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www.corenetglobal.org.uk
Christina SiglianoDirector of Programmes,
CoreNet Global UK Chapter
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www.corenetglobal.org.uk
Ann Lewis Research AnalystDrivers Jonas
Nigel Grice Head of Occupier AdvisoryDrivers Jonas
Paul Burgess Director, Head of London LeasingThe British Land Company
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SEPTEMBER 2009
LONDON CRANE SURVEY
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NIGEL GRICE - Occupier Agency
ANN LEWIS - Research
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Source : DJ Crane Survey
18 MONTHS AGO
37 new starts – 4.2 m sq ft
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Source : DJ Crane Survey
6 MONTHS AGO
17 new starts – 1.1 m sq ft
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Source : DJ Crane Survey
TODAY
6 new starts – 160,000 sq ft
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Latest construction starts
32,000 sq ft 49,000 sq ft 80,000 sq ft – all pre-let
12,000 sq ft 37,000 sq ft 30,000 sq ft
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Only one new significant start
390,000 sq ft
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Headlines – Q2
Prime Headline Rent
Take-up (Q1 & Q2)
Availability
£42.50 sq ft
1.2 m sq ft
10.2%
CITY WEST END
Take-up (2008) 3.0 m sq ft
9.2%
0.6 m sq ft
2.0 m sq ft
£70.00 sq ft
Source: Drivers Jonas Research
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Falling rents…
West End
Prime Rents – Fall from peak
-42% -36%
City
Source: Drivers Jonas Research
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Take-up at a record low
Q1 2009 Take up lowest on record
Source: Drivers Jonas Research
M sq ft
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Q2 better but not much
Source: Drivers Jonas Research
M sq ft
Q2 09
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Construction has fallen 35% YR on YR
M sq ft
Volume under construction
Source: Drivers Jonas Research
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Speculative space fallen 33%
M sq ft
Volume under construction
Source: Drivers Jonas Research
Available
Let
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Forecast jobs growth
% Change
Source: Experian
Westminster
City Lower job loses
But weaker recovery
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London pipeline is much smaller than 90s
M sq ft
Completed Available u/c Let u/c
Source: Drivers Jonas Research
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Want 100,000 sq ft of new space?
sq ft
Source: Drivers Jonas Research
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
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Want 100,000 sq ft of new space?
sq ft
Source: Drivers Jonas Research
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
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Want 200,000 sq ft?
Completed
395,000 sq ft
220,000 sq ft
370,000 sq ft
20 Gracechurch
200 Aldersgate
Ropemaker
2009
290,000 sq ft
Drapers Gardens
2010
385,000 sq ft
442,000 sq ft
205,000 sq ft
The Walbrook
St Botolphs
One New Change
2011
290,000 sq ft
440,000 sq ft
Cannon Place
Heron Tower
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So…
• Construction is down…. but spec space remains high
• Jobs growth is weak… but construction cycle is smaller
• 2009 is the maximum point of pessimism
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Structural demand: it’s coming!
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Drivers Jonas Research
West End
City
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London pipeline: tenant’s dilemma
M sq ft
Completed Available u/c
Source: Drivers Jonas Research
Let u/c
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SEPTEMBER 2009
LONDON CRANE SURVEY
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CoreNet Breakfast ForumCoreNet Breakfast ForumCurrent State of the London real estate Current State of the London real estate
industryindustryTuesday 15 September 2009Tuesday 15 September 2009
www.britishland.com
Paul BurgessPaul BurgessHead of London LeasingHead of London Leasing
The British Land Company PLCThe British Land Company PLC
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British Land’s Office Portfolio:British Land’s Office Portfolio:
- £3.563 BN*- £3.563 BN*
- £2.394 BN* in the City- £2.394 BN* in the City
*Values as of March 2009*Values as of March 2009
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Office Outlook - Occupier Market
• London office vacancy 7.3% (long-term average 8.1%London office vacancy 7.3% (long-term average 8.1%11))
• Development activity 48% less than early 90s across all Development activity 48% less than early 90s across all
London sub-marketsLondon sub-markets22
• Speculative development unviable and made worse Speculative development unviable and made worse
by increasing tax burdenby increasing tax burden
• Occupier market fragile with take-up on a rolling annual Occupier market fragile with take-up on a rolling annual
basis lowbasis low
• Increased signs of activity within BL’s prime, modern Increased signs of activity within BL’s prime, modern
and well located portfolio and well located portfolio
