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.
After a year which beat expectation, the hope is that
the pace can be maintained although there are some
concerns in the region that 2011 will ease back again.
There appear to be many reasons for this view, including the national problem of a fast declining stock of Grade A space. The cautious approach is understandable given the global problems engendered by the earthquakes and the future of government spending cuts. With the nearby areas stretching through Southampton and Portsmouth doing well, notably in industrials, the suspicion must be that the South West is likely to perform more strongly. Jeremy Hughes of BNP expects a “harder year in the market with the dynamics affected by the lack of prime stock. If the building is right, it will go and the larger companies can afford to move.”
The rationalisation of distribution so that companies are under one roof continues to be a major trend, which can be seen in his case with the interest from occupiers in the 8,918 sq.metres (96,000 sq.ft.) property Hughes is marketing in Trowbridge. Another major deal by BNP and King Sturge is the Scottish company WH Malcolm taking 23,225 sq.metres (250,000 sq.ft.) at Western Approaches in the ever popular Avonmouth to satisfy a distribution contract.
DTZ also sounds a cautious note. ”Current requirements suggest that subdued transaction volumes are likely in early 2011 and the annual total is unlikely to reach that of 2010. ”On the other hand,” it said: ”we anticipate an increasing proportion of Grade B take up, following a return from the mid sized professional and media sectors. Bristol also has a reputation for its clustering of firms in the sustainability sector and take up from these types of companies could make some net subtractions from availability.” Ben O’Connor of GVA said: “Life has improved since the end of 2010 and we have had more viewings, bringing cautious optimism, although these are mainly for small offices. But there are a handful of larger deals in the pipeline.” The final point of optimism is that only the new 10,219 sq.metres (110,000 sq.ft.) Bridgewater House will be completed this year so there could be a long wait for any speculative space. Landlords hope this will allow a real improvement in the rent free periods they give.
As part of a mixed use scheme on 26 acres around Station Road, Cambridge, Powell Williams, the project management firm, is to manage the £40 million construction of student accommodation.
Student housing has been one of the growth sectors for the property industry in the current period of hard economic times. In the case of Cambridge, it will be 511 bedrooms in three buildings for Anglia Ruskin University. Andrew Marshall of Powell Williams commented: “The growing requirement for high quality student accommodation shows no sign of waning and demonstrates how this one area of the market is booming, while others are suffering. Such schemes are offering one of the only streams for new build investment opportunities in the current market.”
The key to this is that such schemes can raise private capital; in this case forward funding from LaSalle Investment. John Yeend of LaSalle said: “This project offers a unique opportunity to participate in the reinvigoration of this part of Cambridge through the development of new facilities for Anglia Ruskin University, alongside the wider development of new homes, hotels, shops, offices and public space.”
The scheme has been designed by TP Bennett Architects and is designed to meet the BREEAM excellent sustainability rating, which is an increasingly important requirement on new buildings. According to Mike Ayton of Juniper Estates, the Cambridge office market continues to be active and the first half take up, together with deals in the pipeline, indicates that the total for the year will be over 37,160 sq.metres. “Companies like Jagex and Arm are expanding and we are getting to the point when developers need to go for speculative schemes. The vacancy rate for good buildings is only 3.5%.”
Amazon continues on its massive expansion which has led to a series of large industrial lettings in the UK. The latest deal is that the online bookseller is negotiating with Murphy & Sons for a 43,200 sq.m. shed, “Mammoth,” in Hemel Hempstead which was partially destroyed by the Buncefield oil depot explosion.
Murphy acquired the site from Blackstone Real Estate Partners in 2009. To understand the scope of Amazon’s expansion, this follows it taking the 65,030 sq.m. Flair building on Gazeley and Metlife’s G.Park, Rugeley and it is negotiating with Prologis for a much larger shed at the Widnes Freight Park, Cheshire.
West London has benefited from the market improvement in the capital which could bolster growth along the Thames Valley. That has led to rental increases in such centres as Hammersmith where Grade A space is now £339 a sq.metre and a return of the development cycle. Ever quick to spot a development opportunity, Stanhope is negotiating with the Irish National Asset Management Agency (NAMA) to buy the former headquarters of Gillette. The 10.5 acre site was owned by Bonnington Group who had a plan to build a 500 bedroom hotel and offices after paying £30 million for the Grade II listed Art Deco building. Stanhope is bidding £15 million for the Isleworth site.
