AN insatiable demand for residential property is swallowing up many of the older commercial buildings in Southampton city centre and creating supply issues for the commercial property market.

That is the verdict of Andrew Archibald, senior associate with Humberts Chartered Surveyors in Southampton. "The sustained boom in the residential housing market has seen large numbers of traditionally commercial buildings be converted or redeveloped for residential purposes," he says. "This is being compounded by the government's drive to use brownfield land for residential redevelopment.

"As a direct result the commercial property market is being held back by a lack of supply of good quality industrial warehouse and office buildings. There is also a dearth of sites suitable for development for employment uses.

"While extensive conversion to residential is good in terms of regeneration, it is making new commercial development opportunities scarce as they cannot compete on land value.

"The rural local authorities surrounding Southampton are reluctant to release green fields for the commercial users who are looking for modern buildings in order to compete in the 21st century.

"Southampton has too many older industrial buildings which do not meet modern day requirements but redevelopment is hamstrung by fragmented ownership. Many of the older buildings are held on long leases from the city council and their negative position on lease restructuring compounds this problem.

"Alternative investments such as stocks and shares, pension funds and building societies have been performing so poorly that vendors need a very good reason to want to sell property. High stamp duty and potential Capital Gains Tax do not help.

"The good news for sellers is that most freehold property is achieving record prices and now is the time to take advantage. But, as always, it is impossible to say how long the market will continue.

"Genuine business occupiers are being forced to compete for the few freeholds available by private investors just intent on the potential capital gain. Because of this, leasehold property is beginning to look more attractive again.

"Driven by low interest rates occupiers want freeholds, but we are still seeing good demand for leasehold property and this demand has picked up since the seasonally quiet summer holiday period.

"We are fortunate to be marketing two new developments that are currently under construction; a development of quality courtyard office buildings at Nursling and the other a development of industrial and warehouse units at Totton. Both will be available to rent early next year."