Jones Lang La Salle Corporate Occupier Conditions Q4 2011

EMEA Corporate Occupier Conditions - Q4 2011

Western Europe: Corporate Occupier Conditions

Falling sentiment increases pressure on CRE teams

2 On Point • EMEA Corporate Occupier Conditions – Q4 2011

WESTERN EUROPE: Corporate Occupier Conditions

The fragility of the economic recovery has been in the spotlight since late July. Sovereign debt problems and the risk of contagion has brought heightened turmoil in the financial markets and is weighing down on consumer and business confidence. Regional economic disparities persist with marked contrasts between Germany and the Southern European economies. The continued need for fiscal consolidation in most countries and weak global recovery suggests growth will be slow and moderate in 2012 with uncertainties over the future outlook remaining.

Demand for office space across Europe actually improved q-on-q with 2.9 million sq m of take-up across the continent, representing an increase of 6% q-on-q and 16% on the same period a year ago. Western European markets contributed to this improved picture with good quarterly volumes being recorded in Brussels, Hamburg and Paris. We would however caution that many of the deals signed during Q3 occurred early in the quarter and were founded on negotiations that commenced during Q2 when sentiment was stronger.

There was no change to the overall vacancy rate in Western Europe with only minor increases being experienced in Dublin and Brussels (+10bps). This was offset by decreases of -10bps in the The Hague and Utrecht. We expect vacancy rates to

remain stable into and throughout 2012, reflecting a two tiered market of limited Grade A availability and a plentiful supply of lower quality stock which keeps vacancy rates inflated. Limited choice of high quality stock is being sustained by an impoverished development pipeline with Q3 completion volumes at levels not seen since the mid 1990s. The economic backdrop suggests further downside risk on development completions, with the prospects of current development projects being cancelled or postponed significantly heightened.

Aggregate European prime rents hardly changed during Q3 2011 although there was variance in performance across Western Europe. Prime rents increased in Stockholm and The Hague (2.4% q-on-q), Hamburg (2.2%) and Milan (1.9%) whereas rents decreased in Brussels (-3.2%), Dublin (-3.0%), Madrid (-1.9%) and Edinburgh (-1.8%). All other Western European markets saw prime rents unchanged q-on-q.

Exhibit 10: Western Europe Office Occupier Clock

Rental GrowthSlowing

RentsFalling

Rental GrowthAccelerating

RentsBottoming Out


RentsFalling


RentsBottoming Out


RentsFalling


RentsBottoming Out

AthensAthensAntwerp, Barcelona, LisbonAntwerp, Barcelona, LisbonBrussels, Dublin, Edinburgh, Leeds, MadridBrussels, Dublin, Edinburgh, Leeds, Madrid

RomeRomeBirmingham, Bristol, Cardiff, Frankfurt,GlasgowBirmingham, Bristol, Cardiff, Frankfurt,Glasgow

Manchester, Western CorridorManchester, Western Corridor

Copenhagen, MilanCopenhagen, Milan

Gothenburg, Hamburg, MunichGothenburg, Hamburg, Munich

Düsseldorf, Geneva, Lyon,Stockholm, Stuttgart

Düsseldorf, Geneva, Lyon,Stockholm, Stuttgart

ParisParis

Helsinki, London West EndHelsinki, London West End

London CityLondon CityOslo, ZurichOslo, Zurich

MalmoMalmoAmsterdam, Eindhoven, Luxembourg,Rotterdam, The Hague, UtrechtAmsterdam, Eindhoven, Luxembourg,Rotterdam, The Hague, Utrecht

Berlin, Cologne Berlin, Cologne

On Point • EMEA Corporate Occupier Conditions – Q4 2011 3

Amsterdam

Cost: € 335 / sq m Competition: 57,000 sq m Choice: 17.1%

Occupier activity picked up slightly in Q3, with leasing volumes reaching approximately 57,000 sq m. Volumes were driven by a number of large transactions, from a wide range of sectors, in the city centre and Zuidas districts, with >2,000 sq m transactions accounting for around 60% of activity. The largest deal was recorded in the city centre, where Booking.com signed a lease for 12,500 sq m of prime office space. Competition is strongest for prime space in areas with good transport links and close proximity to amenities. More peripheral locations such as parts of South East and Sloterdijk have become somewhat less desirable, with these two districts accounting for around 50% of total vacancy. Whilst overall supply remained stable over the quarter at around 1.1 million sq m, choice increased marginally in secondary locations. The overall vacancy rate remains relatively high at 17.1%. With the majority of moves involving a ‘trade up’ in terms of building quality; the amount of relatively old, out-of-date stock on the market continues to increase. Prime rents remained stable at around €280 - €335 / sq m per annum. Costs in peripheral locations are somewhat lower ranging between €175 - €215 / sq m per annum. Rent free periods remain the most commonly used incentive, with 12 months rent free on a 5-year lease obtainable in large parts of the market.

Antwerp


Occupier activity in Q3 reached 30,710 sq m across 30 transactions. Deals were driven by the public sector with the two largest transactions accounting for 65% of total take-up. Year to date activity fell 22% compared to the equivalent period last year. After a strong 2010, occupier activity for 2011 as a whole is expected to be near 10-year average levels. Choice decreased slightly due to the lack of completions this year, combined with sustained demand. Over 2011, overall choice in Antwerp fell from 12.9% in Q1 to 11.5% in Q3. Development activity is expected to remain very low over the next few years. Just one project of 5,900 sq m is expected to be delivered speculatively during Q4 2011 in the Ring district. A further two speculative projects are expected to deliver a total of 15,000 sq m in 2012. Costs remained stable over the third quarter in all submarkets. The prime rent currently stands at €145 per sq m for the Center, and at €136 per sq m in the Ring district. Only very limited rental growth is anticipated, driven primarily by supply shortages for the best space.

