Engage Issue 11 - Gerald Eve

client services, executed by an incredibly .... “The whole Deloitte Real Estate transaction .... now her role to oversee the management of the order's finances,.
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AUTUMN 2016

ISSUE ELEVEN

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The Regeneration Game

Growing Places

A Tale of Three Cities

Berkeley Group’s Tony Pidgley talks policy, regeneration and Brexit

Mark Dixon provides an insight into Regus’ global expansion plans

A look at the New York, Los Angeles and Atlanta real estate markets

CONTENTS AUTUMN 2016

PRIME LOGISTICS The definitive guide to the UK’s Q3 2016 Bulletin

distribution property market

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NEWS UPDATE

Catch up with the latest news and developments at Gerald Eve.

FAITH, HOPE & CHARITY

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QUARTERLY SUMMARY • • • • • •

For more information please contact Richard Ludlow +44 (0) 7836 766167 [email protected]

d – largest quarterly volume on recor 13.8 million sq ft taken-up in Q3 ft sq million Amazon commit to 3.4 ear average effect’, take-up still above five-y Even discounting this ‘Amazon rate to 6.6% bility availa ses increa y suppl Addition of new speculative r speculative funding weakens However, funds' appetite for furthe investor sentiment remains strong Volumes traded down 27%, but

GROWING PLACES

Mark Dixon, founder and CEO of Regus, outlines his ambitious expansion plans and prospects for the sector as a whole.

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A TALE OF THREE CITIES

ENGAGE speaks to transatlantic colleagues at Lee & Associates for their views on the USA’s most exciting real estate markets in 2016.

SPACE RACE

THE REGENERATION GAME ENGAGE talks to Berkeley Homes chairman Tony Pidgley CBE to get his take on the marketplace.

THE MANCUNIAN WAY

Manchester’s renaissance has been one of the UK’s standout regional success stories. ENGAGE asks whether its winning streak can continue.

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REGUS’ RATES RIDDLE

How do you manage the rates payments for nearly 300 Regus locations throughout the UK? Gerald Eve partner Steve Hile gives ENGAGE the inside track.

20 MARKET FACTS

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EDITOR’S NOTE

ENGAGE catches up with Gerald Eve’s managing partner, Simon Rees.

ENGAGE takes a look at how changing times are impacting on third sector organisations’ property portfolios.

ENGAGE ISSUE ELEVEN

As we approach the end of 2016 the property sector, like the rest of the UK, finds itself in a state of flux. The Brexit vote and election of Donald Trump as US President have altered the economic and political outlook in ways that are yet to be understood, and every business is coming to terms with the implications of these events. But while there remains uncertainty, there are also some measures of optimism to be found. Six months on from the referendum, the more lurid predictions of an immediate downturn have failed to materialise. The falling pound has effectively given overseas investors a 20% discount on UK property, and Gerald Eve’s involvement in major investment deals – including Wells Fargo’s City office acquisition, and Goldman Sachs’ purchase of the Alecta portfolio – is testament to the continuing interest. As Tony Pidgley says himself in an interview (page eight), the public mood is one of ‘getting on with it’ now the decision has been made, but that Government policy needs to back this up. The recent High Court ruling that an act of parliament is required before triggering article 50 has created some uncertainty in this regard and will inevitably cause further delays to an already lengthy process. In the meantime, business needs to make sure its voice is heard and that its needs are represented in any ongoing negotiations. For Gerald Eve itself, 2016 has been a transformational year. Following record financial results for the year ending 5th April 2016, the acquisition of key transactional teams and personnel represents a step change in the firm’s capabilities, and is already paying dividends in terms of client offer and performance in the second half of 2016. While we cannot predict what is around the corner, and there will undoubtedly be tricky times ahead, Gerald Eve’s partner-led approach and strategic advice will continue to offer a real point of difference in the marketplace, helping clients navigate the challenges to come. Simon Prichard Senior Partner, Gerald Eve [email protected]

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ENGAGE ISSUE ELEVEN

NEWS UPDATE AUTUMN 2016

NEWS UPDATE AUTUMN 2016

NEWS UPDATE

LANDMARKS LEFT REELING BY RATES REVALUATION Many of England’s best-known landmarks, offices, shops, attractions and infrastructure are facing massive rises in their business rates from April 2017. Analysis by Gerald Eve has revealed the extent of the increases being faced following the publication of updated rateable values in September. The worst-hit include:

GREEN LIGHT FOR DE NIRO COVENT GARDEN HOTEL

WELLS FARGO ACQUIRES CITY OFFICE BUILDING

Capital & Counties, advised by Gerald Eve, has secured planning permission to develop a luxury boutique hotel in London’s Covent Garden with Hollywood actor Robert De Niro.

Gerald Eve has advised developer HB Reavis on the forward sale of its 33 Central office scheme in the City of London to US bank Wells Fargo. The sale is one of the square mile’s largest single-office deals of 2016 and a significant vote of confidence in the City’s property market and financial sector prospects following the referendum vote to leave the EU.

The Wellington Hotel will be developed with BD Hotels and will feature 83 bedrooms, luxury spa facilities, two restaurants and a members’ club, focused around a central courtyard conservatory. It will be operated by De Niro, Ira Drukier and Richard Born, who previously collaborated on The Greenwich Hotel in Tribeca, New York. Work will start in 2017, with The Wellington Hotel due to open its doors in 2019.

