London is what it s all about at

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“

L

ondon is what it’s all about at the moment,” declares Tony Gibbon of GM Real Estate, reflecting on the seemingly endless flow of overseas money streaming into the capital in search of prime office stock. He points particularly to the

Canadians, Australians and South Africans observing, by way of

explanation, that: “They are all taking a lot of stuff out of the ground,” and to the expanding pension funds in emerging economies.

Some £3.5 bn was spent in the first three months of the year, according to DJ Deloitte, of which £1.3bn was in the City. Jones Lang La Salle, recorded similar volumes and pointed out that the City experienced its highest first quarter total since 2007, driven by five sales over £100m. The biggest was the Tower 42 estate, bought by South African investor Natie Kirsh for £282.5m, bearing out Gibbon’s observation.

It doesn’t feel so good in the occupational markets, but Gibbon has an answer for that too: “We have been saying for years that it would take until 2013 for the occupational market to recover in the City.” Most agents agree that 2012 will not be an easy year and the slow start bears that out. Just 2m sq ft has been let across central London in the first three months. The City turned in the most disappointing performance, with only 520,000 sq ft let in the core and the biggest letting in the heart of the City was to a construction company, Mace, which took 66,000 sq ft in Moorgate Hall, EC2. In fact,

the traditional City employment sectors were notably absent. Pushbutton, Amazon’s TV business, took the second largest letting in the core and on the fringe, another construction company, Amec, signed the largest letting.

The West End fared better, recording a lettings total of 775,000 sq ft, broadly in line with its five-year average and, perhaps more tellingly, 27% of that was prelet, highlighting the constraints on supply. According to Mat Oakley at Savills, “More than half of West End submarkets have less than a year’s supply.” Two luxury retail brands, Burberry and Jimmy Choo, signed prelets in Victoria. Burberry took 125,000 sq ft in 1 Page Street, SW1 and Jimmy Choo took 36,000 sq ft in Ashdown House, Victoria Street, SW1. Their prominence is interesting because it reflects the zeitgeist – luxury retail brands are one of London’s, and indeed the UK’s, success stories and a key driver of that success has been the growing number of super-wealthy shoppers from the world’s emerging economies.

There is a fairly strong consensus that a combination of lease expiries or breaks and economic recovery will drive growth from late 2012 onwards. Already the volume of active demand is rising. According to figures from Cushman and Wakefield, there is 8.7m sq ft of active demand in central London. A quarter of that is from businesses in the media sector and 15% from ICT – equating to 40% for what is generally known as TMT (technology, media and telecommunications). Banking and financial businesses account for 19%

London’s leading lights

London Offices market analysis

Overseas cash is streaming into the capital in search of

prime offices, writes Sandra Jones for EGi London Offices

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Markets

City core EC1A, EC2M, EC2N, EC2R, EC2Y, EC2V, EC2A (only Finsbury Pavement, Finsbury Square, Appold Street and Chiswell Street), EC3, EC4 (excluding EC4A and EC4Y)

City fringe EC1M, EC1N (excluding postcode sector 2), EC1R, EC1V, EC1Y, EC2A (excluding Finsbury Pavement, Finsbury Square, Appold Street and Chiswell Street), E1

South BankSE1 postcode sectors 0, 1, 2 and 9

Docklands E14

Midtown EC4A and EC4Y, EC1N (postcode sector 2), WC1, WC2 (excluding Leicester Square)

West End W1, SW1, NW1 sectors 2 (Euston Road only), 3, 5 and 6, Leicester Square (WC2) and W2 sectors 1, 2 and 6

Additional markets

South Central Remainder of SE1 and all of SE11

North Central Remainder of NW1 and N1, N7 and E8

West Central Remainder of W2 and all of W6, W8, W14, SW3, SW5, SW6, SW7 and SW10

Data

Building stock Any office building over 93m2_{(1,000 sq ft) in City}

Core, West End, Midtown, Docklands, City Fringe and South Bank and over 465m2_{(5,000 sq ft) in North Central, West Central and South}

Central

Availability Any unit above 93m2_{(1,000 sq ft) in buildings subject to}

the above stock thresholds

Take up Any unit above 232m2_{(2,500 sq ft) subject to stock}

thresholds

Planning Any project over 232m2 (2,500 sq ft) subject to stock thresholds

Definitions

Quarters For data collation reasons, our quarters run from the 1st of the month to the last day of the 3rd month: ie, 1 January to 31 March; 1 April to 30 June; 1 July to 30 September and 1 October to 31 December. Some data in this report is given in half-years for space reasons.

Agency league tables The total space disposed by each agent adds up to more than total take-up. This is because space in joint agency deals has been attributed to all agents involved. The market share is each agent’s share of take-up, not the total of all agents. The tables include all completed deals over 93m2_{(1,000 sq ft) within our}

boundaries including prelets and excluding space under offer, lease renewals, restructures, management agreements or investment sales.

Availability rates Total building stock figures divided by vacant space which is actively being marketed. Neither figure includes space under construction or yet to commence construction.

Availability and take-up New/refurb (existing) is a combined total of newly constructed and refurbished space; Premarketing is any space marketed which is yet to commence construction; Secondhand is any space which has previously been occupied; Under Construction is a combined total of refurbishment and redevelopment projects currently under construction. Space under offer is included. Investment properties are not included.

Average asking prices An average of asking prices by grade of space by market. Only space available on new leases with a quoting rent is collated. Space under offer has been included. Please note that Secondhand Grade A space is previously occupied units with air-conditioning and one or more of raised floors, underfloor trunking or perimeter trunking.

Investment sales Subject to stock thresholds, a total of space sold as freehold, long leasehold or virtual freehold, both for investment and for owner occupation.

Construction starts with prelets A total of space commencing refurbishment or redevelopment by quarter with a total of that space prelet. This includes space not on the market.

Completed space actively marketed Simply a total of completed refurbishments and redevelopments being actively marketed by quarter. Includes space let but never occupied.

Completions with space available A total of all office space currently under construction by completion date with how much is still available. This includes space not on the market.

WhAT LONDON OffICES MONITOrS

and professional services, including the legal sector, for 23%.

Pushbutton’s 47,000 sq ft acquisition in Glasshouse Yard, EC1, was the most high-profile letting from the TMT sector in this quarter, but Skype is expected to take 50,000 sq ft in Waterhouse Square. There are also active requirements from Linkedin, Salesforce, Mimecast,

Mindshape and many others and, of course, the expectation that Google will take 700,000 sq ft at King’s Cross.

