European Property office market 2010/11

European Office Property
Markets 2010/11

King Sturge: European Office Property Markets 2010/11

Contents

Executive summary 2 What are the main European real estate
tax issues? 37
Europe-wide analysis 3
Courtesy of BDO LLP
City summaries 13 Austria 40
Belgium 41
Western Europe 14 Bulgaria 42
Austria Vienna 14 Croatia 43
Belgium Brussels 14 Cyprus 44
Cyprus Nicosia 15 Czech Republic 45
Denmark Copenhagen 15 Denmark 46
Finland Helsinki 16 Estonia 47
France Lyon 16 Finland 48
Marseille/Aix 17 France 49
Paris 17 Germany 50
Germany Berlin 18 Greece 51
Frankfurt 18 Hungary 52
Munich 19 Ireland 53
Greece Athens 19 Italy 54
Ireland Dublin 20 Latvia 55
Italy Milan 20 Lithuania 56
Luxembourg Luxembourg 21 Luxembourg 57
Netherlands Amsterdam 21 Netherlands 58
Norway Oslo 22 Norway 59
Spain Madrid 22 Poland 60
Sweden Stockholm 23 Romania 61
Switzerland Geneva 23 Russia 62
Zurich 24 Serbia 63
UK Belfast 24 Slovakia 64
Birmingham 25 Spain 65
Bristol 25 Sweden 66
Cardiff 26 Switzerland 67
Edinburgh 26 Turkey 68
Glasgow 27 UK 69
Leeds 27
London 28
Manchester 28
Newcastle 29
Thames Valley 29

Central, Eastern and Emerging Europe 30
Bulgaria Sofia 30
Croatia Zagreb 30
Czech Republic Prague 31
Estonia Tallinn 31
Hungary Budapest 32
Latvia Riga 32
Lithuania Vilnius 33
Poland Warsaw 33
Romania Bucharest 34
Russia Moscow 34
Serbia Belgrade 35
Slovakia Bratislava 35
Turkey Istanbul 36

1


Executive summary of a recovery in office development activity. This
situation is unlikely to change in the near future
Greek crisis highlights economic divisions with speculative funding remaining extremely
within Europe scarce.
• A north-south divide is emerging in the Eurozone • A combination of improving demand and limited
economy. Portugal, Ireland, Greece and Spain supply is expected to bring a more widespread
(PIGS) remain mired in recession into 2011 and decline in vacancy over the next year.
the core recovers at an unspectacular rate.
Rents close to their trough
• By contrast, outside of the single currency area,
• London and Paris have been the first western
the UK and the Nordics post stronger-than-
markets to see evidence of a prime rental upturn
average performance to lead growth in the west.
in early 2010 - most other centres have been flat.
• Central and Eastern European (CEE) economies
• In CEE, fortunes have been mixed, with Moscow
experience the most vigorous rebound longer
and Istanbul rebounding, but softer conditions
term, registering GDP rises of more than twice
prevailing in other centres.
the Eurozone average.
• Even in the most vulnerable cities, the outlook
Occupier demand set for slow recovery
is for stability over the rest of 2010, though the
• There have been tentative signs of a turnaround prospects for growth are expected to remain
in western office occupier demand, led by Central subdued.
London.
Investment recovery broadens
• In CEE, the recovery is not as well established,
• Since mid-2009, there has been a healthy revival
but activity is expected to move ahead by the
in European office investment activity, spreading
end of this year, driven by Warsaw and Moscow.
from west to east as confidence has improved.
• With economic uncertainty high, further recovery
• Prime office yields have moved sharply inwards
will be gradual, but prospects will be underpinned
in the west and are back to their long-term
by the resumption of office employment growth.
averages in some markets.
Supply stabilises in 2010
• In the east, prime yields moved outwards for
• Office vacancy rates have stabilised at high much of the last year, though there are signs that
levels over the last 12 months, with further they have now peaked.
deterioration in some centres counter-balanced
• The outlook is for continued recovery, albeit
by improvement in Moscow and London.
cautious, with occupier fundamentals expected
• Outside of Central London, there is no evidence to drive investment performance across Europe.
Prime office rents and yields 2010Q2
1,000 16%
/m2/annum Prime yield %
800
12%
/m2/annum

600
8%
400

4%
200

0 0%
London West End
Geneva
Paris
London City
Zurich
Moscow
Milan
Luxembourg
Frankfurt
Stockholm
Dublin
Istanbul
Oslo
Munich
Athens
Madrid
Manchester
Edinburgh
Thames Valley
Bristol
Birmingham
Leeds
Glasgow
Amsterdam
Helsinki
Warsaw
Vienna
Cardiff
Newcastle
Prague
Bucharest
Brussels
Marseille
Berlin
Lyon
Sofia
Budapest
Copenhagen
Nicosia
Riga
Zagreb
New Belgrade
Tallinn
Bratislava
Vilnius
Belfast

Source: King Sturge Q2 2010

2

Navigating uncertain waters All the PIGS are set for prolonged recession, with
only Ireland emerging strongly over the longer term.
Europe’s office markets and the Spain, one of the star performers in the 2000s and
economic recovery the Eurozone’s fourth largest economy, is expected
to experience three years of falling output.
Sovereign debt crisis highlights different
speeds of recovery across Europe Table 1: GDP forecast 2010-15
At the start of 2010, optimism about the Eurozone Annual % GDP
was growing. An upturn in world trade from mid- 2009 2010f 2011f 2012-15f
2009 had brought a return to growth, ending the Eurozone
worst recession since 1945. There were hopes Austria -3.4 1.2 1.6 2.1
that the legacy of the financial crisis would be less Belgium -3.0 1.4 2.0 2.3
of a drag than in other parts of the world, and that Cyprus -1.7 -0.3 1.8 3.3
the Continental economies would, for once, out- Finland -8.1 0.4 3.0 3.5
perform. France -2.5 1.2 1.7 2.1
Germany -4.9 1.8 1.8 2.1

