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WELCOME WITH representatives from some 90 countries, MIPIM is the leading property conference in the world, so I am delighted that there is such a strong UK presence in Cannes this year.

As we leave the European Union, I am determined that we will seize the opportunity to forge a bold new role for a Global Britain as the most outward-looking, free trading nation in the world.

At this conference we will demonstrate the continued attractiveness of all parts of the UK for domestic and foreign capital. We will show how the UK is open for business, as a key player in international markets and more committed than ever to creating the most business friendly environment possible.

And by attracting investors to the whole of the UK’s real estate market, we will in turn drive jobs and growth across our whole economy, helping to build the homes that Britain needs and regenerating towns and cities in every region of the UK. So this is a timely moment to showcase Britain’s world-leading property market and I wish you all a very successful conference.

Theresa May, Prime Minister of the United Kingdom

“I wish the Scottish Cities Alliance every success in showcasing the unique investment opportunities offered by Scotland’s seven cities, both individually and collectively. The EY Attractiveness Survey recently named Scotland the number one place to invest outside London, with the best inward investment performance on record. That’s a compelling proposition for international investors.

“I look forward to welcoming more large scale investments from international partners who see the undoubted appeal of Scotland’s supportive business environment, skilled workforce, world-class universities and quality of life.”

Nicola Sturgeon, First Minister of Scotland

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WELCOME AS THE UK prepares to leave the European Union, the Department for International Trade is focusing on the opportunities this presents us. We will be uniquely placed to forge a new trading relationship, not only with Europe but with the rest of the world.

As the Secretary of State in charge of this new department, I will be ensuring my department works tirelessly to promote the exports of our goods, services and expertise as well as attracting inward investment into housing, regeneration and infrastructure to drive jobs and growth in the UK economy.

The UK remains a key destination for international property investment. The inflow of international capital into the UK is by far the highest amongst our European neighbours and the vast majority of development schemes are driven by the private sector, generating financial returns through new or improved residential, commercial, industrial, hotel or leisure development.

MIPIM – the world’s largest property trade show – offers the UK government an ideal opportunity to engage with the global property industry. We want to support overseas businesses in their export journey, helping them to expand their brand and build their markets abroad. Whether it’s building millions of new homes, regenerating towns and cities, creating new settlements across the UK or upgrading infrastructure, the property industry is vital for creating hubs that will benefit businesses and families. It is vital for creating jobs and generating growth for the UK economy.

For the first time, the UK government will have a pavilion, bringing together senior officials from the Department for International Trade, Department for Communities and Local Government, Department for Energy and Industrial Strategy and HM Treasury, private sector investors from the UK and overseas, city leaders and other public sector bodies. Through a programme of public events, private meetings and roundtable discussions, we will ensure existing partnerships are strengthened and new relationships are formed which will go on to deliver new buildings and infrastructure.

The UK government’s presence at MIPIM provides a platform to promote the vast expertise that exists among our architects, engineers and consultants in this flourishing, sector to a global

audience. We have world-leading talent, some of which is on show within the MIPIM pavilion, and we will continue to support firms as they seek out new opportunities.

As we embark on this new journey which will see us strengthen existing relationships and forge new ones, the whole property sector will play an important role in ensuring the UK’s success and our pavilion at MIPIM should send a clear message – the UK government is here to talk and to listen.

Dr Liam Fox MP Secretary of State for International Trade and President of the Board of Trade

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FANTASTICALLY CONNECTED, BEAUTIFULLY GREEN AND ALIVE WITH OPPORTUNITY, KNOWSLEY IS FULL OF SURPRISES. On the doorstep of two thriving cities, it is well positioned between the northern powerhouses of Liverpool and Manchester and perfectly located to take advantage of developments such as Superport, Atlantic Gateway and the New Mersey Gateway.

With excellent road, rail, air and sea connections, Knowsley is superbly located for residents, businesses and visitors alike.

An established home to some of the UK’s most successful businesses with a proud industrial and manufacturing heritage, it is a place where the opportunities are exceptional. High performing brands like Jaguar Land Rover, Matalan, QVC and Amazon have chosen Knowsley, due in no small part to its unrivalled location, connectivity and great workforce.

The size and scale of investment and development in Knowsley is surprising. Home to Knowsley Business Park, one of the largest employment areas in Europe, Knowsley has the location and the space to grow with attractively priced land and sites primed and ready for development.

In addition to being a home for business, Knowsley is an ideal place to locate and raise a family. Abundantly green with award winning parks and exciting plans for the Shakespeare North Playhouse, Knowsley offers individuals and families alike an attractive lifestyle in an appealing location within easy reach of many entertainment, culture, sporting and lifestyle opportunities.

And that’s just an introduction.

INTERESTED TO FIND OUT MORE ABOUT KNOWSLEY? www.discoverknowsley.co.uk @KnowsleyUK Knowsley UK UK 0151 443 5802 paul.morris@knowsley.gov.uk

Contents

WELCOME 3 The UK Government has ramped up its presence at MIPIM to levels never seen before.

OVERVIEW 8 How is the UK real estate industry adapting to the postBrexit paradigm?

ECONOMY 10

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DESTINATION

UK

Industry leaders are applying a ‘risk-off’ strategy to property investment.

OCCUPIER TRENDS

14

Despite political and economic jitters, major companies have stepped up their commitment to the UK.

INVESTMENT 16 Who is investing in the UK and what assets are they targeting?

DEAL BAROMETER

20

Investors have continued to place high-stakes bets on the UK market since the Brexit referendum. What have they been buying?

REGIONAL REVIEW

24

London may be the biggest draw for international capital but regional cities are setting their cap at investors.

KEY SCHEMES

27

A selection of the large-scale regeneration schemes currently under way across the UK

THE INFRASTRUCTURE DEBATE

30

Nothing kick-starts economic growth quite like a massive investment in infrastructure.

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TECHNOLOGY 33 Are UK developers and asset managers ready to give technology, media and telecom companies what they want?

RESIDENTIAL 36 The search is still on for strategies that truly improve the availability and affordability of urban housing.

DESTINATION UK — March 2017 — MIPIM News Special Report. Director of Publications Paul Zilk Director of Communication Mike Williams EDITORIAL DEPARTMENT Editor in Chief Graham Parker Contributors: Ben Cooper, Mark Faithfull, Steve Killick, Liz Morrell, Doug Morrison, Paul Strohm Sub Editor: Joanna Stephens Proofreader: Debbie Lincoln Head of Graphic Studio Herve Traisnel Graphic Studio Manager Frederic Beauseigneur Cover images (top left to bottom right) © Getty Images / Nagalski, theasis, susandaniels, xavierarnau PRODUCTION DEPARTMENT Publishing Director Martin Screpel Publishing Manager Amrane Lamiri Publishing Co-ordinators Emilie Lambert, Yovana Filipovic Printer Riccobono Imprimeurs, Le Muy (France) Reed MIDEM, a joint stock company (SAS), with a capital of €310.000, 662 003 557 R.C.S. NANTERRE, having offices located at 27-33 Quai Alphonse Le Gallo - 92100 BOULOGNE-BILLANCOURT (FRANCE), VAT number FR91 662 003 557. Contents © 2017, Reed MIDEM Market Publications. Publication registered 1st quarter 2017. Printed on PEFC Certified Paper.

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Advertorial

City Region The biggest hitter in the Northern Powerhouse

I

The City Region, whose ‘can do’ approach to business has seen it consistently rated by the EY Attractiveness Survey as a world class destination for Foreign Direct Investment, has seen a number of major new investments from firms such as Sky, Perform Group and Legal and General Homes confirmed over the last 12 months, creating over 1,000 new jobs.

Leeds South Bank copyright Leeds City Council

t continues to be an exciting time to invest in the UK’s largest City Region economy outside of London.

Positioned both economically and geographically at the heart of the Northern Powerhouse, Leeds City Region is primed for growth with over £13bn of investment currently onsite or in development.

Speaking recently, Roger Marsh OBE, Chair of Leeds City Region Enterprise Partnership commented: “To realise the economic growth ambitions for our City Region, we must extend our global profile and accelerate our efforts to attract new investors and grow indigenous businesses. Against the backdrop of some economic and political uncertainty we must refrain from becoming a region that ‘waits for the dust to settle’ and

Leeds City Region is primed for growth with over £13bn of investment currently onsite or in development.

instead remain steadfast in our positivity and focus on winning the opportunities – of which there are many.