Wells Fargo has bought the 227,000 sq ft building – which is currently under construction – for occupation in Q3 2018 when work completes, allowing it to consolidate its UK team into a single location. 33 Central is HB Reavis’ first London development, which it had originally intended to retain and lease but opted to sell to Wells Fargo following initial leasing discussions with the bank.

STOP PRESS GERALD EVE CLAIMS CITY TOP SPOT

LEE & ASSOCIATES JUMPS TO SECOND IN BROKERAGE RANKINGS Lee & Associates, Gerald Eve’s North American alliance partner, has been placed second in the 2016 US brokerage rankings compiled by Commercial Property Executive / Multi Housing News. The 2016 ranking – based on a variety of factors including firm performance, investment sales, leasing activity and multi-year growth

– represent a significant jump from the firm’s 11th place in 2015. Jeff Rinkov, CEO of Lee & Associates, said: “We view this as an acknowledgment of our growing international platform and we look forward to continued growth and success, supported by best of class client services, executed by an incredibly talented group of brokers.”

Gerald Eve has topped EGi’s league table of City leasing agents for Q3 2016, advising on disposals totalling 245,000 sq ft during the period. The firm’s lettings during the quarter – including advising HB Reavis on the sale of 33 Central to Wells Fargo – saw its market share reach over 35%.

• London attractions: The O2 up 142%, Tower of London up 90% and the London Eye up 70% • Leicester City paying the price of Premiership success with a 264% increase at the King Power Stadium • West End retailers Harrods, Hamleys, John Lewis and Selfridges all facing increases over 50% • Channel Tunnel rail link on track for 77% surge • Bank of England to print more cash to meet its 61% increase

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GERALD EVE ADVISES UOL ON £230M HOLBORN BUY Singaporean investor UOL, in a joint venture with UIC and advised by Gerald Eve, has acquired a 340,000 sq ft mixeduse island site in Holborn from a private overseas investor and EQT for around £230m. UOL, which is listed on the Singaporean exchange, has exchanged to buy the building at a 5.9% net initial yield. 120 Holborn comprises a 2.6 acre island site with a nine-storey office building let

to tenants including Whitbread Group, Trainline.com and Secret Escapes and ground floor retail facing Holborn Circus, Hatton Garden, Leather Lane and Greville Street along with further offices at 100 Hatton Gardens, and residential units. In May, advised by Gerald Eve, the Group agreed to buy nearby office and retail building at 110 High Holborn for £98.75m from UBS Central London Office Value Added Fund.

Jerry Schurder, head of business rates at Gerald Eve, said: “For these firms, whose values have doubled or even trebled, it is clear that the business rate has reached unacceptable and unsustainable levels.”

SUPPORTING LANDAID

Gerald Eve has marked its continued support of LandAid with a series of recent fundraising events. From sporting events which included a table football tournament and the LandAid 10k run, to a book sale and staff breakfast on LandAid Day itself, the firm has really got into the fundraising spirit. A special mention goes to everyone who took part in the London to Brighton Bike Ride in September, where participants raised in excess of £2,000 for the charity. Gerald Eve is a foundation partner of LandAid, the property industry charity that helps protect young people on the streets and tackle the root cause of homelessness.

GERALD EVE BUILDS FOR FUTURE WITH 2016 GRADUATE INTAKE

Following a year of significant growth, which saw the acquisition of new transactional teams and an increase in headcount to 460, Gerald Eve is planning for further growth with an intake of 19 people to its 2016 graduate training scheme, this year including two apprentices. The new graduates will be based in a number of the firm’s network of offices including London, Manchester, Birmingham and Leeds. Simon Rees, managing partner at Gerald Eve, said: “Although we have grown our headcount significantly during the past year, we remain well aware of the continued need to invest in emerging talent. As such, our well-respected graduate training scheme remains central to our growth plans.”

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ENGAGE ISSUE ELEVEN

INTERVIEW AUTUMN 2016

INTERVIEW AUTUMN 2016

SPACE RACE

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Explaining the growth, Rees says: “When we first moved into Welbeck Street in 2010, we did so on the basis of our growth projections for the next five years. However, our actual growth has rapidly exceeded these expectations and we found ourselves stretched for space sooner that we’d anticipated.” Although Rees happily concedes that this is a nice problem to have, he began to explore options for more space at the beginning of the year. A number of options were considered, including introducing more flexible working. “The feedback we have had is that our people generally like having their own space working alongside their colleagues. So the key for us was to create a modern work environment, giving people flexibility around how they work when they are in the office. Enhanced IT systems and new collaborative work and meeting areas have allowed us to achieve this.” Having reached the conclusion that more space was required, Gerald Eve became aware of some additional floor space soon to become available within its existing Welbeck Street building. “Even though it was more space than we needed at the time, the opportunity was too good to pass over and we began discussions with the landlord.”

