LSH National Office Report July2010

7/31/2019 LSH National Office Report July2010

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NationalOffice

Inside this report:

Q1 2010 shows an upturn with 5.5m sq ft of take-up Central London to lead UK out of downturn Occupiers to drive refurbishment of second hand stock Rental growth to return to 2006/07 height by 2014 www.lsh.co.uk

Report 2010First signs of occupational

recovery in 2010


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National Office Report / 2010 / Executive summary

2 / Lambert Smith Hampton

Executivesummary

The office market in the UK

has experienced a significant

downturn in activity over the

past two years. Take-up for

2009 was around 17m sq ft,

29% below the long run

average take-up level for

the market.

The major slowdown in

activity has been in the South

East, South West and Eastregions, where take-up levels

were more than 40% down

on historic trend levels.

The Midlands, Scotland and

Northern regions showed a

greater resilience to the

economic slowdown, with

take-up levels down by

between 4% and 20%.

Q1 2010 has shown thefirst signs of an improving

market, with take-up for the

quarter recording 5.5m sq ft

of transactions.

The Central London market

has led the recovery,

accounting for 3.4m sq ft

of activity in Q1 2010.

Central Londons dominance

of the market is expectedto continue for a further 12

months before filtering out to

the provincial office markets.

Short term predictions

Demand has reduced

significantly over the past

two years but there are

signs that the market may

be seeing a recovery in

occupational requirements.

Returning demand, coupled

with the shortage of new

built stock in most markets,

is signalling a recovery in

rental growth, much earlier

than in previous cycles.

While rental values are

expected to fall by 3% in

2010, this should be the last

year of declines for themarket as a whole. Weak

growth is expected in 2011,

followed by a continued

recovery in 2012/13.

Availability has risen

significantly over the past

two years, with the availability

rate for the UK as a whole

standing at 12.7%.

Further increases in availabilitymay arise with the release of

second hand stock continuing

to be the driver.

Medium term predictions

As the corporate sector gains

momentum, replacing the

public sector as the major

source of growth in the UK

economy, availability rates will

fall and the scope for renewed

development activity will return.

Significant amounts of

poor quality, second hand

office floor space will need

to be redeveloped in orderto meet the next generation

of occupiers.

Rental growth is expected to

return to 2006/07 levels by

2014, with the Central London

market leading the rest of the

UK out of the downturn.

Regional keyScotland

North

East

London

South East

South West

Wales

Midlands


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National Office Report / 2010 / Overview

Lambert Smith Hampton / 3

Government and business service sector output growth % quarterly

GDP Growth

-3.0

-0.5

-1.0

-1.5

-2.0

-2.5

0.5

0

1.0

Forecast

Q42007

Q12008

Q12009

Q2 Q3 Q4 Q12010

Q2 Q3 Q4 Q12011

Q2 Q3 Q4Q2 Q3 Q4

Chart 1

Public services

-3.0

-0.5

-1.0

-1.5

-2.0

-2.5

0

1.0

0.5

1.5

Financial and business services

Q42007

Q12008

Q12009

Q2 Q3 Q4 Q2 Q3 Q4 Q12010

Q12011

Q2 Q3 Q4 Q2 Q3

Chart 2

GDP growth % quarterly

Economy The move out of recession which began

in Q4 2009 eased in Q1 2010 with

provisional estimates for GDP growth

registering a disappointing quarter onquarter growth of 0.2% Chart 1.

The principal cause for the lower than

expected growth in the economy was the

easing in public sector growth which is

estimated to have remained flat. Growth in

financial and business services continued its

upward trend, growing by 0.6% in the first

three months of 2010 Chart 2.

There is no doubt that the private business

sector saw a much greater downturn

during the recession, with financial and

business services output falling by 6.2%,while public sector output contracted by

1.2% Chart 2.

Overview

The corporatesector will

have to fill the gapleft by government

austerity measures.

Source: ONS and Consensus Economics

Source: ONS


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-6

6

4

2

0

-4

-2

12

10

14

Forecast

8

2006 2007 2008 2009 2010(f)

2011(f)

2012(f)

2013(f)

2014(f)

2015(f)



Overviewcontinued

Employment and unemployment

One of the major casualties of the

downturn has been the labour market,

with more than 500,000 jobs being lost

since the end of 2008. While the major

job losses has been in the manufacturing

and construction sectors, the service sector

has felt the impact too.

Financial and business services employment

fell by 2.8% between 2008/09 while public

sector employment grew by 1.5% Chart 3.

Forecasts

The debate since the general election

has indicated the extent of cuts to public

spending that are required in order to

return government borrowing to acceptable

levels. Therefore, the dynamics of the

economic recovery are set to change over

the next few years.

Consensus forecasts suggest that the

recovery will continue through the remainder

of 2010 and into 2011 and if this prognosis

is to prove correct, the corporate sector will

have to fill the gap left by government

austerity measures Chart 1.

The expected performance of corporate

profitability will largely determine the

strength of the economic recovery.

Forecasts for the corporate sector show a

significant turn round in fortunes in 2010,

with profitability growing by 4.2% in the

current year after a decline of 5.1% in

the previous year Chart 4.

UK office marketTake-up

The analysis of the UK office market

contained in this publication is based upon

the 37 locations in the following pages,

which represents approximately two thirds

of the overall office floor space in the UK.

Take-up of office floor space in the UK

has fallen below long run trend levels in

each of the past two years of 2008 and

2009 as the recession has taken its toll

on occupiers Chart 5.

Following the five year peak in activity

in 2007, when take-up in our 37 centres

reached 27.4m sq ft, 2008 saw a fall in

activity of 23.6%, with activity in 2009

down a further 19.6% Chart 5.

Q1 2010 has seen an improvement

in activity levels, with 5.5m sq ft of take-up

across the UKs office market. If this level

of activity is repeated over the remaining

nine months of the year, annual take-up

will reach just over 22m sq ft.

One of the major trends of the past

few years has been the proportionate

increase in take-up of Grade A floor space.

In general, the acquisition of Grade A space

accounts for 25% of overall letting activity.

During 2008/09 this increased to more than

one third of all take-up, with Q1 2010

Office based employment growth index December 2004 = 100

Public services

98

103

104

102

101

100

99

105

107

106

108

Financial and business services

2004 2005 Q12009

2006 2007 2008 Q2 Q3 Q4

Chart 3

Growth in corporate profitability % year on year

Chart 4

Source: ONS

Source: Consensus Economics


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Second hand

0

25

15

20

5

10

35

30

40

New

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010

10 year average

National office market take-up million sq ft

Chart 5

< 5,000 21%

5,001-10,000 20%

10,001-20,000 15%

20,001-30,000 12%

30,001-50,000 12%

>50,000 20%

Chart 6

Take-up by size 2009 % of total sq ft

Public sector 14%

Financial services 23%

Professional services 17%

Service industries 24%

Manufacturing and construction 7%

Other 15%

Chart 7

Take-up by tenant type 2009 %

Q1 2010

has seen animprovement inactivity levels.

Source: LSH Research

Source: LSH Research Source: LSH Research

Grade A take-up accounting for 48% of all

lettings in the UK office market Chart 1.

This recent trend has been heavily influenced

by the City of London office market, where

in the first three months of 2010, the take-

up of Grade A floor space represented 69%

of total take-up in that market.

Take-up by size

The balance in letting activity during 2009

was towards buildings and suites of less than

20,000 sq ft which accounted for 56% of

overall UK office market take-up Chart 6.

Excluding Central London, the proportion

of activity focused towards lettings of

20,000 sq ft and less was higher, accountingfor almost two thirds of market activity

outside of the capital.

This emphasises the dominance of the

Central London market in larger lettings,

with 55% 60% of lettings above 50,000

sq ft concentrated in Central London.

