How To Understand The Property Market In Outer London

Transcription

1 CB RICHARD ELLIS MARKET VIEW Outer London Business Space FEBRUARY 25 MARKET OVERVIEW Despite constituting 52% of the London economy and 54% of its stock of business space the 24 boroughs of outer London are a frequently neglected property market. Ambitious transport infrastructure and regeneration policies are set to bring outer London in to the development and investment mainstream. Outer London is a highly significant, if occasionally neglected, property market within the wider South East area. Consisting of 24 boroughs (definition on back page) the CB Richard Ellis outer London market area has a resident population of 5.7 million people, 76% of the capital s total. Economic output for the outer London region was nearly 84 billion in 23, approximately 52% of London s total. Outer London has 54% of London s office and industrial stock. This report describes the key features of the major office and industrial property markets in the outer London area. To put the performance and prospects of these markets in context, it begins by examining recent economic data for the London region, disaggregated where possible by location and sector. The sections on the office and industrial sectors identify the main areas of activity within outer London, and highlight key occupiers, recent movements in market values and key deals. The report concludes with a review of key strategic developments across London. The outer London area has a relatively low proportion of London s total office stock (29%), but offers a wide variety of office markets, including premier business parks such as Stockley Park and Chiswick Park and lower cost suburban town centres such as Croydon and Bromley. Despite a number of significant deals there has been a 3rd consecutive year of below trend take-up. With a total industrial warehouse stock of 233m sq ft, outer London already represents one of the UK s most significant industrial and distribution property markets. The regeneration of the Thames Gateway will enhance this status and change London s industrial landscape. Significant development opportunities exist within outer London supported by regeneration policy initiatives and Transport for London s ambitious infrastructure upgrade programme. 4th QUARTER AT A GLANCE CONCENTRATION OF LONDON BUSINESS SPACE IN OUTER LONDON 9 8 Offices Rent Yield Industrial Rent Yield % of London total Source: CB Richard Ellis Industrial Office

2 OUTER LONDON ECONOMY KEY POINTS Economic growth in outer London to out-perform national average. Strong employment growth in communications and business services London housing market cooling OUTER LONDON EMPLOYMENT BREAKDOWN Retail and Hospitality Banking & Insurance Construction Manf & Nat Resources Total economic output from the 24 outer London boroughs was 84 billion in 23, approximately 52% of the London total. Output growth (GVA) for outer London is forecast to be 3.1% per annum over the next five years, compared with 2.7% nationally. This expectation for above-trend growth is consistent with relatively upbeat short-term indicators of the London economy. The January Purchasing Managers Index (PMI) indicates that London has the highest number of firms reporting rising business activity in the UK, based on strong growth from the private sector London has seen output expand in each of the last 2 months. A total of 1.95 million people work in outer London, compared with 1.1 million people in Central London (City of London, Westminster and Tower Hamlets). The pie chart shows the breakdown of employment in outer London. The largest two employment sectors are the Public Sector (22% of total) and Business Services (19%). Total employment is forecast to expand by 7.1% in outer London over the next 1 years (UK as a whole 2.9%). Particularly strong employment growth is forecast in the communications and business services sectors (29% and 25% respectively). Notable sectors where employment in outer London is forecast to contract include public administration (-2.7%) and distribution (-6.4%). There is a wide range of growth forecast by borough ranging from a total increase in employment of 21% in Richmond to a decline of 11% in Barking & Dagenham. Source: Experian Business Strategies Public Sector Other Services Trans, Comms & Dist Business Services OUTER LONDON BOROUGH EMPLOYMENT FORECASTS % Richmond Strongest Employment Growth Harrow Barnet Hammersmith Source: Experian Business Strategies Kingston Lewisham Weakest Employment Growth Bexley OUTER LONDON PRIME BUSINESS SPACE RENT INDICES Greenwich Newham Barking & Dagenham The relatively healthy economy and labour market has not translated into widespread rises in commercial property rents in outer London. The CB Richard Ellis outer London business space rent index has grown by less than 1% per annum over the last three years. This is largely attributable to the office sector where rental values have fallen by 2.8% per annum over this period, although this decline is less than that seen in Central London. The industrial and retail sectors have generated moderate growth of 1.8% per annum and 1.5% per annum respectively over this period. Base 199= Offices Industrial

