for the Jubilee Line Impact Study Unit

SECOND PROPERTY MARKET ACTIVITY STUDY FINAL REPORT Prepared by: Chesterton for the Jubilee Line Impact Study Unit Jubilee Line Extension Impact Study Unit University of Westminster 35 Marylebone Road, London NW1 5LS Telephone: +44 (0) 207 911 5829 Fax: +44 (0) 207 911 5057 Email: jubilee@westminster.ac.uk The Jubilee Line Extension Impact Study, co-ordinated by the University of Westminster, has been set up by Transport for London and is jointly funded by Transport for London and the Department of Environment Transport and the Regions to carry out a programme of surveys and research into the transport, environment, social and economic impacts of the Jubilee Line Extension. This document is for restricted circulation only and should not be reproduced or disseminated without prior permission from the Jubilee Line Extension Impact Study Unit or Transport for London. The views expressed in this Report are not necessarily those of Transport for London or the Department for Transport. 1

Contents 1. INTRODUCTION... 6 1.1. CONTEXT OF THE STUDY...6 2. RESEARCH METHODOLOGY... 10 2.1. CONTEXT...10 2.2. DATA COLLECTION AREAS...10 2.3. DATA SOURCES...11 2.3.1. Data Sourcing and Development... 12 2.4. QUANTITATIVE METHODOLOGY...13 2.4.1. Longitudinal Price Analysis... 14 2.4.2. Agents Survey... 14 2.5. QUALITATIVE METHODOLOGY...14 2.6. LEVEL OF ANALYSIS...15 3. PROPERTY MARKET OVERVIEW... 16 3.1. INTRODUCTION...16 3.2. RESIDENTIAL PROPERTY MARKET...16 3.3. OFFICE MARKETS...21 3.4. SUMMARY...26 4. CITY FRINGE PROPERTY MARKET... 27 4.1. INTRODUCTION...27 4.2. PROPERTY MARKET COMMENTARY...27 4.2.1. Residential Property Market... 28 4.2.2. Commercial Property Market... 30 4.3. LOCAL AGENTS PERSPECTIVE...33 2

4.3.1. Key Factors Affecting the Local Property Market... 33 4.3.2. Market Demand, Supply And Take-up... 34 4.3.3. The Role of the JLE... 36 4.3.4. Summary..39 4.4 Commercial Transaction Data..40 4.4.1. Investment Property Databank (IPD) Dataset 40 4.4.2. Supply, Demand and Price Movements... 51 4.5. SUMMARY AND CONCLUSIONS... 53 4.5.1. Property Market Commentary... 53 4.5.2. Agents Survey... 53 4.5.3. Longitudinal Price Analysis... 54 5. EAST OF CITY FRINGE PROPERTY MARKET... 56 5.1. INTRODUCTION...56 5.2. PROPERTY MARKET COMMENTARY...57 5.2.1. Residential Property Market... 58 5.2.2. Commercial Property Market... 60 5.3. LOCAL AGENTS PERSPECTIVE...61 5.3.1. Key Factors Affecting The Local Property Market... 61 5.3.2. Market Demand, Supply And Take-up... 62 5.3.3. The Role of the JLE... 64 5.3.4. Summary... 67 5.4 Commercial Property Market Overview..67 5.5. SUMMARY AND CONCLUSIONS...67 3

5.5.1. Property Market Commentary... 67 5.5.2. Agents Survey... 68 6. ISLE OF DOGS PROPERTY MARKET... 69 6.1. INTRODUCTION...69 6.2. PROPERTY MARKET COMMENTARY...69 6.2.1. Residential Property Market... 70 6.2.2. Commercial Property Market... 73 6.3. LOCAL AGENTS PERSPECTIVE...76 6.3.1. Key Factors Affecting The Local Property Market... 77 6.3.2. Market Demand, Supply And Take-Up... 77 6.3.3. The Role of the JLE... 79 6.3.4. Summary... 82 6.4. COMMERCIAL PROPERTY MARKET OVERVIEW...82 6.5. SUMMARY AND CONCLUSIONS...90 6.5.1. Property Market Commentary... 90 6.5.2. Agents Survey... 90 7. EAST LONDON PROPERTY MARKET... 92 7.1. INTRODUCTION...92 7.2. PROPERTY MARKET COMMENTARY...92 7.2.1. Residential Property Market... 92 7.2.2. Commercial Property Market... 94 7.3. LOCAL AGENTS PERSPECTIVE...94 7.3.1. Key Factors Affecting The Local Property Market... 95 4

7.3.2. Market Demand, Supply And Take-Up... 95 7.3.3. The Role of the JLE... 97 7.3.4. Summary... 100 7.4. COMMERCIAL PROPERTY MARKET OVERVIEW...100 7.5. SUMMARY AND CONCLUSIONS...102 7.5.1. Property Market Commentary... 102 7.5.2. Agents Survey... 103 8. NORTH GREENWICH... 104 8.1. INTRODUCTION...104 8.3. DEVELOPMENT PROPOSALS...104 9. SUMMARY AND CONCLUSIONS... 105 9.1. SUMMARY...105 9.1.1. Methodology... 105 9.1.2. Desk-Based Literature Review... 105 9.1.3. Agents Summary... 105 9.1.4 Longitudinal Data Analysis...111 9.2. CONCLUSIONS...112 9.3. LINK WITH PHASE I AND OTHER STUDIES...113 5

1. INTRODUCTION 1.1. Context of the Study In January 1997, London Transport Planning established the Jubilee Line Extension Impact Study Unit (JLEISU) at the University of Westminster to co-ordinate a series of surveys and studies to assess the main impacts arising from the operation of the new line, and to draw together the results. London Transport identified two key aims for the research as: to understand how the extension has affected and benefited London; and to improve appraisal and forecasting techniques. The JLE Impact Study Unit produced a report Working Paper No. 4: The Concepts and Methodological Framework for Assessing the Impacts of the Jubilee Line Extension, which describes the primary objectives of the overall study. It identified the main areas of study which led to the establishment of a group of interactive study areas to evaluate the effect of the new line on the following: Travel behaviour; Economic and labour market activity; Land use; Property market activity; Visitor activity; Environment and sustainability; Townscape; and Image and local perception. In addition to assessing the impact of the JLE, the research aims to assess the processes of change in spatial, economic and social conditions in that it recognises that there is a continuous interaction between human behaviour and the physical, 6

economic and social environment. The methodological approach has been specifically designed to gain a better understanding of the various underlying and ongoing processes at work, and to identify and evaluate the spatial and temporal dimensions of the changes that occur. The complexity of the methodology identified the need for a substantial amount of data to be collected and rigorous analysis. In order to ensure consistency of approach between the various study areas, a set of impact indicators was developed together. These are described in Working Paper 7: Indicators & Analytical Framework for Evaluating the Impacts of the Jubilee Line Extension. This report, the Second Property Market Activity Study (Phase 2), considers the period immediately pre and post opening, i.e. from January 1999 to December 2001, although some of the quantitative analysis considers a longer time period. Our previous report, Phase 1 Property Market Activity: The Baseline Study covered the pre-opening period from the announcement of the Parliamentary Bill in 1989 to 1999. Further commentary on the relationship to the other studies and the approach adopted in Phase 1 are set out in that report. The original study brief for the Property Market Study covered five distinct indicators of change, namely: Capital values of residential property within catchment areas of the JLE and other hinterland areas; Capital values of commercial property within catchment areas of the JLE and other hinterland areas; Estate agents perceptions of the effect of the JLE on the local property market; Developers and investors perceptions of the effects of the JLE on the local property market; and Changes in occupancy rates of commercial premises. A full description of the approach adopted in this phase of work is set out below in Section 2. 7

It is also worth noting that since this phase of work was begun, the Royal Institution of Chartered Surveyors (RICS) and the Office of the Deputy Prime Minister (ODPM) have commissioned ATIS REAL Weatheralls and University College London (UCL) to carry out a study assessing the relationship between land use, land value and public transport. The main aims of the research are as follows: To identify and analyse how occupier demand commercial/residential expressed through land values and investment yields (capital value) varies according to transport provision; To explore ways in which a better understanding of the impact of transport on property values can be used in cost benefit appraisal of transport proposals; and To explore ways in which a better understanding of the impact of transport on property values can be used in appraising land use planning and urban regeneration proposals expressed through the pattern of development, design, scale and mix of land uses. The study will eventually comprise four separate stages, although at the time of writing, only Stage 1 had been published. It largely comprises of a detailed literature review of existing published material, including our previous report, Phase 1 Property Market Activity: The Baseline Study. The Stage 1 Report has highlighted the differences in terms of methodology used in existing reports, making comparisons difficult. It states that this therefore requires a greater depth of investigation that looks at data, definitions, methods and actual cases to unravel what effects can be attributed to transport investment. This means that knowledge must be built up from a series of carefully constructed case studies. On this basis, a draft methodology has been developed, which will be tested in such a case study in London using the best available data. The Stage 1 Report does however state that it seems that the expected effects [of public transport investment] on both the residential and commercial property markets is positive, but that the range of impacts is very variable from marginal to over 100% in the commercial sector from the North American evidence. It reports that in the UK the impact is seen as being positive; particularly regarding the capital uplift in 8

residential property values. However, there has been less emphasis put on exact values, and some of the observed uplift may be due to the optimism of the markets rather than actual effects. It also states that where possible, it is important to use transactional data rather than valuation data. 9

2. RESEARCH METHODOLOGY 2.1. Context As in Phase 1, the proposed research framework has been based upon the Unit s evaluation framework for assessing the impact of the JLE. It has been formulated in response to the need to monitor and evaluate the effects of the JLE on the specific property markets through which it runs. The methodology was developed to focus upon the following objectives: To identify the dimensions of change in terms of the full range of impacts, the geographical sphere of influence, and the timescale over which impacts occur; and To continue with the time series approach, begun with in the Phase 1 Baseline Study, to identify immediate and longer-term impacts, and identify instances where change has occurred and, where possible, attribute cause and effect. A critical requirement was that the study should be based upon the analysis of a robust dataset to allow the identification and quantification of any impact. A number of variables needed to be considered in our analysis in order to allow the identification of cause and effect. These variables have been termed as shocks and may be internal or external to the property market and operate at different levels, such as cyclical swings in the property market (e.g. during the boom and bust period) or area-based initiatives (e.g. regeneration activities). Our overall methodological approach is set out in Phase 1 Property Market Activity: The Baseline Study, with a full description contained in the Property Market Scoping Report (Working Paper No.13). We set out below our approach to the Second Property Market Study (Phase 2), which evolved from the lessons learnt in Phase 1. 2.2. Data Collection Areas The research framework for the wider impact study is based around a series of defined Catchment Areas, based upon an established understanding of walking distances from underground stations. Catchment areas are based upon a 1,000 metre radius of each station, further refined to take account of geographical features, 10

such as the River Thames and the layouts of roads and buildings. This 1,000-metre radius was chosen as an appropriate distance as it reflects the distance to and from a station, which those using the JLE are likely to walk. This is based on the findings of Working Paper No. 6. 2.3. Data Sources Property data sources are generally of high quality and commercially confidential, or of poorer quality and publicly available. The original project brief stated that where possible the study should be based upon a broad range of transactions to ensure that there is a sound statistical basis for the study. In both phases of the study, therefore, the challenge has been to identify a clean reliable dataset covering the key measurable variables: Capital values of commercial premises; Rental values of commercial premises; and Capital values of residential premises. In terms of commercial data, the study approach has been limited by available information. Stations along the South Bank/City Fringe together with Isle of Dogs comprise the majority of data obtained. Other locations have more limited commercial data, including the following stations Bermondsey, Canada Water, North Greenwich and Stratford. In Phase 1, we made an early observation that over time there has been an increasing interest in the wider JLE property market. This, in itself, is leading to the establishment of more comprehensive and robust datasets that will allow more sophisticated analysis in the future. In Phase 2, this trend has continued, particularly in terms of the growing number of property research reports that include parts of the JLE Corridor in their analysis. This is in part due directly to the JLE itself, but also to the increasing property market interest in East London and the wider Thames Gateway Area. 11

2.3.1. Data Sourcing and Development A thorough data sourcing exercise was undertaken and the following datasets were identified in phase 1: Commercial Transactions (Commercial Datasets): Analysis of commercial transactions in Phase 1 was limited to a dataset derived from a range of beta sources. These included FOCUS, Estates Gazette Interactive and Investment Property Databank, together with a number of published journal articles and inhouse data sources. In Phase 2, our initial work was to consider the lessons learnt in Phase 1 and to consider whether any refinements were needed to increase the scope and quality of the residential and commercial datasets. As well as internal considerations, we also held discussions and meetings with the JLEISU Team, Valuation Office Agency, Nationwide Building Society and the Halifax, to identify areas for improvement to the methodology. There are various sources of transaction data that are in common use in property market analysis. Probably the most common of these are Investment Property Databank (IPD), Estates Gazette Interactive (EGi), FOCUS and PRIDE. These, and other sources, provide information on recent deals, both lettings and sales. Although such sources do report on transactions of development land, obviously such deals are limited in metropolitan areas, such as London. As part of this study, we reviewed both EGi and FOCUS data for the period under analysis, but it did not provide any meaningful data, either in terms of volume or quality, for longitudinal price analysis. Whilst not included in this report, we have presented the results of our analysis to the JLEISU Team at the University of Westminster. Due to the above, we made contact with IPD about the possibility of using their dataset for analysing commercial property market trends in the JLE Corridor. These discussions revealed that IPD have undertaken some research themselves on the impact of the JLE on the commercial property market. However, given that their dataset is based on investment properties in the UK, it only covers data in sufficient quantity around three of the stations in the JLE Corridor: Waterloo, Southwark and London Bridge, i.e. the City Fringe Area. This is principally because of the remaining 12

station catchments only Canary Wharf has historically been regarded as suitable for institutional investment. The fact that there is no IPD data for Canary Wharf is disappointing. This is because property there is virtually all owned by the Canary Wharf Company, which does not subscribe to IPD. Commentary on the use and application of the datasets is described below. 2.4. Quantitative Methodology As indicated in Phase 1, earlier transport impact studies have generally adopted a quantitative approach, which have sought to identify a significant link between infrastructure investment and residential property values. However, there are a number of limitations of these approaches in relation to the JLE Impact Study, which is by far the most complex study to date. In Phase 1, the quantitative methodology built on the hedonic pricing methodology adopted in other previous studies. A detailed description of the hedonic price model is set out in our Phase 1 Report. Unfortunately, even though the approach was refined to reflect the diversity and complexity of environments and influences acting in the catchment areas of the JLE Corridor and the wider London environment and property market, the results were disappointing. It is our opinion that the hedonic price model may not, a priori, be suited as an analytical approach to the highly complex property environment within the JLE Corridor. This is further exacerbated by the fact that the model needs a higher quality dataset to work. In considering the scope of the quantitative methodology for Phase 2, we also reviewed the feedback on our Phase 1 work and it was decided that there was a gap between the analysis of property market commentary and the Agents of Change Study. The latter had a strategic focus and sought answers to the big questions, whereas the former tended to pick up on often incidental commentary of the impact of the JLE as part of wider comments on current property market conditions. On this basis, it was decided to undertake primary research with those residential and commercial property agents based in the JLE Corridor. 13

In Phase 2 therefore, the quantitative methodology covers the longitudinal price analysis and the agents survey, both of which are described below. 2.4.1. Longitudinal Price Analysis Commentary is provided on longitudinal price trends for the office sector for the City Fringe Area using the IPD Dataset and for the Isle of Dogs using our own data. However, this has not been possible for the other two property market areas. 2.4.2. Agents Survey As indicated above, the agents survey was new to Phase 2 and to avoid any duplication with the Agents of Change Study, it was decided to undertake a postal survey of residential and commercial property agents with offices in the various station catchment areas. Whilst we do accept that this does not cover all agents that are active in the JLE Corridor, our primary objective was to get an on the ground view to complement the strategic perspective of the Agents of Change Study. We identified a total of sixty-seven (67) offices of residential and commercial agents along the JLE Corridor. A copy of the agreed questionnaire was sent to each office, along with a covering letter. The former is included in Appendix 1. A total of 24 questionnaires were received back, representing a response rate of around 36% or over one third of all property agents based in the JLE Corridor. This level of response is fairly typical for a postal survey. 2.5. Qualitative Methodology The quantitative data analysis has been complemented by a qualitative assessment of the impact of the JLE. As in Phase 1, the purpose of the qualitative assessment has been to identify through analysis of secondary information the views of property market professionals and the property press on the role and impact of the JLE on local and wider residential and commercial property markets. The analysis has been based upon a review of published material containing information pertinent to the property markets of the JLE, including: 14

Press and journal articles based upon specific areas through which the JLE passes; Property agents perceptions of the effect of the JLE on the local property market; and Research reports published by property market professionals detailing property market trends and statistics relating to local and wider residential and commercial property markets. Both this work, and our agents survey, should be seen as complementary to the Agents of Change Study, which has sourced primary data through in-depth, face-toface interviews. 2.6. Level of Analysis As in Phase 1, we have sought to integrate the findings of our quantitative and qualitative work to provide joined-up findings. We have again split the JLE Corridor into four separate geographical segments, based upon grouping adjacent stations into areas of similar property market characteristics. The four property market areas and their individual station catchments are, as follows: City Fringe (covering Waterloo, Southwark and London Bridge JLE stations); East of City Fringe (covering Bermondsey and Canada Water JLE stations); Isle of Dogs (covering Canary Wharf JLE station); and East London (covering Canning Town, West Ham and Stratford JLE stations). We have again excluded the JLE station at Westminster from our analysis because this station is already well served by London Underground stations located throughout its catchment area and is part of a very complex property market with many internal and external influences. It has therefore been considered unlikely that any JLE effect could be isolated and quantified in the local catchment area over the period of analysis under review. 15

North Greenwich was also excluded from our Phase 1 Report because throughout the study period, a significant proportion of the catchment area has been underutilised in property market terms, with a limited number of commercial and residential premises to allow suitable analysis to occur. Commentary is provided on North Greenwich in this report at the client s request. It is included in Section 8 after the sections on the four property market areas. The findings of the quantitative and qualitative work are presented as separate sections (Sections 4-7) for each of the four property market areas (City Fringe, East of City Fringe, Isle of Dogs and East London). Under each section, a review of property market commentary relating to the analysis period (1999-2001) precedes a summary of the findings of the agents survey. Summary findings and conclusions complete each section. Comparative analysis of the four property market areas is set out in Section 9, which also comments on the links with our Phase 1 findings and the other studies. It follows our overview of North Greenwich in Section 8. Before the four property market sections, the next section of this report (Section 3) provides a brief overview of London-wide trends in the residential and commercial property market over the analysis period (1999-2001). 3. PROPERTY MARKET OVERVIEW 3.1. Introduction This section of the report provides a brief summary of wider trends in the London residential and commercial property market over the analysis period. It provides context for the analysis of the four individual property market areas that comprise the JLE Corridor. Our previous report provided an overview of trends over the period from 1989-1999. This report summarises events and triggers over the period from 1997-2001, albeit with commentary on longer time periods, where appropriate. 3.2. Residential Property Market 16