Take-up by tenant type

Financial and business occupiers accounted

for almost 64% of market activity covered

by our analysis, while the public sector

accounted for only 14% of UK office

market take-up Chart 7.

An interesting trend among public sector

acquisitions of floor space, was the

surprising number of freehold purchases

that this occupier type was responsible

for during 2009.

Despite the difficulties in the financial

sector, 23% of overall lettings were to this

tenant type, although unsurprisingly 85%

of financial sector take-up was in the

Central London market.

Service industries, such as media, IT and

recruitment, were the most significant

single tenant group, accounting for 24%

of overall take-up.

Professional services occupiers were the

third most significant occupier group in

2009, accounting for 17% of take-up.

However, outside of Central London,

professional services occupiers play a far

more significant role. Excluding take-up in

Central London, professional services were

responsible for 24% of overall take-up.

Supply

The supply of floor space has become

one of the single most influential factors

on the performance of the UK office market

in previous cycles and this current cycle is

no different.

The total availability of office floor space

has been increasing since 2007, rising from

50.3m sq ft to 67.8m sq ft at the end of

March 2010, an increase of 35% on the

2007 figure Chart 8.


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Second hand

0

50

30

40

10

20

70

60

80

New

2002 2003 2004 20062005 20082007 Q12010

2009

National office market availability million sq ft

Chart 8

2002 2003 20042000 2001 20062005 20082007 Q12010

20098

11

10

9

12

13

14

National office market availability rate %

Chart 9

< 5,000 13%

5,001-10,000 13%

10,001-20,000 16%

20,001-30,000 18%

30,001-50,000 15%

>50,000 25%

Chart 10

Availability by size 2009 % of total sq ft

The principal cause of this increase in

availability has been the release of second

hand stock onto the market. Grade A stock

has remained a relatively modest element of

available stock, representing 12.2m sq ft in

2008 and 15.1m sq ft at the end of Q1 2010.

Grade A stock currently represents 22.2%

of overall stock on the market in the

centres covered by this analysis with only

limited amounts of office floor space

under construction.

Availability rates

The overall availability rate across the markets

covered by our analysis stands at 12.7% of

total built stock, as at the end of Q1 2010,up from the recent low point of 9.6% at

the end of 2006 Chart 9.

There are significant regional variations

around the national average, with the range

of availability rates varying from 9% in the

Central London office market, to 17% in

the South East Table 1.

There is further variation amongst regional

availability rates and local markets, as is

shown in the feature on local market trends

in the following pages.

Availability by size

Take-up in 2009 for building sub 20,000

sq ft was 56%.

Properties of this size account for 39%

of the overall availability Chart 10.

The major shortage of floor space exists

in buildings of 30,000 sq ft to 50,000 sq ft

which account for only 11% of overall

floor space on the market.

Larger office buildings, over 50,000 sq ft,

account for 25% of overall available floor

space, although a proportion of these

buildings will be second hand stock, which

may not be suitable for larger occupiers.

Demand for floor space

The major focus of current occupational

demand is for larger office buildings

(>50,000 sq ft), which accounts for

42% of all requirements. This elementof demand is heavily focused towards

Central London and the South East,

which represents 80% of requirements

for buildings of this size Chart 11.

Central London 9.0

Scotland 10.6

Wales 11.1

UK average 12.7

East 13.5

Midlands 15.1

South West 15.9

Northern 15.9

South East 17.0


Table 1

Regional availability rates %

Overviewcontinued





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< 5,000 9%

5,001-10,000 11%

10,001-20,000 12%

20,001-30,000 15%

30,001-50,000 11%

>50,000 42%

Chart 11

Occupier demand by size 2009 %

Public sector 11%

Financial services 23%

Professional services 24%

Service Industries 22%

Manufacturing and construction 6%

Other 14%

Chart 12

Occupier demand by tenant type 2009 %

LSH average prime rent

-15.0

0

-5.0

-7.5

-10.0

-12.5

5.0

10.0

12.5

7.5

15.0

IPD Monthly Index

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10(f)

11(f)

12(f)

13(f)

14(f)

2.5

-2.5

Forecast

National office market rental value growth LSH prime rents and IPD Monthly Index % y on y

Chart 13

The analysis of occupational demand extends

to the types of occupiers that are looking

for new or additional office accommodation.

Professional services was the largest group

with outstanding requirements for office

accommodation at the end of 2009,

accounting for 24% of total occupational

demand Chart 12.

While a significant proportion of floor

space demanded by professional services

is in Central London, more than half of

demand identified is for office space

within the regions.

Although the public sector has been a

significant driver behind occupational

market activity over the previous five to 10

years, demand has eased, representing only

11% of the total requirements at the end

of last year Chart 12.

The large representation of demand from

outside of the main tenant types is due to

the large number of agent led instructions

which appear on the demand register,

where details of the occupier and their

business remain confidential.

Rental growth Office rental values have been constrained

during the economic recession, falling by

16.9% from the peak of the market in

March 2008 to the end of Q1 2010.

Chart 13 illustrates the pattern of rental

growth in the office market as measured

by the IPD Monthly Index. For comparison

purposes we have also included the

movement in values of the Lambert Smith

Hampton (LSH) average prime rental values

index, which looks at the movement inprime rents across the 37 office locations

covered in the analysis.

As expected, there is a significant

correlation between the historic IPD rental

growth series and the LSH indices.

There are divergences at both highs and

lows of the market, but these can be

explained by the slight differences in the

types of property being measured. The IPD

series is based on valuations of all grades

of property within the monthly indexsample, while the LSH prime rent series

looks at the movement in prime headline

rents across our 37 locations.

In addition to the historic series we have

also included our forecast for rental value

growth for the period 2010/14 which are

represented by the bars.

While in the first three months of 2010

rental values have remained relatively

stable, we expect further falls in rents to

feed through during the remainder of the

year. The overall decline in rents forecast

for 2010 is 3%, with the majority of

the fall registered in markets outside

of Central London.


Source: LSH Research and IPD


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Regional perspective The regional office markets have

experienced mixed fortunes over 2009.

While all markets have seen take-up levels

fall below the long run trend levels, someregions have fared better than others.

The most significant falls in activity levels

have been focused in the South and East

of the UK, with the South East, South

West and the East regions experiencing

the weakest market conditions. In

contrast, the North and Midlands have

seen occupational market activity perform

better than the UK average.

Q1 2010 has seen take-up dominated

by the Central London market, which

has accounted for 62% of overall market

activity so far this year, although the

regions may begin to see some

improvements in activity towards the

latter stages of the year.

Take-up across the regions

Central London continued to dominate

office market activity, accounting for

46% of total take-up completed in 2009,

broadly in line with the long run average

proportion of UK take-up accounted for

by the Central London market Chart 14.

The most significant shift in market shareamongst the regions in 2009 was in the

Northern regions, which saw the overall

proportion of office market take-up rise

to 16%, compared to 14% over the past

10 years Chart 14.

Q1 2010 has seen Central Londons share

of total activity in the office market rise to

63% of UK take-up Chart 15.

The most disappointing start to 2010 has

been in the South East and the East office

markets, where take-up levels have beenparticularly weak Chart 15.

The Midlands and Northern regions

remained relatively buoyant but have seen

their share of UK market activity fall below

their trend levels within the UK.

The South East office market has seen

its share of activity in the UK fall to 4%,

with less than 250,000 sq ft of take-up

registered in Q1 2010, while the East

markets have seen 106,600 sq ft

of activity, which represents 2% ofnational activity Chart 15.

All regions saw take-up levels fall against

their long run average levels. The total of

take-up in the UK was some 29% below

the 10 year average for the country.

The most significant falls in activity across

the major regions were seen in the South

East, South West and the East office

markets, where take-up was down 40%,

48% and 39% respectively on

trend levels Chart 16.

