drivers jonas deloitte edinburgh crane survey 2010 final

Crane Survey Edinburgh 2010

2

Development activity in Edinburgh remains muted as the economy struggles to recover from the recession. This is particularly evident in the office sector with just one office scheme under construction this survey. In order to provide a more comprehensive snapshot of development in Edinburgh city centre, we have widened the scope of the Crane Survey to include all commercial and non-commercial development activity. While office development activity might be limited, there are currently 16 developments under construction in the city centre, largely comprising residential schemes.

Introduction

Quatermile II by Gladedale Capital Group

While office development activity might be limited, there are currently 16 developments under construction in the city centre, largely comprising residential schemes

Crane Survey Edinburgh 2010 3

Offices

The current lack of office development activity is testimony to the severe impact of the economic downturn on the UK property markets. In 2009 occupiers were cautious on the whole and delayed relocations, resulting in weak demand and low take-up levels. This, coupled with a lack of available finance, resulted in development activity grinding to a halt across the country. Edinburgh was no exception, with speculative developments placed on hold in late 2008 and 2009. In the only development scheduled to finish this year, J Smart & Co have completed Bridgeside House on MacDonald Road, delivering 24,000 sq ft of speculative office space in May 2010.

The only office development under construction and scheduled to complete next year is the 55,000 sq ft office building in the Shawfair Business Park, which is 100% pre-let to the Scottish Qualifications Authority. The total of the 2010 and 2011 delivery equates to 12% of the 2009 total (640,000 sq ft), with the 2010 volume being the lowest delivery in nearly a decade. The Cube by Kilmartin and IVG

2000 2002 2003 2004 2006 2007 2008 2009 2010 20112001 2005

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

Development pipeline

Sq ft

Completed Available U/C Let U/C 2000 - 2009 Average

Source: Drivers Jonas Deloitte

4

The high quantity of space released onto the market last year combined with a slowdown in demand led to a sharp increase in office availability during 2009. More than two thirds of the total office space coming online from 2009 to 2011 is still available, as the table below illustrates.

Availability has reduced since the end of 2009 and currently stands at 7% of total stock. The low delivery pipeline coming forward will lead to a dearth of new office supply in 2011 and 2012 and should reduce availability levels further.

2009 saw low levels of take-up, with only 450,000 sq ft office space leased, 200,000 sq ft less than in 2008 and well below the five year average of 610,000 sq ft. Only 16% of the new space delivered in 2009 was taken up and included lettings to Hymans Robertson, Wood MacKenzie and Aecom, totalling 104,000 sq ft.

Demand in 2010 has remained weak, with 270,000 sq ft of office space taken up during the first half of the year. Comparatively this figure is 20% higher than over this period last year with demand largely driven by public sector requirements, including the 55,000 sq ft pre-let to the Scottish Qualifications Authority at

Shawfair Business Park, and NHS Lothian taking 38,700 sq ft at Waverley Gate. Demand from the financial services sector remains limited following the economic crisis. Despite the increase on last year’s half year take-up levels, total take-up for 2010 is expected to remain below average.

Lease transactions in the past 12 months have been heavily weighted to smaller lettings (sub-5,000 sq ft) with a consistent churn of occupiers exercising their break options. A total of 70 transactions have been concluded, with an average deal size of 3,800 sq ft, marginally larger than the 3,300 sq ft of the year before.

Reduced demand combined with a high volume of new completions last year has created a competitive environment for landlords looking to attract tenants. This has resulted in rental levels falling 10% since their peak in 2008 to £26.00 per sq ft, with rent-free incentives moving out to a maximum of 36 months on a straight 10-year lease. This rental decline is less than the fall recorded in the early 1990s recession when rents fell £5 per sq ft (20%) in four years. We expect rental levels to hold stable and incentive packages to reduce by the end of 2011 as availability reduces and in the absence of prime speculative space.

