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CENTRAL LONDON MARKET INSIGHT SERIES
THE GROWTH PICTURE FOR LONDON OFFICES
23rd April 2013
MARKET INSIGHT SERIES
THE GROWTH PICTURE FOR LONDON OFFICES
April 2013
WELCOMEAdam Hetherington| Managing Director – Central London Central London | CBRE
AGENDAMARKET PULSEMARKET PULSE
Kevin McCauley | Senior Director, UK Research
THE LONDON PARADOX
Dr Neil Blake | Head of UK & EMEA Research
THE BIG DEBATE
Joe Borrett | Head of Real Estate & Construction EMEA
Stewart Smith | Head of Central London Tenant Advisory Group
Ben Munn | Joint Global Head of Workplace Strategies
Chaired by Giles Barrie | Managing Director –
Senior Director, UK Research | CBRE
Head of UK & EMEA Research | CBRE
Head of Real Estate & Construction EMEA | Google
Head of Central London Tenant Advisory Group | CBRE
Joint Global Head of Workplace Strategies | CBRE
– Strategic Communications | FTI Consulting
CENTRAL LONDON
MARKET PULSEMARKET PULSEKEVIN MCCAULEY| SENIOR DIRECTOR, UK RESEARCH
CENTRAL LONDON
MARKET PULSEMARKET PULSESENIOR DIRECTOR, UK RESEARCH | CBRE
CENTRAL LONDON TAKE-UP
4.5
5.0
Secondhand New Completed
1.5
2.0
2.5
3.0
3.5
4.0
4.5
MILLION SQ FT
10101010----year average: year average: year average: year average: 3m 3m 3m 3m sq ftsq ftsq ftsq ft
0.0
0.5
1.0
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Source: CBRE
New Completed Pre-let Under offer 10-Year Average
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
TAKE-UP BY SECTOR
TMT AND CREATIVE INDUSTRIES TO THE FORE
90%
100%
90%
100%
Central London West End
20%
30%
40%
50%
60%
70%
80%
20%
30%
40%
50%
60%
70%
80%
0%
10%
20%
10 yr average 2012 Q2-2013 Q1
Banking & Finance Business Services CSL Insurance
0%
10%
20%
10 yr average
Source: CBRE
90%
100%
West End City
20%
30%
40%
50%
60%
70%
80%
Insurance MIE Professional Public Sector TMT
10 yr average 2012 Q2 -2013 Q1
0%
10%
20%
10 yr average 2012 Q2 -2013 Q1
CENTRAL LONDON
BANKING & FINANCE TAKE-UP OVER 50,000 SQ FT
1.4
1.6
0.4
0.6
0.8
1.0
1.2
1.4
MILLION SQ FT
Source: CBRE
0.0
0.2
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
UP OVER
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
1991
2003
CENTRAL LONDON AVAILABILITY COMPARISONS
31.5m sq ft
Rate
15.8%
26.7m sq ft
Rate
13.3%
2009
Q1 2013
21.3m sq ft
Rate
9.9%
17.2m sq ft
Rate
7.8%
HEADLINE VS NET EFFECTIVE RENTS
7035
Rent Free Periods Rent (RHS) Net Rent (RHS)
City
35
40
45
50
55
60
65
10
15
20
25
30
RENTS (£ PER SQ FT)
RENT FREE PERIO
D (MONTHS)
20
25
30
0
5
10
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
RENT FREE PERIO
D (MONTHS)
Source: CBRE
HEADLINE VS NET EFFECTIVE RENTS
14035
Rent Free Periods Rent (RHS) Net Rent (RHS)
West End
60
80
100
120
10
15
20
25
30
RENTS (£ PER SQ FT)
RENT FREE PERIO
D (MONTHS)
20
40
0
5
10
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
RENT FREE PERIO
D (MONTHS)
14
16
CENTRAL LONDON DEVELOPMENT PIPELINE
LIMITED DEVELOPMENT RESPONSE
4
6
8
10
12
MILLION SQ FT
20202020----year average: year average: year average: year average: 3.9m 3.9m 3.9m 3.9m sqsqsqsq ftftftft
0
2
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Completed City West End Source: CBRE
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
West End Other Central London
25
City West End
AVAILABILITY TO PEAK IN 2013
10
15
20
AVAILABILITY RATES, %
0
5
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Source: CBRE
FORECAST
West End Central London
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
CENTRAL LONDON CAPITAL TRANSACTIONS
5.0
5.5
6.0
6.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
£ BILLION
0.0
0.5
1.0
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Source: CBRE
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
INVESTMENT VOLUMES BY PURCHASER
