TOSCAFUND
January 2016
BRITAIN’S
PROPERTY CREDENTIALS
A British Property Federation commissioned report
prepared by TOSCAFUND
Authors: Dr Savvas Savouri, Toscafund Chief Economist, and Professor Richard Jackman, London School of Economics
Research Assistants: Nas Christodoulopoulos, Boris But, Katie Orlandi and Vikram Lopez Y Royo
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
The report was commissioned by the British Property Federation (BPF) and prepared by
Toscafund Asset Management LLP (Toscafund).
The BPF is the membership organisation for the UK real estate industry. It represents all those involved in real
estate ownership and investment. It works with Government and regulatory bodies to help the real estate
industry grow and thrive, to the benefit of its members and the economy as a whole.
Toscafund, founded by Martin Hughes in 2000 and based in London, is a multi-asset fund manager. Funds
managed for a broad investor base include global equities, hedge funds, commercial and residential property
funds, activist funds, debt capital and UCITS funds.
Authors
Dr Savvas P. Savouri
Chief Economist – Toscafund Asset Management
Since 2008 Savvas Savouri has been a partner and chief economist at Toscafund Asset Management, having
headed economics and strategy departments at a number of investment banks. Before entering financial
services Savvas taught at the LSE, Oxford University and Moscow State University. Savvas was awarded a
doctorate in Econometrics and Mathematical Economics from the LSE where he also obtained masters and
bachelor degrees in the same discipline.
Professor Emeritus Richard Jackman
Professor of Economics – London School of Economics and Political Science
Professor Richard Jackman joined the LSE teaching staff in 1968 after his MA in Economics from Cambridge
University. Richard has co-authored four books and has over 80 articles in refereed journals. During his time at
the LSE, Richard has also been a visitor Professor in Economics at the University of Iowa and worked as a
consultant with the World Bank. He has worked with the London Boroughs’ Association (now known as
London Councils) and the Department of the Environment in connection with its studies on local government
finance.
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Executive Summary
Commercial Real Estate (CRE) is an essential component of the UK’s economy and its prosperity. This report
highlights the contribution made by CRE and argues that its full scale and impact are often not fully recognised,
partly because of its breadth and complexity. We also argue that CRE’s contribution to Britain’s economy, its
environment and to the well-being of its people could, and should be greater. The report identifies some
factors hindering CRE from achieving its full potential, in particular fiscal arrangements that can discourage
investment and thereby limit its contribution to economic activity and growth.
What is CRE?
In this report, we adopt a broad definition of CRE which we define as any property whose main function is to
generate income for its owner. Therefore the Private Rental Sector as well as other buildings such as airports,
are seen as an integral part of CRE. Conversely, we argue that without income generation real estate cannot be
defined as ‘commercial’.
Part 1 of this research paper includes a series of vignettes relating to CRE, presenting ideas surrounding its
often overlooked contribution to our lives and how exactly it impacts us. It also exposes some
misunderstandings which often arise concerning the contribution of CRE. Section 1 is intended to be
illustrative. We illustrate CRE’s contribution with some striking examples taken from different sectors, some
better known, such as the great developments in retail, hotels and leisure, but also many less obvious where
CRE has played a crucial role, including transport and infrastructure, professional services and IT, universities
and private rented housing. From this wide range of examples we draw out a number of themes, for example
flexibility, allowing buildings designed for one purpose to be easily converted into another and areas to be
transformed, to take into account changing trends in demographics and lifestyle, technology etc.
Overall, our conclusion is that the current external view of the industry often misses the significance of the CRE
sector and responsible property investment, its inextricable link to the physical fabric of our lives, and the
contribution that the industry makes to the wider environment and the creation of social capital.
The economic contribution
We estimate the current market value of CRE in 2014 as £1,662bn, which is just over 20% of net wealth. In Part
2, we show how we establish quantitative values for what CRE means to the economy, and the ‘economic
value’ of CRE is examined extensively as a provider of balance sheet wealth and income. We provide detailed
information and sources for the estimates and claims made for CRE. We set out our definition of CRE and show
how it can be measured using Valuation Office Agency data on rateable values and housing data, and indicate
why it differs from measures used elsewhere (for example the Office for National Statistics’ Blue Book category
of ‘non-residential buildings’). We derive estimates of the asset value of CRE from these rental values. We note
that the value of CRE has lagged behind that of other assets such as residential dwellings.
According to conventional national income accounting procedures, the contribution of CRE to GDP is measured
by the rent (actually paid or implicit) generated by such properties. This amounts to around £94bn or 5.4% of
GDP in 2014, or around one-quarter of the contribution of ‘non-human’ inputs to national output, with the P
RS contributing £42bn market rent. Whilst this income trickles down to households, this story is not often told.
For example, pension funds are invariably heavily invested in equities, whose value can be traced to deriving to
a large extent from the CRE that they finance or with CRE as an essential factor input to creating the value they
represent. Often commercial development is financed through debt, equity or other financial instruments that
are themselves held by pension funds, banks or other intermediaries, so the claims on the income generated
by CRE are much more widely dispersed than might otherwise be expected.
UK CRE had a market value of £1,662bn in 2014 and contributed £94bn to GDP.
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The broader impact
Whilst income generation is hugely important and the most tangible output from CRE, we demonstrate in the
report that CRE brings value in many other ways. Our towns and cities have CRE at their heart, it drives their
health and vitality and it can deliver a range of benefits for the wider community. These ‘externalities’ and
their importance to the UK are explored in detail in this report. We also argue that there are other parallel
benefits on the wider economy – for example the conception, construction, maintenance and stewardship of
CRE provides a wide range of high quality employment opportunities.
In addition to the contribution of CRE to GDP, it makes a significant its contribution to the built environment,
to employment and to development and regeneration.
Challenges for the sector
CRE also contributes a substantial amount of tax revenue. At the end of the report we investigate the burden
of taxation on commercial property and argue that, being immobile, CRE is an easy target for taxation and in
consequence is overtaxed relative to other factors of production. The tax system is unbalanced and imposes
higher rates of taxation on commercial property than other forms of investment, in particular owner-occupied
housing (which constitutes the bulk of the nation’s stock of wealth). This leads to a correspondingly enormous
misallocation of savings, which is poured into domestic housing rather than productive investment.
The growth of real wages depends on the growth of capital investment (of which CRE forms a large part) at
least keeping pace with the growth of population. This requires substantial investment in CRE over the coming
years. However this investment can be jeopardised by a restrictive investment climate and in particular
through excessive taxation.
January 2016
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Contents
Introduction
7
Part 1.
Evolution of Britain’s CRE sector
8
The externalities (social benefits) of Britain’s CRE
8
1.1
1.1.1
1.2
The ‘direct’ externalities of CRE
Infrastructure and transport
8
9
1.2.1
Construction and the Growth of GDP
1.2.2
Bringing derelict CRE back to economic life
10
1.2.3
Britain’s CRE is better connected
12
1.2.4
King’s Cross Central: A case study in inclusive regeneration
14
1.2.5
CRE: Walking on water
16
1.2.6
CRE flying high
17
1.3
Offices and IT
9
18
1.3.1
CRE in the clouds
18
1.3.2
CRE and the internet
18
1.3.3
Google: search for a real presence
19
1.3.4
Sometimes developing Britain's CRE does not quite reach The Pinnacle
19
1.3.5
Global purpose and competitiveness
20
1.3.6
A real second home in Britain
21
1.3.7
A Central Point: CRE unchanging on the outside but evolving within
22
1.4
Educating CRE
23
1.4.1
British universities
23
1.4.2
An educated CRE case study: The University of Buckingham
23
1.4.3
Britain's real commercial education industry
24
1.4.4
Education, Education and Education
26
1.4.5
Case Study: Students, UNITE-d
26
1.5
Great retail developments
27
1.5.1
The Amazon story: Reading between the real estate lines
27
1.5.2
C-REacting commercial space in a flash
28
1.5.3
All change: The moving story of Aldwych Station
28
1.5.4
CREating new markets from old
29
1.5.5
Gateshead's MetroCentre: A Real development turning point
29
1.5.6
Ring in positive change: Birmingham's Bull Ring Centre story
30
1.5.7
High street real estate, the butcher, and baker and...
31
1.5.8
Betting on a continued real estate need
32
1.6
Hospitality and leisure
33
1.6.1
Center Parcs building its fifth British resort, creating 2,700 jobs
33
1.6.2
Licensed to change
33
1.6.3
Hotels: A home from home
33
1.6.4
Who could have accurately pictured that?
34
1.6.5
Britain's built reCREational space
35
1.6.6
A real Olympian effort
35
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1.6.7
Giving CRE a sporting chance
37
1.6.8
Britain’s winning CREw
38
1.7
Private rental sector
40
1.7.1
Britain's modern work houses
40
1.7.2
The welcome growth of commercial residential (née private rental)
41
1.8
Manufacturing CREativity
1.8.1
1.9
Real estate’s food for thought
Flexibility
42
42
43
1.9.1
Property arriving from above
43
1.9.2
Protean property
44
1.9.3
Our future is in the clouds but still very real
44
1.9.4
The regeneration of Nine Elms and Battersea: a case study in regeneration and relocation
45
1.9.5
Time to open up Britain's CRE
46
1.9.6
Mixed and change of use property: all for the better
46
1.9.7
Productive property
47
1.9.8
Self-contained property
47
1.9.9
Moving buildings: It's elementary
48
1.9.10
Part 2.
2.1
Britain's sustainably eco-friendly built-scape
49
Analytics of Britain’s CRE sector: concepts and numbers
50
Definition and value
50
2.1.1
Definition
50
2.1.2
Some taxing concerns over CRE taxonomy
51
2.1.3
Valuation
53
2.2
Rental value (contribution to GDP)
55
2.2.1
The value of ‘non-domestic’ CRE
55
2.2.2
The Value of private rental housing
57
2.2.3
CRE and the generation of household income
58
The asset value of CRE (CRE as an investment class)
60
2.3
2.3.1
The value of Britain's CRE: AcCREdited and AcCREtive
60
2.3.2
The asset value of CRE
61
2.3.3
CRE as a proportion of national wealth
63
2.3.4
Who owns Britain’s CRE?
65
2.3.5
Ownership – the significance of foreign capital
66
2.3.6
Understanding the reason for foreign capital
67
2.4
Employment
69
2.4.1
A CREator of jobs
69
2.4.2
‘Multiplier’ externalities
70
2.4.3
The employment value Britain's CRE construction
72
2.5
2.5.1
CRE and taxation
The burden of taxation on CRE relative to other factors of production
73
73
Appendix 1 – England and Wales rating list, VOA, as of Sept 2014
75
Appendix 2 – England and Wales top 5 sectors by category, VOA
86
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Introduction
In this report, we argue that commercial real estate (CRE) makes a great, if not always fully recognised,
contribution to Britain’s economy, its environment and to the well-being of its people. But that contribution
could, and should be greater. The report identifies some factors hindering CRE from achieving its full potential,
in particular fiscal arrangements that discourage investment and thereby reduce its contribution to economic
activity and growth.
Part 1 of this research paper covers an assortment of topics, issues and themes relating to Britain’s
Commercial Real Estate. This first section is made up of vignettes relating to CRE, presenting ideas surrounding
its often overlooked contribution to our lives and how exactly it impacts us. It also tries to expose
misunderstandings which often arise concerning the contribution of CRE. Section 1 is in no way exhaustive of
these, simply illustrative. We illustrate CRE’s contribution with some striking examples taken from different
sectors, some better known, such as the great developments in retail, hotels and leisure, but also many less
obvious where CRE has played a crucial role, including transport and infrastructure, professional services and
IT, universities and private rented housing. From this wide range of examples we draw out a number of
themes, for example flexibility, allowing buildings designed for one purpose to be easily converted into
another.
In Part 2, an orderly sequence is followed as we establish quantitative values for what CRE means to the
economy, and the ‘economic value’ of CRE is examined as a provider of balance sheet wealth and income
extensively. We provide detailed information and sources for the estimates and claims made in this
introduction. We set out our definition of CRE and show how it can be measured using Valuation Office Agency
data on rateable values and housing data, and indicate why it differs from measures used elsewhere (for
example the Office for National Statistics’ Blue Book category of ‘non-residential buildings’). We derive
estimates of the asset value of CRE from these rental values. We note that despite all this, remarkably, the
value of CRE has lagged behind that of other assets such as dwellings. So lastly in this section we investigate
the burden of taxation on commercial property. In Britain, the tax system is somewhat unbalanced and
imposes higher rates of taxation on commercial property than on other forms of investment, in particular
owner-occupied housing (which now constitutes the bulk of the nation’s stock of wealth).
We define CRE as property that generates income for its owner. This is not, however, the only function – on
the contrary, CRE makes an important contribution to the environment, to employment and to economic
development – but we suggest that without income generation, real estate cannot be defined as ‘commercial’.
This definition, based on function, is wider than those sometimes used and includes, for example, property
such as airports and buy-to-let housing. We argue that the best measure of the contribution of CRE to GDP is
the market rent generated by commercial property. In 2014, this amounted to just over £94bn in the UK –
about 5.4% of GDP, or around one-quarter of the contribution of ‘non-human’ inputs to national output.
But the economic value of CRE is not just an input to current production; it also constitutes a significant
component of marketable wealth. We estimate the current market value of CRE at around £1,662bn, which
represents 20.6% of total net wealth. Often, commercial development is financed through debt, equity or
other financial instruments that are themselves held by pension funds, banks or other intermediaries, so the
claims on the income generated by CRE are much more widely dispersed than might otherwise be expected.
Whilst income generation is a crucial part of the puzzle, CRE brings value in other ways too. Our towns and
cities are largely made of CRE, and confer wider benefits on the community. These wider benefits are, known
as ‘externalities’. There are other effects on the wider economy too. The construction and maintenance of CRE
is a significant sector of economic activity that contributes to the range of employment opportunities. CRE also
contributes a substantial amount of tax revenue. Indeed this report argues that, being immobile, CRE is an
easy target for taxation and in consequence is overtaxed relative to other factors of production.
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Part 1.
1.1
BRITAIN’s PROPERTY CREDENTIALS
Evolution of Britain’s CRE sector
The externalities (social benefits) of Britain’s CRE
Let us begin by considering forms of property that, whilst only existing to facilitate the flow of people and
materials – bridges and tunnels – are a crucial built part of Britain’s commercial economy. After all, there can
be no denying these built features contribute towards GDP and that without them GDP would be materially
lower, but by how much? The answer lies in the realm of measurement of which good Jeremy Bentham
termed felitous calculus. Before we begin our attempt to quantify the value of property, we must illustrate its
essential worth.
1.1.1 The ‘direct’ externalities of CRE
Whilst the concept of externality is widely recognised, there are disputes as to what should be included, and
how such elements should be measured. Our focus in this section is on the latent economic value of built
infrastructure, and in particular, the role of CRE.
There is considerable debate surrounding the cost-benefits of HS2. Whilst its critics argue that HS2 cannot
possibly justify the economic and environmental costs, its supporters present an argument based on the
benefits of improved connectivity and capacity, externalities which, whilst impossible to precisely measure,
will prove considerable all the same. The argument behind HS2 is that the whole rail link, including new
stations, will produce both a direct commercial return along with much more important externality benefits.
We will look at the HS2 project later in Part 1.2.3.
Externalities exist where some activity leads to direct benefits to some third party from which the person
providing the activity cannot or does not receive any payment, such as a silencer fitted to a car exhaust where
the manufacturer cannot recoup the cost from all the people who experience the less noisy environment.
When considering CRE, there are two major types of externality, which might be termed ‘amenity’
externalities and agglomeration externalities. Amenity externalities exist when CRE creates a more pleasant
built environment and thus enhances the quality of life for people living and working in that area. These
externalities are difficult to measure but clearly important: every developer knows that local planning
committees require a high quality of design in any new development and indeed the visual impact of new
buildings can play an important role in the regeneration of an area. Of course, the developer can hope for a
higher price for a more attractive building, but much of the benefit accrues to local residents and those
working in the area, who cannot be made to pay for it. In Part 1 of this report we describe many examples of
commercial development leading to the regeneration of an area, from the refurbishment of the Victorian
station hotels at King’s Cross and St Pancras to Birmingham’s Bullring.
Externalities can also be created through relationships between firms rather than from firms to consumers.
These are known as ‘agglomeration economies’, they exist when the productivity of one enterprise is
increased by the proximity of others. An example near to hand is London’s ‘silicon roundabout’, at the junction
of Old Street and City Road. As with California’s ‘silicon valley’, having a large number of small firms enables
each to benefit from the ideas and developments of others, so that all are more productive but none is able to
charge for the benefits it provides for the others. London contains many examples of agglomeration of more
traditional professional services, such as the lawyers in the Inns of Court.
We can also identify ‘co-ordination externalities’, which arise when businesses provide complementary
services near to each other, for example coffee shops and cafes located in shopping streets or in retail parks.
Each contributes to the overall experience; the cafes benefit from the trade brought in by shoppers, while at
the same time providing rest and refreshment to enable the shoppers to keep going for longer.
In all these cases, the economic contribution of the particular property may exceed the rent the landlord can
charge. Large-scale developments can sometimes ‘internalise’ a part of these externalities; most often
however, it is not feasible. In some cases, there will be insufficient investment by the developer in activities
generating positive externalities because much of the benefit goes to third parties. With commercial
developments, much of the potential development gain in land values can be effectively taxed away by
planning authorities wanting to ensure as large as possible benefit to the community as a whole from the
commercial investment.
While specific examples can convey the importance of these effects, actual measures are more difficult to
obtain. One approach is to measure the appreciation of local property prices, in particular of housing, on the
basis that if a development improves an area, people are willing to pay more to live there. Again this has to be
done on a case study basis.
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1.2
BRITAIN’s PROPERTY CREDENTIALS
Infrastructure and transport
Before looking at examples of CRE, we must look at the physical and organisational structure of the UK.
Without investment in this key area, there will be bottlenecks, as the growth of UK’s production and
distribution of goods and services increases. In this section, we consider transport hubs and their networks.
1.2.1 Construction and the Growth of GDP
Economic growth depends on investment but investment takes many forms, not only physical capital but also
research and development and the education and training of the workforce. Within tangible physical capital
we see investment in plant and machinery, vehicles and infrastructure, as well as into commercial and
residential property. After years of stagnation following the financial crash of 2008, growth has returned to the
UK economy and with it, we will argue, the need for greatly increased investment in CRE. Consider just one
example: airports. Most major airports in the UK are now privately owned (albeit heavily regulated) and
generate profits for their owners. The VOA rateable values for England and Wales for airports come to £0.5bn
(0.8% of the total, current prices, as of September 2014). According to our definitions we have characterised
Britain’s airports as elements of its CRE asset base. The gross income they generate derives from charging
airlines for landing slots (and in charging retailers for retail sites in the terminals) and their contribution to GDP
consists of these rents or charges less any material input costs (such as heating and lighting). In all these
respects they are equivalent to other commercial companies and thus properly part of CRE.
And clearly airports play a crucial role in economic growth. Every day we hear from business leaders how
economic growth is being held back by lack of airport capacity and this is even though passenger figures for
Heathrow and Gatwick, for instance, are regularly breaking new highs. In fact, between them these airports
catered for well over 110m passengers in 2014. Whilst terminals have enjoyed considerable investment,
runway capacity has been slow to increase. Rising passenger numbers are edging Britain’s main airports
towards their capacity, with the Department for Transport forecasting that London’s main airports could be
“full” by 2025.
Keenly-interested observers such as the CBI suggest that lack of investment in runway capacity has restricted
growth in, for instance, Heathrow (53%) to one-third the rate enjoyed by Paris Charles de Gaulle (142%) over
the past 20 years, and slower also that the 84% recorded by Frankfurt. The inference is that failure to increase
airport capacity damages Britain’s competitiveness. The CBI cited a survey of large multinationals in which 85%
considered air connections to both established and emerging markets a significant factor in their decision over
where to invest.
The 2014 CBI report which examined airport activity warned “Our network offers spare capacity where there is
little demand [for flights to emergent nations] and no capacity where demand is greatest”. It concluded that “a
hub airport with spare capacity offers the greatest chance of new routes to emerging markets. UK businesses
want to see additional hub capacity prioritised as the best prospect for supporting new trade”. The CBI was
categorical in its statement that once the Davies Commission had published its report, “it is imperative that
the government of the day acts immediately to create the necessary planning policy statement and statutory
instruments to get building by the end of the parliament”. Addressing the Commission directly, the CBI report
pleaded “it must balance the economic imperative with environmental considerations and logistical realities to
serve the government with a politically deliverable solution”.
For an open-economy capitalising on mobility into and out of it by people and goods, airports have, in our
view, to be considered crucial factor in economic growth. In the UK, investment in terminals must now make
way for investment in infrastructure, i.e. runways, to raise capacity for international travel.
While airports are a clear example of the importance of one type of CRE to economic growth, the commercial
sector as a whole is sometimes characterised as being rather less exciting. Of course people need buildings to
work in, but some say new technologies can manage without it, or at least diminish its importance. In our view
this conclusion is misleading. This report includes examples, from cloud technology to the Post Office, where
technological change has led not to a reduced demand for CRE, but to a change in the way we use it, the
technology leading to new services and different types of use and with them a demand for different types of
CRE.
But nor should one ignore the continuing demand for traditional types of CRE such as offices, shops and hotels.
We have already seen that CRE accounts for a large proportion (more than a quarter) of the capital stock, and
leaving aside dwellings, non-residential CRE accounts for an even larger proportion (close on 30%) of
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‘commercial capital’. As the quantity and quality of CRE improves, work will become more productive and job
opportunities, and wages, will increase. The UK economy is expected to experience growth in the labour force
over the medium term; only if this is matched by a more rapid growth in other inputs, including CRE, can
wages grow and employment opportunities improve.
Our leading example though carries a warning sign. The growth of airports has been restricted largely by
planning controls, which are of course understandable in the case of airports because of their adverse
environmental effects (noise and air pollution). Equally for many other types of CRE, the environmental effects
are positive and indeed a major part of the contribution a new development makes to economic welfare.
1.2.2 Bringing derelict CRE back to economic life
Its new name is no accident, for the St Pancras Renaissance Hotel (which opened its doors in 2011) has
delivered an economic boost to an area blighted for decades because large parts of its real estate remained
derelict. Whilst this particular Renaissance is one of many which have been seen over time, Britain is still home
to a great deal of once economically active real estate that is now moribund. There is great potential for such
assets to be brought back to commercial life and to deliver economic benefits through restoration and then
subsequent operation.
The Renaissance has been an impressive restoration of The Midland Grand Hotel designed by George Gilbert
Scott and which fully opened in 1873, only to close in 1935. From 1935 until work began on its revival, the
building was largely derelict and if anything an economic liability. Now with its 211 rooms, 34 suites, numerous
restaurants and bars, it is an impressive and economically-enhancing asset.
In close proximity, at neighbouring King’s Cross station, stands The Great Northern Hotel, designed by Lewis
Cubitt, a building which pre-dates The Midland Grand Hotel, opening for business in 1854. Like its neighbour
and indeed other grand and more modest station hotels across Britain, the fortunes of the Midland Grand
suffered during the period in which rail passenger numbers fell. The consequences of this decline would ripple
out to all those businesses which had come to rely in some way on its guests.
Having been closed for 12 years – but fallen into a state of near dereliction for a period before – The Midland
Grand has recently re-opened its doors and come back to commercial life and generating considerable
economic multipliers. Just as its fortunes had previously moved in tandem with rail travel, so it is again, now
benefiting moreover from its proximity to the Eurostar.
Chart 1: Rail passenger miles on franchised operators’ services, quarterly
Distance travelled by rail passengers, bn miles
10
8
6
4
2
Long distance operators
London and South East operators
'15-16
'14-15
'13-14
'12-13
'11-12
'10-11
'09-10
'08-09
'07-08
'06-07
'05-06
'04-05
'03-04
'02-03
0
Regional operators
Source: ONS (Office of Rail Regulation), Toscafund
Over in Holborn is the Rosewood London Hotel, boasting 262 rooms, 44 suites, three restaurants and a handful
of bars. Originally completed in 1914 to a design by Percy Monckton, the building was not intended to be a
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hotel, but rather as the headquarters of Pearl Assurance Company. In 1989, Pearl relocated their HQ from
Chancery Court to Peterborough, leaving the building unoccupied and economically idle. This idleness would
end as redevelopment began in earnest in the late 1990s and the building’s opening as a hotel in 2000. Then in
2013, after £85mn of investment, the Grade II listed building re-opened as a luxury five star hotel.
Not far away from the Rosewood Hotel is the now idle Bow Street Magistrates Court, a building finished in
1881. Over time, high profile defendants have passed through the doors, including the Pankhurst sisters, Oscar
Wilde and Dr Crippen. The building was finally vacated in 2006, having been sold to Irish developers hoping to
convert it into a boutique hotel, the plan derailed by events of 2008. As long as it remains economically
inactive, the opportunity costs of its idleness increase. Those unsure of the practicalities in converting a court
house to a hotel need only look across from Covent Garden to Soho, where the Grade II listed building which
was once Great Marlborough Street Magistrates Court – where Oscar Wilde was also a defendant, as were
John Lennon and Mick Jagger – is now a 112-room hotel.
We could go on and map the locations across the length and breadth of Britain of imposing buildings that once
provided employment and economic multipliers but which now lie inactive. One wonders whether the
economic benefits of a commercial revival of dormant or idle real estate are appreciated, or whether the
mounting opportunity cost of real estate inactivity is fully understood.
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1.2.3 Britain’s CRE is better connected
In an age of rapidly-advancing technology, it might seem that the commercial benefits of businesses locating in
proximity to one another are lessening. After all, where once front, mid- and back-office functions demanded
closeness, now the ability to communicate and transmit information instantaneously over large distances has
allowed these roles to be unshackled. Indeed, even in areas of modern engineering, the importance of
research and development has lessened the need to actually move goods physically along supply chains. For
Britain’s CRE, this unshackling does not make an easy tale.
For a period, off-shoring was as familiar a sign of the country’s loss of purpose as it was contentious; from call
centres to manufacturing, it seemed as though Britain was it being evacuated (spurred on by differentials in
cost). However, whilst instances still exist of service providers and manufacturers opting to shift operations
from Britain, these are now being overshadowed by a combination of growing capacity elsewhere as a form of
expansion, not substitution. Interestingly, we are witnessing the return of off-shore capacity, and looking
ahead, we can anticipate continued ‘near-shoring’ with firms locating in Britain’s regions, rather than the
capital, as cost differentials that are actually favourable to Britain are exploited. There is also the added benefit
of familiar legal and regulatory environments and general infrastructure, very often absent with once popular
off-shore locations. This process is already occurring – for example, Deutsche Bank’s offices in Birmingham
(April 2014), whilst Santander has relocated its call centres to Leeds from India. All this accepted, one can still
argue a pressing need to improve how Britain’s real estate connects across a raft of geographic dimensions;
connecting people with work and businesses with one another.
There are economic benefits of improving links across the Pennines, bringing Leeds ‘closer’ to Liverpool and
opening up mid and north Wales. Trains between Liverpool and Leeds travel at an average speed half that of
the existing service between London and Leeds, suggesting to us that the former needs attention not the
latter. Those travelling between Wrexham and Manchester do so at an average speed almost one-fifth of
travellers between London and Manchester.
Figure 1: ‘Tube map’ of commuter zones, 1hr each way
Source: Office of Rail Regulation, Highways Agency, Toscafund
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Figure 2: Commuter zones 2013 (1hr travel – direct train)
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Figure 3: HS2 and HS3 plans
BRITAIN’s PROPERTY CREDENTIALS
Table 1: Statistics for selective rail journey across Britain
Time
(hr:min)
Average
HS2 Av
Speed (mph) Speed
London
Manchester
02:07
90.3
169
London
Leeds
02:12
84.4
134
London
Sheffield
02:05
77.7
123
London
Birmingham
01:22
76.3
128
London
Nottingham
01:44
72.9
111
Birmingham
Newcastle
Bristol
Manchester
01:21
02:23
69.3
65.1
London
Southampton
01:14
63.2
Middlesbrough
Sheffield*
01:56
52.8
Manchester
Sheffield
00:48
52.4
Manchester
Leeds
00:49
51.9
Birmingham
Swansea*
03:01
51.8
Cardiff
Liverpool*
03:16
50.6
Glasgow
Inverness
03:50
48.4
Manchester
Nottingham
01:49
46.7
Edinburgh
Aberdeen
02:50
46.0
Middlesbrough
Liverpool*
03:36
43.7
Leeds
Liverpool
01:50
41.0
Lincoln
Manchester*
02:20
39.8
Birmingham
Wrexham*
02:09
34.0
Manchester
Wrexham*
02:37
21.9
Source: HS2 website, Toscafund. Note: Black line signifies 70mph – National Speed Limit applies - *No direct trains, 1 or 2 stops required.