Athens

Cost: € 270 / sq m Competition: n/a Choice: 15.8%

GDP contracted by 3.5% in 2010 according to Eurostat and the latest forecasts suggest this trend is likely to continue this year albeit with a rather broad range, between -3.5% (EU) and -5.9% (National Bank of Greece). Records from Global Insight show severe increases in unemployment of around one in three people aged between 15 and 29 years being unemployed. Choice in the market increased, with a vacancy rate of 15.8%, up 13% compared to the equivalent period last year. The cost of prime space continued to fall and compared to pre crisis levels are down approximately 41% at €270 per sq m. The highest rents continue to be found in the CBD but very few transactions have been recorded given the current climate. Occupier activity has increased more in the north of Athens and top rents here are €216 per sq m which reflects a 5.3% drop on the previous year. Corporate occupiers relocating to the Northern submarkets are driven almost exclusively by cost cutting objectives adding momentum to buildings along or off the National Motorway.

Barcelona

Cost: € 225 / sq m Competition: 60,487 sq m Choice:13.4%

Demand levels in Q3 reached 60,487 sq m, up 19% q-on-q and up 2% on the equivalent quarter last year. Despite the difficult economic situation, demand levels in Barcelona remain strong and the 250,000 sq m forecast for Barcelona at the start of the year remains a realistic figure. On the supply side vacancy rates have begun to trend downwards and stood at 13.4% at end Q3. No speculative development is due to come to the market by the end of 2011, reducing further the choice of new space. Rental costs remained stable during Q3, largely due to a lack of rental evidence, however our rental outlook has been modified and a gentle slowdown in costs is now expected to continue into 2012.


Berlin

Cost: € 252 / sq m Competition:129,500 sq m Choice: 8.8%

Competition continues to strengthen. Over 410,000 sq m of deals have been recorded in the first three quarters of 2011, the highest volume of the last 10 years and 40% ahead of 2010’s total and 25% ahead of the five year average. This was primarily driven by deals in the 1,000-1,500-sq m segment and from activity in the business service sector (25% of volumes). Another strong quarter of activity can be expected in Q4. This will present further challenges to occupiers with overall vacancy remaining at 8.8% - the lowest rate for three years. Space is most freely available in the Innercity East and Innercity West sub-markets, where 41% of all supply is based, but most of this space is of average quality. Both the prime rent and the weighted average rent increased significantly year on year. By the end of the year, we expect a further slight increase in the prime rent due to the continued demand for high quality space. For most space let, rental prices of between €10.00 and €15.00 per sq m per month were paid. Prime values of €21 per sq m per month were unchanged q- on-q but reflect a 5% increase y-on-y.

Birmingham


Competition held up well in Q3 with over 20,000 sq m let, up 40% compared to Q2 2011. Occupiers demonstrated a clear preference for competitively priced Grade B space, which accounted for 63% of Q3 leasing volumes. The most significant inner-city deal this quarter involved the relocation of Vax to 2,200 sq m at 2 Colmore Square from an out of town location into refurbished space within the City centre. Choice increased slightly with vacancy rates reaching highs of 20.1%. Any space re-entering the market is largely second hand or refurbished. In contrast occupiers face a diminishing range of choice within the Grade A market with vacancy rates falling to 3.6%. There is just 11,000 sq m of space scheduled to complete speculatively over 2012-13 which may force pre-letting. Rental costs stabilised at €356 per sq m, although rents remain heavily supported by incentives with typically around 36 months rent free on a 10 year term. Weighted average rents fell slightly, due largely to the higher proportion of Grade B lettings in the third quarter.

Bristol

Cost: €328 / sq m Competition: 6,500 sq m Choice: 13.0%

Occupier demand remains relatively subdued with leasing volumes down 38% on the equivalent period last year. Looking ahead, we expect annual take-up in Bristol city centre to be around 38,090 sq m, some 10% below the level achieved in 2010 and well below the five-year average of 52,000 sq m. The amount of Grade A choice in Bristol city centre rose slightly during Q3. The market also continues to offer a steady stream of second hand space although it is unattractive to most occupiers. The two speculative schemes under construction in the city centre are both due to complete by year-end, with Bridgewater House already completed to shell & core. Prime rents remained stable at €328 per sq m. Incentives remain generous in the city centre at up to 18 months on a five year term and up to 36 months on 10 years, although this is deal specific. With Grade A supply continuing to fall, we expect incentives to move in over the next 12 months.

Brussels


Occupier activity improved over Q3 with volumes surpassing the total achieved during H1 2011. This was due to a major transaction of 46,000 sq m by the EU administration. While we have seen some activity from the public sector, there has been a slow down in activity from the corporate sector. There were no new speculative completions during Q3, resulting in further erosion of choice. Overall vacancy rates fell to 10.9% and to 6.3% in the CBD. Development activity remains constrained and this will further limit occupier choice, particularly in the CBD. Prime rents fell slightly to €300 per sq m in the prime district, the Leopold district, and to €195 per sq m in the North district. Costs remained stable in all other districts, ranging from €165 sq m in the Periphery to €230 sq m in the Pentagon or in the Louise district. The top quartile and weighted average face rent for Brussels remained relatively flat at €222 and €177 per sq m respectively.


Cardiff


Leasing volumes remained strong over Q3. The amount of space taken during the first nine months of the year stands at 37,210 sq m – a level up 81% on the 5-year annual average. Activity was driven by 118 Ltd’s sub-let of 3,298 sq m of space from Zurich at Fusion Point. Supply fell by 12.3% q-on-q to stand at 111,480 sq m of available office space. As with many regional city centres, there continues to be a shortage of high quality or new Grade A space available. Confidence is however returning to the development market with two speculative schemes starting on site during Q3 – namely Capital Quarter (7,060 sq m) and Vision Court (3,298 sq m). Prime headline rents remain unchanged with the city centre at £226 per sq m and out-of-town at £161 per sq m. Typical incentives remain at 12 months for a five-year term and 24 months for 10 years.

