EMEA Corporate Occupier Conditions - Q2 2011Western Europe: CorporateOccupier ConditionsCloser to the tipping point
2 On Point • EMEA Corporate Occupier Conditions – Q2 2011 WESTERN EUROPE: Vacancy rates moved only marginally in the majority of markets with the overall European vacancy rate moving up by 10bps to Corporate Occupier 10.3%. Nine of our core index markets showed vacancy increased with the largest increase recorded in Rotterdam (+170 Conditions bps) and Amsterdam (+50bps). However, rates fell in 15 markets with the greatest reduction occurring in Dublin (-120 bps). An Europe’s broad-based recovery is set to consolidate this year. important point to note is that in many markets vacancy rates for There remain however wide variations in economic outlook good quality office space is low and it is this dynamic that across the region. The recent debt bail-out negotiations in continues to drive prime rent stabilisation or growth. In contrast, Portugal have been a reminder of lingering sovereign debt risks the supply of second hand, lower quality space is high and and ongoing fiscal tightening, particularly in Greece, Spain and remains available at a significant discount to prime. The Portugal. Inflationary worries have also moved centre-stage with development pipeline provides little comfort. Over Q1 less than 1 interest rate rises looming. Western European GDP growth is million sq m of new office space was completed across Europe – forecast to be 1.9% in 2011 and not exceed 2% per annum down a third on the 5 year average. We expect annual European before 2015. Corporate confidence continues to be robust with office completions to be 30% down on the 5 year average and the European Commission’s Confidence Indicators running at represent the lowest level of new completions for more than a around the long-term average with a clear rebound from the decade. despair of early 2009. Prime rents grew modestly across Europe over the quarter with Q1 saw healthy levels of occupier activity across the market with the European Office Index increasing by 1.5% q-on-q. This the re-emergence of expansionary demand in some, albeit overall increase was driven almost exclusively by continued select, markets. Most demand continues to be driven by rental growth in London’s West End and Moscow. On a market consolidation or rationalisation needs and is facilitated by by market basis the general message is one of stabilisation of upcoming lease events. 2.6 million sq m of office space was let prime rents. Southern European markets continue to display a across Europe over Q1- a reduction q-on-q but explained by softening of rents with the Spanish markets again showing rental seasonality effects. Volumes were broadly similar to Q1 2010 decline over the quarter. Although the rate of decline has and just below the 5 year quarterly average. In Western Europe diminished somewhat, further rental reductions are anticipated. activity was strong in Stockholm, Milan and Dusseldorf. London 23 of the 38 markets plotted on the Western European Office – which is ahead of the overall market cycle – showed reductions Occupier Property Clock are positioned at or beyond 6 o’clock, in take-up volumes q-on-q but, encouragingly, the levels of indicating rental growth. Significantly there are no markets demand in the market grew. positioned in the rents falling quadrant with the remaining 15 markets all approaching the bottom of their rental cycle. The Exhibit 10: Western Europe Office Occupier Clock performance differential between prime and secondary markets persists however as occupiers continue to release surplus, lower quality space back to the market. Rental Growth Rents London City Slowing Falling London West End, Zurich Rental Growth Rents Oslo Accelerating Bottoming Out Düsseldorf, Geneva Athens, Lisbon Lyon, Stockholm Barcelona, Edinburgh, Leeds, Madrid, LuxembourgBerlin, Gothenburg, Helsinki, Manchester, Munich, Paris Brussels, Dublin, Rome Amsterdam, Eindhoven, Rotterdam, Copenhagen, Malmo, Western Corridor The Hague, Utrecht Birmingham, Frankfurt, Glasgow, Hamburg, Milan, Stuttgart
On Point • EMEA Corporate Occupier Conditions – Q2 2011 3 Amsterdam Athens Cost: € 335 / sq m Competition:24, 250 sq m Choice: 17.2% Cost: € 306 / sq m Competition: n/a Choice: 14.2%Supply increased in more peripheral submarkets this quarter driven The Greek economy continues to face strong headwinds and needsby a trend toward consolidation by some occupiers. Occupiers are additional funding to sort out its debt problems and risinglooking for multi-functional locations – areas which offer leisure unemployment. The office market has been heavily impacted.amenity as well as good workplace. Leasing volumes totalled around Prime rental levels are up to 25% below their peak in Q4 2008 / Q124,000 sq m with a mixture of sectors behind the figures with the 2008. The market remains tenant friendly although there has been no new supply released and speculative development has ceased.largest deal – at 2,700 sq m – being to Black Box Operations. There Landlords are offering incentives or rental reductions in order towere no signs of expansion, with deals typically for the same space retain tenants. For their part, occupiers are essentially focused onor less although sentiment appears to be improving amongst the consolidation and downsizing or are relocating in order to cut costs.local occupier base. Going forward the pipeline is manageable with Vacancy rates are edging up to 14.2% for Greater Athens as aalmost all future completions pre-let with one exception. Prime and whole, even though it is lower in more popular areas such as Athenssecondary values were stable and incentives remained static for North. Over the medium term Athens South is expected to gainprime but increased slightly overall. more momentum as four different metro stations are scheduled to materialize along Vouliagmenis Avenue thus improving