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EMEA Corporate Occupier Conditions - Q2 2011

Western Europe: Corporate Occupier Conditions

Closer to the tipping point

2 On Point • EMEA Corporate Occupier Conditions – Q2 2011

WESTERN EUROPE: Corporate Occupier Conditions Europe’s broad-based recovery is set to consolidate this year. There remain however wide variations in economic outlook across the region. The recent debt bail-out negotiations in Portugal have been a reminder of lingering sovereign debt risks and ongoing fiscal tightening, particularly in Greece, Spain and Portugal. Inflationary worries have also moved centre-stage with interest rate rises looming. Western European GDP growth is forecast to be 1.9% in 2011 and not exceed 2% per annum before 2015. Corporate confidence continues to be robust with the European Commission’s Confidence Indicators running at around the long-term average with a clear rebound from the despair of early 2009.

Q1 saw healthy levels of occupier activity across the market with the re-emergence of expansionary demand in some, albeit select, markets. Most demand continues to be driven by consolidation or rationalisation needs and is facilitated by upcoming lease events. 2.6 million sq m of office space was let across Europe over Q1- a reduction q-on-q but explained by seasonality effects. Volumes were broadly similar to Q1 2010 and just below the 5 year quarterly average. In Western Europe activity was strong in Stockholm, Milan and Dusseldorf. London – which is ahead of the overall market cycle – showed reductions in take-up volumes q-on-q but, encouragingly, the levels of demand in the market grew.

Exhibit 10: Western Europe Office Occupier Clock

Vacancy rates moved only marginally in the majority of markets with the overall European vacancy rate moving up by 10bps to 10.3%. Nine of our core index markets showed vacancy increased with the largest increase recorded in Rotterdam (+170 bps) and Amsterdam (+50bps). However, rates fell in 15 markets with the greatest reduction occurring in Dublin (-120 bps). An important point to note is that in many markets vacancy rates for good quality office space is low and it is this dynamic that continues to drive prime rent stabilisation or growth. In contrast, the supply of second hand, lower quality space is high and remains available at a significant discount to prime. The development pipeline provides little comfort. Over Q1 less than 1 million sq m of new office space was completed across Europe – down a third on the 5 year average. We expect annual European office completions to be 30% down on the 5 year average and represent the lowest level of new completions for more than a decade.

Prime rents grew modestly across Europe over the quarter with the European Office Index increasing by 1.5% q-on-q. This overall increase was driven almost exclusively by continued rental growth in London’s West End and Moscow. On a market by market basis the general message is one of stabilisation of prime rents. Southern European markets continue to display a softening of rents with the Spanish markets again showing rental decline over the quarter. Although the rate of decline has diminished somewhat, further rental reductions are anticipated. 23 of the 38 markets plotted on the Western European Office Occupier Property Clock are positioned at or beyond 6 o’clock, indicating rental growth. Significantly there are no markets positioned in the rents falling quadrant with the remaining 15 markets all approaching the bottom of their rental cycle. The performance differential between prime and secondary markets persists however as occupiers continue to release surplus, lower quality space back to the market.

Rental GrowthSlowing

RentsFalling

Rental GrowthAccelerating

RentsBottoming Out

Athens, LisbonBarcelona, Edinburgh, Leeds,Madrid, LuxembourgBrussels, Dublin, RomeAmsterdam, Eindhoven, Rotterdam,The Hague, UtrechtBirmingham, Frankfurt, Glasgow,Hamburg, Milan, Stuttgart

Copenhagen, Malmo, Western Corridor

Berlin, Gothenburg, Helsinki, Manchester,Munich, Paris

Lyon, Stockholm

Düsseldorf, Geneva

Oslo

London West End, Zurich

London CityRental Growth

SlowingRentsFalling


RentsBottoming Out


RentsFalling


RentsBottoming Out


RentsFalling


RentsBottoming Out

Athens, LisbonAthens, LisbonBarcelona, Edinburgh, Leeds,Madrid, LuxembourgBarcelona, Edinburgh, Leeds,Madrid, LuxembourgBrussels, Dublin, RomeBrussels, Dublin, RomeAmsterdam, Eindhoven, Rotterdam,The Hague, UtrechtAmsterdam, Eindhoven, Rotterdam,The Hague, UtrechtBirmingham, Frankfurt, Glasgow,Hamburg, Milan, StuttgartBirmingham, Frankfurt, Glasgow,Hamburg, Milan, Stuttgart

