Changing Boundaries. Inside this report:

Transcription

1 Changing Boundaries Inside this report: Research into the impact that Crossrail and Thameslink will have on property investment and development in London and the South East

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3 Crossrail, Thameslink and the Property Investment Market Changing Boundaries The establishment of Crossrail, and upgrade and extensions taking place on the Thameslink network will change the boundaries of some of London and the South East s commercial and residential property markets; providing significant opportunities for property developers, investors and occupiers alike. This report highlights those markets that will benefit most from the increased connectivity and shortened journey times provided by the improvements to the transport infrastructure. Executive Summary The health of London s economy is vital to the whole of the UK. London contributes % to the UK s annual GVA ; a % out-performance per capita in comparison with the rest of the country. The financial and business services sectors contribute the most to London s economy. Reflecting this, London ranks number one in the Global Financial Centres Index survey of the most attractive places for financial firms to do business. Continuing the modernisation of London s transport infrastructure is one of the most important things the authorities can do to maintain the city s competitive advantage. The west-east Crossrail network will complete in, serving stations and increasing London s rail capacity by %. It will bring an additional.m people within minutes commuting distance of London s main business districts. The improvements to the Thameslink network will mean more capacity, more stations served and an increased number of trains travelling across London at peak times. The major central London markets which will have access to new Crossrail or refurbished Thameslink stations are expected to remain pre-eminent in terms of demand from investors and developers. The less established or less well connected central London locations will grow as they become more attractive to occupiers through the new transport links provided by Crossrail and Thameslink. This will lead to outperformance in comparison with other similar markets which do not benefit from these transport improvements. The central London markets which have access to Crossrail or Thameslink stations are expected to remain pre-eminent. Markets outside central London such as Maidenhead (and therefore Reading), Slough, Ealing, Stratford and Croydon will also benefit from the new, direct and quicker links into central London. We have split the markets we have analysed into two broad categories; short term focus and long term opportunity. Primarily it is the central London markets and Maidenhead which will perform best in the short term. Aside from Maidenhead, the markets outside of central London present themselves as a long term opportunity, as the transport improvements lead to a positive shift in their market dynamics. For investors and developers with an eye on the medium to long term, the changing boundaries brought about by the further modernisation of London and the South East s transport infrastructure will provide opportunities from which to profit. GVA is the difference between gross output and intermediate consumption and used as a proxy for GDP Lambert Smith Hampton

4 Changing Boundaries Introduction Figure : Canary Wharf prime rents as a % of city prime rents 9 DLR opens Jubilee Line Extension opens The transport infrastructure of a city is one of the key factors which determines its economic success. The transport infrastructure of a city is one of the key factors which determines its economic success. Improvements to the transport network support existing employment clusters, create opportunities for new ones, contribute towards the creation of an environment in which public and private enterprise can flourish, and change the overall perception of the city and its existing boundaries. For example, the new development at Canary Wharf only began to establish itself after the creation of the DLR network in the late 9s (Figure ). Lewisham has been transformed as a commuter location by the DLR, and Paddington emerged as a new office location on the back of the Heathrow Express, and at the expense of more traditional office centres along the A/M corridor. With the introduction of Crossrail and the works centering on the improvements to the Thameslink network we will see a further expression of these boundary changes. In this report we highlight the hotspots where improved connectivity will add focus. These include locations such as Maidenhead, and Reading at the western end of the Crossrail route. In central London, the rise of Farringdon as a major transport hub and the further development of the King s Cross/St Pancras/Euston area along the northern edge of central London. Meanwhile the City will benefit through better transport links from Liverpool Street and Blackfriars; and London Bridge will further establish itself as a viable location in its own right. Tottenham Court Road, Bond Street and Paddington will all be beneficiaries of improved transport links. The new interchanges will provide better connections to areas outside central London. Additionally London s five airports City, Gatwick, Heathrow, Luton and Stansted will become more accessible than ever before through the public transport network. The prominence of new locations will create development opportunities at these hotspots, and as seen before, activity will reduce in other less well connected locations. Lambert Smith Hampton

5 Crossrail, Thameslink and the Property Investment Market London as a global city In all respects London can be defined as a truly global city. It performs a critical role as one of the two major global financial centres (the other being New York); it is a major political centre; it is a leader in culture, media, sport and the arts; it attracts people from all over the world and a significant proportion of London s population (%) were born overseas (source: Oxford Economics London s Competitive Place in the UK and Global Economies). In many senses, London s pre-eminence in financial and business services is due to its historical significance and seat at the centre of the British Empire and global trade. For example, London s docks remained the busiest in the world well into the th century, a legacy which lives on in London s substantial role in the global ship-broking industry. There are other advantages which have acted to maintain London s leading position well into the st century. In geographical terms it sits in-between the markets in Asia and those in the US, it has a competitive tax and regulatory regime, a flexible labour market, relatively easy access to a highly educated workforce. It has strong links to the academic community, it provides a stimulating business environment, and it has a dense and well developed transport network. As a reflection of this, London s financial and business services sector grew by % per annum in the years to. This figure is below the growth rates recorded in the major cities in the emerging markets, but outstrips other rivals such as Paris and New York. As such, London s share of the market for financial services in the US, Europe and Japan grew from % in the late 99s to.% in (pre-financial crisis). As with the other major financial centres, London was hit hard by the recession of and 9. The latest data shows that the number of jobs lost was equal to.% of the workforce and total loss of output in and 9 was.%, which was worse than many other large centres. Although the UK s economic recovery remains fragile, London is performing well in comparison with the rest of the country. Looking forward, prospects for growth are good. London will continue to lead the UK s economic recovery and London s GDP should grow by over % this year. Oxford Economics forecasts show that London s GDP is expected to grow at a faster rate than most of its European rivals. London is therefore set to retain its competitive edge. Table : GDP growth in large European cities % Average - 9 London Barcelona Brussels Frankfurt Madrid Milan Munich Paris Rome Stockholm Source: Oxford Economics Lambert Smith Hampton

