LSH National Office Report July2010
-
Upload
portlybear -
Category
Documents
-
view
218 -
download
0
Transcript of LSH National Office Report July2010
-
7/31/2019 LSH National Office Report July2010
1/52
NationalOffice
Inside this report:
Q1 2010 shows an upturn with 5.5m sq ft of take-up Central London to lead UK out of downturn Occupiers to drive refurbishment of second hand stock Rental growth to return to 2006/07 height by 2014 www.lsh.co.uk
Report 2010First signs of occupational
recovery in 2010
-
7/31/2019 LSH National Office Report July2010
2/52
National Office Report / 2010 / Executive summary
2 / Lambert Smith Hampton
Executivesummary
The office market in the UK
has experienced a significant
downturn in activity over the
past two years. Take-up for
2009 was around 17m sq ft,
29% below the long run
average take-up level for
the market.
The major slowdown in
activity has been in the South
East, South West and Eastregions, where take-up levels
were more than 40% down
on historic trend levels.
The Midlands, Scotland and
Northern regions showed a
greater resilience to the
economic slowdown, with
take-up levels down by
between 4% and 20%.
Q1 2010 has shown thefirst signs of an improving
market, with take-up for the
quarter recording 5.5m sq ft
of transactions.
The Central London market
has led the recovery,
accounting for 3.4m sq ft
of activity in Q1 2010.
Central Londons dominance
of the market is expectedto continue for a further 12
months before filtering out to
the provincial office markets.
Short term predictions
Demand has reduced
significantly over the past
two years but there are
signs that the market may
be seeing a recovery in
occupational requirements.
Returning demand, coupled
with the shortage of new
built stock in most markets,
is signalling a recovery in
rental growth, much earlier
than in previous cycles.
While rental values are
expected to fall by 3% in
2010, this should be the last
year of declines for themarket as a whole. Weak
growth is expected in 2011,
followed by a continued
recovery in 2012/13.
Availability has risen
significantly over the past
two years, with the availability
rate for the UK as a whole
standing at 12.7%.
Further increases in availabilitymay arise with the release of
second hand stock continuing
to be the driver.
Medium term predictions
As the corporate sector gains
momentum, replacing the
public sector as the major
source of growth in the UK
economy, availability rates will
fall and the scope for renewed
development activity will return.
Significant amounts of
poor quality, second hand
office floor space will need
to be redeveloped in orderto meet the next generation
of occupiers.
Rental growth is expected to
return to 2006/07 levels by
2014, with the Central London
market leading the rest of the
UK out of the downturn.
Regional keyScotland
North
East
London
South East
South West
Wales
Midlands
-
7/31/2019 LSH National Office Report July2010
3/52
National Office Report / 2010 / Overview
Lambert Smith Hampton / 3
Government and business service sector output growth % quarterly
GDP Growth
-3.0
-0.5
-1.0
-1.5
-2.0
-2.5
0.5
0
1.0
Forecast
Q42007
Q12008
Q12009
Q2 Q3 Q4 Q12010
Q2 Q3 Q4 Q12011
Q2 Q3 Q4Q2 Q3 Q4
Chart 1
Public services
-3.0
-0.5
-1.0
-1.5
-2.0
-2.5
0
1.0
0.5
1.5
Financial and business services
Q42007
Q12008
Q12009
Q2 Q3 Q4 Q2 Q3 Q4 Q12010
Q12011
Q2 Q3 Q4 Q2 Q3
Chart 2
GDP growth % quarterly
Economy The move out of recession which began
in Q4 2009 eased in Q1 2010 with
provisional estimates for GDP growth
registering a disappointing quarter onquarter growth of 0.2% Chart 1.
The principal cause for the lower than
expected growth in the economy was the
easing in public sector growth which is
estimated to have remained flat. Growth in
financial and business services continued its
upward trend, growing by 0.6% in the first
three months of 2010 Chart 2.
There is no doubt that the private business
sector saw a much greater downturn
during the recession, with financial and
business services output falling by 6.2%,while public sector output contracted by
1.2% Chart 2.
Overview
The corporatesector will
have to fill the gapleft by government
austerity measures.
Source: ONS and Consensus Economics
Source: ONS
-
7/31/2019 LSH National Office Report July2010
4/52
-6
6
4
2
0
-4
-2
12
10
14
Forecast
8
2006 2007 2008 2009 2010(f)
2011(f)
2012(f)
2013(f)
2014(f)
2015(f)
National Office Report / 2010 / Overview
4 / Lambert Smith Hampton
Overviewcontinued
Employment and unemployment
One of the major casualties of the
downturn has been the labour market,
with more than 500,000 jobs being lost
since the end of 2008. While the major
job losses has been in the manufacturing
and construction sectors, the service sector
has felt the impact too.
Financial and business services employment
fell by 2.8% between 2008/09 while public
sector employment grew by 1.5% Chart 3.
Forecasts
The debate since the general election
has indicated the extent of cuts to public
spending that are required in order to
return government borrowing to acceptable
levels. Therefore, the dynamics of the
economic recovery are set to change over
the next few years.
Consensus forecasts suggest that the
recovery will continue through the remainder
of 2010 and into 2011 and if this prognosis
is to prove correct, the corporate sector will
have to fill the gap left by government
austerity measures Chart 1.
The expected performance of corporate
profitability will largely determine the
strength of the economic recovery.
Forecasts for the corporate sector show a
significant turn round in fortunes in 2010,
with profitability growing by 4.2% in the
current year after a decline of 5.1% in
the previous year Chart 4.
UK office marketTake-up
The analysis of the UK office market
contained in this publication is based upon
the 37 locations in the following pages,
which represents approximately two thirds
of the overall office floor space in the UK.
Take-up of office floor space in the UK
has fallen below long run trend levels in
each of the past two years of 2008 and
2009 as the recession has taken its toll
on occupiers Chart 5.
Following the five year peak in activity
in 2007, when take-up in our 37 centres
reached 27.4m sq ft, 2008 saw a fall in
activity of 23.6%, with activity in 2009
down a further 19.6% Chart 5.
Q1 2010 has seen an improvement
in activity levels, with 5.5m sq ft of take-up
across the UKs office market. If this level
of activity is repeated over the remaining
nine months of the year, annual take-up
will reach just over 22m sq ft.
One of the major trends of the past
few years has been the proportionate
increase in take-up of Grade A floor space.
In general, the acquisition of Grade A space
accounts for 25% of overall letting activity.
During 2008/09 this increased to more than
one third of all take-up, with Q1 2010
Office based employment growth index December 2004 = 100
Public services
98
103
104
102
101
100
99
105
107
106
108
Financial and business services
2004 2005 Q12009
2006 2007 2008 Q2 Q3 Q4
Chart 3
Growth in corporate profitability % year on year
Chart 4
Source: ONS
Source: Consensus Economics
-
7/31/2019 LSH National Office Report July2010
5/52
National Office Report / 2010 / Overview
Lambert Smith Hampton / 5
Second hand
0
25
15
20
5
10
35
30
40
New
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
10 year average
National office market take-up million sq ft
Chart 5
< 5,000 21%
5,001-10,000 20%
10,001-20,000 15%
20,001-30,000 12%
30,001-50,000 12%
>50,000 20%
Chart 6
Take-up by size 2009 % of total sq ft
Public sector 14%
Financial services 23%
Professional services 17%
Service industries 24%
Manufacturing and construction 7%
Other 15%
Chart 7
Take-up by tenant type 2009 %
Q1 2010
has seen animprovement inactivity levels.
Source: LSH Research
Source: LSH Research Source: LSH Research
Grade A take-up accounting for 48% of all
lettings in the UK office market Chart 1.
This recent trend has been heavily influenced
by the City of London office market, where
in the first three months of 2010, the take-
up of Grade A floor space represented 69%
of total take-up in that market.
