The foreign buying of property in London covers commercial and residential and it is significant that Asian buyers were responsible for 60% of the new build deals in the six months to April. They have been active across London, such as in the mixed use scheme at Kings Cross which was extensively marketed in the Far East. This helps to fuel the enthusiasm for new residential schemes, such as at Kings Reach Tower, SE1, where CIT Group and Jadwa Investments have a mixed use project with 173 flats.
Nearby, the refurbished Sea Containers House will become an hotel run by the US group, Morgans. In the City, there is strong opposition to the conversion of office buildings to hotels or residential led by Planning Chief, Peter Rees, who has asked Secretary of State Eric Pickles to exempt the city from planning changes that encourage switching from offices to homes. The City of London receives around 10 enquiries a week on conversion of properties to residential use.
After a buoyant recovery comes the adjustment as the UK economy slows and the office market comes up against the shortage of Grade A space. The question at the moment is whether the slowing of the momentum will last for a lengthy period or whether it merely reflects the current market and economic realities, particularly as worldwide confidence has dived.
Many of the fundamentals still signal growth, such as the fact that the economy in London is bucking the national trend and growing at a reasonable rate. Also there remains demand for offices in all sub markets. For example, Colliers reports that availability in central London has declined to a 30 year low and Grade A space is down 17%.
Another way of looking at it is that net absorption in the West End in the first quarter of the year was at the fastest rate since 2005. Mike McKeith of Colliers commented: “Competition for Grade A space will remain the key driver of rental uplift during 2011. Absorption appears to have peaked in the city and is close to doing so in the West End. We expect to see increased absorption of good quality second hand space as Grade A becomes scarcer.” Tony Joyce of GVA notes that the “market has been quiet for some months although there are lots of requirements.”
Even so, the serviced office market continues to perform strongly with officebroker.com reporting a 20% increase in deals in April-June compared with the same period a year ago. That can be evaluated against figures from Capita Symonds that take up in the second quarter in central London was below average, with the City down 36% on the same period of 2010 and the West End down 9%. Another shift in the balance of the market is the increased amount of prime residential development which cost consultant EC Harris calculates at £21 billion over the next nine years in a total of 9,000 units.
Confidence is coursing through the commercial property market throughout the region led by a buoyant industrial sector. This has been enhanced by the widespread backing for the Solent Local Enterprise Partnership from the major companies, universities and the public sector.
In Southampton substantial new developments have been given the green light and the strength of the market has persuaded developers to ready new plans. This indicates a healthier situation for pre lets. The economic improvement highlights the natural advantages of an area with major ports, a highly skilled workforce and good communications. Adrian Whitfield of Lambert Smith Hampton (LSH) said: “There has been a high take up of industrial space since mid 2009 but in the current year this could be down because of a shortage of stock. There is a lack of development on a speculative basis.” That has led to more design and build schemes spurred by the shortage of sites.
Another effect is that landlords have been able to rein in the length of rent free periods to about 1 year on a 5 year lease. Andrew Hodgkinson of Goadsby commented “It would not be a surprise to see rents in this sector begin to rise in the second half of 2011.” The central problem is that the shortage could mean that occupiers will look outside the region for their properties, although that situation has not been reached yet. For example, one major site being developed is the 140 acre former power station site of Oceanic Estates’ Marchwood Industrial Park, Southampton. This is being marketed by Adrian Whitfield (LSH) and Matthew Poplett of King Sturge who said: “Marchwood is a unique industrial estate offering opportunities for a variety of occupiers.”
The buoyant industrial market suits SEGRO very well and it has achieved a host of transactions. At Vista Park, Nursling, Pneumax has bought a 1,247 sq.metres (13,427 sq.ft.) unit and SEGRO has also sold two sites on its Voyager Park, Portsmouth. Wernick Group, a hirer of portable and modular accommodation, has bought a 2.5 acre site for a regional depot and Landscaping Supplies has purchased a 1 acre site. SEGRO’s Chris Davies said: “This represents real progress achieving our strategy of selling serviced land parcels at Voyager Park North.”
The improvement in the commercial property market is being underpinned by the determination of some local authorities to push the green button for regeneration. What will gratify the government is the emphasis on manufacturing and industry, whether established businesses or start ups. A good example of this is a new maritime and marine innovation quarter at the former Vosper Thornycroft shipyard at Woolston, Southampton.
The South East England Development Agency (SEEDA) has linked with Southampton City Council, with the backing of private finance, to drive this
forward on the site of Centenary Quay. Together with 1,600 residential units, shops and offices, there will be buildings for marine businesses to encourage
new products and innovation through access to top research.
