STUDENT housing schemes led the way as investments in Nottingham’s commercial property sector surged to nearly half a billion pounds last year, our new market report reveals.
The figure, £449.7m, was significantly up (68%) on the previous year’s £306m, largely down to purpose-built student accommodation (PBSA) deals, which accounted for 53% of all transactions, according to our annual Market Insite review.
Nottingham bucked the East Midlands’ regional trend which saw transaction volumes drop at the end of 2022 amid the UK’s economic uncertainty. Large deals in the ‘alternatives’ sector - beyond the main offices, retail and industrial sectors - added to the figures.
Ben Robinson, head of Innes England’s investment consultancy, said it had been ‘a year of two halves’ across the region, but added: “As we begin 2023 we are cautiously optimistic that despite the re-rating of commercial property yields at the end of last year, transaction activity will return as investors quickly become acclimatised to the new norm.”
The figures were revealed in Innes England’s 16th Market Insite report - presented virtually to an audience of hundreds of industry professionals - which monitors trends in the regional property market, focusing on Nottingham, Leicester and Derby.
In Nottinghamshire in 2022, the report highlighted:
· Key PBSA deals included Bricks Group’s £70m forward funding of the 783-unit student scheme at the former Royal Mail sorting office on Bath Street; UBS’s £59.8m purchase of the 483-unit accommodation on Ilkeston Road, reflecting a 5.25% yield, and Waypoint’s £24.55m purchase of the 273-unit accommodation at Cotton Mills, reflecting a 4.25% yield. Overall, five schemes could add 2,250 student beds to the Nottingham market
· Offices continued to appeal to investors, with more than £64m of deals. Though slightly down (14%) on last year’s total, activity remained 7.9% above the 10-year rolling average. Notable deals included Corum IM’s purchase of EON’s Trinity House HQ for £28m - the largest office deal in the East Midlands - and RO Group’s purchase of 37 Park Row for £5.7m
· Retail investment recovered significantly, with £82.6m of investments transacted - up from £14m the previous year and 28% above the five-year rolling average. City centre deals included Hermes’ purchase of 4-13 Long Row and 17-25 Upper Parliament Street - home to Primark, Tesco and Greggs - for £21.65m; Evolve Estates’ purchase of Exchange Walk for £5m
· A number of national and international food and beverage operators have taken retail space in the city centre, including Popeyes Louisiana Kitchen and the Jollibee fast food chain
· Total industrial volumes were down nearly half (45%) at just under £86m; trading 25% below both the five and 10-year rolling averages. Key deals included Realterm Global’s £19m purchase of the 240,000 sq ft facility at Forbes Close in Nottinghamshire
Out-of-town business park deals included the purchase of The Arc on NG2 Business Park by Specsavers, for part occupation and part investment for £13m, Speedo House by KJS for £8.6m, reflecting an 8% yield, and The Curve by PMW Property for £5.63m, reflecting an 8.5% yield.
“These transactions demonstrate that there remains plenty of investor demand for city centre offices and well-connected business parks,” said Ben.
Director Craig Straw, head of Innes England’s business space agency team, said overall office take-up transactions were down across the region by about 25% but had proved to be more robust in Nottingham, at 319,000 sq ft, compared to 351,000 sq ft for the previous 12 months. Prime rents rose by 10% to a new peak of £22 per sq ft.
“The number of transactions in the city centre doubled year-on-year, though their average size reduced with a noticeable absence of deals at the upper end of the range,” said Craig.
“A trend most evident in Nottingham was seeing occupiers take the opportunity at a lease event to upgrade, but at the same time downsize their requirements.”
And he added: “One of the biggest impacts on the office market will continue to be the effect of new ways of working. Some occupiers in the city have cut their overall accommodation requirements down to a half of their historic pre-pandemic levels.”
In the industrial sector, take-up in the greater Nottingham area was dominated by a preference for new quality product, with the disposal of the remaining units at Trent Gateway, said director Peter Doleman. And at Blenheim Industrial Park, Wilson Bowden and Urban Logistics REIT completed four buildings.
“On the availability side, Nottingham has seen an increase in supply, from 433,000 sq ft to over 1.2 million sq ft, primarily reflected in two new schemes coming forward this year - Henry Boot at Power Park, the former Imperial Tobacco site, and Clowes Developments on the Fairham Business Park alongside the A453,” said Peter. “Longer-term supply will include Ratcliffe-on-Soar power station and Barwood’s new development of 350,000 sq ft on the Blenheim allotments.”
As well as Popeyes and Jollibee, food operators taking retail space in the city include Wingstop, Gusto, Rosa’s Thai, Pizza Punks and 200 Degrees Coffee, said associate director Sam Hall.
“Last year also saw the completion of the first phase of The Island Quarter development, with casual dining venue Binks Yard and fine dining restaurant Cleaver & Wake now open and trading well,” said Sam.
“Whilst the percentage of online spending continues to rise, consumers are now venturing into town for a more experience-led outing, whether that’s axe throwing, crazy golf or virtual reality gaming, all of which opened in Nottingham in 2022.”
The rise of independent and local retailers continues to be a hot topic, with many pitches now home to local brands rather than national occupiers, such as on Bridlesmith Gate, he added.
Many new brands are entering the roadside sector, together with the expansion requirements by the established brands, said managing director Matt Hannah.
“We expect more of these clusters to appear on busy roads and junctions - 15,000 vehicle movements are a key indicator on the attraction of any site,” said Matt. “The pandemic and lack of social contact are highlighted as a driver for growth in this sector but my view is that convenience or simply not getting out of your car is as significant.”
Matt congratulated the recent winners of government levelling up funds, although noted that Nottingham’s Broad Marsh redevelopment had again missed out: “It is probably one of the most significant opportunities to repurpose in a modern city centre. It appears the opportunity will need the private sector front and centre if we are going to see positive change.”
The property market still has many reasons to be cheerful, despite the ‘challenges and threats’ it faces, Matt concluded. “With FTSE at an all-time high, inflation on the wane and interest rates close to peaking, there are reasons to give the market hope.”