The contribution of this dynamic sector to London’s office market will be enormous. The larger requirements tend to gravitate to the areas between the City and the West End. East of the City and around Old Street Roundabout has become a focus for small and start-up businesses. Google’s Campus building in Shoreditch apparently has a waiting list of more than 800 new

technology companies and was filled by 90 start-ups just two weeks after opening.

According to a GLA study, “London’s Digital Economy”, London has 23,740 ICT and software companies already. This looks like a fertile source of new demand, as businesses mature and perhaps look further west.

Cushman & Wakefield has increased its rental forecasts this quarter to reflect growing confidence, improving economic sentiment and falling vacancy rates. EGi data shows that availability rates fell in the West End and Midtown in Q1. In the City core, the availability rate remains high at 12.5% and there is another 3.7m sq ft under construction. Prime rents in the City core are around £55 per sq ft now, compared with £60 per sq ft or more in Covent Garden, Soho and Victoria and £95 per sq ft in Mayfair and St James’s.

At these rents, the City starts to look like good value and shortages can arise very quickly if only a few large requirements are converted into

lettings. According to C&W, there is 1.2m sq ft under offer in the City and, while there is a lack of urgency, these will complete in the next few months. James Roberts of Knight Frank says: “A year ago, we were predicting an

oversupply of towers in

2014, now we are expecting shortage.” He points to 100 Bishopsgate and Principal Place, neither of which will be built without a prelet, and the stalling of The Pinnacle.

Kevin McCauley of CBRE sees positive signs, such as “supportive economic data” from the US and the resolution to the sovereign debt crisis in Europe (at least for the time being) as the catalyst to releasing pent-up demand and prompting mergers and acquisitions, which will provide momentum to the market by the end of 2012.

The financial services sector has been upstaged by other sectors in the past year, but it remains a major driver for the future of London. There are many statistics to show London’s pre-eminence in this sector. For instance, twice as much foreign exchange trading occurs in London as in New York and Tokyo combined. According to CityUK, there are 800 hedge funds in London and they manage 85% of Europe-based assets. CityUK also reports that the UK is the leading western provider of Islamic finance.

The question is whether it can maintain its pre-eminent position as rival financial centres develop in emerging economies. GLA employment forecasts suggest that there will be far more growth in business and professional services than financial services in future, but as businesses in emerging economies seek to raise capital, London looks like the best place for them to do it.

It was reported recently that Sherbank, Russia’s biggest bank, is about to launch a

£3.7bn London share offering, in what, according to the Sunday Times, “could

be the first of a string of fund raisings by Russian companies”.

China doubled the size of its trading band with the dollar this month – another step towards

becoming a global currency – and London looks likely to

be one of its key trading centres. In the latest

Global Financial Centres Index, published by Z/ Yen Group, London stays comfortably in first place, while ratings for Hong Kong, Singapore and Shanghai have fallen.

So, it seems the view that London really is “what it’s all about at the moment” looks highly plausible.

overview

London offices market anaLysis

➔Jimmy Choo took 36,000 sq ft in Ashdown house, Victoria Street, SW1

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Rank Agent City West End disposalsNo of

1 Jones Lang LaSalle 21 15 36 2= DTZ 11 22 33 2= CBRE 15 18 33 4= Anton Page 22 22 4= Knight Frank 4 18 22 6 Monmouth Dean 21 21 7 GVA 10 8 18 8= Frost Meadowcroft 17 17 8= Edward Charles & Partners 17 17 10 Drivers Jonas Deloitte 10 6 16 11= Cushman & Wakefield 7 8 15 11= EA Shaw 15 15 11= Strutt & Parker 9 6 15 14= Newton Perkins 14 14 14= Hatton Real Estate 14 14 14= HNG Limited 14 14 14= Savills 7 7 14 18= Richard Susskind & Co 12 12 18= Ingleby Trice 12 12 18= H2SO 12 12 21 Strettons Limited 11 11 22 BDG Sparkes Porter 10 10 23= BNP Paribas Real Estate 5 4 9 23= Crossland Otter Hunt 9 9 23= Montagu Evans 2 7 9 23= Tuckerman 9 9

To download an electronic version of this report, or to access the archive of previous reports, go to www. estatesgazette.com/london-offices

Jones Lang La Salle advised on the disposal of more Central London office space than any other agent in Q1 2012. It secured top position with 18% of the market, in just under 400,000 sq ft, and 34 deals. DTZ took second place with 16% of the market in 31 deals and CBRE was third, with a 14% share and 28 deals. These agents dominate Central London lettings, occupying the top three positions for 7 of the last 9 quarters.

JLL acted on the largest transaction - 125,200 sq ft, let to Burberry at 1 Page Street, SW1 with DJ Deloitte and this deal accounts for two-thirds of DJD’s 9% share, helping to secure fourth place.

DTZ disposed of 103,000 sq ft, at 240 Blackfriars Road but this fell outside the area covered by our tables. It acted on four other transactions of more than 25,000 sq ft including Moorgate Hall, cited above and 51,100 sq ft let to the Crown Prosecution Service in 1 Drummond Gate, SW1.

Agents on the City’s largest transaction in Q1 - 66,000 sq ft at Moorgate Hall, 155 Moorgate, EC2, were CBRE and Savills. Savills was one of three agents that achieved a 6% market share but a marginally higher total square footage put it in fifth place, ahead of Knight Frank in sixth and H2SO in seventh.

Since 2010, this is the first time H2SO has made the top ten, earning its place with 12 transactions including 35,000 sq ft (Marcol House, 33 Margaret Street, W1) and 37,000 sq ft (Ashdown House, 123 Victoria Street, SW1).

Farebrother made the top 10 for the third consecutive quarter, moving from tenth to eighth. Its appointment on Farringdon Place, 20 Farringdon Road, EC1, has been instrumental.

1 Drummond Gate, SW1: 51,000 sq ft let to Crown Prosecution Service

Jones Lang La Salle acted on more disposals than any other agent, with 36 transactions – the lowest winning total for nine quarters. DTZ and CBRE took second and third respectively, with 33 transactions each.

JLL’s City office upstaged its West End colleagues this quarter with 21 deals compared to 15 from the West End. At DTZ and CBRE the roles were reversed with the West End outshining the City by 22:11 at DTZ and 18:15 at CBRE.

