Dtz commercial office leasing market report 2014

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Dtz commercial office leasing market report 2014

  1. 1. Property Times Greater Toronto Area Office Q3 2013 Sublet space continues to rise  The vacancy rate in the Greater Toronto Area (GTA) increased to 8.8% in Q3 2013 from 8.5% at the end of Q2 2013. Sublet space is on the rise in most markets in Class A buildings.  30 office buildings, representing 7.7 million square feet of new inventory were under construction. The majority of new construction is concentrated in the Downtown and GTA West markets.  The Globe and Mail and Samsung penned significant deals over the quarter. The Globe and Mail will occupy 125,000 square feet of the 500,000 square foot building at 351 King Street E in Downtown East, construction will start shortly. Samsung will occupy 125,000 square feet at 2050 Derry Road West in Meadowvale.  Two buildings reached completion over Q3 2013 totalling 133, 600 square feet. 30 buildings were under construction totalling 7.7 million square feet and 79 buildings are in the pre-leasing state with the opportunity to add 13.1 million square feet to the inventory.  30 October 2013 The GTA West possessed the greatest amount of vacant space for lease (5.8 million sq ft) while Midtown had the least amount of vacant options (840,177 sq ft). Contents Executive summary 1 Greater Toronto Area 2 Downtown 4 Midtown 5 GTA North 6 GTA East 7 GTA West 8 Statistics summary 9 Definitions 11 Author Warren D’Souza Research Manager + 1 905 804 3559 warren.dsouza@dtz.com Figure 1 GTA Under Construction Comparison, Under construction (000s sq ft) and vacancy rate (%) 9,000 10.0% 8,000 9.5% 7,000 Contacts 6,000 9.0% 5,000 John Wickes Head of Americas Research 3,000 + 1 312 424 8087 2,000 john.wickes@dtz.com 8.5% 4,000 1,000 8.0% 7.5% 0 Hans Vrensen 7.0% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Global Head of Research Downtown GTA East GTA North + 44 (0) 20 3296 2159 GTA West Midtown Vacancy Rate hans.vrensen@dtz.com DTZ Research Source: Altus InSite and DTZ Research
  2. 2. Greater Toronto Area Q3 2013 Greater Toronto Area Figure 3 Although demand for office space continues to remain strong in the GTA, a significant amount of space came to market over the quarter. The vacancy rate increased to 8.8% from 8.5% in Q2 2013. Net absorption was negative as 179,190 square feet came to market (Figure 2). GTA Market Vacancy Rate Comparison 16.0% 14.0% 12.0% 10.0% Three out of five nodes experienced negative net absorption in Q3 2013. 8.0% 6.0% Figure 2 4.0% Quarterly GTA Absorption by Market, sq ft 2.0% Q3 2012 Q4 2012 Downtown 800,000 600,000 Q1 2013 Midtown GTA North 400,000 Q2 2013 GTA West Q3 2013 GTA East GTA Total Source: Altus InSite and DTZ Research 200,000 7.7 million square feet of office space, spread across 30 buildings, were under construction in Q3 2013. 0 -200,000 -400,000 -600,000 Q3 2012 Downtown Q4 2012 Midtown Q1 2013 GTA East Q2 2013 GTA North Q3 2013 GTA West The majority of office space under construction is located within nine buildings Downtown (5.7 million sq ft), followed by 16 buildings in the GTA West (1.4 million sq ft), and five buildings in the GTA North (514,869 sq ft). Midtown and GTA East had no office buildings under construction in Q3 2013. Source: Altus InSite and DTZ Research GTA North experienced 128,147 square feet of positive net absorption resulting in a 6.3% vacancy rate. This was the second lowest vacancy rate in the GTA. The GTA West market had the highest vacancy rate at 14.0%. The overall GTA vacancy rate was 8.8% (Figure 3). GTA West had over 5.7 million square feet of vacancy followed by Downtown with over 3.9 million square feet of vacancy. The GTA East (3.5 million sq ft), Midtown (1.3 million sq ft) and GTA North (840,177 sq ft) made up the balance of vacancy in the GTA in Q3 2013. Two buildings reached completion over Q3 2013, both in the GTA West market, totalling 133,600 square feet. 7685 Hurontario Street in Brampton is a seven story LEED Gold registered building that totals 73,600 square feet. 5135 Creekbank Road, Mississsauga is 60,000 square feet of office space in a larger flex building, it is fully leased. Total vacant space increased by 449,456 square feet in Q3 2013, a 3.1% change in square feet since Q2 2013. Vacant sublet space increased by 144,467 square feet over the quarter, a 5.3% change in square feet since Q2 2013. Sublet vacancy was at the highest level since Q3 2010 at over 2.8 million square feet in Q3 2013 (Figure 4). Figure 4 GTA Direct and Sublet Vacancy, 000s sq ft 16,000 2,900 14,000 2,800 12,000 10,000 2,700 8,000 2,600 6,000 4,000 2,500 2,000 0 2,400 Q3 2012 Q4 2012 Q1 2013 Direct Vacant Space (lhs) Q2 2013 Q3 2013 Total Vacant Space (lhs) Sublet Vacant Space (rhs) Source: Altus InSite and DTZ Research www.dtz.com Property Times 2
  3. 3. Greater Toronto Area Q3 2013 Greater Toronto Area Figure 6 Average asking gross rents for the GTA were $29.95 per square foot in Q3 2013 and continue to hover around the $26.00 to $36.00 per square foot range (Figure 5). GTA Average Gross Rent Comparison Rents for the most part have remained fairly stable in nodes with high vacancy rates and have increased in nodes with low vacancy rates. Downtown $27.62 Midtown $17.01 GTA North $16.99 GTA Total $15.61 GTA West $14.66 $26.33 $18.42 $15.63 Figure 5 Average Gross Rents ($/psf) GTA Rent Trends All Classes $14.34 $12.43 $55.00 GTA East $50.00 $45.00 $12.79 $0.00 $40.00 $13.10 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Net Rent $35.00 $30.00 Additional Rent Source: Altus InSite and DTZ Research $25.00 $20.00 Q3 2012 Q4 2012 Downtown GTA Total Q1 2013 Q2 2013 GTA East GTA West Q3 2013 GTA North Midtown Select Lease Transactions in Q3 2013 Source: Altus InSite and DTZ Research GTA Vacancy Rate and Net Absorption Q3 2013 Vacancy Net Absorption Rate (%) (Sq Ft) Size (Sq Ft) The Globe and Mail 125,000 351 King Street E Samsung 125,000 2050 Derry Road W Meadowvale 46,000 250 Yonge Street DT North Shepell FGI Table 1 Tenant LinkedIn For all classes of office in the GTA, the Downtown node maintained the highest average asking net rent of $27.62 per square foot in Q3 2013 whereas the GTA East averaged the lowest net rent of $12.79 per square foot (Figure 6). GTA Node Table 2 Address Market Node 46,000 800 Bay Street DT North Mercatus 39,500 545 King Street W DT West Catalyst Capital 32,700 181 Bay Street Zurich 24,066 901 King Street W DT East Financial Core Downtown 5.6% -210,492 Midtown 6.4% -137,223 GTA East 11.6% -126,663 Cogent Communications 22,789 245 Consumers Road Consumers Road GTA North 6.3% 128,147 Epsilon 17,519 GTA West 14.0% 160,246 111 Gordon Baker Road Hwy 404 & Steeles GTA Total 8.8% -179,190 Regus 16,557 50 Bay Street DT South Office Clouds 16,000 25 Sheppard Avenue W North Yonge Source: Altus InSite and DTZ Research DT West Source: Altus InSite and DTZ Research www.dtz.com Property Times 3
  4. 4. Greater Toronto Area Q3 2013 Downtown Market Figure 8 Vacancy increased from 5.3% in Q2 2013 to 5.6% in Q3 2013 due mainly to negative net absorption. Downtown Absorption by Node Downtown Direct and Sublet Vacancy 5.8% 600,000 5.6% 400,000 5.4% 5.2% 200,000 5.0% 0 4.8% 4.6% -400,000 Sublet, 805,832, 20.5% -200,000 Vacancy Rate (%) Figure 7 Net Absorption (Sq ft) 800,000 Negative absorption was recorded in Downtown North (66,474 sq ft), Financial Core (208,450 sq ft) and Liberty Village (37,386 sq ft). Downtown West recorded the most positive absorption (96,183 sq ft). 4.4% -600,000 4.2% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 DT East DT North DT South DT West Financial Core Liberty Village Source: Altus InSite and DTZ Research Significant transactions in Q3 include The Globe and Mail taking 125,000 square feet at 351 King Street East and LinkedIn taking 46,000 square feet at 250 Yonge Street. Direct, 3,125,428, 79.5% Source: Altus InSite and DTZ Research 79.5% of vacant space was available direct with the landlord while sublet space made up 20.5% (Figure 7). The majority of space that came to market over the quarter was for sublease. Despite a negative absorption rate for Q3 2013, we expect the surplus space that came to market to be absorbed in the coming months due to strong demand and low vacancy rates (Figure 8). Currently there are nine buildings under construction totalling over 5.8 million square feet. This represents 74.0% of the total square feet under construction in the GTA. Two buildings, 60 Atlantic Avenue and 661 University Avenue the MaRS Discover Centre (Phase II) (46.2% pre-leased) are scheduled for completion in 2013. The remainder of the buildings are scheduled for completion between 2014 to 2017. Table 3 Financial Core gross asking rents continue to be the highest in the GTA at $55.81 per square foot. The average gross rent for the Downtown node was $53.95 per square foot (Figure 9). Vacancy Rate and Net Absorption Figure 9 GTA Node Q3 2013 Vacancy Rate (%) Net Absorption (Sq Ft) DT East 6.8% 5,690 DT North 4.8% -66,474 DT South 3.2% -55 DT West 4.8% 96,183 Financial Core 6.1% -208,450 Liberty Village 9.9% -37,386 Downtown 5.6% -210,492 Downtown Average Asking Rent Comparison Source: Altus InSite and DTZ Research Financial Core DT South $30.26 $25.55 $23.60 $19.24 DT North $19.98 $19.47 DT West $20.69 $16.67 DT East $19.58 $17.40 Liberty Village $18.23 $0.00 Net Rent $14.27 $20.00 $40.00 Additional Rent $60.00 Source: Altus InSite and DTZ Research www.dtz.com Property Times 4
