bristol planning policy and law · pdf filebristol planning policy and law conference ......
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Bristol Planning Policy and Law Conference Ben Burston – Head of Office Research, JLL
November 2014
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 1
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Strong GDP growth outlook
2
Source: Oxford Economics
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
United Kingdom United States Japan Eurozone2014 2014-18 average
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Surging employment growth
3
Total UK employment growth
-2%
-1%
0%
1%
2%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
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Focus on London….
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Greater London total employment growth
4
Historic and forecast employment growth
Source: Oxford Economics
90
95
100
105
110
115
120
125
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
London
Paris
Madrid
Frankfurt
New York
Tokyo
Hong Kong
FBS employment growth: global cities
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House price growth has been concentrated
5
Average house price growth by region
80
90
100
110
120
130
140
150
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016East Midlands Eastern Greater London North EastNorth West (GOR) Scotland South East South WestWales West Midlands Yorkshire & Humberside
Greater London
South East
Eastern
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….but current growth burst is across a broad regional base
6
Regional PMIs Latest PMI score
North East 64.8
South West 59.4
East of England 58.9
Wales 59.3
London 58.4
East Midlands 58.4
Yorkshire 58.1
UK overall 58.0
South East 58.0
North West 57.8
West Midlands 57.6
Scotland 55.9 40
45
50
55
60
65
2008 2009 2010 2011 2012 2013 2014PMI - Business activity LondonPMI - Business activity UK
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Rate rises off the table for now
7
Source: Oxford Economics
0%
1%
2%
3%
4%
5%
6%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Bank rate CPI inflation rate
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Borrowing costs down: competitive tension on quality assets
8
1.7% 2.2%
2.3% 1.5%
0%
1%
2%
3%
4%
5%
6%
7%
2007 2008 2009 2010 2011 2012 2013 Q2 2014
Five year swap Margin All-in cost of borrowingSource: Datastream, JLL
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 9
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10
Deflation in the eurozone?
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Inflation Interest ratesSource: Oxford Economics
%
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Downside risk has risen….
Probability Upside 10% (↓)
Central 60% (-)
Downside 30% (↑)
Economy Eurozone turnaround Slow steady recovery Eurozone stagnation
Real Estate Impact
Rents ↑↑ Yields ↓
Rents ↑ Yields -
Rents - Yields ↑
11
Source: Oxford Economics
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….but base case outlook is still for gradual recovery
12
-6
-4
-2
0
2
4
6
8
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017UK World Eurozone
Forecast
Source: Oxford Economics
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13
Stubbornly high fiscal deficits
-12
-10
-8
-6
-4
-2
0
2
Belgi
um
Czec
h Rep
ublic
Finlan
d
Fran
ce
Germ
any
Hung
ary
Irelan
d
Italy
Nethe
rland
s
Polan
d
Spain
Swed
en UK
Euro
zone
Euro
pean
Unio
n
Turke
y
Russ
ia
2013 2014Source: Oxford Economics
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14
Stubbornly low wage growth
-4%
-2%
0%
2%
4%
6%
8%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Real Wage Growth Wage Growth Inflation
Source: Datastream
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 15
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A healthy rebalancing underway