Scheme Name Total space (sq ft)

Remaining space (sq ft)

Completion

Connect Edinburgh Phase 2, Newbridge 19,000 11,800 Q2 2009

Tanfield, Canonmills 191,000 171,000 Q2 2009

1 Exchange Place, Semple Street 109,000 96,500 Q2 2009



Ratho Park, West Edinburgh Phase 2 22,300 22,300 Q3 2009

Westport 102 94,000 84,000 Q3 2009

Quartermile II 52,700 16,000 Q4 2009

The Cube, Leith Street 65,000 52,200 Q4 2009

Bridgeside House, 97-99 MacDonald Road 24,000 24,000 Q2 2010

Shawfair Business Park 55,000 0 Q3 2011

Total 719,000 486,700


As highlighted in Deloitte's recent report Hospitality 2015: Game changers or spectators, the UK hospitality sector has been heavily impacted by the recent recession and the continued economic uncertainty. Hotel demand fell four times faster than GDP during the recession, the most dramatic fall over the past century.

Demand in Edinburgh has fluctuated this year, but overall occupancy levels are holding up compared to the national average with 73.7% occupancy recorded for hotels in the city by mid-July 2010 compared with the

United Kingdom Regional Edinburgh GlasgowLondon

90

80

70

60

50

40

30

20

10

0

Occupancy

%

2009 2010*

*2010 year to date, ending 10 July 2010

Source: 2010 STR Global Ltd

Hotels

72.3% recorded in 2009, according to STR Global Ltd. Corporate occupancy demand in the city has in recent months been driven by the public and banking sector, while Brits choosing to holiday in the UK contributed to the strong leisure demand. Demand in Edinburgh has been stronger for budget and mid-level accommodation which is reflected in current development activity within the city centre. Travelodge, the budget hotel operator, completed two new hotels in Edinburgh recently: in April a 115-bedroom hotel opened on Craigmillar Park and in August a 96-bedroom hotel opened at 3 Waterloo Place. These two new hotels form part of the operator’s plans to open 26 new hotels in the UK this year. The expansion will take Travelodge’s UK portfolio to more than 400 properties and will include new hotels in London, Edinburgh, Aberdeen, Colwyn Bay and Morecambe.

The only hotel development currently under construction in the city centre is the Premier Inn on Princes Street. The 97-bedroom hotel will include nearly 30,000 sq ft of retail space on the ground level which has been pre-let to the fashion retailer New Look. The development is scheduled to complete in 2012 and is the first hotel to be developed on Princes Street since 1955.

Hotel demand fell four times faster than GDP during the recession, the most dramatic fall over the past century

6

Residential

Edinburgh was not immune to the residential market downturn; 17% was wiped off the average house price in the city in just 18 months and sales volumes fell 76% from peak to trough. In more recent months the market has started to show signs of recovery, with sales volumes in the city recording an increase of 17% year on year according to Registers of Scotland. However, this is still someway from the level seen at the top of market.

Development pipeline

No. of units

800

700

600

500

400

300

200

100

0

2010 2012 2014 20152011 2013

Source: Drivers Jonas Deloitte

The availability of mortgage finance remains one of the key barriers to restarting momentum within the residential market. Many potential purchasers are finding themselves excluded from the market due to the fact they can’t obtain a mortgage. The last 12 months has seen conditions improve with lending up 22% across Scotland. However, this is from a low base and in reality lending still remains tight and a long way from the levels seen pre-downturn.

Q42006

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

900

800

700

600

500

400

300

200

100

0

Number of residential dwellings completed in Edinburgh

No. of units

Starts Completions Start average Completion average

Source: NHBC, Drivers Jonas Deloitte


The new-build residential sector was one of the first to feel the effects of the ‘credit crunch’ with private housing completions falling 68% between 2007 and 2009 in Edinburgh. Several schemes have been mothballed as they no longer proved financially viable in the current market. As a consequence development activity remains below average despite attempts by some developers to maintain output. Notably some of they key housebuilders have refinanced projects in order to get back on site. Despite a fall back in activity, the residential sector is currently the dominant driver in Edinburgh’s development activity. Our Crane Survey records there are 14 schemes under construction, all of which are located on the periphery of the city centre.

Regardless of this bout of activity, residential construction in Edinburgh remains someway below the long term average. Our Crane Survey analysis shows that four developments are scheduled to complete this year, delivering 606 new units between them. A further 1,600 units are currently under construction and scheduled to complete in the next five years. All the schemes currently under construction are being brought to the market by major players. Three developers alone are responsible for 50% of

A previous phase of CALA's East Fettes development

schemes underway in our Crane Survey area. These are Barratt who have three schemes under construction, Miller Homes with two schemes and CALA who also have two schemes currently underway.

