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Knight Frank


Leading property consultancy Knight Frank has highlighted the shortage of quality Grade A office space as a key challenge for the Bristol office market during 2015.

It believes the shortage is an outcome of the “stellar year for Bristol” during 2014, with office take up breaking many records. More than one million sq ft of office space was let across the greater Bristol region in the year for the first time since 2008, with total office take-up reaching 1,266,535 sq ft.

Martin Booth, who heads the Knight Frank offices agency team in Bristol, said: “As a result of such strong take up, notably in Q4 2014, identified demand has reduced but remains at a very healthy level. With this bedrock of identified demand, together with inward investment and the rapid growth within the professional service and TMT sectors, we are quietly confident that city centre take up will exceed 600,000 sq ft in 2015.

Take up within the city centre of standing ‘new’ space was at its highest level for 15 years whilst 2014 saw the first pre-lettings during construction since 2009. This generated new prime headline rents which grew to a rumoured £28.50 per sq ft through the letting of 66 Queen Square to KPMG.

The availability of space, including space under construction, fell by over 40% during 2014 to approximately 1.15m sq ft and ‘Available’ space now under construction is limited to 98,250 sq ft.

Martin Booth added: “With available space under construction being so restricted, there will be a clear shortage of city centre grade A space later in 2015/2016. Given the extended timeline for delivering new product to the market, parties able to deliver refurbished product within shortened timeframes will benefit. Of course, the fact that several buildings appropriate for refurbishment have now been lost to alternative uses will further restrict supply.”

Turning to Bristol’s out of town markets, where take up for 2014 totalled 429,676 sq ft – the highest since 2001 and the third highest total in 25 years – he said: “The near absence of Grade A space in North Bristol must bring the need for speculative development into sharp focus.

“The constraining factor to date has been lease lengths rather than rents. We anticipate that evidence created within the next few months will underline the viability of such development. Given the tightening of supply in North Bristol, until further speculative space is brought to the market, alternative out-of-town areas will benefit from continued strong demand.”


UK inflation hit 0.5% on the CPI measure in December, almost ruling out an interest rate rise in 2015. We are clearly in a significant period of disinflation (prices still rise but the rate of increase slows) and we could even see outright deflation (prices fall). What will this mean for property?

Traditionally deflation has been viewed as economic quicksand. It is something that was assumed could only occur in the darkest of circumstances, and would have two consequences:

1.People would stop spending because the dreadful economic news scares them into belt-tightening, but as a result they grease the downwards slope of deflation. This is what Keynes called “the paradox of thrift”.

2.As the price fall gains momentum, consumers have double the reason not to spend. Why buy today what will be cheaper tomorrow? This ‘buyers strike’ further contributes to the downwards spiral.

However, as David Smith in The Sunday Times has been pointing out in recent weeks, the current situation is not as simple as the above suggests.

Some purchases one has to make in order to stay alive, such as food and fuel. Given these cannot be economised away or delayed, such price falls become good news. Money not spent at the petrol pump or on groceries becomes money that can be spent elsewhere.

Critically, in a country like the UK that surplus money will get spent. Whereas consumers in many Asia-Pacific countries have a high propensity to wisely save any extra cash, John Bull is fortunately not that frugal; and with interest rates so low, what would be the point in saving? This is why talk of a ‘Japanisation’ of the economy is overdone. There are cultural differences between the British and the Japanese which mean that more money in shoppers’ pockets in the UK will be spent on other goods and services.

Critically, the deflationary spiral also normally assumes an economy in a desperate situation – which is why there is concern in Europe – but the UK is achieving good levels of growth. So the risk of “paradox of thrift” is low, thanks to falling unemployment and positive news on GDP.

What will all this mean for commercial property? Let’s start with the bad news, then look at the good.

The new era of very low inflation is clearly not good news for tenants holding an RPI linked lease. Speaking in very broad brush strokes, many such leases in the retail sector are collared at 1.0% to 2.0%. With RPI at 1.6% and falling, some retailers are already faced with the rent collar working against them resulting in above inflation increases, and the number in this situation will grow in 2015.

While superficially this situation is good news for the landlord, the opposite could be true if it pushes frail retailers into administration, or prompts another wave of lobbying for monthly rents or even rent holidays. It may also encourage retailers to deliberately push customers towards non-store distribution, such as the internet, in order to further downsize on the high street. Particularly in regard to the banks’ high street networks this could be a concern.