The table above highlights marked differences in average train travel speeds between regional hubs, some
journeys all the slower because they require passengers to change train. Of course, plans exist to improve the
rail network independently from HS2. The Chancellor, as recently as March 2015, has championed a HS3 highspeed rail link between Manchester and Leeds, which he argued would reduce the travel time between these
cities from 50 to 30 minutes and help create a “northern global powerhouse”. Following on from George
Osborne’s encouragement for improved links across the Pennines, five cities across the North of England –
Leeds, Liverpool, Manchester, Newcastle and Sheffield – issued a joint report entitled ‘One North’ making the
case for major investment in both rail and road links east to west to improve the economic fortunes of the
north by better connecting them. The reality is that the better connection being encouraged is between
commercial centres, and therefore CRE.
Some will throw back at us the argument made earlier that with mobile technology there should be no such
thing as ‘idle’ travelling time. Others will point to ‘speedy’ road links between locations otherwise poorly
served by rail. Some will claim there is no ‘commercial’ need for rail upgrades to the routes, for example
between Wrexham and Manchester. The argument is that these centres do not have much in the way of a
‘commercial connection’. Our response is: “forge a reliable and speedy rail link between these, and their
commercial connection will become real enough, by far better commercially connecting their CRE”.
If Britain is to become a truly connected national economy, then it demands 21st century links across its length
and breadth, boasting average travel speeds broadly in line across all its regional dimensions. This achievable
ambition should be the foremost aim of spending on transport infrastructure.
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1.2.4 King’s Cross Central: A case study in inclusive regeneration
From the middle of the 19th century, the Great Northern Railway (GNR) began to develop an east coast
mainline service, with the King’s Cross area of Camden the embarkation point from London. In 1852, the Lewis
Cubitt designed King’s Cross station began operating and two years later the Great Northern Hotel opened its
doors. In 1873, the George Gilbert Scott designed Midland Grand Hotel opened a mile or so from the Great
Northern Hotel. The Midland Grand complemented the newly built St Pancras Station which was the London
terminus for the Midland Railway (MR) which had opened in 1868, boasting the largest single-span roof in the
world at the time.
As it was for all their rivals developing railway lines fanning out of London, GNR and MR became voracious
buyers of land to develop real estate assets close to their termini. Both, after all, required goods yards and
engine depots and the other assorted buildings essential for carrying passenger and freight in volumes that
seemed destined to only increase with time. Coal was key to the freight business, arriving into London by rail
and then being distributed around London using the canal network which ran past King’s Cross and not far
from St Pancras stations. A gas works was added to the area’s real estate. At their height the stations, hotels
and related CRE provided the working class neighbourhoods around them with employment and the ability to
earn from the freight and people coming into them. What had seemed to some as an unrelenting increase in
rail traffic was, however, not to be the case.
From its halcyon days in the early part of the 20th century, the neighbouring stations fell into decline, as
passengers and freight were increasingly drawn to roads and as Britain’s industrial activity waned. By the
1980s, the areas around King’s Cross and St Pancras had become notorious crime spots with stubbornly high
rates of unemployment and social dysfunction, blighting not only the area itself but neighbouring areas.
Figure 4: King’s Cross redevelopment
Source: Wiki Commons license
Into the 1990s, momentum began to build (sic) towards regenerating the King’s Cross and St Pancras areas. In
1997, after years of delay, the British Library opened, the largest public building to be constructed in Britain in
the 20th century. Soon after the opening of the British Library on one side of St Pancras Station, efforts began
at the other to create the new London terminus for Eurostar. Work on HS1 began in 2000 and the London
terminus of Eurostar moved to St Pancras from Waterloo in November 2007, ushering in the revival of the
whole of the station and triggering efforts to redevelop more widely, not least spurring on efforts to
regenerate the neighbouring King’s Cross station and its environs.
The University of the Arts has become notable as the first occupier of King’s Cross Central where its Central
Saint Martins campus is located (unifying a number of formerly disparate buildings into a single, purpose-built
and state-of-the-art college site). The ongoing redevelopment is proving one of the largest construction
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projects in an already frenetically building London. A landmark announcement for King’s Cross Central was a
1m square foot pre-let by Google.
More widely across the 65 acres of brownfield regeneration, office, residential, retail and recreational real
estate will be delivered. On completion, King’s Cross Central will boast five new squares and connect via the
canal to such areas as Camden Market, Upper Street in Islington, Regent’s Park and London Zoo. As discussed
earlier, the grandeur of the Great Northern and of the Midland Hotel have already been restored, and an area
long blighted by its inactive real estate has come alive again with its redevelopment.
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1.2.5 CRE: Walking on water
It is unlikely that many of those walking along the Thames Embankment will be aware it was once marsh land.
For it was only in 1862, after a great many previous attempts had been thwarted, that the Sir Joseph
Bazalgette project began.
On the completion of the Embankment, it had reclaimed a total of 22 acres of land from the Thames.
Reclaimed too were the Victoria – again along the north bank of the Thames – and Albert – along its south –
Embankments. The embanking of the Thames was, of course, far from the only way its natural landscape has
been complemented over time by man-built landscape.
We argue that a bridge or a tunnel should be considered Commercial Real Estate. Let us consider this with
some actual instances.
Over the years, bridges and tunnels have been added to connect the north and south sides of a rapidly
expanding London. Along the stretch where the Thames passes through the capital, the first fixed crossing was
built by the Romans, where London Bridge now straddles the river.
More bridges have been added to the London stretch of the Thames quite recently, the Millennium and
Jubilee pedestrian bridges in 2002. There is even talk of a Garden Bridge beginning near Temple Station linked
to the Southbank Centre. In a moment, we will consider another scheme being hotly debated, but before we
do, let us return to those bridges added in the 19th century.
A railway bridge across the Thames was opened in 1864 by St Paul’s (later renamed Blackfriars). This carried
trains of the London, Chatham and Dover Railway line. Alongside this bridge, a second St Paul’s bridge would
open in 1886, becoming Blackfriars Bridge in 1937. The original St Paul’s bridge would however be removed in
1985 with its rail traffic taken instead by Waterloo Station. Its southern abutment and a series of imposing
piers would remain testament to its existence, and from 1985 until 2009 the piers would remain curiosities to
those walking across – the second – Blackfriars Bridge. They were reclaimed by the railway when a state of the
art station was opened in 2012.
The piers of the original Blackfriars (née St Paul’s) Bridge now support the world’s first station with platforms
that span a river. It is also the world’s largest solar bridge, providing 50% of the station’s energy needs. Whilst
we can debate whether railways stations and tracks constitute CRE, many of those travelling to, through or
from Blackfriars Station will be doing so for commercial good. It is also instructive to reflect on how bridges
across the Thames were once lined by shops and homes with tolls commonly levied on those crossing them.
This section began by reflecting on a particular instance where marsh land has been reclaimed to create
London’s impressive Embankment. We suggested that few of those walking or driving along it would know it
was not ‘natural’, just as many today may be unaware of other instances of land reclamation around us; for
instance the Fenns. With this in mind, and in wondering where else land will be reclaimed, it is impossible not
to think of the Thames Estuary Airport, which is part of a far larger reclamation plan for the Thames Gateway.
Much like the Embankment before it, the Estuary Airport idea has been talked about for some time, the first
proposals dating to the 1970s. Most recently those supporting the idea of an island airport point to successful
precedents: the airports in Osaka, Japan and Hong Kong. Proponents also present figures suggesting the value
of the economic and commercial benefits to areas in and around the new airport, bringing windfalls first in its
construction and then operation.
What cannot be in any doubt is the very real London Gateway development at Thurrock in Essex. This
ambitious project is forecast to last another 10 years and generate tens of thousands of jobs as DP World
invests upwards of £1.5bn in the scheme to create 2,700 metres of quay. Alongside the port infrastructure will
sit considerable commercial real estate, the distribution part alone occupying a 300 hectare site with planning
permission for 10m square feet of developed space across its logistics park. The project comprises, amongst
other elements, one of the world’s largest deep-water ports to handle the biggest container ships, a port
complemented by one of Europe’s largest logistics parks and another instance of overseas capital (in this
instance from the UAE) entering the UK and targeting commercial infrastructure projects.
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1.2.6 CRE flying high
As affordable air travel took off, so too did an increasing number of holidaying Britons, and as the airports
swelled with those opting to travel abroad, the effects were felt at home. From coastal guest houses and
holiday camps, to the restaurants, bars and entertainment venues which relied heavily on seasonable tourism,
a section of British commercial real estate fell into decline, property which by its nature was regionally
concentrated, blighting entire towns.
Although Britons continue to travel abroad with growing frequency and rising numbers, Britain’s tourist
industry has more recently enjoyed a renaissance, doing so as both Britons themselves opt to spend part of
their leisure time on their own shores and as a rising number of international tourists enter the country.
Indeed, Britain is now the world’s eighth most popular destination, with a historic high of 33 million visits 1 in
2013, this growth being spurred on by arrivals from emerging markets.
Tourists coming to Britain bring with them considerable windfalls to the economy, not least to our external
account in delivering valuable foreign income. Improved CRE has been a major contributor to this revival,
bringing improvements to hotel and recreational real estate but also to the transport network, including the
development of regional airports.
Indeed the budget airline model, which at first proved so damaging to the fortunes of Britain’s domestic
holiday sector, is now contributing strongly to its revival. For along with road and rail travel, affordable internal
air travel is allowing visitors to spend their time in Britain in a variety of different locations.
Budget airlines are also allowing Britons to travel around their country more affordably for both leisure and
work. Indeed, entirely new commuter classes have been created and so too inventive new acronyms; notably
WILLIE – Work In London, Live In Edinburgh. As we have already emphasised, such mobility can only help
improve the growth mix across Britain, and improvements to CRE is the structural element that makes this
possible.
1
The figures relate to the number of completed visits, not the number of visitors. Anyone entering or leaving more than
once in the same period is counted on each visit. The count of visits relates to UK residents returning to this country and to
overseas residents leaving it.
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Offices and IT
Despite the impact of technology in creating a virtual economic dimension, built space remains essential not
only for ‘traditional’ activity but for the virtual world to function effectively. Offices currently account for a
quarter of all commercial real estate.
1.3.1 CRE in the clouds
As its traditional manufacturing has made way for a wide range of services, Britain’s CRE has been filled less
and less by plant and machinery and more and more by telephonic equipment, computers and all the servers
and IT backups essential to their operations. At first, the spatial demands of this kit was considerable; noisy
‘comms’ rooms, which whilst sometimes relatively small, often take up a not insignificant share of scarce and
costly office space. However, as equipment became more powerful, it began to shrink, and improved software
required smaller hardware. More recently, cloud computing has proven transformational, growing at 50%
annually.
By utilising ‘The Cloud’, an ever growing number of businesses across Britain are able to do away with a large
amount of their individual computing infrastructure, thus releasing them from hardware that is expensive in
both monetary and floor-space terms. Whilst these changes within offices are relatively small, they are just
one of a great many changes seen across Britain’s CRE, and consequently lead us to another, the growth of
data centres.
Across Britain, there are now 210 data centres. These provide their clients with a range of services including
data storage, security and business continuity. The choice of location for these relies on a range of
requirements, including proximity to power grids and telecommunication infrastructure. Furthermore, there
has to be consideration of transport links and closeness of emergency services, since these will affect risk and
security. In terms of their management, whilst data centres are labour un-intensive, what staffing is demanded
is highly specialist and carefully selected.
Just as the internet is altering how we shop, so too does virtual data storage and management. Just as the
internet is far from eliminating the need for retail CRE across Britain but instead changing the precise
configuration of property required to deal with ‘click and collect’ spending, so too with virtual data storage. In
place of its proliferated ‘comms rooms’, Britain, faster than almost any other economy, is seeing the
development of a relatively new type of CRE, data centres. Whilst some may carry the title ‘Cloud Centres’,
these are all very much real estate that the modern British economy could not possibly function without.
1.3.2 CRE and the internet
To satisfy their durable, consumable and particularly food needs, Britons once almost exclusively visited stores
to scan shelves from which they would pick the goods that they would then transport home. Now we are
increasingly scanning websites to simply click for delivery. The implications of this behavioural change are
proving as profound on the CRE market as they are being misinterpreted. Whilst the nature of the ongoing
shift is unprecedented, it is wrong to imagine that the built landscape for retail is being altered for the first
time, or necessarily for ‘the worse’.
The ongoing migration of footfall retail custom to the internet is having a profound influence on Britain’s CRE.
However, far from reducing the precise floor space required by the grocery and non-food sectors, it is altering
the nature of the property needed, where it is needed to be and what form it needs to be in.
In place of CRE to display wares for shoppers to consider, Britain has a growing need for large central sheds
from which to distribute goods clicked from websites. In some cases these act as large hubs for more local
distribution centres.
Behavioural shifts in retail are far from unknown, the superstores and retail parks that we are now so familiar
with date (for the most part) from the 1990s, and just as the development of these formats required an
entirely new property profile, so too do the new generation with the rise of internet-based sales and home
delivery. British households are changing their patterns of consumption and the impact on its CRE has not
been confined to goods but services.
Consider the travel agents that were once ubiquitous on high streets. Whilst still present, their numbers have
fallen markedly. There has been a migration of the sector’s property requirement, rather than its total
elimination. Where staff occupied relatively small high street travel agencies, they now sit in large call centres,
and where once bookings were almost entirely for travel abroad, Britain is seeing a growth in vacationing on
its own shores, ushering yet more change to its CRE landscape as holiday parks expand to meet this need.
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1.3.3 Google: search for a real presence
Google has dramatically altered how we behave and is a service that we can connect to practically
everywhere; two million searches are made in Britain. With £3.4bn and £70.8m in UK revenue and profit
respectively, Google directly employs 52,069 workers around the world and only 1,835 in Britain.
For a time, Google became the symbol of all the threats to Britain’s CRE. Many saw a business so dominant
across virtual space that it would confine itself to only a modest physical presence, and concerns over the real
estate take-up of Google and the growing numbers of other web-accessed businesses led to talk of a paradigm
shift in the need for CRE across Britain. This idea was summarily quashed when, on 17 January 2013, it was
revealed that Google had pre-let a staggering one million square feet of space at London’s King’s Cross.
The Google/King’s Cross letting announcement was made all the more remarkable by the fact that Argent, the
developer behind the area’s 2.4-acre regeneration, planned on restricting any single occupier to one tenth of
what will be delivered to Google. From being the epitome all the challenges to Britain’s CRE, Google was recast
as a role model for all the benefits that the virtual world can offer the real estate world.
1.3.4 Sometimes developing Britain’s CRE does not quite reach The Pinnacle
The development of The Shard and redevelopment of King’s Cross Central in London and Birmingham’s
Bullring Centre stand up as examples of Britain’s modern CRE being enhanced by perseverance and innovative
design, combined with capital and even occupiers from overseas. However, not all planned developments have
progressed as relatively smoothly as these.
Plans for The Bishopsgate Tower were submitted in June 2005 and approved within a year, with demolition of
existing property beginning 12 months later. Preparation for construction started in May 2008, and within six
months it was announced that the originally speculative building had won two pre-lets, one for 80,000 square
feet of office space and the other for the restaurant intended to top the 945 foot, 63-floor tower (scaled down
from 1,007 feet because of Civil Aviation Authority concerns). Even at its reduced height the building, on being
topped out, would be the highest in the City of London and second tallest across the EU. Funding for the
project was sourced from Saudi Arabia’s Economic Development Corporation and Arab Investments.
Even after the financial crisis struck, work continued on what had by this time been renamed The Pinnacle, but
whose curling design led to it more fondly becoming known as The Helter Skelter. By the beginning of 2012,
The Pinnacle’s core had reached the sixth floor and even uncertainty over continued funding seemed to have
ended. Then work stopped, for reasons, so it was suggested, ranging from a funding shortfall to problems with
pre-lets because of the building’s unconventional and impractical interior specifications. Construction has been
suspended since, with speculation at one point that the part-built structure would be levelled and a less
ambitious scheme undertaken. More recent talk has suggested that when the project does resume, following
approval of its re-design, it will be with the same eye-catching exterior but much altered interior floor plans.
The experience of The Bishopgate Tower/The Pinnacle/Helter Skelter, blends a great many themes covered in
this report. The ambition was to upgrade ‘underbuilt’ office CRE with a mixed-use skyscraper funded from
overseas, built speculatively and with a wholly unusual and controversial design. It also perfectly illustrates
how ‘events’ over the inevitable drawn-out development time line which large projects demand, can derail
and delay. The reality all the same is that this unfinished building happens to be located at the heart of the City
of London’s thriving commercial underwriting and insurance district, where other proximate schemes, 20
Fenchurch Street (the ‘Walkie-Talkie’) and 122 Leadenhall Street (The ‘Cheesegrater’) having both proven that
it is always possible to deal successfully with ‘events’.
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1.3.5 Global purpose and competitiveness
To ensure its success, a large part of Britain’s commercial real estate has to compete with international rivals.
In this brief section, we explain why Britain’s commercial real estate holds a privileged position explained by a
range of factors. Some are exogenous to the real estate per se, such as Britain occupying a time zone
positioned favourably for round the clock activity for those in the Americas as much as those across Asia. In
addition, Britain’s real estate is located in an English-speaking economy with a long tradition of being home,
for some an adopted home, to a highly educated and skilled work force. Other factors are, however, very
much endogenous, such as quality of build and provenance of ownership. Most important of all, has been the
pragmatism needed to deliver the type of property essential for success, even if this has meant a degree of
development upheaval, and nowhere has this been more in evidence than in London and in particular the
‘Square Mile’.
Around the City, one can identify place names that trace the gates that once allowed access through the
defensive ‘London Wall’, and within the historic City of London, there are institutions that have occupied the
same ‘premises’ for centuries. From the imposing Bank of England on Threadneedle Street, to the seemingly
timeless George and Vulture chop house in Castle Court, many date from the 18th century and some from long
before. The idea, however, that the City of London is unchanging is not something one familiar at close
quarters with it would accept. For all its apparent timelessness, the City of London has in fact been in constant
evolution, with its buildings replaced with almost indecent haste according to some.
Few aspects of the City’s architecture have seemed beyond limits: a large part of the original Bank of England
styled by Sir John Soane was demolished to make way for the Sir Herbert Baker creation present today. Even
the ‘City institution’ that is the George and Vulture restaurant has come close to demolition. The reality is that
whilst the names of its streets have become timeless symbols of its position in global finance, the City of
London’s architecture has not simply matched contemporary design, but defined it. From the ‘Nat West
Tower’ opened in 1980, to the Lloyds Building first unveiled in 1986, to the ‘Gherkin’, 18 years later, London’s
skyline has been in constant flux, a rate of change which has only accelerated over time, creating a sense, in
some cases, of architectural disposability. With each new construction comes a new group of tenants, often
including those who could not have been anticipated even a handful of years earlier, hence, there is a natural
evolution in the occupational character of London’s office space.
London is in the throes of delivering noticeable improvements to its transport infrastructure. It can look
forward to Crossrail and other upgrades to under and over-ground rail systems. By 2020, London will boast a
number of impressive new business districts, centred on the transport hubs of Paddington, London Bridge and
King’s Cross, the latter being the embarkation and disembarkation point for Eurostar.
The delivery of HS2, Crossrail, the Northern Line extension and other transport improvements are all part of
London’s future. Returning our focus to its past, one could chronicle the City of London’s history in global
finance back many centuries, over which the nature and origin of its occupiers has changed and changed again,
and so too its property estate.
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1.3.6 A real second home in Britain
The off-shoring of Britain’s economic activities, initially across a range of manufacturing industries and then its
services, cast for a time a long shadow over the occupational future for Britain’s CRE. More recently, and for a
number of reasons, it has been suggested that Britain is enjoying re-shoring, as activities formerly migrated
overseas are returned and occupying CRE anew.
It is not, however, this re-shoring phenomenon on which we wish to focus, but an entirely different flow of
businesses set to arrive in Britain, specifically those looking to use it as their main overseas hub. These will be
drawn across a range of business service sectors.
We will argue that Britain’s cities are set to host operations which complement those already established and
growing quickly in the central business districts (CBDs) of Shanghai, Singapore, Sydney and Sao Paolo. The
motivation for seeking an overseas hub can be understood in terms of timing.
For all the efforts to develop CRE in CBDs across Asia and South America, its operation will follow the norm of
using business hours. Whereas it is common in a number of industries for businesses to occupy their CRE
without interruption by running up to three shifts, this is not the norm in business services and extremely
uncommon in financial services. For this reason, the desire to operate through the day will demand that those
with operations across the CBDs of the emerging world have as a matter of urgency to establish
complementary operations overseas.
Figure 5: Working 9 to 5, London’s prime location
Source: UTC standard, Toscafund
Candidates to be host CBD have to be in a complementary time-zone and offer a capacity in CRE, a suitably
skilled labour force and appropriate infrastructure to be credible. A cursory inspection reveals that Britain sits
in an extremely suitable time-zone, doing as much for economies across the Americas as it does for nations
across Asia.
Language too favours Britain. Indeed, one can draw upon a tradition of already being a proven host to those
looking for overseas hubs. It was no coincidence that China Construction Bank acquired the 127,000 square
feet of office space at 111 Old Broad Street soon after it was nominated by the monetary authorities in Beijing
to provide settlement services in the Yuan from London. China Construction Bank should in reality be seen as
the vanguard of the arrival of other banks, not simply from China, but widely across the emerging world, and
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indeed the resource-rich developed world. Banks will not be alone in establishing a presence in Britain,
insurers are also likely to do so and businesses across a raft of service sectors.
London will most likely host the front-office operations for those creating an overseas business footprint in
Britain. This accepted, cities across Britain could easily play host to mid- and-back-office activities, even
attracting front-offices in time, and this diffusion will help narrow regional imbalances.
The reality is that Britain stands poised to be chosen as the preferred overseas hub for many businesses from
across the emerging world. These promise to deliver wide ranging wealth benefits and generate considerable
economic multipliers. For Britain to welcome such arrivals, an expansion in its CRE capacity will be crucial, not
simply in London but widely across all its cities.
1.3.7 A Central Point: CRE unchanging on the outside but evolving within
One of the first skyscrapers in London, Centre Point has slid down the list to become the city’s joint 27th tallest
building. This said, it dominates the skyline from much of central London, and since 1995 can boast Grade II
listed status. Centre Point is an intriguing example of how so much has changed since its completion in 1966.
The 385-ft office tower, designed by Richard Seifert, stood empty for five years having been built speculatively.
Its developer, the controversial Harry Hyams, hoped for a single occupier for Centre Point, and stubbornly
rejected offers to lease individual floors. On finally receiving tenants, it has seen an evolution in occupiers that
illustrates the changing nature of Britain’s economy.
From July 1980 to March 2014, the building was the headquarters of the Confederation of British Industry
(CBI). Occupiers now in the building include US talent agency William Morris Agency; the state-owned national
oil company of Saudi Arabia, Aramco; Chinese oil company Petrochina; and electronic gaming company EA
Games, a range of tenants who are notable for being multinational, as much as multi-sector.
As well as a varied group of office occupiers, Centre Point is home to Paramount, which opened in 2008.
Initially operating as a private members club, this was changed in 2010 with Paramount opening to the general
public. Occupying the top three floors of the building, Paramount includes event space on the 31st floor, a bar
and restaurant on 32nd and a 360-degree viewing gallery on the 33rd floor – the top floor of the building.
In February 2013, the global members club for creative industries, ‘Apartment 58’, launched APT58 at Centre
Point. The members club, on the lower floors of the building, features a night club, meeting rooms, a locker
and mail service and a lounge. The venue also includes a late-license ground floor street-food concept
restaurant.
Having passed through a series of owners since Hyams, Centre Point is now in the hands of Almacantar. It has
received planning permission to further refurbish the building. Its occupancy profile will change again, with
plans for its redevelopment into 82 luxury apartments, a pool, spa and gymnasium and 42,000 square feet of
retail and restaurant space.
With Centre Point, we have another example of British CRE unchanging on the outside and for periods
economically inactive on the inside, and whose occupation has evolved rapidly over recent years, spurred on
by overseas tenants and their capital, producing positive economic multipliers and externalities to commercial
and indeed residential real estate around it. These changes have been spurred on too by improvements to
transport infrastructure in the vicinity of the real estate.
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Educating CRE
Education is one of the UK’s most property hungry ‘commercial’ sectors, so we reflect on the recent and
prospective growth.
1.4.1 British universities
There may be some curiosity why Britain still has a predominance of non-profit making universities and other
institutions of higher education, which we have identified as quasi-CRE. After all, the enhancement they
provide to the human capital of their students will associate in general with a long-term gain, which should
attract commercial and entrepreneurial interest. The reality is that there are many privately and very
commercially operated colleges across Britain serving the needs of students originating mostly from overseas.
Their reputations are, almost without exception, inferior, precisely because of suspicions over their
motivation. There is certain to be a suspicion that the motivation behind the college is less about improving
the human capital of students than about raising the financial capital of its operators. It is for this reason,
where reputation concerns are either real or imagined, that so many higher education institutions (HEIs)
remain stubbornly within the realms of quasi CRE rather than morphing into its direct form.
The University of Buckingham is an institution holding a Royal Charter and has a strong reputational standing,
but it operates with a funding structure outside the norm; a HEI which could rightly be considered to be in the
private sector. The University of Buckingham operates with charitable status, but its model is nonetheless
commercial. Looking ahead, we would not be surprised if established HEIs begin to alter their models to move
closer to the funding practice of the University of Buckingham, and so overcoming reputational risk as they
become ‘more commercial’.
1.4.2 An educated CRE case study: The University of Buckingham
The University of Buckingham’s size should not distract from the growth that it has achieved and the potential
it promises, more than doubling its student body in five years, and investing generously to maintain this
momentum. Whilst it may operate with charitable status as a non-profit making body dedicated to education
and research, it can boast being Britain’s first independently funded university holding a Royal Charter. It is
also unique in offering two year full-time degree programmes. Its behaviour and experiences perfectly capture
how refurbishing existing and building entirely new CRE is at the core of successful ‘business’ growth.
Whilst we have illustrated elsewhere how a bridge can be economically empowering (in Part 1.2.5), and so be
very commercial indeed, The University of Buckingham has only quite recently shown just how this illustration
can be made very real.
Consider this extract from its annual report and financial statement for the year to December 31st 2012: “we
will be building a bridge this year over the river to link the six acres of the right bank that we now own, to the
main campus. We are applying for planning permission to start the development of the right bank.”
Here we have evidence of investing in property infrastructure being at the forefront of the development of
revenue generating CRE.
We have also reflected on the power of Britain’s CRE to generate foreign earnings. With one-third of the
student body originating outside the EU and absolute numbers growing, here again The University of
Buckingham provides a real instance of this favourable trend.
Consider also the idea that refurbishment and refocusing can bring property back into economic life. Let us
draw again from The University of Buckingham’s most recent annual report, where the Vice-Chancellor reflects
on property:
“We have refurbished all of the Tanlaw Mill, from top to bottom, and it has been transformed as students’
building and as a Students Union. And to further improve the recreational spaces for the students, we are
completing the refurbishment of the cellars in the Franciscan Building. Meanwhile the newly-refurbished
Radcliffe Centre, a converted church which provides a 150-seat venue for lectures, performances and
community events, has added significantly to the capacities of the University. The refurbishment of Prebend
House and of its gardens has now been completed [which we] are using as the postgraduate centre of the
School of Humanities, which speaks of our general commitment to upgrading research within the University.”
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In this one passage, we see evidence of a church conversion, cellars being made useful as ‘recreational spaces’
and evidence further of investment to attract undergraduates by improving the quality of their experience,
whilst also capitalising on how postgraduates can engage (often very commercially) with academics in
research. On this note, the Vice-Chancellor was keen to that that “much of the growth of the University can be
attributed to the growth of the Business School, which now has twice as many students as four years ago. We
continue to be proud of our Business Enterprise programme, which currently has students running a number
of intriguing businesses”.
The following extract gives some idea of the University of Buckingham’s growth ambition: “we are working
with the Milton Keynes Hospital NHS Trust over the possible creation of an undergraduate medical school”.
