The commercial property markets in Guernsey and Jersey appear to be moving in different cycles right now, posing distinct challenges and opportunities for both islands
Jersey and Guernsey"s commercial property sectors headed in two different directions last year. While cautious optimism was being expressed in the former, the general feeling in Guernsey was that the market was in danger of stalling after an intensive period of development. Now, as we look ahead to the rest of 2016, it"ll be interesting to see how the islands fare.
The big fear for 2015 was of a potential slowdown in Guernsey, and while the market softened it didn"t grind to a halt. "Property in Guernsey hasn"t torn away in 2015, but there have been some sizeable deals, which is promising,” says Martyn Baudains, Guernsey Property Partner at law firm Ogier.
"One of the island"s most valuable properties - Trafalgar Court - sold, as did Dorey and Martello Courts."
These sales were by share transfer, so we don"t know the prices paid because they didn"t go through open court. But the fact that they changed ownership displays a confidence in the island that, last year, some feared would disappear.
As well as these prominent sales, the Co-Op"s GT Cars site finished its transformation from a breaker"s yard into a modern petrol station and warehouse. The Les Caches site in St Martin also completed its redevelopment into nine modern, light industrial business units, creating more room for economic growth in the island.
If the tale of 2015 in Guernsey was about avoiding a stall, Jersey was more about picking up the pace. "Towards the end of 2015, the occupational market picked up a lot," says Phil Dawes, Managing Director of BNP Paribas Real Estate in the Channel Islands. "If you have the right product then tenant demand is strong. Over the past three years, we"ve seen improved take-up year-on-year and looking ahead we can expect to see increased consolidation amongst the corporates."
All together now
This move for companies to consolidate into a single building is driving the development of office space in Jersey. "A lot of large corporates are having to occupy multiple sites within St Helier as there is currently insufficient grade-A office space available, which naturally results in inefficiencies and increased cost for the occupier," explains Dawes.
This issue is now being addressed and several large, high-profile office developments are already happening. The first building of the Jersey Development Company International Finance Centre is well under way. In addition, Dandara hope to complete Gaspe House this year - a-six storey development on the Esplanade, much of which has already been pre-let to Royal Bank of Canada - and they have already started work on 27 Esplanade.
Demand is strong enough to sustain rental values in the face of increasing supply, with grade-A space in St Helier attracting headline rents in the mid-£30 per sqft range for 15-year leases.
In Guernsey, where confidence may be lower, the lack of supply is helping to maintain rents. "There"s not much grade-A available for rent and the price is probably holding up well at about £35-36 per sqft," says Baudains.
As the larger companies move towards Jersey"s Esplanade area, they create space elsewhere in St Helier, something Chris Philpott, Partner and Head of the Property Group at Carey Olsen, sees as positive.
"A lot of businesses in mid-sized 20- to 30-year-old premises are looking for new options," he says. "I"m quite encouraged by that. If people leave secondary office space, it will release further development opportunities in St Helier."
"Going forward, landlords owning properties in secondary locations will have to be creative, and be able to offer occupiers flexibility as well as a quality product," says Dawes. “Flexibility is likely to become increasingly relevant, particularly as we"re seeing a number of companies expanding rapidly, and therefore don"t want to commit long term."
Baudains agrees with the need for improvements and believes that they are actively attracting companies. "Secondary space is about £28 to £32 per sqft and landlords are improving secondary stock in order to attract tenants," he says.
Balancing act
Across the water, whilst activity may be less than in Jersey, the key point is that Guernsey"s commercial property market isn"t in decline and, according to Baudains, this is the case across sectors.
"Guernsey"s high street is quite positive, with some lease renewals, so nobody is going anywhere else," he says. "There"s a lot of enthusiasm in the restaurant trade. For instance, Randalls have taken the Old Slaughterhouse site, Burger King is going to Guernsey and other restaurants have opened up. Industrial space is also filling up again, bringing a balance to the market."
Marc Burton, Managing Director of Jersey-based building firm Camerons, is upbeat about the extent of activity in Jersey and points out that there may be perfectly understandable reasons why Guernsey is not quite so busy.
"There"s a significant amount of activity in the town centre in St Helier," he says. "Charing Cross and Hilgrove Street are going to have new buildings and we"re seeing the first wave of redundant office blocks being converted into new flats."
He adds: "The islands operate on different economic cycles and Guernsey"s completed most of its primary office redevelopment. They"ve completed a number of significant infrastructure projects and Mare de Carteret School could be on site in 2016. Guernsey made its investments during the recession and today you can see the first signs of confidence coming back."
With Jersey regaining the confidence that faded during the recession and Guernsey taking tentative steps up from an earlier plateau, the islands" governments are, on the one hand, promoting growth and on the other drawing from it in the form of taxes and levies.
"Locate Jersey has done a good job promoting the island and there is a political will to prioritise diversity. If the government continues to drive for diversity, then office space will continue to be taken," says Philpott.
When it comes to extracting from the industry, new levies and obligatory agreements can only mean one thing - taxes. "I"ve noticed an increase in the use of Planning Obligation Agreements to secure the improvement of public amenity space in the location of approved developments," says Philpott. "We"re waiting to see the outcome of the property tax review but there could be some wholesale changes."
Guernsey is increasing document duty on share transfer transactions. There"s a sliding scale of payments, although Baudains estimates that three per cent is about the average. "There might be a slight price adjustment but I don"t know that it"s going to make a massive difference," he says.
Jersey"s Minister for the Environment has also raised the spectre of an infrastructure levy "to help fund community infrastructure and encourage affordable housing" and this is something in which Burton believes the construction industry will be taking a keen interest.
"We have to consult with him on this because it will have an impact," he says. "We"ve had a lot of positive consultations on previous versions (this is the third) and as an industry we have to consult on it."
Town masterplan
Of course, maintaining confidence and growth is a balancing act, but with St Helier"s waterfront area committed to the finance industry, the island"s government has created a north of town masterplan to provide an image for the transformation of existing residential areas.
There is however, one issue that the States can"t control. "The masterplan is a massive opportunity and the States need to engage with private landowners to ensure they participate in the successful delivery of this plan," explains Burton.
Only time will tell whether the Minister sees the infrastructure levy as a way of kick-starting out-of-centre development, but if he does and if it works, development in St Helier could prove transformational and may deliver a quality that will help sustain development and the economy.
"The key is to make St Helier aspirational to live in," says Philpott. "We"ve a real opportunity to do different things here and if you succeed in that, then it will benefit the whole island."
Whether Guernsey follows suit and seeks mechanisms that will encourage development in less obviously commercial areas remains to be seen. The property sector has still to find its feet and while the islands share many similarities, each has to plot its own path for development, and that could yet lead to two different futures.