Take-up by size
The balance in letting activity during 2009
was towards buildings and suites of less than
20,000 sq ft which accounted for 56% of
overall UK office market take-up Chart 6.
Excluding Central London, the proportion
of activity focused towards lettings of
20,000 sq ft and less was higher, accountingfor almost two thirds of market activity
outside of the capital.
This emphasises the dominance of the
Central London market in larger lettings,
with 55% 60% of lettings above 50,000
sq ft concentrated in Central London.
Take-up by tenant type
Financial and business occupiers accounted
for almost 64% of market activity covered
by our analysis, while the public sector
accounted for only 14% of UK office
market take-up Chart 7.
An interesting trend among public sector
acquisitions of floor space, was the
surprising number of freehold purchases
that this occupier type was responsible
for during 2009.
Despite the difficulties in the financial
sector, 23% of overall lettings were to this
tenant type, although unsurprisingly 85%
of financial sector take-up was in the
Central London market.
Service industries, such as media, IT and
recruitment, were the most significant
single tenant group, accounting for 24%
of overall take-up.
Professional services occupiers were the
third most significant occupier group in
2009, accounting for 17% of take-up.
However, outside of Central London,
professional services occupiers play a far
more significant role. Excluding take-up in
Central London, professional services were
responsible for 24% of overall take-up.
Supply
The supply of floor space has become
one of the single most influential factors
on the performance of the UK office market
in previous cycles and this current cycle is
no different.
The total availability of office floor space
has been increasing since 2007, rising from
50.3m sq ft to 67.8m sq ft at the end of
March 2010, an increase of 35% on the
2007 figure Chart 8.
-
7/31/2019 LSH National Office Report July2010
6/52
National Office Report / 2010 / Overview
6 / Lambert Smith Hampton
Second hand
0
50
30
40
10
20
70
60
80
New
2002 2003 2004 20062005 20082007 Q12010
2009
National office market availability million sq ft
Chart 8
2002 2003 20042000 2001 20062005 20082007 Q12010
20098
11
10
9
12
13
14
National office market availability rate %
Chart 9
< 5,000 13%
5,001-10,000 13%
10,001-20,000 16%
20,001-30,000 18%
30,001-50,000 15%
>50,000 25%
Chart 10
Availability by size 2009 % of total sq ft
The principal cause of this increase in
availability has been the release of second
hand stock onto the market. Grade A stock
has remained a relatively modest element of
available stock, representing 12.2m sq ft in
2008 and 15.1m sq ft at the end of Q1 2010.
Grade A stock currently represents 22.2%
of overall stock on the market in the
centres covered by this analysis with only
limited amounts of office floor space
under construction.
Availability rates
The overall availability rate across the markets
covered by our analysis stands at 12.7% of
total built stock, as at the end of Q1 2010,up from the recent low point of 9.6% at
the end of 2006 Chart 9.
There are significant regional variations
around the national average, with the range
of availability rates varying from 9% in the
Central London office market, to 17% in
the South East Table 1.
There is further variation amongst regional
availability rates and local markets, as is
shown in the feature on local market trends
in the following pages.
Availability by size
Take-up in 2009 for building sub 20,000
sq ft was 56%.
Properties of this size account for 39%
of the overall availability Chart 10.
The major shortage of floor space exists
in buildings of 30,000 sq ft to 50,000 sq ft
which account for only 11% of overall
floor space on the market.
Larger office buildings, over 50,000 sq ft,
account for 25% of overall available floor
space, although a proportion of these
buildings will be second hand stock, which
may not be suitable for larger occupiers.
Demand for floor space
The major focus of current occupational
demand is for larger office buildings
(>50,000 sq ft), which accounts for
42% of all requirements. This elementof demand is heavily focused towards
Central London and the South East,
which represents 80% of requirements
for buildings of this size Chart 11.
Central London 9.0
Scotland 10.6
Wales 11.1
UK average 12.7
East 13.5
Midlands 15.1
South West 15.9
Northern 15.9
South East 17.0
Source: LSH Research
Table 1
Regional availability rates %
Overviewcontinued
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
7/52
National Office Report / 2010 / Overview
Lambert Smith Hampton / 7
< 5,000 9%
5,001-10,000 11%
10,001-20,000 12%
20,001-30,000 15%
30,001-50,000 11%
>50,000 42%
Chart 11
Occupier demand by size 2009 %
Public sector 11%
Financial services 23%
Professional services 24%
Service Industries 22%
Manufacturing and construction 6%
Other 14%
Chart 12
Occupier demand by tenant type 2009 %
LSH average prime rent
-15.0
0
-5.0
-7.5
-10.0
-12.5
5.0
10.0
12.5
7.5
15.0
IPD Monthly Index
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10(f)
11(f)
12(f)
13(f)
14(f)
2.5
-2.5
Forecast
National office market rental value growth LSH prime rents and IPD Monthly Index % y on y
Chart 13
The analysis of occupational demand extends
to the types of occupiers that are looking
for new or additional office accommodation.
Professional services was the largest group
with outstanding requirements for office
accommodation at the end of 2009,
accounting for 24% of total occupational
demand Chart 12.
While a significant proportion of floor
space demanded by professional services
is in Central London, more than half of
demand identified is for office space
within the regions.
Although the public sector has been a
significant driver behind occupational
market activity over the previous five to 10
years, demand has eased, representing only
11% of the total requirements at the end
of last year Chart 12.
The large representation of demand from
outside of the main tenant types is due to
the large number of agent led instructions
which appear on the demand register,
where details of the occupier and their
business remain confidential.
Rental growth Office rental values have been constrained
during the economic recession, falling by
16.9% from the peak of the market in
March 2008 to the end of Q1 2010.
Chart 13 illustrates the pattern of rental
growth in the office market as measured
by the IPD Monthly Index. For comparison
purposes we have also included the
movement in values of the Lambert Smith
Hampton (LSH) average prime rental values
index, which looks at the movement inprime rents across the 37 office locations
covered in the analysis.
As expected, there is a significant
correlation between the historic IPD rental
growth series and the LSH indices.
There are divergences at both highs and
lows of the market, but these can be
explained by the slight differences in the
types of property being measured. The IPD
series is based on valuations of all grades
of property within the monthly indexsample, while the LSH prime rent series
looks at the movement in prime headline
rents across our 37 locations.
In addition to the historic series we have
also included our forecast for rental value
growth for the period 2010/14 which are
represented by the bars.
While in the first three months of 2010
rental values have remained relatively
stable, we expect further falls in rents to
feed through during the remainder of the
year. The overall decline in rents forecast
for 2010 is 3%, with the majority of
the fall registered in markets outside
of Central London.
Source: LSH Research Source: LSH Research
Source: LSH Research and IPD
-
7/31/2019 LSH National Office Report July2010
8/52
National Office Report / 2010 / Overview
8 / Lambert Smith Hampton
Regional perspective The regional office markets have
experienced mixed fortunes over 2009.
While all markets have seen take-up levels
fall below the long run trend levels, someregions have fared better than others.
The most significant falls in activity levels
have been focused in the South and East
of the UK, with the South East, South
West and the East regions experiencing
the weakest market conditions. In
contrast, the North and Midlands have
seen occupational market activity perform
better than the UK average.
Q1 2010 has seen take-up dominated
by the Central London market, which
has accounted for 62% of overall market
activity so far this year, although the
regions may begin to see some
improvements in activity towards the
latter stages of the year.
Take-up across the regions
Central London continued to dominate
office market activity, accounting for
46% of total take-up completed in 2009,
broadly in line with the long run average
proportion of UK take-up accounted for
by the Central London market Chart 14.
The most significant shift in market shareamongst the regions in 2009 was in the
Northern regions, which saw the overall
proportion of office market take-up rise
to 16%, compared to 14% over the past
10 years Chart 14.
Q1 2010 has seen Central Londons share
of total activity in the office market rise to
63% of UK take-up Chart 15.
