Will 2011 mark the end of a difficult three years for the commercial property market?

Mark Bunting, Group Director with Aitchison Raffety gives his views on the year ahead.

The outlook for 2011 remains uncertain.  The big question mark will be the effect of the public sector cuts, partly in terms of potential vacation of public sector space but also due to the knock on effect to those private businesses which have become ever more reliant on the public sector.  Such a reduction in business would inevitably curb their desire to take additional space.  Notwithstanding this, generally we see the South East as a relatively positive area of the country which is not over reliant upon public funding and accordingly we expect stock levels will start to be eroded but development, certainly that requiring bank funding, is unlikely to restart this year.  We also anticipate that there will be a continuing uncertainty until the end of this year by which time hopefully the effect of the public sector cuts will be better understood and will give more confidence to the economy and market as we move into 2012.

Offices

The general office market remains sluggish although the amount of stock coming onto the market has slowed down and is now predominantly being balanced by the amount of stock being taken up.  2011 will continue to see some very good opportunities for tenants to get good deals on new leases but, with the reduction in the amount coming onto the market and an almost complete absence of new build, this situation will gradually change if the economy picks up and so for the best deals it is worth moving quickly. 

Retail

This market is more mixed.  Strong retail towns have very much bucked the trend with little vacancy and record rents being achieved despite what could be expected as a retail recession due to a lack of consumer confidence.  Weaker retail towns have struggled with reduced levels of demand and shops have taken considerable amounts of time to re-let.  Notwithstanding this, lettings are still taking place.  It is currently unknown what effect the public sector cuts will have but generally the retail sector would appear fairly solid, certainly in the stronger towns in the south-east and prospects look generally good for the year ahead.

Industrial

The industrial market is still suffering from a general lack of demand which has started to see rents slip and incentives increase.  Notwithstanding this, with no new developments, the existing stock is gradually being whittled away and larger occupiers are now being obliged to forward commit to new developments in order to obtain the space they need.  This market still remains fragile and like all is suffering from a lack of funding which will most probably preclude speculative developments for the remaining part of this year.  But we can now anticipate a time where vacancies reduce to a level where rents start to increase, probably in 2012.