NovaLoca Blog

Citing its recent research into the retail warehouse market, Savills says it may be a good time for owners of retail warehouse properties to consider making some selective sales, as investor demand is strong – not just for prime properties, but also for secondary assets that are correctly priced.

Savills says retail warehouses are still producing above-average returns. Investment director Jaime Dunster says this has led to renewed interest in this type of asset from all kinds of investors but particularly UK-based institutions.

“These purchasers are primarily focused on prime assets that have long lease lengths, covenant strength and dominance of catchment. However, with such a tight definition on what makes a retail warehouse asset prime, it is unsurprising to note that the availability of such stock is extremely limited,” Dunster added.

Knight Frank says its wide-ranging research into the prospects for European property markets this summer show that while most commercial property markets are stabilising or in recovery, with rental growth seen in several key areas, there has been little movement in prime yields across most of Europe during the past quarter.

Knight Frank says it has calculated that the weighted average European prime office rent rose 2.6% in the quarter to June, taking year-on-year growth to 5.6%. The strongest rises in rent were in Moscow (up 8% in dollars) and London’s West End (up 5.9% in sterling), with Stockholm, Paris and Frankfurt also recording substantial gains. The City of London market paused during the quarter, with prime rents unchanged after their recent strong uplift, the firm notes.

Prime rents fell in Lisbon (down 2.6% in euros) and Madrid (down 1.8% in euros). While these markets remain under downward pressure, Knight Frank says the outlook for the rest of 2011 for most European markets “is one of either continued stability or mild rental growth for prime property”.

Senior international research analyst Matthew Colbourne said: “Following a significant hardening of yields in many major cities last year, the lack of recent yield movement suggests that the market is pausing for breath, as investors remain cautious over the general economic outlook and find it difficult to identify value at the prime end of the market.”

British Land professed itself “delighted” at yesterday’s decision by the Culture Secretary Jeremy Hunt to reject proposals to list the Broadgate offices complex in the City of London. British Land and Blackstone want to demolish part of Broadgate’s buildings order to build a new headquarters for UBS, but English Heritage had recommended that Broadgate be listed at Grade II* as one of the most important and successful developments of its period and type.

Chris Grigg, the chief executive of British Land, said the decision by the Government had sent out a message to the world “that the UK is ‘open for business’”. The new 700,000 sq ft (66,890 sq m) building at 5 Broadgate would include four trading floors capable of accommodating around 750 traders per floor and would enable UBS to locate its entire trading operation within one building, the company noted, adding that the new building would meet the highest sustainability standards in terms of energy performance.

The City of London Corporation also welcomed the decision not to list Broadgate, saying that a listing would have affected the international competitiveness of the City. “The City is – and always has been – first and foremost a place of business and it must be allowed to adapt to meet the long-term business needs of current and potential future occupiers,” it noted.

Meanwhile the Telegraph reports today that the City of London Corporation’s planning officer Peter Rees has spoken out this morning against government proposals to relax planning rules regarding the conversion of office space into residential property. The paper reports that, speaking at the British Property Federation’s breakfast seminar on the subject, Mr. Rees warned that the policy could limit available office space not only in the City but also in other business districts across the UK.

The paper notes that residential schemes in the City are already increasing, among them Hammerson’s Principal Place development, which includes residential units. Property Week reports today that law firm CMS Cameron McKenna has signed a heads of terms agreement to take a pre-let on up to 200,000 sq ft of the office space at Principal Place, in a deal that will enable Hammerson to go ahead with construction on the scheme at the northern end of Bishopsgate.

The IPD monthly index for May shows modest capital growth of just 0.1%, but rental growth moved back onto positive ground during the month – albeit by just four basis points. Phil Tily, managing director for UK & Ireland, says that this shows capital growth is still reliant on further reduction in yields.

“As yield compression runs its course, any further uplift will become increasingly dependent on a strengthening of the underlying occupier market,” he added.