1.4.3 Britain’s real commercial education industry
Even though they are not motivated by profit, we have characterised Britain’s HEIs holding Royal Charters as
quasi-commercial, and identified their real estate accordingly. Whilst some will contest this intermediate
designation even for the independently funded University of Buckingham (considered elsewhere), they cannot
deny Britain’s fully commercial and growing further education industry.
Chart 3: Long term migration to the UK by reason given
50
30
45
25
40
20
35
15
30
10
25
5
20
0
15
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tuition fees and education contracts
Total
Tuition fees and education contracts share (rhs)
250
200
Thousand
35
%
£ billion
Chart 2: UK HEIs income from tuition fees and education
contracts
150
100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
All Migrants less Formal Study
Formal Study
Source: HESA, ONS, Toscafund (*2015 to June)
Britain is home to at least 670 private colleges, almost all run on commercial lines. Whilst mainly concentrated
in and around London, often specialising as English language schools, 50% of these colleges are peppered
across the country, almost invariably in proximity to HEIs carrying a Royal Charter. Indeed, outside of normal
term-time there is a trend amongst the latter to open their doors to foreign students, most notably by
operating summer schools functioning literally and financially on commercial grounds.
The reality is that even if we were to exclude Royal Charter-holding HEIs, educating fee-paying foreign
students is proving a growth market across Britain, and one where its real estate is playing an essential role.
True distance learning is a feature of modern education. The number of overseas students enrolled on feepaying tertiary courses per annum across Britain has increased by about 70% since 2002, and is still trending
upwards. The reality is that face to face tutorials, delphic learning and the travel experience to other countries
all have considerable chargeable value. A few nations hold a more sought after Positional Product Proposition
in education than Britain.
Let us repeat a point we have made throughout this research: commercial and quasi-commercial education
sectors are providing ever more valuable capital streams into Britain’s external and internal accounts; external
because of the foreign earnings brought in through direct student fees, and internal because of the
consumption, notably on accommodation, performed by students from overseas during their period of study
in Britain.
Students in full time HEI are proving one of the fastest growing markets for Britain’s Private Residential Sector
(PRS) with companies such as the two London listed; Empiric and UNITE. Empiric comprises 29 properties with
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11 assets under development, an aggregate of 3,503 beds. UNITE has 45,000 beds and is studied in depth in
section 1.4.5.
Liberty Living, with its 16,827 room student accommodation portfolio covering 42 residences, considered an
IPO in 2014 and was later bought by the Canada Pension Plan Investment Board for £1.1bn. CPPIB Liberty
Living acquired a further 2,153 beds for £330m in August 2015.
Developers of purpose built student accommodation (PBSA) have risen to the challenge. One such example is
Watkin Jones Group who have developed more than 25,000 student units since 1999, with a third of those
student units (7,800 student units) built in just the last three years.
In short, with fee-paying education one of Britain’s fasting growing sectors, it cannot fail to register as an everlarger owner and occupier of full and quasi commercial real estate, coincident with its customers (students)
representing an ever more sizeable share of Britain’s rental sector.
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1.4.4 Education, Education and Education
Britain’s HEIs are expanding, and as they do, they are creating CRE. They are adding campus capacity for
tuition, recreation and accommodation, forging something of a hybrid industry. For whilst in its core a
university sits within the education sector, it is part purpose built student accommodation, part leisure and
recreation and part broader CRE, where the campus extends to business and science parks.
After all, just as it could be argued that hotel rooms can be considered to fall within the private rental sector,
so too student accommodation. As student numbers rise, so will the need to add to the PRS element of
Britain’s CRE, the demands on which do not however end there.
As Britain’s education sector continues on its impressive expansion path, a commensurate rise in its staffing
levels – academic and support – will be required.
1.4.5 Case Study: Students, UNITE-d
Back in 1991, research carried out by Bristol’s University of the West of England suggested disused inner-city
office blocks could be converted into low-cost student housing. Within a year, the first UNITE property had
opened in Bristol. At a time when the choice was between the draughty, often drab, halls of residence offered
by the universities, or to rent a spare room from an obliging but not always personable landlord, UNITE offered
students comfort, convenience and affordability.
Chart 4. UK student numbers, million
0.8
Top-up fees
introduced:
capped at £3000
250
Tuition fees
introduced:
maximum £1000
Revenue, £ million
Student numbers, million
0.5
300
Impact of Browne
Review: fees raised
to £7500-9000
0.7
0.6
Chart 5. UNITE revenues, £ million
0.4
0.3
200
150
100
0.2
50
0.1
0.0
1996
2000
England
2004
2008
2012
Scotland
2016
2020
Wales
2024
NI
2028
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: HESA, UNITE Group (Bloomberg), Toscafund (forecasts)
Since listing on the London Stock Exchange in 2000, UNITE has expanded considerably, adding to its core
Bristol and London portfolios and expanding into other regional cities, notably Leeds, Manchester, Liverpool
and Sheffield. UNITE has grown in tandem with the rising number of international students seeking easy-toarrange and reputable accommodation. The firm currently provides over 45,000 beds in 28 university towns
and cities. It recently raised £115m to fund further expansion, with the aim of funding its development
pipeline in key university towns and cities.
Whilst the UNITE model has gone through changes, the emphasis remains redevelopment and conversion of
former commercial properties into student accommodation. UNITE’s story is not unique and highlights one of
our core points in assessing the growth future of Britain’s regional cities and the importance of commercial
property in its dormitory form. Britain’s undergraduate accommodation is not simply serving students from
abroad but investors too.
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1.5
BRITAIN’s PROPERTY CREDENTIALS
Great retail developments
Britain’s evolving retail sector is two-fold, with both large city-centre transformations (Birmingham’s Bull ring
centre for example) and much smaller retail pop-ups adapting to the modern day shopper.
1.5.1 The Amazon story: Reading between the real estate lines
Whilst Amazon can boast a considerable ‘loyal’ clientele, it also has its detractors; the two groups rather
curiously are not necessarily mutually exclusive.
There are those who see Amazon as an unrelenting force pushing Britain’s independent book shops into
extinction. By changing our reading habits – both in its physical form and through virtual delivery, via the
Kindle – Amazon has become, it seems, a killer in its particular category. As its presence has grown, so it has
had a marked effect on Britain’s real estate.
Britain’s once ubiquitous private book shops long provided local employment, generated business rate
revenues and established something of a cultural presence on high streets. As for its public libraries, they too
have been loyal local employers. In addition, they offered a welcoming indoor space for some to pass theirs
days in thoughtful comfort. The reality is that as Amazon has grown, so the number of book shops and libraries
across Britain has shrunk. For their part, authors too have come to see Amazon’s competitive pricing model as
favouring mass market writing. Criticism of Amazon has been fuelled further by the revelation that it uses tax
inversion to minimise what it pays to HMRC.
In terms of Britain’s CRE, there can be no denying the rate at which its book shops have closed in the face of
the onslaught of online buying. There will be those, however, pointing not to the internet as undermining the
independent book shop model, but to the end of the ‘price management’ governed by Net Book Agreement,
which had finally come under the scrutiny of the OFT from 1994 and was revoked in 1997 (when Amazon was
still in its infancy, formed as it was in 1994). Amazon’s defenders will point to how many of those sipping
cappuccinos in the swelling ranks of Britain’s coffee shops might on close inspection be seen to be reading
material obtained via it. They will suggest that new coffee shops often occupy space where once a book shop
operated, and employ staff which a book shop would have drawn upon. This will all come as little comfort to
those who see Starbucks as using the same tax inversion technique as Amazon.
3.2
0.7
3.1
0.6
3.0
0.5
2.9
0.4
2.8
0.3
2.7
0.2
2.6
0.1
2.5
£ billions
£ billions
Chart 6: Landscape of UK’s book-selling revamping, publisher sales, £bn
0.0
2008
2009
2010
Printed
2011
2012
2013
Digital (rhs)
2014
Source: The Publishers Association
This said, Britain’s book shops have increasing broadened their offer to become hybrids, adding cafes and in
some ways providing a welcome space for those deprived of a public library. It could be argued that just as
Britain’s cinemas have enjoyed a renaissance by becoming protean in their offer, so too can its book shops.
The reality is there is a symbiosis or co-dependency between how Britain’s CRE adapts and the changing needs
of its occupiers.
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1.5.2 C-REacting commercial space in a flash
When we once spoke of restaurants, bars and shops having just popped up, it was as an expression of surprise
when we saw a new retail unit on a road along which we were walking or driving. Whilst these businesses
might not have survived for long, often their proprietors ventured into them with the hope they would prove
durable, and so signed long-term leases. Now, there is an entirely new concept of pop-up business.
The modern pop-up unit involves sales space which by its very nature is intended to be – in the first instance at
least – short-term, possibly just a day, known widely as ‘guerrilla’ retailers. Whilst modern pop-ups might be
located in ‘real’ real estate, they could equally well be mobile structures, from freight containers to buses.
Britain has had a long tradition of these temporary sales pitches where, for example, fireworks and Christmas
trees have been sold seasonally, or longer still with weekly markets. The modern form of pop-up retail – whose
origins in California date back 15 years – is distinguishable from that of Britain’s past in the sheer range of
what is being offered, with food and beverages as likely to be sold as clothing and accessories. Remarkably, the
pop-up phenomenon has even involved cinemas. The nature of the venue is often quite different too, as it is as
likely to be a temporary structure as one that is permanent. Whilst some pop-up units will stand alone, others
will be part of transient communities, say farmers markets, and whilst certain pop-up units will sell goods
provided in a cottage industry volume, others may be used to test products by large retailers with an
established physical footprint.
Whilst mobile units do not face business rates, a pop-up retailer in ‘real’ estate does, something which those
who see the potential for pop-ups to fill vacant space and generate economic good argue is an obstacle to the
phenomenon’s growth. Indeed, the Centre for Economics and Business Research (CEBR) in a report
commissioned by the telecoms giant EE estimates the pop-up sector to have produced £2.1bn of turnover, or
0.5% of all retail spending, in 2013, doing so across 94,000 units and employing 23,000 workers. Moreover,
CEBR forecasts Britain’s consumers will spend over 8% more with pop-up retailers in 2014 compared to 2013.
Transport for London (TfL) has woken up to the potential of pop-up retailing, owning as it does over 1,000
retail properties and the same number again of arches under its railways. The economics are simple. Consider
Old Street Underground located in London’s Shoreditch. Each year, 23 million pass through a station which is
open 20 hours each day. It is no surprise then that Old Street has been in the vanguard of TfL’s launch into
short-term or pop-up leasing, an area transformed by the arrival of technology companies into its once
unloved CRE to have it become known as the ‘Magic’ and ‘Silicon Roundabout’. On the theme of regeneration
and under-utilised transport real estate, it was recently revealed that TfL has started to sell ‘unused’ tunnels
and ‘Ghost’ stations. TfL has awakened to the potential of its property assets as tourist attractions, hotels,
bars, shops and museums. Tunnels below Clapham North are home to a herb farm, and a deal has been signed
with Waitrose to run a service where customers pick up goods from lockers at Chalfont & Latimer, on the
Metropolitan Line. Here again is an instance of economically-empowering property under our very feet.
The reality is that what might at first be planned to be a short-term venture could easily take root. Rather than
considered a rival or threat to Britain’s long-lease CRE, pop-up commercial units should be viewed in most
cases as a welcome complement. After all, customers who travel to pop-up units as a destination, provide
foot-fall for neighbouring permanent retailers. Pop-up businesses are more than likely to occupy units which
have suffered long spells of inactivity and have blighted the surroundings for neighbouring retailers. The popup phenomenon has also been one of the most positive developments for Britain’s high streets, helping in part
to mitigate the challenges they have faced in other dimensions, and helping not simply to contain vacancy
rates but also to soften the recent fall. In order to make leases more attractive, it is critical to ensure that a
prospective pop-up can be connected with its essential utilities.
1.5.3 All change: The moving story of Aldwych Station
The story of Aldwych Station straddles a number of the real estate themes that we have covered elsewhere;
property in the public sector finding a new lease of commercial life, a property having earned listed status
(Grade II) and a story of unfulfilled development plans and ambitions. It is also a story of a property whose
name has changed, as has its role from transporting people across a relatively short distance back and forth
from Holborn, to transporting cinema and TV audiences back and forth over fictional time.
Descending from where the Royal Strand Theatre had once stood, Strand underground station opened in 1907
and finally closed in 1994. Over that period, and in the years since its closure, plans have been presented to
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link Aldwych Station with Waterloo and so onwards to the City (as well as with the DLR), to connect the Strand
with The Docklands. Aldwych Station was also part of the original plans for the Fleet Line proposed in 1965,
the template for what would become the Jubilee Line, which has bypassed Aldwych (née The Strand station).
During both world wars, the station was used as shelter for Londoners and treasures from the British Museum,
including the Elgin or Parthenon Marbles, closing to trains in 1940 and reopening six years later.
Passing the building, it has the unmistakable red-glazed terracotta blocks of the Underground Electric Railway
Company of London (UERL), with a two-storey steel framed building following the familiar design of architect
Leslie Green. As already noted, the station has, since its closure, become a favoured location for film and TV
shoots and as an event venue. As well as hosting regular tours of the station and its environs, the curious are
able to see a platform not used since 1914 and architectural sites of a bygone age.
Aldwych Station is far from being alone as a ‘ghost station’ – there are 40 – neither too is it the only one to
have taken on a new role as tourist destination. Indeed, plans are being presented to enliven these sites or to
economically move on these pieces of transport related real estate. TfL is hoping to raise £3.4bn in non-fare
revenue from its disused stations and tunnels. Whatever any realised value might be, there can be no doubt
the assets have considerable intrinsic worth located as they are in key locations across the UK capital.
1.5.4 CREating new markets from old
London’s Covent Garden market has come to epitomise commercial urban redevelopment and regeneration,
utilising character-rich listed property in the heart of a metropolis for modern purposes.
From housing Britain’s largest dedicated wholesale fruit, vegetable and flower market, the Covent Garden area
in central London has, since 1979, increasingly become home to a mixture of residential and commercial
tenants. Now, it spans a range of retail, leisure, creative and business service sectors and is one of the most
visited tourist areas, not only across London but Europe too. Covent Garden is home to one of the largest
Apple stores in the world, whilst also being a favoured location for the growing breed of pop-up food and retail
stalls in its modern market incarnation.
Over the years, Covent Garden’s success has encouraged the redevelopment of its environs, with commercial
revival now clearly evident across Seven Dials and most recently the area around St Giles. The end of horse
drawn delivery and rise of cold storage transit has allowed wholesale markets to move out of central urban
areas and thus free them up for modern economic purpose.
As much as Covent Garden provides clear evidence of the protean nature of Britain’s CRE, it also illustrates the
economic potential that exists widely elsewhere. From the neighbouring wholesale meat market at Smithfield
across to Nine Elms, the metonym home since 1974 of New Covent Garden, the Covent Garden ‘model’
highlights the redevelopment capacity and regeneration potential for CRE within a London that has far from
exhausted its development potential. Just as New Covent Garden Market came to life in Nine Elms, so the
peripatetic onward journey of London’s main wholesale fruit, vegetable and flower market will create
economic multipliers at its next stop, as indeed will the relocation, when it happens, of Smithfield Meat
Market.
Further afield from London, many cities across Britain have their own proven redeveloped equivalent of
Covent Garden. There can be little doubt that there are further British cities with central urban areas whose
property was developed originally for wholesale activity but which has long offered the potential for
redevelopment and economic regeneration. Whilst these will obviously not be of the size of Covent Garden,
their revival could conceivably prove to be more important, in terms of economic benefit to the city or large
town within which they nestle.
In short, it would be no exaggeration to claim that the cumulative economic multipliers from redevelopment
compare extremely favourably with the financial concessions that local authorities may need to offer as an
incentive to catalyse change. It could be argued that domestic and overseas investors are keen enough to
commit capital and so are not in need of actual financial inducement, but rather only require more certainty
around the planning process.
1.5.5 Gateshead’s MetroCentre: A Real development turning point
In the next section we reflect on the transformation of Birmingham’s Bull Ring Centre from a 1960s white
elephant into a successful and economically empowering city centre shopping and recreational complex. In
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considering its regeneration, we reflect on the site having been a market of some sort since the 12th century
and how an originally poor design had been followed by one which had unlocked the area’s potential in a way
the original clearly had not.
In this section we focus on an out of town shopping and leisure complex which opened almost thirty years ago
in England’s North East, one developed on land unaccustomed to the use it would be put to, but which has
performed its new role with such success it can now boast being Europe’s largest covered shopping and leisure
centre. Indeed, the opening in 1986 of the MetroCentre in Gateshead was a turning point in the fortunes of
not only the immediate area, but a defining economic moment for neighbouring Newcastle and indeed
Tyneside.
The opening and extension of Gateshead’s MetroCentre, with its 340 stores extending over two million square
feet of retail space, has come to symbolise a turning point in what had been an extremely troubled economic
time across the North East. The complex was developed on a brownfield former industrial site once alive with
activity but which had fallen victim to Britain’s changing fortunes. The area’s revival was to crucially prove the
economic merit of dynamic evolution in land use.
The creation of the MetroCentre also illustrated how collaboration by the most unlikely of groups could realise
a major real estate transformation and economic revival. Those aware of the importance of Sir John Hall’s
vision in delivering the MetroCentre, might not be so clear as to how crucial the funding from the most
unlikely of sources, the Church Commissioners, happened to be. Indeed, rather unusually for a shopping
centre, it has its own chapel and resident full-time chaplain. Funding was also made available at national (an
urban development grant from the Department of the Environment) and local (the Metropolitan Borough of
Gateshead) levels.
Since opening in 1986, the MetroCentre has been developed further with the addition of more malls (there are
now five) and a new cinema complex boasting 12 screens, including 3D and IMAX. It boasts additionally an
area dedicated to dining and entertainment venues. It can claim to have its own railway station and has car
parks with close to 10,000 spaces.
From the two Westfield centres in east and west London, across to Essex’s Lakeside and Kent’s Bluewater and
north to the redeveloped Bull ring in the heart of Birmingham, new or redeveloped shopping complexes have
provided centres of mixed-use real estate which have generated economic multipliers and employ
considerable numbers of people from local communities. And few have done more to define an area of Britain
more greatly than the MetroCentre in Gateshead.
Many other instances along the same regeneration lines can be found in other parts of the UK, examples
including Merry Hill in Dudley and Meadowhall in Sheffield. Both of these modern mixed-use commercial
developments were built on sites formerly occupied by steelworks.
The Round Oak steelworks in Merry Hill closed in December 1982, by which time it employed 1,286 people. A
shopping centre would open three years later close to the site, actual development of which commenced from
1989 in the form of an expansive business park.
As mentioned, Meadowhall too was built on a larger steelworks site, becoming the UK’s second largest
shopping centre when it opened in 1990. With over 280 stores, it attracted 19.8 million visitors in its first 12
months and currently brings in 30 million visitors a year. In October 2012, Norges Bank Investment
Management announced that the Norwegian Government Pension Fund Global had acquired a 50% stake at a
cost of £348m, another illustration of Britain’s CRE attracting sovereign wealth investors
1.5.6 Ring in positive change: Birmingham’s Bull Ring Centre story
London’s Brent Cross (1976) and Wood Green (1981) developments, then Lakeside (1990) in Essex and most
recently Bluewater (1999) in Kent have, in their respective ages, come to characterise episodes of innovative
shopping centre design, each situated where there was little in the way of dense CRE before. In a world where
design seems to be becoming less about building durability as design anticipating obsolescence, each will no
doubt adapt as shopping patterns change. It is not, however, the story of four shopping centres on which we
wish focus here, but one in the heart of England’s second city.
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The redevelopment of Birmingham’s Bull Ring Centre has come to represent most aspects of sympathetic and
inclusive CRE design, just as its initial post-war development came to symbolise the worst aspects of 1960s
‘brutalist’ architecture and failure to deliver a commercially successful property product.
In 1961, construction began on Britain’s first indoor city-centre shopping precinct, the Bull Ring Centre on a
site which historians could date as a market place as far back as the 12th century. The Bull Ring covered 23
acres and boasted 350,000 square feet of retail space, large enough for 140 shop units. Complementing the all
new shopping centre was a traditional open air market of approximately 150 stalls. Accessibility seemed
assured by direct access to New Street and Moor Street Stations, along with a network of subways and a 500space multi-storey car. The development even included a nine-floor office block attached to the car park. Close
by was the site of the Old Market Hall, which was turned into Manzoni Gardens, an open space where it was
intended shoppers would relax between forays into the Bull Ring.
The Bull Ring Centre seemed a perfect template for integrated urban mixed use CRE, yet before long it became
clear it ‘wasn’t working’. Relatively high rates of vacant space, frequent failures in its escalators and lifts and its
isolation, surrounded as it was by ring roads and its uninviting subways, contrived to make the Bull Ring Centre
a symbol of indisputable failure in urban development as footfall failed to arrive. Whilst plans to redevelop the
centre began to take serious form in 1987, it would not be until 2000 that demolition would begin.
In 2003, the newly branded ‘Bullring’ opened, and within a year became the most visited shopping centre,
attracting 36.5 million visitors. Where concrete once darkened areas, glass was used to shed light, indeed, a
75,000 square foot glass roof, known as the Skyplane, covers the main mall. Once barren and uninviting
underground passages are now lined with shops, and where the old Bull Ring struggled to attract marquee
stores, the new Bullring can boast Selfridges. In place of a once dark and isolated car park, there is retail space
on the ground floor and a suspended footbridge, the Parametric Bridge, connecting directly to the Selfridges
store. In 2011 ongoing redevelopment saw the nearby Spiceal Street become a restaurant hub, to provide a
more integrated consumer environment for the entire development.
The story of the Bull Ring Centre has come to represent the importance of design and configuration in
capitalising on city centre CRE, much like the development of One New Change along London’s Cheapside tells
its own story. This has also introduced an entirely new element of mixed-use to transform a city centre area,
and has brought economic activity into what had otherwise been largely barren weekends.
1.5.7 High street real estate, the butcher, and baker and...
We will reflect later on the changing fortunes and real estate needs of the ‘picture’ and public houses, betting
and shoe shops once ubiquitous along the high streets of Britain’s towns and cities. There was a time when
such high streets and most small towns and even large villages boasted butchers, bakers, greengrocers and
even fishmongers.
Consider these statistics; as of 2011, across Britain there were fewer than 7,000 butchers, 4,000 greengrocers,
3,000 independent bakeries and 1,000 specialist fishmongers. In each of those food categories, the total of
specialists has reduced to 10% of what it had been in the 1950s. As independent fresh food specialists have
left high streets, retail floor-space take up by supermarkets has itself risen sharply, at one point mostly away
from city centres and in large out-of-town ground-scrappers and more recently returning to urban hubs in
smaller but generalised convenience stores.
There has admittedly been a renaissance in specialist bakers, albeit not independents, with for instance Greggs
now boasting an estate of nearly 1,700 shops. This said, and albeit a relatively recent development, artisan
food retailers have begun to grow in numbers.
Concerns about the impossible-to-measure social, economic and health costs of the decline in ‘wholesome’
and community-centred independent fresh food retailers, have led to calls for a negative externalities, or more
commonly ‘supermarket’, tax (essentially a business rate surcharge we will discuss later) whose receipts would
be used to help mitigate for the perceived costs of dominant food generalists.
There is of course the counter argument that supermarkets have broadened availability of fresh food, and
have done so whilst making it cheaper to buy. The response to this has often been that it conceals both the
supermarkets’ oligopoly powers over their customers and monopoly powers over their suppliers.
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Let us return to the real estate demands of Greggs. True, it has gained an ever-more noticeable presence on
high streets through its expansion programme. True too this has been coincident with a very clear hub and
spoke strategy, where large regional bakeries supply its high street stores, which are bakeries only in name.
In summary, the CRE needs of Britain’s food retailers have altered dramatically over time. At first
supermarkets crowded out specialist high street food retailers by their close proximity. Supermarkets then
focused their growth ambitions on large edge of town and out-of-town superstores through the 1990s.
Increasingly over the past decade or so we have seen evidence of the main supermarket groups returning to
smaller town centre convenience formats. Remarkably, expansion in store numbers has been evident at both
the discount and premium ends of the price spectrum. Waitrose and M&S Simply Food are expanding and so
too Lidl, Aldi, Morrison and Sainsbury’s, the latter doing so by returning the Netto brand to Britain (initially by
converting 15 stores across its estate to the brand). And crucial to store expansion has been the development
of large regional distribution centres essential for efficiency in logistics.
1.5.8 Betting on a continued real estate need
Britain’s pubs have had to adapt to changing social-economic and demographic patterns, its high street shops
and post offices to e-commerce, and all to a challenging tax regime. Betting shops have had to cope with all
three potential problems.
Betting shops were legalised in 1961 and operated under strict controls. At their peak, numbers exceeded
15,000, and many were often family run. Since then, numbers have fallen, with estimates suggesting around
9,000 shops following a burst of consolidation across the market.
In April 2014, the UK’s largest bookmaker William Hill announced it would close 109 shops. It cited the
increased duty on Fixed-Odds Betting Terminals (FOBTs). Soon after, Ladbrokes revealed it too would make
significant closures; William Hill and Ladbrokes had previously operated over half of all UK betting shops. Coral
followed suit by revealing its own closure plans.
The reality was that, whilst Ladbrokes had already been closing its shops, this was being accompanied by new
openings. During the first quarter of 2014 Ladbrokes opened ten shops, and during the same period it closed
eight. William Hill stated in its Annual Reports the aim of a net expansion in its estate of 1% each year, in 2013
alone opening 59 new shops equivalent to a 2% rise in its estate size. Although numbers have increased over a
10 year period – 800 net new shops have been opened – their combined employment levels have been moving
lower, down by one tenth. A significant factor in these seemingly paradoxical movements has been the
presence of labour un-intensive FOBT’s, first introduced to betting shops in 2001 with the 2005 Gambling Act
limiting their numbers to four for each betting shop across England and Wales, a decision which simply
tempted operators to open betting shops in close proximity.
In 2012, the Commons Cross Party Culture Committee claimed the gambling Acts had left casinos (covered in
the 2005 and a 1968 Gaming Act which liberalised the sector) and betting shops “ill-equipped” and “outdated”
to deal with social and technological changes.
To conclude, since the 1960s Britain’s high streets have been home to betting shops in rising numbers, even as
online gaming has increased. This is a pattern not unlike the rise – or the renaissance – of fresh food retailers
even as home internet driven food delivery has increased.
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Hospitality and leisure
In this section, we consider two property-hungry elements of Britain’s expanding service economy, the
hospitality and leisure industries.
1.6.1 Center Parcs building its fifth British resort, creating 2,700 jobs
As much as its decline symbolised the country’s ills, the renaissance in Britain’s domestic holiday sector will
come to reflect its resurgence. No business captures this turnaround more than Center Parcs.
Since arriving in 1987, Center Parcs has grown to five sites across Britain. Of course some will claim resurgence
in holidaying in Britain is a reflection of austerity, and therefore a sign of Britain’s weakness not its strength.
We disagree.
Even a casual glance at the pricing of a basic Center Parcs stay proves it is not a budget option. Center Parcs
has succeeded because it delivers the product demanded by Britons. In short, both overseas and domestic
travel will increase.
There are also a rising number of tourists coming to Britain. Like so much else of Britain’s future, London will
feature strongly in the latter. As for the strength we envisage for sterling against the dollar and euro, we
anticipate the currencies of emerging nations will also strengthen, providing their nationals with a positive
wealth effect that is certain to translate into higher consumption, and increased foreign travel will feature on
their shopping list, with Britain a trophy destination.
1.6.2 Licensed to change
Having appeared to have passed the worst, the pace at which pubs closed accelerated to 18 closures per week
during 2012. In the first six months of 2014, Campaign for Real Ale (CamRA) estimated the rate of pub closures
had reached an average of 31 per week, 3% of all suburban pubs shutting over the period. It is also suggested
by CamRA, and analysts at CGA, that across Britain fewer than 55,000 pubs remain, with 10% of these
expected to close by 2018.
According to CamRA, pubs have been closing and will continue to close because of gaps in planning legislation
that allow pubs to be demolished or converted to a range of alternative commercial uses – notably
convenience stores, betting shops and pay-day loan stores – without the need for planning permission. CamRA
also identified the conversion of pubs to solely residential use as both socially and economically unfavourable
to local communities.