6 Changing Boundaries Figure : London GVA by Sector % per annum London and the South East s economy,, -,, - - Q Source: Experian,,,, Q Construction Other Manufacturing Q Q 9 Distribution, Hotel & Catering Construction Q Q Transport & Communications Distribution, Hotels, Catering Transport & Comms Q Financial & Business Services Figure : London Employment Structure s Figure : GVA Output by Region m,,,,,,,, Source: Experian,, Greater London Source: Experian Other Manufacturing South East Greater London Construction North West South East East of England North West Distribution, Hotels, Catering East of England Scotland Scotland South West Transport & Comms South West West Midlands West Midlands Yorks & The Humber Q F&BS F&BS Yorks & The Humber East Midlands Q Other (mainly Public) Services Wales Other Services Other Services East Midlands North East Wales North East Northern Ireland Northern Ireland London is the engine room of the UK economy, contributing % of the annual GVA (Figure ), a significant outperformance per capita (approx. %) in comparison with the rest of the UK. This is driven by the high value-added Financial and Business Services (F&BS) sector, which accounts for.m jobs out of a total of just over m. Output from the F&BS sectors drives activity in the rest of the London economy and as this sector started to recover from the global financial crisis, so has the rest of London s economy. Another indication of London s dominance is the importance of the markets that surround the capital. Centres such as Other Manufacturing Construction Reading, Maidenhead and Croydon have large well developed markets. As well as acting as business locations in their own right, they are also able to feed off the opportunities available from being in relative close proximity to London and London s national and international transport links (especially the major airports). This is reflected in the similar employment structure seen in the South East and in London (Figures and ). The South East is the most important UK region, outside of London, in terms of share of GVA (Figure ). We have already outlined that London s attractions are based upon a number of factors, and the results from the most recent Global Financial Centres Index (GFCI) reflect this. This bi-annual survey carried out by consultancy Z/Yen showed London to be the most competitive and attractive financial services centre in the world. Reflecting this, office based employment in London is set to grow by, in the next years (source GLA). There are risk factors that could act to militate against these forecasts. These can be broadly summarised as any substantial changes to the tax and regulatory regime and a deterioration of Greater London South East North East West of England Scotland the current transport network. Respondents quoted in the GFCI said that one of the best things regulators and politicians could do to show their commitment to the business community was investment in transport infrastructure. This emphasises the importance of a modern transport network to businesses and also the opportunities that can be created by the improvements to the existing network. Dist., Hotels, Catering Transport & Com South WestYorkshire Midlands& EaH Figure : South East Employment Structure s,, The GFCI shows London to be the most competitive and attractive financial services centre in the world. Other Manufacturing Construction Distribution, Hotels, Catering Transport & Comms F&BS Other Services Other Manufacturing Construction Dist., Hotels, Catering Transport & Comms F&B Source: Experian Lambert Smith Hampton