At the same time, in an entirely unconnected move, a significant business opportunity presented itself in the form of the most significant M&A activity in the partnership’s history. As part of ongoing restructuring within Deloitte Real Estate, Gerald Eve was presented with the opportunity to acquire several of its transactional teams. “The whole Deloitte Real Estate transaction was the product of serendipitous timing as much as anything else. If we hadn’t already set the ball rolling for the acquisition of new space, we would certainly have faced a challenge in terms of creating the room to accommodate the new teams.” Now that some time has passed since acquiring Deloitte Real Estate’s City and West End leasing, lease advisory, lease exit and capital markets teams, Rees and his partnership have had the opportunity to reflect on the move. “So far, I think we can all be confident in saying our expansion has been a success in all respects. Within a short time, I began to hear our new colleagues referring to Gerald Eve as ‘we’ rather than ‘you’, which immediately reassured me that they had bought into this firm and our culture. This, coupled with the fact, that all but one of those teams’ clients has transferred across with them and that significant deals have already been done, tells us all that this was a good move for all parties concerned.” Rees is quick to credit both existing and new teams for this success. “As much as I’m delighted that we, as a partnership, moved quickly and decisively to bring

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So far, I think we can all be confident in saying the move has been a success. Within fewer than three months, I began to hear the new joiners referring to Gerald Eve as ‘we’ rather than ‘you’, which immediately reassured me that they had bought into this firm and into our culture.

ENGAGE SPEAKS TO GERALD EVE’S MANAGING PARTNER, SIMON REES, ABOUT ACCOMMODATING THE FIRM’S RECENT GROWTH. imon Rees is in a relaxed mode when we meet in the new hub and café area of Gerald Eve’s West End office, which has been newly installed following the firm’s recent expansion within the Welbeck Street building.

ENGAGE ISSUE ELEVEN

these teams on board, the credit for any subsequent success must go to the wider firm. The integration has been so smooth because of the nature of the people involved and the enthusiasm of existing teams to welcome their new colleagues – we have definitely struck the right balance.” In addition to Gerald Eve’s ongoing organic growth, the arrival of the new teams has helped push the headcount up from 396 to 460 within the last year alone, bringing with it new challenges. “Clearly, my role has changed and evolved along with the whole firm over recent years. While there are new challenges presented by a growing business, we are also facing some exciting opportunities, so I view my glass as very much half-full.” With the recent acquisition still front of mind and enjoying a honeymoon period, can we expect to see more corporate activity from Gerald Eve? “It’s fair to say that we are always looking to secure individuals, teams, or businesses that we think would be a good addition and strengthen our offering to clients. It is very much down to the right fit.” “We are also conscious we can only do so much in one go. We have already proved that we can move swiftly when the need arises but, for the time being, our priority is to ensure the long-term success of our existing teams.” For further information please contact Simon Rees on +44 (0)20 7333 6256 or email [email protected]

Photography: George Brooks

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ENGAGE ISSUE ELEVEN

FEATURE AUTUMN 2016

FEATURE AUTUMN 2016

ENGAGE ISSUE ELEVEN

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FAITH, HOPE & CHARITY

AS THIRD SECTOR ORGANISATIONS ADDRESS SHIFTING PRIORITIES, ENGAGE TAKES A LOOK AT HOW CHANGING TIMES ARE IMPACTING ON THEIR PROPERTY PORTFOLIOS.

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harity, as the saying goes, begins at home. But for many third sector organisations the phrase has acquired a second, more literal meaning. Religious orders, charities and other social enterprises are responding to changing circumstances – and it is the homes and other properties within their portfolios that are increasingly under the microscope. The portfolios – assembled piecemeal over a number of years through investments, donations and legacies – are either occupied by the organisations themselves or held as an income-generating asset. They are invariably a vital cog in the work of the charities, and central to their ongoing success. But for many in the third sector, the sands are shifting. As organisations adapt their activities, and changing socio-economic factors make previously essential locations unnecessary, property requirements are also in a state of flux. Real estate holdings are being re-assessed, identifying how they can best meet future needs and continue to support the enterprises that own them.

Illustration: Thomas Humeau

To complicate matters further, regulations laid down by the Charities Act must be adhered to, and the ethics policies of each organisation need to be honoured. Richard Moir, head of Gerald Eve’s alternative markets team, says the unique combination of factors make it a particularly tricky field to navigate. “The third sector requires an understanding and empathy that contrasts with what’s needed in the private and public sectors. Specific technical knowledge is essential, including an understanding of charitable purposes and the intricacies of charity law, but this has to be implemented alongside strategic real estate advice. And while there are clearly distinct requirements, there are lessons to be learned from both the ‘for profit’ and public service providers that can be transferred across to the third sector.” The Charities Act Founded 170 years ago, the Society of the Holy Child Jesus is an international congregation of religious women within the Catholic Church. Originally a teaching order, the Society branched out into different ministries in the 1970s and today has members in the UK, Ireland, France, the Americas and West Africa. It is the owner of a slightly eclectic property portfolio that is typical of many religious orders and the third sector in general. Residential property is held as living quarters wherever their members are located, but the holdings also include a small conference centre in Oxford – occupied and run by the

Society itself – and a nursing home in Harrogate, financed by the order, where sisters are cared for in their retirement. Sister Monica Matthews has been province leader of the Society for just over five years. A geography teacher when she joined the Society, it is now her role to oversee the management of the order’s finances, and ensure it is able to provide for the sisters and support them in their work.

charities and other social enterprises. But the non-commercial nature of these organisations can make such shifts difficult to enact, and that in itself requires specialist expertise.

“Gerald Eve has been the Society’s property advisor for a long time, and that is important to us as it means there’s a trusting relationship there. We have a similar experience with our solicitors, with whom Gerald Eve worked very well.”

