Commercial Property Blog
All posts from: February 2012
From Bricks to Clicks
Fourteen shop units close each week! This sounds scandalous and horrific but it is a tale that will run and run and nothing will really change. Since the development of the first Arndale Centre we have lived through the slow, gradual, eroding power of the High Street.
The boom of easy access, car ownership, seven-day trading, relaxation of out-of-town planning, and the major chains and supermarkets’ growing power have all been nails in the High Street’s coffin.
My question is, why are we now paranoid about the terminally ill patient? Have we only just woken up to what has been inevitable for decades?
The biggest challenge for the High Street and our Town Centres is the disparate ownership of the buildings, which means there is a selfish approach to solving an individual investment problem, such as a vacancy, rather than a coordinated, strategic resolution.
The solution to harnessing different mind sets and investment strategies lies in knowing how property investment works and how the ownership of our towns and cities is made up.
Investors fall broadly into four categories: pension funds and investment companies which are long-term owners of units and blocks; developers which want to acquire, build, redevelop, sell to investors and move on; traders who will buy and sell units within a relatively short timescale, usually three years, and hope to add value to make a profit; and the owner-occupiers who own the building and run the retail operation.
Within a town or city our High Streets will typically have a variety of owners with one party owning one building, or a chunk of buildings, and others doing the same. To coordinate High Street owners’ interests is asking a lot of the investors, traders and developers – it is virtually impossible!
In comparison, town Centre managers have been with us since the 1980’s and were introduced to start turning the tide and aligning varied interests. The past three decades have shown a change in townscapes’ usage as technology evolves and we inevitably slide from bricks to clicks.
We need to open our minds and let the High Street continue its regression, embrace the changes that come and allow flexibility for the property experts to make money by keeping their assets alive… although there will still be pain along the way.
Battle of the Giants – London versus New York
It sounds a bit like the start of a joke but: What happens when you put the Mayor of London Boris Johnson, the first ever winner of the Apprentice Tim Campbell, Robert Steel and Howard Wolfson - the two deputy mayors of New York - on a debating platform?
Well the punch line can be revealed following the LandAid annual debate sponsored by Cushman Wakefield, Helical Bar and Property Week held at City Hall 10 days ago.
With Sarah Montague from BBC’s Today Programme in the chair, it was a US presidential style debate with strict time keeping and a panel of interrogators.
Despite Boris’s experience as chair of the Oxford Union and his quick wit, I think even he might concede that the New Yorkers won the debate, if not the final vote: they were slick, had all the facts at their fingertips, were prompt and targeted in their responses and deployed effective and humorous one-liners.
But perhaps this is the least we should expect from Robert and Howard respectively given their experience amongst other things at Goldman Sachs and as the director of communications for Hilary Clinton presidential campaign.
London relied a little more on passion and to some extent on fasting moving claims and counterclaims. Boris’ opener attempted to phase his opponents as he revealed himself to be a New Yorker, having been born in the city.
The context of the battle of the giants was clear as the world’s economic focus shifts ever eastward, London and New York face global competition as the world’s premier business cities.
The geographically biased voters were only ever going vote one way in answer to the question: “Is London or New York best places to retain the crown of the world’s best business city for the 21st Century?”
The room packed with senior representatives from across the property industry voted in favour of London. But through the debate came some important statements and observations.
Neither city can rest on its laurels when it comes to internationally competitiveness. But even the statistics and latest Global Financial Centres Index from 2011, show that in terms of financial and business services they are out in front.
London is ahead with nearly 40,000 companies in financial services to New York’s 24,000 and Hong Kong is the only close competitor. But Robert Steel argued that the value of companies listed on the New York stock exchange was three to four times the size of the London Market.
London claimed victory with 189 international companies locating their headquarters in the city since 2003, compared to New York’s 33. But then New York have just landed Google. What is clear is that neither city can compete on the quality and effectiveness of their transport systems against those building new 21st century mass transit from scratch.
Worryingly there was no response to the claim that New York has a $9bn deficit in its transport system, while London is going through a “neo-Victorian revolution” with Crossrail increasing capacity by ten per cent and the tube system being extended by 30 per cent.
But in reality for London and New York, when compared to newer cities, its much more a case of ‘make do and mend’ with some notable major exceptions like Crossrail.
