NFL vs EPL

These new occupiers are increasingly driven by the

need to attract and retain talent. This is influencing the

type and quality of buildings and spaces they occupy.

Buildings need to be sexy, not just efficient. This trend

is supported by CoStar data, which reveals that the

majority of space leased by banking and finance and

business and professional services in the big six U.S.

cities is prime, equivalent to the CoStar 4 & 5 Star

rating (see Exhibit 3).

Interestingly, space leased in the U.S. has been

relatively better quality than that occupied in the UK

in recent years. Moreover, the majority of leased TMT

space in the UK cities has been non-prime – 1 to 3 Star

– rather than the 4 & 5 Star buildings favoured in the

U.S. This reflects little development in the UK since

2008 and the consequential lack of new space.

The relative lack of available prime space in UK cities

has forced companies, especially in the TMT sector,

to occupy older stock. Developers have responded

by upgrading older buildings in CBD and city fringe

locations. We have noted a significant increase in

investment targeting UK buildings with refurbishment

potential. These refurbishments and redevelopments

have often formed part of wider economic and urban

regeneration schemes designed to create the kind of

places where people want to live and work. This is

an important attractor to new businesses looking to

relocate.

The lack of prime space in UK cities has kept average

rents for the TMT sector below those achieved in most

of the U.S. cities in our list (see Exhibit 4). San Francisco

is the most expensive market by far ($49.7/SF) and

Los Angeles ($12.6/SF) the cheapest. Although Bristol

is the most expensive UK city, the spread between it

and the cheapest – Leeds – is narrow. Consequently,

these cities cannot rely on price alone to compete

against each other. Hence, the need to offer other

attractions, such as the availability of skilled workers

and good quality of life.

The expansion of the TMT sector has meant that

average rents have increased markedly in a number

of markets. San Francisco rents have shot up 25% on

average (see Exhibit 5). Rent increases have been

much more subdued amongst the UK cities, reflecting

the preponderance of 1 to 3 Star buildings. This has

boosted the attractiveness of these cities, especially

for start-ups and SMEs that want low rents now but

have high growth potential. This is how clusters often

emerge.

EXHIBIT 3: QUALITY OF SPACE LEASED, 2014–15

EXHIBIT 4: TMT AVERAGE ACHIEVED RENTS $U.S., 2014–15

EXHIBIT 5: TMT AVERAGE ANNUAL RENTAL GROWTH,

2011–15

Banking &

Finance

Professional &

Business Services

TMT

1-3 Star

27%

46%

54%

4&5 Star

73%

54%

46%

Banking &

Finance

Professional &

Business Services

TMT

1-3 Star

21%

31%

36%

4&5 Star

79%

69%

64%

SOURCE: COSTAR GROUP AS OF 16Q1

12.63

18.93 20.68 22.90 23.65 24.36 24.94 25.90 28.33 29.33 29.37

46.69

Los Angeles

Chicago

Leeds

San Francisco

Washington D.C.

Boston

Seattle

Bristol

Glasgow

Manchester

Birmingham

Rent/SF

Edinburgh