The onset of the Greek debt crisis in the spring Greece -2.0 -4.3 -3.2 1.1
Ireland -7.1 -1.0 2.8 3.8
has brought a more sober assessment of growth
Italy -5.1 0.5 0.7 1.6
prospects. Greece’s financial problems reached a
Luxembourg -3.4 1.9 2.5 3.1
head in May 2010 and eventually forced a German-
Malta -1.5 2.3 2.1 3.0
led EU bail-out. But, this €110bn assistance package
Netherlands -4.0 1.2 2.0 2.4
has yet to narrow bond spreads in the exposed
Portugal -2.6 -1.1 -1.5 1.5
economies, indicating markets are unconvinced
Spain -3.6 -0.6 -0.2 1.7
that the problem has disappeared.
Slovakia -4.7 3.0 4.0 4.6
Slovenia -8.1 0.8 1.5 2.9
There are a number of reasons for the lingering
Eurozone -4.1 1.0 1.2 2.1
concern. The contagion threat from Greece to other
Other Western Europe
larger nations is the main worry, with Spain, Ireland,
Denmark -4.9 1.2 2.2 2.5
Italy and Portugal also struggling to meet their fiscal
Norway -1.5 0.7 2.3 2.4
targets. In addition, big EU banking exposures -
Sweden -4.7 0.8 2.8 2.4
notably in France and Germany - have raised the Switzerland -1.5 1.8 1.7 2.1
spectre of a second financial crisis if there were a UK -4.9 1.1 2.3 3.2
sovereign bond default. Many countries have also Central and Eastern Europe
responded to Greece’s problems by tightening their Bulgaria -5.0 -1.0 3.7 6.4
fiscal policy. This has brought an abrupt end to the Czech Republic -4.1 1.7 3.2 4.4
stimulus of the last year or more, and is expected to Estonia -14.1 0.5 3.6 5.2
dampen the recovery. Hungary -6.2 0.9 2.8 4.5
Latvia -18.0 -3.5 2.2 6.3
North-South divide in the Eurozone Lithuania -14.8 0.2 3.9 6.4
Better than expected Q2 data have eased the fears Poland 1.9 3.0 3.4 4.9
of a double-dip recession, but Eurozone growth Romania -6.9 -1.8 2.7 5.7
forecasts have generally moved downwards since EU-27 -4.2 0.9 1.6 2.4
the spring. The impact of these revisions has not Other CEE
been even across the single currency area, however, Russia -7.8 5.0 4.8 5.0
with a distinct north-south split emerging (table 1). Turkey -4.7 5.9 5.8 6.7
Croatia -5.8 -0.5 2.6 4.5
In the south, the so-called PIGS (Portugal, Ireland, Serbia -3.0 1.5 3.0 4.5
Source: Oxford Economics, Summer 2010
Greece and Spain) have been downgraded most
because they face the toughest fiscal challenges.

3


By contrast, the core Continental nations are conditions. This growth is expected to be sustained.
holding up better. Germany, France and the Benelux By contrast, Serbia and Croatia are recovering
countries are due to experience a steady recovery at a more lacklustre pace, with demand weighed
over the next two years. These economies should down by fiscal concerns and external volatility. EU
also see a return to job creation by next year. The convergence goals ensure a strong recovery from
laggard is Italy, where structural problems are more next year, but they will remain vulnerable in the
serious and GDP growth weaker, but its economy is short-term.
set to emerge from recession in 2010.
Employment drivers point to robust office
Overall, Eurozone GDP is forecast to grow by 1.0% demand
this year and 1.2% in 2011, with a return to trend Total employment is set to lag the recovery in GDP
growth of around 2.0% a year over the medium this year, but the worst impact has been outside
term. Employment continues to contract into of traditional office occupier sectors (chart 1).
2011, but hiring resumes thereafter. This is still a Office employment in the EU-27 fell last year as
solid performance, but less impressive than was the financial crisis hit hard and a further decline of
expected before Greece’s troubles flared up. -0.5% is expected this year1. But from 2011, office
hiring resumes and continues at a rate that exceeds
Outside the single currency area in the west, the most other sectors. As increases in headcount are
outlook is better. The UK has benefited from sterling associated with rising take-up, these projections
depreciation and recent decisive fiscal action. From indicate healthy fundamentals for occupier demand.
2011, both GDP and job growth out-strip those of
all its larger EU partners. The Nordic economies are Chart 1: Employment growth in EU27 – all sectors and
office jobs
also emerging from the recession more vigorously.
4
The prospect there is for annual growth of almost Forecast
3
2.5% over the next five years, well above the single
currency average. 2
annual % change

1

Eastern bloc emerges strongest 0

Emerging economies in Central and Eastern Europe -1

(CEE) saw some of the deepest contractions in -2

output last year, as manufacturing was decimated -3
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
by the global slump. After a tentative start this year,
All sectors
however, these nations are set to see the strongest Office jobs
growth rates in the recovery, with GDP increases of Source: Oxford Economics
5% a year or more in prospect over the longer term.
This begs the question of which European office
Central Europe’s largest economy, Poland, was centres are likely to do best in future. An indication
the only EU nation to avoid recession in 2009 of this is provided by breaking down forecasts to
and sees a rapid return to health, along with the a regional level. Office activity is concentrated in
Czech Republic and Slovakia. The Baltic States, urban areas and because of this growth in almost
Romania and Bulgaria continue to struggle in 2010, all of Europe’s city centres exceeds the EU regional
but experience expansion rates far in excess of averages. Table 2 gives a ranking of forecasts for
western norms thereafter. Hungary manages to selected EU cities up to 2015.
post decent growth too, despite persistent budget
deficit problems. On these measures, the larger international centres
in the west perform well, in line with recent market
Elsewhere the picture is also healthy. On the fringes evidence. London is the second fastest growing
of Europe, Russia and Turkey have shown a strong 1
Office employment consists of financial and business
rebound in 2010 on the back of improving global services plus public administration jobs

4

city and by far the largest creator of office jobs. But in office take-up for three years in 2010 (chart 2)2.
Frankfurt, Paris, Amsterdam, Munich and Milan are The recovery is currently patchy, but with evidence
also set to expand at healthy rates, despite sluggish of improving sentiment. A majority of centres
national performance. Here the key is the global expect activity to revive over the rest of the year
reach of these markets, allowing them to rise above and overall take-up is projected to expand by 10%
an uncertain domestic outlook. on 2009.