“One of the things that has been characteristic of us, as with many congregations in the last few years, is falling numbers,” she says. “In my time as province leader we’ve gone from 112 members in the European part of the Society to 77 and this has really changed our property needs. As well as falling overall numbers, our members are getting older, and this has implications Sister Monica continues: “One of the things we valued most about Gerald Eve was how empathetic they were to our situation for the types of property we need to meet our requirements. and understood our requirements and needs. They were people I trusted, who walked us through the whole process, and were “This was particularly the case in London. We had a house on patient, waiting for the right deals for us to come along. They Cavendish Square and one on Holland Park Avenue, but both didn’t push us into one course of action, but equally helped us were in need of updating to make them suitable for us, and we to understand what need to happen and why. The property world didn’t have enough London-based sisters to occupy both. We is a bit outside our comfort zone, but Gerald Eve made it as easy spoke with Gerald Eve and they investigated the options for us. In the end, we decided to sell both of these properties – for which and worry-free for us as it could be.” Gerald Eve got us a very good price for both – and reinvest in a new property in Brook Green, West London that is much better For further information please contact suited to our needs.This also enabled us to release funds for our Richard Moir on +44 (0)20 7333 6281 various works in this part of the Society and elsewhere.” or email [email protected] The changes made to the Society’s property holdings are indicative of adjustments being made by many religious orders,

William Ray on +44 (0)20 7333 6201 or email [email protected]

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ENGAGE ISSUE ELEVEN

FEATURE AUTUMN 2016

FEATURE AUTUMN 2016

THE REGENERATION GAME WITH BERKELEY GROUP CELEBRATING ITS 40TH ANNIVERSARY, ENGAGE SAT DOWN WITH FOUNDER AND CHAIRMAN TONY PIDGLEY CBE TO GET HIS TAKE ON THE MARKETPLACE.

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The focus is understandable, with the challenges currently facing homebuyers and housebuilders well-documented. Pidgley has earned a reputation not only as one of the sector’s leading voices, but crucially as someone who actually puts ideas into practice, and the first target in his sights is the case-by-case negotiation of affordable housing provision.

It is something Pidgley freely admits is driven by both social and business considerations. “All our major regeneration projects have 30% affordable, and that proportion works, it allows a community to establish itself. You need that balance between the various sections of society for a community to be successful, but above or below 30% affordable it starts to become out of kilter and works against integration. You see it with the council estates of the 60s and 70s – they wouldn’t be pulling them down if they worked.”

“We have to address the key workers of this country,” he says. “It’s no good nurses living an hour away when you’re having a heart attack. We need a simple rule. Any site over, say, 1,000 units has to be 30% affordable. Housebuilders will know where they stand and land prices will drop accordingly.”

Housing aspiration The ‘major regeneration projects’ Pidgley talks of include some of London’s highest-profile schemes – Royal Arsenal Riverside in Woolwich; Kidbrooke Village in Greenwich; Woodberry Down in Finsbury Park – and are perhaps where most people first encounter Berkeley. These previously failing areas have been transformed in recent years, establishing new communities, with density increased as a quid pro quo.

The bureaucracy surrounding development clearly irks – “It’s only right and proper that planning should be democratic and open, but once permission is granted just leave the builders to get on with it” – but the proposed 30% rule is also driven by Berkeley’s experience with major regeneration schemes across London.

“We have a very simple view of regeneration,” says Pidgley. “There’s a lot of estates that have been allowed to slip into deprivation, but to be a success places need hope and aspiration. The schemes we’ve undertaken now include facilities such as doctors’ surgeries, cinemas and schools and are places where people want to live.

Photography of Tony Pidgley: George Brooks

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All our major regeneration projects have 30% affordable, and that proportion works, it allows a community to establish itself. You need that balance between the various sections of society for a community to be successful...

Woodberry Down, Finsbury Park ou don’t have to spend much time with Tony Pidgley to spot the subjects that he’s passionate about. Over the course of a freewheeling conversation it is the themes of affordability, community and how to build more homes that he keeps returning to, revealing the importance he places on such issues.

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But that can only be paid for if the density is increased. “Take Kidbrooke, somewhere that used to be a no-go area but has now been transformed. Yes, the number of homes has gone up from 2,000 to 5,500, but that increased density has paid for local infrastructure, sports facilities, parkland. These places are now thriving, and I challenge your readers to go and see them. They’re successful communities, creating aspiration without differentiating between the types of tenure. “Housebuilding should be a force for good, and its potential to transform needs to be recognised.” As part of the ongoing search for what he refers to as ‘additionality’ – in short, building more homes – Pidgley has recently unveiled the Urban House, the culmination of ten years of work by Berkeley to develop a modular house that reduces build times, increases density and, as a result, makes formerly unworkable sites viable. “There’s a skills shortage in this country, we’ve never trained enough apprentices, and as a result something that took me 20 weeks to build in 1976 now takes 40 weeks. By manufacturing offsite, the Urban House is quicker and cheaper to build, at a greater density, which not only makes it more affordable but also brings sites that were otherwise unviable into play. Continued > WWW.GERALDEVE.COM

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FEATURE AUTUMN 2016

FEATURE AUTUMN 2016

Kidbrooke Village, Greenwich

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Royal Arsenal Riverside, Woolwich It’s been supported by local authorities, and, crucially, sold well at a test site so the public has given it the thumbs up too.”

There’s also an urgent need to keep the economy growing. It’s too early to tell what the fallout from Brexit will be, but it’s created uncertainty so why not overcome that by getting started on major infrastructure projects?