Copenhagen, Malmo, Western CorridorCopenhagen, Malmo, Western Corridor



Lyon, StockholmLyon, Stockholm

Düsseldorf, GenevaDüsseldorf, Geneva

OsloOslo

London West End, ZurichLondon West End, Zurich

London CityLondon City

On Point • EMEA Corporate Occupier Conditions – Q2 2011 3

Amsterdam

Cost: € 335 / sq m Competition:24, 250 sq m Choice: 17.2%

Supply increased in more peripheral submarkets this quarter driven by a trend toward consolidation by some occupiers. Occupiers are looking for multi-functional locations – areas which offer leisure amenity as well as good workplace. Leasing volumes totalled around 24,000 sq m with a mixture of sectors behind the figures with the largest deal – at 2,700 sq m – being to Black Box Operations. There were no signs of expansion, with deals typically for the same space or less although sentiment appears to be improving amongst the local occupier base. Going forward the pipeline is manageable with almost all future completions pre-let with one exception. Prime and secondary values were stable and incentives remained static for prime but increased slightly overall.

Antwerp

Cost: € 136 / sq m Competition: 21,350 sq m Choice: 12.9%

Leasing volumes totalled around 21,000 sq m, down 40% in comparison to the same period last year. Despite the lack of completions, supply increased further as a result of some large tenants vacating space due to relocations. Development activity is expected to remain very low over the next few years. Only one project of 5,900 sq m is expected to be delivered speculatively during Q3 2011 in the Ring district (Helsmoortel III building) and another speculative project of 12,600 sq m is expected in 2012. Although these levels are quite low if compared to the ten year average, the pipeline has frequently experienced ups and downs in its volumes. Prime rents remained stable over the fourth quarter in all submarkets, peaking at €136/ sq m pa in the Ring district. 2011 should see some limited rental growth, driven primarily by supply shortages for certain types of space.

Athens

Cost: € 306 / sq m Competition: n/a Choice: 14.2%

The Greek economy continues to face strong headwinds and needs additional funding to sort out its debt problems and rising unemployment. The office market has been heavily impacted. Prime rental levels are up to 25% below their peak in Q4 2008 / Q1 2008. The market remains tenant friendly although there has been no new supply released and speculative development has ceased. Landlords are offering incentives or rental reductions in order to retain tenants. For their part, occupiers are essentially focused on consolidation and downsizing or are relocating in order to cut costs. Vacancy rates are edging up to 14.2% for Greater Athens as a whole, even though it is lower in more popular areas such as Athens North. Over the medium term Athens South is expected to gain more momentum as four different metro stations are scheduled to materialize along Vouliagmenis Avenue thus improving accessibility.

Barcelona

Cost: € 228 / sq m Competition: 65,000 sq m Choice:13.2%

Take-up exceeded 65,000 sq m, an increase of 15.2% q-on-q but down -32.2% compared to Q1 2010. Demand is still determined by broader global economic factors. We anticipated that take-up volumes for 2011 will reach close to 250,000 sq m - more or less in line with 2010 but down by around -21% compared with the ten year average. For the first time in four years, the overall vacancy rate began to decrease. Looking ahead we expect the supply of office space to continue to gradually decline due to the lack of new projects in the pipeline. Prime rents fell 1.3% over Q1 and we expect further slight rental declines throughout the remainder of the year before rents start to bottom out. In the main, occupiers seeking mid and large scale office space are still able to achieve generous rent free periods, attractive volume-based discounts and incentives which help lower the rent payable in the early years of the lease.


Berlin

Cost: € 246 / sq m Competition:131,900 sq m Choice: 9.0%

Q1 take-up hit a 10-year record at almost 132,000 sq m exceeding the five-year average by 38%. The largest deal over Q1 was Mercedes Benz AG who took around 26,000 sq m in the East sub-market. The vacancy rate fell slightly q-on-q due to very low volumes of speculative completions (2,000 sq m) and also positive net absorption of around 120,000 sq m. 40% of vacant space is located in secondary locations in the city centre (Inner-city East and West) with less than 4% located in the prime sub-market of Potsdamer / Leipziger Platz. Prime rents remained stable q-on-q. Owing to strong demand for prime space, we forecast slight increases in prime rents by year end. c 40% of the lease contracts for office space were for rents of between €10 and 15 €/sq m/month. Many landlords are still prepared to grant incentives that can amount to between 5% and 10% of the nominal rent for a five-year commitment.