In the east, structural change has meant that the There remain important differences between
rapid GDP growth has not always translated into western cities. The most significant increases in
office jobs. But this situation is changing. Bucharest demand are expected in the larger global centres,
is expected to see the highest growth of any notably Central London and Paris. These markets
major office centre over the next decade, albeit went into the downturn earliest and hardest as
from a very low base. This expansion is driven by the financial crisis hit. But as the recovery in world
exceptionally strong growth in the underdeveloped demand has gathered pace, led by emerging Asia,
business services sector. Budapest, Warsaw, Sofia they have also seen the quickest turnaround, with
and Prague will also see dynamic conditions. demand picking up in London from mid-2009.

Table 2: Office hotspots 2010-15 Elsewhere, the upturn is more gradual, but there
are signs of recovery in Stockholm, Copenhagen,
Office jobs Office job New office Lyon, Munich and Berlin. More surprising, some
in 2009/ growth jobs created
1,000s 2010-15 by 2015
cities in the beleaguered PIGS economies are
/%pa /1,000s expected to record growth, Dublin notably. By
Bucharest 251 6.5 109 contrast, the main laggards are Vienna, Amsterdam
London 1,249 2.6 212 and UK regional centres, which remain well behind
Helsinki 206 2.6 32 London’s upturn.
Frankfurt 268 2.4 37
Budapest 319 2.4 47 Chart 2: Western Europe
Growth in total office take-up index
Munich 344 2.2 46
140
Amsterdam 328 2.2 47
120
Warsaw 374 2.2 53
100
Index 2000 = 100

Sofia 246 2.1 35 Trend line
80
Prague 331 1.8 35
60
Paris 1,204 1.3 96
Milan 555 1.2 49 40

EU27 48,951 1.2 3,910 20

Source: Oxford Economics, July 2010, based on NUTS3 regions 0
1996 1998 2000 2002 2004 2006 2008 2010

Source: King Sturge

Slow office recovery led by global centres
Demand in CEE has followed a different profile to
Occupier markets have been struggling against
the west (chart 3)3. These developing office markets
a challenging economic background since 2008.
saw almost uninterrupted expansion in the decade
The slowdown in leasing activity accelerated last
before the credit crunch and remained resilient into
year, when a sharp drop in total take-up saw many
2008. But by last year, the global downturn led to an
centres at their lowest ebb since the early 1990s.
The initial signs for 2010 have been more promising,
however, and the outlook for the year as a whole is 2 Western centres are Amsterdam, Athens, Berlin, Birmingham,
Bristol, Brussels, Copenhagen, Dublin, Edinburgh, Frankfurt,
generally more positive across the continent. Geneva, Helsinki, Leeds, London City, London West End,
Luxembourg, Lyon, Madrid, Marseille/Aix, Milan, Munich,
Estimates from the King Sturge network in the Nicosia, Paris, Prague, Stockholm, Vienna, Zurich. 2010
figures are based on H1 data and an estimate for the rest of
major western European cities indicate the first rise the year.

5


even more abrupt slowdown than in the west, with the recovery in a challenging economic climate.
total take-up dropping by about a third. While this upturn is expected to remain cautious and
uneven with very different rates of improvement in
Recent indications from the CEE have been different cities, fundamentals remain supportive
more positive, but so far recovery is also more of continued expansion. With office employment
uneven than in the west. A dramatic rebound in expected to resume its expansion from next year,
Moscow’s volatile office market has been the most this should support underlying activity over the
encouraging feature, along with impressive take- medium to long term.
up in Warsaw. On the basis of the latest evidence,
renewed expansion is also projected for Bucharest Vacancy to stabilise in 2010
and Bratislava by the end of 2010. The supply situation has been different in the
current cycle. Office vacancy rates rose sharply in
But other CEE cities are expected to see take-up the downturn of 2008 and 2009, but are expected
dip further, including Prague and Budapest. This to flatten off this year. An unweighted average of
is partly because these markets saw a milder western European cities shows rates stabilising
correction last year and in both activity remains at just over 10.0% of stock, with CEE levels also
close to the historic average. Elsewhere, activity steady at around 16.0%.
is heavily dependant on re-negotiations and lease
extensions from existing tenants, with scant new Comparisons with previous recessions in Western
demand. Chart 3 shows an underlying rise in CEE Europe suggest that availability is flattening off
demand of only 1%, suggesting that these markets earlier this time. This largely reflects development
remain 6-12 months behind the recovery in the trends. Office construction was booming until the
west. onset of credit crunch in August 2007. But this
meant that the supply pipeline was abruptly cut
Chart 3: Central and Eastern Europe
Total office take-up index well before recession brought a collapse in demand
400 in late 2008. Construction activity and office
350 completions have since dwindled to low levels
300 across many European cities.
Index 2000 = 100

250
Trend line
200 Aside from a few isolated examples, notably the re-
150 activation of office schemes in the London market,
100
development activity remains at low levels and new
50
supply will be limited. European banks are stronger
0
1996a 1998a 2000a 2002a 2004a 2006a 2008a 2010a than a year ago, but finance for speculative projects
Source: King Sturge remains scarce. With bank balance sheets further
damaged by the Greek crisis, there is little prospect
An encouraging aspect of this upturn is that of a dramatic turnaround, leaving new development
European office take-up has been in line with reliant on build-to-suit schemes.
the economic upturn, rather than a year or two
behind as in the past. This in part reflects stronger There are wide disparities in city vacancy rates.
corporate sector balance sheets emerging from The highest western rates are in Dublin and
this recession, making it easier for companies to Birmingham, where more than a fifth of office
take advantage of the trough in rents and the wide space is unoccupied, though these are set to fall by
choice of office supply. end-2010. By contrast, vacancy is expected to rise
to 18.0% this year in Frankfurt, with Amsterdam
This has led to speculation about the durability of not far behind.

