The UK commercial property market is hot right now and on course to get even hotter but it's only when we strip out various locations and put them under the microscope that we are able to truly evaluate and assess where the heat is rising…
It always seems a bit of an unbalanced approach, when considering the commercial property market, to look at it within the geographical parameters of North vs South. It's not really a fair view as the South East can count London in the mix and that's where an abundance of prime commercial locations sit, of course. London, for instance, experienced the strongest rental growth in 2014, and the property pundits tell us we can expect it to continue to lead for the next 12 months at least.
The capital value growth of offices in the South East in 2014 has ensured that the commercial property sector's recovery has come a lot quicker than might have been previously anticipated. Expanding businesses, improved employment and an increase in available funds means that demand for offices has grown, pushing up the prices of rent and depleting the supply available. Strong rental growth is apparent in London, as would be expected, and is, in particular, thanks to the reduced level of availability.
The advanced growth in the South East is predicted to be matched by steadier growth in the regions this year, with greater office take up expected in key cities including Manchester, Bristol, Leeds, Birmingham and Edinburgh. It won't be like the white heat in London but the temperature of the market around the UK is definitely rising with prime areas in Yorkshire, the Midlands and the North West experiencing progressive growth.
There is virtually no speculative development in the North at the moment - although this may yet come as the year plays out and the political landscape becomes settled after the May elections. There needs to be pre-let activity to give confidence to investors and, although the economy is moving in the right direction, we're not quite there yet.
Businesses in the regions are beginning to make decisions about their offices now that the dust on the recession has settled but the decisions are in the manner of refurbishment vs an office move. The really big decisions that will make a significant impact on the market will happen after the general election at a point when we all know who or what the Government will be. The property market, in general, also stands to be affected by the expected rise in interest rates but it is not expected to be so high, in the first instance, to seriously impact the commercial property market.
As confidence increases, so do prices and fit out costs are going up. We're working with both suppliers and clients to keep prices down so that the incentive is still there to try new designs and make better use of space.
Last year, we introduced our finance package, an affordable, tax-efficient solution designed to help clients in the funding of all their office fit out, refurbishment and furniture requirements. It's been taken up by a higher percentage of customers than we anticipated as businesses make the decision to maximize the physical changes they are making in the work environment. There's an appetite for the larger scale design and build projects as companies prepare to reinvest and are happy to opt for turnkey solutions.
It's great to see the market so buoyant across the UK but this is not a time for us to rest on our laurels. Instead, we're aiming to turn up the heat ourselves. These are exciting times and, for the most innovative space planners and design consultants, there is plenty of opportunity - in London and across the regions.