Research article

Strong growth, new challenges

Strong economic growth in the markets around the M27 is increasing the pressure for more homes and workplaces

The economy of the M27 corridor and surrounds is growing faster than the national average, driven by consumer spending, an emerging tech sector, further expansion of maritime industries and inward investment.

However, strong economic growth in our study area, which includes the local authorities of Eastleigh, Fareham, Havant, Gosport, Portsmouth and Southampton, is putting strain on already undersupplied commercial markets and exacerbating the housing shortfall.

Economic growth in the six local authorities reached 14% over the past five years, above the UK average of 11%. This was in part driven by the strong recovery in consumer expenditure, boosting the wholesale and retail sector by 35% over the past five years, exceeding the UK average of 22% growth. We expect the M27 corridor to see further growth of 9.5% in the next five years, above the UK average of 9.2%.

"We expect the M27 corridor to see further economic growth of 9.5% over the next five years, above the UK average of 9.2%"

Savills Research

Public and private investment

Through the City Deal, Portsmouth and Southampton are working together to support further growth, maximising the economic strengths of the M27 corridor and creating local jobs. The deal has provided £115m of local and national public investment to encourage over £800m of private sector investment, with a focus on supporting growth in marine, maritime and advanced manufacturing sectors.

This public investment comes at a time of growing private investment. Commercial investment is returning to levels seen during 2007, particularly in the office and industrial markets. Overseas investors increased their investment levels to £157m during 2016, the strongest level since 2007, which accounted for 43% of total commercial investment.

Expanding tech sector

Technology is among the fastest growth sectors in the M27 corridor, growing by 33% over the past five years, outpacing the UK average of 29%. According to Tech City UK’s latest report, Southampton witnessed digital turnover growth of 180% between 2010 and 2014, faster than any other UK city.

The University of Southampton Science Park has helped to provide workspace, advice and support for small digital science and tech businesses. Portsmouth and Southampton Solent Universities specialise in engineering, sciences and creative industries, providing the region with a strengthening skills base.

This is additional to the strong marine and maritime sector which has also grown during recent years, driven in part by key assets such as the Port of Southampton, Portsmouth Naval Base and the Solent Marine Cluster.

Growth of retail & leisure

Established high end shopping centres; Gunwharf Quays (Portsmouth) and WestQuay (Southampton) are the main centres for the 1.4m shopping catchment. The region’s retail provision has improved considerably in recent years, with the redevelopment of Whiteley shopping centre, near Fareham, creating around 1,000 jobs. With amenity offering coming high up in Savills ‘What Workers Want’ survey, this scheme has also boosted occupier interest on the nearby Solent Business Park.

Unmet housing demand

Economic growth will place further pressure on an already undersupplied housing market. According to the current Strategic Housing Market Assessments (SHMAs) for the local authorities along the M27 corridor, at least 4,000 additional homes are required per year.

However, whilst the supply of new homes increased over the last five years, reaching 3,060 in the year to March 2016, it was still short of need by 940 homes.

The low level of supply has contributed to an increase in house prices. Over the year to September 2016, house prices have grown between 8.0% and 10.7% across all six local authorities, above the national average of 7.1%.

However, with the average house prices in Portsmouth and Southampton at £205,000 and £208,000 respectively, homes along the M27 corridor are relatively affordable compared with neighbouring Winchester, Chichester and East Hampshire. These neighbouring markets have seen even stronger house price growth since the 2007/08 peak and average house prices are close to or above £400,000.

Values in these three markets have been pushed up by better connections to London, the status of Winchester and Chichester as cathedral cities and the presence of the South Downs National Park.

Fareham and Eastleigh have average house prices of c.£285,000, lifted above the other M27 corridor areas because they include some desirable villages such as Sarisbury Green, Locks Heath, Botley and Hamble.

Figure 1

FIGURE 1Average house prices, affordability and supply in the M27 corridor

Source: HM Land Registry, DCLG, local authority SHMAs, DCLG

Office space needed

Southampton, Chandler’s Ford and Solent are the dominant office markets in the Western M27 corridor. Average annual take up has reached 265,000 sq ft over the past 10 years, and should demand continue at this rate, a need for 1,325,000 sq ft of office space will be required over the next five years.

There is currently around 430,000 sq ft of office space available in the Western M27 market, half as much as in 2011 and the lowest level on record. This equates to less than two years of supply and indicates the need for more new office space.

With no new build developments currently in the pipeline, and only 50,000 sq ft of office space currently under refurbishment, this reflects a potential need for 845,000 sq ft of office space over the next five years.

Headline rents have stood between £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. Now incentives have reduced dramatically and longer leases are being agreed.

Figure 2

FIGURE 2The Western M27 market has a shortfall of office supply, with less than two years of space remaining

Source: Savills Research

Figure 3

FIGURE 3Western M27 Office market

Source: Savills Research

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