Southampton, Portsmouth and the wider M27 corridor needs more homes and office space to support strengthening economy

09 February 2017

Strong economic growth around the M27 corridor* is increasing the pressure for more homes and workplaces, and failure to meet this demand may inhibit long-term growth, according to the latest research by international real estate advisor Savills.

The firm’s The Future of the M27 Corridor report highlights that the area’s economy is growing faster than the national average, driven by a flourishing tech sector and further expansion of maritime industries, consumer spending and inward investment. But strong growth is exacerbating the housing shortfall and putting further strain on an undersupplied commercial market.

The six local authorities along the M27 corridor need at least 20,000 new homes over the next five years to meet current housing need. But if new development continues at the current pace, the area will have a shortfall of 4,600 homes over the next five years, which could restrict further economic growth.

The low level of supply has contributed to the increase in house prices.  Over the year to September 2016, house prices have grown between 8% and 10.7% in the area, above the national average of 7.1%.

Office space in the western M27 area is also now undersupplied. Average annual take up has been 265,000 sq ft over the past 10 years. There is currently around 430,000 sq ft available in the market, half as much as in 2011 and the lowest level on record. With no new build developments currently in the pipeline, and only 50,000 sq ft currently under refurbishment, this reflects a potential need for 845,000 sq ft to be provided over the next five years.

Looking ahead, there is potential to bring forward more commercial space through residential-led mixed use schemes, where higher values achieved by residential could be used to cross-subsidise other uses. This is most likely to be on brownfield sites and in urban locations.

Savills research has identified three key hotspots for mixed use opportunities, including The Royal Pier regeneration, Southampton; the Tipner-Horsea Island site, Portsmouth; and land North of  Fareham at junction 10.

Colin Wilkins, head of Savills South Coast Development team, said: “It is vital that local authorities along  the M27 corridor area work together to meet the housing demand created by a growing economy. Planners, developers and house-builders must make sure that people are able to live and work in the same area and that new communities can evolve. Well thought through transport solutions are essential to support additional housing in the area and ensure a sustainable outcome.”

The lack of new office space has created a spike in the number of refurbishments taking place. Top rents in the M27 corridor have been around £18 and £21 per sq ft for the last 25 years. After a period of significant incentives from 2008 to 2014, rents have recovered towards the upper end of this band. Rents for top refurbished space are being quoted at £21 per sq ft, illustrating potential for rental growth. 

Martin Hastelow, head of office at Savills, Southampton, comments: “The M27 corridor has become under-supplied with office space, with a lack of new build and conversions to student housing and residential. With a lack of stock in the pipeline the potential opportunities offered by mixed used developments cannot be understated. As demand continues to increase in the area we will see an increasing focus on new solutions such as mixed use developments and high specification office refurbishments to bring existing stock up to scratch.”  

Clare Bailey, associate director in Savills research, comments: “The key to unlocking commercial property in the M27 corridor lies in mixed use development. Funding for speculative commercial development has been very restricted in the past, however achieving funding for residential driven schemes has proven to be comparatively easier. These developments can also boost a regeneration of an area, attracting new retailers and leisure providers as well as new homes.”  

*local authorities of Eastleigh, Fareham, Havant, Gosport, Portsmouth and Southampton

 
 

Key Contacts

Martin Hastelow

Martin Hastelow

Head of Office
Commercial Agency

Savills Southampton

+44 (0) 23 8071 3989