So what’s the good news? The general boost to the economy from lower fuel and food bills is self-evident. In effect, the commodity exporting nations have been draining off ever larger sums of money from countries like the UK for several years, and now some of that gets rolled back. Ten of billions of pounds that would have been paid to trade partners now stays in the country, and is invested in productive capital or new employment. Thus occupier markets will gain.

Also we need to consider the yield and interest rate environment, particularly in the context of an increasingly international capital markets environment.

Rates are now very unlikely to rise in the UK this year, which given that property capital values are rising, creates a benevolent scenario for the real estate debtor.

Furthermore rates are negative in the Eurozone, Switzerland and Denmark, while 10 year bond yields are sub-1% in France, Germany, and again Switzerland. This should result in more cash looking for a high yielding home in 2015, and real estate tends to perform best in an economy that is growing. Forecasters generally expect the UK to outperform most large advanced economies (particularly those in Europe), so that makes British commercial property appear attractive.

Consequently, more foreign money targeting UK commercial property in 2015 looks an increasingly likely scenario. This should make for an interesting year in the commercial market, as a dismal year for the FTSE in 2014 could result in more domestic money favouring property unit funds.


While economic growth has slowed in recent months, Germany’s office market has remained robust. Indeed, increasing occupier demand for office space is likely to put upward pressure on rents in Germany’s major cities, particularly Frankfurt and Munich, as this year progresses. As a result, these cities are expected to outperform in the short-term. However, occupiers may be drawn to look outside of these cities where rental growth is relatively stable.

A combination of change of use developments (to residential or hotels) and the withdrawal of many offices from the market, has led to falling availability. A reduction in vacancy rates has ultimately caused prime rents to increase across the major cities – the highest rents being in Munich and Frankfurt, at €34.50 and €38.00 per sq m per month. Year-end take-up levels for the top five cities in 2014 are predicted to be in excess of 2.3 million sq m, once figures are finalised; in line with 2013’s figures.

With many Q4 transactions awaiting confirmation, full year transaction figures for German offices are expected to be approximately €16.5bn. The top five cities are projected to be in the region of €11.8bn – an increase of approximately 10% on 2013. National investors accounted for approximately half of all office transactions in the major cities, although the capital is beginning to see more international interest. In the next six to nine months, we expect international investors to focus increasingly on second and third tier cities where rental growth has yet to re-emerge.

Germany will continue to remain a “power house” as the second largest market for investment in Europe. It is considered a safe haven for investors with its steady rental growth, falling vacancy rates and stable yields.

Heena Kerai, Analyst, International Research, Knight Frank, commented; “Regardless of economic trends, German real estate continues to offer a good depth and breadth of opportunities for investors. Apart from the size of the market, key attractions include yield stability and the prospect of rental growth as the supply of prime office space continues to fall over the coming year.”

Joachim von Radecke, Partner, Head of German Desk, Knight Frank, commented; “We expect Germany to be once again one of the most sought after investment destinations in Europe in 2015, with an increase of transaction volumes and more international investors buying in Germany. Given the weight of capital trying to buy commercial real estate in Germany, we will see more investors shifting their focus from core to core+ and value add not just in the top 5 cities but also in second tier markets and therefore prices to increase, also helped by more attractive financing terms available on the market.


Hot on the heels of recent refurbishment activity, The Roast Cafe, now rebranded ‘The Riverside’ has extended its lease on the ground floor of No 1 Whitehall Riverside in Leeds.

Landlord NFU Mutual has recently concluded a £150,000 improvement programme of the building’s reception area delivering an improved arrival experience for visitors and existing occupiers.

David Hidderley, from NFU Mutual, commented: “I am delighted to have concluded the lease extension with The Riverside. This represents further commitment to our existing and future occupiers in an on-site facility which is widely used and valued.”

Matthew Firth, Manager of The Riverside, said, “Owing to greater demand for high quality food and drink on site, we have extended our lease in the building. The newly refurbished The Riverside is the perfect spot for breakfast in hurry, a morning meeting or a lunch with colleagues.  We can also host a variety of events from BBQ’s by the river, drinks events with a DJ or four course seated meals.”

Eamon Fox from Knight Frank, joint letting agent with JLL, concluded: “Recent lettings and lease extensions show the continuing expectations of occupiers for the highest quality buildings to deliver their goals. With further interest, we expect the building to be fully let in the very near future.”


CBRE Global Investors have successfully completed the sale of both Hareness Park, Aberdeen and SouthPoint Industrial Estate in Glasgow. Both sales are the first of their type since Scotland’s referendum in September 2014.

