EMEA Corporate Occupier Conditions 3Q 2011

EMEA Corporate Occupier Conditions - Q3 2011

Taking Stock

Concerns over sovereign debt and doubts about the pace of

global economic expansion have led corporate occupiers to a

cautious pause with capital investment, expansion plans and

headcount under renewed scrutiny.

Supply side dynamics continue to create real challenges.

A lack of quality hampers those seeking to drive increased

productivity through portfolio upgrades, while those needing to

release surplus space are faced with markets heavy on low

quality stock.

Landlords are adjusting behaviour to reflect these conditions.

At the quality end they are reigning in incentives, thus increasing

costs to occupier, but at the lower end of the market the reverse

is true and some are even removing poorer quality stock from the

market altogether.

2 On Point • EMEA Corporate Occupier Conditions – Q3 2011

Introduction

Welcome to the Q3 2011 edition of EMEA Corporate Occupier

Conditions.

A return to uncertainty or a temporary pause?

As Europe sets-off on its summer holidays, chilly economic

headwinds are generating more cautious behaviour from corporate

occupiers in the regions real estate markets. Demand and

confidence has been tempered by mounting concerns over the

handling of the sovereign debt crises in Europe and the US, and

increasing doubts about the pace of future global economic

expansion. Corporate occupiers are re-applying the brakes to

capital investment projects and hiring plans until there is greater

certainty over near-to-medium term economic conditions. Some are

going further, embarking on a new round of headcount reductions.

Most notable here have been recent announcements from Cisco,

Microsoft, Research in Motion, and HSBC. Furthermore the latter

has also announced its intention to close operations in 20 countries

around the world. No surprise therefore that the EU Confidence

Index has turned downwards after a sustained period of steady

uplifts.

The contrast with the corporate surveys of the early spring could not

be greater. These had pointed towards headcount increases,

market expansion and significant M&A activity as just some of the

drivers of increased real estate activity. Clearly these are on hold

and have led to more subdued activity levels in the markets. The

key question of course is the extent to which this is a temporary

pause or a more sustained rethink of growth strategies and

trajectories amid powerful economic uncertainty. Time will tell. But

what is clear is that the path to recovery has a few more twists and

turns to pass through. Corporate Real Estate (CRE) teams will

need to be mindful of this and primed to respond to sudden changes

of direction or approach.

Introspection prevails

Alongside rising uncertainty is a growing introspection from

corporate occupiers. This takes two clear forms:

• First, the internal corporate real estate (CRE) function within

many corporate occupiers continues to be rethought and

remodelled to drive stronger business engagement and deliver

greater strategic value to the decision making of the wider

business.

• Secondly, the CRE function is actively investigating the

opportunity to transform the existing workplace. This is driven

by the twin aims of supporting cost avoidance initiatives whilst

simultaneously raising the efficiency and productivity of the real

estate portfolio. The reduction in corporate capital expenditure

levels might serve to halt progress here over the short-term,

but longer-term workplace programmes will be a key feature of

CRE strategies.

Growing evidence of evolution

Finally, there has been strong evidence of the further evolution of

the CRE outsourcing market in EMEA over the last few months. A

growing number of EMEA domiciled corporations are coming to

market for (often global) real estate solutions to complex, mixed

office and industrial portfolios. These typically first generation

outsourcers are not merely seeking support for transactional activity,

but rather are engaging with service providers to drive

transformation in CRE team structure, strategy and delivery. They

are seeking support in addressing the challenges of

decentralisation; of poor real estate metrics and monitoring; and of

implementing coherent and strong portfolio strategies.

Transformation is also evident amongst the more established EMEA

market, with second and third generation outsourcers also renewing

or re-tendering in the market, a trend which has, in part, been

fuelled by churn amongst senior CRE leaders.

Vincent Lottefier

Chief Executive Officer

EMEA Corporate Solutions

On Point • EMEA Corporate Occupier Conditions – Q3 2011 3

EMEA Corporate Occupier Market Conditions: Summary

Exhibit 1: A weaker economic outlook characterised by strong variation

• Worsening uncertainty about the Eurozone debt crisis and the potential risks have softened the short term economic outlook.

• Wide national economic variations persist. Germany, the Nordics and increasingly France continue to perform well.

• In contrast the situation in countries such as Greece, Portugal, Ireland, Italy and Spain remains tense.

• The UK and France sit in the midst of these two groups, with growth of around 1-2% in 2011-12.

• The outlook for the European economies will be dominated by mounting concerns surrounding sovereign debt contagion from the Eurozone periphery, with new tensions being felt in Italy and Spain.

-1

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Bel

gium

Cze

chR

epub

lic

Fin

land

Ger

man

y

Pol

and

Rus

sia

Sw

eden

2010 2011 2012%

Exhibit 2: Corporate confidence takes a knock

60

80

100

120

1997 1999 2001 2003 2005 2007 2009 2011

-50

-25

0

25

50

Economic Sentiment (LHS) Retail Trade Confidence

Service Sector Confidence Industrial Confidence

• After a sustained period of gradual upward progression, The European Commission Confidence Indicator turned downwards in July as corporate confidence took a hit in light of the economic pressures outlined above. as continued its upward progression

• Recent weeks have also brought a number of large-scale global headcount reductions in both the technology and banking and finance sectors.

• From a real estate market perspective, most occupiers are taking stock of the situation with capital expenditure, expansion plans and real estate strategies being put on hold.

Exhibit 3: Overall activity levels stable but CEE improving more markedly than Western Europe

• Q2 2011 take-up was 2.7 million sq m – up 2% q-on-q and 4% on a year ago. It is also 8% higher than the 10 year average.

• Our expectations for 2011 are for an unspectacular year with volumes forecast to be around the same level as seen in 2010.

• Take-up volumes were slightly stronger in CEE (up 8% q-on-q and 24% y-on-y) with Western Europe being essentially unchanged.

• CEE volumes were driven by improving demand in Moscow, but significantly Warsaw and Prague have also shown encouraging activity so far over 2011.

• Activity in Germany is strong but modest in the core markets of London and Paris.

0

1,000

2,000

3,000

4,000

2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

CEE Western Europe 12 Month Rolling (RHA)

’000 m² ’000 m²’000 m² ’000 m²

Exhibit 4: A subdued outlook with growing introspection amongst occupiers

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13

Take-Up Central & Eastern Europe Take-Up Western Europe

10-year average (last 10 y)

’000 m²

• Our expectations for 2011 are for an unspectacular year with volumes forecast to be around the same level as seen in 2010.

• The future outlook for the occupier market is contingent upon how quickly the sovereign debt crisis can be resolved.

• Market churn, generated by responses to lease events, will underpin the bulk of occupier activity over the remainder of this year. It should be noted that such events do often enable alternative real estate and portfolio strategies to be realised however.

• Germany, the Nordics and the core markets of London and Paris are expected to witness expansionary demand although the scale of such demand which ultimately materialises in the markets may reduce given the issues outlined above.


Exhibit 5: Vacancy rates moved marginally downwards but remain in double-digits

• The European vacancy rate moved downwards, falling by a mere 10 bps to 10.2%. The rate has remained in double digits since Q4 2009.

• Prime space remains limited in many markets and has driven rental stabilisation or growth.

• Much available supply is second-hand space released by occupiers who have been upgrading or right-sizing their portfolios.

• Occupiers seeking to dispose of surplus space are therefore facing challenging market conditions.

0 – 5%

5 – 10%

10 – 15%

15 – 25%

Vacancy Rates Q1 2011

0 – 5%

5 – 10%

10 – 15%

15 – 25%

0 – 5%

5 – 10%

10 – 15%

15 – 25%

Vacancy Rates Q1 2011

6.0%

12.1% 10.3%13.5%

7.0%

9.3%

6.0%

11.2%

17.1%

8.5%

11.4%

10.3%

16.8%

20.6%

11.9%

6.6%8.8%

14.3%

10.5%

15.1%8.4%

5%

10%

3-4%

44%

14%

JohannesburgJohannesburg

6-7%

CasablancaCasablanca

10 %

17.2%

12.5%10.9%

12.6%

7.9%

20.6%

6.8%

10.5%

10.2%

9.3%

23%

10-12%

9%

Exhibit 6: The development pipeline has been moderated across most of the region

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Completions (millions sq m) Vacancy rate (%)

• New completions have decreased further q-on-q with only c670,000 sq m of office space completed across the region – 50% below the long-term average.

• Completions in the Moscow market dropped below 100,000 sq m; in London only 8,000 sq m of new space was added and in nearly all European markets completion volumes are well below the long-term average.

• For the full year, we expect about 3.9 million sq m of office space to complete (including pre-lets) – the lowest volume in more than a decade.

Exhibit 7: Western European Red, Amber, Green Matrix (RAG)

• Our RAG charts provide a sense of 5 year forward looking market conditions.

• Based on a combination of prime econometric rental forecasts and local market sentiment we identify whether markets are landlord favourable (red), tenant favourable (green) or balanced (amber).

• For mature Western European markets future conditions are mixed but, owing to shortages of quality supply, conditions have hardened markedly towards landlords in most markets.

• Core and niche financial centres such as London, Paris and Zurich, have turned strongly in favour of the landlord.

Zurich

Paris

Milan

London City

Frankfurt

Amsterdam

201320122011

Zurich

Paris

Milan

London City

Frankfurt

Amsterdam

201320122011

Tenant Favourable MarketBalanced MarketLandlord Favourable Market

Exhibit 9: CEE and MEA sub-region Red, Amber, Green Matrix (RAG)

Istanbul

Dubai

Cairo

Warsaw

Moscow

Bucharest

201320122011

Istanbul

Dubai

Cairo

Warsaw

Moscow

Bucharest

201320122011

Tenant Favourable MarketBalanced MarketLandlord Favourable Market

• In the CEE sub-region, prime rental increases have been marked q-on-q and this has led to markets such as Moscow and Warsaw turning further in favour of the landlord.

• This is very much a function of supply. Despite having reasonably large development pipelines, developers do not tend to build large volumes of space at international quality putting such space at a premium, particularly given improving demand.

• Markets such as Dubai and Abu Dhabi are over-supplied and as such underlying conditions are firmly in favour of the occupier.

• In North Africa, recent political turmoil has led to a softening of market conditions although fundamentals suggest that strong rental growth will return as soon as a semblance of operating normality returns.


Exhibit 9: EMEA Office Occupier Clock

Landlord’s Market Tenant’s Market

Rental Growth Slowing

Rents Falling

Rents Rising Decline Slowing

• 38 of the 66 markets plotted on the latest EMEA Office Property Clock occupy positions at or beyond 6 o’clock, reflecting the likelihood of growth in prime rents before the end of the year.

• Cairo continues to occupy the 3 o’clock position but expectations are that when demand returns to the market it will move quickly around the clock and back firmly into rental growth as supply is now even more limited post revolution.