3 OUTER LONDON OFFICE TAKE-UP OFFICE MARKET New Secondhand KEY POINTS Outer London offers a wide variety of office space: premier business parks and cost effective accommodation million sq ft Moderate recovery in outer London office take-up in 24 Office investment performance remains poor Source: CB Richard Ellis In common with the wider London and South East area, total office market take-up in outer London was the lowest on record in 23 at 1.35m sq ft, compared with the long-run annual average of 2.5m sq ft. Although demand remains relatively thin there has been an improvement in take-up, with over 1.9m sq ft transacted in 24. OUTER LONDON OFFICE STOCK million sq ft Croydon Hammersmith Heathrow Chiswick Kingston Uxbridge Ealing Bromley Richmond Source: CB Richard Ellis, ODPM KEY LETTING TRANSACTIONS Occupier Sqft Address Metropolitan Police 368, Empress State Building, Fulham BSkyB 14, New Horixons Court The Discovery Channel 99,5 2 Chiswick Park, W4 Hertz(UK) Limited 69,3 UB1 Building, Uxbridge Erinaceous Group 27,7 Phoenix House. Croydon National Disaster Recovery 23,15 River Court, 5 Oxford Services Road, Uxbridge UB9 Over the year to date, the largest letting transaction in suburban London was at the Empress State Building, Fulham, where 368, sq ft was let to the Metropolitan Police in a phased occupation scheme. This was followed by New Horizons Court where 14, sq ft has been let to BSkyB and 2 Chiswick Park, where 99,5 sq ft was taken up by The Discovery Channel. ODPM figures indicate that the total outer London office stock is 78m sq ft, 29% of the overall London total. The main centres are outlined below. The largest office market in terms of stock is Croydon, which has approximately 5.1m sq ft of office space. With headline rents at 2. psf, Croydon offers cost effective space with an occupier profile skewed towards back office functions, the public services and increasingly devolved central government departments (e.g. Inland Revenue and Immigration & Nationality Directorate). Despite impressive transport infrastructure, the quality of stock in Croydon has dwindled and the town needs modern office developments to attract HQ requirements. Heathrow is one of outer London s largest and most prestigious office locations with a total stock of 3.4m sq ft, although it remains a market in recovery. Much of the stock consists of high grade business parks, the largest of these being Stockley Park which has 1.6m sq ft of stock, with rents at 26 psf. Other significant locations are Bedfont Lakes (7, sq ft) and Bath Road (A4), with rents at 22 psf. Exposure to the technology (including Cisco Systems, Unisys and Fujitsu) and aviation sectors (including British Airways HQ) means that occupier demand is still recovering from the twin blows of the hi-tech crash and the post 9/11 fall in passenger numbers. Source: CB Richard Ellis

4 As a result Heathrow is blighted by over-supply, with an availability rate of approximately 2%. There is a substantial development pipeline of 2.1 m sq ft, with the opening of Terminal 5 in 28 a potential catalyst for further construction activity. Excellent road and tube links support Hammersmith s status as one of outer London s premier office locations (stock of 3.5 m sq ft). Hammersmith s accessibility to Central London is reflected in relatively high rental levels ( 3. psf) and a similar occupier profile to the West End, including a significant media presence (Warner Chappel, Walt Disney, EMI, BBC) and a number of corporates (L Oreal, Coca Cola). Development opportunities along Hammersmith Embankment will diversify Hammersmith s existing office stock. ANNUAL AVERAGE OFFICE TAKE-UP Thousand sq ft Average Take Up Heathrow ammersmith Croydon Uxbridge Chiswick Ealing Source: CB Richard Ellis Bromley Richmond Kingston Chiswick has been transformed over the past five years, with the development of the 33 acre Chiswick Park scheme. The first two phases have been completed, with major tenants including Teletext, Foxtons and One Tel. Stock in the area is approximately 2m sq ft. The completion of the third phase will further enhance the quality of space available in the area. Prime rents currently stand at 28. psf. Uxbridge has a total stock of 1.4m sq ft, although there is no clearly defined office core in the town centre. A number of clusters around the edge of the retail centre provide the bulk of stock including Oxford Road, home to some of the largest office buildings in the town. There is also the relatively small Cowley Business Park (88, sq ft) with a number of technology sector occupiers. Prime rents in Uxbridge are 25. psf. In addition to these larger, established markets, suburban London also contains a number of smaller office markets such as Bromley, Kingston and Ealing. These consist mainly of older, second-hand space. Tenant characteristics in these areas are usually that of smaller, local-based businesses. The largest investment transaction in outer London in 24 was the purchase of Regal House, Twickenham by Glebe Holdings for 2m. Other transactions included the sale of AMP House, Croydon for 18m by the Croydon Gateway Development Partnership and Unicorn House Bromley, for 13.7m to Wichford Plc. CHARACTERISTICS OF KEY OFFICE AREAS Area Rent Stock Available 23 /sq ft Million sq sq ft Total ft Return % Croydon , Hammersmith , Heathrow ,637.7 Chiswick , Uxbridge , Ealing , Kingston , Bromley , Source: CB Richard Ellis and IPD IPD total returns reflect the poor recent investment performance of office property, although at 2.4% in 23 outer London offices have out-performed both the City (-.5%) and the West End (2.1%). The table to the left highlights the wide disparity in performance between individual towns in outer London, the highest being 1.7% achieved in Bromley, the lowest -1.4% in Uxbridge.

