Reports from two leading UK commercial property companies have recently highlight further and growing evidence of the oft-discussed north–south divide in the commercial property market.
Segro and the UK Commercial Property Trust (UKCPT) have both reported results the conclusions of which have demonstrated weak regional performances in their commercial property portfolios, boosted by strong demand and performance in London and the South East. Segro’s results indicate continuing performance declines in its regional property portfolio, particularly in commercial property in the cities of Birmingham and Manchester.
Ironically though its two strongest performing commercial property assets in the United Kingdom were in Birmingham and Manchester – the Kings Norton Business Centre based in Birmingham, where it has recently completed eight new lettings, and Westbrook Park at Trafford Park in Manchester, where it said a ‘modest refurbishment’ was delivering new gains.
However, the regional results in the Midlands and the North are countered by a more upbeat and positive account in commercial property in the South East of England and London, and stronger results in France, Germany and Eastern European countries such as Poland.
According to Segro, there is no doubt that London and the South remain the strongest areas for occupier demand in the UK with conditions for its commercial property portfolio in the Midlands and the North of the UK continuing to be considered difficult.
Ninety-two per cent of Segro’s commercial property holdings are in London and the South East so it comes as no surprise that its London-centric portfolio is doing well. The company has also just signed the UK’s largest logistics deal in South Yorkshire.
The UK Commercial Property Trust’s commercial property portfolio performed well and the company has also added the St George’s Retail Park in Leicester and the Rotunda Leisure Complex in Kingston Upon Thames to its portfolio. These two prime properties add over £6 million of annualised revenue and also present UKCPT with further opportunities to enhance returns through asset management.
More generally their results also indicate a London–South East bias and weak occupational demand in other regions, with the company expecting to benefit from the strong growth in the South East and London.
UKCPT’s chairman Christopher Hill warned of Investment Property Databank (IPD) figures masking differences in performance in the different sub-sectors of the commercial property market. London and the South East continue to perform well, aided by continuing investment from overseas. This contrasts quite sharply with regional and secondary commercial property for which there is currently very little demand, he said.
More worryingly for the regional market, UKCPT warned that commercial property is entering a phase where returns would be mainly derived from income.
‘The office sector is the only area to show some growth (Index total return of 5.0%) but again this is only in Central London,’ said Chris Hill. ‘This is in contrast to the rest of the country where occupational demand is still undermined by the languid economic recovery and has resulted in the outlook for rents remaining weak.’
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