The most disappointing start to 2010 has
been in the South East and the East office
markets, where take-up levels have beenparticularly weak Chart 15.
The Midlands and Northern regions
remained relatively buoyant but have seen
their share of UK market activity fall below
their trend levels within the UK.
The South East office market has seen
its share of activity in the UK fall to 4%,
with less than 250,000 sq ft of take-up
registered in Q1 2010, while the East
markets have seen 106,600 sq ft
of activity, which represents 2% ofnational activity Chart 15.
All regions saw take-up levels fall against
their long run average levels. The total of
take-up in the UK was some 29% below
the 10 year average for the country.
The most significant falls in activity across
the major regions were seen in the South
East, South West and the East office
markets, where take-up was down 40%,
48% and 39% respectively on
trend levels Chart 16.
London 46%
South East 11%
East 5%
South West 3%
Midlands 9%
North 16%
Wales 3%
Scotland 6%
Chart 14
Regional distribution of take-up 2009 %
London 63%
South East 4%
East 2%
South West 5%
Midlands 7%
North 12%
Wales 2%
Scotland 5%
Chart 15
Regional distribution of take-up Q1 2010 %
10 year average 2009
0
8
10
6
2
4
12
South E
ast East
Lond
on
South W
est
Midla
nds
North
Wales
Scotla
nd
Regional take-up levels compared to long run trend levels million sq ft
Chart 16
Overviewcontinued
Source: LSH Research Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
9/52
National Office Report / 2010 / Overview
Lambert Smith Hampton / 9
South Manchester
0 1 2 3 4 5 6 7 8
Guildford
CambridgeNewcastle upon Tyne
Salford Quays
Bristol
Slough
Peterborough
Central London
Northampton
Leeds
UK average
Milton Keynes
Cardiff
Blackwater Valley
anchester City Centre
Luton
Reading
Southampton
Hemel Hempstead
Leicester
Swansea
St Albans
Maidenhead
Oxford
Chelmsford
Staines
Newport
Welwyn Garden City
Edinburgh
Bracknell
Heathrow
Sheffield
Uxbridge
Glasgow
Fareham
Newbury
4.5%
4.5%
4.5%
4.6%
4.7%
4.8%
5.1%
5.6%
5.9%
5.9%
6.5%7.1%
7.5%
4.6%
4.1%
4.2%
4.3%
4.4%
4.4%
4.1%
3.4%
3.4%
4.1%
3.7%
3.6%
4.1%
3.2%
3.4%
3.3%
3.1%
3.2%
2.5%
2.9%
1.7%
2.2%
2.3%
Nottingham
Birmingham
Watford
5.6%
5.6%
5.6%
5.1%
Activity ratio locations %
Chart 17 Compared to long run trend levels of
take-up, the strongest regions over 2009
were in the North and Scotland. Take-up
activity was less than 20% down on trend
levels, being 18% and 19% below trend
respectively Chart 16.
Longer term activity rates
While 2009 was a period of slowing
activity for the UK office market, the longer
term trend in activity rates across the
37 locations covered by this report indicate
some unexpected results.
The analysis contained in Chart 17 focuses
on the activity ratio, the long run trend
level of take-up for each of the 37 locationscovered in the report and other key areas,
divided by the total stock of office floor
space in the area.
For example, the Central London office
markets 10 average take-up level is 10.7m
sq ft per annum, while the total office
stock for Central London is 208.8m sq ft.
The activity ratio for the Central London
market is, therefore, 5.1%.
This illustrates how much, on average,
of the total Central London office marketturns over in any one year. So, by inference,
5.1% of the Central London market is
traded, on average, in any one year.
An individual year may see this figure
rise above the average, if there is a large
transaction, or if there is a significant new
development that attracts a large number
of new occupiers to the locality. The
activity ratio is a good measure of the
buoyancy of each of the local markets.
The three most active markets amongstthe 37 locations are Bristol, Newcastle
upon Tyne and Cambridge, each of these
markets having activity ratios some way
ahead of the national average of 4.6%
of turnover per annum.
The reason for the relative buoyancy
of each of these markets is also varied,
as the dynamics of the markets are
significantly different.
Both the Bristol and Newcastle upon Tyne
office markets are largely dependenton central and local government for
occupational demand. Public sector demand
has been a major driver behind office
market take-up over the past decade.
The mostactive markets
in the UK are Bristol,Newcastle upon Tyneand Cambridge.
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
10/52
National Office Report / 2010 / Overview
10 / Lambert Smith Hampton
The Cambridge market, on the other hand,
has seen activity buoyed in recent years by
the influx of new economy and biotech
businesses into the area, prompted by the
growth of the science park sector which
surrounds the university.
Surprisingly, the Central London office
market is ranked only eleventh amongst the
37 locations, although activity in the market
has probably been eroded by the growth
of new locations outside of the traditional
Central London market.
Availability rates across the UK
Further dynamics contributing to the
buoyancy of local markets is the availabilityof office floor space and, in particular,
the availability rate.
Chart 18 ranks each of the locations by
their respective availability rates.
The UK average availability rate was
12.7% of total built office stock at the
end of March 2010.
More than 23 (62%) of the locations
covered by the analysis had availability
rates above the national average. The most
significant figures being in Bracknell, the
Blackwater Valley and Birmingham.
The South East markets have been most
affected by the recession, with the release
of second hand stock onto the market
playing a significant role in the rising levels
of availability in those markets.
Birmingham has also experienced a
significant release of stock onto the market
over the past few years, with some of the
traditional occupiers of the city suffering
from the fall in economic activity.
One of the most significant features across
all of the local office markets is the lack of
new built, Grade A, office accommodation.
This factor is expected to play a significant
role in the growth of rental values over
the next few years.
As occupational demand improves, the
market is set for a return of rental growth
as the stock of Grade A accommodation
is acquired.
Manchester City Centre
Staines
Reading
Fareham
Slough
Salford Quays
Leeds
Heathrow
0 5 10 15 20 25 30 35
Watford
Birmingham
Blackwater Valley
Hemel Hempstead
Milton Keynes
Bracknell
Nottingham
Newport
Edinburgh
Maidenhead
Welwyn Garden City
Sheffield
Oxford
UK average
Peterborough
Swansea
Leicester
Cardiff
Guildford
Northampton
Newcastle upon Tyne
Central London
Southampton
Glasgow
St Albans
Chelmsford
Uxbridge
Newbury
South Manchester
Bristol
Cambridge
Luton
30.4%
22.9%
23.4%
23.7%
17.5%
18.8%
21.1%
19.2%
21.0%
19.3%
22.0%
22.0%
12.7%
13.4%
13.5%
13.8%
15.4%
15.6%
15.9%
16.5%
16.7%
16.8%
14.5%
14.1%
9.2%
9.5%
9.6%
9.9%
10.1%
10.8%
10.9%
11.9%
11.9%
12.2%
5.6%
5.8%
6.5%
7.5%
9.0%
7.0%
Availability rate locations Q1 2010 %
Chart 18
Overviewcontinued
The South Eastmarkets have
been hit hardest by
the recession.
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
11/52
Sector Total Capital Rental Initialreturn growth growth yield
Central London 18.5% 10.6% -9.6% 5.85%
Rest of South East 9.2% 0.2% -7.6% 7.64%
Rest of UK 12.0% 2.8% -6.5% 7.42%Office Parks 8.0% -1.2% -6.0% 8.09%
All Offices 14.2% 5.7% -8.2% 6.87%
Source: IPD Monthly Index
Table 2
Investment performance year to Q1 2010
National Office Report / 2010 / Investment
Lambert Smith Hampton / 11
Investment Investment Given the challenges facing the UK economy
and particularly the financial and business
services sector the recovery in office market
performance has been surprising, generating
positive total return over the 12 months to
the year ending March 2010 Table 2.