According to SEEDA, manufacturers have expressed considerable interest in participating in the new marine quarter. SEEDA’s Chief Executive, Pam Alexander, said: “We will see a thriving hub of marine manufacturing emerging, linked closely to the higher education strengths of the city.” The development will be helped by the creation of the Solent Local Enterprise Partnership which has been driven by the local business community and is supported by the four universities in the area together with the local authorities. The area has a population of 1.3 million and 50,000 businesses. Doug Morrison of Associated British Ports said: ”The port is at the heart of the vitally important maritime sector and ABP welcomes this initiative of a business led LEP that is focused on putting the business community at the core of economic growth in the Solent area.” On top of this, Morgan Sindall Investments (MSI) has been appointed by Southampton City Council as the preferred developer for the £450 million Royal Pier Waterfront scheme. MSI’s Ernie Battery said: “This key site provided the opportunity to position Southampton at the forefront of internationally recognised waterfront schemes.”
Another major scheme in Southampton is Admiral Quay, Ocean Village, where Allied Developments has bought the site for a major mixed use scheme of residential and leisure from Barratt Homes. Confidence is coursing through the commercial property market throughout the region led by a buoyant industrial sector. This has been enhanced by the widespread backing for the Solent Local Enterprise Partnership from the major companies, universities and the public sector. In Southampton substantial new developments have been given the green light and the strength of the market has persuaded developers to ready new plans. This indicates a healthier situation for pre lets. The economic improvement highlights the natural advantages of an area with major ports, a highly skilled workforce and good communications. Adrian Whitfield of Lambert Smith Hampton (LSH) said:
“There has been a high take up of industrial space since mid 2009 but in the current year this could be down because of a shortage of stock. There is a lack of development on a speculative basis.”
That has led to more design and build schemes spurred by the shortage of sites. Another effect is that landlords have been able to rein in the length of rent free periods to about 1 year on a 5 year lease. Andrew Hodgkinson of Goadsby commented “It would not be a surprise to see rents in this sector begin to rise in the second half of 2011.” The central problem is that the shortage could mean that ccupiers will look outside the region for their properties, although that situation has not been reached yet. For example, one major site being developed is the 140 acre former power station site of Oceanic Estates’ Marchwood Industrial Park, Southampton. This is being marketed by Adrian Whitfield (LSH) and Matthew Poplett of King Sturge who said: “Marchwood is a unique industrial estate offering opportunities for a variety of occupiers.”
The buoyant industrial market suits SEGRO very well and it has achieved a host of transactions. At Vista Park, Nursling, Pneumax has bought a 1,247 sq.metres (13,427 sq.ft.) unit and SEGRO has also sold two sites on its Voyager Park, Portsmouth. Wernick Group, a hirer of portable and modular accommodation, has bought a 2.5 acre site for a regional depot and Landscaping Supplies has purchased a 1 acre site. SEGRO’s Chris Davies said: “This represents real progress achieving our strategy of selling serviced land parcels at Voyager Park North.”
A reminder of the quality of the new developments in Salford Quays has come with the short listing of the MediaCity footbridge for an award by the Institution of Structural Engineers. The structure is a cable swingbridge providing pedestrian access over the Manchester Ship Canal into the heart of MediaCity.
According to the organisers of the award for structural and engineering excellence, the footbridge has been designed to respond to the particular geometrical constraints of its location. It anticipates future redevelopment of Trafford Wharf to the south and in conjunction with the existing Lowry Bridge enhances pedestrian links for the area as a whole. The results of the competition for the award, which has been in operation since 1966, will be announced in November.
The impact of MediaCity on Greater Manchester has been highlighted by Property Secrets, an investment organisation. It listed a number of positive points for the city, namely: The movement of thousands of BBC personnel from London is having an impact on the residential market and a range of media and creative organisations; A 2.7% increase in the turnover of retail businesses in the year to March, according to the data organisation CityCO; A 12.8% rise in passenger numbers at Manchester Airport between February and March; A report by Knight Frank dubbing Manchester as one of the UK’s best cities with the strongest investment potential. Alan Forsyth of Property Secrets said: “Demand for new properties in prime locations is experiencing strong growth and increased job opportunities, such as in Manchester, has meant an increased number of people buying properties in the city.”