3 CEE centres are Belgrade, Bratislava, Bucharest, Budapest,
Other markets are now seeing supply tightening.
Moscow, Riga, Sofia, Tallinn, Vilnius, Warsaw, Zagreb. Note
this index figure excludes Moscow market. In Central London, both the City and the West End

6

Chart 4: European office vacancy rates
35%
2009
30%
2010

25%

20%

15%

10%

5%

0%

Sofia
Amsterdam
Athens
Belgrade
Berlin
Birmingham
Bratislava
Bristol
Brussels
Bucharest
Budapest
Cardiff
Copenhagen
Dublin
Edinburgh
Frankfurt
Geneva
Helsinki
Leeds
London City
London West End
Luxembourg
Lyon
Madrid
Marseille/Aix
Milan
Moscow
Munich
Newcastle
Nicosia
Paris
Prague
Riga

Stockholm
Tallinn
Thames Valley
Vienna
Vilnius
Warsaw
Zagreb
Zurich
Source: King Sturge

are expected to see a decline in availability this year, Rents close to a trough
with vacancy now close to the long-term average European prime office rents declined by 20% on
in both markets. Paris is also expecting a decline, average during 2009, reversing the gains of the
along with Lyon and Marseille. Vacancy rates in previous upturn in many markets. Falling demand
Switzerland, which remain the lowest in Europe by and rising availability during the recession bolstered
some margin, are also falling. the bargaining position of tenants throughout last
year, pushing rents down and incentives up. But
A flood of development activity in the mid-2000s there is now growing evidence that the bottom has
left supply looser in CEE centres, but again there been reached in many cities.
are big contrasts. After peaking at over 35% last
year, the recovery of office demand in Moscow By mid-2010, prospects for rents looked healthier
is expected push vacancy down to 15% in 2010. across Europe. In the west, the largest centres
Rates are also set to dip in Warsaw, which, along have seen early signs of recovery, with prime levels
with Zagreb, remains one of the few CEE cities to pushing ahead in Central London and Paris. There is
still enjoy single-digit rates. Elsewhere, the trend also more tentative evidence of improvement in the
has been upwards, albeit at a much slower rate Swiss and Nordic cites. Most other centres have
than a year ago. yet to register a rise, though only a few vulnerable
markets such as Dublin have continued to see
A combination of improving demand and limited downward pressure. Even in these, the prospects
new supply is expected to bring a more widespread are for prime rents to stabilise over the rest of 2010.
reduction in European office vacancy next year.
This downward movement comes earlier than CEE rents have also levelled out since the start of
in previous cycles, chiefly reflecting the unusual the year, though the picture is mixed. Prime rents
office development cycle and subdued speculative have increased in those centres where economic
activity.

7


Chart 5: European office rents

1,000

900
2009
800
2010
700

600
/m2

500

400

300

200

100

0
London West End
Geneva
Paris

Zurich
Moscow
Milan
Luxembourg
Frankfurt
Stockholm
Dublin
Istanbul
Oslo
Munich
Athens
Madrid
Manchester
Edinburgh
Thames Valley
Bristol
Birmingham
Leeds
Glasgow
Amsterdam
Helsinki
Warsaw
Vienna
Newcastle
Cardiff
Prague
Bucharest
Brussels
Marseille
Berlin
Lyon
Sofia
Budapest
Copenhagen
Nicosia
Zagreb
New Belgrade
Tallinn
Bratislava
Vilnius
Belfast
London City

Source: King Sturge

growth has rebounded, notably Istanbul and focussed on well-let offices with secure income in
Moscow, though levels remain far below their the core locations.
previous peeks. Elsewhere the correction has
continued, albeit at a much slower rate and, in line Chart 6: European office investment transactions and
yields
with the west, prospects are for a stabilisation over 45 8%
the rest of 2010. 40
35
7%
After this year, aside from those lead markets 30
Billions

25
where prime rents are already responding, the 20
outlook in most European cities is for a subdued 15 6%

upturn in prime rents. As noted, the recovery in 10
50
demand is expected to be relatively patchy across 5%
0
Europe. So with vacancy declining earlier, the most 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2

likely upside for rents is from supply constraints, Volume Cap rate

Source: RCA
especially in cities where Grade A shortages re-
emerge after the long development pause. Underlying transactions volumes have increased
over the last year, though levels are still well
Investment upturns spreads across Europe below their previous highs (chart 6). UK office
The early signs of a recovery in investment markets market purchases led the upturn in 2009, but were
were visible a year ago, most obviously in Central increasingly supported by activity in the rest of
London. Since then, the recovery has gathered western Europe.
momentum on the back of revived sentiment and
attractive pricing, with yields starting at historic By early 2010, investors were becoming more
highs and returns on other assets low. Investor adventurous. CEE acquisitions also experienced
interest remains highly selective, however, a revival, albeit tentative. Despite the continued

8

Table 3: Major office investment transactions
Market Date Property Name m2 Price €m
London Nov-09 HSBC HQ 109,996 862
Berlin May-10 Sony Centre 132,496 570
Paris Feb-10 HSBC France HQ 33,165 400
Paris Nov-09 Velizy Campus 139,000 382
London Jul-10 Tower 42 30,100 366
Munich Mar-10 Siemens Campus 371,251 350
Milan Oct-09 Maciachini Business Centre 86,000 300
London Jun-10 Park House 28,799 295
London Nov-09 1 Finsbury Ave 44,592 259
Paris May-10 Capital 8 – Messine 18,000 240
London Dec-09 5 Churchill Place 29,171 227
Source: RCA

freeze on finance, larger deals have also been more
plentiful over the last 12 months (table 3).

