Feature: Crunch time for property?
With the current economic climate focusing the minds, Business invited some of the Humber area's specialists to tell us how they see it.Carl Bradley, of Clark Weightman, Lawrence Brown, of Scotts, and Duncan Willey, of PPH Commercial, spoke to David Laister.
Lawrence Brown: "We have got two separate sets of issues. We have lots going on in the global financial markets which has a bearing on the decision making of banks and lenders. Then we have the question over the state of what is happening in our own economy, or the perception of it.
"Times are not brilliant at the moment, but we have always found in the northern Lincolnshire / Humber region that the bandwidths are a lot narrower.
"When people in London, Leeds and Manchester are having a fantastic time, we do well, and when the hard times come, they are not as hard here."
DUNCAN WILLEY: "We get a ripple rather than a wave."
CARL BRADLEY: "That's right. When it was bad last time we were all relatively young lads. The driving force behind it is completely different now.
"Before when people's businesses were struggling there was still a reasonable level of credit available, now the tap has been turned off by a lot of the lenders. There are still lenders there, but it is a lot harder, and more expensive."
DW: "There are burdens out there too, and they matter more when there is a level of uncertainty.
"There are the normal costs associated with any move, but then energy performance certificates and empty property rates too. For developers it is difficult to judge occupational demand with the economy as it is and the credit situation.
"Demand has certainly increased for leasehold properties, which is fine, but the pipeline of new stock is not huge. People are nervous, and we are going to see less being built for a while unless things change, and that itself will slow things down.
"Companies want buildings that are ready, perhaps developed speculatively, so that when they win that contract or have that demand increase, they can move. Companies will find that such property won't be there, and we are starting to see a little bit of that."
LB: "That demand means the price goes up too, and on the valuation side of it, the bank's valuer is cautious because every other pointer in the economy is saying values should be falling slightly. It makes the job of valuer and surveyor very, very difficult indeed."
CB: "Deals are still being done, it is probably in the industrial sector and probably more second hand stock, but the statement 'be careful what you wish for' certainly applies.
"We are finding a lot of people are 'ready to buy shortly'. They see the market not quite at the bottom, and believe it hasn't reached a point where they feel comfortable buying. Those holding out do risk missing out."
DW: "That is true. Look at Europarc in Grimsby. It is going very well, everything that has been built has now got occupiers.
"There are people out there looking longer term, and there is definitely a need for better quality premises."
LB: "There is a desire from businesses to try and trade through this. Those who were over exposed before are reining themselves a little bit and others are saying 'we can operate without winning new customers, we have to serve the existing customer base. If that means not having new premises, then so be it'."
DW: "Working in these conditions is not easy for anyone. Building costs are still high, material costs are still high and are still rising. Then there is the question about getting the occupier.
"The market is uncertain, and it is almost preoccupied watching the economy as a whole."
CB: "I think people in business have been genuinely shocked and taken aback by what has happened in the financial markets.
"They have seen that people running multi-national firms are no better than they are at running their own businesses. The problem with HBoS is it touches so many people in different ways.
"The branding is massive and for that to end up allegedly unstable, the people in business in Grimsby and Scunthorpe will have watched and read the news and wondered what the implications are for them.
"It could almost be a scenario where they think if a company the size of HBoS can get in to trouble then 'we are all doomed'. It is a sweeping generalisation and the wrong conclusion to come to.
"The financial sector has just been massively exposed in the US by companies chasing short term profits and they have made short term losses and the level of them has brought them down."
LB: "I think the local businessman dealing with local distribution and manufacture knows what he is doing, knows his customers and that type of business should be able to weather the storm out, because they haven't, hopefully, made stupid decisions, and haven't over exposed themselves in terms of debt structuring.
"Those that have been sensible will come out and do well."
DW: "When it comes to investment, property is certainly more robust than the stock market, but for too long now people have been looking at returns and forgetting it is a property.
"Some investors have now got a problem because businesses that were tenants have failed, it may be empty, it may need refurbishing, and these are the people who are panicking. The investment market has probably seen a 2 per cent change in yield.
"This has a knock-on for new schemes, too. It is a judgement call.
"For retail for example, no-one knows when a store opens its doors whether there will be a big crowd or one man and his dog. Because tenants don't know they will reflect the uncertainty, and look for lower rent.
"That means a lower return for an investor, and we may well see people holding on a while. Another factor is planning permission. It only lasts for a finite time and a scheme may not get permission again.
"Developers will find themselves in a difficult position, they may not be able to get the funding to build, and if they don't build then the permission may well expire, and it may never be built.
"I don't think we have seen in our working careers the problems that are around today. The ingredients for the previous crashes were more understandable. This time it is not just us, it is global, and there is nothing we can do.
"It has acted as an elimination process too. We are now seeing the serious developers and investors rather than the lifestyle versions."
LB: "The whole of the UK investment markets are underpinned by property.
"Virtually every major office block is owned by a pension fund or investment company. There has also been a lot of investment from overseas.
"That is not going to go away because of 2008 - in terms of the world economy it will always bubble along.
"There are banks out there who know their customers well and have good managers out there.
"There are professional people in the northern Lincolnshire area who have got a lot of experience between them in the property market.
"We are happy to share our experience and knowledge with people and get them through the process.
CB: "People haven't fallen out with property, the banks have fallen out with themselves."
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