Whilst the conversion of pubs to homes provides another instance of a ‘tax bias’ favouring residential over
commercial use, it also captures how some pub property simply isn’t fit for modern purpose, given social and
regulatory changes. Some pubs without the capacity to accommodate kitchens and dining areas have fallen
victim to the trends towards patrons who prefer food with their alcohol. Others without outside areas have
suffered in the wake of the ban on smoking in enclosed premises and others, it is widely argued, suffer from
being tied to a brewery. Moreover, many of the pubs that have closed never quite dealt competitively
following the 2003 Licensing Act, or with the off-sale rivalry from supermarkets, with the end of the beer-duty
escalator in 2013 seen as little real mitigation.
Changing demographics have meant that once-viable pubs no longer have ‘natural’ local markets, prompting a
falling demand in customers and hence helping the demise of the pub.
1.6.3 Hotels: A home from home
Britain’s hospitality industry is undergoing much needed and long-overdue improvement and expansion widely
across the country. For its hotels, restaurants and related sectors to upgrade existing and add new capacity,
the cornerstone quite literally is new commercial real estate.
In part 2, we will analytically consider Britain’s Private Rental Sector (PRS) and the specific and wider economic
benefits of its expansion. Given we can consider hotel rooms as a form of ultra short tenancy – their shortest
tenure an overnight stay – we can extend upon our earlier analysis. By drawing upon hotel occupancy rates
and average room revenues, we can establish an estimate of capital value. This is of course a fraction of the
total, since we need to add the direct employment and supply chain related multipliers deriving from each
room.
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It is estimated that Britain’s hotel sector added 5,000 new rooms in 2014 2, investment motivated by increasing
tourist arrivals. From visits driven purely by curiosity and keenness to see the sights, to visiting those studying
in Britain’s education sector – private schools and HEIs – tourist numbers are on the rise. With large tracts of
the emerging world seeing an impressive enlargement in its middle class, the ability to satisfy travel ambitions
is growing and Britain can only benefit.
If Britain is to see the sharp rise in tourist numbers that that are predicted, there will be some changes
required. Across Britain, hotel capacity is increasing. Just consider a few instances.
Travelodge last year announced a target of 1,100 hotels and 100,000 rooms by 2025, more than doubling
capacity.
Premier Inn, currently Britain’s largest branded budget hotel chain, plans to increase its room capacity by
65,000 within five years. New locations will be added across the country, the largest of which will be a 130bedroom Premier Inn in Leeds.
Marriott aimed to increase its hotel room availability to 80,000 by 2015, adding 17,000 towards that target in
2014, with its push within Britain including London’s newly reopened and iconic St. Pancras Renaissance Hotel.
InterContinental Hotels Group, which owns seven major brands including Holiday Inn and Crowne Plaza, is
planning to add 37 British sites to its portfolio.
The limited service hotel chain ‘Tune Hotels’ has increased capacity in the last few years. Currently the chain
has eight hotels in Britain of which five are in London. We could continue with a great many more instances
where capacity is being added, with jobs alongside.
1.6.4
Who could have accurately pictured that?
The internet is having a profound effect on how we consume; from doing the travelling and hauling, we now
click and have our goods and groceries delivered. This change is having a profound and increasingly debated
and documented effect on Britain’s CRE.
Many see the encroachment of the internet as unambiguously negative for city-centre retail CRE. As with any
assessment of what awaits in an uncertain world, it is instructive to identify credibly close historical
precedents, and examine how events unfolded relative to the expectations of ‘the day’.
There was a time when cinemas, or as they were affectionately known, ‘picture houses’ were a staple of any
medium to large town high street, the Odeons, ABCs and Coronets plus a raft of independent brands
competing for a customer base which had grown sharply through the war years. Indeed, in 1946, there were a
staggering 1.6 billion cinema admissions, equivalent to 33 visits per person per year. This was however to
prove a high water mark.
Through the late 1940s, cinema attendances began to fall. Their decline was made worse with the arrival of
ever more affordable televisions and rising living standards. The process was accelerated still further by the
increasing amount of TV content; the BBC began broadcasting in 1936, with Independent Television launched
in 1955, and BBC Two in 1964. With the arrival of the VCR and a general decline in investment in the cinema
industry, by 1984 only 54 million cinema tickets were sold, equivalent to less than one trip per Briton per year.
It is no surprise that cinema after cinema closed in the wake of falling attendances. Some would convert to
billiard or snooker halls to cater for a craze whose popular interest had been galvanised by the very TV
broadcasting which had darkened cinema screens. Many cinemas simply became derelict, blighting high
streets and testament (it seemed) to an industry that would never again require CRE. Indeed, few in 1984
could have imagined otherwise.
From 1984, matters began to change for the better for Britain’s cinema industry. The introduction and
expansion of multiplex cinema combined with improving economic fortunes and greater amounts of leisure
time saw attendances revive, such that by 2011 total admissions had risen to 172 million. Whilst this hardly
equalled the 1.6 billion ticket sales recorded in 1946, the nature of visits had altered. Multiplex cinema,
2
Colliers Hotel Snapshot, 2014
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straddling towns and out of town sites, had become a destination event; the film was part of a wider dining
and recreational experience. Whilst the arrival of multiplex saw the revival of old cinema sites, it also saw the
development of entirely new premises, often out of town within retail parks, which offered plentiful parking
and relative ease of access.
As for legacy cinema sites that could not transition to multiplex, today many have been converted to other
uses, often exploiting the grand architecture legacy which once characterised ‘cinema theatres’ and ‘electric
palaces’. Here again one comes up against the protean nature of Britain’s CRE. After all, as music halls began to
give way to cinema, the process was most often not dereliction but conversion. Many cinema sites have in turn
converted to other uses, bowling alleys, snooker halls and licensed premises.
The intention in examining the rise, fall and then rise again in Britain’s cinema industry, has been to sound a
note of caution to those convinced the ‘evacuation’ of its high streets can only continue unabated. For just as
those in 1984 who saw an Orwellian view of the future of cinema in the age of home entertainment proved
wrong, so too might those who see much the same thing for traditional retail in the age of the internet.
1.6.5 Britain’s built reCREational space
There was a time when Britain’s communal built space dedicated to ‘leisure’ time was largely limited to public
baths. Communal pools and bath were provided not for recreational needs however but essentially to makeup for the lack of basic washing facilities in homes. A great deal has thankfully changed since then.
Today Britain’s purpose-built leisure centres provide subsidised facilities across a wide range of sporting
disciplines. It is not these large purpose-built leisure centres that we want to reflect on here, but rather the
multitude of gyms which are housed within a wide range of Britain’s CRE.
Many of Britain’s now considerable number of commercial gyms do not use of what might be considered
conventional built space. They tend to take up areas that might otherwise remain economically inactive,
notably lower ground floors and other space with restricted or indeed no natural light.
The growing presence of gyms within multi-use buildings provides landlords with greater tenant
diversification, whilst offering other occupiers proximity to facilities that are used in ever greater numbers
during their leisure time.
The proliferation of its commercial gyms provides yet another instance of how utilisation of Britain’s CRE has
become as much about improvisation as it has innovation.
1.6.6 A real Olympian effort
On July 6th 2005, it was revealed that London had beaten off four fierce challengers to win the bid for hosting
the 2012 Summer Olympics. Remarkably, at the time of the announcement, 60% of the facilities and venues
necessary were already in place, but not the Stratford City development. This included the Olympic Park, and
was no more than a computer simulation requiring considerable demolition, excavation and construction work
ahead, in certain cases involving fiercely-contested compulsory purchases.
With the euphoria of the success of the London 2012 bid still high, a shocking series of attacks across the
Capital on 7/7 would force a reassessment of venue logistics in the light of entirely new security issues. This
challenge would not greatly interrupt the ‘building’ momentum towards summer 2012.
Key to the IOC agreeing to give London the 2012 Olympiad was a commitment to match improved transport
infrastructure with the delivery of developed and redeveloped fit for purpose sporting real estate. Indeed, the
IOC’s preliminary assessment was that London’s public transport system was relatively poorly prepared for the
demands it would face in 2012. In the years up to the event – London’s third hosting, although its 1908 and
1948 experiences were by default – improvements were made to the Docklands Light Railway (DLR), the North
London Line and the East London Line of the Overground network. An entirely new cable car was created
across the River Thames to link Olympic venues. In each instance, the legacy of this Olympian effort would
show benefits well after the event.
Just as the transport initiatives introduced to meet the needs of the 2012 Olympics would have a valuable post
event legacy, so to would the accommodation delivered to house participants. Indeed, in the wake of the
event, much has entered the private rental sector, helping accommodate London’s growing population.
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What London’s 2012 Olympian effort proved was the ability within Britain to utilise its existing CRE and, where
necessary, to redevelop extensively on brownfield sites long in need of regeneration. Since hosting the 2012
Summer Olympics, it is clear that a greater focus on sustainability has been beneficial, as real estate delivered
for the event has been refocused towards more durable and often commercial ends.
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1.6.7 Giving CRE a sporting chance
The stadiums in which senior professional football teams perform are fully occupied infrequently, but generate
an increasingly valuable revenue stream during that time.
With broadcasting deals breaking records when they are renewed, it would not be unreasonable to claim that,
on a per square foot basis and allowing for match day ticket, food, beverage, merchandising and broadcast
revenues, Old Trafford, The Etihad and The Emirates stadiums are amongst the most yielding pieces of
commercial real estate England can boast. True running costs include what has become the increasingly
contested issue of player costs, but even here novel ways of creating a ‘fair’ playing field are seeing innovative
ways of generating revenues from the campus real estate, which football stadiums are increasingly becoming.
Whilst the numbers swell markedly on match days and require considerable occasional staff, the new campus
stadiums retain a growing number of full-time workers to man the retail, stadium tour, museum, visitor events
and other corollary activities that modern football venues operate. These provide welcome local employment
to the relatively young in what are invariably urban areas with above average youth unemployment rates.
Figure 6: Stadiums with capacity more than 20,000 and opened since the millennium
Darlington Arena
Opened August 2003
Capacity 25000
KC Stadium
Opened December 2002
Capacity 25000
Etihad Stadium
Opened August 2003
Capacity 60000
Leicester City Stadium
Opened July 2002
Capacity 32000
Ricoh Arena
Opened August 2005
Capacity 32000
Stadium MK
Opened November 2007
Capacity 30000
Wembley Stadium
Opened March 2007
Capacity 90000
Emirates Stadium
Opened July 2006
Capacity 60000
Liberty Stadium
Opened July 2005
Capacity 20000
Cardiff City Stadium
Opened July 2009
Capacity 33000
London Olympic Stadium
Opened March 2012
Capacity 80000
St Mary’s Stadium Rose Bowl
AMEX Community Stadium
Opened August 2001 Opened May 2001 Opened July 2011
Capacity 32000
Capacity 20000
Capacity 30000
Source: Local authorities
Redevelopment plans are in place for Tottenham Hotspur in Haringey North London. Elsewhere, Brighton &
Hove Albion can boast a new stadium and so too can many other towns and cities, with more to follow no
doubt. West Ham United is due to move into the Olympic Stadium in Stratford. The 2012 London Olympics has
transformed a large swathe of London’s CRE, just as hosting the 2014 Commonwealth Games has done for
Glasgow.
Whilst most are built for a prime purpose, sporting venues are proving versatile, increasingly playing host to
other disciplines as well as a growing number of concerts. This extension of use is improving the utilisation of
the assets, and enhancing the wider wealth benefits to local economies.
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Of course transforming sporting venues has not always been without event.
It would take Wembley Stadium 59 years to be transformed from its 1948 British Empire design to the current
model. Over its reconstruction period (2002-07), its contractor suffered serious budgetary pain, not entirely
uncommon given the tender price and penalty clauses Britain’s contractors tend to work within.
As ‘The National Stadium’ was being developed, the Millennium Stadium in Cardiff played host to League and
FA Cup Finals, providing a welcome boost to the local economy. England’s home internationals were
distributed across club stadiums across the midlands and north that had enjoyed a long tradition of hosting
semi finals for club competitions.
In broad terms, Britain has always and continues to enjoy improvements to its sporting CRE often in urban
areas where stadiums have become the most important and extremely welcome wealth generators.
1.6.8 Britain’s winning CREw
Hosting a major international sporting event, commercial show or arts gathering has become both an ambition
for Britain’s cities – often in fierce competition with other overseas and indeed British rival cities – as well as
the potential to prove a poison chalice. In addition to requiring the use of existing real estate, sufficiently large
events will invariably need to draw upon additional capacity. They may need new strategically positioned
venues for activities or they may need accommodation for visitors and participants, and will often in fact
require both. With the need for additional space comes the risk that these short-term requirements are
underused once the sporting, commercial or artistic event has passed (the idiom “be careful what you wish
for” is something of a caution to cities and towns desirous of hosting a major international event).
Britain can rightfully boast an established reputation in successfully hosting major international events, such as
the Rugby World Cup this year, last held in Britain in 1999 when Wales were the hosts, and the 2012 Summer
Olympics. Glasgow was the venue for the Commonwealth Games in 2014, the world’s third largest sporting
gathering, and an event that Manchester had hosted in 2002. In all cases, as well as utilising existing capacity,
entirely new real estate was developed, which in some cases did admittedly ‘force’ existing property to be
redeveloped. In every instance there was and remains no sign of any meaningful real-estate ‘hangover’.
We have reflected elsewhere how Wembley Stadium – née the Empire Stadium – having been intended for a
single event, the British Empire Exhibition of 1924/5, survived a further 75 years, during which time it was the
venue for part of the 1948 Summer Olympiad. Having famously and successfully hosted the World Cup in 1966,
when the final was played at Wembley, England has since unsuccessfully bid for the 2006 and 2018 FIFA
events. It did, of course, host a number of notable European Cup finals (including in 1968, when Manchester
United became the first English club team to win the trophy) and the European Championships in 1996, when
England progressed to the semi-final.
As much as hosting international sporting events provides economic benefits, there are, as already noted,
potential pitfalls, in essence the events generate both positive and negative externalities. Around the world, a
number of cities have hosted international events, for which they invested in considerable new real estate,
only to find it had little subsequent commercial purpose.
Some cities have tried to avoid the challenges of excess capacity by satisfying the short-term needs of
burgeoned attendances through the duration of an event by some innovative idea. This has included mooring
cruise ships to provide temporary accommodation, as Lisbon did for Expo 1998 at which 11 million visitors
arrived over 132 days. The use of temporary real estate for Expo 1998 showed that, whilst any major
international event may be welcome to a city or region, a measured approach is essential in delivering a
sustainable real estate solution. The idea of mooring cruise ships was muted for London 2012, however, it was
never adopted since it was assessed that adequate use of existing space plus the delivery of additional new
capacity would be sufficient. Crucially, the new capacity would find economic purpose after the event.
Another potential pitfall of a city hosting a major international event is the risk ‘crowding-out’ other economic
activity. This was a particular concern voiced by the London theatre industry, which foresaw a marked decline
in audience numbers and the threat from Andrew Lloyd Webber that this would turn “theatres dark” with the
arrival of the Olympics. This fear seemed to be supported by a significant rise in hotel room rates – tariffs in
August 2012 increased by nearly 40% on average compared to the previous year. Concerns were heightened
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still further by an anticipation that London’s ‘normal’ summer tourist patterns might be disrupted if potential
visitors perceived ‘Olympic distribution’ would interfere with their plans for their time in the UK’s capital.
In reality, room occupancy across London’s hotels was only slightly down on average through the duration of
the Olympics. Moreover, far from theatre audience numbers falling, attendances increased – boosted by
Britons themselves – forcing Lloyd Webber to subsequently apologise for predicting a “bloodbath”, going on to
say “I have been proved wrong and I couldn’t be more delighted about that”.
Chart 7: London hotels: average daily rate
Chart 8: London hotels: occupancy
20
% change, year on year - 3m moving average
% change, year on year, 3m moving average
20
15
10
5
0
-5
-10
-15
2004
2006
2008
2010
2012
2014
15
10
5
0
-5
-10
-15
2004
2006
2008
2010
2012
2014
Source: ONS, Toscafund –vertical lines denote beginning and end of the Olympic and Paralympic London events.
This is not to claim that parts of London’s CRE did not suffer during the Olympic and Paralympic period, nor
indeed that it did not face disruption to business activity in preparation for the events as a result of the
considerable development work involved. What London’s most recent Olympic experiences – 1948 and 2012 –
clearly seem to have shown, is that the benefits well exceed the costs, providing economic multipliers and
catalysing real estate development which might otherwise not have happened.
Britain’s cities do not only vie for quadrennial international events, but provide annual rivals to events that
move within the course of a year around Europe and beyond. London hosts Fashion Week twice each year, the
first such week back in 1984. Not only is existing space used to accommodate the events, but considerable
pop-up structures are constructed in public places for the purpose. With London Fashion Week, we have seen
these take shape in Berkeley Square, in the grounds of Somerset House and elsewhere across London.
The reality is that with its extensive property estate, ever improving transport network, convenient time-zone
and widely spoken language, Britain has considerable potential to regularly attract international showpiece
events, across a wide variety of sports and extending to entertainment shows, commercial conferences and
trade exhibitions. It is worthy of note in closing, that Britain currently hosts NFL league international fixtures,
each to a full New Wembley. The draw of Britain is moreover not confined to its capital city but widely, with
Manchester, Birmingham, Glasgow, Edinburgh, Cardiff, Belfast and many other centres, not simply vying with
one another to host artistic, sporting and commercial events, but each in their own way rivalling other cities in
Europe and beyond. Crucial to the list of attractions of Britain’s cities is the existence across all of an
established and varied base of property assets – from conference and exhibition centres to hotel
accommodation – as well as the ability to deliver temporary or pop-up structures, if and when needed, some
performing a useful economic role long after they were intended, as with the original Wembley Stadium. For
when it comes to international sports, Britain can boast a winning CREw.
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1.7
BRITAIN’s PROPERTY CREDENTIALS
Private rental sector
One aspect of Britain’s modern CRE base which warrants particular interest is its rapidly expanding private
rental sector (PRS), an often overlooked but all the same increasingly important CRE market.
1.7.1 Britain’s modern work houses
We have already given attention to what part of Britain’s residential property can be considered CRE,
concluding that it qualifies if it is privately let and generates rental income. Including PRS, there is a second,
admittedly smaller, segment of British property which can reasonably be considered to fulfil dual residential
and commercial roles, namely where living space doubles as work space. Whilst home working is hardly new to
Britain, its nature is very different today from its largely farming or ‘piece rate’ rag trade in the past. The ONS
suggests that higher-paid occupations and managerial positions account for three quarters of those working
from home. This is a significant change to the past, when home working was largely characterised by men
undertaking manual agriculture or construction, or women performing low paid piece work.
There are, of course, the great many who are at home caring for their children or other dependants, all of
whom perform a productive role even if not recognised fully or remunerated properly for their valuable
attention. In addition to this group, there are those using their home as a regular workplace, affording them
flexibility over hours and releasing them from commuting time and its attendant costs.
According to the ONS, there are now 1.5 million workers across Britain, or 5% of those in work, who ‘mainly’
operate from home compared to 678,000 in 2001. More broadly, 4.2 million people use their home as a base,
a figure up 45% from the 2.9 million estimated in 1998. This is a leap in the last three years of more than
500,000, as the ‘home working rate’ is now 13.9% compared to 11.1% in 1998.
The majority (two-thirds) of Britain’s home workers are part of its growing self-employed class and are mostly
found in rural areas. Previously, home working was concentrated in farming, construction and manual work,
but it is now more common for highly skilled roles to be performed part-time from a home base by those
commonly approaching or beyond retirement age. This helps to explain why median hourly earnings for home
workers were recorded to be 30% higher than conventionally housed staff. Mixed residential/commercial real
estate is the ‘home’ of part of the figurative grey economy, now recognised in the measurement of GDP.
Across the shires, growth in professionals working from home has been particularly noticeable, with almost
one in five workers in the Derbyshire Dales performing their roles from home. The number across farming
intensive West Somerset is over one in four, whereas it was one in twenty in Kingston upon Hull, and one in
ten professionals working from home in Scotland.
Those now working from home range widely across the socio-economic spectrum and, in some cases, involve
start up businesses for which the ambition is to move into commercial space at the earliest opportunity. For
many, working from home is a lifestyle choice. In fact, it is estimated that 100,000 Britons are ‘home agents’ or
provide contact centre call services from their own homes, capitalising on their remote access to data hubs,
the internet and broadband.
Chart 9: Working from home
Figure 7: % of home workers (January-March 2014)
% point increase since 2008
14
South West
12
10
%
8
6
4
2
0
1998
2000
2002
2004
Unpaid family workers
Source: ONS, Toscafund
40
2006
2008
Self employed
2010
2012
2014
Employees
1.5
South East
1.9
East of England
0.7
Wales
0.1
London
2.1
East Midlands
1.3
West Midlands
0.9
North West
1.8
Yorkshire and
The Humber
0.9
North East
1.1
Scotland
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There is, of course, the issue of those working from home not being subject to business rates. They do
nonetheless pay domestic rates, and will in addition be liable to income tax and national insurance. Many
workers based at home will, of course, need to travel to customers and use traditional CRE, arranging meetings
for instance in coffee shops.
A Government commissioned study from 2012 suggested that there would be a £15bn saving were more state
workers to operate from home, £7bn in savings from office costs, and a £8bn gain in improved productivity. It
also suggested that reduced commuting needs would help towards improved sustainability by reducing carbon
emissions.
In short, whilst its farms continue to represent a cornerstone of Britain’s home working real estate, an
expanding share of its residential sector is doubling as both living and working space, rising particularly quickly
in professional services. As this trend develops, it is contributing to a wider change in the landscape of Britain’s
commercial real estate map.
1.7.2 The welcome growth of commercial residential (née private rental)
Britain’s residential market is changing fast, and importantly, it is changing for the better. The emphasis here is
the encouragement we should be drawing from a growing private rental sector, or as we would call it an
expanding commercial residential market. This provides a crucial ingredient for the movement of people
around Britain, which is an instrumental element in narrowing regional economic divides. It is, of course,
creating a nation of landlords and tenants. However, in a growing number of cases, individuals fulfil both roles.
As tenants, Britons have flexibility to be peripatetic, and as landlords, they have housing equity and income.
As more Britons become ‘commercial’ landlords, so their spending and investment decisions will be influenced
by Britain’s property market, providing revenues to the Exchequer and multipliers through a number of
channels across the economy. It is no exaggeration to say that, as the nature of housing tenure changes over
time, it is for the better. Better because it removes unwelcome barriers to the movement of households into
and across Britain, and better because it creates another means by which property becomes commercial at the
individual household level.
Chart 11: Share of mortgages by type
3.0
10.0
2.5
8.0
2.0
6.0
1.5
4.0
1.0
2.0
0.5
0.0
0.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Owner-Occupied Mortgages
Buy-to-let morgages (rhs)
100
80
60
%
12.0
Outstanding mortgages in millions
Outstanding mortgages in millions
Chart 10: Number of mortgages
40
20
0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Owner-Occupied Mortgages
Buy-to-let mortgages
Source: Council of Mortgage Lenders, Toscafund (forecasts)
It is important to emphasise there is a historic precedent for the current trajectory of Britain’s tenure mix,
certainly in terms of crude statistics, although this unprecedented when one looks at the detail. Where once
the large private rental market was characterised by slums and unregulated landlords, in its modern future
Britain will have a commercial residential market which is fit for such an advanced developed economy. Where
once landlords were ‘barons’ (often titled literally), now they are drawn across the socio-economic spectrum,
often with properties in their portfolios which were once their own homes earlier in their move up the housing
ladder. Where its renters were often unskilled manual labourers, Britain’s private commercial property market
is increasingly occupied by skilled and professional classes, often property owners in their own right, using the
rental market because it allows their affordable movement around the country to exploit work opportunities.
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1.8
BRITAIN’s PROPERTY CREDENTIALS
Manufacturing CREativity
In this short section we reflect on how CRE has taken Britain from its pastoral roots to an industrial
powerhouse and is again manufacturing a whole new British economy.
1.8.1 Real estate’s food for thought
A modern economy is not so much based in real estate, as would not exist without it. In fact, without real
estate an economy will remain pastoral.
Real estate is essential in rural communities, as it is in urban areas. For without real estate, a nation’s
agricultural sector cannot support the needs of its urban economy. From barns equipped with industrial
milking equipment to silos storing cereals and greenhouses to protect crops from the elements, real estate
allows food production to increase with ever less arable land and farm labour, whilst also reducing its exposure
to the vicissitudes of an unpredictable climate. The factories in which food is processed provide another crucial
element in the creation of an industrial food-supply-chain, literally feeding urbanisation by delivering
affordable foods in ever greater volumes from, as already noted, lessening needs for farmland and farm
labour. In addition, there is the real estate formed of large out of town supermarkets and high street volume
grocery stores, both providing convenience to the urban population.
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1.9
BRITAIN’s PROPERTY CREDENTIALS
Flexibility
1.9.1 Property arriving from above
In this section, we reflect on how buildings that were once consecrated have been transformed into
commercial real estate. Of course, as some declining ministries have resorted to disposing of their houses of
worship, there have been those expanding theirs, acquiring existing property or building new. There is a
continuous evolution in and out of CRE.
Chart 12: Churches opened and closed
3500
3000
2500
2000
1500
1000
500
0
1980-1989
1990-1994
Opened
1995-2002
Closed
2003-2010
Source: Whychurch.
Across Britain, it is estimated that 2,244 churches and chapels have ceased to be houses of worship since 2003,
with many closing earlier. Some have become commercial or residential, in some cases, part of the expanding
private rental sector. Houses of worship are generally located within the centre of parochial communities and
so their transformation into commercial use can prove only positive for local economies.
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1.9.2 Protean property
We would argue Britain’s stock of commercial property has never been more flexible, taking on a Protean or
changeable form.
A great deal of British real estate is capable of relatively swift and affordable realignment, adapting for
occupiers in quite different business sectors. From steel or textile mills to shipyards and coal mines,
commercial property became practically useless on the demise of the industry it had been built for. As a
consequence, the calculation of a present discounted value (PDV) for such single-use real estate demanded the
inclusion of risk factors. These raised discount rates, which by their inflated nature lowered the intrinsic longterm value of each building.
Now, real estate often involves multiple occupiers across varied sectors with space able to be realigned
relatively easily and not overly expensively. The result has been, if not to entirely remove the risk factors used
in PDV calculations, to capture the possibility of a ‘permanent void’, as to bring the probability down sharply.
This has provided property owners with enhanced asset values and allowed them to capitalise on this for the
benefit of the wider British economy.
1.9.3 Our future is in the clouds but still very real
As Britain progresses on its technological growth path, concerns will no doubt be expressed that its current
commercial real estate will not be fit for future purpose. Whilst it is easy to understand why such concerns
may exist, it is important to make clear why they must not be exaggerated.
The reality is that Britain’s real estate has been challenged by change on many previous occasions over time,
and in the case of some notable ‘shocks’ it has failed to adjust, leading to obsolescence and considerable cost.
We have considered elsewhere how in its past, Britain’s industrial real estate was shocked and exposed as
being fit for only one purpose. To allay these fears, one needs to contrast the old mercantilist Britain with the
new. Where once Britain traded in steel, coal and ships, it now does so in insurance, education and software.
The real estate of these traditional industries were location and purpose specific and linked in size to
manpower, the new generation are less.
Consider Google and its new one million square feet in King’s Cross, whose output is far larger than one would
see from a traditional firm in a space of this size. Consider too how the new occupiers across London’s financial
districts will platform their middle- and back-offices some distances from their front. Not overseas, we will
stress, but in Manchester, Birmingham and Leeds. Online retailers also require premises, and as small
inventory-intensive shops on the high street close, huge central distribution depots open. Whilst initially this
seems to signal the demise of the British high street, they will, in fact, shrink and become more focused, with
some conversions to residential.
As for cloud technology, it must be emphasised that this demands a physical presence on terra firma. Rather
than imagining our physical data needs will lessen, we must be prepared to see them grow with our own
population; Britain is set to become Europe’s largest economy by 2100, more populous not only than
Germany, but also Turkey.