5 EMPLOYMENT GROWTH IN OUTER LONDON INDUSTRIAL ORIENTATED SECTORS Thousands Source: Experian Business Strategies Manufacturing Distribution Logistics OUTER LONDON INDUSTRIAL STOCK BY BOROUGH Million sq ft Ealing Brent Barking Source: ODPM, CB Richard Ellis Warehousing Hillingdon Enfield Factory Hounslow 21 Newham 22 Bexley 23 Haringey Greenwich 24 INDUSTRIAL MARKETS HEADLINES High concentration of industrial activity in west London Demand from distribution offsets falling manufacturing employment Thames Gateway set to kick-start eastern industrial development Outer London has a total industrial stock of 233 million sq ft (137 m sq ft of warehousing and 95 m sq ft of factory space), 79% of London s total. West London has the highest level of stock, with the boroughs of Ealing, Brent, Hillingdon and Hounslow all significant distribution warehouse locations. Manufacturing remains relatively important in east London, reflected in proportionally higher levels of factory space (57% of industrial space in Barking & Dagenham is classified as factory use). The development of the Thames Gateway will create development opportunities in east London and potentially increase distribution occupation in this area. Despite falling manufacturing employment and weak output growth, industrial rents in outer London have risen by 2% over the last two years. This highlights the importance of distribution and logistics on occupier demand. Employment has continued to expand in the industries orientated towards the service sector and food and non-food retailing sectors of the economy. As with the office and retail markets, the characteristics of outer London industrial areas are determined by local level influences. Good connections are vital and much of the outer London industrial space is concentrated on major road intersections. KEY TRANSACTIONS Occupier Sqft Address Warburtons 13, Delta Park, Enfield Super Toughened Glass 125, Willenfield Road, Park Royal Air Fayre Ltd 111, Heston Centre, Southall Lane Expeditors 1, Polar Park, Heathrow Heathrow is the most significant area in terms of stock, consisting of nearly 35m sq ft. The area benefits from both its proximity to the airport and the road infrastructure. Consequently it is an obvious logistics location and the majority of the tenants in the area are involved with the freight and cargo type industries. There is also a cluster of ancillary airport businesses, which are an important source of demand. Prime rents in the area are currently the highest in the UK at over 1 per sq ft; a premium is paid for proximity to the airport and quick access to the road network. Also in west London, Park Royal is another significant industrial area, consisting of several industrial estates, totalling 16.4m sq ft. Brixton s Premier Park development offers flexible new build units of up to 4, sq ft based on client specification. Major occupiers in the area include John Lewis, Exel, Bestway and Carphone Warehouse.