• It should be noted that a number of new markets are contained in both the above clock and the wider report. We are pleased to now report on the Bristol, Cardiff, Belgrade, Bratislava and Sofia markets.

Western Europe

Central and Eastern Europe

Middle East & Africa

Western Europe

Central and Eastern Europe

Middle East & Africa

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Athens, LisbonBarcelona, Leeds, Madrid, Belgrade, DohaBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhAmsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,

Rome, Tri-CityBirmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis

Istanbul, St. Petersburg, Malmo,Manchester, Western Corridor

Copenhagen

Warsaw, Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris

Munich, Stockholm

Düsseldorf, Geneva, Lyon, Stuttgart

Moscow, Zurich

London West End

London City, Oslo

Casablanca, Tel Aviv

Algiers

Dubai

Abu Dhabi

Cairo

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Athens, LisbonAthens, LisbonBarcelona, Leeds, Madrid, Belgrade, DohaBarcelona, Leeds, Madrid, Belgrade, DohaBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhBrussels, Dublin, Edinburgh, Luxembourg,Jeddah, RiyadhAmsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,Amsterdam, Eindhoven, Rotterdam, The Hague,Utrecht, Bucharest, Budapest, Sofia, Zagreb,

Rome, Tri-CityRome, Tri-CityBirmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis

Birmingham, Bristol, Cardiff, Frankfurt, Glasgow,Milan, Bratislava, Kiev, Krakow, Prague,Johannesburg, Tunis



CopenhagenCopenhagen



Munich, StockholmMunich, Stockholm

Düsseldorf, Geneva, Lyon, StuttgartDüsseldorf, Geneva, Lyon, Stuttgart

Moscow, ZurichMoscow, Zurich

London West EndLondon West End

London City, OsloLondon City, Oslo

Casablanca, Tel AvivCasablanca, Tel Aviv

AlgiersAlgiers

DubaiDubai

Abu DhabiAbu Dhabi

CairoCairo


WESTERN EUROPE: Corporate Occupier Conditions

Economic growth has been very mixed in Europe so far this year,

with stronger than expected activity in the Eurozone’s core

economies in Q1, seemingly stalling in Q2. There remains

significant divergence between the dynamic export-driven

economies of Germany and the Nordics, where 2011 growth is

expected to be in excess of 3.0%, and the Eurozone’s southern

periphery (Greece, Spain, Portugal and Italy) where combined

growth is likely to be less than 0.5% per annum in 2011-12. The

UK and France sit in the midst of these two groups, with growth

of around 1-2% in 2011-12. The outlook for the European

economies will be dominated by mounting concerns surrounding

sovereign debt contagion from the Eurozone periphery, with new

tensions now being felt in Italy and Spain.

Demand for office space across Europe was unspectacular in Q2

with circa 2.7 million sq m of take-up recorded. This was a

volume 2% higher than Q1 and 4% higher than Q2 2010. This

level of activity was however high relative to the long-term

average (up 8%). Expectations for annual take-up at the year

end are moderate with total volumes being similar to those

witnessed over 2010. In line with sound economic conditions

and performance, the German office markets (with the exception

of Düsseldorf which had a strong Q1) exhibited further increases

in demand and take-up. Volumes in London and Paris remained

modest, with volumes in London City so far this year significantly

down on 2010 performance.

Exhibit 10: Western Europe Office Occupier Clock

Vacancy rates moved only marginally q-on-q. European vacancy

rates continued their downward trend but fell by a mere 10bps to

10.2%. Rates have now been at double-digit levels since Q4

2009. It should be noted that prime space in many markets,

notably London and Paris, still remains limited and this has

driven rental stabilisation or growth as well as presenting a real

challenge to corporate occupiers. Much of the supply in the

markets is second-hand space released by those occupiers who

have upgraded or right-sized over recent times. This second

hand space continues to trade at a significant discount to prime.

Prime rents across Europe continued their modest growth. The

European Office Index grew by 2.1% q-on-q but was highly

influenced by double digit rental growth in select CEE markets.

In Western Europe, rental costs rose sharpest in Lyon (+8%) but

increases of more than 2.5% q-on-q were seen in Munich,

Stockholm and London’s West End. The difficult debt situation of

governments and households – and significant austerity

measures – continues to drag rents in markets such as Madrird,

Barcelona and Dublin, where rents declined further. The

widening differential in rental performance across Western

Europe is clearly evident in the latest Jones Lang LaSalle Office

Occupier Clock below.

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Athens, LisbonBarcelona, Leeds, Madrid

Brussels, Dublin, Edinburgh, LuxembourgAmsterdam, Eindhoven, Rotterdam,The Hague, Utrecht

RomeBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, Milan

Malmo, Manchester, Western Corridor

Copenhagen

Berlin, Cologne, Gothenburg,Hamburg, Helsinki, Paris

Munich, Stockholm

Düsseldorf, Geneva, Lyon, Stuttgart

Zurich

London West End

London City, Oslo

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Athens, LisbonAthens, LisbonBarcelona, Leeds, MadridBarcelona, Leeds, Madrid

Brussels, Dublin, Edinburgh, LuxembourgBrussels, Dublin, Edinburgh, LuxembourgAmsterdam, Eindhoven, Rotterdam,The Hague, UtrechtAmsterdam, Eindhoven, Rotterdam,The Hague, Utrecht

RomeRomeBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, MilanBirmingham, Bristol, Cardiff, Frankfurt,Glasgow, Milan

Malmo, Manchester, Western CorridorMalmo, Manchester, Western Corridor

CopenhagenCopenhagen



Munich, StockholmMunich, Stockholm

Düsseldorf, Geneva, Lyon, StuttgartDüsseldorf, Geneva, Lyon, Stuttgart

ZurichZurich

London West EndLondon West End

London City, OsloLondon City, Oslo


Amsterdam

Cost: € 335 / sq m Competition:44,400 sq m Choice: 17.3%

The amount of competition in the market increased q-on-q by 81%,

but this was about average and as a result there was little meaningful

decrease in choice. This environment of subdued occupier demand

and stable supply is expected to persist with moves driven by cost

containment rather than any expansion. The only movement in

supply has been witnessed in the very best space where there has

been a slight reduction in choice. The market is still characterised by

a large amount of oversupply, particularly in more peripheral areas

where choice is inflated by less suitable accommodation and a lack

of alternative uses. In the medium term this could reduce as the

municipality is actively encouraging hotel conversion outside of the

City core. There has been no movement in prime rents or secondary

rents, although incentives could increase later this year as the

market encourages absorption.

Antwerp

Cost: € 145 / sq m Competition: 16,200 sq m Choice: 11.8%

Occupier activity remains subdued with leasing volumes for H1 2011

down 24%, when compared to the equivalent period of 2010. There

are, however, some large scale requirements pending that we

expect to transact in the second half of the year. Despite a relatively

low level of activity, the vacancy rate actually fell to 11.8% from

12.9% in the previous quarter. While some choice was absorbed,

we have also seen some reallocation of vacant space to other uses

as well as the temporary removal of supply which is now undergoing

refurbishment. The prime rent in the CBD increased by 6.6% to

reach €145 per sq m this quarter. Rents remained stable in all other

districts, reaching €136 per sq m in the Ring district. 2011 as a

whole should see some limited rental growth, driven primarily by

supply shortages for certain types of space, especially in the South

of Antwerp and particularly for units over 2,000 sq m.

Athens

Cost: € 270 / sq m Competition: n/a Choice: 15.1%

The Greek economy is in the middle of a deep recession. Business

confidence is low and although the bailout approved in July 2011 of

€109-billion will give Greece more breathing room, it does not

eliminate the probability of going through deeper debt restructuring in

the future. GDP contracted by 4.4% in 2010 according to Global

Insight and the latest forecasts suggest only marginal improvements,

ranging between -3.5% and -3.9% (IMF) this year. Unemployment

has also surged to 15.8% (April 2011) compared to 11.9% (April

2010).These trends continue to impact the office market with

vacancy rates reaching 15.1%, up from 12.5% at the equivalent

period last year. Occupational costs continued to fall and, compared

to pre crisis levels, are approximately 41% lower with the best space

commanding €270 per sq m per annum. Occupier activity has

increased in the north of Athens, with corporate occupiers relocating

on the basis of cost reduction.

Barcelona

Cost: € 225 / sq m Competition: 74,560 sq m Choice:13.5%

Take up volumes in Q2 reached 74,560 sq m, up 14% q-on-q and

43% up from the equivalent quarter last year. Improvements in

demand were driven by attractive incentives as owners are faced

with rising vacancy rates and therefore opting to implement more

attractive rental policies. On the supply side, vacancy rates have

remained fairly stable over the year and were up only 10 bps q-on-q.

No speculative development is due to come onto the market over

H2 2011. Indeed, over the next two years projects will be limited

with the majority of developments are due to complete in 2014. In

line with the trend over the last three years, rental levels declined

over Q2 by an average of 1.4%. Prime rents are expected to

continue to decline very slightly before stabilising at the end of the

year.


Berlin


The occupational market has become more competitive with deal

volumes at a 10-year high at 282,000 sq m and 39% above total

take-up in 2010. Activity was driven by the East sub-market where

Mercedes Benz AG took a 26,000 sq m unit. This positive tone is

expected to continue into the second half of the year with more

expansionary activity in evidence. As a consequence of increased

competition, choice reduced with a lack of new completions further

exacerbating this pressure. The cost of space increased q-on-q with

further rental increases expected this year, driven by the strength of

competition, rather than just a lack of choice. This change in the

market dynamic is also being felt in incentives, with landlords less

likely to grant deals at the levels seen over recent quarters. The

majority of deals in the market were completed at rents of between

€10 and €15 per sq m per calendar month. Secondary rents

remained unchanged q-on-q.

Birmingham


Choice in the market increased over Q2, with vacancy rates

reaching record highs of 20%. This was driven solely by the release

of Grade B space, with some occupiers releasing space back onto

the market and taking the opportunity to upgrade. Occupiers

seeking Grade A space face more limited choice, with Grade A

vacancy rates falling to just 3.8% due to little change in the

development pipeline. As no speculative completions are scheduled

for this year, we expect even modest levels of take-up to begin to

absorb supply. Occupier demand increased significantly over Q2,

up 55% y-on-y. Activity was boosted by a number of large deals

including the 3,900 sq m deal to the Ministry of Justice and the

2,700 sq m deal to Deutsche Bank. Going forward we expect the

public sector, which was still active over Q2, to be a net disposer of

space nationally. Cost remained stable with prime rents at €340 per

sq m at the end of Q2. Incentives remain generous at around 36

months based on a 10 year term.