GLOBALISATION OF LONDON’S OFFICE MARKET
90%
100%
20%
30%
40%
50%
60%
70%
80% 38%38%38%38%
0%
10%
20%
1984-1989 1990-99
UK Europe Other Asia Germany Middle East / North Africa
Source: CBRE
44%44%44%44%49%49%49%49%
65%65%65%65%
2000-09 2010-12
Middle East / North Africa US / Canada Other Overseas
CENTRAL LONDON PRIME YIELDS
7%
West End
4%
5%
6%
West End 10West End 10West End 10West End 10----year year year year averageaverageaverageaverage: : : : 4.58%4.58%4.58%4.58%
3%
4%
Q3 2002
Q4 2002
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Source: CBRE
West End City
City 10City 10City 10City 10----year average: year average: year average: year average: 5.43%5.43%5.43%5.43%
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
PRIME V SECONDARY YIELD SPREADS
9
SE/E England Offices Cen London Offices
3
4
5
6
7
8
PERCENTAGE POINTS
0
1
2
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Source: IPD Quarterly Index
PRIME V SECONDARY YIELD SPREADS
Cen London Offices Rest of UK Offices
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
140
Mayfair
MAYFAIR AND CITY HEADLINE RENTS
40
60
80
100
120
£ PER SQ FT
0
20
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source: CBRE
FORECAST
Mayfair City
MAYFAIR AND CITY HEADLINE RENTS
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
CHANGES IN RENTS: PEAK THROUGH TO Q1 2013
PRIME HEADLINE RENTS: RECOVERY PROGRESS
140
Peak, 2007
40
60
80
100
120
2014
2012
2013
2013
2012
£ PER SQ FT
0
20
* Soho
Paddington
Nth of Oxford
Street East
Nth of Oxford
Street West
Midtown
Source: CBRE* Excludes AirW1
Q1 2013
Q1 2013
Post 2017
2015
20172014
Post 2017
2015
Southbank
Victoria
City
Docklands
Mayfair / St James's
MARKET BALANCE SHIFTING
OCCUPIER MARKET
• U/Os strong
• Rental growth in some markets
• Supply nearing peak
• Economic recovery becomes better established
INVESTMENT MARKET• Less stock coming to
market
• Demand, particularly from overseas, strong
• Further yield compression?
• Change in emphasis towards • Change in emphasis towards development / secondary
THE LONDON PARADOXLONDON OFFICES – WHERE WILL THE DEMAND COME FROM?LONDON OFFICES – WHERE WILL THE DEMAND COME FROM?
DR NEIL BLAKE | HEAD OF UK & EMEA RESEARCH
PARADOXWHERE WILL THE DEMAND COME FROM?WHERE WILL THE DEMAND COME FROM?
HEAD OF UK & EMEA RESEARCH | CBRE
EXPLAINING THE LONDON PARADOX
Why has London
survived and prospered
since the credit crunch since the credit crunch
when it is a global
financial centre in the
midst of a global
financial crisis?
EXPLAINING THE LONDON PARADOX
What are the occupier
sectors that have driven
the economy?the economy?
Which sectors will
feature in the recovery &
where will they be?
feature in the recovery &
where will they be?
EMPLOYMENT IS ALMOST BACK AT ITS PEAK
1,200
1,250
Add in changes to self-employment
OFFICE-BASED EMPLOYEES IN CENTRAL & INNER LONDON BOROUGHS
1,000
1,050
1,100
1,150
self-employment and London is at a
new peak
THOUSANDS
900
950
1998 1999 2000 2001 2002 2003 2004
Source: CBRE, based on ONS & Experian data* Camden, City, Hackney, Hammersmith & Fulham, Islington, Kensington & Chelsea, Lambeth, Southwark, Tower Hamlets & Westminst
BASED EMPLOYEES IN CENTRAL & INNER LONDON BOROUGHS*
2005 2006 2007 2008 2009 2010 2011 2012
* Camden, City, Hackney, Hammersmith & Fulham, Islington, Kensington & Chelsea, Lambeth, Southwark, Tower Hamlets & Westminster
TMT
OFFICE-BASED EMPLOYEES: CHANGE END 2008 TO END
100% OF THE INCREASE HAS BEEN IN TMT
Finance
Professional Services
Admin. Services
Source: CBRE, based on ONS & Experian data
THOUSAND EMPLOYEES
-15,000 -10,000 -5,000
Public Services
BASED EMPLOYEES: CHANGE END 2008 TO END 2012
100% OF THE INCREASE HAS BEEN IN TMT
THOUSAND EMPLOYEES
0 5,000 10,000 15,000
TMT JOBS (EMPLOYEES): CHANGE END-2008 TO
