Bristol Planning Policy and Law · PDF fileBristol Planning Policy and Law Conference ......

Bristol Planning Policy and Law Conference Ben Burston – Head of Office Research, JLL

November 2014

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

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

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

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


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

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

….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

Rate rises off the table for now

7


0%

1%

2%

3%

4%

5%

6%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bank rate CPI inflation rate

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

Key Messages




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

%

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


….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


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

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

Key Messages




A healthy rebalancing underway

16

Composition of growth – GDP and major components


-2%

0%

2%

4%

6%

8%

10%

GDP Consumption - private Consumption - government Exports Business investment

2013 2014 2015

Employment is also rebalancing UK office employment – forecast growth by sector


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

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%

Faster growth in cities with favourable sectoral mix Forecast output growth (GVA) for selected cities


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

Key Messages




Beyond the Big 6: Fastest population growth

21


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

Beyond the Big 6: Fastest employment growth

22


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

Key Messages




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

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

How young Manchester is changing….

26

And particularly among under 35s…

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

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

Key Messages




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

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

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

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

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

Key Messages




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

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

Boost in demand for regions sees prime yields tighten

Source: JLL

38

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

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

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

40

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