Bristol

Cost: €328 / sq m Competition: 7,600 sq m Choice: 12.3%

Occupier demand remains relatively subdued with leasing volumes

down 49% compared to the previous quarter. Looking ahead, we

expect annual take-up in Bristol city centre to be below the five-year

average of 52,000 sq m in 2011. The volume of Grade A supply in

Bristol city centre continues to be eroded but is offset by a steady

stream of second hand space which remains unattractive to

occupiers. We are unlikely to see any new speculative starts in the

short term as developers continue to exercise caution, which has

been further fuelled by AXA’s decision to shelve its 7,500 sq m

Bristol requirement. Prime rents remained stable at €328 per sq m.

Incentives remain generous in the city centre at up to 18 months on

a five year term and up to 36 months on 10 years, although this is

deal specific. With Grade A supply continuing to fall, we expect

incentives to move in over the next 12 months.

Brussels


Occupier activity remains relatively subdued with just 63,000 sq m of

take-up during Q2. Completions totalled 25,900 sq m in Q2 of which

15,700 sq m was built speculatively, the only speculative delivery of

H1. The limited level of speculative completions combined with the

low level of take-up activity this quarter kept the overall vacancy rate

stable at 11.2%. Looking ahead, development activity remains

limited with an estimated 136,000 sq m due to be completed over

the whole 2011, of which only 34,700 sq m is speculative. 2012 will

see a further 110,000 sq m complete, of which around 76,000 sq m

is speculative. This is very low when compared to the 10 year

average level of 365,000 sq m. Over the medium term, vacancy

rates are forecast to gradually decline as demand begins to

improve. Rental conditions remained stable at €310 sq m in the

Leopold district while they range from €165 sq m in the Periphery to

€230 sq m in the city. The weighted average rent for the total

Brussels market remained flat at around €173 per sq m.


Cardiff


Q2 2011 witnessed continued caution in the Cardiff occupier

market. That said city centre take-up reached over 25,000 sq m in

Q2, up considerably compared with the previous quarter. Total

take-up reached 35,700 sq m, which is only 10% short of last years

total and likely to result in 2011 take-up returning to long term

average levels. This encouraging level of take-up was boosted by

the 20,000 sq m city centre pre-let to Admiral Insurance and the

4,600 sq m deal to the Listening Company, which together

accounted for around 65% of take-up in H1 2011. Activity was

driven primarily by the Business Services and Financial Services

sectors, with a notable lack of public sector activity. Supply in the

Cardiff office market was almost unchanged over the quarter. There

remains a shortage of Grade A office space, which could lead to

increased pre-letting activity going forwards. No speculative

completions are scheduled in 2011 which should result in a

reduction of Grade A supply in the short term. Prime city centre

headline rents have remained unchanged over the past year at €250

per sq m. Out-of-town rents were also unchanged at €183 per sq m.

Cologne


Occupier activity over H1 was 175,000 sq m – a level double that of

the same period in 2010. Two large deals drove these volumes -

RheinEnergie AG began construction on a 45,000 sq m owner-

occupier project and LANXESS Deutschland GmbH signed a deal

for 38,000 sq m in maxCologne, which is undergoing a complete

refurbishment. The fact that neither of these two large deals was for

current office space further illustrates the limited choice of high-

quality, contiguous space. Projects currently under construction will

bring some relief to this situation, with almost 50,000 sq m of space

still available. This volume is far from sufficient to meet the strong

demand for high-quality space. Some searches for office space

have even been postponed because of this constrained choice.

Despite this dynamic, overall vacancy remains high, inflated by out-

dated properties, while top quality space at 1/5th of total vacant

stock is extremely low. The prime rent remained stable over H1, but

in several submarkets prices increased.

Copenhagen

Cost: € 241 / sq m Competition: n/a Choice:7.9%

The occupational market continued to improve significantly with

further signs of active leasing over Q2. The energy company DONG

occupied over 20,000 sq m of space in and out of the City area,

while engineering and consultancy firms occupied a number of the

mid-sized buildings. Occupier preference for Grade A space drove

the overall vacancy rate down by 120 bps to 7.9% q-on-q – the

lowest rate since Q3 2009. Speculative development still remains

absent and there are no new schemes under construction or

anticipated with banks not minded to lend. A release of space from

the TMT sector is anticipated due to Nokia’s cost saving measures

in their R&D departments, with approximately 30,000 sq m of space

to be made available over the next couple of years. Prime rents

have risen by 2.9% to DKK 1,800 and will continue upwards as the

erosion of Grade A space is maintained over the short term.

Secondary rents were up 2.3% q-on-q, standing at DKK 1,125 – a

reflection of rising demand in secondary locations.

Dublin


Overall supply fell for the third consecutive quarter with vacancy

rates of 20.6% at the end of Q2, compared with 23% at the start of

the year. Choice will continue to reduce as the development

pipeline remains sparse with nothing scheduled to complete

speculatively until 2013. Large occupiers seeking units in excess of

10,000 sq m will be faced with a steadily diminishing range of

choice, with just a handful of buildings within the City centre capable

of satisfying such requirements. Building on a strong Q1, take-up

increased further over Q2 and was up 25% compared to the same

period last year. Occupiers continued to focus on suburban and city-

edge locations which accounted for around 65% of take-up. The

majority of activity was driven by companies expanding or by new

entries to the market which accounted for 35% and 29% of total

take-up respectively. With c 26,000 sq m of deals expected over Q3,

total take-up for 2011 is anticipated to reach around 140,000 sq m –

14% up on 2010 but still below the 5 year average.


Dusseldorf


Occupier activity was modest over H1 at 184,000 sq m. This was

25% down on last year but in line with long-term averages. There

was more competition in larger deals (over 1,000 sq m) with the

VivaKi group carrying out the biggest letting in the “Le Quartier

Central” project at c.11,800 sq m. Düsseldorf city accounted for

around 85% of total take-up. We expect more competition this year

driven by an expanding economy. Choice reduced due to moderate

deliveries of new stock and the reasonable rate of deals but remains

high overall. Going forward the completion volume in 2011 will be at

its lowest level for the past five years. Prime rents have increased

twice within the last 12 months. We expect a further increase to

€24.00 per sq m per calendar month by year end. The weighted

average rent also increased y-on-y and is now €13.54 per sq m per

calendar month. The majority of deals are between €10 and 15 per

sq m per calendar month.

Edinburgh


Supply fell further over Q2 as space was absorbed through take-up

activity. Occupiers, such as Franklin Templeton, have also begun to

re-occupy their surplus space. Overall vacancy rates fell to 7.0%,

with Grade A supply remaining stable at 3.5%. Looking at the

development pipeline there were no new speculative starts over Q2,

but there does remain around 19,000 sq m of space under

construction speculatively, although this is not scheduled to

complete until 2013. We therefore anticipate choice to fall further

over the coming months, as existing space is gradually absorbed.

Occupier activity increased 27% y-on-y, boosted by the 6,000 sq m

deal to Amazon at Waverly Gate. This took half year volumes to

31,000 sq m which is effectively in line with the level of activity seen

over H1 2010. We have also witnessed some expansionary activity

particularly within the financial services sector. While we expect to

see increased activity over H2 2010, growth will remain limited with

deals driven largely by lease events. Prime rents remained stable

q-on-q at €328 per sq m, with incentives still generous at around 32-

36 months achievable on a 10 year term.

Eindhoven


There was a significant reduction in choice over the second quarter

with vacancy rates dropping from 15% to 12%. This was driven

partly by occupier activity with Bosch taking a significant unit from a

former Phillips location comprising around 15,000 sq m. The other

driver for this reduction was the withdrawal of around 25,000 sq m

from the market as the owners preferred to wait until the market

strengthened in their favour before pursuing a disposal. This was in

the Strijp district. Occupier confidence remained unchanged,

however, and the expectation that this will be a subdued year in

terms of competition continues despite half year volumes being 80%

up on H1 2010 and encouraging signs from knowledge based

sectors elsewhere in Europe. Prime rental conditions remained

stable but a recent deal to KPMG has tested valuations although

this is not seen as an upward trend.

Frankfurt

Cost: € 396 / sq m Competition:140,400 sq m Choice:14.3%

The market experienced a strong increase in competition over Q2

and more activity by volume has been witnessed this year despite

last year being dominated by the huge ECB deal. At 21%, deals in

the 2,500 sq m - 5,000 sq m category were particularly active but

there were also two big deals above 20,000 sq m – the 24,000 sq m

letting by BaFin in the Mertonviertel and the 20,000 sq m owner-

occupier deal to begin construction of Fraport AG at the airport.

Additions of new supply were low while occupier demand was

strong. This led to a decrease in choice – by around 100,000 sq m

over the quarter - although overall supply remains high. Prime rents

remained stable q-on-q although upward pressure is growing. Rents

in secondary areas were stable at €210 per sq m and incentives

remained unchanged.


Geneva


Demand for prime office space remains high in the Geneva office

market particularly from financial institutions, wealth managers and

associated service providers as well as international organisations

such as the Red Cross and the United Nations. With supply at very

low levels, and often in off-CBD locations, prime rents continue to

increase. Office vacancy rates in the city centre are at levels of sub

1% and limited plots for construction 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

for occupiers. Given positive economic prospects for the region and

a lack of new supply, rents are expected to rise further. Prime rents

currently stand at CHF 960 / sq m per annum and office space

overlooking Lake Geneva is usually trading at a premium to this.

Office space is more widely available and trading at a discount (e.g.

CHF600 in the airport area) but is often of lower quality and lacks

vital access to amenities.

Glasgow


Occupier activity fell slightly over Q2 but there remains a healthy

level of activity in the market. Choice was relatively stable over Q2,

with overall vacancy rates remaining at 10.5%. Grade A supply

remains far more constrained as reflected by a corresponding

vacancy rate of just 3.3%. The development pipeline market

continues to be constrained, primarily due to the lack of funding

opportunities but a number of developers have commenced pre-

letting campaigns. With nothing under construction in the City

centre and no speculative starts anticipated in the coming year, we

expect further tightening of Grade A supply. There remains a

significant amount of Grade B supply in the City centre which is

expected to keep rates inflated over the coming year. Prime rents

continued their upward trend in Q2, up by 1.8% to £296 per sq m.

While rent free periods remain generous at between 24-30 months,

we have seen the level of incentives tighten for the best space. We

expect incentives to harden further and prime rents to rise slowly.

Gothenburg


The occupational market showed less intensity in Q2 2011 with

volumes at around 17,000 sq m, half of the previous quarter’s

exceptionally strong level. Business services dominated the sectors

with over 30% of total take-up while the public sector who

dominated last quarter again saw strong demand of around 25% of

total demand. Current supply remained stable with a total vacancy

rate of 8.7% in existing stock. No new speculative office space has

been added to the market during the quarter. In 2010, development

projects completed over 50,000 square meters of new office space

in Gothenburg, which is the highest level since early 2000. For

2011, we expect to see around 25,000 square meters of new space

completed by the end of the year with an upturn in supply due to

pick up again in 2012. Prime rents are expected to increase in the

central submarkets CDB and other Inner city. A continued increase

is predicted for the remainder of the year, albeit at a slow pace. In

more fringe submarkets and secondary premises the rent levels are

stable.