• Increased viewingsIncreased viewings
• 210,000 sq ft of City lettings, 49% of Q1 total take-up 210,000 sq ft of City lettings, 49% of Q1 total take-up
• Further 63,000 sq ft under offerFurther 63,000 sq ft under offer
1 Jones Lang LaSalle – based on last 20 yrs2 PMA – 5 yr Rolling Annual from 1992-2008
London Vacancy1
Development Completions over Cycles2
0
24
6
8
1012
14
16
2000 2002 2004 2006 2008 2010 2012
%
City West End
0
3
6
9
12
15
18
City West End Midtown Docklands
m s
q ft
1988-92 5 Yr Rolling Annual 2006-10
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Lease now while stocks lastLease now while stocks last
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2010
2011
2012
2013
2014
2015
2016
2017
m s
q ft
200,000 sq ft+
150 - 200,000 sq ft
100 - 150,000 sq ft
75 - 100,000 sq ft
50 - 75,000 sq ft
20 - 50,000 sq ft
City Lease Events (20,000 sq ft+)
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Build it and they will comeBuild it and they will come
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Securing Income From High Quality Modern Securing Income From High Quality Modern BuildingsBuildings
Key Office Voids
To LetSq
ft ‘0003
% Let
/Under Offer
Lease Le
ngth
yrs4
Assumed Income
void mths5
Averag
e ERV £
psf6
Investments
201 Bishopsgate
49 88 18 48 45
Broadgate Tower
141
64 12 48 44
Ropemaker2
376
32 20 51 44
Sub-total
566
58 17 50 44
DevelopmentsRegents Place One & Two
364
- - 42 47
Total93
046 17 47 45
• 94% occupancy94% occupancy11 (90% pro forma for Ropemaker (90% pro forma for Ropemaker22))
• 93% of vacant accommodation brand new Grade A 93% of vacant accommodation brand new Grade A
spacespace
• 58% of recently completed developments let/under 58% of recently completed developments let/under
offeroffer
• New lettings achieved at average £48 psf for 17 yrsNew lettings achieved at average £48 psf for 17 yrs
• Only 9% of rent subject to break/expiry over next 3 yrs Only 9% of rent subject to break/expiry over next 3 yrs
(compared to IPD 24%)(compared to IPD 24%)
• Valuers’ build in assumptions on breaks/expiryValuers’ build in assumptions on breaks/expiry
• Average ERV £39 psfAverage ERV £39 psf
• Average void of 32 monthsAverage void of 32 months
• Capex of £40 psfCapex of £40 psf
1 Underlying occupancy rate including accommodation subject to asset management and under offer2 PC achieved in May 20093 Office space only (excludes storage)4 To first break5 Valuers’ assumed combined letting void and tenant incentive package6 Current estimated headline rent (excludes provision for tenants’ incentives) on space to let
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Priorities for the Future
• Continually evolving, dynamic property portfolio
• Rigorous and analytical overlay to support core property skills
• Robust and flexible financial structure and balance sheet
• Sustainable dividend supported by long, strong income streams
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City Office Demandknown requirements of 10,000 sq ft+, Q2 2009
12%
20%
8%
8%
43%4%
2%
Banking &Finance
Media &MarketingProfessional
IT & Telecoms
Insurance
Corporates
Gov't
Other
Total: 4.12 million sq ft
Active Potential
19%
45%
20%
1%
11%
1%
2%
1%
Total: 1.45 million sq ft
Additional non-geographically specific demand = 2.20 million sq ft
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Big Bang to Credit CrunchBig Bang to Credit Crunch
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The seminal 20The seminal 20thth
Century development Century development
in Londonin London
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Scenario 1Scenario 1
- Back to The Future- Back to The Future
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Scenario 2Scenario 2
- Back to Basics- Back to Basics
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Scenario 3Scenario 3
- Things have changed- Things have changed
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Conundrums and ContradictionsConundrums and Contradictions
- Sustainability and Operational Sustainability and Operational RequirementsRequirements
- PowerPower
- DensityDensity
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RopemakerRopemaker
A newA newbenchmarkbenchmark
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‘‘The modular design steps back at each level to The modular design steps back at each level to reveal a series of enchanting gardens in the air. reveal a series of enchanting gardens in the air. It is an accomplished example of a design It is an accomplished example of a design approach which integrates energy efficiency, approach which integrates energy efficiency, humane working conditions and technology to humane working conditions and technology to produce an alternative to the usual office block’produce an alternative to the usual office block’
Gateway House BasingstokeGateway House BasingstokePeter Murray - RIBA Guide to Modern British ArchitecturePeter Murray - RIBA Guide to Modern British Architecture
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Good Design PrinciplesGood Design Principles
- AdaptabilityAdaptability
- PermeabilityPermeability
- SustainabilitySustainability
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www.corenetglobal.org.uk
The UK Chapter is grateful to its Annual Sponsors: