capital city. forward thinking for a global city
DESCRIPTION
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 & WakefieldTRANSCRIPT
LONDON: CITY OF REINVENTION?PROFESSOR NEIL GIBSON
SPECIAL ADVISOR TO OXFORD ECONOMICS
LONDON MARKETS CUSHMAN & WAKEFIELD 2
UNDERWAY – BUT FAR FROM RAPID
WORLD TRADE % GROWTH (YEAR ON YEAR), 1990 - 2022 UK GDP % GROWTH (YEAR ON YEAR), 1990 - 2022
GDP-0.3% IN Q4 2012
SOURCE: OXFORD ECONOMICS
-10
-5
0
5
10
15
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
(%)
Forecast
-6
-4
-2
0
2
4
6
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
(%)
Forecast
LONDON MARKETS CUSHMAN & WAKEFIELD 3
LITTLE IMPETUS HEADING INTO 2013
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1997-2007
2010 2011 2012 2013 2014
Consumer spending InvestmentGovt. consumption InventoriesNet trade
%pts
UK: CONTRIBUTIONS TO GDP GROWTH
SOURCE: OXFORD ECONOMICS
LONDON MARKETS CUSHMAN & WAKEFIELD 4
BUT LABOUR MARKET RECOVERING WELL
TOTAL EMPLOYMENT, UK, 1998 - 2022 TOTAL GVA, UK, 1998 - 2022
2 MILLION ADDITIONAL JOBS FORECAST BETWEEN 2012 - 2022
£396BN ADDITIONAL GVA FORECAST BETWEEN 2012 - 2022
28000
29000
30000
31000
32000
33000
34000
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
(000
s)
Forecast
Loss of 698 000 jobs
900000
1000000
1100000
1200000
1300000
1400000
1500000
1600000
1700000
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
(£m
2009
price
s)
Forecast
Loss of £62bn
SOURCE: OXFORD ECONOMICS
LONDON MARKETS CUSHMAN & WAKEFIELD 5
EXPLAINING THE JOBS NO GROWTH PUZZLE
-1
0
1
2
3
4
5
1975 1980 1985 1990 1995 2000 2005 2010-3.25
-1.25
0.75
2.75
GDP growth, % year
Source : Haver Analytics / Oxford Economics
GDP growth(LHS)
Employment growth(RHS)
Employment growth, % year
75
80
85
90
95
100
105
110
115
120
1995 1997 1999 2001 2003 2005 2007 2009 2011
2009=100
Source : Haver Analytics
Actual
Pre-recession trend
14%
EXPLAINING THE PARADOX• Recession not as severe as recorded?• Cash rich corporates hoarding labour• Greater part time working / temporary contracts• Increased self employment levels
• Possibly financial sector effects• Earnings growth low – making labour ‘cheaper’• Low interest rates have made money cheaper
(though not for all)
UK: GDP & EMPLOYMENT GROWTH (5YR MA) UK: OUTPUT PER WORKER
LONDON MARKETS CUSHMAN & WAKEFIELD 6
INFLATION REMAINED STUBBORNLY HIGH IN 2012H2
0
1
2
3
4
5
6
2005 2006 2007 2008 2009 2010 2011 2012
% year
Transport
Food
Housing costs
Other
`
UK: CONTRIBUTIONS TO CPI INFLATION
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 7
BUT SET TO MODERATE AND REAL INCOMES SHOULD START TO RISE
-5-4-3-2-101234567
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% year
CPI inflation
Average earnings Forecast
UK: EARNINGS & INFLATION
SOURCE: OXFORD ECONOMICS
THE LONDON OUTLOOK
LONDON MARKETS CUSHMAN & WAKEFIELD 9
LONDON LEADING THE UK
AVERAGE % GVA GROWTH, UK REGIONS, 2013 - 2018
Source: Oxford Economics
London is expected to account for
21.8% of total UK GDP in 2013
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Grea
ter L
ondo
n
Sout
h Eas
t
Easte
rn UK
Sout
h Wes
t
North
Wes
t
Wes
t Midl
ands
East
Midl
ands
York
shire
&
Humb
er
Scot
land
Wale
s
North
ern I
relan
d
North
East
(%)
GVA
Employment
SOURCE: OXFORD ECONOMICS
LONDON MARKETS CUSHMAN & WAKEFIELD 10
LONDON JOBS OUTLOOK VERY PROMISING
TOTAL EMPLOYMENT, LONDON, 1998 - 2022
329 000 ADDITIONAL JOBS FORECAST IN LONDON BETWEEN 2013 - 2018
EMPLOYMENT GROWTH, UK REGIONS, 2003 - 2018
LONDON IS EXPECTED TO ACCOUNT FOR 16% OF TOTAL UK EMPLOYMENT IN 2013
4000