Hamburg


Companies were more active in Hamburg with more competition

emerging from expansionary demand. Corporate occupiers are also

reaching decisions more quickly as the country’s economic

confidence grows. Over the second quarter most activity was seen

in small deals and across a variety of sectors – the only notable

absentee being the Public Sector. In terms of choice, two

developments were completed in Q2: Ericus Kontor (18,000 sq m) in

HafenCity and Passat Haus (6,100 sq m) in the City Centre. Total

completion volumes reached 82,000 sq m in H1, with 150,000 sq m

expected in H2 including the new building for Spiegel Verlag in

HafenCity. Choice fell slightly in the second quarter but options will

become more plentiful later this year. The strengthening

occupational market drove an increase in cost - both prime and

average rents increased and incentives moved in favour of the

landlord by one month.


Helsinki

Cost: €294 / sq m Competition: n/a Choice: 10.3%

Occupier demand showed signs of recovery over H1 2011. The

most active demand remains focused on the CBD where offices of

200-300 sq m are preferred. Other established office areas

supplying Grade A offices also face relatively good demand,

particularly new developments which are still attractive in the eyes of

the occupiers. Offices with B or C ratings outside the CBD continue

to struggle despite lower asking prices and generous incentives.

Consequently, owners are increasingly moving towards re-

development options. Occupiers’ awareness of sustainability issues

is also becoming of clear importance when selecting premises.

Vacancy still remains relatively high although rates in Helsinki

dropped 40bps q-on-q to 10.3%. The development pipeline of new

office space has continued to grow with over 30,000 sq m of new let

table space entering the market over H1. Prime rents in the CBD

rose 2% q-on-q. Tenant incentives in the CBD are almost non-

existent and outside the CBD are typically from two to three months

for Grade A premises in comparison to six months previously.

Leeds


Q2 2011 brought a significant improvement in occupier activity,

albeit from a low base. Half-year take-up was 19,500 sq m which is

15% below the five year average. Whilst occupiers remain cautious

there are a number of new requirements for office space within

Leeds city centre seeking 1,000 – 2,000 sq m. Supply continued to

decline over Q2, with vacancy rates falling to 10.7% overall and

5.6% for Grade A space. The development pipeline remains

constrained, with just 3,800 sq m of new office space currently

under construction speculatively. If several existing requirements

translate into deals before the end of the year then any new sizeable

requirements will be faced with a steadily diminishing range of

choice. Prime rents were stable q-on-q at €310 per sq m.

Incentives remain stable but generous, with around 30 months rent

free achievable on a 10 year term. Despite impending supply

shortages, we could see slight additional softening rents over 2011 if

replacement demand does not materialise.

Lisbon


Occupier activity improved slightly over Q2 with volumes up 22% q-

on-q but down when compared to the equivalent period in 2010.

The majority of activity was concentrated in zone 6. We expect

occupier activity for the next 12 months to remain broadly stable,

with recovery remaining relatively slow. Prime rents remained

stable at €228 per sq m, and have been so since the end of 2009.

Incentives for the city overall were also stable with around three to

six months rent free achievable on a three to five year lease. Rental

levels in secondary locations were also relatively stable, although

incentives here have shown signs of increasing. The second

quarter of the year saw just 12,460 sq m of new completions enter

the market. Despite this relatively low level of completions, the

overall vacancy rate increased slightly from 12.0% to 12.1%. The

majority of supply is concentrated in Zone 6, which houses around

38% of currently available supply. Looking ahead the development

pipeline remains relatively constrained with just 17,100 sq m due to

complete speculatively over the remainder of the year.

London City


Q2 was relatively quiet with 63,700 sq m transacted across 59

deals, a 7% decrease on last quarter and 46% behind the quarterly

average. However a significant amount of space remained under

offer which should transact during H2. Requirement volumes

increased 24% as a number of media occupiers launched tentative

requirements seeking in excess of 10,000 sq m. Occupier demand

is now 17% ahead of the 10 year average. Total supply decreased

6% to reflect a vacancy rate of 6.9% overall and 3.9% for Grade A

supply. Speculative construction increased 55% to end the quarter

at 280,000 sq m driven by the commencement of 60 London, EC1

and The Place, SE1. We have seen increases in refurbishments

over the quarter with three notable schemes totalling 29,000 sq m

commencing. Although there has been an increase in development

activity, we don’t expect a meaningful quantum coming to the

market over the next two to three years. Prime rents remained

stable for the third consecutive quarter with rent-free periods,

assuming a 10-year term at 22 months. With supply constrained and

demand increasing, we anticipate further rental growth this year.


London West End

Cost: € 1132 sq m Competition: 77,500 sq m Choice: 4.6%

Just over 77,000 sq m was let across 53 deals in Q2 - a 29%

increase q-on-q. This was driven by the likes of Google completing

their 14,600 sq m acquisition at Central Saint Giles and Double

Negative taking a pre-let on 8,000 sq m at 160 Great Portland

Street. Over the year to date take-up volumes were down 24% on

the equivalent period last year. Total supply fell 12% to 381,000 sq

m while Grade A supply fell 10% to 186,000 sq m. Overall vacancy

rates fell from 5.2% to 4.6% and Grade A from 2.6% to 2.3%.

Vacancy rates are now at their lowest levels since 2008. After a

31% increase last quarter, speculative construction decreased 5%

due to the completion of 11 Baker Street and the pre-let of 160

Great Portland Street. Only one scheme commenced construction

in Q2 (25 Soho Square,W1) compared with four last quarter. Prime

rents increased 2.7% while rent-free periods remained at 16

months, assuming a 10-year lease. We expect rents to increase

further over the remainder of the year given the low availability of

quality supply.

Luxembourg


Occupier activity for H1 2011 reached 73,000 sq m – a 53%

increase on the same period in 2010. This reflects a return to pre-

boom levels. We have seen increased activity from the Banking &

Finance sector which was responsible for the largest transaction of

the quarter with around 8,700 sq m taken by Pictet Bank. Around

21,500 sq m of office space completed over Q2, of which only 9,700

sq m was delivered speculatively. The low level of speculative

completions, combined with the increase in take-up activity resulted

in a downward shift in the overall vacancy rate to 6.6%. The lack of

new supply entering the market will drive vacancy rates down further

over the remainder of the year. Rents remained stable across all

submarkets q-on-q, peaking at €456 per sq m in the CBD. We

expect the prime rent to remain relatively flat over 2011, however

incentives have begun to tighten. Given the declining levels of

supply we expect to see further upward pressure on prime rents to

commence from the end of 2012.

Lyon


Occupier activity over H1 2011 increased 4% compared with 2010,

with Q2 being far more active that Q1. Deals have been focussed

on Inner Lyon which has attracted 75% of activity, driven by the

Part-Dieu sector (+53%) and Tonkin Saint Clair sector (+250%).

There has also been more demand for medium sized office units

(500-2,000 sq m). Choice was broadly stable at 6.8%, however the

distribution of supply is very unequal with supply tight in the 6th

district, Part-Dieu, Presqu’Ile – Confluence or Vaise and Plateau

Nord. Other districts offer a significant proportion of quality premises

such as the 7th and 8th districts. Going forward choice will remain

challenging with 60% of space under construction already prelet.

This relative scarcity of new build has led to increased competition

and increased costs - in Part-Dieu rents have risen to €270 per sq m

and in Presqu’Ile Confluence to €260 per sq m. Second-hand rental

values are mixed. Incentives have remained at 6-9 months

assuming a 6-9 year lease.

Madrid


Leasing volumes improved over Q2 and although large scale

demand remains scarce, it too has improved q-on-q. Almost 40% of

the existing demand is focused on the CBD with similar levels in the

periphery and only 4% in secondary areas. Corporate occupiers are

still putting off decisions to obtain advantageous rental conditions or

renegotiations in their current locations. Office vacancy increased

slightly overall at 10.3%. Due to the widespread lack of transactions,

choice increased particularly in the peripheral areas. However in the

CBD and satellite areas supply remained relatively stable and even

dropped slightly, with vacancy standing at 8% in the central area.

Total vacancy for offices and high-tech buildings has also dropped

somewhat due to the temporary withdrawal of secondary products in

need of complete overhauls and the lack of handovers. Prime rents

continued to decline in the second quarter, down 0.9% to €318 per

sq m. In the satellite area rental levels have remained stable over

six consecutive quarters.


Malmö


Increased occupier activity saw take-up reach almost 25,000 sq m.

H1 2011 has seen significantly high demand with current take-up

volumes greater than the total volume for the two preceding years.

Weighed against total office stock Malmö occupier activity is the

strongest in Sweden, exceeding both Gothenburg and Stockholm.

The Public service sector was the most active representing a third of

total take-up by volume. One of the largest deals during the quarter

was Regional Office’s signing of 3,600 sq m in Western Harbour. On

the supply side there were no significant projects completing in Q2

and only around 23,400 sq m is due to complete in 2011. However

there is almost 80,000 sq m in ongoing projects of which 46,000 sq

m is due to complete in 2012. The large amount of future supply in

the region will increase the use of rent rebates in new developments

during 2012-13. The trend with a high share of speculative new

supply is still strong in the region; especially in Western Harbour

where over 80% of ongoing project volume remains unsigned. Prime

rents remained stable at SEK 2,100 per sq m.

Manchester


Occupier choice increased over Q2, driven by the release of second

hand Grade B supply rather than any new completions. Grade A

supply continued to fall, reflecting a vacancy rate of just 2.3%,

compared with the average of 4.3% for the UK major regional

centres. The development pipeline remains switched off with nothing

currently under construction speculatively in Manchester City

Centre. As a result occupiers seeking good quality space in the City

Centre, are likely to be faced with a steadily diminishing range of

options. Despite a slow start to 2011, occupier activity picked up

over Q2 but it continues to fall short of average levels. Activity is

being generated from a variety of sectors, but the majority of

demand emanates from the Services and Professional Services

sectors. Prime rents remain unchanged with landlords continuing to

offer up to 30 months rent free based on a ten year term. Looking

ahead, the lack of Grade A supply could lead to further upward

pressure on prime rents, particularly if a return to pre-letting activity

is witnessed.

Milan


Activity over H1 2011 increased 57% compared to the equivalent

period last year. Activity continued to be driven by consolidation

with occupiers increasingly looking to maximize space efficiency.

