London Office Policy Review 2009
Total Page:16
File Type:pdf, Size:1020Kb
MAYOR OF LONDON London Office Policy Review 2009 November 2009 London Office Policy Review 2009 Prepared for the Greater London Authority By Ramidus Consulting Limited with Roger Tym & Partners November 2009 Copyright Greater London Authority November 2009 Published by Greater London Authority City Hall The Queen’s Walk London SE1 2AA www.london.gov.uk Enquiries: 020 7983 4100 Minicom: 020 7983 4458 ISBN number 978 1 84781 324 4 This publication is printed on recycled paper. The views expressed in this report are those of the consultants and do not necessarily represent those of the Greater London Authority. London Office Policy Review 2009 Acknowledgements Ramidus Consulting Limited was appointed in June 2009 to undertake LOPR 09. The team comprised Rob Harris, David Chippendale, Ian Cundell and Sandra Jones. We have worked very closely with Roger Tym & Partners – Dave Lawrence, Stephanie Cesbron and Adala Bwire – who have provided invaluable input to the forecasting and policy analysis within the report. We would also like to acknowledge others for their contributions. Martin Davis of DTZ and Theresa Keogh and Hannah Gardiner of EGi have once again provided data, and we thank them for their assistance. The project has been managed by John Lett and Gerard Burgess at the GLA, both of whom have provided invaluable input. Ramidus Consulting Limited i November 09 London Office Policy Review 2009 Contents Page Management summary v 1.0 Supply and demand in Central London 1 1.1 The Central London office market in context 1.2 Market and planning data in Central London 1.3 Central London market overview 1.4 Office take-up and availability in Central London, 2008 1.5 Office starts in Central London, 2008 1.6 Offices under construction in Central London, end-2008 1.7 Permissions and applications in Central London, end-2008 1.8 Central London mid-year update, June 2009 2.0 Benchmarking the Central London office market 27 2.1 Introduction and overview 2.2 The benchmarks 2.3 Benchmark 1: Permissions versus starts 2.4 Benchmark 2: Availability versus stock 2.5 Benchmark 3: Pre-lets versus overall starts 2.6 Benchmark 4: A range of rent levels 2.7 Benchmark 5: Years supply of office space 2.8 The benchmarks: a review 3.0 Employment and floorspace need forecasts 42 3.1 Method 3.2 Office employment projections for London 3.3 The geography of employment change 3.4 The demand for additional office space 3.5 Demand and supply 2007-31 4.0 London’s mega schemes in a historic context 56 4.1 Context 4.2 The office economy: 1984-2009 4.3 Historic pattern of development 4.4 Current proposals 4.5 Competition 4.6 Employment growth forecasts 4.7 Overview 5.0 Recent changes: cyclical or structural? 67 5.1 Introduction 5.2 Recent changes in the economy 5.3 London’s competitive position 5.4 Spatial change in the occupational market 5.5 Public sector relocation and rationalisation Ramidus Consulting Limited ii November 09 London Office Policy Review 2009 5.6 The impact of ICT and flexible working styles 5.7 Stakeholder input 5.8 Conclusion: cyclical or structural change? 6.0 Update of prospects for non-CAZ office markets 106 6.1 Introduction 6.2 Inner London, non-CAZ, assessment 6.3 The Office Market Assessment Grid 6.4 Recommendations for removal from monitoring 6.5 Outer London Assessment 6.6 A response to the OLC’s Initial Conclusions 7.0 Outer London and Development Centres 132 7.1 Introduction 7.2 Context 7.3 Economics of office development 7.4 Rental values in Central and Outer London 7.5 Alternative routes to development viability 7.6 Prospects for individual Development Centres 7.7 Mixed use development in Development Centres 8.0 Relationship between Outer London and OMA 149 8.1 Introduction 8.2 OL/OMA comparison by economic performance indicators 8.3 OL/OMA comparison by market performance indicators 8.4 Do OL and OMA centres compete/perform differently? 9.0 Other issues 166 9.1 Introduction 9.2 Transport infrastructure and improvements 9.3 The conversion of surplus offices to other uses 9.4 The options for mixed use policy 9.5 Climate change considerations Appendices 188 A1.1 Office lettings and sales over 5,000 sq m, Central London, 2008 A1.2 Take-up by location and quality, in 2008 and change on 2007 (sq m) A1.3 Availability by location and quality end-2008 and change on 2007 (sq m) A1.4 Office development starts, >500 sq m, Central London, 2008 A1.5 Office permissions, >5,000 sq m, Central London, end-2008 A2.1 The benchmarks defined A3.1 The RTP definition of office activities A3.2 Office employment projections by borough 2007-2031 A5.1 List of stakeholder interviews A8.1 Map of Inner and Outer London boroughs A8.2 Map of Outer London and OMA A8.3 Outer London and OMA comparisons A9.1 Selected “change of