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London Commercial Property News - Monday, February 27, 2017

Issue #74

REALITY check

London News

FORE Partnership is a classic example of how successful and influential private investors are in the commercial property market.

It has completed development of the 4,459 sq.metres (48,000 sq.ft.) VIEW 58 on the Victoria Embankment which has been sold to the charity Nesta, for its own occupation. FORE undertook the scheme in a joint venture with Kier Property.

FORE included a number of new ideas in the building that apparently have not been used previously in the UK, such as solar photovoltaic panels that develop power from both the top and underside of the panels.

Basil Demeroutis of FORE said: “View 58 has been a hugely successful development for us and endorsed our responsible real estate philosophy, which focuses on low carbon strategies, social impact, place making and design, which we believe enhances rental income and improves returns”.

FORE is part of an international trend since it is a pan European office for family offices and private investors, reflecting the increasing global spread of wealth.

Another new arrival to the London property scene is Lowndes Estate, part of the Noble Organisation, a privately owned leisure operator which has set out to create a UK property portfolio.

In its first deal it has paid the Colville Estate £5.74 million for the 785 sq.metres (8,446 sq.ft.) 9-13 Cursitor Street in Midtown.

Lowndes’ Edward Flach commented: “Given the high occupancy costs in the West End, Midtown is becoming increasingly attractive to occupiers and is therefore an ideal location for us to launch our investment strategy”.

5 Commercial Property Register February - May 2017 www.compropregister.com NEWS As the reality of complicated negotiations over Brexit become more pervasive, so the outlook for commercial property becomes cloudier.

There are a host of conflicting pressures and sentiments fuelling this uncertainty even though last year’s take up was in line with the historical average at 929,000 sq.metres (10 million sq.ft.) after a surge in the fourth quarter with take up in east London up 8% on the average.

Neil Prime of JLL said: “The recent surge of City deals is encouraging for central London. It demonstrates that demand has been more resilient than many feared”.

Another figure points in a different direction with Deloitte’s Central London Crane Survey reporting a 42% decline in office construction starts in the sixmonths to November.

Deloitte’s Chris Lewis commented: “There is a reaction to political and economic instability but businesses are also thinking about their future needs. We are likely to see lower rents and more incentives”.

Added to this, Standard Life has sold properties worth over £350 million since the Brexit vote in order to rebalance its portfolio away from the capital. Anne Breen of Standard Life said: “While we believe there is long term growth in London we are also conscious of the need to ensure our funds are not overweight in the market near term”.

In fact, the situation is complicated because another indicator of confidence is the decision to build a 130,060 sq.metres (1.4 million sq.ft.) skyscraper at 22 Bishopsgate in the heart of the insurance district, a financial sector which is expanding strongly and has taken more space in the City.

A further encouraging factor is the resilience and confidence of small and medium sized businesses.

A report from Albion Ventures for the UK showed that 73% of small businesses with over five employees plan to grow over the next two years and only 5% expect to shrink their activities, London was in third place after the East Midlands and the east of England.

Backing up this view serviced office provider, Workplace, said that demand from SMEs was strong and rentswere continuing to rise. This office market has grown, partly because companies like a short term contract or are wary of the impact of Brexit and don’t want long leases.

Private MONEY FLOWS

London News

FORE Partnership is a classic example of how successful and influential private investors are in the commercial property market.

It has completed development of the 4,459 sq.metres (48,000 sq.ft.) VIEW 58 on the Victoria Embankment which has been sold to the charity Nesta, for its own occupation. FORE undertook the scheme in a joint venture with Kier Property.

FORE included a number of new ideas in the building that apparently have not been used previously in the UK, such as solar photovoltaic panels that develop power from both the top and underside of the panels.

Basil Demeroutis of FORE said: “View 58 has been a hugely successful development for us and endorsed our responsible real estate philosophy, which focuses on low carbon strategies, social impact, place making and design, which we believe enhances rental income and improves returns”.

FORE is part of an international trend since it is a pan European office for family offices and private investors, reflecting the increasing global spread of wealth.

Another new arrival to the London property scene is Lowndes Estate, part of the Noble Organisation, a privately owned leisure operator which has set out to create a UK property portfolio.

In its first deal it has paid the Colville Estate £5.74 million for the 785 sq.metres (8,446 sq.ft.) 9-13 Cursitor Street in Midtown.

Lowndes’ Edward Flach commented: “Given the high occupancy costs in the West End, Midtown is becoming increasingly attractive to occupiers and is therefore an ideal location for us to launch our investment strategy”.

MCKINSEY IN Midtown

London News

One of the largest lettings this year has kickstarted the leasing of Oxford Properties and Brockton Capital’s 29,739 sq.metres (320,000 sq.ft.) The Post Building in Midtown.

Indeed, it is a significant letting because the occupier is McKinsey & Co which is taking 9,290 sq.metres (100,000 sq.ft.) with an option to increase this by around 30%.

The development of the former Royal Mail sorting office, due to be completed summer 2018, is of importance due to its strategic location close to the British Museum, the Royal Opera House and Covent Garden in what is known as the knowledge area.