Cologne


Occupier activity decreased in Q3 after a strong first half of 2011 although this reflects a lack of larger transactions with occupier interest still dominated by medium sized companies. Year to date there has already been more activity than the whole of 2010 – up 8%. Cologne City is the preferred location of end users and has witnessed the most deals. However, the increased shortage of high-quality space in this part of the market is causing some occupiers to widen their search area. Choice is further constrained by the very limited vacancy of new space across the market with just 2,000 sq m presently available. Projects under construction will ease this situation somewhat but in the meantime older, outdated, space still accounts for almost a third of vacancy. Around 45% of deals completed over Q1-Q3 2011 were for rents of between €10.00-€14.99 per sq m per calendar month, while 38% were for rents between €5.00-€9.99. This was reflective of both the shortage of high-quality space and a continued cost consciousness amongst occupiers.

Copenhagen

Cost: € 242 / sq m Competition: n/a Choice:8.6%

Whilst Q3 saw a slight dip in occupier activity, sentiment remains upbeat. Competition is strongest for prime CBD space with a number of domestic occupiers looking to expand. In secondary locations the public sector is the biggest driver of demand as cost- saving measures have pushed a number of public sector occupiers towards more peripheral districts such as Valby and Glostrup, west of the city centre. The majority of activity in the prime segment in Q3 came from the financial sector, illustrated by a new lease of around 5,250 sq m by “Finansiel Stabilitet”. On the supply side, choice increased by around 70 basis points to stand at 8.6%. However, supply in the prime segment remains tight, with the majority of vacant premises Grade B and C. Construction activity remains relatively low, although there are several projects in the pipeline for 2012 and 2013. Prime CBD rents remained stable at DKK 1,700-1,800. Rents for secondary CBD space were also static at around DKK 1,000-1,125. Incentives are still widely used and include rent free periods, step rents and fit out contributions. In particular the offered step rents can be steep, providing a significant discount in the first two to four years of occupancy. Rental levels in peripheral locations vary considerably. In areas such as Glostrup and Valby prime rents stand at around DKK 1,000 -1,100, while secondary rents range between DKK 600 -700.

Dublin


For the fourth consecutive quarter overall supply fell in the Dublin office market. At the end of Q3, overall vacancy rates stood at 18.9%, down from 23.0% at the beginning of the year. We anticipate choice will continue to reduce as completions of new office buildings have ceased entirely. Large occupiers seeking units in excess of 10,000 sq m will be faced with a steadily diminishing range of choice, with only eight buildings in the city centre and suburbs able to satisfy these requirements. Building on a strong first six months of the year, occupier activity increased again in the third quarter, up 25% compared to the equivalent period last year. Demand was primarily driven by companies expanding (42% of deals). There is already a significant volume of deals expected to transact in Q4 (c. 30,000 sq m). Prime rents fell slightly, down 3.0% to €344 per sq m. Incentives have tightened over the course of 2011 for leases of five to ten years with around 9-12 months rent free achievable. Further incentives are achievable for longer lease terms and larger deals.


Dusseldorf


Deal volumes are running at average levels, but the number of deals is 25% ahead of average as we are seeing more activity, particularly in the 1,000 sq m to 5,000 sq m market. The City was the most sought-after sub-market and accounted for 17 % of all activity. The amount of choice continued to erode but is still above the 1-million sq m mark with 800,000 sq m available in Düsseldorf city alone. By the end of the year a further 33,000 sq m of office space will be built, of which 27 % will be available, but we still expect choice to decline next year. In terms of costs, prime rents have remained stable for the last six months after increasing twice in succession. Due to competition for high-quality space, a further increase to €24.00 per sq m per month is expected by year end. For most spaces, rental prices are between €10.00 and €15.00 per sq m per month.

Edinburgh


Costs softened slightly in Q3 as occupier demand remained cautious. Prime rents fell 1.8% over the quarter, with incentives still generous at around 32-36 months rent free achievable on a 10 year term. Rents are expected to remain broadly stable but, as the level of supply gradually declines, we could see further upward pressure. Deal volumes were boosted by FNZ, who consolidated three existing properties into 1,600 sq m of space at Tanfield. Improved occupier activity drove down the level of available supply. Supply also fell as a result of some Grade B space being withdrawn for refurbishment. Overall vacancy rates fell to 6.0%, with Grade A supply falling to just 3.2%. Within the city centre, there are just four buildings capable of satisfying Grade A requirements of greater than 5,000 sq m. Despite this, there has been little change to the development pipeline, with Site HI, scheduled to complete in 2013, the only scheme under construction speculatively.

Eindhoven


Occupier sentiment worsened in Q3 with a number of occupiers removing their requirements from the market. Whilst the 3,000 sq m deal by IT company 2B interactive in the Western periphery of Eindhoven boosted activity, leasing volumes were down considerably on the first half of 2011. Overall vacancy increased to around 13.2%, up from 12% in Q2. Choice increased in both the Grade A and C segment over the quarter. However, Grade A office space remains particularly tight with a vacancy of around 1.2%. Availability of Grade B and C space is higher at 9.4% and 2.6% respectively. The development pipeline remains limited with just a small amount of speculative office space being developed at Strijp S. Costs remained unchanged in Q3, with prime city centre rents at around €175 - €185 per sq m. Whilst no significant increase in rental levels is expected in the foreseeable future, the tight supply and limited development pipeline should support prime rents at their current level. Prime rents for office space in secondary locations range between €120 and €160 per sq m per annum. Rent free periods have remained unchanged at 12 – 15 months assuming a 5 year lease.