As can be seen from Table 3 the total return
performance has been achieved against a
Central London
0
8
4
6
2
10
Rest of UK
Q12010
Q12007
Q2 Q3 Q4 Q12008
Q2 Q3 Q4 Q12009
Q2 Q3 Q4
National office market investment bn
Chart 19
Source: LSH Research/Property Data/Co Star Group
rising void rate for the sector, which has
experienced the greatest rate of tenant
default and resultant voids when
compared with its sector competitors.
Despite the significant contribution of
income return, the recovery has been led
by Central London, which has seen capital
growth of 10.6% over the 12 months
to the end of March 2010.
The capital growth can be attributed to
consistent demand for Central London
stock with international demand historically
drawn to the UK capital and the perception
of increased take-up activity driving pricing.
As can be seen in Table 2, capital growth
beyond Central London has been
extremely limited.
Table 4 illustrates the net initial yield
on transactions across the rest of the UK
which is significantly below the IPD
Monthly Index, demonstrating the gap
between valuation sentiment and the
liquidity of prime assets as opposed to
secondary product.
Investment market turnover
As with the investment market in general,
the office sector turnover has fallen since the
onset of the financial crisis in August 2007.
Turnover levels have plummeted from
9.7bn in Q3 2007 to a low point of
1.5bn in Q1 2009 Chart 19, while the
office sectors share of overall investment
turnover fell from 53% to 32% over
the same time frame.
Sector March 2009 March 2010
Office 12.7% 14.9%
Retail 9.7% 6.5%
Industrial 15.9% 15.3%
Source: IPD Monthly Index
Table 3
Void rates
Sector Q1 2009 Q3 2009 Q1 2010
Central London 7.32% 6.96% 6.26%
Rest of South East 9.62% 7.99% 7.88%
Rest of UK 7.53% 7.39% 6.55%
Office Parks 9.41% 8.57% 8.08%
All Offices 8.11% 7.44% 6.87%
Source: LSH Research
Table 4
Net initial yields on transactions
-
7/31/2019 LSH National Office Report July2010
12/52
National Office Report / 2010 / Investment
12 / Lambert Smith Hampton
Investmentcontinued
Throughout the downturn in investment
levels, the Central London market has
dominated office market transactions,
usually accounting for between half to
two thirds of the total investment into the
sector in any one quarter Table 5.
Recent activity has seen investor interest
expand beyond Central London with prime
product in major metropolitan cities and
established locations such as the Thames
Valley being pursued Table 6.
Q1 2010 has seen a progression in the focus
of investor behaviour beyond Central London
with higher yields being coveted. While the
largest lot sizes still generate international
demand, the rest of the UK is driven by the
UK institutional market Table 7.
Looking forward
The more positive forecasts for the
occupational markets in Central London
will continue to fuel global demand for
the investment product. This level of
competition has and will continue to
encourage the UK institutions to broaden
their geographical demand while
maintaining a focus on prime product
in tighter markets.
There is now a huge disconnect between
prime and secondary assets which is
unlikely to close significantly until a trend
of increased take-up followed by reducing
incentives and subsequently rental growth
is established.
It does however produce opportunities
to purchase secondary investment assets
at or around the vacant possession value
where medium term occupational prospects
remain positive.
Table 5
Top five major office deals 2009
Property Value Initial Purchaser Yield
Central London
Broadgate Estate, EC2 (50% share) 1,070.0 7.10% Blackstone Real Estate
8-16 Canada Square, E14 772.5 n/a NPS Central London LP
1-10 Bishops Square, E1 333.8 7.30% Oman Investment Fund
5 Churchill Place, E14 208.0 5.80% Bermuda based investor
88 Wood Street, EC2 183.0 6.85% NPS Central London LP
Rest of UK
Surrey House, Norwich 134.4 8.00% Harel Insurance7, 8 & 10 Brindley Place, Birmingham 101.0 7.16% Tritax Asset Management
141 Bothwell Street, Glasgow 73.1 5.94% Strathclyde Pension Fund
New Uberior House, Edinburgh 55.7 6.98% i ii -BVK Europa Immobilien
Solent Business Park, Fareham 55.5 7.75% Blenheim Properties
Source: LSH Research/Property Data/Co Star Group
Table 6
Top major office deals Q1 2010
Property Value Initial Purchaser Yield
3 Hardman Street, Manchester 183.4 6.10% Aerium Finance
37-63 Southampton Row, WC1 175.0 6.13% M1 Real Estate
One Snowhill, Birmingham 126.0 6.20% CommerzReal
100 New Bridge Street, EC4 110.0 6.10% HIH Global Invest
40 Holborn Viaduct, EC1 90.0 n/a Delancey
77 Grosvenor Street, W1 89.5 5.50% Overseas investor
Elizabeth House, SE1 85.0 n/a London & Regional Properties
St Mary Axe, EC2 71.5 7.00% Confidential
5-7 Chesterf ield Gardens, W1 60.0 n/a Middle Eastern investors
26 Red Lion Square, WC1 57.0 8.12% Legal & General Property
1 Whitehall Riverside, Leeds 51.3 5.68% NFU Mutual Insurance
Source: LSH Research/Property Data/Co Star Group
Investor Value m Number oftransactions
Threadneedle Property 100.3 7
Scottish Widows 53.5 5
Legal & General Property 128.5 4
Standard Life 110.5 4
Aviva Investors 64.5 4
Primary Health Properties 40.7 4
Source: LSH Research/Property Data/Co Star Group
Table 7
Most active office investors by number of transactions six months to end March 2010
-
7/31/2019 LSH National Office Report July2010
13/52Lambert Smith Hampton / 13www.lsh.co.uk
Overview
The UK office market showed early signs of recovery in Q1 2010, with
take-up levels returning to long run trend rates for the first time in two
years. The recovery is being led by Central London, which experienced
its highest quarterly take-up in five years. The upturn in activity is
expected to filter out from Central London to the rest of the UKover the next 12 to 18 months.
The South East and East have continued to struggle in Q1 2010 due
to the occupational market still feeling the effects of the economic
downturn. The Midlands, the North and Scottish markets have
proved to be more resilient during the recession, with take-up levels
experiencing a more modest slowdown.
The reduced level of activity outside of Central London has seen
availability rates rise across most of the UK to 12.7% of the total built
stock in Q1 2010, from 11% at the end of 2008. Availability rates
across the regions range from 17.1% in the South East compared to
9% in Central London. The South West, the North and the Midlands
all have availability rates in excess of 15%, while Scotland and Wales
have less available office stock. The rise in availability primarily
occurred because second hand stock was released onto the market.
Due to the lack of development in 2009 only 22% of UK stock currently
available is Grade A space. This shortage of Grade A stock is likely to
result in a return of rental growth much earlier than in previous cycles.
Prime rents have already begun rising in Central London markets and
this should filter out to the major metropolitan cities during 2011/12.
However as demand in the occupier market increases the lack of
Grade A space could spell trouble ahead.
ics National Office Statistics National Office Stati2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010
-
7/31/2019 LSH National Office Report July2010
14/52
Central London
Lambert Smith Hampton Research | 14
0
6,000
5,000
4,000
3,000
2,000
1,000
7,000
2005 2006 2007 2008 2009 Q12010
C it y M id to wn We st E nd
C it y M id to wn We st E nd
20050
4,000
2,000
6,000
8,000
10,000
12,000
2006 2007 2008 2009 Q12010
40
60
80
100
120
0
20
140
City Midtown West End
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Activity in 2009 fell to the lowest levels
since the downturn of 2001/02, with
7.7m sq ft of lettings across the whole
of the Central London market.
Q1 2010 has seen a significant turnaround
in the position, with 3.4m sq ft of take-uprecorded and substantial levels of demand
for floor space still waiting to be satisfied.
All three of the Central London sub markets
saw a marked improvement, although the
City of London saw the most impressive
increase in activity, with take-up of 2.2m
sq ft, 69% of this being in Grade A stock.