As with other major cities, construction activity is dominated by flatted developments. Our survey records one exception, the Graysmill Gait development by Miller Homes. This is the only development currently underway solely comprising houses, and is due for completion later this year.

The slowdown in new housing starts and completions as published by the NHBC is expected to lead to a housing shortage in Edinburgh going forward. The Scottish Government recognises the future challenges facing the residential sector and has set up the National Housing Trust (NHT) to deliver new homes at 80% of the average market rent as part of a bid to tackle the current shortage of affordable housing in the city. The NHT has the potential to restart development activity on stalled housing sites. This follows in the footsteps of the Homes and Communities Agency Kick-start programme which successfully restarted stalled sites across England over the past 24 months.

8

Current student bedspace supply by type

% No. of units

100

90

80

70

60

50

40

30

20

10

0

Edinburgh UK

Private-sector halls

Institution maintained property

Other rented accommodation

Own residence

Parental/guardian home

Other

Student accommodation

Edinburgh is home to five universities and over 43,800 full time students, making it one of the largest student centres in the UK according to the latest data from the Higher Education Statistics Agency (HESA). The city attracts a large number of international students, and although the total student population has not increased significantly, the share of international students has increased by 24% since 2002.

In contrast to the office sector, investor and developer appetite in the student housing market has been increasing throughout the downturn. The rationale for the sector’s attractiveness tends to include the strong rental growth that has been recorded, as well as the non-cyclical nature of the stock as demand continues to increase in line with increasing student numbers.

There are currently 9,350 purpose-built student bedspaces in Edinburgh according to our student accommodation database. The vast majority of this stock is owned by the universities, with the University of Edinburgh accounting for 54% of the total.

Only 4% of the stock is privately owned and available for direct letting, which is considerably below the national average where a third is privately owned and two-thirds university owned.

The current provision of purpose-built bedspaces in Edinburgh is heavily dominated by cluster accommodation which accounts for 98% of the total stock. Studios only account for 2% of the total bedspaces and nearly all the studios in Edinburgh are operated on a direct let basis. With over 43,800 full time students in Edinburgh and only 9,350 purpose-built student bedspaces, this means that three quarters have to find alternative accommodation.

We estimate Edinburgh has a bedspace ratio of 4.7 students per purpose-built bed, which is higher than the UK average ratio of 3.7. Whilst this does not necessarily constitute an under supply of bedspaces, it does suggest there might be demand for more purpose-built halls.

Rents in Edinburgh are at the higher end of the scale. The average self catered headline rent in Edinburgh is £105 per week, which is 16% higher than the UK average (excluding London). There are currently no direct let schemes available for less than £120 per week. This is due to the fact that most of the private student accommodation comprise studios which attract higher rents (and also greater returns) for developers.

There are currently three new student housing schemes completing in Edinburgh in time for the start of the new academic year, adding 604 new bedspaces to the market. Two IQ schemes are located on Grove Street and Dundee Street and will provide a mix of unit types, including studios, cluster bedspaces and one bedroom apartments. The third scheme is on Nicolson Street and was developed by Lacuna Developments and Watkin Jones. This development is pre-let to Edinburgh University for 20 years.

Edinburgh continues to be an attractive location for student housing investment due to the large student population, the current shortage of student private bedspaces and the higher than average share of international students.

Source: HESA, Drivers Jonas Deloitte

There are currently 9,350 purpose-built student bedspaces in Edinburgh according to our student accommodation database


Conclusions

Student housing development on Grove Street developed by Watkin Jones

As predicted in our previous Crane Survey, the Edinburgh office market has struggled during the past year as demand all but disappeared from the financial services sector, previously its main driver. Development activity has ground to a halt with just one development completing this year and just one currently under construction.

Development activity is now largely dominated by residential projects, with a mixture of residential types under construction on the periphery of the city centre. Family housing remains in short supply however, and is expected to put pressure on the second hand housing market in the short term.

Interest from both investors and developers in the student housing market has been increasing throughout the downturn and three student accommodation projects are completing in the city at the time of going to print. With a large student population and an increasing international student population, demand in the city remains strong.