Frankfurt


Occupier activity slowed in Q3 with deal volumes of around 88,600 sq m. Sentiment is still strong, however, and the deals done illustrated the preference for quality space: 60% of volumes were “high-quality”. Geographically, occupier preference has been for the City, Banking District and Westend (all with double-digit percentage shares this year). The largest deal in Q3 was the 18,400-sqm letting by Deutsche Lufthansa in the Squaire at the airport. All other deals remained below 10,000 sq m. The amount of choice fell with vacancy rates dropping from 14.3% to 13.6%. Around 36% of supply is considered high quality, and this percentage has remained more or less unchanged this year, however only c.35,000 sq m of high-quality space will be brought onto the market in 2012, so we expect further reductions in choice. While demand for quality remains high, enquiries in the prime segment have dropped off somewhat and the prime rent therefore remained unchanged at €396 per sq m per annum. Rents across the sub-markets also remained stable with average rents from Frankfurt at c. €227 per sq m per annum.


Geneva

Cost: € 862 / sq m Competition: n/a Choice: 0.3%

Demand for the best office space remains high in the Geneva office market particularly from financial institutions, wealth managers and associated service providers as well as international organisations such as the Red Cross and the United Nations. Supply remains tight, however, particularly in the limited CBD area. The few opportunities that exist are usually in the range of up to 250 sq m with units of more than 500 sq m being extremely rare. Office vacancy rates in the city centre are at levels of sub 1% and there are limited development opportunities, compounded by a restrictive planning process. Some companies are considering peripheral locations in order to secure larger and less expensive space. New space is predominantly constructed south of the CBD and around the airport. The most notable project is the “SOVALP” – a large scale development that will provide some 100,000 sq m once completed in 2014. Competition for space remains high and finding suitable space solutions, especially for larger unit sizes, can be challenging. The existing shortage in the central areas is expected to drive prime rental growth. Prime rents in the CBD currently stand at CHF 1100 per sq m per annum but office space overlooking Lake Geneva usually trades at a premium to this.

Glasgow


Occupier activity increased in Q3, totalling over 8,500 sq m. The majority consisted of churn in smaller deals. Economic uncertainty continues to constrain decision making however and we anticipate year end leasing volumes to be in line with 2010. The Banking and Finance sector dominated in Q3, accounting for 73% of occupier activity. Overall vacancy rates increased slightly to 10.6% but Grade A choice remains far more constrained with vacancy rates falling from 3.3% to 3.1%. Occupier controlled space increased by 10% over the quarter to 58,000 sq m, with the likes of Shell releasing c.2,000 sq m at 141 Bothwell Street. Construction has resumed at the speculative Copenhagen building, which is on track to deliver c. 6,000 sq m by early 2012. Prime rents remained stable at €344 per sq m, although rent free periods remain generous at between 24-30 months based on a 10 year lease. Incentives remain under pressure for the very best space. As the supply of Grade A space begins to decline we expect incentives to harden further and prime rents to slowly rise.

Gothenburg


The occupational market recorded a strong Q3, with leasing volumes reaching 25,500 sq m, up 45% on Q2. Occupiers from the IT- and Telecom sector accounted for a large share of activity, mainly due to large transactions by ÅF, EA and Saab Security. The public sector also remains an active market player. With no completions in Q3, overall vacancy declined to 8.2%, down from 8.7% in Q2. A further reduction in choice is anticipated in Q4, with no new developments due to be completed in 2011. As at the end of Q3 2011, around 52,000 sq m of new office space is under construction, the majority of which is due to be delivered in the next 12 months. Costs for prime CBD space continued to rise q-on-q with prime rents up 2.2% to stand at SEK 2,300 per sq m. In the wider city centre, costs for Grade A office space moved up as well and range between SEK 2,000 – 2,200 per sq m. Rental levels for office space in more peripheral areas range between SEK 1,200-1,500 per sq m. The number of speculative schemes currently under construction should ease competition for prime space.

Hamburg


Occupier demand is expected to remain strong throughout this year with an annual volume of 500,000 sq m expected. However the ongoing euro crisis and potential effects on the economy could damage sentiment. Occupier activity in Q3 was driven by business service providers, followed by public administration – with the State Ministry for Urban Development and the Environment’s move to Wilhelmsburg representing a considerable 45,000 sq m transaction. Preference remains on the city centre (Innenstadt) and the adjoining sub-markets of City South (core area), Habour and HafenCity. In terms of supply, the SPIEGEL building among others was completed in HafenCity and total completions over the year to date now amount to 120,000 sq m. A further 68,000 sq m is in the pipeline for the remainder of the year, of which around half is speculative. Development is expected to remain stable until the end of the year. Prime and average rents grew further in Q3 to reach €282 per sq m per annum and €167.76 per sq m per annum respectively. Further increases can be expected next year.


Helsinki

Cost: €294 / sq m Competition: n/a Choice: 10.0%

Occupier activity remained fairly stable in the third quarter of 2011, although competition from international occupiers decreased somewhat in reaction to the European debt crisis and fears regarding the economic recovery. Whilst prime space in the CBD is most popular with occupiers, choice remains limited. Large floor plates are virtually non-existent, increasingly driving occupiers to the business park hubs in areas such as Ruoholahti, Keilaniemi and Leppävaara. Furthermore, new developments in the bay area adjacent to the CBD (Töölönlahti) have attracted strong occupier interest. The overall vacancy rate remained relatively stable q-on-q at around 10%. Choice in the CBD is much lower at around 4.5%. The development pipeline is considerable at 230,000 sq m for 2012 and 2013. However, competition for this new space has been strong and overall these schemes are expected to be around 90% prelet on completion. Prime CBD rents remained stable at €24.50 per sq m per month. In the more peripheral office districts, rents range between €192 - €204 per sq m per annum. However, if competition for space in the new developments slows, rents will most likely see some falls.