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1.9.4 The regeneration of Nine Elms and Battersea: a case study in regeneration and
relocation
The US Embassy in London will eventually relocate to Nine Elms from Grosvenor Square, and so too the
Embassy of the Netherlands, moving from Hyde Park Gate. These moves will be to an area of London along the
Thames with an industrial heritage, but not much pedigree beyond it. Indeed, one of its most recent inward
relocations was the arrival in 1974 of New Covent Garden Market. By 2020, Nine Elms in Wandsworth is likely
to be amongst London’s most celebrated extensive mixed-use real estate regeneration and relocation success
stories, set to boast hotels, offices, retail, art, leisure and recreational real estate as well as residential, and
even, it has been suggested, a university campus and related student accommodation. Once completed, Nine
Elms will boast a skyline which will stand in the same way as The City and Docklands at present.
Amongst its many other claims, a reinvigorated Nine Elms will be testament to transport investment as the
Northern Line is extended. The area’s revival will also highlight the potency of overseas capital, with funding
for the redevelopment originating from Malaysia’s state-backed investment fund.
The regeneration of Nine Elms, and more widely the Vauxhall and Battersea area, will extend to the
eponymous landmark power station. Comprising two coal fired power stations opened in the mid 1930s and
mid 1950s, Battersea was decommissioned in 1983. Since then it has loomed large but economically useless
along the Thames. Following the plant’s closure, schemes ranging from a theme park and site of a new stadium
for Chelsea FC to a return to power production using bio fuels have all been muted. Each of these has
floundered, not least because of the cost considerations in dealing with a Grade II listed structure. In
September 2012, the site was sold to a Malaysian consortium who have committed to the redevelopment,
involving the power station as the central focus of a regenerated 40-acre site, housing a blend of shops, cafes,
restaurants, art and leisure facilities, office space and residential accommodation.
In addition to the restoration of the historic power station itself, the plan for the area includes the creation of
a new riverside park to its north and the creation of a new High Street designed to link the future entrance to
Battersea Power Station tube station with the power station structure. It is hoped that the redevelopment will
bring about the extension of the existing riverside walk and facilitate access directly from the power station to
Battersea Park and Chelsea Bridge. Work commenced last year and plans include the restoration of the art
deco structure internally and externally, reconstruction of the chimneys, and refurbishment of the historic
cranes and jetty as a new river taxi stop. The plan includes over 800 homes of varying sizes, of which around
three-quarters of the off-plan townhouses and apartments in Phase 1 of the redevelopment were sold within
four days.
The full redevelopment consists of seven main phases, some of which are planned to run concurrently. Phase
1, named Circus West involving work on the new residential property and the power station, began last year
and is due to be complete in 2016/17. The Northern Line extension and new Battersea Power Station terminal
is anticipated to complete in 2020. Liew Kee Sin, chairman of the Battersea Project Holding Company, has said
that Phase 1 and Phase 2 investment combined has a 50-50% split between UK and foreign-based investment.
Returning to Nine Elms and its own regeneration, this will involve the need for New Covent Garden Market to
relocate again, albeit across the road (temporarily whilst the new site is redeveloped), proving when it does
the peripatetic qualities of Britain’s modern economy. For as the Covent Garden metonym is moved once
more, it will illustrate the importance of space over place, and how Britain’s CRE requirements have altered.
The occupational needs of its old industrial base were often dictated by place, with property so specific it
offered little if any potential to be realigned for alternative use.
Like so many other case studies we have considered, Nine Elms and Battersea reflect how economicallydormant real estate across London, and more widely across Britain, is being brought back to commercial life,
relocation coinciding with entirely new activity and all made possible by capital and occupiers from overseas.
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1.9.5 Time to open up Britain’s CRE
We are familiar with many across the industrial sector using shift working around the clock to increase the
productivity of all related real estate, and how this operational gearing improves its economic value. We would
like to reflect on the operational leverage of non-industrial property in the areas of retail, leisure and even
business services.
Some readers will remember when high street banks closed at 3.30pm, when many shops were shuttered
early on Thursdays and when little commercial activity occurred on a Sunday. Whilst this was relatively recent,
it now seems virtually impossible.
There will of course be those who remember the days before the introduction of Bank Holidays, when a need
arose to improve working conditions and govern working hours. Across a large part of Britain’s CRE, in the
past, its economic value was restricted because of relatively limited hours of operation, creating opportunity
costs. As business hours have increased, so greater productivity has meant increased economic value.
Of course, some may claim longer business hours do not increase activity, but rather spread it, lowering hourly
productivity and actually increasing business costs. They may go on to argue that, even were there to be
economic gains from extended opening hours, these would need to be considered against the personal costs
faced by those working them.
There is, however, the counter argument that longer business hours have delivered greater flexibility in how
we use our precious leisure hours, releasing us to spend more not less time with one another. There is also the
evidence that average hours worked have simply exhibited a cyclical pattern. One might also make the case
that extended business hours have encouraged greater labour activity, as those unable or unwilling to take up
full-time employment with ‘conventional’ business hours have been allowed into the labour market and into
the world of work.
In section 1.3.6, we argued Britain’s economy would benefit as it provides a complementary time-zone home
to those businesses with operations in emerging economies or resource rich nations looking to operate around
the clock. Just as in making that case we argued certain business sectors do not lend their property or staff to
shift-work, so we will make the case again here. Businesses are perfectly conscious of how best to optimise
their property and professionals through the day, not to need the imposition of somewhat arbitrary
restrictions.
In short, whilst working real estate involves depreciation and maintenance cost, these also apply to some
degree when property stands idle. And for this reason, restrictions on business hours need to be considered in
the context of the opportunity cost of inactivity.
1.9.6 Mixed and change of use property: all for the better
There have been loudly-voiced concerns that abandoned shops could increasingly blight Britain’s high streets
and create urban economic vacuums. Not only should any such alarm not be exaggerated, but the positive
change for the good must not be ignored.
Many stock intensive retailers have abandoned Britain’s high streets, forced to close or relocate as ‘their offer’
is overtaken by the convenience of, and competition from, the internet and large capacity retail parks. Rather
than their departure leading to long-term vacant possession, voids or the need to resort to ‘charity shops’, the
relocation of low stock-turn and inventory intensive retailers is opening up the chance for premises to realign;
‘downstairs’ to consumer services and ‘upstairs’ to residential. Just consider a retailer of shoes or household
textiles. In each case, the requirement to have stock to hand involves taking up an entire building, upper floors
and back rooms filled with inventory. The departure of durable retail and consequent replacement with
consumer services opens up the greater opportunity for combined business and residential use.
Far from high streets being abandoned, we have the real possibility that urban centres will enjoy population
growth and renewal. Rather than centres emptying from 5.00pm and filling once more at 9.00am, urban
centres will be enlivened by not only change of use but greater mixed use.
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1.9.7 Productive property
The productivity of Britain’s labour force and the real estate they occupy has been dramatically transformed
over the decades. Transformed because many of us can be productive in a host of real estate settings. And
underlying this transformation has been Britain’s labour force becoming what we would argue is the prototype
service economy. In its most reduced form, the productivity of property can be measured by the cumulative
output of those ‘working’ in it. Once this would be confined to the single shift, or what one could call the ‘nineto-five’ rule. Until relatively recently, many Britons were essentially only productive in their work situ. For
those employed across ‘hard’ industrial sectors, their productive day could not begin until they had arrived at
the real estate dedicated to their occupation. Similarly, for those across service sectors, albeit here one could
arguably identify additional productivity as it were in the form of ‘home work’. Even this however was
restricted by relatively limited remote office access. Matters are very different now, because more Britons
than ever before are involved in ‘soft’ service sectors. And very different because of how technology has
allowed so many of us to be productive even when remote from our designated place of work. The result has
been to empower or make productive whichever property we occupy, whilst working off-site, but on-line. We
are productive in transit and we are productive even in recreation. And what this has done is transform how
we measure the productivity of Britain’s real estate. Transport real estate such as airports and train stations
has been empowered. Consider too other real estate housing restaurants and retail. It is not only the cooking
and waiting staff who can be said to be productive, but those diners enjoying a working meal. It is not only
shop assistants who are being productive, but their customers using remote tools such as iPhones and
androids, iPads and laptops between spending forays. The result of this technology transformation should
have included a transformation in how we measure the productivity of real estate. And yet it hasn’t, or
certainly hasn’t to the meaningful extent it should have.
1.9.8 Self-contained property
According to the Self Storage Association, Britain had barely 5 million square feet of capacity in 2002, and by
2013, capacity had increased six fold, showing significant growth throughout the downturn, with over 1,000
facilities offering self storage space. The forces underlying this expansion reflected many changing socialeconomic and demographic patterns, as well as changing business habits. In both cases, self-storage provides
greater flexibility than leasing warehouse space and improved security over traditional lock-ups.
Amongst Britain’s growing number of ‘Ebayers’, ‘Gumtree-ers’ and others, the flexibility, short-notice, low
overheads and cost of self-storage is often a preferred option to holding inventory. Particularly attractive is the
absence of a business rate. Whilst VAT was introduced to storage space in 2012, this can be reclaimed by
business users. According to the Valuation Office Agency (VOA), “we normally assess self-storage facilities as a
warehouse and the operator will generally be liable for the payment of rates” which of course is then included
within the rent. As of 2014, 42% of self-storage use was commercial, an increase of 39% over the previous two
years. For operators such as Safestore and Big Yellow, Britain’s two largest operators, self-storage breaks into
profitability above an occupancy rate of 40% as there are relatively low overheads. For non-commercial users,
self-storage provides an important option during home moves, with the rise in private rental and migration
certain to trigger growing usage of temporary and even longer term storage.
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1.9.9 Moving buildings: It’s elementary
Scotland Yard has become synonymous with London’s policing. The name has in fact gone beyond being a
mere figurative metonym, attached officially to wherever the Metropolitan Police Service finds itself
headquartered, the name literally moves building to building. Whilst the various ‘Scotland Yards’ of their time
have not been part of London’s CRE, their ‘moving story’ has been inextricably linked with it, involving issues
such as shifts from and to commercial use, land reclamation, new build and redevelopment, and more recently
foreign ownership.
In 2016, the headquarters of London’s Metropolitan police force will move again, to what will become the
fourth in the line of ‘Scotland Yards’. In its next incarnation, Scotland Yard will return for a second time to the
Victoria Embankment, on this occasion taking up residence in the neo-classical ‘Extension’ Building, more
commonly known as ‘The Curtis Green Building’ after its architect (one of whose designs is the Dorchester
Hotel on London’s Park Lane and another the Wolseley Building on Piccadilly).
Ahead of relocating in 2016, the Met’s home remains where it has been since 1967, at 10 Broadway, by St
James’s Park Station. The current Scotland Yard building was sold to the Abu Dhabi Financial Group at the end
of 2014, its new owner intending to undertake a comprehensive redevelopment to mixed residential and
commercial use.
This relocation highlights how space can be reclaimed and renewed from public to commercial use, done so in
reverse, and where new space is built purposefully or existing property redeveloped. It might be instructive to
briefly plot how, over time, Scotland Yard has moved around London.
The Metropolitan Police story begins in 1829 in a private house on 4 Whitehall Place backing onto a street
named Great Scotland Yard. By 1887, the Met headquarters had expanded from 4 Whitehall Place into several
neighbouring addresses, including 3, 5, 21 and 22 Whitehall Place; 8 and 9 Great Scotland Yard, and several
stables. Indeed, some of the mounted branch to this day use stables located at 7 Great Scotland Yard just
across the street from the first headquarters.
Eventually, the needs of the Metropolitan Police had outgrown its original site, requiring new headquarters,
and these were to be built overlooking the River Thames.
The force moved into New Scotland Yard in 1890 to buildings sitting on land reclaimed from the Thames
thanks to the construction of the Victoria Embankment. By this time, the Met had grown from its initial 1,000
officers to about 13,000 and needed more administrative staff and a bigger headquarters. Further increases in
the size and responsibilities of the force required even more administrators, and in 1907 and 1940, New
Scotland Yard was extended further. This complex is now a Grade I listed structure known as the North
Norman Shaw Buildings, mostly Government offices, but still partly used as the base for the Metropolitan
Police’s Territorial Support Group. The South Building, now Grade II listed, built during 1902-1906, was
originally called Scotland House, and was linked to the original north building by a bridge over what was then a
public road.
By the 1960s, the requirements of modern technology and further increases in the size of the force meant that
it had outgrown its Victoria Embankment site. In 1967 New Scotland Yard moved to 10 Broadway, close to St
James’s Park. The building, which was an existing office block was acquired under a long-term lease, and now
houses 2,000 staff. It is also home to a national computer system developed for major crime enquiries by all
British forces, called the Home Office Large Major Enquiry System, more commonly referred to by its acronym
HOLMES, which recognises the great fictional detective Sherlock Holmes.
In addition to Scotland Yard and London’s many police stations, the Met occupies a number of large buildings
across the capital. Certain administrative functions are based at the Empress State Building, whilst
communications are handled at the three Metcall complexes, rather than at Scotland Yard.
The Empress State Building is a skyscraper, originally designed as a hotel located, on the border of West
Brompton and Earls Court, in the London Borough of Hammersmith and Fulham. It was built in 1961 extending
to 28 floors and was renovated in 2003.
Having been tenants since 1967, in 2008, at a time of considerable market unease amongst property owners,
the Metropolitan Police Authority bought the freehold to New Scotland Yard for around £120m. As already
mentioned, the freehold was sold in December 2014 for £370m, and the Met confirmed in May 2013 that it
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would dispose of its Broadway site and the force’s headquarters would move to The Curtis Green Building
located along the Victoria Embankment, which incidentally had formerly been home to Whitehall Police
Station.
The Curtis Green Building will be renamed Scotland Yard. This will be all the more appropriate, albeit confusing
to some, since its new site sits adjacent to the second “Scotland Yard”, now the Norman Shaw North Building.
As for the often gruesome private invitation-only Crime or ‘Black’ Museum housed in room 101 of the present
Scotland Yard, this will be moved to a new site and opened to the public, with revenues contributing to the
Met’s budget. The iconic rotating three-sided sign identifying Scotland Yard will adorn its new ‘home’.
It is likely that the Met’s HQ will move again at some point in the future, at which point the Scotland Yard
name and its famous three-sided rotating sign will find themselves on the move again. As for the vacated
Curtis Green Building, it too will turn itself to another useful occupation.
1.9.10 Britain’s sustainably eco-friendly built-scape
From the use of solar, wind and other renewable forms of power and renewed materials, to more efficient use
of heat and light, Britain’s CRE is arguably at the forefront in achieving ambitious targets on climate protection.
Indeed it is crucial in fulfilling not one but two eco-friendly roles, one protecting our ‘eco-logy’ the other
promoting our ‘eco-nomy’. And in its economic role, CRE provides a favourable feedback in its ecological role.
For much of the reduction in the carbon footprint, made by us all whilst at work and in our leisure, has only
been realised because of the eco-improvements made to the real estate we occupy in these pursuits. This is
not to claim more cannot be done, because the process is not only ongoing but accelerating. Rather it is to
make clear, that as a factor input to Britain’s economy, CRE is not only making its own contribution to reducing
our impact on the environment but facilitating the improvement made by another factor input; us. Indeed, as
important as has been the increase in the number of electric motor vehicles across Britain, we should
remember these are being assembled in increasingly eco-friendly industrial real estate within Britain, driven in
increasing numbers across Britain whilst also being exported in growing numbers too, friendly then on two
eco-fronts.
In the pursuit of reducing our greenhouse gas emissions, we should remember that the glass or greenhouse is
an early form of CRE which enhanced food production, embracing the environment rather than harming it.
These structures, tracing themselves back to the Roman Emperor Tiberius to grow his favoured cucumber-like
vegetable, began to appear in numbers across Britain from the 17th century. They arguably found their defining
form in Kew Gardens, which formally started in 1759 and which consists of 300 acres of gardens, botanical
greenhouses and conservatories. These include the Nash and Prince of Wales Conservatories, Palm, Temperate
and Waterlily Houses, the Orangery and most recently the Alpine House, which opened in 2006, the third
version taking that name. Just as Kew Gardens is flourishing as a non-departmental public body, so too are
botanical and horticultural buildings run commercially across Britain’s real estate world.
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Part 2.
2.1
BRITAIN’s PROPERTY CREDENTIALS
Analytics of Britain’s CRE sector: concepts and numbers
Definition and value
2.1.1 Definition
We must first define what we mean by CRE. While an everyday definition is fairly straightforward, in terms of
examples like offices, factories and shops, a precise definition is more complex.
In economic terms CRE is capital, and constitutes a large part of the economy’s capital stock. Capital is a
produced factor of production and as such it contributes to the economy in three distinct ways: first, as a
factor of production it contributes directly to the output of goods and services (GDP), second, as an asset it is
part, and we will argue a large part, of the economy’s stock of wealth, and third the production of CRE, that is
construction, is in economic terms investment and thus a significant determinant of employment and
economic growth. Thus, in the next two chapters (2.2 and 2.3) we endeavour to estimate the value of CRE, first
in terms of its contribution to GDP, then as a component of wealth and thirdly as part of current economic
activity.
‘Real Estate’ is ‘immoveable property’, that is buildings and other structures which are fixed at a particular
location. We exclude land because it is not produced, but include location which is a component of the value
of buildings. We will take the value of real estate to mean the full value of a commercial building, and not
attempt to separate out an element of site value.
Originally the word ‘commercial’ referred to ‘trade’ as against ‘manufacturing’, so one might see reference to
‘industrial and commercial property’. More recently the word commercial has been used more inclusively, to
cover any activities which produce marketable goods and services with the objective of generating a profit
from so doing. It thus includes manufacturing (factories and the like) but also both business services (such as
offices) and services provided direct to the consumer (such as shops, cinemas and hotels).
While these examples are not contentious there are many activities which are ‘commercial’ in the sense of
having to cover their costs through the sale of goods or services, but which are owned or managed by public
authorities, charities or other not-for-profit organisations, and which do not seek to make a profit. The reality
is that there can be no definitive CRE universe because there are segments of the economy which do not
categorise exactly. For example universities are not run primarily for pecuniary gain yet are moving
increasingly into ventures with a commercial angle. Think also of the employer-owned retailer John Lewis
Partnership – whose eponymous stores and Waitrose all operate within a trust. Or an independent school that
needs to raise sufficient money through fees (or gifts) to cover its costs, but may typically be set up as a charity
with trustees rather than shareholders, and any surplus is reinvested rather than distributed. We will refer to
these activities, and the real estate they occupy, as ‘quasiBox 1. The VOA
commercial’ because in many respects the owners of quasicommercial real estate face very similar economic pressures to The Valuation Office Agency is a Government
body whose function is to value properties for
those of the commercial sector. Even where such activities are
the purpose of Council Tax and for nonrun on a commercial basis, it is contrary to normal usage to
domestic rates in England and Wales.
describe them as commercial, and we will not do so.
Of course much real estate is not commercial or even quasicommercial. Most public buildings and most of the nation’s
infrastructure of roads, tunnels, bridges and the like generate no
pecuniary income or only from marginal activities, such as hiring
out the town hall for a wedding reception. But even here the
position is not always clear, for example airports were mostly
public but now, at least in the UK, are mostly privately owned
and run on commercial lines. Railways are more problematic
having been privatised but now in part re-nationalised.
The Inland Revenue set up the VO after the
introduction of a new land value tax in
Finance Act of 1910.
The VOA employs almost 4,000 people and is
the largest single employer of chartered
surveyors in the UK.
Scottish Assessors perform the same work for
Scotland and Land & Property Services
operate on behalf of the Department of
Finance & Personnel in Northern Ireland.
None the less, our ‘economic’ definition of CRE is somewhat wider than that often employed, which appears
sometimes based more on property characteristics than economic function. For example, a property company
renting out flats is in economic terms providing much the same service as a hotel, and similarly private
individuals letting out property to generate income in the ‘buy-to-let’ sector are engaging in business activity
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so that such housing is part of CRE. In the business sector, infrastructure installations like oil refineries or
(privately owned) airports are as commercial as other manufacturing or retail operations. In what follows, we
will make use of this definition to determine which structures count as CRE.
So how much of Britain’s real estate is ‘commercial’? We have, of course, not attempted to create a new
register of all the property in the UK, but base our measures on the closest we have to a modern day
Domesday Book; the register created by the Valuation Office Agency. The VOA was set up in 1910 for the
purpose of listing and valuing all property in England and Wales thereby providing measures of the tax base for
local authority property taxes (see Box 1 above).
However for various reasons, including taxation, it has been convenient to separate the valuation of dwellings
(‘domestic’) from other (‘non-domestic’) properties. With regard to non-domestic properties the VOA lists
properties in four main groups (offices, industrial, shops and hotels and others) which are sub-divided into no
less than 369 categories. We have reviewed this list, carefully in the case of the larger categories, more
impressionistically in the case of the smaller ones to determine which can properly be described as commercial
and which better fit our ‘quasi-commercial’ or non-commercial categories.
In Table 2 below we indicate some examples of the types of property in each category while a full list is given
in Appendix 1 (which also gives the aggregate value assigned to each category).
Table 2. How ‘commercial’ is Commercial Real Estate
Commercial Real Estate
Quasi-Commercial
Non-Commercial
Owner occupied
Social rented
Dwellings
Private rental
Property companies
Buy-to-let
Non-residential building
Offices
Factories and warehouses
Shops
Universities
Museums and art galleries
Local authority schools
Hospitals and clinics NHS
Police stations
Other structures
Airports
Oil installations
Sports grounds
Roads
Source: Valuation Office Agency, Toscafund
2.1.2 Some taxing concerns over CRE taxonomy
In our analysis, we have endeavoured to challenge the conventional taxonomy of Britain’s CRE market. We
have argued that elements hitherto excluded from the orthodox categorisation be fully included, or that at the
very least these be considered as quasi-CRE, in proportion to their respective contributions to Britain’s
‘commercial’ economy.
In theory, we have a clear-cut and seemingly mutually exclusive and exhaustive breakdown between offices,
industrial and retail space, but there are two criticisms of this methodology. First, there is little or no room for
a rapidly expanding PRS component, and second, there is the failure to allow for the increase in British
commercial property essential for the (literal) delivery of goods serving the demands of a growing technology
based economy.
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Chart 13: IPD performance measures
Chart 14: Capital values of CRE and PRS
1.8
30
1.6
20
1.4
1.2
Trillions
%
10
0
-10
1.0
0.8
0.6
0.4
-20
0.2
0.0
-30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Retail
Office
Industrial
2005
2009
2010
Commercial real estate
2011
2012
2013
Private Rented Sector
2014
Source: IPD, Toscafund
We question the accuracy of the measurement of development, overall take-up and rental and capital growth
of Britain’s CRE on the grounds that these exclude the property classes that we would choose to include as
providing essential commercial benefits to Britain, not least private rental .Our argument, in essence, is that
the existing taxonomy has yet to fully adjust to the evolution in Britain’s economy, and is therefore both
under- and over-stating segmented performance.
We believe that PRS should be integrated into Britain’s modern CRE. Indeed, in many cases, property now
involved in the PRS was formally in the retail, industrial and office segments. In its delivery of fiscal and
broader wealth multipliers, PRS has all the hallmarks of the three ‘classical’ CRE markets.
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2.1.3 Valuation
The problem with valuing the contribution of property to economic activity is that it is essentially sedentary,
whereas economic activity generally entails movement, flows of goods and services, production, consumption,
exports and imports. Of course, property is needed to enable these activities to take place, but this does not
help to quantify that contribution. The challenge is to measure what the UK’s property assets are worth to the
economy, or their contribution to Gross Domestic Product (GDP).
GDP is the total value of all marketed goods and services produced within an economy over some period of
time, usually a year. It is the value of final output, that is goods and services entering into consumption and
investment (including government consumption or investment) or exports, but not including intermediate
goods. Within any organisation, it corresponds to the value of sales less the cost of materials etc., also known
as ‘value added’. The surplus of sales revenue over material costs constitutes income of a factor of production
(labour or capital) or as profit. It therefore follows that GDP can also be measured as the total of payments to
factors of production in the economy, which is also
the sum of total household income and retained
Box 2.
(undistributed) profits.
Clearly firms employ both labour and capital: both are
We have made clear in Part 1 of this report that the
contribution of commercial real estate goes far
beyond the generation of cash income for its owners.
There are many benefits that are not included in GDP,
from the environment to aesthetics and from security
to sustainability. To focus solely on GDP would be
grossly inadequate. However, the production of
marketable goods and services is the immediate
purpose of CRE (its day job, as it were), and we need
therefore to measure this, and this also measures the
contribution CRE makes to GDP.
It is a standard proposition in economics that, in
competitive markets, the contribution of a factor to
GDP can be measured by how much it gets paid. This
example is illustrated in Box 2.
essential. So why does labour get paid 70% and capital
30%? Consider say Starbucks. Obviously it needs its CRE,
its coffee shops, but it also needs its raw materials and
its labour (baristas). What determines how much each
of these gets paid? As far as Starbucks is concerned
there is a market and it pays the market price. But the
payoff to Starbucks from opening up another coffee
shop is the additional profit it can make from doing so.
And it will open up another coffee shop as long as the
additional profit at least covers the cost. The additional
profit is the addition to sales revenue less operating
costs, so it measures the contribution of the CRE to
GDP. So the contribution to GDP is measured by how
much each factor contributes at the margin – one more
coffee shop, one more barista, and measured in this
way such contributions add up to the total GDP.
So, if a firm was to rent its office buildings from a property company, the rent it pays for the use of the
buildings measures their value to the firm and hence their ‘contribution’ to the firm (the increase in the net
profit the firm can make as against a situation in which it did not have the use of those buildings).
Valuing the contribution of property by its market rent, though beset with practical complexities, has the
major advantage that it corresponds to the obligation on the VOA to provide ‘open market’ rental valuations
of properties. The VOA therefore provides us not only with a register of all properties, but also its best
estimate of their market rents. They are, of course, estimates only as we do not have direct open market
rental evidence for many properties.
There are obvious complexities such as rent reviews, where rents are adjusted periodically rather than
adjusting continuously to reflect changes in market conditions, but, more importantly for many types of
property, there is no ‘open market’. For example, there is no market in oil refineries, or at least no evidence of
market transactions. In fact, for many types of commercial property there is not much market evidence, but
valuers have devised techniques for addressing these problems. Most rateable values are determined on the
basis of accepted criteria with regard to factors such as comparability rather than exclusively on the basis of
direct observation of open market rents. The absence of observed market rents has been a particular problem
in relation to housing and we return to this below.
An immediate consequence of the paucity of open market rental evidence is that VOA valuations are
conducted periodically, in principle once every five years. For non-domestic properties the principle of fiveyearly valuations has been maintained until very recently, the most recent being in 2003 and 2008 (though for
domestic properties the principle was abandoned in the 1970s, see below). For non-domestic properties new
valuation lists were issued in 2005 and 2010, based on 2003 and 2008 (‘antecedent date’) valuations
respectively. Chart 15 shows the evolution of non-domestic rateable value in England and Wales since 2000.
53
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
The graph has big jumps in value following the revaluations, with minimal changes in between (due to new
buildings, renovations etc.) but, as the blue line shows overall floor space (‘footprint’) has been static during
those jumps, and the growth in non-domestic rateable value reflects increasing rentals per square foot rather
than an increase in the number of square feet.
Finally we consider housing. During much of the post-war period there was extensive rent control and in
particular the last attempted revaluation of dwellings (in 1973) was carried out at a time, following the Rent
Act of 1968, when an open market in rental housing was essentially non-existent. Clearly, in the absence of any
evidence, basing taxation on hypothetical open market rents could not be sustained. This led to the abolition
of domestic rates and their replacement initially by the community charge (poll tax) and then by council tax
which is based on capital values. The VOA therefore made a comprehensive valuation of all dwellings for
council tax, based on evidence of market transactions adjusted to the valuation date, April 1991. There has
been no revaluation since then, so all dwellings built since 1991 are valued at what they would have been
worth in 1991. Fortunately there are other sources of information on housing rents and prices.
In valuing CRE in the chapters that follow, we will therefore use VOA data for property other than housing
(‘non-domestic’ property), but use independent data for the private rental sector.
Chart 15: VOA rateable value (England and Wales)
70
585
580
60
575
570
40
565
30
560
million m2
£bn
50
555
20
550
10
545
0
540
2000
2002
2004
Rateable value
2006
2008
2010
2012
2014
Footprint (rhs)
Source: Valuation Office Agency.(experimental statistics, release date May 2012 – data is Local Rating List sectors only)
Note: Figures include retail, offices and industrial business floor space – Other is excluded. The incremental increase in rateable value reflects the infrequent
nature of valuation.
54
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BRITAIN’s PROPERTY CREDENTIALS
Rental value (contribution to GDP)
We estimate the total rental value of CRE in the UK in 2014 to be £94bn.
