Spring GVA Grimley/ Henley Business School Corporate Real Estate Survey

Transcription

1 GVA Grimley/ Henley School Corporate Real Estate Survey

2 Corporate Real Estate Survey Introduction This is a contuation of the surveys that GVA Grimley have carried out sce November 99, and is now undertaken partnership with Henley School. Gog forward the survey will contue to look at the key elements that have been an tegral part of the survey from the begng, such as busess confidence and occupiers tentions relatg to property holdgs, as well as a number of areas that have been given a more depth consideration. As part of our future work we will also be lookg back over the last years to review trend les and we shall also be explorg new areas of how property and busess ter-relate. This report however will focus on the last three years with a particular focus on the last six-month period and the next six. The survey was carried out through March and had 8 respondents. This is a smaller sample than the more recent surveys and as a consequence we are not producg specific regional analyses this time, and for some of the sector groups the numbers are lower than we would like. The period from autumn 9 to sprg has been one of change with the UK economy fally comg out of a recession that lasted six quarters and was the longest and one of the deepest recessions of all of the G7 economies. For busesses of all types it has been a difficult period with a reduction output and associated job cuts. The emergence from the recession has been hesitant some sectors, with growth the fal quarter of 9 at a below trend.%. This has been reflected the results of the Survey, which was carried out March across a wide range of UK busesses, and has produced a number of contradictory messages across the various measures and between sectors as well as for different sizes of busess. With the survey report are two commentaries on the results. The first is by Professor Gny Gibson, Professor of Corporate Real Estate at Henley School, lookg at the corporate real estate aspects of the results, and secondly Stuart Morley, Head of Research at GVA Grimley, considerg the results the light of economic and property market parameters. Executive Summary Confidence the future, two years time, has returned with a balance of +% of firms expressg optimism, a significant improvement from the neutral +% six ago. The projection for output has contued to improve with the net balance of +8% of firms dicatg an crease output the next six. Progress on employment is more mixed. Whilst there has been an overall improvement from -8% sprg 9 to a neutral position of +% this survey, there are significant variations across sectors with some projectg further employment cuts. The impact of the tight credit conditions and the effects of the recession are startg to ameliorate, but the effects of the recession are actually creasg certa sectors. Without any constrats two thirds of occupiers would like to change their property portfolio. That is split evenly between those wantg to expand and those wantg to contract. There was a significant crease the number of busesses reducg their property portfolios over the last six, which was much greater than the anticipated number from the 9 Survey. The projected change to occupiers property portfolios shows a mor decrease those not dog anythg and creases those undertakg but also a mor crease the proportion contractg. decision makg is focussed on improvg profitability; the impact of the recession; reducg costs and improvements to cashflow. The primary property drivers are cost reduction and cashflow. The proportion of occupiers lookg to operate lease breaks and to reduce the number of lease renewals order to re-balance their property holdgs is creasg. Mobile and home workg together with outsourcg are the major areas where occupiers are lookg at technology to impact on the workplace. One third of occupiers have dicated they will look at relocations of some of their activities from the UK, the same as the 9 Survey, but for certa sectors the outcome of the general election could cause a greater crease their propensity to relocate. GVA Grimley Ltd

3 Corporate Real Estate Survey Property & Confidence Longer term busess confidence contues to improve. In the short term fairly good output growth is expected, but employment remas weak with a contued predicted reduction a number of sectors. The longer-term confidence of busess contues to improve on the trend seen the 9 Survey. In the 9 Survey the balance dicatg optimism two years time was relatively neutral at +%, by the autumn that had creased to +%, and is now standg at +%, with % dicatg they are optimistic about the busess environment. The term Balance is used throughout the survey to reflect the net balance around the neutral position, with pessimism and optimism scorg - and +, whilst very pessimistic is - and very optimistic +. The improvement is all sectors, bar retail, which has become more pessimistic over the last six, although mid-sized organisations rema cautious over the next. The change, as can be seen from the chart, is that there has been a movement from both neutral and pessimistic to optimistic. In the shorter term the expectations about output and employment contue to improve. The projection is for output to crease, with the net balance of respondents up from +% autumn 9 to +8% sprg, and particular a significant proportion of firms the retail and manufacturg sectors are expectg to crease, whilst transport has moved from to. The shift those firms expandg output is up 7% and is from a shift firms contractg and those remag the same. This ties with other survey results, such as the closely watched CIPS/Markit survey where, recent, the manufacturg and service sectors expect healthy output the short term. Those busesses with a turnover between.m and m appear to be the most pessimistic, projectg a of output (-%). The prognosis for employment for the next six is mixed. There has been an overall positive movement the last from a net balance of -8% sprg 9, improvg to -8% autumn 9 and up to a neutral position of +% sprg. This is le with official data published by ONS where unemployment levels are now fallg and employment growth has strengthened, but still remas negative (at the end of 9). The move employment is for those expandg their employees to rise %, which is predomantly a reflection of a fall the number contractg staff. Those that are neutral have remaed at virtually the same level as the 9 Survey. The results mask a considerable variation between sectors with transport and manufacturg strongly optimistic whilst fancial services contues to expect further cuts (-9%), although margally less than the autumn (-%). The two sectors that were the most optimistic the 9 Survey, retail and engeerg, have both moved back to a negative stance on employment, despite their optimistic view on output. The larger organisations (over, employees and a turnover of over m) rema negative, with the latter group showg a net balance of -%, that is the net balance of firms lookg to reduce employees, very similar to their autumn 9 position of -%. Optimism for Prospects Two Years Time Percentage balance % % % % % % % 7% % 9% -8 % Very pessimistic Pessimistic Neutral Optimistic Very optimistic Wter Wter Percentage balance and Expectations - Net Balance 8-7 % % % % % % % % % % % % % % 7% 7% -8 8% 8% 9% 9% % % Wter 7 8 Contract Contract Same Same Expand Expand Proposed Change Next Six Months 8 8 % % % % % % % 7% 8% 9% % % % % % % % % % % % % % % % 7% 7% 8% 8% 9% 9% % % Very Very pessimistic pessimistic Pessimistic Pessimistic Neutral Neutral Optimistic Optimistic Very Very optimistic optimistic Optimism for Prospects Two Years Time 9 9 and and Expectations Expectations - Net - Net Balance Balance Proposed Proposed Change Change Next Next Six Six Months Months Proposed Change Next Six Months Proposed Proposed Change Change Next Next Six Six Months Months Optimism for Prospects Two Years Time Proposed Change Next Six Months % % % % % % % % Contract % % % Same % % Expand % 7% 7% 8% 8% 9% 9% % % Contract Contract Same Same Expand Expand % % % % % % % 7% 8% 9% % Very pessimistic Pessimistic Neutral Optimistic Very optimistic Proposed Change Next Six Months and Expectations - Net Balance and Expectations - Net Balance % % % % % % % 7% 8% 9% % Wter of respondents of respondents Number Percentage of respondents balance of respondents Proposed Change Next Six Months n 9 + Henley School

4 Corporate Real Estate Survey Economy The impact of the recession and the tight credit conditions is startg to ease certa sectors. The economic slowdown and 8 the tighter credit conditions have 8 had significant effects on busess over the last 8, but have started to ameliorate over the last six, followg the end of the recession. When considerg the impact of tighter + credit conditions on their busess, the + noticeable to considerable effect has eased from 8% of organisations 8 autumn 9 to % sprg, with the mean score fallg from. to., the same as the sprg 9 figure. A score of. dicates no % % % % % % % 7% 8% 9% % effect beg % felt % by any respondents, whilst a score of. dicates Very % pessimistic % Pessimistic % Neutral % Optimistic % 7% Very optimistic 8% 9% % that all respondees Very pessimistic are feelg Pessimistic a considerable Neutral Optimistic effect, Very optimistic see back page for specific scorg details. The economic slowdown has seen the and Expectations - Net Balance mean drop from.8 to., and although Expectations the proportion - Net Balance reportg a noticeable to considerable effect has slightly creased to 88% from 8% Optimism for Prospects Two Years Time Optimism for Prospects Two Years Time + + The movement 9 the effects of the tight credit conditions has been a small crease those feelg no effect but the change has been a reduction those havg 8a noticeable and considerable 8 effect, whilst the material effect group has also grown slightly. 9 Turng to the changes to the economy effect, there has been a lesseng of those feelg -a considerable or material effect, but a bulge - - the noticeable effect group, which explas -7 the decrease the mean figure but the rise the proportion the -8-8 noticeable - -8 Wter to material - group. Wter Impact of Tighter Credit Conditions Impact of Tighter Credit Conditions Impact of Tighter Credit Conditions No Effect Some Noticeable Material Considerable No Effect Some Noticeable 9 Material Considerable 9 Impact of the Economic Slowdown Impact of the Economic Slowdown Impact of the Economic Slowdown No Effect Some Noticeable Material Considerable No Effect Some 9 Noticeable Material Considerable % 9 9 % 8 8 % % Operational Property Portfolio Impact of Tighter Credit Conditions The last six has seen a significant proportion + of organisations reduce their operational + property 7 portfolios, a much greater number than had been 7 projected. 9 9 Proposed Change Next Six Months Proposed Change Next Six Months Impact of Tighter Credit Conditions +8 The improvements busess confidence have flowed through to +8 the operational property portfolio, although with a muted change. When asked what the organisation would like to be able to do with the property portfolio, the balance for the unconstraed property decision % % has % moved % from % neutral % % (+%) 7% to fatly 8% 9% % % % % % % % % 7% 8% 9% % ary (+7%). Overall Contract the proportion Same Expand of firms who want to change their No Effect portfolio, Some either Noticeable or Material expandg, Considerable remas fairly static representg No Effect Some about two 9 Noticeable thirds of of Material respondents. Considerable The Proposed Change Next Six Months change balance shifts away from 9 organisations who would Proposed Change Next Six Months like to contract towards those Impact of who the Economic would Slowdown like to expand. There are however differences Impact various of the Economic sub-groups. Slowdown Those with a -8 turnover of more than m dicated -8 a strong desire to reduce space (-%), a 9 desire mirrored by a number of sectors, across 9 size ranges, cludg fancial services (-9%), extraction & utilities (-%) and engeerg (-8%). In contrast retailers are showg a strong wish to