This table often highlights niche firms active in the smaller unit market. Frost Meadowcroft is a good example. It has not featured in this table in the past two years, but in Q1 it was involved with 17, putting it firmly in the top ten when ranked by number of disposals and yet it does not make the top 25 by square footage.

Anton Page, sixteenth by square footage, is joint fourth when measured by number of disposals and first for deals from a City office. Monmouth Dean is fourteenth by square footage but sixth in this table and second of the West End offices. Anton Page has made the top ten of this table in five of the last nine quarters and Monmouth Dean in three. In joint eighth place was Edward Charles, which has appeared in this table for four consecutive quarters.

Knight Frank has been unusually consistent with between 19 and 22 transactions per quarter in six of the last nine quarters. Cushman & Wakefield is notable by its absence. It was in the top ten for seven consecutive quarters but dropped out in Q4 2011 and only made joint eleventh in Q1 2012.

Agents’ shAre by number of

disposAls done - Q1 2012

CentrAl london letting Agents

leAgue tAble - Q1 2012

disposAls done - offiCe breAkdown 2012

Jones lAng lAsAlle

42%

_{west end}

58%

_City dtZ

67%

_{west end}

33%

_City Cbre

55%

_{west end}

45%

_City Anton pAge

0%

west end

100%

_City knight frAnk

82%

_{west end}

18%

_City Sour ce: EGi London Offic es Sour ce: EGi London Offic es

Rank Agent Sum of Size

(Sq Ft) dealsNo of Market share

1 Jones Lang LaSalle 398,733 34 18% 2 DTZ 350,641 31 16% 3 CBRE 313,401 28 14% 4 Drivers Jonas Deloitte 197,515 16 9% 5 Savills 142,901 12 6% 6 Knight Frank 140,874 20 6% 7 H2SO 129,428 12 6% 8 Farebrother 122,262 17 5% 9 BNP Paribas Real Estate 107,019 9 5% 10 Edward Charles & Partners 97,629 14 4% 11 GVA 96,111 18 4% 12 Hatton Real Estate 93,384 12 4% 13 Strutt & Parker 91,087 15 4% 14 Monmouth Dean 85,091 21 4% 15 Cushman & Wakefield 67,304 15 3% 16 Anton Page 64,962 21 3% 17 EA Shaw 59,297 13 3% 18 Hall Kemp 47,373 10 2% 19 Ingleby Trice 46,993 12 2% 20 Newton Perkins 43,487 14 2% 21 BDG Sparkes Porter 31,369 10 1% 22 Crossland Otter Hunt 31,045 9 1% 23 Strettons 30,790 11 1% 24 Cherryman 29,836 4 1% 25 Montagu Evans 29,821 9 1%

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For any data queries, please contact theresa.keogh

@

egi.com or call 020 7911 1878

summary statistics

City core City fringe Docklands Midtown South Bank West End Overall

2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 Q1 Q1 Q1 Q1 Q1 Q1 Q1

Takeup (m sq ft) annual or quarter total

New/Refurb existing 1.75 0.68 0.13 0.28 0.25 0.02 0.13 0.00 0.00 0.57 0.54 0.02 0.02 0.03 0.02 0.73 0.48 0.04 3.48 1.97 0.23 Premarketing 1.20 0.00 0.00 0.00 0.02 0.00 0.00 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.10 0.02 1.20 0.37 0.02 Secondhand 2.12 2.04 0.39 1.02 1.04 0.17 2.08 0.39 0.11 1.11 0.88 0.25 0.17 0.44 0.07 2.56 1.99 0.51 9.06 6.79 1.50 Under Construction 0.20 0.23 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.24 0.21 0.26 0.47 0.21 Total 5.27 2.95 0.52 1.30 1.31 0.19 2.22 0.64 0.11 1.73 1.42 0.27 0.19 0.47 0.09 3.29 2.81 0.78 14.00 9.61 1.95

Availability (m sq ft) annual quarterly average or quarter end

Q1 Q1 Q1 Q1 Q1 Q1 Q1 New/Refurb existing 2.01 2.32 2.28 0.36 0.23 0.13 0.50 0.42 0.21 0.61 0.31 0.36 0.06 0.04 0.01 0.88 0.57 0.52 4.41 3.90 3.53 Premarketing 5.98 5.04 4.99 2.16 1.77 1.76 5.44 4.96 3.60 0.81 0.83 0.97 0.82 0.56 0.41 1.26 0.94 0.67 16.47 14.10 12.41 Secondhand 4.32 4.50 4.86 2.01 1.68 1.59 1.49 1.20 1.21 2.72 2.50 2.29 0.84 0.81 0.58 5.08 3.58 3.09 16.46 14.26 13.61 Under Construction 2.49 3.17 3.66 0.14 0.47 0.19 0.55 0.31 0.39 0.30 0.38 0.49 0.40 0.94 1.10 0.58 0.99 0.83 4.47 6.26 6.66 Total 14.80 15.02 15.80 4.66 4.15 3.67 7.99 6.88 5.41 4.44 4.02 4.11 2.12 2.36 2.10 7.80 6.09 5.12 41.81 38.52 36.21

Availability rate % annual average or quarter

Q1 Q1 Q1 Q1 Q1 Q1 Q1 % 11.03% 11.63% 12.48% 10.79% 8.66% 7.85% 8.63% 7.54% 7.63% 10.48% 8.81% 8.66% 7.88% 7.44% 5.51% 9.40% 6.57% 5.67% 9.70% 8.44% 7.97%

Under offer and withdrawn (m sq ft) quarter or quarterly average

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Under offer 0.46 0.46 0.35 0.15 0.24 0.13 0.13 0.03 0.01 0.31 0.24 0.16 0.04 0.11 0.04 0.42 0.31 0.20 1.52 1.39 0.88 Withdrawn 0.11 0.19 0.29 0.11 0.07 0.02 0.27 0.03 0.01 0.10 0.13 0.09 0.07 0.02 0.02 0.14 0.13 0.19 0.80 0.56 0.62

Average asking prices (£ per sq ft) quarter or quarterly average

*New leases only Q1 Q1 Q1 Q1 Q1 Q1 Q1 New Build Existing £44.87 £49.89 £46.84 £14.40 £27.50 N/A £40.88 £39.21 £35.00 £47.19 £47.66 £53.33 £36.88 N/A N/A £73.86 £70.79 £79.93 £43.01 £47.01 £53.78 Second-hand Grade A £32.33 £33.54 £36.35 £24.15 £22.58 £25.22 £30.19 £33.07 £32.86 £34.65 £34.47 £39.23 £27.41 £24.43 £42.98 £45.80 £47.94 £53.52 £32.42 £32.67 £38.36

Investment sales (m sq ft) annual or quarter total

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Total sq ft 2.23 4.79 1.04 1.48 1.36 0.38 1.72 0.01 0.62 1.73 2.33 0.33 0.42 0.06 0.00 2.01 2.14 0.54 9.59 10.69 2.92 No Transactions 28 56 14 24 36 9 6 1 2 29 48 8 12 4 0 77 73 13 176 218 46

Construction starts (m sq ft) annual or quarter total

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Total started 1.39 1.83 0.99 0.09 0.26 0.11 0.01 0.00 0.58 0.26 0.20 0.00 0.01 0.51 0.24 1.05 0.73 0.08 2.81 3.53 2.00 Prelet 0.00 0.19 0.70 0.01 0.05 0.00 0.00 0.00 0.25 0.00 0.00 0.00 0.00 0.01 0.00 0.04 0.18 0.00 0.05 0.43 0.95 Speculative 1.39 1.64 0.29 0.08 0.21 0.11 0.01 0.00 0.33 0.26 0.20 0.00 0.01 0.50 0.24 1.01 0.55 0.08 2.76 3.10 1.05

Completed space still available (m sq ft) (completion by full year or part of year)

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Total completed 1.49 1.01 0.00 0.39 0.05 0.11 0.00 0.01 0.00 0.91 0.16 0.02 0.50 0.00 0.00 0.86 0.44 0.04 4.15 1.67 0.17 Still available 0.58 0.71 0.00 0.00 0.02 0.04 0.00 0.00 0.00 0.03 0.23 0.02 0.00 0.00 0.00 0.12 0.18 0.02 0.73 1.14 0.08

Future completions (m sq ft) for full year or part of year

Delivery date 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 Total to complete 0.52 0.51 1.92 0.39 0.08 0.00 0.00 0.00 0.58 0.35 0.06 0.00 0.66 0.67 0.00 0.74 0.89 0.00 2.66 2.22 2.49 Amount still available 0.52 0.51 1.02 0.39 0.08 0.00 0.00 0.00 0.32 0.35 0.06 0.00 0.65 0.67 0.00 0.69 0.74 0.00 2.60 2.07 1.35 % still available 100% 100% 53% 100% 100% 0% 100% 0% 56% 100% 100% 0% 99% 100% 0% 93% 84% 0% 98% 93% 54%

Market Address Tenant Size (Sq Ft) Agent

West End 1 Page Street, SW1 Burberry 125,162 Jones Lang LaSalle/Drivers Jonas Deloitte City core Moorgate Hall, 155 Moorgate, EC2 Mace Group 66,020 CBRE/Savills

West End 1 Drummond Gate, SW1 Crown Prosecution Service 51,097 DTZ

City core Glasshouse, 26-28 Glasshouse Yard, EC1 Push Button 47,319 BNP Paribas Real Estate/Hatton Real Estate West End Ashdown House, 123 Victoria Street, SW1 Jimmy Choo 36,855 H2SO/CBRE

West End Marcol House, 33 Margaret Street, W1 Savills 34,893 Knight Frank/H2SO City fringe Farringdon Place, 20 Farringdon Road, EC1 Amec plc 33,456 Farebrother/Jones Lang LaSalle City core Mermaid House, 2 Puddle Dock, EC4 Serviced Office Group 33,036 DTZ

City fringe Farringdon Place, 20 Farringdon Road, EC1 Karma Communications Group 32,455 Farebrother/Jones Lang LaSalle West End 1 Curzon Street, W1 Kedge Capital Services 28,865 Jones Lang LaSalle City core Langbourne House, 10 Fenchurch Street, EC3 Undisclosed letting 27,937 BNP Paribas Real Estate/DTZ Docklands 10 Upper Bank Street, E14 LOCOG 26,190 CBRE/GVA

City core One New Change, 1 New Change, EC4 CBRE Global Investors 25,230 DTZ/Savills City core 99 Bishopsgate, EC2 Latham & Watkins 23,559 Jones Lang LaSalle/CBRE Midtown New Printing House Square, 222-236 Gray's Inn Road, WC1 Bindmans and Co 21,003 GVA

Key transactions – all marKets

summary

london offices marKet analysis

(5)

Agents’ mArket shAre by mArket – Q1 2012

Market Address Grade Size (Sq Ft) Agent

West End Kingsgate House, 66-74 Victoria Street, SW1 Premarketing 180,000 Knight Frank

Midtown The Adelphi, 1-11 John Adam Street, WC2 Secondhand 163,573 Lambert Smith Hampton/Farebrother West End 2-16 Baker Street, W1 Premarketing 123,248 Knight Frank

Docklands 11 Westferry Circus, E14 Premarketing 101,503 Savills/Knight Frank City core Gartmore House, 8 Fenchurch Place, EC3 Premarketing 94,379 Gerald Eve/Ingleby Trice Midtown 22 Kingsway, WC2 Second-hand 89,750 DTZ/Farebrother/Jones Lang LaSalle Docklands 25 Canada Square. E14 Second-hand 89,053 Knight Frank

Midtown 1 Mabledon Place, WC1 Premarketing 87,295 Knight Frank/Drivers Jonas Deloitte City core Centurion House, 24 Monument Street, EC3 Premarketing 80,450 Knight Frank

City core 63 St Mary Axe, EC3 Premarketing 75,985 Knight Frank City core Centennium House, 100 Lower Thames Street, EC3 Second-hand 65,785 DTZ City core The Rex Building, 62 Queen Street, EC4 New/refurb existing 62,323 Knight Frank West End Kingsley House, 1a Wimpole Street, W1 Premarketing 59,554 Strutt & Parker/CBRE Midtown 6 Agar Street, WC2 Premarketing 57,103 EA Shaw/Knight Frank City core Nomura House, 1 St Martin's-le-grand, EC1 Secondhand 55,884 Drivers Jonas Deloitte

key new instructions – All mArkets

city core city fringe

midtown west end

Docklands south bank

The top five are fairly tightly clustered in Q1, with only 6% separating first and fifth. More than half of CBRE’s 22% market share was achieved with the disposal of 66,000 sq ft in Moorgate Hall, 155 Moorgate, EC2. Third placed Savills was the joint agent. The largest City core deal for second placed Jones Lang La Salle, was 23,600 sq ft in 99 Bishopsgate, EC2.