London 46%

South East 11%

East 5%

South West 3%

Midlands 9%

North 16%

Wales 3%

Scotland 6%

Chart 14

Regional distribution of take-up 2009 %

London 63%

South East 4%

East 2%

South West 5%

Midlands 7%

North 12%

Wales 2%

Scotland 5%

Chart 15

Regional distribution of take-up Q1 2010 %

10 year average 2009

0

8

10

6

2

4

12

South E

ast East

Lond

on

South W

est

Midla

nds

North

Wales

Scotla

nd

Regional take-up levels compared to long run trend levels million sq ft

Chart 16

Overviewcontinued




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South Manchester

0 1 2 3 4 5 6 7 8

Guildford

CambridgeNewcastle upon Tyne

Salford Quays

Bristol

Slough

Peterborough

Central London

Northampton

Leeds

UK average

Milton Keynes

Cardiff

Blackwater Valley

anchester City Centre

Luton

Reading

Southampton

Hemel Hempstead

Leicester

Swansea

St Albans

Maidenhead

Oxford

Chelmsford

Staines

Newport

Welwyn Garden City

Edinburgh

Bracknell

Heathrow

Sheffield

Uxbridge

Glasgow

Fareham

Newbury

4.5%

4.5%

4.5%

4.6%

4.7%

4.8%

5.1%

5.6%

5.9%

5.9%

6.5%7.1%

7.5%

4.6%

4.1%

4.2%

4.3%

4.4%

4.4%

4.1%

3.4%

3.4%

4.1%

3.7%

3.6%

4.1%

3.2%

3.4%

3.3%

3.1%

3.2%

2.5%

2.9%

1.7%

2.2%

2.3%

Nottingham

Birmingham

Watford

5.6%

5.6%

5.6%

5.1%

Activity ratio locations %

Chart 17 Compared to long run trend levels of

take-up, the strongest regions over 2009

were in the North and Scotland. Take-up

activity was less than 20% down on trend

levels, being 18% and 19% below trend

respectively Chart 16.

Longer term activity rates

While 2009 was a period of slowing

activity for the UK office market, the longer

term trend in activity rates across the

37 locations covered by this report indicate

some unexpected results.

The analysis contained in Chart 17 focuses

on the activity ratio, the long run trend

level of take-up for each of the 37 locationscovered in the report and other key areas,

divided by the total stock of office floor

space in the area.

For example, the Central London office

markets 10 average take-up level is 10.7m

sq ft per annum, while the total office

stock for Central London is 208.8m sq ft.

The activity ratio for the Central London

market is, therefore, 5.1%.

This illustrates how much, on average,

of the total Central London office marketturns over in any one year. So, by inference,

5.1% of the Central London market is

traded, on average, in any one year.

An individual year may see this figure

rise above the average, if there is a large

transaction, or if there is a significant new

development that attracts a large number

of new occupiers to the locality. The

activity ratio is a good measure of the

buoyancy of each of the local markets.

The three most active markets amongstthe 37 locations are Bristol, Newcastle

upon Tyne and Cambridge, each of these

markets having activity ratios some way

ahead of the national average of 4.6%

of turnover per annum.

The reason for the relative buoyancy

of each of these markets is also varied,

as the dynamics of the markets are

significantly different.

Both the Bristol and Newcastle upon Tyne

office markets are largely dependenton central and local government for

occupational demand. Public sector demand

has been a major driver behind office

market take-up over the past decade.

The mostactive markets

in the UK are Bristol,Newcastle upon Tyneand Cambridge.



10/52



The Cambridge market, on the other hand,

has seen activity buoyed in recent years by

the influx of new economy and biotech

businesses into the area, prompted by the

growth of the science park sector which

surrounds the university.

Surprisingly, the Central London office

market is ranked only eleventh amongst the

37 locations, although activity in the market

has probably been eroded by the growth

of new locations outside of the traditional

Central London market.

Availability rates across the UK

Further dynamics contributing to the

buoyancy of local markets is the availabilityof office floor space and, in particular,

the availability rate.

Chart 18 ranks each of the locations by

their respective availability rates.

The UK average availability rate was

12.7% of total built office stock at the

end of March 2010.

More than 23 (62%) of the locations

covered by the analysis had availability

rates above the national average. The most

significant figures being in Bracknell, the

Blackwater Valley and Birmingham.

The South East markets have been most

affected by the recession, with the release

of second hand stock onto the market

playing a significant role in the rising levels

of availability in those markets.

Birmingham has also experienced a

significant release of stock onto the market

over the past few years, with some of the

traditional occupiers of the city suffering

from the fall in economic activity.

One of the most significant features across

all of the local office markets is the lack of

new built, Grade A, office accommodation.

This factor is expected to play a significant

role in the growth of rental values over

the next few years.

As occupational demand improves, the

market is set for a return of rental growth

as the stock of Grade A accommodation

is acquired.

Manchester City Centre

Staines

Reading

Fareham

Slough

Salford Quays

Leeds

Heathrow

0 5 10 15 20 25 30 35

Watford

Birmingham

Blackwater Valley

Hemel Hempstead

Milton Keynes

Bracknell

Nottingham

Newport

Edinburgh

Maidenhead

Welwyn Garden City

Sheffield

Oxford

UK average

Peterborough

Swansea

Leicester

Cardiff

Guildford

Northampton

Newcastle upon Tyne

Central London

Southampton

Glasgow

St Albans

Chelmsford

Uxbridge

Newbury

South Manchester

Bristol

Cambridge

Luton

30.4%

22.9%

23.4%

23.7%

17.5%

18.8%

21.1%

19.2%

21.0%

19.3%

22.0%

22.0%

12.7%

13.4%

13.5%

13.8%

15.4%

15.6%

15.9%

16.5%

16.7%

16.8%

14.5%

14.1%

9.2%

9.5%

9.6%

9.9%

10.1%

10.8%

10.9%

11.9%

11.9%

12.2%

5.6%

5.8%

6.5%

7.5%

9.0%

7.0%

Availability rate locations Q1 2010 %

Chart 18

Overviewcontinued

The South Eastmarkets have

been hit hardest by

the recession.



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Sector Total Capital Rental Initialreturn growth growth yield

Central London 18.5% 10.6% -9.6% 5.85%

Rest of South East 9.2% 0.2% -7.6% 7.64%

Rest of UK 12.0% 2.8% -6.5% 7.42%Office Parks 8.0% -1.2% -6.0% 8.09%

All Offices 14.2% 5.7% -8.2% 6.87%

Source: IPD Monthly Index

Table 2

Investment performance year to Q1 2010

National Office Report / 2010 / Investment


Investment Investment Given the challenges facing the UK economy

and particularly the financial and business

services sector the recovery in office market

performance has been surprising, generating

positive total return over the 12 months to

the year ending March 2010 Table 2.

As can be seen from Table 3 the total return

performance has been achieved against a

Central London

0

8

4

6

2

10

Rest of UK

Q12010

Q12007

Q2 Q3 Q4 Q12008

Q2 Q3 Q4 Q12009

Q2 Q3 Q4

National office market investment bn

Chart 19

Source: LSH Research/Property Data/Co Star Group

rising void rate for the sector, which has

experienced the greatest rate of tenant

default and resultant voids when

compared with its sector competitors.

Despite the significant contribution of

income return, the recovery has been led

by Central London, which has seen capital

growth of 10.6% over the 12 months

to the end of March 2010.

The capital growth can be attributed to

consistent demand for Central London

stock with international demand historically

drawn to the UK capital and the perception

of increased take-up activity driving pricing.

As can be seen in Table 2, capital growth

beyond Central London has been

extremely limited.

Table 4 illustrates the net initial yield

on transactions across the rest of the UK

which is significantly below the IPD

Monthly Index, demonstrating the gap

between valuation sentiment and the

liquidity of prime assets as opposed to

secondary product.

