Corporate occupier conditions

EMEA Corporate Occupier Conditions - Q4 2011

Falling sentiment increases
pressure on CRE teams
The intensification of the Eurozone crisis has further damaged
corporate confidence. Amid renewed uncertainty, CRE teams
have once again been tasked with driving both cost saving and
transformation agendas.

Room for manoeuvre is limited. A lack of quality supply in the
markets is encouraging landlords, having made concessions
during the global financial crisis, to hold pricing firm.

Transformation is also challenging. Development pipelines are
impoverished. Access to quality office space will often require
pre-letting strategies to be employed. Corporate reluctance to
authorise capital expenditure is also a clear constraint.

2 On Point • EMEA Corporate Occupier Conditions – Q4 2011

Introduction
Back to the future already been picked. The route to the promised land of real estate
transformation and ongoing cost effectiveness requires teams to
It is rare for corporate real estate professionals to look back. Our
tread new paths.
industry is about preparing for and facilitating the future. It is about
responding to operational and organisational changes through the
Preparing for the future
effective use of real estate assets. What happened in the past most
often remains in the past. A forward looking gaze is the default So next year – an Olympic year – will be a year where teams and
setting for CRE professionals. Yet perhaps now, as we approach individuals will seek to rise above challenges and excel. But
the closing month of another challenging year, represents a good success will not be guaranteed. Those that have failed to prepare
time to look back and reflect. well; are unable to articulate a clear strategy with implementable
tactics; or have not taken themselves to the leading edge of best
It is a year since we conducted an industry first – a truly global practice will be consigned to the role of also-rans.
survey of corporate real estate leaders. We were keen to
understand how the front runners of our industry were facing up to Our dedicated corporate occupier research programme is designed
the unprecedented challenges of a global financial crisis and the first to offer you a competitive edge. Through our thought leadership
global recession since World War II. For the record, we identified programme, we will be focusing down on the prime issues in the
four themes that were shaping CRE team strategy and behaviour: development and ultimate success of transformative real estate
strategies – workplace productivity. In an environment of limited
1. A strong push towards more productive and better utilised cash and limited market options, how can investment in real estate
real estate portfolios be maximised by driving a more productive and ultimately more
profitable workplace? Our research programme will outline the
2. The pressures of balancing growth and right-sizing on a
global scale opportunity, the options and the obstacles.

3. A further progression towards partnership with outsourced Our market research will remain forensic and focused but we will be
real estate service providers enhancing our delivery channels in order to provide you instant and
customisable access to the very latest market views. This
4. A battle to access or obtain fresh real estate talent publication, EMEA Corporate Occupier Conditions (Offices) will
accommodated within more appropriate CRE team become a six monthly publication, issued in February and
structures with stronger mandates
November, alongside its counterpart focusing on the industrial
A year on and a different but no less significant operational sector. Instead, regular updates of market conditions will be
challenge exists. The intensifying Eurozone crisis, the threat of available though our Global Bespoke Report Generator. This on-
sovereign debt contagion and associated market turbulence paints line tool will enable you as the user to focus down on just those
another dramatic back-drop for CRE teams and will have lasting markets you are interested in at any moment in time and construct a
impact upon the corporate operating environment. The themes consistent, high quality market report at the touch of a button.
highlighted in our survey have taken on even greater importance. Contact those named on the back of this report or your Corporate
They need to be addressed. But they emerge at a time when the Solutions contact for more information on how you can access this
real estate markets of EMEA offer less opportunity for the occupier innovative and valuable reporting tool.
than 12-24 months ago. The shortage of high quality office
All that remains is for me to offer you the warmest Seasons
solutions in the markets provides occupiers with little opportunity to
Greetings. I sincerely hope that you have a peaceful and enjoyable
upgrade their space to deliver productivity gains whilst
festive period and look forward to working with you in 2012.
simultaneously being cost effective. This same shortage has
encouraged landlords to hold firm on rents and bring-in incentives.
Costs are rising or at best static across most markets at a time when Vincent Lottefier
CRE teams are being charged with a new round of cost saves. Chief Executive Officer
Moreover, many CRE teams have already made cost saves through EMEA Corporate Solutions
renewal and renegotiation strategies. The low hanging fruit has

On Point • EMEA Corporate Occupier Conditions – Q4 2011 3

EMEA Corporate Occupier Market Conditions: Summary
Exhibit 1: Current economic fragility reflected in lower but diverse growth trajectories in 2012
• The fragility of the economic recovery in Europe has been in the
spotlight since late July. 9 % 2010 2011 2012
8
• Sovereign debt problems and fear of contagion has led to 7
6
heightened financial market turmoil, reducing consumer and 5
business confidence and the downgrading of growth forecasts. 4
3
• Disparities across Europe are extending. While Germany, the 2
Nordics and parts of CEE remain strong, Southern Europe is facing 1
more severe headwinds. 0
-1

Italy
Ireland
Germany
Hungary

Netherlands

Turkey
Belgium

UK
Czech
Finland
France

Poland
Spain

Eurozone
European

Russia
Sweden
• The continued need for fiscal consolidation in most countries and
weak global recovery suggests growth will slow in 2012 and
uncertainties about the future outlook remain.

Exhibit 2: Corporate confidence trends downwards to early 2010 levels
120 50 • Corporate confidence has taken a hit against this back-drop.
• Having rallied previously following blips in sentiment, a more marked
25 downturn in confidence occurred during Q3.
100
• Overall business confidence has returned to levels seen at the start
0 of 2010 and sits marginally below the long-term average.
80 • Declines in sentiment have been particularly marked in the engine-
-25
room markets of Germany and the United Kingdom.

60 -50 • Uncertainty and declining sentiment increases the risk of corporate
2006 2007 2008 2009 2010 2011 occupiers putting expansion and portfolio strategies on hold.
Economic Sentiment (LHS) Retail Trade Confidence
Service Sector Confidence Industrial Confidence

Exhibit 3: Take-up levels were sustained q-on-q but are under downward pressure
• Despite a worsening outlook, demand for office space across
Europe actually improved q-on-q with 2.9 million sq m of take-up. ’000 m² ’000 m² 14,000
4,000

• This was also an increase of 16% on volumes seen in the market a 12,000
year ago. 3,000 10,000

• More negative sentiment impacted Q3 performance, with many 8,000
leasing deals completed early in the quarter and commenced during 2,000
6,000
Q2 when sentiment was strong.
4,000
• European take-up levels were supported by good quarterly 1,000
performance in Brussels, Hamburg and Paris. 2,000

• Take-up over the period Q1-Q3 is 10% above the same period a 0 0
year ago. We expect total year end volumes to be on a par with 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11
2010 given declining corporate confidence. CEE Western Europe 12 Month Rolling (RHA)

Exhibit 4: Net absorption trending downwards on the basis of market churn, consolidation & further disposals
’000 m² • Much activity witnessed in Q3 and anticipated for the remainder of
7,000 the year is driven by lease events and will have little positive impact
on net absorption.
5,000
• Annual net absorption levels remained positive at 2.9 million sq m
3,000 but this was a decline of 24% compared with Q2 and annual net
absorption stands 20% below the 10 year average.
1,000
• Declining sentiment and corporate restructuring will fuel the further
-1,000 disposal of surplus assets. This, together with increased
consolidation activity, will serve as a negative influence on net
Q3 2004

Q3 2005

Q3 2006

Q3 2007

Q3 2008

Q3 2009

Q3 2010

Q3 2011

absorption.

Western Europe CEE Total


Exhibit 5: Vacancy rates are stable and reflect the availability of large volumes of poor quality stock
• The European vacancy rate remained static at 10.2%.
• The Western European aggregate vacancy rate remained
unchanged at 9.7% whilst the Central & Eastern European
aggregate vacancy rate decreased by 20bps to stand at 14.9%.
Vacancy Rates Q1 2011 9.8%
15 – 25% 7.5%
13.1%
10 – 15%

• Only two markets within our core European markets recorded 5 – 10%
0 – 5%
10.5%
17.0%
increases in vacancy rates – Dublin and Brussels – where the 18.9%
8.6%

aggregate rate increased by 10bps q-on-q. 6.3%
17.1% 8.8%
10.3%

8.8% Johannesburg
6.7%
• The greatest fall in vacancy was recorded in Prague (-30bps). 10.9%
13.6% 8.4%
12.0%
10.5%

Moscow’s rate also fell (-20bps) and there were minor reductions in 6.8%
10.1%
11.8%
10.8%

Rotterdam, The Hague, Utrecht and Warsaw. 6.5%
4.6% 20.7%

10.1% 9.5% 16.0%

• We expect vacancy rates to remain around current levels at year 11.7% 10.6%
13.4%
22% 3-4%

20% 44%

end and be stable throughout 2012. 6.3%
9.1%
35%
12%

15.8% 15%

• 2nd hand space released by occupiers following upgrades earlier in
the year continues to trade sluggishly and will limit decreases in
overall vacancy rates.

Exhibit 6: The development pipeline is moderate and could reduce further due to scheme cancellations or postponements

Completions (millions sq m) Vacancy rate (%)
• Completions of new office space remain low. In Q3 there was
8 12
720,000 sq m of new office space completed.
7
10 • The volume of new space released over Q1-3 was 2.3 million sq m –
6 some 45% below the 10 year average.
8
5
• Western Europe saw a particularly low level of new completions over
4 6
Q3 with the lowest volumes witnessed since the mid 1990s.
3
4
2 • We anticipate 3.6 million sq m of new office space to complete
2 across the region by year end although further cancellations or
1
0 0 postponements of pipeline projects are likely given the economic
outlook.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Completions Future Completions Vacancy Rate RHS

Exhibit 7: Western European Red, Amber, Green Matrix (RAG)
• Our RAG charts provide a sense of 5 year forward looking market
conditions. 2012 2013 2014

• Based on a combination of prime econometric rental forecasts and Amsterdam
local market sentiment we identify whether markets are landlord Frankfurt
favourable (red), tenant favourable (green) or balanced (amber).
London City
• For mature Western European markets future conditions are mixed
Milan
but, owing to shortages of quality supply, conditions have hardened
markedly with prime rental increases likely sooner as limited quality Paris
supply is eroded quickly as demand returns. Zurich

Landlord Favourable Market Balanced Market Tenant Favourable Market

Exhibit 8: CEE and MEA sub-region Red, Amber, Green Matrix (RAG)
• In the CEE sub-region, prime rental increases have been marked q-
2012 2013 2014 on-q and this has led to markets such as Moscow and Warsaw
Bucharest turning further in favour of the landlord.
Moscow • This is very much a function of supply. Despite having reasonably
Warsaw
large development pipelines, developers do not tend to build large
volumes of space at international quality putting such space at a
Cairo premium, particularly given improving demand.
Dubai
• Markets such as Dubai and Abu Dhabi are over-supplied and as
Istanbul such underlying conditions remain firmly in favour of the occupier.

Landlord Favourable Market Balanced Market Tenant Favourable Market


Exhibit 9: EMEA Office Occupier Clock

Landlord’s Market Tenant’s Market

Rental Growth Slowing Rents Falling

Oslo, Zurich, Moscow
London City Rental Growth Rents
London West End, Helsinki Slowing Falling

Paris, Tel Aviv

Casablanca
Algiers
Rental Growth Rents
Düsseldorf, Geneva, Lyon, Accelerating Bottoming Out Cairo, Abu Dhabi, Zagreb
Stockholm, Stuttgart

Gothenburg, Hamburg, Munich Doha, Dubai, Jeddah
Athens
Berlin, Cologne, Warsaw Antwerp, Barcelona, Lisbon, Riyadh
Malmo Belgrade, Brussels, Dublin,
Edinburgh, Leeds, Madrid
Krakow, Copenhagen, Milan Bucharest, Budapest, Sofia, Amsterdam, Utrecht,
Luxembourg, Rotterdam, The Hague, Eindhoven
St. Petersburg, Manchester, Rome, Tri-City
Western Corridor Birmingham, Bristol, Cardiff, Frankfurt, Glasgow,
Bratislava, Kiev, Prague, Istanbul,
Johannesburg, Tunis
Rents Rising Decline Slowing

Western Europe
Central and Eastern Europe
Middle East & Africa

• Prime rents barely changed q-on-q with our European Office Index remaining static q-on-q.

• This apparent stability masks upward and downward changes in rents which effectively cancelled each other out in Western Europe. Prime rents
increased q-on-q in Stockholm (2.4%), The Hague (2.4%), Hamburg (2.2%) and Milan (1.9%). This contrasts with rental decreases in Brussels (-
3.2%), Dublin (-3.0%), Madrid (-1.9%) and Edinburgh (-1.8%).

• Outside of core European markets and across the year to date rents have decreased most markedly in Athens (-11.8%) and Dublin (-8.6%). Y-
on-Y rental growth has been strongest in Moscow (41.2%), Oslo (20%), Lyon (17.4%) and Warsaw (13.6%).

• The current economic outlook suggests that regional differences together with a wide spread in pricing between prime and secondary rents will
remain and intensify over 2012.

• As shown by the EMEA Office Occupier Clock above, 39 of the 67 markets covered within this report occupy a clock position at or beyond 6
o’clock and as such reflect conditions of escalating prime rental costs.

• 5 markets are positioned at or beyond 9 o’clock indicating that the rate of rental growth in these markets is slowing although rises in prime rents
continue.


WESTERN EUROPE: remain stable into and throughout 2012, reflecting a two tiered
market of limited Grade A availability and a plentiful supply of
Corporate Occupier lower quality stock which keeps vacancy rates inflated. Limited
choice of high quality stock is being sustained by an
Conditions impoverished development pipeline with Q3 completion volumes
at levels not seen since the mid 1990s. The economic backdrop
The fragility of the economic recovery has been in the spotlight suggests further downside risk on development completions, with
since late July. Sovereign debt problems and the risk of the prospects of current development projects being cancelled or
contagion has brought heightened turmoil in the financial markets postponed significantly heightened.
and is weighing down on consumer and business confidence.
Regional economic disparities persist with marked contrasts Aggregate European prime rents hardly changed during Q3 2011
between Germany and the Southern European economies. The although there was variance in performance across Western
continued need for fiscal consolidation in most countries and Europe. Prime rents increased in Stockholm and The Hague
weak global recovery suggests growth will be slow and moderate (2.4% q-on-q), Hamburg (2.2%) and Milan (1.9%) whereas rents
in 2012 with uncertainties over the future outlook remaining. decreased in Brussels (-3.2%), Dublin (-3.0%), Madrid (-1.9%)
and Edinburgh (-1.8%). All other Western European markets
Demand for office space across Europe actually improved q-on-q saw prime rents unchanged q-on-q.
with 2.9 million sq m of take-up across the continent,
representing an increase of 6% q-on-q and 16% on the same
period a year ago. Western European markets contributed to this
improved picture with good quarterly volumes being recorded in
Brussels, Hamburg and Paris. We would however caution that
many of the deals signed during Q3 occurred early in the quarter
and were founded on negotiations that commenced during Q2
when sentiment was stronger.

There was no change to the overall vacancy rate in Western
Europe with only minor increases being experienced in Dublin
and Brussels (+10bps). This was offset by decreases of -10bps
in the The Hague and Utrecht. We expect vacancy rates to

Exhibit 10: Western Europe Office Occupier Clock

Oslo, Zurich
London City
Rental Growth Rents
Slowing Falling
Helsinki, London West End

Paris

Rental Growth Rents
Düsseldorf, Geneva, Lyon, Accelerating Bottoming Out
Stockholm, Stuttgart

Gothenburg, Hamburg, Munich
Athens
Berlin, Cologne Antwerp, Barcelona, Lisbon
Malmo Brussels, Dublin, Edinburgh, Leeds, Madrid
Copenhagen, Milan Amsterdam, Eindhoven, Luxembourg,
Rotterdam, The Hague, Utrecht
Manchester, Western Corridor Rome
Birmingham, Bristol, Cardiff, Frankfurt,
Glasgow


Amsterdam Athens

Cost: € 335 / sq m Competition: 57,000 sq m Choice: 17.1% Cost: € 270 / sq m Competition: n/a Choice: 15.8%

Occupier activity picked up slightly in Q3, with leasing volumes GDP contracted by 3.5% in 2010 according to Eurostat and the
reaching approximately 57,000 sq m. Volumes were driven by a latest forecasts suggest this trend is likely to continue this year albeit
number of large transactions, from a wide range of sectors, in the city with a rather broad range, between -3.5% (EU) and -5.9% (National
centre and Zuidas districts, with >2,000 sq m transactions accounting Bank of Greece). Records from Global Insight show severe
for around 60% of activity. The largest deal was recorded in the city increases in unemployment of around one in three people aged
centre, where Booking.com signed a lease for 12,500 sq m of prime between 15 and 29 years being unemployed. Choice in the market
office space. Competition is strongest for prime space in areas with increased, with a vacancy rate of 15.8%, up 13% compared to the
good transport links and close proximity to amenities. More equivalent period last year. The cost of prime space continued to fall
peripheral locations such as parts of South East and Sloterdijk have and compared to pre crisis levels are down approximately 41% at
become somewhat less desirable, with these two districts accounting €270 per sq m. The highest rents continue to be found in the CBD
for around 50% of total vacancy. Whilst overall supply remained but very few transactions have been recorded given the current
stable over the quarter at around 1.1 million sq m, choice increased climate. Occupier activity has increased more in the north of Athens
marginally in secondary locations. The overall vacancy rate remains and top rents here are €216 per sq m which reflects a 5.3% drop on
relatively high at 17.1%. With the majority of moves involving a ‘trade the previous year. Corporate occupiers relocating to the Northern
up’ in terms of building quality; the amount of relatively old, out-of- submarkets are driven almost exclusively by cost cutting objectives
date stock on the market continues to increase. Prime rents adding momentum to buildings along or off the National Motorway.
remained stable at around €280 - €335 / sq m per annum. Costs in
peripheral locations are somewhat lower ranging between €175 - Barcelona
€215 / sq m per annum. Rent free periods remain the most
Cost: € 225 / sq m Competition: 60,487 sq m Choice:13.4%
commonly used incentive, with 12 months rent free on a 5-year lease
obtainable in large parts of the market. Demand levels in Q3 reached 60,487 sq m, up 19% q-on-q and up
2% on the equivalent quarter last year. Despite the difficult
Antwerp economic situation, demand levels in Barcelona remain strong and
the 250,000 sq m forecast for Barcelona at the start of the year
Cost: € 145 / sq m Competition: 30,710 sq m Choice: 11.5%
remains a realistic figure. On the supply side vacancy rates have
Occupier activity in Q3 reached 30,710 sq m across 30 transactions. begun to trend downwards and stood at 13.4% at end Q3. No
Deals were driven by the public sector with the two largest speculative development is due to come to the market by the end of
transactions accounting for 65% of total take-up. Year to date 2011, reducing further the choice of new space. Rental costs
activity fell 22% compared to the equivalent period last year. After a remained stable during Q3, largely due to a lack of rental evidence,
strong 2010, occupier activity for 2011 as a whole is expected to be however our rental outlook has been modified and a gentle
near 10-year average levels. Choice decreased slightly due to the slowdown in costs is now expected to continue into 2012.
lack of completions this year, combined with sustained demand.
Over 2011, overall choice in Antwerp fell from 12.9% in Q1 to 11.5%
in Q3. Development activity is expected to remain very low over the
next few years. Just one project of 5,900 sq m is expected to be
delivered speculatively during Q4 2011 in the Ring district. A further
two speculative projects are expected to deliver a total of 15,000 sq
m in 2012. Costs remained stable over the third quarter in all
submarkets. The prime rent currently stands at €145 per sq m for
the Center, and at €136 per sq m in the Ring district. Only very
limited rental growth is anticipated, driven primarily by supply
shortages for the best space.


Berlin Bristol

Cost: € 252 / sq m Competition:129,500 sq m Choice: 8.8% Cost: €328 / sq m Competition: 6,500 sq m Choice: 13.0%

Competition continues to strengthen. Over 410,000 sq m of deals Occupier demand remains relatively subdued with leasing volumes
have been recorded in the first three quarters of 2011, the highest down 38% on the equivalent period last year. Looking ahead, we
volume of the last 10 years and 40% ahead of 2010’s total and 25% expect annual take-up in Bristol city centre to be around 38,090 sq
ahead of the five year average. This was primarily driven by deals in m, some 10% below the level achieved in 2010 and well below the
the 1,000-1,500-sq m segment and from activity in the business five-year average of 52,000 sq m. The amount of Grade A choice in
service sector (25% of volumes). Another strong quarter of activity Bristol city centre rose slightly during Q3. The market also
can be expected in Q4. This will present further challenges to continues to offer a steady stream of second hand space although it
occupiers with overall vacancy remaining at 8.8% - the lowest rate is unattractive to most occupiers. The two speculative schemes
for three years. Space is most freely available in the Innercity East under construction in the city centre are both due to complete by
and Innercity West sub-markets, where 41% of all supply is based, year-end, with Bridgewater House already completed to shell &
but most of this space is of average quality. Both the prime rent and core. Prime rents remained stable at €328 per sq m. Incentives
the weighted average rent increased significantly year on year. By remain generous in the city centre at up to 18 months on a five year
the end of the year, we expect a further slight increase in the prime term and up to 36 months on 10 years, although this is deal specific.
rent due to the continued demand for high quality space. For most With Grade A supply continuing to fall, we expect incentives to move
space let, rental prices of between €10.00 and €15.00 per sq m per in over the next 12 months.
month were paid. Prime values of €21 per sq m per month were
unchanged q- on-q but reflect a 5% increase y-on-y. Brussels

Cost: € 300 / sq m Competition:120,350 sq m Choice: 10.9%
Birmingham
Occupier activity improved over Q3 with volumes surpassing the
total achieved during H1 2011. This was due to a major transaction
Competition held up well in Q3 with over 20,000 sq m let, up 40% of 46,000 sq m by the EU administration. While we have seen some
compared to Q2 2011. Occupiers demonstrated a clear preference activity from the public sector, there has been a slow down in activity
for competitively priced Grade B space, which accounted for 63% of from the corporate sector. There were no new speculative
Q3 leasing volumes. The most significant inner-city deal this quarter completions during Q3, resulting in further erosion of choice. Overall
involved the relocation of Vax to 2,200 sq m at 2 Colmore Square vacancy rates fell to 10.9% and to 6.3% in the CBD. Development
from an out of town location into refurbished space within the City activity remains constrained and this will further limit occupier
centre. Choice increased slightly with vacancy rates reaching highs choice, particularly in the CBD. Prime rents fell slightly to €300 per
of 20.1%. Any space re-entering the market is largely second hand sq m in the prime district, the Leopold district, and to €195 per sq m
or refurbished. In contrast occupiers face a diminishing range of in the North district. Costs remained stable in all other districts,
choice within the Grade A market with vacancy rates falling to 3.6%. ranging from €165 sq m in the Periphery to €230 sq m in the
There is just 11,000 sq m of space scheduled to complete Pentagon or in the Louise district. The top quartile and weighted
speculatively over 2012-13 which may force pre-letting. Rental costs average face rent for Brussels remained relatively flat at €222 and
stabilised at €356 per sq m, although rents remain heavily supported €177 per sq m respectively.
by incentives with typically around 36 months rent free on a 10 year
term. Weighted average rents fell slightly, due largely to the higher
proportion of Grade B lettings in the third quarter.