  5. 5. Greater Toronto Area Q3 2013 Midtown Market Figure 11 Midtown experienced negative absorption of 137,223 square feet. The Eglinton node accounted for the largest segment of negative absorption, with 100,776 square feet followed by Bloor with negative 46,722 square feet. St. Clair recorded a positive 10,315 square feet. Midtown Absorption by Node 9.0% 150,000 8.0% 100,000 50,000 Vacancy Rate (%) Net Absorption (Sq Ft) Midtown’s vacancy rate increased by 0.7% in Q3 2013 to 6.4%. This node’s vacancy continues to range between 4.0% and 8.0%. 200,000 7.0% 0 6.0% -50,000 -100,000 5.0% -150,000 Figure 10 -200,000 Midtown Direct and Sublet Vacancy 4.0% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Sublet, 267,374, 25.8% Bloor Eglinton St. Clair Vacancy Rate Source: Altus InSite and DTZ Research Average gross asking rents increased from $35.26 per square foot in Q2 2013 to $35.43 per square foot in Q3 2013. Increasing by $0.37 from Q2 2013, Bloor remains the most expensive node in Midtown with an average gross rent of $38.86 per square foot. Direct, 770,388, 74.2% Eglinton continues to be the most economical node within Midtown with average gross rent of $32.12 per square foot in Q3 2013 (Figure 12). Source: Altus InSite and DTZ Research 74.2% of space was directly available for lease from the landlord while 25.8% of space was available for sublet. (Figure 10). The majority of negative absorption occurred in Class B buildings with space coming to market for sublease. There were 18 available blocks of space 10,000 square feet and up in this market offering many options to larger users (Figure 11). Figure 12 Midtown Average Asking Rent Comparison Bloor St. Clair Table 4 $19.74 $19.12 $17.58 $19.28 Vacancy Rate and Net Absorption GTA Node Q3 2013 Vacancy Rate (%) Net Absorption (Sq Ft) Bloor 4.8% -46,772 Eglinton 9.0% 7.3% 10,315 Midtown 6.4% $14.66 -100,766 St. Clair Eglinton $17.46 -137,223 $0.00 $10.00 $20.00 Net Rent $30.00 $40.00 $50.00 Additional Rent Source: Altus InSite and DTZ Research Source: Altus InSite and DTZ Research www.dtz.com Property Times 5
  6. 6. Greater Toronto Area Q3 2013 Vaughan recorded negative absorption of 25,163 square feet. Dufferin and Finch remained relatively unchanged recording 32 square feet of negative absorption. The majority of positive absorption was in North Yonge (74,571 sq ft) and Richmond Hill (64,328 sq ft). Figure 13 GTA North Direct and Sublet Vacancy Sublet, 213,502, 25.4% Figure 14 GTA North Absorption by Node 200,000 7.0% 6.0% 100,000 5.0% 0 4.0% -100,000 Vacancy Rate (%) The GTA North market’s vacancy rate decreased from 6.6% in Q2 2013 to 6.3% in Q3 2013. Net Absorption (Sq Ft) North Market 3.0% 2.0% -200,000 1.0% -300,000 0.0% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Downsview Richmond Hill Vacancy Rate Dufferin and Finch Vaughan North Yonge Yorkdale Source: Altus InSite and DTZ Research A significant transaction in Q3 included Office Clouds taking 16,000 square feet at 25 Sheppard Avenue West in North Yonge. Direct, 626,675, 74.6% Source: Altus InSite and DTZ Research 74.6% of vacant space in the GTA North market was for lease whereas 25.4% of space was for sublease (Figure 13). GTA North’s gross asking rents averaged $32.62 in Q3 2013. The most expensive node continued to be North Yonge with an average gross rent of $37.62 per square foot. Yorkdale continued to be the most affordable area with average gross rents remaining at $21.01 per square foot (Figure 15). Figure 15 This market experienced positive net absorption in Q3. The majority of this growth was experienced in Class B buildings in North Yonge and Class A buildings in Richmond Hill (Figure 14). GTA North Average Asking Rent Comparison North Yonge $18.44 Downsview Table 5 Vacancy Rate and Net Absorption $12.50 Vaughan GTA Node Q3 2013 Vacancy Rate (%) Net Absorption (Sq Ft) Downsview 5.0% 1,803 Dufferin and Finch 10.4% -32 North Yonge 5.7% 74,571 Richmond Hill 5.9% 64,328 Vaughan 10.1% -25,163 Yorkdale 1.6% 6.3% $10.56 $14.20 $11.14 $10.13 $9.50 $0.00 $13.32 $11.51 $10.00 Net Rent $20.00 $30.00 $40.00 Additional Rent 12,640 GTA North Yorkdale $17.25 $16.71 Richmond Hill Dufferin and Finch $19.18 128,147 Source: Altus InSite and DTZ Research Source: Altus InSite and DTZ Research www.dtz.com Property Times 6
  7. 7. Greater Toronto Area Q3 2013 East Market Figure 17 The GTA East recorded 124,663 square feet of negative net absorption in Q3 2013. The vacancy rate increased to 11.6% from 11.3% in Q2 2013. GTA East Absorption by Node 12.0% 200,000 11.8% 11.6% 100,000 11.4% 0 11.2% -100,000 11.0% -200,000 10.8% -300,000 10.6% -400,000 10.4% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Consumers Road Markham Pickering GTA East Direct and Sublet Vacancy Don Mills Corridor Hwy. 404 & Steeles Figure 16 Scarborough Vacancy Rate Source: Altus InSite and DTZ Research Sublet, 589,500, 16.8% GTA East gross asking rents averaged $25.89 per square foot in Q3 2013. Direct, 2,916,586, 83.2% Consumers Road posted the highest average asking gross rent at $26.90. Pickering posted the lowest average gross rent this quarter at $22.80 (Figure 18). Source: Altus InSite and DTZ Research 83.2% of vacant space was directly available with the landlord while sublet space comprised 16.8% (Figure 16). Net absorption over the past five quarters has averaged negative 89,136 sq ft (Figure 17). Table 6 Figure 18 GTA East Average Asking Rent Comparison Consumers Road Markham $11.45 $14.26 $15.45 $12.18 Don Mills and Eglinton Q3 2013 Vacancy Net Absorption Rate (%) (Sq Ft) Consumers Road 15.8% 10,857 Don Mills & Eglinton 7.8% 8.9% 13.4% -166,389 Markham 10.5% 9.9% 16.0% 11.6% $10.72 $14.52 Highway 404 and Steeles $12.14 $11.38 Pickering $12.14 $10.66 18,381 GTA East Scarborough -7,090 Scarborough $14.48 3,978 Pickering $11.69 10,674 Hwy 404 & Steeles $14.24 4,926 Duncan Mill $12.15 Duncan Mill Vacancy Rate and Net Absorption GTA Node There are 19 buildings in the pre-leasing stage ranging from 24,000 square feet to over 500,000 square feet with the possibility of adding over 3.1 million square feet to the inventory if completed. -124,663 $0.00 Net Rent $10.00 $20.00 Additional Rent $30.00 Source: Altus InSite and DTZ Research Source: Altus InSite and DTZ Research www.dtz.com Property Times 7 Vacancy Rate (%) Net Absorption (Sq Ft) Five nodes within the GTA East recorded positive absorption this quarter, Consumers Road (10,857 sq ft), Don Mills and Eglinton (4,926 sq ft), Duncan Mill (10,674 sq ft), Markham (3,978 sq ft) and Scarborough (18,381 sq ft). Highway 404 and Steeles (-166,389 sq ft) and Pickering (-7,090 sq ft) both recorded negative net absorption. The majority of negative net absorption can be attributed to ING Bank of Canada vacating their space at 111 Gordon Baker Road. 300,000
  8. 8. Greater Toronto Area Q3 2013 West Market Figure 20 GTA West performed the best in the GTA with the highest positive net absorption rate in the GTA in Q3 2013 of 160,246 square feet. Brampton (67,452 sq ft) and Dixie and Eglinton (71,693 sq ft) recorded the highest positive net absorption. GTA West Absorption by Node Figure 19 15.0% 200,000 14.0% 0 13.0% -200,000 12.0% -400,000 Vacancy Rate (%) Net Absorption (Sq Ft) GTA West vacancy increased to 14.0 % in Q3 2013 from 13.6% at the end of Q2 2013. This is due to a significant increase in inventory and sublet space on the market. 400,000 11.0% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 GTA West Direct and Sublet Vacancy Airport Burlington Hurontario North Mississauga City Centre Oakville Sublet, 1,000,315, 17.3% Brampton Highway 427 Corridor Meadowvale Mississauga South Vacancy Rate Source: Altus InSite and DTZ Research Over the quarter two buildings reached completion within the GTA West totalling 133,600 square feet. 7685 Hurontario Street in Brampton is a seven story LEED Gold registered building that totals 73,600 square feet. 5135 Creekbank Road, Mississsauga is 60,000 square feet of office space in a larger flex building, it is fully leased. Direct, 4,793,627, 82.7% Source: Altus InSite and DTZ Research 82.7% of direct vacant space was available with the landlord while sublet space comprised 17.3% (Figure 19). Absorption over the past five quarters has averaged positive 48,024 square feet (Figure 20). Currently there are 16 buildings under construction that will add 1.5 million square feet to the market between 2013 and 2015. Also, there are 45 buildings in the pre-leasing stage totalling over 5.6 million square feet. Table 7 Figure 21 GTA West Average Asking Rent Comparison Mississauga City Centre Vacancy Rate and Net Absorption GTA Node GTA West gross asking rents averaged $27.09 in Q3. The Mississauga City Centre posted the highest gross rent at $32.01. Mississauga South continues to be the most affordable area with an average gross rent of $22.45 (Figure 21). $16.34 Highway 427 Corridor Q3 2013 Vacancy Rate (%) Net Absorption (Sq Ft) Airport 14.4% 13.0% 67,452 Burlington 16.3% -76,458 Highway 427 Corridor 13.0% Hurontario North $14.27 Oakville $16.19 $18.08 $10.82 96,042 Brampton $15.67 Meadowvale $16.06 Brampton $14.75 Burlington $15.02 24,539 Hurontario North $13.95 10.0% 27,263 Airport Meadowvale 12.8% -15,138 Mississauga South Mississauga City Centre 14.9% 5,955 Mississauga South 13.8% 28,957 Oakville 17.6% 1,634 GTA West 14.0% 160,246 $12.09 $12.17 $10.44 $11.32 $11.94 $11.98 $10.75 $0.00 Net Rent $11.71 $10.00 $20.00 $30.00 Additional Rent Source: Altus InSite and DTZ Research Source: Altus InSite and DTZ Research www.dtz.com Property Times 8