16
Composition of growth – GDP and major components
Source: Oxford Economics
-2%
0%
2%
4%
6%
8%
10%
GDP Consumption - private Consumption - government Exports Business investment
2013 2014 2015
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Employment is also rebalancing UK office employment – forecast growth by sector
Source: Oxford Economics
8%
15% 14% 13%
-1%
-15%
-15%
-10%
-5%
0%
5%
10%
15%
Total Professional,scientific and
technical
Administrative andsupport
Information andcommunication
Financial andinsurance
Publicadministration and
defenceTotal growth 2014-18
17
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Sectoral shares point to regional differences
Share of office employment in P,S&T or I&C
Edinburgh 40.9%
Leeds 39.7%
Manchester 36.1%
Bristol 36.0%
Birmingham 30.4%
Glasgow 27.5%
18
Share of office employment in public administration
Birmingham 18.6%
Glasgow 15.2%
Bristol 12.7%
Manchester 12.7%
Leeds 12.4%
Edinburgh 11.8%
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Faster growth in cities with favourable sectoral mix Forecast output growth (GVA) for selected cities
Source: Oxford Economics
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Manchester Edinburgh Bristol Leeds Glasgow Birmingham
Avg GVA 2014-18 Avg office employment growth 2014-18
19
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 20
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Beyond the Big 6: Fastest population growth
21
Source: Oxford Economics
Average population growth 2014-19
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
MILT
ON K
EYNE
SNO
RTHA
MPTO
NED
INBU
RGH
CAMB
RIDG
ESW
INDO
NNO
TTIN
GHAM
YORK
LUTO
NBO
URNE
MOUT
HBR
ISTO
LBR
ADFO
RDNO
RWIC
HRE
ADIN
GLE
EDS
ABER
DEEN
SOUT
HAMP
TON
OXFO
RDSH
EFFI
ELD
WAK
EFIE
LDMA
NCHE
STER
BIRM
INGH
AMCO
VENT
RYW
ARRI
NGTO
NDE
RBY
PORT
SMOU
THNE
WCA
STLE
BELF
AST
SOLIH
ULL
PLYM
OUTH
GLAS
GOW
BRIG
HTON
CARD
IFF
LIVER
POOL
LEIC
ESTE
RDU
DLEY
DUND
EEHU
LLSW
ANSE
AW
OLVE
RHAM
PTON
STOK
ESU
NDER
LAND
WAL
SALL
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Beyond the Big 6: Fastest employment growth
22
Source: Oxford Economics
Average total employment growth 2014-19
MILTON KEYNES
EDINBURGH
READING CAMBRIDGE NORTHAMPTON
BRISTOL SWINDON
BOURNEMOUTH
SOLIHULL
OXFORD
MANCHESTER
LEEDS
YORK
BRIGHTON
LUTON
NORWICH
NOTTINGHAM SOUTHAMPTON
DERBY
COVENTRY SHEFFIELD
GLASGOW
BRADFORD WAKEFIELD
NEWCASTLE
BELFAST
LIVERPOOL
BIRMINGHAM
CARDIFF
WOLVERHAMPTON
PORTSMOUTH
SUNDERLAND
HULL
DUDLEY LEICESTER
PLYMOUTH
STOKE WALSALL
SWANSEA
DUNDEE
1.20%
1.40%
1.60%
1.80%
2.00%
2.20%
2.40%
-0.20% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60%
Tota
l Em
ploy
men
t Gro
wth
Office Based Employment Growth
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 23
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Corporate demand is urbanising
Source: BCO, 2011
0%
20%
40%
60%
80%
100%
Low
and z
ero c
arbo
noff
ices
Refur
bishm
ent o
f exis
ting
office
s
Mixe
d use
deve
lopme
nts
City
centr
e loc
ation
s
Open
plan
offic
es
Hub/i
ncub
ator s
pace
High
rise d
evelo
pmen
ts
Conv
ersio
n of o
ther
build
ing ty
pes i
nto of
fices
Busin
ess p
arks
Cellu
lar of
fices
Decrease Same Increase
BCO survey… which locations are expected to see increasing or decreasing demand?
24
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Key drivers
Demography & lifestyle Young skilled workers tend to live in central locations
Immigration & globalisation International workforce drawn to cities
Policy Government continues to restrict out of town development
Sustainability Urban locations support sustainable transport patterns
Transport improvements New Infrastructure will bolster cities
Working practices Rise of flexible & mobile working
25
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How young Manchester is changing….
