Capital City. Forward thinking for a global city

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Cushman & Wakefield's Annual London Markets Conference 2013 ...

Cushman & Wakefield's Annual London Markets Conference 2013

Occupier dynamics are shifting, the demand from new sectors, such as Media & Technology is outpacing demand from London’s traditionally dominant Financial sector. How will London’s commercial real estate industry adapt? What can developers and landlords do to stay ahead of the competition?

As global economic uncertainty continues, London remains a safe haven for investors as equity continues to pour in from overseas. Will this trend continue and will the new investment hotspots bring real returns to investors?

Presentations:

London: City Of Reinvention?
Professor Neil Gibson
Special Advisor To Oxford Economics

London: A Melting Pot For Global Capital
Andrew Thomas
Partner, London Investment
Cushman & Wakefield

More in: Real Estate
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  • 1. LONDON: CITY OF REINVENTION?PROFESSOR NEIL GIBSONSPECIAL ADVISOR TO OXFORD ECONOMICS
  • 2. UNDERWAY – BUT FAR FROM RAPID WORLD TRADE % GROWTH (YEAR ON YEAR), 1990 - 2022 UK GDP % GROWTH (YEAR ON YEAR), 1990 - 2022 15 6 Forecast Forecast 4 10 2 5(%) (%) 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 -2 -5 -4 -10 -6 GDP -0.3% IN Q4 2012 SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 2
  • 3. LITTLE IMPETUS HEADING INTO 2013UK: CONTRIBUTIONS TO GDP GROWTH%pts Consumer spending Investment 4.0 Govt. consumption Inventories 3.5 Net trade 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 1997- 2010 2011 2012 2013 2014 2007 SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 3
  • 4. BUT LABOUR MARKET RECOVERING WELLTOTAL EMPLOYMENT, UK, 1998 - 2022 TOTAL GVA, UK, 1998 - 2022 34000 1700000 Forecast 1600000 Forecast 33000 1500000 32000 1400000 (£m 2009 prices)(000s) 31000 1300000 Loss of 698 000 jobs 1200000 30000 Loss of £62bn 1100000 29000 1000000 28000 900000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2 MILLION ADDITIONAL JOBS FORECAST £396BN ADDITIONAL GVA FORECAST BETWEEN 2012 - 2022 BETWEEN 2012 - 2022 SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 4
  • 5. EXPLAINING THE JOBS NO GROWTH PUZZLEUK: GDP & EMPLOYMENT GROWTH (5YR MA) UK: OUTPUT PER WORKERGDP growth, % year Employment growth, % year 2009=100 5 2.75 120 Employment growth Pre-recession (RHS) 115 trend4 110 14%3 0.75 105 1002 Actual 951 GDP growth -1.25 90 (LHS) 850 80-1 -3.25 75 1975 1980 1985 1990 1995 2000 2005 2010 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source : Haver Analytics / Oxford Economics Source : Haver AnalyticsEXPLAINING THE PARADOX• Recession not as severe as recorded? • Possibly financial sector effects• Cash rich corporates hoarding labour • Earnings growth low – making labour ‘cheaper’• Greater part time working / temporary contracts • Low interest rates have made money cheaper• Increased self employment levels (though not for all) LONDON MARKETS CUSHMAN & WAKEFIELD 5
  • 6. INFLATION REMAINED STUBBORNLY HIGH IN2012H2UK: CONTRIBUTIONS TO CPI INFLATION% year6 Transport 5 Housing 4 costs Other 3 ` 2 1 Food 0 2005 2006 2007 2008 2009 2010 2011 2012 SOURCE: OXFORD ECONOMICS / HAVER ANALYTICS NOTE. OTHER IS MADE UP OF: ALCOHOLIC BEVERAGES, TOBACCO & NARCOTICS, CLOTHING AND FOOTWEAR, FURNITURE, HOUSEHOLD EQUIPMENT , HEALTH, COMMUNICATION, RECREATION AND CULTURE, EDUCATION, HOTELS, CAFES & RESTAURANTS, MISCELLANEOUS GOODS AND SERVICES LONDON MARKETS CUSHMAN & WAKEFIELD 6