While New York’s subway carries 1.6 billion passengers annually and London carries 1.1 billion, Boris pointed out bus usage figures for London which New York cannot compete and that they are also now copying Boris with the introduction of Mike’s Bikes (after Michael Bloomberg the NYC Mayor).
Youth unemployment and the divergence of wealth and disadvantage were recognised as being a characteristic found in all global cities but one which neither London or New York are competing on.
Instead there is an opportunity to share ideas as to how to create opportunity and choices for disadvantaged communities and especially young people. Both cities have high unemployment levels at between 9-10% with youth unemployment figures in the UK and US also being comparable at 22% and 23% respectively.
The very current relevance of the work of LandAid and the property industry in supporting disadvantaged young people was underlined by the debaters. The diversity of both cities is one of their key strengths and their ability to attract immigrants, talent and entrepreneurial energy from across the globe.
Tim Campbell claimed that London was “a land of opportunity”, as borne out by his own experience and that of his enterprising mum who created her own business from modest beginnings sewing and selling cakes.
His work on enterprise and job creation for young Londoners in his role as the Mayor’s Advisor on Apprenticeships are worth watching out for. The debaters traded blows on the amount of new floorspace created in each city and the stunning major developers rising into the sky.
According to data from Cushman and Wakefield the stats show its a close call when looking at recent activity. Speculative space under construction at the end of 2001 was very similar for London - 7.6m sq ft in Q4 2011 down from 9.3 m sq ft in Q4 2007 - and New York - 6.3 m sq ft down from 9m sq ft.
New York is also cheaper with Grade A rents at the end of 2011 in the City, West End and Docklands ranging from £40-102 per sq ft compared to £28-46 per sq ft in Midtown and Downtown New York.
This and the fact that “New York has the largest real estate market in the world”, might explain the five-fold higher leasing activity in New York than London. Money and powers emerged as issues towards the end of the debate.
But what is clear is that as a global city the Mayor’s office in London is a poor cousin to New York. In terms of budget the Greater London Authority annual budget for its activities including policing and transport amounts of just over £3bn. For New York City its $65.7bn, or £41.3 bn.
But it’s not just a question of money, but also powers. It begs the question, if those who run a global city are in charge of its economic destiny and should be able to help it city compete and grow its economy; then perhaps New York has a better model, with for example oversight over education and schools in the city.
And finally, there is more and more talk about how cities compete on quality of life with London (38th) beating New York (47th) in the latest Mercers ranking. The debate ended on a note of passion on what makes London and New York “loveable”.
Howard Wolfson summed it up beautifully as “every day in New York is an adventure …its a place of endless possibilities.” while Boris said “the thing I love about London is our good natured, bogus self-depreciation”… enough said.
Joanna Averley is chief executive of LandAid
Walking a tightrope over the streets of San Francisco
Today is a key day in my US road trip. I am presenting to members of the Northern California CoreNet Chapter and the Urban Land Institute at the PG&E Auditorium in the beautiful city of San Francisco. My task is to provide an outlook for the EMEA office market from the standpoint of a corporate occupier.
Fellow speakers from all the major service providers are doing so for other regions of the globe. But there is no doubt that there is an intense focus on Europe given the ongoing debt crisis (although interestingly in the introverted mainstream press here in the US the crisis is somewhat absent).
In thinking about my presentation, it struck me that the city of San Francisco presents a perfect metaphor for Europe. It does so in perhaps three ways.
First, San Francisco is of course a city that suffers from more than its fair share of fog. In Europe over the last year we have had a substantial fog of our own. It is an analytical fog brought on by a myriad of often contradictory economic indicators or studies. It has therefore proved somewhat difficult to fully quantify the magnitude of the problems facing European economies; the precise direction that those economies are heading; or indeed the pace at which these economies are proceeding. The fog has become a real pea-souper given the political rhetoric and positioning that is so often associated with these metrics and interpretations. As I have said consistently since arriving here, the political economy of Europe is far more of an issue (and of greater interest) than the pure economics.
Second, it is clear that Europe since the global financial crisis in 2009 has been on a long and winding path to recovery. It’s a path that makes navigating San Francisco’s famously winding Lombard Street look pretty straightforward. Indeed all streets of San Francisco, offering as they do inclines at every turn, point to what is ahead for Europe – a long, gradual and challenging climb back to prosperity.