Cardiff Copenhagen

Cost: € 250 / sq m Competition: 11,100 sq m Choice: 10.8% Cost: € 242 / sq m Competition: n/a Choice:8.6%

Leasing volumes remained strong over Q3. The amount of space Whilst Q3 saw a slight dip in occupier activity, sentiment remains
taken during the first nine months of the year stands at 37,210 sq m upbeat. Competition is strongest for prime CBD space with a
– a level up 81% on the 5-year annual average. Activity was driven number of domestic occupiers looking to expand. In secondary
by 118 Ltd’s sub-let of 3,298 sq m of space from Zurich at Fusion locations the public sector is the biggest driver of demand as cost-
Point. Supply fell by 12.3% q-on-q to stand at 111,480 sq m of saving measures have pushed a number of public sector occupiers
available office space. As with many regional city centres, there towards more peripheral districts such as Valby and Glostrup, west
continues to be a shortage of high quality or new Grade A space of the city centre. The majority of activity in the prime segment in Q3
available. Confidence is however returning to the development came from the financial sector, illustrated by a new lease of around
market with two speculative schemes starting on site during Q3 – 5,250 sq m by “Finansiel Stabilitet”. On the supply side, choice
namely Capital Quarter (7,060 sq m) and Vision Court (3,298 sq m). increased by around 70 basis points to stand at 8.6%. However,
Prime headline rents remain unchanged with the city centre at £226 supply in the prime segment remains tight, with the majority of
per sq m and out-of-town at £161 per sq m. Typical incentives vacant premises Grade B and C. Construction activity remains
remain at 12 months for a five-year term and 24 months for 10 relatively low, although there are several projects in the pipeline for
years. 2012 and 2013. Prime CBD rents remained stable at DKK 1,700-
1,800. Rents for secondary CBD space were also static at around
Cologne DKK 1,000-1,125. Incentives are still widely used and include rent
free periods, step rents and fit out contributions. In particular the
offered step rents can be steep, providing a significant discount in
Occupier activity decreased in Q3 after a strong first half of 2011 the first two to four years of occupancy. Rental levels in peripheral
although this reflects a lack of larger transactions with occupier locations vary considerably. In areas such as Glostrup and Valby
interest still dominated by medium sized companies. Year to date prime rents stand at around DKK 1,000 -1,100, while secondary
there has already been more activity than the whole of 2010 – up rents range between DKK 600 -700.
8%. Cologne City is the preferred location of end users and has
witnessed the most deals. However, the increased shortage of high- Dublin
quality space in this part of the market is causing some occupiers to
widen their search area. Choice is further constrained by the very
limited vacancy of new space across the market with just 2,000 sq For the fourth consecutive quarter overall supply fell in the Dublin
m presently available. Projects under construction will ease this office market. At the end of Q3, overall vacancy rates stood at
situation somewhat but in the meantime older, outdated, space still 18.9%, down from 23.0% at the beginning of the year. We
accounts for almost a third of vacancy. Around 45% of deals anticipate choice will continue to reduce as completions of new
completed over Q1-Q3 2011 were for rents of between €10.00- office buildings have ceased entirely. Large occupiers seeking units
€14.99 per sq m per calendar month, while 38% were for rents in excess of 10,000 sq m will be faced with a steadily diminishing
between €5.00-€9.99. This was reflective of both the shortage of range of choice, with only eight buildings in the city centre and
high-quality space and a continued cost consciousness amongst suburbs able to satisfy these requirements. Building on a strong
occupiers. first six months of the year, occupier activity increased again in the
third quarter, up 25% compared to the equivalent period last year.
Demand was primarily driven by companies expanding (42% of
deals). There is already a significant volume of deals expected to
transact in Q4 (c. 30,000 sq m). Prime rents fell slightly, down 3.0%
to €344 per sq m. Incentives have tightened over the course of
2011 for leases of five to ten years with around 9-12 months rent
free achievable. Further incentives are achievable for longer lease
terms and larger deals.


Dusseldorf Eindhoven

Cost: € 282 / sq m Competition: 91,300 sq m Choice:11.9% Cost: € 185 / sq m Competition: 7,400 sq m Choice:13.2%

Deal volumes are running at average levels, but the number of deals Occupier sentiment worsened in Q3 with a number of occupiers
is 25% ahead of average as we are seeing more activity, particularly removing their requirements from the market. Whilst the 3,000 sq m
in the 1,000 sq m to 5,000 sq m market. The City was the most deal by IT company 2B interactive in the Western periphery of
sought-after sub-market and accounted for 17 % of all activity. The Eindhoven boosted activity, leasing volumes were down
amount of choice continued to erode but is still above the 1-million considerably on the first half of 2011. Overall vacancy increased to
sq m mark with 800,000 sq m available in Düsseldorf city alone. By around 13.2%, up from 12% in Q2. Choice increased in both the
the end of the year a further 33,000 sq m of office space will be built, Grade A and C segment over the quarter. However, Grade A office
of which 27 % will be available, but we still expect choice to decline space remains particularly tight with a vacancy of around 1.2%.
next year. In terms of costs, prime rents have remained stable for Availability of Grade B and C space is higher at 9.4% and 2.6%
the last six months after increasing twice in succession. Due to respectively. The development pipeline remains limited with just a
competition for high-quality space, a further increase to €24.00 per small amount of speculative office space being developed at Strijp
sq m per month is expected by year end. For most spaces, rental S. Costs remained unchanged in Q3, with prime city centre rents at
prices are between €10.00 and €15.00 per sq m per month. around €175 - €185 per sq m. Whilst no significant increase in rental
levels is expected in the foreseeable future, the tight supply and
Edinburgh limited development pipeline should support prime rents at their
current level. Prime rents for office space in secondary locations
range between €120 and €160 per sq m per annum. Rent free
Costs softened slightly in Q3 as occupier demand remained periods have remained unchanged at 12 – 15 months assuming a 5
cautious. Prime rents fell 1.8% over the quarter, with incentives still year lease.
generous at around 32-36 months rent free achievable on a 10 year
term. Rents are expected to remain broadly stable but, as the level Frankfurt
of supply gradually declines, we could see further upward pressure.
Deal volumes were boosted by FNZ, who consolidated three
existing properties into 1,600 sq m of space at Tanfield. Improved Occupier activity slowed in Q3 with deal volumes of around 88,600
occupier activity drove down the level of available supply. Supply sq m. Sentiment is still strong, however, and the deals done
also fell as a result of some Grade B space being withdrawn for illustrated the preference for quality space: 60% of volumes were
refurbishment. Overall vacancy rates fell to 6.0%, with Grade A “high-quality”. Geographically, occupier preference has been for the
supply falling to just 3.2%. Within the city centre, there are just four City, Banking District and Westend (all with double-digit percentage
buildings capable of satisfying Grade A requirements of greater than shares this year). The largest deal in Q3 was the 18,400-sqm letting
5,000 sq m. Despite this, there has been little change to the by Deutsche Lufthansa in the Squaire at the airport. All other deals
development pipeline, with Site HI, scheduled to complete in 2013, remained below 10,000 sq m. The amount of choice fell with
the only scheme under construction speculatively. vacancy rates dropping from 14.3% to 13.6%. Around 36% of
supply is considered high quality, and this percentage has remained
more or less unchanged this year, however only c.35,000 sq m of
high-quality space will be brought onto the market in 2012, so we
expect further reductions in choice. While demand for quality
remains high, enquiries in the prime segment have dropped off
somewhat and the prime rent therefore remained unchanged at
€396 per sq m per annum. Rents across the sub-markets also
remained stable with average rents from Frankfurt at c. €227 per sq
m per annum.


Geneva Gothenburg

Cost: € 862 / sq m Competition: n/a Choice: 0.3% Cost: € 250 / sq m Competition: 25,500 sq m Choice: 8.2%

Demand for the best office space remains high in the Geneva office The occupational market recorded a strong Q3, with leasing
market particularly from financial institutions, wealth managers and volumes reaching 25,500 sq m, up 45% on Q2. Occupiers from the
associated service providers as well as international organisations IT- and Telecom sector accounted for a large share of activity,
such as the Red Cross and the United Nations. Supply remains mainly due to large transactions by ÅF, EA and Saab Security. The
tight, however, particularly in the limited CBD area. The few public sector also remains an active market player. With no
opportunities that exist are usually in the range of up to 250 sq m completions in Q3, overall vacancy declined to 8.2%, down from
with units of more than 500 sq m being extremely rare. Office 8.7% in Q2. A further reduction in choice is anticipated in Q4, with
vacancy rates in the city centre are at levels of sub 1% and there no new developments due to be completed in 2011. As at the end of
are limited development opportunities, compounded by a restrictive Q3 2011, around 52,000 sq m of new office space is under
planning process. Some companies are considering peripheral construction, the majority of which is due to be delivered in the next
locations in order to secure larger and less expensive space. New 12 months. Costs for prime CBD space continued to rise q-on-q with
space is predominantly constructed south of the CBD and around prime rents up 2.2% to stand at SEK 2,300 per sq m. In the wider
the airport. The most notable project is the “SOVALP” – a large city centre, costs for Grade A office space moved up as well and
scale development that will provide some 100,000 sq m once range between SEK 2,000 – 2,200 per sq m. Rental levels for office
completed in 2014. Competition for space remains high and finding space in more peripheral areas range between SEK 1,200-1,500 per
suitable space solutions, especially for larger unit sizes, can be sq m. The number of speculative schemes currently under
challenging. The existing shortage in the central areas is expected construction should ease competition for prime space.
to drive prime rental growth. Prime rents in the CBD currently stand
at CHF 1100 per sq m per annum but office space overlooking Lake Hamburg
Geneva usually trades at a premium to this.