Equally important is the imminent arrival of the Elizabeth Line in the area with a station at Tottenham Court Road. Paul Brundage of Oxford Properties said: “McKinsey’s move signifies confidence in London’s status as an international gateway as well as the increased importance of Crossrail-connected creative hubs as a home for vibrant professional services firms”.

InBrief #1

London News

The strength of the serviced office sector is shown by Office Space in Town’s 20% rise in revenue to £17.25 million in the first nine months of 2016, a trebling of revenue in three years. It has brought increased occupancy rates, a situation shared by other service office providers.

Apple CHOOSES BATTERSEA

London News

In leasing office space for a campus in the developing Battersea Power Station, Apple is sending s strong message about the future of this large scheme as well as the market south of the River Thames.

Apple will be the largest occupier with 46,450 sq.metres (500,000 sq.ft.) over six floors in the Boiler House in the company’s new London campus and it will account for 40% of the total office space in the development. It will pull together Apple’s 1,400 London employees.

The deal underlines the changing nature of business locations in London and, in the case of the area south of the Thames, the pioneering impact of The Shard at London Bridge (although the Kuwaiti St Martins Property had started the ball rolling with the London Bridge City scheme).

Apple’s decision coincides with The Shard reaching close to 100% occupancy five years after its inauguration. This was achieved when Matchfashion.com increased the office space it occupied by 40%.

The Shard has acted as a catalyst for bringing new occupiers to the area and stretching the development area more widely, such as into Bermondsey.

The latest scheme for Bermondsey is the former Crosse & Blackwell Branston Pickle factory which has been bought by London Square for £50 million with the deal and planning issues sorted out by the Thames Valley based solicitors Owen White.

The project is for 408 apartments (35% affordable) offices , shops and a gallery.

GOVERNMENT EMBRACES Mipim

London News

The need to promote the UKmore vigorously overseas is behind UK GovernmentMinistries participating for the first time in MIPIM.

There has always been a big show of UK developers and property professionals, but now the Department of International Trade, the Department of Communities and Local Government and others have come together in a pavilion in Cannes in March.

On top of this, senior Government Ministers are scheduled to deliver the message of a multi faceted investment promotional programme.

This will back up the increased efforts by the UK regions, where Manchester will have a large pavilion, as will the Midlands.

The need for greater promotion by the UK is illustrated by a report from Property Works that the Brexit referendum brought a 40% decline in overseas interest in UK commercial real estate.

Joe Cohen of Property Works commented: “The data tells us that Brexit had a severe negative impact on searches from international locations, as offshore businesses felt less confident about expanding into the UK. This year will demonstrate whether this view persists or the appetite and confidence revert to pre-referendum levels”.

VICTORIA update

London News

Tuckerman reports that: “Victoria is still experiencing a lack of small to medium sized suites, with the large majority of the current availability being made up of 10,000 sq.ft. plus floor plates. The average floor plates size has risen again to 8,200 sq.ft”. They also commented that: “Grade A space makes up 74% of the total current availability and total take up during 2016 increased slightly to 627,800 sq. ft.”. Concluding, Tuckerman pointed out that: “Total availability at the end of 2016 stood at just over 760,000 sq.ft., well up from the132,000 sq.ft. at the end of 2015, and close to the long term average of 800,000 sq.ft.”.

InBrief #2

London News

Westminster City Council is to lease 5,295 sq.metres (57,000 sq.ft.) in BlackRock’s 5 Strand, near Trafalgar Square, when the existing occupier, Land Securities, moves out. The council has taken the space while its civic headquarters in Victoria are refurbished.

Growing LIKE TOPSY

London News

Just howfar London changes shape in the next decade as new areas expand their commercial appeal will be one of the fascinating events of the UK economy.

The business district of the South Bank spreads east and west; Kings Cross and that part of north London deepens its commercial area and Docklands performs and links more effectively with Stratford.

Given the importance of the HS2 rail line it could be expected that Euston would be on the list for development starting with tenders to rebuild the railway station.

What is emerging at nearby Kings Cross is a fast growing tech hub with Camden Council getting in on the action by hosting a tech hub in its town hall as part of the refurbishment of the building.

Even more significant is that Stanhope and Mitsui Fudosen have been selected by the British Library to develop an adjacent 8 acre site for a new science hub in St Pancras.

The site is capable of up to 65,030 sq.metres (700,000 sq.ft.), part of which will be for the new Alan Turing Institute for computer research together with extra space for the British Library.

What makes this so special is that Google is to develop a 60,385 sq.metres (650,000 sq.ft.), ten storey building to house 7,000 employees on its campus at Kings Cross.

Google’s Sundar Pichal said: “Here in the UK it is clear to me that computer science has a great future with the talent, educational institutions and passion for innovation we see all around us”.

East London is also pushing the technology focus with THECUBE, a post incubator scientific facility for SMEs opening in the londoneast-uk Business & Technical Park in Dagenham on the former site of Sanofi’s pharmaceutical plant.

Chinese investors are attracted to east London and a Sino-Australian company is in the running to develop a 557,400 sq.metres (6 million sq.ft.) trade park for the 25 acre Albert Island site close to the vast development at Royal Albert Dock by joint venture SITIC & ABP.