Investment market turnover

As with the investment market in general,

the office sector turnover has fallen since the

onset of the financial crisis in August 2007.

Turnover levels have plummeted from

9.7bn in Q3 2007 to a low point of

1.5bn in Q1 2009 Chart 19, while the

office sectors share of overall investment

turnover fell from 53% to 32% over

the same time frame.

Sector March 2009 March 2010

Office 12.7% 14.9%

Retail 9.7% 6.5%

Industrial 15.9% 15.3%

Source: IPD Monthly Index

Table 3

Void rates

Sector Q1 2009 Q3 2009 Q1 2010

Central London 7.32% 6.96% 6.26%

Rest of South East 9.62% 7.99% 7.88%

Rest of UK 7.53% 7.39% 6.55%

Office Parks 9.41% 8.57% 8.08%

All Offices 8.11% 7.44% 6.87%


Table 4

Net initial yields on transactions


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National Office Report / 2010 / Investment


Investmentcontinued

Throughout the downturn in investment

levels, the Central London market has

dominated office market transactions,

usually accounting for between half to

two thirds of the total investment into the

sector in any one quarter Table 5.

Recent activity has seen investor interest

expand beyond Central London with prime

product in major metropolitan cities and

established locations such as the Thames

Valley being pursued Table 6.

Q1 2010 has seen a progression in the focus

of investor behaviour beyond Central London

with higher yields being coveted. While the

largest lot sizes still generate international

demand, the rest of the UK is driven by the

UK institutional market Table 7.

Looking forward

The more positive forecasts for the

occupational markets in Central London

will continue to fuel global demand for

the investment product. This level of

competition has and will continue to

encourage the UK institutions to broaden

their geographical demand while

maintaining a focus on prime product

in tighter markets.

There is now a huge disconnect between

prime and secondary assets which is

unlikely to close significantly until a trend

of increased take-up followed by reducing

incentives and subsequently rental growth

is established.

It does however produce opportunities

to purchase secondary investment assets

at or around the vacant possession value

where medium term occupational prospects

remain positive.

Table 5

Top five major office deals 2009

Property Value Initial Purchaser Yield

Central London

Broadgate Estate, EC2 (50% share) 1,070.0 7.10% Blackstone Real Estate

8-16 Canada Square, E14 772.5 n/a NPS Central London LP

1-10 Bishops Square, E1 333.8 7.30% Oman Investment Fund

5 Churchill Place, E14 208.0 5.80% Bermuda based investor

88 Wood Street, EC2 183.0 6.85% NPS Central London LP

Rest of UK

Surrey House, Norwich 134.4 8.00% Harel Insurance7, 8 & 10 Brindley Place, Birmingham 101.0 7.16% Tritax Asset Management

141 Bothwell Street, Glasgow 73.1 5.94% Strathclyde Pension Fund

New Uberior House, Edinburgh 55.7 6.98% i ii -BVK Europa Immobilien

Solent Business Park, Fareham 55.5 7.75% Blenheim Properties


Table 6

Top major office deals Q1 2010

Property Value Initial Purchaser Yield

3 Hardman Street, Manchester 183.4 6.10% Aerium Finance

37-63 Southampton Row, WC1 175.0 6.13% M1 Real Estate

One Snowhill, Birmingham 126.0 6.20% CommerzReal

100 New Bridge Street, EC4 110.0 6.10% HIH Global Invest

40 Holborn Viaduct, EC1 90.0 n/a Delancey

77 Grosvenor Street, W1 89.5 5.50% Overseas investor

Elizabeth House, SE1 85.0 n/a London & Regional Properties

St Mary Axe, EC2 71.5 7.00% Confidential

5-7 Chesterf ield Gardens, W1 60.0 n/a Middle Eastern investors

26 Red Lion Square, WC1 57.0 8.12% Legal & General Property

1 Whitehall Riverside, Leeds 51.3 5.68% NFU Mutual Insurance


Investor Value m Number oftransactions

Threadneedle Property 100.3 7

Scottish Widows 53.5 5

Legal & General Property 128.5 4

Standard Life 110.5 4

Aviva Investors 64.5 4

Primary Health Properties 40.7 4


Table 7

Most active office investors by number of transactions six months to end March 2010


13/52Lambert Smith Hampton / 13www.lsh.co.uk

Overview

The UK office market showed early signs of recovery in Q1 2010, with

take-up levels returning to long run trend rates for the first time in two

years. The recovery is being led by Central London, which experienced

its highest quarterly take-up in five years. The upturn in activity is

expected to filter out from Central London to the rest of the UKover the next 12 to 18 months.

The South East and East have continued to struggle in Q1 2010 due

to the occupational market still feeling the effects of the economic

downturn. The Midlands, the North and Scottish markets have

proved to be more resilient during the recession, with take-up levels

experiencing a more modest slowdown.

The reduced level of activity outside of Central London has seen

availability rates rise across most of the UK to 12.7% of the total built

stock in Q1 2010, from 11% at the end of 2008. Availability rates

across the regions range from 17.1% in the South East compared to

9% in Central London. The South West, the North and the Midlands

all have availability rates in excess of 15%, while Scotland and Wales

have less available office stock. The rise in availability primarily

occurred because second hand stock was released onto the market.

Due to the lack of development in 2009 only 22% of UK stock currently

available is Grade A space. This shortage of Grade A stock is likely to

result in a return of rental growth much earlier than in previous cycles.

Prime rents have already begun rising in Central London markets and

this should filter out to the major metropolitan cities during 2011/12.

However as demand in the occupier market increases the lack of

Grade A space could spell trouble ahead.

ics National Office Statistics National Office Stati2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010


14/52

Central London

Lambert Smith Hampton Research | 14

0

6,000

5,000

4,000

3,000

2,000

1,000

7,000

2005 2006 2007 2008 2009 Q12010

C it y M id to wn We st E nd

C it y M id to wn We st E nd

20050

4,000

2,000

6,000

8,000

10,000

12,000

2006 2007 2008 2009 Q12010

40

60

80

100

120

0

20

140

City Midtown West End

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010


Office market availability000 sq ft

Office market take-up000 sq ft

Office market prime rental values per sq ft

Take-up

Activity in 2009 fell to the lowest levels

since the downturn of 2001/02, with

7.7m sq ft of lettings across the whole

of the Central London market.

Q1 2010 has seen a significant turnaround

in the position, with 3.4m sq ft of take-uprecorded and substantial levels of demand

for floor space still waiting to be satisfied.

All three of the Central London sub markets

saw a marked improvement, although the

City of London saw the most impressive

increase in activity, with take-up of 2.2m

sq ft, 69% of this being in Grade A stock.

The West End and Midtown markets saw

more modest improvements in letting

activity, with take-up of 0.8m sq ft and

0.4m sq ft respectively.

Availability

Q1 2010 saw Central London availability

fall from its end 2009 level, a reduction

of 1% to 18.7m sq ft, representing 9%

of total built stock.

The picture across the three sub markets is

varied, with the City recording a decline in

availability of 9.2% from the end of 2009,

while both Midtown and West End markets

saw a slight increase in available stock, up

by 5.1% and 8.7% respectively.

Grade A stock represents just 21% of

overall built stock on the market with a

further 4.1m sq ft of floor space currently

under construction.

Total availability represents 1.8 years supply

based on the 10 year average of take-up for

the Central London market, 10.7m sq ft per

annum, with Grade A availability accounting

for just over four months supply.

Prime rents

Prime rents improved in both the City

and Midtown markets in Q1 2010, risingby 5.6% and 11.8% to end the period

at 47.50 per sq ft. West End rents remained

at their end 2009 level of 75.00 per sq ft,

bringing two years of decline to an end.

