Capital City. Forward thinking for a global city

Cushman & Wakefield's Annual London Markets Conference 2013

Occupier dynamics are shifting, the demand from new sectors, such as Media & Technology is outpacing demand from London’s traditionally dominant Financial sector. How will London’s commercial real estate industry adapt? What can developers and landlords do to stay ahead of the competition?

As global economic uncertainty continues, London remains a safe haven for investors as equity continues to pour in from overseas. Will this trend continue and will the new investment hotspots bring real returns to investors?

Presentations:

London: City Of Reinvention?
Professor Neil Gibson
Special Advisor To Oxford Economics

London: A Melting Pot For Global Capital
Andrew Thomas
Partner, London Investment
Cushman & Wakefield

2. LONDON:CITY OF REINVENTION?
PROFESSOR NEIL GIBSON
SPECIAL ADVISORTO OXFORD ECONOMICS

3. LONDON MARKETS CUSHMAN& WAKEFIELD
2
UNDERWAY –BUT FAR FROM RAPID
WORLD TRADE % GROWTH (YEAR ON YEAR), 1990 - 2022 UK GDP % GROWTH (YEAR ON YEAR), 1990 -2022
GDP
-0.3% IN Q4 2012
SOURCE: OXFORD ECONOMICS
-10
-5
0
5
10
15
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
(%)
Forecast
-6
-4
-2
0
2
4
6
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
(%)
Forecast

4. LONDON MARKETS CUSHMAN& WAKEFIELD
3
LITTLE IMPETUS HEADING INTO 2013
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1997-
2007
2010 2011 2012 2013 2014
Consumer spending Investment
Govt. consumption Inventories
Net trade

%pts

UK: CONTRIBUTIONS TO GDP GROWTH
SOURCE: OXFORD ECONOMICS

5. LONDON MARKETS CUSHMAN& WAKEFIELD
4
BUT LABOUR MARKET RECOVERING WELL
TOTAL EMPLOYMENT, UK, 1998 - 2022 TOTAL GVA, UK, 1998 - 2022
2 MILLION ADDITIONAL JOBS FORECAST
BETWEEN 2012 -2022
£396BN ADDITIONAL GVA FORECAST
BETWEEN 2012 -2022
28000
29000
30000
31000
32000
33000
34000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(000s)
Forecast
Loss of 698 000 jobs
900000
1000000
1100000
1200000
1300000
1400000
1500000
1600000
1700000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(£m 2009 prices)
Forecast
Loss of £62bn
SOURCE: OXFORD ECONOMICS

6. LONDON MARKETS CUSHMAN& WAKEFIELD
5
EXPLAINING THE JOBS NO GROWTH PUZZLE
-1
0
1
2
3
4
5
19751980198519901995200020052010
-3.25
-1.25
0.75
2.75

GDP growth, % year
Source : Haver Analytics / Oxford Economics
GDP growth
(LHS)
Employment growth
(RHS)
Employment growth, % year
75
80
85
90
95
100
105
110
115
120
199519971999200120032005200720092011

2009=100
Source : Haver Analytics
Actual
Pre-recession
trend
14%
EXPLAINING THE PARADOX
•Recession not as severe as recorded?
•Cash rich corporates hoarding labour
•Greater part time working / temporary contracts
•Increased self employment levels
•Possibly financial sector effects
•Earnings growth low – making labour ‘cheaper’
•Low interest rates have made money cheaper (though not for all)
UK: GDP & EMPLOYMENT GROWTH (5YR MA) UK: OUTPUT PER WORKER

7. LONDON MARKETS CUSHMAN& WAKEFIELD
6
INFLATION REMAINED STUBBORNLY HIGH IN
2012H2
0
1
2
3
4
5
6
20052006200720082009201020112012

% year

Transport
Food
Housing
costs
Other
`
UK: CONTRIBUTIONS TO CPI INFLATION
SOURCE: OXFORD ECONOMICS / HAVER ANALYTICS
NOTE. OTHER IS MADE UP OF: ALCOHOLIC BEVERAGES, TOBACCO & NARCOTICS, CLOTHING AND
FOOTWEAR, FURNITURE, HOUSEHOLD EQUIPMENT , HEALTH, COMMUNICATION, RECREATION AND
CULTURE, EDUCATION, HOTELS, CAFES & RESTAURANTS, MISCELLANEOUS GOODS AND SERVICES

8. LONDON MARKETS CUSHMAN& WAKEFIELD
7
BUT SET TO MODERATE AND REAL INCOMES
SHOULD START TO RISE
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
200220032004200520062007200820092010201120122013
% year
CPI inflation