7 Crossrail, Thameslink and the Property Investment Market London s transport network The expansion of London s transport network has been largely unplanned. Heathrow Airport is a classic example of this; the ad hoc manner of its expansion since the 9s has left London with an airport that handles.m passengers every year, yet many say it is unfit for purpose. Concerted attempts have been made to improve the network and bring London s transport system into the st century and one befitting of a true global city. The development of the Docklands Light Railway in the 9s, the establishment of the London Overground Network, the provision of express trains to London s airports, the high speed Eurostar links to the continent and continued improvements to London Underground have all moved London closer to the goal of a modern integrated transport system. To ensure London is not left behind, it is important to keep on improving the transport network. Paris already has an extensive suburban and urban rail network, the RER, that serves stops on five lines. The development of which in the 9s facilitated the establishment of La Défense as one of the major European business locations. This is where the new Crossrail network and the substantial improvements to Thameslink as part of the Thameslink Programme come into play. The major improvements to London s transport network will have significant and positive effects on the commercial and residential property markets in a number of key locations. Crossrail Crossrail will be a new west-east rail link, linking Maidenhead and Heathrow in the west with Shenfield and Abbey Wood in the east, via the West End, City of London and Canary Wharf. With works already underway, it is anticipated that the.9bn scheme will be open to the public in. The new route will serve stations and provide a % increase in the capacity of London s rail network. The network will service up to, passengers an hour. Shortening journey times, Crossrail will bring an additional.m people within minutes commuting distance of London s main business districts. The number of travellers passing through Bond Street station will increase from, people a day to, people a day when Crossrail opens. Funding has been provided by a bn grant from the Department for Transport and money has also been given to the project by the City of London Corporation, BAA, Canary Wharf and Berkeley Homes. In addition, a supplementary business rate is being paid by London businesses and money from Crossrail fare payers will be used to service the project debt. The estimated benefit to the UK economy is bn. Table : Impact of Crossrail increase in commuter population by station and travel time Station Within Within minutes minutes Canary Wharf % % Paddington 9% % Tottenham Court Road % % Bond Street % % Farringdon % % Liverpool Street % 9% Ealing Broadway % % Heathrow Airport % % Slough % % Maidenhead % % Source: CACI Thameslink programme Thameslink is a north-south rail link which connects Brighton and Sevenoaks in the south with Bedford in the north via London Bridge, the City of London and St Pancras. The system is currently undergoing a bn upgrade (funded by The Department for Transport), which will extend the network, increase capacity and dramatically improve upon the existing service. Three London stations Blackfriars, Farringdon and London Bridge will be refurbished as part of the programme. Blackfriars station will extend across the Thames and be accessible from the Southbank. The works at Blackfriars and Farringdon will be completed by the Olympics, whereas those at London Bridge will not complete until. As the hub of the Crossrail and Thameslink interchange, approximately trains will pass through Farringdon station every hour during peak periods. The programme will not be finished until, but to increase capacity, longer trains will be in use from the end of and new purpose built rolling stock will be introduced from. This investment in Greater London s infrastructure will assist London s evolution as a global business centre; the ability to move from home to work place to recreational space will be improved; London s competitive edge in terms of costs of occupation will be maintained; and the quality of life that comes with better communications will also be enhanced. Lambert Smith Hampton

8 Crossrail, Thameslink and the London and South East Property Investment Market Opportunity

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10 Changing Boundaries Opportunities by location It is clear that these programmes will make a major difference to London s transport infrastructure, but how will this affect the property markets in the capital and the South East? It is sometimes taken as a given that improved transport links will lead to a commensurate improvement in the relative property markets, but can we qualify this relationship at all? The core central (ie almost solely commercial) markets are those which already have good transport links and business infrastructure. The improvements to the transport network surrounding these locations will act to cement their place at the top of the tree in terms of occupier and investor preference. Transport improvements in non-core central (ie primarily commercial) location will affect businesses as they enable more people to access that particular place on a daily basis. This will encourage businesses to locate there as they look to take advantage of the improved links at what would initially be lower rents than relatively more connected locations. As occupier demand increases so will capital values, as developers and investors look to capitalise by exploiting commercial opportunities in a location that was previously less attractive. Transport improvements in more peripheral (i.e. mixed commercial and residential) locations will affect these markets slightly differently. Shorter journey times to major employment centres encourage businesses looking to save cost through relocation from more expensive areas, and also provide a boost to the residential market as particular commutes become newly feasible, i.e. journey time from Slough to central London will be halved by Crossrail. The benefits of improved journey times will also apply to the eastern end of Crossrail.. Bond Street Rent. psf.% pa Yield.% - bp Development Land Securities is Potential for further development potential currently developing a around Hanover Square and mixed-use scheme on Bond Street. Oxford Street, close to Bond Street tube station. Bond Street will be one of the new Crossrail stations; passenger numbers passing through the station are forecast to increase from the current figure of, a day to, a day when Crossrail opens. Development potential There is potential for development around Hanover Square. For example Great Portland Estates has received permission for a, sq ft mixed-use development around the eastern ticket hall at Hanover Square and there is planning permission for a, sq ft office led development on Davies Street. In addition, Land Securities Park House development on Oxford Street is already underway and due to complete in. It will provide, sq ft of offices, 9, sq ft of retail and, sq ft of residential space. The increased station capacity will be attractive to high profile office occupiers and retailers on Oxford Street and Bond Street. We expect developers to concentrate their efforts on mixed-use projects (as with the Park House development) designed to appeal to international retailers and companies from the financial and business services sectors. Thereafter the dynamic is the same, in that increased occupier demand results in increased developer and investor demand. We have taken these principles and used them to identify the following key investment and development hotspots; markets which will outperform their peers in the short and /or long term as a result of the improved connectivity provided by Crossrail and Thameslink. Figure : Yield expectations % Please note: All data in the following tables applies to the office market. The rental and yield outlook is for -. Analysis of central London markets is by metre radius from the relevant station. Central London offices Grade A spec defined as, sq ft plus floor plates. Regional offices Grade A spec defined as, sq ft floor plates. 9 (f) (f) Lambert Smith Hampton