The offices sector produced capital growth of 0.4%, driven by a 0.2% recovery in rental values, Tily noted. “This was again off the back of a strong performance by properties in Central London, which saw a steady increase in capital appreciation and improved level of rental value growth, up by 60 basis points over the month, led principally by renewed levels of growth in the City,” he added.

Total return at an all-property level remained at 0.7%, with most of this (0.6%) income-based, IPD said.

The Guardian reports today on the latest research from retail consultancy Trevor Wood Associates, which shows that high-street retailers and supermarkets are moving into the units in out-of-town shopping parks that have been left empty by the collapse of retailers such as Focus DIY.

The arrival of retailers such as Next, M&S and Tesco at more out-of-town shopping parks helped to drive the vacancy rate at such centres to 9.2% by the end of 2010, compared with 11.6% in 2009, the report says. This was the lowest figure since the 8.3% seen before the economic downturn hit, at the end of 2007. Meanwhile the average high-street vacancy rate is 15%, according to Local Data Company figures, the paper points out.

Trevor Wood told the newspaper that high streets needed “slight invigorating” such as improved parking (and free spaces) and the right mix of stores in order to turn things around, and he also sees potential in “hybrid” developments – retail areas on the edge of town centres. The firm’s Definitive Guide to Retail and Leisure Parks is to be published this week.

RICS says its survey of the UK construction market in Q1 2011 shows that workloads are rising again, after three quarters of decline, but that there are sharp differences between regions.

The headline net balance for total construction workloads increased from –4 to +5 for the quarter, as more surveyors reported rising than falling workloads. Those taking part in the survey said the main issues affecting construction activity are still a lack of finance and falling profit margins as costs rise and competition increases.

While activity is growing in London and the South East, workload levels are still deteriorating in Northern Ireland and Scotland. The net balance for the London and South East region rose from +6 to +24 in the quarter while the figure for Northern Ireland was –68 and for Scotland it was –10.

There is also a difference between sectors, with private housing (+8) and private commercial activity (+17) leading the recovery while public-sector works continued to decline during the first quarter – although the rate of decline was smaller, with the public-sector housing net balance at –10 (from –20) and other public-sector activity at –11 (from –20).

RICS says the survey has also provided evidence of growing optimism about the year ahead, with employment expectations turning positive this quarter, for the first time since Q1 2008. Workload expectations also turned positive in the quarter, but profit expectations remained negative with a net balance of –30.

Property Week reports that JP Morgan has chosen Cushman & Wakefield and DTZ to work on a strategy to dispose of up to 800,000 sq ft of office space in the City of London, ahead of the investment banking unit’s move to Canary Wharf in 2013. JP Morgan is expected to sublet buildings rather than surrendering the leases as this would involve hefty penalties, Property Week notes.

While the group’s treasury and securities division will stay at 60 Victoria Embankment (bought in December for about £250m) and the asset management arm will also remain in the City (it currently occupies 147,000 sq ft on Finsbury Street), most of its London employees will be moving to 25 Bank Street in Canary Wharf next year. JP Morgan bought the former Lehman Brothers HQ in December for £495m.

The proposals may involve the subletting of the 324,000 sq ft 10 Aldermanbury Square building bought by JP Morgan’s asset management arm for about £260m in March. This property is currently leased to the parent group until 2025. Other properties that may be sublet include 382,000 sq ft in Alban Gate at 125 London Wall, and 154,086 sq ft at 20 Moorgate, Property Week says, adding that Knight Frank had also been on the three-firm shortlist for the job.

The market for available office space in Central London continued to outperform the rest of the UK’s commercial property markets during May, says CB Richard Ellis. The firm’s Monthly Index for May shows Central London offices produced total returns of 1.0% for the month, taking year-to-date total returns to 6.0%. Returns from the rest of UK offices were flat, caused by a 0.5% decline in values. The offices sector overall produced returns of 0.8%.

