2. Brian Botting
BSc, FRICS, IRRV
Partner
We have land waiting to be built on when
the market is strong enough, but rents
would realistically need to go up to £13 per
sq ft to make it worth any new development
and that threshold is still some way off.
The office sector is healthier in Devon
where Exeter remains king as far as rents
are concerned. In Plymouth though an
oversupply of industrial units and office
space continues to curtail the market and
this is compounded by firms relocating from
Plymouth to Exeter.
Our retail figures show that in Cornwall,
Truro still commands the highest retail rent
per square foot ITZA (In terms of Zone A)
twice its nearest competitor which is St. Ives.
These figures demonstrate Truro’s all year
round popularity whilst highlighting St.
Ives’ dominance of the seasonal market
for tourist shoppers followed closely by
Padstow, Falmouth and Newquay.
The election may have a delaying influence
on decision making and is likely to be very
close between the two main parties but the
travel of direction is good. The economy is
back on track and I feel the next 12 months
will see a continual churn of commercial
property at similar levels to 2014 with
the possibility for some limited growth in
rental and capital values but predominantly
restrictedtotheindustrialandofficesectors.”
“As we approach the end of this financial
year (April 1st) we see a return in confidence
across all sectors of the market and are
looking forward to the coming fiscal year
with optimism albeit cautious.
It’s clear that the high street banks are
now actively lending and our professional
team have noticed a marked increase in the
number of valuations they are carrying out
for bank clients.
Our Business Transfer Department which
specialises in the Leisure and Hotel sector
also report an increase in activity buoyed by
better accounts thanks to a good summer
season and in part by better house sales.
The Banks are more willing to lend, although
still only on bricks and mortar and while we
are nowhere near back to the heady days of
2006/7 people can borrow around 5% more
than they could a year ago.
The industrial market is picking up but in
Cornwall we are at a critical point. The last
round of ERDF funding has now been spent,
so developers have no choice but to sit on
their hands and wait for an announcement
on how the next tranche of £233m funds
allocated for 2014-2020 will be allocated.
In Cornwall, we are expecting to see rents
in the office sector edge back up to their
natural level of £10 per sq ft now that the
supply of available space has dwindled.
Introduction
M ar ket R eview 2014/15 1
Contents
1 Introduction
2 Industrial
4 Retail
6 Office
8 Business Transfer
12 Investment
3. There are pockets where rental values
are particularly strong like Newquay and
Padstow and other industrial locations such
as Falmouth, Penryn and St Austell are also
steady markets.
There is a pressing need for more industrial
development in Newquay, and in the
Camborne, Pool, Redruth area.
Over the last year Miller Commercial has
completed more than 70 industrial lettings.
Asanagencyweconcludemorelettingsinthe
industrial sector than any other.This has been
especially true over 2014 as the take up of
industrial premises increased across Cornwall.
We are in a situation where the county’s
existing stock of industrial premises are
gradually being taken up to the point
where supply in certain locations is very
limited. The greatest demand comes from
those looking for units of up to 2,000 sq
ft and there was evidence of this in 2014
when space at the part European funded
Quintrell Downs development just outside
Newquay was sold or let prior to the
completion of the development.
Mike Nightingale
BSc (Hons), Dip Arb, MRICS, ACI Arb
Partner
Locations along the A30
corridor remain king for
rental potential with Hayle,
Camborne, Pool, Redruth,
Bodmin and Launceston
performing well.
2 M ar ket R eview 2014/15 I ndustr ial 3
CornwallBusinessParkatScorrierisnowbeing
marketed and plots are available for sale or
development for either owner/occupation or
rental.We have seen early indications that this
development will be a success.
Formorethan14yearsCornwallhasbenefitted
from European funding for Commercial
development. First the Objective One
Programme which started in 2000 and more
recently Convergence. The last speculative
industrial developments built under
Convergence were the aforementioned
Quintrell Downs near Newquay and Treleigh
Park near Redruth which were completed
towards the end of last year. Phase II at
Walker Business Park on the outskirts ofTruro
is underway but aside from this there is little
other industrial development in the pipeline.
Whilst a further tranche of European funding
has been agreed to assist with development
between 2015 to 2020 there has been no
announcement of where this funding will be
targeted. Without this funding speculative
Industrial
Industrial Headline Rent £psf
A30
Corridor
Plym
outh
StAustell
Truro
Falm
outh
and
Penryn
New
quay
and
Padstow
£1
£0
£2
£3
£4
£5
£6
£7
£8
£9
£10
1500 sq ft 5000 sq ft 10 000+ sq ft
development is largely not viable and there
is therefore likely to be a two year time lag
between the latest industrial developments
and the next. This situation is likely to give
rise to a gradual decrease of available stock
which could put pressure on rents to the
extent that we might see some growth.