Average earnings
Forecast

UK: EARNINGS & INFLATION
SOURCE: OXFORD ECONOMICS

9. THE LONDON OUTLOOK

10. LONDON MARKETS CUSHMAN& WAKEFIELD
9
LONDON LEADING THE UK
AVERAGE % GVA GROWTH, UK REGIONS, 2013 - 2018
Source: Oxford Economics
London is
expected to
account for
21.8%
of total UK
GDP in 2013
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Greater London
South East
Eastern
UK
South West North West
West Midlands
East Midlands
Yorkshire &
Humber
Scotland
Wales
Northern Ireland
North East
(%)
GVA
Employment
SOURCE: OXFORD ECONOMICS

11. LONDON MARKETS CUSHMAN& WAKEFIELD
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LONDON JOBS OUTLOOK VERY PROMISING
TOTAL EMPLOYMENT, LONDON, 1998 -2022
329 000 ADDITIONAL JOBS FORECAST IN LONDON
BETWEEN 2013 -2018
EMPLOYMENT GROWTH, UK REGIONS, 2003 -2018
LONDON IS EXPECTED TO ACCOUNT FOR 16% OF
TOTAL UK EMPLOYMENT IN 2013
4000
4250
4500
4750
5000
5250
5500
5750
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(000s)
Forecast
Loss of 115 000 jobs
(000s) % (000s) % (000s) %
South East 150 3.5 154 3.5 235 5.1
Greater London 293 6.3 150 3.0 329 6.5
Eastern 162 5.9 -17 -0.6 142 5.0
South West 145 5.6 -25 -0.9 95 3.5
West Midlands 51 1.9 -34 -1.3 75 2.8
East Midlands 128 6.2 27 1.2 68 3.1
Yorkshire & Humber 102 4.1 -35 -1.4 70 2.8
North West 81 2.4 -74 -2.2 105 3.1
North East 63 5.7 -72 -6.1 15 1.4
Wales 61 4.6 -11 -0.8 22 1.6
Scotland 153 5.9 -104 -3.8 66 2.5
Northern Ireland 63 7.8 -65 -7.5 15 1.9
UK 1450 4.7 -106 -0.3 1237 3.9
2003 - 2008 2008 - 2013 2013 - 2018
SOURCE: OXFORD ECONOMICS
NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK

12. LONDON MARKETS CUSHMAN& WAKEFIELD
11
BUT UNEMPLOYMENT SET TO FALL VERY SLOWLY
UNEMPLOYMENT, LONDON, 1998 -2022 UNEMPLOYMENT, UK REGIONS, 2003 -2018
UNEMPLOYMENT WILL FALL BY 27 800 BETWEEN 2013 -
2018
100
120
140
160
180
200
220
240
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(000s)
Forecast
Unemployed increased by
90 000 people
(000s)pp change(000s)pp change(000s)pp change
South East 1 0.0 70 1.4 -19 -0.5
Greater London -33 -0.8 87 1.5 -28 -0.7
Eastern 6 0.1 55 1.8 -13 -0.6
South West -1 -0.1 42 1.5 1 -0.1
West Midlands 11 0.3 59 2.0 -14 -0.6
East Midlands 3 0.0 49 2.0 -10 -0.5
Yorkshire & Humber 4 0.0 77 2.8 -7 -0.4
North West 8 0.1 82 2.3 -22 -0.7
North East 1 -0.2 40 3.5 -4 -0.4
Wales 1 -0.1 35 2.3 -6 -0.5
Scotland -21 -0.9 62 2.3 -15 -0.6
Northern Ireland -7 -1.0 37 4.4 -2 -0.3
UK -27 -0.2 694 2.0 -140 -0.6
2013 - 20182003 - 2008 2008 - 2013
LONDON IS EXPECTED TO ACCOUNT FOR 14% OF TOTAL
UK UNEMPLOYMENT IN 2013
SOURCE: OXFORD ECONOMICS
NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK

13. LONDON MARKETS CUSHMAN& WAKEFIELD
12
CLOSE TO A HALF A MILLION MORE RESIDENTS
PROJECTED
NATURAL INCREASE AND MIGRATION, LONDON, 1998 - 2022POPULATION, UK REGIONS, 2013 -2018
000s %
South East 298 3.4
Greater London 470 5.6
Eastern 261 4.4
South West 151 2.8
West Midlands 148 2.6
East Midlands 156 3.4
Yorkshire & Humber 163 3.0
North West 149 2.1
North East 43 1.7
Wales 61 2.0
Scotland 92 1.7
Northern Ireland 55 3.0
UK 2047 3.2
2013 - 2018
-20
-10
0
10
20
30
40
50
60
70
80
90
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(000s)
Natural Increase
Migration
Forecast
SOURCE: OXFORD ECONOMICS
NOTE: TOP 2 REGIONS SHADED IN YELLOW AND BOTTOM 2 REGIONS SHADED IN PINK

14. LONDON MARKETS CUSHMAN& WAKEFIELD
13
JOB GROWTH ACROSS LONDON –BUT PACE
VARIES
% AVG. EMPLOYMENT GROWTH, LONDON LAs, 2013 - 2018
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Tower Hamlets
Southwark
Islington
City of London
Hounslow
Westminster
Hammersmith and Fulham
Camden
Merton
Richmond upon Thames
London Total
Hackney
Wandsworth
Hillingdon
Barnet
Kingston upon Thames
Newham
Lambeth
Kensington and Chelsea
Greenwich
Ealing
Bromley
Bexley
Sutton
Haringey
Enfield
Havering
Barking and Dagenham
Redbridge
Brent
Harrow
Lewisham
Waltham Forest
Croydon
% avg growth
SOURCE: OXFORD ECONOMICS

15. LONDON MARKETS CUSHMAN& WAKEFIELD
14
RUNNING A SURPLUS (UNLIKE THE REST OF THE
UK)
FISCAL BALANCE, LONDON AND REST OF UK, 2000 -2018
-150
-130
-110
-90
-70
-50
-30
-10
10
30
50
1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
£bn
London
Rest of UK
Forecast
SOURCE: OXFORD ECONOMICS
NOTE: ESTIMATES ARE A MIDPOINT MEASURE OF RESIDENT AND WORKPLACE GVA

16. WINNERS AND LOSERS –THE SECTORAL PICTURE

17. LONDON MARKETS CUSHMAN& WAKEFIELD
16
SERVICE SECTOR DOMINATING THE JOB MARKET
SECTORAL EMPLOYMENT GROWTH, LONDON, 2003 -2018
A MARKED SHIFT
A FORECAST RISK?
SCOPE FOR BETTER?
2003 - 20082008 - 20132013 - 2018
Agriculture, forestry and fishing 0 -1 0
Mining and quarrying 0 -1 -1
Manufacturing -39 -22 -9
Electricity, gas, steam 0 0 -1
Water supply; sewerage 2 4 -1
Construction 53 -4 28
Wholesale and retail -12 -41 47
Transportation and storage 12 -12 21
Accommodation and food 15 35 34
Information and comms 29 33 32
Financial and insurance activ. 9 4 2
Real estate activ. 22 4 13
Professional, scientific and technical105 53 90
Admin and support 41 27 71
Public admin and defence -12 -13 -26
Education 21 34 -12
Human health and social work 23 36 -5
Arts, entertainment and rec. 19 5 25
Other service activ. 4 9 19
Total 293 150 329
(000s)
SOURCE: OXFORD ECONOMICS
NOTE: INCLUDES SELF EMPLOYMENT, TOP 2 PERFORMING SECTORS SHADED IN YELLOW
AND LOWEST PERFORMING SECTORS SHADED IN PINK

18. LONDON MARKETS CUSHMAN& WAKEFIELD
17
LAST TEN YEARS HAS EVIDENCED LONDON’S
DYNAMISM
TOP 10 2 DIGIT GROWTH SECTORS, LONDON, 2002 - 2012
SOURCE: OXFORD ECONOMICS
NOTE: GREEN SHADING DENOTES THOSE SECTORS IN THE PUBLIC SECTOR
TOP 10 2 DIGIT SIC SPECIALISMS, LONDON, 2012
SOURCE: OXFORD ECONOMICS
NOTE: LQ ANALYSIS ONLY ACCOUNTS FOR SECTORS WITH A MINIMUM
OF 1000 EMPLOYEES
000s %
Food and beverage 57 23.5
Human health 55 22.8
Head offices 54 55.9
Head offices of auxiliary finance services53 49.0
Computer programming 47 44.6
Social work 30 29.3
Real estate 26 39.3
Legal and accounting 25 13.8
Security and investigation 19 47.1
Advertising and market research 19 29.8
Employment growth LQs
Programming and broadcasting 4.1
Motion picture, video and tv 3.7
Air transport 3.2
Advertising and market research 2.4
Publishing 2.4
Head offices of auxiliary finance services2.4
Creative, arts and entertainment 2.3
Financial services 2.1
Information services 2.0
Remediation activities 1.8