expand (+8%), + which would appear to + conflict with their pessimism. Number of respondents 9 9 Actual changes property holdgs have fluctuated with the Survey showg a reverse the trend of the number % % % % % % % 7% 8% 9% % of companies % % sheddg % % space. % The % % 9 7% Survey 8% showed 9% % a net balance of companies Contract sheddg Same space Expand (-7%), but this had No Effect Some Noticeable Material Considerable eased to -% by the autumn. However, 9 the last six No Effect Some Noticeable Material Considerable there has been a significant jump with 9 a balance of -9% of firms reducg space, which is nearly double the figure projected the Portfolio Change Balance - Past Six Months and Next Six Months autumn survey for the six to sprg (-%). Portfolio Change Balance - Past Six Months and Next Six Months Portfolio Change Balance - Past Six Months and Next Six Months Portfolio Change Balance - Past Six Months and Next Six Months Portfolio Changes if Unconstraed Portfolio Changes if Unconstraed Past six Past six Next six Next six - % - % Wter % 7 % 8 % % 8 % 9 7% 8% 9 9% % % % Wter % 7 % 8 % % 8 % 9 7% 9 8% 9% % of respondents of 9 9 respondents Portfolio Changes if Unconstraed Actual & Contract Predicted Portfolio Same Change Expand - Net Balance Actual & Predicted Portfolio Change - Net Balance Portfolio Changes - Last Six Months Portfolio Changes - Last Six Months Portfolio Changes - Actual Last Six Months Proportion of es Makg Change Predicted for period Actual for period % % % % Predicted % for period % Actual % for period 7% 8% 9% % % % % % % % % 7% 8% 9% % Portfolio Changes - Next Six Months Portfolio Changes - Next Six Months 9 9 % ntage balance GVA Grimley Ltd - Past six Past six Next six Next six g

5 S le % % % % % % % 7% 8% 9% % rable 8 % % Corporate Real Estate Survey The difference action by firms the six to autumn 9 compared to the period to the Survey is a reduction - the firms expandg their portfolio and those not takg Impact of Tighter Credit Conditions any action, whilst the proportion decreasg their portfolio has creased by %. 9 Durg the next six, firms on -9 balance project a further decle (-8%), however this has fallen from -% the 9 9 Survey. There are however more firms who are predictg, almost one quarter of respondents, while less than half are predicited % % % % % % % 7% 8% 9% % to make no changes to the size of their portfolio. It is the larger companies that Contract have Same been makg Expand space reductions and want to contue to do so. 9 Portfolio Changes - Last Six Months Portfolio Changes - Next Six Months Portfolio Changes - Proposed Next Six Months Proportion of es Makg Change No Effect Some Noticeable Material Considerable 9-9 Impact of the Economic 7 Slowdown -8 % % % % % % % 7% 8% 9% % The proposed change to portfolios for the next six, No Effect Some Noticeable Material Considerable sprg to autumn, differs 9 from the projection for the autumn 9 to sprg period that there is a shift towards of the property portfolio away from a steady state Portfolio Change Balance - Past Six Months and Next Six Months position, but with a mor crease those contractg. Thus there is a tendency towards change from steady state. For those with a turnover of more than m a balance of -79% of firms have reduced their space over the last six and for the next six that figure is expected to be similar, -7%. Similarly all fancial services had a balance of -% autumn 9 to sprg and -9% for the next six. Others lookg to shed space clude extraction & utilities, engeerg - and construction. - Past six Next six There are positive areas. Retail contues to want to expand by takg more space (+7% of firms) and transport companies are - Wter movg from (-%) to (+7%). Commentary It is apparent across the busess sectors that the recovery is Portfolio Changes if Unconstraed mixed. The longer-term prognosis seems good, with a strong trend le developg for the position two years time. It would appear that firms can now see beyond the immediate aftermath of the recession. 9 In the short term some sectors were optimistic the autumn but they have slipped back over the terveng six. On balance more firms are predictg an crease output +7 over the next six, than, albeit with very different profiles 9 across sectors but employment prospects rema fragile. The change of stance by certa sectors, such as retail, would dicate that creases employment may well % % % % % % % 7% 8% 9% % be of a temporary nature, certaly until there is a sustaed period of confidence the economy. will be lookg to crease output but generally without creasg the number Portfolio Changes - Last Six Months of employees. The effects of the tight credit conditions are startg to ease, particularly the retail sector. In contrast the recession is still impactg on busess and it remas - a major concern. Whilst the UK technically came of the recession the fal quarter of 9, it was a nomal emergence from it, and the sentiment expressed the survey would dicate that the UK is still on the borderle The changes to the property portfolios of corporate occupiers have been significant throughout the last eighteen, and % particular % % over % the % last six. % That % is 7% gog 8% to contue, 9% % especially for the larger Contract companies, Same who Expand are also most negative on employment prospects and so have an obvious desire to restructure their portfolios. The difference between what has Portfolio Changes - Next Six Months been planned with changes to the property portfolio and what has been achieved has tended to under perform the expectation both periods of, for example sprg 8, and -, sprg 9. However, the last six saw at 9 a much higher rate than 7 had been anticipated. This could be a result of the lag effect that exitg property remas a challenge and is often achieved over longer time horizons than is ideal % % % % % % % 7% 8% 9% % Actual & Predicted Portfolio Change - Net Balance Actual & Predicted Portfolio Change - Net Balance of respondents % - Predicted for period Actual for period Henley School