Leeds


Occupier choice fell slightly over Q3, but remains inflated at 6.1% above the level at the end of 2010. While there was little change to overall supply, the availability of Grade A space fell much faster with vacancy rates falling from 5.6% in Q2 to just 4.9% at the end of Q3. Work has commenced at 2 Bond Court which is due to deliver around 1,500 sq m of space on a speculative basis by 2012. The signing of a pre-let to Clarion in Q2 for 1,500 sq m, has also allowed development to start at Elizabeth House which will deliver around 1,000 sq m speculatively. The most significant deal in Q3 involved the acquisition of 2,400 sq m by Yorkshire Housing at Dyson Chambers. Prime rents were stable at €323 per sq m. Incentives remain stable but generous with around 30 months rent-free achievable on a 10 year term. We expect some hardening of incentives as the availability of Grade A supply begins to tighten, however this is somewhat dependent on the level of new demand.

Lisbon


Portugal’s economic woes continued to impact on occupier confidence. Activity remained weak resulting in just 14,040 sq m let in Q3. Year to date leasing volumes are 63% below five year average levels. The majority of activity was concentrated in Zone 6, which accounted for around 40% of total floor space let in Q3. Activity continues to be driven by an increase in renegotiations and renewals. There were no new completions in Q3. Consequently, occupier choice fell with vacancy rates moving from 11.9% in Q2 to 11.7%. Despite the weak dynamics, prime rents held up at €228 per sq m over the third quarter. However, landlords continue to compete by offering generous fit out packages and increasing levels of incentives. Incentives for prime space are in the range of 1 to 3 months rent free, based on a three to five year lease. Across the wider market incentives are more generous with around 3 to 6 months rent free achievable on a three to five year term. Rents in the secondary market also remained stable, however we do anticipate downward pressure on secondary rents from the beginning of next year.

London City


Occupier activity improved upon Q2 levels but was still weak and represented the lowest Q3 total since 2003. Although 1.4 million sq ft remained under offer, with confidence subdued, occupiers are likely to delay decisions into 2012. Active requirement volumes continued to increase, however, with demand from the Service industry dominating volumes. Choice increased 10% as several refurbished and a new build scheme (Cannon Place, EC4) came online. As a result, overall vacancy rates increased to 7.6% with Grade A at 4.4%. Prime rents remained stable, with rent free periods assuming a 10 year term at 22 months. With the lack of quality prime space, we do anticipate further rental growth, however expectations have been tempered significantly by economic uncertainty.


London West End

Cost: € 1187 sq m Competition: 60,500 sq m Choice: 4.4%

There was 60,500 sq m let across 42 deals in Q3, which represents a 22% decrease q-on-q. This brings the total for the year-to-date to 198,100 sq m which is 22% lower than the equivalent period last year and reflects a more cautious sentiment in the market. The most notable deal of the quarter was Debenhams plc’s 13,470 sq m pre-let at British Land’s 10 Brock Street (Regent’s Place), NW1.The Service sector again dominated take-up accounting for 54% of take-up across 18 deals, with the TMT sub-sector accounting for 22% of the total. Overall demand decreased slightly to 410,200 sq m, and the TMT sub-sector dominated this also, accounting for 25% of the total with new requirements from Linkedin, O2 and Gamesys. With limited moderate take-up and limited development completions, overall supply fell by -5% to 369,950 sq m, which equates to a vacancy rate of 4.4% (from 4.6% last quarter). Grade A vacancy also fell to 2.2%, its lowest level since mid-2007. Overall, the volume of space under construction speculatively remained stable at 173,400 sq m with the Debenhams’ pre-let offsetting new commencements at 79-97 Wigmore Street, W1, and 6 Agar Street, WC2. Prime rents stabilised at €1,187 / sq m, while rent-free periods remained at 16 months, assuming a 10-year lease. We expect rents to increase again in the latter half of next year.

Luxembourg


Occupier activity over the year to date increased 51% compared with the equivalent period last year. Pre-lets and acquisitions accounted for around a third of all take-up activity in 2011, which underpins confidence in the market. The business services sector, together with Banking & Finance were responsible for 72% of deals. There were no new completions during Q3 and occupier choice diminished further with vacancy rates falling to 6.7%. The development pipeline remains constrained with just 24,000 sq m due to be delivered speculatively over the remainder of 2011. Thereafter, the development pipeline is expected to decrease further to a low level of 48,000 sq m in 2012, of which 33,000 sq m is speculative and this will drive choice lower. Costs remained stable across all submarkets in the third quarter, peaking at €456 per sq m in the CBD. We expect the prime rent to remain relatively flat over 2011, however incentives have begun to tighten. Given declining levels of supply, we expect upward pressure on prime rents, although forecasts currently remain modest.

Lyon


There was a slowdown in occupier activity in Q3 with just under 44,000 sq m let, a 40% reduction on the very strong Q2. Year to date volumes are slightly softer than 2010 – a modest 2% reduction. The amount of choice for occupiers has continued to decline with supply dropping 3.6% over the quarter and volumes over 6% lower than the end of 2010. Vacancy rates are now 6.3%, down from the cyclical high of 6.8% reached in early 2010. Prime rents in Lyon have remained at €270 per sq m for the second successive quarter after the market witnessed very strong growth in H1. The annual rate of rental growth remains at 17.4%. In the wider market weighted average rents are around €150 per sq m and have been relatively flat this year reflecting a widening differential. Incentives have also been flat, at around 6 months for a 6-9 year lease.