Current low levels of development supply should aid the market recovery as economic growth and stronger demand translates into shortages of prime stock

It is unlikely that construction activity in general will increase significantly during the remainder of the year; the economic recovery remains uncertain and fears of a double-dip recession have increased. Demand is expected to remain weak and developers will continue to seek pre-lets prior to starting construction. However, the current low levels of development supply should aid the market recovery as economic growth and stronger demand translates into shortages of prime stock.

Source: HESA, Drivers Jonas Deloitte

10

Development map

CHAMBERS STREET

AIN

SLIE

PL.

BRUNSWICK STREET

MO

RRISON LINK

BROUGHTON STREET

PRINCES STREET

QUEEN STREETHERIOT ROW

HO

WE ST.

HERIOT ROW YORK PLACE

GEORGE STREET

DU

ND

AS STREET

BRAN

DO

N TERR.

INVERLEITH ROW

DU

ND

ON

ALD

ST.

GREAT KING ST.

EYRE P

L.

HENDERSON ROW

HA

NO

VER STREET

N ST. A

ND

REWS ST.

N CA

STLE STREET

NO

RTH BRID

GE

LEAMINGTO

N TERRACE

GILMORE PLACE

CARLTON ROAD

NEW

ST.

SOU

TH BRID

GE

NICO

LSON

ST.POTTERRO

W

CLERK STREET

LOTH

IAN

ROA

D

DALR

Y RO

AD

SHANDW

ICK PLACE

HAYMARKET TERRACE

WES

T APP

ROACH

MORRISON STREET

FOUNTAIN BRIDGE

WEST PORT

COW GATE

DUNDEE STREET

HENDERSON T. MELVILLE DRIVE

LAURISTON PLACE

BRU

NTS

FIEL

D P

LAC

E

Q

UEE

N’S

DRI

VE

JOHNSTON TERRACE

CHARLOTTESQUARE

EDINBURGHCASTLE

ROYAL BOTANIC GARDEN

HOLYROODPARK

UNIVERSITY

ST. ANDREWSSQUARE

RUSSELL RO

AD

BELFORD ROAD

REGENT ROAD

MARKET STREET

HIGH STREET

CANON GATE

HOLYROOD

EAST MARKET ST.

WATERLOO PL.

JEFFREY ST.

THE M

OU

ND ST. M

ARY’S

PLEASA

NC

E

ST. LEON

ARD’S STREET

M

ORAY

CHAPEL ST. BUCCLEUCH ST.

ROYA

L CIRCUS

CLA

REM

ON

T ST

REET

BELLEVUE

MCDONALD ROAD

ANNANDALE STREET

BELL

EVUE

ROA

D

EAST LONDON STREET

PILRIG STREET

ALBERT STREET

CANONMILLS

B

ROUGHTO

N ROAD

LOG

IE GREEN

ROA

D

WA

RRIS

TON

ROAD

BEAVERHA

LL RD.

HOPETOWN

LEIT

H W

ALK

LONDON ROAD

HA

MILT

ON

PL.

DU

BLIN STREET

QUEENSFERRY TERRACE

CREWE RD

QUEENSFERRY ROAD

COMELY BANK ROW

RAEBURN PLACE

EAST FETTES AVEN

UE

CARRINGTON ROAD

FETTES AVENU

E

INVERLEITH PL.

22

2

3

4

15

12

20

25

17

26

23

24

21

27

14 16

19

13

518

1

7

8

9

10

11

6

New start Under construction Complete

Edinburgh Crane Survey Map


No Name / address Developer(s) Main use Phased Total size in sq ft / units

Completion date

Comment

City Centre - Under construction

1 121-123 Princes Street Deramore Hotel 97 bedrooms Q2 2012 Premier Inn. The development also includes 30,000 sq ft of retail space which is pre-let to New Look.

City Centre - Completed

2 George the IV Bridge Kilmartin / HBOS Hotel 136 bedrooms Q2 2009 The five star Missoni Hotel development is complimented by retail and leisure space, which includes a Pizza Express and a Bank of Scotland branch.

3 The Cube, Leith Street Kilmartin / IVG Office 65,000 Q4 2009 12,300 sq ft let to Glenmorangie post completion.

4 Bridgeside House, 97-99 MacDonald Road

J Smart & Co Office 24,000 Q2 2010 Built speculatively.