Monmouth Dean took first position in the Midtown table with a 19% share of the market, having let 56,000 sq ft. Its largest disposal in Midtown was 8,800 sq ft on the fourth floor of 65 Kingsway, WC2. The letting of 19,300 sq ft in 125 Shaftesbury Avenue, WC2 helped DTZ achieve a 17% share, which put it into second place.

CBRE dominated this table with 46% of the market, largely determined by its handling of the disposals in 10 Upper Bank Street, (26,200 sq ft), the largest Docklands letting in Q1 and 5 Harbour Exchange Square (19,500 sq ft). Cherryman in fourth place acted on 16,200 sq ft in Exchange Tower.

Rank Agent Disposals (sq ft) Market share No. deals

1 CBRE 128,207 22% 8 2 Jones Lang LaSalle 110,960 19% 16 3 Savills 105,918 18% 4 4 DTZ 99,640 17% 7 5 BNP Paribas Real Est 94,805 16% 5

1 Monmouth Dean 55,801 19% 13 2 DTZ 51,549 17% 7 3 Farebrother 38,836 13% 11 4 GVA 29,004 10% 3 5 Edward Charles & Ptnrs 28,804 10% 3

1 CBRE 51,233 46% 3 2 DTZ 34,806 31% 2 3 Cherryman 29,836 27% 4 4 GVA 26,190 24% 1 5 Strutt & Parker 19,461 17% 1

125 Shaftesbury Avenue, WC2: 19,300 sq ft let to Capita Symonds

Exchange Tower, E14: 16,200 sq ft let to TeleCity

Jones Lang La Salle may have topped this table but smaller agents took the other four places in the top five. Farebrother was only narrowly pipped into second place and also had a 28% share of the market. Farebrother’s place was secured with two lettings in 20 Farringdon Road, EC1, that added up to 66,000 sq ft. Their joint agent was Jones Lang La Salle.

Jones Lang La Salle was the clear winner in the West End with a market share of 23%, compared with second placed DJ Deloitte, which secured 15%. These two agents both acted in the disposal of 1 Page Street, SW1, the largest transaction in Q1 2012 at 125,200 sq ft. DTZ’s involvement with the 51,100 sq ft letting of 1 Drummond Gate, SW1, was instrumental in securing third place.

EA Shaw took first place in this table with a 40% market share, well ahead of second placed DTZ, which acted on the area’s largest letting of 16,000 sq ft in Blue Fin Building in Southwark Street. The largest disposal handled by EA Shaw was 13,300 sq ft in Railway Arches, Burrell Street.

1 Jones Lang LaSalle 73,188 28% 4 2 Farebrother 71,581 28% 4 3 Anton Page 51,362 20% 17 4 Hatton Real Estate 28,393 11% 9 5 Richard Susskind & Co 25,606 10% 11

1 Jones Lang LaSalle 210,887 23% 12 2 Drivers Jonas Deloitte 140,835 15% 6 3 DTZ 138,491 15% 13 4 H2SO 121,409 13% 10 5 Knight Frank 115,935 13% 16

1 EA Shaw 37,954 40% 6 2 DTZ 26,155 28% 2 3 Drivers Jonas Deloitte 11,212 12% 1 4 Strutt & Parker 10,304 11% 1 5 Capita Symonds 10,304 11% 1

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Moorgate Hall, Moorgate, EC2: 66,000 sq ft let to Mace

One New Change, EC4: CBRE Global Investors to pay £57.50 per sq ft

city core

39%

drop in take-up on last quarter

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take-up

% +/- % +/- % +/-Take-up (sq ft) Q1 2012 24 months 12 months 3 months

New/Refurb existing 126,522 -89.08 -53.36 70.18 Premarketing - n/a n/a n/a Secondhand 388,850 -16.01 -32.45 -33.46 Under Construction - n/a -n/a n/a Total 515,372 -71.25 -41.66 -39.42

It was another quiet quarter in the City core, with just 515,000 sq ft let. That is the annual equivalent of just over 2m sq ft, in a market that averaged 3.8m sq ft between 2004 and 2011. Even in 2008, arguably the low point in business confidence when the financial crisis had created its first shockwaves, lettings reached 2.46m sq ft. At the Q1 level, take-up is 39% down on the preceding quarter, 41% down on the equivalent quarter a year ago and 71% down on the first quarter of 2010.

Occupiers seem to be in no hurry to complete transactions. However, agents report a rise in the amount of space put under offer in Q1, which bodes well for improved volumes of take-up later in 2012.

The largest single letting in Q1 was not to a traditional City core occupier but to construction company, Mace, which took 66,000 sq ft of secondhand grade A space in Moorgate Hall, Moorgate, EC2. Mace has taken the whole building on a 15 year lease for its headquarters. It has, until now, been in multiple-occupation and Mace will complete a phased move by 2013 as tenants vacate.

Amazon’s TV unit, Pushbutton, took 47,300 sq ft in the newly refurbished 26-28 Glasshouse Yard, EC1, which falls within the EGi definition of City core. CBRE Global Investors has taken 25,000 sq ft on the third floor of Land Securities’ One New Change, EC2, for 15 years at a rent of £57.50 per sq ft. This follows the merger between CBRE Investors and ING REIM in 2011.

Serviced office operators took the two largest units of grade B space let in the quarter, at Mermaid House in Puddle Dock, EC4, where Serviced Office Group took 33,000 sq ft at £30 per sq ft and 34-36 Lime Street, EC3, where Beaumont Business Centres paid £47.50 per sq ft for this building in the heart of the insurance district, where close proximity to Lloyds still commands a premium.

Legal firm, Latham Watkins, has taken 23,600 sq ft on the ground and 21st floors of Hammerson’s 99 Bishopsgate, EC2 until October 2021. The firm already occupies space in the building and has an option on floors 5 and 6 from 2016.

supply

% +/- % +/- % +/-Supply (sq ft) Q1 2012 24 months 12 months 3 months

New/Refurb existing 2,282,489 19.20 3.05 -8.08 Premarketing 4,992,284 -19.52 1.58 -5.12 Secondhand 4,860,202 9.28 14.55 -4.30 Under Construction 3,660,289 28.29 22.54 14.34 Total 15,795,264 2.44 10.00 -1.43

Supply remained virtually unchanged in Q1 at 15.8m sq ft. Of that, almost 11m sq ft is either built stock or development that is already under construction. There was a 14% increase in the amount of space on the market that is under construction during the quarter, counterbalanced by a modest reduction in the other three categories of supply. The amount under construction is almost 30% higher than it was at the end of Q1 2011.