The next 12 months should see a continuation

of the improvements that began in Q1 2010,

with availability continuing to reduce and

occupational demand remaining strong. The

limited development pipeline of new stock

will add further upward pressure on rents as

well as increasing lease terms and reducing

the financial incentives offered to tenants.

The City saw themost impressive

increase in activity.

Executive summary The start of 2010 has seen

the Central London market

strengthen significantly, with

take-up levels improving and

availability reducing.

Prime rents have begun to reflectthe improving market conditions,

with City and Midtown rents

rising by 5.6% and 11.8%

respectively to end Q1 2010 at

47.50 per sq ft. West End rents

have stabilised at their Q4 2009

level at 75.00 per sq ft.

The next 12 months are

expected to see further increasesin rental values as the market

continues to improve.

50,001 40%

Availability by size % of total sq ft


Source: London Office Database/LSH Research

Source: London Office Database/LSH Research


15/52

Blackwater Valley

www.lsh.co.uk

There have been signsof an improvement

in demand since Q1 2010which should be reflectedin take-up figures for thesecond half of the year.

0

400

300

200

100

500

600

2005 2006 2007 2008 2009 Q12010

Good second handPoor second hand New

10 year average

0

750

500

250

1,000

1,250

1,500

1,750

2,000

2005 2006 2007 2008 2009 Q12010


10

15

20

25

0

5

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010

Out of townTown centre




Take-up

Occupational market activity in the

Blackwater Valley all but came to a halt

in 2009 and Q1 2010, with only one

transaction of above 5,000 sq ft

completing over the 15 month period.

The 22,000 sq ft letting to IT services

company Telindus, at Watchmoor Park,

Camberley, was the largest transaction in

the area and represents the most significant

transaction in the Thames Valley in

Q1 2010. Further activity has been recorded

since the quarter end with the 20,000 sq ft

letting to First Drinks at Bartley Wood

Business Park, Hook.

The tail off in activity in 2009 may be

partially attributable to the buoyant market

in the previous year, when take-up hit aseven year high of 540,000 sq ft.

Availability

Availability has almost doubled since the

end of 2008, rising to 1.9m sq ft at the

end of Q1 2010. There is a hidden supply

of good quality corporate space that is

available off market but is not reflected

in the current statistics.

The major cause of the increase in availability

has been the release of second hand floor

space onto the market. Good quality second

hand space increased to 1.3m sq ft from 0.5m

sq ft, while poor quality stock on the market

more than doubled, rising to 465,000 sq ft.

Grade A accommodation remains in

short supply, with only 142,233 sq ft

available, with no further floor space

currently under construction.

The availability rate rose to 23.7% of totalbuilt stock, representing 4.5 years supply

at the 10 year average level of take-up.

Prime rents

The weak occupational market exerted

downward pressure on both town centre

and out of town rents.

Out of town rents fell by 14.9% to reach

20.00 per sq ft at the end of 2009, while town

centre rents fell by 9.1% to reach the same

level. No further falls were recorded in Q1 2010.

Executive summary The occupational market in the

Blackwater Valley almost ground

to a halt in the 15 months to

the end of Q1 2010, with only

one transaction above 5,000

sq ft completing. Since the end of Q1 2010 market

sentiment has improved resulting

in the promise of renewed activity

in the second half of the year.

Total availability almost doubled,

rising to 1.9m sq ft or 23.4%

of built stock. Grade A stock

remains in short supply, with only

142,233 sq ft of new built floor

space on the market. Prime rents fell to 20.00 per

sq ft in both town centre and

out of town locations.

5,001-10,000 13%

10,001-20,000 29%

20,001-30,000 18%

30,001-50,000 40%

>50,001 0%

Requirements by size % of total sq ft






16/52

Bracknell


Bracknell now offersthe best value for

money in the Thames Valley.

0

200

150

100

50

250

2005 2006 2007 2008 2009 Q12010

Good second-handPoor second-hand New

10 year average

0

500

250

750

1,000

1,250

1,500

2005 2006 2007 2008 2009 Q12010

Good second-handPoor second-hand New

10

15

20

25

0

5

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010





Take-up

Take-up levels fell below its long run trend

level in 2009, with the total of 82,700

sq ft of activity some 44% below the

10 year average level.

Activity was focused on the second hand

market, with the two largest transactions

in poorer quality stock. The largest of these

deals was the 30,000 sq ft letting to

Waitrose at the Panasonic Building.

The slow occupational market has

continued into Q1 2010, with only one

transaction in excess of 5,000 sq ft

completing, the 5,500 sq ft letting to

MCM Select at 1 Bracknell Beeches.

Current demand is focused towards the

smaller end of the market, with 78%

of requirements for buildings of 30,000

sq ft and below.

Availability

Availability has risen by 51% since the

end of 2008, to stand at 1.3m sq ft at

the end of Q1 2010, with Grade A stock

accounting for 36% of floor space.

Grade A stock is based in four large

buildings, the largest being the 185,104

sq ft Capitol building at Oldbury.

Availability is dominated by larger buildings

with more than 70% of floor space on

the market in buildings of 30,000 sq ft

and above.

Total availability represents 30.4% of total

built stock, or, nine years supply based

on historic trend take-up levels.

Prime rents

Prime rents fell by 8% to 23.00

per sq ft by the end of 2009, prompted

by the weak occupational market.

Rental values will remain under pressure,

with the high availability rate holding

back growth.

Executive summary The Bracknell market has remained

under pressure throughout 2009

and early 2010, with take-up

some 44% down on long run

trend levels.

Availability is dominated by anumber of large buildings on

the market, more than 70%

of floor space currently being

marketed is in buildings of 30,000

sq ft and above.

Prime rents fell by 8.0% in 2009,

but remained stable in Q1 2010

as some signs of improvingoccupational demand were evident.

5,001-10,000 8%

10,001-20,000 13%

20,001-30,000 9%

30,001-50,000 19%

>50,001 51%






17/52

Fareham

www.lsh.co.uk

The first three monthsof 2010 has seen

lettings of 40,500 sq ftcompared to approximately90,000 sq ft of transactionsfor the whole of 2009.

0

300

250

200

150

100

50

2005 2006 2007 2008 2009 Q12010


10 year average

0

250

500

1,000

750

1,250

1,500

2005 2006 2007 2008 2009 Q12010


10

0

12

8

6

4

2

14

20

18

16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010






Take-up

The slowdown in the occupier market in

2009 appears to be the low point in the

market, with take-up in the first three

months of 2010 showing a notable

improvement on Q1 2009 levels.

The first three months of 2010 have seen

lettings of 40,500 sq ft compared to

approximately 90,000 sq ft of transactions

for the whole of 2009.

Occupational market activity has been

focused towards the out of town market,

which accounts for 64% of total activity

over the 15 month period to the end

of Q1 2010.

The majority of activity is directed

towards the second hand market, which

accounts for 83% of overall take-up

since the start of 2009.

Availability

Availability has remained relatively stable

since the end of 2008, rising by 2.7%

to end Q1 2010 at 1.3m sq ft. Grade A

stock accounts for 16% (210,000 sq ft)

of overall availability.

Almost 90% of availability is located out

of town, the principal focus of the office

market in Fareham. Town centre availability

accounts for 145,000 sq ft of floor space

currently on the market.

The availability rate stood at 22% at the

end of Q1 2010, up from 21.5% at the

end of 2008. This represents 10.6 years

supply of floor space at the long run

average take-up for Fareham.

Prime rents

The dominance of the out of town market

in Fareham has seen prime out of town

rents move ahead of town centre rents

over the past couple of years.

Prime out of town rents remained stable

at 19.00 per sq ft while town centre rents

have fallen by 21.1% to 15.00 per sq ft

due to a shortage of Grade A stock.

The level of incentives being negotiated

by tenants has notably increased over the

last 12 months.