Much is however dependent upon how
buoyant the economy remains.
4. tourism and demonstrates the very positive
boost that holiday makers provide to the
retail sector in these towns.
It’s no surprise that the county’s capital city
and major shopping hub, Truro, commands
the highest retail rents. With prime pitches
averaging £110-120 per square foot (ITZA)
they are almost double the price of the next
most popular towns of Falmouth, St Ives and
Newquay at £50-60, £60-70 and £50-60 per
sq ft respectively. It seems likely that rental
values will continue to be much stronger
in Truro than elsewhere in the County,
particularly in Lemon Quay, where we’ve
seen a reshuffle of some big name tenants
who have taken space elsewhere in the
city in order to make way for Primark. With
Marks and Spencer already at this end of the
city, Lemon Quay is likely to be cemented as
the prime retail pitch in the county for some
time to come.
2014 has seen a good level of activity in the
Retail Sector with a reduction in the number
of vacant units across many of the high
streets. There has been some stabilisation
of rents in primary and secondary trading
locations albeit that lettings are often short
term and lease provisions likely to favour
tenants. This makes these trading positions
more accessible to the wider market and
we continue to see discount stores, charity
shops, bookmakers, phone accessory
retailers, cafes and latterly, e-cig suppliers,
taking retail positions which they would not
historically have been able to afford.
It’s impossible to provide one general
overview of the retail sector in Cornwall.The
countyisuniqueinthateachtownhasitsown
very different identity and demographic.
The fact that some coastal towns have twice
the retail rental value of many inland towns
(excluding Truro) is predominantly down to
Rob Redgrave
Head of Commercial
4 M ar ket R eview 2014/15 R etail 5
Retail
The march of the multinationals continued
into the South West throughout last year
with companies such as Costa, Starbucks,
Pasty Presto, Wetherspoons and Zizi all
seeking out new locations in Devon and
Cornwall. This year we saw both Frankie
and Bennys and Prezzo open in the new Ark
building in Newquay. We are now talking to
other nationals to see if we can tempt them
into the one remaining unit here.
Lounge Bar set up inTruro at the end of 2013
and are now finalising plans to open another
Lounge bar and restaurant in Falmouth. JD.
Wetherspoons will be opening in Helston
this year and the pub chain has applied for
planning permission to open its first hotel in
Cornwall in Camborne. Meanwhile the Rick
Stein empire continues to spread across the
county with a new restaurant in Porthleven
and another about to open in Newquay.
There seems to be a pattern developing
where much of the demand for space in our
towns and city from national/international
businesses comes from coffee houses, bars
and restaurants. There is less interest from
new national retailers and the existing ones
(Dorothy Perkins for example) are either
moving to better value units or moving out
altogether. It has long been expected that
the larger retailers are likely to do what
Next has done at Kingsley Village and open
up in out of town retail warehouses where
accommodation is much better value.
Out of town retail is a very topical issue at
the moment. Coytes Farm on the outskirts
of St Austell did not get approval and
similar schemes at Truro Football ground
and Langarth on the edges of Truro are
presently being put forward by developers
for consideration. One of the main factors in
deciding whether or not a scheme is likely to
begivenplanningpermissionistheimpactit
would have on the existing retail provision.
There are other developers (Stanhope and
Schroders) who hold strategic positions
in the city centre and they would argue
that out of town retail development would
impact upon the viability of their schemes.
At the time of writing the Waitrose
development on the east side of Truro is
gathering pace and Cornwall Council has
decided to back two other schemes on the
western outskirts of the City which include
housing developments, two supermarkets
and a primary school. These schemes
were preferred over others which involved
multiple nonfood retail warehouses, one
of which also incorporated the Stadium
for Cornwall, and so the desire to reduce
the retail impact on the City Centre seems
to have been a significant factor in the
decision. Maybe this provides an indication
of the way in which the Council wants to see
retail developed around Truro, with the City
centre being the main focus. Interesting
times ahead which will shape the County for
years to come.