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Pidgley’s experience has led him to seats on Lord Heseltine’s Estate Regeneration Advisory Panel and the Thames Estuary 2050 Growth Commission. “Lord Heseltine has been good on community work,” says Pidgley, “as can be seen from what he’s achieved in Liverpool and Docklands. If you’re successful at creating homes and placemaking, as Berkeley is, then it’s incumbent upon you to share your skillbase and expertise. I’m happy to do so.” Public policy The two panel positions have given Pidgley an insight into public policy surrounding regeneration and housebuilding. When talk turns to what the Government could do to help housebuilders, his response is clear: less red tape; foster the wider economy; and reform stamp duty.

“Central Government, local authorities, the Mayor of London – they need to understand housing as a force for good, and reduce red tape to allow this happen. Planning should be debated, but needs to be viewed in the context of the housing crisis we’re in. We need more homes and they need to be affordable, so make the planning decisions quickly and let the housebuilders get cracking. “There’s also an urgent need to keep the economy growing. It’s too early to tell what the fallout from Brexit will be, but it’s created uncertainty so why not overcome that by getting started on major infrastructure projects? A new London runway, Crossrail 2, HS2 – let’s get building. The public mood seems to be one of getting on with it now a decision has been made, but the Government needs to back this up. “For what it’s worth, I’ve been very encouraged by Theresa May so far. The swiftness with which the UK managed to get a credible Government

in place following the post-Brexit chaos just underlines how stable the country is and will encourage inward investment. We have some certainty back, and the messages the Prime Minister is putting out there give me confidence as a businessman to look ahead to future projects.” So what about stamp duty, the bête noire of the housebuilders? Pidgley pauses to make sure he uses exactly the right words. “Stamp duty has clogged up the market, not just for new builds but existing homes too. This is stifling mobility and is, in a word, unfair. “Transaction taxes have never been good for the UK economy, and reform would be a clear signal from the Chancellor that he is backing the property market. It would be a great boost to the country’s feelgood factor.” But that’s not to say he views all property taxes with such antipathy. “One thing they should do is look at an extra council

tax band or two for second homes,” he says. “I’m fortunate, I have a very nice house in Windsor and that’s close enough to commute. But if I decided to get a flat in London, it’s a luxury and should be put in a band that charges enough to make me have to decide whether I’m prepared to pay for it. Charge the super rich £100,000 a year for their London homes – they can afford it – and give it to the local authorities to invest in key worker housing.”

sense and energy, then anyone can. That would be my advice to anyone: apply common sense, work hard, do your job to the best of your ability. Oh, and be decent and polite. Say ‘please’ and ‘thank you’. I’m not soft or a pushover, but it’s the easiest thing to have manners.

A word to the wise It has been 40 years since Berkeley was established, and as is often the way with anniversaries the milestone has prompted some reflection.

“What’s made it is the application of common sense and the following of our instincts. We try to do decent things and follow a code of conduct. Do we always get it right? No. But we try, and I think that’s important. It’s been tremendous building Berkeley, it really has. We’ve had a lot of fun.”

Asked about what advice the 2016 Pidgley would give to his 1976 counterpart, he touches on the approach that has served him, and Berkeley, well. “I like people who aspire to do things. If I, uneducated, can build this company through nothing more than common

“When we started, did I believe it would get to this size? No. Am I proud of it? Yes. Is it a fantastic business? Yes.

For further information please contact Hugh Bullock on +44 (0)20 7333 6302 or email [email protected]

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ENGAGE ISSUE ELEVEN

THE MANCUNIAN WAY MANCHESTER’S RENAISSANCE HAS BEEN ONE OF THE UK’S STANDOUT REGIONAL SUCCESS STORIES. BUT WITH THE CITY AT A CROSSROADS, ENGAGE ASKS WHETHER ITS WINNING STREAK CAN CONTINUE.

million increasingly skilled and affluent people live in Greater Manchester – and the population is growing, attracted by jobs and renowned cultural attractions. Its universities are world class, driving research and innovation.

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Walsh is right to be optimistic about Manchester’s continuing appeal as an investment destination, but concerns remain that the political imperative is declining. The public sector was crucial in both creating the conditions for growth, and making investors – especially those from overseas – aware of the opportunities. But the retirement of Sir Howard Bernstein, downfall of George Osborne and resignation of Jim O’Neill has robbed the Northern Powerhouse of its main supporters, and the appetite of Theresa May’s Government for the project remains to be seen.

ave you seen Manchester?” wrote Benjamin Disraeli in 1844. “Manchester is as great a human exploit as Athens.” The city he described was very different to the one we see today, but there can be little doubt that its factories, warehouses, docks and railways were something to behold. Like many such places, the post-war period was less than kind to Manchester, but perhaps uniquely among its peers the last 25 years have seen something of a renaissance. A focus on inward investment from both the public and private sectors – in the UK and overseas – has brought an economic vibrancy that has eluded many regional cities. Indeed, such factors influenced Gerald Eve’s decision to base its thriving national planning and development team in the city.

“Where once it was the factories that drew people to Manchester, today it is professional firms such as lawyers, accountants, consultancies and tech start-ups that are leading the charge. It is the UK economy in microcosm, the shift from manufacturing to service industries, and Manchester is riding that wave.”

