The retail sector was the main driver in the Derby commercial property market in 2023, accounting for almost two thirds of all activity, our new report reveals.
Our Market Insite 2024 report has shown that total completed transactions in Derbyshire last year stood at £128.8 million.
That was against a national backdrop of commercial property investment activity projected to total around £37 billion in 2023 – a drop of 39% on the previous year.
Ben Robinson, our director and head of investment, said: “It’s fair to say that the UK market in 2023 was relatively challenging, with transaction volumes down across the board - testing levels not seen since 2012.
“The strong headwinds of high interest rates translating to high borrowing costs, inflationary pressures and geopolitical uncertainty have caused many investors to slow down or pause decisions to buy and sell and a strong market performance in the preceding two years gave this year a tough act to follow.”
Comparing the year-on-year and five-year average, the total turnover in Derbyshire was down 55% and 45% respectively.
Ben said: “In a reversal from previous years, it was the retail sector which dominated market activity, surpassing industrial for the first time since 2019, accounting for almost two thirds of the market share. Compared to the year before, total retail investment was up by 420%, sitting at a comfortable £80.3m, only 1% below the five-year average. This is likely the result of attractive pricing levels catching the eye of cash-ready investors.
“On the flip side, the industrial sector suffered a significant drop and reached only £20.6m, 90% down on the previous year’s albeit record volume and 80% down on the five-year average.“
“Among the other sectors, after a strong bounce back last year office investment struggled to keep the momentum gathered last year, finishing 2023 with only £8.5m. While this is 57% down on its year-on-year investment, it is still 21% up on its five-year average, and we expect to see increased levels of liquidity in the office sector in the year ahead.”
Ben said that the ‘alternatives’ sector - beyond the industrial, office, and retail sectors – supported by strong demographic trends continued to show resilience against market head winds, recording £19.4m investment volumes, marginally behind last year by 14%.
The findings were revealed to an audience of industry professionals at the 17th annual Market Insite events.
The report details key deals, analysis, and trends in commercial property across the Midlands as well and describes the outlook for the year ahead.
In Derbyshire, the stand-out deals included:
The £18.5m purchase of the 103,340 sq ft B&Q in Derby by US investment trust Realty Income Corporation
Starboard Hotels’ £14.4m purchase of the leisure park Derby Riverlights at a net yield of ten per cent
Home meal kit manufacturer HelloFresh acquired a 430,000 sq ft distribution facility in at SmartParc’s specialist food manufacturing campus in Spondon
St Modwen Park made headlines with Vaillant, Getinge, and Kia all taking occupation, plus a new 145,000 sq ft pre-let in phase 2 now under construction
In the office space, the sub-letting of 40,000 sq ft at the Johnson Building on Pride Park to the University Hospitals of Derby and Burton NHS Foundation Trust helped place the sector above its 10-year average
Sam Hall, associate director at Innes England, discussed the retail landscape in Derby and the causes for optimism.
He said: “In Derby, it’s Derbion that remains a primary destination in the city centre, with multiple household name brands opening there. Likewise, illustrating the confidence in the market the city has, we can see that the food terrace has undergone a £2m refurbishment, with a further £3m refurbishment being undertaken by other operators in the mall. This is just one part of the Derbion masterplan for Derby’s overall regeneration.
“While some statistics paint an unflattering picture for the retail landscape, with numbers such as 120,000 retail jobs lost and more than 10,000 closures across the country, once we dig a little deeper, we can see there are reasons to be cheerful too, with plenty of positive trends.
“National retail vacancy rates across high streets, shopping centres, and retail parks have hit their lowest levels since the first half of 2021 at 13.27% nationally and 15% in the East Midlands. Likewise, online spending figures have remained consistent averaging at 25%. As a result, national and regional chains are re-rationalising portfolios, and independents taking advantage of the rebased rent.”
Sam added: “Out of town retail and retail parks have also remained a driving force across 2023, with discount retailers occupying space in both storefronts and warehousing. Wilko’s failure was a big news story in our sphere last year, however it was not indicative of a larger trend as other discount retailers snapped up more than 120 of its stores.
”Nick Hosking, our director and head of the Derby office, said office sector take-up last year was comfortably ahead of the long-term trend, with an increase in the number of transactions within the 5-10,000 sq ft size bracket.
Take-up in Derbyshire was monopolised by good quality Grade B stock with several key moves boosting numbers. This included Derby’s landmark Pentagon House, which has moved from almost empty to fully let, having secured half a dozen deals last year.
Nick added: “We’ve seen a tangible change in the way we work because of the adoption of agile and flexible working. Although last year we saw a push from many firms to get their staff to return to the office five days a week, employees are now expecting and looking for roles with more flexibility. We can only expect this to continue, with a 40,000 sq ft office pre-pandemic requirement now reduced to around half of that space.”
Nick also discussed the continued shortage of Grade A office supply in Derby, now at a 20-year low. This was reflected in the lack of new space being developed and the strong take-up of second-hand offices.
He added: “In Derby’s industrial market, we’ve seen an uptick in sustainability and environmental considerations leading to occupiers being dissuaded from taking poorer quality space. Nevertheless, Derby had a great year with a multitude of transactions pushing the overall take-up to 1m sq ft.
“Likewise, availability has also risen to its highest level in four years, helped in part by the next phase of Grade A new build stock coming forward at St Modwen Park. This is a welcome development seeing as Derby has been held back by a lack of quality supply.”
Matt Hannah, our managing director, said: “The industrial market has continued to deliver strong results with good occupier demand and rising rents across the region generating confidence for investors and developers to support new supply. Looking at the bigger picture, all property investment volumes reflected a lack of activity in the market and investor confidence needs to improve to drive more activity across the region.
“As always, our team has done an incredible job of collating the data. We are looking forward to 2024 and what that brings as we continue to expand our team in both the East and West Midlands.”
To learn more, and read the full report, visit: