LONDON SPRING 2020 - Carter Jonas
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LONDON SPRING 2020
OUTLOOK SUMMARY DRIVERS OF • E
xperian forecast economic output to rise by
2.2% pa over the next ten years. The expansion
GROWTH of Heathrow Airport to include a third runway
will contribute to this growth, with proposals
• T
he key economic indicators for the next ten years suggest • A
s witnessed over the last three years, suggesting tens of thousands of jobs will
that Greater London will continue to outperform the rest of uncertainty surrounding Brexit has increased be created upon completion within the next
the UK. Economic output is projected to increase by 2.2% pa concerns for some businesses in London, decade – not only in the actual airport but also
during this period, compared with 1.7% pa in the UK, while although the December general election in its locality. The additional space will also aid
population is forecast to rise by about 0.6% pa (0.5% pa for has boosted business sentiment. Global in effectively managing global trade flows in
companies including Aviva and Sony have the post-Brexit world.
the UK) – equivalent to an additional 625,000 people.
already migrated their London bases to other
• G
iven these forecasts, housing provision and transport global locations to reduce Brexit disruptions, • P
opulation is also projected to increase,
infrastructure continue to be hugely important. The while others like Goldman Sachs, who leased by 0.6% pa in the next ten years, and as a
a large office building in central London, have consequence housing supply and transport
London Plan sets a target of 17,000 affordable homes a
confirmed their intentions to stay put. While a remain firmly on the agenda for the GLA.
year across the capital, however looking at historical
period of disruption is unavoidable, London’s The London Assembly Transport Committee
figures from 2012-13 to 2018-19, average annual housing
access to a high-skilled workforce and its launched a formal investigation into the
completions have totalled about 9,400 units. As set out future of London’s transport in 2019. This
diverse range of businesses and services will
in the London Housing Strategy, more land needs to be involves examining how the existing road,
ensure the capital remains competitive on a
unlocked in order to provide space for new units, while still rail and cycle routes across the capital
global scale.
protecting commercial uses. will need to develop to keep up with the
• T
he technology sector continues to be a key population growth, prioritising key projects
• In the office market, low availability of grade A driver of demand for office space as the tech and looking at different approaches to fund
accommodation is apparent across all central London giants focus their growth in London – Facebook transport infrastructure.
sub-markets, and this has led to an increase in prime announced in January that the firm will create
rental values. In the West End and City, new-build grade 1,000 new London jobs mainly in augmented • T
he delay of the Elizabeth Line, the
A rents increased to £115.00 psf and £70.00 psf pa reality and software engineering. central section of which was originally
scheduled to open in December 2018 but
respectively, and our forecasts suggest that these are likely
is now deferred to summer 2021, continues
to rise further in 2020.
to be a concern. In prime retail locations,
• L
and values for industrial sites across Greater London the projected increase in footfall has not
KEY ECONOMIC AND BUSINESS STATISTICS
increased by an average of 12.9% in 2019, reflecting strong yet transpired, and for businesses who have
Source: Experian, ONS, Land Registry, MHCLG, HESA
demand and constrained supply. Prime rental values relocated to be near the new hubs, the delay is
GREATER disappointing. Although the now over-budget
continued to rise during 2019, albeit at a slower pace than UK
LONDON project may impact on funding available for
was recorded in 2018, by 1.4%. This compares with 2%
future projects such as Crossrail 2, when it
across the UK. In 2020, rents and land values are expected Growth - next 10 years
is finally open, it will significantly improve
to increase further and limited land supply will continue to efficiency and capacity of London’s public
Economic growth 24.1% 18.8%
underpin values. Employment growth 7.3% 3.6% transport system.
Population growth 6.8% 4.6%
• L
ondon’s prime shopping streets continue to perform • Improvements to various London underground
well, despite the well-documented concerns for the wider Earnings and affordability stations are continuing, aimed at increasing
sector. Repurposing of assets is becoming increasingly accessibility and capacity, while the promotion
commonplace, with the likes of Debenhams on Oxford Street Average house price, 2019 £483,922 £234,742 of cycling across central London is expanding,
and Fenwick’s on New Bond Street gaining planning consent Average house price growth, 2019 2.3% 2.2% with the addition of various cycleways on some
Average house price to incomes 12.8 7.9 of London’s busiest junctions. Furthermore, the
to convert part of their respective units into office space.
Northern line extension between Kennington
• C
ommercial property investment across Greater Prosperity and productivity
and Battersea is still firmly on schedule to
London declined by 28% in 2019 to £19.8 billion. complete by 2021.
Average weekly earnings
This was the lowest annual total since 2012, due largely £726 £571
Unemployment rate (ILO)
4.7% 4.0%
to wider political uncertainty throughout the year which GVA per worker
47,895 27,339
resulted in a lower volume of transactions. After the general
election in December, some deals that were temporarily on
Skills and Innovation
hold did complete before the end of the year. This resulted
in Q4 volumes accounting for 35% of the whole year (£7.1 % NVQ4 or above
53.1% 39.3%
billion), compared with 23% in 2017 (£6.1 billion) and 28% in Students as % of population
3.4% 21.1%
2018 (£7.7 billion). This momentum is expected to continue Business births, 2018
97,300 380,580
into 2020, and as a result, prime yields are forecast to
remain at keen levels: 3.75% for West End offices, 3.5% for
industrial units and 2.5% for retail assets.
2 carterjonas.co.uk 3
OFFICE The flight to quality in the central London
construction this year, many are scheduled
to complete by 2023/2024 – good news for
MARKET office market continues, as employers
increasingly recognise the importance
tenants with lease expiries or break options
around that period, however those who
LOOKING TO 2020, PRIME
of real estate in implementing effective RENTS ARE EXPECTED TO
wish to find space sooner are likely to face RISE ACROSS MOST CENTRAL
recruitment and productivity strategies. declining choice. LONDON SUB-MARKETS.
The key issues for London office occupiers
are undersupply of grade A space and TAKE-UP
rising by 4.5% to £115.00 psf pa during 2019.
increasing upward pressure on rents. The largest deal of 2019 was in the Midtown
sub-market where Goldman Sachs leased In the City of London, rents increased by 7.7%
826,000 sq ft at Plumtree Court, EC4. to £70.00 psf pa in 2019, while in Midtown an
AVAILABILITY AND DEVELOPMENT
The last new office building of any significant increase of 3.4% to £85.00 psf pa was recorded
The London skyline, with its plethora of cranes,
scale in Bloomsbury, The Post Building in both Bloomsbury and King’s Cross.
PRIME RENT, would suggest vast quantities of office space
for tenants to choose from, however the reality comprising 230,000 sq ft, is now fully let to The development of an Elizabeth Line station
MAYFAIR is very different across all central London sub- anchor tenants Nationwide Building Society at Canary Wharf is changing the perception
£115.00 PSF markets. Many of the buildings that are currently and Rothesay Life, both taking 88,500 sq ft and of the Docklands sub-market, and the area is
increasingly being seen as a viable relocation
under construction are either fully or substantially 50,000 sq ft respectively in 2019.
In the City of London, law firms are currently option among occupiers currently based in
let prior to completion – a trend that we have
more central business districts. Prime rents
PRIME RENT, seen over the last few years – leaving very little one of the key sectors driving demand for
office space, with a handful of requirements reached £55.00 psf pa at the end of 2019, with
new grade A space available.
CITY In contrast to the prime market, availability each in excess of 90,000 sq ft. Key City deals the mixed-use Wood Wharf scheme achieving
£70.00 PSF of lower cost second hand office space is higher. during 2019 included Quilter plc taking 83,000 the highest values. When comparing the
sq ft for their headquarters on Queen Victoria Docklands to other central London sub-markets,
However, this quality of space is unable to satisfy
Street, Cooley LLP pre-letting 75,000 sq ft at rents can be as much as 25% below those of
the large volume of requirements for new grade
22 Bishopsgate and Milbank Tweed Hadley nearby City of London and almost half those of
A accommodation.
and Mccloy LLP pre-letting 68,000 sq ft at 100 the West End.