  • 7. BUT SET TO MODERATE AND REAL INCOMESSHOULD START TO RISEUK: EARNINGS & INFLATION % year 7 Average earnings Forecast 6 5 4 3 2 1 CPI inflation 0 -1 -2 -3 -4 -5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 7
  • 8. THE LONDON OUTLOOK
  • 9. LONDON LEADING THE UKAVERAGE % GVA GROWTH, UK REGIONS, 2013 - 2018 London is 3.0 GVA expected to account for Employment 2.5 21.8% 2.0(%) 1.5 1.0 of total UK 0.5 GDP in 2013 0.0 Wales Greater London UK South West North West North East Scotland Eastern West Midlands Yorkshire & East Midlands Northern Ireland South East Humber Source: Oxford Economics SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 9
  • 10. LONDON JOBS OUTLOOK VERY PROMISING TOTAL EMPLOYMENT, LONDON, 1998 - 2022 EMPLOYMENT GROWTH, UK REGIONS, 2003 - 2018 2003 - 2008 2008 - 2013 2013 - 2018 (000s) % (000s) % (000s) % 5750 South East 150 3.5 154 3.5 235 5.1 Forecast Greater London 293 6.3 150 3.0 329 6.5 5500 Eastern 162 5.9 -17 -0.6 142 5.0 South West 145 5.6 -25 -0.9 95 3.5 West Midlands 51 1.9 -34 -1.3 75 2.8 5250 East Midlands 128 6.2 27 1.2 68 3.1 Yorkshire & Humber 102 4.1 -35 -1.4 70 2.8 North West 81 2.4 -74 -2.2 105 3.1 5000 North East 63 5.7 -72 -6.1 15 1.4(000s) Wales 61 4.6 -11 -0.8 22 1.6 4750 Scotland 153 5.9 -104 -3.8 66 2.5 Northern Ireland 63 7.8 -65 -7.5 15 1.9 Loss of 115 000 jobs UK 1450 4.7 -106 -0.3 1237 3.9 4500 4250 4000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 329 000 ADDITIONAL JOBS FORECAST IN LONDON LONDON IS EXPECTED TO ACCOUNT FOR 16% OF BETWEEN 2013 - 2018 TOTAL UK EMPLOYMENT IN 2013 SOURCE: OXFORD ECONOMICS NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK LONDON MARKETS CUSHMAN & WAKEFIELD 10
  • 11. BUT UNEMPLOYMENT SET TO FALL VERY SLOWLY UNEMPLOYMENT, LONDON, 1998 - 2022 UNEMPLOYMENT, UK REGIONS, 2003 - 2018 2003 - 2008 2008 - 2013 2013 - 2018 (000s) pp change (000s) pp change (000s) pp change 240 South East 1 0.0 70 1.4 -19 -0.5 Greater London -33 -0.8 87 1.5 -28 -0.7 Eastern 6 0.1 55 1.8 -13 -0.6 220 South West -1 -0.1 42 1.5 1 -0.1 West Midlands 11 0.3 59 2.0 -14 -0.6 200 East Midlands 3 0.0 49 2.0 -10 -0.5 Forecast Yorkshire & Humber 4 0.0 77 2.8 -7 -0.4 North West 8 0.1 82 2.3 -22 -0.7 180 North East 1 -0.2 40 3.5 -4 -0.4(000s) Wales 1 -0.1 35 2.3 -6 -0.5 Scotland -21 -0.9 62 2.3 -15 -0.6 160 Northern Ireland -7 -1.0 37 4.4 -2 -0.3 UK -27 -0.2 694 2.0 -140 -0.6 140 Unemployed increased by 120 90 000 people 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 UNEMPLOYMENT WILL FALL BY 27 800 BETWEEN 2013 - LONDON IS EXPECTED TO ACCOUNT FOR 14% OF TOTAL 2018 UK UNEMPLOYMENT IN 2013 SOURCE: OXFORD ECONOMICS NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK LONDON MARKETS CUSHMAN & WAKEFIELD 11
  • 12. CLOSE TO A HALF A MILLION MORE RESIDENTSPROJECTEDPOPULATION, UK REGIONS, 2013 - 2018 NATURAL INCREASE AND MIGRATION, LONDON, 1998 - 2022 2013 - 2018 100 Natural Increase 000s % 90 Migration ForecastSouth East 298 3.4 80Greater London 470 5.6 70Eastern 261 4.4 60South West 151 2.8 50West Midlands 148 2.6 (000s) 40East Midlands 156 3.4 30Yorkshire & Humber 163 3.0 20North West 149 2.1North East 43 1.7 10Wales 61 2.0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Scotland 92 1.7 -10Northern Ireland 55 3.0 -20UK 2047 3.2 SOURCE: OXFORD ECONOMICS NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK LONDON MARKETS CUSHMAN & WAKEFIELD 12