Hareness Park, a prime multi-let estate within the Altens outskirt of Aberdeen, was bought by Aberdeen Asset Management in December for £14.036 million, which reflects a net initial yield of 6.25%. The high quality estate is fully let and extends to 10, 668 sq m (114,828 sq ft).

Dixons Blazes Industrial Estate, known locally as SouthPoint, is located on the edge of Glasgow city centre, extending to 12, 900 sq m (138, 855 sq ft) and offering select asset management opportunities. The property was also sold in December to Citivale, in a joint venture with Luminar for £4, 140, 000, reflecting 8.66% and a capital value of £29.81 psf.

Alasdair Steele, Partner at Knight Frank, commented on both transactions “We are delighted with the end result of both Hareness Park and SouthPoint sales; the prices achieved reflect the quality of the respective assets and offer a positive indication of investor appetite for Scotland’s industrial sector going into 2015”.

Knight Frank represented CBRE Global Investors on both transactions, with Jones Lang LaSalle acting on behalf of Aberdeen Asset Management and BNP Paribas on behalf of Citivale.


LaSalle Investment Management (“LaSalle”), a leading global real estate investment manager, has announced that Marsh Corporate Services has taken new larger offices in Churchill House, its landmark office building in Cardiff City Centre.

Marsh, which is a global leader in insurance broking and risk management employing 27,000 people in more than 100 countries, has moved from existing offices in the building to a 6,147 square foot suite on the 4th floor.  The 10 year lease is at a rental based on £13.50 per square foot.

Paul Till, Head of Business Space at LaSalle Investment Management, said: “It is testament to the building’s popularity that Marsh Corporate Services has agreed to expand its floorplate at Churchill House. The property had previously been fully occupied but Marsh was able to quickly agree terms on the 4th floor suite once the previous tenant had vacated.”

John James, Director at Fletcher Morgan and Mark Sutton Associate at Knight Frank commented “The building’s location in Churchill Way, is very close to Queen Street Train Station, a multi storey car park and the city’s main bus network. The building’s location, good communications and overall standard make it a popular choice with occupiers. Refurbished to a high standard there is now just one office suite of 2,047 sq ft on the 1st floor available to let.”

LaSalle Investment Management was advised by joint agents Fletcher Morgan and Knight Frank, while Marsh was advised by Huw Thomas Commercial Property Consultancy.


The Commercial Property market in the EU and the Euro area is poised for positive growth in 2015 despite the backdrop of on-going economic uncertainty in the region, according to Knight Frank’s European Market 2015 Forecast report:

Office occupier markets are likely to continue to move in line with wider economic trends with the Nordic countries and the Baltics currently seeing a significant improvement in occupier sentiment, and the UK finally seeing a pick-up in its regional city markets.

The most encouraging trend is the rebound in some of the peripheral markets, Ireland and parts of Southern Europe, with Dublin and Madrid in particular recording solid rental increases in 2014 and further growth expected in 2015.

Darren Yates, head of global capital markets research, commented; “The really good news for both occupiers and investors is that rents in most markets remain lower than their pre-recession peaks – in some cases significantly below.  This should provide a further boost to activity in 2015, with more occupiers looking to take advantage of good deals, while investors will seek to cash in on better rental growth prospects as the economic outlook continues to improve.”

Despite the recent dip in economic performance, major French and German cities are also expected to perform well on the back of limited availability, with development yet to accelerate significantly in either country.

The Russia-Ukraine crisis meanwhile continues to weigh heavily on those countries and, while property markets in the wider Central and Eastern European region have remained relatively untouched by the conflict, plentiful supply has constrained rental growth in key cities such as Prague and Warsaw.

In the investment market, early indications show that transaction volumes for 2014 are likely to exceed the €160bn mark – around 10% up on 2013.  A significant amount of capital continues to target commercial real estate and our forecasts suggest a similar rate of growth in 2015, with total volumes expected to be in the range of €175-180bn.

All the main commercial sectors are attracting strong interest, while specialist sectors such as hotels, healthcare and student accommodation are becoming increasingly part of the mainstream property universe.

Andrew Sim, head of European Capital Markets, commented; “The forecasted 10% rise of commercial investment into European markets is a positive start for Q1 2015. We have witnessed some strong recovery in cities such as Madrid and Dublin and we are expecting demand to generally broaden out to smaller cities and investors looking to move increasing up the risk curve to target good quality secondary stock in addition to development opportunities.”


