Business Space Data Book. Spring 2016

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Business Space Data Book

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Introduction

Saul Western, Partner

Investment

020 7297 6275

[email protected]

UK economy remains steady in global turmoil

Despite the fears that are gripping the global economic outlook, the UK economy is faring well. We are wary that the threat of another ‘financial crisis’ will have a considerable impact on the UK’s economic growth prospects, but last year’s growth performance of 2.2% is expected to be repeated this year despite the uncertainty over Brexit. Our own research shows tenant demand remains robust, with prime office and industrial rents having grown by 9.5% and 5.6% respectively over the past 12 months, and further growth is forecast.

Investment market activity down on 2014 but still second highest total on record

Property investment slowed in the second half of 2015, resulting in a total commitment of £67.5bn for the year. This was below the previous year’s figure of a record breaking £71.0bn. Whilst there was a late slowdown, the annual total still represents the second highest annual total on record.

Probably the most significant change in investment activity over 2015 was the increasing level of interest from investors in ‘alternative’ property (ie student accommodation, residential and hotels/leisure), where investment accounted for almost 40% of the annual total.

Property returns to be driven by rental growth in 2016

The property market continued to show good returns over 2015, with the total return for the calendar year coming in at 13.8% ahead of both the equity and gilt markets for the second successive year. The current year is expected to see performance slow, with the latest Consensus forecasts indicating returns of 8.2% and rental growth forecast to be the main impetus behind increasing capital values.

Whilst Central London offices have driven the market over the past few years, returns are slowing and our own research indicates that most Bidwells’ office and industrial markets outside the capital are providing returns in excess of London offices – see Office and Industrial market overviews.

Centre for Cities report shows Bidwells’ markets are fastest growing in UK

The refocusing of our business around the ‘Golden Triangle’ of Cambridge – London – Oxford has received a further boost by the recent Centre for Cities Report, which identifies Cambridge, Oxford, Milton Keynes and Norwich amongst the fastest growing cities in the UK.

Cambridge continues as the major focus for the UK’s innovation sector, whilst London and Oxford are also centres for the new tech businesses that are beginning to act as a major driver to the UK’s economic success.

Property

outperforms

equities and

gilts for second

successive year

Bidwells cities at

the forefront of

UK growth

UK economy

steady despite

volatile global

outlook

Investment

market activity at

second highest

figure on record

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Economic and market overview

Preliminary

estimates show

that economy

grew at trend

levels in 2015

Global concerns

and Brexit impact

on estimates for

2016

Property market

bucks the trend

as rental growth

accelerates

Property returns

forecast to slow

in 2016

Economy grows by 2.2% in 2015 as services lead the way

The preliminary estimates for GDP growth in q4 2015 indicated that the economy grew at 2.2% in 2015, and whilst this is a slowing in activity from the robust growth seen in the previous year (2014 GDP growth of 2.9%) the final quarter showed some resilience to the turmoil in the stock market.

The service sector continued to be the most robust area of the economy, with Business services growing by 2.7% over the year.

Uncertainty to restrict growth in 2016

Recent concerns about the financial stability of banks within the Eurozone and the slowing of the Chinese economy has impacted on the global economic outlook. Whilst the UK economy has continued to be relatively stable, it is clear that these concerns and the threat of Brexit may have an effect on growth.

The global economy is expected to have grown by 2.4% in 2015 and is anticipated to gather momentum in 2016 due to a recovery in developed economies. Overall growth for 2016 is forecast to be 2.9%, with current consensus forecasts for the UK showing another year of trend growth at 2.2%.

Occupational markets buck the trend

Despite the slowing in economic activity, the UK property market continued to buck the trend, with rental values growing by 4.2% in the 12 months to the end of January 2016 as measured by the IPD Monthly Index. The office sector continues to register the strongest growth, with rents up by 8.0%, although significantly the industrial sector saw rents up by 5.0%, the highest increase in 15 years. Retail rental growth remains subdued at 0.9%.

Property market remains relatively steady

Despite all of the volatility in the equities market, property maintained its long held view of being a more stable asset class, with total returns of 13.8% in the 12 months to the end of January 2016. The equities market, which is reeling from the global economic situation, moved into negative territory, with year on year returns at -4.6%, whilst the gilt market remained relatively flat, with returns of -0.4%. -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015(est) 2016(f) 2017(f)

GDP growth and forecast Investment market returns

-10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2011 2012 2013 2014 2015 2016

Source: ONS and consensus forecasts

■

Property

■

Equities

■

Gilts

Source: IPD

© Copyright Bidwells LLP 2016 Before taking any action based on this document you should consult Bidwells LLP to ensure that it is appropriate to your circumstances. Bidwells LLP are in no way responsible for any views expressed within this document by third parties. We may hold your name on our database unless you instruct us otherwise. If you require this document in an alternative format please contact the Marketing Department on 01223 841841. Bidwells LLP is a limited liability partnership registered in England & Wales (registered number OC344553). Registered head office is Bidwell House, Trumpington Road, Cambridge CB2 9LD, where a list of members is available for inspection. Where used the term ‘partner’ refers to a member of Bidwells LLP or an employee who is a senior professional. It does not imply that Bidwells LLP is a general partnership under the Partnership Act 1890.