Birmingham


Q1 2011 has seen continued interest from occupiers although this has not necessarily translated into leasing deals. Take-up exceeded 9,000 sq m in Q1 - down 45% on Q1 2010. Activity was driven primarily by the services sector which accounted for 64% of total take-up. Supply in Birmingham city centre remained relatively stable compared with the previous quarter. No speculative completions are scheduled for this year and as a result even modest levels of take-up will absorb supply. Grade A supply remains constrained with just 64,000 sq m still available. Further ahead there is just 12,000 sq m due to complete speculatively over 2012-13. Consequently, occupiers seeking nudged prime rents up 1.8%, to £307.00 per sq m. Incentives remain generous at around 36 months based on a 10 year term. The rest of the market is still competing hard for occupiers with the gap between prime and secondary widening further.

Brussels

Cost: € 310 / sq m Competition:47,000 sq m Choice: 11.2%

The lack of speculative completions combined with the low level of take-up activity in Q1, kept the overall vacancy rate stable q-on-q. Future development activity remains limited with an estimated 127,000 sq m due to complete over 2011, of which only 15,500 sq m is speculative. Compared to the ten year average of 365,000 sq m, future completions remain very low. Vacancy rates are forecast to gradually decline as demand begins to improve. Supply is likely to fall fastest within the CBD where occupier preference remains strongest. Take-up during Q1 2011 was low when compared with a quarterly average of 110,000 sq m during the last two years. Prime rents stabilised at €310 per sq m. Elsewhere prime rents range from €165 sq m in the Periphery to €230 sq m in the city centre. The gap between face rents and economic rents, estimated on average at 15%, may decrease in the CBD in the next few years due to the lack of new supply coming onto the market.

Copenhagen

Cost: € 235 / sq m Competition: n/a Choice:9.1%

The occupational market is improving and with little new development, vacancy rated declined by 80 bps q-on-q. Some hiring from the financial public services sector who typically look at space beyond the CBD is evident. Although occupier preference remains for the CBD, occupiers are willing to look for greater in terms of rents. Grade A, centrally located and efficient space is a pre-requisite however. Future development does seem more likely with the larger requirements in the market able to drive development commencements that require a minimum 50% pre-let. These larger requirements are finding it especially difficult to secure existing accommodation in excess of 2,500-3,000 sq m - a typical requirement size for IT or finance sectors. Prime rents increased to DEK 1,750 per sq m q-on-q. Although rental values have remained stable for secondary space there is evidence of some upward pressure for the better quality space in secondary areas.


Dublin


There was a positive start to the year with take-up reaching around 50,000 sq m – up 98% on the same period a year ago. Notable deals include Google taking 19,340 sq m and the acquisition of 6,900 sq m by the Bank of Ireland. The the majority of transactions were however much smaller at less than 700 sq m. Positively, enquiries increased 31% q-on-q and there is around 22,600 sq m reserved for take-up in the second quarter. Relocation options are being considered ahead of renegotiations. Overall supply fell as a result of limited completions and strong take-up. Vacancy rates remain high however at 21.5%. Development activity remains shelved due to over supply, lack of finance and low rental levels and this trend is likely to continue for the foreseeable future. Prime headline rents stabilised at €377 per sq m with rents s in Suburban and City Edge areas in the range of €140-183 per sq m. Rent free periods are hardening at typically 9 months on a 5-10 year lease.

Dusseldorf


Q1 office take-up reached 95,400 sq m – a 43% decline on Q1 2010 but this merely reflects the inflated performance of last year due to Vodafone’s commitment to 90,000 sq m. Publicis accounted for the largest letting in Q1 2011 taking around 11,800 sq m in the “Le Quartier Central” project. The vacancy rate fell slightly q-on-q but but remain at a high level. Completions for the quarter were moderate at 10,000 sq m and 6,000 sq m of this was speculative. Prime rents increased for the 3rd time in a year and by the end of 2011 we expect rents to have increased further due to strong demand for high-quality space in the up-market segment. The rental price for the majority of deals ranges between €10 and 15 €/sq m/month however. Landlords remain willing to grant incentives, but less so for prime properties in prime locations. Outside of such locations, it is still possible to obtain incentives of up to 10% for a five-year commitment.

Edinburgh


Q1 take-up was down 33% q-on-q at around 14,000 sq m. Around 80% of deals were for units of less than 500 sq m. Despite the drop in take-up, enquiry levels remain healthy. Activity will continue to be driven by lease events. Overall vacancy rates fell to 7.3%, driven largely by declining Grade B space. The Grade A market is more constrained however, with vacancy rates stable at just 3.5%. There is just one speculative scheme under construction presently. Choice will continue to erode as space is steadily absorbed. Developers are beginning to position to take advantage of the impending shortage of Grade A supply and the anticipated increase in lease events expected over the next 2-3 years. Prime rents were stable q-on-q, as were Incentives with between 32-36 months rent-free achievable on a 10 year term. While rents are forecast to remain stable throughout 2011, there is some risk of rental increases depending on the speed with which demand recovers.

