CENTRAL LONDON MARKET INSIGHT SERIES

Transcription

1 CENTRAL LONDON MARKET INSIGHT SERIES Challenge 2025: The Growth Map for Central London 30 April 2014

2 WELCOME Adam Hetherington Managing Director, Central London

3 AGENDA The Central London Market Kevin McCauley Head of Central London Research CBRE London 2025 and Beyond Dr Neil Blake Head of EMEA & UK Research CBRE The Big Debate: London 2025 How can the capital deal with growth? Sir Edward Lister Chief of Staff and Deputy Mayor, Policy and Planning GLA Rob Tincknell CEO Battersea Power Station Development Company Gary Yardley Investment Director Capital & Counties Properties plc Moderated by: Stuart Robinson Chairman, Planning CBRE

4 The Central London Market Kevin McCauley Head of Central London Research

5 ECONOMIC RECOVERY WELL SET London Jobs, Millions ,000 jobs above previous peak Pre-recession level by Dec 96 Dec 97 Dec 98 Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Source: National Statistics

6 Mar-00 Oct-00 May-01 Dec-01 Jul-02 Feb-03 Sep-03 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14 Balance of Responses, SA BUT CONFIDENCE IMPORTANT UK economic sentiment and services sector confidence Index, Series Average = 100 Whole Economy Economic Sentiment (LHS) Services Confidence Indicator (RHS) Source: DG ECFIN

7 INFLUENCING LEASING ACTIVITY Central London office take-up Central London take-up Under offer 10-year average Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Million sq ft Source: CBRE

8 UNDERLYING DEMAND DYNAMICS STRONG Central London take-up and under offers sq ft 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 West End 46% Southbank 56% Midtown 87% Docklands 71% City 55% Source: CBRE Take-up to Q1 Under offers at end of Q1 Take-up and under offers as % of 10-year average take-up

9 SUPPLY CRUNCH HAS STARTED Central London vacancy rates Percentage % Central London City West End % 4.3% 3.4% Source: CBRE

10 POSITIVE STOCK ABSORPTION PRECURSOR TO RENTAL GROWTH NSA vs annual rental growth Annual Change, Million sq ft % Annual Change 40% % % % 2.0 0% 0.0 Rent -10% -20% % % 1996 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Source: CBRE

11 RENTAL PRESSURES BUILDING ACROSS MARKET Central London prime headline rent index Q = Q West End City Midtown Southbank Docklands Q Q Q Q Q Q Source: CBRE

12 2.7BN IN Q WILL BE DOWN ON 2013 Central London office capital transactions Billion 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Domestic Purchasers Overseas Purchasers Unknown Origin 17.9bn 19.4bn % overseas

13 OVERSEAS BUYERS BECOMING ACTIVE IN RETAIL INVESTMENT MARKET Million 1,200 Domestic Overseas Unknown 1, Q Q Q Q Q Q Q Q Q Source: CBRE

14 Domestic Overseas London New York Paris (IDF) Tokyo Hong Kong Sydney Singapore Houston Chicago Munich LONDON IS THE GLOBAL GATEWAY Commercial real estate volumes, 2013 $ Billion Source: CBRE Research, RCA

15 OVERSEAS INVESTMENT INTO LONDON'S HOUSE BUILDING SECTOR SP Setia, IJM, Visionary Properties/Usahu Tegas Group Knight Dragon, Dalian Wanda, Hutchison Whampoa Oxley Holdings, Fraser Development Qatari Diar 34,000 Residential Units

16 LONDON REMAIN MAIN TARGET FOR INVESTORS Source: CBRE European Investor Intentions Survey 2014 Percentage % London 0% 5% 10% 15% 20% 25% 30% 35% Madrid Berlin Munich Paris Amsterdam Dublin Warsaw Hamburg Barcelona Source: CBRE

17 FORECAST TAKE-UP SUPPORTED BY ECONOMY Central London take-up Take-up, Millions sq ft Source: CBRE

18 PRELETS VS VACANCY RATES Central London prelets of 200,000 sq ft or more Percentage % Let during construction Let prior to construction Vacancy rate 6 16% 5 14% No of deals % 10% 8% 6% Vacancy rate 4% 1 2% 0 Source: CBRE %

19 SPECULATIVE ELEMENT FALLING SHARPLY Central London office space under construction Million sq ft Source: CBRE 100% 80% 60% 40% 20% 0% 2004 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Speculative Committed % speculative

20 CENTRAL LONDON RENT FORECASTS Main markets, April % % 4.7% Mayfair / St James Midtown City 4.7% Annualised growth (%) % \ Docklands Source: CBRE Southbank (More London)

21 MARKET SUMMARY OCCUPIER MARKET INVESTMENT MARKET ABOVE-TREND leasing levels supported by ECONOMIC growth Strong pressure on RENTS SUPPLY tightening Occupiers looking for VALUE MORE development Lack of stock FRUSTRATING demand Strong demand from OVERSEAS into residential, office and retail London s GATEWAY status undiminished Helping to DRIVE development

22 2025 AND BEYOND Dr Neil Blake Head of UK and EMEA Research

23 OVERVIEW The London Paradox Long-term potential: How much can London grow? What are the growth sectors? What are the constraints? What does it mean for office space requirements? Where will the developments be?

