Bringing opportunities

As usually happens, building new transport networks opens up development opportunities. In this case it is the Crossrail with its creation of new stations. Derwent, in collaboration with Crossrail, has put in a planning application for a mixed use scheme of 25,548 sq.metres to be built above the new Tottenham Court Road Station, to be called 1 Oxford Street.

The main part is offices of 16,443 sq.metres on eight floors, complemented by further offices and a new 350 seat theatre.
There will also be retail space. Derwent’s John Burns commented: “The planning application is an important first step in the much needed revitalisation of the eastern end of Oxford Street and is essential for the long term growth of Fitzrovia and Soho, where we have holdings of over 139,350 sq.metres.”

Derwent now has planning permission for a mixed use scheme of 31,214 sq.metres at 80 Charlotte Street, Fitzrovia, W1 plus more residential space at nearby 65 Whitfield Street and Whitfield Place. It will be part new build and part refurbishment to a design by Make Architects on an island site in the middle of Fitzrovia. It will have a capital value of £125 million. Public realm improvements bring the creation of a new park.

Derwent has also linked with Grosvenor for a mixed use scheme at 1-5 Grosvenor Place, next to Hyde Park Corner, that will feature a hotel, commercial and residential space. Just to add to the big list of Derwent projects, it has planning permission for another mixed use scheme of 27,034 sq.metres at the City Road Estate, EC1. This will be mainly offices with some retail and residential accommodation.

How long will the fun last?

The intriguing question in London is how long the inward flow of money into prime assets will continue, although the recent increase from Greece and Spain indicates demand is undiminished.

Apparently there are no limits to what can be sold with the German CLI Group Fund putting he iconic 28,910 sq.m. Lloyds Building on the market for £290 million for a yield of 5.5%.

A similar price is being asked for the 30,110 sq.m Tower 42, another landmark property in the Square Mile.

Knight Frank’s Stephen Clifton said: “Investors with global perspective can find best in class assets and tenant covenants in the city.” Adding to the attraction is that sterling is down 30% since 2007 and there is also the consideration of the euro being under pressure. The high prices available and the prospect of rental increases make this a perfect period for selling, particularly as some of the German funds show large gains.

One of the largest portfolios on offer is from KanAm which is using Knight Frank for the 34,373 sq.m. headquarters of the European Bank for Reconstruction and Development at One Exchange Square, EC2. Also in the portfolio, which could raise £1 billion, are Deutsche Bank’s Winchester House, Thomson Reuters’ 30 South Colonnade and Olswing’s HQ at 90 High Holborn.

Some of the selling is coming from the Irish, such as Shieldpoint, which is putting the 8,361 sq.m. Royal London House at 22-25 Finsbury Square on the market through Savills. This is the third time Shieldpoint has sought to sell city properties in the past two years. What is impressive in London is the wide range of investors. For example, the Canadian group Brookfield is prepared to pay over £300 million for the 42,734 sq.m. Broadgate West, EC2, from Gemini Commercial for a yield of 6%.

Big numbers for west end residential

Developers’ ambitions to build ultra luxury apartments in the West End are increasing as the flow of foreign buyers continues to grow, the latest being Greek and Spanish investors seeking safe havens for their cash.

Among the luxury projects is a proposed plan by Brockton Capital for a £400 million residential scheme on a corner site at 56 Curzon Street where it has been piecing together the land since 2007.

At the moment, the block has 35 flats and the new scheme would have a restaurant, garden, spa and underground parking. Initial estimates are that selling prices would be £48,420 a sq.metre (£4,500 a sq.ft.).

Another major residential scheme is for the Clarges Estate at 82-84 Piccadilly, a former office of the MI6 spy agency, which is expected to go to Chelsfield Partners for £170 million. The 1 acre scheme could mean similar prices to those
expected for Brockton’s project and comes at a time when there is a shortage of major sites for offices in the West End.

John Caudwell, who made a fortune marketing mobile telephones, has joined in the quest for luxury residential schemes in the heart of Mayfair. He has purchased Audley Square House for £143 million and plans a large residential scheme.

Caudwell said: “The intention is not just to re establish Audley Square as one of the most desirable residential areas in London, but as one of the most desirable in the world, with super prime properties appealing to the most discerning buyers and I believe traditional Mayfair architecture is the key to success.”

Summer high

Far from slowing down, office demand in central London rose strongly again in August with a 13% rise in the City pushing requirements up to 706,040 sq.metres (7.6 million sq.ft.). There was a contrast with the West End, said CBRE, where demand was steady at 445,920 sq.metres (4.8 million sq.ft.). Digby Flower of CBRE said:

“However, a fourth consecutive month that space under offer has remained at or above the ten year average reaffirms our belief that the second half of the year will witness an improved picture on the first six months.”