4250
4500
4750
5000
5250
5500
5750
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
(000
s)
Forecast
Loss of 115 000 jobs
(000s) % (000s) % (000s) %South East 150 3.5 154 3.5 235 5.1Greater London 293 6.3 150 3.0 329 6.5Eastern 162 5.9 -17 -0.6 142 5.0South West 145 5.6 -25 -0.9 95 3.5West Midlands 51 1.9 -34 -1.3 75 2.8East Midlands 128 6.2 27 1.2 68 3.1Yorkshire & Humber 102 4.1 -35 -1.4 70 2.8North West 81 2.4 -74 -2.2 105 3.1North East 63 5.7 -72 -6.1 15 1.4Wales 61 4.6 -11 -0.8 22 1.6Scotland 153 5.9 -104 -3.8 66 2.5Northern Ireland 63 7.8 -65 -7.5 15 1.9UK 1450 4.7 -106 -0.3 1237 3.9
2003 - 2008 2008 - 2013 2013 - 2018
SOURCE: OXFORD ECONOMICS NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK
LONDON MARKETS CUSHMAN & WAKEFIELD 11
BUT UNEMPLOYMENT SET TO FALL VERY SLOWLY
UNEMPLOYMENT, LONDON, 1998 - 2022 UNEMPLOYMENT, UK REGIONS, 2003 - 2018
UNEMPLOYMENT WILL FALL BY 27 800 BETWEEN 2013 -2018
100
120
140
160
180
200
220
240
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
(000
s)
Forecast
Unemployed increased by 90 000 people
(000s) pp change (000s) pp change (000s) pp changeSouth East 1 0.0 70 1.4 -19 -0.5Greater London -33 -0.8 87 1.5 -28 -0.7Eastern 6 0.1 55 1.8 -13 -0.6South West -1 -0.1 42 1.5 1 -0.1West Midlands 11 0.3 59 2.0 -14 -0.6East Midlands 3 0.0 49 2.0 -10 -0.5Yorkshire & Humber 4 0.0 77 2.8 -7 -0.4North West 8 0.1 82 2.3 -22 -0.7North East 1 -0.2 40 3.5 -4 -0.4Wales 1 -0.1 35 2.3 -6 -0.5Scotland -21 -0.9 62 2.3 -15 -0.6Northern Ireland -7 -1.0 37 4.4 -2 -0.3UK -27 -0.2 694 2.0 -140 -0.6
2013 - 20182003 - 2008 2008 - 2013
LONDON IS EXPECTED TO ACCOUNT FOR 14% OF TOTAL UK UNEMPLOYMENT IN 2013
SOURCE: OXFORD ECONOMICSNOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK
LONDON MARKETS CUSHMAN & WAKEFIELD 12
CLOSE TO A HALF A MILLION MORE RESIDENTS PROJECTED
NATURAL INCREASE AND MIGRATION, LONDON, 1998 - 2022POPULATION, UK REGIONS, 2013 - 2018
000s %South East 298 3.4Greater London 470 5.6Eastern 261 4.4South West 151 2.8West Midlands 148 2.6East Midlands 156 3.4Yorkshire & Humber 163 3.0North West 149 2.1North East 43 1.7Wales 61 2.0Scotland 92 1.7Northern Ireland 55 3.0UK 2047 3.2
2013 - 2018
-20
-10
0
10
20
30
40
50
60
70
80
90
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
(000
s)
Natural Increase
Migration Forecast
SOURCE: OXFORD ECONOMICSNOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK
LONDON MARKETS CUSHMAN & WAKEFIELD 13
JOB GROWTH ACROSS LONDON – BUT PACE VARIES
% AVG. EMPLOYMENT GROWTH, LONDON LAs, 2013 - 2018
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Tower HamletsSouthwark
IslingtonCity of London
HounslowWestminster
Hammersmith and FulhamCamdenMerton
Richmond upon ThamesLondon Total
HackneyWandsworth
HillingdonBarnet
Kingston upon ThamesNewhamLambeth
Kensington and ChelseaGreenwich
EalingBromley
BexleySutton
HaringeyEnfield
HaveringBarking and Dagenham
RedbridgeBrent
HarrowLewisham
Waltham ForestCroydon
% avg growth
SOURCE: OXFORD ECONOMICS
LONDON MARKETS CUSHMAN & WAKEFIELD 14
RUNNING A SURPLUS (UNLIKE THE REST OF THE UK)
FISCAL BALANCE, LONDON AND REST OF UK, 2000 - 2018
-150
-130
-110
-90
-70
-50
-30
-10
10
30
50
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
£bn
London
Rest of UK
Forecast
SOURCE: OXFORD ECONOMICSNOTE: ESTIMATES ARE A MIDPOINT MEASURE OF RESIDENT AND WORKPLACE GVA
WINNERS AND LOSERS – THE SECTORAL PICTURE
LONDON MARKETS CUSHMAN & WAKEFIELD 16
SERVICE SECTOR DOMINATING THE JOB MARKET
SECTORAL EMPLOYMENT GROWTH, LONDON, 2003 - 2018
A MARKED SHIFT
A FORECAST RISK?
