Speculative development ‘could return in 2013’

The new year could see the long-awaited return of speculative commercial property development following the Chancellor’s decision to act on empty property rates, according to chartered surveyors Johnson Fellows.

Industrial and logistics specialist Mike Price (pictured), partner at the Birmingham-based company, believes George Osborne’s announcement in December’s Autumn Statement could provide the kick-start for speculative development.

Mr Osborne announced that, to promote further private investment, the Government will exempt all newly built commercial property completed between October 1, 2013, and September 30, 2016, from empty property rates for the first 18 months up to the state aids limit.

Mike said: “This decision has been widely welcomed by the commercial property sector and by developers in particular who have been waiting for something like this to support speculative development.

“The decision has effectively added another 12 months of void rates on industrial and distribution property. Since the current rating regime started there have been virtually no newly started schemes.

“The effect could be that, for example, if a scheme of 100,000 sq ft was built and the units not let until 18 months after completion the cost to the developer would have been in the order of £250,000 in empty property rates.”

He added: “Developers were simply not prepared to take that risk. However, now that a large part of the risk has been removed there will be many investors and developers reconsidering schemes that may have sat on the drawing board for some time.”

Supply is incredibly short with the last two speculative warehouses in Birmingham at The Hub and Altitude, both in Witton, under offer. When these deals complete there will be no new industrial/warehouse accommodation available above 25,000 sq ft across Birmingham, Solihull, Worcestershire and Warwickshire and only two buildings across the Black Country. This constriction of supply is having a knock-on effect on businesses wishing to expand in the region, particularly automotive component manufacturers, food and internet retailers and logistics operators.

Mike added “The investment market would also support new development as industrial property in key UK locations such as the East and West Midlands is seen as a safe haven for investors. Yields have been relatively stable since January 2010 for prime accommodation. This stability also reduces developer risk when assessing whether to build. Let’s hope that 2013 sees the return of speculative development and addresses this severe shortage of good quality stock right across the Midlands region.”