Before reviewing the period 1997 to 2001in detail, it is worth summarising the trends in residential prices leading up to this period. These trends are illustrated in Chart 3.1 below. Chart 3.1 Trends in London Residential Prices 1992 to 2001 350 300 250 200 150 100 50 Price Index Central London Inner London Dec-92 Jun-93 Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Source: Chesterton Research (Central London covers prime locations, such as Mayfair and Hampstead. Inner London covers the inner suburbs including Tower Bridge, Docklands, Wimbledon and Putney). The London residential boom of the late 1980s peaked in 1988 and prices declined over the rest of the decade and into the early 1990s. The bottom of the market was reached in 1992 from whence the market gradually recovered. 1992 marked the turning point in the market for a number of reasons, including: 1. The UK exited the Exchange Rate Mechanism resulting in interest rates falling from 12% in September to 7% at the year-end. Further falls ensued with rates reaching a low of 5¼% in February 1994; 2. The return of Hong Kong to China, due in 1997, led to a significant increase in buyers from the Far East; and 3. The UK and London in particular was attracting a large number of financial institutions looking to set up bases at the start of what turned out to be one of the longest and biggest equity bull markets on record. London residences were sought to house overseas executives. Between end 1992 and end 1996, Central London residential prices rose 64% (13.1% per annum) and Inner London residential prices were up 52% (11.1% per annum). These represent substantial increases, but rather than marking the end of 17

the recovery it simply represented the beginning of a new surge in prices. Over the next four years, both Central and Inner London prices increased by 90% or 17.4% per annum. The Inner and Central London residential trends were almost identical up to early 2000 when they bifurcated with Central London prices continuing upwards while Inner London prices plateaued and then fell. This was, however, only temporary with Inner London prices rising again by the end of 2000. The trends in flat and terraced housing prices since 1997 follow a similar pattern (see Chart 3.2 below). 18

Chart 3.2 London Flats and Terraced Property Price Trends 250 Prices Index Q4 1996 = 100 Interest rates 7.5 Flats 200 6.5 Terraces 5.5 150 4.5 100 1996 1997 1998 1999 2000 2001 Q4 Q4 Q4 Q4 Q4 Q4 3.5 Source: Nationwide Building Society, Bank of England Prices rose by double-digit amounts in each year with increases in excess of 20% in each of 1997 and 1999. Although interest rates were rising in 1997, they were still low relative to recent experience and in any case, the economy was expanding by 3.5%. In contrast, rates fell sharply in the first half of 1999 in response to a perceived slowdown in economic growth. By the second half of 1999, interest rates were again on an upward trend that continued into the first quarter of 2000. This initially had little impact on prices, but eventually economic growth started to slow and the prices of both flats and terraces fell in the third quarter of 2000. This was followed by two quarters of modest rises. Effectively, the technology slowdown was having a big impact on mainly US companies located in the Golden Triangle, which had been one of the main drivers of the demand for executive housing in London. In response to the technology meltdown, these technology companies began reducing or even closing their operations. Interest rates remained unchanged throughout 2000, but concerns were increasing, as to the impact falling stockmarkets would have on the economy and, with inflation low, rates began to fall globally during 2001. This was a trend that accelerated following the terrorist actions in New York on September 11 2001. By the end of 2001, interest rates in the UK were at their lowest level since the early 1960s at just 4%. Residential inflation had already started to rise on the back of increased buy-to- 19

let activity and although growth slowed immediately following the attacks, it soon picked up with terraced prices up 15.3% and flats up 16.4% in the 12 months to the end of 2001. There are a number of reasons to explain the late 1990s surge in London residential prices. Between 1997 and 2000, the technology boom led to a soaring stockmarket and huge City bonuses, much of which found its way into the residential market. Secondly, low interest rates resulted from the fierce competition amongst mortgage lenders offering special deals in order to gain market share, including: 1. A much higher than usual mortgage to salary multiples of five to six; 2. Numerous discount mortgages; 3. Free legal and survey services; and 4. The opportunity to switch from fixed rate mortgages into lower cost ones. From 2000, the collapsing stockmarket made residential property look attractive as an investment and there was an increase in buy-to-let properties. Exacerbating all this was a severe shortage of stock, especially in London, to satisfy rising demand. As a consequence of the above, the buy-to-let market has grown sharply over the last few years. According to the Council of Mortgage Lenders, there were 184,900 such mortgages outstanding worth 14.7bn at the end of 2001. This compares with 80,000 buy-to-let mortgages worth 6bn 18 months earlier. In 2001, lenders advanced 68,900 loans worth 6.6bn, an increase of 47% in numbers compared with the previous six months and up 78% in monetary value. However, this may mark the peak in the current cycle. While prices have recovered since the events of 11 th September 2001, rental values have fallen pushing yields down to the point where they barely, if at all cover interest payments. This is unlikely to impact seriously on prices, as they remain under-pinned by the significant supply shortage. In summary, the recent residential market boom has been driven by the lowest interest rates for over 40 years and its return as a major investment medium, coupled with an acute shortage of supply. 20

3.3. Office Markets As in our Baseline Report, our review of the commercial property market has been concentrated in a single market sector the office market. This reflects the focus of the wider commercial property market in the main areas through which the JLE runs. Again before looking at the period 1997 to 2001 in detail, it is informative to review the trends in London prices leading up to this period. Chart 3.3 shows the nominal and inflation-adjusted trends in Central London office rental values over the last decade. Chart 3.3 Central London Office Rental Trends 1990 to 2001 Rental Index June 1990=100 % end-year vacancy rate 110 16 100 14 Nominal 90 12 80 Inflation-adjusted 10 8 70 6 60 4 50 2 40 0 1990 1993 1996 1999 Source: Chesterton Research The fallout from the early 1990s recession and oversupply of space following the development boom resulted in a sharp rise in the vacancy rate, which was reflected in the precipitous falls of over 50% in rental values between 1990 and 1993. This left many leases hugely over-rented. As with the residential market, the catalyst leading to recovery was the UK s ejection from the ERM in 1992 and the subsequent reductions in interest rates. While rentals started to rise in nominal and real terms in late 1993, these were headline gains. Incentives to tenants, such as reverse premiums or long rent free periods, meant that effective rentals grew somewhat below the rates shown in Chart 3.3. Falling interest rates post ERM membership resulted in both the nominal and real yield on gilts to also fall sharply, which fed through to property yields, pushing capital values up. Property was effectively being treated as a bond, despite no guarantee on 21

capital values. Once the market took this latter point on board, yields rose despite headline rentals continuing to rise. Rental trends post 1997 continued in the same vein as before and in nominal terms the 1990 peak was breached in 2000 removing, in theory at least, the over-renting burden. The reality is that a number of leases in Central London remained overrented even at the end of 2001. However, 1997 marked a sea change in the market. According to Chesterton Research, in the four years to 1996, average annual take-up was 8.7 million sq. ft. Over the next five years, it averaged 14.9 million sq. ft. Takeup more than doubled between 1996 and 1997 from 6.3 million sq. ft to 13.5 million sq. ft, while an annual record of 20.2 million sq. ft was let in 2000. Rental growth post 1996 was being driven by record occupier demand. Behind this surge in activity was the accelerating shift in the economy towards the service industries. Financial & Business Services (F&BS) Output, for example, expanded by between 6% and 7% in both 1997 and 1998, and although it slowed in 1999, it rose again in 2000 and 2001. The London Office Market enjoyed a period of sustained growth between 1997 and 2001, although it varied across areas (City, West End, Midtown and Docklands) and it is only in the last six months that prices came off their best levels (see Chart 3.4 below). Chart 3.4 Central London Office Rental Movements (Top Rentals) 100 per sq ft 80 60 40 20 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 West End Central City Fringe City Midtown Docklands Source: Chesterton Research 22

The principal difference between the pre-1997 and post-1997 period was in the behaviour of top rental values. The key trends in each of the main sub-markets are highlighted below: 1. West End: There was circa 70 million sq. ft of office space in the West End of which 6.4% was vacant at the end of 2001, which was just below the 7.7% vacant at the start of 1997. In the five years to end 2001, 19.4 million sq. ft of space, or 3.9 million sq. ft per year, was let. The peak year was 2000 when just over 5 million sq. ft was let. There was over 7.5 million sq. ft of space completed during the five years. In the West End, the top rental rose 5.7% per annum in the four years to end 1996. Over the next 4½ years, it increased at a rate of 13.2% per annum to a peak of 87.50 per sq. ft before falling back to 80 per sq. ft by end 2001. The driving forces behind this late surge were the new technology boom and the media companies. The lead-up to the new millennium resulted in a huge IT spend especially as concerns over the Y2K bug (which in the event did not materialise) increased. This further fuelled the dotcom bubble on the stockmarket, which in turn saw record Initial Public Offerings (IPOs) and mergers and acquisitions (M&A). There was also a frenzy of advertising as the new Internet companies spent large parts of the money raised from the IPOs to showcase their products boosting the profitability and expansion of media companies. The new cash-rich technology companies were also locating in the West End pushing up rentals. 2. City of London: The City had a stock of around 91 million sq. ft of office space, of which 6.9% was vacant at the end of 2001, down from 7.5% at the start of 1997. There was almost 33 million sq. ft taken up between 1997 and 2001, including almost 10 million sq. ft between the third quarter of 2000 and the second quarter of 2002. Just under 15 million sq. ft was completed in the five years. Central City top rentals increased 6.9% per annum pre-1997 with this rate of growth improving to 9.9% per annum post-1997. It was in the City fringes that the greatest turnaround in rental was achieved with rental growth improving from 4.5% per annum to 16.4% per annum. 23

The surge in revenues into the City resulting from IPO and M&A activity was accompanied by companies consolidating their occupations under one roof leading to record numbers of pre-lets. This started in 1997, eased off in 1999 as the economy slowed, but then surged in 2000 (see above comment on F&BS Sector). Of the 32.7 million sq. ft let between 1997 and 2001, 10.1 million sq. ft, or 31%, had been prelet. The downturn in the technology industries and its impact on financial services eventually took its toll and demand slowed in the second half of 2001. Between the end of 2000 and the end of 2001, the vacancy rate in the City almost trebled from 2.4% to 6.9%. 3. Midtown: Midtown comprised just over 23 million sq. ft of office space and the vacancy rate of 7.5% at the end of 2001 is virtually unchanged from the 7.4% at the start of 1997. However, the vacancy rate reached an historic low of 2.2% in early 2000. Eight million sq. ft of space was let between 1997 and 2001, of which 2.6 million sq. ft was taken up between Q4 2000 and Q3 2001. There was 3.8 million sq. ft of completions over the whole period. Before 1997, Midtown rentals increased by just 2.4% per annum. Over the next 4½ years to the peak in mid-2000, they more than doubled rising at the rate of 18.9% per annum, before falling back by just over 13% in the second half of 2001. The strong growth was the result of the influx of professional firms, especially lawyers, consolidating in the area and a severe lack of suitable space. 4. Docklands: 3.7% of the total stock of circa 14 million sq. ft was vacant at the end of 2001, which is substantially down on the 18.8% vacancy rate at the start of 1997. Take-up in the five years totalled 13.2 million sq. ft and completions totalled just over 2 million sq. ft. The recovery in Docklands top rentals, which is accredited to Canary Wharf, had started earlier than for the other Central London markets. They had been much lower than in the other markets and therefore were attractive to large space users looking to move their backroom staff. It was also the only market to offer sufficiently large floorplates that were becoming increasingly necessary for the consolidating financial and professional services markets. Finally, big incentives, such as rent-free periods, were being offered to potential tenants. As a result of these factors, Canary Wharf rentals were re-rated three times during the 1990s. First, rentals increased by 92.5% (45.3% per annum) between 24

June 1993 and March 1995. Secondly, between September 1996 and end 1997 when they rose 40% (30.9% per annum) and finally, between September 1999 and end 2000, when a rise of 20% (15.7% per annum) was achieved. The above trends were not, however, typical of the rest of Docklands where top rentals were flat in the four years up to the end of 1996. Over the next 4½ years, rentals increased at the rate of 43% per annum as infrastructure improvements enhanced the attractiveness of the area. The late 1990s recovery was based on strong occupier demand and a scarcity of suitable accommodation, which was reflected in the number of pre-lets that took place during that time. The other characteristic of the market was the reluctance of developers to build speculatively after the savage downturn in the early years of the decade. Sentiment started to change against the market in early 2001 at just the point when development was beginning to rise. In 2001, occupier demand weakened greatly after a year of falling stockmarkets. In the first quarter of the year, demand slowed slightly while available space was up. Critically large deals were being put on hold and deals were taking longer to complete as firms looked for visibility in the outlook for their industry. By the halfyear, it was becoming clear that occupier demand had peaked while available space was rising as more Grade B space, partly as a result of space released from pre-lets, came onto the market. The vacancy rate increased from 2.9% to 3.6% in the three months to June. Take-up of space in the third quarter was less than half the average in the previous four quarters while the vacancy rate rose to 4.4% and completions were high. West End rentals fell from their peak and yields were rising. Take-up increased between September and December, but this was due to a large pre-let in Docklands. The underlying trend was still down with available space up 50% in the quarter taking the vacancy rate to 6.6% by the year-end. Completions in 2001 were up 80% on 2000 while construction activity was at its highest for over eight years. By the end of 2001, market conditions remained uncertain and while negative aspects, such as rising availability and construction activity dominated, the overall situation was much better than it was in the early 1990s when high interest rates, high inflation and double digit vacancy rates prevailed. Although the vacancy rate more than doubled in 2001, it brought supply and demand more into balance. 25

3.4. Summary The office boom of the late 1990s was occupier-led against a background of a supply shortage. A specific characteristic of the City and Docklands markets in particular was the level of prelets. Between Q2 1997 and Q1 1998, take-up in the City Core, for example, was over 5.5 million sq. ft and two-thirds of this was prelet. In 2000, 61% of the 3.8 million sq. ft taken was prelet in the City Core. An even bigger percentage of take-up in Docklands was prelet. The prelets were themselves a function of consolidation among the major financial and professional services companies. Against this background it is not surprising that rentals increased rapidly. However, prelets can distort a market in two ways. First, it brings potential future levels of take-up forward as many of the tenants already occupy space. Secondly, once these tenants move into their new premises they release, often secondary, space onto the market thus increasing space available. This is what is happening now and coupled with weakening demand anyway has lead to a big increase in space available in the markets and falling rental values. 26

4. CITY FRINGE PROPERTY MARKET 4.1. Introduction The City Fringe Area has been traditionally characterised by secondary office space and accommodation for commercial activities that service the financial and business services sector in the City. It includes districts to the north and east of the City in the Boroughs of Hackney and Tower Hamlets, as well as south of the River in Southwark. For the purposes of this analysis, the City Fringe Area refers solely to the area south of the River, in which the JLE stations of Waterloo, Southwark and London Bridge are located. The South Bank Area (that part of the City Fringe Area south of the River) has seen significant change over recent years, being transformed from an area characterised by secondary commercial premises and limited residential development to a thriving commercial and residential area. This includes the refurbishment of traditional warehouses and older office premises to capitalise on the lack of office supply in the City to provide landmark developments, offering high quality commercial space for major occupiers. Developments such as the More London Scheme incorporating the landmark GLA office building have all enhanced the quality of the area and stimulated market interest. Additional cultural developments such as the Tate Modern at Bankside, the Shakespeare Globe Theatre, and the Millennium Bridge have also added a quality dimension to the regeneration of the local area. As property values have begun to improve across the area, older and poorly maintained buildings have been refurbished and new mixed-use developments have been built, generally improving the environmental quality of the area and providing high quality living and working space for young professionals and city workers. Before the arrival of the JLE, the area was served by underground stations at Waterloo and London Bridge. The new JLE stations at Waterloo, Southwark and London Bridge run directly through the area providing direct links both to the West End, Canary Wharf and East London. 4.2. Property Market Commentary The South Bank Area is now seen as a property market in its own right and as such has had considerable specific exposure in property journals and research reports. 27

4.2.1. Residential Property Market During late 1999 and early 2000, the South Bank riverside properties were amongst the most sought after in Central London due largely to the continuing rejuvenation of the whole area which was impacting not only along the riverside, but also further away from the Thames in areas such as Borough and Bermondsey. A combination of tougher planning policies (with employment uses tending to be favoured to residential), longer planning application processing times for residential proposals and a strong and valuable local office market led to a shrinking of supply of residential units. Coupled with increasing demand, this inevitably led to dramatic price increases. Agents considered the role of local government to be essential, either as enabler in terms of regeneration initiatives, or as landowner by bringing new sites to the marketplace. The role of new transport infrastructure was also considered to be hugely important to the area, as was the growing number of new high profile developments. The new JLE was always going to be a major benefit to this area and property prices along its route have reflected this since the early 1990s. However since it was announced that the GLA would be SE1 based and coupled with a lack of large office buildings in the City, the competition for land between the property sectors has intensified. (Cluttons South Bank Residential Survey, April 2000) New developments along the South Bank were attracting heavyweight architects such as Lord Foster and Lord Rogers, creating a brand new high quality environment for people to live and work along the south side of the River Thames. In the London Bridge and Borough districts, the new Globe Theatre and Tate Modern Gallery were seen as catalysts in the local property market as well as cultural magnets bringing a considerable number of new people and uses into the area. This did not go unnoticed by the property industry, with developers and investors keen to capitalise on the growing market. There is obviously a lot of potential for the area, with the opening of the Tate this week, the Jubilee Line and the forthcoming Millennium Bridge, all of which will be bringing a lot of people into the area Mike Griffiths, Land Securities. (EGI News, 13 May 2000) 28

During 2000, the improved transport infrastructure in the area, together with the increased choice and availability of retail and leisure facilities, assisted to stimulate market interest in the South Bank area. New patterns of lifestyles with many young professionals with high disposable incomes, and shifting demographics with the growth in single occupation played a large part in reawakening interest in the South Bank as a place to work, rest and play. The area now provided an energetic, culturally stimulating environment on the doorstep of Central London. With an improving tenant profile, the residential market witnessed an increase in the buy-tolet market, as young professionals on short term contracts saw the location as an ideal place to live. (Knight Frank, South Bank Special Report, 2000) During the first quarter of 2001, demand increased for all property types and with the supply of new residential units having been low for over a year, this created significant upward pressure on prices. The South Bank, City and Docklands sales markets at the time were considered to be the strongest in Central London with the fastest growing areas being Shad Thames and Rotherhithe, where price growth (for studio flats) averaged 9.6% in just 3 months at the start of this year. (Cluttons, The London View, Spring 2001) As the market moved into Autumn 2001, sales price growth in the South Bank was still considered to be the highest across Central London. Sales price growth in the South Bank, City and Docklands was recorded at 3.2% over the third quarter of 2001, and at 15.6% per annum in the year to 1st September 2001. This growth partly stemmed from the particularly strong performance of Shad Thames, which saw prices rise by 5.3% in the third quarter alone. Demand was particularly strong for studios and 1 bedroom flats, bolstered by an increase in the number of residential investors, many of whom turned away from the stock market and toward property. (Cluttons, The London View, Autumn 2001) As the market moved into 2002, the area continued to be considered as the strongest in Central London. Average prices rose by 3.8% over the first quarter of 2002 and by 11.8% in the last year. The 11.8% annual growth contrasted with a 0.9% price fall in Central North West London and an overall 4.2% increase across Central London as a whole. By the first quarter of 2002, the South Bank, City and Docklands lettings market also remained the firmest of all Central London markets over the past six to 12 months. On average, rental values slipped by just 1.6% over the year, compared to a 5.2% fall across Central London as a whole. The two main reasons why the South Bank 29

