Funding is also a factor. Since the Global Financial Crisis, funding for speculative commercial development has been very restricted and while there has been some availability of loans for fully pre-let commercial development, finance has been comparatively easier to achieve on residential schemes.
Given these issues, one way to deliver new commercial space is through mixed use regeneration schemes where the different uses support and cross subsidise each other.
Residential new build
New home values in most of the M27 corridor are between £300 and £350 per sq ft with higher values achieved on waterside schemes in Portsmouth and Southampton. Here, regeneration and the waterside views has pushed values of up to £500 per sq ft. New build values in the Winchester market are higher, averaging between £400- 430 per sq ft for larger developments.
Higher paid workers in the M27 corridor tend to live outside the major urban areas, preferring the neighbouring towns and villages. New build developments appealing to this more affluent market, such as Berewood (west of Waterlooville), can achieve higher values and are more accessible to work places.
With flat rents and rising build costs, there has been little incentive to add to new office stock in Southampton city centre since the completion of Charlotte Place in 2008.
Lack of new development has resulted in a surge of refurbishments, including Mountbatten House and The White Building, achieving rents of up to £19.50 per sq ft. Limited choice has prompted companies including HSBC, KPMG and Babcock to move to out of town business parks from central Southampton or Portsmouth to get the space they need.
Now that out of town rents have risen to levels in line with Southampton city centre, we believe that the case for development is getting stronger. However, there is still a nervousness among developers as to the viability of speculative office development.
In the industrial market, development of new space is still limited with a shortage of new sites. Lidl has recently opened their £55 million distribution centre on the north west of Southampton, which will serve stores in Hampshire, Dorset and West Sussex, creating around 400 new jobs.
Two other key industrial developments are in the pipeline. Mountpark Southampton, (the former Ford Transit assembly site), is about to commence speculative development of four warehouse units ranging from 57,620 to 128,000 sq ft and Evander properties are about to commence development at South Central, adjacent to the M27, on three units ranging from 39,000 to 117,000 sq ft.