A similarly upbeat analysis of the impact on the local office market has come from officebroker.com. It reports increased demand from local businesses for office space in the area through the impact of 2,500 employees moving into MediaCity. Jim Venables of officebroker.com said: “As a company we have witnessed an increase in demand in and around Salford Quays since the beginning of the year, a rise which is reflected in the personal experiences of many local providers we work alongside.” Mark Canning of Canning O’Neill said: “Our experience backs up the optimistic views of Salford Quays where, for example, half the Metro building has now let with Insight taking 1,672 sq.metres (18,000 sq.ft.).” The impact of MediaCity has brought a host of lettings at Digital Park and Digital World Centre. For example, Swiss Post has taken Unit 3 at Digital Park as an extension to its existing facility. Canning said of another new scheme, the Soapworks development, that “we are seeing considerable interest from potential occupiers.”
Two major projects are leading the way in the economy of the region, offering a focus for future growth. The attraction is that Peel’s MediaCity and expansion plans for Manchester Airport are in sectors that offer extended growth and the use of technology.
Indeed, the scale of both projects is exceptional for a regional city. MAG Developments has selected Jones Lang LaSalle and Drivers Jonas as leaders of planning and commercial delivery of Airport City, the Enterprise Zone project, the initial stages of which were worked up by Urban Strategies of Canada. MAG’s John Atkins commented: “This will not be one development but a place making project over a 10 to 15 year period. It is imperative that we ensure that Airport City is of the highest quality and international standing.”
The development has already received occupier enquiries. At the moment the main demand is expected from logistics, freight forwarders, advanced manufacturers, research and development and health related users. Bob Dyson of Jones Lang LaSalle said: “It can evolve into an integrated business district in its own right providing a comprehensive range of commercial facilities, services and revenue streams.” Charlie Cornish, MAG Chairman, said Airport City could create 7,000 jobs as well as create revenue for re-investing in Greater Manchester. The development is taking place on land between the airport and Wythenshawe, to the north of the airport. Important connections are to the University Hospital of South Manchester (UHSM) Mediapark initiative and the regeneration of the town centre. It will require considerable investment in the infrastructure, which will help the whole of south Manchester. But it has the advantage of the airport’s international network.
This connectivity can be seen with the all inclusive package which MAG has launched, aimed at attracting small and medium sized enterprises (SMEs) and start up businesses to newly refurbished offices. The property is 308 Avro Way where suites up to 186 sq.metres (2,000 sq.ft.) are being offered at an all inclusive price of £215.20 a sq.metre (£20 a sq.ft.). Will Kennon of letting agent CB Richard Ellis, joint with Regional Property Solutions, said: “Locations such as the airport are becoming more popular for providing a combination of amenities, an established public transport system and extensive car parking.”
One interesting aspect of the investment market is the amount of money going into shopping centres even though consumer spending is flat. That could be a sign that institutions are taking a long term view of a revival in spending in the UK where the building of new shopping facilities has eased considerably over the past few years.
In Bristol, HSBC European Active Real Estate Trust has paid £50.2 million for the Galleries Shopping Centre from the Mall Fund, of which Capital & Regional has a 16.7% shareholding. British Land is one of the companies taking a positive view on shopping centres with two deals in the South West in the past few months, giving it a total of 12 centres. It is buying the leasehold interest in the 12,000 sq.metres’ Green Lanes Shopping Centre, Barnstaple for £30 million. This is a very successful mall with 5.5 million shoppers a year and is over 99% full with all the High Street names such as Bhs, (the anchor), Mothercare and Wilkinson.
A few months earlier, British Land paid £240 million for the 52,953 sq.metres (570,000 sq.ft.) Drake’s Circus Shopping Centre in Plymouth which was a good deal for the developer because it gave a yield of 8%. Multi Development was also in the market to sell its half share in the 42,734 sq.metres (460,000 sq.ft.) SouthGate, Bath which it developed with Aviva Investors, who hold the other half share. A price of £150 million to give a 5% yield was envisaged. However, this has now been suspended. DTZ’s view of the investment market is that it is cautious characterised by inactivity for a large slice of 2010.
Another indicator is that institutions have narrowed their view, at least in the regional markets, of what is prime property. The agent argues that opportunistic investors have taken their profits from the market upturn and investors are for the most part sitting on their assets and paying down debt. Furthermore, it points out that yields are near their long term average and the outlook is, therefore, flat over the next year “with upside risks to 2011.” The question that hangs over this gloomy view is what will be the effect of the dead development situation with few new assets being built in the UK, apart from London.
The foreign buying of property in London covers commercial and residential and it is significant that Asian buyers were responsible for 60% of the new build deals in the six months to April. They have been active across London, such as in the mixed use scheme at Kings Cross which was extensively marketed in the Far East. This helps to fuel the enthusiasm for new residential schemes, such as at Kings Reach Tower, SE1, where CIT Group and Jadwa Investments have a mixed use project with 173 flats.