6 Corporate Real Estate Survey An overview from Professor Gny Gibson Managg corporate real estate times of turbulent change is a challenge for all occupiers. The credit crunch and associated recession have clearly impacted organisations confidence which is only now returng. Although output is creasg, there are still concerns about employments levels which for many sectors drives the demand for space. Therefore the problem for corporate real estate managers is to attempt to anticipate these trends and align the portfolio so that the supply of space matches the demand. This may seem straightforward but there are ertial factors both terms of the nature of the resource and with the real estate market. This is clearly seen the survey where just over two thirds of organisations would change the volume of space they currently have if they had a free hand : half of these would want more space and half less. Despite property beg considered a fixed and lumpy asset, reality organisations are constantly attemptg to realign their portfolio to their needs. From this and past surveys, almost % of organisations have either contracted or expanded their property holdgs durg any six month period. The move to shorter lease lengths and regular lease breaks has given corporate real estate managers a mechanism for managg this disconnect. From the results, over the next two years just over one third of organisations are predictg they will exercise at least a quarter of their lease breaks and similarly one third are predictg they will not renew at least half of the leases which are due to expire. If this is the case, the dynamics of both the property holdgs of corporate occupiers and the property market itself could be movg to a much more fluid situation. However, reviewg the differences between predicted changes the portfolio and the actual over the last three years, it would appear the organisations tend to overstate what they actually achieve, whether this is creasg or decreasg the portfolio. This trend changed the most recent survey where a higher proportion of organisations contracted their portfolio, and far fewer expanded, than predicted. This could be part be due to the lag effect that actually makg changes to the volume of space the portfolio tends to take more time than anticipated. In terms of the key drivers to property decisions, there are no real surprises as cost reduction, cashflow and changes the busess model rema the key factors. This last area is particularly terestg when considered alongside the views of the respondents on relocatg from the UK. Aga about one third of organisations stated that they were considerg relocatg some of their activities; this was particularly focused on back office functions. It is this type of change the busess model which can have a significant impact on the UK space requirements and provides a real challenge for corporate real estate managers. Professor Gny Gibson Professor of Corporate Real Estate Henley School University of Readg GVA Grimley Ltd

7 Corporate Real Estate Survey An overview from Stuart Morley Recent revisions to published economic data show that the recession was long and deep with a total output decle of.%, slightly worse than the early 8 s recession (-%) and, therefore, margally the worst post war recession. But that is now past. creased Q 9 for the first time 8 at a respectable.%, but well below the long term trend rate of growth. Similar or slightly stronger growth is expected Q. The consensus view is for well below trend growth as a whole which means that the recovery this year will be patchy and relatively weak. The loomg cuts public expenditure and creases taxation are likely to affect the strength of the upturn for some years, particularly the Midlands and the North, although the Treasury are more optimistic than most economists. They expect a strong recovery next year and the subsequent three years, with well above trend growth expected each year (.7% pa). This seems very optimistic. Occupier property demand will reflect the strength of the economic upturn, just as it reflected the magnitude of the recession over the last two years. growth is clearly important but so too is employment growth. growth is still negative but held up better the recession than expected and claimant count unemployment has now been fallg for some, much earlier than expected based on evidence of the last recession. This suggests that property occupier demand has improved noticeably over the last six and this is backed up by rental growth evidence. This dicates that although rental values are still fallg most sectors and locations, the rate of decle is now margal and central London, office rental values are now risg. However, many locations occupiers need for additional floorspace may be limited the short term as the need for additional employees may be limited as part time employees revert to beg full time employees, utilisg existg floorspace more productively. The other key factor for the property occupational market is the teraction of supply and demand. The effect of the recession was a decrease space occupied and vacancies creased. As occupier demand improves vacancy rates will fall, itially limitg rental value creases. But the medium/longer term the collapse development activity will mean a lack of supply at the top end of the market and this will push rental values higher. This is already happeng the central London office market, where take-up rates have creased, as the economy has improved, and very little top quality space is now available or will be available for some years, as development activity has been so weak. As the economic upturn gathers strength occupier demand will contue to improve, but strong output and employment growth seems unlikely, particularly the short term, and the improvement is likely to be rather patchy. The lack of development activity will cause supply problems the medium/long term, but most locations this will not affect occupiers or. Stuart Morley Head of Research GVA Grimley Henley School 7