  9. 9. Greater Toronto Area Q3 2013 Statistics Summary Table 8 Quarterly data Total Inventory (Sq Ft) Under Construction (Sq Ft) Change in Occupied Area (Sq Ft) Vacancy Rate (%) Average Net Rent ($/psf) Average Additional Rent ($/psf) Average Gross Rent ($/psf) DT East 4,080,172 455,000 5,690 6.8% $19.58 $17.40 $36.98 DT North -66,474 4.8% $19.98 $19.47 $39.46 Q3 2013 Downtown Toronto 12,391,831 746,898 DT South 4,382,790 2,355,843 -55 3.2% $23.60 $19.24 $42.84 DT West 13,576,221 284,405 96,183 4.8% $20.69 $16.67 $37.37 Financial Core 32,836,276 1,911,452 -208,450 6.1% $30.26 $25.55 $55.81 Liberty Village 2,573,143 27,834 -37,386 9.9% $18.23 $14.27 $32.50 Downtown 69,840,433 5,781,432 -210,492 5.6% $27.62 $26.33 $53.95 Consumers Road 4,008,828 0 10,857 15.8% $11.45 $15.45 $26.90 Don Mills and Eglinton 3,506,276 0 4,926 7.8% $12.15 $14.24 $26.39 Duncan Mill 2,120,533 0 10,674 8.9% $11.69 $14.48 $26.17 Highway 404 and Steeles 6,026,442 0 -166,389 13.4% $12.14 $11.38 $23.52 Markham 6,702,187 0 3,978 10.5% $14.26 $12.18 $26.44 GTA East Pickering 944,064 0 -7,090 9.9% $12.14 $10.66 $22.80 Scarborough 4,062,454 0 18,381 16.0% $10.72 $14.52 $25.24 GTA East 30,117,691 0 -124,663 11.6% $12.79 $13.10 $25.89 Bloor 9,184,953 0 -46,772 4.8% $19.74 $19.12 $38.86 Eglinton 4,796,205 0 -100,766 9.0% $14.66 $17.46 $32.12 St. Clair 2,268,507 0 10,315 7.3% $17.58 $19.28 $36.86 Midtown 16,249,665 0 -137,223 6.4% $17.01 $18.42 $35.43 Downsview 445,556 0 1,803 5.0% $12.50 $17.25 $29.75 Dufferin and Finch 760,209 0 -32 10.4% $10.13 $13.32 $23.45 North Yonge 8,498,333 0 74,571 5.7% $18.44 $19.18 $37.62 Richmond Hill 2,746,907 0 64,328 5.9% $14.20 $11.14 $25.34 Vaughan 2,307,379 514,869 -25,163 10.1% $16.71 $10.56 $27.27 Yorkdale 1,246,820 0 12,640 1.6% $9.50 $11.51 $21.01 GTA North 13,408,184 514,869 128,147 6.3% $16.99 $15.63 $32.62 Midtown GTA North www.dtz.com Property Times 9
  10. 10. Greater Toronto Area Q3 2013 Table 9 Quarterly data, continued Total Inventory (Sq Ft) Under Construction (Sq Ft) Airport Corp. Centre 4,914,300 Airport East 2,301,946 Airport North Q3 2013 Change in Occupied Area (Sq Ft) Vacancy Rate (%) Average Net Rent ($/psf) Average Additional Rent ($/psf) Average Gross Rent ($/psf) 180,722 12,167 13.3% $15.24 $12.77 $28.01 0 -25,517 22.5% $12.58 $12.51 $25.09 1,043,350 0 32,849 13.8% $10.94 $11.63 $22.57 GTA West Airport West 460,619 0 -2,554 20.7% $8.80 $10.78 $19.58 Bloor and Islington 1,041,370 0 716 12.1% $15.25 $17.05 $32.30 Brampton 3,104,863 190,000 67,452 13.0% $14.75 $12.17 $26.92 Burlington 3,459,670 0 -76,458 16.3% $15.02 $10.44 $25.46 Cooksville 852,464 0 36,927 24.9% $11.11 $11.82 $22.93 Dixie and Eglinton 2,764,531 60,000 71,693 5.7% $12.10 $9.51 $21.61 Etobicoke North 974,260 0 7,404 22.9% $11.96 $14.66 $26.62 Etobicoke South 555,542 0 8,701 23.7% $12.88 $14.80 $27.68 Highway 427 Corridor 2,144,028 0 15,122 10.7% $14.69 $16.72 $31.41 Hurontario North 3,702,159 567,131 27,263 10.0% $13.95 $11.32 $25.27 Meadowvale 5,959,072 92,778 -15,138 12.8% $16.06 $12.09 $28.15 Mississauga City Centre 3,730,278 56,324 5,955 14.9% $16.34 $15.67 $32.01 Oakville 3,373,271 191,436 1,634 17.6% $18.08 $10.82 $28.90 Sheridan 1,076,325 0 -7,970 4.9% $10.38 $11.59 $21.97 GTA West 41,458,048 1,480,391 160,246 14.0% $14.66 $12.43 $27.09 GTA Total 171,074,021 7,776,692 -179,190 8.8% $15.61 $14.34 $29.95 www.dtz.com Property Times 10
  11. 11. Greater Toronto Area Q3 2013 Definitions Absorption: Difference (positive or negative) between total Occupied Area for current quarter/year and total Occupied Area from previous quarter/year. Asking Rate: Posted rental rate, in dollars per sq. ft. per annum, for a specific available space. This rate is typically a negotiable cost. Available Area: The area contained within a building that is currently being marketed as available for lease with an immediate or future possession date. Building Class: Class A: Higher quality combination of design, materials, tenant mix, age, size and location. Class B: Lower quality combination of design, materials, tenant mix, age, size and location. Class C: remaining poorer quality properties Building Completion: A development in which the main contract has been completed, whether this be to shell and core or developer’s finish. Also the tenant has taken occupancy of the space. Direct Available: Space available for lease directly from the landlord. Speculative Development: A newly developed or comprehensively refurbished building undertaken without the benefit of a secured tenant. Sublet Available: Space available for lease from one of the tenants in the building for the remaining portion of their lease term. Sublet Vacant: The portion of Sublet Available that is physically unoccupied or unoccupied by a tenant. Total Additional Rent: The sum of additional costs (realty taxes, operating costs, in-suite power) for all spaces in a building. This amount is typically not negotiable. Total Available: Sum of Direct Available Area and Sublet Available Area. Total Available Rate: Total of Direct and Sublet Available Area divided by Total Office Area and expressed as a percentage. Total Vacant: Sum of Direct Vacant Area and Sublet Vacant Area. Total Vacant Rate: Total of Direct and Sublet Vacant Area divided by Total Office Area and expressed as a percentage. Under Construction: A development in which work has started on the main contract. This usually excludes demolition and site clearance contracts. Vacant and Leased: Space that is both physically unoccupied and leased but not currently being marketed as available. Most often describes leased area in properties under construction. Vacant Area: The area contained within a building that is currently physically unoccupied by a tenant. www.dtz.com Property Times 11
  12. 12. Greater Toronto Area Q3 2013 Other DTZ Research Reports Other research reports can be downloaded from www.dtz.com/research. These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices Global Occupancy Costs Logistics Obligations of Occupation Americas Obligations of Occupation Asia Pacific Obligations of Occupation EMEA Global Office Review India Office Demand and Trends Survey 2012-13 Poland Banking Sector - January 2013 Motorways of the Sea - January 2013 The TMT Sector - October 2012 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe, North America and UK. Foresight Quarterly commentary, analysis and insight into our inhouse data forecasts, including the DTZ Fair Value Index™. Available for Global, Asia Pacific, Europe, UK and China. In addition we publish an annual outlook report. www.dtz.com Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Great Wall of Money - October 2013 Quantitative Easing - UK Regions - September 2013 Singapore Government Land Sales - September 2013 UK lending market -September 2013 Quantitative Easing - August 2013 Property Investment Guide Asia Pacific 2013-2014 Singapore Insight – Residential – July 2013 Net Debt Funding Gap - June 2013 China Insight - The Healthcare Sector - April 2013 City of London occupier demand - April 2013 European Sustainability Guide - April 2013 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information.  Property Market Indicators Time series of commercial and industrial market data in Asia Pacific and Europe.  Real Estate Forecasts, including the DTZ TM Fair Value Index Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA.  Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe.  Money into Property DTZ’s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. Property Times 12
  13. 13. DTZ Research DTZ Research Contacts Global Head of Research Head of Americas Research Hans Vrensen John Wickes Phone: +44 (0)20 3296 2159 Phone: +1 312 424 8087 Email: hans.vrensen@dtz.com Email: john.wickes@dtz.com DTZ Business Contacts President, DTZ Canada Inc. Colin Ross Phone: +1 416 863 1215 Email: colin.ross@dtz.com Senior Vice President, Mississauga Ryan McAskile Phone: +1 905 848 1215 Email: ryan.mcaskile@dtz.com Senior Vice President, GTA Northeast Jim Brown Phone: +1 905 943 4010 Email: jim.brown@dtz.com DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. © DTZ October 2013 www.dtz.com Property Times 13