Further research by CBRE has shown that secondary property has taken over from prime in leading capital growth. Yields on prime central London offices have stabilised but have tightened on secondary property. “Yield compression on prime property looks to have run its course,“ said Peter Damesick, EMEA (Europe, Middle East & Africa) Chief Economist at CBRE.

London commercial property remains the best performing part of the UK with Midtown outpacing the other London areas throughout the summer. Iain Malcolm of Farebrother said “Total investment transactions and occupier take up in Midtown could match, or even exceed, pre recession levels by the end of the year. Demand from a wide variety of business sectors, low supply (6% availability rate) and a modest development pipeline has driven investor interest.”

The most notable recent lettings have been at UK & European’s recently completed 1 Kingsway, where the creators of the iconic Wolseley restaurant will be opening a new 13,500 sq.ft. sister restaurant at the end of this year. Tate & Lyle has taken the top floors (24,780 sq.ft.) for its new corporate headquarters at a headline rent of £67.50 per sq.ft. a benchmark for new space in WC2 in the current cycle and John Laing has just signed up on the 1st & 2nd floors.

One part of Midtown has been transformed with the first stage of the Chancery Lane Enhancement Project completed. It has brought a host of improvements from footpath widening and repaving as well as better street lighting. There has also been tree planting and new seating.

City of London Planning Chief, Peter Rees, said: ”This long term strategy has been carefully coordinated to preserve the unique character of one of the most historic and unusual streets in the City while also making it fit for purpose as part of a 21st century business centre.”

In fine fettle

What is clear is that the City office market continues in fine fettle, despite the woes of the national economy, with new developments and a flood of investment deals. The City of London has given planning permission for four new schemes, including greater height for Great Portland Estates’ and Brookfield Office Properties’ 950,000 sq.ft.100 Bishopsgate scheme. A similarly sized scheme is planned by Hines for 100 Cheapside, where Canary Wharf Group was originally the front runner, while Rockspring and Chesterfield Asset

Management have planning for a slightly smaller scheme at Centurion House, EC3. Rockspring’s Richard Bains said: “Since acquiring the project last year, we have drawn up ambitious plans to create an entirely new ground up development which will appeal to a wide range of city occupiers.” The largest development getting planning permission was City Site Estates’ 11 storey scheme of 12,077 sq.metres (130,000 sq.ft.) at 51 Eastcheap, EC3. One scheme that already has planning permission is Hammerson’s £485 million Principal Place, E1 project. Now Hammerson is seeking a partner for the 50 storey residential element of the 73,856 sq.metres (795,000 sq.ft.) development which will have 243 private and 56 affordable units.

Getting the best return

One West End site that will be developed mainly for offices is 8-10 Hanover Street which has been sold by LaSalle Investment Management to Morgan Capital Partners for over £25 million.

The property has planning permission for a mixed use scheme for offices of 2,321 sq.metres (24,984 sq.ft.), together with retailing and six apartments.

“The sale of this asset is the culmination of a process of site acquisition, planning, design and construction development which has resulted in superior returns for our pension fund client,” said LaSalle’s Richard Maple.

Backing technology

The days when the City was a jealous guardian of its role as the top global financial centre has shifted to a more subtle position.

That earlier hostility was mainly directed at Canary Wharf, which is now a fact of life and has added to the global appeal of London. The new role is to foster the creation of an East London Tech City stretching from a roundabout in Shoreditch to the Olympic site in Stratford. Young entrepreneurs and new start ups are flocking to the area around Silicon Roundabout. Simon McGinn of the City of London said: “The City Corporation has facilitated the start up of an Innovation Centre in Smithfield which provides advice and guidance to SMEs (small and medium enterprises).

In fact, we have already actively supported the SME community for some years through the provision of affordable accommodation in City fringe areas.” He noted that the government was pushing the initiative hard with its vehicle, the Technology Strategy Board, having a £200 million war chest to help the high tech industry. In fact the government has taken its role to promote the Tech City aggressively as witnessed by its support for Eric van der Kleij as UK’s Trade and Industry’s“entrepreneur in residence.”

Also, Intel has thrown its weight behind Tech City, earmarking a supercomputer, capable of handling 2.25 trillion calculations per second, for startup companies in the area to use free of charge. The City of London has sponsored a scheme known as “Angels in the City” to recruit 125 investors prepared to put seed money into new companies. The scheme is in cooperation with the London Business Angels and aims to generate £10 million in new investment annually.

