Monday property news update - 16 August
London offices, the outlook for West End retail and Lord of the Rings moves to the UK
4 minutes to read
London offices
London's office market continues to recover. Occupiers leased 1.7 million square feet of space in the second quarter, up 40% on the previous quarter, according to the latest update from Shabab Qadar.
Though that marks three successive quarters of rising take-up, the total remains below the long-run average of about 3 million square feet. The number of viewings and enquiries across the capital are rising back to pre-pandemic levels, though that slowed in recent weeks as the usual summer slowdown took hold.
Demand continues to be driven to better quality floorspace - the kind of offices that are key in retaining talent and meeting sustainability and wellness goals. A little under 70% of all take-up during the quarter was for new and refurbished space.
Despite modest levels of takeup relative to the long-run average, availability for the type of modern space occupiers want is constrained to such a degree that rents on recent deals have surpassed average levels for the relevant markets. Accordingly, the team have raised the average prime headline rents in both the core City of London and West End submarkets back to pre-pandemic levels. See the full report, linked above, for more.
London retail
Staying with the theme, Stephen Springham takes a health check of the central London retail market.
The lack of tourism has predictably been tough on the capital - CACI data suggests tourists make up about 46% of retail spend in the West End, for example, with workers contributing a further 9%. The national averages are much lower, with tourists at 11% and workers at 6%. Stephen argues that well capitalised operators taking the long-term view could make hay in the current environment:
"The lack of deals makes it difficult to derive an accurate handle on rents. Prime zone A rental tones on Oxford Street are thought to be around £675/sq ft, when in 2018, they were nudging £1,000/sq ft. The last time Oxford Street rents were this low was 2010.
"Rent rebasing has been slightly less severe in other Central London locations. Prime zone A rental tones on Bond Street are around £2,050/sq ft, about the level they were at in 2016. From a high of £800/sq ft a couple of years ago, prime zone As on Regent Street are currently around £650/sq ft, about where they were in 2015."
China's recovery wobbles
China's factory output and retail sales growth slowed sharply in July, adding to signs its recovery may be tailing off. Data released earlier this month also showed export growth slowing, which has been key in pushing China's economy back above its pre-pandemic size.
Cuts to factory output can be put down at least in part to severe weather and flooding, however it's clear new outbreaks of the virus are weighing on growth, both due to weakening sentiment and the operational challenges they present.
Meanwhile, house price growth in China moderated for a second consecutive month in July as the government's attempts to cool the market took hold.
Furlough
Following the release of the GDP figures last week, we discussed the fact that the wind up of the furlough scheme no longer presents the threat to the UK's recovery that it once did. The economy will likely have fully recovered when it is withdrawn and the sectors with the largest proportion of staff on furlough, such as hospitality, are now struggling to recruit staff fast enough.
Data released this morning reinforces that picture. British employers plan to increase staff numbers by the most in more than eight years over the coming months, according to the latest quarterly survey by the Chartered Institute of Personnel and Development.
Only 13% plan to make staff redundant, down from 33% a year ago. The Bank of England now expects unemployment to peak at just 4.8%.
Lord of the Rings
Last week Amazon announced that production of the new Lord of the Rings television series will move to the UK from New Zealand.
This is part of a long running trend and the film and TV industry is an increasingly important source of demand for UK landlords, with Hollywood stars taking short-lets in London, the Home Counties and beyond. High-end TV production spending is close to record highs and, as a result, the number of enquiries and deals agreed from the film and TV industry are on track to be more than a third higher this year than in 2019 - see this piece from Tom Bill for more.
“Demand is already through the roof,” according to Harriet Gore, head of Knight Frank's film and media team. “The ratio of prospective tenants to available properties is 10 to 1 and higher in some areas. My message to landlords is that if you can furnish your property to a good standard, you can charge a premium of between 20% and 30% compared to the long-let market.”
In other news...
In a new Rural Market Update, Andrew Shirley finds some environmental success stories that show progress can be delivered when landowners, legislators and conservation organisations work together.
Elsewhere - zero-Covid ‘hermit economies’ are heading for catastrophe, New Zealand poised to hike rates to cool overheating economy, holiday vouchers on offer for the young in an attempt to boost vaccine take-up, and finally, the dollar retreats as US consumer sentiment takes a dive.
Photo by Joe Stubbs on Unsplash