accessibility. Antwerp Barcelona Cost: € 136 / sq m Competition: 21,350 sq m Choice: 12.9% Cost: € 228 / sq m Competition: 65,000 sq m Choice:13.2%Leasing volumes totalled around 21,000 sq m, down 40% incomparison to the same period last year. Despite the lack of Take-up exceeded 65,000 sq m, an increase of 15.2% q-on-q butcompletions, supply increased further as a result of some large down -32.2% compared to Q1 2010. Demand is still determined bytenants vacating space due to relocations. Development activity is broader global economic factors. We anticipated that take-up volumes for 2011 will reach close to 250,000 sq m - more or less inexpected to remain very low over the next few years. Only one line with 2010 but down by around -21% compared with the ten yearproject of 5,900 sq m is expected to be delivered speculatively average. For the first time in four years, the overall vacancy rateduring Q3 2011 in the Ring district (Helsmoortel III building) and began to decrease. Looking ahead we expect the supply of officeanother speculative project of 12,600 sq m is expected in 2012. space to continue to gradually decline due to the lack of newAlthough these levels are quite low if compared to the ten year projects in the pipeline. Prime rents fell 1.3% over Q1 and weaverage, the pipeline has frequently experienced ups and downs in expect further slight rental declines throughout the remainder of theits volumes. Prime rents remained stable over the fourth quarter in year before rents start to bottom out. In the main, occupiers seekingall submarkets, peaking at €136/ sq m pa in the Ring district. 2011 mid and large scale office space are still able to achieve generousshould see some limited rental growth, driven primarily by supply rent free periods, attractive volume-based discounts and incentivesshortages for certain types of space. which help lower the rent payable in the early years of the lease.
4 On Point • EMEA Corporate Occupier Conditions – Q2 2011 Berlin Brussels Cost: € 246 / sq m Competition:131,900 sq m Choice: 9.0% Cost: € 310 / sq m Competition:47,000 sq m Choice: 11.2%Q1 take-up hit a 10-year record at almost 132,000 sq m The lack of speculative completions combined with the low level ofexceeding the five-year average by 38%. The largest deal over take-up activity in Q1, kept the overall vacancy rate stable q-on-q.Q1 was Mercedes Benz AG who took around 26,000 sq m in the Future development activity remains limited with an estimatedEast sub-market. The vacancy rate fell slightly q-on-q due to very 127,000 sq m due to complete over 2011, of which only 15,500 sq mlow volumes of speculative completions (2,000 sq m) and also is speculative. Compared to the ten year average of 365,000 sq m,positive net absorption of around 120,000 sq m. 40% of vacant future completions remain very low. Vacancy rates are forecast tospace is located in secondary locations in the city centre (Inner- gradually decline as demand begins to improve. Supply is likely tocity East and West) with less than 4% located in the prime sub- fall fastest within the CBD where occupier preference remainsmarket of Potsdamer / Leipziger Platz. Prime rents remained strongest. Take-up during Q1 2011 was low when compared with astable q-on-q. Owing to strong demand for prime space, we quarterly average of 110,000 sq m during the last two years. Primeforecast slight increases in prime rents by year end. c 40% of the rents stabilised at €310 per sq m. Elsewhere prime rents rangelease contracts for office space were for rents of between €10 from €165 sq m in the Periphery to €230 sq m in the city centre.and 15 €/sq m/month. Many landlords are still prepared to grant The gap between face rents and economic rents, estimated onincentives that can amount to between 5% and 10% of the average at 15%, may decrease in the CBD in the next few yearsnominal rent for a five-year commitment. due to the lack of new supply coming onto the market. Birmingham Copenhagen Cost: € 347 / sq m Competition: 9,000 sq m Choice:18.2% Cost: € 235 / sq m Competition: n/a Choice:9.1%Q1 2011 has seen continued interest from occupiers although this The occupational market is improving and with little newhas not necessarily translated into leasing deals. Take-up development, vacancy rated declined by 80 bps q-on-q. Some hiringexceeded 9,000 sq m in Q1 - down 45% on Q1 2010. Activity was from the financial public services sector who typically look at spacedriven primarily by the services sector which accounted for 64% of beyond the CBD is evident. Although occupier preference remainstotal take-up. Supply in Birmingham city centre remained relatively for the CBD, occupiers are willing to look for greater in terms ofstable compared with the previous quarter. No speculative rents. Grade A, centrally located and efficient space is a pre-completions are scheduled for this year and as a result even modest requisite however. Future development does seem more likely withlevels of take-up will absorb supply. Grade A supply remains the larger requirements in the market able to drive developmentconstrained with just 64,000 sq m still available. Further ahead commencements that require a minimum 50% pre-let. These largerthere is just 12,000 sq m due to complete speculatively over 2012- requirements are finding it especially difficult to secure existing13. Consequently, occupiers seeking nudged prime rents up 1.8%, accommodation in excess of 2,500-3,000 sq m - a typicalto £307.00 per sq m. Incentives remain generous at around 36 requirement size for IT or finance sectors. Prime rents increased tomonths based on a 10 year term. The rest of the market is still DEK 1,750 per sq m q-on-q. Although rental values have remainedcompeting hard for occupiers with the gap between prime and stable for secondary space there is evidence of some upwardsecondary widening further. pressure for the better quality space in secondary areas.