8 Reducg costs of operation Corporate Real Estate Survey improvements s Enhancg Environmental Reducg total property costs Property & The Boardroom 9 Mean Score Mean Score Mean Score Average All Respondents 9 Mean Score Average All Respondents Mean Score Average All Respondents Drivers - Engeerg & Manufacturg Drivers - A verage All Sectors Drivers - Average All Respondents Property Property Decision Decision Makg Makg Drivers Drivers - Engeerg - Average All & Respondents Manufacturg Property Decision Makg Drivers - Average All Respondents n Environmental Improvg profitability Improvg profitability Reducg costs of operation Reducg costs of operation improvements Enhancg Cost reduction tal improvements Reducg total property costs Environmental Reducg total property costs Enhancg To 'green' reduce credentials Change to the busess model regulatory burden nts 9 9 Mean Mean Score Score Average All Respondents Mean Score Mean Mean Score Score Average Average All All Respondents Respondents 9 Mean 9 Mean Score Score Average All Mean Respondents Score Mean Mean Score Score Average Average All All Respondents mental % % % % % % Decision Drivers Property Decision Makg Drivers - A verage All Sectors Drivers - A verage All Sectors Costs and profitability rema Improvg profitability the primary drivers for busess. There are four key areas that drive busess decision-makg at the moment. Improvg profitability contues to be a primary driver, Reducg costs of operation although it has dipped slightly from. autumn 8 and it has started to move up aga to.. The other three major factors that busess is focussed on have all eased down slightly from improvements their autumn 9 level. The impact of the recession has moved from. to.9, the focus on reducg costs are down to.8 from Reducg total property costs the autumn figure 8 Mean of Score., Average whilst All Sectors the importance 9 Mean Score of Average cashflow All Sectors has 9 Mean Score Average All Sectirs Mean Score Average All Sectors softened from.9 to.7. The other decision-makg elements lag behd and have generally Proportion Property of Decision Lease Expiries Makg Not Drivers Beg - Renewed A verage All Sectors remaed at the same level over the last 8 ago. What has moved up the agenda is the impact of the from., ago, to. now. 9 Change to the busess model 9 Mean Score Average All Respondents Enhancg Mean Score Average All Respondents Profitability is consistent % as the primary % driver % across % all sectors % but for construction and busess services it is less significant, which gives a greater emphasis to reducg costs of operation and the recession. For the retail sector it is the recession that is paramount (.), whilst cashflow and operational costs are given the greatest % 9% 7% % 9% focus for transport and extraction & utilities. Reviewg the drivers to property decisions, busess % % % % % % % 7% 8% 9% % contues to decle 8 Mean as Score a factor Average All Sectors down from 9 Mean. Score autumn Average All Sectors 8 9 Mean Score Average All Sectirs Mean Score Average All Sectors to. now. The importance % -% of -% cost reduction -7% 7-% between autumn 8 and sprg has margally fallen importance between autumn Proportion of 8 Lease Expiries and Not sprg Beg Renewed. The second significant element is cashflow. It is slightly less than autumn 9 and is at. for sprg. The largest busesses are focussed on reducg the size of their portfolio and it is that group that scores highest on cost reduction, for those with a turnover of over m cost % % % % % reduction scored. and cashflow.. 9 Environmental Change to the busess model Enhancg The retail sector and engeerg are both focussg on busess (.8 and.9 respectively), and whilst it lks through to their tentions % regardg their property 9% portfolio, 7% % it would 9% appear to do so terms of drivg opposite decisions. Retailers are lookg to expand their holdgs whilst engeers are seekg to shed space. % % % % % % % 7% 8% 9% % % -% -% -7% 7-% Property Decision Makg Drivers - Engeerg is of significant & Manufacturg importance for extraction & utilities (.8), construction (.), fancial services (.) and engeerg (.). The clusion of engeerg both and would dicate certa parts of the sector are Enhancg growg whilst others are shrkg, and that lks to the fact that the changg busess model is scored highly for engeerg,.9 agast the average of.8. Green credentials still generally rema low on the agenda except for extraction & utilities (.8) and construction (.), two sectors which are seeg considerable Quality regulatory of burden regulation on the environmental based. Property Decision Makg Drivers - Fancial & Services Sectoral Differences Enhancg 9 Mean Score Mean Score Mean Score Average All Respondents In view of the 9 Mean smaller Score sample Mean size Score we have Mean not Score carried Average All Respondents out a full analysis for the retail sector this survey and we have combed Property Decision Makg Drivers - Fancial & Services fancial and busess services. Therefore comparg Fancial & Services with Engeerg & Manufacturg should give a contrast between what Home workg Cost is reduction predomantly an office based environment with an dustrial based one. Workplace & Technology Cloud computg Fancial & Services Mobile workg The sector mirrors that of the overall population for busess decision-makg Reduced space allocation with the focus on improvg Increased profitability desk utilisation (.), and reducg the costs of operation (.7), compared to their autumn 8 level (. and.9 respectively). The regulatory burden has Quality jumped of from. (autumn 8) to.9, just below Outsourcg Offshorg the sprg 9 figure. Corporate Enhancg 'green' social credentials responsibility and environmental 9 Mean Score have Mean both Mean Score Score Average dropped All Respondents from Mean Score highs Average All Respondents sprg 9 of. and. to. and. respectively. Workplace & Technology Decisions on property are still based on cost reduction (.) and then busess (.9) and changes to the busess Home workg model (.8). is down to. from. autumn 8. Cloud computg Mobile workg Reduced space allocation Increased desk utilisation Outsourcg Offshorg Mean Score Average All Respondents 8 GVA Grimley Ltd