Eindhoven


Choice in the market is broadly stable with little high quality space available. There is a dearth of larger floors in the market and with an occupier base looking for large floors of Grade A there is a clear mismatch. The largest transaction of Q1 was KPMG’s 7,000 sq m deal but Logica also took 1,600 sq m in a contrary trend in which it moved to the airport area from the City Centre. Prime rents are stable at the pre-crisis level of around €185 per sq m. There has been little movement due to the scarcity of quality supply in appropriate unit sizes. There is more downward pressure in the secondary market due to the increased supply here.


Frankfurt


The occupational market is strengthening at a modest pace with 2011 expected to witness similar take-up volumes to 2010 but via a wider spectrum of occupiers. Requirements in the market have increased but conversion to deals is still somewhat slow. Occupier preference has been for better, more flexible space to the extent that the 5 biggest deals were actually for pre-lets. There is more confidence in the supply side and Frankfurt has witnessed a higher volume of speculative development commencements in Q1 amid pressure to commence stalled schemes before permissions expire. Supply has therefore increased q-on-q and was further driven by occupier releases of space. There will be greater polarisation between grades of space. Rents were stable for both prime and secondary space but growth is more likely for prime with increases to €34 per sq m per calendar month later in this year.

Geneva


Demand for prime space remains high particularly from financial institutions, wealth managers and associated service providers. With supply at very low levels and often in off-CBD locations, prime rents have started to increase again. Office vacancy rates in the city centre are sub 1%. Limited development plots plus a tedious planning process will limit future supply in the CBD. 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. Given positive economic prospects for the region and a lack of new supply, rents are expected to rise further. Office space is more widely available and trading at a discount – for example CHF600 in the airport area – but is often of lower quality and lacks vital access to amenities.

Glasgow


Supply increased q-on-q following the addition of Grade B space onto the market. In contrast, Grade A supply remains constrained with a Grade A vacancy rate of 3.2%. The development pipeline remains switched off with no space under construction in the City centre and no speculative starts anticipated over the coming year. We expect the gradual erosion of Grade A supply to continue. Q1 take-up was up 3.7% on a year ago with notable deals including 3,100 sq m deal to Mercer and the acquisition by Ernst & Young of 1,100 sq m. While we do not expect to see a significant bounce back in demand, we do anticipate enquiry numbers to improve over the coming year. Prime rents increased 1.9% q-on-q and incentives are between 24-30 months on a 10 year term. We expect further rental increases over the course of the year, driven by the gradual decline of Grade A space. In contrast the Grade B market remains competitive with landlords competing for occupiers.

Gothenburg


The occupational market had a very strong quarter with volumes almost double those of Q4 2010 at around 34,000 sq m. The Public Sector dominated with around a 30% share but the financial sector was also active. There was clearly more optimism in the occupational market and focus was very much on central areas where current supply is tight. Outside of the CBD supply increased due to companies downsizing or moving more centrally – on top of the effect of completions witnessed in 2010. Despite the optimism, there was no upward movement in prime rent this quarter after Q4’s increase, but pressure is building for an upward move later this year. Rents in secondary areas were stable. Going forward we expect new deliveries of space in 2012 (more schemes are going under construction without a pre-let) will ease the upward pressure on rents, but vacancy will fall further before completions manifest.


Hamburg


Occupier activity is strong thanks to the positive economic situation. Q1 take-up was ahead of Q1 2010 levels and will be close to 500,000 sq m for the year as a whole but generated through a larger number of deals. Small lettings dominate the market, but the number of lettings is increasing in the 1,000 sq m to 5,000 sq m segment. Completions totalled 57,500 sq m in Q1 but only 20,000 sq m completed speculatively, meaning completions put little pressure on vacancies. Supply in secondary areas was stable. Vacancies are expected to increase by the end of the year as half of the expected 170,000 sq m to complete this year is speculative. Rents are already being impacted with considerably more deals above the €20.00 pcm mark than over previous quarters. The prime rent remains stable at €22.50 pcm but will increase slightly in the next few quarters. Landlord attitudes are also hardening.

Helsinki

Cost: €288 / sq m Competition: n/a Choice: 10.7%

Occupier activity in Helsinki was stable compared with the final quarter of 2010 but much more active than the equivalent quarter last year. This has also been mirrored in the number of enquiries recorded. No particular sector is dominating leasing volumes with a mix of SMEs active and focussed on Grade A product. There does, however, appear to be a modest amount of expansionary activity and, coupled with a cessation in downsizing, this bodes well for absorption going forward. Vacancy rates remained quite high at around 11% but despite this there has been a pick up in development activity. Prime rents in the CBD area have risen in the last two quarter by around €0.50 cents per sq m per quarter. Beyond the CBD higher supply limits growth potential and in the secondary market rents remained stable. There is some potential for modest growth due to improving market conditions, but any growth will be minimal.

Leeds


Overall vacancy rates increased to 10.8% with Grade A vacancy standing at 5.8%. There is very little space in the development pipeline with just 4,000 sq m of space currently under construction and no further speculative space to commence in 2011. Choice will therefore fall gradually over the next 12 months although the potential release of public sector space presents some risk to this. Despite increased enquiry levels, take-up was disappointing with around just 3,000 sq m let during Q1 – down 57% on the equivalent period last year. Occupiers remain cautious. As a consequence occupier activity remains driven largely by lease events and market churn. Prime rents were stable q-on-q as were incentives with around 30 months rent-free achievable on a 10 year term. Rents for Grade B space remain under greater pressure with landlords continuing to price competitively in order to attract tenants.

Lisbon


Q1 take-up was down almost 60% compared with Q1 2010. The majority of leasing activity was focused in zones 5 and 6 although zones 1 and 2 accounted for around 40% of take-up activity. Some occupiers have shelved relocation plans to focus on optimising their current office space. Overall supply increased slightly over Q1. Around 33,000 sq m of space completed over the quarter, almost all of which speculative. Looking ahead there is very little space under construction as the wider economic situation has led to some development projects being put on hold. There is presently just 23,550 sq m of space currently under construction speculatively. Prime and secondary rents remained stable q-on-q but we foresee further rental decline due to weak levels of demand. Incentives increased for prime and secondary space with landlords remaining keen to offer generous incentives so as to avoid reducing the headline rent.


London City


Take-up was down 42% q-on-q and the lowest quarterly total since Q1 2009. Only one deal exceeded 5,000 sq m compared with 10 over the same period last year. The volume of requirements logged increased for the first time in nearly 12 months however. The TMT and Insurance subsectors proved particularly active in the markets. Total supply increased 6% over the quarter and Grade A supply increased 16% due to the new completions of 200 Aldersgate Street, EC1 and Heron Tower, EC3. Overall and Grade A vacancy rates increased slightly to 7.4% and 4.0% respectively. There were four new speculative starts over Q1 compared with only two schemes during 2010. However looking ahead there remains a shortfall of supply compared with the long term average. Prime rents remained stable and rent-free periods reduced from 24 to 22 months assuming a 10 year term. We expect further rental growth in 2011.

London West End

Cost: € 1125 sq m Competition: 60,110 sq m Choice: 5.2%

Q1 take-up was down 35% q-on-q and 27% behind the equivalent period last year. The Service Industry – and particularly the TMT subsector - dominated take-up with 65% of floor-space taken across 22 deals. The most notable deal to complete was NBC Universal taking c.11,200 sq m. Total recorded new demand ncreased 7% - the first increase since 2009. Vacancy rates stand at 5.2% with Grade A rates falling to 2.2% - the lowest level since 2007 with Grade A supply declining by a quarter over the past year. Around 175,000 sq m of speculative space was under construction at quarter end and speculative construction levels are now 10% ahead of the 10 year annual average. Four schemes commenced construction in Q1 compared with six over the whole of 2010. Prime rents increased 4.6% with rent-free periods stable at 16 months, assuming a 10-year lease. We expect further strong growth in 2011 driven largely by the lack of quality prime stock.

Luxembourg


Almost 10,000 sq m of new office space was completed over Q1 via one project in the decentralised area. Of this, only 2,000 sq m was delivered speculatively. This coupled with robust take-up – up 42% on the same period last year - brought a downward shift in the overall vacancy rate. The future development pipeline for 2011 is estimated at 62,000 sq m, of which 50,500 sq m is due to be built speculatively. The pipeline for 2012 is more limited. Prime rents remained stable q-on-q while rents in the Kirchberg submarket were revised upwards €372 per sq m and in the Decentralised South area to €336 per sq m. Despite relatively low levels of supply, take-up is expected to improve but at a slow pace over 2011. We forecast relatively flat rents over 2011. Incentives are beginning to harden and alongside falling levels of supply will place upward pressure on prime rents from the end of 2012.