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Office supply % (Dec 2015) ■Grade A ■2nd hand good ■2nd hand poor 3 31 66 Availability 000’s sq ft ....615.4 p Availability rate ...10% p 9 58 33

Office demand % (Dec 2015)

Take up Requirements ■Grade A ■< 5 ■20 - 30 ■2nd hand good ■5 - 10 ■30 - 50 ■2nd hand poor ■10 - 20 ■> 50 4 76 20 (h2 2015)

Take up 000’s sq ft ...406.0 p Requirements 000’s sq ft....1,432.3 qPrime £psf ...£35.00 }| Secondary good £psf ...£32.00 }| Secondary poor £psf ...£24.00 }|

Office rents £ (Dec 2015)

1016 20 24 14 16 2015 £35.002016 (f) £36.502017 (f) £37.502018 (f) £38.502019 (f) £39.502020 (f) £40.00

Industrial supply % (Dec 2015) ■Grade A ■2nd hand good

■2nd hand poor

Industrial demand % (Dec 2015)

Take up Requirements

■Grade A ■< 5 ■20 - 30 ■2nd hand good ■5 - 10 ■30 - 50

■2nd hand poor ■10 - 20 ■> 50

Industrial rents £ (Dec 2015)

Availability 000’s sq ft ...469.9 p

Availability rate ...6% p (h2 2015) Requirements 000’s sq ft....1,712.0 p Take up 000’s sq ft ...255.7 p 2015 £10.252016 (f) £10.752017 (f) £1 1.50 2018 (f) £12.252019 (f) £13.00 2020 (f) £13.75 Prime £psf ... £10.25 p Secondary good £psf ... £8.50 }| Secondary poor £psf ... £6.00 }| Cambridge 01223 841841

www.bidwells.co.uk Russell Catley, PartnerBusiness Space, Industrial01223 559183 [email protected]

Will Heigham, Partner

Business Space, Office

01223 559443 [email protected] 9 53 38 38 22 40 28 9 12 23 12 16 Cambridge office

Underlying demand remains strong at 1.4m sq ft despite Astra Zeneca and ARM deals being signed Take up has averaged 620,000 sq ft per annum over the past three years indicating a new trend level activity for Cambridge compared to 390,000 sq ft in the previous 10 years

Limited grade A supply expected to prompt speculative development Requirements at five year high, 1.8m sq ft prompted by increase in demand for mid size units (20,000 – 50,000 sq ft)

Cambridge industrial

Data sheets can be viewed online

www.bidwells.co.uk/research

Office market overview

Key indicators

Prime office rents are

up in most locations,

with record highs set in

Cambridge, Oxford and

Milton Keynes

Prime headline rent (£psf 12/2015)

Take up (000’s sq ft h2 2015)

Demand (000’s sq ft 12/2015)

Availability (% total sq ft 12/2015)

Prime yield (% 12/2015)

Total returns (% 12/2015)

n Rental growth % n Yield movement n Income return % l Total return %

Take up is down in most

markets due largely to

supply constraints.

Demand is forecast to

drive rental growth over

the next 12 months, with

London, Oxford and

Cambridge growing by

8.0%, 4.7% and 4.3%

respectively

Supply has continued

to tighten, with only

600,000 sq ft of grade A

space across Bidwells

major locations

(excluding London)

Prime office yields have

hardened as rental

growth has returned to

provincial centres

Increased returns

through yield

improvement and rental

growth, with prime

Oxford offices seeing

total returns in excess

of 30%

Cambridge Cambridge Labs London Milton Keynes Northampton Norwich Oxford (West End) 0 6 12 18 24 30 36

cambs labs london mk northhampton norwich oxford

Cambridge Cambridge Labs London Milton Keynes Northampton Norwich Oxford (West End)

Cambridge Cambridge Labs Milton Keynes Norwich Oxford

Cambridge Cambridge Labs London Milton Keynes Northampton Norwich Oxford (West End)

Cambridge Cambridge Labs London Milton Keynes Northampton Norwich Oxford (West End) 0 6 12 18 24 30 36