  • 13. JOB GROWTH ACROSS LONDON – BUT PACEVARIES% AVG. EMPLOYMENT GROWTH, LONDON LAs, 2013 - 2018 Croydon Waltham Forest Lewisham Harrow Brent Redbridge Barking and Dagenham Havering Enfield Haringey Sutton Bexley Bromley Ealing Greenwich Kensington and Chelsea Lambeth Newham Kingston upon Thames Barnet Hillingdon Wandsworth Hackney London Total Richmond upon Thames Merton CamdenHammersmith and Fulham Westminster Hounslow City of London Islington Southwark Tower Hamlets 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 % avg growth SOURCE: OXFORD ECONOMICS LONDON MARKETS CUSHMAN & WAKEFIELD 13
  • 14. RUNNING A SURPLUS (UNLIKE THE REST OF THE UK) FISCAL BALANCE, LONDON AND REST OF UK, 2000 - 2018 50 London 30 Rest of UK 10 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 -10 -30£bn -50 Forecast -70 -90 -110 -130 -150 SOURCE: OXFORD ECONOMICS NOTE: ESTIMATES ARE A MIDPOINT MEASURE OF RESIDENT AND WORKPLACE GVA LONDON MARKETS CUSHMAN & WAKEFIELD 14
  • 15. WINNERS AND LOSERS – THE SECTORAL PICTURE
  • 16. SERVICE SECTOR DOMINATING THE JOB MARKETSECTORAL EMPLOYMENT GROWTH, LONDON, 2003 - 2018 (000s) 2003 - 2008 2008 - 2013 2013 - 2018 Agriculture, forestry and fishing 0 -1 0 Mining and quarrying 0 -1 -1 Manufacturing -39 -22 -9 Electricity, gas, steam 0 0 -1 Water supply; sewerage 2 4 -1 Construction 53 -4 28 Wholesale and retail -12 -41 47 A FORECAST RISK? Transportation and storage 12 -12 21 Accommodation and food 15 35 34 Information and comms 29 33 32 Financial and insurance activ. 9 4 2 SCOPE FOR BETTER? Real estate activ. 22 4 13 Professional, scientific and technical 105 53 90 Admin and support 41 27 71 Public admin and defence -12 -13 -26 Education 21 34 -12 A MARKED SHIFT Human health and social work 23 36 -5 Arts, entertainment and rec. 19 5 25 Other service activ. 4 9 19 Total 293 150 329 SOURCE: OXFORD ECONOMICS NOTE: INCLUDES SELF EMPLOYMENT, TOP 2 PERFORMING SECTORS SHADED IN YELLOW AND LOWEST PERFORMING SECTORS SHADED IN PINK LONDON MARKETS CUSHMAN & WAKEFIELD 16
  • 17. LAST TEN YEARS HAS EVIDENCED LONDON’S DYNAMISM TOP 10 2 DIGIT GROWTH SECTORS, LONDON, 2002 - 2012 TOP 10 2 DIGIT SIC SPECIALISMS, LONDON, 2012 Employment growth LQs 000s % Programming and broadcasting 4.1Food and beverage 57 23.5 Motion picture, video and tv 3.7Human health 55 22.8 Air transport 3.2Head offices 54 55.9 Advertising and market research 2.4Head offices of auxiliary finance services 53 49.0 Publishing 2.4Computer programming 47 44.6 Head offices of auxiliary finance services 2.4Social work 30 29.3Real estate 26 39.3 Creative, arts and entertainment 2.3Legal and accounting 25 13.8 Financial services 2.1Security and investigation 19 47.1 Information services 2.0Advertising and market research 19 29.8 Remediation activities 1.8SOURCE: OXFORD ECONOMICS SOURCE: OXFORD ECONOMICSNOTE: GREEN SHADING DENOTES THOSE SECTORS IN THE PUBLIC SECTOR NOTE: LQ ANALYSIS ONLY ACCOUNTS FOR SECTORS WITH A MINIMUM OF 1000 EMPLOYEES LONDON MARKETS CUSHMAN & WAKEFIELD 17