On Point • EMEA Corporate Occupier Conditions – Q2 2011 5 Dublin Edinburgh Cost: € 377 / sq m Competition: 50,000 sq m Choice:21.5% Cost: € 334 / sq m Competition: 14,000 sq m Choice: 7.3%There was a positive start to the year with take-up reaching around Q1 take-up was down 33% q-on-q at around 14,000 sq m. Around50,000 sq m – up 98% on the same period a year ago. Notable 80% of deals were for units of less than 500 sq m. Despite the dropdeals include Google taking 19,340 sq m and the acquisition of in take-up, enquiry levels remain healthy. Activity will continue to be6,900 sq m by the Bank of Ireland. The the majority of transactions driven by lease events. Overall vacancy rates fell to 7.3%, drivenwere however much smaller at less than 700 sq m. Positively, largely by declining Grade B space. The Grade A market is more constrained however, with vacancy rates stable at just 3.5%. Thereenquiries increased 31% q-on-q and there is around 22,600 sq m is just one speculative scheme under construction presently. Choicereserved for take-up in the second quarter. Relocation options are will continue to erode as space is steadily absorbed. Developersbeing considered ahead of renegotiations. Overall supply fell as a are beginning to position to take advantage of the impendingresult of limited completions and strong take-up. Vacancy rates shortage of Grade A supply and the anticipated increase in leaseremain high however at 21.5%. Development activity remains events expected over the next 2-3 years. Prime rents were stableshelved due to over supply, lack of finance and low rental levels and q-on-q, as were Incentives with between 32-36 months rent-freethis trend is likely to continue for the foreseeable future. Prime achievable on a 10 year term. While rents are forecast to remainheadline rents stabilised at €377 per sq m with rents s in Suburban stable throughout 2011, there is some risk of rental increasesand City Edge areas in the range of €140-183 per sq m. Rent free depending on the speed with which demand recovers.periods are hardening at typically 9 months on a 5-10 year lease. Dusseldorf Eindhoven Cost: € 282 / sq m Competition: 95,400 sq m Choice:12.6% Cost: € 185 / sq m Competition: 11,990 sq m Choice:15.0%Q1 office take-up reached 95,400 sq m – a 43% decline on Q1 Choice in the market is broadly stable with little high quality space2010 but this merely reflects the inflated performance of last year available. There is a dearth of larger floors in the market and with andue to Vodafone’s commitment to 90,000 sq m. Publicis occupier base looking for large floors of Grade A there is a clearaccounted for the largest letting in Q1 2011 taking around mismatch. The largest transaction of Q1 was KPMG’s 7,000 sq m11,800 sq m in the “Le Quartier Central” project. The vacancy deal but Logica also took 1,600 sq m in a contrary trend in which itrate fell slightly q-on-q but but remain at a high level. moved to the airport area from the City Centre. Prime rents areCompletions for the quarter were moderate at 10,000 sq m and stable at the pre-crisis level of around €185 per sq m. There has6,000 sq m of this was speculative. Prime rents increased for the been little movement due to the scarcity of quality supply in3rd time in a year and by the end of 2011 we expect rents to have appropriate unit sizes. There is more downward pressure in theincreased further due to strong demand for high-quality space in secondary market due to the increased supply here.the up-market segment. The rental price for the majority of dealsranges between €10 and 15 €/sq m/month however. Landlordsremain willing to grant incentives, but less so for prime propertiesin prime locations. Outside of such locations, it is still possible toobtain incentives of up to 10% for a five-year commitment.