Finally, despite the aforementioned fog, it is abundantly clear that Europe has a sizeable debt problem. Dealing with this whilst maintaining some degree of economic growth, makes escaping from San Francisco’s notorious off-shore penitentiary, Alcatraz, seem like a bit of a cake-walk.
So as I take to the stage with my peers, I aim to tell it exactly as I see it. It pays to be straight but bold in these situations. I believe that Europe, and the Eurozone more particularly, continues to walk uneasily along a tightrope. On one side of the rope is a return of corporate and consumer confidence amid a political resolution of the crisis and a mild but sustained upturn in fortunes built on the back of the private sector investing some of the cash pile it has built up over recent years of repair. There is about a 1 in 5 probability that Europe, when it falls from the tightrope, falls in this direction.
On the other side of the rope is a much darker place where the crisis deepens, a bank, banks, country or countries fail leading to a full or partial break-down of the Eurozone and a deep and sustained recession that reverberates globally emerges. The probabilities are stronger – about 30% and rising – that Europe slips from the tightrope into this darker place. The bets are strongest that Greece will be the one to fail – particularly if a deal cannot be struck with private creditors. This Greek Tragedy might be, if one takes a longer term and broader perspective, the very stimulus required for politicians to bring an end to the muddling through mentality that afflicted the year of summits in 2011 and provide a real leap forward. The risks of not doing so will mean that the fog becomes thicker, the path evermore steeper and twisting and escape even more unlikely.
The ramifications of this are significant for everyone in the auditorium today. Although only 12% of US exports are to the Eurozone and the US is a relatively closed economy with total exports only representing around 10% of GDP; the much-repaired US banks will be exposed to the Eurozone periphery to some extent. A breakdown of the Eurozone – either partial or full – could serve to dramatically alter the current US GDP growth forecast of 2.5% for 2012 and leave a pre-election US economy walking a tightrope of its own.
Lee Elliot is head of EMEA Occupier Research at Jones Lang LaSalle
Ed Miliband has no solution on housing
By the time Ed Milliband arrived at Norton Rose’s More London offices last night for a fundraiser in aid of Norwood, the Jewish social care charity, he’d dusted himself down from another bruising PMQs scrap on health reforms.
Fresh from the latest sniper attack from the Dear Brother - (who pops up to publish articles when Ed’s getting a battering in the media) - the Labour leader was hoping to capitalise on his success forcing a reportedly ‘depressed’ Stephen Hester to hand back his wife’s shoe fund.
But just as the bonuses bluster is a distraction from the more pertinent issues around lending and social inequality, similarly, many other areas of policy fail to consider the importance of housing. No politician has bothered to ask what effect living in squalid, cramped conditions has on illiterate school kids who’ve got nowhere to study, who don’t get jobs, claim benefits and suffer health issues as a result.
No one’s really looked at the young people from broken homes who turn to crime and end up in prison at the taxpayers’ expense, while victims pick up their own pieces.
And few have considered how much money we spend on hip replacements for elderly people living alone and uncared for. And many more pensioners get so lonely they end up supporting splinter groups like the National Trust. Heaven forbid!
I jest of course on that last point. The serious issue though is that it’s astonishing how few politicians seem to grasp the broader economic case for investment in quality housing and how much it could relieve spending on the indirect fallout of failing to do so.
Five years on from the monumental failure that was Gordon Brown’s plan to build three million homes, we still have no credible housing solutions from Labour.
Whatever your political inclination, at least housing minister Grant Shapps has been showing signs of life. Problems occur when novelty nonsense like the house swap plan for social tenants get in the way of driving new development, but he knows his stuff.
Praise however, should also rightly be bestowed for progress in the sell-off of public land. Finally Britain seems to be catching up with the rest of the world, and while the government’s planning reforms seem to be wriggling around in the long grass, the very real progress being made by the HCA is a worthy feather for Shapps to be wearing in his cap.
It’s more than could be said for shadow housing minister Jack Dromey, the 63-year-old trade-unionist revealed as taking a £60,000-a-year payment from Unite. Despite it being a clear breach of parliamentary code, he got away with it. Presumably because he’s married to Harriet Harman.
My conversation with Ed Miliband however, was quite revealing.
“Housing is the ‘orphan issue’ of British politics,” he said when I asked what his plans were to make good on past promises. “I’m not even sure its talked about enough and in a way, it hasn’t had enough political knock-about.”
