Jones Lang La Salle Corporate Occupier Conditions Q4 2011
EMEA Corporate Occupier Conditions - Q4 2011Western Europe: CorporateOccupier ConditionsFalling sentiment increases pressure on CRE teams
2 On Point • EMEA Corporate Occupier Conditions – Q4 2011WESTERN EUROPE: remain stable into and throughout 2012, reflecting a two tiered market of limited Grade A availability and a plentiful supply ofCorporate Occupier lower quality stock which keeps vacancy rates inflated. Limited choice of high quality stock is being sustained by anConditions impoverished development pipeline with Q3 completion volumes at levels not seen since the mid 1990s. The economic backdrop suggests further downside risk on development completions, withThe fragility of the economic recovery has been in the spotlight the prospects of current development projects being cancelled orsince late July. Sovereign debt problems and the risk of postponed significantly heightened.contagion has brought heightened turmoil in the financial marketsand is weighing down on consumer and business confidence. Aggregate European prime rents hardly changed during Q3 2011Regional economic disparities persist with marked contrasts although there was variance in performance across Westernbetween Germany and the Southern European economies. The Europe. Prime rents increased in Stockholm and The Haguecontinued need for fiscal consolidation in most countries and (2.4% q-on-q), Hamburg (2.2%) and Milan (1.9%) whereas rentsweak global recovery suggests growth will be slow and moderate decreased in Brussels (-3.2%), Dublin (-3.0%), Madrid (-1.9%)in 2012 with uncertainties over the future outlook remaining. and Edinburgh (-1.8%). All other Western European markets saw prime rents unchanged q-on-q.Demand for office space across Europe actually improved q-on-qwith 2.9 million sq m of take-up across the continent,representing an increase of 6% q-on-q and 16% on the sameperiod a year ago. Western European markets contributed to thisimproved picture with good quarterly volumes being recorded inBrussels, Hamburg and Paris. We would however caution thatmany of the deals signed during Q3 occurred early in the quarterand were founded on negotiations that commenced during Q2when sentiment was stronger.There was no change to the overall vacancy rate in WesternEurope with only minor increases being experienced in Dublinand Brussels (+10bps). This was offset by decreases of -10bpsin the The Hague and Utrecht. We expect vacancy rates toExhibit 10: Western Europe Office Occupier Clock Oslo, Zurich London City Rental Growth Rents Slowing Falling Helsinki, London West End Paris Rental Growth Rents Düsseldorf, Geneva, Lyon, Accelerating Bottoming Out Stockholm, Stuttgart Gothenburg, Hamburg, Munich Athens Berlin, Cologne Antwerp, Barcelona, Lisbon Malmo Brussels, Dublin, Edinburgh, Leeds, Madrid Copenhagen, Milan Amsterdam, Eindhoven, Luxembourg, Rotterdam, The Hague, Utrecht Manchester, Western Corridor Rome Birmingham, Bristol, Cardiff, Frankfurt, Glasgow
On Point • EMEA Corporate Occupier Conditions – Q4 2011 3 Amsterdam Athens Cost: € 335 / sq m Competition: 57,000 sq m Choice: 17.1% Cost: € 270 / sq m Competition: n/a Choice: 15.8%Occupier activity picked up slightly in Q3, with leasing volumes GDP contracted by 3.5% in 2010 according to Eurostat and thereaching approximately 57,000 sq m. Volumes were driven by a latest forecasts suggest this trend is likely to continue this year albeitnumber of large transactions, from a wide range of sectors, in the city with a rather broad range, between -3.5% (EU) and -5.9% (Nationalcentre and Zuidas districts, with >2,000 sq m transactions accounting Bank of Greece). Records from Global Insight show severefor around 60% of activity. The largest deal was recorded in the city increases in unemployment of around one in three people agedcentre, where Booking.com signed a lease for 12,500 sq m of prime between 15 and 29 years being unemployed. Choice in the marketoffice space. Competition is strongest for prime space in areas with increased, with a vacancy rate of 15.8%, up 13% compared to thegood transport links and close proximity to amenities. More equivalent period last year. The cost of prime space continued to fallperipheral locations such as parts of South East and Sloterdijk have and compared to pre crisis levels are down approximately 41% atbecome somewhat less desirable, with these two districts accounting €270 per sq m. The highest rents continue to be found in the CBDfor around 50% of total vacancy. Whilst overall supply remained but very few transactions have been recorded given the currentstable over the quarter at around 1.1 million sq m, choice increased climate. Occupier activity has increased more in the north of Athensmarginally in secondary locations. The overall vacancy rate remains and top rents here are €216 per sq m which reflects a 5.3% drop onrelatively high at 17.1%. With the majority of moves involving a ‘trade the previous year. Corporate occupiers relocating to the Northernup’ in terms of building quality; the amount of relatively old, out-of- submarkets are driven almost exclusively by cost cutting objectivesdate stock on the market continues to increase. Prime rents adding momentum to buildings along or off the National Motorway.remained stable at around €280 - €335 / sq m per annum. Costs inperipheral locations are somewhat lower ranging between €175 - Barcelona€215 / sq m per annum. Rent free periods remain the most Cost: € 225 / sq m Competition: 60,487 sq m Choice:13.4%commonly used incentive, with 12 months rent free on a 5-year leaseobtainable in large parts of the market. Demand levels in Q3 reached 60,487 sq m, up 19% q-on-q and up 2% on the equivalent quarter last year. Despite the difficult Antwerp economic situation, demand levels in Barcelona remain strong and the 250,000 sq m forecast for Barcelona at the start of the year Cost: € 145 / sq m Competition: 30,710 sq m Choice: 11.5% remains a realistic figure. On the supply side vacancy rates haveOccupier activity in Q3 reached 30,710 sq m across 30 transactions. begun to trend downwards and stood at 13.4% at end Q3. NoDeals were driven by the public sector with the two largest speculative development is due to come to the market by the end oftransactions accounting for 65% of total take-up. Year to date 2011, reducing further the choice of new space. Rental costsactivity fell 22% compared to the equivalent period last year. After a remained stable during Q3, largely due to a lack of rental evidence,strong 2010, occupier activity for 2011 as a whole is expected to be however our rental outlook has been modified and a gentlenear 10-year average levels. Choice decreased slightly due to the slowdown in costs is now expected to continue into 2012.lack of completions this year, combined with sustained demand.Over 2011, overall choice in Antwerp fell from 12.9% in Q1 to 11.5%in Q3. Development activity is expected to remain very low over thenext few years. Just one project of 5,900 sq m is expected to bedelivered speculatively during Q4 2011 in the Ring district. A furthertwo speculative projects are expected to deliver a total of 15,000 sqm in 2012. Costs remained stable over the third quarter in allsubmarkets. The prime rent currently stands at €145 per sq m forthe Center, and at €136 per sq m in the Ring district. Only verylimited rental growth is anticipated, driven primarily by supplyshortages for the best space.