There are some concerns that, despite the scale of availability and the volume of construction, selective shortages could emerge in the City within the next year. At 2.3m sq ft the supply of new or refurbished space does look rather limited for the City core, particularly for big units with large floorplates. The only newly completed buildings that could satisfy a requirement for more than 300,000 sq ft are The Walbrook, EC4 and 78 Cannon Place, EC4. There is 355,000 sq ft in Alban Gate but it is dated now.

An occupier needing between 100,000 and 200,000 sq ft could choose from six buildings available immediately. Between 200,000 and 300,000 sq ft there are three buildings available. The large speculative developments currently under construction are all towers and do not have the large floorplates required by some occupiers. This supports the view that it would only take one or two large transactions to create undersupply in parts of the market.

availability rate

Availability rate % 8 10 12 14 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09

The availability rate in the City core remains broadly unchanged over the quarter at 12.5%. It is

significantly higher than any of the other sub markets even though it does not include the 3.7m sq ft that is being marketed during construction.

in depth

london offices market analysis

(7)

26-28 Glasshouse Yard, EC1: Amazon’s Push Button took 47,300 sq ft

99 Bishopsgate, EC2: 23,600 sq ft let to Latham Watkins

city core

71%

drop in take-up on q1 2010

asking rents

Asking rents (£ per sq ft)

20 30 40 50 60 70 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09 Secondhand New build (existing)

The average asking rent for newly built space in the City core was £46.75 per sq ft at the end of Q1 and £36.25 per sq ft for secondhand grade A space. The £57.50 per sq ft asking rent at One New Change, EC4, where CBRE Global Investors has acquired 25,200 sq ft on part of the third floor, more closely reflects the market rent for prime grade A space. There is a small unit of 5,800 sq ft on the 23rd floor of 125 Old Broad Street, EC2, on the market for £59.50 per sq ft and it is secondhand, albeit grade A space.

construction

Construction starts with prelets (million sq ft)

0 0.3 0.6 0.9 1.2 1.5 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Prelet (sq ft) Speculative (sq ft)

Almost 1m sq ft of new development went under construction in Q1, of which 700,000 sq ft is at 5 Broadgate, EC2, where British Land and Blackstone Group are developing a new headquarters for UBS. The buildings previously occupying the site, 4 and 6 Broadgate, have been demolished and the developers held a ground-breaking ceremony in early March.

The balance of 290,000 sq ft, included 6 Bevis Marks, EC3, (160,000 sq ft) and 63 St Mary Axe, EC3, owned by the National Pension Service for Korea, which is undergoing a substantial refurbishment as part of which two new floors will be added to the building and will bring 76,000 sq ft to the market. The other sizeable start was Scotia House, 33-37 Finsbury Square, EC2, a new building of 47,000 sq ft.

The majority of construction starts in 2010 and 2011 occurred in the first quarter of the year and at present, the pattern looks similar for 2012 – just 75,000 sq ft is scheduled to start in Q2 and less than 500,000 sq ft in the second half of the year.

There is nevertheless almost 5m sq ft under

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construction including the towers at 122 Leadenheall Street, EC3, (588,000 sq ft) 20 Fenchurch Street, EC3 (627,000 sq ft), and 24 Bishopsgate, EC2 (1.26m sq ft), which, with 5 Broadgate, EC2, account for over 3m sq ft between them.

investment

Over 1m sq ft of City core building stock changed hands in Q1 2012 in 14 transactions. The largest of these was the 307,000 sq ft Tower 42, 125 Old Broad Street, EC2, which was sold by Black Rock UK Property Fund, La Salle Investment Management and Hermes Property Unit Trust, as part of an estate, to Natie Kirsh. The estate included five other commercial buildings totaling 147,500 sq ft (20 Old Broad Street, EC2,(17,900 sq ft), 30 Old Broad Street, EC2, (44,700 sq ft), 15 Bishopsgate, EC2, (30,000 sq ft) Gibson Hall and the Plaza Restaurant, Old Broad Street), EC2.

Park House, Finsbury Circus, EC2 (180,000 sq ft) was sold by PRUPIM to RREEF for one of its German open ended funds, for £150m reflecting a yield of 5.5%. Nama has sold 107 Cheapside, EC2, (156,000 sq ft) to Invesco Real Estate on behalf of a German fund, for £125m, reflecting a yield of 5.4%.

completed space actively marketed

Completed space actively marketed (million sq ft)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10

Completed still available (sq ft) Completed space (sq ft)

future completions

Future completions (million sq ft)

0 0.3 0.6 0.9 1.2 1.5 Q1 15 Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Still available (sq ft) To complete (sq ft)

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1 Curzon Street, W1: let to Kedge Capital at £75 per sq ft

1 Page Street, SW1: 125,000 sq ft prelet to Burberry

west end

775,000

sq ft let

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take-up

New/Refurb existing 44,192 -83.85 -9.11 -84.52 Premarketing 15,400 n/a n/a n/a Secondhand 512,386 -5.27 -10.88 0.46 Under Construction 209,062 n/a 2090 134.66 Total 781,040 -4.10 23.37 -11.71

There was 775,000 sq ft let in the West End in Q1 2012, which is consistent with the volumes maintained in this part of London over the past four years. If that level were to be sustained throughout 2012, it would equate to 3.1m sq ft, which would exceed 2011 and be broadly in line with the five-year average (3.2m sq ft).

Of the total let in Q1, 210,000 sq ft was still under construction. Burberry’s acquisition of 125,000 sq ft in 1 Page Street, SW1, accounts for almost two thirds of that. The building is being refurbished by Derwent London and Burberry has taken a 20 year lease with a break after 10 years for a rent of £50 per sq ft on the top three floors and £45 per sq ft on the mid floors.

Two other buildings have been let during

construction, one in Mayfair and the other in Victoria. Another luxury brand retailer, Jimmy Choo, has taken 36,000 sq ft in Ashdown House, 123 Victoria Street, SW1, paying £52 per sq ft and Savills has taken an additional 35,000 sq ft in Marcol House, Margaret Street, W1 at a rent of £73 per sq ft, from Great Portland Estates and now lease the whole building. Design agency, Brandopus LLP has agreed to prelet 15,400 sq ft before construction has even begun at Central Cross, 1 Stephen Street, W1, on the ground and lower ground floors. The lease is for ten years with no breaks and a rent-free period equivalent to 18 months.