2.2.1 The value of ‘non-domestic’ CRE
As already noted the prime source of data on non-domestic CRE is the VOA register of non-domestic rateable
value. This, in principle, lists all immoveable property in Britain together with an estimate of its market rental
value, which constitutes the tax base of local authority non-domestic (‘business’) rates.
The valuation list for 2014 consists, therefore, of all property which existed in 2008, valued in accordance with
its observed or estimated market rent in that year, revised to include new developments and renovations
between 2008 and 2013 (and to exclude any demolitions and changes in use to residential etc) again valued on
the basis of their estimated 2008 (antecedent date) rents.
Before arriving at the final figures, there are several adjustment we need to make. First, as already noted, not
all non-domestic property is commercial. In Table 3, we indicate how various categories have been classified as
‘commercial’, ‘quasi-commercial’ and ‘non-commercial’, together with their total rateable values in 2010.
Clearly most non-domestic property is commercial, the three largest categories (offices, factories and shops)
alone account for over £29bn of rateable value, close on half the total. Other properties should also be
considered, for example, schools and universities account for as much as £2.5bn of rateable value.
Table 3: Rateable value (£m) of several sectors in England and Wales (full table in Appendix 1)
CRE type
Examples
Offices (inc. computer centres)
Commercial
Real Estate
NonCommercial
2010
2008 prices
2014
2008 prices
10,445
13,548
13,443
Factories workshops and warehouses (inc. bakeries
and dairies)
7,702
8,504
8,344
Shops
6,588
7,883
7,855
Public houses / Pub restaurants (National scheme)
1,210
1,492
1,389
Large distribution warehouses
1,107
1,160
1,283
775
1,090
1,156
Hotels (4 star and above) and Chain operating 3 star
(National scheme)
QuasiCommercial
2005
2003 prices
Universities (excl. Oxbridge) (National scheme)
333
413
448
Public and independent schools (National scheme)
266
336
391
Sports centres (Local Authority – wet and dry)
(National scheme)
135
168
193
Local authority schools (National scheme)
1,129
1,446
1,582
Hospitals and clinics NHS (National scheme)
489
618
642
Police stations
130
165
167
Source: Valuation Office Agency, ONS, Toscafund
The full list of the 369 categories, their total rateable values in 2005 and 2010 and our classification in terms of
their ‘commerciality’ is given in Appendix 1, and summarised in Table 4. In both 2005 and 2010 about 85-90%
of non-domestic property is ‘commercial’ based on our criteria.
The VOA separates the data into two lists; local and central rating lists. The central rating list covers
infrastructure that is widespread (with about 12 sectors such as railways, electricity distribution and gas
transportation) and comes to about 5% of the total. The VOA covers only England and Wales, however, we are
concerned with the UK as a whole. Unlike the VOA, the Scottish Assessors do not give a comprehensive
breakdown and have 20 categories. Although easier to classify them in terms of their ‘commerciality’, we
accept that it is not as robust as our efforts on the English and Welsh categories. Lastly, the Land & Property
Services who operate on behalf of the Department of Finance and Personnel in Northern Ireland do not
provide any category data on the rateable values of property in Northern Ireland. We have used the Northern
Ireland ratio of GVA compared to the England, Wales and Scotland to give an approximate value for the
commercial real estate and the total. We have also used the Scottish ratio of commercial real estate by type to
the total real estate to estimate the rateable value for the different types of commercial real estate.
Once the data is aggregated, the prices were made current by using the relative IPD rental value growth index
(by the various types). Finally, these rental values are adjusted to exclude vacant properties (which are not
making any contemporaneous economic contribution).
55
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Table 4: Rateable values of CRE in UK
List
Central
Rating
Tota
l
(Current
Totals
Scotland
Current
Prices
England and Wales
Local
Rating
Region
Year of data
2005
2009
2010
2011
2012
2013
2014
Antecedent date (priced at)
2003
2008
2008
2008
2008
2008
2008
Commercial Real Estate (£bn)
42.0
51.1
51.5
51.7
51.6
51.4
51.5
Quasi-CRE (£bn)
2.3
2.9
2.9
3.0
3.1
3.1
3.2
Non-remunerative (£bn)
3.8
4.8
4.8
4.9
5.0
5.0
5.0
Commercial Real Estate (£bn)
2.7
2.6
2.6
2.6
2.6
2.5
2.5
Quasi-CRE (£bn)
0.08
0.07
0.07
0.07
0.07
0.07
0.06
Non-remunerative (£bn)
0.35
0.35
0.35
0.35
0.35
0.35
0.35
Commercial Real Estate (£bn)
44.7
53.7
54.1
54.3
54.1
53.9
54.0
All Non-Domestic Real Estate (£bn)
51.3
61.8
62.3
62.7
62.6
62.5
62.6
Commercial Real Estate (£bn)
47.2
49.3
49.5
49.8
49.6
49.6
51.0
All Non-Domestic Real Estate (£bn)
54.0
57.2
57.6
58.2
58.1
58.2
59.8
Antecedent date (priced at)
2003
2003
2008
2008
2008
2008
2008
Commercial Real Estate (£bn)
3.9
4.0
4.2
4.2
4.3
4.2
4.5
Quasi-CRE (£bn)
0.9
1.0
1.5
1.5
1.5
1.5
1.5
Non-remunerative (£bn)
0.4
0.5
0.6
0.6
0.6
0.6
0.4
5.25
5.3
6.23
6.30
6.34
6.35
6.43
1.22
1.27
1.26
1.25
1.23
1.21
1.30
All Non-Domestic Real Estate (£bn)
1.42
1.50
1.49
1.49
1.47
1.44
1.55
Commercial Real Estate (£bn)
52.4
54.6
54.9
55.3
55.1
55.1
56.8
All Non-Domestic Real Estate (£bn)
60.7
64.3
65.3
66.0
65.9
66.0
67.8
Commercial Real Estate (£bn)
48.6
49.4
50.2
50.5
50.0
50.4
52.3
All Non-Domestic Real Estate (£bn)
56.6
58.7
60.1
60.7
60.4
61.0
62.9
Total
Current
Prices
Commercial Real Estate (£bn)
Total
(Voids)
prices
UK at Current
Northern
Ireland
All Non-Domestic Real Estate (£bn)
(calculated using GVA ratio))
Source: Valuation Office Agency, Scottish Assessors, ONS, Toscafund. Note: Data shaded grey is estimated
Chart 16: UK rateable values by type, at current prices and accounting for voids
50
£ billions
40
30
20
10
0
2005
2009
2010
Retail
Office
2011
Industrial
2012
2013
Infrastructure
Source: Valuation Office Agency. Scottish Assessors, ONS, Toscafund
56
2014
Other
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
2.2.2 The Value of private rental housing
The bulk of UK housing stock is owner-occupied and, for better or worse, this does not count as commercial.
Similarly, local authorities and housing associations provide much of the rented housing and this is also not
commercial. Table 5 and chart 17 show the growth of the various sectors since 1981, during which time the
number of owner-occupied properties has more than doubled while the private rental sector fell sharply up
until 1991, but has experienced rapid growth more recently, particularly since 2001. The table and chart also
show forecasts of the increase in the housing stock by sector up until 2014, which project a rapid further
growth in private renting.
Chart 17: UK tenure trend, dwellings
Table 5: Trends in tenure in the UK (million dwellings)
Year
Owner
occupied
Private
renters
Social
renters
1961
7.15
5.65
3.82
60
1971
9.63
3.75
5.89
50
1981
12.21
2.32
7.05
40
1991
15.53
2.01
5.84
2001
17.60
2.44
5.32
2011
17.90
4.73
4.92
2012
17.79
4.96
4.94
2013
17.71
5.17
4.96
2014*
17.65
5.47
4.90
%
70
30
20
10
0
1981
1986
1991
Rented Privately
1996
2001
Owner Occupied
2006
2011
Social
Source: Department for Communities and Local Government, ONS (Census), Toscafund (*forecast)
Chart 18: Tenure by region, 2013
100
90
80
70
%
60
50
40
30
20
10
0
UK
Rented Privately
England
Wales
Owner Occupied
Scotland
Social
Northern
Ireland
Source: DCLG, Welsh Assembly Government, Scottish Government, ONS, Toscafund
Around 18.6% of the UK housing stock is in the private rented sector. It includes both major residential
developments such as blocks of flats, but also a substantial small scale activity where individual landlords ‘buyto-let’ one or a small number of properties. Data on housing is collected separately for England, Wales,
Scotland and Northern Ireland. The distribution of the housing stock by tenure is shown by country in chart 18.
We also have data on average rents paid in the private sector, so this data taken with the number of
properties in the sector allows us to obtain estimates of the total income received by private sector landlords.
57
TOSCAFUND
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Table 6: UK private rental sector income
Region
England
and
Wales
England
Wales
Scotland
2005
2008
2009
2010
2011
2012
2013
2014
Source
Number of dwellings (£m)
Year
2.83
3.58
3.86
4.08
4.29
4.48
4.66
4.80
DCLG
Average monthly rent
599
666
656
674
702
723
742
754
LSL
Monthly rental income (£bn)
1.69
2.38
2.53
2.75
3.01
3.24
3.45
3.62
Number of dwellings (m)
2.72
3.44
3.71
3.91
4.11
4.29
4.47
4.59
DCLG
VOA
Average monthly rent
592
659
648
667
696
705
742
745
Monthly rental income (£bn)
1.61
2.27
2.40
2.61
2.86
3.02
3.31
3.42
Number of dwellings (m)
0.11
0.14
0.16
0.17
0.18
0.19
0.19
0.21
DCLG
Average monthly rent)
412
459
451
472
489
498
498
519
StatsWales
Monthly rental income (£bn)
0.04
0.06
0.07
0.08
0.09
0.10
0.09
0.11
Number of dwellings (m)
0.23
0.26
0.29
0.30
0.32
0.37
0.39
0.39
DCLG
Average monthly rent
424
472
464
478
508
509
519
534
LSL
Monthly rental income (£bn)
0.09
0.12
0.13
0.14
0.16
0.19
0.20
0.21
Number of dwellings (m)
0.07
0.08
0.10
0.11
0.12
0.12
0.13
0.13
DCLG
435
484
476
490
510
526
539
548
NI Housing
Executive
Norther
Average monthly Rent
n Ireland
UK
UK
Monthly rental income (£bn)
0.03
0.04
0.05
0.05
0.06
0.06
0.07
0.07
Annual rental income (£bn)
21.37
29.90
31.81
34.64
38.04
40.40
44.15
45.73
19.6
27.4
29.2
31.7
34.9
37.0
40.5
41.9
Annual rental income (£bn)
Accounting for voids
Notes: Dwelling stock forecasted for Wales and Scotland, 2014, using a linear regression analysis. Data shaded grey is estimated using the complete England
and Wales LSL Property Services rental dataset.
The Department for Communities and Local Government’s (DCLG) latest number of dwellings figures have
been updated to 2014 except for Wales and Scotland, where we used a linear regression analysis to forecast
the 2014 value. We had a complete list of data for England and Wales rents from LSL Property Services, but
wanted to use the larger rental datasets from the VOA, Statistics Wales and NI Housing Executive. So we took
the LSL rental dynamics and applied them to the larger datasets.
Adding the estimates for each country gives a UK value of total rental income from private sector dwellings of
£45.7bn (2014). Lastly, this estimate has to be reduced to reflect voids – property left empty and providing no
service. It is customary to assume properties are on average empty for one month a year, so the actual rents
generated fall short of the full occupancy potential by around 8%. Reducing £45.7bn by 8.3% gives a figure of
£41.9bn. This measures the contribution of private rented housing to GDP.
Adding the total rental income from PRS (£41.9bn) to the rental value of non-domestic CRE (£52.3bn) gives a
final figure of £94.2bn for the contribution of CRE to GDP in 2014. This is 5.4% of GDP.
2.2.3 CRE and the generation of household income
The income attributable to commercial property accrues in the first instance to its owners. It may be thought
that as most people do not own commercial property, this is of no great interest to them, but such a
conclusion would be wrong.
We need to distinguish legal from ‘beneficial’ ownership. The latter is the entity who ultimately receives the
income which is, often, far from obvious. For example, if a company issues equity shares to finance a new CRE
investment, many of those shares will be acquired by financial intermediaries such as pension or insurance
companies. The pension fund will use the dividends on these equities to fund its obligations to its contributors,
so that ultimately a pensioner is receiving income generated by the CRE.
Office buildings are often owned by property companies, but these too need finance, again sometimes
through the issue of equity capital, but often through debt (corporate debentures or loans). Such debt may be
put up directly by households or provided by other financial institutions such as banks, which in turn raise
funds from households. Likewise in the housing sector, much ‘buy-to-let’ housing is financed through
58
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
mortgages from banks or building societies. The rental income generated thus pays the interest households
receive on their bank or building society deposits.
We look in more detail at the linkages between financial intermediaries in section 2.3.4 – Who owns Britain’s
CRE?, as the data on this relates more directly to asset values than to income flows. Some insight on income
receipts can be gleaned from tax returns and we look at this next.
In Table 7, we set out aggregate HMRC tax data for 2012/13, broken down into four main categories,
employment, self-employment, pensions and a final category ‘property, interest, dividend and other income’.
The first three of these categories were until recently termed ‘earned income’ (income from labour), and the
final category ‘unearned or investment income’ (income from capital). The total income known to the tax
authorities amounted to £904bn of which only £70.3bn (7.4%) was derived from property, interest and
dividends.
Even so, remarkably no less than 26.6 million taxpayers (80%) derived some income from this source.
However, the actual amount households receive is very unequally distributed. The average income from this
source is £2,650, but the median is only £22, meaning that half of all recipient households benefit by less than
£22 a year from these income sources.
The tax authorities split up the income received between the several sub-categories. This is shown in Table 7,
which shows that most households receive income from interest on bank deposits (though the average is
relatively low) with only a few households (1.63 million, or about 5% of taxpayers) receiving money directly
from property.
Finally, we have HMRC data also on the split between state (unfunded) and private (funded) pensions. Private
pensions amount in aggregate to £80bn, about double the payments of state pensions. We will argue in
Section 2.3.4 that private pensions are to a significant extent funded from the income generated by CRE. There
are over 7 million UK citizens with private pensions whose retirement income is thus directly linked to the
fortunes of the CRE sector.
Table 7: UK income and tax, 2012-13
Category
No. of individuals (‘000)
Mean (£)
Median* (£)
Amount (£ million)
3,490
21,000
10,600
73,400
23,400
27,200
26,600
638,000
Self employment income
Employment income
Pensions
14,400
National Insurance
5,950
7,210
42,900
All other pensions
7,390
10,800
80,000
26,600
2,650
Property, interest, dividend and
other income
Property
22
70,300
1,630
8,030
13,100
24,800
317
7,870
Dividends
4,560
9,940
45,300
Other
1,110
3,780
4,190
Total income
30,600
29,600
28,800
904,000
Total tax
30,600
5,140
5,060
157,000
Interest
Source: HMRC – Median values from 2011-2012 tax year
59
TOSCAFUND
2.3
BRITAIN’s PROPERTY CREDENTIALS
The asset value of CRE (CRE as an investment class)
We estimate that the value of CRE in modern Britain is just over £1,662bn, which amounts to just under 20% of
national wealth. In chart 20, and for comparative purposes, we have included the yield for 10 year Gilts, the
most conventionally used risk-free or swap rate for CRE.
Chart 19: Capital values of CRE and PRS
Chart 20: Yield comparison between CRE and 10 year Gilt
1.8
7
1.6
6
1.4
5
4
1.0
%
Trillions
1.2
0.8
3
0.6
2
0.4
1
0.2
0
0.0
2005
2009
2010
Commercial real estate
2011
2012
2013
Private Rented Sector
2014
2005
2009
2010
CRE yield
2011
2012
2013
10 year Gilt yield
2014
Source: VOA, Scottish Assessors (Scottish Government statistics), IPD (MSCI), DCLG (ONS), Stats Wales, NI Housing Executive, Wriglesworth Consultancy (part of
Instinctif Partners), LSL Property Services, Bloomberg, Toscafund
2.3.1 The value of Britain’s CRE: AcCREdited and AcCREtive
As an investment, Britain’s CRE is by its very nature asset backed, and so provides a welcome degree of
security. Capital values have on occasion fallen broadly, most notably in 2008/9, however over time capital
growth has been the norm and impressive advances in total return all the more so. CRE is also income
generating. Whilst its income varies with its rate of occupancy, it also moves in line with the level of rent,
whose flexibility is in stark contrast to the intractability of the coupon paid on fixed income ‘paper’.
Whilst CRE is often viewed in the collective, we must stress that as an asset class it covers an assortment of
business models and occupier types, from retail and leisure across to industrial and business and financial
services. Each of these sectors’ assets can be reduced still further and so too the real estate which is an
essential element of their activity.
Some CRE is entirely reliant on economic events unfolding within the UK, whilst other real estate faces entirely
outwards, involved in making goods for export or selling services overseas, and whereas certain real estate
assets may cater for traditional needs, say food processing and other food services, other elements may serve
entirely new markets, for instance renewable energy. Tenancy agreements for their part provide as much for
security of tenure for the occupier as security of income for the landlord. Elements of Britain’s CRE can also
boast the added security of the public sector as a cornerstone tenant.
There can be said to be an essential symbiosis between Britain’s CRE and the economy. As one demands a
particular form of property, the other provides it, and as innovative real estate is delivered, so Britain’s
economic base broadens, a diversification which can only be for the good.
To conclude, Britain’s CRE can boast an asset quality and provenance, and security of ownership and in turn
tenancy contracts as best in class. Its CRE is in addition valued in the world’s third most saved currency. It is, in
short, a sterling asset class.
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2.3.2 The asset value of CRE
The value of CRE is largely determined by the income it can generate. The person buying an asset acquires the
right to the income stream (in terms of financial revenue or direct services) it produces. In the case of real
estate, this income stream can be expected to continue for many years into the future and so the asset value
can be expected to be a substantial multiple of the current rent.
But how big is this multiple? In financial theory, the value of an asset is the discounted present value of the net
income stream that the asset generates, and hence depends on the current and future income stream, the life
of the asset, and the risk adjusted interest rate. Since different classes of property differ in terms of their
useful life and their riskiness, the relationship between asset value and current rental income – the rental yield
– will not be the same for all properties but vary between them. Similarly the rental yield will not be the same
as for example, the interest on deposits (which have less risk but have static rather than growing income
potential).
We have looked at the data on rental yields for the various types of property that we have classified as CRE.
With regard to non-domestic properties, the most extensive data has been collected by the IPD. It may be
noted that the rental yield on offices is lower than on industrial assets, reflecting both the greater potential for
growth in values for offices etc due to their being in prime sites, and the lower the risks of obsolescence due to
their greater flexibility. On the basis of the data in Table 8, we estimate the asset value of non-domestic CRE in
the UK in 2014 to be £824bn.
Table 8: UK capital value of ‘non-domestic’ Commercial Real Estate, by type (and accounting for voids)
(£bn)
2005
2009
2010
2011
2012
2013
2014
Retail
320
241
274
280
271
281
311
Office
163
132
152
158
153
166
202
Industrial
158
108
112
113
109
116
140
Infrastructure
105
83
88
89
87
88
97
58
58
62
64
65
66
74
805
623
687
705
685
717
824
Other
Capital value of UK
Commercial Real Estate (£bn)
Source: VOA, Scottish Assessors, IPD, IPF (Yield data kindly provided by IPF Research Programme in their latest Size and Structure of the UK Property Market,
End-2014), Toscafund
Chart 21: Implied UK capital value of CRE, by type
£ billions
900
800
700
600
500
400
300
200
100
0
2005
2009
2010
Office
Retail
2011
Industrial
2012
2013
Infrastructure
2014
Other
Source: Valuation Office Agency, Scottish Assessors, IPD, Toscafund
With regard to the private rental sector data on rental yields was drawn from LSL property yields and is given
in Table 9.
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Table 9: Imputed capital value of UK private rented sector
2005
2008
2009
2010
2011
2012
2013
2014
18.2
25.6
27.2
29.6
32.4
34.3
37.5
38.8
4.4
4.61
5.01
4.87
5.18
5.31
5.36
5.10
413.9
556.1
543.0
608.0
626.1
645.8
699.5
761.0
1.05
1.34
1.46
1.59
1.79
2.05
2.22
2.32
3.41
3.57
3.88
3.77
4.01
4.03
4.13
4.06
30.8
37.7
37.5
42.2
44.6
50.8
53.8
57.1
Northern Irish capital value based on GVA
10.6
14.2
13.8
15.2
15.5
15.9
16.9
19.1
Imputed capital value of UK PRS (£bn)
455
608
594
665
686
712
770
837
England and Wales
Annual rental income (£bn)
England and Wales (yields %)
Capital value of
English and Welsh private rented sector
(£bn)
Scotland
Annual rental income (£bn)
Scotland (yields %)
Capital value of
Scottish private rented sector (£bn)
Source: LSL Property Services, Toscafund
On the basis of this data, we estimate the asset value of domestic CRE in the UK in 2014 to be £837bn. Adding
to the above figure for business CRE yields an estimated total of £1,662bn in 2014.
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2.3.3 CRE as a proportion of national wealth
The Office of National Statistics (ONS) publishes a measure of national wealth (or now ‘worth’) which is the
value of all assets at current market prices. This measure is published annually in the Blue Book. At the end of
2014, according to the Blue Book, national wealth consisted of £8.52tn non-financial assets together with
£29.54tn of financial assets. However, with every financial asset comes a financial liability, so that net national
wealth comprises only non-financial assets and is £8.06tn.
Table 10: UK national balance sheet
Total value at end-2014 (£bn)
Non-financial assets
Produced assets
Fixed assets
8231.4
Tangible fixed assets
8034.8
Dwellings
5061.8
Other buildings and structures
1897.4
Non-residential buildings
950.2
Other structures
947.2
Machinery and equipment
849.6
Transport equipment
186.8
ICT equipment
36.2
Other machinery, equip. and systems
626.6
Cultivated biological resources
226.0
Intellectual property products
Inventories
Total produced assets
Total non-produced assets
196.6
283.7
8515.1
2.5
Total financial assets/liabilities
-454.1
Total net worth
8063.5
Source: ONS (Blue book), Toscafund
The Blue Book table (above) shows the breakdown of different types of non-financial assets. The largest single
category is dwellings valued at £5.06tn, or 62.8% of the total. Non-residential buildings, which might be
thought to correspond fairly closely to commercial real estate, are valued at £0.95tn or 11.8% of the total. The
ONS classifications do not correspond at all closely with our definition of CRE, in that ‘commercial buildings’
include some dwellings and other structures while non-residential buildings include those in the public sector
or in other non-commercial uses.
In section 2.3.2, we estimated the value of Britain’s CRE at £1.66tn. This constitutes 20% of net national
wealth. The main reason why our estimate of CRE is higher than some others is that it includes private rented
housing. The significance of this is illustrated in Figure 8, which is a Venn diagram showing the growth and
overlap in current asset value between commercial real estate and dwellings.
If we leave aside dwellings, we can derive a figure for the proportion of non-housing wealth accounted for by
non-domestic CRE. We have estimated non-domestic CRE at around £0.82tn, as against £2.97tn of total
national wealth other than housing. So, leaving aside housing, CRE constitutes 28% of national wealth.
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Figure 8: Britain’s real estate universe (£ billions)
Source: Blue Book, Toscafund
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2.3.4 Who owns Britain’s CRE?
Let us start with ‘business’ CRE, excluding the domestic private rental sector. We have seen that’s nearly 45%
of Britain’s non-housing wealth is represented by CRE. But who benefits from the income it generates? In
Section 2.2.3, we noted that around 1.6 million people owned property directly, however this is mostly
residential. Another 7.3 million people draw private pensions from funds, which in turn derive their income
from the assets they own. Ultimately that income comes from ‘real’, non-financial assets, 45% of these in the
business sector are real estate. Is it possible to state that 45% of private pension income (that is 45% of £80bn
or £36bn) derives from CRE? Or, in other words, that more than half the income generated by CRE ultimately
accrues to pensioners?
There are two immediate complications. Pension funds hold a considerable amount of Government debt, and
while this is as such not wealth, it is to a very large extent, balanced by public investment (in everything from
road and schools to Olympic parks and defence equipment). These public sector investments are not CRE, but
they do appear on the VOA valuation lists and on the ONS measure (as part of ‘other structures’). We should,
therefore, remove pension fund holdings of Government debt from our calculations.
A second complication is the overseas sector. Pension funds may hold overseas assets of various forms, and
some UK CRE may be owned by foreign nationals. This creates two sources of leakage: the pension fund holds
less CRE because it is invested in overseas securities, and a smaller proportion of UK CRE income goes to UK
households because some is being paid abroad.
If we look in more detail at pension fund holdings, the most comprehensive data is available from the ONS
known as MQ5. According to this data, of their overall assets of £1,431bn, £403bn is held in UK Government
securities and £407bn in overseas assets. Of the remainder, £476bn (33.3%) is held in UK corporate securities,
mostly mutual funds and equities, £111bn (7.8%) in insurance funds and £33bn (2.3%) in fixed property.
Of course, insurance funds also hold property (according to the MQ5 figures about £42bn) and they hold
corporate securities (again mostly mutual funds which hold equities including shares in property companies).
All in all, it seems reasonable to assume that around 40% of pension fund assets are held in UK businesses.
With regard to overseas holdings of UK CRE, the IPF report suggests that this has now risen to around 25%,
implying that 75% of the income generated by UK CRE accrues to UK nationals. It then would follow that
domestically owned CRE constitutes not 45% but more like 35% of national wealth.
So, very approximately, we have 40% of pension fund income derived from UK businesses (that is 40%of £80bn
which is £32bn), and 34% of that, which is around £10bn, is income generated by domestically owned CRE.
The ownership of ‘business’ (i.e. excluding private rented housing) CRE can be split into that which is owned
directly by commercial firms or households, and that which is owned by financial institutions. Starting with
financial institutions, which account for about half the total, the types of institutions involved, together with
the investment of each, are given in Table 11.
Table 11: Ownership of CRE investment by sectors
£ billions as at 2014
% change since 2013
UK insurance company funds
48
14
UK segregated pension funds
UK and Channel Island domiciled collective investment
schemes
UK REITs and listed property companies
37
12
22
Financial institutions
77
65
19
227
UK private property companies
59
11
UK traditional estates and charities
20
17
UK private investors
UK other
11
19
15
4
Overseas (excludes foreign-owned fund managers, insurance
companies and pension funds investing UK sourced capital)
113
20
Total
449
17
Source: IPF’s The Size and Structure of the UK Property Market End–2014 Report (table 4.1, Source PMRECON estimates using data from company accounts,
IPD, ONS, PFR and RCA/PD)
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2.3.5 Ownership – the significance of foreign capital
Many high profile developments in recent years have been financed by foreign capital. The most notable
developments include The Shard by Qatar or the London Gateway by the UAE. We give many more examples
in Part 1. Such foreign investment could be viewed negatively by a community in which the properties have
central importance, as they may believe that they should belong to the community or at least to its fellow
citizens.
What are the facts? As noted in the table above, 25% of institutionally owned CRE was owned by foreign
institutions in 2014, and more significantly this share has doubled in the last 10 years. Despite the number of
foreign-owned, high-profile developments, we should stress that overall British CRE remains predominantly
owned from within.
There is little or nothing inherently unwelcome in Britain’s CRE being owned by those overseas. Capital is
mobile across frontiers and it seeks the best return in terms of its owners’ objectives, their time horizon and
attitudes to risk. Moreover, for its part, British capital has made its way extensively into foreign assets. The fact
that our property attracts interest can be considered something of an international endorsement of Britain’s
economic present and future. However, while we would not for one moment wish to argue for barriers to
capital mobility, the phenomenon of foreign ownership does raise concerns in some quarters, and we may first
ask why it is growing.
Typically, capital is invested locally: the ‘home country bias’ has puzzled finance theorists who point to the
benefits of diversification, but it is generally explained in terms of local knowledge, both of production
possibilities and of the market. These factors might seem particularly important in relation to property, which
is by its nature ‘local’. So why have so many major CRE investments been financed externally?