4 On Point • EMEA Corporate Occupier Conditions – Q4 2011 Berlin Bristol Cost: € 252 / sq m Competition:129,500 sq m Choice: 8.8% Cost: €328 / sq m Competition: 6,500 sq m Choice: 13.0%Competition continues to strengthen. Over 410,000 sq m of deals Occupier demand remains relatively subdued with leasing volumeshave been recorded in the first three quarters of 2011, the highest down 38% on the equivalent period last year. Looking ahead, wevolume of the last 10 years and 40% ahead of 2010’s total and 25% expect annual take-up in Bristol city centre to be around 38,090 sqahead of the five year average. This was primarily driven by deals in m, some 10% below the level achieved in 2010 and well below thethe 1,000-1,500-sq m segment and from activity in the business five-year average of 52,000 sq m. The amount of Grade A choice inservice sector (25% of volumes). Another strong quarter of activity Bristol city centre rose slightly during Q3. The market alsocan be expected in Q4. This will present further challenges to continues to offer a steady stream of second hand space although itoccupiers with overall vacancy remaining at 8.8% - the lowest rate is unattractive to most occupiers. The two speculative schemesfor three years. Space is most freely available in the Innercity East under construction in the city centre are both due to complete byand Innercity West sub-markets, where 41% of all supply is based, year-end, with Bridgewater House already completed to shell &but most of this space is of average quality. Both the prime rent and core. Prime rents remained stable at €328 per sq m. Incentivesthe weighted average rent increased significantly year on year. By remain generous in the city centre at up to 18 months on a five yearthe end of the year, we expect a further slight increase in the prime term and up to 36 months on 10 years, although this is deal specific.rent due to the continued demand for high quality space. For most With Grade A supply continuing to fall, we expect incentives to movespace let, rental prices of between €10.00 and €15.00 per sq m per in over the next 12 months.month were paid. Prime values of €21 per sq m per month wereunchanged q- on-q but reflect a 5% increase y-on-y. Brussels Cost: € 300 / sq m Competition:120,350 sq m Choice: 10.9% Birmingham Occupier activity improved over Q3 with volumes surpassing the Cost: € 356 / sq m Competition: 20,500 sq m Choice:20.1% total achieved during H1 2011. This was due to a major transactionCompetition held up well in Q3 with over 20,000 sq m let, up 40% of 46,000 sq m by the EU administration. While we have seen somecompared to Q2 2011. Occupiers demonstrated a clear preference activity from the public sector, there has been a slow down in activityfor competitively priced Grade B space, which accounted for 63% of from the corporate sector. There were no new speculativeQ3 leasing volumes. The most significant inner-city deal this quarter completions during Q3, resulting in further erosion of choice. Overallinvolved the relocation of Vax to 2,200 sq m at 2 Colmore Square vacancy rates fell to 10.9% and to 6.3% in the CBD. Developmentfrom an out of town location into refurbished space within the City activity remains constrained and this will further limit occupiercentre. Choice increased slightly with vacancy rates reaching highs choice, particularly in the CBD. Prime rents fell slightly to €300 perof 20.1%. Any space re-entering the market is largely second hand sq m in the prime district, the Leopold district, and to €195 per sq mor refurbished. In contrast occupiers face a diminishing range of in the North district. Costs remained stable in all other districts,choice within the Grade A market with vacancy rates falling to 3.6%. ranging from €165 sq m in the Periphery to €230 sq m in theThere is just 11,000 sq m of space scheduled to complete Pentagon or in the Louise district. The top quartile and weightedspeculatively over 2012-13 which may force pre-letting. Rental costs average face rent for Brussels remained relatively flat at €222 andstabilised at €356 per sq m, although rents remain heavily supported €177 per sq m respectively.by incentives with typically around 36 months rent free on a 10 yearterm. Weighted average rents fell slightly, due largely to the higherproportion of Grade B lettings in the third quarter.