11 Crossrail, Thameslink and the Property Investment Market. Tottenham Court Road. Liverpool Street Rent. psf.% pa Yield.% - bp Development Good. Central St Giles New buildings could attract potential Project has already raised corporates, media and professional the area s profile. occupiers and establish the area as a prime office location in the West End. Tottenham Court Road will be a new station on Crossrail, allowing passengers to interchange between Crossrail and the Northern and Central lines on the London Underground. Development potential The eastern end of Oxford Street is renowned for being fairly run-down. The station's redevelopment, improved connectivity, and the recent completion of the Central St Giles development will act as catalyst for further redevelopment. Some investors are already looking to exploit existing development opportunities and the anticipated improvements that Crossrail will provide: Aviva Investors are thought to be looking into the possibility of developing a, sq ft plot at New Oxford Street. Derwent London Plc have acquired - Tottenham Court Road and are planning a refurbishment of the, sq ft building, with an option to acquire a, sq ft mixed use scheme over-station development site. Frogmore and Development Securities are redeveloping a retail unit at the eastern end of Oxford Street. The Royal Mail sorting office and goods yard at Rathbone Place could also be made available for redevelopment. Although this is complicated by the fact that the yard is secured for use during the Crossrail construction works. In terms of future demand, this area has already proved popular 9 (f) (f) with TMT firms acquiring office space (e.g. lettings at Central St Giles to Google, WPP, Universal Pictures etc), and the increased connectivity and further redevelopment will continue this trend. It is a similarly positive story in the retail sector as the recent, sq ft pre-let to Primark demonstrates. Liverpool Street is already a major London Underground and rail interchange, so the improved connectivity that Crossrail offers may have less of an impact in comparison with Farringdon for example. It will be considerably easier to move between Liverpool Street and Canary Wharf, and that may appeal to banking and financial services occupiers. Development potential There are a number of large schemes that already have planning permission in the area around Liverpool Street. These include: 9 (f) (f) Great Portland Estate s, sq ft development at Bishopsgate. Hammerson s 9, sq ft mixed-use scheme, Principal Place (, sq ft already let to CMS Cameron Mckenna), which is due to complete in. The Pinnacle, Bishopsgate; a m sq ft office scheme due for completion. British Land and Blackstone s redevelopment of the Broadgate campus to provide UBS with a new London HQ. Targetfollow s, sq ft scheme at St Mary Axe. Rent. psf.% pa Yield.% -bp Development The area is already a Some substantial schemes are potential prime location in the planned around Liverpool Street. City of London. The Crossrail will only improve this new Crossrail station area of the city and reinforce will help to maintain its micro credentials as an office this position. destination for financial occupiers. As a major City submarket, Liverpool Street is already a prominent and popular location for professional services and financial firms; Crossrail will only enhance its attraction as a location for this type of occupier. It will be the only Crossrail 9 stop within the City of London, so it is possible that the 9 (f) (f) geographical centre of the City will shift further north, away from Bank and towards the newly accessible Liverpool Street. Figure : Yield expectations % Figure 9: Yield expectations % 9 (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

12 Changing Boundaries. Farringdon. King s Cross/St Pancras/Euston Rent. psf.% pa Yield.% - bp Development Farringdon is under- Farringdon will be at the hub of 9 potential developed as a (f) (f) the new transport network. business location. It is anticipated trains an Developers have been hour will pass through the held back by the current station. Prospects are transport infrastructure excellent provided large scale and a lack of suitable sites. development can be realised. Farringdon will provide an interchange with Thameslink and Crossrail and London Underground as such it is set to become one of the most accessible locations in central London. Passengers will be able to travel directly to three of London s five main airports from here (Heathrow, Gatwick and Luton) and interchange with intercity and international train services. Development potential Farringdon s central location and improved transport links will make it an attractive proposition for developers. There is money already flowing into the area with several proposed schemes: Helical Bar and Baupost s St Barts Development Site 9 (f) (f) a planned, sq ft mixed use scheme. Henderson s Caxton House to form part of the larger Smithfield Market redevelopment. The site has planning for a new, sq ft office scheme. In addition, the adjacent meat market and annex block could provide, sq ft subject to planning. AXA and Favermead are developing Holborn Viaduct, a speculative, sq ft office development. Derwent has submitted a planning application for Turnmill, a, sq ft office building located opposite Farringdon Station. Farringdon s location on the fringes of the City, as well as the increased accessibility, means that the area will become increasingly popular with occupiers from the financial and business services sector. As the area establishes itself as a business location, retailers will also be attracted to the market 9 (f) (f) and mainstream retailing will also become possible. Rent. psf.% pa Yield.% - bp Development Argent has an m sq ft The continued regeneration of potential mixed-use development 9 the area will drive rental growth to the east of King s Cross and establish the area as a key station already planned. business location. 9 St Pancras will be one of the main hubs of the Thameslink network, meaning that passengers will be able to interchange with inter-city and Eurostar services from stations to the north and south of London. Development potential As one of the more under-developed areas of London, King s Cross is set to benefit from the major scheme proposed by Argent. This consists of the redevelopment of a acre site to the east of the station. When completed it will provide some.m sq ft of offices,, sq ft of retail and up to, homes and flats. The area around Euston station has benefitted from British Land s.m sq ft mixed-use Regent s Place development. The next phase 9 of development the North East Quadrant will provide up to, sq ft of mixed-use space and be 9 (f) (f) delivered by. When completed, Regent s Place will total more than m sq ft and, people will live or work there. The British Land development at Regent s Place has already proved popular with media and advertising agencies; this and 9other major developments alongside the transport improvements can only add to the area s attractiveness to occupiers and investors. Whilst the HS (High Speed ) line between London and Birmingham has not yet been given the green light by the Government, the proposed route has been announced. If it is to go ahead, trains will depart London from an extended and redeveloped Euston station, which will open up a whole new area around the station for further development and provide significant 9 opportunities for property developers (f) and investors. (f) (f) 9 (f) Figure : Yield expectations % Figure : Yield expectations % (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

