prime yields have moved out, reflecting this lack of rental growth, and transactions are now showing at least a 1% yield shift, giving plenty of opportunity for investors to pick and choose in the High Street.

The lack of demand from Institutions gives opportunities to smaller Pension Funds and private trusts who have not seen such attractive yields in the prime retail sector for many years. For example, a private investor has bought a unit let to Alliance & Leicester for a further 14 years in the prime part of Truro for 6.75%.

Offices
Offices have continued to see big rental rises throughout Britain according to the Indices, with only one fall in all 22 centres surveyed. However, 45% of the centres saw uplifts over the previous six months led by the West End of London and Cambridge with a 15% rise, followed closely by Milton Keynes at 14%.

West End of London rents at £780 per sq m (£72.50 per sq ft) are now higher than the peak of ten years ago and with a great lack of supply, the signs are that rents will continue to rise. Even the City, with the large space threat from Canary Wharf and Docklands, has shown a 10% rise to £603 per sq m (£56 per sq ft).

The demand from IT and research companies shows quite clearly in Cambridge, where rents have now reached £242 per sq m (£22.50 per sq ft).

Edinburgh continues its capital surge, as befits its financial status. Rents have risen by a further 11% and now stand at £323 per sq m (£30 per sq ft), which is the highest rental in Britain outside London and the M25 area.

Retail Warehouses
The government's support for enhancing existing town centres, and the clampdown on further consents for out-of-town retail development has merely highlighted the
shortage of quality open A1 consents on the edge of town, and, according to the Indices, the rentals are now approaching levels which many retailers will have difficulty sustaining.

The Indices show that despite the slowdown in the High Street, out-of-town retail rents are still surging forward.

Eight out of the nineteen centres surveyed have shown rises, and no areas have had any falls. Both Cambridge and Chester have seen a 25% rise in the rental levels, where prime retail warehouse rents now stand at £269 per sq m (£25 per sq ft).
Even less-favoured areas are seeing the increases, with Liverpool showing a 33.5% rise to £215 per sq m (£20 per sq ft) and Southampton a 16.5% rise to £215 per sq m ((£20 per sq ft). The rises come at a time when rents in the High Street are static, and retailers are fighting to maintain their margins.

Industrial
The industrial sector shows a significant number of rises over the past 6 months.

Seven out of the twenty centres surveyed showed a rise, with Birmingham, Bristol, Cambridge, Manchester, Norwich, Oxford and Southampton all benefiting from the strong economy. The largest uplift was in Cambridge, where rents have risen by 20% and are now at £80 per sq m (£7.50 per sq ft).

None of the areas surveyed showed any rental falls in the industrial sector.

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