Madrid


Leasing volumes were typical for Q3, the quiet quarter of the year, and stood at 71,579 sq m (excluding high-tech space). Five transactions of greater than 5,000 sq m completed and accounted for 42% of total take-up in Q3. The Periphery dominated demand with occupiers focusing on well-located and good quality business centres. The average size of space leased ranges between 800-850 sq m. Overall office vacancy increased slightly during Q3 to 10.6%. However, the CBD saw a slight decrease in choice as no new product is on the market and the level of demand in this market area has remained relatively strong. New supply is concentrated in the Periphery (Julián Camarillo area) and Satellite market areas. We expect a trend of occupiers moving towards the periphery which would impact on vacancy rates in the CBD. There is limited future supply in the pipeline as projects are being delayed and there is a lack of defined schemes from 2013 onwards. Prime rents continued to decline over Q3, down 1.9% to €312 per sq m, because of the disequilibrium between supply and demand, even for the best quality products.


Malmö


The occupational market registered a drop in activity in Q3, with leasing activity totalling at around 12,500 sq m. Nevertheless, so far in 2011, competition has been significantly higher compared to 2010 and year-end leasing volumes are forecast to be up over 50% on a y-on-y basis. The high activity can partially be explained by choice - new developments offering modern and highly efficient office space. Occupiers from the IT sector have been particularly active in Q3, accounting for a large share of volumes. On the supply side, no new choice was added to the market in Q3 2011, although in the Lund district a 7,400 sq m project is due to be completed in Q4. In 2012 around 60,000 sq m will complete. Consequently, the overall vacancy rate of 7.1% should increase next year. Prime CBD rents remained stable in Q3 and range between SEK 1,800 – 2,100 per sq m. Furthermore, occupiers are often offered substantial incentives such as rent free periods (depending on lease length) or rebates. Rental levels for good quality space in the peripheral office districts remained stable at around SEK 1,200 – 1,500 per sq m. Some further upward pressure at the very prime end of the market is expected towards the end of 2011.

Manchester


Overall choice in Manchester city centre fell 5.2% over the third quarter, to 245,700 sq m. Vacancy rates were down from 12.5% in Q2 to 11.9% at the end of Q3. This was driven by declining levels of both Grade A and Grade B supply which fell by 4.0% and 7.0% respectively. Grade A choice, remains far more constrained, reflecting a vacancy rate of just 2.9%. There was little change to the development pipeline over Q3, with no new speculative starts and nothing under construction on a speculative basis. However, we do anticipate construction to commence soon at 1 St Peters Square on the back of a 6,000 sq m pre-let to KPMG. Activity was modest due to the absence of any larger deals, with just two transactions over 1,000 sq m. There are just two schemes currently capable of satisfying Grade A requirements of greater than 5,000 sq m. Given declining levels of supply, prime rents increased by 5.3% over the quarter to €379 per sq m. Incentives however remain generous with 30 months rent-free still achievable on a 10 year term.

Milan


Occupier activity this year has been broadly in line with 2010. Q3 witnessed few large deals, with the most significant deal of the quarter involving AXA, who acquired 10,000 sq m in the Semi-centre area. IT company, Reply also leased around 8,000 sq m in the Lorenteggio area. Prime rents increased by 1.9% over the quarter to €530 per sq m. Rental levels remain high in the centre, particularly for transactions involving banks. Despite this, around 70% of deals in Q3 were at rents of below €300 sq m and transactions involving rents of over €500 per sq m, accounted for only 14% of the total deals. Q3 witnessed around 30,000 sq m of new completions. Consequently the vacancy rate increased to 10.1% over the quarter, however, this was driven primarily by increasing supply in the Periphery and Hinterland. Occupier choice within the Centre remained broadly stable. There have been no new development commencements.

Munich


Occupier activity remains very strong with 230,000 sq m let and a year to date volume the strongest since 2001. Many lettings were driven by expansion leading to a net reduction in choice. Most activity has been witnessed in the city centre and across all unit sizes. Industrial corporate occupiers have been the largest takers of space this year, while business service providers closed the largest number of deals. In the third quarter there was again evidence of occupiers pursuing prelet options, such as the NUOFFICE project in Schwabing-North. Following high levels of building activity in the period from 2008- 2010, when up to 300,000 sq m was completed per year, completions will be much lower this year and especially next year and further restrictions in choice can be expected. Prime rents and incentives have remained stable at €360 per sq m but further increases can be expected next year. Average rents ended the quarter at €164 per sq m.


Oslo

Cost: € 457/ sq m Competition: 172,000 Choice: 7.5%

Occupier activity increased considerably with leasing volumes up 23% on Q2. Competition is strongest for prime office space in the CBD and western fringe of Oslo. There is a drive, in particular from the larger occupiers, towards more efficient office space, which can usually only be found in new developments. Besides ministries, occupiers from the IT and oil related sectors are the main drivers. On the supply side, Oslo has seen a relatively low volume of new construction in 2011 with just 60,000 sq m of office space added to the market. Consequently, choice has gradually declined over the year, with an overall vacancy rate of around 7.5%, the lowest in almost two years. 2012 is expected to see around 300,000 sq m of new office space added, however choice is expected to remain relatively constrained with the majority of the development already pre-let. Prime rents remained stable in Q3 2011 at NOK 3,600 per sq m. Strong demand for prime office space has pushed up rents by 15% over the year. Secondary locations did not record any rental growth over the last 12 months. Rents for good quality space in the city centre range between NOK 2,800 – 2,200 per sq m. Competition for prime space in the CBD is considerable and incentives in this part of the market are low to non-existent. Outside the CBD rent free periods of 6-12 months are achievable.