Zone A Headline Rent £psf
112.0
64.0
31.5 29.6 29.2 28.0
23.0
56.0
52.0
30.0 29.4 28.5
25.0
21.6
10
20
30
40
50
60
70
80
90
100
110
120
Primeretailrentspersquarefoot(ITZA)
Truro
StIves
Falm
outh
New
quay
Penzance
W
adebridge
Bodm
in
StAustell
Cam
borne
Looe
Helston
Redruth
Hayle
Liskeard
5. Andrew Ranson
MRICS
Head of Valuation Services
Locations where there have been
noteworthy levels of activity include Truro’s
Newham Rd where Charles French Solicitors
and Worldwide Financial have recently
taken space, lured by more modern office
space with car parking; Threemilestone on
the outskirts of Truro, where a substantial
over supply of accommodation - following
the exodus of Cornwall Council and some
high profile casualties of the recession - has
now flipped following steady demand over
the past 18 months to a situation where
there is a healthy supply and demand
balance. We have also seen good take-up
of offices at Barncoose Gateway (Pool) and
Tolvaddon Business Park (Pool), which are
now nearing full occupancy – albeit after
lengthy marketing campaigns.
This time last year we reported that there
had been a significant increase in demand
for freehold and leasehold offices during the
latter part of 2013. I am pleased to say that
this pattern has continued throughout 2014
totheextentthatthestockofvacantofficesis
now at its lowest level for many years. In the
years leading up to 2014 the oversupply in
the market had very much favoured tenants
who were able to negotiate very favourable
deals with low rents, rolling break options
and rent free periods of in excess of one year
not being unusual. As vacant stock dries
up this situation is now starting to change
and whilst deals are generally still very
favourable to tenants, Landlords can be a
little more demanding than they have been
in recent years.
6 M ar ket R eview 2014/15 O ffice 7
As we stated above, rent levels remain at
historically low levels with the majority of
the above transactions being agreed at
£8 to £10 per sq ft. This offers good value
to tenants who are also generally able to
negotiate regular break options which help
to mitigate long term liabilities in the event
that new business ventures do not work out.
The roll out of Superfast Broadband across
Cornwallhasnothadtheanticipatedeffectof
raising rental or freehold prices in premises
with the higher broadband capacity. Nor
have we seen it tempt large businesses and
organisations to relocate to the county. We
are finding that size and location are still the
determining factors for businesses looking
for office space.
The introduction of permitted development
rights in May 2013 - which allows the change
of use of buildings from offices to residential
subject to a prior approval process by the
local planning authority - has been taken
up by some property owners. This has
particularly been the case on properties
wheretenanciesonhighrents(setin2007/8)
Office
have come to an end leaving the landlord
to either accept a significant drop in rental
income which is reflective of current market
conditions or to explore the possibility for
conversion to residential. We have seen
several buildings in Truro converted in
this manner but it is fair to say that, whilst
the principle of conversion is permitted,
there are often complications. For instance
the new owners of Lysnoweth House on
Infirmary Hill, formerly occupied by the
HMRC, intend to convert to residential but
are coming across opposition from those
who wish to see what are considered to
be architecturally important buildings
converted in a manner that is sympathetic
to the original external features of the
property. I am sure a residential conversion
will proceed but these things are not always
as simple as they first appear!
Inconclusion,weanticipateacontinuedchurn
of office property throughout 2015 with
an outside chance of rental growth. Larger
office buildings that become vacant and are
situated centrally within towns are likely to
prove attractive for conversion to residential.
Rent levels remain at
historically low levels
but with the recent increase
in demand and gradual
depletion of stock there is
talk of a potential for growth
in rents in 2015. Agents
are however unlikely to
be too bullish in this regard
as this sector is still
one that could be
considered fragile.
6. Graham Timmins
BA(Hons)
Head of Hotel, Leisure &
Business Transfer
2014 has seen an increase in the number of
firsttimebuyersenteringthehospitalityand
leisure sector in the South West. Transaction
levels are likely to have been buoyed by
house price growth generally throughout
the country, but particularly in the south
east, which enables purchasers to use equity
from residential property to put down the
sizeable deposits that are typically required
to purchase leisure property.
The Banks are, on the whole, willing
to lend but they will generally look for
previous experience within the leisure
sector and expect the profits of a business
to comfortably service the loan - often at a
hypothetically enhanced level of interest to
account for the risk that rates are likely to go
up at some point during the course of the
loan. This is good responsible lending and
where businesses are performing well, or
have the potential to perform well, there is
money available.