“I genuinely believe Leeds City Region is a location where the best businesses in the world can flourish – we contribute more to the national economy than any other northern city region and our economic output is greater than nine EU countries; we offer the largest and fastest growing workforce in the UK with over 31% of our working population educated to degree level at the heart of the Northern Powerhouse.

“The City Region’s strength comes from the number of powerful key towns and cities that are in the region, which combine with the core city of Leeds to create a diverse dynamic growth focused region able to attract companies like John Lewis, Sky, Coca Cola, Haribo, Amazon and Legal and General Homes.”

To discover the unparalleled opportunities offered

by Leeds City Region, which boasts a GVA of £64.6bn, or why developers such as Scarborough International Properties, CEG, Caddick, Munroe K, Bruntwood and more are all currently investing in the region.

visit stand R7.B10 at MIPIM or investleedscityregion.com.

Central Square copyright DLA Design

LEEDS

OVERVIEW

The result of the Brexit referendum in June 2016 came as a shock to the property community, which had lobbied for Britain to remain in the EU. So how is the industry adapting to the new paradigm? asks Graham Parker

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Business as usual

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OVERVIEW COMMERCIAL real estate in Britain has a market value of £1,662bn and contributes over £94bn per year to the UK economy. Like a supertanker on the ocean, it does not slow down or change course immediately. As a result, even nine months on from the referendum, the impact of Brexit has been relatively light.

Colin Wilson, head of UK and Ireland at Cushman & Wakefield, says: “It is extremely positive that, as each week passes, we are gaining greater certainty in the process of exit. However, we can expect many more twists and turns as the negotiation of the detail unfolds, with lobbying and positioning creating heightened levels of unwanted uncertainty. Those in charge will need to balance hard negotiation with maintaining underlying confidence, recognising that we are an economy that is very global in outlook and economic activity.”

Colin Wilson: “Those in charge will need to balance hard negotiation with maintaining underlying confidence, recognising that we are an economy that is very global in outlook” However, Cushman & Wakefield data shows that overall UK commercial property investment for 2016 was 41% down on the previous year. Wilson says: “That’s a dramatic reduction until two important mitigating factors are considered. The first is that investment from mid-2014 to mid2015 was at record levels and was already heading back towards a more sustainable rate long before there was any real expectation that Vote Leave would win. The second is the strength of the bounce-back in the last quarter of 2016 and the speed at

which the shock of the referendum result wore off as the markets strove for a return to business as usual.”

Richard Divall, head of cross-border capital markets at Colliers International, echoes the view that the market may have turned well before the referendum.

“The prime commercial market in London peaked in June 2015 — and the prime residential market in London peaked in the final quarter of 2014,” he says. “The market was falling anyway, as international buyers deemed London too expensive.”

Divall believes prime London values could now be 5% off their peak. As an example, he points to a New Bond Street property that Oxford Properties bought for £198m, when it had previously been under offer for £210m.

Divall observes that it is capital from the Asia-Pacific region that has propped up the market post-Brexit. “Hong Kong, Chinese and Singapore buyers all came back after the vote,” he says. “They still need to diversify, they see London as a global city and they take a long-term view.” Reflecting this, COS Capital — a Chinese investment manager with $4.6bn of assets under management — went ahead with plans to set up a London office in October 2016.

And the flow of money from within the EU has not dried up either, with Germany’s Deka spending €1bn in two deals at Rathbone Square in the West End of London and Cannon Place in the City of London.

For Savills’ David Williams, executive director of mixed-use development, the structural security offered to investors by the UK’s long occupational leases is a key selling point. “While Brexit is going to be a long and bumpy road, the fundamentals of the lease structure remain the same,” he says. And the cheap pound against the dollar makes it even more attractive. “US, EU and Asian investors are taking full advantage,” he adds.

So what of the occupier markets? Andrew Angeli, senior director and head of UK strategy and research at CBRE Global Investors, believes the underlying UK economy is still on a firm footing.

“Employment participation is historically high, real wage growth is supporting consumer spending and business confidence returned to levels indicative of modest economic expansion in the final quarter of the year,” he says.

Andrew Angeli: “Employment participation is historically high, real wage growth is supporting consumer spending and business confidence returned in the final quarter of the year” But Angeli does see uncertainty impacting certain sub-sectors: “Evidence suggests that we may be reaching the peak of the occupational cycle. We have started to see a dampening of interest at the very prime end of the West End office market and agents are talking about dropping quoting rents.”

However, Colliers’ Divall is heartened by the renewed commitment to the UK by Google, Facebook and Apple in Kings Cross, Fitzrovia and Battersea respectively. “They all see London as the place where the talent will always be and they have all signed leases post-Brexit,” he says.

Divall believes decisions like these are driven by frequently intangible considerations, and that London remains attractive on many measures. “Schools, nightlife, language and security all influence these decisions,” he says. “The euro and the EU are not the only factors.”

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ECONOMIC OVERVIEW

Better than

expected

Industry leaders are applying a ‘risk-off’ strategy to property investment, despite better economic conditions than anyone had anticipated in the immediate aftermath of the shock Brexit vote last June. Doug Morrison reports UNCERTAINTY is clouding the 2017 outlook for UK plc. Buoyant consumer spending and manufacturing output kept the UK economy growing at 0.6% in the final quarter of 2016, according to the Office for National Statistics — a brisk performance that has confounded many forecasters who feared recession following the outcome of the EU referendum.

But as Jon Zehner, global co-head of client capital group at LaSalle Investment Management, points out, the UK has seen a decrease in institutional investment from foreign investors since the Brexit vote. There is also less capital for development, he says, especially for those exposed to leasing risk.

“My opinion is that investors are uncertain of the ramifications of the UK leaving the EU,” Zehner says. “For real estate investors, this is in part driven by the sentiment among vendors. Potential vendors are unsure whether to sell and this uncertainty has resulted in fewer assets being offered for sale at the current level of slightly softer pricing.”

He adds: “We have seen institutions, such as pensions funds and sovereign wealth funds, putting UK investment decisions on hold until there is further clarity around Brexit and what the long-term role is for the UK in Europe. However, this is not true of all investors — we have seen continued

interest from some investors, in particular those smelling an opportunity. Moreover, we have seen a certain amount of capital from ultra-high-net-worth individuals and family offices to replace that from institutional investors — a trend partly-driven by the favourable exchange rate.”

Jon Zehner: “We have seen institutions putting UK investment decisions on hold until there is further clarity around Brexit and what the long-term role is for the UK in Europe” Zehner’s assessment accords with the cautious sentiment towards the UK market in Emerging Trends In Real Estate Europe 2017, the long-running forecast published by PwC and the Urban Land Institute (ULI).

The uncertainty around Brexit undoubtedly weighed heavily on the minds of the 781 senior property professionals interviewed and surveyed for the latest report, sending London down to a lowly 27 out of 30 in its 2017 European city rankings for

Jon Zehner, global co-head of Client Capital Group, LaSalle Investment Management

investment and development prospects. In the search for safe havens, the report suggests, German cities will be Europe’s preferred real estate destinations.

PwC and ULI have since conducted follow-up research, albeit on a much more select basis, for the global edition of Emerging Trends, published at MIPIM, and the conclusions are broadly the same.

While no one is writing off London’s status as Europe’s biggest and most liquid property market, there is clearly a ‘risk-off’ approach to investment in the UK capital and the country’s other major cities.

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Advertorial

A FRESH APPROACH TO DELIVERY

Millbrook Proving Ground Central Bedfordshire

CENTRAL BEDFORDSHIRE is ideally located in the UK, at the hear t of the Cambridge to Oxford innovation corridor which is witnessing major infrastructure investment including the East-West Rail link and an Expressway to link the two historic university cities.

C

entral Bedfordshire is 30 minutes north of London and close to major airports, within easy reach of 35 million people and offers a growing skilled and flexible workforce.

The area is home to a diverse urban and rural portfolio of industrial and commercial sites and developments along the M1 and A1 strategic transport routes.

Central Bedfordshire, with 274,000 people, is one of the fastest-growing areas in the country, where there are tens of thousands of new homes and jobs planned.

In preparation for growth, Central Bedfordshire Council will bring forward more than 1 million sqm of employment land, and facilitate the infrastructure to support high-quality and sustainable jobs. This includes the new A5-M1 link road, multi-million pounds investment in

superfast broadband and major town centre regeneration programmes.

Across the area there are a range of strategic development locations, and Central Bedfordshire Council, which has placed enabling businesses at the top of its agenda, is ready to help facilitate investment.

The Council is focused on enabling delivery such as introducing innovative Local Development Orders (LDOs) that cover major commercial areas in Dunstable and Biggleswade.