On Point • EMEA Corporate Occupier Conditions – Q4 2011 5 Cardiff Copenhagen Cost: € 250 / sq m Competition: 11,100 sq m Choice: 10.8% Cost: € 242 / sq m Competition: n/a Choice:8.6%Leasing volumes remained strong over Q3. The amount of space Whilst Q3 saw a slight dip in occupier activity, sentiment remainstaken during the first nine months of the year stands at 37,210 sq m upbeat. Competition is strongest for prime CBD space with a– a level up 81% on the 5-year annual average. Activity was driven number of domestic occupiers looking to expand. In secondaryby 118 Ltd’s sub-let of 3,298 sq m of space from Zurich at Fusion locations the public sector is the biggest driver of demand as cost-Point. Supply fell by 12.3% q-on-q to stand at 111,480 sq m of saving measures have pushed a number of public sector occupiersavailable office space. As with many regional city centres, there towards more peripheral districts such as Valby and Glostrup, westcontinues to be a shortage of high quality or new Grade A space of the city centre. The majority of activity in the prime segment in Q3available. Confidence is however returning to the development came from the financial sector, illustrated by a new lease of aroundmarket with two speculative schemes starting on site during Q3 – 5,250 sq m by “Finansiel Stabilitet”. On the supply side, choicenamely Capital Quarter (7,060 sq m) and Vision Court (3,298 sq m). increased by around 70 basis points to stand at 8.6%. However,Prime headline rents remain unchanged with the city centre at £226 supply in the prime segment remains tight, with the majority ofper sq m and out-of-town at £161 per sq m. Typical incentives vacant premises Grade B and C. Construction activity remainsremain at 12 months for a five-year term and 24 months for 10 relatively low, although there are several projects in the pipeline foryears. 2012 and 2013. Prime CBD rents remained stable at DKK 1,700- 1,800. Rents for secondary CBD space were also static at around Cologne DKK 1,000-1,125. Incentives are still widely used and include rent free periods, step rents and fit out contributions. In particular the Cost: € 258 / sq m Competition: 45,000 sq m Choice:8.2% offered step rents can be steep, providing a significant discount inOccupier activity decreased in Q3 after a strong first half of 2011 the first two to four years of occupancy. Rental levels in peripheralalthough this reflects a lack of larger transactions with occupier locations vary considerably. In areas such as Glostrup and Valbyinterest still dominated by medium sized companies. Year to date prime rents stand at around DKK 1,000 -1,100, while secondarythere has already been more activity than the whole of 2010 – up rents range between DKK 600 -700.8%. Cologne City is the preferred location of end users and haswitnessed the most deals. However, the increased shortage of high- Dublinquality space in this part of the market is causing some occupiers to Cost: € 344 / sq m Competition: 38,200 sq m Choice:18.9%widen their search area. Choice is further constrained by the verylimited vacancy of new space across the market with just 2,000 sq For the fourth consecutive quarter overall supply fell in the Dublinm presently available. Projects under construction will ease this office market. At the end of Q3, overall vacancy rates stood atsituation somewhat but in the meantime older, outdated, space still 18.9%, down from 23.0% at the beginning of the year. Weaccounts for almost a third of vacancy. Around 45% of deals anticipate choice will continue to reduce as completions of newcompleted over Q1-Q3 2011 were for rents of between €10.00- office buildings have ceased entirely. Large occupiers seeking units€14.99 per sq m per calendar month, while 38% were for rents in excess of 10,000 sq m will be faced with a steadily diminishingbetween €5.00-€9.99. This was reflective of both the shortage of range of choice, with only eight buildings in the city centre andhigh-quality space and a continued cost consciousness amongst suburbs able to satisfy these requirements. Building on a strongoccupiers. first six months of the year, occupier activity increased again in the third quarter, up 25% compared to the equivalent period last year. Demand was primarily driven by companies expanding (42% of deals). There is already a significant volume of deals expected to transact in Q4 (c. 30,000 sq m). Prime rents fell slightly, down 3.0% to €344 per sq m. Incentives have tightened over the course of 2011 for leases of five to ten years with around 9-12 months rent free achievable. Further incentives are achievable for longer lease terms and larger deals.
6 On Point • EMEA Corporate Occupier Conditions – Q4 2011 Dusseldorf Eindhoven Cost: € 282 / sq m Competition: 91,300 sq m Choice:11.9% Cost: € 185 / sq m Competition: 7,400 sq m Choice:13.2%Deal volumes are running at average levels, but the number of deals Occupier sentiment worsened in Q3 with a number of occupiersis 25% ahead of average as we are seeing more activity, particularly removing their requirements from the market. Whilst the 3,000 sq min the 1,000 sq m to 5,000 sq m market. The City was the most deal by IT company 2B interactive in the Western periphery ofsought-after sub-market and accounted for 17 % of all activity. The Eindhoven boosted activity, leasing volumes were downamount of choice continued to erode but is still above the 1-million considerably on the first half of 2011. Overall vacancy increased tosq m mark with 800,000 sq m available in Düsseldorf city alone. By around 13.2%, up from 12% in Q2. Choice increased in both thethe end of the year a further 33,000 sq m of office space will be built, Grade A and C segment over the quarter. However, Grade A officeof which 27 % will be available, but we still expect choice to decline space remains particularly tight with a vacancy of around 1.2%.next year. In terms of costs, prime rents have remained stable for Availability of Grade B and C space is higher at 9.4% and 2.6%the last six months after increasing twice in succession. Due to respectively. The development pipeline remains limited with just acompetition for high-quality space, a further increase to €24.00 per small amount of speculative office space being developed at Strijpsq m per month is expected by year end. For most spaces, rental S. Costs remained unchanged in Q3, with prime city centre rents atprices are between €10.00 and €15.00 per sq m per month. around €175 - €185 per sq m. Whilst no significant increase in rental levels is expected in the foreseeable future, the tight supply and Edinburgh limited development pipeline should support prime rents at their current level. Prime rents for office space in secondary locations Cost: € 337 / sq m Competition: 13,790 sq m Choice: 6.0% range between €120 and €160 per sq m per annum. Rent freeCosts softened slightly in Q3 as occupier demand remained periods have remained unchanged at 12 – 15 months assuming a 5cautious. Prime rents fell 1.8% over the quarter, with incentives still year lease.generous at around 32-36 months rent free achievable on a 10 yearterm. Rents are expected to remain broadly stable but, as the level Frankfurtof supply gradually declines, we could see further upward pressure. Cost: € 396 / sq m Competition: 88,600 sq m Choice:13.6%Deal volumes were boosted by FNZ, who consolidated threeexisting properties into 1,600 sq m of space at Tanfield. Improved Occupier activity slowed in Q3 with deal volumes of around 88,600occupier activity drove down the level of available supply. Supply sq m. Sentiment is still strong, however, and the deals donealso fell as a result of some Grade B space being withdrawn for illustrated the preference for quality space: 60% of volumes wererefurbishment. Overall vacancy rates fell to 6.0%, with Grade A “high-quality”. Geographically, occupier preference has been for thesupply falling to just 3.2%. Within the city centre, there are just four City, Banking District and Westend (all with double-digit percentagebuildings capable of satisfying Grade A requirements of greater than shares this year). The largest deal in Q3 was the 18,400-sqm letting5,000 sq m. Despite this, there has been little change to the by Deutsche Lufthansa in the Squaire at the airport. All other dealsdevelopment pipeline, with Site HI, scheduled to complete in 2013, remained below 10,000 sq m. The amount of choice fell withthe only scheme under construction speculatively. vacancy rates dropping from 14.3% to 13.6%. Around 36% of supply is considered high quality, and this percentage has remained more or less unchanged this year, however only c.35,000 sq m of high-quality space will be brought onto the market in 2012, so we expect further reductions in choice. While demand for quality remains high, enquiries in the prime segment have dropped off somewhat and the prime rent therefore remained unchanged at €396 per sq m per annum. Rents across the sub-markets also remained stable with average rents from Frankfurt at c. €227 per sq m per annum.