Glasgow Occupier demand is expected to remain strong throughout this year
with an annual volume of 500,000 sq m expected. However the
ongoing euro crisis and potential effects on the economy could
Occupier activity increased in Q3, totalling over 8,500 sq m. The damage sentiment. Occupier activity in Q3 was driven by business
majority consisted of churn in smaller deals. Economic uncertainty service providers, followed by public administration – with the State
continues to constrain decision making however and we anticipate Ministry for Urban Development and the Environment’s move to
year end leasing volumes to be in line with 2010. The Banking and Wilhelmsburg representing a considerable 45,000 sq m transaction.
Finance sector dominated in Q3, accounting for 73% of occupier Preference remains on the city centre (Innenstadt) and the adjoining
activity. Overall vacancy rates increased slightly to 10.6% but sub-markets of City South (core area), Habour and HafenCity. In
Grade A choice remains far more constrained with vacancy rates terms of supply, the SPIEGEL building among others was
falling from 3.3% to 3.1%. Occupier controlled space increased by completed in HafenCity and total completions over the year to date
10% over the quarter to 58,000 sq m, with the likes of Shell now amount to 120,000 sq m. A further 68,000 sq m is in the
releasing c.2,000 sq m at 141 Bothwell Street. Construction has pipeline for the remainder of the year, of which around half is
resumed at the speculative Copenhagen building, which is on track speculative. Development is expected to remain stable until the end
to deliver c. 6,000 sq m by early 2012. Prime rents remained stable of the year. Prime and average rents grew further in Q3 to reach
at €344 per sq m, although rent free periods remain generous at €282 per sq m per annum and €167.76 per sq m per annum
between 24-30 months based on a 10 year lease. Incentives respectively. Further increases can be expected next year.
remain under pressure for the very best space. As the supply of
Grade A space begins to decline we expect incentives to harden
further and prime rents to slowly rise.


Helsinki Lisbon

Cost: €294 / sq m Competition: n/a Choice: 10.0% Cost: € 228 / sq m Competition: 14,040 sq m Choice:11.7%

Occupier activity remained fairly stable in the third quarter of 2011, Portugal’s economic woes continued to impact on occupier
although competition from international occupiers decreased confidence. Activity remained weak resulting in just 14,040 sq m let
somewhat in reaction to the European debt crisis and fears in Q3. Year to date leasing volumes are 63% below five year
regarding the economic recovery. Whilst prime space in the CBD is average levels. The majority of activity was concentrated in Zone 6,
most popular with occupiers, choice remains limited. Large floor which accounted for around 40% of total floor space let in Q3.
plates are virtually non-existent, increasingly driving occupiers to the Activity continues to be driven by an increase in renegotiations and
business park hubs in areas such as Ruoholahti, Keilaniemi and renewals. There were no new completions in Q3. Consequently,
Leppävaara. Furthermore, new developments in the bay area occupier choice fell with vacancy rates moving from 11.9% in Q2 to
adjacent to the CBD (Töölönlahti) have attracted strong occupier 11.7%. Despite the weak dynamics, prime rents held up at €228 per
interest. The overall vacancy rate remained relatively stable q-on-q sq m over the third quarter. However, landlords continue to
at around 10%. Choice in the CBD is much lower at around 4.5%. compete by offering generous fit out packages and increasing levels
The development pipeline is considerable at 230,000 sq m for 2012 of incentives. Incentives for prime space are in the range of 1 to 3
and 2013. However, competition for this new space has been strong months rent free, based on a three to five year lease. Across the
and overall these schemes are expected to be around 90% prelet on wider market incentives are more generous with around 3 to 6
completion. Prime CBD rents remained stable at €24.50 per sq m months rent free achievable on a three to five year term. Rents in
per month. In the more peripheral office districts, rents range the secondary market also remained stable, however we do
between €192 - €204 per sq m per annum. However, if competition anticipate downward pressure on secondary rents from the
for space in the new developments slows, rents will most likely see beginning of next year.
some falls.
London City
Leeds
Occupier activity improved upon Q2 levels but was still weak and
Occupier choice fell slightly over Q3, but remains inflated at 6.1% represented the lowest Q3 total since 2003. Although 1.4 million sq
above the level at the end of 2010. While there was little change to ft remained under offer, with confidence subdued, occupiers are
overall supply, the availability of Grade A space fell much faster with likely to delay decisions into 2012. Active requirement volumes
vacancy rates falling from 5.6% in Q2 to just 4.9% at the end of Q3. continued to increase, however, with demand from the Service
Work has commenced at 2 Bond Court which is due to deliver industry dominating volumes. Choice increased 10% as several
around 1,500 sq m of space on a speculative basis by 2012. The refurbished and a new build scheme (Cannon Place, EC4) came
signing of a pre-let to Clarion in Q2 for 1,500 sq m, has also allowed online. As a result, overall vacancy rates increased to 7.6% with
development to start at Elizabeth House which will deliver around Grade A at 4.4%. Prime rents remained stable, with rent free
1,000 sq m speculatively. The most significant deal in Q3 involved periods assuming a 10 year term at 22 months. With the lack of
the acquisition of 2,400 sq m by Yorkshire Housing at Dyson quality prime space, we do anticipate further rental growth, however
Chambers. Prime rents were stable at €323 per sq m. Incentives expectations have been tempered significantly by economic
remain stable but generous with around 30 months rent-free uncertainty.
achievable on a 10 year term. We expect some hardening of
incentives as the availability of Grade A supply begins to tighten,
however this is somewhat dependent on the level of new demand.


London West End Lyon

Cost: € 1187 sq m Competition: 60,500 sq m Choice: 4.4% Cost: € 270 / sq m Competition: 43,970 sq m Choice: 6.5%

There was 60,500 sq m let across 42 deals in Q3, which represents There was a slowdown in occupier activity in Q3 with just under
a 22% decrease q-on-q. This brings the total for the year-to-date to 44,000 sq m let, a 40% reduction on the very strong Q2. Year to
198,100 sq m which is 22% lower than the equivalent period last date volumes are slightly softer than 2010 – a modest 2% reduction.
year and reflects a more cautious sentiment in the market. The most The amount of choice for occupiers has continued to decline with
notable deal of the quarter was Debenhams plc’s 13,470 sq m pre- supply dropping 3.6% over the quarter and volumes over 6% lower
let at British Land’s 10 Brock Street (Regent’s Place), NW1.The than the end of 2010. Vacancy rates are now 6.3%, down from the
Service sector again dominated take-up accounting for 54% of take- cyclical high of 6.8% reached in early 2010. Prime rents in Lyon
up across 18 deals, with the TMT sub-sector accounting for 22% of have remained at €270 per sq m for the second successive quarter
the total. Overall demand decreased slightly to 410,200 sq m, and after the market witnessed very strong growth in H1. The annual
the TMT sub-sector dominated this also, accounting for 25% of the rate of rental growth remains at 17.4%. In the wider market weighted
total with new requirements from Linkedin, O2 and Gamesys. With average rents are around €150 per sq m and have been relatively
limited moderate take-up and limited development completions, flat this year reflecting a widening differential. Incentives have also
overall supply fell by -5% to 369,950 sq m, which equates to a been flat, at around 6 months for a 6-9 year lease.
vacancy rate of 4.4% (from 4.6% last quarter). Grade A vacancy
also fell to 2.2%, its lowest level since mid-2007. Overall, the volume Madrid
of space under construction speculatively remained stable at
173,400 sq m with the Debenhams’ pre-let offsetting new
commencements at 79-97 Wigmore Street, W1, and 6 Agar Street, Leasing volumes were typical for Q3, the quiet quarter of the year,
WC2. Prime rents stabilised at €1,187 / sq m, while rent-free periods and stood at 71,579 sq m (excluding high-tech space). Five
remained at 16 months, assuming a 10-year lease. We expect rents transactions of greater than 5,000 sq m completed and accounted
to increase again in the latter half of next year. for 42% of total take-up in Q3. The Periphery dominated demand
with occupiers focusing on well-located and good quality business
Luxembourg centres. The average size of space leased ranges between 800-
850 sq m. Overall office vacancy increased slightly during Q3 to
10.6%. However, the CBD saw a slight decrease in choice as no
Occupier activity over the year to date increased 51% compared new product is on the market and the level of demand in this market
with the equivalent period last year. Pre-lets and acquisitions area has remained relatively strong. New supply is concentrated in
accounted for around a third of all take-up activity in 2011, which the Periphery (Julián Camarillo area) and Satellite market areas.
underpins confidence in the market. The business services sector, We expect a trend of occupiers moving towards the periphery which
together with Banking & Finance were responsible for 72% of deals. would impact on vacancy rates in the CBD. There is limited future
There were no new completions during Q3 and occupier choice supply in the pipeline as projects are being delayed and there is a
diminished further with vacancy rates falling to 6.7%. The lack of defined schemes from 2013 onwards. Prime rents continued
development pipeline remains constrained with just 24,000 sq m to decline over Q3, down 1.9% to €312 per sq m, because of the
due to be delivered speculatively over the remainder of 2011. disequilibrium between supply and demand, even for the best
Thereafter, the development pipeline is expected to decrease further quality products.
to a low level of 48,000 sq m in 2012, of which 33,000 sq m is
speculative and this will drive choice lower. Costs remained stable
across all submarkets in the third quarter, peaking at €456 per sq m
in the CBD. We expect the prime rent to remain relatively flat over
2011, however incentives have begun to tighten. Given declining
levels of supply, we expect upward pressure on prime rents,
although forecasts currently remain modest.