  • 18. A KEY DESTINATION FOR A DIVERSE GRADUATEPOOL% OF GRADUATES FOR WHOM ‘FIRST EMPLOYMENT DESTINATION’ IS LONDON, 2007 - 2009 Russell Other GroupMedicine & dentistry 15.3 11.6Subjects allied to medicine 11.3 11.6Biological sciences 10.3 10.5Agri & related subjects 6.5 3.3Physical sciences 11.1 5.3Mathematical sciences 18.9 14.1Computer science 18.5 14.0Engineering & technology 13.0 8.0Architecture, building & planning 21.4 14.9Social studies 21.1 14.3Law 12.0 11.4Business & admin studies 20.9 16.4Languages 17.2 12.4Historical & philosophical studies 15.1 12.0Education 5.5 13.7Combined 10.7 8.0% total working in London 14.4 12.6SOURCE: HESANOTE. HESA FIRST DESTINATIONS SHOWING PROPORTION WHO HAVE TAKEN THEIR FIRST JOB IN LONDON WITHIN 6 MONTHS OF GRADUATING. THIS DATA DOES NOTINCLUDE THOSE UNEMPLOYED, TRAVELLING OR EMBARKING ON FURTHER STUDY. TOP 2 KEY SUBJECTS ARE SHADED IN YELLOW AND BOTTOM 2 KEY SUBJECTS ARE SHADEDIN PINK LONDON MARKETS CUSHMAN & WAKEFIELD 18
  • 19. TMT SECTOR PROJECTED TO CONTINUE RECENTGROWTH The TMT sector has become an TMT SECTOR & TOTAL EMPLOYMENT, LONDON, 1998 - 2022 important part of the London 500 7000 economy. TMT (LHS) Forecast London total employment (RHS) 6500 The sector accounts for more than 450 384,000 jobs across London, 6000 more people are employed in the 400 5500 sector today than at the height of (000s) (000s) the dot-com boom. 350 5000 4500 TMT is a larger employer in the 300 capital than financial services or 4000 hotels & catering, and is one of the 250 3500 few sectors to have achieved strong 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 growth since London’s economy emerged from the 2009 recession. SOURCE: OXFORD ECONOMICS NOTE. TMT SECTOR: PUBLISHING, MOTION PICTURE, VIDEO / TV, PROGRAMMING, BROADCASTING, TELECOMMS, COMPUTER PROGRAMMING, INFORMATION SERVICES LONDON MARKETS CUSHMAN & WAKEFIELD 19
  • 20. DRIVERS AND RISKS – IDENTIFYING THE CRITICAL FACTORS
  • 21. KEY DRIVERS OF SUCCESS• World trade remains crucial – outlook strong, but not without risks• Skills and attractiveness – remaining a draw for people (not just the ‘suits’)• More capacity coming on-stream will be critical as will improved access and travel times• Dynamism is key – changing what the economy does. People key to this – but regulation / planning all play a part• Image and reputation – still matters and remains strong• Security – of place / technology / legal protection LONDON MARKETS CUSHMAN & WAKEFIELD 21
  • 22. KEY RISKS• Competition from new global centres• Connectivity, esp. to new markets (air access)• Rising cost base creating social disharmony and diverting inward investment of people and capital• Out-workings of the global financial crisis may yet take a larger toll• Regulation and uncertainty over European relationship• Olympic legacy – ensuring the story continues and does not become a story of missed opportunity (no sign as yet of this) LONDON MARKETS CUSHMAN & WAKEFIELD 22
  • 23. SUMMARY• The London economy has proven itself time and time again as being dynamic, decisive and successful• It continues to do so with the labour market back above pre recession peaks and new specialisms and sectors emerging• Key to success are the organisations and, crucially, the people• Its draw as a global city to visit, work in, trade with, have a base in remains strong• But it is not infallible – complacency is a risk. Policy and legal environment must remain supportive of dynamism. Access and congestion remain important factors and cognisance of competition important to trumpet Londons’ key strengths and identify comparative (and potential) weaknesses LONDON MARKETS CUSHMAN & WAKEFIELD 23