6 On Point • EMEA Corporate Occupier Conditions – Q2 2011 Frankfurt Glasgow Cost: € 396 / sq m Competition: 86,000 sq m Choice:15.1% Cost: € 328 / sq m Competition: 8,000 sq m Choice: 10.5% The occupational market is strengthening at a modest pace with Supply increased q-on-q following the addition of Grade B space2011 expected to witness similar take-up volumes to 2010 but via a onto the market. In contrast, Grade A supply remains constrainedwider spectrum of occupiers. Requirements in the market have with a Grade A vacancy rate of 3.2%. The development pipelineincreased but conversion to deals is still somewhat slow. Occupier remains switched off with no space under construction in the Citypreference has been for better, more flexible space to the extent centre and no speculative starts anticipated over the coming year.that the 5 biggest deals were actually for pre-lets. There is more We expect the gradual erosion of Grade A supply to continue. Q1confidence in the supply side and Frankfurt has witnessed a higher take-up was up 3.7% on a year ago with notable deals includingvolume of speculative development commencements in Q1 amid 3,100 sq m deal to Mercer and the acquisition by Ernst & Young ofpressure to commence stalled schemes before permissions expire. 1,100 sq m. While we do not expect to see a significant bounceSupply has therefore increased q-on-q and was further driven by back in demand, we do anticipate enquiry numbers to improve overoccupier releases of space. There will be greater polarisation the coming year. Prime rents increased 1.9% q-on-q and incentivesbetween grades of space. Rents were stable for both prime and are between 24-30 months on a 10 year term. We expect furthersecondary space but growth is more likely for prime with increases rental increases over the course of the year, driven by the gradualto €34 per sq m per calendar month later in this year. decline of Grade A space. In contrast the Grade B market remains competitive with landlords competing for occupiers. Geneva Gothenburg Cost: € 910 / sq m Competition: n/a Choice: 0.9% Cost: € 246 / sq m Competition: 34,000 sq m Choice: 8.7% Demand for prime space remains high particularly from financialinstitutions, wealth managers and associated service providers. The occupational market had a very strong quarter with volumesWith supply at very low levels and often in off-CBD locations, prime almost double those of Q4 2010 at around 34,000 sq m. The Publicrents have started to increase again. Office vacancy rates in the city Sector dominated with around a 30% share but the financial sectorcentre are sub 1%. Limited development plots plus a tedious was also active. There was clearly more optimism in theplanning process will limit future supply in the CBD. New space is occupational market and focus was very much on central areaspredominantly constructed south of the CBD and around the airport. where current supply is tight. Outside of the CBD supply increasedThe most notable project is the “SOVALP” – a large scale due to companies downsizing or moving more centrally – on top ofdevelopment that will provide some 100,000 sq m once completed the effect of completions witnessed in 2010. Despite the optimism,in 2014. Competition for space remains high and finding suitablespace solutions, especially for larger unit sizes, can be challenging. there was no upward movement in prime rent this quarter after Q4’sGiven positive economic prospects for the region and a lack of new increase, but pressure is building for an upward move later this year.supply, rents are expected to rise further. Office space is more Rents in secondary areas were stable. Going forward we expectwidely available and trading at a discount – for example CHF600 in new deliveries of space in 2012 (more schemes are going underthe airport area – but is often of lower quality and lacks vital access construction without a pre-let) will ease the upward pressure onto amenities. rents, but vacancy will fall further before completions manifest.
On Point • EMEA Corporate Occupier Conditions – Q2 2011 7 Hamburg Leeds Cost: € 270 / sq m Competition: 102,900 sq m Choice: 9.4% Cost: € 316 / sq m Competition: 3,420 sq m Choice:10.8%Occupier activity is strong thanks to the positive economic situation. Overall vacancy rates increased to 10.8% with Grade A vacancyQ1 take-up was ahead of Q1 2010 levels and will be close to standing at 5.8%. There is very little space in the development500,000 sq m for the year as a whole but generated through a larger pipeline with just 4,000 sq m of space currently under constructionnumber of deals. Small lettings dominate the market, but the and no further speculative space to commence in 2011. Choice willnumber of lettings is increasing in the 1,000 sq m to 5,000 sq m therefore fall gradually over the next 12 months although thesegment. Completions totalled 57,500 sq m in Q1 but only potential release of public sector space presents some risk to this.20,000 sq m completed speculatively, meaning completions put little Despite increased enquiry levels, take-up was disappointing withpressure on vacancies. Supply in secondary areas was stable. around just 3,000 sq m let during Q1 – down 57% on the equivalentVacancies are expected to increase by the end of the year as half of period last year. Occupiers remain cautious. As a consequencethe expected 170,000 sq m to complete this year is speculative. occupier activity remains driven largely by lease events and marketRents are already being impacted with considerably more deals churn. Prime rents were stable q-on-q as were incentives withabove the €20.00 pcm mark than over previous quarters. The prime around 30 months rent-free achievable on a 10 year term. Rents forrent remains stable at €22.50 pcm but will increase slightly in the Grade B space remain under greater pressure with landlordsnext few quarters. Landlord attitudes are also hardening. continuing to price competitively in order to attract tenants. Helsinki Lisbon Cost: €288 / sq m Competition: n/a Choice: 10.7% Cost: € 228 / sq m Competition: 14,000 sq m Choice:11.5%Occupier activity in Helsinki was stable compared with the final Q1 take-up was down almost 60% compared with Q1 2010. Thequarter of 2010 but much more active than the equivalent quarter majority of leasing activity was focused in zones 5 and 6 althoughlast year. This has also been mirrored in the number of enquiries zones 1 and 2 accounted for around 40% of take-up activity. Somerecorded. No particular sector is dominating leasing volumes with a occupiers have shelved relocation plans to focus on optimising theirmix of SMEs active and focussed on Grade A product. There does, current office space. Overall supply increased slightly over Q1.however, appear to be a modest amount of expansionary activity Around 33,000 sq m of space completed over the quarter, almost alland, coupled with a cessation in downsizing, this bodes well for of which speculative. Looking ahead there is very little space underabsorption going forward. Vacancy rates remained quite high at construction as the wider economic situation has led to somearound 11% but despite this there has been a pick up in development projects being put on hold. There is presently justdevelopment activity. Prime rents in the CBD area have risen in the 23,550 sq m of space currently under construction speculatively.last two quarter by around €0.50 cents per sq m per quarter. Beyond Prime and secondary rents remained stable q-on-q but we foreseethe CBD higher supply limits growth potential and in the secondary further rental decline due to weak levels of demand. Incentivesmarket rents remained stable. There is some potential for modest increased for prime and secondary space with landlords remaininggrowth due to improving market conditions, but any growth will be keen to offer generous incentives so as to avoid reducing theminimal. headline rent.