Malmö Milan

Cost: € 228 / sq m Competition: 12,500 sq m Choice: 7.1% Cost: € 530 / sq m Competition: 58,460 sq m Choice:10.1%

The occupational market registered a drop in activity in Q3, with Occupier activity this year has been broadly in line with 2010. Q3
leasing activity totalling at around 12,500 sq m. Nevertheless, so far witnessed few large deals, with the most significant deal of the
in 2011, competition has been significantly higher compared to 2010 quarter involving AXA, who acquired 10,000 sq m in the Semi-centre
and year-end leasing volumes are forecast to be up over 50% on a area. IT company, Reply also leased around 8,000 sq m in the
y-on-y basis. The high activity can partially be explained by choice - Lorenteggio area. Prime rents increased by 1.9% over the quarter
new developments offering modern and highly efficient office space. to €530 per sq m. Rental levels remain high in the centre,
Occupiers from the IT sector have been particularly active in Q3, particularly for transactions involving banks. Despite this, around
accounting for a large share of volumes. On the supply side, no new 70% of deals in Q3 were at rents of below €300 sq m and
choice was added to the market in Q3 2011, although in the Lund transactions involving rents of over €500 per sq m, accounted for
district a 7,400 sq m project is due to be completed in Q4. In 2012 only 14% of the total deals. Q3 witnessed around 30,000 sq m of
around 60,000 sq m will complete. Consequently, the overall new completions. Consequently the vacancy rate increased to
vacancy rate of 7.1% should increase next year. Prime CBD rents 10.1% over the quarter, however, this was driven primarily by
remained stable in Q3 and range between SEK 1,800 – 2,100 per increasing supply in the Periphery and Hinterland. Occupier choice
sq m. Furthermore, occupiers are often offered substantial within the Centre remained broadly stable. There have been no
incentives such as rent free periods (depending on lease length) or new development commencements.
rebates. Rental levels for good quality space in the peripheral office
districts remained stable at around SEK 1,200 – 1,500 per sq m. Munich
Some further upward pressure at the very prime end of the market is
expected towards the end of 2011.
Occupier activity remains very strong with 230,000 sq m let and a
Manchester year to date volume the strongest since 2001. Many lettings were
driven by expansion leading to a net reduction in choice. Most
activity has been witnessed in the city centre and across all unit
Overall choice in Manchester city centre fell 5.2% over the third sizes. Industrial corporate occupiers have been the largest takers of
quarter, to 245,700 sq m. Vacancy rates were down from 12.5% in space this year, while business service providers closed the largest
Q2 to 11.9% at the end of Q3. This was driven by declining levels of number of deals. In the third quarter there was again evidence of
both Grade A and Grade B supply which fell by 4.0% and 7.0% occupiers pursuing prelet options, such as the NUOFFICE project in
respectively. Grade A choice, remains far more constrained, Schwabing-North. Following high levels of building activity in the
reflecting a vacancy rate of just 2.9%. There was little change to the period from 2008- 2010, when up to 300,000 sq m was completed
development pipeline over Q3, with no new speculative starts and per year, completions will be much lower this year and especially
nothing under construction on a speculative basis. However, we do next year and further restrictions in choice can be expected. Prime
anticipate construction to commence soon at 1 St Peters Square on rents and incentives have remained stable at €360 per sq m but
the back of a 6,000 sq m pre-let to KPMG. Activity was modest due further increases can be expected next year. Average rents ended
to the absence of any larger deals, with just two transactions over the quarter at €164 per sq m.
1,000 sq m. There are just two schemes currently capable of
satisfying Grade A requirements of greater than 5,000 sq m. Given
declining levels of supply, prime rents increased by 5.3% over the
quarter to €379 per sq m. Incentives however remain generous with
30 months rent-free still achievable on a 10 year term.


Oslo Paris La Defense

Cost: € 457/ sq m Competition: 172,000 Choice: 7.5% Cost: € 590 / sq m Competition: 20,650 Choice: 5.0%

Occupier activity increased considerably with leasing volumes up The La Défense market was one of the few European markets to
23% on Q2. Competition is strongest for prime office space in the show strong rental growth in Q3 with prime rents increasing 7% to
CBD and western fringe of Oslo. There is a drive, in particular from reach €590 per sq m. Average second hand rents ended the quarter
the larger occupiers, towards more efficient office space, which can at €492 per sq m, a 17% discount to prime reflecting a more
usually only be found in new developments. Besides ministries, standard quality of accommodation in this submarket. The rental
occupiers from the IT and oil related sectors are the main drivers. increases were driven by further erosion in choice, with vacancy
On the supply side, Oslo has seen a relatively low volume of new rates declining from 5.4% to 5.0% - the lowest level since Q1 2010.
construction in 2011 with just 60,000 sq m of office space added to The leasing market, however, has seen a relative lack of large deals
the market. Consequently, choice has gradually declined over the and volumes are down 14% compared with last year with just over
year, with an overall vacancy rate of around 7.5%, the lowest in 20,000 sq m let in Q3. Demand remains fragile and going forward
almost two years. 2012 is expected to see around 300,000 sq m of prospects of an economic slowdown are encouraging participants to
new office space added, however choice is expected to remain be cautious as well as extremely selective. A difficult end to the year
relatively constrained with the majority of the development already is therefore expected generally, but the lack of choice in the La
pre-let. Prime rents remained stable in Q3 2011 at NOK 3,600 per Défense market will support pricing and incentives although the
sq m. Strong demand for prime office space has pushed up rents by growth witnessed in Q3 is unlikely to be repeated next year.
15% over the year. Secondary locations did not record any rental
growth over the last 12 months. Rents for good quality space in the Rome
city centre range between NOK 2,800 – 2,200 per sq m.
Competition for prime space in the CBD is considerable and
incentives in this part of the market are low to non-existent. Outside Occupier activity reached almost 30,000 sq m in Q3, down on the
the CBD rent free periods of 6-12 months are achievable. start of 2011 but year to date volumes were up nearly 50%
compared to the equivalent period in 2010. Occupiers continued to
Paris CBD focus primarily on the CBD and central areas, with around 50% of
Q3 take-up in these areas. The remainder of activity was focused
on the EUR area. Occupiers demonstrated a clear preference for
While occupier activity in Greater Paris increased significantly in Q3, Grade A space. The most active sectors in Q3 were the Services
it was driven by deals completing that had been in negotiations for and Manufacturing sectors. The Public sector, which has
some time and the CBD region itself, although it witnessed an 11% traditionally played a leading role in Rome’s office market,
q-on-q increase, is running around 2% below the Q1-3 volumes of substantially reduced the amount of space taken up, a reflection of
last year. Deals were constrained by the low amount of choice in the the necessary rationalisation of the public real estate portfolio. This
CBD. Vacancy declined to just 4.5%, the lowest amount since 2008. is likely to have a significant impact on Rome’s office market. The
In addition to a lack of choice impacting occupiers’ ability to move, vacancy rate increased to 6.3%, due largely to the release of
the effect of austerity was increasingly felt, particularly for large second hand space in the Tiburtina area. The development pipeline
companies, which are looking to curtail their real-estate costs and remains relatively stable, with several completions expected in Q4,
consolidate locations. Prime rents were unchanged at €750 per sq but there are no new significant projects to add to those already
m and there is a sense that the market will become quieter with envisaged out to 2014. Prime rents and incentives are generally
occupiers increasingly hesitant given the Eurozone concerns. stable, with the prime rent remaining at €420 per sq m.
Average second-hand rent was recorded at €501 in the CBD region,
a 33% discount to prime. Rent free periods have been unchanged
all year at between 9 and 15 months assuming a 6-9 year lease.


Rotterdam Stuttgart

Cost: € 195 / sq m Competition: 20,100 sq m Choice:16.3% Cost: € 216 / sq m Competition: 78,100 sq m Choice:6.5%

Occupier activity decreased by around 52% in Q3. This was mainly The Stuttgart market has not reflected the cooling economic mood.
due to the absence of any large scale transactions, rather than a While deal volumes declined on Q2, on a y-on-y basis take-up
shift in sentiment. The upturn in competition seen in 2011 can, to increased by 71% to 200,000 sq m. Generally, small deals have
some extent, be explained by the levelling in prices (headline rents dominated leasing volumes and the majority of deals were of
and / or incentives) in some segments of the market between the average quality. Since certain large requirements remain active, we
wider Rotterdam region and some smaller, more regional cities. expect take-up to remain strong over Q4 and forecast total volumes
Choice increased for the fifth consecutive quarter. The overall of around 250,000 sq m for 2011 as a whole. Occupier activity has
vacancy rate stands at 16.3% as at the end of Q3, up from 15.7% in driven a further decline in the vacancy rate by 0.5 percentage points
the previous quarter. The development pipeline remains significant. in the third quarter. The prime rent remains unchanged at €216 per
Whilst most developments have high pre-let rates, there are a sq m, with average rents showing little change at €138 per sq m.
number of speculative schemes expected to be added to the market Around half the year to date completion volumes occurred in Q3. In
in the second half of 2012. Rental levels remained virtually Q4 further completions of around 40,000 sq m are expected. Next
unchanged with prime rents at €195 per sq m and no change in year we expect vacancy rates to stabilise.
incentives. The only rental movement recorded in Q3 was in the
‘Modern Scheepvaartkwartier’ district, where rents edged up by The Hague
2.9% to stand at €180 per sq m. Costs in the peripheral office areas
Cost: € 215 / sq m Competition:5,488 sq m Choice: 10.9%
North and South of the city remained stable with prime rents at
around €150 - €170 per sq m. Rental conditions are expected to Overall occupier sentiment remained relatively subdued in Q3, with
remain stable in the foreseeable future. leasing volumes down on the first half of the year. Competition is
strongest for Grade A office space in the city centre districts such as
Stockholm the Beatrixkwartier, with occupiers in the public administration,
transport and education sector most active. On the supply side,
choice continued to increase with overall vacancy at a record high of
Leasing volumes of just over 73,000 sq m were recorded in Q3. 10.9% at the end of Q3, although the majority of available supply is
Whilst down on H1, sentiment remains relatively strong, with of Grade B quality. Choice was more or less unchanged for Grade A
occupiers from the recruitment and staffing sector particularly active. properties, with only a modest increase to 2.3%. The tight market for
On the supply side, choice continued to decline with no new office Grade A is underlined by the split in leasing transactions by quality,
space added to the market. The overall vacancy rate decreased to with just three small sized Grade A occupier transactions recorded
10.5%, down from 11.4% in Q2. Vacancy in the CBD remained in 2011 so far. Rental costs for the prime end of the market
particularly tight at a record low of 3.7% with occupiers having increased over the quarter. Prime rents for Grade A space in the
difficulties securing large, efficient floor plates in central locations. Beatrixkwartier increased by 2.4% to stand at €215 sq m per
Whilst choice in peripheral locations remains plentiful, available annum. Costs remained unchanged across all other submarkets
space is expected to remain low in central locations with a limited with prime rents for office space adjacent to the city centre ranging
amount of speculative space in the pipeline for the next few years. between €175 - €205 sq m per annum. Incentives were stable over
Prime rents increased for the second consecutive quarter, from SEK the quarter with rent-free periods remaining at 9 - 18 months,
4,100 per sq m to SEK 4,200 in Q3. Some further rental growth is assuming a 5-year lease.
expected, with prime rents forecast to edge up to SEK 4,300 per sq
m by the end of the year before stabilising in 2012. Rental levels in
peripheral office locations such as Kista and the adjacent suburbs
remained stable at around SEK 1,400 – SEK 2,000. Incentives
continue to be under pressure in prime locations with rent free
periods of 3-6 months achievable on a 5 year lease.


Utrecht Zurich

Cost: € 220 / sq m Competition: 22,400 sq m Choice:13.9% Cost: € 902 / sq m Competition: n / a Choice: 4.6%

The occupier market recorded a relatively slow quarter with six Strong demand for office space in recent quarters has led to rising
transactions reported. However, the total leasing volume was up by rents and low levels of availability. The market will also see a large
around 60% over the quarter, due to the 18,000 sq m transaction by volume of new supply. Over the next four years around 400,000 sq
Danone in the Rijnsweerd district. Competition for the best office m of new office space will be delivered mainly in Zurich West and
space in the city centre continues to be strong, in particular from Zurich Nord. Much of the new space has been taken by occupiers
banking, finance and public administration sector occupiers. present in the market already which are currently actively relocating
However, the absence of choice holds back activity with vacancy to this new, modern space from their CBD locations and gradually
estimated at just 2%. Choice is not expected to increase in the short releasing their former space. The new supply is expected to ease
term in the city centre. In the wider market choice increased in Q3, competition for space and increase choice in the CBD. Hence, the
with around 22,000 sq m of new office space added to Utrecht. Zurich CBD will soon face vacancies of an unprecedented quantity
Overall vacancy increased to 13.9%, the highest level ever which will put pressure on cost. Prime rents are at around CHF 1100
recorded. The majority of choice is located in peripheral locations per sq m. Expectations are that rents might see a further slight
such as the Papendorp district which accounts for roughly 20% of increase towards the end of the year but this may be short-lived.
total vacant office space. Whilst costs remained stable at the prime Outside the prime segment, rents range from CHF 350 to CHF 800
end, office space in secondary locations became less expensive in per sq m depending on location and quality, with second-hand
Q3. Prime rents in the city centre range between €190 - €220 per sq space seeing the biggest discounts.
m. Rental levels in the secondary/ peripheral locations such as
Kanaleneiland, Overvecht and Lage Weide/ Catesiusweg saw a
further 3%-4% decrease to range between €125 – 145 per sq m.