Those seeking political leadership put great store in the forthcoming election of the Mayor of Greater Manchester to fill the void. City residents actually voted against having a mayor in a 2012 referendum, but polls showed a majority in favour of a similar position for the wider Greater But Manchester finds itself at a crossroads. Manchester metropolitan area and the Sir Howard Bernstein, the catalyst behind role was subsequently created. The Mayor will boast powers that exceed much of the city’s recent improvement, even those of the London equivalent, stands down as chief executive of the overseeing areas including transport, council next spring. May 2017 will see housing, policing, planning and health. the election of the first Mayor of Greater Manchester, but the winner will take office Bricks and clicks at a time when central Government’s enthusiasm for the ‘Northern Powerhouse’ The performance of Manchester’s economy in the coming years will be project appears to be on the wane. reflected in its property market, but as And then there’s the Brexit question: things stand there are reasons to be is the overseas investment that has so optimistic about its resilience. In the city benefitted Manchester about to dry up? centre, demand for office space has remained robust following the Brexit vote Fundamental strengths and availability is close to an all-time low. Mark Walsh, head of Gerald Eve’s Industrial and logistics property in the Manchester office, remains bullish. region is likewise seeing high levels “The fundamentals that underpinned of take-up and facing a distinct lack investment and the city’s renaissance of supply, especially for prime sites. haven’t changed,” he says. “Nearly three

Typographic illustration: Oliver Frappe

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FEATURE AUTUMN 2016 New infrastructure projects will also have a positive impact, particularly on the industrial sector. At the time of going to press Liverpool2, the new deep-water port, was on the cusp of opening, and the ribbon will be cut on the second Mersey crossing at Widnes during 2017. Both of these will have benefits across the region. Jason Print, industrial partner at Gerald Eve, said: “The North West, with its concentration of motorway links and population centres, has always been popular among logistics occupiers, and that demand continues to be seen. Internet retailers such as Amazon are underpinning much of this take-up, and with development activity somewhat subdued the current record low level of availability looks set to continue. High occupier demand, putting upward pressure on rents, allied to a general shortage of stock, continues to make it an attractive asset class for investors.” While it seems likely that the uncertainty surrounding Brexit will have some impact on overseas investor interest, it is also true that the recent devaluation of the pound has made the city’s real estate that much cheaper to those from outside the UK. If Manchester can continue to demonstrate the fundamentals that have made it a good investment destination in recent years, there’s no reason it can’t continue to attract capital. Callum Robertson, a partner in Gerald Eve’s Manchester capital markets team, added: “The strengths of Manchester real estate remain – robust occupier demand and forward thinking landlords. The devaluation of the pound will attract overseas capital to the Manchester, however their investment criteria is sometimes challenging to satisfy. The North West has exposure to a broad spectrum of occupiers and this is why we consider the North West will remain resilient.” In the 2002 film 24 Hour Party People about Manchester’s legendary Factory Records, the main protagonist Tony Wilson tells viewers “This is Manchester. We do things differently here.” For 25 years, Manchester has set itself apart by doing things differently, and few would bet against this most independent-minded of cities continuing in that vein. For further information please contact Mark Walsh on +44 (0)161 830 7091 or email [email protected]

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ENGAGE ISSUE ELEVEN

FEATURE AUTUMN 2016

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Growing the network is central to Regus’ business strategy and this applies as much to mature markets such as the UK as it does to emerging markets such as China and India.

Spaceworks, London

Spaceworks, London

GROWING PLACES

FOLLOWING GERALD EVE’S RECENT APPOINTMENT TO MANAGE ALL RATING SERVICES FOR WORKSPACE PROVIDER, REGUS, ENGAGE SPEAKS TO ITS FOUNDER AND CEO MARK DIXON ABOUT HIS AMBITIOUS EXPANSION PLANS AND THE PROSPECTS FOR THE SECTOR AS A WHOLE.

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Mark Dixon Regus Founder and CEO

ince its launch in 1989 Regus has become the world’s largest provider of flexible workspace solutions. With a FTSE 250 listing and a market capitalisation of £2.89bn, Regus is very much the established player in an arena that continues to spawn rivals. Despite this, its founder and CEO, Mark Dixon, remains unashamedly focussed on further growth and is clearly energised by the ongoing digital and workplace revolution. “The serviced office model becomes more and more relevant with each passing year. The two key drivers – the growth of outsourcing and the advance of digital industries – are fuelling demand like never before and pushing growth upwards,” he says. This growth has helped swell Regus’ global revenues to £1.1bn in the six months to 30 June 2016, resulting in pre-tax profits of £84.3m.

With some 400 centres in over 100 towns and cities throughout the UK, Dixon is not about to rest on his laurels. “There’s a big opportunity in the regions. We have customers asking why we haven’t covered certain locations outside London. In this respect, we’re striving to be more like Vodafone than a traditional landlord. We already have the customer base, but need to offer them access to our services from a wider network across the country,” he says.

When asked about the threat of emerging rivals such as WeWork and other shared workspace providers, Dixon is typically sure of the Regus proposition. “All too often people assume serviced offices are a start-up product, when in fact they are more typically used by corporates and established SME’s. There is clearly a market for co-working space in the digital era and it is why we have launched our Spaces service line, but this is not where we anticipate the bulk of our growth will come from across the network,” he adds.