LDOs relax some planning restrictions, making it easier for businesses to invest and grow.

Many international brands have made Central Bedfordshire their base, including Amazon, BE Aerospace, Nissan Technical Centre Europe, Whitbread and Millbrook Proving Ground, which has four development sites at its Technology Park totalling 24,900sqm.

Martin Hughes, Technology Park Director, at Millbrook, said: “It is very useful to be able to say to our clients and potential clients such as Calsonic that we have a very proactive and engaging Local Authority.”

And business support extends beyond the LDOs, to include relocation support, access to and advice on funding, recruitment and training and innovation and growth programmes.

Martin Dalby, the Chief Executive Officer of Center Parcs UK oversaw a £250 million investment in Center Parcs Woburn Forest.

In praise of the council, Martin said: “We have a great relationship with the planning department.”

Center Parcs Woburn Forest is one of the centrepieces of Central Bedfordshire’s visitor economy, which is one of four key sectors that have been identified by the council.

Center Parcs Woburn Forest

Technologies, research and development (R&D), where Cranfield University is a major centre for inward investment in R&D .

The other three key sectors are AgriFood, Transport and Logistics and High Performance

To find out how Central Bedfordshire can support your growth plans contact the team on

+44 (0)300 300 8272 info@becentralbedfordshire.co.uk or visit www.becentralbedfordshire.co.uk

ECONOMIC OVERVIEW And yet amid the prevailing economic and political uncertainty, there is much about UK real estate that remains open to interpretation.

Alan Patterson, research consultant at AEW UK, for instance, believes the end of 2016 marked a turning point in market sentiment.

“We didn’t have the recession or downturn that some predicted, but what we did have was this continuous talking down of everything,” he says. “That negativity in the second half of the year did make a lot of property investors nervous, and some did hold back. But as we come into 2017, there is increasing confidence. Some of that confidence never went away — Asian investors were still around.

And London retains its dominance, even though some higher volume [investment] figures came through for Germany. There is real interest in London, just a caution. I think we’ll see that confidence coming through in the first half of this year, although it may take time to work up to producing deals.”

That next wave of investment deals will say a lot about UK real estate, and whether a fall in values — especially London offices — will come to pass. Long before the Brexit vote, London property was regarded as expensive and due for some form of correction. “I think that is overstated,” Patterson argues, pointing out that prime of-

Alan Patterson: “We didn’t have the recession or downturn that some predicted, but what we did have was this continuous talking down of everything” fice yields in London are 4-4.25% against 3.75% in Paris for comparable assets.

Paul Clark, chief investment officer at The Crown Estate, adds: “It’s important to take a step back from Brexit and look at the market over the medium to long term. At the start of 2016, the markets looked pretty fully priced. There’s no doubt they are a little down over the year, and that there have generally been fewer potential purchasers,

The Crown Estate’s Paul Clark

IN FIGURES Impact of Brexit on real estate in 2017 %

REAL ESTATE INVESTMENT

REAL ESTATE VALUES Decrease significantly

UK REST OF EU UK REST OF EU Decrease somewhat

Stay the same

Increase somewhat

Increase significantly

although central London had a strong finish to the year, principally on the back of robust demand from Asian investors.”

Mat Oakley, head of UK and European commercial property research at Savills, says: “Any correction in UK commercial property prices is likely to be less extreme than after the financial crash, due to a structurally sounder lending market, heightened global investor interest in real estate and a lack of oversupply. A wholesale occupier flight from London or the UK is also unlikely due to employers’ costs currently being 30%-40% higher in France and Germany, the most likely alternative destinations. Overall, therefore, we believe the UK commercial market will remain resilient.”

Oakley adds: “In the context of a rise in caution and risk aversion among real estate investors, the UK offers strong income returns and, in many cases, is a refuge for capital preservation in the longer term.”

Another big unknown for UK real estate in 2017, however, is the impact of inflation, which has been stoked by the Brexit-induced fall in the value of sterling. The latest Consumer Price Index shows that air fares, food prices and fuel all helped to drive inflation from 1.2% in November to 1.6% in December — the highest rate for two and a half years.

If inflation continues at the current rate, allied to an expected squeeze on wages, then consumer spending is likely to fall, and hit both the economy and property.

But The Crown Estate’s Clark insists: “If you look at the balance sheet at the end of year, interest rates look set to remain low for the foreseeable future, there is a glut of global savings still looking for a home, and UK property continues to be attractive to global investors, being relatively transparent and liquid.”

Source: PwC/ULI

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Shaping and connecting UK property

The UK Property Marketplace 18-19 October 2017, London Olympia mipimuk.co.uk

OCCUPIER TRENDS

So far, so good Despite Brexit, and global political and economic jitters, several major international companies have stepped up their commitment to the UK and are pressing ahead with substantial projects. Paul Strohm examines why DURING times of heightened global uncertainty — and we can probably all agree that now is such a time — a country that has gained a reputation as a real estate safe haven should have a distinct advantage.

But what if that safe haven is also mired in political upheaval?

We refer, of course, to the UK as it confronts the still unclear reality of Brexit. And the question front and centre for many real estate professionals is whether property investors and occupiers — certainly those that function at a global level — will choose to locate somewhere that is not about to discard the EU and leap into the unknown.

Perhaps surprisingly given this apparently uncertain future, a batch of major in-

ternational companies including Google, Facebook, Nissan and Apple are pressing ahead with plans to set up operations in the UK. It could be argued that their decisions were made prior to the UK referendum on EU membership and these companies were therefore too far down the line to back out — the real estate equivalent of turning a super-tanker around. On the other hand, in each of these cases, the announcement was made well after the June 23 referendum and in ample time, it has been said, to reverse the decision should that have been desired.

For instance, it was in September that property company Great Portland Estates announced that it had pre-let all of the office space in its development at Rathbone

Facebook’s new offices in Rathbone Square, London

Square, London W1 to Facebook, which had signed an unconditional agreement to lease 227,324 sq ft (21,109 sq m) for 15 years, paying an initial rent of £16.9/m per annum. Then, at the end of September, the consortium developing Battersea Power Station confirmed that Apple is to take approximately 500,000 sq ft on six floors when it moves in during 2021. Battersea Power Station will be the computer manufacturer’s new London campus and will bring together 1,400 employees from existing offices around London.

Apple’s announcement was followed in November by Google’s confirmation that it plans to build a 10-storey, 650,000 sq ft complex alongside its new offices in Pancras Square in a £1bn-plus project that will accommodate 7,000 people.

“What people need to appreciate is that to acquire this kind of scale of space takes a minimum of a two-year lead-in and these transactions took place in a very different climate,” says Stuart Melrose, director of Colliers International’s West End offices team. However, Melrose says that a point not always fully appreciated is that the uncertainty around Brexit is also affecting the rest of Europe, not just the UK. “The UK has a more certain future now, so there is a slightly different landscape to that which people were anticipating,” he adds.

Moreover, political uncertainty in France, the Netherlands, Germany and several other European countries may be working in the UK’s favour. But in any case, companies including Google, Apple and Facebook are oriented towards sources of skilled staff and are therefore not completely footloose.

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OCCUPIER TRENDS At the time of its announcement, Facebook’s Robert Cookson, head of EMEA, APAC and Americas real estate, said: “The move to our new offices at One Rathbone Square highlights our commitment to invest and grow our talented teams of people based in London, from engineering and analytics to partnerships and design.”

And despite widespread uncertainty about the way that Brexit will manifest itself, the ability to serve wider world markets is of key importance. “The UK is a global supplier of services and products. Facebook and Google are not in the UK to service the UK economy — they are here to employ people with the right skills for the global economy,” says Carl Potter, senior director of property consultant GVA.

Carl Potter: “Facebook and Google are not in the UK to service the UK economy — they are here to employ people with the right skills for the global economy” Exporters have also benefited from the fall in sterling that followed the Brexit vote, which made the UK more cost effective.

“The pound has fallen and seems destined to remain low for a period of time while we unravel Brexit. It provides a good backdrop to UK costs. We now look globally less expensive as costs in emerging economies rise,” Potter says.

He adds: “There is still a significant amount of growth in the global economy and the UK has a great record in servicing that global economy. You only have to look at the FTSE 100. The pound falls and FTSE rises — not because the UK is doing well, but because those [FTSE 100] companies service and drive reve-

Nissan is set to produce the next Qashqai and X-Trail vehicles in its plant in Sunderland

nue from non-sterling sources and, when this is converted back, they are well ahead of expectations.”