On Point • EMEA Corporate Occupier Conditions – Q4 2011 7 Geneva Gothenburg Cost: € 862 / sq m Competition: n/a Choice: 0.3% Cost: € 250 / sq m Competition: 25,500 sq m Choice: 8.2%Demand for the best office space remains high in the Geneva office The occupational market recorded a strong Q3, with leasingmarket particularly from financial institutions, wealth managers and volumes reaching 25,500 sq m, up 45% on Q2. Occupiers from theassociated service providers as well as international organisations IT- and Telecom sector accounted for a large share of activity,such as the Red Cross and the United Nations. Supply remains mainly due to large transactions by ÅF, EA and Saab Security. Thetight, however, particularly in the limited CBD area. The few public sector also remains an active market player. With noopportunities that exist are usually in the range of up to 250 sq m completions in Q3, overall vacancy declined to 8.2%, down fromwith units of more than 500 sq m being extremely rare. Office 8.7% in Q2. A further reduction in choice is anticipated in Q4, withvacancy rates in the city centre are at levels of sub 1% and there no new developments due to be completed in 2011. As at the end ofare limited development opportunities, compounded by a restrictive Q3 2011, around 52,000 sq m of new office space is underplanning process. Some companies are considering peripheral construction, the majority of which is due to be delivered in the nextlocations in order to secure larger and less expensive space. New 12 months. Costs for prime CBD space continued to rise q-on-q withspace is predominantly constructed south of the CBD and around prime rents up 2.2% to stand at SEK 2,300 per sq m. In the widerthe airport. The most notable project is the “SOVALP” – a large city centre, costs for Grade A office space moved up as well andscale development that will provide some 100,000 sq m once range between SEK 2,000 – 2,200 per sq m. Rental levels for officecompleted in 2014. Competition for space remains high and finding space in more peripheral areas range between SEK 1,200-1,500 persuitable space solutions, especially for larger unit sizes, can be sq m. The number of speculative schemes currently underchallenging. The existing shortage in the central areas is expected construction should ease competition for prime space.to drive prime rental growth. Prime rents in the CBD currently standat CHF 1100 per sq m per annum but office space overlooking Lake HamburgGeneva usually trades at a premium to this. Cost: € 282 / sq m Competition: 172,700 sq m Choice: 8.8% Glasgow Occupier demand is expected to remain strong throughout this year with an annual volume of 500,000 sq m expected. However the Cost: € 344 / sq m Competition: 8,560 sq m Choice: 10.6% ongoing euro crisis and potential effects on the economy couldOccupier activity increased in Q3, totalling over 8,500 sq m. The damage sentiment. Occupier activity in Q3 was driven by businessmajority consisted of churn in smaller deals. Economic uncertainty service providers, followed by public administration – with the Statecontinues to constrain decision making however and we anticipate Ministry for Urban Development and the Environment’s move toyear end leasing volumes to be in line with 2010. The Banking and Wilhelmsburg representing a considerable 45,000 sq m transaction.Finance sector dominated in Q3, accounting for 73% of occupier Preference remains on the city centre (Innenstadt) and the adjoiningactivity. Overall vacancy rates increased slightly to 10.6% but sub-markets of City South (core area), Habour and HafenCity. InGrade A choice remains far more constrained with vacancy rates terms of supply, the SPIEGEL building among others wasfalling from 3.3% to 3.1%. Occupier controlled space increased by completed in HafenCity and total completions over the year to date10% over the quarter to 58,000 sq m, with the likes of Shell now amount to 120,000 sq m. A further 68,000 sq m is in thereleasing c.2,000 sq m at 141 Bothwell Street. Construction has pipeline for the remainder of the year, of which around half isresumed at the speculative Copenhagen building, which is on track speculative. Development is expected to remain stable until the endto deliver c. 6,000 sq m by early 2012. Prime rents remained stable of the year. Prime and average rents grew further in Q3 to reachat €344 per sq m, although rent free periods remain generous at €282 per sq m per annum and €167.76 per sq m per annumbetween 24-30 months based on a 10 year lease. Incentives respectively. Further increases can be expected next year.remain under pressure for the very best space. As the supply ofGrade A space begins to decline we expect incentives to hardenfurther and prime rents to slowly rise.