City and Docklands area fared better than most were because the surplus of supply was not evident across all property types and because the strength of demand in some areas has cancelled out the weakness of others. As highlighted in Chart 4.1, an analysis of the reasons for buying within the area shows that the continued migration of workers into the areas has bolstered demand, with 41% looking for property as a result of job relocation in March 2002. This compares to only 13% the year previously. Chart 4.1: Analysis of sales applicants by reason for buying, South Bank, City and Docklands Source: Cluttons, The London View, Spring 2002 4.2.2. Commercial Property Market Property market professionals consider that the new transport infrastructure within the South Bank area has been the key to creating a strong commercial property market. The London Docklands Development Corporation did a good job at attracting initial investment but things have changed now with the Jubilee Line and with the improved infrastructure and all the developments along the river, this is now the focus Stephen Platts, Regeneration and Development Manager, LB of Southwark (Estates Gazette, 10 June 2000) Before the last crash, Southwark wasn t a desirable location occupiers went there because it was the only place they could afford. This time around, it has the Jubilee Line; it stands alone as an area William Beardmore-Gray, Knight Frank (Estates Gazette 9 September 2000) 30

Office rents in Southwark were considered to have accelerated during 1999 to the third quarter of 2000, with the more accessible properties close to London Bridge considered to have doubled during the period. New build office schemes were now becoming increasingly viable in the area - without the long delays and uncertainty associated with attempting to gain approval for residential uses. The market showed an increased demand from media, hi-tech and City support firms, with the LB of Southwark embarking upon a strategy to turn the Bankside and Bermondsey areas into London s version of Silicon Valley. As with other areas popular with dot.com companies, we have the industrial architecture and Central London location. But Southwark also offers competitive rents, riverside walks and an exciting cultural scene led by Tate Modern Stephanie Elsy, Council Leader, Southwark (Estates Gazette Interactive News, 25 Sept 2000) Southwark began to show significant rental growth when compared with other fringe areas because of the continued regeneration encouraged by local government, the attraction of growing new enterprises and the completion of the Jubilee Line Extension (Property Week, 15 Sept 2000). In a special report produced by Knight Frank on the South Bank Property Market, credit was attributed to the JLE for the growing strength in the market: The strong transport infrastructure that is now in place on the South Bank following completion of the JLE is the single most important element in the continuing regeneration of the area. This asset will enable the area to more readily ride-out the downturns in the economy and the property market from which it has previously suffered. The report went on to highlight that the addition of new visitor attractions, new retail and leisure amenities all added to the overall attractiveness of area. Older second hand office accommodation was considered to be highly suitable for new dot.com companies who were looking for good quality space close to the city at low cost. From an occupiers perspective, the cost discount of the area was highly attractive, whilst the enhanced transport network was also a major benefit. The streetscape in some parts of the area was considered to be notably unattractive and may traditionally have deterred some demand, but ongoing regeneration initiatives 31

were now having an incremental impact to challenge this. (Knight Frank, South Bank Special Report 2000) By January 2001, research by Cluttons highlighted that office availability in the South Bank area had fallen by 75% in the last 8 months, and pointed at a marked change in focus for developers who were now considering other locations other than Riverside. Several major pre-lets in the second quarter of 2001 highlighted the growing importance of the area, with Ernst & Young s pre-letting 35,687 sq.m. of CIT s More London development (due for completion by Spring 2003), and the Financial Times securing 15,121 sq.m. at Riverside House (due for completion by mid 2002). By October 2001, property agents were beginning to consider that the South Bank Office Market had shed its tag as a fringe location, and was beginning to compete with the Capital s prime areas. Prime rental levels had grown by around 20% in the last year to 42.50 psf. Take up was already up 66% on the total for the whole of 2000. (Estates Gazette Interactive News, 30 October 2001) Moving into 2002 however, sentiment was beginning to change. Market commentary by Cluttons stated that: The South Bank needed another year or so of economic prosperity for it to be sufficiently developed as an established office environment. Unfortunately this was not achieved (Cluttons, South Bank Update, Winter 2002) A slowdown in take-up, an increasing supply of commercial property and a substantial amount of new space in the pipeline all led to a reversal in the market. Rental values were reported to have fallen by over 25% during the last nine months of 2001, from a peak of 45 psf in March 2001 to 33 psf in Dec 2001. The marked weakening of demand meant that the area was still considered fringe, and investment sentiment also waned with yields typically weakening by 0.5% (Estates Gazette Interactive News, 22 January 2002). The apparent slowdown in rental values is highlighted in Chart 4.2 below. 32

Chart 4.2: Prime Rental Values, South Bank 2000-2001 Source: Cluttons South Bank Update Winter 2001 4.3. Local Agents Perspective In order to expand on the property market commentary from secondary sources, we surveyed property agents throughout the JLE Corridor. Our survey contained a total of twelve separate property agents who dealt with properties in the City Fringe Area, all of which dealt primarily with residential property. Two of the property agents indicated that they also dealt with development land, and two also dealt with commercial property (offices and industrial). Only one of the agents dealt exclusively with properties within the City Fringe Area, with the other eleven agents also dealing with properties in other parts of the JLE Corridor. The key findings from the survey are set out below. 4.3.1. Key Factors Affecting the Local Property Market Agents were asked to consider what had been the key factors influencing the local property market over the last few years. The responses included: Naturally, the Jubilee Line has had major influence, although a certain awakening to the close proximity to the City has helped the area s success for both the expansion of the City and an explosion in the residential sector ; Improving transportation links. Improving infrastructure ; 33

The lack of suitable accommodation in central areas and the opening of the Jubilee Line ; Jubilee Line. Public awareness of area. New developments, More London Bridge ; General economic upturn, low interest rates, lack of quality property to buy ; Continued growth of Canary Wharf. More London development (the GLA building). Jubilee Line. General trend for people to move East as West London gets increasingly expensive. Press enthusiasm for the area, significant development of old buildings and sites, Borough Market, Bankside redevelopment, JLE ; The responses highlight the importance of transport infrastructure, in particular the JLE, but also the expansion of the City of London and new physical developments in the area such as Bankside and More London. General economic considerations, such as the low level of interest rates, were mentioned, as well as comments relating to the nature of new properties coming onto the market being of high quality and thus high value. 4.3.2. Market Demand, Supply And Take-up General Perceptions of Local Residential Property Market In terms of the local residential property market from 1999 to present day, the survey findings are set out in Table 4.1 below. Table 4.1 City Fringe Area, General Perceptions of Local Residential Property Market Statement Significant Increase Marginal Increase Stayed The Same Marginal Decrease Significant Decrease Demand for space 67% 17% - - - Supply of space 17% 50% 8% - 8% Rates of take-up 58% 25% - - 8% Rental values 67% 17% 8% - 8% Capital values 83% 8% - - 8% Source: Agents Survey (Percentages may not add up to 100% as those not responding are excluded from the analysis). The key highlights are, as follows: Two-thirds of agents reported a significant increase in demand since 1999; 34

Half of the agents considered that there has been a marginal increase in the supply of space; Around 60% of agents reported a significant increase in the rate of take-up of property since 1999; Two-thirds of agents reported a significant increase in rental values since 1999; and Over 80% of agents reported a significant increase in capital values. Timing and Extent of JLE Impact on Residential Property Values When asked to relate the impact of the JLE to the above characteristics of the local property market, the survey revealed that: 75% of agents considered that the JLE had a significant impact on the level of demand for property, with 8% considering that the impact had been marginal. No agents considered the JLE to have had no impact ; With regard to the supply of residential property, 50% of agents considered that the JLE had a significant impact, and another 33% considered it had a marginal impact. Again, no agents considered the JLE to have had no impact ; 67% of agents considered that the JLE had a significant impact on the rates of take-up of residential properties, with a further 17% considering that the impact had been marginal. Again, no agents considered the JLE to have had no impact ; In terms of rental values, 83% of agents considered that the JLE has had a significant impact on rental values during the time period, and 17% consider that it has had a marginal impact ; and In terms of capital values, 92% consider that the JLE has also had a significant impact, with 8% considering it to be a marginal impact. In summary, it can be seen that the local agents reported significant increases in both residential rental and capital values, and that almost all believed that the JLE has played a highly significant role in this. 35

In terms of the timing of any impact, most of the agents (75%) did not specify a time period, highlighting the difficulty in judging when the JLE effect actually occurred. However, three agents did, with the period identified as the last 2-3 years, i.e. 1999/2000 2002. 4.3.3. The Role of the JLE Agents were asked whether they agreed or disagreed with a number of statements in relation to the role and impact of the JLE on the local residential and commercial property markets and on the regeneration and accessibility of the local area. Residential Property Market When asked specific statements relating to property values, local agents considered the JLE to have had a significant impact on property values. The survey results are highlighted in Table 4.2 below. Table 4.2 City Fringe Area, JLE Residential Statements Statement Residential values within 500m of the new JLE stations have been affected Residential values between 500m to 1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected House prices have risen as a direct result of the JLE Residential rental levels have risen as a direct result of the JLE Source: Agents Survey Strongly Agree Disagree Strongly No Agree Disagree Comment 67% 33% - - - 58% 42% - - - 17% 58% 17% - - 50% 33% 17% - - 50% 33% 17% - - Agents were also asked to indicate the extent of any impact on residential property values. Although, a high proportion of agents (75%) did not indicate a percentage, highlighting the difficulty in doing so, the responses of those that did are highlighted in Table 4.3 below. 36

Table 4.3 City Fringe Area, Extent of JLE Impact on Residential Property Values Statement Agent 1 Agent 2 Agent 3 Agent 4 Residential values within 500m of the new JLE stations +100% +10% +50% +10% have been affected Residential values between 500m to 1km from the new +90% +10% +50% +5% JLE stations have been affected Residential values over 1km from the new JLE stations +60% - +25% - have been affected Source: Agents Survey Agents considered that residential values had risen by up to 100% as a result of the JLE. In terms of distance from the new JLE stations, properties within 1km are considered to have risen by between 5% and 100%, and those further than 1km by between 0 and 60%. Based on the average value increase, there is a distance decay effect of: 0 499 metres (+42.5%); 500 1,000 metres (+38.8%); and 1,000 metres + (+21.3%). Commercial Property Market Agents were asked to respond to a set of similar statements about the local commercial property market in the City Fringe Area. Table 4.4 below highlights the findings. 37

Table 4.4 City Fringe Area, JLE Commercial Statements Statement Strongly Agree Agree Disagree Strongly Disagree No Comment Commercial values within 500m of the new JLE 33% 17% - - 50% stations have been affected Commercial values between 500m to 1km from the 25% 25% - - 50% new JLE stations have been affected Commercial values over 1km from the new JLE 8% 42% - - 50% stations have been affected Office rents have risen as a result of the JLE opening 8% 50% - - 42% Capital values for commercial property have been 25% 25% - - 50% affected by the opening of the JLE Development interest has been stimulated by the JLE 58% 42% - - - opening Office demand has risen as a result of the opening of 33% 17% 8% - 42% the JLE Source: Agents Survey Only around half of the agents commented on the commercial property market statements, which is not surprising given their primary interest in the residential market. However, over half of those that did respond considered the JLE to have had a significant impact on development interest. Half felt that office demand had risen as a result of the JLE and the same proportion that office rents had risen as a result of the JLE opening. Agents were also asked to indicate the extent of impact on commercial property values. Although, a high proportion of agents (83%) did not indicate a percentage, highlighting the difficulty in doing so, the responses of those that did are highlighted in Table 4.5 below. Table 4.5 City Fringe Area, Extent of JLE Impact on Commercial Property Values Statement Agent 1 Agent 2 Commercial values within 500m of the new JLE stations +90% +25%+ have been affected Commercial values between 500m to 1km from the new +80% +25%+ JLE stations have been affected Commercial values over 1km from the new JLE stations +70% +25%+ have been affected Source: Agents Survey Agents considered that commercial values had risen by up to 90% as a result of the JLE. In terms of distance from the new JLE stations, properties within 1km are considered to have risen by between 25% and 90%, and those further than 1km by between 25% and 70%. 38

Based on the average value increase, there is a distance decay effect of: 0 499 metres (+57.5%); 500 1,000 metres (+52.5%); and 1,000 metres + (+47.5%). Regeneration Impact Property agents were also asked to comment on the impact of the JLE in assisting the overall regeneration of the local area. When asked directly whether the JLE was helping the regeneration of run-down areas, 50% of agents dealing with property in the City Fringe Area answered strongly agree, with 42% answering agree. No agents disagreed and one did not respond. Accessibility Impact Property agents were also asked to comment on whether the only impact of the JLE had been to make it easier to get into the City and West End. None of agents dealing with property in the City Fringe Area strongly agreed with the above statement and only 8% agreed. The majority (83%) disagreed or disagreed strongly with the statement. One agent did not respond. 4.3.4. Summary Overall, it can be seen that the property agents surveyed indicated that the JLE has been a key driver in the City Fringe Area property market since 1999. Indeed, the JLE was highlighted by 50% of the agents as being the biggest single impact on the local property market in the last 10 years. The findings suggest that the JLE has created positive value impact in both the residential and commercial property markets. In order to test these hypotheses, we consider below the quantitative data sources for both the commercial and residential property markets in the City Fringe Area. 39

4.4 Commercial Transaction Data 4.4.1 Investment Property Databank (IPD) Dataset Data Coverage IPD supplied us with data for Central London Offices, as a whole, for the three stations in the City Fringe Area (Waterloo, Southwark and London Bridge) and for the Spitalfields/Whitechapel Area, as a control area. The dataset comprised time series of average rental value per square metre, capital value per square metre and investment yields within a half-mile of the station. Equivalent data was also provided covering the Central London Offices average and the control area (Spitalfields/Whitechapel). The data is shown in Table 4.9 below. The data supplied has allowed us to analyse any longitudinal time impacts. Data is not sufficiently detailed, however, for any cross-sectional analysis. Unfortunately, the sample size was not large enough to provide separate data for each of the three stations. 40

Table 4.9 IPD Office Data JLE (Waterloo, Southwark & London Bridge) Central London Spitalfields/Whitechapel Area Rental Value Capital Value Yield Movements No. of Properties Rental Value Capital Value Yield Movements No. of Properties Rental Value Capital Value No. of Properties Yield Movements Year per sq m per sq m per sq m per sq m per sq m per sq m 1981 45 165.96 1816.46 101.0 1,447 186.62 2505.93 99.1 16 108.91 1504.24 103.1 1982 45 163.25 1822.19 104.1 1,460 192.10 2538.70 102.1 20 115.17 1674.19 94.6 1983 43 168.90 1874.20 103.4 1,453 196.76 2527.72 105.2 22 115.65 1660.09 96.5 1984 45 170.35 1784.71 110.2 1,484 202.52 2579.02 108.1 26 118.69 1824.31 95.8 1985 46 177.27 1723.85 119.5 1,499 218.87 2699.26 111.0 28 124.22 1856.99 99.4 1986 44 191.08 1820.96 123.6 1,548 255.41 3033.53 116.1 27 142.93 2069.43 99.7 1987 29 206.97 2140.06 113.6 1,491 341.10 4031.39 115.3 31 213.47 2957.33 103.2 1988 25 260.15 2583.86 109.6 1,476 433.41 5047.07 115.6 32 264.83 3600.26 108.3 1989 26 307.14 2846.39 115.8 1,477 477.18 5467.07 117.8 27 277.82 3643.15 114.8 1990 24 292.60 2589.79 119.5 1,466 458.49 4541.47 139.2 29 262.49 2970.25 138.7 1991 27 230.35 2117.69 135.0 1,443 351.24 3464.38 158.6 28 182.52 2180.83 146.2 1992 26 187.01 1725.90 137.3 1,529 249.92 2843.49 167.4 26 138.45 1738.12 158.6 1993 45 152.62 1874.99 116.6 1,511 208.87 3123.49 136.6 24 126.18 1720.51 159.9 1994 43 149.82 1897.59 113.8 1,514 213.91 3245.28 125.6 26 126.56 1627.15 156.6 1995 41 141.89 1771.69 117.0 1,442 217.91 3162.43 128.0 21 112.69 1515.91 169.7 1996 45 149.86 1779.09 118.1 1,416 225.50 3162.07 131.1 18 108.68 1394.51 173.9 1997 40 165.93 1839.79 119.1 1,355 259.13 3419.71 128.5 20 128.62 1569.42 175.6 1998 37 186.79 1929.44 122.4 1,349 293.58 3548.23 133.0 18 151.76 1751.71 177.4 1999 36 213.94 2108.58 121.8 1,310 318.21 3780.83 133.2 15 166.46 1960.59 170.2 2000 44 249.03 2409.83 122.7 1,285 377.88 4176.85 137.5 14 204.93 2130.57 184.8 2001 44 278.85 2608.04 126.4 1,191 398.74 4301.93 141.2 13 226.32 2309.48 186.6 Source: Investment Property Databank 42

Rental Values The trends in rental value growth in the three areas are shown in Chart 4.3. Chart 4.3 Rental Values 500 per sq metre 400 300 200 100 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 JLE Central London Spitalfield/Whitechapel Source: IPD We have drawn the following conclusions from the above chart: 1. As expected, average rental value per square metre in the whole of Central London is significantly higher than in the IPD JLE Area and the control area; and 2. Rental values in the IPD JLE Area have been higher on average than those in the control area. This premium has varied over time, with the gap being widest between 1981 and 1986. Over the subsequent two years, the gap disappeared, but from 1989 onwards, the IPD JLE Stations have shown a premium, which has stayed fairly constant. There is a strong correlation between the three rental value lines shown in Chart 4.3. The coefficient of determination between annual growth rates in Central London and the IPD JLE stations is 75.9% without a lag (ripple effect). The correlation is not improved upon by lagging. For instance, if the JLE station rentals are lagged by one year the coefficient of determination falls to 70.4%. In Chart 4.4 below, we plot the ratio of the IPD JLE Stations rental value to the Central London average. For comparison, we also show the ratio of the control area average to Central London. These are referred in the text as the IPD JLE relativity and the control area relativity respectively. 43