As the market revived from mid-2009, office yields
peaked and then moved inward. This reversal
was initially rapid. But with levels close to their
historic average in many markets, the rate of yield
compression has slowed in 2010.

On average, prime office yields in the west were
down 50 basis points by mid-2010, with only Athens
bucking the downward trend in other cities. This
represents a significant unwinding of the 150 basis
points outward movement seen over the previous
two years.

After unprecedented compression in the boom
years, trends in CEE markets have been slightly
different. Yields were still slightly higher on average
in mid-2010 compared with a year earlier. Overall,
these markets have now seen over 350 basis points
of outward yield movement since 2007.

While there is no prospect of a return to the doldrums
of 2008-09 and recovery is expected to continue,
property investment markets face a number of
challenges. Sovereign debt jitters, scarcity of bank
finance and a relatively slow economic upturn
will not help investor sentiment. In addition, the
potential for further yield compression is limited,
particularly in some western centres. There will
also be the impact of rising market interest rates
to consider further out. As a result, the longer-
term outlook for property investment will depend
critically on stronger occupier markets and rental
growth.

9


Prime rents and
yields - mid-2010

306 344
5.75% 6.00%

135 Glasgow Edinburgh
7.00%
Belfast UNITED KINGDOM
IRELAND Newcastle 257
350 6.75%
Dublin 6.00%
375
Leeds
Manchester 331
7.00%
6.50%

257 Birmingham
6.50% 331
300
Cardiff 6.00%
6.50%
Bristol NETHERLANDS
337
Amsterdam
5.75%
London
City West End
624 885
Thames Valley Brussels
5.25% 4.75%
250 BELGIUM
343
6.25% 6.25%
LUXEMBOURG
Luxembourg
Paris 420
700 6.00% Frankfurt
5.25% 390
5.25%

620
4.25%
FRANCE 860 Zurich
4.25%
Geneva SWITZERLAND
Lyon
230
6.35% Milan
450
5.00%

Aix
Marseille
250
360 6.50%
5.75%

Madrid

SPAIN

10

FINLAND Prime rent
Rents ( /m2/annum) quoted refer to headline rents in
high quality buildings situated in prime locations and are
NORWAY 285 assumed to be over 500m2
362 5.90%
6.00% Helsinki
Oslo 390 Prime yield
5.25%
Investment yield (in%) quoted refer to a valuation of
Stockholm
Tallinn office property let at full market value which is of the
175 best physical quality, in the prime location, and with the
SWEDEN 8.00% ESTONIA best tenant’s covenant and contemporary lease terms.
Generally, a benchmark with which to compare other
properties.
204
15.00%
Riga LATVIA
Moscow
DENMARK 600
12.00%
Copenhagen
208
LITHUANIA
5.00%
Vilnius RUSSIA
150
8.50%

246
5.50%
Berlin POLAND
276
6.35%
Warsaw
GERMANY
252
7.00%

Prague

CZECH REP.
360
5.00% 174 SLOVAKIA
Munich 7.25%
Vienna
Bratislava
265
AUSTRIA 5.50% Budapest
216
HUNGARY 8.00%

Zagreb ROMANIA
192 CROATIA
8.50%
Belgrade 252
9.50%
180
9.50% Bucharest

SERBIA
ITALY BULGARIA
Sofia
228
9.00%

Istanbul
369
7.75%

TURKEY
GREECE

Athens
360
7.25%

204
6.50% CYPRUS
Nicosia

11


12

AUSTRIA - Vienna BELGIUM - Brussels

Contact: Agency and Investment – Alfons Metzger Contact: Agency – Cédric van Zeeland
MRG Metzger Realitäten Beratungs und Investment: – Jean-Philip Vroninks
Bewertungsgesellschaft mbH, Gumpendorfer Strasse 72, 1060 King Sturge LLP, Bastion Tower, Place du Champ de Mars 5 box
Vienna (+ 43 1 59 7 50 60) 15 (8th floor), 1050 Brussels (+32 2 286 9182)

In-town Out-of-town In-town Out-of-town
Prime rent (€/m²/annum) 265 120 Prime rent (€/m2/annum) 250 165
Prime yield (%) 5.50 6.00 Prime yield (%) 6.25 6.75

Vienna has an estimated 10.5 million m2 of office stock. Occupier Brussels has an estimated 13.4 million m2 of office stock across
demand has been in steady decline since 2007 and is forecast its city centre and out-of-town markets, which increased in 2009
to reach its lowest point in this cycle in 2010, dropping to around due to the completion of developments started during the boom
200,000m². This would represent a reduction of around 9% from of 2007-2008. Last year, office demand declined to 413,500m²
the 2009 total, a smaller drop than in previous years. Despite from a total of 475,000m² in 2008. This was the most subdued
this low level of take-up, there are signs of recovery, such as annual take-up in Brussels for more than a decade and well
stabilising rents and vacancy rates, and an upturn in business below the five-year average.
sentiment. As a result, activity is expected to improve towards
the end of this year. In the first quarter of 2010, key deals included Activity remained weak in early 2010, with just over 150,000m²
Wohnen signing a new lease for 2,100m² at Guglasse 17-19 and of take-up estimated in the first half year. This year, the most
SOS Kinderdorf leasing 1,950m² at Brigittenauer Lände 50-54. important deal has been the pre-let to BNP Paribas Fortis at the
Boreal building (35,793m²) in the North Station district. There are
Availability of office accommodation in Vienna rose slowly from a number of other important transactions close to finalisation, so
5.0% to 5.9% in 2009. It has been stable in the first half of 2010 full-year take-up is expected to rise towards 400,000m², slightly
and is only forecast to edge up slightly by the end of the year, below last year’s final figure.
to reach 6.1%. Construction of new office space is forecast to
flatten out in 2010 at a level of around 190,000m². Availability has risen in the market downturn and was not helped
by the high level (370,000m²) of office completions last year.
In 2010, the office market is perceived to have reached the This has helped push the office vacancy rate from its low of
bottom of the rental cycle. Rents dropped 12% from mid-2009 9.0% in 2007 to current levels of around 13.0% of stock. With
to mid-2010, to reach their current level of €265/m²/annum. demand improving and development at a lower level this year,
Prime rents are expected to remain stable over the second half the expectation is that this rate has peaked and will ease back to
of the year. 12.0% by year-end.

