Written by: Chris Menon
Posted: 17/03/2014The commercial property sector in the Channel Islands had a pretty steady, if uninspiring, 2013. But, as Chris Menon discovers, there are signs that all of that is about to change
After a couple of years in the doldrums it appears that the Channel Islands commercial property market is starting to improve, driven by a nascent recovery in the UK economy.
While it's still a little too early to say that this is definitely the case, that familiar old phrase ‘cautious optimism' is being heard more frequently in relation to the current situation across both Jersey and Guernsey.
According to Chris Daniels, Managing Director at BNP Paribas Real Estate in Jersey, 2013 was a year of two halves. “The first half of 2013 was relatively flat with only limited transactional activity taking place. The second half of the year saw a marked improvement in the level of enquiries, and this has started to translate into actual deals,” he says. “The general feeling is that the UK market has turned the corner, which is demonstrated by greatly improved market conditions in the regions, and this has started to filter down to the Channel Islands, which traditionally lag slightly behind by six to 12 months.”
Check the figures
It's a sentiment that he says can be seen across the key commercial property sectors. In relation to offices, for example, Daniels points out that the general vacancy rate (at around seven per cent) is relatively low compared with most UK towns and cities, while for prime, grade ‘A' space it is very low indeed (at less than one per cent). This means that while prime office rentals have been fairly robust, there is little ‘tenant-ready' space for potential occupiers and very little ‘churn' in the market.
“The general trend we've seen over the past couple of years has been for tenants to simply stay put. The combination of uncertain market conditions and doubt created by the scrutiny of many offshore jurisdictions has led to most occupiers putting any significant moves on hold,” he explains. “There have been some large moves generated by businesses consolidating or merging, but overall take-up has fallen from around 250,000 sqft per annum at the top of the market to around 100,000 sqft”.
As a result, rental prices have remained stable and appear to be comparative across Jersey and Guernsey. Guy Gothard, Founder of commercial surveyors Guy Gothard & Co in Jersey, says that at the top end of the market at the Esplanade, the headline rate (before incentives) for office rental is around £34 to £35 per sqft, falling as low as £10 per sqft for secondary premises in St Helier. While for retail, we're seeing top headline rates in King Street at £105 per sqft for Zone A space.
Over in Guernsey, Jo Watts, Managing Director at commercial property surveyors Watts & Co, tells us the headline rate for office rental at the top end of the market is around £37 to £40 per sqft, with the better secondary at around £30 per sqft. For retail the top headline rate is £115 to £125 in Zone A per sqft.
With the commercial sector being made up of office, retail and industrial space, it is interesting to note the similarities and compare differences across these areas.
When it comes to offices, Tim Hart, Partner and Group Head of Property at Appleby Global, concurs that 2013 was challenging and says: “The most significant new lettings have been those of parts of Dandara's 37 Esplanade to Volaw (around 20,000 sqft) and Brevan Howard (just under 12,000 sqft). These tenants join PwC, KPMG and Cannacord Genuity in occupation of the most substantial office development completed since Ogier House.”
This carried on into 2014 with First Names Group taking over the third floor at 37 Esplanade at the start of January.
Paul Nettleship, a Partner at law firm Collas Crill, commenting on Guernsey, confirms that instructions are steady although not at the level of five years ago. “There are no new large-scale commercial developments, but there are one or two smaller office block developments around town in Guernsey, so there still appears to be a demand for small- to mid-sized office space,” he says.
He's optimistic, though, saying: “Things appear to be picking up steadily, and it's likely that 2014 may continue this trend.”
BNP Paribas's Daniels certainly sees the potential for recovery further down the road: “In the medium term there are a raft of lease events, such as expiries and break options, which coupled to the need to consolidate to modern, purpose built, efficient properties could lead to a significant increase in demand,” he explains.
Gone shopping
Tim Hart acknowledges that the retail lettings market in Jersey was pretty quiet in 2013, although there were some new transactions, including the lease to Paperchase of the prominent King Street premises in St Helier, which used to be let to Barratts Shoes.
Chris Daniels gives more detail. “As far as the Jersey retail market is concerned, for the first time in a number of years there are no vacancies in the prime areas of King Street and Queen Street, and 2013 saw a raft of lettings to the likes of Schuh, Ecco and Feelunique. The secondary retail sector, however, remains challenging, and a combination of tough macro-economic factors coupled with online competition has led to tough trading conditions in this sector.”
It's a similar picture in Guernsey, as Wing Lai, Associate Director at Watts & Co, reveals. “Prime retail accommodation on the High Street, Market Square and Le Pollet remain sought after, highlighted by there being no vacant units there,” he says. “Rents on the recent lettings to Mountain Warehouse and Cancer Research also suggest this sector is strong. However, there's still a divide between prime and secondary locations, such as Fountain Street and Mill Street. These areas are, however, seeing an influx of local boutique-type occupiers seeking lower rents. Vacancy levels have, on the whole, reduced.”
As far as investment goes, Tim Hart notes: “There haven't been many transactions of significance, notable exceptions being the sales of Charter Place and 17a/18 Esplanade – the latter let to SG Hambros, having been acquired by The Channel Islands Property Fund.”
Yet there are developments in the pipeline, with the Jersey International Finance Centre (JIFC) the most notable, an attempt to create a dedicated district for the island's financial services industry. It's planning six office buildings, providing 470,000 sqft of office space. “Planning approval has been granted for building 4 of the JIFC, which will provide almost 70,000 sqft of grade ‘A' office accommodation,” says Chris Daniels. “This building is being actively marketed, and subject to a pre-letting, construction can commence imminently.”
Tim Hart adds there are two other proposed major office developments of note: Dandara's 66-72 Esplanade scheme, awaiting a decision from the Planning Minister; and the States of Jersey Development Company's Esplanade Quarter building 1, which just received it.
While Wing Lai confirms there's been little or no commercial development in Guernsey over the last 12 months, things may be about to improve: “In Guernsey, Comprop recently received outline planning permission to further develop Admiral Park. This mixed-use development will include retail, leisure and office accommodation and will be a key site to look out for going forward.”
One senses the commercial sector in the Channel Islands is at a tipping point. Vacancy rates are low, rents are holding up, developments are in the pipeline. It will be interesting to see how much things have kicked on in 12 months' time.
The outlook for commercial property
Jersey
Marc Burton, a board member of the Jersey Construction Council, admits to being “cautiously optimistic” for 2014, albeit with greater emphasis on optimism. “There are a number of projects on the horizon, including the Jersey International Finance Centre, that should maintain Jersey as a premium finance centre, creating jobs and retaining construction skills. This project will be tenant-led so we really do need 2014 to be the springboard for future growth.”
He's working to ensure the new retail business strategy being reviewed by
the Jersey's Economic Development Department and efforts to develop its digital industries bear fruit.
Chris Daniels, MD, BNP Paribas Real Estate, is similarly sanguine, saying: “The common view is that the UK has been going through something of a resurgence and we hope Jersey will follow suit in 2014.”
Guernsey
Wing Lai, Associate Director at commercial property surveyors Watts & Co, believes confidence is returning to Guernsey's office and retail sectors but less so in the industrial sector.
“Despite improving economic sentiment, the Guernsey occupier market has yet to show substantive signs of recovery, and this is reflected in rental growth, which has remained limited. There also continues to be a widening void between the best and worst sectors. Having said that, there appears to be rising confidence in the commercial property market and the flurry of activity toward the latter part of 2013 is likely to continue into 2014. We therefore expect vacancy levels to fall, which will stabilise rents.”