.... and a look forward to 2009 ...

9 January 2009

The unanimous forecast is that 2009 will not be an easy trading year – the headwinds are simply too strong to anticipate otherwise with many commentators suggesting that the first two quarters will be the "eye" of the economic storm.

All the current variables will be in place as decision makers return to their desks in January – a restricted credit environment and a business landscape where companies will play safe and protect their balance sheets with a clear emphasis on rationalisation rather than expansion. At a macro level, the employment figures will worsen as a result and the government's tax take will reduce, putting pressure on already tenuous public finances.

However, from a property perspective, 2009 may well become the "golden year" for the investor with good opportunities for the occupier and even the Landlord, where supply of competitive stock is limited.

Not for a generation will cash rich or low leveraged investors have the opportunity to purchase extremely solid property investments at double figure yields. The opportunity may be short lived as the "bottom" is likely to come and go quickly as and when the banking sector recapitalise and the stronger financial players become bolder, forcing long awaited competition to return to the funding market.       

Occupiers who have lease events (break options and expiries) will generally be well placed to capitalise on market conditions, on the proviso that they are not necessarily driven to acquiring the best quality office or industrial stock available, where landlord's will be less amenable to concessionary terms. The existing rates regime, increases in company receiverships, and a reduction in space usage should all translate to keener terms being achievable. 

The best placed Landlords along the M3 will be the holders of office and industrial stock where head to head competition on quality and size grounds within a 20 mile radius is restricted. With no substantial new development likely to be contemplated until economic conditions improve significantly, these Landlords will be able to negotiate from a position of relative strength.

For example, the best quality office stock in the mid M3 area (junctions 5 – 7) has reduced significantly from its peak in this development cycle (Quarter 1, 2003). There are now only a handful of properties in this area that can now entertain a large corporate looking for 40,000 sq ft of the best quality air-conditioned office space.

In summary, whilst the business environment in 2009 will be harsh, there will remain clear opportunities available to investors and occupiers to take advantage of market conditions favourable to them. In this regard, Hollis Hockley welcome the opportunity to discuss the market and specific requirements with both investors and occupiers in 2009.