Prime rents remained unchanged at €520 per sq m. The Milanofiori

area saw an increase in rents, as a result of improved access to the

metro. There remains continued appeal for Centre and Semi-centre

locations, with the result that we expect to see some rental growth in

these areas over the next 12 months. We also expect costs to

increase in the Repubblica-Garibaldi zone which will witness the

completion of the Porta Nuova development. In the Periphery and

Hinterland, rents remain under downward pressure and incentives

are still rising. The overall vacancy rate remained stable at 9.3%.

The development pipeline remains constrained with just 35,000 sq

m of new starts in Q2. Speculative starts remain rare and many

projects which are still awaiting planning consent are unlikely to start

without a significant pre-let.

Munich


Occupiers are reaching decisions more quickly with a growing

number now seeking expansion space. This was reflected in

increased activity – with more deals and a large volume of take-up

being witnessed than at any time since 2008. There has been a

particularly strong increase in deals being completed above 2,500

sq m. In terms of choice, only a quarter of the expected 2011

completion volume of 200,000 sq m has been delivered over H1.

This, combined with strong demand, has caused a slight decline in

choice which is now expected to remain stable for the rest of the

year. Completion volumes will decrease significantly in the coming

year. Within the Altstadtring there are currently only four buildings

with available space of 3,000 sq m or more. The prime rent

increased over Q2 and is likely to increase further. Incentives have

been reigned in as landlords become more optimistic about

demand. Rents in secondary areas were stable.


Oslo


Occupational demand is healthy and volumes of signed contracts in

the second quarter remain unchanged. The largest contract in the

quarter was EDB Ergo group taking 33,000 sq m in Fornebu. The

public sector, one of the most active occupiers, drove a significant

proportion of leasing volumes and, as employment levels are

forecast to rise, domestic demand for extra space is expected to

increase going forward. Choice increased by 50 bps to 8.5% in the

second quarter. Only 60,000 sq m of space is expected to complete

in 2011 however record volumes of up to 300,000 sq m will be

released to the market in 2012. The vast majority of both volumes

have tenants (Statoil, DnB, Aker, and Statkraft being the largest),

and the vacancy effect of the released space will not be felt until

2013-14. Prime rents have increased to NOK 3,600 per sq m, up

from NOK 3,500 in Q1 2011. With a growing occupier demand for

high standard prime space, rents are expected to continue their

upward trend.

Paris CBD

Cost: € 750 / sq m Competition: 96,200 sq m Choice: 5%

Although leasing volume in Ile de France over H1 2011 are 4% up

on 2010 the pace of take-up has declined over the course of the

year. Paris and the inner suburbs drove 85% of these volumes.

Outperforming submarkets (for H1) included Paris 5/6/7 (+50%),

Paris 3/4/10/11 (+39%), the Central Business District (+6%) and

Paris Centre West. There is a very unequal distribution of supply

and areas like Paris 5/6/7 or Paris 3/4/10/11 are showing shortages

with vacancy rates of 3.6% or Paris 18/19/20 with a vacancy rate of

3%. Paris CBD remains a sought after area for companies and has

maintained a good level of activity since the beginning of the year.

This market is essentially fuelled by small and mid-size transactions

with only one large occupier-sale since the beginning of the year.

Supply is becoming more scarce with vacancy rates declining to 5%.

The immediate supply is low for prime or new buildings. The lack of

supply could impact the market activity before year end. Due to the

shortage of prime product, rents have remained stable and there

were no changes in rent frees. Negotiation conditions vary

according to landlords.

Paris La Defense


There was a slight rise in occupier activity in La Défense with take-

up reaching 59,100 sq m by the end of June, a 6% improvement

compared with the first half of 2010. Improvements were also seen

at the La Défense periphery. There is a very unequal distribution of

supply across Paris and areas like Paris 5/6/7 or Paris 3/4/10/11 are

showing shortages with vacancy rates of 3.6% with the CBD at 5%

and La Défense at 5.4% - a reduction from 6.1% at the end of March

and more consistent with 2010. Choice remains plentiful in other

disctricts, especially surrounding La Défense (18.3%). In several

sectors we note a rise in office costs since the start of the year.

These sectors (Paris 5/6/7, La Défense, Southern inner suburb,

Paris 18/19/20) show limited quality supply. Costs for occupiers

seeking space in La Defence have increased from €530 per sq m to

€550 per sq m – a 4% increase – and costs in the second hand

market are around €455 per sq, a 17% discount to prime.

Rome


Occupier activity increased slightly over Q2 totaling around 65,000

sq m. The majority of activity was concentrated in the Eastern area

of Rome, with around 35,000 sq m of take-up in the Tiburtina sub-

market alone. There was also a significant amount of activity within

the Southern areas thanks to two deals in excess of 5,000 sq m to

Saipem and l’Espresso. In contrast Central areas saw a fall in the

level of activity, accounting for less than 20% of take-up in Q2. The

Manufacturing sector accounted for around 60% of activity in the

second quarter, while demand from the Public Administration sector

has continued to fall. Over the first half of the year, around 80% of

take-up was for Grade B space. There is very limited new or Grade

A supply in the market with a relatively low level of completions over

the last few years. Overall vacancy rates remained stable at 6.0%

over the quarter. Prime rents and incentives remained stable at

€420 per sq m with around 11 months rent free based on a six to

twelve year lease.


Rotterdam


Occupier take-up was up 85% q-on-q. This was driven by a 16,000

sq m acquisition by a company from the educational sector (for

office use) as well as an additional two 6,000 sq m deals. The public

sector within Rotterdam is still reasonably active and providing an

element of competition, but this is driven by a need for cost

reduction rather than expansion. The amount of choice was

unchanged at 15.5% as more space was added to the market

offsetting the absorption from occupiers. The amount under

construction also increased which will increase future options and

there are more ambitious longer term plans for development. Rental

conditions were unchanged with prime rents at €195 per sq m and

no change to incentives. There may be some movement in small,

top quality units at around €200 per sq m this year, but the overall

situation will remain flat despite official forecasts factoring in a small

increase.

Stockholm


Leasing volumes of 107,000 sq m were recorded in Q2. While

activity was down q-on-q, take up for H1 2011 was up 80% on the

equivalent period last year. The CBD saw vacancy rates fall to an

historic low of 4.2%. 2001 was the last time Stockholm CBD saw

rates lower than 5%. This has been driven by low volumes of new

speculative office space entering the market. In contrast, many

peripheral submarkets have experienced rising vacancy rates in H1

2011 as average deal sizes declined to approximately 850 sq m, as

occupiers focus on space efficiency rather than expansion. Prime

rents increased from SEK 4,000 per sq m to SEK 4,100 in Q2 with

lower landlord incentives placing further upward pressure on costs.

All submarkets witnessed an increase in rents. Rental growth is

expected to continue with forecasts adjusted to reach SEK 4,300

per sq m at the end of 2011. Secondary rents declined by SEK 100

to SEK1, 900 in Q2.

Stuttgart


Q2 2011 saw a continuation of the strong demand for space from

corporate occupiers, although the lack of suitable premises is

hampering the satisfaction of requirements. Take-up volumes over

H1 were around 119,000 sq m, 88% ahead of H1 2010 and although

the market remains dominated by activity from smaller occupiers a

number of larger requirements – in excess of 5,000 sq m – were

satisfied. This strengthening in occupier activity has led to a

reduction in the amount of choice for occupiers and also drove the

cost of space up slightly to €18.00 per sq m per calendar month.

The majority of lease contracts remain between €10.00 and €15.00

per sq m per calendar month. Incentives have remained stable q-on-

q. Options for occupiers are expected to remain thin this year – with

only 20,000 sq m of space having completed so far this year. Over

H2 a further 80,000 sq m will be delivered but only a fifth of this is

speculative.

The Hague

Cost: € 210 / sq m Competition:11,500sqm Choice: 10.2%

Choice was more or less stable with only a modest uptick in

vacancy rates overall and no meaningful changes at the submarket

level. However choice is expected to increase further with more

releases of space expected from the government, although no firm

timing can yet be ascertained. Competition in the market has been

modest although it should be noted that the half year total of 30,500

sq m was a huge improvement on H1 2010 which recorded only

4,900 sq m. Rental conditions have been stable at €210 per sq m for

some time now and no change was evident in the secondary market

either. There is an expectation that prices could soften, depending

on the amount of supply that emerges from the public sector.

Incentives widened over Q2 in response to this, moving from

between 9 and 15 months rent-free on a five year lease to between

9 and 18 months.


Utrecht


The amount of choice increased slightly in Q2. Competition was light

at around 14,000 sq m let over Q2. Expectations for 2011 are for a

flat leasing market with few significant occupational requirements of

any scale and no growth sector increasing competition. There has

been an increase in the amount under construction. The majority of

this is already pre-let and is focussed on the City Centre. There are

plans for more development starts, which would add some more

choice to the market but as occupiers relocate there will also be

more second hand options. Prime rents decreased by 2.2% q-on-q

to €220 per sq m. This was led by a decrease in the Maliebaan area

whereas rents were broadly stable elsewhere. The only other

exception was the Papendorp district where the rents fell by €10 per

sq m over the quarter.

Western Corridor


Q2 witnessed a marked uplift in active named occupier demand,

with c.300,000 sq m of requirements, an increase of 45% compared

with the previous quarter. However, this has failed to translate into

deals over Q2, with leasing volumes down 61% year-on-year.

Occupier confidence remains relatively weak and deals are taking

longer to complete. There are a significant number of deals in

solicitor’s hands and, with growing active demand, we expect this to

translate into more activity over H2 2011. Overall supply fell in Q2,

to reflect a vacancy rate of 14.2%. While some space has been

reabsorbed through leasing activity, a number of buildings have also

been withdrawn through a change from office to residential uses.

Grade A supply fell to its lowest level since 2008, reflecting a

vacancy rate of 5.9%. There is currently around 26,000 sq m of

space under construction speculatively, although none of this is

scheduled to complete in 2011. Prime rents increased marginally,

driven by further upward pressure in Chiswick. Incentives were

stable at 30 months rent free on a 10 year lease in the Thames

Valley and 24 months in West London.