Investment volumes for Vienna offices in Q1 2010 were up on Prime rents in-town peaked in 2007 at €295/m²/annum and
the same period a year ago. Domestic investors accounted for eased to the current level of €250/m²/annum last year, since
the majority of transactions, whilst German institutions were when they have remained unchanged. Rents are projected to be
also active. Prime yields have stabilised at a level of 5.50%. stable over the rest of this year
One of the largest transactions in the first half of 2010 was
the purchase of a 21,500m² building at Obere Donaustraße for Active office investors remain focused on core prime assets
€65m by Raffaisen. across all classes. Yields in the CBD are at 6.25% for fully-let
office buildings with a 3/6/9 year lease, an inward movement
of 25 basis points since 2009’s peak. For properties out-of-town
levels are slightly higher at an average 6.75%, but this is also a
reduction on last year. We expect local institutional investors to
remain active, focusing on prime product, and private investors
to search for individual investment opportunities. As a result,
yields are likely to move in further over the next 6 months.

Vienna prime rents and yields Brussels prime rents and yields
400 6.0 400 8

300 5.5 300

200 5.0 200 6

100 4.5 100

0 4.0 0 4
2006 2007 2008 2009 Q2 2010 2006 2007 2008 2009 Q2 2010

Prime rent ( /m2/annum) Prime yield (%) Prime rent ( /m2/annum) Prime yield (%)

14

CYPRUS - Nicosia DENMARK - Copenhagen

Contact: Agency and Investment – Michalis Pantazis Contact: Agency and Investment – Peter Winther
AMP Andreas Pantazis Ltd, Politia Business Centre, Alkeos 23, Sadolin & Albœk A/S, Nikolaj Plads 26, 1067 Copenhagen
Office 302, Egkomi 2404, 1642 Nicosia (+357 22 676 423) (+45 70 11 66 55)

Prime rent (€/m²/annum) 204 145 Prime rent (€/m²/annum) 208 120

Nicosia has an estimated 520,000m2 of office stock. Following Copenhagen has an estimated 11.2 million m2 of office stock.
a dramatic slowdown in 2009, recovery in the occupier market Following the global economic downturn, the office occupational
has yet to materialise. Take-up in 2010 is forecast to be in the market has contracted over the past two years. Total take-up in
region of 3,000m², which is 40% lower than last year and 70% 2009 fell to around 200,000m², a drop of 38% from the level
lower than in 2008. This is expected to represent the bottom achieved in 2008. The forecast for 2010, however, is more
of the cycle, which will be followed by a gradual recovery over positive, with take-up expected to reach 280,000m². The majority
the next few years. Following the recession, many companies of demand in the first half of 2010 has been for modern buildings
have been reluctant to relocate and it is widely anticipated that in good central and suburban locations. Activity is expected to
new government measures to bring the deficit under control will remain strong as many occupiers will try to secure leases at
undermine recovery and adversely affect investment. current low rents.

The supply of new high quality office space remains limited, with Supply of office accommodation in Copenhagen has been
the majority of available floor-plates between 250-350m². There steadily rising over the past few years. The vacancy rate was
is a constrained development pipeline scheduled for Nicosia around 6.8% at the end of 2009 and is forecast to rise to
this year, which will bring a further 5,000m² when completed. 10.0% by the end of 2010. It is expected that vacancy rates will
Although lower than the average of previous years, this does stabilise, because of higher demand and slower construction.
represent a significant increase when compared with the In 2010 only 50,000m2 of new construction is forecast, which
exceptionally low level of 2009. Weak demand has resulted in would represent a drop of around 80% from 2009.
ample availability of secondary office space. Consequently, the
vacancy rate is expected to increase from its present level of Prime rents are around €208/m²/annum and should remain
6.5% to 7.0% over the course of the year. stable over the next six months. Tenant incentives, which have
been substantial, should also become less generous.
Rental levels for both in-town and out-of-town office
accommodation declined last year, with prime rents in-town The number of investment transactions was low at the start of
down to €200/m²/annum. Prime rents have subsequently edged the year, but has picked up lately. Institutional appetite for well-
up to €204/m²/annum and are expected to remain stable over let office buildings in good locations has increased, driven by
the second half of 2010. low interest rates. Prime yields remain stable at 5.00%. Demand
for secondary properties is weaker, partly due to increased
There has been only limited investment market activity over the vacancy risks and partly because of lack of financing for more
past year. The most significant transaction was the purchase of a opportunistic investments. A number of major transactions are in
4,400m² office development by the Cyprus Telecommunications the pipeline, and prime activity is expected to surge, dominated
Authority Pension Fund for €19million. Current yields for town by domestic institutions, well-capitalized property companies
stock have remained unchanged from last year at 6.50% and and private investors.
are expected to stay at this level for the remainder of 2010. The
investment market appears to be on course for a protracted, but
sustainable, long term recovery.