Chart 4.4 Ratio of rental values relative to Central London 90 80 70 JLE stations 60 50 40 Spitalfield/Whitechapel 81 83 85 87 89 91 93 95 97 99 01 Source: Based on data supplied by IPD The IPD JLE relativity in Chart 4.4 shows how rentals fell sharply relative to Central London between 1981 and 1987 before slowly recovering up to 1991. The relativity then rose sharply in 1992 due to rentals around the JLE stations falling much less slowly than in Central London. The relativity then fell over the next three years before stabilising. There has been a slight recovery in the relativity over the last two years, although it is well below its level in the early 1980s. The trends in the IPD JLE relativity show that this sub-area out-performed central London during the last two general slowdowns, but under-performed in the periods of growth. This is partly down to the fact that rentals in this area have been much less volatile than in Central London. As a result, corrections in rental value levels after a boom/bubble have been less severe in the IPD JLE Area. Over the full period for which we have data (1981 to 2001), the IPD JLE Area has under-performed both the Central London average and the control area (see Table 4.10 below). However, of more relevance is the period since 1989 or when the JLE was first announced. Since 1989, rentals in the IPD JLE Area have fallen by 0.8% per annum compared with an overall fall of 1.5% per annum in Central London and fall of 1.7% per annum in the control area. 1989 was the peak of the late 1980s boom in London office prices and rentals have failed to recover the levels reached at that point. Nonetheless, the IPD JLE Area 44

has out-performed the control area and the whole of Central London, since the first official announcement on the JLE in 1989. To quantify this, in 1989 the average rental value in the IPD JLE Area was 64.4% of the Central London average. By 2001, it had risen to 69.9%. In contrast, the control area average was 58.2% of the Central London average in 1989, but fell to 56.8% by 2001. Table 4.10 below shows rental growth rates over the following time periods: 1981 to 1989: Pre-baseline or the period prior to any official announcements on the JLE Extension; 1989 to 1993: Baseline or period up to start of construction; 1993 to 1996: Initial after period including early construction; 1996 to 1999: Pre-opening period; and 1999 to 2001: Post-opening period. Table 4.10 Rental growth comparisons (% per annum) Central IPD JLE Stations Control Area Period London Average Pre-Baseline 1981 to 1989 12.5 8.0 12.4 Baseline 1989 to 1993-14.9-11.7-16.0 Initial after period 1993 to 1996 2.6-0.6-4.9 Pre-opening period 1996 to 1999 12.2 12.6 15.3 Post-opening period 1999 to 2001 11.9 14.2 16.6 1981 to 2001 3.9 2.6 3.7 1989 to 2001-1.5-0.8-1.7 1989 to 1999-4.0-3.6-5.0 Source: IPD The IPD JLE Area has produced faster rental growth than the Central London average in three of the four periods since 1989, including critically the post-opening period. The one exception was the period 1993 to 1996 when the UK was emerging from the impact of the Exchange Rate Mechanism. Interestingly, between 1989 and 1999, i.e. just prior to the JLE stations opening, rental growth in the IPD JLE Area 45

was slightly ahead of the Central London average. Post opening, the IPD JLE Area has not only posted its best growth, but also strongly out-performed the Central London average. Chart 4.4 shows that the control area performed differently to the IPD JLE Area. There was no strong re-rating against Central London in the early 1980s while there has been a stronger upgrade since 1996. Indeed, since 1999 it has shown the best growth of the three regions. One of the prime reasons for the above average performance in the early 1990s and over the last two years is the progress made towards regenerating the Spitalfields Area. In 1987, the Spitalfields Development Group (SDG) signed contracts for the purchase of 150 leases from the Corporation of London while an Act of Parliament was passed to permit the relocation of the old fruit and vegetable market and replace it with a mixed use development. Progress with the development slowed due to the consultation process, a market downturn and the need to conduct an archaeological dig. By 1999 progress took an upward turn. The rental growth figures shown in Table 4.10 reflect these various effects and put in perspective the strong growth experienced over the last two years of the period. Commentary Since 1989, rental growth in the IPD JLE Area has been higher than in Central London generally and in the control area. Prior to that the IPD JLE Area had underperformed by a significant amount. Taken together these two facts suggest a sea change in the outlook for the IPD JLE Area rather than just a period of catching up (this is also supported by the fact that the best correlation between growth rates in the two areas did not incorporate any lag). As 1989 was the year when the JLE announcement was made, there could be some cause and effect relationship here, and although it is not possible to prove it, one can also not disprove it. This possibility is reinforced by the fact that rental growth in the IPD JLE Area had its best period of out-performance against the London average post 1999, just after the stations were opened. Our conclusion is that the Jubilee Line Extension is a significant reason, if not the only reason, for the sea change in outlook in the IPD JLE Area and that the higher rental growth achieved there is down to the new underground stations. 46

Capital Value The trends in capital value growth in the three areas are shown in Chart 4.5. Chart 4.5 Office Capital Value Growth 6000 per sq metre 5000 4000 3000 2000 1000 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 JLE Central London Spitalfield/Whitechapel Source: IPD We have drawn the following conclusions from the above chart: 1. Overall Central London capital values are significantly higher than in the two sub-areas under analysis; and 2. Generally, the IPD JLE Area has commanded a higher capital value than the control area. The exception was between 1986 and 1990, the late 1980s boom and beginning of the downturn. One possible explanation for this was that there was a great deal of speculation about the redevelopment of Spitalfields at that time as we have noted above. As with rental values, there is a strong correlation between year-on-year growth rates in Central London and those in the IPD JLE Area. The coefficient of determination from the sample is 83%. Lagging the rates by one year pushes the coefficient of determination down to 46.6%. More extended lags produce even lower coefficients of variation. Chart 4.6 below shows the trends in the ratio of the two sub-areas capital values to the Central London average. 47

Chart 4.6 Ratio of capital values relative to the Central London 80 Ratio 70 60 JLE stations 50 40 Spitalfields/Whitechapel 81 83 85 87 89 91 93 95 97 99 01 Source: Based on data supplied by IPD The relative movements in capital values follow similar patterns to rental values. Capital values around the JLE stations in the IPD JLE Area fell sharply relative to the Central London average up to 1987 before stabilising and then increasing significantly over 1990 and 1991. There was then a mild under-performance over the next six years. From 1996 onwards, the IPD JLE stations increased at a higher rate compared to the Central London average. Between 1981 and 2001, capital value growth in the IPD JLE Area under-performed both the Central London average and the control area (see Table 4.11 below). However, as in the case of rental value growth, this is due primarily to the 1981 to 1989 period, i.e. the pre-announcement period of the JLE. Since 1989, IPD JLE Area capital values fell by 0.7% per annum compared with falls of 2% per annum in Central London generally and a fall of 3.7% per annum in the control area. Consequently, capital value growth in the IPD JLE Area has been faster than the Central London average and the control area average since the announcement of the JLE in 1989. The out-performance was particularly strong after the station openings in 1999. The relative performance of the control area follows a sharply different trend from that in the IPD JLE Area. Office capital value growth in the control area outperformed the Central London average between 1981 and 1987, but then went into sharp relative decline over the next nine years before picking up strongly. Between 1996 and 1997 the control area out-performed significantly. 48

In 1981, the average capital value per square metre in the IPD JLE Area was 72.5% of the Central London average. By 1989, the percentage had declined to just 52.1% of Central London, but by 2001 it had climbed back to 60.6%. In contrast, average capital values in the control area started out at 60% in 1981, climbed to 66.6% by 1989, but have since declined to 53.7%. Table 4.11 below shows the rental growth rates over the following time periods: 1981 to 1989: Pre-Baseline or the period prior to any official announcements on the JLE Extension; 1989 to 1993: Baseline or period up to start of construction; 1993 to 1996: Initial after period including early construction; 1993 to 1999: Pre-opening period; and 1999 to 2001: Post-opening period. Table 4.11 Capital Value Growth Comparisons (% per annum) Central IPD JLE Area Control Area Period London average Pre-Baseline 1981 to 1989 10.2 5.8 11.7 Baseline 1989 to 1993-15.1-11.8-16.9 Initial after period 1993 to 1996 0.4-1.7-6.8 Pre-opening period 1996 to 1999 6.1 5.8 12.0 Post-opening period 1999 to 2001 6.7 11.2 8.5 1981 to 2001 2.7 1.8 2.2 1989 to 2001-2.0-0.7-3.7 1989 to 1999-3.6-3.0-6.0 Source: IPD Capital growth in the IPD JLE Area has been higher than the Central London average in two of the four periods since 1989: the slowdown between 1989 and 1993, and between 1999 and 2001. Both these periods are significant in terms of the JLE. The first represents the years following the announcement for the JLE and the second the period since the stations opened. In this latter period, the capital growth in the IPD JLE Area was also faster than in the control area. 49

It is also worthy of note that capital growth in the IPD JLE Area over the two years since the JLE opened has been almost twice as fast (11.2% per annum) as in the previous three years (5.8% per annum). Commentary Capital value growth since 1989 has been negative in Central London and the two sub-areas under analysis. This is due to the fact that 1989 was the high point in the last property market cycle. Notwithstanding this, values in the IPD JLE Area within a half-mile of the JLE stations have declined by just 0.7% per annum compared with 2% per annum in Central London and by 3.7% per annum in the control area. This represents a significant change in fortunes considering that prior to 1989 growth in the IPD JLE Area was just over half that achieved in the other areas. Capital growth is a reflection of occupier demand, measured by rental growth, and investment demand, measured by investment yields. Supply is the other factor in the equation. We have seen that rental growth in the IPD JLE Area has outpaced the Central London average since 1989 and although part of this could represent a catching up after the relative declines between 1981 to 1989, it does also suggest increasing occupier demand. Since 1989 yields in the IPD JLE Area have improved relative to the Central London average (see Chart 4.7 below). In 1989, yields in the IPD JLE Area were on average 38.8% higher than in Central London. By 2001, the premium had reduced to 26.4%. This suggests increasing investment demand. The two periods of out-performance in the IPD JLE Area are characterised by significant announcements concerning the JLE. First, the announcement of plans to extend the Jubilee Line and secondly, the opening of the stations. As with rental growth, it would appear that the Jubilee Line Extension is a significant reason, if not the only reason, for the higher than average capital growth since 1989. 50

Chart 4.7 Relative Yield Movements 210 Index 1980=100 190 170 150 130 110 90 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 JLE Central London Spitalfield/Whitechapel Source: IPD Summary Our analysis of the IPD Data provides some hard evidence that since 1989 the JLE has led to higher than average capital and rental growth in the office sector in the City Fringe Area (around the Waterloo, Southwark and London Bridge Stations). This out-performance has been most evident in the post-opening period (1999-2001), when capital growth out-performed the Central London average by around two-thirds (67%) and that of the control area by around one third (32%). For rental growth, the IPD JLE Area out-performed the Central London average by around one fifth (19%), but not the control area, which out-performed both areas. It may be that the control area is lagging behind both Central London and the IPD JLE Area, evidenced by increasing yields. Care should be taken in using these figures for the reasons stated below. 4.4.2 Supply, Demand and Price Movements Mention is made above of the relationship between supply and demand and its impact on capital and rental values. Whilst not technically part of this study, any change in the amount and type of supply of land and property will obviously have an effect on price through the relationship with demand. 51

Unfortunately, the 2002 Development Impact Study Report does not explore this subject in any great detail, although it does analyse planning application data held on the London Development Monitoring System (LDMS), which contains data on planning applications relating to larger developments. It also only explores matters at a higher spatial level than that of individual station catchment areas. The best source of secondary data is the Industrial and Commercial Floorspace Survey published by the former Department for Transport, Local Government and the Regions (now the Office of the Deputy Prime Minister). The latest data available is for 2000, which was published in October 2001. This dataset is deemed to be significantly more reliable than the figures published in 1995, as 50,000 hereditaments, totalling 60 million square metres, have been added to the Valuation Office Agency s Database. Unfortunately however, this means that direct comparisons with previous reports would not provide reliable results. The stock figures for industrial, warehousing and offices for the London Boroughs of Lambeth (covering Waterloo JLE Station) and Southwark (for Southwark and London Bridge JLE Stations) are set out in the table below. Table 4.12 and Southwark Industrial and Commercial Floorspace Stock Lambeth Floorspace Stock (000m 2 ) London Borough Factories Warehouses Offices Total Lambeth 360 309 667 1,336 Southwark 500 691 1,100 2,291 Total (All London Boroughs) 13,002 14,874 26,721 54,597 Source: DTLR Industrial and Commercial Floorspace Survey 2001 It is also possible to obtain approximate stock levels of office space from the EGi London Office Database (LOD). For the SE1 postcode, LOD produces a figure of 1.17 million square metres. It also allows a search by certain railway/underground stations, although the process of assigning a building to a particular station is subjective as opposed to being based on some specified criterion such as distance from station. It is also not a mandatory field in the database and may be omitted. Therefore, any figures derived in this way are more likely to under-estimate stock levels than over-estimate them. 52

Nonetheless, we identified the amount of office stock for the three JLE stations in the City Fringe Area as 1.13 million square metres. The breakdown by station catchment is set out in the table below. Table 4.13 Office Floorspace Stock City Fringe Area Station Catchment Office Floorspace Stock (000m 2 ) Waterloo 282 London Bridge 457 Southwark 391 Total 1,130 Source: EGi London Office Database These figures suggest, as might be expected, that a large proportion of the office stock is located close to one of the new Jubilee Line Stations. The other way to explore the changing stock situation in each area would be to collect planning application data from the London Boroughs themselves. However, that was outside the scope of this study. 4.5 Summary and Conclusions Taking the elements of our work together, there is clear evidence in both qualitative and quantitative terms that the JLE has had a positive impact on both the commercial and residential property market in the City Fringe Area. 4.5.1 Property Market Commentary Our review of property market commentary on the City Fringe Area has highlighted various triggers affecting the local property market, including the improved transport infrastructure, together with the increased range of cultural, retail and leisure facilities. This has improved the area s attractiveness as a place to live, work and play. 4.5.2 Agents Survey The Agents Survey backed up the secondary property market commentary, reaffirming the importance of the transport infrastructure, the expansion of the City 53

of London and regeneration and development activity, such as Bankside and More London. In terms of the impact of the JLE, the property agents surveyed reaffirmed that the JLE has been a key driver in the City Fringe Area property market since 1999. Indeed, the JLE was highlighted by 50% of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value impact in both the residential and commercial property markets. The table below summarises the estimated positive value impact by distance for both property markets. Table 4.30 Price Impact of JLE Agents Survey: Key Findings City Fringe: Estimated Estimated Price Impact of JLE Distance Residential Commercial Less than 500 metres +10-100% +25-90% 500 metres to a +5-90% +25-80% kilometre One kilometre plus 0-60% +25-70% Source: Agents Survey The above suggests that there is a distance decay price effect away from the new JLE stations. 4.5.3 Longitudinal Price Analysis The longitudinal price analysis supports the other two elements of our work, suggesting that the opening of the JLE represented a line in the sand for both the residential property market and the commercial property market in the City Fringe Area. For the commercial property market, the IPD Data highlights that the JLE has led to higher than average capital and rental growth in the office sector in the City Fringe Area (around the Waterloo, Southwark and London Bridge Stations). This out-performance has been most evident in the post-opening period (1999-2001), when capital growth out-performed the Central London average by around two-thirds (67%) and that of the control area by around one third (32%). For rental growth, the IPD JLE Area out-performed the Central London average by around one 54

fifth (19%), but not the control area, which out-performed both areas. It may be that the control area is lagging behind both Central London and the IPD JLE Area, evidenced by increasing yields. 55

5. EAST OF CITY FRINGE PROPERTY MARKET 5.1. Introduction The East of City Fringe Area was one of the first areas to undergo transformation under the control of the London Docklands Development Corporation (LDDC), which was passed responsibility for the planning and regeneration of the area in 1981. Vacant dockside and riverside plots were transformed in the 1980s to provide medium density residential units with high quality landscaping and a major retail and leisure centre was developed at Surrey Quays. Prior to the creation of the LDDC, the area was characterised by vast tracts of vacant development land, a collection of temporary industrial and storage uses on short term leases around the dock areas, some wharfage related activities on privately owned sites around the riverside and a ring of local authority housing, much of which was in a poor state of repair. The overall appearance of the area reflected its isolation from the mainstream economy and life of London. Of a population of only 6,000 people when the LDDC took over, 81% of households rented their homes from the Council, and 17% privately or from a housing association. 63% of households did not have a car. Between 1981 and 1996, over 5,500 new homes were built in the Surrey Quays area, helping to boost the local population from 6,000 to over 16,000 people and owner occupation increased to over 40%. Since 1996, further private residential development has occurred across the area as development sites have become available, primarily along the riverside frontages to provide high quality flats and apartments. The area today is characterised by private sector housing alongside the water frontages of both the River Thames and inner dock areas, with further large tracts of social housing set further inland. The centre of the area is dominated by a major retail and leisure destination at Canada Water that contains a number of food and non-food retail units and leisure facilities. Elsewhere, traditional retail parades serve the local centres at Bermondsey, Rotherhithe and Surrey Quays. The area has very few offices or industrial properties, as these have tended to be redeveloped over time to residential use. Commercial uses apart from retail or leisure that do exist 56

tend to be limited to the southern borders of the catchment area at Deptford, or the western borders with the South Bank. Some images of the area are shown in Figure 5.1 below Before the arrival of the JLE, the catchment area was served by two underground stations on the East London Line at Rotherhithe and Surrey Quays. The new JLE stations at Bermondsey and Canada Water provide a direct east-west route through the area. For the purposes of this analysis, the East of City Fringe Area refers to the catchment areas surrounding the JLE stations at Bermondsey and Canada Water. Figure 5.1 Images of the East of City Fringe Area Local shops at Surrey Quays Dockside Housing Inland social housing Riverside wharves and new flats 5.2. Property Market Commentary The East of City Fringe Area is not seen as a property market in its own right and as such has had little specific exposure in property journals or research reports. The area is typically considered either as an extension of the City Fringe Area, or alternatively as part of London Docklands due to its historical links to the LDDC. 57

5.2.1. Residential Property Market As the area is characterised primarily by residential property, this has attracted some comment in the property market press post JLE opening. In the South Bank Report produced by Knight Frank (Knight Frank Research, March 2000), the residential market along the entire stretch of the riverside to Canada Water is stated as offering considerable potential to developers, investors and owner occupiers.. The report also goes on to state that the improved transport infrastructure in the area, together with the increased choice and availability of retail and leisure facilities has provided the key to renewed interest. The role of the JLE is specifically highlighted as an important element, although other factors, such as the lack of supply of residential opportunities across the area are also mentioned. Moving into 2001, demand increased for all types of residential property along the southern bank of the Thames to Canada Water, and with a restricted supply of new residential units, this created significant upward pressure on prices. The South Bank, City and Docklands sales markets at the time were considered to be the strongest in Central London with the fastest growing areas being Shad Thames and Rotherhithe, where price growth (for studio flats) averaged 9.6% in just 3 months at the start of the year. The research also highlighted strong growth in the residential markets in the Surrey Quays area, with the area ranked as the second fastest growing location in Central London in terms of both residential sales values and rental values, as highlighted in Chart 5.1 below. The Cluttons Report states that increased demand from occupiers together with low levels of supply caused an upward pressure on values, with particularly high demand for one bedroom and studio flats due to the increasing number of workers at Canary Wharf. As the market moved into Autumn 2001, sales price growth in the South Bank was still considered to be the highest across Central London. Sales price growth in the South Bank, City and Docklands was recorded at 3.2% over the third quarter of 2001, and at 15.6% per annum in the year to 1st September 2001 (Cluttons, The London View, Autumn 2001). 58

Chart 5.1 Residential Sales And Rental Prices Changes (% Change Q1 2001) Source: Cluttons, The London View, Spring 2001 As the market moved into 2002, the area continued to be considered as the strongest in Central London. Average prices rose by 3.8% over the first quarter of 2002 and by 11.8% in the last year. The 11.8% annual growth contrasted with a 0.9% price fall in Central North West London and an overall 4.2% increase across Central London as a whole. By the first quarter of 2002, the South Bank, City and Docklands lettings market also remained the firmest of all Central London markets over the past six to 12 months. On average, rental values have slipped by just 1.6% over the last year, compared to a 5.2% fall across Central London as a whole. The two main reasons why the South Bank City and Docklands area fared better than most recently were because the surplus of supply was not evident across all property types and because the strength of demand in some areas has cancelled out the weakness of others. 59