  14. 14. DTZ Foresight 2014 Annual Outlook Time for occupiers and investors to boldly go… 5 December 2013  Economic sentiment has improved markedly, with risk aversion no longer in focus. In fact, the outlook has now improved so much that many central banks are looking to unwind their supportive monetary policies. Therefore, bond yields and interest rate are projected to increase in 2014 and beyond.  Occupiers will benefit from below-inflation cost increases over the next few years. But, in Asia Pacific we do forecast the highest regional average cost increase. This is despite vacancy projected to increase across the region as inflation pushes up rents (Figure 1). The pipeline of new space for 2014-15 is limited and vacancy across the US and Europe is projected to be stable.  As far as space use efficiency, there is little room for improvement across most Asian markets and larger European and US markets. Therefore, occupiers need to be bold about improving their operational flexibility. Across European markets, we consider corporate affordability for the first time. Our analysis shows that highly productive cities are typically least affordable, confirming price signals work. This does leave some smaller markets with low costs and high productivity for corporate expansion.  Investors will benefit from good relative value across most markets, especially in the US. But, lack of attractive prime opportunities has already led investors to re-focus on non-core and non-prime opportunities. Together with improved availability of debt and equity capital, investment volumes have been breaking post-crisis records. But, unfortunately the opportunity is limited in time. We forecast relative value to reduce as interest rates rise. This means that investors need to move ahead boldly, before relative value is no longer available.  With limited time available, market-level liquidity is expected to become more relevant in the next few years. Based on our initial analysis across 26 key markets, London and some of the key US markets come out particularly strong. London ranks top for cross-border liquidity also. Contents Introduction Section 1: Global Outlook Section 2: Regional Outlooks 2 3 10 Authors Hans Vrensen Global Head of Research hans.vrensen@dtz.com Magali Marton Head of CEMEA Research magali.marton@dtz.com Richard Yorke Head of UK Research richard.yorke@dtz.com Dominic Brown Head of SEA / ANZ Research dominic.brown@dtz.com Andrew Ness Head of North Asia Research andrew.ness@dtz.com John Wickes Head of Americas Research john.wickes@dtz.com Figure 1 Average office stock growth (as % of existing stock) and vacancy rate Europe US APAC Nigel Almond Head of Strategy Research nigel.almond@dtz.com 10% 8% 20% Fergus Hicks Global Head of Forecasting fergus.hicks@dtz.com 6% 15% 4% 10% 2% 5% 0% 0% Dennis Fung Head of Asia Pacific Forecasting dennis.kk.fung@dtz.com 2009-13 Source: DTZ Research DTZ Research 2014-15 Vacancy (RHS) 25%
  15. 15. 2014 Annual Outlook Introduction 2014 promises to be another eventful year for occupiers and investors across global property markets. If we take stock, we note that many markets have already turned. Occupiers consider their individual businesses and industries in the context of a sustained global macro economic recovery, which appears to be experiencing a temporary slowing. Many occupiers are still focused on achieving costs efficiencies across their portfolios, while a small but increasing number of occupiers are getting ready for their first expansion in years. Many investors are still looking for distressed opportunities, while the recovery in most core markets has already run its course. An increasing number of investors are taking more risk and actively looking at non-core markets, partly because of lack of core opportunities. Even new development is back on the agenda in selected markets. Investors are further encouraged by a normalisation of the lending markets. This has brought investment volumes back to historical levels in the US and Europe while setting new records in Asia Pacific. There has been a gradual shift towards a more positive market sentiment, as most occupiers and investors have shifted away from their focus on possible downside scenarios. This does not mean that we have become blind to the remaining challenges on the regulatory, policy and political fronts. But, one of the biggest challenges might now come from better than expected economic growth, which is likely to trigger the unwinding of accommodating central bank policies in the US and Europe. This will trigger an increase in interest rates, which have been at record lows for some time. Interest rate increases have traditionally proven to be challenging for property investors. But, they are also likely to slow economic growth and dampen occupiers’ plans for expansion. Despite these potential headwinds, we find ourselves for the first time in a long while focusing on an increased probability for upside surprises. As in previous Outlooks, we start with a global economic and market review followed by the three regional sections covering occupiers and investors separately. Our key views are summarised on the front page. Finally, I thank my senior research team in assisting me with our fourth DTZ Research annual outlook. With warmest regards and best wishes for 2014, Hans Vrensen Global Head of Research DTZ www.dtz.com DTZ Foresight 2
  16. 16. 2014 Annual Outlook Section 1: Global Outlook Figure 2 Average per annum GDP growth Economic and policy context Economic growth projected to improve As we look ahead into 2014, we note a significantly better forecast for GDP growth for the next five years (Figure 2). It has taken a longer time for this latest recovery to take hold after the unprecedented global financial crisis, when compared to previous rebounds. However, growth across all regions is now projected to be positive. Southern European countries drag down the regional average, but most will return to growth. The US and China are returning as the main engines of global economic growth. Accommodating monetary policies in the US, Europe and Japan have worked well to kick-start this recovery. But, these will have to be reversed to avoid inflationary impact. Downside scenarios have faded into the background The improved sentiment is further evidenced by the disappearance of the infamous euro-zone breakdown scenario. Most of our clients are no longer asking about this happening. The key risk the euro-zone now faces is actually deflation. Upside and base case scenarios have become more probable (Figure 3). However, we do note that most of the systemic and structural impediments to effective crisis management remain, such as the lack of a federal EU government and the inability to compromise on key policy decisions across US political parties. These have been the key factors for sovereign rating downgrades and need to be addressed to avoid future problems. In the mean time, accommodating monetary policies have worked well and many newly proposed regulatory controls have been delayed to dampen their short term impact. 2009-13 8% 2014-18 China Lithuania 6% 4% Japan 2% 0% Cyprus -2% EU US APAC EU US APAC Source: Oxford Economics Figure 3 Estimated scenario probabilities Eurozone exits Other scenarios Base Case Upside Mid-2012 End-2012 Mid-2013 End-2013 Source: Oxford Economics Figure 4 Sustained recovery to trigger bond yield widening As a result of quantitative easing, government bond yields fell to historical lows in early 2013 (Figure 4). Initial talk of tapering in the US triggered a significant widening in the first half of 2013. With the economic recovery gaining momentum, we anticipate that bond yields will widen in 2014 and beyond. Our economic forecasters and market forward rates support this view. This will have significant repercussions for our property markets, as we will see later. However, we do need to bear in mind that central banks will only reverse their accommodating policies if they are concerned about inflation. This will happen if the economic recovery remains on track. Of course, this in turn will provide a strong positive for both corporate occupiers’ profitability and investors’ expectations for income growth. Both would be a welcome reversal from the recent past. www.dtz.com Government bond yields and forward rates 8% 6% 4% 2% Italy US UK Singapore Germany Japan 0% Source: Bloomberg DTZ Foresight 3
  17. 17. 2014 Annual Outlook Global occupier outlook Asia Pacific vacancy to increase, offering wider choice With most corporations focused on costs savings during the global financial crisis, vacancy rates across European and US markets have held steady on average, due to existing leases and the small amount of new space delivered. With a limited pipeline of future new supply, this is not expected to change significantly going forward (Figure 5). However, the situation in Asia Pacific is very different. Of course, it is not unreasonable to expect higher office vacancy rates for markets that add nearly 10% of space to existing inventory every single year. However, the recent (temporary) slowdown in economic growth and the very strong pipeline of new supply is triggering a significant increase in vacancy rates across this region. This vacancy provides a wider range of choice for occupiers across the Asia Pacific region. These trends are further confirmed when we consider individual markets across regions on Map 1 on pages 8 & 9. Asia Pacific occupancy costs increase most and are now above US, with Europe remaining least affordable Despite the increase in vacancy rates, we forecast the highest increase in occupancy costs for the Asia Pacific region, when compared to the US and Europe (Figure 6). Higher inflation will push up Asia Pacific rents. Regardless of this projected increase, many Asian markets remain more affordable on an absolute basis. However, on average Asia Pacific average occupancy costs have now become less affordable than the US national average. Europe remains the most expensive region on average, offering low costs only in CEE and Baltic markets. Regional differences aside, we forecast average global occupancy cost increases at just below inflation for the next two years, which should be an acceptable result for most corporate occupiers. Figure 5 Average office stock growth (as % of existing stock) and vacancy rate by region Europe 10% APAC US 25% 8% 20% 6% 15% 4% 10% 2% 5% 0% 0% 2009-13 2014-15 Vacancy (RHS) Source: DTZ Research Figure 6 Top five most affordable markets by region and growth rates of occupancy costs per workstation 10,000 Europe US APAC 10% 8,000 6,000 5% 4,000 2,000 0 0% Costs 2013 Inflation 2014-15 pa increase (RHS) Source: DTZ Research Figure 7 Change in Global occupancy costs and space efficiency www.dtz.com Low Efficiency Asia Pacific STO MUC Europe US PRG SYD NYC HKG MAD High Efficiency Little room for efficiency gains to offset cost increases across Asia Pacific markets, but plenty left elsewhere If we next consider space efficiency in combination with cost increases, we note some interesting patterns (Figure 7). Most Asia Pacific markets (except Australia) show high space efficiency and a wide range around the highest average regional cost increase. Europe and US show similar regional average space efficiency, but US markets are in a tighter range. This outlook leaves occupiers with little room for efficiency gains in Asian markets. Across Europe and the US, there is more room left for space efficiencies, especially in some of the smaller markets. Therefore, we think that occupiers need to move more boldly on improving their operational flexibility. Our global occupier metrics tool can help in that respect. We highlight its features in Box 1. JKT TKO BEJ LON CHG KOL Low PUN High 2014-15 Cost increase Source: DTZ Research DTZ Foresight 4