Paris CBD


While occupier activity in Greater Paris increased significantly in Q3, it was driven by deals completing that had been in negotiations for some time and the CBD region itself, although it witnessed an 11% q-on-q increase, is running around 2% below the Q1-3 volumes of last year. Deals were constrained by the low amount of choice in the CBD. Vacancy declined to just 4.5%, the lowest amount since 2008. In addition to a lack of choice impacting occupiers’ ability to move, the effect of austerity was increasingly felt, particularly for large companies, which are looking to curtail their real-estate costs and consolidate locations. Prime rents were unchanged at €750 per sq m and there is a sense that the market will become quieter with occupiers increasingly hesitant given the Eurozone concerns. Average second-hand rent was recorded at €501 in the CBD region, a 33% discount to prime. Rent free periods have been unchanged all year at between 9 and 15 months assuming a 6-9 year lease.

Paris La Defense

Cost: € 590 / sq m Competition: 20,650 Choice: 5.0%

The La Défense market was one of the few European markets to show strong rental growth in Q3 with prime rents increasing 7% to reach €590 per sq m. Average second hand rents ended the quarter at €492 per sq m, a 17% discount to prime reflecting a more standard quality of accommodation in this submarket. The rental increases were driven by further erosion in choice, with vacancy rates declining from 5.4% to 5.0% - the lowest level since Q1 2010. The leasing market, however, has seen a relative lack of large deals and volumes are down 14% compared with last year with just over 20,000 sq m let in Q3. Demand remains fragile and going forward prospects of an economic slowdown are encouraging participants to be cautious as well as extremely selective. A difficult end to the year is therefore expected generally, but the lack of choice in the La Défense market will support pricing and incentives although the growth witnessed in Q3 is unlikely to be repeated next year.

Rome


Occupier activity reached almost 30,000 sq m in Q3, down on the start of 2011 but year to date volumes were up nearly 50% compared to the equivalent period in 2010. Occupiers continued to focus primarily on the CBD and central areas, with around 50% of Q3 take-up in these areas. The remainder of activity was focused on the EUR area. Occupiers demonstrated a clear preference for Grade A space. The most active sectors in Q3 were the Services and Manufacturing sectors. The Public sector, which has traditionally played a leading role in Rome’s office market, substantially reduced the amount of space taken up, a reflection of the necessary rationalisation of the public real estate portfolio. This is likely to have a significant impact on Rome’s office market. The vacancy rate increased to 6.3%, due largely to the release of second hand space in the Tiburtina area. The development pipeline remains relatively stable, with several completions expected in Q4, but there are no new significant projects to add to those already envisaged out to 2014. Prime rents and incentives are generally stable, with the prime rent remaining at €420 per sq m.


Rotterdam


Occupier activity decreased by around 52% in Q3. This was mainly due to the absence of any large scale transactions, rather than a shift in sentiment. The upturn in competition seen in 2011 can, to some extent, be explained by the levelling in prices (headline rents and / or incentives) in some segments of the market between the wider Rotterdam region and some smaller, more regional cities. Choice increased for the fifth consecutive quarter. The overall vacancy rate stands at 16.3% as at the end of Q3, up from 15.7% in the previous quarter. The development pipeline remains significant. Whilst most developments have high pre-let rates, there are a number of speculative schemes expected to be added to the market in the second half of 2012. Rental levels remained virtually unchanged with prime rents at €195 per sq m and no change in incentives. The only rental movement recorded in Q3 was in the ‘Modern Scheepvaartkwartier’ district, where rents edged up by 2.9% to stand at €180 per sq m. Costs in the peripheral office areas North and South of the city remained stable with prime rents at around €150 - €170 per sq m. Rental conditions are expected to remain stable in the foreseeable future.

Stockholm


Leasing volumes of just over 73,000 sq m were recorded in Q3. Whilst down on H1, sentiment remains relatively strong, with occupiers from the recruitment and staffing sector particularly active. On the supply side, choice continued to decline with no new office space added to the market. The overall vacancy rate decreased to 10.5%, down from 11.4% in Q2. Vacancy in the CBD remained particularly tight at a record low of 3.7% with occupiers having difficulties securing large, efficient floor plates in central locations. Whilst choice in peripheral locations remains plentiful, available space is expected to remain low in central locations with a limited amount of speculative space in the pipeline for the next few years. Prime rents increased for the second consecutive quarter, from SEK 4,100 per sq m to SEK 4,200 in Q3. Some further rental growth is expected, with prime rents forecast to edge up to SEK 4,300 per sq m by the end of the year before stabilising in 2012. Rental levels in peripheral office locations such as Kista and the adjacent suburbs remained stable at around SEK 1,400 – SEK 2,000. Incentives continue to be under pressure in prime locations with rent free periods of 3-6 months achievable on a 5 year lease.

Stuttgart


The Stuttgart market has not reflected the cooling economic mood. While deal volumes declined on Q2, on a y-on-y basis take-up increased by 71% to 200,000 sq m. Generally, small deals have dominated leasing volumes and the majority of deals were of average quality. Since certain large requirements remain active, we expect take-up to remain strong over Q4 and forecast total volumes of around 250,000 sq m for 2011 as a whole. Occupier activity has driven a further decline in the vacancy rate by 0.5 percentage points in the third quarter. The prime rent remains unchanged at €216 per sq m, with average rents showing little change at €138 per sq m. Around half the year to date completion volumes occurred in Q3. In Q4 further completions of around 40,000 sq m are expected. Next year we expect vacancy rates to stabilise.

The Hague


Overall occupier sentiment remained relatively subdued in Q3, with leasing volumes down on the first half of the year. Competition is strongest for Grade A office space in the city centre districts such as the Beatrixkwartier, with occupiers in the public administration, transport and education sector most active. On the supply side, choice continued to increase with overall vacancy at a record high of 10.9% at the end of Q3, although the majority of available supply is of Grade B quality. Choice was more or less unchanged for Grade A properties, with only a modest increase to 2.3%. The tight market for Grade A is underlined by the split in leasing transactions by quality, with just three small sized Grade A occupier transactions recorded in 2011 so far. Rental costs for the prime end of the market increased over the quarter. Prime rents for Grade A space in the Beatrixkwartier increased by 2.4% to stand at €215 sq m per annum. Costs remained unchanged across all other submarkets with prime rents for office space adjacent to the city centre ranging between €175 - €205 sq m per annum. Incentives were stable over the quarter with rent-free periods remaining at 9 - 18 months, assuming a 5-year lease.