9 Enhancg Corporate Real Estate Survey ts 9 Mean Score Average All Respondents Mean Score Average All Respondents Drivers Drivers - Fancial - Fancial & & Services Services Drivers - Engeerg & Manufacturg Property Decision Makg Drivers - Engeerg & Manufacturg Drivers - Fancial & Services Drivers Drivers - Engeerg - Engeerg & Manufacturg & Property Decision Makg Drivers - Average All Respondents Drivers - Engeerg & Manufacturg Property Property Decisi D tion Improvg Improvg Improvg profitability profitability profitability Corporate Corporate Enhancg social social responsibility 'green' responsibility credentials Regulatory burden Reducg costs of operation Environmental Environmental Reducg Reducg costs costs of operation of operation improvements Reducg Reducg total total property property costs costs Improvg Improvg profitability profitability Cost reduction Corporate Corporate social social responsibility responsibility Reducg Reducg costs costs of operation of operation improvements improvements Regulatory burden To redto Qual nts ents Tax tax regime burden improvements improvements Environmental Reducg total property costs 9 Mean 9 Mean Score Score Mean Mean Score Score Mean Mean Score Score Average Average All Respondents All Respondents 9 Mean Score Mean Score Mean Score Average All Respondents 9 Mean Score Mean Score Mean Score Average All Respondents Enhancg Environmental Environmental Reducg Reducg total total property property costs costs 9 Mean 9 Mean Score Score Mean Mean Score Score Mean Mean Score Score Average Average All Respondents All Respondents 9 Mean Score Average All Respondents Mean Score Average All Respondents A educe x burden nmental Drivers Drivers - - A verage A verage All Sectors All Sectors Property Decision Drivers Makg - Drivers A verage - Fancial All Sectors & Services Property Decision Makg Drivers - Fancial & Services To Environmental reduce Improvg profitability Improvg profitability Improvg profitability The recession Reducg costs of operation improvements Reducg total property costs 8 Mean 8 Mean Score Score Average Enhancg Average All Sectors All 'green' Sectors credentials 9 Mean 9 Mean Score Score Average Average All Sectors All Sectors 9 Mean 9 Mean Score Score Average Average All Sectirs All Sectirs Mean Mean Score Score Average Average All Sectors All Sectors 9 Mean 9 Score Mean Score Average Mean All Respondents Score Mean Mean Score Score Average Average All Respondents All Respondents Reducg costs of Reducg operation costs of operation improvements improvements Regulatory burden Reducg total property Reducg costs total property costs Tax regimetax regime Corporate social responsibility Corporate social responsibility Environmental Environmental Drivers Drivers - - A verage A verage All Sectors All Sectors Property Decision Makg Drivers - Engeerg & Manufacturg Property Decision Makg Drivers - Engeerg & Manufacturg Improvg Improvg profitability profitability Environmental Enhancg Environmental 'green' credentials Corporate Corporate social social responsibility responsibility Reducg Reducg Cost costs reduction costs of operation of operation Reducg Reducg total total property property tax costs burden costs improvements improvements Regulatory Change burden to the busess model 9 Mean 9 Mean Score Score Average Average All Respondents All Respondents Mean Mean Score Score Average Average All Respondents All Respondents 9 Mean Score Mean Score Mean Score Average All Respondents Property Property DecisD Q Autu % % % % Commentary Workplace & Technology Property Decision Makg Drivers - A verage All Sectors Profitability is back at the top of agenda, and is now closely Home workg followed by reduction of the regulatory agenda. Tax seems less important an issue than it is beg portrayed the press. The focus on costs with the busess are flowg through to property decisions majorg on cost reduction, busess and changes to the busess model. When lked through to the Reduced space allocation Increased desk utilisation formation on output and employment, which are + and - respectively, it is clear that it is about gettg more from less. With that focus has come a significant change the importance of corporate social responsibility Outsourcg and environmental Offshorg, both lower 8 Mean Score Average All Sectors 9 Mean Score Average All Sectors than the national picture 9 Mean Score and Average lower All Sectirs than they Mean have Score Average been All Sectors with the Mean Score Average All Respondents sector the past. Proportion of Lease Expiries Not Beg Renewed Engeerg/Manufacturg There are three primary drivers this composite group, which shows some of the 9% 9% strength of the UK manufacturg % % sector, % % % % % % % % % % % which is still the sixth largest the world. Improvg profitability (.) and reducg costs (.), which have consistently been the top two over the last two years, whilst cashflow (.) has been developg importance, with the wang of the effects of the % % % % 8% 8% % % % % recession. All three havg a greater importance for these firms % 9% 7% % 9% compared to the overall group of respondents. 9 9 Cloud computg Change to the busess model Proportion Proportion of Breaks of Breaks to be to Exercised be Exercised 9 Mobile workg Enhancg Property Property Decision Decision Makg Makg Drivers Drivers - - A verage A verage All Sectors All Sectors The Property decision-makg Decision Makg Drivers - Fancial on property & Services has seen busess moved from. to. back to its autumn 8 level, whilst cost reduction, cashflow and changes to the busess model form the next group at./.. There has been a steady decle the importance of busess the boardroom of engeerg/manufacturg companies down form the high of. the 8 Survey to. now. Commentary It is all about cash with this sector profitability, reducg costs and cashflow, both as busess decision drivers and for property decisions. There 8 Mean 8 is Mean Score a substantial Score Average Average Enhancg All Sectors All Sectors 'green' crease credentials 9 Mean 9 Mean the Score Score Average proportion Average All Sectors All Sectors of 9 Mean 9 Mean Score Score Average Average All Sectirs All Sectirs Mean Mean Score Score Average Average All Sectors All Sectors firms anticipatg risg output for the sector a combed figure 9 Mean Score Mean Score Mean Score Average All Respondents of +.