Vendor’s expectations of value remains key
to a liquid leisure market and where value
is not supported by the trading potential of
the business in question it is generally going
to be more difficult to find a purchaser. This
has been a dominant feature of the leisure
sector over the past six years or so with
sales often being dependent on interest
from purchasers who do not need to borrow
8 M ar ket R eview 2014/15 Business Transfer 9
Business
Transfer
as much money or on vendors who are in
situations where they have to sell and so
are willing to reduce asking prices to more
reasonable levels.
We do, however, now seem to be getting
better quality instructions coming through
at more realistic asking prices. We are
noticing more confidence returning to
the market and buyers seem to be making
quicker decisions. Certainly during the
second half of 2014 the time taken in terms
of viewing a business to then moving
forward to an offer has been compressed
whereas previously deals or discussions
were going on for far too long resulting in a
loss of momentum.
The major banks are telling us that they are
keen to lend, which, whilst it sounds like an
obvious mantra, is actually being followed
through. Finance continues to be available
from an ever-widening range of sources.
2014 saw the rise of ‘challenger banks’
luring unhappy customers away from the
bigger names with more favourable lending
criteria. This again, has increased the ability
ofbuyerstoinvestinanewlifestylebusiness.
Any adverse publicity Cornwall suffered as a
result of last year’s storms has had little or no
effect on the county in terms of desirability.
Indeed our clients tell us visitor numbers
last summer were up on previous years
and advanced bookings on 2015 are more
than healthy.
Potential buyer’s confidence in Cornwall as
a location for their business was buoyed by
Visit Cornwall’s marketing campaigns and
by positive media headlines during 2014
which kept on coming.
The Tall Ships event at Falmouth attracted a
quarter of a million visitors meanwhile the
town’s university was named in the top 50
universities in the country. St Ives was voted
the ‘most ideal’ place to live, according to
research conducted by Rightmove and
Cornwall featured in the top ten googled
holiday destinations worldwide.
Typically buyers continue to look for a
lifestyle business in the South West which
allows them to either trade all year in a place
they want to live or have the opportunity to
close in the off season.
The most popular types of business remain
thosewhichareeasytotakeoverandrequire
low levels of skill for new entrants into the
market such as cafes, guest houses and even
holiday parks.
7. 10 M ar ket R eview 2014/15 Business Transfer 11
Leisure
Good weather last summer helped boost a
stronger market in the Caravan, and Touring
Park sector. The British Homes & Holiday
Parks Association (BH & HPA) reported
improved trading in Devon and Cornwall
over the whole of 2014.
It is our experience that the majority of
demand continues to come from those
seeking smaller more affordable sites with
good owner’s accommodation and a price
tag of up to £750,000, whilst the larger more
commercially operated sites are less sought
after. Having said this, the last two leisure
properties we sold at Miller Commercial
involved properties that were on the market
at £995,000 and £1.25m which shows that
there is also demand for the more expensive
businesses as long as the profit and loss
accounts will support the purchase in the
event that a bank loan is required.
Hotels and Guest Houses
Some of the market reviews by the larger
national firms suggest that 2014 was a
bumper year for hotel transactions. There
have indeed been notable hotel sales in
the County such as the Jamaica Inn and The
Cornwall but the majority of transactions
have occurred in the smaller, more affordable
Guest House market. As ever location is king
and it is towns like St Ives, Falmouth and
Padstow where those with the largest cash
deposits are prepared to pay premium prices.
The biggest threat to the guest house and
small hotel market in Devon and Cornwall
is the continuing expansion of the likes of
Premier Inn, Travelodge and more recently
Wetherspoons. The latter has recently
expressed an intention to position itself
in the hotel market with rooms proposed
above its pub in Camborne and Premier Inn
are potentially looking to develop new units
in Penzance, Falmouth and Truro. We also
note that a 70 bed hotel is proposed at the
new Cornwall Services on the A30 just west
of Bodmin. These continued expansions
can only put pressure on existing hotel/
guest house operators and the value of their
property assets.
Licensed Premises
Nationally agents generally agree that the
market has improved and that demand has
increased for well-located premises with
strong trading figures. We would agree the
same is true for the local market albeit that
thewell-locatedpremiseswithstrongtrading
figures tend not to come to the market so
often and it is the less well located pubs
with poorer trade that make up the majority
of the market place! The market for these
‘second tier’businesses has been quite active
over the course of last year with a number of
freehold sales completing typically at below
the £300,000 level. These pubs tend to have
quite poor accounts with values being more
reflective of bricks and mortar than of the
property as a going concern.