5 41-43 Craigmillar Park Teague Construction Hotel 115 bedrooms Q2 2010 The Travelodge opened in April 2010.

6 3 Waterloo Place Chris Stewart Property Group Hotel 96 bedrooms Q3 2010 The Travelodge opened in August 2010.

7 IQ Scheme at 114 Dundee Street, Fountainbridge

IQ / Watkin Jones Student Accommodation

314 beds Q3 2010

8 IQ Scheme at 69 Grove Street

IQ / Watkin Jones Student Accommodation

205 beds Q3 2010

Edinburgh Exchange / Haymarket - Under construction

9 Lacuna development, Nicolson Street

Lacuna Development Ltd / Watkin Jones

Student Accommodation

85 beds Q3 2009 This scheme is pre-let to Edinburgh University for 20 years.

Edinburgh Exchange / Haymarket - Completed

10 Westport 102, Lady Lawson Street

Kenmore / HBOS Office 94,000 Q3 2009

11 Quartermile II Gladedale Capital Group Office 52,700 Q4 2009 The majority of the space is pre-let to Morton Fraser LLP.

Edinburgh Periphery - Under construction

12 Optima, Ferry Road Redrow Residential 300 Q3 2010 An apartment development.

13 Fusion, Forthquarter, West Granton Road

Barratt Residential 176 Q3 2010 An apartment development.

14 Graysmill Gait, Craiglockart Miller Homes Residential 10 2010 This development consists of 5-bedroom detached houses.

15 Bonnington Miller Homes Residential 120 Q4 2010 An apartment development.

16 West 1, Slateford Road Barratt Residential 201 Q2 2011 An apartment development.

17 Q, Newhaven Place Barratt Residential 105 Q2 2011 This development consists of townhouses and apartments.

18 Shawfair Business Park, South Edinburgh

Buccleuch Office 55,000 Q3 2011 100% pre-let to the Scottish Qualifications Authority.

19 Bughtlin Market, East Craigs Mactaggart & Mickel Residential 72 Q4 2011 The project consist of townhouses and apartments. 18 apartments allocated as affordable housing.

20 Blackhall, Hill Park Mactaggart & Mickel Residential 54 Q4 2011 This development consists of townhouses and apartments.

21 Pinkhill, Corstorphine Road Taylor Wimpey Residential 66 Q3 2012 Two thirds of the development is now complete.

22 Varsity, Telford College Miller Homes Residential 329 Q3 2012 This development is spread across three apartment blocks.

23 East Fettes CALA Residential 69 2012 This development consists of two and three bedroom apartments.

24 Grovewood Hill, Craigmount

CALA Residential 239 2013 This is a mixed residential development consisting of detached houses, mews houses, townhouses and apartments.

25 Strada, Ferry Road Taylor Wimpey / Bett Residential 122 Q4 2014 This is the final phase of a 646 unit apartment development.

26 QMU site, Clermiston Persimmon Residential 312 2015 The scheme will consists of 11 terraced houses and an apartment block.

Edinburgh Periphery - Completed

27 Ratho Park Phase 2, West Edinburgh

EDI Office 22,300 Q3 2009 This phase comprised an office and hotel pre-let to Travelodge. Designed to environmentally friendly standards.

Blue text - indicates new starts this survey

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Drivers Jonas Deloitte is a trading name of Deloitte LLP, the United Kingdom member firm of DTTL.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. We would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. We accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

© 2010 Deloitte LLP (trading as Drivers Jonas Deloitte). All rights reserved.

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.

Member of Deloitte Touche Tohmatsu

This survey is on our website www.djdeloitte.co.uk/research

Crane Surveys are also available for:LONDONPARISFRANKFURTLEEDSBIRMINGHAMMANCHESTERGLASGOW

Sandy GilmourInvestment+44 (0)141 504 [email protected]

Gordon AlexanderStrategic Consultancy+44 (0)131 535 [email protected]

Ian LochheadAgency+44 (0)131 535 [email protected]

Richard SpenceValuation+44 (0)131 535 [email protected]

Tim PankhurstStudent Housing +44 (0)20 7303 [email protected]

Anthony DugganResearch+44 (0)20 7303 [email protected]

drivers jonas deloitte edinburgh crane survey 2010 final

Documents