EMEA Corporate Occupier Conditions - Q4 2011 Western Europe

EMEA Corporate Occupier Conditions - Q4 2011

Western Europe: Corporate
Occupier Conditions
Falling sentiment increases pressure on CRE teams

2 On Point • EMEA Corporate Occupier Conditions – Q4 2011

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
suggests further downside risk on development completions, with
The fragility of the economic recovery has been in the spotlight the prospects of current development projects being cancelled or
since late July. Sovereign debt problems and the risk of postponed significantly heightened.
contagion has brought heightened turmoil in the financial markets
and is weighing down on consumer and business confidence. Aggregate European prime rents hardly changed during Q3 2011
Regional economic disparities persist with marked contrasts although there was variance in performance across Western
between Germany and the Southern European economies. The Europe. Prime rents increased in Stockholm and The Hague
continued need for fiscal consolidation in most countries and (2.4% q-on-q), Hamburg (2.2%) and Milan (1.9%) whereas rents
weak global recovery suggests growth will be slow and moderate decreased in Brussels (-3.2%), Dublin (-3.0%), Madrid (-1.9%)
in 2012 with uncertainties over the future outlook remaining. and Edinburgh (-1.8%). All other Western European markets
saw prime rents unchanged q-on-q.
Demand for office space across Europe actually improved q-on-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

On Point • EMEA Corporate Occupier Conditions – Q4 2011 3

Amsterdam Athens

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

Occupier activity picked up slightly in Q3, with leasing volumes GDP contracted by 3.5% in 2010 according to Eurostat and 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

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
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EMEA Corporate Occupier Conditions - Q4 2011 Western Europe

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