Underlining its commitment to east London, Workspace is to redevelop Stratford Village in a mixed use scheme with 101 residential units and offices. In Hackney, Workspace has planning permission for the development of Mare Street Studios in a scheme with 3,530 sq.metres (38,000 sq.ft.) of offices and light industrial.

CITY challenge

London News

The uncertainty over negotiations for Brexit has caught up with the City letting market and the current quarter is likely to produce very poor results.

That is the prediction of John Ostroumoff, of Ostroumoff who is pleading for the major players in the market to come together and form a committee devoted to arguing the City’s case at a time when occupiers have to face increases in business rates in April. “We have no idea where we are and this uncertainty is causing real damage to confidence”, he said. “The City needs to have a powerful voice in arguing its case at a time where there is not only the problem of Brexit, but the whole future of the European Union”.

Melting POT

London News

Like other parts of London, Midtown is constantly changing and is increasingly becoming a melting pot for businesses.

That is the view of Farebrother, whose Julian Hind added that: “while the area has long been associated with legal and other professional services, that stereotype is increasingly a thing of the past”. Farebrother highlighted the arrival of Publicis to 40 Chancery Lane as being emblematic of how Midtown identity is changing.

In the past it would hve been highly unlikely for such a large marketing and communications company to opt for the area. Hind said: “Clearly, Crossrail will be transformational but it is also about the quality of the environment in Midtown. Recent new developments have brought better amenities to the location”.

Square Mile WELL CONNECTED

London News

The pace is quickening in the city to ensure that every component of the toolkit to maintain its premier position as a financial centre is in place.

Currently that means moving rapidly to ensure that the Square Mile has the essential telecom infrastructure for both wireless networks and fixed line broadband.

This year sees the launch of a world class wireless network with expanded and free WiFi and improved mobile coverage provided by the state of the art equipment giving gigabit speeds that the City of London claims will surpass similar networks in other financial centres such as New York.

In addition to the new WiFi network, 4G mobile coverage will also see significant improvement with over 400 small cells using street furniture like lampposts, street signs and CCTV columns.

Mark Boleat, Chairman of the City of London Policy and Resources Committee, said: “The Square Mile is boosting its appeal through initiatives such as this. The new service will allow city workers to become better connected than ever before”.

An essential component of this initiative is that the City of London has brought together operators, landlords and developers to create a digital infrastructure ’toolkit’ that can be used to speed up installation of broadband, such as a new standard wayleave, that has been agreed by providers and property owners and to date downloaded 2000 times.

Simon McGinn of the City of London said: “We are looking to complete research on the needs of Fintech and other technology focused industries to ensure the Square Mile can provide the optimum built environment to support their needs”.

This means talking to them about their issues and needs and, in particular, about the provision of accelerators for housing tech businesses.

Like any part of London, the City has to provide the right type of space and environment for business and it is worth noting that the sharp rise in rents in Shoreditch with the inflow of tech companies has put them above rents in some parts of the City which, it is hoped, will become increasingly affordable and attractive as a consequence of competitive rents and world class broadband infrastructure which is soon to be supplemented by Crossrail.

ROAD DANGER reduction

London News

Major changes in the City’s road network, notably at Aldgate and Bank, are set to deliver a safer and less polluted environment.

Bank junction is set to exclude vehicles other than buses from the heart of the City and will be transformed over a 3 year period to create a new pedestrian and cycle friendly environment.

This will be complemented by evolving initiatives and policies to promote consolidation of freight distribution in specific centres to reduce the high volume of deliveries across the City.

Works to Bank junction come at a time when 27 Poultry is being transformed into a luxury 280 bedroom hotel, ‘The Ned’, which will also create 8 new restaurant units to be run by Soho House, opening in April 2017.

The character of the Bank junction area will be further transformed by the opening of the new Bloomberg HQ at Walbrook where here will be further 10 independent restaurants transforming the Bank area into a new culinary quarter.

PUTTING ON THE pressure

London News

It has taken continued lobbying by the City of London to get BT to upgrade the broadband to deliver affordable superfast broadband in the City where they are delivering availability of speeds of up to 80mbs on their Openreach copper network during 2017 to over 5,000 premises.

BT Openreach has also recently announced that they will be delivering new affordable fibre services to over 12,000 premises in the Square Mile during 2017-18 delivering speeds of up to 1Gbps.

This is likely to be, in part, a response to the myriad of new alternative network providers seeking to install affordable fibre networks across London.

HAPPY occupiers

London News

The pace of change is illustrated by the evolving design of the office, said Tom Leathart.

This is creating an entirely different working environment, whether it be the large offices with their rest areas, feeding stations and table tennis or the smaller scale design of co-working and serviced offices, which have proliferated throughout the City in the past decade.

Leathart quoted the example of We Work: “They have doubled their footprint in London and all their centres have waiting lists”. He added: “They like the City because there is substantial demand, helped by the benefits they offer, such as developing business communities, mentoring, health insurance, banking and even encouraging workers to bring their pets to work, although this can bring its own challenges in terms of canine harmony”.

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