S.P.E.C.S: Savills ProgrammE

and Cost Sentiment Survey

S.P.E.C.S
Savills ProgrammE and Cost Sentiment Survey

17 May 2017, words by Kevin Mofid

Cost stability arrives in some sectors

■ The previous edition of S.P.E.C.S suggested that in 2017 uncertainty was the only certainty. This has most definitely been the case geopolitically as the UK is now braced for another General Election and we have seen political outsider Emmanuel Macron win the French Presidency.

■ Property, financial and commodity markets are now starting to stabilise following the events of 2016 meaning greater clarity is being seen in relation to property development pipelines and tender price inflation which remains unchanged at 2.5% according to G&T.

 

With a level of stability now appearing to return to some markets it is interesting to note that some sectors and geographies are starting to see build costs plateau, and in regional office markets fall. Whilst not yet impacting timescales developers or occupiers could look to now take advantage of these market conditions.

Simon Collett, Head of Division

Q2 2017 S.P.E.C.S Score

■ Our overall S.P.E.C.S score for the second quarter is 15, a slight fall from the record score reached in the first quarter of the year.

■ Timescales in all sectors and geographies remain static as the development pipeline of new projects remains steady. Whilst most sectors are still seeing costs rise it is interesting to note that some sectors have stabilised, warehousing in particular, and that costs for occupier fit outs in regional markets have a downward pressure which could be attributed to higher than normal contractor availability.

TABLE 1

 
Table 1

*Timescales definition: The time taken from project sign off to project commencement including the procurement and delivery of building components

Source: Savills Building and Project Consultancy

GRAPH 1

S.P.E.C.S Q2 2017

 
Graph 1

Source: Savills Research

The evolution of retailing placing new demands on the physical store

■ The structural shift currently taking place within retailing due to the growth in online is having a number of impacts on retailer estate strategies and in turn retail property.

■ However, it is not a case of offline vs online. For example, some of the biggest online retailers operate a physical store network, John Lewis being a prime example. We are also seeing a number of 'pure play' e-tailers make the leap to bricks and mortar retailing. Fashion brands have been the most active in making this transition accounting for almost 30% of pure play retailers who made the transition to omnichannel retailing with the opening of stores (Graph 2). Customer preferences to 'touch and feel' product before purchase being a key part of this move to physical retailing. The most recent and high profile example of this being Missguided who opened their first store in Westfield's Stratford centre.

GRAPH 2

Pureplay transition to omnichannel by sector

 
Graph 2

Source: Savills Research Retail Revolutions: From Digital to Physical

■ The transition of e-tailers into physical retailing highlights the continued role the store can play in promoting the brand, driving both online and instore sales. All the more important in light of the projected slowdown in online sales growth and the fact that for some parts of the retail market the majority of sales will continue to take place in stores. GlobalData, for example, forecast that online sales growth will slow to 4.8%, with only 11.5% of health & beauty spend to take place online by 2022.

■ While the 'store' will continue, what is changing in light of the growth in online is the size and number of stores required by retailers. However, it is the digitisation of the in-store experience, across all parts of retailing, and the new ways retailers are using their stores, that will perhaps have the most significant impact on retail property going forward.

■ For landlords the potential impacts of this evolution range from facilitating the delivery of super fast wifi, ensuring space flexibility for innovative fit-outs, facilitating easier customer returns to examining options for an evolution of the landlord and tenant relationship.

"The retail revolution presents a number of practical realities for the industry. These include how to deliver innovative retail space, as well as ensuring operational trading requirements are met when combining brands and services under one roof, all of which can lead to higher costs and a longer delivery programme."

Claire Hood, Associate Director, London

 
 

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Key contacts

Kevin Mofid

Kevin Mofid

Director
Commercial Research

Savills Margaret Street

 

Simon Collett

Simon Collett

Director - Head of Division
Building & Project Consultancy

Savills Margaret Street

+44 (0) 20 7409 5951

 

Claire Hood

Claire Hood

Associate Director
Building & Project Consultancy

Savills Finsbury Circus

+44 (0) 20 7877 4572