19. LONDON MARKETS CUSHMAN& WAKEFIELD
18
A KEY DESTINATION FOR A DIVERSE GRADUATE
POOL
% OF GRADUATES FOR WHOM ‘FIRST EMPLOYMENT DESTINATION’ IS LONDON, 2007 - 2009
SOURCE: HESA
NOTE. HESA FIRST DESTINATIONS SHOWING PROPORTION WHO HAVE TAKEN THEIR FIRST JOB IN LONDON WITHIN 6 MONTHS OF GRADUATING. THIS DATA DOES NOT
INCLUDE THOSE UNEMPLOYED, TRAVELLING OR EMBARKING ON FURTHER STUDY. TOP 2 KEY SUBJECTS ARE SHADED IN YELLOW AND BOTTOM 2 KEY SUBJECTS ARE SHADED
IN PINK
Medicine & dentistry 15.3 11.6
Subjects allied to medicine 11.3 11.6
Biological sciences 10.3 10.5
Agri & related subjects 6.5 3.3
Physical sciences 11.1 5.3
Mathematical sciences 18.9 14.1
Computer science 18.5 14.0
Engineering & technology 13.0 8.0
Architecture, building & planning 21.4 14.9
Social studies 21.1 14.3
Law 12.0 11.4
Business & admin studies 20.9 16.4
Languages 17.2 12.4
Historical & philosophical studies15.1 12.0
Education 5.5 13.7
Combined 10.7 8.0
% total working in London 14.4 12.6
Russe ll
Group
Other

20. LONDON MARKETS CUSHMAN& WAKEFIELD
19
TMT SECTOR PROJECTED TO CONTINUE RECENT
GROWTH
TMT SECTOR & TOTAL EMPLOYMENT, LONDON, 1998 - 2022The TMT sector has become an
important part of the London
economy.
The sector accounts for
more than
384,000 jobs across London
,
more people are employed in the
sector today than at the
height of
the dot- com boom.
TMT is a larger employer in the
capital than financial services or
hotels & catering, and is one of the
few sectors to have achieved strong
growth since London’s economy
emerged from the 2009 recession.
3500
4000
4500
5000
5500
6000
6500
7000
250
300
350
400
450
500
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(000s)(000s)
TMT (LHS)
London total employment (RHS)
Forecast
SOURCE: OXFORD ECONOMICS
NOTE. TMT SECTOR: PUBLISHING, MOTION PICTURE, VIDEO / TV, PROGRAMMING,
BROADCASTING, TELECOMMS, COMPUTER PROGRAMMING, INFORMATION SERVICES

21. DRIVERS AND RISKS –IDENTIFYING THE CRITICAL FACTORS

22. LONDON MARKETS CUSHMAN& WAKEFIELD
21
KEY DRIVERS OF SUCCESS
•World trade remains crucial –outlook strong, but not without risks
•Skills and attractiveness –remaining a draw for people (not just the ‘suits’)
•More capacity coming on-stream will be critical as will improved access and travel times
•Dynamism is key –changing what the economy does. People key to this –but regulation /
planning all play a part
•Image and reputation –still matters and remains strong
•Security–of place / technology / legal protection

23. LONDON MARKETS CUSHMAN& WAKEFIELD
22
KEY RISKS
•Competitionfrom new global centres
•Connectivity, esp. to new markets (air access)
•Rising cost base creating social disharmony and diverting inward investment of people
and capital
•Out-workings of the global financial crisis may yet take a larger toll
•Regulationand uncertaintyover European relationship
•Olympic legacy – ensuring the story continues and does not become a story of missed
opportunity (no sign as yet of this)

24. LONDON MARKETS CUSHMAN& WAKEFIELD
23
SUMMARY
•The London economy has proven itself time and time again as being dynamic, decisive
and successful
•It continues to do so with the labour market back above pre recession peaks and
new specialisms and sectors emerging
•Key to success are the organisationsand, crucially, the people
•Its draw as a global city to visit, work in, trade with, have a base in remains strong
•But it is not infallible –complacency is a risk. Policy and legal environment must remain
supportive of dynamism. Access and congestion remain important factors and cognisance
of competition important to trumpet London's’ key strengths and identify comparative
(and potential) weaknesses