Western Corridor


The level of active named occupier requirements stabilised in Q3 at
c.300,000 sq m and continues to be dominated by the
Manufacturing and Services sectors, which together accounted for
around 88% of named enquiries in Q3. Deal activity improved to
reach 55,925 sq m, 9% higher than the five-year quarterly average.
Supply levels continue to be slowly eroded, driven in particular by
declining Grade A stock. This is most pronounced in the West
London submarket where the vacancy rate stands at just 2.9%, the
lowest level for nearly 10 years. There is currently around 33,305 sq
m of speculative space under construction, with only 3,902 sq m due
to complete before year-end. Prime rents increased marginally,
driven by upward pressure in Reading town centre and Chiswick.
Incentives were stable at 30 months rent free on a 10 year lease in
the Thames Valley and 24 months in West London. We expect
annual prime rental growth of 1.4% over 2011 as a whole.


Western European Corporate Occupier Markets at a glance

Competition
Choice (% Vacancy Rate) Costs (Rents EUR / sq m / pa)
(Take-up as a % of stock)
Market Q3 2011 12-month outlook Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook
WE
Amsterdam 0.9 17.1 335
Antwerp 1.6 11.5 145
Athens n/a 15.8 270
Barcelona 1.0 13.4 225
Berlin 0.8 8.8 252
Birmingham 1.3 20.1 356
Bristol 0.4 13.0 328
Brussels 0.9 10.9 300
Cardiff 1.1 10.8 250
Cologne n/a 8.2 258
Copenhagen n/a 8.6 242
Dublin 1.1 18.9 344
Dusseldorf 1.0 11.9 282
Edinburgh 0.6 6.0 337
Eindhoven 0.5 13.2 185
Frankfurt 0.7 13.6 396
Geneva n/a n/a 0.3 862
Glasgow 0.6 10.6 344
Gothenburg 0.8 8.2 250
Hamburg 1.2 8.8 282
Helsinki n/a 10.0 294
Leeds 0.9 10.6 323
Lisbon 0.3 11.7 228
London City 0.9 7.6 688
London West End 0.7 4.4 1187
Luxembourg 1.2 6.7 456
Lyon 0.8 6.5 270
Madrid 0.5 10.6 312
Malmö 0.6 7.1 228
Manchester 0.4 11.9 379
Milan 0.5 10.1 530
Munich 1.2 10.1 360
Oslo n/a 7.5 457
Paris CBD 1.7 4.5 750
Paris La Defense 0.5 5.0 590
Rome 0.2 6.3 420
Rotterdam 0.6 16.3 195
Stockholm 0.6 10.5 456
Stuttgart 1.0 6.5 216
The Hague 0.1 10.9 215
Utrecht 0.9 13.9 220
Western Corridor 0.7 13.8 330
Zurich n/a n/a 4.6 902


CENTRAL AND levels in the CEE region are a third higher than in the same
period last year, and volumes are anticipated to be well above
EASTERN EUROPE: 2010 levels by the end of the year. How long this demand will be
sustained, in light of recent macroeconomic turbulence is
Corporate Occupier uncertain. Across Europe, uncertainty and declining sentiment
Conditions are increasing the chances of corporate occupiers putting
expansion and relocation plans on hold. Strong domestic
demand will be crucial if CEE is to maintain current activity levels.
The intensifying Eurozone crisis, the threat of sovereign debt
contagion and associated market turbulence continues to With development finance still severely constrained, international
dominate news flow across Europe and set the back-drop for occupiers continue to face challenges in CEE sourcing
corporate real estate teams operating across the EMEA region. appropriate Grade A product in central locations. Development
Against this backdrop, Central and Eastern Europe has pipelines in Moscow and Warsaw in particular look well-stocked
continued to perform strongly. Forecasts point to a continued over the medium term, but in the short term, prime options
divide in the pace of growth between advanced and emerging remain much more limited than headline vacancy rates suggest.
economies. While GDP growth in the Eurozone has decelerated
and other activity indicators have worsened markedly in Q3, Prime rents remained stable over the quarter in all Central and
growth in Emerging Europe has been better than anticipated, Eastern European markets. However this stability comes after
partly due to the strong performance of CEE economies. Poland double digit percentage increases earlier in the year in Moscow,
in particular is forecast to see GDP growth at 4.2% in 2011, well Warsaw, and St Petersburg. Expectations for 2012 are likely to
above the European average, with the Czech republic and be dampened by the ongoing Eurozone crisis. Deflated
Hungary anticipated to record 2.0 and 1.0 % GDP growth confidence levels are beginning to feed through to net absorption
respectively this year. Russia too, is forecast to see solid GDP and leasing volumes in Western Europe, although the impacts
growth of 3.8% in 2011. have so far been uneven. An escalation of sovereign debt and
financial sector troubles to the core euro area would be likely to
Across Europe and despite a sombre economic backdrop, undermine growth in Central and Eastern Europe, given tight
demand for office space has held up well. The overall European financial and economic linkages. But to date, both economic
market is on track to at least match last year’s total take-up. growth and demand for office space have proven more resilient
However, the demand picture is becoming more mixed. Take-up in CEE markets than in their Western European neighbours.

*Central Europe and the Balkans

Exhibit 11: Central & Eastern Europe Office Occupier Clock

Moscow
Rental Growth Rents
Slowing Falling

Rental Growth Rents
Accelerating Bottoming Out
Zagreb

Warsaw
Belgrade
Krakow Bucharest, Budapest, Sofia
St. Petersburg Tri-City
Bratislava, Kiev, Prague


Belgrade Bucharest

Cost: € 186 sq m Choice: 22% Cost: € 228 / sq m Choice: 16.0%

Occupier activity remained fairly stable in Q3 2011, with a handful of Occupier activity reached almost 65,000 sq m in Q3 with most
transactions pushing total leasing volumes to around 4,500 sq m. activity in the centre north (including CBD), capturing 32% of take-
Competition is strongest for floor plates up to 700 sq m in the New up. Office activity (including renewals and renegotiations) so far in
Belgrade business district, where most of the Grade A stock has 2011 reached 212,000 sq m, the same levels as the whole of 2010.
been delivered in the last six years. Small to medium sized legal and No new completions were delivered to the market in Bucharest
media firms have been particularly active in recent quarters. On the leaving stock levels close to 1.85million sq m. In the last quarter we
supply side, the overall vacancy for Grade A and B office stock expect the completion of an additional 54,000sq m of space from six
declined to 22%, down from 23% in Q2. Prime rents remained buildings (50% being already pre-leased). The pipeline in 2012 is
stable at €15.50 per sq m per month for Grade A space in the limited to 120,000 sq m (50% preleased) comprising of some
Downtown area. Rental levels for Grade B space in the wider city projects delayed from 2011.The cost of prime space is still in the
centre also remained unchanged at around €10 - €13 per sq m per region of €19 per sq m per month with no major fluctuations
month. Incentives are still widely used with 3-months rent free (on a expected over the next three quarters.. The overall vacancy rate
5-year lease) achievable. Furthermore, reduced parking fees or the dropped to 16% with large leases being signed in existing buildings
allocation of free parking lots are increasingly used incentives to located in decentralized submarkets. Choice will continue to decline
attract occupiers. due to the limited pipeline over 2012 to H1 2013. The overall
incentive package is mainly applicable to large pre-leases which is
Bratislava crucial for any project to attract finance and commence construction
work.
Cost: € 198 sq m Choice: 10.8%

Occupier activity decreased over the quarter, with total leasing Budapest
volumes of 21,100 sq m, down 32% on q-on-q. However, at 64,500
Cost: € 240 / sq m Choice: 20.7%
sq m for the year so far, competition is strong compared to 2010.
Occupiers in the IT and telecommunications sectors have been Office activity increased by 39% q-o-q in Budapest to 65,950 sq m
most active, accounting for almost 40% of leasing volumes. On the with the highest demand recorded in Pest Central South submarket.
supply side, just over 40,000 sq m was added in Q3, with the There were no new completions released on to the market. Despite
completion of the Westend Square project (17,800 sq m) in the lack of new supply, choice remained relatively stable with a
Bratislava IV and the City Business Centre III – V (22,600 sq m) in vacancy rate of 20.7% at the end of the quarter. The highest
Bratislava II. Choice increased to 10.8% but the polarisation availability is still registered at the Pest Non-Central submarket,
between Grade A and B space continues to increase with choice for however the vacancy rate managed to decrease the most in this
Grade A space much more constrained. Whilst Q4 will not see any submarket (by 200 bps to 32%). The lowest speculative office
speculative completions, there are several projects currently under vacancy rate is registered at Buda North at 17.4%. Prime office
construction for next year, increasing choice in a number of districts. rents have been stable, standing at €20 per sq m per month.
Costs for prime office space in Bratislava’s best locations remained Average headline rents are in the range of €10-13.50 per sq m per
stable in Q3, with rents ranging around €14 - €17 per sq m per month depending on location.
month. Rental levels in the Inner City zone range between €10.5 -
€12.5 per sq m per month, while rents in the Outer City district have
stabilised between €8 -€10 per sq m per month. Costs are expected
to remain stable in the short term.