In response to the accusation that Labour’s housing policy was a wholesale failure, he admitted: “We didn’t do enough. Fundamentally we tried, towards the end of our time in government, to say to local authorities: ‘You can say we don’t want housing here or there, but in the end you have to play your card and have housing somewhere.’
I asked him then if he supported the coalition’s moves to speed up development with planning reform. Milliband replied: “I think the government has totally messed it up I’m afraid. What they did is get rid of targets, get rid of obligations and then they’ve panicked, brought it a bloody stupid thing, an assumption in favor of sustainable development.”
Surely a massive contradiction? A question he chose to avoid, saying: “The point we got to by the end of our time in government was that local authorities have to put their housing somewhere. The other issue is private developers sitting on land and watching it accumulate in value and not using it.”
That old Labour chestnut of land-banking.
Miliband continued: “I don’t have a solution for this, but in the end government has to invest in housing, and there’s not much money around so it’s a massive challenge. At the very least we’ve got to say ‘you can’t have a no housing anywhere policy’, what we have now is the worst of all worlds, basically.”
Of course it’s unrealistic to expect every politician to have a comprehensive grasp of every area of policy, but on an issue as important as housing, many will be exasperated by Miliband’s lack of engagement, particularly when you consider how closely he worked with Gordon Brown on this, a benchmark Labour policy. Given that, could it raise further concerns about his ability to lead on any other issue?
Will Portas retail pilots fly us out of terminal decline?
Yesterday’s prediction of further decline in retail occupancy is a miserable inevitability. If you weren’t too busy enjoying motorway pile-ups or snow polar bears that popped up in east London (there was one in Victoria Park), you may have caught housing and shops minister Grant Shapps rounding the media circuit on Saturday. Never shy of a TV spot, the Rt Hon Welwyn Hatfield MP hit the news channels to tell us all about the latest piece of decisive action to combat retail gloom in that report the Department for Business wrote that had TV presenter Mary Portas’s name on the cover like a ghost-written Jordan autobiography
As many will have noticed by now, there are several boxes than all thinly veiled attempts to garner political leverage have to tick. Some of the most clichéd tactics include:
- Recommending a ‘review’ or a ‘pilot’ to try out something everyone knows needs to be done now, not in three years, or, if you have absolutely no intention of doing it, then suggest ‘consideration’;
- Empowering people who shouldn’t be put in charge of a duster to do something utterly pointless;
- The use of needless hyperbole (‘super’ or ‘hyper’) or worse still, the creation of pointless jobs (usually involving the word ‘tsar’);
- The creation of a meaningless initiative that must have an alliterative name.
Now I’m sure you’ll all remember Portas’s pearls of wisdom included recommendations to ‘consider’ localising business rates and a call to ‘empower’ councils to ‘step in’ when landlords don’t sell-off empty shops. Other nuggets included the creation of or ‘Town Teams’ and, best of all, ‘super-BIDs’ (business improvement districts presumably boozed up like Boris Johnson and Dave on an Oxford night out).
The weekend’s media blitz centred around Town Teams and Portas Pilots. You can see how they roll off the tongue. The idea is that 12 towns will share in a £1m pot to be spent on whatever creative initiatives are judged most worthy. Sadly, I still have absolutely no idea what the Town Teams do. Let’s assume they throw bricks through the windows of betting shops, as the government doesn’t much care for them. It wants to give them a new use class, after all.
The other section of the high street they don’t much care for is the hospitality brigade. In spite of an acceptance that high streets will have to evolve and re-invent themselves (presumably with homes, charities or other things that aren’t shops), there was no mention of the nighttime economy in the Portas review. The Association of Town Centre Managers puts its economic value at a whopping £66bn. That’s a lot of kebabs.
For many towns, BIDs have signified just how much firms can do on their own. Whether you look at the New West End Company, which includes all the superstar retailers along Oxford Street or BID Leamington, which raised £325,000 in its first year, you can find great examples of one part of the solution. Rather than waste time and money on new schemes and reviews, ministers should support what we have.
Unlike many in government, Shapps knows his beat and seems to actually care. But the Tory policy folk need to look at reality because people are starting to see through paper-thin ideas created to score press coverage.
As for the pilot competition, for what it’s worth, I reckon Mary Portas should invent some kind of round thing that retail folk can use to pull their goods to market with. Not sure what you’d call it, but I think it would catch on.
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