The incidence of prelettings highlights the inherent supply shortage in the West End of high quality office stock. The take-up of recently completed new or refurbished space fell to just 44,200 sq ft, in the quarter, which is probably a reflection of the lack of choice.

The take-up of secondhand space has averaged around 500,000 sq ft per quarter for the past five years, and Q1 2012 continued this trend with 512,000 sq ft let. Grade B space can be acquired at a substantial discount as illustrated by the Crown Prosecution Service’s lease of 51,000 sq ft in 1 Drummond Gate, SW1, for £25 per sq ft and Dolby Laboratories Ltd, which managed to lease 19,000 sq ft of grade B space in the highly sought after Soho market at 4-6 Soho Square, W1, for £29 per sq ft. Wealth Management firm, Kedge Capital Services, paid £75 per sq ft for 29,000 sq ft of grade A quality secondhand stock in 1 Curzon Street, W1.

supply

New/Refurb existing 522,862 -54.45 -10.83 -5.56 Premarketing 672,045 -51.66 -35.54 1.91 Secondhand 3,092,281 -41.79 -24.45 -3.54 Under Construction 828,707 96.95 -17.25 -6.42 Total 5,115,895 -38.15 -23.91 -3.55

Supply in the West End stands at 5.1m sq ft at the end of Q1 2012, compared with an average of 6.1m sq ft in 2010 and 7.8m sq ft a year before that. The fall since 2010 has been evident in the availability of new, secondhand and premarketed space, while only the volume under construction has risen in that time and even that has reduced over the past 12 months, although it remains significantly higher than 2010.

There is 3.1m sq ft of secondhand space available, down from 5.1m sq ft two years ago. The supply constraints in the West End are demonstrated in the rental growth profile and it is unsurprising that there has been an increase in preletting and in construction activity where opportunities arise.

The largest newly built space on the market in the West End is 5 Merchant Square, W2, in Paddington, where there is 97,300 sq ft to let. There is 80,000 sq ft still available in AirW1 and 76,000 at Paddington Central, W2.

availability rate

Availability rate % 4 6 8 10 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09

The availability rate in the West End has fallen further to 5.7% and, according to some agents’ calculations, is even lower than that. At such levels rental growth is almost inevitable and the opportunities to redress the balance with development are limited, at least in the core Mayfair/St James’ markets.

in depth

london offices market analysis

(9)

Marcol House, 33 Margaret Street, W1: Savills prelet an additional 35,000 sq ft

west end

availability rate drops to

5.7%

Park House, Park Street, W1: 190,000 sq ft close to completion

asking rents

40 60 80 100 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09 Secondhand New build (existing)

The average asking rent for newly built space in the West End is £80 per sq ft at the end of Q1 2012. The highest asking rent is being quoted at 23 Savile Row, for a unit of 25,900 sq ft, where the price has increased from £100 per sq ft to £110 per sq ft over the past quarter. The asking rent for the latest space released in AirW1 is £85 per sq ft. In Paddington there are large units available in Merchant Square at £47.50 per sq ft for Azure, 3 Merchant Square W2, (166,000 sq ft) and £52.50 per sq ft in Carmine, 5 Merchant Square, W2 (97,300 sq ft). In 23-25 Soho Square, W1, there is 41,600 sq ft of refurbished space available at £45 per sq ft.

construction starts

Construction starts with prelets (million sq ft)

0 0.1 0.2 0.3 0.4 0.5 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Prelet (sq ft) Speculative (sq ft)

There was 77,500 sq ft of new development started in Q1 2012. Construction began at 17-23 Bentinck Street, W1 (39,200 sq ft); 36-38 Queen Anne’s Gate, SW1 (24,800 sq ft) and 31-33 Maddox Street 13,500 sq ft). Bentinck Street and Maddox Street are both new developments with retained facades, while Queen Anne’s Gate is a refurbishment.

In total, there is 1.65m sq ft under construction in the West End, of which 200,000 sq ft has been prelet and 1.45m sq ft is still available. Of that, some 700,000 sq ft is scheduled for completion in 2012 and 750,000 sq ft in 2013. The largest unit currently under construction is 340,000 sq ft at Triton Building, North East Quadrant, NW1, where 195,000 sq ft is still available. The largest unit of space under

construction that is available to let is 260,000 sq ft in Selborne House, 62 Buckingham Gate, SW1, being

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developed by Land Securities. Other sizeable developments under construction include: Park House, Park Street, W1, (190,200 sq ft); Ashdown House, 123 Victoria Street, SW1 (198,200 sq ft in total and 161,000 sq ft still available) 1 Howick Place, SW1 (139,000 sq ft) and 2-16 Baker Street W1 (123,300 sq ft).

investment

There were 13 transactions in Q1 2012 adding up to 540,000 sq ft. This is broadly in line with the volume of space that changed hands in 2010 and 2011 but in fewer transactions. The largest sale was 249,500 sq ft at Eland House, Stag Place, SW1, sold by Land Securities to Tishman Speyer for £170m equating to a yield of 7%. 1-5 Grosvenor Place, SW1, (167,400 sq ft) was sold for £60m, and Black Rock has sold 55 Victoria Street, SW1, a 45,000 sq ft office building, to Alchemi Group for £35m, reflecting a yield of 6.5%. This building is likely to be converted into flats.

completed space actively marketed

Completed space actively marketed (million sq ft)

0 0.1 0.2 0.3 0.4 0.5 0.6 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10

Completed still available (sq ft) Completed space (sq ft)

future completions

Future completions (million sq ft)

0 0.2 0.4 0.6 0.8 1.0 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Still available (sq ft) To complete (sq ft)

(10)

New Printing House, Gray’s Inn Road, WC2: 21,700 sq ft let to Bindman and Co Shropshire House, 2-10 Capper Street, WC1: 21,000 sq ft let to Telefonica

midtown

271,000

sq ft let

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take-up

New/Refurb existing 16,911 -85.50 -88.12 -83.51 Premarketing - n/a n/a n/a Secondhand 254,176 3.85 27.77 16.46 Under Construction - n/a n/a n/a Total 271,087 -32.95 -20.57 -15.49