The continued migration of workers into the Canary Wharf area has bolstered demand, with 41% looking for property as a result of job relocation in March 2002, compared to only 13% the year previously. 5.2.2. Commercial Property Market The East of City Fringe Area has historically had a limited commercial property market, although some growth has spread east from the South Bank with regard to the media, hi-tech and cultural industries. Growing demand from these sectors has resulted in some traditional industrial buildings being converted into studio space with modern communications and IT facilities (such as the Hartleys Jam Factory in Bermondsey). As stated previously, such initiatives are being actively encouraged by the LB of Southwark. In terms of existing commercial activities in the area, the retail and leisure development at Canada Water forms the focus of the area. In June 2000, an Estates Gazette Focus Report highlighted proposals being developed by the London Borough of Southwark for a major 525,000m 2 redevelopment of the Canada Water peninsula adjacent to the new JLE station. In light of the arrival of the JLE, the Local Authority had been working with consultants to develop a masterplan for a mixture of high-density residential, retail and leisure uses to revitalise the area and build out the remaining vacant sites in the area. Commenting upon the proposals, Stephen Platts, Regeneration and Development Manager at Southwark Council stated that The LDDC did a good job attracting initial investment but things have changed now with the Jubilee Line and, with the improved infrastructure and all the developments along the river, this is now the focus. (Estates Gazette, 10 June 2000). Following consultations with the local community, proposals for the comprehensive redevelopment of the area are still under consideration, with Southwark Council currently looking at ways to take regeneration initiatives forward (Estates Gazette, 28 Feb 2002). Further evidence of the increased interest in commercial activity in the area was shown in a subsequent EGI News Article: A bidding war is brewing between developers and two local owners for the right to develop a mixed use quarter at Canada Water, SE16. 60

Southwark Council this week confirmed that it had received 12 bids for a development partner to regenerate the 40 acres (16.19 hectares) Canada Water area of the Surrey Docks peninsula in south London. British Land, London & Amsterdam, Urban Catalyst, Taylor Woodrow, St George and Allied London Properties are among a dozen. But they face competition from both Foreign Properties ApS and Shopping Centres a joint venture between Tesco and Slough Estates (Estates Gazette Interactive 20 May 2002). 5.3. Local Agents Perspective Our survey of local property agents contained a total of seventeen separate property agents who dealt with properties in the East of City Fringe Area, all of which dealt primarily with residential property. Two of the property agents indicated that they also dealt with development land, and two also dealt with commercial property (offices and industrial). Four of the agents dealt exclusively with properties within the East of City Fringe Area (Bermondsey and Canada Water catchment areas), with the other thirteen agents also dealing with properties in other parts of the JLE Corridor. The key findings from the survey are set out below. 5.3.1. Key Factors Affecting The Local Property Market Agents were asked to consider what have been the key factors influencing the local property market over the last few years. The responses included: Canada Water and Bermondsey stations easy access to City and West End. DLR extension to Lewisham, including Greenwich and Deptford Bridge ; Steady increases in rental [market] prior to spring/summer 2001, September 11 th exacerbated the economic climate and hence we have experienced a decrease in demand and rental levels ; The lack of suitable accommodation in central areas and the opening of the Jubilee Line ; Jubilee Line Extension and the increase of employees at Canary Wharf ; 61

Better communications, low interest rates, and general improvement of the economy ; Jubilee Line opening and being a success. The river bus to Canary Wharf from South Dock Marina coming more into use. New development pushing up prices. ; Continued growth of Canary Wharf. More London development (the GLA building). Jubilee Line. General trend for people to move East as West London gets increasingly expensive. Value most properties are modern, long leases, car spaces and views. Improving transport situation ; Again, the responses highlight the importance of transport infrastructure, in particular the JLE, but also the DLR extension and River Bus services. General economic considerations such as the state of the economy, growth in prosperity at Canary Wharf enhancing demand and lack of residential supply in West London were also mentioned, as well as comments relating to the nature of new properties coming onto the market being of high quality and thus high value. 5.3.2. Market Demand, Supply And Take-up General Perceptions of Local Residential Property Market In terms of the local residential property market from 1999 to present day, the survey findings are set out in Table 5.1 below: Table 5.1 East of City Fringe Area, General Perceptions of Local Property Market Statement Significant Increase % Marginal Increase % Stayed The Same % Marginal Decrease % Significant Decrease % Demand for space 53 29 - - - Supply of space 29 41 6-6 Rates of take-up 59 24 - - 6 Rental values 65 18 6-6 Capital values 88 6 - - 6 Source: Agents Survey (Percentages may not add up to 100% as those not responding are excluded from the analysis). The key highlights are, as follows: Over half of agents reported a significant increase in demand since 1999; 62

Just under one third of agents considered that there has been a significant increase in the supply of space; Almost two-thirds of agents reported a significant increase in the rate of take-up of property since 1999; Two-thirds of agents reported a significant increase in rental values since 1999; and Almost 90% of agents reported a significant increase in capital values. Timing and Extent of JLE Impact on Residential Property Values When asked to relate the impact of the JLE to the above characteristics of the local residential property market over the same time period, the survey revealed that: Around two-thirds of agents considered that the JLE had a significant impact on the level of demand for property, with another 18% considering that the impact had been limited. No agents considered the JLE to have had no impact ; With regard to the supply of residential property, almost half of agents considered the JLE had a significant impact, and another 35% considered it had a marginal impact. No agents considered the JLE to have had no impact ; 59% of agents considered that the JLE had a significant impact on the rates of take-up of residential properties, with a further 17% considering that the impact had been marginal. No agents considered the JLE to have had no impact ; In terms of rental values, 76% of agents considered that the JLE has had a significant impact on rental values during the time period, and 18% consider that it has had a marginal impact. No agents considered the JLE to have had no impact ; and In terms of capital values, 88% consider that the JLE has also had a significant impact, with 12% considering that it has had a marginal impact. In summary, it can be seen that the local agents have experienced increased levels of activity in the local property market since 1999, and that most believe that the JLE has played a significant role. 63

In terms of the timing of any impact, around two thirds (65%) did not specify a time period, highlighting the difficulty in judging when the JLE effect actually occurred. Of the agents that did indicate a time period, most indicated that this was within the last 2-3 years, with one agent specifically stating Steadily over the last 2-3 years in property sales. More of an impact in the last 12-18 months in lettings (Agents Survey, March 2002). 5.3.3. The Role of the JLE Agents were asked whether they agreed or disagreed with a number of statements in relation to the role and impact of the JLE on the local residential and commercial property markets and on the regeneration and accessibility of the local area. Residential Property Market When asked specific statements relating to property values, local agents considered the JLE to have had a significant impact on property values. The survey results are highlighted in Table 5.2 below. Table 5.2 East of City Fringe Area, JLE Residential Statements Statement Residential values within 500m of the new JLE stations have been affected Residential values between 500m to 1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected House prices have risen as a direct result of the JLE Residential rental levels have risen as a direct result of the JLE Source: Agents Survey Strongly Agree Agree Disagree Strongly Disagree No Comment 65% 29% - - 6% 59% 41% - - - 23% 59% 12% - 6% 53% 35% 12% - - 47% 35% 12% - 6% Agents were also asked to indicate the extent of impact on residential property values. Again, a high proportion of agents (59%) did not indicate a percentage highlighting the difficulty in doing so. Of those that did, the responses are highlighted in Table 5.3 below. Table 5.3 East of City Fringe Area, Extent of JLE impact on Residential Property Values Statement Agent 1 Agent 2 Agent 3 Agent 4 Agent 5 Agent 6 Agent 7 Residential values within 500m of +30% +50% +30% +10% +10% +80% +100% the new JLE stations have been affected Residential values between 500m to +30% +50% +20% +10% +5% +60% +75% 64

1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected Source: Agents Survey +10% +25% +10% +40% +75% Agents considered that residential values had risen by up to 100% as a result of the JLE. In terms of distance from the new JLE stations, properties within 1km are considered to have risen by between 5% and 100%, and those further than 1km by between 0 and 75%. Based on the average value increase, there is a distance decay effect of: 0 499 metres (+44.3%); 500 1,000 metres (+35.7%); and 1,000 metres + (+22.9%). Commercial Property Market Agents were asked to respond to a set of similar statements about the local commercial property market in the East of City Fringe Area. Table 5.4 below highlights the findings. Table 5.4 East of City Fringe Area, JLE Commercial Statements Statement Commercial values within 500m of the new JLE stations have been affected Commercial values between 500m to 1km from the new JLE stations have been affected Commercial values over 1km from the new JLE stations have been affected Office rents have risen as a result of the JLE opening Capital values for commercial property have been affected by the opening of the JLE Development interest has been stimulated by the JLE opening Office demand has risen as a result of the opening of the JLE Source: Agents Survey Strongly Agree Agree Disagree Strongly Disagree No Comment 18% 12% - - 70% 18% 12% - - 70% 6% 24% - - 70% 6% 35% - - 59% 12% 24% - - 64% 41% 41% 0% 0% 18% 24% 12% 6% 0% 58% 65

Under one third of the agents commented on the commercial property market statements, which is not surprising given their primary interest in the residential market. However, over one third of those that did respond considered the JLE to have had a significant impact on development interest. A similar figure felt that office demand had risen as a result of the JLE and that office rents had risen as a result of the JLE opening. Agents were also asked to indicate the extent of impact on commercial property values. Only one agent provided a response, highlighting the difficulty in doing so. That response is summarised in Table 5.5 below. Table 5.5 East of City Fringe Area, Extent of JLE Impact on Commercial Property Values Statement Agent 1 Commercial values within 500m of the new JLE stations +25% have been affected Commercial values between 500m to 1km from the new +25% JLE stations have been affected Commercial values over 1km from the new JLE stations +25% have been affected Source: Agents Survey The agent that responded considered that commercial values had risen by up to 25% as a result of the JLE and that this was a blanket impact. Regeneration Impact Property agents were also asked to consider the impact of the JLE in assisting the overall regeneration of the local area. When asked directly whether the JLE was helping the regeneration of run-down areas, 47% of agents dealing with property in the East of City Fringe Area answered strongly agree, with the remaining 41% answering agree. No agents disagreed and the remainder did not answer the question. Accessibility Impact Property agents were also asked to comment on whether the only impact of the JLE had been to make it easier to get into the City and West End. 66

Two agents dealing with property in the East of City Fringe Area agreed with the above statement. The majority (71%) disagreed or disagreed strongly and the remainder did not respond. 5.3.4. Summary As in the City Fringe Area, it can be seen that it can be seen that the property agents surveyed indicated that the JLE has been a key driver in the East of City Fringe Area property market since 1999. The JLE was highlighted by almost 60% of the agents as being the biggest single impact on the local property market in the last 10 years. Again, the findings suggest that the JLE has created positive value impact in both the residential and commercial property markets. 5.4. Commercial Property Market Overview Given the lack of robust longitudinal data, we have investigated whether we can provide any additional insight into recent trends in the office sector based on published information for the East of City Fringe Area. Unfortunately, given the limited commercial property market, there is no specific published data that adds to the commentary provided in Section 5.2.2 above. 5.5. Summary and Conclusions Taking our work together, there is evidence in both qualitative and quantitative terms that the JLE has had a positive impact on the property market in the East of City Fringe Area. 5.5.1. Property Market Commentary Our review of property market commentary on the East of City Fringe Area has highlighted various triggers affecting the local property market, including the improved transport infrastructure, together with the increased range of demand for accommodation from workers in Docklands and Central London. This has improved the area s attractiveness as a place to live. This increased attractiveness is now leading to greater commercial interest in the area, as currently evidenced in the competition between developers for the 16- hectare mixed-use development site in Canada Water. 67

5.5.2. Agents Survey The Agents Survey backed up this increased residential occupier and commercial development interest in the area. It reaffirmed the importance of the transport infrastructure, including the JLE, the DLR Extension and the River Bus services, as well as the growth of Canary Wharf. In terms of the impact of the JLE, the property agents surveyed reaffirmed that the JLE has been a key driver in the East of City Fringe Area property market since 1999. Indeed, the JLE was highlighted by around 60% of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value impact in both the residential and commercial property markets. The table below summarises the estimated positive value impact by distance for both property markets. Table 5.29 Agents Survey: Key Findings East of City Fringe: Estimated Price Impact of JLE Estimated Price Impact of JLE Distance Residential Commercial Less than 500 metres +10-100% +25% 500 metres to a +5-75% +25% kilometre One kilometre plus 0-75% +25% Source: Agents Survey The above suggests that there is a distance decay impact effect away from the new JLE stations for the residential property market. There is insufficient data to comment on the commercial property market. 68

6. ISLE OF DOGS PROPERTY MARKET 6.1. Introduction The Isle of Dogs experienced a phased historical development during the 1980 s and early 1990 s, following the creation of the LDDC in July 1982, to breathe new life into one of the Capital s most depressed areas. During this time period, the development of the Canary Wharf estate has been crucial to the overall development and long term future of Docklands and the Isle of Dogs. Canary Wharf was conceived due to a combination of the deregulation of the financial markets and the associated need for new office space with large floorplates. The City was deemed incapable of providing the quality of space at the right rents, as despite there being a reasonable office stock in Central London, not much of it was able to meet the needs of firms relying on new technology. Available new stock was on the periphery and any new development was likely to face planning problems. Over the last decade, Canary Wharf has been further developed, attracting a number of major new occupiers in new purpose built multistorey office buildings. The original LDDC infrastructure plans incorporated a number of new transport proposals to link the Isle of Dogs with Central London and the City, but did not envisage that development would take place on the scale that it has done. As a result, the area suffered greatly from chronic infrastructure problems during the early 1990s. The early running of the Docklands Light Railway (DLR) was beset with technical problems, and improvements to the road network lagged behind business investment. As a result, the area experienced operational inefficiencies, leading to bad publicity and poor perceptions of the area as a business location. For the purposes of this analysis, the Isle of Dogs refers solely to the catchment area surrounding the JLE station at Canary Wharf. 6.2. Property Market Commentary The Docklands Area is seen as a property market in its own right and as such has had considerable specific exposure in property journals and research reports. 69

6.2.1. Residential Property Market With the growing number of blue-chip companies relocating to Canary Wharf, and the supporting investment in commercial facilities during the 1990s, the Isle of Dogs became an increasingly attractive place to live. The arrival of the Jubilee Line at the end of 1999 undoubtedly enhanced this attractiveness. The Jubilee Line Extension due to open in September is one of the most important reasons why Docklands in booming. The Jubilee Line will offer people more choice, they can live on the island without being isolated Alex Arnot, Recruitment Consultant (Evening Standard Sept 20, 1999) Following on from considerable residential development on the Isle of Dogs during the 1990s, the supply of new residential development sites had begun to dry up by the beginning of 2000, and as such a limited number of new residential units were coming onto the market. We are not looking at any other sites in Docklands at the moment. All the ones along the river are gone Chris Roads, Redrow Homes, Sales Director. There is certainly a premium on a river site, because there is very little land left. From Tower Bridge eastwards, there are only infill sites and they are all in the pipeline Russell Taylor, FPD Savills Director (Property Week, 8 June 2000) During the period 2000 to 2001, the continued commercial property expansion in Canary Wharf served to attract new residents to the area. Levels of residential property sales and rentals were strong, with residential sales values rising by an average of 17.5% in the 12 months to July 2001, compared to rises of 12.7% for the prime Central London area as a whole. The price rises by type of property are highlighted in Table 6.1 below: Table 6.1: Average Percentage Growth in Capital Values for Greater London Prime Flats Area June 99 June 2000 June 2000 June 2001 Prime Central London Average + 23.0 +12.7 Canary Wharf: - 1 bed apartment on river + 20.0 + 16.7-2 bed apartment on river + 12.8 + 20.8 - ¾ bed house with garage + 18.2 + 15.4 Source: Knight Frank Residential Lettings Review Bi-Annual Reports, 2000-2001 70

The London residential property market during the first half of 2001 was characterised by a more cautious attitude due to general economic concerns, but Canary Wharf was affected to a far lesser degree than other prime areas across Central London. This was primarily due to the growing number of workers coming into the area, offsetting general market concerns. Research by Cluttons during 2001 and early 2002 in the biannual London View Report has continually highlighted the South Bank, City and Docklands residential markets as out-performing all other prime Central London residential markets. Throughout 2000 and 2001 the Docklands area showed strong sales and rental value growth as highlighted in Chart 6.1 below. Chart 6.1: Changes in Rental And Sales Values, Docklands Source: Cluttons The London View Autumn 2001 As the market moved into 2002, the area continued to be considered as the strongest in Central London, with average prices rising by 3.8% over the first quarter of 2002 and by 11.8% in the last year. The 11.8% annual growth contrasted with a 71

0.9% price fall in Central North West London and an overall 4.2% increase across Central London as a whole. During the first quarter of 2002, the South Bank, City and Docklands lettings market also remained the firmest of all Central London markets over the past six to 12 months. On average, rental values slipped by just 1.6% over the last year, compared to a 5.2% fall across Central London as a whole (Cluttons, The London View, Spring 2002). The two main reasons why the South Bank City and Docklands area fared better than most were because the surplus of supply was not evident across all property types and because the strength of demand in some areas has cancelled out the weakness of others. The aftermath of the events of 11 September 2001, tumbling global stock markets, and mounting job losses were creating an uncertain outlook for the London residential market. Under these circumstances, the renting market offered the greatest flexibility for consumers who were unsure about their future. Despite the continued strong performance of the housing market and associated house price growth, gross yields remained largely unchanged (see Table 6.2 below). Prime property prices continued to rise, albeit at a slower pace, and prime rental levels also witnessed corresponding increases. Table 6.2: Average Yields for Greater London Prime Flats (Canary Wharf office) Period Capital Value Rental Value Yield per sq. m per sq. m % Nov 1999 April 2000 200,000 325 8.5 April 2000 Sept 2000 250,000 380 7.9 Oct 2000 March 2001 250,000 400 8.1 April 2001 Sept 2001 320,000 400 6.5 Source: Knight Frank Residential Lettings Review Bi-Annual Reports, 2000-2001 The arrival of brand new leisure facilities such as the multiplex cinema at West India Docks, and the growing number of retail and entertainment outlets within and around Canary Wharf have all assisted in enhancing the desirability of the area as a residential location. Initially people working at Canary Wharf didn t want to live there and preferred to commute back to their own neighbourhoods, such as in West 72

London, but after 2-3 years they began to think differently and to consider that it now offered a full range of supporting leisure and entertainment opportunities. As highlighted in Chart 6.2, an analysis of the reasons for buying within the South Bank, City and Docklands areas shows that the continued migration of workers into the areas has bolstered demand, with 41% looking for property as a result of job relocation in March 2002, compared to only 13% the year previously. Chart 6.2: Analysis of sales applicants by reason for buying Source: Cluttons, The London View, Spring 2002 6.2.2. Commercial Property Market The commercial property market on the Isle of Dogs is dominated by the Canary Wharf office complex within which the JLE station is situated. The continuing trend of mergers and acquisitions amongst financial institutions saw an increase in interest in the Canary Wharf complex during the late 1990s and in the New Millennium, as new organisations were created looking for bigger buildings. All sectors of the market were beginning to consider Canary Wharf as a potential location, including the legal sector which had long been underrepresented at Canary Wharf, and was probably the last of the traditional City occupiers to remain loyal to their historic locations. The trend of consolidation amongst financial institutions and the opening of the Jubilee Line Extension are combining to produce a doubled rate of enquiries at Canary Wharf in the first 3 months of 2000. (Financial Times, 10 March 2000) Continuing from the late 1990s, Canary Wharf continued to attract major occupiers into early 2000 with pre-lets in the first quarter to Citigroup taking 29,264 sq.m. at 25 73