One possible explanation, the availability of external funds, has increased enormously over the past ten years,
initially under the influence of rapid economic growth led by China and an associated boom in raw material
and most importantly oil prices, leading in particular to the emergence of sovereign wealth funds, often with
different investment objectives from more traditional financial institutions. So part of the answer is that
foreign investors have ‘crowded out’ domestic investors, by bidding more for available sites and investment
opportunities, or providing more extensive amenities. Major foreign investors often have two key
characteristics; they can bring a lot of money to support a project and they have long-term investment
horizons. Both of these are very important in relation to property development; one way of accommodating
the agglomeration and co-ordination externalities associated with property development is through their
internalisation in large-scale developments. In many cases, property assets are designed and built to stand the
test of time, so investors must be prepared to have their money tied up over a long period of time. Clearly,
sovereign wealth funds are ideally placed to make such investments and are one major source of such funds.
It is only natural that the allocations or weightings across asset classes will vary over time, reflecting cyclical
factors. The question is whether the amount of domestic capital flowing into developing British CRE assets is
below the rate needed to meet Britain’s growth ambitions. Should we be content that foreign capital is
crowding in, and less worried that it might be crowding out domestic funds? This said, recent signs have been
promising, with evidence showing that British investors are rotating capital back into its CRE assets. There is
every chance that, in absolute terms, domestic and international ownership of Britain’s expanding CRE base
will increase in tandem, and will increase via joint ventures in developing commercial and indeed residential
real estate.
Another possible (and related) explanation is that the elevation of short term ‘shareholder value’ as the
guiding principle of commercial governance in the UK (taking its lead from the US), has encouraged firms to
stabilise their share price rather than to take risks and to devote resources to financial engineering rather than
to real investment. This may have created barriers to raising domestic finance for major property
developments, and hence the availability of external funds has allowed good investments to go ahead often
linked to domestic investments. Thus there may have been crowding in rather than crowding out as domestic
investors feel less able to take long-term risks than their overseas peers.
Whilst UK residents enjoy the use of these investments, working in them or living nearby, often they will not
enjoy the income they generate. Those who provide external finance will obviously expect a return on their
investment, which may take the form of rents on properties and any residual surplus. However well managed,
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these foreign owned developments will need to make a return for their owners, and cannot contribute to local
incomes to the same extent as those indigenously owned.
A further concern arises if foreign ownership is accompanied by foreign debt. Not only does this introduces a
currency mismatch between property assets across Britain and the liabilities secured against them, but cheap
debt may be ‘carried into’ Britain to fund asset purchases. Even in our inter-connected global economy, this
debt transfer is something that must be viewed with a little concern. In fact, the experiences post 2008 suggest
how destabilising to Britain’s economy this kind of funding mismatch could prove as exchange rates moved
sharply ‘the wrong way’, such that sterling denominated assets like UK CRE lost value from an overseas
perspective. The result was that otherwise perfectly well-functioning property assets, such as prime London
hotels, found themselves characterised as distressed. Whilst the pound’s move downwards in 2008 may have
been welcomed by exporters and others for whom it provided a competitive boost, it was hardly viewed
favourably so by those whose funding of British property asset purchases were in currencies against which
sterling had tumbled. Funding mismatches can also occur when domestic investors finance purchases of British
assets with foreign debt or when short-term debt funding is used to support long-term investments.
Where overseas investors acquire UK CRE, their acquisition creates a capital inflow while their subsequent
ownership creates current account outflows, as rental income is distributed to investors or used to repay
overseas debt funding. Some may argue that these outflows are not a good thing as they represent UK income
leaving the country, but we must remember that some foreign financed CRE projects will contribute to future
export earnings, mitigating CRE-related outflows. For example, a foreign-owned hotel may well attract
sufficient customers from abroad that its foreign exchange income more than covers its foreign exchange
repayments. It is possible that some externally financed CRE projects may strengthen both the current and the
capital accounts, and one may wish to ask whether particular externally financed projects will generate the
foreign exchange income to cover their (foreign exchange) servicing costs.
In summary, we have noted the arrival into Britain’s CRE market of investors from overseas and argued that
their interest should be welcomed. Following the wave of Japanese investment and occupancy in the 1980s,
and subsequently from Germany, more recently capital arriving into Britain’s commercial real estate market
has spread widely from the Gulf across to Asia, taking in China, Singapore, Malaysia and Indonesia. There has
also been investment from Norway and Canada. With time, more names are certain to be added and these will
not be absent or negligent landlords. They will be buying for the long term, with the intention to hold rather
than ‘to flip’, and will often buy without taking on debt. Some might view these points as contradictory; rental
wealth remitted from Britain and so denying it the growth multipliers that we suggested it would generate and
acting against its balance of payments, but though there may be some concerns with foreign ownership of
CRE, we believe on balance it has been, and will continue to be, much to the benefit of the British economy.
2.3.6 Understanding the reason for foreign capital
Whilst foreign ownership of Britain’s CRE is hardly new, the buying of British assets has recently been little
short of extraordinary, the value more than doubling in the ten years to 2013. Very often real estate
ownership is an essential by-product of an overseas acquisition to Britain, for instance, General Motors
absorbing the production assets of Vauxhall Motors in 1957. Significantly, there is no sign of any lessening in
the appetite for British real estate from overseas buyers. Before reflecting on some of the consequences of
this markedly higher foreign ownership, it is instructive to consider why we have seen events unfold as they
have. Much of the explanation can be found in the rapid growth recorded by ‘emergent’ nations, notably
China, whose appetite for natural resources has in turn powered expansion across large tracts of the world
with a resulting boost in sovereign, corporate and indeed personal wealth. It can be argued that it is in the
process of this wealth being diversified that Britain’s CRE and residential property markets have been targeted.
The UK after all offers a long-established and recognised currency, in fact it has long been one of the top four
most widely held in foreign reserves (see chart 22). With the increase in global wealth we should not then be
surprised that something so asset-backed as UK property should find itself so sought after, and why indeed it
will continue to be.
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Chart 22: Composition of foreign exchange reserves
% of allocated reserves
70
60
50
40
30
20
10
0
1998
2000
US dollars
2002
2004
2006
2008
Sterling
Yen
Euros
2012
2014
2010
Others (includes AUD)
Source: IMF, Toscafund
To repeat, the recent surge in foreign buying of British real estate has, it could be argued, been far less about
acquiring the corporate entities occupying the premises, as simply the premises themselves. The same applies
to development activity funded from overseas, as for instance when Ford invested in the development of its
sizeable plant in Dagenham, which opened in 1931 covering 475 acres. This is not to claim that buying as an
owner and occupier is not occurring, just that these instances are becoming rarer. Nor too is it to claim that
overseas owners will not someday become owner-occupiers; just that they have not taken up both roles in the
first instance.
Aside from the obvious competition to existing – and indeed prospective – UK landlords, the arrival of overseas
landlords across Britain’s CRE market has had an unquestionable impact. As already noted, a great deal of
overseas ownership can be explained by a desire to diversify wealth. The result is that income generation is
often relegated to a secondary desire. The growing overseas ownership of British CRE can lead to situations
where an asset is valued in one currency but the debt secured against the asset is valued in a different
currency. There are a number of consequences of such ‘currency mismatch’ situations. Most notably, a sharp
unanticipated movement in exchange rates could quite easily trigger covenant breaches and the forced selling
of property in no way distressed in the conventional sense. However, it is quite typical for investors to engage
in foreign exchange hedging strategies in order to mitigate these risks.
The reality is that the sharp increase in the overseas ownership of Britain’s CRE has not only internationalised
ownership, but opened entirely new, and widened existing, transmission channels. We have to accept that
monetary shocks elsewhere will increasingly have a very direct bearing within Britain, even on real estate
occupied by business sectors insulated from macro-economic events overseas. Statutory restriction on foreign
ownership is not required, but instead a greater understanding of monetary mismatches – in relation to
funding and accounting currencies – is needed, and an insistence that these are hedged or mitigated against as
much as possible.
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Employment
2.4.1 A CREator of jobs
We have emphasised how CRE is a crucial production factor within the British economy, providing an
irreplaceable input across almost every business sector. However, the process of creating CRE is an industry in
itself, as is its operation, management and maintenance. Let us first focus on construction.
Over the course of the last decade, construction has on average directly employed 2.1m workers across Britain
– currently just over 2m (of whom 1.1m are private contractors), some are active beyond CRE in building
infrastructure. In addition, there are a number of workers involved along mutually dependent supply chains, in
secondary and tertiary sectors; notably the extraction, production and distribution of materials and in plant
hire. There will also be some who benefit from being in proximity to the activity generated by a ‘building site’
and all other positive economic multiplier effects (although there will no doubt be adverse aspects from the
unavoidable disruption).
Whilst construction draws upon a range of non-manual professions – developers, architects, surveyors, etc –
and a multitude of highly skilled manual crafts, it also provides large scale employment for young people
whose skills are limited, and whose employment opportunities are as a consequence restricted; this is
evidenced by the stubbornly above average unemployment rate. Whilst labouring may be physically
strenuous, average earnings are known to be above manual work performed in the hotel and catering sectors.
Chart 23: Average weekly earnings (construction vs
retail wholesale, hotels and catering)
Chart 24: Average weekly earnings for industries compared
600
£
£
600
500
500
400
400
300
300
200
200
100
100
0
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
2000 2002 2004 2006 2008 2010 2012 2014 2016
AWE - Construction
AWE - Distribution hotels and restaurants
Agriculture forestry & fishing
Hotels and Catering
Real estate activities
Construction
Retail trade and repairs
Source: ONS.
Much like construction, property provides work extensively across professional non-manual and skilled manual
activities in its operation, maintenance and management. We would wish to continue to focus here on the
largely unskilled areas. Properties need to be secure, clean, well-maintained and a range of employees are
needed to achieve these ends.
Chart 25: Jobs (construction vs real estate activities)
Chart 26: Vacancies (construction vs real estate activities)
30
Thousand
Million
2.5
2
1.5
25
20
15
1
10
0.5
5
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Construction jobs
Real estate activities jobs
of which Private contractors
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Vacancies in Construction
Vacancies in Real Estate Activities
Source: ON
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While some of the traditional labour needs in the construction and maintenance of property have been
overtaken by technology, from the introduction of security gates to automated window cleaning, CRE assets
still require full and part-time labour to facilitate their operation. Not only is CRE a consumer of technology,
but it has, on occasion, been the trigger for innovation, indirectly driving a range of sectors seemingly
unrelated to it. The growth in cloud technology for instance was motivated in no small way by a commercial
desire to ‘free-up’ valuable office space.
The reality is that the construction, operation and maintenance of Britain’s property assets opens a range of
employment opportunities across a breadth of skill-sets, a number of supply-chains, a spectrum of business
sizes and across the entire country.
Chart 27: Unemployment rates
25
%
20
15
10
5
0
2000
2002
2004
Aged 16 and over
2006
2008
2010
Aged 18-24
2012
2014
2016
Aged 25-49
Source: ONS
2.4.2 ‘Multiplier’ externalities
It is often claimed that buildings are needed for employment, but there are two sides to this. First, the
construction and maintenance of buildings creates jobs, but labour is a resource and there is a need to deploy
it in its most productive use. As the dismal experience of the centrally planned economies has shown, it is easy
enough to create jobs if the pay is sufficiently low and no one cares about what is produced. Not only the
labour, but also the capital equipment used in construction have value and could contribute to economic
output in other ways if they were not employed in construction. Employing people in construction makes
sense only if the value of what they produce is greater than the cost of employing them.
But how well does this argument hold up if the economy is in recession? Then there is an overall deficiency in
the demand for labour, and the economy is not creating enough jobs for its labour force. In such
circumstances, with widespread unemployment, any form of spending is good as it provides work for the
unemployed, whose higher incomes are spent creating more employment, and there are usually substantial
fiscal paybacks from higher tax receipts and reduced welfare payments. One concern with such ‘countercyclical’ policies is that jobs are created and money is spent on employing more people rather than on
consultants’ fees or imported materials. There is also the issue of speed; recessions are sometimes fairly shortlived, so any intervention must be quick acting if it is to be effective.
During the post-war period, the UK has not used construction as a tool of counter-cyclical policy, not least
because, until the current recession, all downturns in the post-war period had been deliberately created by
Government to hold down inflation. The recession following the financial crash of 2008 was different; it was
not created by deflationary Government policies induced by rising inflation, and more spending of a traditional
Keynesian type might well have alleviated its consequences (it could be argued that the United States emerged
more quickly from recession than European countries because it avoided fiscal cutbacks despite its enormous
budget deficit). However, this recession has now drawn to a close, in the UK as well as in the US, and should
not be assumed to provide the backdrop to economic policy for the foreseeable future.
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As technology advances, more people are working in professional, managerial, administrative and other skilled
positions while fewer are engaged in unskilled manual jobs. As the labour market increasingly rewards skills,
prospects for the unskilled can deteriorate. The construction sector – fuelled by demand for CRE – can provide
jobs for less qualified people.
40
2.5
35
2
30
25
Million
Million
Chart 28: Sectoral employment in the UK since 1982
1.5
20
1
15
10
0.5
5
0
0
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
UK Workforce Jobs (lhs)
Construction jobs (rhs)
Source: ONS
Buildings contribute to employment not only when they are being built, but also in use. Workers need
somewhere to work, and not much can be done without buildings to work in. Capital equipment, roads and
vehicles, water and electricity are all necessary for commercial enterprises to be viable. Without any of these,
production would collapse, but they cannot all claim credit for all that is produced as it is the marginal, rather
than the total product, that measures a factor’s contribution.
Nonetheless, better premises enhance worker productivity and this constitutes a ‘pecuniary’ externality.
Workers benefit from better capital because they get paid more.
Finally, CRE contributes to the rest of the economy through taxation. Of course, (nearly) everyone and (nearly)
every business pays taxes, the question is whether CRE is more heavily burdened than other sectors. If the
answer to that is yes, then investment in CRE is liable to more taxation than equivalent investment in other
forms of capital, and that excess represents a unique contribution to the rest of the economy.
Though business rates are a tax deductible expense in determining corporation tax (or income tax for
unincorporated enterprises), the overall tax burden on CRE none-the-less remains higher. For example, in
2009/10, receipts from business rates amounted to £22.9bn as against corporation tax receipts of £35.8bn
(there are more up-to-date figures available). It may be noted that businesses can reduce their corporation tax
payments by various mechanisms, such as locating their head offices in low tax jurisdictions. For the service
sector, business must be located near the customers, so whilst Starbucks may not be paying much in
corporation tax, it cannot avoid payments of business rates. Likewise foreign owned companies operating in
the UK are liable for business rates.
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2.4.3 The employment value Britain’s CRE construction
Were we to consider the numbers employed across Britain’s construction markets (new build, maintenance
and improvement across residential and the various non-residential sectors) we would record that, on
average, between 2002 and 2014 this amounted to 2.1 million, or 6.8% of the labour force.
Millions
Chart 29: Number of people employed in construction, quarterly
2.4
2.3
2.2
2.1
2
1.9
1.8
1.7
1985
1989
1993
1997
2001
2005
2009
2013
2017
Source: ONS
There is marked oscillation, reflecting Britain’s unwelcome violent construction cycle. The reality is that such
metrics belie the value in providing work for a particular cohort of the labour force, specifically largely
unskilled people. From land clearance, excavation and construction, there is a need for general labourers
across to security staff for whom building sites offer valuable, albeit sometimes casual and itinerant, work.
Then there is the skilled manual and non-manual labour needed, from plasterers, crane operators and site
managers, to surveyors and architects.
If one clear macro policy objective emerges, it is to make every effort to create a backdrop for sustained
activity, one where monetary policy combines effectively with fiscal policy to shave the edges off of Britain’s
construction cycle. A more accommodating approach to planning would help with this by allowing the supplyside to deliver.
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CRE and taxation
2.5.1 The burden of taxation on CRE relative to other factors of production
Taxation represents a shift in the claim on output away from those producing it to the government (or taxation
authority). The total output of the economy is measured by its GDP, which is also the total value added by
firms and the total of factor incomes received, ultimately, by households. A fundamental principle of taxation
is that it should be ‘neutral’, that the burden on different factors or sectors should be the same, as this avoids
inefficient arrangements whose purpose is more to minimise tax than to make the most efficient use of
resources.
CRE is an important factor of production. Within the business sector, it is the major component of the capital
employed by firms. Differential rates of taxation on different factors can lead to inefficiencies both in the
choice of techniques within firms and in the pattern of output as consumers switch from more heavily to less
heavily taxed products.
Two of the largest taxes by yield in the economy, income tax and VAT, are quite neutral in their impact within
the business sector. Income tax, which generates about 30% of all tax revenue, is levied on all forms of income,
from interest and rents to wages and salaries. VAT raises about 15% of total revenue, but the tax base of VAT
is the same as the payment of total factor incomes in firms. While these two taxes are neutral, the next big tax,
namely national insurance which raises about 20% of total revenue, is a tax on employment. There are also a
number of taxes on capital, such as corporation tax, stamp duties, business rates and council tax, which are all
taxes on capital and together raise around 20% of total revenue.
In the business sector, firms pay corporation tax on the total return on their capital (less any financed by
borrowing, interest payments being tax deductible), which amounts to around 8% of tax revenue. Additionally,
they pay business rates on the property they occupy, with a much smaller amount of stamp duty on
transactions of (non-residential) land and property (around 5% of the total). Overall, the tax paid on property
is close on twice as high as the tax paid on other types of capital employed.
Outside the business sector, the imbalance is much greater. Households hold an enormous proportion of the
capital stock in the form of dwellings, which are taxed through council tax and stamp duty. These add up to
about 7% of total revenue, but there is no taxation on the implicit income produced by owner-occupied
property, and owner-occupied primary residences are also exempt from capital gains tax. So perhaps not
surprisingly around 60% of the capital stock consists of dwellings as against around 25% in the business sector
(here excluding buy-to-let). The effective tax rate on capital held in the form of dwellings is around 0.8%,
whereas that employed in business pays around 3.0% on top of the income and value-added taxes levied on
business activity. This difference in effective tax rates is bound to affect investment decisions and may be
resulting in a misallocation of resources across the economy. So gross disparity is bound to influence
investment decisions; it is scarcely surprising that we see an apparently endless boom in housing while
business struggles.
Academics, economists and politicians often discuss the taxation of housing, and whilst it is clear that there are
some flaws in the current system, we are not going to solve those issues in this report. One obvious anomaly is
council tax. When this was introduced in early 1993 to replace the ‘community charge’ (poll tax), the
Government clearly wished to avoid the embarrassment of reintroducing domestic rates just a few years after
having abolished them. Council tax is a tax on dwellings, banded in accordance with capital value, but the
bands have been left unchanged since the early 1990s and there has not been a revaluation since that time
(the capital value of a dwelling for council tax is still the assessed capital value of the house as of 1 April 1991,
and new houses are thus valued according to the amount valuers think they would have been worth in April
1991). Clearly this tax is becoming as remote from market values as were domestic rates in the years before
their abolition; the bands need to be revised and the properties revalued to bring them into line with market
values. For as long as politicians remain averse to revaluations and housing remains tax privileged, it is likely
that households will continue to invest the bulk of their wealth in this form. An unfortunate consequence is
that they do not invest in other assets such as CRE, which in part may explain the lack of political support for
the commercial property sector.
It might be thought that the efficiency loss caused by higher taxes on business property (as against other forms
of business capital) may be relatively small because there is not that much scope for substitution. After all, in
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business, CRE is an essential input; for example, a firm cannot substitute inventories for real estate. There are,
nonetheless, ill effects of the heavy taxation of commercial property.
One serious problem is that taxes reduce the incentive to use CRE efficiently. Property may be left empty, or
stagnate in some outdated use because using it more profitably will attract a larger tax bill. This is particularly
the case as, in principle, CRE has become more flexible – a property built for one purpose can, as the economy
develops, be adjusted to another.
In summary, we would argue that CRE is taxed more heavily than other forms of wealth or other factors of
production. We suggest that this results in a gross misallocation of savings into residential property rather than
productive capital, and often inefficiencies in the use of CRE. Lastly, there is perhaps some diminution in the
representation of CRE in the political sphere as so few people have significant direct investments in it.
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Appendix 1 – England and Wales rating list, VOA, as of Sept 2014
List
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
CRL
Water Supply
Commercial real estate
Infrastructure
781000
CRL
National & Regional Gas Transportation
Commercial real estate
Infrastructure
616000
CRL
Electricity Distribution
Commercial real estate
Infrastructure
567000
CRL
Railways
Non-commercial
Infrastructure
351000
CRL
Communications
Commercial real estate
Infrastructure
181000
CRL
Electricity Transmission
Commercial real estate
Infrastructure
170000
CRL
Gas Meters
Commercial real estate
Infrastructure
94000
CRL
Pipelines
Quasi-CRE
Infrastructure
62000
CRL
Electricity Meters
Commercial real estate
Infrastructure
39000
CRL
Light Railways
Commercial real estate
Infrastructure
10000
CRL
Local Gas Transportation
Commercial real estate
Infrastructure
8000
CRL
Canals
Non-commercial
Infrastructure
0
LRL
Offices (Inc Computer Centres)
Commercial real estate
Office
LRL
Factories Workshops and Warehouses (Incl Bakeries & Dairies) Commercial real estate
Industrial
8344843
LRL
Shops
Commercial real estate
Retail
7855459
LRL
Hypermarkets/Superstores (over 2500m2)
Commercial real estate
Retail
2983333
LRL
Retail Warehouses and Foodstores
Commercial real estate
Retail
2106187
LRL
Local Authority Schools (National Scheme)
Non-commercial
Other
1581617
LRL
Public Houses/Pub Restaurants (National Scheme)
Commercial real estate
Retail
1389008
LRL
Large Distribution Warehouses
Commercial real estate
Industrial
1283199
LRL
Hotels (4 Star & Above) & Chain Op. 3 Star (National Scheme)
Commercial real estate
Other
1155723
LRL
Large Shops (Over 1850m2)
Commercial real estate
Retail
1022017
LRL
Restaurants
Commercial real estate
Retail
829632
LRL
Large Industrials (Over 20 000m2)
Commercial real estate
Industrial
753473
LRL
Power Generators
Commercial real estate
Infrastructure
646771
LRL
Hospitals & Clinics NHS (National Scheme)
Non-commercial
Other
641757
LRL
Surgeries Clinics Health Centres (Rental Valuation)
Non-commercial
Other
563291
LRL
Car Showrooms
Commercial real estate
Retail
485503
LRL
Banks/Insurance/Building Society Offices & Other A2 Uses
Commercial real estate
Office
448890
LRL
Universities (Excluding Oxbridge) (National Scheme)
Quasi-CRE
Other
447883
LRL
Civil Airports
Commercial real estate
Infrastructure
404375
LRL
Large Food Stores (750 - 2500m2)
Commercial real estate
Retail
393213
LRL
Public and Independent Schools (National Scheme)
Quasi-CRE
Other
391378
LRL
Sewage Works (National Scheme)
Non-commercial
Infrastructure
383682
LRL
Stores
Commercial real estate
Industrial
359699
13443242
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Communication Stations (National Scheme)