Executive summary The office market in Fareham is

focused towards out of town

with almost two thirds of letting

activity over the past 15 months

in out of town locations.

Almost 90% of current availability,1.3m sq ft, is out of town, with only

210,000 sq ft in Grade A stock.

Prime rents in the town centre

market have fallen by 21.1%

to 15.00 per sq ft since the

end of 2008, while out of town

rents have remained stable at

19.00 per sq ft.

50,001 0%






18/52

0

200

150

100

50

250

2005 2006 2007 2008 2009 Q12010


10 year average

0

200

150

100

50

250

300

350

400

2005 2006 2007 2008 2009 Q12010


10

15

25

30

20

0

5

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010



Guildford




Take-up

The level of take-up in Guildford remained

below the long run trend level in 2009,

with 108,000 sq ft of lettings. The largest

transaction was the 46,000 sq ft letting to

lawyers, Stevens & Bolton, at Wey Court.

Remaining letting were focused on suites

of less than 10,000 sq ft. The market has remained difficult in

Q1 2010, with lettings of 11,700 sq ft

completing in five transactions.

Demand levels have weakened considerably

over the past two years as occupiers have

held back requirements due to economic

and political uncertainty.

Availability

Availability remained tight, with only

343,600 sq ft on the market and Grade A

availability representing only 9.1% of

overall availability.

Almost 40% of available stock is in suites

and buildings of less than 10,000 sq ft

while there is only one building above50,000 sq ft on the market.

The availability rate stands at 10.1% of

total built stock, well below the average

for the Thames Valley and South East

office markets.

Prime rents

Prime rents have remained relatively

stable because of the tight supply

conditions in the Guildford market.

Prime town centre rents eased back to

27.00 per sq ft in 2009, a fall of 1.8%,

but remained steady at that level through

to the end of Q1 2010.

Rents in the out of town market have

remained stable at 25.00 per sq ft

although tenant incentives have risen.

Rents are likely to rise in the town centre,

where the supply of large Grade A space

is limited.

Executive summary Prime rents have remained relatively

stable in Guildford throughout the

economic downturn.

Supply has remained tight, with

availability standing at 10.1%

of total built stock, well belowthe regional average. Grade A

availability accounts for less than

10% of overall stock on the

market with no new buildings

currently under construction.

The weak occupational market

has seen take-up remain below

trend over the past two yearsand signs in Q1 2010 are for a

continuation of this trend.

50,001 16%





Take-up has remainedbelow trend and

signs in Q1 2010 are fora continuation of this.



19/52

Heathrow

www.lsh.co.uk

The Heathrow marketcontinues to struggle

and, once again, Stockley Parkis expected to account formost of the activity in 2010.

0

300

250

200

150

100

50

350

2005 2006 2007 2008 2009 Q12010


10 year average

0

500

250

750

1,250

1,000

1,500

2005 2006 2007 2008 2009 Q12010


10

15

20

30

0

5

25

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010





Take-up

Take-up in the Heathrow office market

remained weak over 2009 and into Q1

2010, continuing the trend that was

established in the previous year.

Total activity was 170,600 sq ft in 2009,

with more than 70% of take-up

accounted for by the four lettings atStockley Park. The largest of these was

the 93,055 sq ft letting to Canon at The

Square, Stockley Park.

Occupiers have taken advantage of the

favourable terms on offer, targeting

Grade A stock, which accounted for

81% of total letting activity in 2009 and

almost 90% of the take-up in Q1 2010.

Availability

Availability increased by 61% from its

end 2008 level, rising to 1.5m sq ft at

the end of Q1 2010. Both Grade A and

second hand availability rose, increasing

by 50% and 79% respectively.

Grade A stock accounts for 57% of total

availability, with 824,300 sq ft on themarket. Two thirds of Grade A availability

is contained in four buildings of above

50,000 sq ft, the largest of these being

the 275,750 sq ft building at London

Gate, Hayes.

Availability stands at 18.8% of total

built stock, which represents 4.3 years

supply based on the 10 year average

take-up trend level.

Prime rents

Prime rents returned to their 2004 level,

falling to 25.00 per sq ft at the end

of 2009, a decline of 9.1% and will

remain under pressure until supply

conditions improve.

Tenant incentives increased significantly

over the year, although there are signs

that these may have levelled.

Executive summary The Heathrow market has

remained weak since the onset

of the recession, with take-up

below its 10 year average level

and availability rates rising.

Tenants have targeted Grade Aaccommodation, taking advantage

of the favourable terms on offer

from landlords looking to secure

lettings and reduce their empty

rates liability.

Prime rents fell back to their

2004 level, falling back to 25.00

per sq ft at the end of 2009although tenant incentive packages

have increased.

50,001 49%






20/52

Maidenhead


0

200

150

100

50

250

2005 2006 2007 2008 2009 Q12010


10 year average

0

200

300

100

400

600

500

700

800

2005 2006 2007 2008 2009 Q12010


10

15

20

30

0

5

25

40

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010





Take-up

Take-up fell in 2009, below its long run

trend level of 200,000 sq ft per annum,

registering 112,000 sq ft for the year.

Activity was focused on second hand

space, which accounted for 75% of

total activity.

Three lettings over 5,000 sq ft stole the

headlines with two transactions in thetown centre. Bell Tower House let for

Mapeley to BCD Travel and Third Floor,

The Place, Bridge Avenue, let for CBRE

to Alfresco Software.

The third and largest transaction was

the 25,000 sq ft letting at Q1 Quantum

to Compuware.

Availability

Availability has increased since the end of

2008, rising by 20% to reach approximately

600,000 sq ft at the end of Q1 2010.

Almost 60% of overall availability is in

Grade A new build stock.

The out of town and town centre markets

both offer a range of buildings up to

85,000 sq ft.

The overall availability rate rose to 14.6%

of total built stock at the end of 2009 but

moved to 13.5% by the end of Q1 2010.

Current availability represents approximately

three years supply, based on historic

average take-up levels.

Prime rents

Prime rents in Maidenhead continued to

fall during 2009 and into Q1 2010. The

overall fall in rents over the past 15 monthshas been 13.3%, with the sentiment for

headline rents standing at 26.00 to

28.00 per sq ft at the end of Q1 2010.

With so many options available, tenants

have great leverage in the market, not

least in lease regear situations where the

negotiation of concessionary terms has been

a significant characteristic of this market.

Executive summary Take-up has yet to recover from

its 2009 level, with Q1 2010

take-up standing at 11,500 sq ft

compared to 112,000 sq ft in

the previous 12 months.

Availability has increased overthe past 15 months with an

increase in Grade A new build stock.

Almost 60% of total availability is in

Grade A new build accommodation.

Lack of deals makes assessing prime

rents less than scientific but current

levels are likely to be mid/late 20.00per sq ft ahead of incentives.

50,001 35%





With some 40,000sq ft in solicitors

hands in Q2 and enquirieson the increase we expectthe second half of 2010to be more successful.


21/52

Milton Keynes

www.lsh.co.uk

The relatively buoyantoccupational market

has seen prime town centreand out of town rentsremain stable.

0

400

350

300

250200

150

100

50

2005 2006 2007 2008 2009 Q12010


10 year average

0

500

250

750

1,500

1,250

1,000

1,750

2005 2006 2007 2008 2009 Q12010


0

15

10

5

25

20

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010






Take-up

Take-up remained at long run trend levels

in 2009, with 319,408 sq ft of activity

recorded. Almost 40% of take-up was of

Grade A accommodation, with the largest

transaction being the 62,000 sq ft letting

to Network Rail at MK Central.

More than 63% of activity in 2009 wasfocused towards the town centre market,

although this trend was reversed in the

early part of 2010, with the majority of

lettings arising out of town.

The market slowed in Q1 2010 with

54,200 sq ft of lettings completed.