26
And particularly among under 35s…
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Some recent market trends
London Major Regional Cities Smaller Cities
Growth of “Central London”
Major developments in former fringes
Reurbanisation of Inner London
Increasing residential population in centre
Office development expands core
Centralisation of employment
Decentralising jobs
Loss of employment to larger centres
Significant exceptions (Brighton, York, Bath)
27
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Splitting the field:
28
Cambridge Swindon Solihull Derby Bath
Oxford Warrington
Brighton Norwich
Milton Keynes Reading
Aberdeen Manchester Edinburgh
Nottingham Bristol
York Portsmouth Leicester
Exeter Plymouth Dundee
Swansea
Bradford Liverpool Sheffield
Newcastle Belfast Cardiff
SMALLER
LARGER
HIGHER GROWTH
LOWER GROWTH
Leeds, Glasgow, Birmingham Warwick, Southampton, Coventry
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 29
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Office take-up on the rise
0
1,000
2,000
3,000
4,000
5,000
6,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Take-up 5 year average
30
Office take-up (000s sq ft)
Source: JLL, 2014
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Take-up 5 Year Average
Bristol Big 6
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More pronounced downward trend for Grade A
Source: JLL, 2014
31
1%
2%
3%
4%
5%
6%
7%
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14
Birmingham Edinburgh Leeds Manchester
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Big 6 Speculative Development Pipeline
32
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
000's
sq ft
Completed U/C Definite Spec Start Likely Spec Start 50/50 Spec Start
Source: JLL, 2014
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Bristol Speculative Development Q3 2014
33
Source: JLL, 2014
0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
000's
sq ft
Completed U/C Definite Spec Start Likely Spec Start 50/50 Spec Start
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Prime Rental Forecasts
34
Source: JLL, 2014
£15.00
£17.50
£20.00
£22.50
£25.00
£27.50
£30.00
£32.50
£35.00
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
F
2016
F
2017
F
2018
F
£ per sq ft
Birmingham Leeds Manchester Bristol
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Key Messages
• UK recovery broad based and on firm foundations • A stand-out performer in global context • Risks to the global outlook portend potential slowdown, not crisis • Rebalancing in composition of growth, and the labour market • Solid outlook for the Big 6 • Beyond the Big 6: growth picture far less even • The urban tendency and its implications • Office demand is strengthening, exposing a shortfall of new supply:
expect rental growth in 2015 • Global search for yield: weight of money targeting commercial
property and infrastructure investment 35
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Rapid growth in commercial real estate investment
£bn
Investment volumes by sector, 4Q rolling average (£bn)
36
Source: JLL
9M14 Alternatives now account xx% of the market from xx in 2012
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011 2012 2013 2014
Industrial Office Retail
9M 14: + 21% YoY
9M 14: + 29% YoY
9M 14: + 29% YoY
Alternatives have risen from 9% market share in 2010 to 20% in 9M 14
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Growing AUM Massive requirement if fund allocations rise
37
Pension Fund allocations to Real Estate 2013
0% 1% 3%
4%
6% 6% 7%
11% 14%
0%
2%
4%
6%
8%
10%
12%
14%
Japan GovtPF
NBIM UK auto-enrolmentDC PFs
NPS P7 PFsector*
US PublicPFs
Calpers Europe's 10Largest PF
RE investors
CPPIB
Source: Tower Watson, IPD, Calpers, NBOM, NPS, CPPIB, ONS, Business Monitor MQ5, Cass Business School, IPF
$29bn Additional investment required to reach same 11% allocation:
$1.6trn $248bn $11bn $38bn $84bn $140bn
* Tower Watson P7 are the seven largest PF countries: Australia, Canada, Japan, Netherlands, Switerland, UK and US
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Boost in demand for regions sees prime yields tighten
Source: JLL
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3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14
City of London West End Regional M25 towns Regional cities
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Prime capital value history
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
City of London West End Glasgow Manchester
39
Movements in capital values – London vs regional cities (Index, Q1 2000 = 100)
Source: JLL, 2014
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Final thoughts and issues to watch
• Base case outlook is for solid, broad-based growth, but uneven pattern will continue
• Enough commercial space, but the wrong kind, and in the wrong place: need more new homes and more new supply in the places people want to be
• A new government should: - Harness surging equity for infrastructure and PRS - Spur on organic growth - Unlock housing supply
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