Canada Square, and Morgan Stanley Dean Witter taking 17,187 sq.m. at 15 Westferry Circus. Research by FPD Savills highlighted that growth in rental values was being experienced across the wider Isle of Dogs area and not just within the Canary Wharf Estate, stating that this was certainly an indicator of the positive effect that Canary Wharf and the opening of the Jubilee Line Extension has had on people's perceptions of the Docklands. (FPD Savills Central London Office Review and Outlook, Summer 2000) The JLE was considered to be a major factor in encouraging companies to the area, as was the fact that Canary Wharf was now beginning to become a town with a critical mass. (Paul Reichman Executive Chairman CWG, The Guardian, Saturday 8 July 2000) Proof that Canary Wharf had truly become a mature market was confirmed when existing companies begin to expand, such as Bank of New York in Canary Wharf Tower, which took an additional 70,000 sq ft in Harbour Exchange. The market has arrived we re not a sub-market to the City and if companies are looking for space in the City, they are looking here too. Rod Parker, Knight Frank. (Estates Gazette, 9 September 2000) With the continuing growth of the financial services sector, ongoing consolidation and the dot.com boom a healthy level of companies looking for space in Central London continued throughout 2000. Canary Wharf was able to respond more quickly and cheaply than its rivals, partly due to the underground infrastructure laid by its ambitious founders. Whilst much of the Canary Wharf estate had been developed, further serviced sites existed that could be brought forward for development in response to occupier needs. The one advantage they ve got above all the others is speed. They know exactly what s under the ground they don t have to worry about any archaeological remains, unlike the City, and they can throw things up quickly and not too expensively. John Atkins, Property Analyst, HSBC. (The Guardian, 17 October 2000) Major pre-lets continued in 2001 with Credit Suisse First Boston (CSFB) agreeing to take 46,264 sq.m in the first quarter, and the Lehman Brothers announcing a deal for 92,902 sq.m for its European HQ in the second quarter of the year. This high profile move highlighted a movement eastwards of City occupiers, frustrated by the lack of large available space in the City. 74

Ongoing problems with the reliability of the Jubilee Line began to concern occupiers at Canary Wharf. Some sources stated that continued signalling problems were considered to be jeopardising the continuing regeneration of the whole JLE corridor, especially at Canary Wharf where firms that moved in HQs on the basis of a reliable tube link to Central London were becoming increasingly frustrated. The main problem both now and in the future is the lack of alternatives if the JLE fails to operate or has running problems on any day. The DLR can only take part of the diverted demand, and certainly won t be able to in 4 years time. (Estates Gazette Interactive News, 20 August 2001) There is a scenario that if capacity does not increase, there is a timescale, and it is not that long before transport access to Canary Wharf will be at capacity levels. That would be a constraint on development Peter Damesick, Insignia Richard Ellis (Property Week, 6 October 2001). Following on from the events of 11 September 2001, on the back of general economic nervousness and compounded with the well documented transport concerns with the reliability of the Jubilee Line, a reduction in demand for space at Canary Wharf began to become apparent by the end of 2001. Rental growth also stabilised, as highlighted in Chart 6.3 below: Chart 6.3: Changes in Prime Rents 1991-2002, London Office Markets Source: Chesterton, Central London Offices, Q4 2001 The reduction in active demand for 10,000 sq.m. + units across Central London from 33 at the end of 2000 to 14 at the end of 2001, especially affected Docklands and specifically Canary Wharf. This caused a reduction in Docklands active demand from 393,000 sq.m. in December 2000 and 264,000 sq.m. three months earlier, to 187,000 sq.m. at the end of 2001. Potential demand suffered a fall of a similar 75

magnitude in the course of the year. Vacancy rates as highlighted in Chart 6.4 below, rose to 9.6%. (Jones Lang La Salle, Central London Market Report Q4 2001) Chart 6.4: Vacancy Rates at Docklands 1990-2001 Source: (Jones Lang La Salle, Central London Market Report Q4 2001) Having said this, Canary Wharf continued to strike key deals in the second half of 2001, including 1,000,000 sq.ft prelet to Barclays Bank and 140,000 sq.ft. prelet to law firm Skadden Arps. (FPD Savills, Central London Office Review and Outlook, Spring 2002) Canary Wharf s sensible route of undertaking limited speculative development had helped to ensure that too much vacant space wasn t created. In addition, the newly designated Millennium Quarter to the south of the Canary Wharf estate offers a competitive alternative in the short term and complementary role in the long term, strengthening the position of Docklands as an acknowledged commercial market. 6.3. Local Agents Perspective In order to expand on the property market commentary from secondary sources, we surveyed property agents throughout the JLE Corridor. Our survey of local property agents contained a total of nine separate property agents who dealt with properties in the Isle of Dogs, eight of which dealt primarily with residential property, and one of which dealt with commercial property only. Of the eight residential property agents, three indicated that they also dealt with 76

development land, and two also dealt with commercial property (offices and industrial). Only one of the agents dealt exclusively with properties within the Isle of Dogs, with the other eight agents also dealing with properties in the other parts of the JLE Corridor. The key findings from the survey are set out below. 6.3.1. Key Factors Affecting The Local Property Market Agents were asked to consider what have been the key factors influencing the local property market over the last few years. The responses included: Strong economy, investment surge to property. Development of business centre. More job supply ; Improving transportation links. Improving infrastructure ; The lack of suitable accommodation in central areas and the opening of the Jubilee Line ; Value - most properties are modern. Long leases. Car spaces and views. Improving transport ; Continued evolvement of Canary Wharf and transport i.e. underground and DLR ; and Transport improvements, including the A12/Blackwall Tunnel Link, JLE and DLR to Lewisham Link. Forthcoming CTRL terminal also relevant. Again, the responses highlight the importance of transport infrastructure, in particular the JLE, but also the expansion of Canary Wharf. General economic considerations, such as the low level of interest rates, and the lack of supply in other parts of London were also mentioned. 6.3.2. Market Demand, Supply And Take-Up General Perceptions of Local Residential Property Market In terms of the local residential property market from 1999 to present day, the survey findings are set out in Table 6.3 below. 77

Table 6.3 Isle of Dogs, General Perceptions of Local Property Market Statement Significant Increase Marginal Increase Stayed The Same Marginal Decrease Significant Decrease Demand for space 44% 22% - - - Supply of space 22% 44% - - - Rates of take-up 44% 22% - - - Rental values 44% 44% - - - Capital values 78% 11% - - - Source: Agents Survey (Percentages may not add up to 100% as those not responding are excluded from the analysis). The key highlights are, as follows: Over 40% of agents reported a significant increase in demand since 1999; Just under one quarter of agents considered that there has been a significant increase in the supply of space; Over 40% of agents reported a significant increase in the rate of take-up of property since 1999; Over 40% of agents reported a significant increase in rental values since 1999; and Almost 80% of agents reported a significant increase in capital values. Timing and Extent of JLE Impact on Residential Property Values When asked to relate the impact of the JLE to the above characteristics of the local residential property market over the same time period, the survey revealed that: 67% of agents considered that the JLE had a significant impact on the level of demand for property, with 11% considering that the impact had been marginal. No agents considered the JLE to have had no impact ; With regard to the supply of residential property, 22% of agents considered the JLE had a significant impact, and another 44% considered it had a marginal impact. 11% considered the JLE to have had no impact ; 67% of agents considered that the JLE had a significant impact on the rates of take-up of residential properties, while 11% considered that the impact had been marginal. No agents considered that the JLE had no impact ; 78

In terms of rental values, 78% of agents considered that the JLE has had a significant impact on rental values during the time period, and 22% consider that it has had a marginal impact ; and In terms of capital values, 78% consider that the JLE has also had a significant impact, with 22% considering it has had a marginal impact. In summary, it can be seen that local agents have experienced increased levels of activity in the local property market since 1999, and that most believe that the JLE has played a significant role. In terms of the timing of any impact, two thirds (67%) of the agents did not indicate a specific time period, highlighting the difficulty in judging when the JLE effect actually occurred. Those that did indicate all expressed a time period of between 2-3 years ago, i.e. 1999/2000. 6.3.3. The Role of the JLE Residential Property Market When asked specific statements relating to property values, local agents again confirmed that they considered the JLE to have had a significant impact on residential property values. The survey results are highlighted in Table 6.4 below. Table 6.4 Isle of Dogs, JLE Residential Statements Statement Residential values within 500m of the new JLE stations have been affected Residential values between 500m to 1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected House prices have risen as a direct result of the JLE Residential rental levels have risen as a direct result of the JLE Source: Agents Survey Strongly Agree Agree Disagree Strongly Disagree No Comment 56% 33% 0% 0% 11% 33% 56% 0% 0% 11% 11% 67% 11% 0% 11% 44% 44% 0% 0% 12% 44% 44% 0% 0% 12% Agents were also asked to indicate the extent of the impact on property values. Again, a high proportion of agents (78%) did not indicate a percentage highlighting the difficulty in this. Of those that did, the responses are highlighted in Table 6.5 below. 79

Table 6.5 Isle of Dogs, Extent of JLE Impact on Residential Property Values Statement Agent 1 Agent 2 Residential values within 500m of the new JLE stations have been affected Residential values between 500m to 1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected Source: Agents Survey +30% +30% +20% +30% +10% +10% Agents considered that residential values had risen by up to 30% as a result of the JLE. In terms of distance from the JLE stations, properties within 1km are considered to have risen by between 20% and 30%, and those further than 1km by an estimated 10%. Based on the average value increase, there is a distance decay effect of: 0 499 metres (+30.0%); 500 1,000 metres (+25.0%); and 1,000 metres + (+10.0%). Commercial Property Market Agents were asked to respond to a set of similar statements about the local commercial property market in the Isle of Dogs. Table 6.6 below highlights the findings. Table 6.6 Isle of Dogs, JLE Commercial Statements Statement Strongly Agree Agree Disagree Strongly Disagree No Comment Commercial values within 500m of the new JLE 11% 33% - - 66% stations have been affected Commercial values between 500m to 1km from the 11% 22% 11% - 56% new JLE stations have been affected Commercial values over 1km from the new JLE - 33% 11% - 56% stations have been affected Office rents have risen as a result of the JLE opening 11% 44% 11% - 34% Capital values for commercial property have been 11% 33% 11% - 45% affected by the opening of the JLE Development interest has been stimulated by the JLE 56% 33% - - 11% opening Office demand has risen as a result of the opening of 44% 11% 11% - 34% the JLE Source: Agents Survey 80

Only around half of the agents commented on the commercial property market statements, which is not surprising given their primary interest in the residential market. However, over half of those that responded considered the JLE to have had a significant impact on development interest. Just under half felt that office demand had risen as a result of the JLE, but only around 10% felt that office rents had risen as a result of the JLE opening. Agents were also asked to indicate the extent of impact on commercial property values. Although, a high proportion of agents (89%) did not indicate a percentage, highlighting the difficulty in doing so, one agent did respond. That response is shown in Table 6.7 below. Table 6.7 Isle of Dogs, Extent of JLE Impact on Commercial Property Values Statement Agent 1 Commercial values within 500m of the new JLE stations +10-15% have been affected Commercial values between 500m to 1km from the new +10-15% JLE stations have been affected Commercial values over 1km from the new JLE stations +10-15% have been affected Source: Agents Survey The one agent that responded considered that commercial values had risen by up to 15% as a result of the JLE. They did not indicate that there was any distance decay effect. Regeneration Impact Property agents were also asked to consider the impact of the JLE in assisting the overall regeneration of the local area. When asked directly whether the JLE was helping the regeneration of run-down areas, 44% of agents dealing with property in the Isle of Dogs answered strongly agree, with the remaining 56% answering agree. No agents disagreed. Accessibility Impact Property agents were also asked to comment on whether the only impact of the JLE had been to make it easier to get into the City and West End. 81

Eleven per cent of agents dealing with property in the Isle of Dogs answered strongly agree, with 22% answering agree. One third disagreed and one third disagreed strongly 6.3.4. Summary Overall, it can be seen that the property agents surveyed indicated that the JLE has been a key driver in the Isle of Dogs property market since 1999. Indeed, the JLE was highlighted by two thirds of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value in both the residential and commercial property markets. 6.4. Commercial Property Market Overview Given the lack of robust longitudinal data, we have investigated whether we can provide any additional insight into recent trends in the office sector based on published information for the Isle of Dogs. There are various published reports on the commercial property market in Docklands, with the focus being very much on the office market. We have used information provided by Chesterton Research that shows trends in prime rentals since 1990. The data, which is restricted to just two locations on the island: Canary Wharf and Marsh Wall (Heron s Quay), is shown in Table 6.10 below. The rental values shown reflect market opinion and not necessarily achieved levels at any point of time. The data also measures prime levels only in each of the two locations and the trends shown by these will not necessarily reflect average levels of rentals nor achieved rents. Given these limitations, the following analysis should be viewed as indicative and not necessarily definitive of market trends over the period of analysis. As we have mentioned the Isle of Dogs data reflects prime rentals and the Central London data supplied by IPD, which was used for the City Fringe Area is not suitable in this case. The IPD data measures average levels of rentals and growth and is not strictly comparable to the Isle of Dogs prime data. We have, therefore, used prime rental values relating to the three central London markets (City, West End and Midtown) as a benchmark. 82

Data is also provided on occupier activity in the form of office space take-up, available space and space completed during the period. Chesterton Research and the EGi London Office Database provided the data. 83

Table 6.10 Prime Rental Values in the Isle of Dogs Canary Marsh Wharf Wall psf psf 1990 June 30.0 16.0 September 30.0 16.0 December 30.0 16.0 1991 March 27.5 14.0 June 27.5 12.0 September 26.0 10.0 December 22.5 9.0 1992 March 24.0 8.0 June 13.0 7.5 September 13.0 7.5 December 13.0 7.0 1993 March 13.0 7.0 June 13.0 7.0 September 15.0 7.0 December 15.0 7.0 1994 March 19.0 7.0 June 19.0 7.0 September 19.0 7.0 December 22.0 7.0 1995 March 25.0 7.0 June 25.0 7.0 September 25.0 7.0 December 25.0 7.0 1996 March 25.0 7.0 June 25.0 7.0 September 25.0 7.0 December 28.0 7.0 1997 March 28.0 8.0 June 30.0 13.0 September 30.0 13.0 December 35.0 13.5 1998 March 35.0 13.5 June 35.0 15.0 September 35.0 15.0 December 35.0 15.5 1999 March 35.0 16.0 June 35.0 17.5 September 35.0 19.0 December 37.0 20.0 2000 March 38.0 24.0 June 39.0 26.0 September 40.0 27.5 December 42.0 30.0 2001 March 42.0 35.0 June 42.0 35.0 September 42.0 35.0 December 42.0 35.0 Source: Chesterton Research 84

Prime Rental Trends When the London Docklands Development Corporation (LDDC) was set up in 1981 the population of the Isle of Dogs was just 15,500 and the workforce 7,600. Access to the rest of London was restricted with the island serviced by a single bus route; there was no rail or underground serving the area directly. By the end of 2001, there was around 14.6 million sq. ft of office space on the island, the area is served by the Jubilee Line Extension, an upgraded and extended DLR, the Limehouse Link and Docklands Highways and the River Bus service. Since the establishment of the new office market on the Isle of Dogs, it has undergone some dramatic changes and rental values have been extremely volatile. Canary Wharf, which started it all off was just coming to the market when the market downturn set in during the late 1980 s. The volatility of the market is illustrated in Chart 6.5 below, which shows rental trends in the two locations - Canary Wharf and to the south in Marsh Wall (Heron s Quay). Chart 6.5 Prime Rental Trends in the Isle of Dogs 50 40 psf Canary Wharf Marsh Wall 30 20 10 0 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Source: Chesterton Research Rentals in the Isle of Dogs fell by over 50% between June 1990 and June 1992. However, Canary Wharf rentals were rising again in just over a year and continued doing so, with some short pauses, up to the end of 2000. Outside of Canary Wharf, however, rentals stagnated and it was another four years (in 1997), before they began to rise. This was a year after the IRA Bomb damaged almost a million square feet of office space. Rentals accelerated rapidly from that point almost catching up with those at Canary Wharf. The differences between Canary Wharf and the rest of 85

the Isle of Dogs is further illustrated in Chart 6.6 below, which shows the ratio of the Canary Wharf rental value to the Marsh Wall rental value. Chart 6.6 Ratio of Canary Wharf Rental to Marsh Wall Rental 400 Ratio 300 200 100 Jun 90 Jun 91 Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Source: Chesterton Research In the early 1990s, Canary Wharf rentals were 88% higher than in Marsh Wall rising sharply over the next year before settling back to that level in 1992. As Canary Wharf took off from 1993, the rest of the area was left in its slipstream to the extent that by end 1996, Canary Wharf rentals were up to four-times those on the rest of the island. This mispricing became clear to the market as Canary Wharf, driven by prelets, was beginning to fill-up. In contrast, there were numerous new and modern buildings within the rest of the area with rentals a quarter of prime rentals in Canary Wharf, so while they still rose by 25%, elsewhere rentals were almost doubling. As Chart 6.6 clearly illustrates, rentals continued growing faster outside Canary Wharf up to mid-2001 when the Canary Wharf premium reached its lowest on record. Occupier activity in the Isle of Dogs is shown in Chart 6.7, which highlights some interesting trends. First, available space surged between 1989 and 1993, which is not surprising as this represented the downturn in the market and reflects much of what happened in Central London as a whole, if not to the same degree. Over this period, available space in Docklands rose fourfold compared with a doubling in Central London. However, the Docklands figure started from a very low base. 86

The fall in available space over the next seven years to 2000 was equally dramatic. By 2000, it was only 2% of the 1993 figure and less than 20% for Central London as a whole. Chart 6.7 Occupier Activity in the Isle of Dogs 6 5 4 3 2 1 0 m sq ft Take-up Completions Available 1985 1987 1989 1991 1993 1995 1997 1999 2001 Source: Chesterton Research/EGi London Office Database One of the prime reasons for the sharp fall in space available was the consolidation of many financial and professional services companies and their relocation into large floorplates. Docklands, and Canary Wharf in particular, offered such firms the space they required especially as planning restrictions in the City in the early part of the period meant the space was not available in the Square Mile. The chart shows that following the boom of the late 1980s, a huge rise in completions between 1989 and 1992 explained the surge in available space in the early 1990s. From 1993, there was virtually no construction, although it picked up slightly towards the end of the decade, but much of this was prelets. Take-up surged from 1993 peaking in 2000. This combination of low construction and high take-up resulted in the vacancy rate in the Isle of Dogs falling from 51% in 1993 to just 0.7% of the total stock in 2000. Take-up remained reasonably strong in 2001, including 3.7 million sq. ft in Docklands. However, speculative development was creeping up and by the end of the year there was half a million sq. ft of space available representing a vacancy rate of 3.7%. While this shows a dramatic increase in the vacancy rate, we are dealing with relatively small figures and the rate is lower than in any year except 2000. However, the deterioration in the market continued into 2002 when the first speculative building for a number of years was built in Canary Wharf pushing the vacancy rate above 11% by the end of the year. 87

