Savills World Research UK Cross Sector Spotlight The Future of the M27 Corridor 2017 Retail and leisure scheme, WestQuay Watermark, Southampton by Hammerson plc SUMMARY Delivering homes and workplaces in and around Portsmouth and Southampton ■ The economy of the M27 corridor ■ The M27 corridor needs at least ■ With residential sales values and surrounds is growing faster than 4,000 additional homes per year, but outperforming commercial values, the national average, putting further the current delivery rate is leaving the new development is dominated by strain on an already undersupplied area short of need by 940 homes a housing schemes. There is, however, commercial market, and exacerbating year. Office conversions have provided potential to bring forward more the housing shortfall. 10% of all new homes in the last year. commercial space through residential- led mixed use schemes. ■ Demand for housing pushed up ■ There is very limited office supply house prices between 8.0% and available and no new developments 10.7% over the year to September under construction. Failure to meet across the M27 corridor, above the demand may inhibit growth prospects “The M27 corridor needs at least national average of 7.1%. However, of local businesses and make it harder they still remain more affordable than to attract new companies. Lack of 4,000 extra homes per year” neighbouring markets Winchester, commercial development has resulted Savills Research Chichester and East Hampshire. in an increase in refurbishments. savills.co.uk/research 01 Spotlight | The Future of the M27 Corridor Market dynamics Public and private investment STRONG GROWTH, Through the City Deal, Portsmouth and Southampton are working together to support further growth, NEW CHALLENGES maximising the economic strengths of the M27 corridor and creating local jobs. The deal has provided £115m of local and national public investment to encourage over £800m of private sector investment, with a focus on supporting growth Strong economic growth in he economy of the M27 in marine, maritime and advanced the markets around the M27 is corridor and surrounds manufacturing sectors. is growing faster than This public investment comes at increasing the pressure for more the national average, a time of growing private investment. homes and workplaces driven by consumer Commercial investment is returning Tspending, an emerging tech sector, to levels seen during 2007, further expansion of maritime particularly in the office and industrial industries and inward investment. markets. Overseas investors However, strong economic growth increased their investment levels to in our study area, which includes the £157m during 2016, the strongest local authorities of Eastleigh, Fareham, level since 2007, which accounted for Havant, Gosport, Portsmouth and 43% of total commercial investment. Southampton, is putting strain on already undersupplied commercial Expanding tech sector markets and exacerbating the Technology is among the fastest housing shortfall. growth sectors in the M27 corridor, Economic growth in the six local growing by 33% over the past five authorities reached 14% over the years, outpacing the UK average of past five years, above the UK average 29%. According to Tech City UK’s of 11%. This was in part driven by latest report, Southampton witnessed “We expect the M27 corridor to the strong recovery in consumer digital turnover growth of 180% expenditure, boosting the wholesale between 2010 and 2014, faster than see further economic growth of and retail sector by 35% over the past any other UK city. 9.5% over the next five years, five years, exceeding the UK average The University of Southampton of 22% growth. We expect the M27 Science Park has helped to provide above the UK average of 9.2%” corridor to see further growth of 9.5% workspace, advice and support Savills Research in the next five years, above the UK for small digital science and tech average of 9.2%. businesses. Portsmouth and FIGURE 1 Average house prices, affordability and supply in the M27 corridor ■ House price ● Affordability (RHS) £450,000 18 £400,000 16 £350,000 14 M27 corridor £300,000 12 £250,000 10 £200,000 8 940 current annual £150,000 6 shortfall of homes £100,000 4 Average house price (year to Oct 16) Average £50,000 2 in the M27 corridor* More affordable Less affordable affordable More Median house price to median earning ratio £0 0 * based on need from current SHMAs Havant and net additional dwellings Gosport England Fareham Eastleigh Chichester in the year to March 2016 Winchester Portsmouth Southampton East Hampshire Source: HM Land Registry, DCLG, local authority SHMAs, DCLG 02 2017 Southampton Solent Universities and Chichester as cathedral cities FIGURE 3 specialise in engineering, sciences and the presence of the South Downs and creative industries, providing the National Park. Western M27 region with a strengthening skills base. Fareham and Eastleigh have average Office market This is additional to the strong house prices of c.