Over and above its traditional serviced office product, Regus has also experienced a surge in demand for its outsourcing services. This is proving especially popular in markets such as India or China where a corporate client might need to accommodate 200 staff for a particular project at short notice and lacks the experience and resources to do this in-house. Instead, it instructs Regus to find, operate and manage a suitable building. Continued >

This revenue is generated from a network of some 850 centres in 107 countries. Yet, according to Dixon, this is just the tip of the iceberg and there is plenty more still to come. “Our challenge is no longer selling the concept,” says Dixon. “The workplace has changed immeasurably over the past two decades. There are fewer corporate monoliths and far more, smaller service providers across all industries. This has created a more dynamic and opportunistic business culture that demands easy to use, flexible space, where and when they need it. Our challenge is achieving the scale to satisfy that demand.” Growing the network is central to Regus’ business strategy and this applies as much to mature markets such as the UK as it does to emerging markets such as China and India.

Spaceworks, London

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ENGAGE ISSUE ELEVEN

FEATURE AUTUMN 2016

FEATURE AUTUMN 2016

REGUS’ RATES RIDDLE

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HOW DO YOU MANAGE THE RATES PAYMENTS FOR OVER 300 REGUS LOCATIONS THROUGHOUT THE UK? GERALD EVE PARTNER STEVE HILE GIVES ENGAGE THE INSIDE TRACK. Central to Gerald Eve’s capacity to manage a portfolio of this size and complexity is its Rates Payment Management Service (RPMS), it’s market-leading offering that currently oversees business rates payments totalling in excess of £1.1bn every year – including audit and recovery – for 45,000 properties across the UK.

Spaceworks, London

In the current macroeconomic climate, the only way we can maintain our projected rate of growth is by spreading some of the risk.

“This,” says Dixon, “comes at a price in terms of a premium on a traditional rent, but in return you get to significantly de-risk a project and access to a vastly enhanced service.” Regus expects to deliver much of its ambitious growth plans via its partnership model, which allows it to mitigate risk and grow in a more capital efficient way. Increasingly, by partnering with real estate owners, Regus brings together investors in property and its fast-growing global customer base to continue to generate attractive returns on its investments.” “In the current macro-economic climate, the only way we can maintain our projected rate of growth is by spreading some of the risk.” “The administrative and financial burden of operating from long-leases on all of our locations would inevitably cause some

drag, but this model allows us to work with like-minded partners and focus on revenue-generating activities,” says Dixon. Despite outlining his ambitious growth plans, Dixon is not without his fears for the global economic outlook and has been taking measures to protect the business in the event of any significant downturn. “We have planned prudently during 2016 and taken action to improve efficiencies along with adopting a more cautious approach to lease renewals,” he says. For the short-term at least, it looks as though Regus’ continued expansion drive will be tempered with some caution, although we shouldn’t expect this to hold it back for too long. Already a familiar brand across most of the UK’s major towns and cities, its presence will only increase and Regus is, quite literally, coming to a town near you soon.

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o the uninitiated, Regus’ UK business centre network appears similar to any other large office portfolio. But scratch beneath the surface and it is many times more complicated than that; around 50 times more complicated, in fact. While the casual observer would count over 300 separate office properties, from a business rates perspective it is in fact over 15,000 individual assessments. With each separate rental agreement having it’s own rateable value – even if it is only a single occupancy office taken for a couple of weeks – the portfolio is one of the UK’s largest when measured by number of assessments.

“The benefits are clear,” says Gerald Eve’s Steve Hile, who alongside Paul Messiter oversees the management of Regus UK’s business rates liabilities. “There are reliefs of up to 100% available for the smallest properties, and each time a contract finishes there is a period of empty rates relief that can be claimed. Splitting the offices in this way may create an administrative headache, but the savings available are significant.” The ‘churn’ – the rate at which each office changes hands – creates empty rates relief opportunities but also requires near-constant monitoring to ensure the current rating liabilities are up to date. “We have our systems in parallel to Regus’ protocols,” says Steve Hile, “which allows any changes to be instantly visible and acted upon as necessary.”

Photography: David Hares taken at SpaceWorks – Mappin House, 4 Winsley Street, London W1W 8HF

Steve adds: “By having our own rates payment management service alongside Regus’ in-house system not only allows for an effective appeals and reliefs process, but also enables far more detailed reporting, budgeting and forecasting. It is details such as these – combined with our unrivalled understanding of the wider business rates system – that truly stands Gerald Eve apart when managing such portfolios.” But there is one thing that remains outside of Gerald Eve’s control: the Valuation Office Agency. “Getting a speedy response from the VOA has always been tricky, and the Regus portfolio – with its raft of assessments, appeals and reliefs – is particularly dependent on swiftness. But we have one final string to our bow – our strong professional relationship with the VOA and this can pay real dividends when time is tight.” For further information please contact Steve Hile on +44 (0)20 7653 6841, or email [email protected] Paul Messiter on +44 (0)20 7653 6845, or email [email protected]

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FEATURE AUTUMN 2016

FEATURE AUTUMN 2016

A TALE OF THREE CITIES

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ENGAGE SPEAKS TO TRANSATLANTIC COLLEAGUES AT LEE & ASSOCIATES FOR THEIR VIEWS ON THE USA’S MOST EXCITING REAL ESTATE MARKETS IN 2016.