Another Art Deco gem is due for refurbishment with Cathedral Group and Development Securities buying the London Business Park, Hayes, Middlesex from JER Partners, Blackstone and Resolution. The new owners intend to spend £250 million on the park, which was the former headquarters of EMI, the music Group. The estate was designed by one of the most successful designers of Art Deco buildings, Wallis, Gilbert & Partners, who were also responsible for the Hoover Building and the Firestone Factory, now demolished, both in West London, and Victoria coach station. Sadly many of the buildings, said Cathedral, have been forgotten and the park is “a special place that had not been recognised by its previous owners.” Cathedral‘s Richard Upton said: “This site is part of the magic of the UK‘s industrial and architectural history, but it has been hidden and forgotten for decades.” So his crusade is to uncover the park‘s heritage and restore its full glory. As part of the development, the amount of commercial space will increase from the current 69,675 sq.metres.
The Thames Valley office market is ratcheting up steadily as the recovery broadens and speculative activity is renewed. That brought a strong first three months of the year with a surge to a record performance, said King Sturge (who have now
merged with Jones Lang LaSalle). It calculated a 37,996 sq.metres (409,000 sq.ft.) take up, which
beat the five year average and was a 37% rise on the same period of 2010.
The encouraging change for long term growth is that total availability declined by 10% compared with a year ago to 641,010 sq.metres (6.9 million sq.ft.). Piers Leigh of Jones Lang LaSalle commented: “Due to the slow progress of large transactions, we are still forecasting a slightly below average take up for the year of 139,350 sq.metres (1.5 million sq.ft.).” He noted Grade A supply could fall to a critical level in west London which means rents will rise. For the future “we have seen a significant rise in speculative development with four key schemes within the M25 under construction or due to start within the next six months.”
Knight Frank highlights the dominance of manufacturing and pharmaceuticals which account for a third of total demand. It also noted that active demand declined in the first quarter by 14% to 472,119 sq.metres (508,201 sq.ft.) after a number of requirements were satisfied. While the agent welcomes the rise in speculative development it believes that it will be limited and confined to prime locations. According to Knight Frank, Maidenhead had four deals in the first quarter, the largest being 4,645 sq.metres (50,000 sq.ft.) to Adobe in Market Street in the centre of the town which only completed in the final three months of 2010.
As far as the M25 market is concerned, the agent cautiously predicts a 5% increase to 213,670 sq.metres (2.3 million sq.ft.) this year compared with 2010 but expects little change on the total for the M4 and even a 15% decline in the M3 take up.
A test of the government’s new policies of promoting regional regeneration and economic growth could come in Yorkshire with Doncaster winning £18 million funding for its scheme. There was stiff competition for the government’s seed capital of £450 million and Doncaster got the cash for its Gateway to the
Sheffield City Region project. It fits with past success in pushing regeneration and continues the policy of boosting economic growth and becoming a catalyst
for attracting investment. Part of the project is the
construction of the Finningley and Rossington Regeneration Route Scheme (FARRRS) which is
the infrastructure needed to unlock the project.
Peter Dale of Doncaster Council commented: “This is tremendous news for Doncaster and the Gateway has the potential to deliver approaching 24,000 jobs in the area. The fact that we have received double the average successful bid of £9 million clearly demonstrates the confidence the Government has in Doncaster to deliver such an important scheme.”
One of the vital parts of the Gateway project is the expansion of Robin Hood Airport. Nigel Brewster, Doncaster Chamber President and Local Enterprise Partnership Board Member, said: “Improving access to the airport will have a transformational effect on the whole City Region. We must now capitalise on this
by encouraging local businesses to trade internationally and encourage new investors to locate on the airport business park and other key sites within the City Region.” Brewster said a particular objective of the chamber was to “create significant positive momentum for economic growth in the area.”
The airport, which is owned by Peel, is considered to have considerable potential for increasing freight traffic and as a location for business parks. Howard Gannaway, also of the Chamber, said: “The next
opportunity for the City Region will be around Enterprise Zones; we hope this announcement will
dovetail neatly with any proposals to create additional opportunities for the area.”