Utrecht


The occupier market recorded a relatively slow quarter with six transactions reported. However, the total leasing volume was up by around 60% over the quarter, due to the 18,000 sq m transaction by Danone in the Rijnsweerd district. Competition for the best office space in the city centre continues to be strong, in particular from banking, finance and public administration sector occupiers. However, the absence of choice holds back activity with vacancy estimated at just 2%. Choice is not expected to increase in the short term in the city centre. In the wider market choice increased in Q3, with around 22,000 sq m of new office space added to Utrecht. Overall vacancy increased to 13.9%, the highest level ever recorded. The majority of choice is located in peripheral locations such as the Papendorp district which accounts for roughly 20% of total vacant office space. Whilst costs remained stable at the prime end, office space in secondary locations became less expensive in Q3. Prime rents in the city centre range between €190 - €220 per sq m. Rental levels in the secondary/ peripheral locations such as Kanaleneiland, Overvecht and Lage Weide/ Catesiusweg saw a further 3%-4% decrease to range between €125 – 145 per sq m.

Western Corridor


The level of active named occupier requirements stabilised in Q3 at c.300,000 sq m and continues to be dominated by the Manufacturing and Services sectors, which together accounted for around 88% of named enquiries in Q3. Deal activity improved to reach 55,925 sq m, 9% higher than the five-year quarterly average. Supply levels continue to be slowly eroded, driven in particular by declining Grade A stock. This is most pronounced in the West London submarket where the vacancy rate stands at just 2.9%, the lowest level for nearly 10 years. There is currently around 33,305 sq m of speculative space under construction, with only 3,902 sq m due to complete before year-end. Prime rents increased marginally, driven by upward pressure in Reading town centre and Chiswick. Incentives were stable at 30 months rent free on a 10 year lease in the Thames Valley and 24 months in West London. We expect annual prime rental growth of 1.4% over 2011 as a whole.

Zurich

Cost: € 902 / sq m Competition: n / a Choice: 4.6%

Strong demand for office space in recent quarters has led to rising rents and low levels of availability. The market will also see a large volume of new supply. Over the next four years around 400,000 sq m of new office space will be delivered mainly in Zurich West and Zurich Nord. Much of the new space has been taken by occupiers present in the market already which are currently actively relocating to this new, modern space from their CBD locations and gradually releasing their former space. The new supply is expected to ease competition for space and increase choice in the CBD. Hence, the Zurich CBD will soon face vacancies of an unprecedented quantity which will put pressure on cost. Prime rents are at around CHF 1100 per sq m. Expectations are that rents might see a further slight increase towards the end of the year but this may be short-lived. Outside the prime segment, rents range from CHF 350 to CHF 800 per sq m depending on location and quality, with second-hand space seeing the biggest discounts.


Western European Corporate Occupier Markets at a glance

Competition (Take-up as a % of stock) Choice (% Vacancy Rate) Costs (Rents EUR / sq m / pa)

Market Q3 2011 12-month outlook Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook WE Amsterdam 0.9 17.1 335 Antwerp 1.6 11.5 145 Athens n/a 15.8 270

Barcelona 1.0 13.4 225

Berlin 0.8 8.8 252 Birmingham 1.3 20.1 356 Bristol 0.4 13.0 328

Brussels 0.9 10.9 300

Cardiff 1.1 10.8 250 Cologne n/a 8.2 258 Copenhagen n/a 8.6 242 Dublin 1.1 18.9 344 Dusseldorf 1.0 11.9 282

Edinburgh 0.6 6.0 337

Eindhoven 0.5 13.2 185

Frankfurt 0.7 13.6 396

Geneva n/a n/a 0.3 862 Glasgow 0.6 10.6 344 Gothenburg 0.8 8.2 250 Hamburg 1.2 8.8 282 Helsinki n/a 10.0 294 Leeds 0.9 10.6 323 Lisbon 0.3 11.7 228 London City 0.9

7.6 688

London West End 0.7 4.4 1187 Luxembourg 1.2 6.7 456 Lyon 0.8 6.5 270 Madrid 0.5 10.6 312 Malmö 0.6 7.1 228 Manchester 0.4 11.9 379 Milan 0.5 10.1 530

Munich 1.2 10.1 360

Oslo n/a 7.5 457

Paris CBD 1.7 4.5 750

Paris La Defense 0.5 5.0 590

Rome 0.2 6.3 420

Rotterdam 0.6 16.3 195

Stockholm 0.6 10.5 456

Stuttgart 1.0 6.5 216

The Hague 0.1 10.9 215

Utrecht 0.9 13.9 220

Western Corridor 0.7 13.8 330

Zurich n/a n/a 4.6 902

Business Contact: Corporate Solutions

Vincent Lottefier Chief Executive Officer EMEA Corporate Solutions Paris +33 1 40 55 49 92 [email protected] Report Contacts: Research

Dr Lee Elliott Director EMEA Research London +44 (0)20 3147 1206 [email protected] Tom Carroll Associate Director EMEA Research London +44 (0)20 3147 1207 [email protected] Acknowledgements: We gratefully acknowledge the help and assistance of the following Jones Lang LaSalle alliance partner firms in the preparation of some of this material: Akershus Eiendom AS, Athens Economics and Sadolin & Albæk.

EMEA Corporate Occupier Conditions – November 2011 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends.

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Jones Lang La Salle Corporate Occupier Conditions Q4 2011