8 On Point • EMEA Corporate Occupier Conditions – Q4 2011 Helsinki Lisbon Cost: €294 / sq m Competition: n/a Choice: 10.0% Cost: € 228 / sq m Competition: 14,040 sq m Choice:11.7%Occupier activity remained fairly stable in the third quarter of 2011, Portugal’s economic woes continued to impact on occupieralthough competition from international occupiers decreased confidence. Activity remained weak resulting in just 14,040 sq m letsomewhat in reaction to the European debt crisis and fears in Q3. Year to date leasing volumes are 63% below five yearregarding the economic recovery. Whilst prime space in the CBD is average levels. The majority of activity was concentrated in Zone 6,most popular with occupiers, choice remains limited. Large floor which accounted for around 40% of total floor space let in Q3.plates are virtually non-existent, increasingly driving occupiers to the Activity continues to be driven by an increase in renegotiations andbusiness park hubs in areas such as Ruoholahti, Keilaniemi and renewals. There were no new completions in Q3. Consequently,Leppävaara. Furthermore, new developments in the bay area occupier choice fell with vacancy rates moving from 11.9% in Q2 toadjacent to the CBD (Töölönlahti) have attracted strong occupier 11.7%. Despite the weak dynamics, prime rents held up at €228 perinterest. The overall vacancy rate remained relatively stable q-on-q sq m over the third quarter. However, landlords continue toat around 10%. Choice in the CBD is much lower at around 4.5%. compete by offering generous fit out packages and increasing levelsThe development pipeline is considerable at 230,000 sq m for 2012 of incentives. Incentives for prime space are in the range of 1 to 3and 2013. However, competition for this new space has been strong months rent free, based on a three to five year lease. Across theand overall these schemes are expected to be around 90% prelet on wider market incentives are more generous with around 3 to 6completion. Prime CBD rents remained stable at €24.50 per sq m months rent free achievable on a three to five year term. Rents inper month. In the more peripheral office districts, rents range the secondary market also remained stable, however we dobetween €192 - €204 per sq m per annum. However, if competition anticipate downward pressure on secondary rents from thefor space in the new developments slows, rents will most likely see beginning of next year.some falls. London City Leeds Cost: € 688 / sq m Competition: 88,900 sq m Choice: 7.6% Cost: € 323 / sq m Competition: 10,770 sq m Choice:10.6% Occupier activity improved upon Q2 levels but was still weak andOccupier choice fell slightly over Q3, but remains inflated at 6.1% represented the lowest Q3 total since 2003. Although 1.4 million sqabove the level at the end of 2010. While there was little change to ft remained under offer, with confidence subdued, occupiers areoverall supply, the availability of Grade A space fell much faster with likely to delay decisions into 2012. Active requirement volumesvacancy rates falling from 5.6% in Q2 to just 4.9% at the end of Q3. continued to increase, however, with demand from the ServiceWork has commenced at 2 Bond Court which is due to deliver industry dominating volumes. Choice increased 10% as severalaround 1,500 sq m of space on a speculative basis by 2012. The refurbished and a new build scheme (Cannon Place, EC4) camesigning of a pre-let to Clarion in Q2 for 1,500 sq m, has also allowed online. As a result, overall vacancy rates increased to 7.6% withdevelopment to start at Elizabeth House which will deliver around Grade A at 4.4%. Prime rents remained stable, with rent free1,000 sq m speculatively. The most significant deal in Q3 involved periods assuming a 10 year term at 22 months. With the lack ofthe acquisition of 2,400 sq m by Yorkshire Housing at Dyson quality prime space, we do anticipate further rental growth, howeverChambers. Prime rents were stable at €323 per sq m. Incentives expectations have been tempered significantly by economicremain stable but generous with around 30 months rent-free uncertainty.achievable on a 10 year term. We expect some hardening ofincentives as the availability of Grade A supply begins to tighten,however this is somewhat dependent on the level of new demand.
On Point • EMEA Corporate Occupier Conditions – Q4 2011 9 London West End Lyon Cost: € 1187 sq m Competition: 60,500 sq m Choice: 4.4% Cost: € 270 / sq m Competition: 43,970 sq m Choice: 6.5%There was 60,500 sq m let across 42 deals in Q3, which represents There was a slowdown in occupier activity in Q3 with just undera 22% decrease q-on-q. This brings the total for the year-to-date to 44,000 sq m let, a 40% reduction on the very strong Q2. Year to198,100 sq m which is 22% lower than the equivalent period last date volumes are slightly softer than 2010 – a modest 2% reduction.year and reflects a more cautious sentiment in the market. The most The amount of choice for occupiers has continued to decline withnotable deal of the quarter was Debenhams plc’s 13,470 sq m pre- supply dropping 3.6% over the quarter and volumes over 6% lowerlet at British Land’s 10 Brock Street (Regent’s Place), NW1.The than the end of 2010. Vacancy rates are now 6.3%, down from theService sector again dominated take-up accounting for 54% of take- cyclical high of 6.8% reached in early 2010. Prime rents in Lyonup across 18 deals, with the TMT sub-sector accounting for 22% of have remained at €270 per sq m for the second successive quarterthe total. Overall demand decreased slightly to 410,200 sq m, and after the market witnessed very strong growth in H1. The annualthe TMT sub-sector dominated this also, accounting for 25% of the rate of rental growth remains at 17.4%. In the wider market weightedtotal with new requirements from Linkedin, O2 and Gamesys. With average rents are around €150 per sq m and have been relativelylimited moderate take-up and limited development completions, flat this year reflecting a widening differential. Incentives have alsooverall supply fell by -5% to 369,950 sq m, which equates to a been flat, at around 6 months for a 6-9 year lease.vacancy rate of 4.4% (from 4.6% last quarter). Grade A vacancyalso fell to 2.2%, its lowest level since mid-2007. Overall, the volume Madridof space under construction speculatively remained stable at Cost: € 312 / sq m Competition: 71,579 sq m Choice:10.6%173,400 sq m with the Debenhams’ pre-let offsetting newcommencements at 79-97 Wigmore Street, W1, and 6 Agar Street, Leasing volumes were typical for Q3, the quiet quarter of the year,WC2. Prime rents stabilised at €1,187 / sq m, while rent-free periods and stood at 71,579 sq m (excluding high-tech space). Fiveremained at 16 months, assuming a 10-year lease. We expect rents transactions of greater than 5,000 sq m completed and accountedto increase again in the latter half of next year. for 42% of total take-up in Q3. The Periphery dominated demand with occupiers focusing on well-located and good quality business Luxembourg centres. The average size of space leased ranges between 800- 850 sq m. Overall office vacancy increased slightly during Q3 to Cost: € 456 / sq m Competition: 38,470 sq m Choice: 6.7% 10.6%. However, the CBD saw a slight decrease in choice as noOccupier activity over the year to date increased 51% compared new product is on the market and the level of demand in this marketwith the equivalent period last year. Pre-lets and acquisitions area has remained relatively strong. New supply is concentrated inaccounted for around a third of all take-up activity in 2011, which the Periphery (Julián Camarillo area) and Satellite market areas.underpins confidence in the market. The business services sector, We expect a trend of occupiers moving towards the periphery whichtogether with Banking & Finance were responsible for 72% of deals. would impact on vacancy rates in the CBD. There is limited futureThere were no new completions during Q3 and occupier choice supply in the pipeline as projects are being delayed and there is adiminished further with vacancy rates falling to 6.7%. The lack of defined schemes from 2013 onwards. Prime rents continueddevelopment pipeline remains constrained with just 24,000 sq m to decline over Q3, down 1.9% to €312 per sq m, because of thedue to be delivered speculatively over the remainder of 2011. disequilibrium between supply and demand, even for the bestThereafter, the development pipeline is expected to decrease further quality products.to a low level of 48,000 sq m in 2012, of which 33,000 sq m isspeculative and this will drive choice lower. Costs remained stableacross all submarkets in the third quarter, peaking at €456 per sq min the CBD. We expect the prime rent to remain relatively flat over2011, however incentives have begun to tighten. Given declininglevels of supply, we expect upward pressure on prime rents,although forecasts currently remain modest.