8 On Point • EMEA Corporate Occupier Conditions – Q2 2011 London City Luxembourg Cost: € 669 / sq m Competition: 74,400 sq m Choice: 7.4% Cost: € 456 / sq m Competition: 25,350 sq m Choice: 7.0%Take-up was down 42% q-on-q and the lowest quarterly total since Almost 10,000 sq m of new office space was completed over Q1 viaQ1 2009. Only one deal exceeded 5,000 sq m compared with 10 one project in the decentralised area. Of this, only 2,000 sq m wasover the same period last year. The volume of requirements logged delivered speculatively. This coupled with robust take-up – up 42%increased for the first time in nearly 12 months however. The TMT on the same period last year - brought a downward shift in theand Insurance subsectors proved particularly active in the markets. overall vacancy rate. The future development pipeline for 2011 isTotal supply increased 6% over the quarter and Grade A supply estimated at 62,000 sq m, of which 50,500 sq m is due to be builtincreased 16% due to the new completions of 200 Aldersgate speculatively. The pipeline for 2012 is more limited. Prime rentsStreet, EC1 and Heron Tower, EC3. Overall and Grade A vacancy remained stable q-on-q while rents in the Kirchberg submarket wererates increased slightly to 7.4% and 4.0% respectively. There were revised upwards €372 per sq m and in the Decentralised South areafour new speculative starts over Q1 compared with only two to €336 per sq m. Despite relatively low levels of supply, take-up isschemes during 2010. However looking ahead there remains a expected to improve but at a slow pace over 2011. We forecastshortfall of supply compared with the long term average. Prime relatively flat rents over 2011. Incentives are beginning to hardenrents remained stable and rent-free periods reduced from 24 to 22 and alongside falling levels of supply will place upward pressure onmonths assuming a 10 year term. We expect further rental growth in prime rents from the end of 2012.2011. Lyon London West End Cost: € 250 / sq m Competition: 42,390 sq m Choice: 6.8% Cost: € 1125 sq m Competition: 60,110 sq m Choice: 5.2% Leasing volumes totalled almost 43,000 sq m in the first quarter,Q1 take-up was down 35% q-on-q and 27% behind the equivalent down 27% from the first quarter of 2010. Larger occupiers areperiod last year. The Service Industry – and particularly the TMT regaining confidence but are facing a shortage of appropriatesubsector - dominated take-up with 65% of floor-space taken across supply. The vacancy rate rose slightly to 6.8% compared with 6.6%22 deals. The most notable deal to complete was NBC Universal at the end of December 2010. This increase has been driven bytaking c.11,200 sq m. Total recorded new demand ncreased 7% - second hand space and new supply in secondary areas. Thethe first increase since 2009. Vacancy rates stand at 5.2% with shortage of quality supply in the most sought after areas such as theGrade A rates falling to 2.2% - the lowest level since 2007 with Part-Dieu or Confluence is increasing and this is expected toGrade A supply declining by a quarter over the past year. Around continue in the second half of 2011. Overall rents remained stable,175,000 sq m of speculative space was under construction at especially for better quality units (new/ reconstructed or renovated toquarter end and speculative construction levels are now 10% ahead a high standard) but prime rents increased to €250 per sq mof the 10 year annual average. Four schemes commenced excluding taxes.construction in Q1 compared with six over the whole of 2010. Primerents increased 4.6% with rent-free periods stable at 16 months,assuming a 10-year lease. We expect further strong growth in 2011driven largely by the lack of quality prime stock.
