The UK's business parks sector is in fine fettle and the outlook for this year looks positive. Expectations for rental and capital growth have shot up and the Thames Valley leads the way as the country's hot spot for business park development.
UK property in general improved its performance in 1999. According to the Investment Property Databank's (IPD) recent figures - the yardstick for the direct market - rental growth for business parks was 6.3 per cent, while capital growth was 7.7 per cent in 1999. This compares with 6.5 per cent from offices generally and 7.4 per cent from all property in the portfolio.
Construction of new office space on Britain's business parks totals over 300,000 sq m (3.2 million sq ft) of space. This represents 7 per cent of the total existing stock, which is divided between speculative development and space already committed to an occupier.
Around £300 million sterling has been "disinvested" from the central London office market over the past year and sizeable spending has been seen in both outer London and business parks.
According to IPD figures, office park investment accounts for 11.6 per cent of total institutional investment in offices. Last year, this investment totalled £3.3 billion. And average yields hovered around 7.9 per cent, compared to 8.1 per cent from offices generally and 7.5 per cent on all property in its portfolio.
Meanwhile, total returns on office park investments were 15.5 per cent in 1999, higher than the 14.1 per cent from offices generally and 14.5 per cent from all property in the IPD portfolio.
New space will be flooding the business park market this year at schemes in the Thames Valley, including MEPC's Bedfont Lakes, The Prudential's Green Park and the Stockley Park Consortium's eponymously titled Stockley Park.
MEPC is funding the Lakeshore scheme at Bedfont Lakes, where a total of 24,773 sq m (266,657 sq ft) in three buildings will be ready for occupation during 2000.
And Prudential is in serious discussions with US Web network provider Cisco Systems for around 56,000 sq m (600,000 sq ft) at Green Park, in Reading. Cisco has been seeking one million sq ft of office space west of London for the last 12 months. Sources say Cisco also has options to take the remainder of the business park.
However, according to GVA Grimley's research, take-up levels in the south-east were down from 107,000 sq m (1.1m sq ft) to 91,000 sq m (979,548 sq ft) last year. But increased activity in the south-east's lettings market so far this year suggests a quick recovery for the region.
Record levels of take-up across the UK have helped sustain the market. "We had expected the fall in the rate of GDP growth in late 1998/early 1999 to lead to lower take-up of business park space in the latter half of last year. Its impact was felt in the property market overall - with slower rental growth recorded by the IPD monthly index in the first six months - but take-up on business parks remained buoyant throughout the year," said Michael Haddock of Grimley.
Meanwhile, parking restrictions in the south-east business park sector may have an adverse effect on future development. The strength of demand in some regions, especially the south-east, will soon absorb land supply with existing consents. It will be interesting to see whether occupiers are prepared to accept lower parking provisions being proposed, or whether they will look elsewhere in the UK, or even overseas.
The UK's retail warehousing sector has been one of the strongest areas in growth trends over the past 20 years. Overall, retail accounted for the biggest chunk of new capital last year, with retail warehousing seeing net investment of £800 million to £900 million. However, investors are now being more selective about acquisitions of existing parks and potential developments, due to recent concerns about the trading potential of retailers and slower rental growth.
RENTAL growth in the retail warehousing sector has increased on average by 7 per cent in the year to March, 2000 after falling to just 4.6 per cent last September. Smaller retail warehouse units have proved the most popular space requirement in the sector. In the last five years, the rental value of units of 1,000 sq m (10,764 sq ft) has increased by around 15 per cent. The south-east will continue to be the best performing region for growth in the retail warehousing sector, with an 11 per cent increase predicted to March 2001.
Meanwhile, increasingly difficult planning restrictions in the UK will result in little more out-of-town retail warehousing space being developed.
The British government's plans to discourage out-of-town shopping and entice development back to the town centre will mean that older schemes are more likely to be refurbished, or redeveloped.