The West End and Midtown markets saw
more modest improvements in letting
activity, with take-up of 0.8m sq ft and
0.4m sq ft respectively.
Availability
Q1 2010 saw Central London availability
fall from its end 2009 level, a reduction
of 1% to 18.7m sq ft, representing 9%
of total built stock.
The picture across the three sub markets is
varied, with the City recording a decline in
availability of 9.2% from the end of 2009,
while both Midtown and West End markets
saw a slight increase in available stock, up
by 5.1% and 8.7% respectively.
Grade A stock represents just 21% of
overall built stock on the market with a
further 4.1m sq ft of floor space currently
under construction.
Total availability represents 1.8 years supply
based on the 10 year average of take-up for
the Central London market, 10.7m sq ft per
annum, with Grade A availability accounting
for just over four months supply.
Prime rents
Prime rents improved in both the City
and Midtown markets in Q1 2010, risingby 5.6% and 11.8% to end the period
at 47.50 per sq ft. West End rents remained
at their end 2009 level of 75.00 per sq ft,
bringing two years of decline to an end.
The next 12 months should see a continuation
of the improvements that began in Q1 2010,
with availability continuing to reduce and
occupational demand remaining strong. The
limited development pipeline of new stock
will add further upward pressure on rents as
well as increasing lease terms and reducing
the financial incentives offered to tenants.
The City saw themost impressive
increase in activity.
Executive summary The start of 2010 has seen
the Central London market
strengthen significantly, with
take-up levels improving and
availability reducing.
Prime rents have begun to reflectthe improving market conditions,
with City and Midtown rents
rising by 5.6% and 11.8%
respectively to end Q1 2010 at
47.50 per sq ft. West End rents
have stabilised at their Q4 2009
level at 75.00 per sq ft.
The next 12 months are
expected to see further increasesin rental values as the market
continues to improve.
50,001 40%
Availability by size % of total sq ft
Source: LSH Research
Source: London Office Database/LSH Research
Source: London Office Database/LSH Research
-
7/31/2019 LSH National Office Report July2010
15/52
Blackwater Valley
www.lsh.co.uk
There have been signsof an improvement
in demand since Q1 2010which should be reflectedin take-up figures for thesecond half of the year.
0
400
300
200
100
500
600
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
750
500
250
1,000
1,250
1,500
1,750
2,000
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
15
20
25
0
5
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Occupational market activity in the
Blackwater Valley all but came to a halt
in 2009 and Q1 2010, with only one
transaction of above 5,000 sq ft
completing over the 15 month period.
The 22,000 sq ft letting to IT services
company Telindus, at Watchmoor Park,
Camberley, was the largest transaction in
the area and represents the most significant
transaction in the Thames Valley in
Q1 2010. Further activity has been recorded
since the quarter end with the 20,000 sq ft
letting to First Drinks at Bartley Wood
Business Park, Hook.
The tail off in activity in 2009 may be
partially attributable to the buoyant market
in the previous year, when take-up hit aseven year high of 540,000 sq ft.
Availability
Availability has almost doubled since the
end of 2008, rising to 1.9m sq ft at the
end of Q1 2010. There is a hidden supply
of good quality corporate space that is
available off market but is not reflected
in the current statistics.
The major cause of the increase in availability
has been the release of second hand floor
space onto the market. Good quality second
hand space increased to 1.3m sq ft from 0.5m
sq ft, while poor quality stock on the market
more than doubled, rising to 465,000 sq ft.
Grade A accommodation remains in
short supply, with only 142,233 sq ft
available, with no further floor space
currently under construction.
The availability rate rose to 23.7% of totalbuilt stock, representing 4.5 years supply
at the 10 year average level of take-up.
Prime rents
The weak occupational market exerted
downward pressure on both town centre
and out of town rents.
Out of town rents fell by 14.9% to reach
20.00 per sq ft at the end of 2009, while town
centre rents fell by 9.1% to reach the same
level. No further falls were recorded in Q1 2010.
Executive summary The occupational market in the
Blackwater Valley almost ground
to a halt in the 15 months to
the end of Q1 2010, with only
one transaction above 5,000
sq ft completing. Since the end of Q1 2010 market
sentiment has improved resulting
in the promise of renewed activity
in the second half of the year.
Total availability almost doubled,
rising to 1.9m sq ft or 23.4%
of built stock. Grade A stock
remains in short supply, with only
142,233 sq ft of new built floor
space on the market. Prime rents fell to 20.00 per
sq ft in both town centre and
out of town locations.
5,001-10,000 13%
10,001-20,000 29%
20,001-30,000 18%
30,001-50,000 40%
>50,001 0%
Requirements by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
16/52
Bracknell
Lambert Smith Hampton Research | 16
Bracknell now offersthe best value for
money in the Thames Valley.
0
200
150
100
50
250
2005 2006 2007 2008 2009 Q12010
Good second-handPoor second-hand New
10 year average
0
500
250
750
1,000
1,250
1,500
2005 2006 2007 2008 2009 Q12010
Good second-handPoor second-hand New
10
15
20
25
0
5
30
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up levels fell below its long run trend
level in 2009, with the total of 82,700
sq ft of activity some 44% below the
10 year average level.
Activity was focused on the second hand
market, with the two largest transactions
in poorer quality stock. The largest of these
deals was the 30,000 sq ft letting to
Waitrose at the Panasonic Building.
The slow occupational market has
continued into Q1 2010, with only one
transaction in excess of 5,000 sq ft
completing, the 5,500 sq ft letting to
MCM Select at 1 Bracknell Beeches.
Current demand is focused towards the
smaller end of the market, with 78%
of requirements for buildings of 30,000
sq ft and below.
Availability
Availability has risen by 51% since the
end of 2008, to stand at 1.3m sq ft at
the end of Q1 2010, with Grade A stock
accounting for 36% of floor space.
Grade A stock is based in four large
buildings, the largest being the 185,104
sq ft Capitol building at Oldbury.
Availability is dominated by larger buildings
with more than 70% of floor space on
the market in buildings of 30,000 sq ft
and above.
Total availability represents 30.4% of total
built stock, or, nine years supply based
on historic trend take-up levels.
Prime rents
Prime rents fell by 8% to 23.00
per sq ft by the end of 2009, prompted
by the weak occupational market.
Rental values will remain under pressure,
with the high availability rate holding
back growth.
Executive summary The Bracknell market has remained
under pressure throughout 2009
and early 2010, with take-up
some 44% down on long run
trend levels.
Availability is dominated by anumber of large buildings on
the market, more than 70%
of floor space currently being
marketed is in buildings of 30,000
sq ft and above.
Prime rents fell by 8.0% in 2009,
but remained stable in Q1 2010
as some signs of improvingoccupational demand were evident.
5,001-10,000 8%
10,001-20,000 13%
20,001-30,000 9%
30,001-50,000 19%
>50,001 51%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
17/52
Fareham
www.lsh.co.uk
The first three monthsof 2010 has seen
lettings of 40,500 sq ftcompared to approximately90,000 sq ft of transactionsfor the whole of 2009.
0
300
250
200
150
100
50
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
250
500
1,000
750
1,250
1,500
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
0
12
8
6
4
2
14
20
18
16
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
The slowdown in the occupier market in
2009 appears to be the low point in the
market, with take-up in the first three
months of 2010 showing a notable
improvement on Q1 2009 levels.
The first three months of 2010 have seen
lettings of 40,500 sq ft compared to
approximately 90,000 sq ft of transactions
for the whole of 2009.
Occupational market activity has been
focused towards the out of town market,
which accounts for 64% of total activity
over the 15 month period to the end
of Q1 2010.
The majority of activity is directed
towards the second hand market, which
accounts for 83% of overall take-up
since the start of 2009.
Availability
Availability has remained relatively stable
since the end of 2008, rising by 2.7%
to end Q1 2010 at 1.3m sq ft. Grade A
stock accounts for 16% (210,000 sq ft)
of overall availability.