13 9 (f) (f) 9 Crossrail, Thameslink and the Property Investment Market 9. London Bridge. Canary Wharf/Royal Docks Rent. psf.% pa Yield.% - bp Development High profile Shard and Planned redevelopment of potential London Bridge Quarter the station to commence development is already in and will be finished underway, providing by. This will increase m sq ft of new capacity by %. Anticipated 9 office space. that London Bridge will become a new location to rival the City (f) and Midtown (f) for office occupiers. The major change to London Bridge will be the planned redevelopment of the station and the extensions to the Thameslink 9 Network, which will improve access to the station from both north and south London. Development potential The Shard and London Bridge Quarter development have raised the profile of London Bridge as a location in its own right, rather than as a gateway to the City or West End of London. The Shard will consist of offices, residential and hotel space. Additionally, there are further plans by the same developer, Sellar Group, to construct a storey office block opposite the Shard. 9 The two developments will provide (f) in total m (f) sq ft of office space for the area. The development of the area will attract occupiers who might have only previously considered locations north of the river in the City or Midtown. Landlords should therefore be targeting professional services and financial firms for their new developments. For example, Norton Rose already has its London offices at the More London development on the South Bank between London Bridge and Tower Bridge. 9 (f) (f) Rent. psf.% pa Yield.% - bp Development Total Canary Wharf Canary Wharf station is at potential 9 pipeline is.m sq ft capacity (f) so the construction (f) (equates to years of a new m station will development at the rate continue to position Canary seen over last five years). Wharf as a credible alternative Nothing u/c at the moment. to the City as an office location. It will be quicker than ever before to access Canary Wharf from central London. The journey time from Bond Street to Canary Wharf will be cut by minutes and from the City (Liverpool Street) by minutes. It will also be possible to go directly from Heathrow Airport to Canary Wharf in minutes. Development potential Canary Wharf has just announced that it plans to build a new, sq ft storey tower on the back of a, sq ft pre-let to the European Medicines Agency. The EMA is paying. psf on a year lease with upwards only rent reviews 9 (f) (f) and a month rent free period. Construction will start in and completion is scheduled for. This is the last building to be developed from the original 9 Canary Wharf masterplan drawn up in the 9s. There remains a large amount of space with planning permission in the pipeline circa.m sq ft at Bank Street, North Quay and Wood Wharf. The timescale for the development of these projects remains uncertain. The Royal Docks is a hectare area which has been zoned for redevelopment and there is significant scope for commercial and residential property development. For example, at Silvertown Quays planning permission exists for a acre residential and office development. The LDA is in the process of choosing a developer for this site from a seven strong short list. 9 Canary Wharf will continue to attract occupiers from the banking and financial services sector. The quicker journey times between Canary Wharf and the City will only be an added 9 attraction for most occupiers. At the Royal Docks large scale development will be possible but this is a long term project. 9 (f) 9 (f) Figure : Yield expectations % Figure : Yield expectations % 9 (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

14 Changing Boundaries. Paddington 9. Blackfriars 9 (f) (f) Rent. psf.% pa Yield.% - bp Development There has been extensive Development potential should potential development activity in continue to be positive in light the last five years and light of the arrival of Crossrail. Paddington is now an established office location. Transport infrastructure Paddington continues to be an important London transport hub, especially in relation to the markets in the Thames Valley and Heathrow Airport. Via Crossrail, it will take only nine minutes to get from Paddington to Liverpool Street and minutes to travel from Paddington to Canary Wharf. Development potential 9 (f) (f) Paddington has already benefitted from significant development of office space in recent years and we expect this to continue in the light of the forthcoming arrival of Crossrail. Some potential schemes include: North Wharf Road Planning consent obtained for, sq ft scheme to include, sq ft offices and, sq ft residential. Paddington Central Four and Five Kingdom Street. The final two developments have detailed planning permission and will total, sq ft and, sq ft respectively. Merchant Square This is a mixed-use development on the Grand Union Canal and close to Paddington station. The first phase a, sq ft office building has already completed and there are plans for another five buildings, which will comprise both residential and office space. The development in Paddington has established the area as a genuine office location for large corporate occupiers. Both 9 (f) (f) Marks and Spencer and Orange have their London offices in Paddington. Crossrail will only encourage a continuation of this trend. Rent. psf.% pa Yield.% - bp Development Blackfriars has suffered The new station which spans the potential in recent years in Thames will make the Bankside comparison with other and South Bank areas more City locations due to accessible and the extended its relatively poor Thameslink network will allow transport connectivity. direct access to Luton and Gatwick airports. The improved transport links should act as a catalyst for development and increase the area s attractiveness to occupiers. The new Blackfriars station will open by the middle of. It will span the Thames and passengers will be able to gain access via both sides of the river. Blackfriars will also benefit from the extension to the Thameslink network. 9 Development potential Blackfriars will be one of the key hubs in the new Thameslink network. The 9 increased connectivity and shorter (f) journey (f) times to and from the station mean the area as a whole will become much more attractive to occupiers, developers and investors. schemes in the pipeline include: Blackfriars Road, where GPE has a, sq ft scheme due to start construction works soon and Blackfriars Road, where planning consent has been obtained for a new, sq ft office building. It has recently been announced that a prominent site on Blackfriars Road, south of the Thames, has been put on the market again. This is the proposed site of the Boomerang Tower, a development that was mothballed during the recession. The increased connectivity offered by the new Blackfriars station could be one of the factors to prompt a new development here. 9 9 As with the rest of the City, Blackfriars is primarily home to professional services and financial firms. This will continue with the establishment 9 of the new station, but the (f) relative draw (f) of Blackfriars in comparison to the other City and Midtown locations will increase. (f) 9 (f) Figure : Yield expectations % Figure : Yield expectations % 9 (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