While there are several office schemes under
Liverpool Street. Looking to 2020, prime rents are expected
construction in the West End, much of the space
MANY OF THE has been pre-let leaving very little space for new Demand in the West End remains robust, to rise across most central London sub-markets,
BUILDINGS THAT ARE occupiers. This has been seen in buildings such as particularly in the area north of Oxford Street with our forecasts suggesting an increase to
CURRENTLY UNDER 5 Marble Arch, Marble Arch Place, scheduled to and Soho. New deals during 2019 included £120.00 psf pa in the West End and £72.50 psf
CONSTRUCTION Facebook’s pre-let of 145,000 sq ft at Regents pa in the City.
ARE EITHER FULLY complete in H2 2020, and 1 Soho Place off Oxford
OR SUBSTANTIALLY Street, where Apollo Management has taken a Place, NW1 and Diageo pre-letting 105,000 sq
LET PRIOR TO pre-let on 83,000 sq ft. ft at Great Marlborough Street, Soho, W1. In
COMPLETION. In the City, large scale schemes which the prime locations of Mayfair and St James’s,
commenced last year included 8 Bishopsgate, activity has been more subdued, reflecting
Figure 1 Prime grade A office rents
EC3 (560,000 sq ft) and 20 Ropemaker Street, supply-side constraints, with only two deals Source: Carter Jonas
Q4 2018
EC2 (425,000 sq ft), both scheduled to complete in excess of 50,000 sq ft signed during the
Q4 2019
by the end of 2022. These schemes, in addition to year – Glencore UK pre-letting 54,000 sq ft at Rent, £ psf per annum Q4 2020 (forecast)
developments in City fringe locations, including Hanover Square, W1 and Cinven Partners leasing
140
the redevelopment of Finsbury Tower, Shoreditch 51,000 sq ft for their headquarters at St James’s
(261,000 sq ft completion due in 2021) are Square, SW1.
beginning to address the severe undersupply. The European Bank for Reconstruction and 120
Midtown is also suffering from a shortage of Development took occupation of 365,000
vacant grade A office space. This is particularly sq ft on Bank Street, Canary Wharf – the 100
apparent in the King’s Cross and Bloomsbury largest Docklands deal of 2019 – while flexible
districts, although the King’s Cross Partnership office provider WeWork leased 285,000 sq 80
is considering plans to develop office space ft at Churchill Place, the firm’s second largest
speculatively on one of the few remaining commitment in the UK. Flexible office providers
60
undeveloped sites at the 65-acre mixed-use continue to drive demand, with Spaces and
King’s Cross Central scheme. One of the few Regus also leasing space – 70,000 sq ft at 25
office schemes of scale is at 262 High Holborn, Cabot Square and 28,000 sq ft at 1 Canada 40
where Lazari Investments are developing 29,000 Square respectively.
sq ft, due to complete during the first half 20
of 2020. RENTAL TRENDS
Given the low level of availability, and upward Constrained supply has resulted in upward
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pressure on rents, developers are beginning to pressure on rents for new grade A space. The
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4 carterjonas.co.uk 5
INDUSTRIAL Across the UK, demand for industrial
assets and land remains high amid
MARKET a shortage of suitable sites, and
the pressures in London have been
particularly acute. Our figures show that
land values increased sharply by 12.9%
across the Greater London markets in
2019, the highest of which was recorded
in Dagenham and Barking (31.3%) and
Park Royal (26.7%).
The growing trend of online retailing continues
PRIME RENT to drive demand, with Iceland leasing a
(PARK ROYAL) 145,000 sq ft mixed-use distribution and office
£20.00 PSF warehouse in April, while Hovis took a 115,000
sq ft warehouse in Newham in February.
In addition to these, three other big-box
deals were signed in 2019: 300,000 sq ft by
GREATER Roundabout Productions in Acton, 230,000 sq
LONDON PRIME ft by Eddie Stobart in Dagenham and 134,000
LAND VALUE sq ft in Uxbridge by Pinewood MBS Lighting.
INCREASE
IN 2019
12.9%
LAND VALUES
INCREASED SHARPLY Chertsey Business Park, a new development of warehouse and industrial units
BY 12.9% ACROSS THE currently being marketed by Carter Jonas
GREATER LONDON
MARKETS IN 2019.
Given the lack of space and the higher
land values in London, development activity
is low and schemes which are underway are
Figure 2 Prime industrial land values typically built with tenants already secured. To
Source: Carter Jonas overcome this, occupiers and landowners are
Q1 2019 becoming increasingly innovative, with some
Land value, £ Q1 2020
exploring the opportunity to build up instead
5,000,000 of out and others redeveloping existing sites to
4,500,000 accommodate their requirements.
A planning application for a 425,000 sq
4,000,000
ft facility in the Docklands was submitted by
3,500,000 Gazeley in July 2019 and, if granted, will be
3,000,000 the UK’s first three-storey logistics building.
Furthermore, Panattoni recently gained planning
2,500,000
approval for a 334,000 sq ft build to suit
2,000,000 scheme in Borehamwood, of which 36,000 sq
1,500,000
ft has already been pre-let, scheduled to be
delivered by the end of 2020.
1,000,000
Having accelerated over the last few years,
500,000 prime rental growth has now slowed to 1.4% pa
across London’s key markets compared with 2%
0
pa across the UK. Park Royal saw growth well
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6 carterjonas.co.uk 7
RETAIL Central London continues to attract
new retail brands, however the well-
MARKET documented uncertainties surrounding the
sector are impacting on demand and have
resulted in several vacant units on some of
London’s busiest high streets.
On Oxford Street, fashion retailer Forever 21
vacated a 16,000 sq ft unit, helping to reduce
their UK operations after their US counterpart
filed for bankruptcy in September 2019. Next
door, H&M also closed the doors on their
15,000 sq ft unit – leaving two large sites in a
prime location empty at the end of 2019. While
conversations are underway with the freeholders
REPURPOSING of both sites, there is speculation that both
VACANT SPACES units may be carved up into smaller units or
HAS BECOME repurposed to others used such as food and
INCREASINGLY beverage or leisure.
POPULAR IN Repurposing vacant spaces has become
RECENT YEARS, increasingly popular in recent years. The former
AND MANY Virgin Megastore site on Regent Street is
EXAMPLES
WERE NOTED following this trend, gaining planning consent to
IN CENTRAL convert the unit into an Asian food hall, following
LONDON IN 2019. the footsteps of nearby Market Hall at the former
BHS site on Oxford Street.
Furthermore, department store Fenwick’s,
located on New Bond Street, received approval
to convert part of the building into new office
space. A similar scheme was approved at the
Debenhams flagship, where the company has
relocated its HQ from NW1 to the floors above the
main store. Nearby at the House of Fraser site,
there are plans for the existing retail allocation to
reduce to allow for new office space and leisure
facilities on the basement and upper floors.
The picture outside of central London is more
varied. Shopping centres such as Westfield
London, Stratford and Brent Cross are still
performing relatively well and attracting a good
level of visitors who can benefit from not only the
traditional retail stores, but also leisure provision
and food and beverage operators. However
beyond the prime high streets and shopping
centres, the London market very much mirrors
that of the rest of the UK’s secondary locations
– lower levels of footfall as a consequence of
increased online shopping, vacancies as a result
of CVAs, retailers falling into administration and
high occupancy costs deterring new retailers.
Given the low volume of activity in the prime
locations, headline rents in New Bond Street were
unchanged at £2,225 psf (zone A). On Oxford
Street, the prime rent remains at £900 psf (zone
A), and although a rent review from Simit Sarayi
in West One Shopping Centre reached £1,000 psf
(zone A) during Q2 2019, this is not thought to be
indicative of current market sentiment.