While the worst is over for the Midlands commercial property market, the recovery is expected to be slow although also steady. The problem lies in the future as the top grade offices get absorbed at a time when developers are still shying off building again. At the moment the market in Birmingham is dominated by deals at the smaller end of up to 465 sq.metres (5,000 sq.ft.). Nevertheless, a surge of lettings including a large one of 107,000 sq.ft. at Calthorpe House in the third quarter pushed the 2010 annual figure above expectations at 62,094 sq.metres (668,392 sq.ft.)) reports Jonathan Carmalt of King Sturge. “These figures show the breadth of occupiers in Birmingham with the outcome fitting into the long term average. With no new space being delivered this year the supply of Grade A will steadily diminish. In our view the current year will be challenging, particularly as the public sector is largely out of the market.”
In the broader context what is encouraging is that manufacturing is leading the UK economy out of the recession which is certain to impact on the Midlands industrial market, already noticeable with the decision to rescind the closure of a Jaguar car plant. The improvement in manufacturing is coming through the traditional industries of engineering and machinery which has always been at the heart of the Midlands economy. There is, however, some danger in the rebalancing from a consumer/public sector economy to more reliance on manufacturing. For example public sector employment is declining which Oxford Economics expects to limit employment in Birmingham this year, despite increased industrial output.
Another danger is increased inflation which has been persistently above target for some time. As the supply of properties declines, that could mean increased rents. At the moment the top rent reached for Grade A in Birmingham is £301.28 a sq.metre (£28 a sq.ft.) which Jonathan Fear of Jones Lang LaSalle said is the limit for this year. DTZ notes that prime space is thinly traded and there are only 3 or 4 buildings in the city with space available to meet this definition. It also puts rent free periods at as much as 24 months.
The dominance of occupiers seeking bargain priced leasing deals could be coming to an end, said CB Richard Ellis. The firm’s Will Ventham makes this point because the decline in the amount of Grade A space available and the empty development pipeline means an improved market for landlords. To those who take a cynical view of prospects for large lettings Ventham said: “For three consecutive years Birmingham has secured one or more transactions in excess of 9,290 sq.metres and there is no reason that this trend should not continue into 2011.” Jonathan Fear said there are a number of large requirements in the market from Rare Games and Pinsent Mason, the lawyers, for example. His projection is for a similar level of activity to 2010 and is looking to 2012 and 2013 to bring a more positive approach by occupiers. CB Richard Ellis suggests ”that some larger professional firms reaching breaks or lease expiries are now more likely to take advantage of market conditions and acquire new space to better suit their business needs and minimize costs.”
Spirits are lifting in Birmingham as the developers, together with the city council, change the 213,670 sq.m. Arena Central scheme. The new plans by Miller Developments and Bridgehouse Capital mean an increased amount of offices in the project, which was halted in 2008 when the UK economy stalled. The developers will also rephase the Section 106 payments and Section 278 highway construction to help the development of the site. Given the scope of the £17 billion plans to transform the centre of Birmingham, which includes a new library facing the offices in Arena Central, then the council could be making a crucial move. The financial hiatus has led to further consideration by the council of other schemes, such as changes to the redevelopment of New Street Railway Station which could mean dropping the two towers in favour of a massive John Lewis store. The council remains committed to the grand plan to change the UK’s second city on the 2,000 acres it controls in the centre with new space of 1,486,400 sq.metres (16 million sq.ft.), the most ambitious plan of any UK provincial city.
Investment and development opportunities are arising from
the problems encountered in fulfilling the grand plans of Birmingham City Council for regeneration.
Apart from anything else, the sheer scale of the schemes means that determined operators can find opportunities. That surely applies to Sanguine Hospitality which has moved to a third deal in the city in a short period with plans to buy the former Kennedy Tower office block at Snow Hill Plaza from Bruntwood. The deal depends on planning permission for a change of use to a 224 bedroom budget hotel.
The point about Sanguine is that it has backing from Downing Corporate Finance and Rathbones but it is also using the government’s Business Premises Renovation Allowance to ease the deal. This provides a tax break to bring derelict buildings back into use.
Sanguine’s Chairman said: “We are delighted to be involved with a third hotel scheme in Birmingham. This will be a much larger project but will again involve an international brand.” This positive view of Birmingham is backed by Henderson who has paid £26.2 million for a 12.5% shareholding in the Fort Retail Park. As a result Henderson’s UK Retail Warehouse Fund’s stake has increased to 50%. The shareholding was bought from Invista Real Estate Management. Another significant purchase is Hansteen Holdings paying £23.3 million for the 984,770 sq.metres (1.06 million sq.ft.) 22 Unit Saltley Business Park from LPA Receivers acting for Lloyds Banking Group. At the moment eight of the units on the park are empty.