  18. 18. 2014 Annual Outlook Box 1: Global Occupier Metrics Tool New DTZ analytical tool offers occupiers tailored solutions In November 2013, DTZ launched its Global Occupier Metrics Tool (GOMT) giving occupiers easy online access to relevant market information across 130 global markets. GOMT allows occupiers to calculate occupancy costs and identify potential cost savings by considering their own space utilisation against the local markets’ best practice. By combining workplace strategy with the most up-to-date and forecasted market information, DTZ is helping occupiers to make informed choices. New workplace practices trigger lower space density Workplace practices have evolved rapidly in recent times with companies needing fewer employees present in the office at all times. Technology and low-cost mobile phone and widespread wi-fi access have lead to a much more fluid way of working for many workers across industry sectors. This has had a knock-on effect on workplace density and corporate occupiers often retain more space than they actually need. Taking time to re-examine the amount of space allocated to each employee can therefore prove a worthwhile exercise for occupiers. Focusing on lower cost locations can lead to false savings Corporations looking to realise savings from their property portfolio usually target rents and can therefore end up moving to less desirable areas in pursuit of reduced operating expenses. However, the biggest cost savings are not necessarily through changing location – in fact, quite the contrary. Focusing instead on workplace density allows corporate real estate managers to find the right solution to the traditional trade off between costs and talent. It means that corporations can in fact save money, while staying in or moving to a prime location to retain and attract the best available talent, as long as they reduce the space per worker. Provides latest market research on:  Total occupancy cost benchmarks  Workplace density best practice  Typical fit-out costs  Tenant obligations of occupation. Converts and visualises net and lease area:  Provides visuals of lease area components  Converts Net Internal Area (NIA) into local Gross Lease Area (GLA). Total occupancy cost simulation based on:  Head count projections  Workplace strategy  Location and building type. Includes environmental regulation and best practice information:  Environmental regulation  Prevailing certification systems  Local energy costs  Typical office access modal split. (Currently EU. only) Typical costs savings of up to 30%, when following local best practice Companies with a typical portfolio of offices across major European capitals can save up to 30% by adjusting their space utilisation to local market best practice, according to data from DTZ Research. This assumes a typical services company occupying offices in the ten major European capitals for 1,000 employees can save up to €1.5m a year – which, given cost-to-revenue ratio. This equates to an EBITDA increase of around three per cent. www.dtz.com  Global Occupier Metrics Tool http://occupiermetrics.dtz.com DTZ Foresight 5
  19. 19. 2014 Annual Outlook Global investor outlook Figure 8 TM Good relative value, with US top and APAC least attractive Most property markets are now attractively priced based on our Fair Value Index (“FVI”) approach (Figure 8). This has been partly driven by an improved outlook for rental and capital growth. However, the improvement in the relative attractiveness of property is mostly due to historically low government bond yields. This has resulted in a global FVIindex score of 75, which identifies over 200 markets in the attractive categories of hot and warm. Regionally, the US remains most attractive, with Asia Pacific re-pricing leaving it at below the global average. Some core global markets, like Paris and Hong Kong, have seen yield tightening to such extent as to now render them unattractive. Record equity capital availability combines with normalisation of the lending markets Apart from an improving macro outlook and good relative value, investors have benefitted from a normalisation in the lending markets. This is evidenced by a continued decline in the net debt funding gap in both Japan and Europe. Figure 9 illustrates the size of the debt related problems around the world, now solely concentrated in Europe. With the strong uplift in non-bank lending activity the net debt funding gap has reduced strongly. Loan portfolio sales are occurring nearly weekly now, partly fuelled by the large volume of available opportunistic or non-core equity capital. In fact, there is more capital available for commercial property than ever before. We expect this record to be broken as the fundraising environment should improve further. Global Fair Value Index , Q3 2013 100% 88 74 65 75 San Francisco offices Tokyo offices Berlin retail New York offices Los Angeles industrial Singapore industrial 80% 60% 40% New York industrial London City offices Sydney offices 20% Paris CBD offices Hong Kong offices 0% US Europe APAC Cold Warm Global Hot Source: DTZ Research Figure 9 Global debt funding gap and available equity 2013-14 350 300 250 200 150 100 50 0 Europe APAC North America Global Non- Core equity  Core equity  Net debt funding gap  Non-bank debt Source: DTZ Research Investors need to act boldly before relative value disappears due to interest rate increases With good relative value and improved debt and equity capital availability, it is no wonder that investment volumes have been breaking post-crisis records (Figure 10). But, as our forecast of the global FVI-index shows, we expect relative value to come down as soon as interest rates start rising. Of course, this does not mean there are no longer any attractive opportunities available. However, we do expect that new capital commitment growth will slow as a result, especially from mixed-asset investors. With some delay, we would expect volumes to also come down as a consequence. In other words, investors should move boldly ahead with their execution, before relative value is no longer available across a broad range of markets. With time running out we think investors should carefully consider liquidity on a market-level. Box 2 further looks into liquidity. www.dtz.com Figure 10 Investment volumes (USD bn) and Fair Value Index score 1,000 100 800 80 FVI (RHS) 600 60 400 40 200 20 0 0 2005 2007 Europe 2009 APAC 2011 2013E 2015F North America Source: DTZ Research, RCA, RealNet DTZ Foresight 6
  20. 20. 2014 Annual Outlook Box 2: City-level liquidity ratio analysis Liquidity becomes more relevant when time is limited Going forward we believe liquidity will become an even more critical factor for global investors. Especially as real estate’s relative attractiveness reduces in future and available capital remains strong. Liquidity is an important factor for investors wishing to both enter and exit markets through the cycle. We have now extended our analysis of liquidity from a country level to drill down to the 26 key office markets globally. Figure 11 City liquidity by source of capital 10 year average 2003-12 15% 10% 5% 0% London top for overall and cross border liquidity Overall, we find higher liquidity ratios in the US (8%) compared to Asia Pacific (6%) and Europe (5%). See Figure 11. Even when comparing inter-regional flows (capital invested from outside a region) there is a similar hierarchy, albeit with wide variations. Globally, London is the most liquid market over the last ten years (11.5%) followed by San Francisco (11%). The most liquid city in Asia is Sydney at 9% and it is ranked fourth globally. Paris and Frankfurt show significantly lower ratios compared to their peers. Based on inter-regional activity, London is again the most liquid market, underscoring the diverse range of investors attracted to this market.   Inter-regional   Total Source: DTZ Research Figure 12 Tends in City liquidity across key gateway cities 30% 25% 20% 15% 10% 5% www.dtz.com 10y avg 2012 10y max 10y min Source: DTZ Research Figure 13 Country and city level liquidity (10 year average) and 2012 market size USD bn STO Country Liquidity High Market size and liquidity key for investors For cross border investors we believe absolute market size, as well as liquidity is critical. In Figure 13 we compare the average liquidity scores at both the country and city level, together with the invested stock of a city shown by the size of the bubble. On this basis London and New York stand out as having critical mass and above average liquidity scores. Both Paris and Washington are sizable markets with close to average liquidity ratios. Of the Asian markets Singapore stands out with the highest liquidity, but lacks relative size. Comparatively larger markets Tokyo and Hong Kong show lower liquidity levels. 0% Low New York’s liquidity more volatile, Tokyo and Paris least For investors, it is important to understand these trends through the cycle and the market position today. Figure 12 outlines the range through the cycle for key cities ranked by their ten year average. This shows a wider range in San Francisco and New York and above the global average. Paris and Tokyo show far less volatility. In New York, Paris, Singapore and Tokyo we see the 2012 ratio at or below the ten year average. These leave some room to grow, in contrast to London and San Francisco, where the ratio is close to its ten year high. SIN FRA NYC HKG LON WDC CHI PAR SYD Stock Size TKO SHA High City Liquidity EUR $50bn BEJ Low Region $10bn APAC $100bn US Source: DTZ Research DTZ Foresight 7