Nicosia prime rents and yields Copenhagen prime rents and yields
300 10 300 8

200 200

8 6

100 100

0 6 0 4
2006 2007 2008 2009 Q2 2010 2006 2007 2008 2009 Q2 2010


15

FINLAND - Helsinki FRANCE - Lyon

Contact: Advice – Hannu Ridell Contact: Investment – Christophe Audoux
Newsec - Maakanta Oy, Mannerheiminaukio 1, 00101 Helsinki King Sturge SA, 36 rue Brunel, 75017 Paris
(+358 207 420 400) (+ 33 1 44 55 70 00)


Helsinki Metropolitan Area has an estimated 5.8 million m2 of Lyon had an estimated 4.95 million m2 of office stock in 2009. It
office stock. The demand for new floorspace remains weak. is a significant regional office market in France, with the centre
Many companies have reduced their overall requirements and divided into specialised business districts dominated by individual
sub-let existing space. Meanwhile, new tenants are taking longer sectors such as financial, technology, R&D and biotech. There
to make decisions due to the wide selection of availability and is also an increasing trend for occupiers preferring out-of-town
a desire to get the best possible deal from landlords. The office locations, because of the better environment and lower rents.
property market is expected to follow the same trend during the
second half of 2010. In 2009, take-up dipped to 164,000m², down a third on the
previous year. This year, the occupational market has been more
In the first half of 2010, vacancy continued to rise, even in the dynamic, with transactions in Confluence, Gerland and Part-Dieu
central business district. The vacancy rate at mid-1010 was (CBD). Larger deals (over 2,000m²), where demand slowed more
12.5%, up from 11.5% at the end of 2009, and is forecast to sharply last year, have accounted for a more significant slice of
increase to around 13.0% by end-2010. take-up in 2010, with an important proportion also in sales to
occupiers. In the year as a whole, office take-up is projected to
The development pipeline is now being restricted with projects rise to around 200,000m², not far from its long-term average.
either postponed or stopped. Weaker demand over the past two
years has meant that developers are hesitant to commit to new Vacancy rates climbed from a low of 4.7% to a historic high
space. This has helped to ease the imbalance between supply of 8.0% of stock last year, though much of this excess is in
and demand. The level of new construction has slowed in 2010, peripheral markets not the CBD. This trend has been reversed
with only 59,000m² expected to be delivered, a drop of 67% on in 2010, as firmer demand and limited new supply have taken
2009. vacancy back to 7.5% by mid-year. With new completions at
only 70% of last year’s level in 2010 and take-up improving, the
Rental levels have declined since 2008 and at mid-2010 were prospect is for a further decline in availability over the rest of
around €285/m²/annum, down from €296/m²/annum a year this year.
ago. They may be subject to further downward pressure over
H2 2010 due to rising availability. The market downturn has hit prime rents for city offices, which
declined from their high of €260/m²/annum a year ago to their
Office investment volumes in Helsinki decreased significantly in current €230/m²/annum. Out-of-town rents also dropped, albeit
2009 and have not yet recovered. Prime yields have declined less sharply, reaching €185/m²/annum by mid-2010. With an
over the past year to current levels of around 5.9%. There have improving market balance, headline rents are expected to
been only a few office transactions in the first half of 2010. The stabilise in the near future.
most significant was the purchase by Aberdeen Investors of
a 6,900m2 office building - Falcon Gentti, Vaisalantie 8, Espoo Investment demand is stronger than a year ago, with prime well-
for €22million. There is still demand for high quality prime secured assets favoured by investors. At the moment, foreign
offices, but there are few such properties currently available. buyers have deserted this regional market, though Lyon is still
It is expected that the investment market will remain slow France’s second best performer after Paris. Prime yields have
throughout 2010, though interest is improving and international fallen by around 100 basis points over the last year, but are likely
investors are expected to return in the latter part of the year. to stabilise for the rest of 2010. Lyon is expected to remain a key
regional market, with investor interest concentrated on prime
commercial assets.

Helsinki prime rents and yields Lyon prime rents and yields
400 8 300 10

200

200 5 7

100

0 2 0 4
2006 2007 2008 2009 Q2 2010 2006 2007 2008 2009 Q2 2010


16

FRANCE - Marseille/Aix FRANCE - Paris

Contact: Agency & Investment – Jean Cabrera Contact: Agency – Nicolas JeanJacques
King Sturge Méditerranée SA, 14 rue Louis Astouin, 13002 Investment – Philippe Semidei
Marseille (+33 4 88 66 30 30) King Sturge SA, 36 rue Brunel, 75017 Paris (+ 33 1 44 55 70 00)


Marseille and Aix-en-Provence together had an estimated 2.8 In 2009, Ile de France had an estimated 51.2 million m2 of
million m2 of office stock last year. There are many development commercial office stock, one of the largest markets in Europe.
Paris and the inner suburbs – including La Défense, the Western
projects planned for the near future, especially in Marseille city, Business District and peripheral markets bordering Paris like
though these will not be progressed until the economic upturn Saint-Denis, Montreuil or Montrouge - account for over 70%
becomes more secure. As a result, the office stock is expected of this. Most French companies remain headquartered in Paris,
to remain broadly unchanged in 2010. despite increasing cost competition from other locations.

Take-up slowed to 1.8 million m² during 2009, which was the
The market saw demand improve in early 2010, when compared lowest annual out-turn in five years. In early 2010, activity has
with the lows of 12 months ago. Most of the recent transactions slightly increased, mostly for small and medium sized floor-
have been in the Euroméditerranée district of Marseille and in plates. There remains interest in new stock in peripheral and
Aix-en-Provence. The upturn is forecast to be sustained for the secondary markets with cost effective rents. But established
whole of this year, with take-up estimated at 110,000m2, slightly office districts are also picking up, following a steep rental
correction. In 2010 as a whole, take-up is forecast to edge up to
higher than last year’s out-turn. This level of activity is below the 1.9 million m², just shy of the long-term average (2 million m²)
peaks of the mid-2000s, but in line with historic market averages. and in line with a sluggish economic recovery.