Almost 90% of availability is located out
of town, the principal focus of the office
market in Fareham. Town centre availability
accounts for 145,000 sq ft of floor space
currently on the market.
The availability rate stood at 22% at the
end of Q1 2010, up from 21.5% at the
end of 2008. This represents 10.6 years
supply of floor space at the long run
average take-up for Fareham.
Prime rents
The dominance of the out of town market
in Fareham has seen prime out of town
rents move ahead of town centre rents
over the past couple of years.
Prime out of town rents remained stable
at 19.00 per sq ft while town centre rents
have fallen by 21.1% to 15.00 per sq ft
due to a shortage of Grade A stock.
The level of incentives being negotiated
by tenants has notably increased over the
last 12 months.
Executive summary The office market in Fareham is
focused towards out of town
with almost two thirds of letting
activity over the past 15 months
in out of town locations.
Almost 90% of current availability,1.3m sq ft, is out of town, with only
210,000 sq ft in Grade A stock.
Prime rents in the town centre
market have fallen by 21.1%
to 15.00 per sq ft since the
end of 2008, while out of town
rents have remained stable at
19.00 per sq ft.
50,001 0%
Requirements by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
18/52
0
200
150
100
50
250
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
200
150
100
50
250
300
350
400
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
15
25
30
20
0
5
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Guildford
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
The level of take-up in Guildford remained
below the long run trend level in 2009,
with 108,000 sq ft of lettings. The largest
transaction was the 46,000 sq ft letting to
lawyers, Stevens & Bolton, at Wey Court.
Remaining letting were focused on suites
of less than 10,000 sq ft. The market has remained difficult in
Q1 2010, with lettings of 11,700 sq ft
completing in five transactions.
Demand levels have weakened considerably
over the past two years as occupiers have
held back requirements due to economic
and political uncertainty.
Availability
Availability remained tight, with only
343,600 sq ft on the market and Grade A
availability representing only 9.1% of
overall availability.
Almost 40% of available stock is in suites
and buildings of less than 10,000 sq ft
while there is only one building above50,000 sq ft on the market.
The availability rate stands at 10.1% of
total built stock, well below the average
for the Thames Valley and South East
office markets.
Prime rents
Prime rents have remained relatively
stable because of the tight supply
conditions in the Guildford market.
Prime town centre rents eased back to
27.00 per sq ft in 2009, a fall of 1.8%,
but remained steady at that level through
to the end of Q1 2010.
Rents in the out of town market have
remained stable at 25.00 per sq ft
although tenant incentives have risen.
Rents are likely to rise in the town centre,
where the supply of large Grade A space
is limited.
Executive summary Prime rents have remained relatively
stable in Guildford throughout the
economic downturn.
Supply has remained tight, with
availability standing at 10.1%
of total built stock, well belowthe regional average. Grade A
availability accounts for less than
10% of overall stock on the
market with no new buildings
currently under construction.
The weak occupational market
has seen take-up remain below
trend over the past two yearsand signs in Q1 2010 are for a
continuation of this trend.
50,001 16%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
Take-up has remainedbelow trend and
signs in Q1 2010 are fora continuation of this.
Lambert Smith Hampton Research | 18
-
7/31/2019 LSH National Office Report July2010
19/52
Heathrow
www.lsh.co.uk
The Heathrow marketcontinues to struggle
and, once again, Stockley Parkis expected to account formost of the activity in 2010.
0
300
250
200
150
100
50
350
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
500
250
750
1,250
1,000
1,500
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
15
20
30
0
5
25
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up in the Heathrow office market
remained weak over 2009 and into Q1
2010, continuing the trend that was
established in the previous year.
Total activity was 170,600 sq ft in 2009,
with more than 70% of take-up
accounted for by the four lettings atStockley Park. The largest of these was
the 93,055 sq ft letting to Canon at The
Square, Stockley Park.
Occupiers have taken advantage of the
favourable terms on offer, targeting
Grade A stock, which accounted for
81% of total letting activity in 2009 and
almost 90% of the take-up in Q1 2010.
Availability
Availability increased by 61% from its
end 2008 level, rising to 1.5m sq ft at
the end of Q1 2010. Both Grade A and
second hand availability rose, increasing
by 50% and 79% respectively.
Grade A stock accounts for 57% of total
availability, with 824,300 sq ft on themarket. Two thirds of Grade A availability
is contained in four buildings of above
50,000 sq ft, the largest of these being
the 275,750 sq ft building at London
Gate, Hayes.
Availability stands at 18.8% of total
built stock, which represents 4.3 years
supply based on the 10 year average
take-up trend level.
Prime rents
Prime rents returned to their 2004 level,
falling to 25.00 per sq ft at the end
of 2009, a decline of 9.1% and will
remain under pressure until supply
conditions improve.
Tenant incentives increased significantly
over the year, although there are signs
that these may have levelled.
Executive summary The Heathrow market has
remained weak since the onset
of the recession, with take-up
below its 10 year average level
and availability rates rising.
Tenants have targeted Grade Aaccommodation, taking advantage
of the favourable terms on offer
from landlords looking to secure
lettings and reduce their empty
rates liability.
Prime rents fell back to their
2004 level, falling back to 25.00
per sq ft at the end of 2009although tenant incentive packages
have increased.
50,001 49%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
20/52
Maidenhead
Lambert Smith Hampton Research | 20
0
200
150
100
50
250
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
200
300
100
400
600
500
700
800
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
15
20
30
0
5
25
40
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up fell in 2009, below its long run
trend level of 200,000 sq ft per annum,
registering 112,000 sq ft for the year.
Activity was focused on second hand
space, which accounted for 75% of
total activity.
Three lettings over 5,000 sq ft stole the
headlines with two transactions in thetown centre. Bell Tower House let for
Mapeley to BCD Travel and Third Floor,
The Place, Bridge Avenue, let for CBRE
to Alfresco Software.
The third and largest transaction was
the 25,000 sq ft letting at Q1 Quantum
to Compuware.
Availability
Availability has increased since the end of
2008, rising by 20% to reach approximately
600,000 sq ft at the end of Q1 2010.
Almost 60% of overall availability is in
Grade A new build stock.
The out of town and town centre markets
both offer a range of buildings up to
85,000 sq ft.
The overall availability rate rose to 14.6%
of total built stock at the end of 2009 but
moved to 13.5% by the end of Q1 2010.
Current availability represents approximately
three years supply, based on historic
average take-up levels.
Prime rents
Prime rents in Maidenhead continued to
fall during 2009 and into Q1 2010. The
overall fall in rents over the past 15 monthshas been 13.3%, with the sentiment for
headline rents standing at 26.00 to
28.00 per sq ft at the end of Q1 2010.
With so many options available, tenants
have great leverage in the market, not
least in lease regear situations where the
negotiation of concessionary terms has been
a significant characteristic of this market.
Executive summary Take-up has yet to recover from
its 2009 level, with Q1 2010
take-up standing at 11,500 sq ft
compared to 112,000 sq ft in
the previous 12 months.
Availability has increased overthe past 15 months with an
increase in Grade A new build stock.
Almost 60% of total availability is in
Grade A new build accommodation.
Lack of deals makes assessing prime
rents less than scientific but current
levels are likely to be mid/late 20.00per sq ft ahead of incentives.
50,001 35%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
With some 40,000sq ft in solicitors
hands in Q2 and enquirieson the increase we expectthe second half of 2010to be more successful.
-
7/31/2019 LSH National Office Report July2010
21/52
Milton Keynes
www.lsh.co.uk
The relatively buoyantoccupational market
has seen prime town centreand out of town rentsremain stable.
0
400
350
300
250200
150
100
50
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
500
250
750
1,500
1,250
1,000
1,750
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
0
15
10
5
25
20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up remained at long run trend levels
in 2009, with 319,408 sq ft of activity
recorded. Almost 40% of take-up was of
Grade A accommodation, with the largest
transaction being the 62,000 sq ft letting
to Network Rail at MK Central.