The positive sentiment that prevails despite the UK’s uncertain prospects do not seem to finish at London’s M25 ring road, either. In October, Nissan Motor Company announced that it would produce its next Qashqai and X-Trail car models at its UK plant in Sunderland, in the north east of the country.

The extent to which the UK government sweetened the deal with Nissan is still unclear, but the company said that its decision “followed the UK government’s commitment to ensure that the Sunderland plant remains competitive”.

The UK government’s commitment to seeing Brexit to its conclusion is helping to steady nerves among property occupiers.

“What has surprised me is that, once we got over the shock [of the referendum result], the overall uncertainty has more or less disappeared,” says James Dipple, chief executive of property company MEPC. He references the firm’s Milton Park property, which caters for the biomedical research community around Oxford. “The overrid-

ing impression is that business is going on as usual. For instance, we are talking with a company about a new 60,000 sq ft laboratory. The reason they are [in Oxford] is because of three key factors: people, place and an academic centre of excellence. It’s about the talent pool and the people that work in that sector.”

Dipple adds: “The UK is seen as a place where innovation takes place and as an environment that supports new and emerging businesses — we still see a bright future here.”

James Dipple: “The UK is seen as a place where innovation takes place and as an environment that supports new and emerging businesses — we still see a bright future here”

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INVESTMENT

Who owns

Britain?

Despite the political complications around Brexit and the impact it may have property investment in the UK is still happening. But who is actually investing, what assets are they targeting and for a country that is to escape the EU who actually owns Britain? Liz Morrell reports POLITICAL uncertainties aside there is little doubting that UK commercial real estate remains popular. “The UK, and particularly London, remains the favoured first choice and safe haven for investable capital in European commercial real estate,” says Chris Gore, senior director, head of city transactions at GVA, and head of the European Investment Group (EIG) at GVA Worldwide.

According to Real Capital Analytics the biggest overseas buyers of UK commercial real estate in 2016 were US-headquartered investors, continuing a trend that has been evident for the last 10 years.

However, it’s a trend that has slowed according to Simon Mallinson, executive managing director EMEA and APAC for Real Capital Analytics. “It is notable there has been a substantial slowing in 2016 ver-

sus 2015 and inbound capital from the US has more than halved,” he says. However, this has also been a Europe-wide trend with very few European countries seeing investment from the US increase last year, he says.

However, it’s a tide that may turn, according to Dr Nigel Almond, head of EMEA Capital Markets Research at Cushman & Wakefield. “Some North American investment may ease on the back of a stronger dollar but expected rises in interest rates could see some capital flow out from the US,” he says.

Asian investment also remains significant, although it has slowed somewhat too. “One of the big stories in the second half of the year was the amount of investment into Central London from Hong Kong-based investors, something that has continued in 2017,” Mallinson says, adding that such investors are attracted by softening prices and a currency discount of 15-20% versus this time last year.

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INVESTMENT David Harper, CEO of Harper Dennis Hobbs, says this is particularly evident in the retail sector. “We have seen investors from Asia and in particular Hong Kong concentrating on the UK market. They believe that the UK offers a safe haven to them as they are concerned about their own domestic market,” he says. This is thanks to a significant drop in rents following the downturn in trade in Hong Kong as well as some civil issues which the Chinese government has threatened to stamp down on, which is prompting investors to get their money out of their country, he says.

“Around 15% of the West End’s real estate is now Chinese-owned, with more trans-

actions taking place regularly, a trend that we expect to continue throughout the next financial year,” says Jace Tyrrell, chief executive of New West End Company.

According to Chris Brett, head of international capital markets at CBRE equity targeting the capital from overseas investors currently stands at approximately £38£40bn.

However, whether investors choose London or one of the regions depends on the investors. “The more mature investors are comfortable investing outside London, but the HK-based players who have recently come into the market are solely focused on acquiring assets in London,” Mallinson says.

Brett believes London’s appeal means London will always be a natural first choice.

“London is on a pedestal compared to its global peers. It has transparency, an open market, no language barriers, extensive advisors, a weakened currency (at the moment) and most importantly of all, liquidity,” he says. “These factors all combine to ensure that for the past three years, more than 70% of transactions last year have been acquired by international investors.

In Q4 2016, 93% of deals in excess of £100million were bought by overseas investors,” he says.

Harper also believes the capital’s appeal will endure — despite a reduction in volumes.

“In the difficult political world that we all

IN FIGURES

Foreign investors

What and where are overseas investors buying?

Market / Property type

% Total

Top 10 Overseas Investors in to UK CRE in 2016 £bn with % change versus 2015

UNITED STATES SINGAPORE HONG KONG CANADA

2.46

2.01

1.98

GERMANY CHINA

1.69

1.27

NETHERLANDS

6%

Rest UK / Retail

1%

-37%

-5%

-42%

0.49

+89%

4%

Big 6 / Industrial

+65%

0.49

7%

London / Office

38%

7% Big 6 / Other CRE

+6%

+4%

7%

Rest UK / Office

-3%

0.53

AUSTRALIA

Rest UK / Industrial

6.63 -57%

-38%

UNITED ARAB EMIRATES

Rest UK / Other CRE

ANNUAL CHANGE

0.66

NORWAY

n.b. Big 6 markets are Bristol, Birmingham, Manchester, Leeds, Glasgow, Edinburgh

5%

Big 6/ Retail

6% Big 6/ Office

7% London/ Other CRE

London / Industrial

London / Retail

9%

3%

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INVESTMENT exist in, London is a beacon among other markets. I do not anticipate any reason why it will not remain popular,” he says.

“London remains Europe’s — if not the world’s — financial capital,” Gore says.

“We can’t see that changing anytime soon, despite speculation to the contrary. Despite Brexit anxieties and debate about passporting rights, the UK is still viewed as the most stable long-term bet, politically and economically combined with its landlord friendly environment,” he adds.

As well as retail, the main focus on assets tends to be the office market, particularly in central London, but volumes have fallen in the last five years with regional offices in bigger markets and big box logistics units proving popular too,” says Mallinson.

Almond believes it is a trend that will continue: “London will continue to be dominated by office sales. Foreign demand will remain focussed on a broader mix of types, though industrial/logistics assets can expect to see stronger levels of demand as investors focus on the strong income and resilience of the sector underpinned by the growth of ecommerce,” he says.

Nick Montgomery, head of UK investment at Schroder Real Estate draws on RCA research that shows £7.7bn on was invested by international investors into the Central London office market during 2016. The United States led the way, with investors from the country acquiring £1.54bn while investors from Hong Kong bought the second highest volume, spending £1.28bn billion. Investors from China, Singapore and Canada acquired £988 million, £832 million and £634 million of stock respectively.

So what is behind this resilience? Montgomery says: “The fundamentals of the Central London market ensure it remains a highly attractive location for investors seeking international real estate exposure.

Its time zone and physical location, together with its legal, educational, corporate and financial institutions are key attractions.”

So, will Brexit have further impact? Mall-

Regent Street in London

inson believes it will. “While uncertainty re the Brexit-settlement persists, investors will struggle to underwrite deals in London, but there will be investors who will always want to acquire assets in the capital for a variety of reasons. But volumes are likely to be lower for the time being, especially as sellers sit on their hands to wait and see what happens to the occupier markets too,” he says.

Others disagree however. “There is growing demand not just in London but the rest of the UK as well,” Brett says.

“Whether this is for offices, logistics, retail, healthcare, data centres or hospitality, demand is growing each quarter.

Why? Investors are searching for income and yield aligned to good real estate. We expect this to continue and gather momentum throughout 2017.” Brett adds that demand for joint ventures from international capital sources will also increase into this year. “The search for best-in-class operating partners has been active for the past few years and is likely to increase in popularity,” he says.

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DEAL BAROMETER

The big league

Global investors have continued to place high-stakes bets on the UK market since the Brexit referendum in June 2016, buying across all sectors and regions

Brindleyplace, Birmingham

HSBC Alternative Investments has bought six buildings at Brindleyplace in Birmingham. The buildings, which comprise 500,000 sq ft (46,451 sq m) of mixed-use space, fetched a reported £260m. The vendor, Hines, will be retained as asset manager, extending the firm’s seven-year stewardship of Brindleyplace.

The buildings form part of the Brindleyplace development, which consists of well-designed buildings, tree-lined streets and public squares.

The canal-side, mixed-use scheme comprises 11 prime office buildings totalling over 1 million sq ft, with tenants including Deutsche Bank, GVA, Michael Page and Deloitte.