Lyon


Leasing volumes totalled almost 43,000 sq m in the first quarter, down 27% from the first quarter of 2010. Larger occupiers are regaining confidence but are facing a shortage of appropriate supply. The vacancy rate rose slightly to 6.8% compared with 6.6% at the end of December 2010. This increase has been driven by second hand space and new supply in secondary areas. The shortage of quality supply in the most sought after areas such as the Part-Dieu or Confluence is increasing and this is expected to continue in the second half of 2011. Overall rents remained stable, especially for better quality units (new/ reconstructed or renovated to a high standard) but prime rents increased to €250 per sq m excluding taxes.


Madrid


Prime rents fell by 0.9% q-on-q but rental stabilisation is occurring in some submarkets including the Periphery and Satellite areas. Here space remains constrained due to the low level of completions and little outward movement from occupiers. Overall supply increased slightly q-on-q in all locations with the exception of the Periphery, where more than 50% of take-up occurred. Occupier demand remains very weak and is generated primarily by smaller companies seeking less than 500 sq m of space. Any companies seeking more than 5,000 sq m tend to be indigenous to the local market, with few new entries of this size. There was just one large leasing transaction over Q1 - 9,000 sq m to the BBVA - while the remainder if deals were for units of less than 4,000 sq m. Occupiers continue to focus predominantly on the CBD, which accounted for 43% of transactions of less than 1,000 sq m. We anticipate some pick up in take-up over the remainder of the year.

Malmö


Occupier activity improved significantly q-on-q with 37,000 sq m let – a volume equating to 72% of the 2010 total. Occupiers remain focussed on prime or the best Grade A in the Lund submarket. On the supply side there were no significant projects completing in Q1 with only around 20,000 sq m due to complete this year. In 2012 around 60,000 sq m is due to complete, placing some upward pressure on vacancy rates. Local cash backed developers are also bringing speculative schemes forward. In terms of rents, the Hyllie area is now commanding similar levels to the Malmo CBD. This submarket has benefitted from the subway links to Copenhagen enabling a journey time of just 25 minutes between the two cities. We prime rents to increase by around SEK 100 per sq m over the year but no increase was witnessed overQ1. Rental increases will be polarised to the submarkets of Lund Idiom and Vastra Hamnen with flat performance elsewhere.

Manchester


Take-up volumes were down 29% y-on-y and 41% below the 5 year quarterly average. Deals were largely for units of less than 250 sq m the average deal size falling from around 550 sq m to just 330 sq m. There were no new completions within the City centre over Q1 but supply did increase following the release of second hand space. Overall vacancy is slightly above the 5 year average at 11.9% but Grade A vacancy is just 2.4%. Further ahead the development pipeline remains constrained with nothing currently under construction speculatively. Around 14,000 sq m is expected to start speculative this year but delivery will not be until 2013. Prime rents remained stable q-on-q with incentives remaining at c30 months rent-free on a 10 year term. While occupiers were still being driven primarily by cost and not quality there was continued evidence of tenants acting opportunistically to take advantage of market conditions to secure good quality space on tenant favourable terms.

Milan


Take-up was up 158% compared to same period last year with notably the banks and financial institutions being the most active players over Q1. Activity remains driven by consolidation and rationalisation but there has also been a growing trend towards owner occupation. We have yet to see recovery in demand for the peripheral areas but improvements to the underground transport system linking the Milanofiori area, among others, could have a positive effect longer term. The volume of new completions fell 40% compared to Q1 2010 but a substantial amount of new space has been completed over the last two years and is still being absorbed. There will be a significant drop in the number of speculative projects during 2011 with pre-lets only going forward due to fears of over-supply. The overall vacancy rate fell slightly in Q1, but remain high. Prime rents remained stable but rents softened further in the periphery, particularly in the Maciachini zone, due to oversupply.


Munich


Over Q1 occupiers have appeared more active in the market with many seeking new space for expansion. Q1 take-up volumes and deal numbers were above the quarterly average for 2010 with most deals taking place in the city centre. The East sub-market was ranked number one in terms of the volume of space let owing to a few larger deals. Vacancies increased in spite of tstrong demand, but this due to one large unit being made available for sub-letting. In secondary areas supply was stable. Some available space will come onto the market this year (c48,000 sq m) but this will barely impact vacancy rates due to sustained strong demand. The city centre, particularly the area within the Altstadtring, continues to suffer from a shortage of large, contiguous spaces of good quality. As a result, the prime rent, which was stable q-on-q, is expected to increase this year. Incentives have been decreasing for some months now. Secondary rents were stable.