More than 63% of activity in 2009 wasfocused towards the town centre market,
although this trend was reversed in the
early part of 2010, with the majority of
lettings arising out of town.
The market slowed in Q1 2010 with
54,200 sq ft of lettings completed.
The majority of this activity was focused
towards the second hand market.
Availability
Overall availability increased by 21% in
the 15 months to the end of 2009 as the
levels of second hand stock released onto
the market has gathered momentum.
Total availability amounts to 1.7m sq ft
at the end of Q1 2010.
Current availability amounts to 5.1 yearssupply, based on the historic trend rate
of take-up, while there continues to be a
shortage of Grade A accommodation,
which amounts to 94,000 sq ft of space.
Availability is dominated by second hand
space, which accounts for 94% of floor
space, the majority of second hand space
being in good quality accommodation.
The current availability rate stands at
22.9% of total built stock, up from 18.9%
at the end of 2008.
Prime rents
The relatively buoyant occupational
market throughout 2009 has seen prime
town centre and out of town rents remain
stable at 20.00 per sq ft and 17.50 per
sq ft respectively.
An easing in the demand for floor space
may challenge these levels, although the
shortage of Grade A stock may help to
support rental levels.
Executive summary Take-up levels remained buoyant
in the Milton Keynes market
during 2009, although activity
levels have eased in Q1 2010.
Availability has risen by 21%
since the end of 2008 to 1.7msq ft, due principally to the
release of second hand space
onto the market. There continues
to be a shortage of Grade A
accommodation, with only 94,000
sq ft of space available.
Prime rents have remained steady
in both town centre and out oftown markets, at 20.00 per sq ft
and 17.50 per sq ft respectively.
50,001 47%
Requirements by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
22/52
Newbury
Lambert Smith Hampton Research | 22
0
100
75
50
25
125
150
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
100
150
50
200
300
250
350
400
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10
0
5
15
20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up in Newbury recovered from
a low point in 2008, with total occupational
market activity of 49,711 sq ft for the
calendar year 2009. This was up from
30,800 sq ft in the previous year. Activity
was focused on good quality, second hand
space, with no Grade A stock currentlyavailable in the town.
The largest transaction in 2009 was the
purchase by West Berkshire Council of the
freehold interest in 24,000 sq ft West Street
House, West Street, for 4.2m.
No transactions over 5,000 sq ft were
completed in the town in Q1 2010 due to
tenants deferring their occupational decisions.
Availability
Total availability increased by 15%
between the year-end 2008 and the end
of Q1 2010 due to the release of good
quality, second hand space onto the
market. Overall stock on the market
amounted to 232,000 sq ft.
Availability has remained low in relation toother markets in the Thames Valley because
of the lack of new development in the
town. Floor space on the market consists
entirely of second hand space, with almost
three quarters of stock in good quality,
second hand buildings.
The availability rate increased to 5.8% of
total built stock, up from 5% at the end of
2008, which equates to 2.7 years supply
at long run historic take-up levels.
Prime rents Rental values have been volatile over
the past few years, recovering from the
downturn in 2008 which resulted from
a slump in letting activity.
Prime rents increased by 3% in 2009 to
17.00 per sq ft on the back of increased
activity in the Newbury market.
Executive summary Take-up was down by 61% from
the low point in 2008, with
49,711 sq ft of take-up recorded
for the year. Despite the recovery
in activity, take-up in 2009 was
still 40% below the long run trend. Availability has increased over the
past 15 months. The increase is
due to the release of good quality,
second hand space onto the
market. The lack of development
activity around the town has
resulted in no Grade A stock
being marketed. Prime rents grew by 3% in 2009
to end 2009 at 17.00 per sq ft.
5,001-10,000 43%
10,001-20,000 47%
20,001-30,000 10%
30,001-50,000 0%
>50,001 0%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
The Newburymarket lacks new,
high quality, refurbishedoffice space.
-
7/31/2019 LSH National Office Report July2010
23/52
Oxford
www.lsh.co.uk
The main focusof demand in
Oxford has been derivedfrom the biotech andpharmaceutical sectors.
0
250
200
150
100
50
300
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
400
200
600
800
1,000
1,200
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
15
0
10
5
20
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townCity centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up recovered sharply in 2009, with
overall lettings up to 279,970 sq ft, 44%
higher than the previous years total.
The first three months of 2010 has been
particularly slow with no letting greater
than 5,000 sq ft completing. Activity was boosted by several large
transactions out of town, the biggest being
the 41,500 sq ft letting to Vertex at 86-87
Milton Park. Overall, activity in the out of
town market accounted for more than
three quarters of letting activity.
Lettings of Grade A accommodation
accounted for 53% of activity. The
remaining activity was mainly good
quality, second hand space.
Availability
Following the strong occupier market in
2009, availability reduced in Oxford, falling
by 24% to 869,500 sq ft, 12.2% of total
built stock, representing 3.6 years supply
at long run trend levels of take-up.
Grade A availability stands at 413,596sq ft, 48% of total built stock, with
57% of new built stock in out of town
locations. This is indicative of the Oxford
market where almost 70% of overall
availability is in out of town locations.
Availability is focused towards the smaller
end of the market, with buildings of less
than 20,000 sq ft accounting for 64%
of total floor space.
Prime rents
Prime rents in the city centre market
re-adjusted to their 2007 levels in Q1 2010,
falling by 4.2% to 23.00 per sq ft. This
re-established the parity between city
centre and out of town markets which
diverged in 2008.
This is the first fall in rents recorded in
the Oxford office market since 2004.
Executive summary Take-up of 279,970 sq ft in
2009 represented a 44% increase
over the previous years total,
establishing Oxford as one of the
few markets in the South East to
see an increase in occupationalactivity during the year.
Availability fell to 869,500 sq ft,
12.2% of total built stock, a
decline of 24% from the levels
of floor space on the market at
the end of 2008.
Prime rents city centre fellback to 23.00 per sq ft by the
end of 2009, the first fall in
Oxford office rents since 2004.
5,001-10,000 34%
10,001-20,000 31%
20,001-30,000 14%
30,001-50,000 14%
>50,001 7%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
24/52
Reading
Lambert Smith Hampton Research | 24
0
600
500
400
300
200
100
700
800
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
750
500
250
1,250
1,000
1,500
1,7502,000
2,250
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
20
0
25
15
10
5
30
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up recorded its lowest total in more
than 10 years, with total occupational
market activity of 185,764 sq ft in 2009.
The major slowing in activity occurred inthe town centre market, which accounted
for only 38,820 sq ft, while out of town
take-up was 146,944 sq ft.
The two largest transactions were out
of town; the 55,000 sq ft letting to the
University of Reading at the Enterprise
Centre was the largest deal, while Thames
Waters acquisition of 43,314 sq ft at 550,
South Oak Way, registered the second
largest transaction. These lettings accounted
for the total of Grade A take-up, while the
remainder of take-up for the year was
focused on second hand space.
Q1 2010 has got off to a slow start with
only 22,260 sq ft let, in two transactions
at Plaza West in the town centre.
Since the end of Q1, Kaplan completed the
acquisition of 12,425 sq ft at The Blade.
Availability
Availability surpassed the 2m sq ft markfor the first time in Q1 2010, increasing by
7.3% from the end 2008 level. Grade A
availability also increased, rising to just over
1m sq ft, with 80% of available new
built stock out of town.
The increase in floor space on the market
was wholly attributable to the increase in
stock being marketed out of town, which
accounted for 62% of overall availability
at 1.3m sq ft.
The current availability rate stands at 22%
of total built stock, which represents fiveyears supply based on the long run trend
rate of take-up for the Reading market.
Prime rents
Readings out of town market has seen
prime rental values come under pressure,
falling by 11.5% since the end of 2008.