Hines managing director Raj Rajput says: “Brindleyplace continues to be one of the most desirable office locations in Birmingham.”

CBRE and Colliers acted as advisors to Hines.

The Glades, Bromley

Alaska Permanent Fund Corporation (APFC) has bought a controlling interest in The Glades shopping centre in Bromley, south London. It paid Intu Properties £177.9m for its 63.525% stake in the 463,000 sq ft (43,014 sq m) property, reflecting an initial yield of 5.7%.

APFC has also bought Aviva’s 21.475% interest in the centre, while the London Borough of Bromley is retaining its 15% interest and freehold. The Glades will be managed by LaSalle Investment Management on behalf of APFC. The principal retail destination in London’s largest borough, intu Bromley attracts an annual footfall of 20 million. Intu has repositioned the centre following a successful refurbishment programme, improving the tenant mix and increasing the F&B offer with the fully let Queen’s Garden restaurant terrace.

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DEAL BAROMETER Edinburgh St James

Dutch pension fund manager APG has taken a 75% stake in the £1bn Edinburgh St James retail and leisure centre. The vendor, TH Real Estate, will hold the remaining 25% stake on behalf of its UK Shopping Centre Fund, and will continue its role as development and asset manager of the 1.7 million sq ft (157,935 sq m) project.

Designed by Allan Murray Architects, Edinburgh St James will comprise 850,000 sq ft of retail space. Anchored by John Lewis, it will help move Edinburgh further up the UK retail rankings, from 13th to eighth place. In addition, there will be 150 private apartments, a multi-screen cinema and the first W Hotel in Scotland, offering 214 rooms.

Savills acted on behalf of APG. Cushman & Wakefield acted on behalf of TH Real Estate.

Royal Liver Building, Liverpool

Liverpool’s waterfront monument, the Royal Liver Building, has been sold to Luxembourg-based investment manager and co-investor Corestate Capital Holding for £48m.

One of the ‘Three Graces’ buildings on Liverpool’s UNESCO World Heritage waterfront, the Liver Building is one of the city’s most recognisable landmarks. This is the first time that it has appeared on the market since its grand opening in 1911 as the headquarters of the Royal Liver Assurance Group. Its occupiers include Bestinvest, HSBC, Mott MacDonald, Pershing, Princes Foods and Universities Superannuation Scheme.

CBRE advised the vendor, Royal London Mutual Insurance Society.

One Kingdom Street, Paddington

TH Real Estate, on behalf of the Cityhold Office Partnership, has sold One Kingdom Street in Paddington, west London, to Hong Kong investor CC Land Holdings for £292m, representing a net initial yield of 4.86% and a capital value of £1,100 per sq ft.

Already a major transport hub, as well as the gateway to London from Heathrow Airport and the Thames Valley, Paddington stands to gain from the completion of the Crossrail project in 2018.

The prime investment, comprising 264,898 sq ft (24,609 sq m) of grade-A office space set over nine floors, was completed in February 2008. Tenants include Vodafone, Shire, Mysis and Statoil. The weighted average unexpired lease term is 6.5 years (to breaks) and the average office passing rent is £55 per sq ft.

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DEAL BAROMETER Paternoster Square, London

Oxford Properties Group, the global real estate arm of the Ontario Municipal Employees Retirement System, has sold 50% of its Paternoster Square office campus in the City of London to real estate investment manager Madison International Realty for £200m. The assets include King Edward Court, home of the London Stock Exchange, and St Martin’s Court, CBRE’s head office in the City of London. Oxford Properties will act as asset manager for the new joint venture.

Ronald M Dickerman, president and founder of Madison International Realty, says: “King Edward Court and St Martin’s Court are two extremely high-quality, well-let assets in an iconic location directly next to St Paul’s Cathedral. We have every confidence in both the City’s continued position as a leading global financial centre and its enduring appeal as a destination for international businesses.”

Rathbone Square, London W1

Great Portland Estates (GPE) has sold Rathbone Square, 35/50 Rathbone Place, London W1 to WestInvest Gesellschaft Fur Investmentfonds and Deka Immobilien Investment for £435m, reflecting a net initial yield of 4.25%.

The 40,000 sq m mixed-use development is under construction, with phased completion targeted from late March. The 24,000 sq m of office space is prelet to Facebook at an annual rent of £17.8m. The estimated rental value of the entire scheme (including residential ground rents) was £19.7m as of September 2016.

Following this transaction and the sale of the remaining residential units, GPE’s total receipts from Rathbone Square are expected to be £655m.

7&8 St James’s Square, London SW1

7&8 St James’s Square, the adjoining buildings which achieved record rents in London, have been sold by Green Property to a private Asian investor for £245.9m. The price reflects a yield of 3.69% and a record capital value of £3,425 per sq ft.

Green Property completed the redevelopment of 62,200 sq ft (5,778 sq m) of offices at 8 St James’s Square in spring 2015, creating a high-quality multi-award winning asset with private terraces and views on to the square. Its tenants now include Societe General, Steve Cohen’s Point72 and Helly Nahmad Gallery.

Number 7 is a 30,000 sq ft Edwin Lutyens-designed mansion that fronts on to St James’s Square. Since its acquisition, Green has excavated extensively below the listed house to make way for the future construction of a pool, spa and sub-basement car park. A private courtyard garden has also been created.

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REGIONAL REVIEW

Life beyond London

TH Real Estate’s Edinburgh St James

London may be the biggest draw for investors in the UK, but the country’s regional cities have been enjoying a longrunning renaissance. Mark Faithfull looks at some of the cities that are setting their cap at investors MANY of the UK’s regional cities had to reinvent themselves in the aftermath of the manufacturing decline in the 1980s, especially in the North and Midlands.

With their centres largely abandoned by residential communities, and blighted by outdated retail provision and vacant industrial sites, that transformation required a radical rethink and resulted in the cores of cities such as Manchester, Liverpool, Leeds, Newcastle and Birmingham changing completely.

Major projects in Edinburgh and Sheffield are set to deliver yet more change.

Meanwhile, government aspirations for a ‘Northern Powerhouse’ and a promised infrastructure spend, led by the proposed

high-speed railway line HS2, will enhance connections between cities and improve their links to London.

However, the EU referendum result means, inevitably, a period of uncertainty.

As David Inskip, director of EMEA strategy and research at CBRE Global investors, reflects: “Brexit is going to be a theme for 2017. Although the economy has performed better than expected and that’s been positive for occupier markets in general, risk does lead to business uncertainty and that’s bound to impact investment and hiring.”

Despite these challenges, Inskip believes that real estate development has, largely, lagged behind demand. And this may

prove to be the saving grace for many locations while markets await the longer-term impact of Brexit.

“The UK’s major regional cities have enjoyed a strong five years — notably Manchester, which was the first to use its devolved powers to invest in infrastructure and which has captured quite a bit of the media and technology sectors,” Inskip says.

“On the flip side, that has meant more development than in many of the other cities, where supply constraints should mean they remain stable. That said, there are no signs of over-supply in Manchester.”

He adds: “Another area where supply is limited is Bristol, which could enjoy a strong 2017. The same is true of Edin-

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REGIONAL REVIEW burgh, although the political situation and the prospect of another independence referendum are already at the forefront of investor minds.”

David Inskip: “The UK’s major regional cities have enjoyed a strong five years — notably Manchester, which was the first to use its devolved powers to invest in infrastructure” Chris Darroch, fund director at Hermes Investment Management, also believes that ongoing urbanisation is driving opportunities: “The potential for sustained growth in our regional cities cannot be underestimated. At Hermes, we see

Sheffield Retail Quarter, part of the development deal between the City Council and Queensberry

al Sector] fund, which has invested almost exclusively in the regions.”

Darroch says that Hermes’ approach is to focus on those cities that will benefit from the current forces driving the market — namely technology, globalisation,

THE UK’S SECOND CITY?