Perhaps the most important guide to the future of investment in Birmingham comes from Dr Karl-Joseph Hermanns-Engel of Union Investment who believes that the main regional cities in the UK provide the opportunity to diversify the fund managers’ UK portfolio “without compromising on building
quality, tenant strengths and lease lengths.”
GBR Phoenix Beard and DTZ have started the New Year by announcing two new lettings at Elmdon Trading Estate and one at Gravelly Industrial Park. Titanium Metals has signed a 10 year lease at Elmdon and an audio visual conferencing
company Aventeq has signed up for 5 years to a 5,400 sq.ft. facility at the site. The letting at Gravelly Industrial Park was to Blue Seal. Christian Smith, Head of Industrial Agency at GBR Phoenix Beard,said: “These latest announcements are testament to the enduring appeal of Elmdon Trading Estate and Gravelly Industrial Park and the investment undertaken by
Standard Life in refurbishing vacant units. Feedback shows that occupiers feel these are well managed and secure
industrial sites, with well maintained communal areas.”
ProLogis has agreed an unusual deal with car manufacturer BMW in which it is responsible for the maintenance and repair of a 42,548 sq.m. shed at Pineham, Northamptonshire. BMW is paying £59.18 a sq.m. for the unit on a 10 year lease which will become its regional distribution centre delivering parts for Rolls Royce, Mini and BMW. Given planning permission it could be completed by 2012. The car firm will move from Bracknell, which is now too small for its expanded UK operations. Recent DTZ research said the UK offers good value for logistics occupiers until 2012, despite higher occupancy costs compared with continental Europe. Simon Lloyd of DTZ said: “In the Birmingham market, rents are close to the European average but UK locations have increased total occupancy costs because of high property taxation. Furthermore, fuel duty will increase costs for all UK operations. On the other hand, costs and flexibility remain highly competitive.”
A large letting to E-ON of the 9,755 sq.metres (105,000 sq.ft.) former Treasury buildng boosted Nottingham last year but the overall sentiment remains cautious for the current year.
Like other Midlands cities, the test will come with the improving economy and the absorption of existing Grade A space. Helen Longstaffe of DTZ commented: “At the start of last year there was a general concern that the city centre office market would grind to a halt and the number of transactions fall dramatically. These predictions proved to be somewhat downbeat and the Nottingham market has been resilient.” She added that the take up of almost 23,225 sq.metres (250,000 sq.ft.) is above the long term average and “largely attributable to the diverse nature of demand active within the city.” One future problem could be that while supply is restricted because of a lack of new building, Nottingham City Council plans to release around 18,580 sq.metres (200,000 sq.ft.) onto the market. In separate research, DTZ is also cautious about the investment outlook for provincial cities (though foreign investors have recently shown more enthusiasm for deals in the UK regions) and adds that “unless there are more numerous and aggressive requirements from institutions pricing could potentially ease again.”
On the other hand there are institutions prepared to act, as Allianz has shown by forward purchasing Speedo, the swimwear manufacturer’s new headquarters at Miller Birch’s ng2 development. Allianz Global Investors paid £10 million, a yield of 7% for the 3,995 sq.metres (43,000 sq.ft.) building. King Sturge and Innes England advised Miller Birch on the deal. There are also a number of requirements in the market, such as to KPMG and Deloitte as well as the public sector (the Ministry of Justice). These may be more problematic in view of government spending cuts.
One interesting development in Nottinghamshire is at Carriage Court, a quality group of buildings built by the Duke of Portland on his Welbeck Estate. This has now been turned into seven suites aimed at creative industries such as digital publishing and design. A central part of the development, which could provide a model for the rest of the UK, was to breathe life into the local village through new commercial activity. It is being marketed by Knight Frank.
Lincoln is the focus of a substantial expansion of hotel space with the latest being a DoubleTree by HILTON four star unit with 115 bedrooms on Lincoln Marina in 2011. This follows the opening of a Holiday Inn Express, which is being expanded by 50 rooms, and a planning Premier Inn. In addition, independent hotel groups such as White Hart, the Castleand Charlotte House (a guest house) are also expanding their offer. A Lincon bed and breakfast has been voted No.8 in the world. Emma Tatlow of Visit Lincolnshire commented: “Research shows that Lincolnshire attracts 17 million visitors a year, and the city of Lincoln with its history and heritage is one of the main attractions.”