Zurich

Cost: € 766 / sq m Competition: n / a Choice: 2.2%

Strong demand for office space in recent quarters has led to rising

rents and low levels of availability in the market. Supply of new

Grade A office space is, however, increasing with Zurich North and

West showing increased levels of choice. Many occupiers are

currently actively relocating to this new, modern space from their

inner city locations. One highlight of the market is the new “Prime

Tower”, a 130m high office tower development that will offer room

for approximately 2,000 employees and upon opening will be the

tallest office building in Switzerland. With new, modern Grade A

supply in the market competition is easing and with occupiers

relocating from the CBD to new development areas, choice in the

CBD is actually increasing. Overall occupation costs in the Zurich

market remain high. Prime rents paid at the moment are at around

CHF 935 / sq m per annum and are expected to increase further

over the remainder of 2011 though at a declining pace 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 Q2 2011 12-month outlook Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook

WE

Amsterdam 0.8 � 17.1 � 335 �

Antwerp 0.9 � 11.8 � 145 �

Athens n/a � 15.1 � 270 �

Barcelona 1.3 � 13.5 � 225 �

Berlin 0.9 � 8.8 � 252 �

Birmingham 0.9 � 20.0 � 340 �

Bristol 0.6 � 12.3 � 328 �

Brussels 0.5 � 11.2 � 310 �

Cardiff 2.5 � 12.3 � 250 �

Copenhagen n/a � 7.9 � 241 �

Dublin 1.0 � 20.6 � 355 �

Dusseldorf 0.8 � 12.0 � 282 �

Edinburgh 0.7 � 7.0 � 328 �

Eindhoven 1.6 � 12.0 � 185 �

Frankfurt 1.2 � 14.3 � 396 �

Geneva n/a n/a 0.9 � 786 �

Glasgow 0.4 � 10.5 � 328 �

Gothenburg 0.5 � 8.7 � 246 �

Hamburg 0.8 � 9.3 � 276 �

Helsinki n/a � 10.3 � 294 �

Leeds 1.3 � 10.7 � 310 �

Lisbon 0.4 � 12.1 � 228 �

London City 0.6

� 6.9 � 656 � London West End 0.9 � 4.6 � 1132 � Luxembourg 1.4 � 6.6 � 456 �

Lyon 1.4 � 6.8 � 270 �

Madrid 0.6 � 10.3 � 318 �

Malmö 1.2 � 6.9 � 230 �

Manchester 0.8 � 13.0 � 340 �

Milan 0.8 � 9.3 � 520 �

Munich 1.2 � 10.5 � 360 �

Oslo n/a � 8.5 � 463 �

Paris CBD 1.4 � 5.0 � 750 �

Paris La Defense 1.1 � 5.4 � 550 �

Rome 0.5 � 6.0 � 420 �

Rotterdam 1.2 � 15.5 � 195 �

Stockholm 1.0 � 11.1 � 448 �

Stuttgart 1.0 � 7.0 � 216 �

The Hague 0.2 � 10.2 � 210 �

Utrecht 0.6 � 13.3 � 220 �

Western Corridor 0.2 � 14.2 � 311 �

Zurich n/a n/a 2.2 � 766 �


CENTRAL AND

EASTERN EUROPE:

Corporate Occupier

Conditions

Central and Eastern Europe continued to experience solid

economic growth in the first half of 2011, building on the strong

recovery seen in 2010, with Global insight currently forecasting

GDP growth of 3.7%* in 2011. However the regions proximity to

the Eurozone, in terms of geography, trade and investment;

mean that Central and Eastern Europe will not be immune from

the potential economic fall out stemming from Eurozone

sovereign debt concerns. Those countries with strong domestic

demand, such as Poland, are most likely to sustain current levels

of economic growth should the outlook for the Eurozone

deteriorate further. Despite these downside risks to the regional

growth outlook, the CEE region remains on course to outperform

its western European neighbours.

Putting aside potential macroeconomic headwinds, as it stands,

solid economic growth is continuing to drive robust demand for

real estate across the region. Many markets continue to record

increases in office take up including all the core CEE markets of

Warsaw, Prague, Moscow and Budapest as well as markets

including Bratislava and Bucharest. We are also seeing tentative

signs that corporate occupier demand is becoming more

expansionary in nature. Prague saw the volume of lease

renewals as a proportion of take up reduce over both the quarter

and the first half of 2011, with large-scale corporate relocations

dominating the stats. In Bucharest too, the return of pre-leasing

was in evidence and is forecast to extend further through the

year. It seems Corporate occupiers in CEE are beginning to

move beyond the renewal and renegotiation activity that has

characterised take up over the last 24 months.

While occupier activity strengthens the supply environment

continues to challenge the international occupier in Central and

Eastern Europe. Despite headline vacancy rates remaining in

double figures in markets including Moscow, Prague, Bucharest,

Budapest and Zagreb vacancy is trending downwards in the

majority of the CEE markets we cover in this report. As has

consistently been the case over recent years in Central and

Eastern Europe, the size of the Grade A market of interest to

international occupiers is often significantly smaller than the

headline figures suggest. Limited development pipelines will

mean the choice available in a range of CEE markets will

continue to erode.

As the regional clock below illustrates, rents are already rising or

forecast to rise in Moscow, Warsaw and St Petersburg. All of the

other markets we cover in CEE are expecting rents to remain

broadly stable with increases likely in the medium term. With a

fairly static development pipeline, the issue of whether demand

for space will be sustained will be the key question impacting

potential rental growth in CEE in the second half of 2011.

*Central Europe and the balkans

Exhibit 11: Central & Eastern Europe Office Occupier Clock

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Belgrade

Bucharest, Budapest, Sofia, Zagreb

Tri-City

Bratislava, Kiev, Krakow, Prague

St. Petersburg

Warsaw

Moscow

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

BelgradeBelgrade

Bucharest, Budapest, Sofia, ZagrebBucharest, Budapest, Sofia, Zagreb

Tri-CityTri-City

Bratislava, Kiev, Krakow, PragueBratislava, Kiev, Krakow, Prague

St. PetersburgSt. Petersburg

WarsawWarsaw

MoscowMoscow


Belgrade

Cost: € 186 sq m Choice: 23%

The pace of the economic recovery in Serbia is expected to gain

momentum throughout 2011, after modest growth in 2010. Yet, high

levels of unemployment and rising inflation are causing slight

obstacles. During 2010 office supply totalled some 72,000 sq m of

good quality office space. However, development activity and

expected completions continue to trend down with low levels of

completions in the first half 2011. A couple of projects are currently

under construction (ca. 118,000 sq m) and are expected to be

delivered over the next two years. For the time being, office vacancy

levels remain high, standing at around 23% for the overall market

having increased from around 11% in 2008. Demand for office

space remains focused on units of up to 500 sq m, and driven by

relocations as occupiers take advantage of recent rental falls. Prime

rents paid in the Belgrade city centre and New Belgrade remained

stable over the quarter at EUR 15.50 / sq m pm. Rents for class B

office space in the wider city centre area remain in the area of EUR

10-13 / sq m pm.

Bratislava

Cost: € 198 sq m Choice: 9.1%

Q2 2011 saw healthy levels of demand across Bratislava with take-

up totalling at around 31,000 sq m, up from 11,000 sq m in Q1. Total

office stock in the capital remained stable at 1.38 million sq m, with

only one development so far this year. As a consequence, the

overall vacancy rate continued to decrease reaching 9.1% at the

end of Q2 2011, down from 10.1% at the end of 2010. Looking

ahead, the development pipeline remains fairly limited in the short

term, with just 45,000 sq m of modern office space expected to be

completed in the second half of 2011. With demand picking up,

overall vacancy rates should see some further downward movement

in the next 12 to 18 months. However, demand is primarily focused

on the prime end of the market and therefore secondary product

could see an increase in availability. Prime rents remained stable at

€16.50/ per sq m per month but could see some upward movement

towards the end of 2011. Rents range from €10.50 – €12.50 / sq m

pm in the Inner City Zone and from €8 - €10/ sq m per month in the

Outer City District.

Bucharest

Cost: € 228 / sq m Choice: 17.2%

Leasing activity continued to pick up in the first half of 2011, with

total take-up, including renewals reaching 115,000 per sq m. With

68,500 per sq m transacted (new leases) in Q2 2011, we forecast

the full year 2011’s take up to exceed 220,000 per sq m. The health

care industry still drives the city’s leasing activity, capturing 47% of

take up, while the second most active industry is finance/banking,

attracting 18%. The overall vacancy rate is estimated at 17.2% in

the city, although it is important to note the differences in

submarkets and grading of the office buildings. Prime buildings

located centrally witnessed vacancy rates in single digits, while the

overall rate remains elevated due to high vacancy rates of Class A

buildings in decentralized locations, such as Pipera North and

Baneasa. Rates are expected to fall by the end of the year. Prime

office rents remain unchanged at €228, for the fourth quarter in a

row, and a rise in rental levels is unlikely in the short-term due to

supply levels.

Budapest


Gross take-up activity in the first half of 2011 totalled 163,700 sq m,

of which 41% were lease renewals. Although demand did not

increase compared to the same period last year, it showed a similar

stable volume. Vacancy levels declined slightly in the second

quarter to 20.6% following its peak of 21.6% in Q3 2010. Although

availability is relatively high in the Budapest office market it is rather

difficult to find high quality contiguous large floor plates and

therefore occupiers with significant space requirements need to

consider built-to-suit options or pre-lets. The volume of new

completions has been cut back drastically since 2010 with only two

new office buildings completed. Prime rents remained stable at

€240 and in order to secure tenants in their buildings landlords are

offering greater rental incentives. Landlords are now willing to pay

for moving contributions or higher quality fit-out/greater fit out and

the highest levels of incentives are available in the submarkets.


Kiev


The Kiev market has witnessed a steady increase in total office

stock over the last few years. An additional 60,200 sq m of new

office space is due to complete in the second half of the 2011,

although not necessarily in the best locations. Demand for office

space is still price sensitive in the Kiev market, with the highest

demand for Grade B stock, although movement from Grade B to A

was noticeable. Occupier activity was relatively stable compared to

last quarter at 21,310 sq m. Leasing was dominated mainly by

international companies with the manufacturing and business

service companies the most active. There were no new completions

in Q2 and the net absorption was driven mainly by existing

companies renegotiating, expanding or relocating to the same or to

larger premises. Choice declined with the vacancy rate falling 100

bps to 12.5% driven by increased market activity and lack of new

supply. Prime rents remained stable at USD 420 / per sq m pa but a

slight increase is expected by the end of 2011 as demand recovers

Krakow

Cost: € 180 / sq m Choice: 11%

Kraków has witnessed a sharp increase in occupier activity. In the

first half of 2011 demand reached approximately 30,000 per sq m

(excluding renewals). Major lease transactions included Shell

(renegotiation of 16,100 per sq m in Krakow Business Park) and

Sabre (renegotiation of 8,900 per sq m in Buma Square). As the

market continues to benefit from its position as a major centre for

business outsourcing, the upward trend is expected to be sustained.

Kraków also witnessed high construction activity in Q2, both

speculative and pre-leased. Currently over 60,000 sq m is in active

development stage. The vast majority of new office space to come

on to the market in Poland was in Krakow and choice is relatively

plentiful with vacancy at 11%. Vacancy rates remained stable over

the quarter but are expected to trend downward before the end of

the year. Prime headline office rents in the best locations have

stabilized at 14-15 EUR/sq m/ month and as supply is expected to

decline upward rental pressure is expected by the end of 2011.