Town centre rents have remained relatively
firm at 28.50 per sq ft with only limited
occupational activity recorded.
Executive summary The occupational market in
Reading has been difficult over
the past 15 months with take-up in
2009 reaching 185,764 sq ft, the
lowest recorded in over 10 years.
The difficult market conditionspushed availability up to 22%
of total built stock, the highest
recorded since 2001/02. Grade A
accommodation accounts for
47% of the total 2.1m sq ft.
Readings out of town market has
suffered like other Thames Valley
centres and rents have fallen to
23.00 per sq ft. The town centre
market has been a phenomena,
with rents on new/prime officesclose to the station remaining at
28.50 per sq ft over the last
18 months, in contrast to the rest
of the Thames Valley market.
5,001-10,000 12%
10,001-20,000 11%
20,001-30,000 11%
30,001-50,000 9%
>50,001 57%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
Town centre rentsremain firm while
out of town rents areunder pressure.
-
7/31/2019 LSH National Office Report July2010
25/52
Slough
www.lsh.co.uk
2010 may be theyear for the Slough
market to rebound fromthe doldrums.
0
300
250
200
150
100
50
350
400
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
400
200
600
800
1,000
1,200
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
20
0
25
15
10
5
30
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Occupational market activity in Slough
fell below its long run average level for the
second successive year in 2009, recording
take-up of 126,300 sq ft, some 48% down
on the 10 year average for the town.
Q1 2010 saw 25,000 sq ft of transactions
recorded although in the weeks followingthe quarter end a number of transactions
completed suggesting that the Slough
market may be recovering from a period
of weak occupational demand.
Take-up was held back by the shortage
of large transactions. No transactions
have completed in excess of 20,000 sq ft
over the past 15 months. The largest
transaction was the 18,000 sq ft letting
at Betjeman Place, Bath Road.
Following the end of Q1 2010, the
freeing up of space by Hospedias moveto Landmark Place has enabled RIM
(Blackberry) to increase its occupation
at Thames Valley Court by 45,000 sq ft.
The RIM transaction was completed
in April 2010.
Availability
Availability increased by 11% from its
end 2008 level, to end Q1 2010 at
917,690 sq ft. The increase in availabilitywas largely due to the rise in Grade A
stock on the market, which rose by
32% to 296,300 sq ft.
The availability rate increased to 21%
of total floor space at the end of Q1
2010, up from 17.1% at the end of 2008.
Current availability represents 7.3 years
supply of floor space based on the take-up
levels in 2009. However, this reduces to
3.7 years when compared to the long run
trend take-up level.
Current market supply is dominatedby building of 20,000 sq ft and above,
which accounts for 70% of total floor
space on the market.
Prime rents
Prime town centre rents have now fallen
to 20.00 per sq ft.
Rental levels in Slough have fallen back
to mid 1990 levels, having peaked at
32.00 per sq ft in 2001.
Executive summary Take-up levels have remained below
the long run trend rate for Slough
for the past two years but early
indications are that 2010 may
prove to be a year of recovery.
The supply of stock on the markethas also increased, rising to 21%
of total built stock, with the
majority of the increase due to
the rise in Grade A stock which
represents 32% of total availability.
Prime rents fell back to mid 1990
levels, standing at 20.00 per sq ft
at the end of Q1 2010, 37.5%below their 2001 peak.
5,001-10,000 13%
10,001-20,000 16%
20,001-30,000 26%
30,001-50,000 19%
>50,001 26%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
26/52
Southampton
Lambert Smith Hampton Research | 26
0
350
300
250
200
150
100
50
400
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
200
400
800
600
1,000
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
0
15
10
5
25
20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Out of townTown centre
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Take-up in the Southampton market has
fallen below the 10 year average for the
town since 2007, averaging 125,000 sq ft
over the past two years compared to
the long run average of 235,000 sq ft
per annum.
Activity in the town is dominated by lettings
of less than 20,000 sq ft. All activity over
the past 15 months has been focused
entirely towards this area of the market.
An improvement in activity has been
seen in 2010, with 54,000 sq ft of
take-up registered in the first three
months of the year.
Availability
Availability has fallen during Q1 2010,
as letting activity has begun to gather
momentum. Total availability fell to 504,000
sq ft, with 20% of floor space on the market
in Grade A stock.
The town centre market dominates
availability, accounting for 72% (364,000
sq ft) of floor space on the market. More
than 59% of availability, both in town
and out of town, is in buildings or suites
of less than 10,000 sq ft.
Prime rents
Prime town centre rents fell by 4.8%
over the last 12 months to the end of 2009
but have remained stable at 20.00 per
sq ft over the first three months of 2010,
although tenant incentives continue to rise.
The out of town market has seen greater
falls, with prime rents down by 10% from
their end 2008 levels to 18.00 per sq ft.
Executive summary The office market in Southampton
is focused around the town centre,
with take-up over the past 15
months split 80:20 between town
centre and out of town lettings.
Town centre availability accountsfor 72% of the total 504,000 sq ft
of floor space on the market.
Shortages exist in Grade A stock
which represents just 20% of
overall availability.
Town centre rents have fallen by
4.8% over the past 15 months,
compared to the 10% fallsseen in the out of town market.
50,001 0%
Requirements by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
Availability has fallenduring Q1 2010 as
letting activity has begunto gather momentum.
-
7/31/2019 LSH National Office Report July2010
27/52
Staines
www.lsh.co.uk
The supply of GradeA space will increase
this year resulting in furtherdownward pressure onrents as void rates rise.
0
150
200
100
50
250
300
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
200
100
300
500
400
600
700
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
15
20
25
35
0
10
5
30
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010
Source: LSH Research
Office market availability000 sq ft
Office market take-up000 sq ft
Office market prime rental values per sq ft
Take-up
Occupational market activity has remained
strong in the Staines market over the past
three years, registering take-up levels at, or
above, the long run trend level of take-up
for the town.
Overall take-up in 2009 was 20% higher
than in previous years. Grade A stock
accounted for 53% of the lettings. The
largest lettings were at Pine Trees Office
Park, Chertsey Lane, where BUPA acquired
a total of 81,560 sq ft.
The first three months of 2010 has seen a
disappointing start to the year with only
one deal of 1,200 sq ft completing.
Availability
The rise in availability at the end of 2009
was partially reversed in the first three
months of the current year, standing at
594,300 sq ft at the end of Q1 2010.
More than 60% of total availability is in
buildings of 30,000 sq ft or above, with
a shortage of stock below 10,000 sq ft.
Grade A availability represents 26% of
total availability, with a further 93,800
sq ft approaching completion at Opus 1,
The Causeway.
The availability rate stands at 19.3% of
total built stock, which represents 5.4
years supply of floor space at long run
trend rates of take-up.
Prime rents
Prime rents fell back by 10.3% to 26.00
per sq ft by the end of 2009 as activity
levels slowed in the second half of the year.
Rents remained stable at their end 2009
levels during Q1 2010, although the lack
of activity in the occupational market has
made it difficult to identify the current
rental level.
Executive summary The second half of 2009 saw activity
levels slow, after a buoyant start to
the year, which was prompted by
several large lettings at Pine Trees
Office Park. This trend was continued
into Q1 2010. Availability has eased marginally,
but remains at 19.3% of total
built stock, with 151,800 sq ft
of Grade A space on the market.
Prime rents have fallen back by
10.3% to 26.00 per sq ft,
although lack of evidence has
made it difficult to establish thetrue rental level.
50,001 21%
Availability by size % of total sq ft
Source: LSH Research
Source: LSH Research
Source: LSH Research
-
7/31/2019 LSH National Office Report July2010
28/52
Uxbridge
Lambert Smith Hampton Research | 28
0
400
300
200
100
500
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
10 year average
0
200
100
300
500
400
600
700
2005 2006 2007 2008 2009 Q12010
Good second handPoor second hand New
20
0
25
15
10
5