BIRMINGHAM has worn the mantle of the UK’s second city more like a yoke than a crown for much of the last few decades, but the retail revitalisation of the Bullring, Grand Central and The Link has given the city a new heart. Other sectors are now catching up, says Ian Stringer, regional senior director at GVA. “A lot is happening in Birmingham,” he says, “not least the upcoming relocation of the HS2 offices from Canary Wharf, plus the arrival of Deutsche Bank and HSBC choosing to headquarter its retail banking in the city.” Stringer believes that more political autonomy and co-operation in the West Midlands, plus the upcoming mayoral elections, should help maintain that sense of purpose. He points to a “feeling of confidence I can’t remember in a very long time” as retail and commercial development is supplemented by an increase in residential schemes. “The PRS and urban living are growing with several new projects,” he adds. “It’s something we’ve been behind the curve on compared with other regional cities, so there is the genuine prospect of a mini-boom in urban residential development. My main hope is that it’s for people, not simply investors.”

enormous potential across the UK and have been focusing our investment strategy on large-scale mixed-use regional projects for many years now. These include Paradise in Birmingham, NOMA in Manchester and Wellington Place in Leeds, as well as our PRS [Private Rent-

urbanisation, sustainability and demographic shifts. “We have also seen solid interest in these regional schemes from abroad,” he adds. “We have successfully brought in like-minded international investors, such as CPPIB for Wellington Place and Paradise.”

Two of the cities that have lagged behind the general regional uptick — Nottingham and Sheffield — also have major plans under way. In Nottingham, Intu Properties is redeveloping two shopping centres, while Sheffield City Council and Queensberry Real Estate are strategic development partners for the Sheffield Retail Quarter. The latter scheme will unite key retail areas in the city centre and, combined with Meadowhall, transform Sheffield into a top-10 UK retail location, according to Paul Sargent, chief executive and co-founder of Queensberry, who believes it is the largest mixed-use scheme under construction outside London.

And despite a pause for breath as the market takes in the ramifications of the Brexit process, Inskip adds: “Lack of development while the major cities have been growing has led to low vacancy rates. However, since 2015, there has been more investment so, paradoxically, we may see some additional supply just as many companies hit the pause button.

This is likely to mean schemes due to be delivered further out could have their completion a little delayed.”

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REGIONAL REVIEW MERRYWEATHER REPORT RICHARD Merryweather, joint head of UK investment at Savills, identifies some of the schemes that are currently reshaping the regions:

• Birmingham’s large, mixed-use schemes, such as Icknield Port Loop, the area around the new HS2 terminal on Curzon Street and the redevelopment of Smithfield, should appeal to foreign investors over the next three to five years. These schemes are a key focus for Birmingham City Council in terms of foreign investment, redevelopment and regeneration.

• Cambridge and the surrounding areas are seen as a strong industrial location due to good connectivity to the rest of the UK. The office, tech and biomed sectors continue to attract significant investment but, increasingly, buyers are looking to diversify their portfolios and balance risk — especially in view of the ongoing economic uncertainty.

• The electrification of the Bristol rail line will help the city’s occupiers to attract London relocations, especially where couples could live between the two and commute each way.

• Manchester attracted the highest level of commercial property investment on record in 2016 (£551.48m), with German and US investors proving to be the most acquisitive, followed by Middle Eastern and Far Eastern players. Manchester appeals not only because of the potential discount compared to London, but because it is a global city with a big economy, a large employment pool and strong growth potential.

• Leeds’ economic growth, its strengthening financial-services sector and a large student population are attracting inward investment.

The opening of the First Direct Arena, Trinity Leeds and the £165m Victoria Gate shopping centre have raised the city’s global profile.

The delivery of the second leg of HS2 will deliver further economic stimulus.

The Manchester Piccadilly Gardens development scheme

Inskip also points to growing markets, such as residential PRS. Indeed, the UK government has just pledged itself to a major house-building programme to address the supply and demand imbalance. It has also announced policies designed to encourage and help tenants in a shift away from a house-owning to a rental economy.

Such optimism is supported by the latest UK real estate market outlook published

by M&G Real Estate, which predicts market turbulence will continue to gradually subside on the basis that occupier demand remains resilient, capital values are tentatively rising and the UK market remains particularly attractive to overseas investors as a result of weaker sterling.

M&G has also produced a report entitled Life Beyond London looking at regional opportunities.

“We see a lot of opportunity outside of London, specifically in the large, regional cities such as Manchester, Birmingham and Bristol,” says Richard Gwilliam, head of property research at M&G Real Estate. “Occupiers in these cities benefit from a skilled work-

force, driven by globally recognised universities, cheaper labour due to lower living costs relative to the capital, and more affordable rents for commercial space.”

Richard Gwilliam: “We see a lot of opportunity outside of London, specifically in the large, regional cities such as Manchester, Birmingham and Bristol” He adds: “This has led to the emergence of a ‘north-shoring’ phenomenon, whereby businesses move operations from London.

For investors, these conditions, together with the general lack of grade-A space in these cities due to low levels of construction since the financial crisis, provide solid rental fundamentals.”

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KEY SCHEMES

Pick of the projects Economic and political uncertainty has not dimmed developers’ appetites for ambitious projects, as is demonstrated by these large-scale regeneration schemes currently under way across the UK

22 Bishopsgate, London

A consortium of international investors led by AXA IM - Real Assets has resumed construction of the 1.4 million sq ft (130,064 sq m) 22 Bishopsgate in the City of London. By using the foundations of a previously uncompleted development, construction will be accelerated, with a target completion date of 2019.

Marketing will focus on the broad range of amenities and types of

space that 22 Bishopsgate will provide, as well as its prime location in the City. The building will offer amenities and spaces for both meetings and shared-work environments, along with an innovation centre that will support progressive new city businesses. It will also feature dedicated areas for leisure, health and wellbeing.

Lipton Rogers is the development partner.

Assembly Bristol

AXA IM - Real Assets has appointed Alford Hall Monaghan Morris as lead designer on Assembly Bristol, the new 1.5-acre (0.6 ha) urban campus development in Bristol.

The Assembly concept, which was launched in 2015 with Assembly London, aims to create a community-based work environment as part of a connected urban district that will appeal to a range of businesses and their staff.

Overlooking the Floating Harbour, Assembly Bristol site sits within the Bristol Temple Quarter — one of the largest urban regeneration projects in the UK — and is adjacent to Temple Way, one of the city’s main roads. It is also close to the principal train station, Bristol Temple Meads, which will be just one hour and 20 minutes from London following the electrification of the railway line.

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KEY SCHEMES One Bankmore Square, Belfast

The Richland Group is proposing to develop a 255,000 sq ft (23,690 sq m) grade-A office scheme at the Movie House site on Dublin Road in Belfast city centre. The project is located just a three-minute walk from Belfast City Hall and the new £250m Belfast transport hub.

On completion, One Bankmore Square will be the largest office building in Northern Ireland, offering individual floorplates of 25,000 sq ft, as well as ground floor space for ancillary cafe, retail and leisure uses. Subject to planning permission, the development is expected to start on site later this year, for delivery in late 2019.

Savills and Lambert Smith Hampton are joint agents.

City Centre South, Coventry

Coventry City Council has appointed Shearer Property Group to create the City Centre South development, which will transform the heart of Coventry, making the city the second biggest shopping destination in the West Midlands.

The development proposal includes a major department store, three flagship stores, up to 50 new retail units, a multi-storey car park, a cinema, restaurants, an hotel, and private and rented residential and student accommodation. The whole scheme will connect the city’s much-loved circular market with the rest of the centre. The developer is aiming to have the scheme open for business by 2022.

South Bank, Leeds

South Bank is one of the largest city-centre regeneration initiatives in Europe and will double the size of Leeds’ city centre.

With over 100 ha of land available for development, there is capacity to create over 35,000 jobs and 4,000 new homes.

Already a thriving waterside destination, South Bank is home to 300-plus businesses and some 6,000 residents, and hosts the only not-for-profit internet exchange outside of London. Plans also include the redevelopment of Leeds railway station — one of the UK’s busiest transport interchanges — to integrate HS2 services. The remodelled station will be able to accommodate more than 60 million visitors a year.

With further infrastructure and development projects moving towards delivery, more than £750m of investment has been announced in the last 18 months. There are also substantial opportunities for further investment across the area.

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KEY SCHEMES Newcastle Science Central, Newcastle upon Tyne

Covering 9.7 ha, Newcastle Science Central is the largest city-centre development of its kind in the UK and will provide a mix of commercial, residential and retail development. The site is envisaged as a hub where investors, businesses, entrepreneurs, students, scientists and citizens can collaborate, innovate and develop solutions for tomorrow’s cities.

The first phase is already complete and fully occupied. The second phase, now under way, will also bring forward 18,580 sq m of grade-A office space in partnership with Legal & General, 7,432 sq m of state-of-the-art laboratories and Newcastle University’s 6,968 sq m Learning and Teaching Centre.

Future plans include 450 homes and a district energy network

designed to serve the Newcastle Science Central site and, potentially, the wider area. Inward investors and end users are currently being sought for project.