Oslo


Occupier sentiment is healthy with q-on-q take-up broadly stable. There have been an increasing number of requirements illustrating greater confidence in the wider economy with employment growth forecasts revised upwards by 80% over the last year. Companies are not yet moving into larger units of space yet with net absorption recorded at 139,260 sq m – slightly down q-on-q. Limited development is expected in 2011 but 290,000 sq m is expected to come through in 2012. The great majority of this space is already absorbed, but the subsequent relocation of tenants will put pressure on rents. Many buildings will however be temporarily taken out of the market and refurbished. Choice will show marked increases from 2013 therefore. For the next two years demand is anticipated to outweigh supply. Prime rents increased NOK300 per sq m q-on-q. Secondary rents are currently at NOK 2,100 per sq m, up NOK 100 from Q4 2010, reflecting a 40% discount to prime.

Paris CBD


In the Central Business District of Paris the take-up total for the first quarter of 2011 was 94,970 sq m, up almost 10% in comparison to the previous year. A single transaction in excess of 5,000 sq m was recorded in the first three months of the year (the sale by the user, Google, on the rue de Londres in the 9th arrondissement) compared to three in the previous year. Supply remained stable in the capital with a vacancy rate of 5.7% although in comparison to last year fell from 6.1%. As the scarcity in large quality properties continues in the CBD area it has lead to prime nominal rents to be maintained at €750 per sq m. Overall prime rates remained stable for the third consecutive quarter.

Paris La Defense


Available supply was up q-on-q with vacancy rising due largely to the handover of the First Tower which has 40,000 sq m remaining to be marketed. The development pipeline is also quite high for 2011 although we are seeing many large schemes being put back to later completion dates. One of which is the Hines development of the Carpe Diem tower which is now underway and due for completion next year. Although demand is expected to absorb some of this new space, we do anticipate higher rates then the 5% average of 2010. The rise in available space is also due to an increase in the number of second hand buildings as well as a decline in the levels of transactions. Take-up in La Defense rebounded by nearly 80% compared to the low point of the 1st quarter of 2010, but remains below normal volumes. Prime nominal rent in La Defense were stable q-on-q at €530 sq m per year.


Rome


Q1 take-up volumes were down 25% compared to the previous quarter but up by 194% compared to the equivalent period last year. However, just two large scale transactions accounted for 63% of the total take-up in Q1 2011. The majority of activity, around 75% took place within the CBD and were generated by market churn or the desire to modernise whilst consolidating or rationalising space. The overall vacancy rate fell 50 bps during Q1. The lack of new supply entering the market as well as the uptick in activity towards the end of 2010 resulted in falling levels of supply over Q1 2011. Looking ahead the development pipeline remains limited with just 69,000 sq m scheduled to complete speculatively during 2011. Thereafter just 10,000 sq m is due to complete speculatively in 2012. Prime rents remained stable q-on-q. Incentives remained stable with around 11.5 months rent free granted on a typical 6-12 year lease.

Rotterdam


Supply is high at the moment especially in the peripheral districts. Leasing volumes totalled around 23,000 sq m which was well behind Q4 2010, but compared to the same period last year take-up showed a slight increase. Volumes were driven by a mixture of sectors and units sizes were quite small. Exception was the temporary lease by Stedin of apporx. 6,400 sq m to bridge the construction period of their new headquarter. Rental conditions are stable in all locations for better quality assets, but B and C grade properties remain under downward pressure due to increasing supply.

Stockholm


Occupier activity strengthened significantly q-on-q with take-up volumes double that seen in Q1 2010. Crucially the financial insurance sectors have launched more space requirements. Occupiers are focussed on better quality more efficient space enabling headcount growth to be accommodated in less space. This has driven a declining vacancy rate, especially in the CBD areas and is also fuelling the renovation of older stock before occupation. There remain significant potential schemes in the development pipeline and although local banks are more willing to lend to development than in other European markets, a requirement for a pre-let of at least 50% before commencement remains. Prime rents were stable q-on-q but upward pressure has increased. The secondary market is also stable but vacancy has increased here due to Ericsson moving to new premises.

Stuttgart


The market has seen a higher and sustained number of enquiries from companies seeking expansion space. Q1 take-up represented the strongest start to a year since 2008. By the year end, take-up is expected to match the 2010 level and would thus exceed the long-term average. There will be 90,000 sq m of further office completions by year end – but only a quarter of this is speculative. Around 10,000 sq m of unoccupied space from completions in Q1 2011 was offset by the expansion activities of companies, so vacancy rates remained stable q-on-q. Vacancies are expected to increase slightly over the course of the year, but not in prime locations in the city centre where large units of contiguous spaces in modern buildings are in short supply. Due to this supply shortage in the prime segment, prime rents are expected to increase over the year with incentives already reducing. Secondary rents remain stable.