10 On Point • EMEA Corporate Occupier Conditions – Q4 2011 Malmö Milan Cost: € 228 / sq m Competition: 12,500 sq m Choice: 7.1% Cost: € 530 / sq m Competition: 58,460 sq m Choice:10.1%The occupational market registered a drop in activity in Q3, with Occupier activity this year has been broadly in line with 2010. Q3leasing activity totalling at around 12,500 sq m. Nevertheless, so far witnessed few large deals, with the most significant deal of thein 2011, competition has been significantly higher compared to 2010 quarter involving AXA, who acquired 10,000 sq m in the Semi-centreand year-end leasing volumes are forecast to be up over 50% on a area. IT company, Reply also leased around 8,000 sq m in they-on-y basis. The high activity can partially be explained by choice - Lorenteggio area. Prime rents increased by 1.9% over the quarternew developments offering modern and highly efficient office space. to €530 per sq m. Rental levels remain high in the centre,Occupiers from the IT sector have been particularly active in Q3, particularly for transactions involving banks. Despite this, aroundaccounting for a large share of volumes. On the supply side, no new 70% of deals in Q3 were at rents of below €300 sq m andchoice was added to the market in Q3 2011, although in the Lund transactions involving rents of over €500 per sq m, accounted fordistrict a 7,400 sq m project is due to be completed in Q4. In 2012 only 14% of the total deals. Q3 witnessed around 30,000 sq m ofaround 60,000 sq m will complete. Consequently, the overall new completions. Consequently the vacancy rate increased tovacancy rate of 7.1% should increase next year. Prime CBD rents 10.1% over the quarter, however, this was driven primarily byremained stable in Q3 and range between SEK 1,800 – 2,100 per increasing supply in the Periphery and Hinterland. Occupier choicesq m. Furthermore, occupiers are often offered substantial within the Centre remained broadly stable. There have been noincentives such as rent free periods (depending on lease length) or new development commencements.rebates. Rental levels for good quality space in the peripheral officedistricts remained stable at around SEK 1,200 – 1,500 per sq m. MunichSome further upward pressure at the very prime end of the market is Cost: € 360 / sq m Competition: 233,100 sq m Choice:10.1%expected towards the end of 2011. Occupier activity remains very strong with 230,000 sq m let and a Manchester year to date volume the strongest since 2001. Many lettings were driven by expansion leading to a net reduction in choice. Most Cost: € 379 / sq m Competition: 14,570 sq m Choice: 11.9% activity has been witnessed in the city centre and across all unitOverall choice in Manchester city centre fell 5.2% over the third sizes. Industrial corporate occupiers have been the largest takers ofquarter, to 245,700 sq m. Vacancy rates were down from 12.5% in space this year, while business service providers closed the largestQ2 to 11.9% at the end of Q3. This was driven by declining levels of number of deals. In the third quarter there was again evidence ofboth Grade A and Grade B supply which fell by 4.0% and 7.0% occupiers pursuing prelet options, such as the NUOFFICE project inrespectively. Grade A choice, remains far more constrained, Schwabing-North. Following high levels of building activity in thereflecting a vacancy rate of just 2.9%. There was little change to the period from 2008- 2010, when up to 300,000 sq m was completeddevelopment pipeline over Q3, with no new speculative starts and per year, completions will be much lower this year and especiallynothing under construction on a speculative basis. However, we do next year and further restrictions in choice can be expected. Primeanticipate construction to commence soon at 1 St Peters Square on rents and incentives have remained stable at €360 per sq m butthe back of a 6,000 sq m pre-let to KPMG. Activity was modest due further increases can be expected next year. Average rents endedto the absence of any larger deals, with just two transactions over the quarter at €164 per sq m.1,000 sq m. There are just two schemes currently capable ofsatisfying Grade A requirements of greater than 5,000 sq m. Givendeclining levels of supply, prime rents increased by 5.3% over thequarter to €379 per sq m. Incentives however remain generous with30 months rent-free still achievable on a 10 year term.