Kiev Moscow

Cost: € 313 / sq m Choice: 12.0% Cost: € 894 / sq m Choice: 16.6%

Occupier activity was relatively stable compared to last quarter with Moscow continued to witness strong demand in Q3 2011, 30%
take-up levels reaching 22,934 sq m. Activity was dominated mainly higher than the equivalent period last year. Despite the recently
by international companies with the manufacturing and business announced city-centre construction restrictions, the current pipeline
service companies the most active. Demand for office space is still is relatively high compared to other European cities with 2.5m sq m
price sensitive in the Kiev market, with the highest demand for still planned to come into the market by 2014. However International
Grade B stock. There has been a steady increase in total office occupiers looking for core prime space still have limited options as
stock over the last few years and in Q3 2011 the volume of only 20% of the current pipeline located is inside the CBD. In terms
completions was 31,950 sq m. There were four new Class B of choice, the vacancy rate decreased slightly to 16.6%, 20bps
business centres delivered to the market and still potential for further down from the previous quarter. The cost of prime space also
office stock development. The largest will be Premium Centre remained unchanged at US$1,000- 1,200 per sq m per annum
(36,000 sq m) located on the “Right Bank”. Choice declined with the (excluding operational expenses and VAT), Class A base rents
vacancy rate falling 50 bps to 12.0% driven by increased market amounted to US$600-850 per sq m per annum; Class B+ base rents
activity. Prime rents remained stable at US$420 / per sq m per amounted to US$400-600 per sq m per annum; and Class B- base
annum and no change is expected before the end of 2011. rents were US$300-400 per sq m per annum. The less competitive
buildings attract occupiers by additional incentives given by
Krakow landlords that include lower rental rates for the first year; a rent free
period (4-6 months) and partial fit-out compensation. The average
lease length is currently 5-7 years.
Krakow witnessed an increase in occupier activity in Q3 2011. There
were rising numbers of enquiries from occupiers seeking new office Prague
space with a short notice period of around 3-6 months. High levels
of demand are therefore anticipated in the next two quarters.
Occupiers’ enquiries are also focused on space under construction. Occupier activity was fairly subdued with volumes of 27,323 sq m,
The largest recent transaction signed was for 6,700 sq m in Bonarka down 10% from the equivalent period last year. Six new properties
4 Business, building B. Choice is relatively stable, however over were delivered to the market in Q3 2011, totalling 47,980 sq m. A
60,000 sq m is currently under construction. The cost of prime further 161,000 sq m is now under construction with completion
space in Krakow’s core central locations is stable at €14-15 per sq scheduled between Q4 2011 and Q1 2013. The cost of prime space
m per month. Effective rents remain lower than headline rents by has remained stable over nine consecutive quarters, although there
approximately €1.50 – 2.50 per sq m per month, especially for pre- are some signs that landlords of the very best space are considering
lets. Additionally, occupiers may receive cash contributions, moving higher asking prices. For the time being prime rents stand at €252.
cost coverage and fit-out contribution depending on the initial Rental levels on non prime buildings have also remained stable with
standard of a building and individual clients' requirement. Inner City projects commanding between €14.90-17.50 per sq m per
month and Outer City locations ranging between €13-14.50 per sq
m per month. Second hand products in all submarkets stand at
approximately €1.50 below the above mentioned ranges. The
pressure to provide incentives differs significantly from property to
property, depending on both the situation within the submarket and
the length of vacant period in the property itself.


St Petersburg Warsaw

Cost: €410 sq m Choice: 13.1 % Cost: € 300 / sq m Choice: 6.7%

The total volume of new choice entering the market in Q3 was Occupier activity in Q3 2011 reached 95,000 sq m, 22% up from the
67,200 sq m, the highest since the beginning of 2011. Six new office previous quarter. Demand is strong in the city with pre-lease
projects were delivered to the market in the last three months, agreements also picking up, with a 24% share this quarter. In terms
including the speculative part of a large-scale Class A project St. of choice, around 60,000 sq m was delivered to the market.
Petersburg Plaza (37,600 sq m of leasable space). The future office Although this may seem fairly robust, in reality 2011 is likely to see
projects currently under construction are limited with 100,000 sq m the lowest number of completions for six years with only 130,000 sq
scheduled for completion by the end of 2011 and only 150,000 sq m m delivered in total. Some new developments have been initiated on
is scheduled for completion next year. Occupier activity was a speculative basis as developers become more confident. At the
subdued in Q3 2011, reflecting the seasonally quieter summer end of Q3 2011, approximately 6.7% of the modern office stock in
months. Choice in the market has risen slightly with a vacancy rate Warsaw was vacant (7.0% in the CBD, 7.3% in the City Centre
of 13.1%. This upward movement is temporary and we expect the Fringe and 6.4% in Non-Central locations). In spite of a slight
trend to start falling as space is absorbed, although rental growth is increase in choice this quarter, Warsaw’s vacancy is still expected to
expected to remain limited amidst the high vacancy levels. Costs continue the downward trend. Prime headline rents remained
remained stable in Q3 with only minor changes explained by unchanged this quarter and prime office space in Warsaw City
currency rate at US$330-400 for Class A and US$250-320 for Class Centre can now be secured from € 22 to € 25 per sq m per month
B office buildings. although some exceptional buildings are quoting rents even higher
than this. The best Non-Central locations, such as Mokotów, are
Tri-City being leased at € 15.00 to € 15.50 per sq m per month.

Cost: € 144-174 / sq m Choice: 10.3%
Zagreb
Although office leasing activity is slightly ahead of last year most of
the take up now is from relocations from older buildings into newer
stock rather than into the City from outside. Only one new office Sentiment remains subdued, with just a handful of small lease
building of 1,550 sq m was released to the market in Q3 2011, transactions and renewals recorded in Q3. Occupiers are focused
leaving the level of choice relatively stable at 10.3% compared to on better quality / more efficient space, rather than actual
10.2% last quarter. Vacancy is expected to remain stable in Q4 expansion. On the supply side, choice increased to 9.5%, up from
2011; although it may increase slightly in 2012 as five buildings 8.5% in Q2. Furthermore, choice is likely to increase in the next two
providing over 30,000 sq m of available space are planned for years, with around 157,000 sq m currently under construction of
delivery in 2012. Prime rents are falling but we expect them to which approximately 23,000 sq m will be delivered before the end of
bottom out shortly. In Gdynia, prime rents are at ca. €14 per sq m 2011 with the completion of the Green Gold office building. Choice
per month. Sopot and Gdansk are slightly cheaper at €12 -€13 per is considerably lower in prime CBD locations as competition is
sq m per month. strongest for modern office space in central locations. Costs
remained stable in Q3, with rents for Grade A office space ranging
from €12 per sq m per month in the out-of-town locations to around
€17 per sq m per month for the best space in prime CBD locations.
Landlords remain reluctant to offer any tenant incentives, but with an
improved position, occupiers are now able to achieve rent free
periods of up to 2/3 months on a 5-year lease as well as
contributions towards fit out costs. The occupier negotiating position
is set to strengthen further in 2012, with choice expected to increase
amidst stable completion.


Central & Eastern Europe Corporate Occupier Markets at a glance

Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa)
Market Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook
CEE
Belgrade 22 186
Bratislava 10.8 198
Bucharest 16.0 228
Budapest 20.7 240
Kiev 12.0 313
Krakow 8.4 180
Moscow 16.6 894
Prague 11.8 252
St Petersburg 13.1 410
Tri-City 10.3 144-174
Warsaw 6.7 300
Zagreb 9.5 180


MIDDLE EAST AND education. These are translating into new expansionary office
demand. In Riyadh for example, the General Organisation for
AFRICA: Corporate Social Insurance is negotiating for a single tenant deal for some
80,000 sq m. A similar situation is apparent in Doha. Against a
Occupier Conditions backdrop of the Arab Spring, GDP growth of 13% and substantial
exports of liquefied gas, the state is equipped to spend.
Government agencies and affiliated companies continue to control
The region is very mixed in terms of economic and market outlook
much of the new and high quality stock and maintain rents at high
with political and social unrest hampering business investment. The
levels.
UAE has generally positioned itself as a safe haven from the
troubles and is better protected than most due to its oil output and
The markets in the UAE remain oversupplied and there is no clear
increased government spending. The finalisation of Dubai’s debt
end to this dynamic, although the future supply pipeline continues to
deal has also improved confidence and lifted the outlook. GDP
diminish. Many development projects are delayed given the
growth is forecast to be 5.1% over 2011 and 5.0% next year. In
economic environment. It should also be noted that much of the
Egypt, the Interim Government which took power in February is
emerging supply is located in areas outside of the well-connected
facing up to serious social and policy challenges which are creating
inner city areas demand by international occupiers or the licensed
a difficult operating environment for business. GDP forecasts have
sub-markets that are a pre-requisite for many financial occupiers.
been dramatically lowered to just 0.3% growth for 2011 compared
with a forecast of 5.8% at the start of the year. Forecasts have also
Real estate costs are also varied across the MEA region. Two
been downgraded in Morocco as regional unrest creates
markets, Casablanca and Istanbul, are predicted to witness rental
uncertainty.
growth over the next 12 months. Four of the sub-regions markets
are likely to witness rental stability whilst oversupplied markets such
In a number of the regions markets, demand levels have been
as Abu Dhabi, Doha, Jeddah and Riyadh will see rents under
inflated by an active government sector. The Kingdom of Saudi
downward pressure.
Arabia continues to display strong public spending and is
generously funding public services such as health care and

Exhibit 12: MEA Office Occupier Clock

Rental Growth Rents
Slowing Falling

Tel Aviv
Casablanca
Algiers
Rental Growth Rents
Accelerating Bottoming Out
Cairo, Abu Dhabi

Doha, Dubai, Jeddah

Riyadh

Istanbul, Johannesburg, Tunis


Abu Dhabi Cairo

Cost: € 355 / sq m Choice: 20.0% Cost: € 367 / sq m Choice: 35%

While estimations of the future supply for the market continue to be The Cairo office market is expected to see high volumes of
scaled back as developers cancel or delay projects, more than 1.1 completions, increasing stock from c. 700,000 sq m now to over 2.9
million sq m of additional office space could still enter the market million sq m by the year 2015. New choice will continue to be added
before the end of 2013. Overall choice increased to approximately to the new, preferred satellite areas. These areas have grown in
20% and is expected to rise further. Government entities and state- popularity and see the majority of demand as they offer modern
owned occupiers currently comprise the majority of competition for office stock, access to business services, amenities for staff,
large requirements. However, this has limited impact on demand in enhanced security and the opportunity to avoid the congested and
private developments as they typically occupy purpose built sites. polluted downtown areas of Cairo. However, accessibility is vital and
Competition for private sector buildings is dominated by the dedicated business parks on the outskirts of Cairo continue to see
professional services and financial sectors, along with engineering vacancies because of poor access. While activity is returning it
and construction firms and those in the energy sector. In the short continues to be focused on upgrading and yet many occupiers
term, occupier activity will be driven by existing occupiers upgrading remain in a “wait-and-see” mode until the medium future becomes
their space but many occupiers are also delaying decision making more obvious. As choice increases the balance of power has shifted
until the market has adjusted for further supply deliveries. Overall more towards the occupier, evident in increasing flexibility of
costs decreased over the quarter, with Grade A rents down in Q3 to landlords on rental terms. Asking rents for the Nile City Tower are at
AED 1,750 per sq m per annum, while rents for Grade B space US$50 per sq m per month and at US$44 per sq m per month for the
remained unchanged in Q3 (AED 1,300 per sq m per annum). Whilst Star Capital building. However average Grade A rents in Central
rents for both grades are expected to decline, Grade B quality rents Cairo are around US$41 per sq m per month and around US$22 per
are likely to drop at a greater pace. The expanding choice of high sq m per month in New Cairo.
quality space is making Abu Dhabi’s office market increasingly tenant
favourable and this will lead to further rental incentives and Casablanca
inducements.
Cost: € 220 / sq m Choice: 10%

Algiers The market continues to lack international Grade A quality space,
with the majority of new supply of Grade B or A- quality and designed
to suit local demand. While the supply situation is likely to improve
Demand for office space is starting to become increasingly driven by over the medium term, a lack of quality stock continues to be a
established foreign companies and those looking to hurdle the market constraint and it remains difficult for occupiers to find larger
legislative and authority constraints in setting up a business. single floor plates. Larger lots are more frequently available in larger
International Grade A office space still remains very scarce and developments such as the Marina or Anfa Place, which will be
supply of new space is often limited to residential conversions. The developed on euro-norm standards, alongside some singular
centre of Algiers continues to suffer from a poor operational developments in the area of Sidi-Maârouf. The latter continues to be
environment. Modern space is sporadic around the city apart from a popular office area alongside isolated developments in the CBD.
Bab Ezzouar, which is moving slowly towards a financial and The first deliveries of the Casablanca Marina are expected in 2012
business hub benefiting from good infrastructure, modern office but the pricing may be prohibitive to many given high costs of land
space and good accessibility. The ongoing construction of additional acquisition. Occupier demand remains high especially for larger and
towers will increase choice and bring larger floor plate availability. high quality space, but also as an effect of the decline in the
There are also signs of new, fully serviced properties starting to be business confidence in other countries in the area. In the core areas
planned around the Les Pins area as well as the Bab Ezzouar area. rents are around MAD 210 per sq m per month and continue to grow.
Overall Grade A office space is available at rents of DZD 3,500 - Rents for new Grade A new space in non-central areas have
4,200 per sq m per month. Good Grade B space which continues to remained at marginally to MAD 150 per sq m per month.
compete with Grade A space given its low availability remains at
levels of DZD 2,500-3,000 per sq m per month.