What attracts the young businesses to the area is that costs, notably rent, are relatively low and they are physically close to sources of funding in the Square Mile.

Access to these young companies is one of the reasons why Google and Cisco have moved into the area. McGinn points out that “it is hard to plan a cluster of like minded companies and entrepreneurs but in the case of Shoreditch there was already the framework for high tech operations because the creative industries had already moved in.”

The competition from other parts of Europe, notably Berlin and Dublin, is fierce. The advantage in London is the adjacent pool of wealth through individuals and financial institutions plus the experience of the City of London.

Fundable deal

Another Sainsbury supermarket, this time in Woolwich, has also been sold recently. Woolwich Properties, advised by Lawson & Partners, sold the 3,809 sq.m. property to a private investor for £9.7 million, a yield of 5.5%.

Darryl Stevenson of Lawson said: "This is a very fundable deal that allowed the investor to acquire a long dated secure income from a sought after tenant within Greater London. The price is at a discount because the building has a long
leasehold with a longer rent review pattern than is normal."

Astellas buys in Chertsey

Astellas Pharma Europe, which is currently based in Staines, has bought the 9,303 sq.metres building in Hillswood Business Park, Chertsey, from Electronic Arts. Advised by Knight Frank, (DTZ for Electronic Arts), Astellas paid £16 million for the Sir Norman Foster designed building, which is set in landscaped grounds of 7.54 acres and with an adjacent development site of 6.13 acres. Hillswood consists of three headquarter buildings, the other two let to Samsung and Regus. At the moment Astellas occupies three properties in Staines so it will refurbish Building 2000 at Hillswood before moving in mid 2012.

Tough going

Normally the commercial property market in the counties close to London reap the benefit of the performance of the capital city, which has been enjoying a strong run in the past two years or so. But this is not happening at the moment and in the three counties agents agree that the market is tough going.

This view is echoed in the market survey by the Royal Institution of Chartered Surveyors that said: "Improvements in the market seen in the first half year faltered during the third quarter as occupier demand fell back for the first time in 12 months."

Even London was less buoyant which may be one of the factors that is making it harder work in the three counties. The main barrier is a lack of confidence as agents and developers digest the flow of gloomy predictions.

As far as the industrial market is concerned, Charles Binks of Knight Frank said: "Market activity was subdued in the first half year in London and the south east. We anticipate a general weakening over the next 6 to 12 months as deteriorating consumer confidence and public sector austerity measures ultimately impact upon logistics demand."

That is not preventing deals and continued development, such as at Kings Hill in Kent where the steady process of improvement continues as Liberty Property Trust takes the long view. A similar view applies to Kent Science Park, Sittingbourne.

While the Kent Property Report paints a reasonably optimistic picture with the stronger performance of 2010 continuing into 2011, it does say that "take up in (business parks) has been subdued in the first half year." The report noted the high occupation rate at Kings Hill and that in north Kent "Crossways continues to draw in major occupiers."

That applies to offices and industrial, where Schooner Park, Crossways has attracted a steady stream of new tenants, such as Milton Keynes Paint & Equipment. Broadly speaking, yields have fallen for office properties.

Manufacturing sets the pace

The message from many parts of the region is that manufacturing is leading the way in the improvement in the industrial market.

That is what the government wants to hear, but it has come naturally without the help of the public sector. It is hard to know how far this trend can advance but it is certainly highlighted by DTZ in its research on the UK market with the comment that “manufacturing has been at the heart of much of the positive news during the quarter.” While that applies to the wider UK, other comments from the Thames Valley bear that out.

Tunde Adegbemile of DTZ said: “The Heathrow and West London markets tend to provide a good indicator for Greater London and the south east, and there are some signs of confidence becoming more established with some speculative developments likely to commence in the second half of the year.” Adegbemile added that “from a logistics perspective, demand continues to be dominated by the food retailers, although there are signs of improving activity from the health and pharmaceutical sector.” One of the largest deals for manufacturing capacity is by Albion Land, advised by Jones Lang LaSalle and White Commercial, for Goodrich CTG, a leading carbon fibre technology firm, to take 12,774 sq.m. (137,500 sq.ft.) at Network M40, Banbury.

The £9 million facility will allow Goodrich, part of the US Goodrich Corporation, to expand extensively and develop new products. This follows Albion Land pre letting the slightly smaller nearby property to First Line and forward selling it to a pension fund client of Whitmarsh Holt Young for £8.65 million. Simon Parsons of Albion Land commented: “We identified the site as one of the few locations between London and Birmingham able to accommodate these large units. On the strength of demand we are keen to consider other opportunities along the M40.”

