Shut the door on ‘24 but will we thrive in ‘25?
William Wall, Director, Eddisons Lincoln, takes stock of the commercial property market as we face the new year
October’s Budget is still featuring strongly in business discussions, with employers’ raised NI contributions probably the most debated. How much will it cost us? Will it impact on forthcoming salary discussions? Will it result in redundancies? Will it force up supplier costs? Will it lead to inflation? Most likely some, or probably all, of the above.
It’s most likely to lead to a slowing of interest rate cuts to levels above where some were originally predicting. That can impact on the property market and while there is an argument to suggest that the housing market is getting used to higher rates - with mortgagees on longer term fixes yet to experience the pain - the commercial market becomes trickier, with both loan and development finance impacted at much higher rates.
The leasehold route, arguably, should strengthen subject to occupier demand which, when weak, adds further pressure to availability of debt finance.
The national agency picture for Eddisons in 2024 saw no great surprise in that, yet again, industrial property took the lead in sector strength for the agency - and that sector remains a mainstay of the Lincoln agency’s deals.
The challenge in this industrial sector is always a lack of good quality product but we are in the position of acting for developer clients who are bringing forward new-build schemes that are addressing that imbalance.
Nationally, the large warehouse and distribution sector slowed during 2024 and demand for space was subdued. But there is strong evidence of a resurgence in investment demand, suggesting that the market supply for space will pick up over the coming 12-24 months and through the next development cycle. Thought this doesn’t necessarily mean a resurgence in occupier demand.
The office market in Lincoln is not a driving feature of our agency business in the way it is for other Eddisons’ offices in the East Midlands and Eastern regions.
Agency colleagues, excepting those in Cambridge, report the office market remained extremely tough, albeit demand for smaller space, sub 4,000 sq ft, was pleasingly buoyant and a slight resurgence in rents and pricing entailed, with the overall availability of space falling.
They report a continuation of weak demand for suites of 5,000 sq ft plus. And then it’s Grade A space with added attractions such as on-site gyms/food facilities and some leisure uses attracting occupiers - presumably to incentivise employees to return to the office from WFH.
Notably, Eddisons’ London office has reported strong sector growth in offices, perhaps because many corporates now insist on a 5-day a week office presence again.
In Lincoln, we have continued to play a leading role in the city centre retail and food & beverage (F&B) sectors. The overall lack of supply of good quality shop property has led to a number of requirements remaining unsatisfied.
Normally, this could lead to rental growth, but we are wary of the impact the Budget will have on this sector - ie increased staff costs. The food & beverage market faces the same headwinds, but there are several good quality operators who are keen to gain representation, especially within the city centre’s Cornhill Quarter.
Looking ahead to the coming year, some commentators suggest that the overall economic picture is now one of a slowing improving position across the corporate sector with, perhaps, some slight pressures on inflation.
Otherwise, it’s a picture of stability - subject, of course, to national political and geopolitical caveats - and lowering of base rates through to 2027, with an overall improvement of “wellbeing” after quite substantial “shocks” over the last 10 years or so.