London set to become 4th largest City Powerhouse
Posted: 20.06.2007
Renaissance will bring hundreds of thousands of new jobs
London is predicted to be 4th largest city economy in the world in less than 15 years, outpacing other major cities such as Tokyo, New York, Chicago and Paris.
According to Douglas Blausten, Senior Partner of Chartered Surveyors and Property Consultants Cyril Leonard, the world's "oldest mega-city" is now experiencing a renaissance.
In a key note speech to the Annual General Meeting of the Association for Consultants and Engineers at the Royal Society of Arts, Mr Blausten explained that here would be more than 750,000 new residents and 400,000 new jobs coming to the capital in the next decade.
"This will create new opportunities in the large gaps left by redundant industrial and railway lands at Stratford, White City and along the 40 mile stretch of the Thames Gateway," he said.
The other keynote speaker was Mr Roger Madelin, CBE, Chief Executive of Argent.
In his address Mr Blausten explained that a century ago less than 10% of the world's population lived in cities. Today more than half the people living on the planet have moved to urban areas - mainly from the surrounding rural area.
This he said was "a rapidly accelerating trend that within decades will see up to three quarters of the world's population living in cities, many of them in mega-cities of over 10 million people concentrated in the urbanising regions of Asia and Africa."
London was also growing, he said, but at a different pace being projected to grow somewhat faster than rivals such as Tokyo, New York, Chicago and Paris.
This would move London up to the 4th largest city economy in the world by 2020.
Mr Blausten also reported on developments in London generally as well as specifically on W1 and SW1, Victoria, the City and the Docklands.
London - general
Economically, 2007 had maintained the relatively strong growth seen in 2006.
The Central London investment market, he said, had seen prime yields falling over 200 basis points in the main markets in the last three years.
"Ongoing analysis of the achieved yields for the whole of the Central London office investment market shows a downward trend," said Mr Blausten, ?with the average falling from 8% at the end of 2003 to around 5% at present. However, this trend has started to level off.?
The London investment market continued its strong run with £4.2 billion traded in the first quarter. Prime yields had remained at 3.50% in the West End and 4.25% in the City as the weight of money remained.
Mr Blausten added that some significant lots were traded in the first quarter - £2.6 billion of all transactions were in excess of £100 million ? and this included such notable buildings as 30 St Mary Axe, EC3, and Devonshire House, W1.
"There was no sign of this demand easing in the short term and another record investment year could be in the offing," he said.
The Central London occupational market continued to strengthen. The amount of available supply was at its lowest level since September 2001, demand was at its highest level since September 2002, and rents had continued to rise in the West End with further acceleration expected elsewhere.
Overall supply fell by 12% across London in the first quarter as little speculative space completed and, especially in the City, almost all the take-up was in existing units.
Mr Blausten went on: "With 2.8 million sq ft now under offer, supply will fall further and, significantly, 49,000 sq m (527,400 sq ft) of that total is for prelet space. This increasing interest in prelet opportunities will reduce the amount of speculative space under construction, which at the end of Q1 stood at 675,400 sq m (7.3 million sq ft).
"Although vacancy rates are still expected to trend upwards beyond 2007, the buoyant demand side suggests much of the space that isn?t prelet will be absorbed on completion providing it meets occupiers' criteria."
Mayfair / St James's - W1/SW1
The West End market continued to perform well in the first quarter of the year, he pointed out.
"Take-up in the W1 & SW1 postcodes totalled around 860,000 sq. ft. which is slightly down on the quarterly average,? he said, ?but consistent with the pattern of lower take-up in the first quarter of the year. The largest transaction saw utility company, EDF Trading take 50,000 sq. ft. at Land Securities? Cardinal Place in Victoria."
Availability in the West End fell below the 3 million sq. ft. mark to 2.9 in the first quarter. This represented a low point in the cycle so far that peaked at nearly 8 million sq. ft. at the end of 2004.
Rents in the core West End had been rising fast with £120 per sq. ft. being reported in Hanover Square. Prime rental levels were currently approaching £100 per sq. ft. in Mayfair and St James'. Average rents for new or refurbished space stood at £44 per sq. ft.
Victoria
Mr Blausten said that for the first time, in excess of one billion pounds worth of commercial property changed hands in Victoria.
He said: "As predicted last year, pension funds continued to bid aggressively for all lot sizes. Higher interest rates and yield compression kept the property companies out of the market, but the institution?s appetite for part-let, as well as secure income, showed the attraction of the perceived rental growth in Victoria."
The volume of transactions undertaken during 2006 in Victoria surpassed all previous years, with in excess of £1.2 billion worth of property being sold, at consistently low yields. The total was increased substantially by the sale of 123 Buckingham Palace Road for £214 million and 16 Great Smith Street for £170 million.
"Victoria enjoyed impressive rental growth for new-build and newly refurbished Grade A space during 2006,? said Mr Blausten. ?New developments at Asticus House and Cardinal Place resulted in record-breaking rents of up to £70 per sq ft."
He added "The renaissance of Victoria has continued apace with more and more new companies relocating to the area."
The City
The start of 2007 had continued the strong performance seen in 2006. Vacancy rates had fallen below 7% for the first time in over five years, and transaction levels were running at 1.7 million for the first quarter of this year.
The largest transaction was the pre-letting of 223,000 sq. ft. at 201 Bishopsgate by international lawyers Mayer, Brown, Rowe and Maw.
Some 6.6 million sq. ft. was under construction including British Land's Broadgate Tower, which will deliver over 800,000 sq. ft.
Land Securities' New Change scheme opposite St Paul's would deliver 330,000 sq. ft. of offices in a mixed use scheme. Pressure on City rents continued in the first quarter, pushing them upwards further.
Mr Blausten said prime rents were heading for £60 per sq. ft. and incentives were waning fast. Average rents for new or refurbished space stand at £32.80 per sq. ft. while secondhand space comes in at £24.50 per sq. ft.
Docklands
In Docklands the most notable feature of the market this quarter was the sharp reduction in availability from over 1m sq ft at the end of last year to little more than 750,000 sq ft currently.
He said this was almost entirely due to 308,000 sq ft going under offer at 40 Bank Street to Barclays Capital (a deal since completed), reducing the volume of available space in that building to around 22,000 sq ft.
As a result, availability in the Docklands market was at its lowest level for nearly six years, with the vacancy rate now under 4.5%. In the Canary Wharf estate specifically, the vacancy rate was now less than 3%. |
|
Douglas Blausten, senior partner of Cyril Leonard, was one of the keynote speakers at the Annual General Meeting of the Association of Consultants and Engineers. Picture courtesy of ACE.
|
)