From public sector spending cuts and agency takeovers to renewed buying activity and resurrected schemes, Lucy Barnard and Alex Peace take a look at the past 12 months
The past year has been one of uncertainty, economically, politically and socially. As 2010 started, the UK was just pulling out of recession after a truly painful 2009 in which more than 7% of jobs across the property industry were cut and average salaries fell 5% as firms struggled to cut costs.
After contracting for six consecutive quarters – the longest period since records began in 1955 – the economy began to grow in the fourth quarter of 2009. But 2010 has been far from an easy ride. According to the Office of National Statistics, GDP growth in the UK remained low at 0.4% in Q1, 1.2% in Q2 and 0.8% in Q3 and the country continued to fear a so-called “double dip”.
Within the property industry, all eyes remained on the banks to find out how they would deal with a commercial property debt pile which stood at £228.3bn at the start of 2010.
The visible casualties have been relatively thin on the ground as the industry continued to “extend and pretend”. However, those that fell include Thornfield Ventures, Kilmartin and Targetfollow. Scottish developer Elphinstone Estates called in administrators in October. Elsewhere, Ireland’s “bad bank” Nama started to take over distressed property loans from the country’s nationalised banks.
But the banks were not the only ones making cuts. At the start of the year, the Labour government was already engaged in cost cutting, and the situation was set to get worse. The general election in May was fought between a Tory party eager to cut the £156bn budget deficit as soon as it could and a Labour government hoping to spread the pain over a number of years. The resulting Conservative-Liberal Democrat coalition announced its £81bn cuts in public spending in October in its Comprehensive Spending Review, heralding a period of public sector job losses and the dumping of office space. Even Arcadia Group’s Sir Philip Green got in on the act, advising the government on how to save money on its property holdings.
Nonetheless, the fire sales which a flurry of newly formed vulture funds were expecting did not materialise. As commercial property values rose throughout the year and the pound remained weak against the dollar, investors began to queue to get their hands on prime property. Canadian pension funds showed their voracious appetite for deals, investing in properties such as 10 Gresham Street, EC2, and British Land’s Cheesegrater in Leadenhall, EC3, as well as the Crown Estate’s planned regeneration of its 15-acre St James’s holdings, SW1. The Norwegian Government Pension Fund took a £448m stake in the Crown’s Regent Street partnership.
By the summer, a slew of mothballed development projects were restarted as developers decided the worst was over and voted with their feet. Land Securities went back to work on its Trinity Leeds shopping centre and the Walkie Talkie office tower in the City; British Land got on with its 740ft Cheesegrater tower; and, in December, Kaupthing Bank, Aviva Investors and Exemplar Properties set up a joint venture to finally develop the former Middlesex Hospital site in W1.
But, despite the thaw, conditions have remained tough, especially for those outside London. House prices looked wobbly and the number of empty shops on Britain’s high streets rose to nearly one in eight, with Grimsby the worst affected.
Against this backdrop, a number of strategic mergers within the agency world took place. At the start of the year, 285-year-old agency Drivers Jonas signed a deal to merge with financial services giant Deloitte, while Capita Group bought NB Real Estate, formerly Nelson Bakewell, for £10m.
But for others the future lay in separation. In February, Richard Auterac, Peter Cunliffe and Charlie Powter quit Jones Lang LaSalle to set up their own auction house, Acuitus.
Meanwhile, in the propco world, Liberty International shareholders decided that the future lay in splitting the listed retail company into two entities: Capital & Counties and Capital Shopping Centres.
The latter remains a takeover target for US retail giant Simon Property Group, despite having struck a deal with Peel Holdings boss John Whittaker to take ownership of the Trafford Centre in Manchester in return for a stake in CSC. And then there was listed developer Minerva, which seemed to spend most of the year rebuffing the advances of South African entrepreneur Nathan Kirsh’s investment vehicle KiFin – a saga which looks set to run and run in 2011.
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