On Point • EMEA Corporate Occupier Conditions – Q4 2011 11 Oslo Paris La Defense Cost: € 457/ sq m Competition: 172,000 Choice: 7.5% Cost: € 590 / sq m Competition: 20,650 Choice: 5.0%Occupier activity increased considerably with leasing volumes up The La Défense market was one of the few European markets to23% on Q2. Competition is strongest for prime office space in the show strong rental growth in Q3 with prime rents increasing 7% toCBD and western fringe of Oslo. There is a drive, in particular from reach €590 per sq m. Average second hand rents ended the quarterthe larger occupiers, towards more efficient office space, which can at €492 per sq m, a 17% discount to prime reflecting a moreusually only be found in new developments. Besides ministries, standard quality of accommodation in this submarket. The rentaloccupiers from the IT and oil related sectors are the main drivers. increases were driven by further erosion in choice, with vacancyOn the supply side, Oslo has seen a relatively low volume of new rates declining from 5.4% to 5.0% - the lowest level since Q1 2010.construction in 2011 with just 60,000 sq m of office space added to The leasing market, however, has seen a relative lack of large dealsthe market. Consequently, choice has gradually declined over the and volumes are down 14% compared with last year with just overyear, with an overall vacancy rate of around 7.5%, the lowest in 20,000 sq m let in Q3. Demand remains fragile and going forwardalmost two years. 2012 is expected to see around 300,000 sq m of prospects of an economic slowdown are encouraging participants tonew office space added, however choice is expected to remain be cautious as well as extremely selective. A difficult end to the yearrelatively constrained with the majority of the development already is therefore expected generally, but the lack of choice in the Lapre-let. Prime rents remained stable in Q3 2011 at NOK 3,600 per Défense market will support pricing and incentives although thesq m. Strong demand for prime office space has pushed up rents by growth witnessed in Q3 is unlikely to be repeated next year.15% over the year. Secondary locations did not record any rentalgrowth over the last 12 months. Rents for good quality space in the Romecity centre range between NOK 2,800 – 2,200 per sq m. Cost: € 420 / sq m Competition: 29,900 sq m Choice:6.3%Competition for prime space in the CBD is considerable andincentives in this part of the market are low to non-existent. Outside Occupier activity reached almost 30,000 sq m in Q3, down on thethe CBD rent free periods of 6-12 months are achievable. start of 2011 but year to date volumes were up nearly 50% compared to the equivalent period in 2010. Occupiers continued to Paris CBD focus primarily on the CBD and central areas, with around 50% of Q3 take-up in these areas. The remainder of activity was focused Cost: € 750 / sq m Competition: 115,840 sq m Choice: 4.5% on the EUR area. Occupiers demonstrated a clear preference forWhile occupier activity in Greater Paris increased significantly in Q3, Grade A space. The most active sectors in Q3 were the Servicesit was driven by deals completing that had been in negotiations for and Manufacturing sectors. The Public sector, which hassome time and the CBD region itself, although it witnessed an 11% traditionally played a leading role in Rome’s office market,q-on-q increase, is running around 2% below the Q1-3 volumes of substantially reduced the amount of space taken up, a reflection oflast year. Deals were constrained by the low amount of choice in the the necessary rationalisation of the public real estate portfolio. ThisCBD. Vacancy declined to just 4.5%, the lowest amount since 2008. is likely to have a significant impact on Rome’s office market. TheIn addition to a lack of choice impacting occupiers’ ability to move, vacancy rate increased to 6.3%, due largely to the release ofthe effect of austerity was increasingly felt, particularly for large second hand space in the Tiburtina area. The development pipelinecompanies, which are looking to curtail their real-estate costs and remains relatively stable, with several completions expected in Q4,consolidate locations. Prime rents were unchanged at €750 per sq but there are no new significant projects to add to those alreadym and there is a sense that the market will become quieter with envisaged out to 2014. Prime rents and incentives are generallyoccupiers increasingly hesitant given the Eurozone concerns. stable, with the prime rent remaining at €420 per sq m.Average second-hand rent was recorded at €501 in the CBD region,a 33% discount to prime. Rent free periods have been unchangedall year at between 9 and 15 months assuming a 6-9 year lease.
12 On Point • EMEA Corporate Occupier Conditions – Q4 2011 Rotterdam Stuttgart Cost: € 195 / sq m Competition: 20,100 sq m Choice:16.3% Cost: € 216 / sq m Competition: 78,100 sq m Choice:6.5%Occupier activity decreased by around 52% in Q3. This was mainly The Stuttgart market has not reflected the cooling economic mood.due to the absence of any large scale transactions, rather than a While deal volumes declined on Q2, on a y-on-y basis take-upshift in sentiment. The upturn in competition seen in 2011 can, to increased by 71% to 200,000 sq m. Generally, small deals havesome extent, be explained by the levelling in prices (headline rents dominated leasing volumes and the majority of deals were ofand / or incentives) in some segments of the market between the average quality. Since certain large requirements remain active, wewider Rotterdam region and some smaller, more regional cities. expect take-up to remain strong over Q4 and forecast total volumesChoice increased for the fifth consecutive quarter. The overall of around 250,000 sq m for 2011 as a whole. Occupier activity hasvacancy rate stands at 16.3% as at the end of Q3, up from 15.7% in driven a further decline in the vacancy rate by 0.5 percentage pointsthe previous quarter. The development pipeline remains significant. in the third quarter. The prime rent remains unchanged at €216 perWhilst most developments have high pre-let rates, there are a sq m, with average rents showing little change at €138 per sq m.number of speculative schemes expected to be added to the market Around half the year to date completion volumes occurred in Q3. Inin the second half of 2012. Rental levels remained virtually Q4 further completions of around 40,000 sq m are expected. Nextunchanged with prime rents at €195 per sq m and no change in year we expect vacancy rates to stabilise.incentives. The only rental movement recorded in Q3 was in the‘Modern Scheepvaartkwartier’ district, where rents edged up by The Hague2.9% to stand at €180 per sq m. Costs in the peripheral office areas Cost: € 215 / sq m Competition:5,488 sq m Choice: 10.9%North and South of the city remained stable with prime rents ataround €150 - €170 per sq m. Rental conditions are expected to Overall occupier sentiment remained relatively subdued in Q3, withremain stable in the foreseeable future. leasing volumes down on the first half of the year. Competition is strongest for Grade A office space in the city centre districts such as Stockholm the Beatrixkwartier, with occupiers in the public administration, transport and education sector most active. On the supply side, Cost: € 456 / sq m Competition: 73,050 sq m Choice:10.5% choice continued to increase with overall vacancy at a record high ofLeasing volumes of just over 73,000 sq m were recorded in Q3. 10.9% at the end of Q3, although the majority of available supply isWhilst down on H1, sentiment remains relatively strong, with of Grade B quality. Choice was more or less unchanged for Grade Aoccupiers from the recruitment and staffing sector particularly active. properties, with only a modest increase to 2.3%. The tight market forOn the supply side, choice continued to decline with no new office Grade A is underlined by the split in leasing transactions by quality,space added to the market. The overall vacancy rate decreased to with just three small sized Grade A occupier transactions recorded10.5%, down from 11.4% in Q2. Vacancy in the CBD remained in 2011 so far. Rental costs for the prime end of the marketparticularly tight at a record low of 3.7% with occupiers having increased over the quarter. Prime rents for Grade A space in thedifficulties securing large, efficient floor plates in central locations. Beatrixkwartier increased by 2.4% to stand at €215 sq m perWhilst choice in peripheral locations remains plentiful, available annum. Costs remained unchanged across all other submarketsspace is expected to remain low in central locations with a limited with prime rents for office space adjacent to the city centre rangingamount of speculative space in the pipeline for the next few years. between €175 - €205 sq m per annum. Incentives were stable overPrime rents increased for the second consecutive quarter, from SEK the quarter with rent-free periods remaining at 9 - 18 months,4,100 per sq m to SEK 4,200 in Q3. Some further rental growth is assuming a 5-year lease.expected, with prime rents forecast to edge up to SEK 4,300 per sqm by the end of the year before stabilising in 2012. Rental levels inperipheral office locations such as Kista and the adjacent suburbsremained stable at around SEK 1,400 – SEK 2,000. Incentivescontinue to be under pressure in prime locations with rent freeperiods of 3-6 months achievable on a 5 year lease.