On Point • EMEA Corporate Occupier Conditions – Q2 2011 9 Madrid Manchester Cost: € 321 / sq m Competition: 65,000 sq m Choice:10.2% Cost: € 347 / sq m Competition: 13,000 sq m Choice: 11.9%Prime rents fell by 0.9% q-on-q but rental stabilisation is occurring in Take-up volumes were down 29% y-on-y and 41% below the 5 yearsome submarkets including the Periphery and Satellite areas. Here quarterly average. Deals were largely for units of less than 250 sqspace remains constrained due to the low level of completions and m the average deal size falling from around 550 sq m to just 330 sqlittle outward movement from occupiers. Overall supply increased m. There were no new completions within the City centre over Q1slightly q-on-q in all locations with the exception of the Periphery, but supply did increase following the release of second hand space.where more than 50% of take-up occurred. Occupier demand Overall vacancy is slightly above the 5 year average at 11.9% butremains very weak and is generated primarily by smaller companies Grade A vacancy is just 2.4%. Further ahead the developmentseeking less than 500 sq m of space. Any companies seeking more pipeline remains constrained with nothing currently underthan 5,000 sq m tend to be indigenous to the local market, with few construction speculatively. Around 14,000 sq m is expected to startnew entries of this size. There was just one large leasing speculative this year but delivery will not be until 2013. Prime rentstransaction over Q1 - 9,000 sq m to the BBVA - while the remainder remained stable q-on-q with incentives remaining at c30 monthsif deals were for units of less than 4,000 sq m. Occupiers continue rent-free on a 10 year term. While occupiers were still being drivento focus predominantly on the CBD, which accounted for 43% of primarily by cost and not quality there was continued evidence oftransactions of less than 1,000 sq m. We anticipate some pick up tenants acting opportunistically to take advantage of marketin take-up over the remainder of the year. conditions to secure good quality space on tenant favourable terms. Malmö Milan Cost: € 235 / sq m Competition: 37,000 sq m Choice: 6.5% Cost: € 520 / sq m Competition: 84,000 sq m Choice: 9.3%Occupier activity improved significantly q-on-q with 37,000 sq m let Take-up was up 158% compared to same period last year with– a volume equating to 72% of the 2010 total. Occupiers remain notably the banks and financial institutions being the most activefocussed on prime or the best Grade A in the Lund submarket. On players over Q1. Activity remains driven by consolidation andthe supply side there were no significant projects completing in Q1 rationalisation but there has also been a growing trend towardswith only around 20,000 sq m due to complete this year. In 2012 owner occupation. We have yet to see recovery in demand for thearound 60,000 sq m is due to complete, placing some upward peripheral areas but improvements to the underground transportpressure on vacancy rates. Local cash backed developers are also system linking the Milanofiori area, among others, could have abringing speculative schemes forward. In terms of rents, the Hyllie positive effect longer term. The volume of new completions fell 40%area is now commanding similar levels to the Malmo CBD. This compared to Q1 2010 but a substantial amount of new space hassubmarket has benefitted from the subway links to Copenhagen been completed over the last two years and is still being absorbed.enabling a journey time of just 25 minutes between the two cities. There will be a significant drop in the number of speculative projectsWe prime rents to increase by around SEK 100 per sq m over the during 2011 with pre-lets only going forward due to fears of over-year but no increase was witnessed overQ1. Rental increases will supply. The overall vacancy rate fell slightly in Q1, but remain high.be polarised to the submarkets of Lund Idiom and Vastra Hamnen Prime rents remained stable but rents softened further in thewith flat performance elsewhere. periphery, particularly in the Maciachini zone, due to oversupply.
10 On Point • EMEA Corporate Occupier Conditions – Q2 2011 Munich Paris CBD Cost: € 348 / sq m Competition: 156,600 sq m Choice:10.7% Cost: € 750 / sq m Competition: 94,970 sq m Choice: 5.7%Over Q1 occupiers have appeared more active in the market with In the Central Business District of Paris the take-up total for the firstmany seeking new space for expansion. Q1 take-up volumes and quarter of 2011 was 94,970 sq m, up almost 10% in comparison todeal numbers were above the quarterly average for 2010 with most the previous year. A single transaction in excess of 5,000 sq m wasdeals taking place in the city centre. The East sub-market was recorded in the first three months of the year (the sale by the user,ranked number one in terms of the volume of space let owing to a Google, on the rue de Londres in the 9th arrondissement) comparedfew larger deals. Vacancies increased in spite of tstrong demand, to three in the previous year. Supply remained stable in the capitalbut this due to one large unit being made available for sub-letting. In with a vacancy rate of 5.7% although in comparison to last year fellsecondary areas supply was stable. Some available space will come from 6.1%. As the scarcity in large quality properties continues inonto the market this year (c48,000 sq m) but this will barely impact the CBD area it has lead to prime nominal rents to be maintained atvacancy rates due to sustained strong demand. The city centre, €750 per sq m. Overall prime rates remained stable for the thirdparticularly the area within the Altstadtring, continues to suffer from consecutive quarter.a