Knight Frank Edinburgh Commercial office is delighted to welcome Robyn MacKay to the Accounting department of our Property Asset Management Team.

Robyn comes to us from Consensus Capital Ltd and joins Angie Connolly.

Angie Connolly, Client Accountant from the Edinburgh Office Knight Frank, commented, “We are delighted to welcome Robyn to Knight Frank, I am sure she will provide invaluable support to the team and I look forward to working with her.”

UK regional office markets have seen subdued rental growth over the last few years. However, the broadening economic recovery is feeding through to improved occupier demand. This together with the diminishing availability of Grade A stock and lack of significant speculative development completions over the last few years is driving rental growth across the regions.
Matt Phillips, managing partner of the Knight Frank office in Cardiff said: “We expect to see strong rental growth in the majority of regional city centres over the next 12 months, with new development completions securing higher prime rental levels.
“In Cardiff, headline rents were £22.00 at the end of 2014 and we would expect to see these rise to £23.00 by the end of 2015. Meanwhile, vacancy rates will remain stable. This is, in part, driven by the quality of the new development currently under construction at Capital Quarter and Central Square.  Cardiff’s headline rental is still lower than other regional centres and looks well placed to see growth. The delivery of new occupiers into the city will be key in this regard.”
Manchester, Birmingham, Newcastle and Aberdeen will see the strongest growth while all other centres, apart from Sheffield, will see positive growth.
Prime headline rents in Manchester and Aberdeen are expected to reach record highs of £34.00 per sq ft by the end of 2015, representing corresponding increases of 10% and 6% over the year (see the chart above).
Birmingham offices will also see rents rise by 8% to a seven year high of £32 per sq ft. While we do not anticipate any rental growth in Sheffield in 2015, Sheffield rents are expected to rise more sharply up to £22.00 per sq ft by the end of 2016.
Given the diminishing availability of Grade A stock and lack of developments, vacancy rates are likely to fall or at least remain stable, with the exception of Aberdeen where the level of speculative development is higher.  We are also anticipating a slight softening of incentives over the next 12 months.
Louisa Rickard, associate, commercial research, Knight Frank, commented; “As economic growth spreads to the regions we expect to see prime office rents rise across regional city centres in 2015. Lack of supply at the prime end of the market will add further upward pressure on both prime and secondary rental growth.”


According to Knight Frank’s UK Retail Property Market Outlook 2015, dwindling supply of well-located stock will continue to drive South East and London rental growth, which will be factored into pricing by investors. Well-placed good secondary retail assets with solid demographics, will sell well.

Arguably, those schemes with the broadest consumer appeal will thrive at the expense of the poorer quality ones.  Key attributes could be the quality of tenant mix and accessibility, although the out-of-town market has moved steadily towards “fun shopping”.  As we have seen with high streets and shopping centres, the best out-of-town parks now provide an increased focus on a strong leisure and catering offer aimed at prolonging dwell times and boosting expenditure.

One potential cloud on the horizon –with the growth of online sales bringing store networks under ever increasing scrutiny, the forthcoming rush of lease expiries will provide retailers with an unprecedented opportunity to reduce property costs by downsizing their portfolios.  This is likely to reinforce the polarisation already being seen in the market, with secondary/weaker schemes suffering at the expense of the better schemes – bringing with it greater divergence in investment performance.  That said, while the rise of online shopping may result in smaller store portfolios, the growth in “click and collect” is helping to maintain the importance of the store.

Omni channel retailing will become the dominant norm in 2015. Occupiers will need to implement in store technology advancements in order to keep the consumer engaged and enhance the customer experience. Retailers should embrace strategies in which mobile, online and in-store experiences should complement, rather than compete with, one another.

Knight Frank predicts the first half of 2015 is likely to be dominated by uncertainty surrounding the general election; however, retail sales will receive a boost from a buoyant labour market, lower inflation on the back of the fall in oil prices. Slower but still positive house price growth will continue to support strong consumer confidence.

However, the retail market continues to be driven by structural change due to the growth of online shopping and profit margins for bricks-and-mortar retailers will continue to be squeezed by non-store sales and an increasingly internet savvy population.

The news that the Chancellor in his Autumn budget will cap the inflation-linked increase in business rates to 2% and undertake a full review of the structure of business rates is welcome news to the retail sector. However, fundamental changes need to be implemented going forward especially with consumer’s increasing preference to shop and buy online rather than in store.