15 Crossrail, Thameslink and the Property Investment Market. Maidenhead Rent 9. psf.% pa Yield.% - bp Development Aegon has a, sq ft The Maidenhead town centre potential speculative development action plan has now been agreed underway in the town and all new development will be 9 centre. Planning within this (f) framework. The (f) permission exists for prospect of the Crossrail network another, sq ft arriving in should provide of office development. an impetus for development and add to the town s already strong attraction with commuters. Maidenhead is at the western extremity of the Crossrail network and half the Crossrail trains will start and finish there (the other half will go to and from Heathrow). It will be an important hub as people from the surrounding areas will use the service for direct access into central London, the City and Canary Wharf. It will take only minutes to travel from Maidenhead to Heathrow on Crossrail. Development potential Planning inspector David Hogger has given the go-ahead to Maidenhead's area action plan, which sets out a framework 9 (f) (f) to rejuvenate and redevelop the Berkshire town. Aside from the action plan, there are a number of office and mixed-use development schemes with planning permission. They include RREEF s, sq ft proposal on St Cloud Way and Hutley Investments, sq ft scheme on Kidwells Park Drive, both of which are within walking distance of the train station. Maidenhead is already one of the prime markets within the Thames Valley and there are tight restrictions on development. But Crossrail should add to the area s strong appeal amongst corporate occupiers and commuters, both of whom will be attracted to the idea of being able to travel without changing from Maidenhead station to central London. Indeed, the recent decision by Adobe to move to Maidenhead from Stockley Park 9 (f) (f) was partly based upon the arrival of Crossrail in Maidenhead and the benefits this will provide.. Reading Rent. psf.% pa Yield.% - bp Development 9 Nothing u/c at the Planning permission (f) for (f) potential moment. But Reading approx.m sq ft of office remains one of the key development in Reading TC Thames Valley locations and for considerably 9 more and the redevelopment (.m sq ft) in the OOT market. of the station is underway. Passengers from Reading will be able to access Crossrail from Maidenhead a minute journey and then change directly onto Crossrail trains for a minute journey into central London. More long term, is the possibility of a link from Reading to Heathrow Airport and from there on to the proposed HS line, to Birmingham and the north. This will also allow direct access from South Wales and Bristol to Heathrow Airport. Development potential There is substantial scope for development in Reading, and in particular around the train station. Sackville Properties and Benson Elliot have plans for a significant redevelopment 9 of this 9 (f) (f) area; when finished the scheme will have provided, sq ft of office space and 9 residential units. Other schemes with planning permission in the town centre include Kier Group s Reading Central development, where they plan to build three office buildings totalling, sq ft (in addition to the one already completed building which has been let to Yell) and Muse development s, sq ft redevelopment in the Chatham Place area. The redevelopment of the area around the train station and the transport links into central London continue to enhance Reading s status as an important location in the Thames Valley. The presence of Crossrail in nearby Maidenhead will be positive for developers. 9 9 (f) (f) Figure : Yield expectations % Figure : Yield expectations % 9 (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

16 9 (f) (f) Changing Boundaries. Slough/Heathrow. Ealing Rent. psf.% pa Yield.% - bp Development Both markets are relatively Crossrail should provide a boost potential subdued especially to both the commercial markets, Slough which has seen allowing for quick movement in fairly substantial rental and out of Central London. 9 decline since. There is substantial (f) scope (f) for development and redevelopment in both these markets. Rent. psf.% pa Yield.% - bp Development Ealing has lost out to other Crossrail and redevelopment potential locations west of London of the station will have a such as Hammersmith and direct impact upon the Chiswick Park. But some attractiveness of the area. new developments have 9 9 completed, eg, sq ft Ealing Cross. (f) (f) Although Slough already has good rail links, Crossrail will mean that passengers can travel into central London and the City without having to change onto London Underground. Journey times will be minutes to Bond Street, minutes to Liverpool Street and minutes to Canary Wharf. From Heathrow the journey times will be minutes, minutes and minutes respectively. Development potential In Slough there is planning permission for over.m sq ft of office development, with an approximate / split between the town centre and out of town markets. 9 (f) (f) Already underway is the Heart of Slough redevelopment of a 9 acre site around the Brunel roundabout. This is a m project to construct, sq ft of offices, a new bus station and a learning and cultural centre. The scheme is a joint venture between Slough Council, Development Securities, the Homes and Communities Agency and FirstGroup. This regeneration will work in hand with the new Crossrail links. At Heathrow, development has been focused around the airport and Stockley Park. There is scope for further development and the ability to travel directly from Heathrow to central London, City and Canary Wharf may appeal to international occupiers who require a London presence. Slough is one of the markets that should benefit the most in terms of improved journey times, halving the time it takes to travel into central London. Crossrail will provide non-stop 9 (f) (f) services to the main business districts of the capital, further enhancing Slough as a commercial location. Ealing will have two stations on the new Crossrail network. It will take only minutes to travel to Bond Street, 9 minutes to Liverpool Street and minutes to Canary Wharf. Development potential Redevelopment of the station should provide a catalyst for further development of the area, and Ealing will benefit as other areas such as Hammersmith begin to lose out because of their relative lack of transport infrastructure. Frogmore have recently purchased a former Thames Valley University site and plan to develop a storey residential tower, 9 storey residential block, ground floor retail units 9 and a room hotel. St George 9 have plans for a, sq ft (f) mixed-use (f) development in Ealing town centre; Dickens Yard will be made up of leisure, retail and residential space. Crossrail will revitalise Ealing s credentials as a business location; demand for business space could come from a wide variety of occupiers who require access to central London but at cheaper rents. The quicker journey times into central London will also enhance its attraction to commuters. 9 9 (f) (f) Figure : Yield expectations % Figure 9: Yield expectations % 9 (f) (f) 9 9 (f) (f) Lambert Smith Hampton