0 6 12 18 24 30 36

35.00 }| 32.50 }| 125.00 p 23.50 p 16.50 }| 26.50 }| 406.0 p 206.2 q 2.3m p 160.6 q 76.9 q 50.5 q 1,432.3 q 492.0 _q 944.7 _p 184.5 _q 10 p q5 5 p 16 _q 10 _q q9 16.00 p 39.7 q 13 p 5.00 q 6.00 q 3.75 }| 6.00 q 7.00 q 5.75 q 7.00 q 18.4 p 26.9 p 14.4 q 28.6 p 25.1 p 14.6 p 30.2 p 183.0

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Office supply % (Dec 2015) ■Grade A ■2nd hand good ■2nd hand poor 3 31 66 Availability 000’s sq ft ....615.4 p Availability rate ...10% p 9 58 33

Office demand % (Dec 2015)

Take up Requirements ■Grade A ■< 5 ■20 - 30 ■2nd hand good ■5 - 10 ■30 - 50 ■2nd hand poor ■10 - 20 ■> 50 4 76 20 (h2 2015)

Take up 000’s sq ft ...406.0 p Requirements 000’s sq ft....1,432.3 qPrime £psf ...£35.00 }| Secondary good £psf ...£32.00 }| Secondary poor £psf ...£24.00 }|

Office rents £ (Dec 2015)

1016 20 24 14 16 2015 £35.002016 (f) £36.502017 (f) £37.502018 (f) £38.502019 (f) £39.502020 (f) £40.00

Industrial supply % (Dec 2015) ■Grade A ■2nd hand good

■2nd hand poor

Industrial demand % (Dec 2015)

Take up Requirements

■Grade A ■< 5 ■20 - 30

■2nd hand good ■5 - 10 ■30 - 50

■2nd hand poor ■10 - 20 ■> 50

Industrial rents £ (Dec 2015)

Availability 000’s sq ft ...469.9 p

Availability rate ...6% p (h2 2015) Requirements 000’s sq ft....1,712.0 p Take up 000’s sq ft ...255.7 p 2015 £10.252016 (f) £10.752017 (f) £1 1.50 2018 (f) £12.252019 (f) £13.00 2020 (f) £13.75 Prime £psf ... £10.25 p Secondary good £psf ... £8.50 }| Secondary poor £psf ... £6.00 }| Cambridge 01223 841841

www.bidwells.co.uk Russell Catley, PartnerBusiness Space, Industrial

01223 559183 [email protected]

Will Heigham, Partner

Business Space, Office

01223 559443 [email protected] 9 53 38 38 22 40 28 912 23 12 16 Cambridge office

Underlying demand remains strong at 1.4m sq ft despite Astra Zeneca and ARM deals being signed Take up has averaged 620,000 sq ft per annum over the past three years indicating a new trend level activity for Cambridge compared to 390,000 sq ft in the previous 10 years

Limited grade A supply expected to prompt speculative development Requirements at five year high, 1.8m sq ft prompted by increase in demand for mid size units (20,000 – 50,000 sq ft)

Cambridge industrial

Data sheets can be viewed online www.bidwells.co.uk/research 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35

Industrial market overview

Prime headline rent (£psf 12/2015)

Take up (000’s sq ft h2 2015)

Demand (000’s sq ft 12/2015)

Availability (% total sq ft 12/2015)

Prime yield (% 12/2015)

Total returns (% 12/2015)

n Rental growth % n Yield movement n Income return % l Total return %

Key indicators

Prime industrial rents

are up by 5.6% over the

past 12 months, with

rents in the secondary

market up by 7.8%

Occupiers looking

for grade A space are

being driven to ‘build

to suit’ solutions

The demand for larger

buildings (>50,000

sq ft) continues to

dominate the market

Supply is close to

historic lows, and

ready-to-occupy grade

A space stands at

115,000 sq ft

Industrial remains the

principal choice for

many investors, and

yields are close to

historic lows.

Industrial sector

returns rise to an

average of 22.4%

through yield

compression and

rental growth

Cambridge Milton Keynes Northampton Norwich Oxford

* Total returns are based on movements in prime rental values and prime yields. Source: Bidwell Research

Cambridge Milton Keynes Norwich Oxford

10.25 p 7.00 _p 6.00 p 5.75 }| 9.00 p 255.7 p 673.7 q 371.5 q 102.4 q 49.3p 1,712.0 p 5,988.9 }| 559.0 _p 6 p q4 q5 _p8 p4 5.50 }| 5.75 _q 5.75 q 6.50 _q 5.50 q 20.2 q 23.2 p 23.9 p 18.8 }| 25.8 p 882.4