shortage of large, contiguous spaces of good quality. As a result,the prime rent, which was stable q-on-q, is expected to increase this Paris La Defenseyear. Incentives have been decreasing for some months now. Cost: € 530 / sq m Competition: 14,350 sq m Choice: 6.1%Secondary rents were stable. Available supply was up q-on-q with vacancy rising due largely to Oslo the handover of the First Tower which has 40,000 sq m remaining to be marketed. The development pipeline is also quite high for 2011 Cost: € 446 / sq m Competition: n/a Choice: 8.0% although we are seeing many large schemes being put back to laterOccupier sentiment is healthy with q-on-q take-up broadly stable. completion dates. One of which is the Hines development of theThere have been an increasing number of requirements illustrating Carpe Diem tower which is now underway and due for completiongreater confidence in the wider economy with employment growth next year. Although demand is expected to absorb some of this newforecasts revised upwards by 80% over the last year. Companies space, we do anticipate higher rates then the 5% average of 2010.are not yet moving into larger units of space yet with net absorption The rise in available space is also due to an increase in the numberrecorded at 139,260 sq m – slightly down q-on-q. Limited of second hand buildings as well as a decline in the levels ofdevelopment is expected in 2011 but 290,000 sq m is expected to transactions. Take-up in La Defense rebounded by nearly 80%come through in 2012. The great majority of this space is already compared to the low point of the 1st quarter of 2010, but remainsabsorbed, but the subsequent relocation of tenants will put pressure below normal volumes. Prime nominal rent in La Defense wereon rents. Many buildings will however be temporarily taken out of stable q-on-q at €530 sq m per year.the market and refurbished. Choice will show marked increasesfrom 2013 therefore. For the next two years demand is anticipatedto outweigh supply. Prime rents increased NOK300 per sq m q-on-q.Secondary rents are currently at NOK 2,100 per sq m, up NOK 100from Q4 2010, reflecting a 40% discount to prime.
On Point • EMEA Corporate Occupier Conditions – Q2 2011 11 Rome Stockholm Cost: € 420 / sq m Competition: 63,250 sq m Choice:6.0% Cost: € 447 / sq m Competition: 186,000 sq m Choice:11.2%Q1 take-up volumes were down 25% compared to the previous Occupier activity strengthened significantly q-on-q with take-upquarter but up by 194% compared to the equivalent period last year. volumes double that seen in Q1 2010. Crucially the financialHowever, just two large scale transactions accounted for 63% of the insurance sectors have launched more space requirements.total take-up in Q1 2011. The majority of activity, around 75% took Occupiers are focussed on better quality more efficient spaceplace within the CBD and were generated by market churn or the enabling headcount growth to be accommodated in less space. Thisdesire to modernise whilst consolidating or rationalising space. The has driven a declining vacancy rate, especially in the CBD areasoverall vacancy rate fell 50 bps during Q1. The lack of new supply and is also fuelling the renovation of older stock before occupation.entering the market as well as the uptick in activity towards the end There remain significant potential schemes in the developmentof 2010 resulted in falling levels of supply over Q1 2011. Looking pipeline and although local banks are more willing to lend toahead the development pipeline remains limited with just 69,000 sq development than in other European markets, a requirement for am scheduled to complete speculatively during 2011. Thereafter just pre-let of at least 50% before commencement remains. Prime rents10,000 sq m is due to complete speculatively in 2012. Prime rents were stable q-on-q but upward pressure has increased. Theremained stable q-on-q. Incentives remained stable with around secondary market is also stable but vacancy has increased here11.5 months rent free granted on a typical 6-12 year lease. due to Ericsson moving to new premises. Rotterdam Stuttgart Cost: € 195 / sq m Competition: 23,850 sq m Choice:15.5% Cost: € 210 / sq m Competition: 37,400 sq m Choice:7.1%Supply is high at the moment especially in the peripheral districts. The market has seen a higher and sustained number of enquiriesLeasing volumes totalled around 23,000 sq m which was well from companies seeking expansion space. Q1 take-up representedbehind Q4 2010, but compared to the same period last year take-up the strongest start to a year since 2008. By the year end, take-up isshowed a slight increase. Volumes were driven by a mixture of expected to match the 2010 level and would thus exceed the long-sectors and units sizes were quite small. Exception was the term average. There will be 90,000 sq m of further officetemporary lease by Stedin of apporx. 6,400 sq m to bridge the completions by year end – but only a quarter of this is speculative.construction period of their new headquarter. Rental conditions are Around 10,000 sq m of unoccupied space from completions in Q1stable in all locations for better quality assets, but B and C grade 2011 was offset by the expansion activities of companies, soproperties remain under downward pressure due to increasing vacancy rates remained stable q-on-q. Vacancies are expected tosupply. increase slightly over the course of the year, but not in prime locations in the city centre where large units of contiguous spaces in modern buildings are in short supply. Due to this supply shortage in the prime segment, prime rents are expected to increase over the year with incentives already reducing. Secondary rents remain stable.