17 9 (f) (f) 9 Crossrail, Thameslink and the Property Investment Market. Croydon. Stratford Rent. psf.% pa Yield.% - bp Development Most of Croydon s office East Croydon will form part of the potential stock is old and outdated revamped Thameslink network. and there is potential to The improved service could redevelop and refurbish persuade occupiers to move some much of it. of their operations out of Central London to save costs, leading to 9 increased (f) development (f) opportunities. Croydon already has excellent rail links into central London, but East Croydon station will also be part of the extended and improved Thameslink network and accessible from central London and outlying areas to the north and south of the capital. Development potential Whilst Croydon is not currently seen as an attractive location, there is significant scope for redevelopment of commercial property. Much of the office stock is dated (on average only, sq ft per annum has competed in the last years) and does not present a desirable option for occupiers looking for modern office space. 9 (f) (f) Regeneration of the area would make Croydon significantly more attractive to corporate and public sector occupiers who require quick links into central London. However, this will be a long term process and real outperformance is not expected in the short to medium term. 9 (f) (f) Rent. psf.% pa Yield.% - bp Development Growing thanks to the The new Westfield Shopping potential development of the Centre, the redevelopment of 9 Olympic the area surrounding (f) the (f) Olympic infrastructure venues and the improving transport links all point to an improving market and opportunities 9 for investors and developers. Stratford is already relatively well connected; Stratford International station is on the HS line, connecting with stations in Kent, meanwhile Stratford Regional station is on the Central, Jubilee and London Overground lines and also on the DLR. Stratford will also be one of the stations on the Crossrail network, meaning direct and quicker links to Central and West London. For example, the journey time to Bond Street will be minutes and it will be minutes to Heathrow. Development 9 potential (f) (f) As the hub of the London Olympics, Stratford has already undergone significant redevelopment activity and this will continue right up to the start of the games in July. The 9 Olympic Village which is housing the athletes will be turned into, new homes for Londoners after the games have finished. With Stratford s profile on the rise and the already good transport links, the establishment of Crossrail will provide an even bigger boost to the area s draw. Central London occupiers can move back office functions there and it can also provide a cheaper option for businesses requiring quick access into central London. The area s regeneration and increasing level of local amenities (Westfield shopping centre etc) will also be attractive to commuters and this will drive up residential as 9 (f) (f) well as commercial property values. 9 Figure : Yield expectations % Figure : Yield expectations % 9 9 (f) (f) 9 (f) 9 (f) Lambert Smith Hampton