  21. 21. 2014 Annual Outlook Map 1: New 2014-15 supply as % of stock and average 2014-15 rent growth Source: DTZ Research AMS Amsterdam BOS Boston DEL Delhi HKG Hong Kong ANT Antwerp BRU Brussels DEN Denver HOU Houston ATL Atlanta BUC Bucharest DUB Dublin HYD Hyderabad BCN Barcelona BUD Budapest EDI Edinburgh JKT Jakarta BEJ Beijing CHE Chennai FRA Frankfurt KOL Kolkata BER Berlin CHG Chengdu GEN Geneva KUL Kuala Lumpur BGL Bengaluru CHI Chicago GLA Glasgow LAX Los Angeles BKK Bangkok COP Copenhagen GOT Gothenburg LON London BNE Brisbane DAL Dallas HGH Hangzhou LUX Luxembourg www.dtz.com DTZ Foresight 8
  22. 22. 2014 Annual Outlook LYN Lyon MUM Mumbai QIN Qingdao SYD Sydney MAD Madrid NAN Nanjing RIG Riga SZX Shenzhen MEL Melbourne NYC New York ROM Rome TAL Tallinn MIA Miami PAR Paris SEA Seattle TKO Tokyo MIL Milan PER Perth SEO Seoul WAR Warsaw MIN Minneapolis PHL Philadelphia SFO San Francisco WDC Washington DC MOS Moscow PHX Phoenix SHA Shanghai ZUR Zurich MRS Marseille PRG Prague SIN Singapore MUC Munich PUN Pune STO Stockholm www.dtz.com DTZ Foresight 9
  23. 23. 2014 Annual Outlook Section 2: Regional Outlooks Figure 14 Inflation, prime and average rent forecasts EMEA occupier outlook 5% Prime rents 4% Most efficient cities likely to see fastest cost increases Space efficiency, defined as space per workstation, ranges from a low of 8 sq m in Moscow to 23 sq m in Helsinki (about twice the sq m European average). Looking forward, many of the most efficient cities are also likely to see the fastest increases in occupational costs, as indicated by the fitted line in Figure 16. Consequently, occupiers might find it difficult to increase space efficiency in order to offset these higher costs. Munich and Frankfurt, however, stand out as exceptions. Here space efficiency is below the European average, and occupiers therefore have the opportunity to increase efficiencies in the face of rising costs. Similarly, occupiers in less efficient cities such as Dusseldorf, Helsinki, Amsterdam and Stockholm have the opportunity to make efficiency gains, despite lower cost increases. www.dtz.com Inflation 2% 1% 0% 2013 2014 2015 Source: DTZ Research, Oxford Economics Figure 15 Occupancy costs per workstation vs output per worker Office stock (m sq m) LUX High output Highest productivity cities are typically the most expensive We have, for the first time, assessed affordability at the city level (Figure 15). When we analyse corporate affordability of property, we calculate affordability as the occupational cost per workstation divided by economic output per employee. This reveals that many of the highest productivity cities, including London, Paris and Frankfurt also have high occupancy costs. This is expected given that all three cities are large internationally important centres for finance and commerce. Conversely, Moscow is by far the least affordable market. This is mainly due to high occupancy costs and relatively low productivity. Markets such as Copenhagen, Brussels and Rome are especially appealing based on these metrics. All three are more productive and affordable than the European average, providing a good alternative for occupiers looking for expansion. Average rents 3% PAR COP BRU 15 10 STO ZUR GOT MIL FRA LON GEN ROM MUC BCN Low output Demand will push up average rents more than prime The emerging economic recovery will feed into improved job growth and increased occupational. The biggest employment gains in 2014 are forecasted for office-based service sectors such as business, information & communication and financial services. This improved demand and limited new supply will push up both prime and average rents (Figure 14). It should be noted that we forecast average rents to increase more rapidly than prime, during 2014-15. This reflects a ‘catch-up’ effect as secondary rents recover from their current low base. But, the expansion of small and medium sized enterprises will also be a contributory factor, as they take up non-prime office space. MAD MOS WAR BUD BUC Low costs High costs Source: DTZ Research Figure 16 Space efficiency and future occupancy costs 25 6% 20 4% 15 2% 10 0% 5 -2% 0 -4% Space per workstation, sq m 2014-15 costs increase pa (RHS) Source: DTZ Research DTZ Foresight 10
  24. 24. 2014 Annual Outlook EMEA investor outlook Figure 17 TM European Fair Value Index , Q3 2013 Record high attractiveness across Europe, with UK top The European FVI score at Q3 2013 stood at 74, meaning that Europe continues to offer a wide range of attractively priced markets with the UK ranking as the most attractive with a FVI score of 85 (Figure 17). The CEE markets should also draw investors with a score of 81. Similarly, Italy and Spain have become more attractive since the last quarter with a combined score of 67. Here bond yields have fallen, which has led to a corresponding fall in required returns. Conversely, Germany, usually considered as a safe haven in Europe, has lost some of its appeal on the back of higher bond yields, but remains fairly priced. The French market, however, is relatively over priced despite a majority of markets considered as warm or hot. Secondary opportunities increasingly attractive Investor appetite for commercial real estate remains very strong. However, the opportunity to acquire prime product has been diminishing, with pricing also getting less attractive. Consequently, investors are moving up the risk curve in terms of country focus and non-prime assets. As more investors struggle to source prime product, the appetite for secondary assets will continue to grow. Based on our analysis of transaction yields, we have already seen the gap between prime and secondary yields stabilise at historically highs in the UK, whilst across the rest of Europe we have seen signs of this gap narrowing (Figure 18). With growing investor interest for European property and attractive pricing, we expect these gaps to narrow further over the next 12-18 months. Investors should take advantage of current pricing quickly, as attractiveness will start to deteriorate The current attractiveness of property combined with the emerging economic recovery is likely to encourage further inflows of equity into commercial real estate. Consequently, we have upgraded our forecasts of investment volume to increase by 10% to EUR 150bn in 2014. Investment volume will increase by a further EUR 10bn in 2015 (Figure 19). While we expect domestic investors will continue to account for the majority of investment, non domestic investors are projected to account for an increasing share of investment. This increased weight of investment will coincide with the expected fall in the FVI. This decline in attractiveness, triggered by increased interest rates, should ultimately result in reduced investor interest and lower volumes. But the strong current momentum is expected to carry through until at least 2015. Finally, we highlight the need for proper benchmarking for investors going forward and introduce our transaction-based index for Europe in Box 3 next. www.dtz.com 85 100% 81 80 73 67 61 55 74 Dublin offices Frankfurt retail Milan offices Brussels offices 80% 60% 40% London City offices Frankfurt offices 20% Paris CBD offices 0% UK Other CEE Germany Spain Nordics France Europe & Italy Cold Warm Hot Source: DTZ Research Figure 18 Gap between prime and secondary transaction yields 10% UK 8% 6% Cont. Europe 4% 2% Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Source: DTZ Research Figure 19 European investment volume (EUR bn) and Fair Value TM Index 250 100 200 80 FVI (RHS) 150 60 100 40 50 20 0 0 2005 2007 Domestic 2009 European 2011 2013E 2015F Non European Source: DTZ Research DTZ Foresight 11