Prime rental values in the Isle of Dogs increased by 5.2% per annum between 1990 and 2001 compared with a rise of just 0.1% per annum for Central London. These overall figures, however, hide some very big variations throughout the period. It is worth putting this analysis in context with the key dates linked to the JLE highlighted in analysis in other parts of the report. These are shown in Table 6.11 below. 1981 to 1989: Pre-baseline or the period prior to any official announcements on the JLE Extension; and 1989 to 1993: Baseline or period up to start of construction. There was very little office space in the Isle of Dogs pre-1989. The most prominent was South Quay Plaza on Marsh Wall. As for Canary Wharf, a Master Building Agreement with the LDDC was only signed in July 1987 and while the first phase was completed in record time, the first tenant only moved-in in August 1991. There is consequently very little rental or capital evidence for this period. Indeed, the only reliable evidence is for the last three years of the period as shown in Table 6.10. The baseline period (1989 to 1993) was one of economic recession. The office market was further hit by the late 1980s development boom, which traditionally lags any market upturn, resulting in almost 55 million sq. ft of space being completed in Central London during the period; the Isle of Dogs accounted for almost nine million sq. ft of this. Not surprisingly, rental levels slumped between 1990 and 1993. The slump in rental levels during this period was worse in Central London than on the Isle of Dogs although the difference was marginal. 1993 to 1996: Initial after period including early construction As the economy emerged from recession, office rentals grew throughout Central London, however, while they grew on average by 7.1% per annum, growth in the Isle of Dogs was over 90% higher at 13.5% per annum. 1996 to 1999: Pre-opening period 88

Growth in the Isle of Dogs continued to outpace the Central London average in the period up to the opening of the Jubilee Line Station at Canary Wharf by a similar degree (88%). 1999 to 2001: Post-opening period In the period immediately following the opening of Canary Wharf Station, rental growth slowed in both Central London and the Isle of Dogs. The slowdown was much sharper in Central London where growth decelerated from 13.2% immediately prior to the station opening to 9% per annum afterwards. On the Isle of Dogs growth also slowed, but from 24.9% per annum to 20.7% per annum. Growth on the island was 130% higher than in Central London. Interestingly, most of this growth was coming from buildings outside of the Canary Wharf business area. Table 6.11 Prime Rental Growth Comparisons (% per annum) Central Isle of Dogs Period London Average % p.a. % p.a. Baseline 1990 to 1993-22.9-24.2 Initial after period 1993 to 1996 +7.1 +13.5 Pre-opening period 1996 to 1999 +13.2 +24.9 Post-opening period 1999 to 2001 +9.0 20.7 1981 to 2001 n/a n/a 1990 to 2001 +0.1 +5.2 1990 to 1999-2.2 +1.4 Summary Rental growth on the Isle of Dogs has easily outpaced that in Central London since 1993. Clearly, part of this is due to rental levels being much lower than in the City, its main competitor for tenants. Another reason is that it could offer large floorplates just when the financial services and the professional services were consolidating and planning restrictions (initially at least) in the City meant there was little space available there. However, without the infrastructure and especially adequate transport both these reasons would have counted for little and rental growth would not have been so strong. This is supported by the fact that growth remained strong on the island while 89

it was slowing elsewhere once Canary Wharf Station was opened, even though the City had become more competitive in encouraging larger buildings to be built in the Square Mile. 6.5. Summary and Conclusions Taking the elements of our work together, there is evidence in both qualitative and quantitative terms that the JLE has had a positive impact on the property market in the Isle of Dogs. 6.5.1. Property Market Commentary Our review of property market commentary on the Isle of Dogs has highlighted various triggers affecting the local property market, including the improved transport infrastructure, especially the JLE and the DLR Extension. This has led to increased demand for residential accommodation from workers associated with the continuing growth of Canary Wharf as an office location. This has improved the area s attractiveness as a play to live and work. 6.5.2. Agents Survey The Agents Survey reaffirmed the importance of the transport infrastructure and the expansion of Canary Wharf. In terms of the impact of the JLE, the property agents surveyed reaffirmed that the JLE has been a key driver in the Isle of Dogs property market since 1999. Indeed, the JLE was highlighted by two thirds of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value impact in both the residential and commercial property markets. The table below summarises the estimated positive value impact by distance from each station for both property markets. Table 6.23 Responses) Agents Survey: Key Findings Isle of Dogs (% of Estimated Price Impact of JLE Distance Residential Commercial Less than 500 metres +30-85% +10-15% 500 metres to a +20-85% +10-15% kilometre 90

One kilometre plus +10-85% +10-15% Source: Agents Survey The above suggests that there is a distance decay price effect away from Canary Wharf JLE Station for residential values. Given that only one agent responded to the question about commercial values, the finding that there is no distance decay effect should be treated with caution. 91

7. EAST LONDON PROPERTY MARTKET 7.1. Introduction The East London Corridor, stretching from Canning Town to Stratford, comprises primarily of industrial premises and sites, with Stratford Town Centre providing the focus for retail and office uses. For the purposes of this analysis, the East London Area refers to the catchment areas surrounding the JLE stations at Canning Town, West Ham and Stratford. 7.2. Property Market Commentary The East London Area is considered part of a wider property market across East London including areas of Hackney, Tower Hamlets and Newham. As such the East London Area, as defined for the purposes of this study, has had limited specific exposure in property journals and research reports. 7.2.1. Residential Property Market The residential property market in the East London Area, in particular around the terminus of the JLE at Stratford, has seen considerable change since the opening of the JLE. In Stratford, the imminent arrival of the JLE was needed to make buyers realise its hidden values. For the past year prices have soared, albeit starting from a low base. Now that Stratford is the end of the line for the JLE, there is a greater choice of destinations from the refurbished station. Mark Wade, Charles Living Estate Agents (Financial Times, 29 January 2000) Last year prices went through the roof and were unbelievable, comparable to the West End. Property development has been occurring in pockets, and they have brought people from other parts of London and outside the city into Stratford. The developments have attracted a better calibre of people. There was a lot of poverty and unemployment here. There still is, but a bit less. Sheikh Ahmed, Property Mart (The Independent 6 May 2000) The area has been subject to considerable regeneration over recent years, with major retailers being attracted into Stratford, and new shopping and entertainment facilities being developed across the area. Regeneration initiatives include a 5m refurbishment of the town centre shopping mall; a new 28m development which 92

includes a new Safeway supermarket, 100 room hotel and state-of-the-art library; new arts and cultural activities in the Cultural Quarter with Stratford Circus East London s first ever purpose-built arts centre due to open 2002 and the refurbished Theatre Royal. In addition, a 44 camera CCTV system has been implemented and has led to significant reduction in street crime. The area has historically been characterised by large areas of public sector housing, but new residential schemes such as The Heights in Stratford Town Centre which provides 141 one and two bedroom flats in a refurbished office block, and the 190 flat Central House development both by Barratts, have introduced a new market into the area. With good transport links, and modern new build properties coming onto the market, Stratford finally started to attract City professionals many of whom were on shortterm contracts and preferred to let rather than buy. The new developments have attracted considerable interest in buy-to-let, with rental values for houses having improved from 125-140 in 1998 to 170-190 in 2000. They attracted professionals who can t afford to rent in Central London, and who realise that Stratford provides affordable living. The importance of ancillary retail, entertainment and leisure to the residential market was highlighted by an article in The Telegraph on 24 October 2001, which stated that the first pizza express, cappuccino bars and gyms have arrived. The article went on to state that values have risen sharply over the last 15 months with increased demand and favourable price comparisons with prime Docklands residential prices. Around 75% of those looking are first time buyers or buy-to-lets. People are taking money out of stocks and shares and putting it into property. Tim Holder Winkworth. (The Telegraph, 24 October 2001) As residential development sites have dried up on the Isle of Dogs, the Royal Docks and Canning Town has become the next areas targeted by developers and investors. Old warehouses and strips of land have been purchased by developers and new residential schemes are being implemented such as the Barrier Point development by Barratts. This area has not only benefited from the improved accessibility provided by the JLE, but also by the newly opened ExCel Exhibition Centre and the forthcoming development of ancillary hotel and entertainment space 93

that many consider to be a catalyst for the continuing development of the Royal Docks area. (The Telegraph, 4 March 2002) 7.2.2. Commercial Property Market The commercial property market in the area is characterised by large areas of industrial property, much of which is low grade, together with office and retail uses primarily at Stratford. Transport infrastructure is recognised as key to the commercial success of the area, not only the JLE but also the Channel Tunnel Rail Link European Rail Link at Stratford, which is now under construction, new motorway links to the M11 and out to the M25, and continued growth at London City Airport. The Jubilee Line and the M11 extension is making people take notice of this area. Communication-wise, the area does very well and it is cheaper than anywhere else in the vicinity Jim Frankis, King Sturge (Estates Gazette, 4 September 1999). The continued regeneration of Stratford Town Centre has helped to attract new retail and leisure occupiers into the area, with the refurbishment of the shopping centre helping to increase footfall and the popularity of the location as a shopping destination. The cultural industries sector has seen growth within the area, and new developments are being implemented, such as at Burford Road to provide live/work studio space, building upon the growing cultural industries market. 7.3. Local Agents Perspective In order to expand on the property market commentary from secondary sources, we surveyed property agents throughout the JLE Corridor. Our survey of local property agents contained a total of ten separate property agents who dealt with properties in the East London Area, nine of which dealt primarily with residential property, and one of which dealt with commercial property only. Of the nine residential property agents, one indicated that they also dealt with development land, and two others also dealt with commercial property (offices and industrial). Three of the agents dealt exclusively with properties within the East London Area (dealing with the Stratford and West Ham Catchment Areas), whilst the other agents also dealt with properties in other parts of the JLE Corridor. 94

The key findings from the survey are set out below. 7.3.1. Key Factors Affecting The Local Property Market Agents were asked to consider what have been the key factors influencing the local property market over the last few years. The responses included: The regeneration of Stratford as a whole, coupled with the Jubilee Line Extension and future of the Euro link terminal. Lack of properties for sale ; Jubilee Line; re-development of area; channel tunnel rail link ; Improving transportation links. Improving infrastructure ; The lack of suitable accommodation in central areas and the opening of the Jubilee Line ; Low interest rates, job security, more second time buyers with bigger cash deposits, buy to let ; and Transport improvements, including the A12/Blackwall Tunnel Link, JLE and DLR to Lewisham Link. Forthcoming CTRL terminal also relevant. Again, the responses highlight the importance of transport infrastructure, in particular the JLE and the Channel Tunnel Rail Link, but also the expansion of Canary Wharf. General economic considerations, such as the low level of interest rates, and the lack of supply in other parts of London were also mentioned. 7.3.2. Market Demand, Supply And Take-Up General Perceptions of Local Residential Property Market In terms of the local residential property market from 1999 to present day, the survey findings are set out in Table 7.1 below. 95

Table 7.1 East London, General Perceptions of the Local Property Market Statement Significant Increase Marginal Increase Stayed The Same Marginal Decrease Significant Decrease Demand for space 50 20 - - - Supply of space 30 40 - - - Rates of take-up 50 20 - - - Rental values 60 20 - - - Capital values 90 - - - - Source: Agents Survey (Percentages may not add up to 100% as those not responding are excluded from the analysis). The key highlights are, as follows: Half of agents reported a significant increase in demand since 1999; Just under one third of agents considered that there has been a significant increase in the supply of space; Half of agents reported a significant increase in the rate of take-up of property since 1999; Sixty per cent of agents reported a significant increase in rental values since 1999; and Ninety per cent of agents reported a significant increase in capital values. Timing and Extent of JLE Impact on Residential Property Values When asked to relate the impact of the JLE to the above characteristics of the local residential property market over the same time period, the survey revealed that: 70% of agents considered that the JLE had a significant impact on the level of demand for property, with 10% considering that the impact had been marginal. No agents considered the JLE to have had no impact ; With regard to the supply of residential property, 40% of agents considered the JLE had a significant impact, and another 30% considered it had a marginal impact. 10% considered the JLE to have had no impact ; 96

70% of agents considered that the JLE had a significant impact on the rates of take-up of residential properties, while a further 10% considered that the impact had been marginal. No agents considered the JLE to have had no impact. In terms of rental values, 70% of agents considered that the JLE has had a significant impact on rental values during the time period, and 20% consider that it has had a marginal impact ; and In terms of capital values, 80% consider that the JLE has also had a significant impact, with 20% considering it has had a marginal impact. In summary, it can be seen that local agents have experienced increased levels of activity in the local property market since 1999, and that most believe that the JLE has played a significant role. In terms of the timing of any impact, three quarters of the agents did not indicate a specific time period, highlighting the difficulty in judging when the JLE effect actually occurred. However, three agents did, with the period identified as the last 2-3 years, i.e. 1999/2000 2002. 7.3.3. The Role of the JLE Residential Property Market When asked specific statements relating to property values, local agents again considered the JLE to have had a significant impact on property values. The survey results are highlighted in Table 7.2 below. Table 7.2 East London, JLE Residential Statements Statement Residential values within 500m of the new JLE stations have been affected Residential values between 500m to 1km from the new JLE stations have been affected Residential values over 1km from the new JLE stations have been affected House prices have risen as a direct result of the JLE Residential rental levels have risen as a direct result of the JLE Source: Agents Survey Strongly Agree Agree Disagree Strongly Disagree No Comment 60% 30% 0% 0% 10% 50% 40% 0% 0% 10% 10% 80% 0% 0% 10% 50% 40% 0% 0% 10% 50% 40% 0% 0% 10% 97

Agents were also asked to indicate the extent of impact on property values. Again, a high proportion of agents (70%) did not indicate a percentage highlighting the difficulty in going so. Of those that did, the responses are highlighted in Table 7.3 below. Table 7.3 East London, Extent of JLE Impact on Residential Property Values Statement Agent 1 Agent 2 Agent 3 Residential values within 500m of the new JLE stations have been affected +30% +30% +30% Residential values between 500m to 1km from the new JLE stations have been +25% +20% +30% affected Residential values over 1km from the new JLE stations have been affected +15% +10% +10% Source: Agents Survey Agents considered that residential values had risen by up to 30% as a result of the JLE. In terms of distance from the new JLE stations, properties within 1km are considered to have risen by between 20% and 30%, and those further than 1km by between an estimated 10% to 15%. Based on the average value increase, there is a distance decay effect of: 0 499 metres (+30.0%); 500 1,000 metres (+25.0%); and 1,000 metres + (+11.7%). Commercial Property Market Agents were asked to respond to a set of similar statements about the local commercial property market in the East London Area. Table 7.4 below highlights the findings. 98

Table 7.4 East London, JLE Commercial Statements Statement Strongly Agree Agree Disagree Strongly Disagree No Comment Commercial values within 500m of the new JLE 20% 20% - - 60% stations have been affected Commercial values between 500m to 1km from the 10% 20% - - 70% new JLE stations have been affected Commercial values over 1km from the new JLE 0% 30% - - 70% stations have been affected Office rents have risen as a result of the JLE opening 20% 40% - - 40% Capital values for commercial property have been 10% 30% - - 60% affected by the opening of the JLE Development interest has been stimulated by the JLE 60% 20% - - 20% opening Office demand has risen as a result of the opening of 40% 30% - - 30% the JLE Source: Agents Survey Only 40% of agents commented on the commercial property market statements, which is not surprising given their primary interest in the residential market. Sixty per cent of those that did respond considered the JLE to have had a significant impact on development interest. Forty percent strongly felt that office demand had risen as a result of the JLE and 20% strongly felt that office rents had risen as a result of the JLE opening. Agents were also asked to indicate the extent of any impact on commercial property values. As in the Isle of Dogs, only one agent responded and that response is set out in the table below. Table 7.5 East London, Extent of JLE Impact on Commercial Property Values Statement Agent 1 Commercial values within 500m of the new JLE stations +10-15% have been affected Commercial values between 500m to 1km from the new +10-15% JLE stations have been affected Commercial values over 1km from the new JLE stations +10-15% have been affected Source: Agents Survey The one agent that responded considered that commercial values had risen by up to 15% as a result of the JLE, but that there was no distance decay effect. Regeneration Impact Property agents were also asked to consider the impact of the JLE in assisting the overall regeneration of the local area. When asked directly whether the JLE was 99

helping the regeneration of run-down areas, 40% of agents dealing with property in the East London Area answered strongly agree, 50% answered agree, no agents disagreed and one did not answer. Accessibility Impact Property agents were also asked to comment on whether the only impact of the JLE had been to make it easier to get into the City and West End. Ten per cent of agents dealing with property in the East London Area answered strongly agree, with 20% answering agree. Thirty per cent disagreed, the same proportion disagreed strongly and one did not respond. 7.3.4. Summary Overall, it can be seen that the property agents surveyed indicated that the JLE has been a key driver in the East London Area market since 1999. Indeed, the JLE was highlighted by 60% of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value impact in both the residential and commercial property markets. 7.4. Commercial Property Market Overview Given the lack of robust longitudinal data, we have investigated whether we can provide any additional insight into recent trends in the office sector based on published information for the East London Area. There are few published reports on the commercial property market in East London. However, some commentary is provided on the emerging office market in Stratford, due primarily to the opportunities linked with JLE and the Channel Tunnel Rail Link (CTRL). We also provide brief commentary on the industrial market, which is still the main focus of activity in this area. 100

Office Market The office market in Stratford is generally not very strong, perhaps most clearly evidenced by two recent residential office conversion schemes in the town. Generally, office space is achieving around 10-12 per sq. ft in prime locations, although in secondary locations, there are office units asking as low as 5 per sq. ft (EG Property Link). Rents in Stratford are now comparable with those in Ilford, which have remained relatively static in recent times. The following provides a rough guide for Central Stratford: Basic refurbished space 10 per sq. ft per year; and New accommodation 15-20 per sq. ft per year. Table 7.8 Office Space Availability Property (E15) Office Accommodation, Bridgewater House Office Accommodation, Abbey Road/ Canning Road Office Accommodation, Romford Road Office Accommodation, Stratford Office Village Source: www.2pride.com Rent ( per sqft) Size (sq. ft) Notes 8.50 7,250 4 storey concrete construction 10.00 6,000 10.03 2,750 2 storey brick built. 20.00 5,000 3/4 storey modern accommodation Industrial Market There has been a general growth in the industrial market in the Stratford Area over the last couple of years. A number of articles in the press have identified key deals and rising trends in rental values. Industrial rents have risen from 4 to 6 per sq. ft over the past two years according to John Waller of Glenny, although Federal Express have rumoured to have brought space in Carpenter s Business Park for 7.50 per sq. ft. It is believed that values could escalate further to 8 per sq. ft, but there is currently a lack of suitable space. According to Martin Large of GLE land values have risen from 250,000 per acre to 400,000 per acre in two years. A vacant 4,700 sq. ft industrial building in Canning Road sold for 211,500 (Auction News, Estates Gazette, March 2001). 101

The IO Group and LaSalle Investment Management s Industrial Development Partnership have brought the 17.5 acre (7.1 hectare) Carpenter s Road site for 13 million off the Worshipful Company of Carpenters. It plans an IO centre and 7.9 acres (3.2 hectares) of residential development. Table 7.9 Industrial Space Availability Property Rent Size Notes (E15) ( per sqft) (sqft) Industrial / Workshop Premises, New 3.09 8,500 Plaistow Road Industrial / Warehouse Premises, 4.49 40,000 Sugar House Lane Industrial / Warehouse Premises, Waterden Road 4.81 9,250 Modern frame construction Warehouse Premises, Lanrick Road 5.47 26,500 Industrial / Workshop Premises, 6.00 17,500 Waterden Road Storage Premises 6.15 29,250 Warehouse Premises, Carpenters Road 6.50 7,250 Modern warehouse with office accommodation Industrial / Workshop Premises, Carpenters Road 7.50 6,700 Modern accommodation Source: www.2pride.com 7.5. Summary and Conclusions Taking the elements of our work together, there is evidence in both qualitative and quantitative terms that the JLE has had a positive impact on the property market in the East of London Area. 7.5.1. Property Market Commentary Our review of property market commentary on the East of London Area has highlighted various triggers affecting the local property market. Although there are probably less than in the other three property market areas, improved transport infrastructure was mentioned again, but in this instance, the focus was much more on the JLE in terms of what has happened to date. The Channel Tunnel Rail Link was also mentioned, but clearly the impact of this has only partly been experienced to date. The improved accessibility to the West End and Docklands has led to increased demand for residential accommodation in Stratford Town Centre, where there is also increased interest from the commercial development market. 102