The majority of this activity was focused

towards the second hand market.

Availability

Overall availability increased by 21% in

the 15 months to the end of 2009 as the

levels of second hand stock released onto

the market has gathered momentum.

Total availability amounts to 1.7m sq ft

at the end of Q1 2010.

Current availability amounts to 5.1 yearssupply, based on the historic trend rate

of take-up, while there continues to be a

shortage of Grade A accommodation,

which amounts to 94,000 sq ft of space.

Availability is dominated by second hand

space, which accounts for 94% of floor

space, the majority of second hand space

being in good quality accommodation.

The current availability rate stands at

22.9% of total built stock, up from 18.9%

at the end of 2008.

Prime rents

The relatively buoyant occupational

market throughout 2009 has seen prime

town centre and out of town rents remain

stable at 20.00 per sq ft and 17.50 per

sq ft respectively.

An easing in the demand for floor space

may challenge these levels, although the

shortage of Grade A stock may help to

support rental levels.

Executive summary Take-up levels remained buoyant

in the Milton Keynes market

during 2009, although activity

levels have eased in Q1 2010.

Availability has risen by 21%

since the end of 2008 to 1.7msq ft, due principally to the

release of second hand space

onto the market. There continues

to be a shortage of Grade A

accommodation, with only 94,000

sq ft of space available.

Prime rents have remained steady

in both town centre and out oftown markets, at 20.00 per sq ft

and 17.50 per sq ft respectively.

50,001 47%






22/52

Newbury


0

100

75

50

25

125

150

2005 2006 2007 2008 2009 Q12010


10 year average

0

100

150

50

200

300

250

350

400

2005 2006 2007 2008 2009 Q12010


10

0

5

15

20

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010





Take-up

Take-up in Newbury recovered from

a low point in 2008, with total occupational

market activity of 49,711 sq ft for the

calendar year 2009. This was up from

30,800 sq ft in the previous year. Activity

was focused on good quality, second hand

space, with no Grade A stock currentlyavailable in the town.

The largest transaction in 2009 was the

purchase by West Berkshire Council of the

freehold interest in 24,000 sq ft West Street

House, West Street, for 4.2m.

No transactions over 5,000 sq ft were

completed in the town in Q1 2010 due to

tenants deferring their occupational decisions.

Availability

Total availability increased by 15%

between the year-end 2008 and the end

of Q1 2010 due to the release of good

quality, second hand space onto the

market. Overall stock on the market

amounted to 232,000 sq ft.

Availability has remained low in relation toother markets in the Thames Valley because

of the lack of new development in the

town. Floor space on the market consists

entirely of second hand space, with almost

three quarters of stock in good quality,

second hand buildings.

The availability rate increased to 5.8% of

total built stock, up from 5% at the end of

2008, which equates to 2.7 years supply

at long run historic take-up levels.

Prime rents Rental values have been volatile over

the past few years, recovering from the

downturn in 2008 which resulted from

a slump in letting activity.

Prime rents increased by 3% in 2009 to

17.00 per sq ft on the back of increased

activity in the Newbury market.

Executive summary Take-up was down by 61% from

the low point in 2008, with

49,711 sq ft of take-up recorded

for the year. Despite the recovery

in activity, take-up in 2009 was

still 40% below the long run trend. Availability has increased over the

past 15 months. The increase is

due to the release of good quality,

second hand space onto the

market. The lack of development

activity around the town has

resulted in no Grade A stock

being marketed. Prime rents grew by 3% in 2009

to end 2009 at 17.00 per sq ft.

5,001-10,000 43%

10,001-20,000 47%

20,001-30,000 10%

30,001-50,000 0%

>50,001 0%





The Newburymarket lacks new,

high quality, refurbishedoffice space.


23/52

Oxford

www.lsh.co.uk

The main focusof demand in

Oxford has been derivedfrom the biotech andpharmaceutical sectors.

0

250

200

150

100

50

300

2005 2006 2007 2008 2009 Q12010


10 year average

0

400

200

600

800

1,000

1,200

2005 2006 2007 2008 2009 Q12010


15

0

10

5

20

25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010

Out of townCity centre





Take-up

Take-up recovered sharply in 2009, with

overall lettings up to 279,970 sq ft, 44%

higher than the previous years total.

The first three months of 2010 has been

particularly slow with no letting greater

than 5,000 sq ft completing. Activity was boosted by several large

transactions out of town, the biggest being

the 41,500 sq ft letting to Vertex at 86-87

Milton Park. Overall, activity in the out of

town market accounted for more than

three quarters of letting activity.

Lettings of Grade A accommodation

accounted for 53% of activity. The

remaining activity was mainly good

quality, second hand space.

Availability

Following the strong occupier market in

2009, availability reduced in Oxford, falling

by 24% to 869,500 sq ft, 12.2% of total

built stock, representing 3.6 years supply

at long run trend levels of take-up.

Grade A availability stands at 413,596sq ft, 48% of total built stock, with

57% of new built stock in out of town

locations. This is indicative of the Oxford

market where almost 70% of overall

availability is in out of town locations.

Availability is focused towards the smaller

end of the market, with buildings of less

than 20,000 sq ft accounting for 64%

of total floor space.

Prime rents

Prime rents in the city centre market

re-adjusted to their 2007 levels in Q1 2010,

falling by 4.2% to 23.00 per sq ft. This

re-established the parity between city

centre and out of town markets which

diverged in 2008.

This is the first fall in rents recorded in

the Oxford office market since 2004.

Executive summary Take-up of 279,970 sq ft in

2009 represented a 44% increase

over the previous years total,

establishing Oxford as one of the

few markets in the South East to

see an increase in occupationalactivity during the year.

Availability fell to 869,500 sq ft,

12.2% of total built stock, a

decline of 24% from the levels

of floor space on the market at

the end of 2008.

Prime rents city centre fellback to 23.00 per sq ft by the

end of 2009, the first fall in

Oxford office rents since 2004.

5,001-10,000 34%

10,001-20,000 31%

20,001-30,000 14%

30,001-50,000 14%

>50,001 7%






24/52

Reading


0

600

500

400

300

200

100

700

800

2005 2006 2007 2008 2009 Q12010


10 year average

0

750

500

250

1,250

1,000

1,500

1,7502,000

2,250

2005 2006 2007 2008 2009 Q12010


20

0

25

15

10

5

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010






Take-up

Take-up recorded its lowest total in more

than 10 years, with total occupational

market activity of 185,764 sq ft in 2009.

The major slowing in activity occurred inthe town centre market, which accounted

for only 38,820 sq ft, while out of town

take-up was 146,944 sq ft.

The two largest transactions were out

of town; the 55,000 sq ft letting to the

University of Reading at the Enterprise

Centre was the largest deal, while Thames

Waters acquisition of 43,314 sq ft at 550,

South Oak Way, registered the second

largest transaction. These lettings accounted

for the total of Grade A take-up, while the

remainder of take-up for the year was

focused on second hand space.

Q1 2010 has got off to a slow start with

only 22,260 sq ft let, in two transactions

at Plaza West in the town centre.

Since the end of Q1, Kaplan completed the

acquisition of 12,425 sq ft at The Blade.

Availability

Availability surpassed the 2m sq ft markfor the first time in Q1 2010, increasing by

7.3% from the end 2008 level. Grade A

availability also increased, rising to just over

1m sq ft, with 80% of available new

built stock out of town.

The increase in floor space on the market

was wholly attributable to the increase in

stock being marketed out of town, which

accounted for 62% of overall availability

at 1.3m sq ft.

The current availability rate stands at 22%

of total built stock, which represents fiveyears supply based on the long run trend

rate of take-up for the Reading market.

Prime rents

Readings out of town market has seen

prime rental values come under pressure,

falling by 11.5% since the end of 2008.