Doha Istanbul

Cost: € 435/ sq m Choice: 20 % Cost: € 360 / sq m Choice: 9.1 %

Recent turmoil in other countries in the region has not affected The Istanbul office market continues to see high volumes of new
Doha. Total city-wide office stock is currently estimated at 3.4 million supply. Since the beginning of the year 227,000 sq m has been
sq m with the majority of Grade A stock, approximately 1.2 million sq added, compared to a mere 62,000 sq m in the same period last
m, located in the Diplomatic District and West Bay. Office buildings year. For the rest of the year, another 190,000 sq m is expected to
in these areas continue to lead the prime market, housing major complete with a total volume of new supply of 793,000 sq m.
government bodies, financial institutions, oil and gas and other 242,000 sq m of this will be located on the Asian-side and 551,000
multinationals and can command a cost premium of up to 35% sq m on the European side. On the demand side, take-up remains
above average asking rental rates. Despite Qatar’s strong economic strong with 18,000 sq m leased in Q3. The total take-up for Q1-Q3
fundamentals, the market continues to see oversupply due to a 2011 reached 85,000 sq m, 46% higher than in the same period last
marked slowdown in competition and smaller requirement sizes. year. Despite this, the increase in demand wasn’t able to absorb the
Choice in West Bay has increased significantly and rents are under high levels of supply and vacancy rates increased further. While the
pressure. The overall vacancy rate stands at around 20%. vacancy for the overall market now stands at 9.1%, vacancy in the
Government sector activity has led to some stabilisation in costs CBD remains low at 3.2%. Prime rents remained stable at €30 per
with prime office rents now QAR 190 per sq m per month. Although sq m per month and are expected to remain stable until mid 2012.
government entities will continue to provide the major proportion of The completion of a few landmark projects are however expected to
office demand, we will see an increasing number of construction, lead to an increase in prime rents.
engineering and professional services occupiers setting up in Doha
to expand their regional operations, to service the large amount of Jeddah
infrastructure work in advance of the 2022 World Cup.

Dubai The office market continues to see new completions with 15,000 sq
m completed in Q3. The current estimate for completions by end
2013 is approximately 1.1 million sq m. However, actual deliveries
The future development pipeline has reduced significantly but might be lower as projects continue to be cancelled and delayed.
despite the welcome slowdown, the future supply pipeline for 2012 Nevertheless, the market will experience a major increase in supply
and 2013 still totals 1.3 million sq m, though consisting largely of in 2012 when Zahran business centre and Headquarter will be
strata-title properties in non-CBD areas. Despite increased supply, completed. Most of the pipeline supply will increase the availability
overall choice remained relatively unchanged at 44% city-wide (27% of quality space and increase competition amongst landlords for
for CBD Single Ownership Properties) indicating positive absorption tenants resulting in further incentives. The private sector remains
levels. On the demand side, foreign occupiers continue to be the major driver of competition which is focused on the CBD. Choice
cautious and delaying decision making. Occupiers remain selective in the CBD decreased from 29% in Q2 to 26% in Q3. However,
preferring single-ownership buildings in well-connected CBD citywide choice averaged at more or less same level of 15% during
locations. Competition in the short term will remain driven by Q3 2011. The high volume of supply is certainly not being able to be
occupiers looking to upgrade to better quality and / or locations at absorbed by future demand and vacancy is expected to increase.
lower rents. Costs remained unchanged on the quarter, with prime Office rents remained stable in Q3. Overall, Grade A rents are
rents in the CBD stable at AED 1,615 per sq m per annum although around SAR 1,050, per sq m per month while Grade B rents
the range of buildings being able to attract these rents has average SAR 882 per sq m per month. Average city-wide rents
decreased. Rents in the DIFC remained stable, too, at AED 1,615- stabilized around SAR 700 per sq m per month during Q3 2011.
2,370 per sq m per annum. Space outside the CBD or DIFC
decreased to AED 1,060 per sq m per annum in Q3 2011. While the
lower end of asking rents remained stable, the higher range reduced
in many parts as landlords compete aggressively for occupiers,
offering generous incentives which continues to widen the gap
between asking and achievable rents.


Johannesburg Tel Aviv

Cost: € 205 / sq m Choice: 10.5% Cost: € 307 / sq m Choice: 3-4%

Competition for office space in Q3 2011 was strongest in secondary Israel’s economy continues its expansion course despite the weaker
sub-markets which offer a rental discount relative to prime. prospects for the Eurozone and the US. The worries about the
Accessibility remains a key factor and nodes within reach of the new outlook for the Eurozone and the US are mainly of relevance for a
Gautrain transport network, are expected to see an increase in few international occupiers that are reviewing earlier expansion
deals, with enquiries already increasing. Office supply in plans. However these headwinds have not had any effects on local
Johannesburg increased by 97,000 sq m, to total nearly 8.5 million businesses or developers and the market for commercial properties
sq m. In the current climate, the new stock offers occupiers remains characterised by ongoing strong demand for office space
increased opportunities to upgrade. Vacancies in Q3 demonstrated and low volumes of new supply. Supply – existing and new - is very
a marginal decline from 11.1% to 10.5. Choice varies between tight, especially in the City centre and occupiers struggle to find
nodes with areas such as Illovo, Morningside, Houghton and Milpark Grade A space especially if looking for larger floor plates. At ILS 125
witnessing rates below 6% with more secondary nodes (notably the per sq m per month, prime rents increased slightly over the quarter.
Johannesburg CBD and Randburg) with rates as high as 15%. However landlords face increased reluctance from occupiers to pay
Average gross rents for Grade A offices range around ZAR 140 - these levels. Rents in areas such as Herzliya or Ra’anana in the
150 per sq m per month. Occupiers are increasingly focussed on North of Tel Aviv offer modern office space too, but at a significant
consolidation, increased space utilisation and in some cases are discount to prime with ILS 70-80 per sq m per month and ILS 65-70
prepared to relocate from prime to secondary nodes in an attempt to per sq m per month respectively. These areas prove particularly
alleviate the increasing cost of occupancy. Gross rentals for Prime popular with occupiers from the software and high-tech industry.
A+ office space appear to have reached a ceiling in 2010 and
corporate occupiers have offered strong resistance in 2011 to move Tunis
beyond that level, particularly as costs for utilities continue to
Cost: € 80 / sq m Choice: 12 -15%
increase. Prime rents in Q3 2011 remained at ZAR 185 per sq m
per month. Tunis is in the early stages of evolving towards an office market of
international standard and many developers have restarted
Riyadh development projects. The majority of the existing stock does not
meet international standards and only a fraction of the market is
Cost: € 397/ sq m Choice: 12%
available for lease as the dominating local private developers
Office space in Riyadh increased by 20,000 sq m over the quarter continue to prefer selling a building after completion for owner
and the market is expected to experience a supply shock of c 1.4 occupation. While this is likely to persist over the near future, leasing
million sq m when Granada Business Park, KAFD, and Olaya Tower is now becoming an accepted practice considered for international
complete in 2013/2014. Actual deliveries may be lower or delayed occupiers. The main area for new construction of Grade A office
as developers are finding it difficult to meet their deadlines due to space remains around the “Lac de Tunis” which is increasingly seen
the huge work load for contracting firms. On the demand side, as the new prime office area offering a more secure environment
Riyadh is usually heavily influenced by public sector activity and is seen as the main business location. Vacancy in the “Lac de
although the private sector was more active over Q3. Choice Tunis” area in the past has been considerably lower than in other
remained at Q2 levels, with city-wide vacancies of 12% and parts of Tunis and will be more so given the operational advantage
vacancies inside the CBD decreasing to 16%. Office rents were of the area. This will accelerate possible business relocations from
almost at the same level as Q2 with average rents paid for CBD the city centre and also the development of other neighbouring
space are c. SAR 1,060 per sq m per month with prime Grade A business centres of around Lac de Tunis. For the short term, rents
space commanding asking rents of SAR 2,000 per sq m per month are expected to remain unchanged at around TND 160 per sq m per
compared to high quality space which usually trades around SAR annum with current occupiers cautious about timing.
1,300 per sq m per month. Grade B rents average SAR 1,075 per sq
m per month. With new supply being delivered early next year,
rental levels are likely to face further downward pressure.


Middle East and African Corporate Occupier Markets at a glance

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

Market Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook
MEA
Abu Dhabi 20.0 355
Algiers 4 480
Cairo 35 (Grade A: 5) 367
Casablanca 10 220
Doha 20 465
Dubai 44 328
Istanbul 9.1 360
Jeddah 15 209
Johannesburg 10.5 205
Riyadh 12 397
Tel Aviv 3-4 307
Tunis 12-15 80

Business Contact: Corporate Solutions

Vincent Lottefier
Chief Executive Officer
EMEA Corporate Solutions
Paris
+33 1 40 55 49 92
vincent.lottefier@eu.jll.com

Report Contacts: Research

Dr Lee Elliott
Director
EMEA Research
London
+44 (0)20 3147 1206
lee.elliott@eu.jll.com

Tom Carroll
Associate Director
EMEA Research
London
+44 (0)20 3147 1207
tom.carroll@eu.jll.com

Acknowledgements:
We gratefully acknowledge the help and assistance of the following Jones Lang LaSalle alliance partner firms in the preparation of some of
this material: Akershus Eiendom AS, Athens Economics and Sadolin & Albæk.

EMEA Corporate Occupier Conditions – November 2011
OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised
surveys and forecasts that uncover emerging trends.

www.joneslanglasalle.eu

COPYRIGHT © JONES LANG LASALLE IP, INC. 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of
Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We
would like to be told of any such errors in order to correct them.

Corporate occupier conditions

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