PARADOXICALLY, WESTMINSTER HAS GAINED THE MOST TMT JOBS
City
Westminster
Southwark
Kensington & Chelea
Hackney
Lambeth
Islington
Tower Hamlets
Source: CBRE, based on ONS & Experian data
-500 0 500 1,000
Camden
Hammersmith & Fulham
Southwark
2008 TO END-2012
PARADOXICALLY, WESTMINSTER HAS
Adding in the self-employed would improve the position of Hackney, Islington, Camden
1,000 1,500 2,000 2,500 3,000 3,500
Hackney, Islington, Camden and Southwark
JOBS
TMT SUB-SECTOR JOBS (EMPLOYEES): CHANGE END
“TECH” JOB CREATION DOMINATED TMT
Tech*
Information
Broadcasting
Video, TV & Sound
* “Computer programming, consultancy and related activities”
-5,000 -3,000 -1,000 1,000 3,000
Publishing
SECTOR JOBS (EMPLOYEES): CHANGE END-2008 TO END-2012
“TECH” JOB CREATION DOMINATED TMT
3,000 5,000 7,000 9,000 11,000 13,000 15,000
JOBS
OFFICE-BASED EMPLOYMENT: FURTHER DETAIL
…WITH A SURPRISINGLY STRONG BOUNCE BACK IN CITY AND CANARY WARF
500City & Docklands Westminster
THOUSANDS
300
350
400
450
Source: CBRE, based on ONS & Experian
200
250
1998
1999
2000
2001
2002
2003
2004
DETAIL
…WITH A SURPRISINGLY STRONG BOUNCE
Westminster Other Boroughs
2005
2006
2007
2008
2009
2010
2011
2012
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
Surprise increases in City and Tower Hamlets
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
On-going diversification away from Banking in the City
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
South Bank re-generation shows up strongly
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
Westminster has suffered from both declining public sector and professional services jobs but actually saw the actually saw the biggest increase in TMT
THE GEOGRAPHY OF EMPLOYMENT CHANGE SINCE 2008
Adding in self-employment would improve the position of Hackney, Islington, Camden and SouthwarkCamden and Southwark
EMPLOYMENT IN HIGH-END OCCUPATIONS EXC. EDUCATION AND HEALTH OCC
% CHANGE FROM SEP 08 TO SEP 12
CENTRAL LONDON HAS DOMINATED HIGHEND JOB CREATION IN THE UK
CENTRAL LONDON
10%3%
REST OF LONDON
Source: Annual Population Survey (workplace-based. * Camden, City, Hackney, Hammersmith & Fulham, Islington, Kensington & ChelseSouthwark, Tower Hamlets & Westminster
3%
END OCCUPATIONS EXC. EDUCATION AND HEALTH OCCUPATIONS)
CENTRAL LONDON HAS DOMINATED HIGH-
3%
REST OF LONDON
based. * Camden, City, Hackney, Hammersmith & Fulham, Islington, Kensington & Chelsea, Lambeth,
3%1%
REST OF UK
WHAT IS BEHIND THE LONDON REVIVAL?
CITY-CENTRE
LIVING
GROWTH OF
CREATIVE
TALENTTALENT
WHAT IS BEHIND THE LONDON REVIVAL?
CENTRE
CITY-CENTRE
WORKING
Startups |Niche |Large
SKILLED LABOUR
(EXCLUDING FINANCIAL SERVICES)
KNOWLEDGE-INTENSIVE SERVICES JOBS
Inner London
Outer London
M4/M40 CorridorM4/M40 Corridor
Stockholm
Berlin
Paris
Munich
Warsaw
Frankfurt
Rome
Barcelona
Milan
Source: Eurostat to 2011 with extrapolations to 2012 by CBRE based on Oxford Economics data; residence
% CHANGE 2009
-15 -10 -5 0
Milan
Madrid
Düsseldorf
Amsterdam
SERVICES JOBS
Source: Eurostat to 2011 with extrapolations to 2012 by CBRE based on Oxford Economics data; residence-based
% CHANGE 2009-2012
5 10 15 20 25 30
THE OCCUPIER
EMPLOYMENT EMPLOYMENT
OUTLOOK
OCCUPIER
EMPLOYMENT EMPLOYMENT
SURVEY RESPONDENTS ARE RELATIVELY OPTIMISTIC
LONDON COMPETITIVENESS HAS HELD UP SURPRISINGLY WELL
Source: Z/Yen Global Financial Centres Index September 2012
OPTIMISTIC
HAS HELD UP
How will London’ s competitiveness as a financial centre change over the next 3
Much more competitive
A litte more competitive
Remain about the same
A little less competitive
Much less competitive
Much more competitiveA little more competitiveRemain about the sameA little less competitiveMuch less competitive
centre change over the next 3 years?