On Point • EMEA Corporate Occupier Conditions – Q4 2011 13 Utrecht Zurich Cost: € 220 / sq m Competition: 22,400 sq m Choice:13.9% Cost: € 902 / sq m Competition: n / a Choice: 4.6%The occupier market recorded a relatively slow quarter with six Strong demand for office space in recent quarters has led to risingtransactions reported. However, the total leasing volume was up by rents and low levels of availability. The market will also see a largearound 60% over the quarter, due to the 18,000 sq m transaction by volume of new supply. Over the next four years around 400,000 sqDanone in the Rijnsweerd district. Competition for the best office m of new office space will be delivered mainly in Zurich West andspace in the city centre continues to be strong, in particular from Zurich Nord. Much of the new space has been taken by occupiersbanking, finance and public administration sector occupiers. present in the market already which are currently actively relocatingHowever, the absence of choice holds back activity with vacancy to this new, modern space from their CBD locations and graduallyestimated at just 2%. Choice is not expected to increase in the short releasing their former space. The new supply is expected to easeterm in the city centre. In the wider market choice increased in Q3, competition for space and increase choice in the CBD. Hence, thewith around 22,000 sq m of new office space added to Utrecht. Zurich CBD will soon face vacancies of an unprecedented quantityOverall vacancy increased to 13.9%, the highest level ever which will put pressure on cost. Prime rents are at around CHF 1100recorded. The majority of choice is located in peripheral locations per sq m. Expectations are that rents might see a further slightsuch as the Papendorp district which accounts for roughly 20% of increase towards the end of the year but this may be short-lived.total vacant office space. Whilst costs remained stable at the prime Outside the prime segment, rents range from CHF 350 to CHF 800end, office space in secondary locations became less expensive in per sq m depending on location and quality, with second-handQ3. Prime rents in the city centre range between €190 - €220 per sq space seeing the biggest discounts.m. Rental levels in the secondary/ peripheral locations such asKanaleneiland, Overvecht and Lage Weide/ Catesiusweg saw afurther 3%-4% decrease to range between €125 – 145 per sq m. Western Corridor Cost: € 330 / sq m Competition: 55,900 sq m Choice:13.8%The level of active named occupier requirements stabilised in Q3 atc.300,000 sq m and continues to be dominated by theManufacturing and Services sectors, which together accounted foraround 88% of named enquiries in Q3. Deal activity improved toreach 55,925 sq m, 9% higher than the five-year quarterly average.Supply levels continue to be slowly eroded, driven in particular bydeclining Grade A stock. This is most pronounced in the WestLondon submarket where the vacancy rate stands at just 2.9%, thelowest level for nearly 10 years. There is currently around 33,305 sqm of speculative space under construction, with only 3,902 sq m dueto complete before year-end. Prime rents increased marginally,driven by upward pressure in Reading town centre and Chiswick.Incentives were stable at 30 months rent free on a 10 year lease inthe Thames Valley and 24 months in West London. We expectannual prime rental growth of 1.4% over 2011 as a whole.
14 On Point • EMEA Corporate Occupier Conditions – Q4 2011Western European Corporate Occupier Markets at a glance Competition Choice (% Vacancy Rate) Costs (Rents EUR / sq m / pa) (Take-up as a % of stock) Market Q3 2011 12-month outlook Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook WE Amsterdam 0.9 17.1 335 Antwerp 1.6 11.5 145 Athens n/a 15.8 270 Barcelona 1.0 13.4 225 Berlin 0.8 8.8 252 Birmingham 1.3 20.1 356 Bristol 0.4 13.0 328 Brussels 0.9 10.9 300 Cardiff 1.1 10.8 250 Cologne n/a 8.2 258 Copenhagen n/a 8.6 242 Dublin 1.1 18.9 344 Dusseldorf 1.0 11.9 282 Edinburgh 0.6 6.0 337 Eindhoven 0.5 13.2 185 Frankfurt 0.7 13.6 396 Geneva n/a n/a 0.3 862 Glasgow 0.6 10.6 344 Gothenburg 0.8 8.2 250 Hamburg 1.2 8.8 282 Helsinki n/a 10.0 294 Leeds 0.9 10.6 323 Lisbon 0.3 11.7 228 London City 0.9 7.6 688 London West End 0.7 4.4 1187 Luxembourg 1.2 6.7 456 Lyon 0.8 6.5 270 Madrid 0.5 10.6 312 Malmö 0.6 7.1 228 Manchester 0.4 11.9 379 Milan 0.5 10.1 530 Munich 1.2 10.1 360 Oslo n/a 7.5 457 Paris CBD 1.7 4.5 750 Paris La Defense 0.5 5.0 590 Rome 0.2 6.3 420 Rotterdam 0.6 16.3 195 Stockholm 0.6 10.5 456 Stuttgart 1.0 6.5 216 The Hague 0.1 10.9 215 Utrecht 0.9 13.9 220 Western Corridor 0.7 13.8 330 Zurich n/a n/a 4.6 902