CLICK HERE TO VIEW COMMERCIAL PROPERTIES IN THE THAMES VALLEY AREA.

Optimism to the fore

Colliers International has looked ahead to what the figures for take up in the third quarter could achieve and has put it above 46,450 sq.m.etres (500,000 sq.ft.) That reverses the poor showing in June-September. Guy Grantham of Colliers said: “Above all it remains the technology, media and telecoms (TMT) sectors that are leading the recovery in both take up and demand.”

“The main driver has been demand from software companies who have accounted for 31% of TMT transactions. Networking and data storage providers have been one of the most active subsections,” Grantham added.

In his view there is “much to be optimistic about.” That is true of Ealing where Redwire DC Ltd has signed a deal with the council for an innovative scheme in the West London borough that will have a 1,617 sq.m. (17,400 sq.ft.) data centre alongside a Premier Inn 165 bedroom hotel. The £45 million development will be on the site of the council’s former regulations office. The original plan was to incorporate an office but the economic stagnation since 2007 has ended that part of the scheme.

What is noticeable about the West London market is that most office centres are experiencing increasing rents. That applies to Chiswick, which has the highestat £403.50 a sq.m. (£37.50 a sq.ft.), to Uxbridge and Hammersmith.

CLICK HERE TO SEARCH LONDON COMMERCIAL PROPERTY

Asians Buying

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.

Towering deal

The spread of the investment deals is right across London with the largest off market deal for some time close to completion with Credit Suisse selling the 17,187 sq.metres (185,000 sq.ft.) Richard Rogers designed Tower Bridge House, E1. The buyer is yet another foreign pension fund. It is the Employees Provident Fund of Malaysia which is thought to be paying £140 million for a yield of 5.2%.

This underlines the enthusiasm by foreign investors for putting their money into safe havens, notably the UK, because of global economic problems and uncertainty about equity markets. That is always worth remembering when predictions of a collapse of commercial property markets are broadcast. In the City, Mitsubishi Estate has bought the 13,634 sq.metres (146,820 sq.ft.) 6-8 Bishopsgate which is occupied by Deutsche Bank. Mitsubishi’s Hiroyuki Arimura said: “This building is in a prime location in the core of the City and the strategically important eastern cluster of tall buildings.”

A number of buildings are still coming onto the market from Receivers, such as the 196 bedroom Crown Plaza Hotel in Shoreditch (now in the fast growing technology corridor of the East End) where Colliers International is seeking a buyer at £80 million. It is close to Liverpool Station. Also in Shoreditch, Knight Frank is marketing the 208 bedroom Hoxton Hotel for £70 million.

CLICK HERE TO SEARCH LONDON COMMERCIAL PROPERTY

Looking ahead

On the assumption that the current development phase is coming to an end, the market may shift to a bout of pre letting as companies realise they have to find space for future growth. Certainly, CB Richard Ellis expects an increase in pre letting as the only option for large occupiers as availability has fallen by 706,040 sq.metres (7.6 million sq.ft.) since 2009. That situation is reinforced by there being only 603,850 sq.metres (6.5 million sq.ft.) under construction in central London, of which nine cater for large occupiers.

That makes the timing of Sellar Property’s The Place, a 17 storey scheme of 55,740 sq.metres (600,000 sq.ft.) at London Bridge Quarter to add to the Shard, a good piece of timing. This part of London is being transformed with a new public piazza, railway station concourse, underground, shopping mall and bus station. Irvine Sellar, the developer, said: “The Place will be London’s largest and most efficient office building to hit the market in 2013, at a time when there is expected to be a real shortage of Grade A space available.”

CLICK HERE TO VIEW COMMERCIAL PROPERTIES IN THE LONDON AREA.

Spreading a little happiness

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 aplan 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.

CLICK HERE TO VIEW COMMERCIAL PROPERTIES IN THE LONDON AREA.

New in Richmond

In a further sign of the buoyancy of West London, AXA REIM, on behalf of Friends Life Assurance Society, has secured planning permission for the refurbishment of the 4,461 sq.m. 1 Church Road, Richmond. The office is in the centre of the town close to the railway station and the refurbishment is to be completed in summer 2012. Kevin Mersh of Capita Symonds, joint agent with Martin Campbell, commented: “1 Church Road will be the first major HQ office building to come to the market for many years. Given the extent of the works we are confident the building will appeal to major occupiers in the area.”

CLICK HERE TO VIEW COMMERCIAL PROPERTIES IN THE LONDON AREA.