18 Changing Boundaries 9, Retail focus, The retail market in central London was, relative to the markets in the rest of the UK, unaffected by the recession and strong growth was seen at the prime end of the market. The establishment of Crossrail (and to a lesser extent improvements to Thameslink) can only serve to underpin and enhance this out-performance in the prime areas. Other Construction Distribution, Transport & F&BS Other Services On the Manufacturing whole, substantial changes Hotels, to Comms the public transport Catering network do not exert such a strong force on the dynamics of the retail market as they do on the office and residential markets. Many people prefer to use their cars as an alternative to public transport when shopping. For example the new Westfield Shopping Centre in Stratford is heavily marketing the, secure parking spaces they have constructed alongside the Centre. There are retail locations that will benefit from the transport improvement. 9 In particular, Bond Street, the eastern end of Oxford Street and Tottenham Court Road, Farringdon and Stratford. In terms of investor demand Bond Street is already the prime retail location in London, if not the world, but an extra, people are expected to use the new London Underground and Crossrail station each day, which will only enhance its credentials in the eyes of retailers. The eastern end of Oxford Street has traditionally been one of the less attractive locations within the West End, but moves are already underway to improve it as a retail location, for example Primark has signed for a new, sq ft store. There is Yield (%) Inward yield shift - (bp rhs) scope for strong rental growth as new stock comes on line and accessibility is improved. Liverpool Street Maidenhead Tottenham Court Road Bond Street Canary Wharf Euston Farringdon King s Cross/ St Pancras Blackfrairs London Bridge Paddington Slough/ Heathrow Farringdon will be another winner in retail terms as the overall Crossrail effect is felt here. Not just for service retailers, but as the area becomes more prominent as an office hub in its own right, mainstream retailing will become viable. Stratford of course has already seen significant development and the recent opening of Westfield Stratford places it firmly on the map as a retail destination of note. Reading Ealing Stratford Croydon Residential market focus The transport improvements brought about by Crossrail and Thameslink should have significant positive effects in the residential property market in a number of the key locations we have highlighted. Yield (%) Inward A recent yield shift - study (bp(ahlfeldt rhs) ) has attempted to quantify the relationship between house prices and transport improvements, showing that a % decrease in travel time to employment opportunities, ie central London, will result in Other Manufacturing Construction a commensurate.% rise in residential property prices. While this sounds insignificant, we can use the case study of, house in Slough (the current average asking price of a bedroom home) and work out the change in value as a result of the decreased journey time into central London (Tottenham Court Road). Existing network mins n/a n/a, Liverpool Street Maidenhead Tottenham Court Road Bond Street Canary Wharf Euston Farringdon King s Cross/ St Pancras While in practice this relationship will differ on a case by case basis (house prices in Slough are not wholly dependent on access to central London), it demonstrates how Crossrail could have a substantial impact on property prices in those locations Liverpool Maidenhead StTot Ct Road Bond Canary St Wharf Euston within easy access of a station. Centres such as Slough and 9 Q Stratford which do not hold the same draw for commuters as, Oxford Street West Stratord Reading Maidenhead Slough for example, Maidenhead will benefit from the direct services Ealing Croydon Liverpool Street/Broadgate Oxford Street East Bond Street into central London that Crossrail will provide. London has witnessed a surge in the development of apartment schemes in central areas in recent years, frequently forming part of imaginative mixed use developments. This trend is expected to continue in prime London and in regeneration locations, as improved transport links present new opportunities. Reading Ealing 9 Stratford Blackfrairs London Bridge Paddington Croydon Slough/ Heathrow Dist., Hotels, Catering Transport Journey % journey Increase in method time time saved house price ( ) Crossrail mins %, Transport & Comms F&B Kings Farringdon Cross/St Reading Pancras Ealing Stra Figure : Zone A retail rents per sq ft Figure : Residential capital values per sq ft,,,,, Oxford Street West 9 Stratord Reading Maidenhead Slough Q Ealing Croydon Liverpool Street/Broadgate Oxford Street East Bond Street Bond Street Tottenham Court Road Euston Liverpool Street Paddington Farringdon Blackfriars King s Cross/ St Pancras Canary Wharf London Bridge Ealing Maidenhead Stratford Reading Croydon Slough/ Heathrow Lambert Smith Hampton

19 Crossrail, Thameslink and the Property Investment Market Conclusion This report has analysed the probable impacts of Crossrail and the changes being made to the Thameslink network and highlighted the property markets which will benefit most in terms of occupier demand and therefore investor and developer demand. In many respects the London investment market operates on a different dynamic to that in the rest of the country and is viewed as safe haven, especially by overseas investors. The measures that are being taken to enhance the attractiveness of central London locations to occupiers of commercial (and residential) property will be reflected in the pricing of assets and developments located around the key hubs in and out of central London. We have grouped the markets we have highlighted into two categories. Each will provide varied development and investment opportunities based upon the type of market they represent and their relative attraction to commercial and residential occupiers:. Short term focus These are the markets which will outperform over the next two to three years and those in which investors and developers should initially concentrate their interests. In central London, markets such as Tottenham Court Road, Farringdon and Blackfriars have already started to see an increase in interest as changes brought about by the transport improvements are anticipated. Investors and developers should be attracted to these markets by the prospect of strong tenant demand, rental growth and rising capital values. Out of town, in the regional markets of the South East, it is Maidenhead which presents the best short term opportunity in terms of rental growth and rising capital values. While these markets are expected to perform well in the short term, there is potential for long term growth as well.. Long term opportunity As the improved connectivity offered by Crossrail and Thameslink filters down, markets outside central London such as Reading, Slough, Stratford and Croydon will provide opportunities for investors and developers to exploit the changing boundaries brought about by Crossrail and Thameslink. Centres such as Slough and Ealing have not traditionally been at the top of the wish lists of investors and developers, but structural changes brought about by transport improvements should see this start to change in the medium to long term. Table : Prime office rental growth and yield shift - Location Prime office rental Prime office growth (% pa) yield shift (bp) Short term focus Liverpool Street. Blackfriars. Farringdon Tottenham Court Road. Bond Street. Maidenhead. Canary Wharf London Bridge. Paddington. King s Cross/St Pancras/Euston Long term opportunity Stratford Croydon Ealing Slough / Heathrow. Reading The changing boundaries brought about by the further modernisation of London and the South East s transport infrastructure will provide opportunities from which to profit. While the opportunities are there, it will be up to politicians in terms of planning policy etc developers, investors and occupiers to make sure that the transport improvements provided by Crossrail and Thameslink are capitalised on by those in the property market. Lambert Smith Hampton 9

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