%, based on two similar figures. However terms of Proportion employment Proportion of Lease of Lease Expiries Expiries there Not Beg Not is Beg Renewed a Renewed divergence of view with engeerg lookg Workplace & Technology at a reduction (-9%) but with +% for manufacturg. Both sectors, manufacturg and engeerg, are virtually identical Home workg terms of their confidence about their busess two years time with a very positive +8 and +8, engeerg and manufacturg % % % % % % % % % % Cloud computg Mobile workg respectively. This would dicate that there is a different approach to that position, which is reflected their approach to property with engeerg cuttg -% the last six and a further -7% the next six, whilst manufacturg relatively static (+8% Reduced space allocation Increased desk utilisation and %). 9 9 % % Change to the busess Change model to the busess model Enhancg Enhancg 9% 9% 7% 7% % % 9% 9% Property Property Decisio D To redu To Autu Workplace Workplace & Te Reduced % % % % % % % % % % % % % % % 7% 7% 8% 8% 9% 9% % % % % % % % % % Outsourcg % % % % % % Offshorg % 7% 7% 8% 8% 9% 9% % % % % % % % % % 7% 8% 9% % % % -% -% -% -% -7% -7% 7-% 7-% % % -% -% -% -% -7% -7% 7-% 7-% % -% -% -7% 7-% Mean Score Average All Respondents Henley School 9

10 Corporate Real Estate Survey Operational Property Issues Drivers - - Fancial && Services Drivers - - Engeerg && Manufacturg Property Dec Improvg profitability Improvg profitability Reducg costs costs of of operation Environmental Reducg costs costs of of operation Tax improvements To To re Qu Q Reducg total total property costs costs The The Tax improvements Environmental Reducg total total property costs costs 9 9 Mean Score Mean Score Mean Score Average All All Respondents 9 9 Mean Score Mean Score Mean Score Average All All Respondents Drivers - - AA verage All All Sectors Drivers - - AA verage All All Sectors Property Dec Firms contue to look to lease expiries and break options as a means of restructurg their property portfolio. Improvg Improvg profitability profitability 87% of the companies surveyed have some leasehold property, 8 8 Mean Score Average All All Sectors 9 9 Mean Score Average All All Sectors whilst all of the largest 9 9 Mean Score firms Average have All All Sectirs leasehold Mean property. Score Average All All The Sectors proportion lookg to exercise some of their break clauses the next two years has creased to 8% from % autumn 9. Although a smaller portion of firms will not be renewg at least some of their leases the next years (down from 9% to %), of those % are predictg they will not renew more than % of the leases which expire. 8% of fancial services firms are gog to exercise breaks over the next, with % lookg to break half to three quarters of them, a lower proportion than the 9 Survey, matchg the smaller proportion (9%) who will not be renewg any leases. The change the profile of the proportion of breaks that are to be exercised has seen an decrease firms who will not be exercisg any of their breaks (9% to %). The major change is that firms are much more likely to exercise a greater proportion of the lease breaks that occur over the next two years with 7% of firms Proportion of of Breaks to to be be Exercised Reducg costs Reducg costs of operation of operation improvements improvements Regulatory Regulatory burden burden Proportion of Breaks to be Exercised Reducg total Reducg total property costs property costs Tax Tax regime regime Corporate social Corporate social responsibility responsibility Environmental Environmental Improvg profitability Environmental The Reducg costs costs of of operation expectg to exercise more than half of the breaks up from only 7% autumn 9. The profile of firms planng to not renew their lease over the next Reducg total total property costs costs two years has changed less significantly. However durg both periods, a significant proportion of firms are predictg that they 9 9 Mean Score Average All All Respondents Mean Score Average All All Respondents will renew less that half of their leases (% autumn 9 risg to Property 9% Decision sprg Makg Drivers ). - - AA verage All All Sectors The transport, construction and engeerg/manufacturg sectors are lookg to renew a smaller proportion of their leases. Smaller firms are lookg more at lease expiries than breaks for changg their portfolio, whilst for the larger companies there is a more balanced view of breaks and expiries to change their portfolios. Commentary The drive to reduce the size of the portfolio is still showg through the levels of responses to exercisg breaks and not renewg leases. The profile on the use of breaks sees a more structured or 8 8 Mean Score Average All All Sectors 9 9 Mean Score Average All All Sectors considered approach and a greater variety across the groups. Tax 9 9 Mean Score Average All All Sectirs Proportion of of Lease Expiries Not Not Beg Renewed Proportion of Lease Expiries Not Beg Renewed improvements Change to the Change to the busess model busess model Enhancg Enhancg Mean Score Average All All Sectors Au A Property Deci To To red r Au A Workplace && 9 9 9% % % % 8% % % % % % % % % % 9 9 % % % 9% % % % 7% 7% % % 9% Reduce % % % % % % % % % % % % % % 7% 7% 8% 8% 9% 9% % % % % % % % % % % % % % % % 7% 7% 8% 8% 9% 9% % % % -% -% -7% 7-% % % -% -% -7% 7-% GVA Grimley Ltd