Commercial real estate
Infrastructure
324194
LRL
Colleges of Further Education (National Scheme)
Quasi-CRE
Other
322031
LRL
Offices (Headquarters/Institutional)
Commercial real estate
Office
279204
LRL
Land Used for Storage
Commercial real estate
Other
258150
LRL
Petrol Filling Stations (National Scheme)
Commercial real estate
Other
257299
LRL
Departmental and Walk Round Stores (Large)
Commercial real estate
Retail
241980
LRL
Car Parks (NCP & Multi-Storey)
Commercial real estate
Other
219936
LRL
Showrooms
Commercial real estate
Retail
217183
LRL
Airport Let Outs
Commercial real estate
Retail
215419
LRL
Car Parks (Surfaced Open)
Quasi-CRE
Other
206072
LRL
Vehicle Repair Workshops & Garages
Commercial real estate
Retail
201757
LRL
Sports & Leisure Centres (LA) (Wet & Dry) (National Scheme)
Quasi-CRE
Other
193446
LRL
Sports & Leisure Centres (Private) (Wet & Dry)
Commercial real estate
Other
189703
LRL
Cafes
Commercial real estate
Retail
178527
LRL
Day Nurseries/Play Schools
Quasi-CRE
Other
178406
LRL
Hotels (3 Star And Under)
Commercial real estate
Other
176877
LRL
Police Stations
Non-commercial
Other
166764
LRL
Telecommunications Cable Networks (National Scheme)
Quasi-CRE
Infrastructure
159371
LRL
Holiday Homes (Self Catering)
Commercial real estate
Other
146856
LRL
Civic and Public Buildings (Local Authority Occupations)
Non-commercial
Office
144838
LRL
Liquid Bulk Storage (Incl Petrol & Oil) (National Scheme)
Commercial real estate
Industrial
139994
LRL
Courts (Contractors Valuation)
Non-commercial
Other
135968
LRL
Caravan Parks (Leisure) (National Scheme)
Commercial real estate
Other
135211
LRL
Museums and Art Galleries (Contractors)
Non-commercial
Other
128742
LRL
Hairdressing/Beauty Salons
Commercial real estate
Retail
124282
LRL
Iron and/or Steel Works
Commercial real estate
Industrial
122414
LRL
Army Hereditaments
Non-commercial
Excluded
116788
LRL
Clubs & Institutions
Non-commercial
Other
116677
LRL
Chemical Works
Commercial real estate
Industrial
113663
LRL
Golf Courses
Commercial real estate
Other
110120
LRL
Libraries
Non-commercial
Other
109395
LRL
Community Day Centres
Non-commercial
Other
106573
LRL
Car Spaces
Quasi-CRE
Other
106342
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Garden Centres
Commercial real estate
Retail
101150
LRL
Cinemas (National Scheme)
Commercial real estate
Other
100902
LRL
MOD Hereditaments
Non-commercial
Excluded
100130
LRL
Oil Refineries
Commercial real estate
Industrial
96450
LRL
Drive-Thru Restaurants
Commercial real estate
Retail
91863
LRL
Laboratories
Non-commercial
Other
91149
LRL
Factory Shops
Commercial real estate
Retail
90467
LRL
Storage Depots
Commercial real estate
Industrial
89379
LRL
Motorway and Major Road Service Areas
Commercial real estate
Retail
85640
LRL
Prison Service Hereditaments
Non-commercial
Excluded
85428
LRL
Motor Vehicle Works
Commercial real estate
Industrial
84860
LRL
Hospitals & Clinics (Private) (National Scheme)
Commercial real estate
Other
83986
LRL
Wholesale Warehouses
Commercial real estate
Retail
81792
LRL
Large Shops (750 - 1850m2)
Commercial real estate
Retail
80431
LRL
Surgeries Clinics Health Centres (Contractors Valuation)
Non-commercial
Other
79264
LRL
Fire Stations
Non-commercial
Excluded
79185
LRL
Business Units
Commercial real estate
Office
77448
LRL
Cold Stores (Rental Valuation)
Commercial real estate
Industrial
77282
LRL
Night Clubs & Discotheques
Commercial real estate
Other
74843
LRL
Football Stadia
Commercial real estate
Other
73959
LRL
Nuclear Establishments
Non-commercial
Industrial
73080
LRL
Betting Offices
Commercial real estate
Retail
72382
LRL
ATMs
Commercial real estate
Retail
71444
LRL
Advertising Right
Commercial real estate
Other
67056
LRL
Garages (Transport and Commercial)
Commercial real estate
Other
65623
LRL
Sports & Leisure Centres (LA) (Dry Only) (National Scheme)
Quasi-CRE
Other
64928
LRL
Computer Centres (Purpose Built)
Commercial real estate
Office
64284
LRL
Village Halls Scout Huts Cadet Huts Etc
Non-commercial
Other
64134
LRL
Pipelines
Quasi-CRE
Infrastructure
62000
LRL
Drive-In Restaurants
Commercial real estate
Retail
59924
LRL
Exhaust and Tyre Centres
Commercial real estate
Retail
58203
LRL
Statutory Docks and Harbours (Non-Formula Prescribed)
Quasi-CRE
Infrastructure
57805
LRL
Sports & Leisure Centres (Private)(Dry Only)
Commercial real estate
Other
56037
LRL
Waste Transfer Stations
Quasi-CRE
Industrial
55972
77
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
RAF Hereditaments
Non-commercial
Excluded
55540
LRL
Film and TV Studios
Commercial real estate
Other
55331
LRL
Casinos and Gambling Clubs
Commercial real estate
Other
55285
LRL
Holiday Centres
Commercial real estate
Other
53978
LRL
Public Houses/Pub Restaurants (Inc. Lodge) (National Scheme)
Commercial real estate
Retail
53952
LRL
Post Office Sorting Centres
Commercial real estate
Industrial
49906
LRL
Guest & Boarding Houses
Commercial real estate
Other
47957
LRL
Conference & Exhibition Centres
Commercial real estate
Other
45139
LRL
Theatres (National Scheme)
Commercial real estate
Other
44269
LRL
Training Centre (Residential)
Quasi-CRE
Other
43623
LRL
Sales Kiosks
Commercial real estate
Retail
43619
LRL
Showhouses (National Scheme)
Commercial real estate
Retail
43382
LRL
Waste Incinerator Plants
Quasi-CRE
Industrial
42619
LRL
Mineral Producing Hereditament - Putrescible
Commercial real estate
Industrial
42415
LRL
Bingo Halls (National Scheme)
Commercial real estate
Other
42399
LRL
Post Offices
Commercial real estate
Retail
42315
LRL
Gymnasia/Fitness Suites
Commercial real estate
Other
41497
LRL
Navy Hereditaments
Non-commercial
Excluded
41492
LRL
Bowling Alleys
Commercial real estate
Other
41080
LRL
Swimming Pools (Local Authority)
Non-commercial
Other
40848
LRL
Sports Grounds
Quasi-CRE
Other
40442
LRL
Mineral Producing Hereditament - Hardrock
Commercial real estate
Industrial
38965
LRL
Car/Caravan Sales/Display/Hiring Sites
Commercial real estate
Retail
37313
LRL
Crown Miscellaneous
Quasi-CRE
Other
37309
LRL
Training Centre (Non Residential)
Commercial real estate
Other
35600
LRL
Clubhouses
Commercial real estate
Other
33110
LRL
Tourist Attractions
Quasi-CRE
Other
33109
LRL
Docks and Harbours (Non-Statutory)
Quasi-CRE
Infrastructure
32876
LRL
Industrial Miscellaneous
Commercial real estate
Industrial
32657
LRL
Paper Mills
Commercial real estate
Industrial
32518
LRL
Wine Bars
Commercial real estate
Retail
31837
LRL
Sports Stadia
Commercial real estate
Other
31735
LRL
Computer Centres (Non-Purpose Built)
Commercial real estate
Office
30361
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Markets (other than livestock)
Commercial real estate
Other
30150
LRL
Archives
Quasi-CRE
Other
30044
LRL
Mineral Producing Hereditament - Sand and Gravel
Commercial real estate
Industrial
29837
LRL
Railways & Tramways (Non Leisure)
Non-commercial
Infrastructure
29300
LRL
Amusement Arcades
Commercial real estate
Other
28815
LRL
Commercial Miscellaneous
Commercial real estate
Other
28770
LRL
Waste Recycling Plants
Quasi-CRE
Infrastructure
28712
LRL
Breweries (National Scheme)
Commercial real estate
Industrial
27144
LRL
Courts (Rental Valuation)
Quasi-CRE
Other
26979
LRL
Takeaway Food Outlet (Predominantly Off Premises)
Commercial real estate
Retail
26666
LRL
Aircraft Works With Airfields
Commercial real estate
Industrial
26027
LRL
Pitches for Stalls Sales or Promotions
Quasi-CRE
Retail
25976
LRL
Concrete Batching Plants
Commercial real estate
Industrial
25974
LRL
Newspaper Printing Works (National Scheme)
Commercial real estate
Industrial
25398
LRL
Ship Building Yards
Quasi-CRE
Industrial
25160
LRL
Bus Garages (Contractors Valuation)
Quasi-CRE
Other
24789
LRL
Crematoria (With & Without Cemeteries) (National Scheme)
Quasi-CRE
Other
24235
LRL
Pharmacies Within/Adjacent to Surgery/Health Centre
Quasi-CRE
Retail
24015
LRL
Concrete Product Works
Commercial real estate
Industrial
23951
LRL
Bus Stations
Commercial real estate
Other
23898
LRL
Lorry Parks
Quasi-CRE
Other
23717
LRL
Riding Schools & Livery Stables (National Scheme)
Quasi-CRE
Other
23481
LRL
Pharmacies
Commercial real estate
Retail
23357
LRL
Veterinary Clinics / Animal Clinics
Commercial real estate
Other
22696
LRL
Oxbridge Colleges
Quasi-CRE
Other
22203
LRL
Leisure Miscellaneous
Quasi-CRE
Other
21324
LRL
Cement Works
Commercial real estate
Industrial
21300
LRL
Car Washes (Stand Alone)
Commercial real estate
Other
21109
LRL
Hostels
Commercial real estate
Other
20985
LRL
Bus Garages (Rental Valuation)
Quasi-CRE
Other
20656
LRL
Theme Parks
Commercial real estate
Other
19741
LRL
Country House Hotels
Commercial real estate
Other
19719
LRL
Caravan Sites and Pitches (National Scheme)
Commercial real estate
Other
19694
LRL
Brickworks (Traditional) Clay Tile/Pipe Works
Commercial real estate
Industrial
19610
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Marinas (National Scheme)
Commercial real estate
Other
19363
LRL
Food Stores
Commercial real estate
Retail
18477
LRL
Statutory Docks and Harbours (Formula)
Quasi-CRE
Infrastructure
17853
LRL
Civic Amenity Sites
Quasi-CRE
Infrastructure
17768
LRL
Funeral Parlours/Chapels Of Rest
Commercial real estate
Other
17588
LRL
Landfill Gas Generator Sites
Quasi-CRE
Infrastructure
17529
LRL
Gas Processing Plants
Commercial real estate
Industrial
17429
LRL
Scrap Metal/Breakers Yard
Non-commercial
Industrial
17209
LRL
Asphalt Plants
Commercial real estate
Industrial
17079
LRL
Car Auction Buildings/Sites
Commercial real estate
Other
16873
LRL
Food Processing Centres
Commercial real estate
Industrial
16699
LRL
Tolls (Ferries Roads And Bridges)
Quasi-CRE
Infrastructure
16002
LRL
Museums and Art Galleries (Non-Contractors)
Quasi-CRE
Other
15876
LRL
Kennels and Catteries
Quasi-CRE
Other
15691
LRL
Public Conveniences (National Scheme)
Non-commercial
Excluded
15619
LRL
Abattoirs & Slaughter Houses (Rental Valuation)
Commercial real estate
Industrial
15454
LRL
Ambulance Stations
Quasi-CRE
Other
15357
LRL
Horse Racecourses
Commercial real estate
Other
15301
LRL
Lodges (National Scheme)
Quasi-CRE
Other
14990
LRL
Stables and Loose Boxes
Quasi-CRE
Other
14804
LRL
Snooker Halls/Clubs
Commercial real estate
Other
14106
LRL
Mineral Producing Hereditament - Oil
Commercial real estate
Industrial
14068
LRL
Car Parks (Unsurfaced Open)
Quasi-CRE
Other
13511
LRL
Arenas
Commercial real estate
Other
12706
LRL
Educational Miscellaneous
Quasi-CRE
Other
12649
LRL
Creameries
Quasi-CRE
Industrial
12429
LRL
Electricity Undertakings (Non-Statutory)
Quasi-CRE
Infrastructure
12157
LRL
Vehicle Testing Centres (with Test Tracks)
Quasi-CRE
Other
11908
LRL
Zoos & Safari Parks
Commercial real estate
Other
11485
LRL
Flour Mills (National Scheme)
Commercial real estate
Industrial
11347
LRL
Bullion/Money Stores (National Scheme)
Commercial real estate
Retail
11071
LRL
Concrete Block Works
Commercial real estate
Industrial
11040
LRL
Sports & Leisure Centres within/part of Specialist Property
Commercial real estate
Other
11025
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List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Provender Mills (National Scheme)
Commercial real estate
Industrial
10784
LRL
Beet Sugar Factories
Commercial real estate
Industrial
10180
LRL
Landfill Sites
Non-commercial
Infrastructure
9907
LRL
Car Supermarkets
Commercial real estate
Retail
9883
LRL
Air Ports (Minor) (National Scheme)
Commercial real estate
Infrastructure
9835
LRL
Roadside Restaurants (National Scheme)
Commercial real estate
Retail
9661
LRL
Dance Schools & Centres
Commercial real estate
Other
9651
LRL
Racing Stables (National Scheme)
Commercial real estate
Other
9579
LRL
Field Study Activity and Adventure Centres
Quasi-CRE
Other
9410
LRL
Cemeteries (National Scheme)
Quasi-CRE
Other
9229
LRL
Public Halls
Quasi-CRE
Other
9170
LRL
Auction Rooms
Commercial real estate
Retail
9151
LRL
Police Training Colleges
Non-commercial
Other
9110
LRL
Studios
Commercial real estate
Other
8952
LRL
Cricket Grounds/Pitches (Non-County)
Commercial real estate
Other
8727
LRL
Beach Huts
Quasi-CRE
Other
8520
LRL
Mineral Producing Hereditament - Coal
Commercial real estate
Industrial
8507
LRL
Concert Halls (National Scheme)
Commercial real estate
Other
8501
LRL
Miscellaneous
Non-commercial
Other
8323
LRL
Chalet Parks (National Scheme)
Commercial real estate
Other
8253
LRL
Football Grounds
Quasi-CRE
Other
7980
LRL
Recording Studios
Commercial real estate
Other
7977
LRL
University Occupation within Hospitals
Quasi-CRE
Other
7924
LRL
Timeshare Complexes (National Scheme)
Commercial real estate
Other
7883
LRL
Motorway Service Area Let Outs
Commercial real estate
Retail
7881
LRL
Air Strips (National Scheme)
Commercial real estate
Infrastructure
7830
LRL
Properties Involving Extraction of Materials for Profit
Commercial real estate
Industrial
7730
LRL
Minerals Miscellaneous
Quasi-CRE
Industrial
7647
LRL
Motor Racetracks
Commercial real estate
Other
7562
LRL
Farm Shops
Commercial real estate
Retail
7547
LRL
Foundries
Commercial real estate
Industrial
7528
LRL
Maltings - Non Trad
Commercial real estate
Industrial
7489
LRL
Shops within/part of Specialist Property
Commercial real estate
Retail
7141
LRL
Livestock Markets (National Scheme)
Commercial real estate
Other
7103
81
TOSCAFUND
List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Rugby Union Grounds
Quasi-CRE
Other
6911
LRL
Conference Centres in Country Houses
Commercial real estate
Other
6888
LRL
Potteries
Commercial real estate
Industrial
6880
LRL
Bowling Centres (Indoor)
Commercial real estate
Other
6845
LRL
Heredits used for Primary Treatment/Processing of Minerals
Commercial real estate
Industrial
6744
LRL
Cafes/Restaurants within part of Specialist Property
Commercial real estate
Retail
6557
LRL
Mineral Producing Hereditament - Shale Burnt
Commercial real estate
Industrial
6525
LRL
Boat Yards
Quasi-CRE
Other
6504
LRL
Sea Dredged Aggregate Processing Plants & Depots
Non-commercial
Industrial
6374
LRL
Mechanised Handling Depots
Commercial real estate
Industrial
6292
LRL
Warehouses within/part of Specialist Property
Commercial real estate
Industrial
6265
LRL
Coaching Inns
Commercial real estate
Other
6265
LRL
Bowling Greens (Outdoor)
Commercial real estate
Other
6261
LRL
Tennis Courts/Clubs
Quasi-CRE
Other
6031
LRL
Tennis Centres
Quasi-CRE
Other
5949
LRL
Moorings (Floating Hereditaments)
Quasi-CRE
Infrastructure
5935
LRL
Amusement Parks
Commercial real estate
Other
5920
LRL
Golf Driving Ranges
Commercial real estate
Other
5889
LRL
Contractors Huts & Compounds
Commercial real estate
Industrial
5721
LRL
Food Courts
Commercial real estate
Other
5657
LRL
Royal Palaces
Non-commercial
Excluded
5654
LRL
Health Farms
Commercial real estate
Other
5529
LRL
Stately Homes & Historic Houses (National Scheme)
Quasi-CRE
Other
5131
LRL
Cricket Grounds (County)
Commercial real estate
Other
5089
LRL
Mineral Producing Hereditament - China Clay
Commercial real estate
Industrial
5071
LRL
Statutory Docks and Harbours (Other)
Quasi-CRE
Infrastructure
4564
LRL
Agricultural Showgrounds (National Scheme)
Quasi-CRE
Other
4445
LRL
Lifeboat Stations
Non-commercial
Other
4388
LRL
Wafer Fabrications (National Scheme)
Commercial real estate
Industrial
4299
LRL
Go Kart Rinks
Commercial real estate
Other
4132
LRL
Artificial Fibre Works
Commercial real estate
Industrial
4090
LRL
Stud Farms
Quasi-CRE
Other
4052
LRL
District Heating Undertakings & Networks
Quasi-CRE
Infrastructure
3943
82
TOSCAFUND
List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Religious Retreats/Study Centres (Residential)
Quasi-CRE
Other
3864
LRL
Greyhound Racetracks
Commercial real estate
Other
3829
LRL
Aquaria
Commercial real estate
Other
3758
LRL
Nursing Homes (Inc. Old Peoples Homes)
Quasi-CRE
Other
3732
LRL
Mineral Producing Hereditament - Chalk
Commercial real estate
Industrial
3721
LRL
Station Let Outs
Commercial real estate
Retail
3541
LRL
Vehicle Testing Centres (Without Test Tracks)
Quasi-CRE
Retail
3479
LRL
Grain Silos
Commercial real estate
Industrial
3442
LRL
Pleasure Piers
Commercial real estate
Other
3404
LRL
Bulk Cement Storage Depots
Commercial real estate
Industrial
3246
LRL
University - Ancillary Land or Buildings
Quasi-CRE
Other
3201
LRL
Ski Centres
Commercial real estate
Other
3197
LRL
Pack Houses
Quasi-CRE
Industrial
3145
LRL
Cement Tile Works
Commercial real estate
Industrial
3116
LRL
Mineral Producing Hereditament - Blockstone
Commercial real estate
Industrial
3021
LRL
Information/Visitor Centres
Quasi-CRE
Other
2942
LRL
Mineral Producing Hereditament - Inert
Commercial real estate
Industrial
2890
LRL
Pavilions
Non-commercial
Other
2837
LRL
Sales Offices
Commercial real estate
Retail
2796
LRL
Ship Repair Yards
Quasi-CRE
Industrial
2796
LRL
Aluminium Smelting Works
Commercial real estate
Industrial
2698
LRL
Lakes with Water Sport Facilities
Quasi-CRE
Other
2689
LRL
Heritage Railways
Quasi-CRE
Infrastructure
2658
LRL
Mineral Producing Hereditament - Other Mineral Category
Commercial real estate
Industrial
2509
LRL
Hospital Let Outs
Commercial real estate
Other
2380
LRL
Squash Courts
Commercial real estate
Other
2204
LRL
Granaries and Intervention Stores
Commercial real estate
Industrial
2194
LRL
Workshops within/part of Specialist Property
Commercial real estate
Industrial
2095
LRL
Rifle and Weapons Ranges
Quasi-CRE
Other
2093
LRL
Mineral Producing Hereditament - Clay
Commercial real estate
Industrial
2025
LRL
Kiosks within/part of Specialist Property
Commercial real estate
Retail
1984
LRL
Land used for Display
Quasi-CRE
Other
1971
LRL
Football Pitches
Quasi-CRE
Other
1876
LRL
Boathouses
Quasi-CRE
Other
1822
83
TOSCAFUND
List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Ice Rinks
Commercial real estate
Other
1792
LRL
Miscellaneous within/part of Specialist Property
Quasi-CRE
Other
1740
LRL
Land used for Car Boot Sales
Quasi-CRE
Other
1691
LRL
Truck Stops
Quasi-CRE
Other
1662
LRL
War Games Courses/Misc Ag. Use
Commercial real estate
Other
1496
LRL
Animal Boarding
Commercial real estate
Other
1440
LRL
Totalisators on Horse Racecourses
Commercial real estate
Other
1427
LRL
Coking and Carbonising Plants
Commercial real estate
Industrial
1321
LRL
Mineral Producing Hereditament - Brine
Commercial real estate
Industrial
1279
LRL
Land used for Advertising
Quasi-CRE
Other
1244
LRL
High Tech Warehouses
Commercial real estate
Industrial
1238
LRL
Offices within/part of Specialist Property
Commercial real estate
Office
1237
LRL
Telecommunications Switching Centres
Commercial real estate
Infrastructure
1235
LRL
Swimming Pools (Private)
Commercial real estate
Other
1226
LRL
Peat Fields
Non-commercial
Other
1185
LRL
Nurseries/Creches within/part of Specialist Property
Quasi-CRE
Other
1140
LRL
Rugby League Grounds
Commercial real estate
Other
1111
LRL
Mineral Producing Hereditament - Slate
Commercial real estate
Industrial
1084
LRL
Photographic Booths
Commercial real estate
Retail
1014
LRL
Car Parking within/part of Specialist Property
Commercial real estate
Other
916
LRL
Roller Skating Rings
Commercial real estate
Other
857
LRL
Mortuaries
Non-commercial
Other
838
LRL
Bird Sanctuaries
Non-commercial
Other
836
LRL
Agricultural Research Centres
Quasi-CRE
Other
797
LRL
Heliports
Commercial real estate
Infrastructure
793
LRL
Distilleries
Commercial real estate
Industrial
780
LRL
Electric Generators at Landfill Sites with Connecting Pipelines
Quasi-CRE
Infrastructure
765
LRL
Changing Rooms
Commercial real estate
Other
721
LRL
Polo Grounds
Quasi-CRE
Other
662
LRL
Game Farms
Quasi-CRE
Other
547
LRL
Pitch and Putt/Putting Greens
Quasi-CRE
Other
538
LRL
Mineral Producing Hereditament - Gas
Commercial real estate
Industrial
486
LRL
Tanneries
Quasi-CRE
Industrial
458
84
TOSCAFUND
List
BRITAIN’s PROPERTY CREDENTIALS
Sector
Real Estate type
Sector type
2010 Rating List
2008 prices
In thousands
LRL
Spoil Heap Workings
Non-commercial
Industrial
452
LRL
Vineyards/Wineries
Quasi-CRE
Other
447
LRL
Pet Grooming Parlours
Commercial real estate
Retail
406
LRL
Fish Farms
Commercial real estate
Industrial
354
LRL
Stores within/part of Specialist Property
Commercial real estate
Retail
338
LRL
Weighbridges
Non-commercial
Other
297
LRL
Speedway Racetracks
Commercial real estate
Other
293
LRL
Refuse Destructor Plants/Disposal Sites
Non-commercial
Infrastructure
269
LRL
Maltings - Trad
Commercial real estate
Industrial
262
LRL
Model Villages
Quasi-CRE
Retail
258
LRL
Salons/Clinics within/part of Specialist Property
Commercial real estate
Retail
251
LRL
Pumping Mines
Quasi-CRE
Industrial
250
LRL
Coastgaurd Stations
Quasi-CRE
Other
244
LRL
Water Undertakings (Non-Statutory)
Commercial real estate
Infrastructure
240
LRL
Point to Point and Eventing Courses
Quasi-CRE
Other
224
LRL
Observatories
Non-commercial
Other
189
LRL
Cricket Centres
Commercial real estate
Other
181
LRL
Garages within/part of Specialist Property
Quasi-CRE
Industrial
173
LRL
Gymnasia/Fitness Suites within/part of Specialist Property
Commercial real estate
Other
139
LRL
Miniature Railways
Quasi-CRE
Other
137
LRL
Public Telephone Kiosks (National Scheme)
Quasi-CRE
Retail
122
LRL
Hatcheries/Poultry Farms
Quasi-CRE
Industrial
120
LRL
AA/RAC Service Centres and Boxes
Quasi-CRE
Retail
85
LRL
Mineral Producing Hereditament - Fluorspar
Commercial real estate
Industrial
74
LRL
Sporting Rights
Quasi-CRE
Other
46
LRL
Gypsy Camp Sites (Short Stay)
Non-commercial
Other
45
LRL
Windmills
Commercial real estate
Other
40
LRL
Interactive Telephone Kiosks
Commercial real estate
Other
25
LRL
Telescope Sites
Non-commercial
Infrastructure
14
LRL
Cattle Breeding Centres
Commercial real estate
Industrial
6
LRL
Cable Head End Buildings
Quasi-CRE
Infrastructure
3
LRL
Domestic Fuel Installations
Quasi-CRE
Infrastructure
3
LRL
Abattoirs & Slaughter Houses (Contractors Valuation)
Commercial real estate
Industrial
..
Source: Valuation Office Agency, ONS, Toscafund
85
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Appendix 2 – England and Wales top 5 sectors by category, VOA
Unlike Appendix 1, the values below have been adjusted and are at current prices.
Chart 31: Retail -Shops
17.95
£ billion
£ billion
Chart 30: Retail - Total
17.90
17.85
7.40
7.35
7.30
17.80
17.75
7.25
17.70
7.20
17.65
7.15
17.60
7.10
17.55
7.05
17.50
7.00
17.45
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 33: Retail - Retail Warehouses and Food Stores
£ billion
£ billion
Chart 32: Retail - Hypermarkets/Superstores (over
2,500 m2)
2.75
2.70
2.65
2.04
2.02
2.00
2.60
1.98
2.55
1.96
2.50
1.94
2.45
1.92
2.40
1.90
2.35
1.88
2.30
2009
2010
2011
2012
2013
1.86
2014
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 35: Retail - Large Shops (over 1,850 m2)
£ billion
£ billion
Chart 34: Retail - Public Houses/Pub Restaurants
(National Scheme)
1.45
1.40
0.95
0.94
0.94
1.35
0.93
1.30
0.93
1.25
0.92
1.20
0.92
1.15
2009
2010
2011
2012
2013
2014
0.91
2009
Source: VOA, IPD (MSCI), Toscafund
86
2010
2011
2012
2013
2014
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Chart 37: Office - Offices (inc Computer Centres)
14.0
£ billion
£ billion
Chart 36: Office - Total
13.5
13.0
13.0
12.5
12.0
12.5
11.5
12.0
11.0
11.5
10.5
11.0
10.5
10.0
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 39: Office - Offices (Headquarters/Institutional)
£ billion
£ billion
Chart 38: Office - Banks/Insurance/Building Society
Offices and other A2 uses
0.44
0.43
0.280
0.275
0.270
0.42
0.265
0.41
0.260
0.40
0.255
0.39
0.250
0.38
0.245
0.240
0.37
0.235
0.36
2009
2010
2011
2012
2013
0.230
2014
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 41: Office - Computer Centres (Purpose Built)
0.075
£ billion
£ billion
Chart 40: Office - Business Units
0.074
0.073
0.062
0.060
0.058
0.072
0.056
0.071
0.054
0.070
0.069
0.052
0.068
0.067
0.050
0.066
0.048
0.065
2009
2010
2011
2012
2013
2014
0.046
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
87
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Chart 43: Industrials - Factories Workshops and
Warehouses (inc Bakeries and Dairies)
12.0
£ billion
£ billion
Chart 42: Industrials - Total
11.8
8.3
8.2
8.1
11.6
8.0
11.4
7.9
7.8
11.2
7.7
11.0
7.6
7.5
10.8
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 45: Industrials - Large Industrials (over 20,000 m2)
1.25
£ billion
£ billion
Chart 44: Industrials - Large Distribution
Warehouses
1.20
0.82
0.80
0.78
0.76
1.15
0.74
0.72
1.10
0.70
0.68
1.05
0.66
1.00
2009
2010
2011
2012
2013
0.64
2014
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 47: Industrials - Liquid Bulk Storage (inc Petrol and Oil)
(National Scheme)
0.370
£ billion
£ billion
Chart 46: Industrials - Stores
0.365
0.360
0.12
0.355
0.10
0.350
0.08
0.345
0.06
0.340
0.335
0.04
0.330
0.02
0.325
0.320
2009
2010
2011
Source: VOA, IPD (MSCI), Toscafund
88
0.14
2012
2013
2014
0.00
2009
2010
2011
2012
2013
2014
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Chart 49: ‘Other’ - Hotels (4 Star & Above) and Chain Op. 3
Star (National Scheme)
4.40
£ billion
£ billion
Chart 48: ‘Other’ - Total
4.35
4.30
1.25
1.20
1.15
4.25
4.20
1.10
4.15
1.05
4.10
1.00
4.05
0.95
4.00
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 51: ‘Other’ - Petrol Filling Stations (National Scheme)
0.270
£ billion
£ billion
Chart 50: ‘Other’ - Land used for Storage
0.265
0.260
0.30
0.29
0.28
0.255
0.250
0.27
0.245
0.26
0.240
0.25
0.235
0.24
0.230
0.23
0.225
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 53: ‘Other’ - Sports and Leisure Centres (Private)
0.250
£ billion
£ billion
Chart 52: ‘Other’ - Car Parks (NCP and Multi-Storey)
0.245
0.204
0.202
0.240
0.200
0.235
0.198
0.230
0.196
0.225
0.194
0.220
0.192
0.190
0.215
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
89
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Chart 55: Infrastructure - Power Generators
1.60
£ billion
£ billion
Chart 54: Infrastructure - Total
1.40
1.20
0.70
0.60
0.50
1.00
0.40
0.80
0.30
0.60
0.20
0.40
0.10
0.20
0.00
0.00
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 57: Infrastructure - Communication Stations
(National Scheme)
0.420
£ billion
£ billion
Chart 56: Infrastructure - Civil Airports
0.415
0.40
0.35
0.30
0.410
0.25
0.405
0.20
0.15
0.400
0.10
0.395
0.05
0.00
0.390
2009
2010
2011
2012
2013
2009
2014
2010
2011
2012
2013
2014
Source: VOA, IPD (MSCI), Toscafund
Chart 59: Infrastructure - Air Strips (National Scheme)
0.0104
£ billion
£ billion
Chart 58: Infrastructure - Air Ports (Minor) (National
Scheme)
0.0102
0.0100
0.0090
0.0080
0.0070
0.0060
0.0098
0.0050
0.0096
0.0040
0.0094
0.0030
0.0092
0.0020
0.0090
0.0010
0.0000
0.0088
2009
2010
2011
Source: VOA, IPD (MSCI), Toscafund
90
2012
2013
2014
2009
2010
2011
2012
2013
2014
TOSCAFUND
BRITAIN’s PROPERTY CREDENTIALS
Toscafund Asset Management LLP
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The information contained in this document is believed to be accurate at the time of publication but no warranty is given as to its accuracy
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applicable law and regulation. Lower performance and management fees were negotiated in the case of certain institutions and
individuals who made seed investments, substantial investments or who agreed to specified lock-up periods. An investor was also
provided with the right to the same preferential treatment agreed with (if so agreed) subsequent similar or smaller investors. None of the
investors with whom modifications have been agreed have any legal or economic links (other than as investors) with the funds managed
by Toscafund and/or with Toscafund. Notwithstanding the foregoing, reduced fees may be payable by Toscafund partners and employees.
To the extent there have been any modifications, these have not resulted in an overall material disadvantage to other investors.
No liability is accepted by any person within Toscafund for any losses or damage arising from the use or reliance on the information
contained in this document including, without limitation, any loss or profit, or any other damage; direct or consequential. No person has
been authorised to give any information or to make any representation, warranty, statement or assurance not contained in the relevant
offering document and, if given or made, such other information, representation, warranty, statement or assurance may not be relied
upon. The content of this document may not be reproduced, redistributed, or copied in whole or in part for any purpose without
Toscafund’s prior express consent. This document is not an advertisement and is not intended for public use or distribution. The source of
all graphs and data is as stated, otherwise the source is Toscafund.
For Swiss prospective investors: The Fund has not been approved for distribution in or from Switzerland by the Swiss Financial Market
Supervisory Authority. As a result, the Fund’s shares/units may only be offered or distributed to qualified investors within the meaning of
Swiss law. The Representative of the Fund in Switzerland is Bastions Partners Office SA with registered office at Route de Chêne 61A, 1208
Geneva, Switzerland. The Paying Agent in Switzerland is Banque Heritage, with registered office at Route de Chêne 61, 1208 Geneva,
Switzerland. The place of performance and jurisdiction for Shares/Units of the Fund distributed in or from Switzerland are at the
registered office of the Representative.
Past performance is not an indicator of future performance and the value of investments and the income derived from those investments
can go down as well as up. Future returns are not guaranteed and a total loss of principal may occur. Please note that performance
information is not available for five years.
© 2015, Toscafund, All rights reserved.
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A British Property Federation commissioned report
prepared by TOSCAFUND
TOSCAFUND