The new hotels will almost double the number of bedrooms to 1,146. Also in Lincolnshire, letting space in the expanding network of business and innovation centres has boomed, according to figures from the city and county authority. Occupancy levels at new centres are exceeding forecasts. At the Terrace in Lincoln 88% of the units are occupied and at Greetwell Place, 94%. “Lincolnshire business centres are achieving, or surpassing, forecasts and expectations,” said Will Bedford of Lincolnshire County Council.
Apart from the demands of growth in the City, there is also the looming Olympic Games next year which will put pressure on the transport system. This applies particularly to Upper and Lower Thames Streets which will be kept clear for the movement of Olympic dignitaries. The objective of the City of London “is to keep central London ticking over.”
While the major institutions feature so much in the performance of the Square Mile, there is also a need to support small businesses with 85% with City businesses employing less than 50 people. The City is looking to support these businesses through promoting new initiatives such as the Government backed Innovation Warehouse scheme and through introducing guidance packs for SMEs setting up in the City.
The City of London’s promotion of a broader economic base with increased leisure and retailing has been justified in spectacular fashion in the past year with the opening of the New Change retail complex. This is at the core of the move to a ‘seven days a week’ shopping offer which is gradually widening away from Cheapside to include peripheral areas. New Change, with its 58 shops, (30 of which have never been in the City before), has proved very popular with the 300,000 visitors in December, which despite the poor weather was a figure higher than anticipated. To add to the attractions of hopping, the City of London is seeking powers to allow trading as part of street events, which could prove attractive with the City’s easier parking for cars at the weekend. In time it is hoped that all the retail areas will link, from West (Cheapside) to East (Spitalfields) drawing in the historic Leadenhall Market which is 600 years old this year. The City of London has invested £6 million in the area around New Change to improve the environment, including widening the payments.
All the pieces of the jigsaw are in place for the City to enhance its reputation as the top financial centre with plans for major new developments, the completion of the cluster of skyscrapers and the provision of a considerably broader range of retailing and leisure facilities.
The feedback from the Barbican Residents Association has underpinned Hammerson’s plans for the two building St Alphage House, London Wall which is being designed by MAKE. For Peter Bennett, City Surveyor, this is coming at the right time when there are sizeable requirements in the market which mean pre lets. St Alphage House is one of a number of schemes in a year which promises to be particularly active at a time when city employment is increasing again. Among other schemes in the pipeline are Helical Bar’s 26,012 metres (280,000 sq.ft.) Mitre Square and Exemplar’s 23,225 sq.metres (250,000 sq.ft.) at the London Fruit and Wool Exchange, Spitalfields.
The provision of improved education and leisure facilities is coming through with an international class Guildhall School of Music with a 600 seat concert hall as part of Heron’s residential scheme at the former Milton Court building. The past few months have seen a number of confidence boosting decisions for the Square Mile’s financial standing, such as:
- UBS is to move into a new 74,320 sq.metres (800,000 sq.ft.) complex at Broadgate;
- Bloomberg is to take 46,450 sq.metres (500,000 sq.ft.) in a development of the Bucklesbury Island site and another sizeable chunk will be built speculatively.
- Further funding to complete the Pinnacle skyscraper;
Other schemes at 6 Bevis Marks and 10 Moorgate. The City of London has been particularly supportive of these schemes. The encouraging factor is that there are other large requirements in the market from insurance, legal and banking organisations. Bennett said: “The sentiment is that there is money to be made in the markets and that businesses want to express themselves through new buildings.”
One encouraging factor for investors and developers is that demand for office space from financial groups in 2010 exceeded the period before the recession. Knight Frank believes that there will be continued demand from banks over the next three years. The firm’s William Beardmore-Gray said: “There are financial firms we talk to who want to acquire offices and expand in London and need to act ahead of approaching lease expiries in 2014 and 2015.” On the other hand there is some concern among banks that new government regulation may affect their business. But the picture is encouraging for developers and the deals are coming through, such as Axa Real Estate Investment Management (REIM) teaming up with Favermead for speculative development of 19,974 sq.metres (215,000 sq.ft.) at 60 Holborn Viaduct,
the site of the former Bath House. The new building, designed by Kohn Pedersen Fox Associates, will be completed
by 2013. As far as the rest of the Midtown market is concerned, Charles Killen of EA Shaw said: “There has been a bit of a buzz about the market since we came back after Christmas. Buildings that aroused little interest before then now have a
number of interested parties. It is a little volatile but we expect a steady year as the vacancy rate (now 5%) falls further.”
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.