CENTRAL & INNER LONDON TMT EMPLOYEES
TMT IS NOT IMMUNE TO WORLD ECONOMIC CYCLE
15
TMT Employees
% CHANGE
-5
0
5
10
Source: Oxford Economics, CBRE. * excludes China
-15
-10
1999 2000 2001 2002 2003 2004 2005
CENTRAL & INNER LONDON TMT EMPLOYEES VS WORLD CAPEX
World Fixed Investment*
2005 2006 2007 2008 2009 2010 2011 2012
OFFICE-BASED EMPLOYMENT IN CENTRAL & INNER LONDON
JOBS GROWTH WILL CONTINUE AS THE WORLD ECONOMY PICKS UP
1,300
1,400
THOUSANDS
800
900
1,000
1,100
1,200
Source: CBRE
600
700
800
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
BASED EMPLOYMENT IN CENTRAL & INNER LONDON BOROUGHS
JOBS GROWTH WILL CONTINUE AS THE
163,000 JOBS
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
600
Professional Financial TMT
EMPLOYMENT BY INDUSTRY: CENTRAL & INNER LONDON
… WITH PROFESSIONAL JOBS MAKING A COMEBACK
200
300
400
500
THOUSANDS
0
100
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Admin & Support Public Admin.
EMPLOYMENT BY INDUSTRY: CENTRAL & INNER LONDON BOROUGHS
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
THE GROWTH IN FINANCIAL SERVICES WILL NOT COME FROM BANKING
200,000
Banking
EMPLO
YEES IN EMPLO
YMENT
120,000
140,000
160,000
180,000
Source: CBRE
80,000
100,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
THE GROWTH IN FINANCIAL SERVICES
Other Financial Services
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
PROFESSIONAL SERVICES EMPLOYMENT
REBOUND IN CONSULTANCIES DRIVES PROFESSIONAL SERVICES
Management Consultancies & Head Offices
2013-18
Real Estate
Advertising & Market Research
Architects, engineers & technical
Legal & Accounting
Management Consultancies & Head Offices
Source: CBRE
EMPLOYEE JOBS CHANGE PER ANNUM
-1,000 0
Scientific R&D
Real Estate
CONSULTANCIES DRIVES
18 2009-12 1998-09
EMPLOYEE JOBS CHANGE PER ANNUM
1,000 2,000 3,000 4,000 5,000 6,000
THE OUTLOOK
163,000NET EMPLOYEE JOBS
TMT IN NEW GROWTH
PHASE – SENSITIVE TO
TMT IN NEW GROWTH
PHASE – SENSITIVE TO
ECONOMIC CYCLE
163,000NET EMPLOYEE JOBS
TMT AND PROFESSIONAL
SERVICES MORE
RESPONSIVE TO WORLD
ECONOMIC CYCLE
PROFESSIONAL SERVICES
WILL BE BIGGEST JOB
CREATOR AS ECONOMY
PICKS UP
OFFICE-BASED JOBS: EUROPEAN COMPARISONS
LONDON STANDS OUT ON THE EUROPEAN STAGE
170
London* Munich
120
130
140
150
160
1998 = BASE 100
Source: CBRE, Oxford Economics. * all Inner London Boroughs; includes the self
100
110
1998
1999
2000
2001
2002
2003
2004
2005
2006
COMPARISONS
Munich Berlin Paris
Source: CBRE, Oxford Economics. * all Inner London Boroughs; includes the self-employed
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
240
260
Singapore Shanghai
PRIVATE SECTOR OFFICE-BASED JOBS: INTERNATIONAL COMPARISONS
AND DOES NOT DO TOO BADLY ON A WORLD STAGE
140
160
180
200
220
240
1998 = BASE100
80
100
120
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: CBRE, Oxford Economics. * all Inner London Boroughs; includes the self
London* New York San Francisco
BASED JOBS: INTERNATIONAL COMPARISONS
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: CBRE, Oxford Economics. * all Inner London Boroughs; includes the self-employed
IN SUMMARY...
THE LONDON THE LONDON
PARADOX IS
REAL
PROSPERITY THROUGH
CREDIT CRUNCH, IN SPITE CREDIT CRUNCH, IN SPITE
OF RELIANCE ON
FINANCIAL SERVICES
OFFICE-BASED
EMPLOYMENT BOUNCE-
BACK
GROWTH IN URBAN LIVING
WORLD ECONOMIC
RECOVERY
THE BIG DEBATEChairChair
Giles Barrie | Managing Director – Strategic Communications
Panellists
Joe Borrett | Head of Real Estate & Construction EMEA
Ben Munn | Joint Global Head of Workplace Strategy
Stewart Smith | Head of Central London Tenant Advisory Group
DEBATE
Strategic Communications | FTI Consulting
Head of Real Estate & Construction EMEA | Google
Joint Global Head of Workplace Strategy | CBRE
Head of Central London Tenant Advisory Group | CBRE
CENTRAL LONDON MARKET INSIGHT SERIES
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