6 Moving further south, Croydon has 8.5m sq ft of stock, the largest concentration of industrial activity being in the Beddington area of the town. There is also development in the Purley Way area. Major industrial occupiers in the area include Superdrug and Whirlpool. The area has major development potential, with Chancerygate Business Centre currently under construction. Enfield, to the north, is a relatively small industrial area with a high turnover of local occupiers. The main focus is the Brimsdown business area, close to the M25. Many food and drink manufacturers operate in this part of town due to its proximity to central London. Key tenants include Coca-Cola and Gregg's, along with the 7, sq ft J Sainsbury distribution centre at Waltham Abbey. CHARACTERISTICS OF KEY INDUSTRIAL AREAS Area Rent Stock 23 /sq ft Million sq ft Total Return % Heathrow Park Royal Enfield Croydon Source: CB Richard Ellis, PMA and IPD Recent major Investment transactions in the Industrial sector include the purchase of the Big Box at Heathrow for m by the Prudential. There has been a great deal of activity in the Thames Gateway area, including the sale of 5 buildings in Pooles Lane Dagenham, for 36.1m to Arlington Property Investors (formerly Aberdeen Property Investors). STRATEGIC DEVELOPMENT SCHEMES KEY POINTS The London Plan provides guide to outer London development Hotspots Growing impetus towards mixed-use development Transport infrastructure schemes bolster development potential A number of major policy initiatives (chiefly the London Plan) and proposed transport schemes are shaping development activity across London, with an increasing focus on mixeduse development. The wide impact of strategic development schemes on economic activity and employment patterns warrants the inclusion of a number of inner London sites within this section. The Thames Gateway is the largest regeneration area in outer London. Specific projects include London Riverside covering 34 acres in the boroughs of Havering and Barking and Dagenham, with 24 acres zoned for industrial at Beam s Reach, Dagenham. A successful 212 Olympic Bid will provide a major boost to the area with potentially 35 companies needing to relocate from the Lower Lea Valley. In this context the upgrade of the A13 and new Thames Gateway Bridge will help attract occupiers. The LDA will help relocate businesses, offering new-builds at affordable rents.

7 KEY STRATEGIC DEVELOPMENT SCHEMES Scheme Size Description Greenwich Peninsula 19 acres Regeneration of entire site, including mixed use developments. Wembley 42 acres Stadium redevelopment and development of surrounding land. Croydon Gateway acres Mixed use development including a new arena, retail and housing. Elephant & Castle 17acres 1.5 billion development scheme. New and replacement homes. Retail space years Vauxhall and Battersea 35 acre Central London s largest (Power Station) opportunity area. Including the 1 billion regeneration of Battersea Power Station. Stratford 14 acres Regeneration of the rail lands, including Stratford International Station. Royal Docks 1,6,sq ft Development continues in (Business Park) the area, with The Royals Business Park, set to be the largest in London. KEY STRATEGIC DEVELOPMENT SCHEMES Scheme Crossrail East London Line A13 Upgrade Thameslink 2 West London Tram Terminal 5 Description New network of services, linking east and west London, including a new tunnelled route from Liverpool Street to Paddington. Expected completion 213, but delays possible due to gap funding. Extension and upgrade of existing line, running north to Dalston Junction, south to Croydon and Crystal Palace. The project is included in TfL s business plan with a commitment to deliver by 21. Upgrade of over 24km of the A13 in East London. Much of the work has been completed, with further work due to be completed in spring 25. Enhancement of the existing network throughout London and the South East. Consultation ongoing, although the scheme has a chequered history and time of delivery is uncertain. Scheme currently under consideration- the west London tram line would offer a service from Uxbridge to Shepherds Bush, covering 4-45 stops. Currently Europe s largest construction programme, due to open in 28. Total Heathrow passenger numbers are likely to reach 9 million once the new terminal reaches maturity. Also in the east, a joint venture (Quintain Estates & Development plc and Lend Lease Europe Ltd) secured consent for a mixed-use scheme early in 24 on the Greenwich Peninsula. Including the site of the Millennium Dome, the development will be phased through 225 to include key worker affordable housing, private residential, office space and leisure facilities. At the Royal Docks site (a proposed Crossrail station) Development Securities, the LDA and Standard Life have consent for 1.6m sq ft at the Royals Business Park. The scheme will benefit from proximity to London City Airport and the Docklands Light Railway extension. The opening of the Channel Tunnel rail terminal is at the core of the 14 acre redevelopment of Stratford, including 4,5 homes, 5m sq ft of offices (a range of stock from HQs to start-up incubator space) and 1.5 m sq ft of town centre retail. Crossrail will strengthen Stratford s status as a transport hub, and widen the labour pool for potential occupiers. South London also has a number of key schemes. Southwark Council s masterplan for Elephant & Castle will facilitate a 1.5bn regeneration of a 17 acre site, incorporating 5,3 new and replacement homes and 87, sq ft of retail following demolition of the existing shopping centre. Two tram routes will enhance an already strong transport infrastructure. At an earlier stage of masterplanning, the Vauxhall to Battersea development framework is potentially the largest redevelopment area on the Central London fringe including the 1bn regeneration of the 35 acre Battersea power station. Croydon already benefits from strong transport links and an established, albeit ageing, office market. The Croydon Gateway scheme is intended to kick-start the revitalisation of the town, providing a 12,5 capacity arena, retail units and 8 new homes. The choice of developer is still in doubt. Arrowcroft, the Council s preferred developer, has been granted planning permission and aims to begin the three year construction process in summer 26, although compulsory purchase orders will need to be secured. To the north west, development activity in Wembley continues to gather pace. The redevelopment of the 9, seat stadium itself is being run by Multiplex, whilst the owners of the land around the stadium, are Quintain Estates and have outline planning consent for a mixed-use development of a 42 acre site.