  25. 25. 2014 Annual Outlook Box 3: A European transaction-based index Transaction-based index is leading performance indicator DTZ Research introduces for the first time a transaction based index (TBI) for Europe to measure price performance of the European real estate market. The main advantage of a TBI is that it reflects actual price changes in a timelier manner than a valuation-based index. This brings property more in line with other asset classes, like stocks and bonds. Valuation based indices tend to smooth price volatility and lag behind transaction based indices in price movements. Due to lack of a quarterly pan-European valuation-based index going back far enough, we compare the UK indices. Such a comparison between the UK all property capital growth in both transaction and valuation-based indices shows higher volatility and the leading nature inherent in TBIs. This suggests TBIs have the capability to provide earlier signals in major market turning points (Figure 20). In other words, they can function as a leading indicator for market pricing and performance. Europe and UK TBIs show improvement in 2013Q3 According to our TBI, both UK and European capital values improved last quarter. This represents a reversal from the decline since mid-2011. Both have partly recovered following the boom and bust of the global financial and sovereign debt crisis. The lacklustre recovery in European capital values mirrored economic conditions across Europe during the last few years (Figure 21). We expect the TBI to further improve, as more investors commit an increasing amount of capital to the sector. Rigorous methodology adjusting for lack of data in Continental Europe Our TBI is constructed by using actual paired sales transactions from the Investment Transaction Database (ITD). The DTZ TBIs are constructed following rigorous procedures and checks, combining the ITD and a robust econometric model built in-house by DTZ Research, based on repeat sales regression (RSR) and enhancement 1 techniques introduced by S.Bokhari and D.Geltner (2012) . These methodologies have been used by other providers of TBIs, particularly in the US. RSR is at the core of constructing the TBIs, in which the price changes of individual properties are used to estimate price changes for the market as a whole over time. The Europe all property TBI is constructed as a combination of the UK and Europe ex-UK all property TBIs, weighted by invested stock (Figure 22). 1 Bokhari, Sheharyar and David Geltner. (2012). Estimating Real Estate Price Movement for High Frequency Tradable Indexes in a Scarce Data Environment. Journal of Real Estate Finance and Economics 45(2) Figure 20 DTZ UK TBI and IPD UK all property capital values, %y/y 45% IPD 30% DTZ 15% 0% -15% -30% -45% Q3 2003 Q3 2005 Q3 2007 Q3 2009 Q3 2011 Q3 2013 Source: DTZ Research, IPD Figure 21 DTZ Europe and UK all property TBIs, Q1 2002 = 100 180 140 UK 100 Europe 60 Q3 2003 Q3 2005 Q3 2007 Q3 2009 Q3 2011 Q3 2013 Source: DTZ Research Figure 22 DTZ UK TBI Indices construction process overview DTZ Investment Transaction Database Data filters applied to the chosen geography Compile data into list of dummy variables to allow for Repeat Sales Regression (RSR) Estimate four annual indexes based at each quarter Using Weighted Least Square Regression (WLSR) Convert the four annual indexes into quarterly index using approach introduced by S.Bokhari and D.Geltner (2012)1 DTZ Transaction Based Quarterly Index Source: DTZ Research www.dtz.com DTZ Foresight 12
  26. 26. 2014 Annual Outlook Asia Pacific occupier outlook Figure 23 Office rent growth to slow as absorption trails new supply Office net absorption, new supply (m sq m) and change in prime rents In light of the improving economic outlook, the window of opportunity for occupiers to secure preferential deals appears to be closing, with the majority of markets forecast to experience an increase in occupancy costs in the near term (Figure 24). Tokyo is expected to lead the increase in absolute and relative levels as its economic recovery gains momentum and rents are further bolstered by a limited development supply pipeline. Beijing is also expected to show strong growth in occupancy costs, underpinned by tight vacancy and limited new supply. In contrast, a large pipeline of new completions will continue to suppress cost growth in many Tier 2 Chinese cities. Despite registering rental decline over 2013, Hong Kong is expected to return to rental growth over the next two years, further reinforcing its position as the most expensive office market in the region. Cost mitigation still possible in Tokyo and Australia Rental growth is the primary driver of increases in occupancy costs. However, there are opportunities to mitigate this in some markets. Cost increase is the largest in Tokyo, but space utilisation in this market is still above the Asia Pacific average (Figure 25). Aligning space efficiency to the average would reduce the costs of occupancy per workstation by over 15%. Although rental growth is slower in the Australian markets, they offer more potential for increased space efficiency. Indeed, space consolidation has already been underway for much of 2013, resulting in an increase in sublease vacancy. Opportunities for cost saving are more limited in the main Indian and Tier I Chinese markets as both already display high levels of space efficiency. In these cities, opportunities for cost reduction may be achieved via decentralisation strategies. www.dtz.com 40% 16 20% 12 8 0% 4 0 -20% 2005 2007 2009 2011 2013E Net absorption Change in prime rents (RHS) 2015F New Supply Source: DTZ Research Figure 24 Prime office occupancy cost USD per workstation Hong Kong Tokyo Sydney Singapore Beijing Seoul Shanghai APAC average Delhi Taipei Melbourne Mumbai Jakarta Kuala Lumpur Bangkok 2013 2015 0 5,000 10,000 15,000 20,000 25,000 Source: DTZ Research Figure 25 Asia Pacific occupancy costs and space efficiency Low Efficieny Average occupancy costs up by 7% over the next two years 20 KUL PER BNE SYD TKO SEO High Efficeincy 2013 was a year of consolidation in Asia Pacific. Weakening economic conditions over the year have impacted tenant demand, leading to the second consecutive year of decline in net absorption (Figure 23). Consequently, rental growth was largely suppressed, as tenants became more concerned about controlling office operating costs. We expect a marginal improvement in conditions in 2014. Net absorption is forecast to bounce back by 25% as new supply in the emerging markets of the region will broadly act to increase the availability of quality space there. Meanwhile, most mature markets will continue to receive support as new supply is limited. Given the highly diverse supply-side condition in Asia Pacific, the rental outlook varies across the region. But, in general we expect moderate rental increases in the next two years. SIN HKG JKT BEJ SHA HGH SZX CHG PUN BGL NAN QIN Low KOL CHE HYD High 2014-15 Cost increase Source: DTZ Research DTZ Foresight 13
  27. 27. 2014 Annual Outlook Asia Pacific investor outlook Emerging markets drag down Asia Pacific attractiveness At a score of 65, the Asia Pacific FVI remains in positive territory, with more attractive markets than unattractive markets (Figure 26). Within the region, Australia and China offer the most opportunities to investors with a majority of markets considered warm or hot. But, the regional score has now begun a downward trajectory since reaching its recent peak of 71 in Q2 2013. The reduction has been led by the region’s emerging markets. Although these markets still offer many attractive opportunities, structural deficits in markets like India and an oversupply in China’s tier 2 cities have weakened investor confidence, resulting in the downgrade of many emerging markets from hot to warm over Q3 2013. Figure 26 Asia Pacific Fair Value Index 83 100% TM , Q3 2013 61 74 40 65 Tokyo offices Shanghai industrial Shanghai offices Sydney industrial 80% 60% 40% Delhi offices Melbourne offices Sydney offices 20% Hong Kong offices 0% Australia China Cold India Other Warm Asia Pacific Hot Source: DTZ Research Figure 27 Interest rates to erode attractiveness & limit volumes In light of the overall attractiveness of the Asia Pacific region, investment volumes (excluding land sales) in 2013 are forecast to hit USD88bn (Figure 27), up by 9% year-onyear and representing the fourth consecutive year of increase. However, we expect volumes to moderate slightly over the next two years. Rising interest rates combined with weaker economic growth will erode market attractiveness of the region, while the on-going lack of available prime stock in some locations limits market liquidity. However, this stock shortage will provide good opportunities for vendors to lock in capital value growth in prime locations. Furthermore, quality assets in off-CBD, secondary locations or development opportunities in CBD areas that offer attractive yield spreads will become more sought after. Asia Pacific investment volumes (USD bn) and Fair Value TM Index 120 100 100 80 FVI (RHS) 80 60 60 40 40 20 20 0 0 2005 2007 Domestic 2009 2011 Asia Pacific 2013E 2015F Non Asia Pacific Source: DTZ Research Figure 28 Despite yield widening in some markets, rental growth is projected to stimulate capital growth In light of declining market attractiveness, investors need to more carefully assess drivers of investment performance. The expected winding down of QE will increase bond yields and interest rates, thereby placing upward pressure on property yields. This is especially the case in markets that are currently at or near record lows such as Hong Kong and Seoul (Figure 28). Investors therefore need to consider the extent to which rental growth will offset these negative impacts on total returns. Core markets like Tokyo, Beijing and Shanghai will offer steady rental growth going forward. Although Australian markets such as Sydney and Melbourne offer limited rental growth, the continuing high spread between property yields and bond yields provides a buffer to any potential upward yield movement and so they remain attractive investment destinations for now. www.dtz.com Prime office capital value growth forecast by component (2014-18 pa) 8% 30 4% 15 0% 0 -4% -15 -8% -30 Rental Growth Yield change in bps (RHS) Capital value growth Source: DTZ Research DTZ Foresight 14