Supply has remained relatively scarce, despite the economic There has been an increase in office availability across Paris. The
downturn. Marseilles / Aix vacancy reached a new high of 7.0% vacancy rate fell to a low of less than 5.0% only two years ago.
But by 2010 H1 it had climbed to 7.0%, as high as at any time
last year, but reversed in early 2010. By year’s end, a vacancy since the late 1990s. With demand recovering and speculative
rate of 6.5% is projected, assisted by lower levels of office development on hold, however, the prospect is for a reversal in
completions and stronger demand than in 2009. This trend has this trend before this year’s end, when vacancy dips to 6.7%.
supported prime market rents, which have edged higher over Moreover, with scant development pipeline, this rate will fall
the last 12 months, reaching €250/m²/annum, though tenant quickly as the market returns to normal and there is a risk of
space shortages re-appearing from 2012.
incentives remain generous.
There have been early signs of a recovery in prime rents this
The first half of 2010 saw limited investment activity in the year. City rents declined by about a fifth in the downturn, though
Marseille region. French investors continue to seek well-let levels held at €650/m²/annum after mid-2009. These rents
office properties in the established districts, which has brought recorded their first rise for two years during Q2 2010, with the
prospect of further improvement by year’s end both in and out-
about a further decrease in prime office yields (down 75 basis of-town. The current imbalance between demand and supply still
points on a year ago). Conditions are not expected to change favours occupiers, however, and is reflected in long negotiation
radically over the rest of 2010, however, with yields set to periods and generous incentives.
stabilise at their current levels.
Investment markets rebounded from Q4 2009, with prime
office property seeing a surge in interest. The average size of
transaction has also grown, as the financing of large acquisitions
has become easier. Yields have decreased by around 100 basis
points over recent quarters for well-let and liquid prime assets.
But investors continue to be extremely selective and the yield
spread remains large.

The investment outlook remains cautious. Volumes are likely to
increase slightly on 2009, though the progression is expected
to be moderate. Prime yields are set to fall moderately before
flattening out later this year, while secondary markets will
continue to lag.

Marseille/Aix prime rents and yields Paris prime rents and yields
300 9 900 9

200 600 6

6

100 300 3

0 3 0 0
2006 2007 2008 2009 Q2 2010 2006 2007 2008 2009 Q2 2010


17

GERMANY - Berlin GERMANY - Frankfurt

Contact: Investment – Sascha Hettrich Contact: Investment – Sebastian Ott
King Sturge Hettrich GmbH, Jaegerstrasse 34-35, D-10117 King Sturge GmbH, Kaiserstrasse 6, 60311, Frankfurt am Main
Berlin (+49 30 23322 211) (+49 69 2165 9870)

In-town In-town
Prime rent (€/m²/annum) 246 Prime rent (€/m²/annum) 390
Prime yield (%) 5.50 Prime yield (%) 5.25

Berlin has an estimated 18.3 million m2 of office stock. Frankfurt has an estimated 10 million m2 of office stock. As
Germany’s main financial centre, the city suffered badly from
The office market is not experiencing a rapid recovery in the its exposure to the global banking sector last year. But there has
wake of the global economic crisis. However, some encouraging been a stabilisation since mid-2009 and local economic indicators
signs are emerging. Take-up volumes declined to 444,000m² in have improved. Nonetheless, activity in the city’s occupier
2009. But, after a strong start, take-up for this year as a whole is market slowed to a five-year low of 335,000m² last year, well
forecast to rise to 500,000m². One of the most significant deals below the historic average of 550,000m². Office demand was
of Q1 2010 was the letting of around 14,000m² in the City East maintained in early 2010, but, even with a more vigorous H2
sub-market to the telecommunication company Nokia. in prospect, take-up is expected to be flat at 330,000m² for the
year as a whole.
The development pipeline should see an estimated 125,000m²-
150,000m² of new product delivered to the market this year. As After a sustained decline from the mid-2000s, office vacancy
a result, the vacancy rate, which has been broadly stable since has risen steadily over the last 2 years, reaching a rate of
last year, is forecast to edge up to around 8.4% by the end of 17.0% last year. The development pipeline is expected to bring
2010. around 200,000m² of new space to the market in 2010, with
the continued impact of corporate failures and consolidation
Stable supply levels and increasing demand have led to a levelling potentially adding further to supply. With demand subdued, a
off of rents. Prime rents in the city declined from €276/m²/ further rise in vacancy is in prospect in 2010 to 17.0%.
annum (€23.0/m²/month) in 2008 to €252/m²/annum (€21.0/m²/
month) by the end of 2009. They were around €246/m²/annum With the market balance continuing to favour occupiers, there
(€20.5/m²/month) in H1 2010 and are expected to stabilise over has been continued pressure on rents. Prime office rents peaked
the rest of the year. at €438/m2/annum (€36.5/m2/month) in 2008, but fell sharply
to €390/m²/annum (€32.5/m²/month) early last year. Since
Investor sentiment has significantly improved in the first half then, top rents have held up, though incentives have become
of 2010, as have transactions, boosted by a couple of large more generous and secondary prices continue to fall. Rents are
portfolio deals. Expectations for the coming months are positive expected to stabilise at around this level for the rest of this year.
and the investment market should continue this upward course
in H2 2010. The largest transaction in H1 2010 was the sale Sentiment in the Frankfurt investment market has significantly
of The Sony Center in Berlin to a Korean pension scheme for improved in recent months and activity has been revived. The
€572million. Prime yields have remained stable on last year at sales of Park Tower (for around €130 million) and the Westpol
5.50%, but may be subject to downward pressure over the next building have been important signs of revival. Financing remains
12 months. difficult, but the outlook is for further improvement in the rest
of 2010. Prime yields shifted out to 5.50% in Frankfurt last year,
though this was a modest movement compared with other
European markets. Since then there has been a slight inward
shift to 5.25%, with the prospect of further compression as the
year continues.

Berlin prime rents and yields Frankfurt prime rents and yields
300 6 700 8

225 525

150 4 350 6

75 175

0 2 0 4
2006 2007 2008 2009 Q2 2010 2006 2007 2008 2009 Q2 2010


18

European Property office market 2010/11

European Property office market 2010/11

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