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Big 6 Seminar 2015

Economic Update

John Neale, Head of UK Research

  • There is a solid economic outlook for 2015 with UK GDP growth expected to exceed that of 2014
  • Job creation will continue and the decline in oil prices will provide an additional boost for firms and households, leading to lower inflation and thereby reinforcing the low interest rate environment
  • The importance of cities is increasing and devolution opens up the regional opportunity
  • Re-shoring and north-shoring will be trends to watch in 2015

Key themes and big 6 occupational markets

Jeremy Richards, Director – National Offices

  • The big 6 had a stellar year with take-up reaching 5.0 million sq ft and all markets out-performing their 10-year averages
  • Lack of Grade A supply is a major feature across the big 6 with the overall Grade A vacancy rate at just 1.6%
  • There is a shortfall between the 4.2 million sq ft of live demand (up 55% on 2014) and the volume of Grade A space available or under construction.  There is also a move towards developers offering space outside of the conventional  Grade A mould as technology-led occupiers break tradition 
  • Rental growth has returned to the big 6 with further growth expected during 2015
  • Beyond the big 6 – the success of smaller markets will be closely associated with strong clusters, good infrastructure and the ability to attract skilled workers
  • Tech Nation – Digital and TMT occupiers account for 1 million regional workers with Bristol & Bath hosting the largest cluster outside London.  This sector will dominate activity across many markets

Birmingham, Manchester & Leeds

Chris Mulcahy, Director - National Offices

  • All 3 markets had a strong 2014 with Birmingham and Manchester both seeing a 100,000 sq ft deal sign (HS2 and Slater and Gordon). Professional services accounted for a third of take-up in Leeds
  • Supply levels are under pressure and speculative activity is underway in Leeds and Manchester.  Development is due to get underway in Birmingham in H1 2015
  • Infrastructure improvements are key to a city's competitiveness and all 3 cities will benefit from investment over the next few years, including HS2 in Birmingham and the Ordshall Chord rail investment in Manchester
  • The Northern Powerhouse concept is gaining strength and post-election we expect to see an increased focus on the devolution of power to the city regions   

Edinburgh and Glasgow

Mike Buchan, Director - National Offices

  • Edinburgh saw the highest level of take-up for 10 years with Glasgow outperforming its 5 and 10-year averages
  • Edinburgh was boosted by the 108,000 sq ft pre-let to Standard Life Investments – the largest in 10 years
  • Glasgow has the largest volume of speculative activity on site across the big 6, albeit this is letting up during construction
  • Infrastructure improvements are key to these markets with Waverley and Haymarket stations becoming focal points for development in Edinburgh and Glasgow benefitting from the £1.3bn city deal which will shape transport hub improvements

Big 6 Investment Markets

Colin Finlayson, Director – Capital Markets

  • Big 6 investment volumes hit £2.5 bn in 2014, up £1.1bn on the previous year and transacting more than double that of the Western Corridor
  • Lot sizes are increasing with 13 deals over £50m in 2014 compared to 7 over 2012-13 combined
  • Yield compression continues as investors compete for trophy stock
  • Speculative forward funding returns to the big 6 with 7 deals in 2014 accounting for £450m of investment and 895,000 sq ft of new space

Big 6 Investment Markets

Olly Paine, Director – Capital Markets

  • Big 6 is attracting capital from an increasingly wide variety of sources including India and China
  • The big 6 is seen as a safe haven, offering better value than Central London and the core European cities alongside less risk and more stability than some of the more secondary/emerging markets
  • Comparing value – A Grade buildings in B Grade locations or B Grade buildings in A Grade A locations – watch for more activity across these scenarios.