Peninsula Place, London

Knight Dragon has unveiled a 1.4 million sq ft (130,064 sq m) project at the heart of its transformation of Greenwich Peninsula in east London.

The first building in the UK to be designed by Spanish architect Santiago Calatrava, Peninsula Place will include a new tube and bus station, a theatre, cinema and performance venue, bars, shops and a wellbeing hub. Above this will rise three towers consisting of workspaces, apartments and hotels, all connected to the Thames by a spectacular new land bridge.

Peninsula Place will form the centrepiece of Knight Dragon’s £8.4bn transformation of Greenwich Peninsula, which will provide 15,720 new homes in seven new neighbourhoods over the coming years. It will also become home to central London’s first major film studio, a new design district, schools, offices, health services and public spaces, all enfolded by 1.6 miles of the River Thames.

Ruskin Square, Croydon

Construction is well advanced at Ruskin Square, the £500m mixed-use project in Croydon, south London that joint developers Schroder UK Real Estate Fund and Stanhope believe will suit the Brexit-era economic climate of the UK. The 2 million sq ft (185,806 sq m) scheme forms part of a wider £5.25bn regeneration of Croydon, where operational costs for commercial occupiers are about half of those in central London districts such as King’s Cross and Victoria.

Schroeder and Stanhope completed the first of five office buildings in December, following a landmark deal in August 2016 with HM Revenue and Customs to take the entire 183,000 sq ft property on a 25-year lease. Detailed planning consent has been granted for the second office building, while residents have moved into the first phase of housing.

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© mammuth / Getty Images

THE INFRASTRUCTURE DEBATE

Fast track to growth or road to nowhere?

Governments have been saying for years that nothing kick-starts economic growth quite like a massive investment in infrastructure. But does it actually work, asks Steve Killick IS YOUR economy flagging? Could it do with a boost? Then why not throw a few billion at some major road and rail developments.

Boosting government spending to finance and/or build large infrastructure projects is the classic Keynesian answer to a slowing economy, recession or high unemployment. Running a road or a rail line through a deprived area brings the people who live there closer to job opportunities. But the question that really needs to be asked is whether these massive schemes live up to expectation.

There are problems in that, firstly, these decisions are political, with government

looking to gain electoral advantage. Would £12m have been designated for rail improvements in Thanet South had UKIP leader Nigel Farage not been standing as a prospective MP against the Conservatives at the general election? A second problem is that such schemes also take an enormously long time. Changes in the economic climate and alternative expenditure, such as funding the 2012 London Olympic Games, have both conspired to put the brake on recent projects.

No scheme has taken longer than the development of Crossrail, which was first mentioned by name in a London rail study report in 1974. However, work only started

on the project in 2009 and it will not be up and running until 2018. But for all the time it has taken, the UK property market is almost as one in praising the impact that the £14.8bn line, running underneath central London from Reading in the west to Shenfield in the east, has had and will continue to have, once open.

Ten new stations are being built in central and south-east London and Docklands, plus a further 30 will be upgraded in outer London, Berkshire and Essex. Around 200 million passengers are expected to travel on what has been renamed the Elizabeth Line. It is claimed that the 73-mile long track will bring an overall economic benefit of some £42bn, with the biggest benefits not coming solely from government funds but from the amounts invested by private companies.

“It is a massive investment for the good,”

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says James Cons, managing director at Leslie Jones Architecture. “One only has to look at Slough and Romford, on either side of London, to see new shopping districts being created, together with a huge amount of residential development. All along the line, there are centres that are being transformed — places with tired 1970s and 1980s schemes that were just not worth going to. Railway stations have to become more than just stations. They need to generate retail, office and housing activity.”

James Cons: “Railway stations have to become more than just stations. They need to generate retail, office and housing activity” Slough is one town that has been receiving a much-needed boost thanks to Crossrail.

Ashby Capital has launched the first phase of its Future Works office development

immediately opposite Slough station. The project will total 99,900 sq ft (9,281 sq m) upon completion.

Cons is equally impressed with the proposed £110m funding for the east-west rail link between Oxford and Cambridge, which was decommissioned during the 1960s when it was known as the Varsity Line. In this, he is not alone. Andrew Marston, UK national research director at CBRE, says: “In the property business, we are always keen to use the expression ‘Golden Triangle’ but, with London at one corner, Oxford and Cambridge on the other two, and Milton Keynes [the fastest growing city in the UK in the first quarter of 2016] in the middle, the benefits are clear, especially to the pharmaceutical and biotech sectors.”

There is also certain to be a big increase in house building, with both Oxford and Cambridge currently struggling to provide more affordable homes for young people. But again, timing is proving a problem. The Oxford-to-Bicester line has been upgraded with a new station opening at Oxford Parkway. Meanwhile, services linking Bedford and Milton Keynes

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THE INFRASTRUCTURE DEBATE Canary Wharf

are anticipated by 2021, which cannot come quickly enough. The Stagecoach X5 bus’ current 85-mile Oxford-to-Cambridge route takes an excruciating three hours and 40 minutes.

Birmingham’s Smithfield district will benefit from HS2

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THE INFRASTRUCTURE DEBATE Time has certainly not been on the side of HS2, the 335-mile high-speed rail link designed in the shape of a Y that is to run from London to Birmingham before heading off to Manchester, Sheffield and Leeds.

It was budgeted at £55bn, but now looks set to cost more than £70bn.

As and when it reaches Birmingham, HS2 should certainly bring benefits to England’s second city. However, according to Melinda Cross, director of logistics and industrial at JLL, industrial occupiers on London’s western corridor face an uncertain future.

“The development of the HS2/Crossrail interchange at Old Oak Common [Acton, London W3] will result in the loss of industrial land,” she says. “That will be further exacerbated by the wider development of 24,000 homes, plus new offices to deliver 55,000 jobs in the area. We are looking at a potential loss of two million sq ft.”

Melinda Cross: “The development of the HS2/Crossrail interchange at Old Oak Common will result in the loss of industrial land. We are looking at a potential loss of two million sq ft” Existing units at Park Royal will also be taken out of use due to temporary construction sites that could be required for a decade.

However, the scheduled Boxing Day 2026 opening of HS2 has already been knocked back into 2027, with more delay anticipated.

The decision to build a third runway at Heathrow will also have a massive effect on industrial-space occupiers but, given how long the political argument has been rumbling, it is far from certain when, or indeed if, the latest scheme will ever take place.

Charles Dady, head of C&W’s south-east office agency team, points to the fact that it is only after all these years that Crossrail is finally having an impact on office occupiers. At this stage, he admits there has been “no impact on the office market at all” from the Heathrow third-runway announcement.

The new runway is likely to remain a hot political potato for all the positive sound bites coming from pro-runway lobbyists.

For those in both the commercial and residential sectors, it is very much a case of wait and see.

U+I is progressing The Future Works in Slough ahead of the opening of Crossrail

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TECHNOLOGY

Time to tech up The UK’s growing community of etailers and tech companies have very different real estate priorities, reflecting their very different business models. But are UK developers and asset managers ready to talk technical and give them what they want? Ben Cooper reports IT IS THE size of six football fields and it keeps ASOS in business. One of the UK’s largest warehouses, the etail giant’s distribution centre, which moved to Barnsley in 2011 as the company expanded, says a lot about the growth of the business, and about etailing, in an era when tech giants reign supreme.

But what does it say about real estate?

Ultra-modern tech and media companies like ASOS, Google and Amazon have already demonstrated voracious appetites for the most up-to-date office and logistics space. Now, a new generation of medical technology labs, proptech startups, augmented-reality and AI

designers is doing the same. The modern era has well and truly set in. Whole new ways of managing logistics, etail, media and communications, even the ways in which people work in offices — all have changed for good.

Take getting a taxi. Time was it was a simple business: you either flagged one down in the street or called a minicab company, which dispatched a driver. In 2017, there

is a whole range of options, from the traditional methods to bookings apps and, now, tech-based solutions personified by Uber.

It is what Tushar Agarwal, co-founder and CEO of online office marketplace Hubble, says is part of the “exponential growth” of enterprising tech companies, which are taking over and shaking up traditional industries and, in the process, taking on real estate at a rapid pace.

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TECHNOLOGY He says: “We’ve seen many of the stars of the past five years in London, such as Deliveroo, Uber, Transferwise and Funding Circle, go from just a few founders to staff in the high hundreds, acquiring additional space on average three times per year.”

Coming from such humble first days to dominating a whole industry is every entrepreneur’s dream. But it does pose a problem: finding the right, affordable, space into which to grow. Cue a wave of new companies such as Hubble, which are disrupting the old rules of real estate and providing flexible space to tenants on the up.