All Property total returns in May were 0.7%, with property values rising 0.2% during the month.

The retail sector continued to produce capital growth, at 0.2% in May, with returns of 0.7%. Within this sector, shopping centres were strongest with total returns of 0.8% as values grew 0.3%.

There was no capital growth in the industrial sector in May, leaving total returns at 0.5%. “Industrial property remains very much the weakest sector so far this year,” CBRE said.

All Property rental values came down by 0.1% in May, with only the City and West End offices seeing positive rental growth during the month.

Nick Parker, senior analyst at CBRE, said: “What investors are increasingly finding attractive about offices in Central London is not just the income security afforded by large occupiers, but also that rents are enjoying significant uplift due to a combination of increasing demand for space and a restricted supply following the downturn.”

Although the retail sector’s performance has so far been stronger than expected, CBRE cautioned that it still expects retail sector prospects to weaken as consumers continue to tighten their belts. “Regional divergence, as seen in the current office markets, is also expected to occur, with prime locations expected to fare much better than centres with weaker occupier demand,” it added.

The approval of Business Improvement District (BID) status for Liverpool’s central business district could transform the area, says David Guest, regional director of Bruntwood, one of the backers of the Commercial District BID for the city. This is only the third commercial-led BID in the UK, he says, and a great opportunity for landlords to work together with tenants “to transform their working environment”. The other backers were developers Albany and Dowling.

Writing today in the Liverpool Daily Post, Mr. Guest says local companies are willing to harness the potential of the area and notes that BID status will bring new funds to improve transport and infrastructure. “This should provide a substantial boost to the commercial property market, by providing the right climate for new investment, making sure that the area sparkles when encouraging businesses to locate to the district,” he adds.

Paul Rice took up his five-year post as chief executive of the Commercial District BID on 1 June, to oversee £3m of investment in the area. The BID replaces the Liverpool Commercial District Partnership (LCDP), which Mr. Rice also led, after local businesses voted for the change.

The Commerical District BID will form part of the Liverpool BID Company, joining City Central BID, which has covered the retail heart of the city since 2005. The area covered by the commercial district borders the City Central BID and Liverpool One, and Mr. Rice thinks the links between these organisations will help to make the city more “joined up” than in the past.

“In recent months, the commercial district has continued to diversify with more independent retail and lifestyle businesses opening,” Mr. Guest says. He notes that new businesses have expressed interest in the commercial district that had not previously considered it as a location, including creative and media companies.

One of the government’s new Enterprise Zones has moved a step nearer on the road to completion with the appointment of Drivers Jonas Deloitte and Jones Lang LaSalle to lead the planning and delivery of the masterplan for the Airport City project in Manchester.

JLL says Manchester airport “can do so much more than perform its aeronautical function”. Bob Dyson, chairman of Jones Lang LaSalle North West, says the airport “can evolve into an integrated business district in its own right providing a comprehensive range of commercial facilities, services and revenue streams. This evolution utilises surrounding undeveloped land and harnesses real estate opportunities in order to create a business, tourist, and leisure ‘destination’.”

Manchester Airports Group’s property arm MAG Developments appointed the firms last week and the scheme is due on site in 2012. The development is expected to take place in stages over a 10-15 year period, MAG Developments says.

Occupiers that are expected to seek properties at Airport City include logistics, freight forwarders, advanced manufacturers, those seeking high-quality office accommodation, research and development, health-related uses to build on the proximity to Wythenshawe Hospital as a centre of excellence, plus visitor accommodation, hotels and leisure uses to support the delivery of Airport City.

“The Enterprise Zones are expected to benefit from a business rate discount worth up to £275,000 per eligible business over a five-year period, while all business rate growth within the zone for a period of at least 25 years will be shared and retained by the local area, to ensure that Enterprise Zone growth is reinvested in Greater Manchester,” JLL added.