Moscow


An improving economy resulted in robust demand in Moscow with

take-up figures the second-highest in Europe after Paris. H1 2011

office take-up reached 834,400 sq m, 16% higher than in H1 2010.

Completion levels in Q2 2011 were the lowest since the end of 2004

with approximately 97,233 sq m of office space completed. Despite

this the vacancy rate increased to 16.8%, up 170 bps from the

previous quarter. The current office pipeline however, remains

relatively high. Several proposed measures were announced in

March in attempt to control current levels. Even with the new

limitations, the development pipeline stands at 2.5 million sq m to be

completed in the next three years. Rental costs for prime space

reached USD 1,200 per sq m per year (excluding operating

expenses and VAT), a 20% QoQ growth. Class A base rents

increased at 13% QoQ and ended Q2 at USD 850 per sq m per

year. Classes B+ and B- base rents remained unchanged at USD

400-600 and USD 300-400 respectively.

Prague


Gross take-up in the Prague market reached 88,019 per sq m in the

second quarter of 2011, up 79.6% compared to Q2 2010. Thanks to

large occupiers such as UniCredit Bank and Price Waterhouse

Coopers the share of renegotiations decreased to 13.5% and 23.3%

for both Q1 and H1 respectively, a significant decline of 42% on

renegotiation levels last year. On the supply side, no new

completions were recorded in the market. Currently there is

approximately 86,357 sq m of new and refurbished office space

under construction and expected to complete in H2 2011. The

limited new supply on the market combined with increased demand,

has contributed to a decline in the vacancy rate to 11.9%, 110 basis

points below Q1 level. Prime rental levels have remained stable

over the last eight quarters and stand at €252. Rental levels on non

prime buildings have also remained stable and the pressure to

provide incentives now differs significantly, from property to

property.


St Petersburg

Cost: €379 sq m Choice: 12.6 %

Demand was strong in the St. Petersburg market in Q2, although

somewhat lower thanQ1 levels. Only 59,760 sq m of Class A and B

office building space was absorbed compared to 108,560 sq m in

the previous quarter. Part of this space was absorbed via office

space purchases and owner-occupied completions. On the supply

side office stock completions reached 16,130 sq m in Q2 2011.

Total new supply in H1 2011 reached 71,200 sq m. The major share

of completions announced for 2011 have been rescheduled for

delivery in the second half of the year, with the completion of Phase

2 of the St. Petersburg Plaza project and Phase 1 of the Airport city

St. Petersburg, a mixed-use project. Choice in St. Petersburg has

been gradually declining since the beginning of 2010. At the end of

Q2 2011, the market average was 12.6% down from 15% in the

previous quarter. Prime rents increased 8% to €379 per sq m this

quarter; however potential tenants remain very sensitive to pricing,

which is likely to limit further rental growth.

Sofia


The overall occupier market remained relatively subdued in Q2

2011. However, there are some companies now looking to expand,

as market conditions are currently very favourable for tenants. The

considerable amount of new office space added to the market in

recent years has pushed the overall vacancy rate up to around 34%,

approximately twice as high as recorded at the end of 2008. Since

the start of 2005, around 800,000 sq m of modern office space has

been delivered, which is well above the absorption capacity of the

city. With ‘just’ 73,000 sq m of additional space due to be completed

in 2011 and demand seeing some early signs of recovery, vacancy

rates should stabilise and even see some marginal downward

movement towards the end of 2011. Prime headline rents, which

have recorded a 20% drop over the last 18 months, have stabilised

in the first half of 2011 at €18 per sq m pm. Headline rents are not

expected to rise in the short term. Incentives remain high as

landlords struggle with the high vacancy in their assets.

Tri-City

Cost: € 144-174 / sq m Choice: 10.2%

Take-up for the first half of 2011 was just 7,000 sq m (excluding

renewals), slightly lagging behind the total demand last year. Over

the last couple of months, demand has diminished considerably and

most of the take up now is from relocations from older or historical

buildings. Take up is also anticipated to remain fairly flat over the

coming quarters. Vacancy levels are currently at 10.2%, down

140bps from last quarter, as no new buildings were released to the

market. Vacancy is expected to increase by the end of the year as

an increase in projects creates more favourable terms for occupiers.

For 2011, 18,400 sq m of space is expected to complete by the end

of 2011 while 30,400 sq m is expected to complete in 2012. Prime

rents are currently witnessing negative rental growth, but are

expected to bottom out soon. As it stands, prime rents in Gdynia are

at ca. €14.5 per sq m/month. Sopot and Gdansk are slightly cheaper

at €12 -€14 per sq m/month.

Warsaw


The Warsaw office market continues to see high levels of occupier

demand. Demand reached 77,800 per sq m in Q2 2011 and totalled

224,700 per sq m for H1 - 55% up from the equivalent period last

year. Supply levels remain moderate, with only four projects

completed in H1 2011, totalling 28,350 sq m. In 2011, approximately

111,650 sq m remains in the pipeline, with the majority of this being

in non-central locations. Following the stabilisation of the vacancy

rate in 2010, sound demand and limited new supply has continued

to push this rate down. At the end of Q2, 2011 approximately 6.2%

of modern office stock in Warsaw remained vacant (6.7% in the

CBD, 9.0% in the City Centre and 5.2% in the Non-Central

locations). The vacancy rate is expected to decrease further due to

the relatively low number of new completions. Prime headline rents

in Warsaw are growing with the City Centre, Upper-South and

South-West submarkets first to witness rental growth. We expect to

see further moderate rental growth over the next 12 months.


Zagreb


Demand for office space remains low and occupiers continue to act

with caution. Nevertheless, a modest recovery in occupational

demand has been witnessed. Large national and international

occupiers, which have best weathered the economic turmoil, have

accounted for much of the occupational activity over the past six

months. Much of this activity is around relocations and upgrading as

occupiers take advantage of reduced rental levels. On the supply

side, vacancy rates remained broadly stable at between 10% and

12% for the city as a whole (Grade A at 8.5%). Approximately

157,000 sq m of space is currently under construction, of which

approximately 23,000 sq m will be delivered by the end of 2011.

Grade A office space is available at an average of €15 / sq m pm,

with premiums paid for small units in prime CBD locations (up to €17

/ sq m pm). Space in less central locations is usually available at

€12 / sq m pm. Incentives in the form of rent free periods or fit-out

contributions continue to be a feature of the market and are

expected to be offered until vacancy rates start to decrease.

Central & Eastern Europe Corporate Occupier Markets at a glance

Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa)

Market Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook

CEE

Belgrade 23 � 186 �

Bratislava 9.1 � 198 �

Bucharest 17.2 � 228 �

Budapest 20.6 � 240 �

Kiev 12.5 � 290 �

Krakow 11.0 � 180 �

Moscow 16.8 � 828 �

Prague 11.9 � 252 �

St Petersburg 12.6 � 379 �

Sofia 34 � 216 �

Tri-City 10.2 � 144-174 �

Warsaw 6.2 � 300 �

Zagreb 8.5 � 180 �


MIDDLE EAST AND

AFRICA: Corporate

Occupier Conditions

The outlook for a number of real estate markets in the Middle East

and North Africa remains clouded by the continuing political,

economic and social impacts associated with the ‘Arab Spring’.

Tourism and investment have been hit hard and are expected to

continue to slump in the near term given the new political

uncertainties facing the region, while normal business activities have

also been impaired by the crisis. As a result Global Insight have

downgraded 2011 real GDP growth for the MENA region to 3.9%,

down from 4.2% in April and 5.3% prior to the crisis.

This process has inevitably meant that international occupiers are

showing greater caution in the region, with expansion plans placed

on hold until greater clarity emerges about the long term implications

for Egypt and North Africa in particular.

Despite the regional troubles, MENA oil and gas exporters—

particularly in the Gulf region—are likely to see a bump in economic

growth thanks to higher oil output and increased government

spending. The impacts of increased government spending are also

being seen in real estate markets such as Saudi Arabia and Qatar,

where the Government sector plays a key position in take up

figures.

Office markets across the region continue to offer opportunities for

occupiers. Dubai remains massively oversupplied with overall

vacancy running at 44% and Abu Dhabi too continues to see

vacancy rates trend upwards, rapidly altering the situation of limited

modern office space experienced prior to the global financial crisis.

Saudi Arabia is also seeing choice increase for occupiers with a

number of large scale developments expected to complete over the

next 2-3 years. Outside of the UAE and Saudi Arabia, choice is

generally more limited with the provision of high quality space

solutions remaining constrained. In North Africa there may be some

salvation from the development pipeline, although as has been seen

in the case of Cairo, recent political unrest will serve to reduce the

amount and speed of space delivered to the market. Tel Aviv has

also faced acute supply shortages over the last couple of years,

although there are now signs developers are beginning to react with

the pipeline likely to deliver new grade A space to the Tel Aviv

market by 2013.

Costs for the occupier continue to vary considerably across this

diverse region, with the tight supply environment fuelling rental

growth in Algiers, Casablanca and Tel Aviv. Other markets in the

Middle East and North Africa continue to see soft rental conditions.

Although prime rents in Dubai remained stable over the quarter,

further falls are expected before year end, and the large volumes of

completions expected in Abu Dhabi are also expected to put

downward pressure on rents. In those MEA markets with an

abundance of supply, occupier-favourable conditions are likely to

remain for the foreseeable future.

Exhibit 12: MEA Office Occupier Clock

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Cairo

Abu Dhabi

Dubai

Doha

Jeddah, Riyadh

Johannesburg, Tunis

Istanbul

Algiers

Casablanca, Tel Aviv

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

Rental Growth

Slowing

Rents

Falling

Rental Growth

Accelerating

Rents

Bottoming Out

CairoCairo

Abu DhabiAbu Dhabi

DubaiDubai

DohaDoha

Jeddah, RiyadhJeddah, Riyadh

Johannesburg, TunisJohannesburg, Tunis

IstanbulIstanbul

AlgiersAlgiers

Casablanca, Tel AvivCasablanca, Tel Aviv


Abu Dhabi


The Abu Dhabi office market continues to see high levels of office

supply. With the completions of Tower One and the Guardian Tower

another 68,000 sq m of office space was added over the quarter. In

H2 2011 a further 244,000 sq m is expected to be delivered. Despite

projects being cancelled or delayed, another 1.2 million sq m could

enter the market before the end of 2013. The vacancy rate increased

slightly over the quarter to 11.5% and with more supply in the

pipeline, is expected to rise further in the short to medium term. In

terms of demand many occupiers are actively pursuing relocations

and/or looking to upgrade from lower grade space taking advantage

of the fallen rental levels and increased supply. Occupiers remain

price sensitive in this occupier-favourable market. Increasing choice

will spark a wave of increased rental incentives and other

inducements to encourage relocation. Average Grade A rents have

declined to around AED 1,850 per sq m per annum with average

Grade B rents declining faster to c, AED 1,300 per sq m per annum.