use from office schemes, Jan 08-July 09 Ramidus Consulting Limited iii November 09 London Office Policy Review 2009 Readers’ notes (1) Data on potential supply, including construction activity, planning permissions and outstanding planning applications, is mainly sourced from Estates Gazette Interactive’s London Office Database (LOD) and London Residential Research (LRR) databases, supplemented where necessary by original research. (2) As with LOPR 07, this LOPR is presented in metric. However, it is prevalent in the property industry to use imperial measures, particularly when quoting rents and prices, so we have provided imperial conversions of rent figures and land values in brackets. (3) All sq m figures refer to “net internal area” unless otherwise stated. (4) Part-year time periods are generally referred to in the format of “Q1 07” (first quarter, 2007) and “H2 09” (second half, 2009). (5) Reference is made to availability rates, i.e. the proportion of the total office stock in a market or sub-market that is being actively marketed for letting. Note that this is not equivalent to a vacancy rate, as some available space is occupied while being marketed. (6) In the report we use the geographical definitions given below. • Central Activities Zone (CAZ), Inner London (IL) and Outer London (OL) are shown on the map below. The CAZ cuts across borough boundaries. • Outer Metropolitan Area (OMA): beyond London, and including parts of the South East and East of England regions. • Central London: office data on availability and take-up are based on post codes as this is the geographical unit used by the market, and for consistency with previous LOPRs. Source: Draft Replacement London Plan, 2009 Ramidus Consulting Limited iv November 09 London Office Policy Review 2009 Management summary Crisis? What a crisis! There is no question that the recent economic dysfunction has had a very major impact on the London office market, the effects of which will be around for some time yet. We describe, in brief, recent events and their knock-on for commercial property. Generally speaking, forecasters expect the rate of contraction to slow in the period ahead, and even suggest the nadir having been reached. However, forecasts indicate a long trough, and there is an expectation that conditions will not particularly improve for the whole of 2010, and only very slowly in 2011. The impact of these economic trends on the London office market is seen in the supply and demand assessment. During 2008, new development, investment and occupier activity all shrunk dramatically. June 2009’s fall in commercial property values marked two full years of monthly falls, adding up to a 44% cumulative fall; and rent free periods of over four years speak volumes. Market sentiment remains very subdued. During 2007 and 2008 there was a complete volte face in the Central London office market. On the supply side, the turning point came in Q3 07, when availability fell to just over one million sq m, an availability rate of 5%. By the end of 2008, availability stood at almost 8%. From peaking at 690,000 sq m in 2007, office starts in Central London slumped to 365,000 sq m in 2008. The second half of 2007 saw a rapid fall in take-up in successive quarters. The effect was to reduce take-up in 2008 to just over one million sq m, a fall of 24% compared with 2007. If the distorting effect of the JP Morgan deal at Canary Wharf (176,500 sq m) is excluded, annual take-up was down 38% on 2007. After the storm: a brave new world … or status quo ante? The question on many minds is: will economic recovery bring new market dynamics, or will we pick up where we left off in August 2007? As is often the case, the answer is likely to include elements of both. We trace recent cyclical economic events. We point out that at some point the economy will begin a recovery, demand will pick up, confidence will return to the investment and development community and values/rents will turn up (though note that in the City and Midtown markets, peak rents in 1989, 2000 and 2007 have been successively lower in real terms; and real rents have never matched their 1973 levels). The impact of the recession, the rental and yield adjustment, the fall in output-related demand and the development downturn can all thus be put in a “cyclical” box – albeit a very painful box. But at the same time there are a number of potential and, we believe, actual structural changes taking place. Among potential structural changes we include the impact of financial supervision reforms on London’s finance markets; London’s reputation as a global finance centre resulting from recent events; the threat from other global centres and central government Ramidus Consulting Limited v November 09 London Office Policy Review 2009 policy, particularly the tax regime.