11 ondents Corporate Real Estate Survey 9 Mean Score Mean Score Mean Score Average All Respondents Property Decision Makg Drivers - Fancial & Services Workplace & Technology rs rs % % The impact of technology on busess is seen primarily through mobile and home workg and outsourcg. The impact of technology on the workplace is noticeable to considerable for Quality 8% of of busesses, with a mean score of.7. This rises to.8 for busesses Enhancg with 'green' a turnover credentials of less than m, and extraction & utilities (.), engeerg (.), fancial services 9 Mean Score Mean Score Mean Score Average All Respondents (.) and busess services (.7) also score highly. Workplace & Technology Workplace & Technology - All Respondents Cloud computg Reduced space allocation Outsourcg Home workg Offshorg Mobile workg Mean Score Average All Respondents Increased desk utilisation Reviewg the ways which technology might impact the busess and turn the property portfolio, mobile workg is seen as the most important factor at., followed by home workg at. and outsourcg at.. Home and mobile workg are regarded as important factors for retail and extraction & utilities sectors, whilst for the engeerg sector mobile workg is most important. Offshorg scores fairly low for all sectors other than for extraction & utilities (.), which also scores outsourcg high (.). Reduced space allocation is significant for fancial services (.), which scored outsourcg at.7. Commentary Technology the workplace is important, but it does not apply across all sectors. The results would suggest that the focus is on just a couple of key areas and it is not beg used to drive costs down by lookg at some of the simpler elements such as creased desk utilisation and reduced space allocation. Clearly for some sectors such changes are not easy to achieve or deed relevant, but one would expect that with a focus on cash for those that can use these techniques it would be a given. Relocation One third of busesses would consider relocatg some activities from the UK, and for certa groups that creases significantly dependg on the outcome of the general election on the th May. In autumn 9 one third of busesses said they would consider relocatg some of their busess from the UK, which has not changed over the last six, with % considerg it or regardg it as a possibility on the composite measure. It is the larger companies, over m turnover, which are leadg this, with 7% considerg relocation of some activity as a possibility. The primary sectors are extraction & utilities (7%), fancial services (9%) and engeerg (%). In terms of what might be relocated, for Headquarters only % of firms would consider its relocation, that rises to 7% for changg Tax Domicile, 9% for Units and % would look at movg Back Office Functions. Those sectors where a significant proportion of firms that are considerg a move of the Back Office Function clude extraction & utilities, engeerg, construction and fancial services. There does not appear to be a significant change envisaged post the next election. With only % dicatg it would be less likely with a Conservative Government and % sayg more likely with a Labour one or a Hung Parliament. For those with a turnover of.m to m there is a more significant change, with it beg 8% less likely to relocate with a Conservative Government, but for those with a.m to m turnover % regard it as more likely with a Labour Government or a Hung Parliament. For those companies the manufacturg sector that latter figure jumps to %. Commentary The consistency of the level of respondees who would consider relocatg from the UK has not changed, but the political aspect for certa groups is very important how they will view thgs gog forward. The responses seem to be more about the negative impact for some of either a Labour Government or a Hung Parliament rather than beg positive about a Conservative Government. An area to watch and to look at the Survey. The busess sectors used the survey are: Retail Transport Transport, Warehousg and Distribution Extraction & Utilities Extraction, Chemicals, Energy and Water Supplies and Telecommunications Engeerg Manufacturg Manufacturg other than Engeerg Construction Fancial Services Services The mean score system used is: No or little effect Some effect Noticeable effect Material effect Considerable effect - Therefore any score above dicates an effect of some significance on a busess. This survey was carried out March and had 8 respondents. Henley School

12 We vite your comments on this survey and also look forward to your contued support and participation the future. If you would like extra copies of the report or would like to take part the next survey, which is now carried out on-le September and March each year, please Howard Cooke of GVA Grimley at For advice and further formation, please contact us: Howard Cooke, Director, Occupier Consultancy 79 7 howard.cooke@gvagrimley.co.uk Stuart Morley, National Head of Research 79 7 stuart.morley@gvagrimley.co.uk Gny Gibson, Professor of Corporate Real Estate Head of School of Real Estate & Planng v.a.gibson@henley.readg.ac.uk London West End Belfast Bristol Edburgh Leeds Newcastle Stratton Street London WJ 8JR Rose Buildg Third Floor Howard Street Belfast BT PA St Cathere s Court Berkeley Place Bristol BS8 BQ Quayside House 7 Fountabridge Edburgh EH 9QG First Floor, City Pot 9 Kg Street Leeds LS HL Yorkshire Chambers /8 Pilgrim Street Newcastle upon Tyne NE LL London City Birmgham Cardiff Glasgow Liverpool Manchester 8 Cheapside London ECV EE Brdleyplace Birmgham B JB One Kgsway Cardiff CF AN St Vcent Street Glasgow G SG Mercury Court Tithebarn Street Liverpool L QP 8 Founta Street Manchester M EE 89 Published by GVA Grimley Ltd Stratton Street, London WJ 8JR copyright GVA Grimley Ltd Prted on recycled paper This report has been prepared by GVA Grimley Ltd for general formation purposes only. Whilst GVA Grimley Ltd endeavour to ensure that the formation this report is correct it does not warrant completeness or accuracy. You should not rely on it without seekg professional advice. GVA Grimley Ltd assumes no responsibility for errors or omissions this publication or other documents which are referenced by or lked to this report. To the maximum extent permitted by law and without limitation GVA Grimley Ltd exclude all representations, warranties and conditions relatg to this report and the use of this report. All tellectual property rights are reserved and prior written permission is required from GVA Grimley Ltd to reproduce material contaed this report. GVA Grimley Ltd 9. GVA Grimley Limited is a prcipal shareholder of GVA Worldwide, an dependent partnership of property advisers operatg globally 7