£285,000, lifted marine and maritime sector which above the other M27 corridor areas has also grown during recent because they include some desirable years, driven in part by key assets villages such as Sarisbury Green, 265,000 sq ft such as the Port of Southampton, Locks Heath, Botley and Hamble. Portsmouth Naval Base and the Annual average Solent Marine Cluster. Office space needed take-up Southampton, Chandler’s Ford Growth of retail & leisure and Solent are the dominant office Established high end shopping markets in the Western M27 corridor. centres; Gunwharf Quays Average annual take up has reached (Portsmouth) and WestQuay 265,000 sq ft over the past 10 years, 430,000 sq ft (Southampton) are the main centres and should demand continue at this (1.6 years of supply) for the 1.4m shopping catchment. rate, a need for 1,325,000 sq ft of The region’s retail provision has office space will be required over the Supply of improved considerably in recent next five years. office space years, with the redevelopment of There is currently around 430,000 Whiteley shopping centre, near sq ft of office space available in the Fareham, creating around 1,000 jobs. Western M27 market, half as much With amenity offering coming high as in 2011 and the lowest level on up in Savills ‘What Workers Want’ record. This equates to less than two 0 sq ft survey, this scheme has also boosted years of supply and indicates the occupier interest on the nearby need for more new office space. Speculative new Solent Business Park. With no new build developments build development currently in the pipeline, and only Unmet housing demand 50,000 sq ft of office space currently Economic growth will place further under refurbishment, this reflects a pressure on an already undersupplied potential need for 845,000 sq ft of housing market. According to the office space over the next five years. current Strategic Housing Market Headline rents have stood between Assessments (SHMAs) for the local £18 and £21 per sq ft for the last 25 845,000 sq ft authorities along the M27 corridor, years. After a period of significant 5-year shortfall at least 4,000 additional homes are incentives from 2008 to 2014, rents required per year. have recovered towards the upper However, whilst the supply of new end of this band. Now incentives homes increased over the last five have reduced dramatically and longer Source: Savills Research years, reaching 3,060 in the year to leases are being agreed. ■ March 2016, it was still short of need by 940 homes. FIGURE 2 The low level of supply has contributed to an increase in house The Western M27 market has a shortfall of office supply, prices. Over the year to September with less than two years of space remaining 2016, house prices have grown 4.5 between 8.0% and 10.7% across all six local authorities, above the 4.0 national average of 7.1%. However, with the average 3.5 house prices in Portsmouth and Southampton at £205,000 and 3.0 £208,000 respectively, homes 2.5 2 years’ worth along the M27 corridor are relatively of supply affordable compared with neighbouring 2.0 Winchester, Chichester and East Hampshire. These neighbouring supply of office Years 1.5 markets have seen even stronger 1.0 house price growth since the 2007/08 peak and average house prices are 0.5 close to or above £400,000. Values in these three markets have 0 been pushed up by better connections 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 to London, the status of Winchester Source: Savills Research savills.co.uk/research 03 Spotlight | The Future of the M27 Corridor Development comparatively easier to achieve on residential schemes. RESIDENTIAL Given these issues, one way to deliver new commercial space is through mixed use LEADING THE WAY 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 Residential development is ousing demand, per sq ft with higher values achieved dominating property construction rising house prices on waterside schemes in Portsmouth and the potential and Southampton. Here, regeneration in the M27 corridor with limited new for residential and the waterside views has pushed commercial space being delivered development to values of up to £500 per sq ft. New Hachieve higher sales values build values in the Winchester market than commercial uses, has been are higher, averaging between £400- prompting developers to deliver 430 per sq ft for larger developments. homes rather than workplaces. Higher paid workers in the M27 Our analysis shows sales values for corridor tend to live outside the residential development exceed sales major urban areas, preferring the values for both office and industrial neighbouring towns and villages.