  • 24. LONDON: A MELTING POT FOR GLOBAL CAPITALANDREW THOMASPARTNER, LONDON INVESTMENTCUSHMAN & WAKEFIELD
  • 25. TOP 10 CITIES FOR TOTAL INVESTMENT IN 2012(EX. DEV.) NYC London LA Tokyo San Fransisco Hong Kong Paris Washington Chicago Seattle $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 US $ Billion SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 25
  • 26. TOP 10 CITIES FOR FOREIGN INVESMENT IN 2012(EX. DEV.) London Metro Paris NYC Metro Tokyo Sydney SF Metro Berlin Frankfurt Hong Kong Warsaw $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 US $ Billion SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 26
  • 27. CROSS-BORDER INVESTMENT VOLUMES(ALL SECTORS) $30.00 London $25.00 Paris $20.00 US $ Billion New York $15.00 $10.00 Tokyo $5.00 Sydney $0.00 SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 27
  • 28. YIELD LEVELS 7.0 Swap - 10 year 6.0 5.0 3 month Month End Rate interbank 4.0 West End Office 3.0 2.0 City office 1.0 0.0 SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 28
  • 29. REQUIRED RETURNS BY OFFICE MARKET TOP GLOBAL OFFICE MARKETS 6%Required Return 5%Net yield Total Return Required by Year 4% 3% 2% 1% 0% Hong Kong Munich Singapore London Zurich New York Tokyo Stockholm Toronto Paris SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 29
  • 30. EXCHANGE RATE MOVEMENTS CURRENCY - RATES PER POUND 240 USD 2.0 220 Euro 1.8 200 Yen per GBP USD/Euro per GBP Yen 1.6 180 160 1.4 140 1.2 120 1.0 100 SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 30
  • 31. PRIME OFFICE RENTAL GROWTH IN LONDON PRIME HEADLINE RENTS - £/SQFT/YR $140 City $120 West End $100 $80 $60 $40 $20 $0 SOURCE: RCA/CUSHMAN & WAKEFIELD LONDON MARKETS CUSHMAN & WAKEFIELD 31
  • 32. SOVEREIGN WEALTH FUNDSTOP 20 GLOBAL SOVEREIGN WEALTH FUNDS Norway - Government Pension Fund Abu Dhabi - Abu Dhabi Investment Authority China - SAFE Investment Company Saudi Arabia - SAMA Foreign Holdings China - China Investment Corporation China - Hong Kong Monetary Authority Kuwait - Kuwait Investment Authority Singapore - Government of Singapore Investment… Singapore - Temasek Holdings Russia - National Welfare Fund China - National Social Security Fund Qatar - Qatar Investment Authority Australia - Australian Future Fund Dubai - Investment Corporation of Dubai Abu Dhabi - International Petroleum Investment… Libya - Libyan Investment Authority Kazakhstan - Kazakhstan National Fund Algeria - Revenue Regulation Fund South Korea - Korea Investment Corporation Abu Dhabi - Mubadala Development Company $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 Total assets US $ Billion, January 2013 SOURCE: SOVEREIGN WEALTH FUND INSTITUTE LONDON MARKETS CUSHMAN & WAKEFIELD 32
  • 33. THE NEW WORLD PERSPECTIVE LONDON MARKETS CUSHMAN & WAKEFIELD 33
  • 34. THE ‘NEW’ LONDONGREENWICH PENINSULA EARLS COURT NINE ELMS LONDON MARKETS CUSHMAN & WAKEFIELD 34
  • 35. SOME FINAL THOUGHTS... “ London has the trick of making its past, its long indelible past, always a “ part of its present. And for that reason it will always have meaning for the future. Anna Quindlen, American Journalist “ “ I want you to know that I have nothing against Orlando, though you are, of course, far more likely to get shot or robbed there than in London. Boris Johnson, Mayor of London LONDON MARKETS CUSHMAN & WAKEFIELD 35