Sector facing a challenging year

What does 2010 hold for Yorkshire's commercial property sector? Lizzie Murphy spoke to some of the region's experts to find out.

At the beginning of 2009, there was a degree of optimism among property experts that 2010 would be the year of recovery.

However, any hopes of a speedy result have now disappeared and there are signs that the Yorkshire market will remain muted for most of the year.

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GVA Grimley warns that it will recover at a far slower rate than the south of England and predicts that lack of access to finance and muted occupier demand in the region will prove to be the largest barriers to revival in 2010.

Andrew Foster, director in the corporate recovery team at GVA's Leeds office, said: "A combination of lack of funding, limited occupier demand and the empty property rates liability have prevented any speculative development in 2009 and we predict that this will continue in 2010.

"Grant funding is also in short supply and this situation will worsen following the election.

"We also predict that we will see more properties in distress in 2010 as many banks have been allowing customers to pay interest only payments. When the interest rate starts to rise, companies on the brink of insolvency will struggle to stay afloat."

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Prime property values increased towards the end of 2009, stabilising at 2004/5 levels.

According to GVA Grimley, good demand for well-let income-producing stock, such as high quality retail warehousing, and schemes with strong tenant covenants, including government departments, will continue and lead to further price rises in 2010.

But in the rest of the market landlords will continue to compete for tenants with high incentives continuing into the first half of the year.

Jonathan Shires, director of office agency at CB Richard Ellis in Leeds, said: "Looking ahead to 2010, we are likely to remain very much in a tenant market.

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"There will continue to be choice for occupiers in all sectors as landlords continue to bid for their signature. Incentives are only likely to stay at their present levels during Q1 and Q2, however, as present demand could well take out large chunks of the over-supply."

A two-tier market began to emerge in 2009, according to Knight Frank, with rents on some peripheral locations falling to levels last seen in the 1990s, while the Toronto Square office building in Leeds city centre established a new headline rent of 27 per sq ft.

Guy Cooke, partner at Knight Frank in Leeds, said: "We believe the market will remain challenging in the short term. While sentiment is certainly improving along with enquiry levels, the capital cost of moving is still a major burden and those landlords who are able to assist tenants in this regard, like Highcross at Toronto Square, will succeed.

"The public sector was an active occupier in 2009. However, with this likely to fall away, we need the private sector activity to continue to improve to rebalance the market. We expect landlords will be more optimistic about the market in the latter half of the year."

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DTZ Research, part of real estate adviser DTZ, estimates that 36bn of capital will be available for investment in real estate in the UK in 2010 – double the 18bn of capital transacted in the last 12 months.

Alastair Reid, head of commercial property at Halliwells in Sheffield added:"The key will be finding the right properties at the right price that offer the right potential yield. To that extent, location remains vital but understanding the occupiers and their businesses is equally important."

Meanwhile, law firm Dickinson Dees believes that there are signs of a possible upturn in the Yorkshire property market, which should be taken seriously.

David Stone, head of the commercial property team at the firm's York office, said: "We had an exceptionally busy last six months, working flat out on a number of office, retail, leisure and lifestyle projects which suggest that life is beginning to return to the embattled commercial property market in Yorkshire."

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He added: "If the last six-to-nine months are anything to go by then the commercial property barometer may be pointing towards the start of a recovery – and we are all hopeful that this trend will continue into 2010."

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