The Hague

Cost: € 210 / sq m Competition:18,950sqm Choice: 10.1%

The amount of supply was stable this quarter at around 441,000 sq m but the market’s focus remains on what the Dutch government plans to do with its surplus space as releases could significantly change the level of choice in the market. Leasing volumes totalled around 18,900 sq m, around 5,100 sq m of which was to a international school but there was no strong sector trend of note. Rental conditions are stable in both prime and secondary segments as are incentives. There are some signs of improving sentiment in the market but this will only gain traction when the government plans are known.

Utrecht


The amount of available supply was broadly unchanged quarter on quarter with volumes in the centre of Utrecht eroding and relatively under supplied compared to more peripheral areas where supply is increasing. Most of the long-and short-term development remains focussed on this CBD of which all short-term developments are currently prelet . We can expect more companies to move from secondary locations exacerbating the polarisation in the market. Around 24,000 sq m was leased in the first quarter. Volumes were dominated by the financial sector but this was a forced move, rather than any sectoral expansion. Rents overall are likely to be stable although we do factor in a modest amount of rental growth in the prime CBD.

Western Corridor


Take-up increased 48% y-on-y, was broadly in line with the previous quarter but was 36% down on the 10 year average. Activity remains driven by lease events rather than real growth. Occupiers continue to favour Grade A space which accounted for nearly two thirds of total take-up. Vacancy rates increased slightly driven by an increase in the level of Grade B supply. In contrast, Grade A vacancy rates remained stable at 6.0%. Just 12,000 sq m of office space is under construction speculatively but none will complete this year. As the level of Grade A supply reduces further we will see more pre-letting. We also anticipate further influxes of Grade B space which will drive interest in the conversion of secondary stock to alternative uses. Across the Western Corridor market, rents increased 0.8% q-on-q. Incentives were also stable at up to 30 months rent free on a 10-year lease in the Thames Valley and 24 months in West London. We anticipate annual rental growth of 3.6% over the year.

Zurich

Cost: € 870 / sq m Competition: n / a Choice: 2.2%

Zurich remains the biggest Swiss office market with a stock of almost 6 million sq m and is home to the HQs of a number of high profile Swiss occupiers. Strong demand for office space over recent quarters has led to rising rents and low levels of availability. Supply of new Grade A office space is however increasing in the market with Zurich North and West showing high levels of new supply. Many occupiers are currently actively relocating to this new, modern space from their inner city locations. With new, modern Grade A supply in the market the completion in the market is easing. With occupiers relocating from the CBD to new development areas, choice in the CBD is increasing. Overall occupation costs in the Zurich market remain high. Prime rents are expected to increase further over the remainder of 2011 though at a decline rate of growth.


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 Q4 2010 12-month outlook Q1 2011 12-month outlook Prime, Q1 2011 12-month outlook WE Amsterdam 0.4 17.2 335 Antwerp 1.1 12.9 136 Athens n/a 14.2 306

Barcelona 1.1 13.2 228

Berlin 0.8 9.0 246 Birmingham 0.6 18.2 347 Brussels 0.4 11.2 310 Copenhagen n/a 9.1 235 Dublin 1.4 21.5 377 Dusseldorf 1.1 12.6 282

Edinburgh 0.6 7.3 334

Eindhoven 0.8 15.0 185

Frankfurt 0.7 15.1 396

Geneva n/a 0.9 910 Glasgow 0.6 10.5 328 Gothenburg 1.1 8.7 246 Hamburg 0.7 9.4 270 Helsinki n/a 10.7 288 Leeds 0.3 10.8 316 Lisbon 0.3 11.5 228 London City 0.7

7.4 669

London West End 0.7 5.2 1125 Luxembourg 0.8 7.0 456 Lyon 0.8 6.8 250 Madrid 0.4 10.2 321 Malmö 1.9 6.5 235 Manchester 0.6 11.9 347 Milan 0.7 9.3 520

Munich 0.8 10.7 348

Oslo n/a 8.0 446

Paris CBD 1.4 5.7 750

Paris La Defense 0.4 6.1 530

Rome 0.5 6.0 420

Rotterdam 0.7 15.5 195

Stockholm 1.7 11.2 447

Stuttgart 0.5 7.1 210

The Hague 0.4 10.1 210

Utrecht 1.0 12.4 225

Western Corridor 0.5 14.6 324

Zurich n/a 2.2 870

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, Sadolin & Albæk and Viridis Edificium.

EMEA Corporate Occupier Conditions – May 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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