  28. 28. 2014 Annual Outlook North American occupier outlook Figure 29 US vacancy rate and growth in stock Occupiers will continue to receive concessions in most markets, as rental growth remains at inflation As a result, we project moderate rental growth for most US office markets, with a few notable exceptions (Figure 30). Most landlords are expected to increase occupancy through concessions, which in some cases offset higher rents. San Francisco and New York are notable exceptions to the slow rent growth projected. Demand by the technology and professional and business services sectors will drive up occupancy and rental rates. Landlords will be more selective about tenants, sometimes extending discounts only to more creditworthy tenants. They are also trying to diversify their tenant mix to reduce risk. Little room for efficiency savings in high cost markets San Francisco and New York will have the highest occupier costs growth throughout our forecast period. With many tenants opting for more efficient floor plans (Figure 31), there is more room for further efficiencies in New York, Chicago and Dallas when compared to San Francisco and Los Angeles. 2.0% 16% 1.5% 12% 1.0% 8% 0.5% 4% 0.0% 0% 2009 2010 2011 2012 2013E 2014F 2015F Office stock Industrial stock Retail vacancy (RHS) Retail stock Office vacancy (RHS) Industrial vacancy (RHS) Source: DTZ Research Figure 30 Prime office rental growth by year 2007-2013 2014 New York 4% 2015 San Francisco 2016 San Francisco San Francisco 2% Houston 0% Philadelphia Los Angeles -2% -4% Phoenix US Average Max Min Inflation Source: DTZ Research Figure 31 US occupancy costs and space efficiency ATL Low Efficieny Job growth and limited new supply lowers vacancy Business confidence remains high about future economic conditions. But, this has not yet triggered many new hires, with political uncertainty and reduced government spending making businesses pause. But, there are several industries that will grow headcount including technology, healthcare, energy, mining, and professional and business services. As a result, office requirements are expected to grow, especially in San Francisco and New York. Consumer confidence, however, continues to trend down, which impacts retail sales. So far, developers have largely remained on the sidelines. Also, we forecast only modest growth in space inventories across all property types. This additional space will be absorbed causing vacancy to trend down (Figure 29). PHX BOS DEN PHL WDC MIN NYC In Canada, the economy is also under performing. But, the labour market is healthier than in the US Job growth is forecast to be moderate in 2014, triggering slow demand for space. Vacancy is projected to rise in 2014 due to more sub-lease space and tenants right size their space. Rents are expected to hold steady in most markets, but will increase in prime CBD buildings with low vacancy rates, such as Toronto. With this exception, we expect that Canadian occupiers will remain in strong bargaining positions in 2014. www.dtz.com High Efficeincy MIA HOU DAL CHI SEA Low LAX SFO High 2014-2015 Cost increase Source: DTZ Research DTZ Foresight 15
  29. 29. 2014 Annual Outlook North American investor outlook Figure 32 US Fair Value Index US remain a good destination for investment With its high transparency and property law that promotes the facile buying and selling of commercial real estate, the US has always been popular with investors. Add large markets with many investment opportunities, high liquidity, and good pricing and it is easy to understand why the US remains top-ranked globally. Record-low US government bond yields are an advantage for mixed asset investors - our Fair Value Index (FVI) categorises most U.S. markets as attractive (Figure 32). One of the impacts of the many investment opportunities has been the growth of opportunistic funds, which tend to look for higher yields in secondary and tertiary markets (defined here as smaller markets). Buildings with creditworthy clients in smaller markets are gaining appeal. Most Canadian markets also remain popular with investors, but the inventory is much smaller than the US hence the lower amount of investment. This is partly why Canadian investors have been so active in cross-border investing. 10 100% 4 4 TM 4 52 88 79 86 88 San Francisco offices Houston retail New York offices Denver industrial Los Angeles retail Chicago offices New York industrial Miami industrial Los Angeles offices 80% 60% 40% 20% 0% 2005 2007 2009 Cold 2011 Warm 2013 Hot Source: DTZ Research Figure 33 US Fair Value Index 100% TM 100 by sector, Q3 2013 78 88 88 80% 60% Investors look for retail and industrial as prime offices have partly re-priced The increased competition to place capital in the larger US metros in prime office has produced lower yields; so many investors have started to turn their attention to other property types. This is reflected in the larger amount of hot retail and industrial opportunities (Figure 33). The reemergence of retail as an attractively priced property type is surprising, given the negative impact from the recession and the changes in US consumer buying habits and increase internet shopping. Relative value to come down with higher rates, but momentum on investment volumes expected to last Despite an expected increase in bond and mortgage rates, we believe volumes will increase for the next two years (Figure 34). Our base case assumes no geo-political or global financial events. Part of this increased volume will come from Asian investors, who have been steadily growing their market share in many US markets. REITs are also expected to be active buyers. Cap rates will certainly rise over our forecast but not significantly so. The weight of equity capital looking to be invested in property will continue to drive growth in volumes. However, with lower relative value, we do expect a delayed impact on investor appetite and volume momentum after 2015. www.dtz.com 40% 20% 0% Retail Industrial Cold Office Warm US Hot Source: DTZ Research Figure 34 North American investment volumes (USD bn) and US Fair TM Value Index 400 FVI (RHS) 350 100 80 300 250 60 200 40 150 100 20 50 0 0 2007 Domestic 2009 2011 North American 2013E 2015F Non North American Source: DTZ Research, RCA, RealNet DTZ Foresight 16
  30. 30. 2014 Annual Outlook Other DTZ Research Reports Other research reports can be downloaded from www.dtz.com/research. These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices Global Occupancy Costs Logistics Obligations of Occupation Americas Obligations of Occupation Asia Pacific Obligations of Occupation EMEA Global Office Review India Office Demand and Trends Survey 2012-13 Regional Headquarters Asia Pacific November 2013 Poland Banking Sector - January 2013 Motorways of the Sea - January 2013 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe, North America and UK. Foresight Quarterly commentary, analysis and insight into our inhouse data forecasts, including the DTZ Fair Value Index™. Available for Global, Asia Pacific, Europe, UK and China. In addition we publish an annual outlook report. www.dtz.com Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Net Debt Funding Gap - November 2013 UK secondary market pricing October 2013 Great Wall of Money - October 2013 Quantitative Easing - UK Regions - September 2013 Singapore Government Land Sales - September 2013 UK lending market -September 2013 Quantitative Easing - August 2013 Property Investment Guide Asia Pacific 2013-2014 Singapore Insight – Residential – July 2013 China Insight - The Healthcare Sector - April 2013 City of London occupier demand - April 2013 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information.  Property Market Indicators Time series of commercial and industrial market data in Asia Pacific and Europe.  Real Estate Forecasts, including the DTZ TM Fair Value Index Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA.  Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe.  Money into Property DTZ’s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. DTZ Foresight 17
  31. 31. DTZ Research DTZ Research Contacts Global Head of Research Head of North Asia Research Hans Vrensen Andrew Ness Phone: +44 (0)20 3296 2159 Phone: +852 2507 0507 Email: hans.vrensen@dtz.com Email: andrew.ness@dtz.com Head of Forecasting Head of South East Asia / Australia New Zealand Research Fergus Hicks Dominic Brown Phone: +44 (0)20 3296 2307 Phone: +61 (0)2 8243 9999 Email: fergus.hicks@dtz.com Email: dominic.brown@dtz.com Head of Strategy Research Head of Americas Research Nigel Almond John Wickes Phone: +44 (0)20 3296 2328 Phone: +1 312 424 8087 Email: nigel.almond@dtz.com Email: john.wickes@dtz.com Head of UK Research Head of Asia Pacific Forecasting Richard Yorke Dennis Fung Phone: +44 (0)20 3296 2319 Phone: +852 2250 8864 Email: richard.yorke@dtz.com Email: dennis.kk.fung@dtz.com Head of CEMEA Research Magali Marton Phone: +33 1 49 64 49 54 Email: magali.marton@dtz.com DTZ Business Contacts Global Chief Executive Officer Chief Executive, North Asia Tod Lickerman Edward Cheung Email: tod.lickerman@dtz.com Phone: + 86 21 2208 0088 Email: edward.cheung@dtz.com Chief Executive, EMEA Chief Executive, APAC John Forrester Henry Arundel Phone: + 44 (0)20 3296 2002 Phone: +61 (0)2 9492 8818 Email: john.forrester@dtz.com Email: henry.arundel@dtz.com DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. © DTZ December 2013 www.dtz.com DTZ Foresight 18

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