12 On Point • EMEA Corporate Occupier Conditions – Q2 2011 The Hague Western Corridor Cost: € 210 / sq m Competition:18,950sqm Choice: 10.1% Cost: € 324 / sq m Competition: 36,500 sq m Choice:14.6%The amount of supply was stable this quarter at around 441,000 sq Take-up increased 48% y-on-y, was broadly in line with the previousm but the market’s focus remains on what the Dutch government quarter but was 36% down on the 10 year average. Activity remainsplans to do with its surplus space as releases could significantly driven by lease events rather than real growth. Occupiers continuechange the level of choice in the market. Leasing volumes totalled to favour Grade A space which accounted for nearly two thirds ofaround 18,900 sq m, around 5,100 sq m of which was to a total take-up. Vacancy rates increased slightly driven by an increaseinternational school but there was no strong sector trend of note. in the level of Grade B supply. In contrast, Grade A vacancy ratesRental conditions are stable in both prime and secondary segments remained stable at 6.0%. Just 12,000 sq m of office space is underas are incentives. There are some signs of improving sentiment in construction speculatively but none will complete this year. As thethe market but this will only gain traction when the government plans level of Grade A supply reduces further we will see more pre-letting.are known. We also anticipate further influxes of Grade B space which will drive interest in the conversion of secondary stock to alternative uses. Utrecht Across the Western Corridor market, rents increased 0.8% q-on-q. Incentives were also stable at up to 30 months rent free on a 10- Cost: € 225 / sq m Competition: 24,940 sq m Choice:12.4% year lease in the Thames Valley and 24 months in West London.The amount of available supply was broadly unchanged quarter on We anticipate annual rental growth of 3.6% over the year.quarter with volumes in the centre of Utrecht eroding and relativelyunder supplied compared to more peripheral areas where supply is Zurichincreasing. Most of the long-and short-term development remains Cost: € 870 / sq m Competition: n / a Choice: 2.2%focussed on this CBD of which all short-term developments arecurrently prelet . We can expect more companies to move from Zurich remains the biggest Swiss office market with a stock ofsecondary locations exacerbating the polarisation in the market. almost 6 million sq m and is home to the HQs of a number of highAround 24,000 sq m was leased in the first quarter. Volumes were profile Swiss occupiers. Strong demand for office space over recentdominated by the financial sector but this was a forced move, rather quarters has led to rising rents and low levels of availability. Supplythan any sectoral expansion. Rents overall are likely to be stable of new Grade A office space is however increasing in the market with Zurich North and West showing high levels of new supply.although we do factor in a modest amount of rental growth in the Many occupiers are currently actively relocating to this new, modernprime CBD. space from their inner city locations. With new, modern Grade A supply in the market the completion in the market is easing. With occupiers relocating from the CBD to new development areas, choice in the CBD is increasing. Overall occupation costs in the Zurich market remain high. Prime rents are expected to increase further over the remainder of 2011 though at a decline rate of growth.
On Point • EMEA Corporate Occupier Conditions – Q2 2011 13Western European Corporate Occupier Markets at a glance Competition Choice (% Vacancy Rate) Costs (Rents EUR / sq m / pa) (Take-up as a % of stock) Market Q4 2010 12-month outlook Q1 2011 12-month outlook Prime, Q1 2011 12-month outlook WE Amsterdam 0.4 17.2 335 Antwerp 1.1 12.9 136 Athens n/a 14.2 306 Barcelona 1.1 13.2 228 Berlin 0.8 9.0 246 Birmingham 0.6 18.2 347 Brussels 0.4 11.2 310 Copenhagen n/a 9.1 235 Dublin 1.4 21.5 377 Dusseldorf 1.1 12.6 282 Edinburgh 0.6 7.3 334 Eindhoven 0.8 15.0 185 Frankfurt 0.7 15.1 396 Geneva n/a 0.9 910 Glasgow 0.6 10.5 328 Gothenburg 1.1 8.7 246 Hamburg 0.7 9.4 270 Helsinki n/a 10.7 288 Leeds 0.3 10.8 316 Lisbon 0.3 11.5 228 London City 0.7 7.4 669 London West End 0.7 5.2 1125 Luxembourg 0.8 7.0 456 Lyon 0.8 6.8 250 Madrid 0.4 10.2 321 Malmö 1.9 6.5 235 Manchester 0.6 11.9 347 Milan 0.7 9.3 520 Munich 0.8 10.7 348 Oslo n/a 8.0 446 Paris CBD 1.4 5.7 750 Paris La Defense 0.4 6.1 530 Rome 0.5 6.0 420 Rotterdam 0.7 15.5 195 Stockholm 1.7 11.2 447 Stuttgart 0.5 7.1 210 The Hague 0.4 10.1 210 Utrecht 1.0 12.4 225 Western Corridor 0.5 14.6 324 Zurich n/a 2.2 870