25. LONDON: A MELTING POT FOR GLOBAL CAPITAL
ANDREW THOMAS
PARTNER, LONDON INVESTMENT
CUSHMAN & WAKEFIELD

26. LONDON MARKETS CUSHMAN& WAKEFIELD
25
TOP 10 CITIES FOR TOTAL INVESTMENT IN 2012
(EX. DEV.)
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00
Seattle
Chicago
Washington
Paris
Hong Kong
San Fransisco
Tokyo
LA
London
NYC
US $ Billion
SOURCE: RCA/CUSHMAN & WAKEFIELD

27. LONDON MARKETS CUSHMAN& WAKEFIELD
26
TOP 10 CITIES FOR FOREIGN INVESMENT IN 2012
(EX. DEV.)
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00
Warsaw
Hong Kong
Frankfurt
Berlin
SF Metro
Sydney
Tokyo
NYC Metro
Paris
London Metro
US $ Billion
SOURCE: RCA/CUSHMAN & WAKEFIELD

28. LONDON MARKETS CUSHMAN& WAKEFIELD
27
CROSS-BORDER INVESTMENT VOLUMES
(ALL SECTORS)
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
US $ Billion
London
Paris
New York
Tokyo
Sydney
SOURCE: RCA/CUSHMAN & WAKEFIELD

29. LONDON MARKETS CUSHMAN& WAKEFIELD
28
YIELD LEVELS
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Month End Rate
Swap -10 year
3 month
interbank
West End Office
City office
SOURCE: RCA/CUSHMAN & WAKEFIELD

30. LONDON MARKETS CUSHMAN& WAKEFIELD
29
REQUIRED RETURNS BY OFFICE MARKET
0%
1%
2%
3%
4%
5%
6%
Hong Kong Munich Singapore London Zurich New York Tokyo Stockholm Toronto Paris
Total Return Required by Year
TOP GLOBAL OFFICE MARKETS
Required Return
Net yield
SOURCE: RCA/CUSHMAN & WAKEFIELD

31. LONDON MARKETS CUSHMAN& WAKEFIELD
30
EXCHANGE RATE MOVEMENTS
100
120
140
160
180
200
220
240
1.0
1.2
1.4
1.6
1.8
2.0
Yen per GBP
USD/Euro per GBP
CURRENCY -RATES PER POUND
USD
Euro
Yen
SOURCE: RCA/CUSHMAN & WAKEFIELD

32. LONDON MARKETS CUSHMAN& WAKEFIELD
31
PRIME OFFICE RENTAL GROWTH IN LONDON
$0
$20
$40
$60
$80
$100
$120
$140
PRIME HEADLINE RENTS -£/SQFT/YR
City
West End
SOURCE: RCA/CUSHMAN & WAKEFIELD

33. LONDON MARKETS CUSHMAN& WAKEFIELD
32
SOVEREIGN WEALTH FUNDS
TOP 20 GLOBAL SOVEREIGN WEALTH FUNDS
$0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00
Abu Dhabi -Mubadala Development Company
South Korea - Korea Investment Corporation
Algeria -Revenue Regulation Fund
Kazakhstan - Kazakhstan National Fund
Libya - Libyan Investment Authority
Abu Dhabi -International Petroleum Investment …
Dubai -Investment Corporation of Dubai
Australia - Australian Future Fund
Qatar - Qatar Investment Authority
China -National Social Security Fund
Russia - National Welfare Fund
Singapore -Temasek Holdings
Singapore -Government of Singapore Investment …
Kuwait - Kuwait Investment Authority
China -Hong Kong Monetary Authority
China -China Investment Corporation
Saudi Arabia -SAMA Foreign Holdings
China -SAFE Investment Company
Abu Dhabi -Abu Dhabi Investment Authority
Norway - Government Pension Fund
Total assets US $ Billion, January 2013
SOURCE: SOVEREIGN WEALTH FUND INSTITUTE

34. LONDON MARKETS CUSHMAN& WAKEFIELD
33
THE NEW WORLD PERSPECTIVE

35. LONDON MARKETS CUSHMAN& WAKEFIELD
34
THE ‘NEW’ LONDON
GREENWICH PENINSULA EARLS COURT
NINE ELMS

36. LONDON MARKETS CUSHMAN& WAKEFIELD
35
SOME FINAL THOUGHTS...
London has the trick of making its past, its long indelible past, always a
part of its present. And for that reason it will always have meaning for
the future.
Anna Quindlen, American Journalist
I want you to know that I have nothing against Orlando, though you
are, of course, far more likely to get shot or robbed there than in
London.
Boris Johnson, Mayor of London
“
“
“
“