2010 Global Market Report - NAI Commercial Real Estate

London, United KingdomContactNAI Global+1 609 945 4000Country DataArea (KM 2 )GDP Growth (%)GDP 2008 (US$ B)GDP/Capita (US$)Inflation Rate (%)244,1001.02,787.3745,681.003.8The UK economy is currently (Q2) contracting at 5.5%. WithGDP expected to return to growth in the fourth quarter, thecurrent forecast for 2009 is -4.40%. Economists are forecastingGDP growth of 1.40% for 2010. The UK Base rateis 0.5%, credit remains tight, monetary stimulus has beenextended and Sterling is relatively weak. In line with GDPforecasts, there is the perception that the real estatemarkets are at or close to bottom.Office rents have fallen 40% to 50% from the peak. Incentivesof two or three years rent free are common on 10-yearleases in the West End and City, respectively. Developmentactivity is declining. Leasing activity remains low. Unsurprisingly,warehouse rents have been falling (3.2% in the year toJune 2009) and the availability of large buildings inexcess of 10,000 SM increased by about 15%. Developmentactivity has slowed dramatically.Retail sales were up 2.4% year over year through September.Non-food retail figures were flat at around 1.1% annualgrowth while food store volumes grew at 2.8%. CentralLondon rental values have fallen 5.9% in the last 12 monthsbut some key central London streets have bucked the trend,boosted by tourism and the weak Pound. For example, BondStreet still commands rents of £750/SF Zone A. Leasingincentives are increasing. Development activity has virtuallystopped.Investment activity is improving with £1.98 billion investedin the City and West End in the first half of the year. Yieldsare hardening. Overseas investors have been attracted bythe weak pound, the length of UK leases (10-15 years),upward-only rent reviews, historically high yields andthe perception that the prime property market is close tobottom. Some UK funds have recently started to re-enterthe market.While the UK economy remains difficult and the emergencefrom recession is slower than economists were forecasting,the rate of rental decline in the different sectors is slowingand there are clear signs of a recovery in the investmentmarket.UnemploymentRate (%)5.4Population (Millions)61.1London At A GlanceConversion: 0.6162 £ = 1 US$ RENT/M 2 /YR RENT/SF/YRLow High Low High VacancyOFFICE WEST ENDMayfair£ 700.00 £ 800.00 $ 105.54 $ 120.616.7%N/AVictoriaOFFICE CITYCoreFringeMid-townINDUSTRIAL SPACE£ 500.00£ 400.00£ 300.00£ 400.00££££565.00450.00350.00450.00$$$$75.3860.3145.2360.31$$$$85.1867.8452.7767.84N/A8.5%N/AN/AN/ASouth East (excluding Heathrow) £ 85.00 £ 120.00 $ 12.82 $ 18.09 N/AHeathrowRETAIL SPACE (ZONE A)£ 130.00 £ 140.00 $ 19.60 $ 21.11 N/ABrompton RoadCanary WharfCityConvent GardenOxford StreetN/AN/AN/AN/AN/A£ 5,167.00£ 3,606.00£ 2,153.00£ 5,920.00£ 5,813.00N/AN/AN/AN/AN/A$$$$$779.01543.66324.60892.54876.41N/AN/AN/AN/AN/ANew Bond StreetN/A £ 8,234.00 N/A $ 1,241.41 N/AMarylebone High StreetDEVELOPMENT LANDN/ALow/M 2 £ 2,153.00High/M 2 N/ALow/SF$ 324.60High/SFN/AOffice in CBDLand in Office ParksLand in Industrial ParksOffice/Industrial Land - Non-parkRetail/Commercial LandResidentialN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/A2010 Global Market Report ■ www.naiglobal.com 56