Housing demand, rising house prices and the potential for residential development to achieve higher sales values than commercial uses, has been prompting developers to deliver homes rather than workplaces.

Our analysis shows sales values for residential development exceed sales values for both office and industrial space across the M27 corridor (Fig.5 – bottom). We found the biggest difference in sales values in Chandlers Ford/ Eastleigh area where average values for new build homes reached £360 per sq ft compared with £200 per sq ft for offices and £125 per sq ft for industrial.

^{Source: HM Land Registry, Savills Research}

Development lending

Funding is also a factor. Since the Global Financial Crisis, funding for speculative commercial development has been very restricted and while there has been some availability of loans for fully pre-let commercial development, finance has been comparatively easier to achieve on residential schemes.

Given these issues, one way to deliver new commercial space is through mixed use regeneration schemes where the different uses support and cross subsidise each other.

Residential new build

New home values in most of the M27 corridor are between £300 and £350 per sq ft with higher values achieved on waterside schemes in Portsmouth and Southampton. Here, regeneration and the waterside views has pushed values of up to £500 per sq ft. New build values in the Winchester market are higher, averaging between £400- 430 per sq ft for larger developments.

Higher paid workers in the M27 corridor tend to live outside the major urban areas, preferring the neighbouring towns and villages. New build developments appealing to this more affluent market, such as Berewood (west of Waterlooville), can achieve higher values and are more accessible to work places.

Office development

With flat rents and rising build costs, there has been little incentive to add to new office stock in Southampton city centre since the completion of Charlotte Place in 2008.

Lack of new development has resulted in a surge of refurbishments, including Mountbatten House and The White Building, achieving rents of up to £19.50 per sq ft. Limited choice has prompted companies including HSBC, KPMG and Babcock to move to out of town business parks from central Southampton or Portsmouth to get the space they need.

Now that out of town rents have risen to levels in line with Southampton city centre, we believe that the case for development is getting stronger. However, there is still a nervousness among developers as to the viability of speculative office development.

Industrial Developments

In the industrial market, development of new space is still limited with a shortage of new sites. Lidl has recently opened their £55 million distribution centre on the north west of Southampton, which will serve stores in Hampshire, Dorset and West Sussex, creating around 400 new jobs.

Two other key industrial developments are in the pipeline. Mountpark Southampton, (the former Ford Transit assembly site), is about to commence speculative development of four warehouse units ranging from 57,620 to 128,000 sq ft and Evander properties are about to commence development at South Central, adjacent to the M27, on three units ranging from 39,000 to 117,000 sq ft.

^{Source: Savills Research}

CONVERSIONS BRING FORWARD STUDENT HOUSING

Commercial sites are under pressure

Office to student accommodation conversions have occurred in buildings such as Brunswick House, Orion’s Point (former British Gas offices) and Marlands House. In addition, a number of proposed office development sites have been lost or are being lost to student schemes.

These include Mayflower Halls, which previously had consent for offices but has now been built out for student housing, triggered by the University of Southampton issuing an OJEU for 1,000 student beds in 2011. The Bond, a proposed 150,000 sq ft office development, now has consent for a student housing scheme.

Another proposed office development site, Aqua at WestQuay, now has consent for a hotel.

Other commercial sites are subject to redevelopment for other uses. The former B&Q retail warehouse in Portswood is currently being redeveloped to provide 525 student rooms on its completion in 2017.