7.5.2. Agents Survey The Agents Survey reaffirmed the above findings and also mentioned the lack of supply in other parts of London, especially the West. In terms of the impact of the JLE, the property agents surveyed reaffirmed that the JLE has been a key driver in the City Fringe Area property market since 1999. Indeed, the JLE was highlighted by 60% of the agents as being the biggest single impact on the local property market in the last 10 years. The findings highlight that the JLE has been seen as creating positive value impact in both the residential and commercial property markets. The table below summarises the estimated positive value impact by distance from each station for both property markets. Table 7.52 Responses) Agents Survey: Key Findings East London North (% of Estimated Price Impact of JLE Distance Residential Commercial Less than 500 metres +10-85% +10-15% 500 metres to a +20-85% +10-15% kilometre One kilometre plus +10-85% +10-15% Source: Agents Survey 103

8. NORTH GREENWICH 8.1. Introduction The history of the relationship between the JLE, The Dome and North Greenwich is well documented. We do not intend to revisit it here, as it has been covered in the other JLE reports, particularly the Development Activity Study. In this section, we therefore provide market commentary on the current proposals for North Greenwich and their relationship with the local property market. However, before doing so, we comment briefly on the transaction-based data obtained for North Greenwich. 8.2. Development Proposals A recent article in the Estates Gazette highlighted the fact that Meridian Delta have recently submitted a planning application for the Dome Site, currently owned by English Partnerships, for a 26,000 seat sports arena and a mixed-use scheme, including 3.65 million square feet (340,000 m 2 ) of offices. The Masterplan also includes 355,000 square feet (33,000m2) of retail, over 10,000 new homes, a school and a hotel. The Plan proposes that the new homes will be built in eight to ten storey blocks, with residential towers up to nineteen storeys on the riverside. From a property market perspective, what is most interesting is that around twothirds (2.4 million sq. ft or 224 m 2 ) of the planned offices will only be developed if Crossrail is completed and the Jubilee Line is upgraded. The article states that the [Jubilee] Line does not have the capacity to cope with more than 1.2 million sq. ft of offices. In the same article, the developers state that only with Crossrail in place freeing up capacity on the Jubilee Line could they complete all the planned office space. The best case scenario sees west to east Crossrail Services beginning in 2010 to 2012. 104

9. SUMMARY AND CONCLUSIONS 9.1. Summary 9.1.1. Methodology The approach to the Second Property Market Activity Study consisted of three elements: A desk-based literature review; A survey of residential and commercial property agents based in the JLE Corridor; and Longitudinal data analysis. A summary of the key findings from each of the above is set out below, along with a brief commentary on the links with our Phase 1 Study, plus an attempt to quantify the impact of the JLE on the residential and commercial property markets. 9.1.2. Desk-Based Literature Review As in Phase 1, the suggestion is that the JLE has had a positive value impact on the property market areas through which it passes and adjacent areas. There is more direct research now being undertaken in some property market areas that include the JLE Corridor, such as the South Bank and Stratford, for instance. These areas were previously of no interest to other than local property agents. As was suggested in Phase 1, in some areas, the JLE has had a primary impact on the market, such as Canada Water, whereas, in others, such as Docklands, it has either helped to strengthen or reinforce existing property market activity patterns and dynamics. Our findings from Phase 1 are reiterated in that the JLE has been one of the major shocks affecting both the residential and commercial property markets and that this effect has been differential in space and time. 9.1.3. Agents Summary We identified a total of 67 residential and commercial property agents based in the JLE Corridor. 105

A postal survey of these agents was carried out and 24 questionnaires were returned, representing a response rate of 36%. Responses were grouped into the four main property market areas identified in Phase 1 (City Fringe, East of City Fringe, Isle of Dogs and East London). Agents were asked about what factors had been affecting the property market in their local areas and specifically about the impact of the JLE. Unprompted, in all four property market areas, the JLE was identified as one of the main factors, if not the main factor, affecting the property market in the last 2-3 years. Other infrastructure improvements, the general economic conditions and the increasing interest in East London and the wider Thames Gateway Area were the other most popular answers. Residential Property Market In terms of the impact of the JLE, we have summarised the responses to a number of questions and statements in Table 9.1 overleaf. The above findings indicate that the JLE has had a positive value impact on the residential property market, although it appears to have varied throughout the JLE Corridor. On all indicators, in the City Fringe Area, the impact was at least the same if not greater than the average throughout the JLE Corridor. In the East of City Fringe Area, the impact was broadly similar to the overall impact throughout the JLE Corridor, although the percentage of respondents agreeing that there had been a positive effect on residential values at different distances from the new JLE Stations was higher than for the whole of the JLE Corridor. In the Isle of Dogs, the impact was generally less than the overall impact throughout the JLE Corridor, particularly, in terms of the percentage of respondents agreeing that there had been a positive effect on residential capital values. A lower than average figure also thought that the JLE had had a significant impact on the supply of residential property. However, in both instances, it must be reaffirmed that these are relative not absolute differences. 106

Table 9.1 Findings (% of Responses) Agents Survey Residential Property Market: Summary Question/ Statement Percentage of respondents saying that the JLE has had a significant impact on the level of demand for residential property Percentage of respondents saying that the JLE has had a significant impact on the supply of residential property Percentage of respondents saying that the JLE has had a significant impact on the rates of take-up of residential property Percentage of respondents saying that the JLE has had a significant impact on rental values Percentage of respondents saying that the JLE has had a significant impact on capital values Percentage of respondents strongly agreeing that house prices have risen as a direct result of the JLE Percentage of respondents strongly agreeing that residential values within 500m of the new JLE stations have been affected Percentage of respondents strongly agreeing that residential values between 500m and 1km of the new JLE stations have been affected Percentage of respondents strongly agreeing that residential values over 1km of the new JLE stations have been affected City Fringe East of City Fringe Isle of Dogs East London All Areas 75% 65% 67% 70% 69% 50% 47% 22% 40% 42% 67% 59% 67% 70% 65% 83% 76% 78% 70% 77% 92% 88% 78% 80% 88% 50% 53% 44% 50% 50% 67% 65% 56% 60% 63% 58% 59% 33% 50% 52% 17% 23% 11% 10% 17% In East London, it is difficult to generalise about the agents perceptions of the impact of the JLE Corridor, although they broadly reflect those for the whole of the JLE Corridor. The most positive finding was in terms of the effect that the JLE had had in stimulating the rate of take-up of residential property. Throughout the whole of the JLE Corridor, there is anecdotal evidence of a positive price impact distance decay effect around the JLE Stations. Although this varied by property market area, there was a consistent pattern across all areas. The 107

average percentage price impact figure by distance for each property market area is shown in Table 9.2 below. Table 9.2 Impact Agents Survey Residential Property Market: Average Value City Fringe % Up to 500m +43 (+4) Between +39 500m and (+6) 1km Over 1km +21 East of City Fringe % +44 (+5) +36 (+3) Isle of Dogs % +30 (-9) +25 (-8) East London % +30 (-9) +25 (-8) All Areas (+3) +23 (+5) +10 (-8) +12 (-6) * The figures in brackets are the difference between the average figure for the individual property market areas and the average figure for all property market areas % +39 +33 +18 The above table suggests that for the residential property market, there is a distance decay effect in positive value terms as you move along the JLE Corridor away from Central London. Commercial Property Market Table 9.3 overleaf summarises the responses in relation to the commercial property market. The findings indicate that the JLE has had a positive value impact on the commercial property market, although it appears to have varied throughout the JLE Corridor. Whilst the figures suggest that the impact has been less significant than on the residential property market, given the primary interest of the agents surveyed in this market, the following findings should be treated with caution. On all but one of the indicators, in the City Fringe Area, the impact was at least the same if not greater than the average throughout the JLE Corridor, particularly in terms of the impact of commercial values. 108

Table 9.3 Findings (% of Responses) Agents Survey Commercial Property Market: Summary Question/ Statement Percentage of respondents strongly agreeing that office rents have risen as a direct result of the JLE Percentage of respondents strongly agreeing that capital values for commercial property have risen as a direct result of the JLE Percentage of respondents strongly agreeing that office demand has risen as a direct result of the JLE Percentage of respondents strongly agreeing that industrial demand has not been affected as a direct result of the JLE Percentage of respondents strongly agreeing that commercial values within 500m of the new JLE stations have been affected Percentage of respondents strongly agreeing that commercial values between 500m and 1km of the new JLE stations have been affected Percentage of respondents strongly agreeing that commercial values over 1km of the new JLE stations have been affected City Fringe East of City Fringe Isle of Dogs East London All Areas 8% 6% 11% 20% 12% 25% 12% 11% 10% 17% 33% 22% 44% 40% 29% 0% 0% 0% 0% 0% 33% 18% 11% 20% 21% 25% 18% 11% 10% 13% 8% 6% 0% 0% 4% In the East of City Fringe Area, the impact was broadly similar to the overall impact throughout the JLE Corridor, apart from for office rents, where the positive impact was half that reported throughout the whole JLE Corridor. This is not surprising given the limited office market in this property market area. The Isle of Dogs shows a less than average impact on commercial values, but a greater than average impact in terms of the level of office demand. In East London, the impact was broadly similar to the overall impact throughout the JLE Corridor, apart from for office demand and office rents, where the positive 109

impact was over one and a half that reported throughout the whole JLE Corridor. This suggests that the JLE has made a real impact on the office market, opening it up to become more than a local market. Throughout the whole of the JLE Corridor, there is anecdotal evidence of a positive price impact, although this varied by property market area. The average percentage price impact figure by distance for each property market area is shown in Table 9.4 below. Table 9.4 Impact Agents Survey Commercial Property Market: Average Value City Fringe % Up to 500m +57 (+23) Between +52 500m and (+20) 1km Over 1km +47 East of City Fringe % +25 (-9) +25 (-7) Isle of Dogs % +15 (-19) +15 (-17) East London % +15 (-19) +15 (-17) All Areas (+17) +25 (-5) +15 (-15) +15 (-15) * The figures in brackets are the difference between the average figure for the individual property market areas and the average figure for all property market areas % +34 +32 +30 The above table suggests that for the commercial property market, there may also a distance decay effect in positive value terms as you move along the JLE Corridor away from Central London. However, there appears to be a much steeper drop-off in impact than in the residential property market, with the impact focused on the City Fringe. This may be a result of the small sample size in the other three property market areas as much as anything else, which may also account for the limited distance decay effect. Other Findings Table 9.5 overleaf summarises the responses from other statements in the Agents Survey. 110

Table 9.5 Agents Survey Other Findings: Summary Responses (%) Question/ Statement Percentage of respondents strongly agreeing that the JLE has stimulated development interest Percentage of respondents strongly agreeing that the JLE has helped the regeneration of run-down areas Percentage of respondents strongly agreeing that the only impact of the JLE has been to make it easier to get into the City and West End Percentage of respondents strongly agreeing that the JLE has been the biggest single impact on the local property market in the last 10 years City Fringe East of City Fringe Isle of Dogs East London All Areas 58% 41% 56% 60% 42% 50% 47% 44% 40% 33% 0% 6% 11% 10% 4% 33% 41% 22% 30% 33% Across all property market areas, the role of the JLE in stimulating development interest and helping in the regeneration of run-down areas was highlighted, as was the fact that from around one quarter to over one third of agents saw the JLE as the biggest single impact on the local property market in the last 10 years. In contrast, less than 10% of agents in any property market area saw the JLE as simply making it easier to get into the City and West End. 9.1.4. Longitudinal Data Analysis The IPD Dataset for the City Fringe (Waterloo, Southwark and London Bridge) provides some hard evidence that since 1989 the JLE has led to higher than average capital and rental growth in the office sector in the City Fringe Area. This out-performance has been most evident in the post-opening period (1999-2001), when capital growth out-performed the Central London average by around two-thirds (67%) and that of the control area by around one third (32%). For rental growth, the IPD JLE Area out-performed the Central London average by around one fifth (19%), but not the control area, which out-performed both areas. It may be that 111

the control area is lagging behind both Central London and the IPD JLE Area, evidenced by increasing yields. Care should be taken in using these figures, as any change in the amount and type of supply of land and property will obviously have an effect on price through the relationship with demand. Analysis of changing supply was outside the brief for this study and the 2002 Development Impact Study did not explore this subject in any great detail. 9.2. Conclusions We stated in our Phase 1 conclusions that it is clear that the JLE has been one of the major shocks acting on commercial and residential property markets in parts of London since the Bill to Parliament. We also stated that we believed that our findings indicated that the JLE will result in more than a corridor of movement, being a corridor of rejuvenation and revitalisation, albeit with differential impacts in time and space. Our work in Phase 2 has provided clearer evidence of both of the above. In our Phase 1 conclusions, we also proposed a number of hypotheses about the likely impact of the JLE on the residential and commercial property markets of each of the four catchment areas that needed to be tested and quantified through future research in the after-opening period. These were, as follows: City Fringe Linked to an integrated regeneration process, an area with a changing commercial and residential property market role that the opening of the JLE will reinforce; East of City Fringe the JLE has had a limited direct impact on the commercial property market, as the area has a strong residential focus. There may be a narrower impact confirming and extending the area s residential role, based on improved accessibility to the West End, the City and Docklands; Isle of Dogs An established office location, which has been reinforced by the opening of JLE, confirming it as a place to live and work; and 112

East London JLE is an early shock in an area that will be affected by other future shocks, such as the Channel Tunnel Rail Link. These will help to define a clearer commercial and residential property market role and position. 9.3. Link with Phase I and Other Studies It is our view that this Phase 2 Study has provided stronger and more conclusive evidence of the positive value impact of the JLE on the property market along its corridor. The study has again highlighted the complexity of the property market dynamics through the JLE Corridor and the difficulty in producing generalised findings about the scale of the impact of the JLE. We believe that with better quality commercial and residential transaction data, the robustness of the findings could be improved markedly. This is a topic that the current RICS and ODPM funded study into the relationship between land use, land value and public transport must address. Our work has also confirmed that any future work on property market activity should be undertaken at the individual station catchment level. It is our opinion that the after-opening impact should be measured again in the future to determine whether the step-change in the performance of the residential and commercial property markets was a one-off event and that future growth will return to the London-wide average. As part of our work, we have read both the after-opening Development Impact Study and the Economic Activity and Labour Impacts Report. Whilst our brief did not encompass providing commentary on these reports, we would like to finish by making the following brief observations, which seem to support the findings of our work. The 2002 Development Impact Study Report also highlights the differential spatial impact of the JLE in relation to station catchments. It also provides evidence through analysis of the London Development Monitoring System (LDMS) that the JLE has had a positive impact on interest in residential development. This is through both the number of applications received and the number of dwellings 113

started or completed. It also suggests that there has been a greater demand for residential development in the JLE Corridor than in Inner East London generally. One of the areas investigated by the Economic Activity and Labour Market Study was a list of possible effects of the JLE in each station catchment area. These included causing property prices to rise. The report highlights that a high proportion of respondents (employers) in the post-opening survey felt that the JLE had caused property prices to rise. This was particularly so in Bermondsey, where 78% of employers agreed with this, followed by Southwark (67%) and Canary Wharf (63%). This closely fits the anticipation level in the pre-opening survey. The report concludes by saying that the major changes are development-related, an effect that may well strengthen in coming years as new office developments come on stream and residential investments take place. This adds further weight for a future after-opening study, albeit probably with a much more focused value-based brief. 114

APPENDIX 1 - LOCAL AGENTS SURVEY POSTAL QUESTIONNAIRE 115

JUBILEE LINE EXTENSION PROPERTY MARKET IMPACT STUDY SURVEY OF LOCAL AGENTS Introduction On behalf of Transport for London, Chesterton is carrying some research to assess the impact of the opening of the Jubilee Line Extension (JLE) on the commercial and residential property markets in those areas through which the Line runs. A key part of this is research amongst local agents. This will start with the current postal survey, which we will supplement with a limited number of follow-up interviews. We would be grateful if you could complete and return this questionnaire, either in the pre-paid envelope or by fax to 020 7629 0872. A. AGENTS INFORMATION PLEASE TICK RELEVANT BOXES Q1 What geographical areas do you cover? Southwark (South Bank) London Bridge Bermondsey Canada Water/Surrey Quays Isle of Dogs Canning Town/ Royals West Ham Stratford Q2 How long has your company and have you personally been operating in this area? Less than 1 year 1-2 years 2-5 years 5 years + Your Company You Personally 116

Q3 What types of property does the office deal with? Office Industrial/Warehousing Retail Leisure Development Land Residential B. GENERAL PROPERTY MARKET PERCEPTIONS Q4 In the last couple of years (i.e. 1999 onwards), what have been the overall trends in the local residential property market? Significant Marginal Stayed Marginal Significant Increase Increase The Same Decrease Decrease Demand for space Supply of space Rates of take-up Rental values Capital values C. FACTORS AFFECTING THE LOCAL PROPERTY MARKET Q5 What do you think have been the key factors that have influenced the local property market in the last couple of years? 117

D. THE JLE Q6 What do you think the impact of the opening of the JLE has had on the local property market? PLEASE TICK ONE BOX FOR EACH Demand for space Supply of space Rates of take-up Rental values Significant Impact Limited Impact No Impact Capital values IF YOU ANSWERED NO IMPACT TO ANY QUESTION AT Q6 GO TO Q7, OTHERWISE GO TO Q8 Q7a Why do think that the JLE has had no impact on the local property market? PLEASE TICK ONE BOX It is too early It is too late There will be/has been no impact IF TOO EARLY GO TO Q7B: IF TOO LATE GO TO Q7C Q7b When do you think that the impact will occur? NOW GO TO Q8 118

Q7c When did the impact occur? NOW GO TO Q8 Q8 Here are some statements about the JLE. Can you indicate how much you agree or disagree with each one: PLEASE TICK ONE BOX FOR EACH STATEMENT AND ESTIMATE THE IMPACT IN THE LAST COLUMN Strongly Agree Agree Disagree Strongly Disagree % Change + / - The values of residential properties within 500m of new JLE stations have been affected The values of residential properties between 500m and 1km of new JLE stations The values of residential properties over 1km of new JLE stations House prices have risen as a direct result of the JLE Residential rental levels have risen as a direct result of the JLE Office rents have risen as a result of the JLE opening Capital values for commercial property have been affected by the opening of the JLE Development interest has been stimulated by the JLE opening The values of commercial properties within 500m of new JLE stations have been affected The values of commercial properties between 500m and 1km of new JLE stations 119

The values of commercial properties over 1km of new JLE stations The JLE is helping the regeneration of run-down areas Office demand has risen as a result of the opening of the JLE Industrial demand has not been affected by the opening The only impact of the JLE has been to make it easier to get into the City and West End The JLE has had been the biggest single impact on the local property market in the last 10 years E. OTHER COMMENTS Q9 Do you have any other comments about the JLE and its impact on the local property market? Q10 We would like to talk to a small number of agents in more depth. Would you be willing to take part? PLEASE TICK ONE BOX Yes No THANK YOU COMPLETING THE QUESTIONNAIRE. PLEASE RETURN IT IN THE PRE-PAID ENVELOPE OR FAX IT TO US ON 020 7629 7804 120

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