Charles Butler, founder of hybrid real estate and digital investor Market Tech, says that tenants like Uber would not have got off the ground if they had not found the right sort of space early on. “The one key thing that they’re all looking for is flexibility,” he adds. “They don’t want to be committing to the long term. If you’re a sole trader or a small company, you need to focus 100% of your time and energy on your business.”

It is from these young tech companies that another trend in the office sector has sprung up. For small concerns, property can be a big cost, especially when going it alone. So why not share the burden and maybe make some new contacts in the process?

As Butler explains: “The shared-space model works well for that. Where you have a lot of like-minded tenants close to each other, people continually interact and get to meet each other. That’s a key part of the more interactive co-working model. We’ve also seen a big

rise in the number of people just renting meeting rooms.”

The new ways of working are already here and there are disruptors providing the right space. But what about those traditional pillars of real estate, landlords and institutional investors?

When US leasing and asset-management online platform VTS arrived in the UK in January 2016, the company did not turn to

a traditional landlord. Instead, it went to flexible co-working office-space specialist WeWork. The company’s UK managing director, Charlie Wade, says that, for businesses like VTS, the traditional landlords are not always the right match: “One thing is sure, which is that the tech companies are advancing faster than the real estate industry can provide solutions. Real estate always lags behind trends and cycles and Market Tech’s Camden Lock has become a hotbed for startups

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TECHNOLOGY it’s always playing catch-up.”

So what’s the solution? One of the things they can do, Wade suggests, is to make sure new builds are bang up to date. “They have to think about how well connected a building is: the power, the fibre optics, the infrastructure... A landlord would never think about building a building without electricity or water. In the same way, every landlord needs to be thinking about connectivity and how to bring that in. Businesses can’t run without it.”

But where office developers might have some leeway, at least in the short term, one sector where the future is already here is etail and retail logistics. UK shoppers are some of the most tech-savvy in the world, so it is no surprise that Britain has become something of a new frontier for etailers — Amazon alone will have opened another four distribution centres by the end of this year.

Charlie Wade: “A landlord would never think about building a building without electricity or water. In the same way, every landlord needs to be thinking about connectivity” For these companies to keep growing, says Chris Vincent, global CEO of international ecommerce consultancy Practicology, the smart use of space is absolutely key. “Retailers such as ASOS, Boohoo, AO.com and The Hut Group have chosen single large distribution centres in the north of England where space and people are cheaper, and they are likely to continue to grow their existing sites rather than look for new ones,” he adds. “Others that are growing quickly, such as notonthehighstreet and Farfetch, do so without touching the stock, which comes

from their partners or the individual sellers who use those platforms.”

To varying degrees, landlords are coming round to the new generation of tech companies. Hot on their heels, however, is a whole new wave of industries, nascent but filled with ambition, such as virtual and augmented reality, AI and science tech, which Hubble’s Agarwal says are set for big venture-capital funding in 2017. Property owners will need to learn to talk the tech talk if they are going to keep the new generation of occupiers interested.

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Rochdale Greater Manchester’s biggest opportunity Unrivalled space, connections and public sector support Find us at the Manchester Pavilion or call +44 7903 661 228 01706 868999 info@investinrochdale.co.uk investinrochdale.co.uk

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Affordable housing: social dream or workable scheme?

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RESIDENTIAL

The shortage of housing is one of the biggest challenges holding back the economic development of the UK’s major cities. Governments have adopted a range of approaches over the last three decades, but strategies that truly improve the availability and affordability of urban housing remain elusive, writes Steve Killick THE UK is notorious for having one of the most constrained residential markets.

Ironically, however, following the vote in June 2016 to leave the European Union, property across the UK has certainly become more affordable for many overseas buyers thanks to the dramatic fall in sterling. Buyers of London properties from Singapore have seen 10% slashed from UK property prices, while Hong Kong investors paying in HK dollars can enjoy a full 15% discount in real terms.

But this is not what the British government wants to see more of: it wants more properties that key workers — a vague term, but one that certainly includes the likes of nurses, police officers, teachers and fire-fighters — can afford to buy or rent.

To this end, the government announced

plans to build 200,000 starter homes for first-time buyers over the age of 23 and under the age of 40. It intends to fund the programme by encouraging housing associations (HAs) to sell homes to existing tenants, as well as by selling off more valuable assets that become vacant.

The problem is that, for HAs to deliver this volume of new homes in the absence of government subsidies, they must acquire sites for nothing, or at least for a knockdown price, which is particularly tough when dealing with private developers. As a result, the market is increasingly turning to the private sector for innovative solutions.

For example, the Hub Group is a developer that specialises in delivering affordable homes within London. Steve Sanham, Hub’s managing director, says that one of

the things that delays getting more stock on to the books is the cost of the planning system, with upfront charges as high as €2m for some of the company’s larger schemes.

“It is always a minefield,” he says, thanks largely to the sheer volume of information that has to be provided. “What would help us is far greater clarity from local government and the various pressure groups that one encounters.”

Steve Sanham: “It is always a minefield.

What would help us is far greater clarity from local government and the various pressure groups”

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RESIDENTIAL Transport is key for Sanham, as is the ability to create large chunks of real estate of between 170 and 500 units. The company currently has 1,700 units being built in the London suburbs of Croydon, Wembley, Hayes, Acton and Newham, all of which are well served by public transport.

In Newham, The Royal Victoria Dock scheme is a joint development between Hub and Santhosh Gowda’s Strawberry Star Group.

Sales agent Savills is offering apartments starting at £440,000, which Hub’s marketing literature describes as “aspirational yet affordable”. The long leases available are certain to be attractive to overseas purchasers looking for investment opportunities, but may not sit within some observers’ view of affordable homes.

Hub Group’s proposed 29-storey residential tower in Abbey Wood, London

MIPIM 2017 Stand Events TUESDAY 14 MARCH 10.00am Mayor Joe Anderson – Stand opening.

10.30am Festival Park, Creating a world-class waterfront.

11.30am Wirral well made, well connected.

2.30pm Signature Group.

5.00pm Liverpool stand drinks reception.

LEP’s Mark Basnett in conversation with England and LFC legend John Barnes discussng football, Liverpool and investing in the city region.

WEDNESDAY 15 MARCH 10.45am Housing Generation Y Chris Bolland, Brock Carmichael with Stephen Haigh, Your Housing Group / Live Verde.

11.30am Knowledge of the Past – Vision for the Future Curtins.

2.00pm Signature Group.

5.00pm Liverpool stand drinks reception with Liverpool BID commercial market review.

THURSDAY 16 MARCH 11.00am Signature Group.

2.45pm Sir Howard Bernstein and Ged Fitzgerald: Liverpool / Manchester, Competition or Collaboration?

5.00pm Liverpool stand drinks reception.

Visit us on Stand R7.G2 investliverpool.com

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RESIDENTIAL Prices like this have led to a dramatic shift in attitudes towards home ownership, although Jack Simmons, a residential investment and development partner at Cushman & Wakefield, believes other forces may be at play, as well as an increasing willingness to rent. “Those aged between 18 and 30 typically want flexibility as they are unlikely to stay at a company for more than three years,” he says.

“They are footloose and want to be able to enjoy a long-haul holiday and nights out when at home. And that is reflected in the property they live in.”

It is for this demographic that a 550-bed tower in Old Oak Common, London NW10 has been built. Known as The Collective, it is communal living for young professionals with rents starting at €230 a

Jack Simmons: “Those between 18 and 30 typically want flexibility. They want to be able to enjoy a longhaul holiday and nights out when at home. And that is reflected in the property they live in” week for a 10 sq m room. The price also includes council tax, wi-fi, concierge, linen changes and room cleaning. Everything else, including the gym, cinema, spa, dining areas, even a launderette that doubles

as a disco, is communal. And it is only 20 minutes away from Oxford Circus.

But there is still a grave shortage of affordable homes that bear less resemblance to student halls of residence, especially in the capital. However, there are signs of encouragement with London’s new mayor, Sadiq Khan, setting a threshold of 35% affordable housing in all new schemes.

Adrian Walker, associate director in the planning team at agency Colliers International, thinks this is a positive step. “There are always going to be deals struck and developers saying that, due to increased construction costs, they cannot include such a high proportion [of affordable housing in their schemes],” he says. “But if the 35% rule is adhered to, it will really make a difference.”

The Collective’s shared Twodio unit

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14-17 MARCH

2017

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