8 MARKET AREA MAP OUTER LONDON BARKING & DAGENHAM GREENWICH LEWISHAM BARNET HAMMERSMITH & FULHAM MERTON BEXLEY HARINGEY NEWHAM BRENT HARROW REDBRIDGE BROMLEY HAVERING RICHMOND-UPON-THAMES CROYDON HILLINGDON SUTTON EALING HOUNSLOW WALTHAM FOREST ENFIELD KINGSTON-UPON-THAMES WANDSWORTH * Office markets in the remaining London boroughs (Camden, City of London, City of Westminster, Hackney, Islington, Kensington & Chelsea, Lambeth, Southwark, Tower Hamlets) covered in the CB Richard Ellis Central London Market View For more information regarding the Market View, please contact: GREATER LONDON BUSINESS TEAM CHAIRMAN Cris Tollast AGENCY James Brounger Office Paul Farrow Industrial INVESTMENT Doug Petherham PROFESSIONAL SERVICES Mark Penson Landlord & Tenant Andrew Yule Rating DEVELOPMENT PLANNING LOCAL AUTHORITY TEAMS RESEARCH Paul Forshaw Commercial Neeraj Dixit Steven Clark James Roberts Richard Holberton DISCLAIMER 23 CB Richard Ellis Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis. EMEA Offices CB Richard Ellis Aix-en-Provence (33) Amsterdam (31) Barcelona (34) Berlin (49) Birmingham (44) Bristol (44) Brussels (32) Bucharest (4) Budapest (36) Bulawayo (263) Durban (27) Edinburgh (44) Frankfurt (49) Gaborone (267) Glasgow (44) Gothenburg (46) Hamburg (49) Harare (263) Hoofddorp (31) Jersey (44) Johannesburg (27) Leeds (44) Lisbon (351) Liverpool (44) London (44) (44) Lyon (33) Madrid (34) Malaga (34) Mallorca (34) Manchester (44) Marbella (34) Marseille (33) Milan (39) (39) Munich (49) Nairobi (254) Neuilly sur Seine (33) Paris (33) Poznan (48) Prague (42) Rome (39) Stockholm (46) Valencia (34) Vienna (43) Warsaw (48) Zurich (41) Correspondent Firms: Amsterdam B&O Partners BV (31) Athens, Danos & Associates (3) Belfast, CB Richard Ellis Gunne (44) Copenhagen CB Richard Ellis Cederholm (45) Dublin, CB Richard Ellis Gunne (353) Helsinki, Tallberg Toimitilajohto Oy (358) Istanbul CB Richard Ellis (9) Moscow, Noble Gibbons Limited (751) Oslo, Atrium AS (47) Paris, Retail Consulting Group (33) Sofia Elta Consult Ltd (359) Tampere Tallberg Toimitilajohto Oy (358) Tel Aviv, M.A.N. Properties Real Estate (972) Thessaloniki, Danos & Associates (3) CB Richard Ellis St Martin s Court 1 Paternoster Row London EC4M 7HP Tel Fax