The leasehold market is still quite subdued
but now better value than it has been for a
number of years. Pubs on sustainable rents
that are free of tie will understandably
produce the highest premiums whilst PubCo
opportunities are often approached with
more caution due to the tie on beverages and
rents that are sometimes out of kilter with
the trading potential of a particular property.
PubCo reform is a topical issue with a Bill
currently going through Parliament that
seeks to regulate dealings between PubCo’s
and their tenants such that leases will have
to be offered on a market rent only basis
free of tie. This Bill is yet to be enshrined in
law but could potentially have a significant
impact upon the leasehold market.
Nightclubs have the potential to be hugely
profitable businesses but it only seems to be
when they are struggling that they come to
themarketandinvariablyvaluesplummetas
a result. We sold Salt Nightclub in Newquay
last year off a guide price of £230,000. The
property extends to 4,500 sq ft and had
once enjoyed a turnover of £850,000 but as
a closed unit the price achieved was a great
deal lower than one might expect.
8. Peter Heather
FRICS
Partner
and office sectors. European grant aid has
continued to facilitate and assist specific
projects, but speculative development in
Cornwall remains thin on the ground.
Retail in the South West is also showing
some strength. When the economy is doing
well there are more tenants seeking space
for their shops, (offices and warehouses).
Rents rise and capital values improve. The
financial crisis significantly reduced the
value of buildings and these capital values
are only now starting to recover. This bodes
well for the forthcoming year, but as rents
stabilise so will the market.
This renewed activity in occupier demand,
on the back of sustained economic growth
and an increase in confidence generally has
fed through into the investment market and
properties that are brought to the market
are generally greeted with a good level of
interest from prospective investors.
We act on behalf of clients with international
and national portfolios, although most
investors in the south west tend to be UK
based, if not regional. Some seasoned
investors are very sector specific, and we
have noted a focus on industrial, retail
warehouse and student accommodation - in
particular with reference to the expansion of
the Exeter and Falmouth University campus.
According to a recent edition of the Sunday
Telegraph,commercialpropertyhasboomed
as Britain’s economy moves into recovery,
noting that some £4 billion has flowed into
Funds that invest in commercial property,
and in 2014 alone, commercial property
made gains of some 19%, the highest
annual return since 1988. Many experts
are optimistic about the forthcoming year,
tipping total returns of 10% or more.
This UK wide reality of improved confidence
intheservice,manufactureandconstruction
sectors which marked the start of 2014, has
also had a direct effect on the South West,
and in particular, Cornwall and Devon,
which has resulted in an increase in take up
of vacant space particularly in the industrial
12 M ar ket R eview 2014/15
Investment
The market for well let, multi tenanted
industrial estates continues to be good
and we are aware of several instances last
year where purchase prices reflecting net
yields of 9-10% were paid for such property.
Location, quality of tenant and lease terms
are of course the important considerations
and yields will vary accordingly. It follows
that it is important not to generalise too
much when commentating on the market
and to treat each property on its own merits.
The market for office investments paints
a mixed picture with the yield
spread being generally
wider than for
industrial.
Two single let office investments sold
toward the end of last year in Falmouth
for £246k and £122k reflecting net yields
of 9% and 9.8% respectively, whilst a large
multi let office investment that we were
involved with on the outskirts of Camborne
sold for in excess of £1.5m reflecting a yield
of 10.9% - but potentially 14.6% if fully
occupied. Again, the devil is in the detail
and with larger office property investors will
be considering what risk there is of ending
up with vacant space and the potentially
prohibitive costs that can be involved with
holding empty commercial property.
Retail investments produce even wider
ranging yields with those in prime positions
let to blue chip covenants continuing to
achieve the best prices (5% to 7.5% yield),
whereas those investments where there
is more uncertainty due to strength of
covenant, length of lease term remaining,
quality of town, position, or a situation
where a unit is considered to be over-rented
- will inevitably have the additional risk
factored into price with 8% to 11% yields or
worse not being uncommon
.
There is a buoyant market for more
affordable investments (sub £250,000),
particularly amongst local buyers who are
perhaps looking for a better return than
they will be getting from residential or
other investments. We recently experienced
considerable interest in a Truro property let
to Oxfam with ten years unexpired where
the highest bidder purchased at a price that
reflected a net yield of sub 7%. Better value
investments with net yields of nearer 10%
have also been quite common place over the
past year but the purchaser will generally
be taking a greater risk in terms of location,
tenant or lease terms or often all three.
I nvestment 13