24 EMPLOYMENT EXCEEDS EXPECTATIONS Employee Jobs in Office-Based Sectors*, Greater London 2,300,000 2,200,000 2,100,000 2,000,000 1,900,000 1,800,000 1,700,000 1,600,000 1,500, London Plan Latest Estimate Source: ONS, CBRE * SIC J-O

25 CENTRAL LONDON* DRIVES GROWTH Office-Based Employee Jobs 1,600,000 1,400,000 1,200, % Growth 1,000, , , , , Other London Boroughs Central London* Note: * Camden, City, Hammersmith & Fulham, Kensington & Chelsea, Westminster, Hackney, Islington, Lambeth, Southwark, Tower Hamlets Source: ONS, CBRE

26 CENTRAL LONDON OFFICE MARKETS Office-Based Employee Jobs 2,100,000 1,900,000 1,700,000 1,500,000 1,300,000 1,100, , , , London Plan* CBRE Note: * Re-based to match 2011 employee estimates & CBRE definition of office-based employment Source: ONS, GLA, CBRE,

27 DOES THE LONDON PLAN UNDERSTATE POTENTIAL DEMAND? Employee Jobs in Central London Office Markets Percentage change Next 23 Years Last years Years Next 23 years London Plan* CBRE 2/3 of London Plan projected job growth by 2031 already achieved by end-2013 *difference between the London Plan 2026 projection and the 2013 out-turn Source: ONS, CBRE

28 SOURCES OF NEW JOBS Net Employment Change Business Services TMT Insurance & Fund Management Law & Accountancy* Administrative Services Banking Public Admin s Note: * Management consultants are included in Business Services Source: ONS, CBRE

29 THE BIG QUESTIONS Is this rate of growth sustainable? Can the workers be housed? Can the transport system cope? How much new office space is involved and where will it be?

30 WHERE WILL THE WORKERS COME FROM? Central London Employment 2,100 1,900 FORECAST 1,700 1, s 1,300 1, Further investment in the transport infrastructure will be required including Crossrail Source: ONS, CBRE Living in Inner London Boroughs Commuting in from outside Inner London

31 INCREASED HOUSING DEMAND Central London Net New Households per annum 25,000 20,000 15,000 10,000 5,000 0 Strategic Land Availability Assessment (potential supply) Implied by CBRE Employment Numbers Source: ONS, CBRE

32 CENTRAL LONDON: LONG TERM POPULATION TRENDS We have been here before! Millions 5, , , , , , , , , GLA CBRE Source: ONS, CBRE

33 EMPLOYMENT CHANGE AND THE DEMAND FOR SPACE Central London (GIA) New employment needs minus efficiency gains Equals net requirement - = 36m sq ft 98m sq ft 62m sq ft Pipeline = 60m sq ft

34 OFFICE SPACE IN THE PIPELINE* M sq ft Westminster / Euston / Paddington 7.0m sq ft Old Oak Common 8.1m sq ft King s Cross 3.7m sq ft City Fringe/Tech City 10.3m sq ft Stratford 7.4m sq ft Heathrow 1.8m sq ft City 4.3m sq ft Earls Court/Olympia 1.4m sq ft Vauxhall / Nine Elms / Battersea 3.7m sq ft Isle of Dogs 16.2m sq ft Southbank 6.9m sq ft Outer London Central London Crossrail Crossrail 2 Northern Line Ext. HS2 Note: * GIA in 000 sq ft

35 THE BIG QUESTIONS Is this rate of growth sustainable? London has boomed across the recession and it is not clear why it should grind to a halt now Can the transport system cope? The transport system can only cope if there is sustained further investment beyond Crossrail Can the workers be housed? Housebuilding needs to be ramped up even to hit the London Plan. PRS needs to take off How much new office space is involved; where will it be? Completions do not need to be that different from the historical average but Central London will have to expand

36 The Big Debate London 2025 How can the capital deal with growth? Panellists: Sir Edward Lister Chief of Staff and Deputy Mayor, Policy and Planning GLA Rob Tincknell CEO Battersea Power Station Development Company Gary Yardley Investment Director Capital & Counties Properties plc Chaired by: Stuart Robinson Chairman, Planning CBRE

37 CENTRAL LONDON MARKET INSIGHT SERIES Thank you CENTRAL LONDON MARKET INSIGHT SERIES