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