Described as a dynamic landscape for property agents and investors alike 2024 has been a challenging and transformative year.
It demonstrated the commercial property sector’s ability to adapt to seismic economic and social shifts. For example; a general election, interest rates falling more slowly than anticipated, and continuing global unrest.
2024 has put down the foundations for an exciting year ahead and one which will be our 44th year of trading in Chester.
Sustainability plays a key role in all property decisions now. Green certifications like BREEAM, energy efficiency, and ESG become critical for investors and tenants alike, particularly looking long-term. Green building retrofits and renewable energy integration will attract both tenants and investors and command higher appeal and rentals.
Investors looked at value added opportunities in underperforming sectors as a smart investment.
Offices
The office sector in Chester and surrounding region saw a demand for flexible space driven by hybrid work and short term “easy in easy out” all-inclusive rental deals. Businesses are prioritising flexibility and adaptability and there will be continued growth in Coworking spaces, short-term lease options and multi-use developments. Secondary cities like Chester becoming hotspots as companies seek out more affordable locations with robust infrastructure, including 5G and skilled work forces.
Grade A office uptake showed signs of improvement in 2024 and we expect to see this trend continue. Grade B and C space is tending to be repurposed to alternative uses such as residential, leisure, health and fitness and hotel use rather than becoming obsolescent.
Retail
Secondary high street retail in Chester and surrounding towns surprises the market with the smaller affordable shops tending to generate good levels of interest particularly in suburban retail parades. Entrepreneurship prevails with people reinventing what is required to set up a new business/retail offering in traditional shop premises. Primary high street retail and large out of town retail parks showed improvement last year and we expect this to continue.
Industrial
The industrial market continued to thrive throughout 2024. We are forecasting the industrial sector will continue to dominate and deliver great returns with good levels of demand from both tenants, owner occupiers and investors alike. There is a lack of new development particularly in small to medium sized sheds in the Chester, Wirral, North Wales and Cheshire regions. This will continue to drive down vacancy rates and keep the market strong.
We have summarised further findings from sources across all sectors as follows:
There is a growing optimism that the UK could become a stronger opportunity for foreign property investors and that they will allocate more capital to safer markets in the UK in 2025 and more into the regions. Uncertainty in the US and Euro regions are helping this, together with more clarification of Labour’s policies. Investment from the Middle East, Israel, France, Spain and the Czech Republic was specifically mentioned.
Pensions and city investors need to create business plans and aim to exit in four years to make 15 to 20% gross return. The biggest risk is the duration assessment associated with the exit.
Offices
There was strong performance in regional office leasing compared with London and this is expected to carry through to sub regional in 2025.
The largest regional office transaction in four years was Bank of New York Mellon’s consolidation of two offices at 200,000 square-foot letting at 4 Angel Square in Manchester. Professional service firms and education providers are lead lettings.
After a shift to hybrid working, businesses are now settled on their working space requirements. In fact some businesses who made an early decision to downsize are revisiting those decisions, the demand for high-quality office space to retain and attract key staff is high. The University of Chester’s new ranking for its business school should help here.
Lettings for Grade A work space in the biggest six regional cities show an 8% improvement on 2023 for 2024 beating the previous five years. The market is up 10% for the big 15 cities, including Liverpool and Manchester.
Grade B and C office space is tending to be repurposed to residential or hotel use rather than become obsolescent. For example, gyms revitalising old department stores and the conversion of basement car parks into hotels.
Retail
Out of town retail parks did well with major real estate investment trusts (REIT) such as British Land targeting regional properties rather than Greater London.
Prime shopping centres are making a comeback after many years. There are no planned development of future retail parks in the UK and this is why the REIT and others are focusing on buying retail parks.
The largest shopping centre purchase of the year was completed by Landsec with its acquisition of 92% of Liverpool One for £490 million.
Mini brands, including Zara Primark and TK Maxx increase their portfolios.
Online retail sales have plateaued at around 26% of total retail sales for the last 2.5 years and are driving tenants to open up new physical stores again or enlarge existing units. Retail data shows online spend by customers where that spend is connected to a store visit is 2.5 times higher than when not connected to a store visit. A blend of online engagement and in store experience will continue to shape the future of retail into 2025 and beyond.
Industrial & Warehousing
On industrial and warehousing, there is a move to install landscaping features like lagoons and park runs around new and refurbished schemes. This appeals as lifestyle choices for new occupants and accompanies the higher importance of energy considerations for buildings and EPC ratings.
Again, there is a lack of new development. This will drive down vacancy rates to 6% by the middle of 2025 from 6.9% in 2024. ‘Big-box’ take up has stalled as e-commerce developments completed and occupied in a stagnant market for 2024. Regional, smaller industrial units and data centres will show growth.
Deeside Industrial Park, North Wales
The largest North West industrial single-let sale was Warrington Omega II for £100 million but multilet industrial parks proved popular for investors with their attractive returns and diversified income base.
And some final thoughts:
Mid 2025 will see a recommendation from the Law Commission on Security of Tenure under the Landlord and Tenant Act 1954. This could lead to more vibrant thriving places.
Partnerships between property owners, councils and occupiers will continue to be vital to local economic growth and town and city centres.
Please contact Directors, Martin Dodd or Jonty Goodchild for an informal chat about any matters concerning commercial property.
Office: +44 (0) 1244 311 681 Web: www.boltonbirch.com
Email: jonty@boltonbirch.com Email: martin@boltonbirch.com