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he top spot for global real estate investment usually comes down to a straight shoot-out between London and New York. However, recent figures from data-house Real Capital Analytics show that Los Angeles has edged London out to become the world’s second-largest city for investment activity during 2016. Figures for the first quarter of 2016 reveal New York to have achieved $14.3bn in sales, with Los Angeles and London some distance behind at $7.25bn and $6.5bn respectively. Atlanta, whilst not quite offering the global presence of the three top-tier cities, still achieved an impressive haul of some $2.58bn of investment transactions. This places it behind cities such as San Francisco, Hong Kong, Chicago, Tokyo and Berlin but ahead of Paris, Shanghai, Amsterdam, Berlin and Frankfurt. As the largest broker-owned practice in the USA with 56 offices throughout the country, Gerald Eve international alliance partner Lee & Associates is well placed to provide some insights into these key markets and has shared their thoughts on these three key cities with us. New York Although New York has enjoyed significant investment activity during 2016, there has been evidence of a slow-down in activity during the second quarter with transactions dropping by some 20%. This reduction has created a gulf between seller and buyer expectations, according to Kenneth Salzman of Lee & Associates. “Notwithstanding this new dynamic, we can expect trophy assets to continue trading at a premium as the downside risk is limited. These assets aside, we have not seen much activity from US investors and the market has been buoyed by overseas investors,” says Salzman. Some of New York’s biggest investors during 2016 have included Caisse de Depot, Qatar Investment Authority, Anbang Insurance

Illustration: Martin O’Neill

ENGAGE ISSUE ELEVEN

Group and Norges Bank. New York is also currently experiencing something of an office development boom with some 13.3m sq ft currently under construction. “Perhaps surprisingly, the average age of an office building in midtown Manhattan is 72 years old. Technology and the demand for modern infrastructure is driving demand for new buildings,” says Salzman. Retail remains a key market for New York and is partly responsible for attracting around 55 million tourists annually. This has led to it being considered as a showcase for brands – no better illustrated than in the case of Apple’s flagship Fifth Avenue store, which turns over $750m annually. This trend has led to some aggressive rental growth in Manhattan with many observers believing retail rents have now reached their peak. “We are beginning to see luxury retail rents in places like Madison Avenue soften as key brands begin to hold off expansion. With many brands facing increased pressure from online retailers, there is a limit to what they will pay for a physical brand presence – even in Manhattan – and ultimately rents will have to recalibrate at a lower level,” adds Salzman. Los Angeles With London’s reputation as a global investment hot-spot, Los Angeles has done well to leap-frog into second place. There is a sense that the city may have benefitted as traditional US and Canadian investors have become priced out of New York, while geography also works in its favour as it is particularly favoured by Asian investors. Some of the largest net investors into the city this year have included GIC, CPPIB, UBS and Onni Group. Another factor in LA’s favour is that the sheer size of its metropolitan area makes for a very diverse make-up. In addition to the obvious flagship offices, retail and hotel assets it is also a large manufacturing hub. As Jeff Rinkov of Lee & Associates

explains: “The strength of the LA basin’s distribution sector means that industrial rents are beginning to experience meaningful growth.” We are currently experiencing historic net absorption rates and shockingly low vacancy rates of around 2%. These fundamentals are making Los Angeles industrial a very attractive asset class.” Atlanta While in recent years foreign money has poured into gateway markets (New York, Los Angeles, San Francisco, Boston), Atlanta has not traditionally been considered in the same league. Yet it boasts the highest concentration of Fortune 500 companies outside of New York and Houston and offers important transport connections, a good quality of life and a pro-business (and cost effective) environment. These factors have helped attract major international corporate occupiers including Mercedes Benz, Porsche and Honeywell. The strength of Atlanta’s occupier market, coupled with the prospect of better yields, is beginning to attract both domestic and foreign investors with acquisitions made by the likes of Hines and CW Capital Asset Management in the past 12 months. Lee & Associates’ John DeCouto is optimistic about the city’s prospects: “By many measures, Atlanta is a city on the up. Rising office rents, strength of take-up and the current construction pipeline are all encouraging signs. A shortage of investment and building starts across all sectors post recession has fuelled 20-30% rental increases in office, retail and multi-family rents. There is also plenty of scope for future development activity, although the biggest challenge here will be availability of skilled labour as public sector projects have absorbed much of the available resources.” For further information please contact Patricia LeMarechal on +44 (0)20 7653 6851 or email [email protected] WWW.GERALDEVE.COM

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MARKET FACTS AUTUMN 2016

M

AR KE T

FA CT S

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0.5

23

LONDON FLOOR REVIEW

bps

$1.22 USD

%

UK GDP growth Q3 2016 (ONS)

£58 bn

9.2

A floor-by-floor analysis of the London office market Q3 2016

Average yield inflation between July and September 2016 (MSCI Monthly Digest)

Quarterly gross mortgage advances Q2 2016 (Bank of England)

%

Average house price growth in England (August 2015 – August 2016) (Land Registry)

13.8

Value of £1 Sterling (Year-low October 2015-2016) (Bank of England)

0.25

%

Bank of England base rate

QUARTERLY SUMMARY • London take-up rises by 1% in Q3 • Take-up drops 17% in the East, yet prime rents stable at £70 per sq ft • Take-up increases 25% in the West, but prime rents fall to £120 per sq ft • London availability rises by 17% as developments complete • However, supply remains low in historic terms and this will help insulate the market • Occupiers place increased emph asis on lease flexibility • Some landlords postpone deve lopment plans to protect short term income

m

Sq ft of logistics space taken-up in the UK during Q3, marking the largest quarterly volume on record

For more information please contact Stephen Peers +44 (0)20 3486 3450 [email protected] WWW.GERALDEVE.COM

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