SCOPE FOR BETTER?
2003 - 2008 2008 - 2013 2013 - 2018Agriculture, forestry and fishing 0 -1 0Mining and quarrying 0 -1 -1Manufacturing -39 -22 -9Electricity, gas, steam 0 0 -1Water supply; sewerage 2 4 -1Construction 53 -4 28Wholesale and retail -12 -41 47Transportation and storage 12 -12 21Accommodation and food 15 35 34Information and comms 29 33 32Financial and insurance activ. 9 4 2Real estate activ. 22 4 13Professional, scientific and technical 105 53 90Admin and support 41 27 71Public admin and defence -12 -13 -26Education 21 34 -12Human health and social work 23 36 -5Arts, entertainment and rec. 19 5 25Other service activ. 4 9 19Total 293 150 329
(000s)
SOURCE: OXFORD ECONOMICSNOTE: INCLUDES SELF EMPLOYMENT, TOP 2 PERFORMING SECTORS SHADED IN YELLOW AND LOWEST PERFORMING SECTORS SHADED IN PINK
LONDON MARKETS CUSHMAN & WAKEFIELD 17
LAST TEN YEARS HAS EVIDENCED LONDON’S DYNAMISM
TOP 10 2 DIGIT GROWTH SECTORS, LONDON, 2002 - 2012
SOURCE: OXFORD ECONOMICSNOTE: GREEN SHADING DENOTES THOSE SECTORS IN THE PUBLIC SECTOR
TOP 10 2 DIGIT SIC SPECIALISMS, LONDON, 2012
SOURCE: OXFORD ECONOMICSNOTE: LQ ANALYSIS ONLY ACCOUNTS FOR SECTORS WITH A MINIMUM OF 1000 EMPLOYEES
000s %Food and beverage 57 23.5Human health 55 22.8Head offices 54 55.9Head offices of auxiliary finance services 53 49.0Computer programming 47 44.6Social work 30 29.3Real estate 26 39.3Legal and accounting 25 13.8Security and investigation 19 47.1Advertising and market research 19 29.8
Employment growth LQsProgramming and broadcasting 4.1Motion picture, video and tv 3.7Air transport 3.2Advertising and market research 2.4Publishing 2.4Head offices of auxiliary finance services 2.4Creative, arts and entertainment 2.3Financial services 2.1Information services 2.0Remediation activities 1.8
LONDON MARKETS CUSHMAN & WAKEFIELD 18
A KEY DESTINATION FOR A DIVERSE GRADUATE POOL
% OF GRADUATES FOR WHOM ‘FIRST EMPLOYMENT DESTINATION’ IS LONDON, 2007 - 2009
SOURCE: HESANOTE. HESA FIRST DESTINATIONS SHOWING PROPORTION WHO HAVE TAKEN THEIR FIRST JOB IN LONDON WITHIN 6 MONTHS OF GRADUATING. THIS DATA DOES NOT INCLUDE THOSE UNEMPLOYED, TRAVELLING OR EMBARKING ON FURTHER STUDY. TOP 2 KEY SUBJECTS ARE SHADED IN YELLOW AND BOTTOM 2 KEY SUBJECTS ARE SHADED IN PINK
Medicine & 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 12.6
Russell Group Other
LONDON MARKETS CUSHMAN & WAKEFIELD 19
TMT SECTOR PROJECTED TO CONTINUE RECENT GROWTH
TMT SECTOR & TOTAL EMPLOYMENT, LONDON, 1998 - 2022The TMT sector has become an important part of the London economy.