Town centre rents have remained relatively

firm at 28.50 per sq ft with only limited

occupational activity recorded.

Executive summary The occupational market in

Reading has been difficult over

the past 15 months with take-up in

2009 reaching 185,764 sq ft, the

lowest recorded in over 10 years.

The difficult market conditionspushed availability up to 22%

of total built stock, the highest

recorded since 2001/02. Grade A

accommodation accounts for

47% of the total 2.1m sq ft.

Readings out of town market has

suffered like other Thames Valley

centres and rents have fallen to

23.00 per sq ft. The town centre

market has been a phenomena,

with rents on new/prime officesclose to the station remaining at

28.50 per sq ft over the last

18 months, in contrast to the rest

of the Thames Valley market.

5,001-10,000 12%

10,001-20,000 11%

20,001-30,000 11%

30,001-50,000 9%

>50,001 57%





Town centre rentsremain firm while

out of town rents areunder pressure.


25/52

Slough

www.lsh.co.uk

2010 may be theyear for the Slough

market to rebound fromthe doldrums.

0

300

250

200

150

100

50

350

400

2005 2006 2007 2008 2009 Q12010


10 year average

0

400

200

600

800

1,000

1,200

2005 2006 2007 2008 2009 Q12010


20

0

25

15

10

5

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010






Take-up

Occupational market activity in Slough

fell below its long run average level for the

second successive year in 2009, recording

take-up of 126,300 sq ft, some 48% down

on the 10 year average for the town.

Q1 2010 saw 25,000 sq ft of transactions

recorded although in the weeks followingthe quarter end a number of transactions

completed suggesting that the Slough

market may be recovering from a period

of weak occupational demand.

Take-up was held back by the shortage

of large transactions. No transactions

have completed in excess of 20,000 sq ft

over the past 15 months. The largest

transaction was the 18,000 sq ft letting

at Betjeman Place, Bath Road.

Following the end of Q1 2010, the

freeing up of space by Hospedias moveto Landmark Place has enabled RIM

(Blackberry) to increase its occupation

at Thames Valley Court by 45,000 sq ft.

The RIM transaction was completed

in April 2010.

Availability

Availability increased by 11% from its

end 2008 level, to end Q1 2010 at

917,690 sq ft. The increase in availabilitywas largely due to the rise in Grade A

stock on the market, which rose by

32% to 296,300 sq ft.

The availability rate increased to 21%

of total floor space at the end of Q1

2010, up from 17.1% at the end of 2008.

Current availability represents 7.3 years

supply of floor space based on the take-up

levels in 2009. However, this reduces to

3.7 years when compared to the long run

trend take-up level.

Current market supply is dominatedby building of 20,000 sq ft and above,

which accounts for 70% of total floor

space on the market.

Prime rents

Prime town centre rents have now fallen

to 20.00 per sq ft.

Rental levels in Slough have fallen back

to mid 1990 levels, having peaked at

32.00 per sq ft in 2001.

Executive summary Take-up levels have remained below

the long run trend rate for Slough

for the past two years but early

indications are that 2010 may

prove to be a year of recovery.

The supply of stock on the markethas also increased, rising to 21%

of total built stock, with the

majority of the increase due to

the rise in Grade A stock which

represents 32% of total availability.

Prime rents fell back to mid 1990

levels, standing at 20.00 per sq ft

at the end of Q1 2010, 37.5%below their 2001 peak.

5,001-10,000 13%

10,001-20,000 16%

20,001-30,000 26%

30,001-50,000 19%

>50,001 26%






26/52

Southampton


0

350

300

250

200

150

100

50

400

2005 2006 2007 2008 2009 Q12010


10 year average

0

200

400

800

600

1,000

2005 2006 2007 2008 2009 Q12010


0

15

10

5

25

20

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010






Take-up

Take-up in the Southampton market has

fallen below the 10 year average for the

town since 2007, averaging 125,000 sq ft

over the past two years compared to

the long run average of 235,000 sq ft

per annum.

Activity in the town is dominated by lettings

of less than 20,000 sq ft. All activity over

the past 15 months has been focused

entirely towards this area of the market.

An improvement in activity has been

seen in 2010, with 54,000 sq ft of

take-up registered in the first three

months of the year.

Availability

Availability has fallen during Q1 2010,

as letting activity has begun to gather

momentum. Total availability fell to 504,000

sq ft, with 20% of floor space on the market

in Grade A stock.

The town centre market dominates

availability, accounting for 72% (364,000

sq ft) of floor space on the market. More

than 59% of availability, both in town

and out of town, is in buildings or suites

of less than 10,000 sq ft.

Prime rents

Prime town centre rents fell by 4.8%

over the last 12 months to the end of 2009

but have remained stable at 20.00 per

sq ft over the first three months of 2010,

although tenant incentives continue to rise.

The out of town market has seen greater

falls, with prime rents down by 10% from

their end 2008 levels to 18.00 per sq ft.

Executive summary The office market in Southampton

is focused around the town centre,

with take-up over the past 15

months split 80:20 between town

centre and out of town lettings.

Town centre availability accountsfor 72% of the total 504,000 sq ft

of floor space on the market.

Shortages exist in Grade A stock

which represents just 20% of

overall availability.

Town centre rents have fallen by

4.8% over the past 15 months,

compared to the 10% fallsseen in the out of town market.

50,001 0%





Availability has fallenduring Q1 2010 as

letting activity has begunto gather momentum.


27/52

Staines

www.lsh.co.uk

The supply of GradeA space will increase

this year resulting in furtherdownward pressure onrents as void rates rise.

0

150

200

100

50

250

300

2005 2006 2007 2008 2009 Q12010


10 year average

0

200

100

300

500

400

600

700

2005 2006 2007 2008 2009 Q12010


15

20

25

35

0

10

5

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010





Take-up

Occupational market activity has remained

strong in the Staines market over the past

three years, registering take-up levels at, or

above, the long run trend level of take-up

for the town.

Overall take-up in 2009 was 20% higher

than in previous years. Grade A stock

accounted for 53% of the lettings. The

largest lettings were at Pine Trees Office

Park, Chertsey Lane, where BUPA acquired

a total of 81,560 sq ft.

The first three months of 2010 has seen a

disappointing start to the year with only

one deal of 1,200 sq ft completing.

Availability

The rise in availability at the end of 2009

was partially reversed in the first three

months of the current year, standing at

594,300 sq ft at the end of Q1 2010.

More than 60% of total availability is in

buildings of 30,000 sq ft or above, with

a shortage of stock below 10,000 sq ft.

Grade A availability represents 26% of

total availability, with a further 93,800

sq ft approaching completion at Opus 1,

The Causeway.

The availability rate stands at 19.3% of

total built stock, which represents 5.4

years supply of floor space at long run

trend rates of take-up.

Prime rents

Prime rents fell back by 10.3% to 26.00

per sq ft by the end of 2009 as activity

levels slowed in the second half of the year.

Rents remained stable at their end 2009

levels during Q1 2010, although the lack

of activity in the occupational market has

made it difficult to identify the current

rental level.

Executive summary The second half of 2009 saw activity

levels slow, after a buoyant start to

the year, which was prompted by

several large lettings at Pine Trees

Office Park. This trend was continued

into Q1 2010. Availability has eased marginally,

but remains at 19.3% of total

built stock, with 151,800 sq ft

of Grade A space on the market.

Prime rents have fallen back by

10.3% to 26.00 per sq ft,

although lack of evidence has

made it difficult to establish thetrue rental level.

50,001 21%






28/52

Uxbridge


0

400

300

200

100

500

2005 2006 2007 2008 2009 Q12010


10 year average

0

200

100

300

500

400

600

700

2005 2006 2007 2008 2009 Q12010


20

0

25

15

10

5

Documents

LSH National Office Report July2010