8 carterjonas.co.uk 9
COMMERCIAL Commercial property investment in Greater London was
down by 28% during 2019 to reach £19.8 billion. This was
PROPERTY the lowest annual figure since 2012, when the UK was
INVESTMENT still recovering from the global financial crisis, and was
predominantly due to wider political uncertainty which
TRENDS resulted in a low volume of transactions and reduced
investor confidence. Central London accounted for 70%
of the Greater London figure, or £13.9 billion, which was
again a 26% decline on a year earlier.
2019
INVESTMENT After the general election in December, activity did pick up with
£19.8 BILLION some investors completing on deals before the end of the year.
The final quarter of 2019 accounted for 35% of transactions, or £7.1
billion, a higher proportion when compared with 23% in 2017 (£6.1
PRIME OFFICE billion) and 28% in 2018 (£7.7 billion).
YIELD In the office sector, investment volumes totalled £11.6 billion
3.75% throughout the year, with the largest deal for the sector, and the
year, being the acquisition of 25 Canada Square in the Docklands
for £1.075 billion. The building, which the new owner Citigroup
already leases in its entirety, generated a 4.23% net initial yield.
PRIME Leisure investment increased slightly throughout the year to
INDUSTRIAL £1.9 billion, bolstered by Queensgate Investments purchase of the
YIELD Grange Hotel portfolio in March for £1 billion, while in the industrial
3.5% market activity was strong, with volumes increasing from £0.7
billion in 2018 to just over £1 billion trading in 2019.
While overall investment across Greater London was down, the
proportion of overseas investors remains broadly in line with 2018,
at about 63% of the total investment value. This is also true for
AFTER THE GENERAL Central London, where it accounted for about two thirds in 2018
ELECTION IN DECEMBER, and 2019.
INVESTMENT ACTIVITY Central London office yields softened during 2019 to 3.75%
DID PICK UP WITH SOME in the West End and 4.5% in the City – both rising by 25 basis
INVESTORS COMPLETING points. Strong demand for industrial assets has resulted in yields
ON DEALS BEFORE THE tightening by 25 basis points to 3.5%, while the retail yield on Bond
END OF THE YEAR.
Street was unchanged at 2.5%.
Figure 3 Greater London commercial property investment
Source: Property Data
Overseas Investors
Value of investment, £ million UK Investors
35,000
RENTS AND YIELDS SUMMARY
30,000
RENTS YIELDS
25,000 PRIME CHANGE FORECAST CHANGE
PRIME
RENT LAST 12 NEXT 12 LAST 12
YIELD
(£ PSF) MONTHS MONTHS MONTHS
20,000
Office
£70.00 4.5% +25 bps
City
15,000
Office
£115.00 3.75% +25 bps
10,000
West End
Industrial
£20.00 3.5% -25 bps
5,000 Park Royal
Retail
£2,225.00 2.5% 0 bps
0 Bond Street (Zone A)
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
10 carterjonas.co.uk 11
THIS
PUBLICATION
IS PART OF OUR
COMMERCIAL
EDGE
RESEARCH
SERIES.
To read full property market insights for
our core commercial locations, visit
carterjonas.co.uk/commercialedge
ABOUT CARTER JONAS Contacts:
Carter Jonas LLP is a leading UK property Scott Harkness Head of Commercial
consultancy working across commercial property, 020 7518 3236 | scott.harkness@carterjonas.co.uk
residential sales and lettings, rural, planning,
development and national infrastructure. Supported Daniel Francis Head of Research
by a national network of 33 offices and 800 020 7518 3301 | daniel.francis@carterjonas.co.uk
property professionals, our commercial team is
renowned for their quality of service, expertise and
the simply better advice they offer their clients.
Find out more at carterjonas.co.uk/commercial
020 7518 3200
One Chapel Place, London W1G 0BG
chapelplace@carterjonas.co.uk
© Carter Jonas 2020. The information given in this publication is
believed to be correct at the time of going to press. We do not
however accept any liability for any decisions taken following this
publication. We recommend that professional advice is taken.
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