Algiers


The political situation in Algeria continues to stabilise and the

government has introduced measures to improve the situation and

ensure stability. Overall, the economic outlook for Algeria continues

to improve, driven by increased revenues from oil production.

Demand for office space in Algiers remains dominated by local

occupiers and established foreign companies. The provision of

international Grade A office space remains very scarce. Supply of

new space is often limited to residential conversions in areas such as

Hydra & Val de Hydra. The centre of Algiers continues to suffer from

poor accessibility, security threats and limited availability of space.

The ongoing construction of additional towers will add modern office

space with larger floor plate availability than the general average of

300-400 sq m. However, these developments will not be delivered in

the near-medium term. Overall Grade A office space is available at

rents of DZD 3,500 - 4,200 / sq m per month. Good Grade B space

which continues to compete with Grade A space given its low

availability remain at levels of DZD 2,500-3,000 / sq m per month.

Cairo


The recent turmoil has affected the office pipeline and while only a

few projects have officially been cancelled many projects are likely to

be delayed. Over the next 12 months approximately 70,000 sq m of

new, purpose built Grade A office space is expected to be completed

subject to short term stability. New supply will continue to be added

to the new, preferred office locations of the satellite areas New Cairo

and 6th of October (Smart village) which offer modern office stock,

access to business services and amenities for staff, enhanced

security and the opportunity to avoid the congested and polluted

downtown areas of Cairo. Occupier activity continues to be focused

on upgrading at reasonable rental levels. While activity is returning to

the market, many occupiers remain in a wait-and-see mode until the

medium-term outlook becomes clearer. The market is therefore

expected to remain occupier-favourable. Average Grade A rents

slipped slightly to US$ 23 per sq m per annum and prime rents stand

at around US$40 per sq m per annum. Rents could decrease further

over the short-term as supply exceeds demand.

Casablanca


The Casablanca office market continues to lack modern office space

of international Grade A quality. While development activity is

ongoing with new completions expected for the remainder of 2011

and for 2012, the majority of the space will be of Grade B or A-

quality, designed to suit local demand. While the supply shortage is

likely to improve in the medium to longer term the lack of modern

Grade A stock continues to be a market constraint and it will remain

difficult to for occupiers to find large single floor plates in excess of

1,000 sq m. These larger units are likely to be more frequently

available in macro developments such as the Marina or Anfa Place,

which will be developed on euro-norm standards, alongside some

singular developments in the area of Sidi-Maârouf. Occupier demand

remains stable, but demand has toned down as an indirect result of

the general decline in business confidence in the Maghreb area. In

the core areas rents are around MAD 210 /sq m per month. Rents for

new Grade A new space in non-central areas increased marginally to

MAD 150 / sq m per month.


Doha

Cost: € 515 / sq m Choice: 10 %

The Doha office market remains oversupplied. Some recent

developments in the West Bay area were taken by government

entities, but are under utilised and currently around 30 new high-rise

office developments are under construction in the area. Apart from a

few larger requirements, many companies are seeking office space

in smaller unit sizes. Demand is likely to fall short of the huge

amount of supply entering the market. The situation in neighbouring

Bahrain has calmed from the turmoil a few months ago and while

there remains speculation over some financial institutions relocating

their operations to Qatar this has not yet materialised. Rental levels

for prime space remain in the area of QAR 2700 / sq m per annum.

Average Grade A rents remain under pressure and declined over

the quarter to QAR 1720 / sq m per annum and given the future

supply outlook, rents are expected to decrease further. The market

therefore remains occupier-friendly and landlords have shown

increased flexibility on lease terms and rental levels.

Dubai


Oversupply of office space remains a key fundamental of the Dubai

office market. However, over the quarter there were no significant

additions. Another 1.2 million sq m is scheduled to complete by

2013 but with developers continuing to cancel or delay projects this

could reduce further. City-wide vacancy rates remained stable over

the quarter at 44%. Vacancy rates for preferred single ownership

properties in the CBD remained unchanged, too, standing at 27%.

Occupier demand continues to focus on these kind of properties in

the CBD and certain free zones (such as TECOM) with demand for

strata titled units or space in less established locations being very

limited. Prime rents in the CBD remained unchanged again over the

quarter at AED 1,615 per sq m pa. Rents for poorer quality buildings

and those in less established locations have continued to decline in

the face of increased supply and limited occupier demand. Overall

the Dubai office market continues to favour occupiers who enjoy a

range of choice at increasingly competitive rents. In most locations

rents are expected to decline further over the second half of 2011.

Istanbul

Cost: € 360 / sq m Choice: 8.4 %

The Istanbul office market continues to see a revival of occupier

activity based on strong economic performance. The Umraniye

submarket remains the most active submarket – offering plentiful

new, high quality supply at competitive rental levels in comparison to

the CBD. Overall, take-up in H1 2011 was three times stronger than

in the same period last year and volumes are expected to increase

further. On the supply side, choice increased q-on-q to 8.4% but

vacancy rates in the CBD are as low as 2.4%. Rates remain highest

in the non-CBD locations of the European side (c. 16%).

Approximately 120,000 sq m of new office space completed during

H1 2011, almost double the amount delivered in H1 2010. Between

now and the end of 2013, c.637,000 sq m is expected to complete,

with around 35% of this in the CBD and another 35% on the Asian-

side. Based on good fundamentals and low vacancy in the CBD,

prime rents are expected to increase over the next six months after

having stood stable at €360 / sq m pa since Q1 2009.

Jeddah


The Jeddah office market remains oversupplied. Overall, it is

expected that c.163,000 sq m of new office space will enter the

market this year – a record level. Going forward, the pipeline is

expected to decrease with completions of 115,000 sq m expected

during 2012. On the demand side, the situation remains broadly

unchanged with most demand from Government agencies or

affiliated organisations. While there is demand to relocate to new

and better quality space, occupiers remain price sensitive, with

many occupiers being aware of their stronger position and usually

only deciding to relocate on neutral cost terms. Average Grade A

rents softened slightly over the quarter to SAR 820 / sq m pa. Given

new supply, vacancy is expected to increase while rents are

expected to decline further over the next 12 months. It is expected

that the imbalance between supply and demand will result in the

emergence of rent free periods and other incentives which will result

in widening the gap between asking and effective rents. Overall,

market conditions are expected to remain occupier favourable


Johannesburg

Cost: € 220 / sq m Choice: 6-7%

Demand for office space is slowly picking up with the number of

requirements growing. Choice is decreasing with vacancy rates of c.

6-7%. “Triple A” space remains particularly scarce. Average Grade

A quality is more widely available with the majority of the space in

units of 500-1,000 sq m. The market does remain occupier friendly.

Prime rents were stable q-on-q and are in the range of ZAR 170-180

per sq m per month. Grade A space is available in the range of ZAR

130-150 per sq m per month and A-/B+ space at ZAR 100-120. The

transport situation continues to improve with the Gautrain network in

full operation and access to the network has become a key driver for

local office markets. While the public transport systems continue to

improve, energy costs are becoming a key concern for occupiers.

Recent jumps in utility prices of up to 30% have substantially

increased operating costs and building have ensured that building

efficiency plays an increasing role in property decision making.

Riyadh


The Riyadh market continues to expand with a potential pipeline of

c.1.4 million sq m, due to complete by end-2014. Although it is likely

that not all of this will be delivered on time as developers postpone

or delay projects, it will undoubtedly increase choice. Banks reduced

appetite to fund development will also have a drag effect on the

pipeline over the medium term. On the demand side, public sector

entities remain the biggest source of demand, followed by

healthcare as the country’s huge stimulus measures take effect.

Demand from multinational companies remains subdued. Relocation

and upgrading to higher quality stock offering improved workspace,

security and increased parking remains a key demand driver.

Vacancy levels remained stable q-on-q but will move up as large

scale development projects are delivered. Rents remain stable at

SAR 1,000 / sq m pa but costs are expected to decrease with

significant falls expected in 2013/2014, when new market supply

peaks. Against this backdrop, rents for secondary product are

expected be under even greater pressure.

Tel Aviv

Cost: € 290 / sq m Choice: 3-4%

Israel’s economy continues to deliver strong growth despite

headwinds at the global level. Supply for Grade A space remains

tight in the Tel Aviv market. With firm economic growth, many

occupiers have switched to expansion mode and are moving to

larger units – if they can find and secure them. Solid market

conditions and improving lending conditions have strengthened

developer confidence and planning for new schemes is underway,

however schemes that started at the end of 2010 and over the last

quarter will take until 2013/2014 to be completed. Prime rents

remained stable over the quarter at ILS 110-120 / sq m per month

plus service charges. Prime rental stability is due to the fact that

landlords are meeting reluctance from occupiers for paying rents at

higher levels. This upward pressure has driven some footloose

occupiers outside the centre where modern space is more widely

available and trading at a discount (ILS 80-90 / sq m pm).

Tunis

Cost: € 80 / sq m Choice: 12 -15%

Although business life has largely returned to normal in Tunis, the

operational environment continues to be adversely affected by the

risk of further protests as well as ongoing industrial strikes and

disruptions to economic activity. With regards to the office market

Tunis remains in an early process of forming an office market of

international standard. The majority of the existing stock in the

market does not meet international standards, however, and only a

fraction of the market is available for lease as local private

developers prefer selling a building after completion for owner

occupation. The main area for new construction of Grade A office

space remains around the “Lac de Tunis” which is increasingly seen

as a the new prime office area as it also offers a more secure

environment. For the short term, rents are expected to remain

unchanged at around TND 160 / sq m per annum with current

occupiers carefully assessing the situation and putting expansion

plans on hold. A set of developers is, however, expected to

capitalise on increased demand for offices outside the city centre.


Middle East and African Corporate Occupier Markets at a glance

Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa)

Market Q2 2011 12-month outlook Prime, Q2 2011 12-month outlook

MEA

Abu Dhabi 11.5 � 347 �

Algiers 4 � 450 �

Cairo 30 (Grade A: 5) � 330 �

Casablanca 10 � 220 �

Doha 10 � 515 �

Dubai 44 � 303 �

Istanbul 8.4 � 360 �

Jeddah 14 � 151 �

Johannesburg 6-7 � 220 �

Riyadh 10 � 184 �

Tel Aviv 3-4 � 290 �

Tunis 12-15 n/a 80 n/a

Business Contact: Corporate Solutions

Vincent Lottefier

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

Dr Lee Elliott

Director EMEA Research London +44 (0)20 3147 1206 [email protected]

Tom Carroll

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

EMEA Corporate Occupier Conditions – August 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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EMEA Corporate Occupier Conditions 3Q 2011

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