The sector accounts for more than 384,000 jobs across London, more people are employed in the sector today than at the height of the dot-com boom.
TMT is a larger employer in the capital than financial services or hotels & catering, and is one of the few sectors to have achieved strong growth since London’s economy emerged from the 2009 recession.
3500
4000
4500
5000
5500
6000
6500
7000
250
300
350
400
450
500
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
(000
s)
(000
s)
TMT (LHS)
London total employment (RHS)
Forecast
SOURCE: OXFORD ECONOMICSNOTE. TMT SECTOR: PUBLISHING, MOTION PICTURE, VIDEO / TV, PROGRAMMING, BROADCASTING, TELECOMMS, COMPUTER PROGRAMMING, INFORMATION SERVICES
DRIVERS AND RISKS – IDENTIFYING THE CRITICAL FACTORS
LONDON MARKETS CUSHMAN & WAKEFIELD 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 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 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 andnew 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 London's’ key strengths and identify comparative (and potential) weaknesses
LONDON: A MELTING POT FOR GLOBAL CAPITALANDREW THOMAS
PARTNER, LONDON INVESTMENT
CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 25
TOP 10 CITIES FOR TOTAL INVESTMENT IN 2012 (EX. DEV.)
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00
Seattle
Chicago
Washington
Paris
Hong Kong
San Fransisco
Tokyo
LA
London
NYC
US $ Billion
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 26
TOP 10 CITIES FOR FOREIGN INVESMENT IN 2012 (EX. DEV.)
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00
Warsaw
Hong Kong
Frankfurt
Berlin
SF Metro
Sydney
Tokyo
NYC Metro
Paris
London Metro
US $ Billion
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 27
CROSS-BORDER INVESTMENT VOLUMES (ALL SECTORS)
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00U
S $
Bill
ion
London
Paris
New York
Tokyo
Sydney
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 28
YIELD LEVELS
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Mo
nth
En
d R
ate
Swap - 10 year
3 month interbank
West End Office
City office
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 29
REQUIRED RETURNS BY OFFICE MARKET
0%
1%
2%
3%
4%
5%
6%
Hong Kong Munich Singapore London Zurich New York Tokyo Stockholm Toronto Paris
To
tal R
etu
rn R
equ
ired
by
Yea
r
TOP GLOBAL OFFICE MARKETS
Required Return
Net yield
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 30
EXCHANGE RATE MOVEMENTS
100
120
140
160
180
200
220
240
1.0
1.2
1.4
1.6
1.8
2.0
Yen
per
GB
P
US
D/E
uro
per
GB
P
CURRENCY - RATES PER POUND
USD
Euro
Yen
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 31
PRIME OFFICE RENTAL GROWTH IN LONDON
$0
$20
$40
$60
$80
$100
$120
$140PRIME HEADLINE RENTS - £/SQFT/YR
City
West End
SOURCE: RCA/CUSHMAN & WAKEFIELD
LONDON MARKETS CUSHMAN & WAKEFIELD 32
SOVEREIGN WEALTH FUNDSTOP 20 GLOBAL SOVEREIGN WEALTH FUNDS
$0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00
Abu Dhabi - Mubadala Development CompanySouth Korea - Korea Investment Corporation
Algeria - Revenue Regulation FundKazakhstan - Kazakhstan National Fund
Libya - Libyan Investment AuthorityAbu Dhabi - International Petroleum Investment …
Dubai - Investment Corporation of DubaiAustralia - Australian Future Fund
Qatar - Qatar Investment AuthorityChina - National Social Security Fund
Russia - National Welfare FundSingapore - Temasek Holdings
Singapore - Government of Singapore Investment …Kuwait - Kuwait Investment Authority
China - Hong Kong Monetary AuthorityChina - China Investment CorporationSaudi Arabia - SAMA Foreign Holdings
China - SAFE Investment CompanyAbu Dhabi - Abu Dhabi Investment Authority
Norway - Government Pension Fund
Total assets US $ Billion, January 2013
SOURCE: SOVEREIGN WEALTH FUND INSTITUTE
LONDON MARKETS CUSHMAN & WAKEFIELD 33
THE NEW WORLD PERSPECTIVE
LONDON MARKETS CUSHMAN & WAKEFIELD 34
THE ‘NEW’ LONDON
GREENWICH PENINSULA EARLS COURT
NINE ELMS
LONDON MARKETS CUSHMAN & WAKEFIELD 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
“ ““ “