Midtown has had a subdued start to 2012 with take-up in Q1 of 271,000 sq ft. That is below the levels recorded in any quarter of 2011 and well below the five year average for this market. Virtually all the space let was secondhand and the largest single letting was just 21,700 sq ft in New Printing House, 222-236 Gray’s Inn Road, WC1, let to lawyers, Bindman and Co following a surrender by ITV. The TMT sector, which has been highly active in this part of London in recent years, was represented by Telefonica, which took just under 21,000 sq ft of grade B space in Shropshire House, 2-10 Capper Street, WC1, at a rent of £40 per sq ft.

supply

New/Refurb existing 362,280 -26.50 -17.83 43.07 Premarketing 972,184 19.32 20.41 10.49 Secondhand 2,286,122 -14.28 -12.75 -6.20 Under Construction 493,158 -24.64 31.31 20.04 Total 4,113,744 -11.13 -3.07 3.33

4.1m sq ft is being marketed at the end of Q1 2012, of which just under 1m sq ft is being premarketed before construction begins and 493,000 sq ft is under construction. There is only 362,300 sq ft of newly built space on the market, and almost half of that is in a single building at 2 Waterhouse Square, EC1, (172,000 sq ft), which has been refurbished. The largest new building to be ready to occupy is 1 Kingsway, WC2, where 54,700 sq ft is available.

The majority of space on the market, and almost all of the existing space, is secondhand. Within that, there are some large units of grade A stock, most notably 33 Holborn, EC1, where there is 323,300 sq ft, St George’s Court, New Oxford Street, WC1, with 141,00 sq ft, and Carmelite, 50 Victoria Embankment, EC4, which has 106,400 sq ft.

The total volume of supply has changed very little over the last year. In terms of years of supply, total supply represents around 2.6 years but if

premarketed space is excluded, that ratio falls to two years.

availability rate

Availability rate % 8 10 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09

The availability rate is 8.7% at the end of Q1, little changed over the last quarter but almost 2% lower than its average level in 2010. It dropped to 5% in 2007 and climbed over the subsequent three years. An availability rate of around 8% is the level at which a market is generally considered to be well-balanced.

asking rents

The average asking rent for new-build space is high in Midtown at £53.25 per sq ft. There is a small unit on the market to sublet in 1 Kingsway WC2 for £67.50 per sq ft and in Shell Mex House, 80 The Strand, WC2, the asking rent for the 40,100 sq ft available is £60 per sq ft.

ConstruCtion

No new developments were put under construction during Q1 in Midtown but there is 500,000 sq ft already under construction in this market including 146,900 sq ft in Africa House, 64-78 Kingsway, WC2 and 92,200 sq ft in Strand House, 8-10 New Fetter Lane, EC4. Both of these are refurbishments. The largest new building under construction is Chichester House, 278-282 High Holborn, WC1, which will deliver 63,200 sq ft.

investment

There were eight investment sales in Q1 in Midtown adding up to 330,000 sq ft. The largest was of Warner Bros’ headquarters, a127,300 sq ft building known as Warner House, 98 Theobald’s Road, WC1, where Schroder managed Welput paid £65m for the freehold interest, equating to a yield of 5.9%. It is let until September 2014.

190 High Holborn, WC1, also changed hands. This 82,400 sq ft building was sold by an offshore Jersey Trust to a private Middle Eastern family, for £55m, reflecting a yield of 5.25%.

in depth

london offiCes market analysis

(11)

10 Upper Bank Street: LOCOG took additional 26,200 sq ft

5 Harbour Exchange Square: 19,500 sq ft taken by Serviced Office Group

docklands

106,000

sq ft let

take-up

New/Refurb existing - n/a n/a n/a Premarketing - n/a n/a n/a Secondhand 105,625 -80.55 1154.16 -55.69 Under Construction - n/a n/a n/a Total 105,625 -80.55 1154.16 -55.69

There was 105,600 sq ft let in Docklands in Q1 2012, all of it secondhand but all of it grade A quality. Four lettings of between 15,000 sq ft and 26,000 sq ft made up three quarters of the total. This is a low volume of activity compared with the 5 year average but this market is characterised by sporadic large lettings and a relatively low level of turnover of small units, so it would be misleading to interpret this as a downward trend on the evidence of one quarter.

The largest letting was 26,200 sq ft on the 10th floor of 10 Upper Bank Street. This was let to LOCOG and adds to the 145,000 sq ft they already occupy in the building. Serviced Office Group plc has taken 19,500 sq ft in 5 Harbour Exchange Square.

supply

New/Refurb existing 213,500 -57.58 -48.93 -49.90 Premarketing 3,600,024 -29.07 -33.27 -26.62 Secondhand 1,209,762 -35.37 -4.25 16.81 Under Construction 389,245 3.80 -36.49 n/a Total 5,412,531 -30.83 -29.61 -15.00

There is 5.4m sq ft being actively marketed in Docklands but 3.6m sq ft of that is potential development offered for prelet and not yet under construction. The stock of newly completed space available has diminished over the last two years and is now just 213,500 sq ft but there is 1.2m sq ft of secondhand space, of which over 1m sq ft is grade A quality. The largest single grade A secondhand unit is 205,400 sq ft in 30, North Colonnade, and there are several units in 25 Canada Square, including 110,000 sq ft on the 17th, 18th, 19th and 25th floors; a second unit of 89,000 sq ft on floors 20, 21 and 37 of the same building (occupied by LOCOG), as well as 28,000 sq ft on the 27th floor.

availability Rate

Availability rate % 6 8 10 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09

The availability rate in Docklands is 7.6% at the end of Q1 2012. It has hovered around this level since 2009 after dipping in 2007and 2008. Annual take-up has ranged between 400,000 sq ft and 2.2m sq ft in the last seven years, proving that appropriate levels of supply are difficult to judge in this market and lettings are often achieved from sites rather than built stock.

asking Rents

The average asking rent for newly built space is £35 per sq ft but the large units available in Canary Wharf are offered at higher prices. The asking rents are £45 per sq ft in 1 Canada Square, £42.50 per sq ft in 30 North Colonnade and £39.50 per sq ft in 25 Canada Square.

constRuction

25 Churchill Place accounts for all of the space under construction in Docklands. It is 576,000 sq ft in total and 247,000 sq ft has been prelet to EMEA, leaving the balance as speculative development. There is nothing in the pipeline scheduled for completion this year or next and the only space currently planned for completion in 2014 is 25 Churchill Place.

investment

There were two investment sales in Docklands in Q1 2012. The freehold of 1-5 Cabot Square, was sold for £325m by the Qatar Investment Authority, in a sale and leaseback with Credit Suisse for more than 20 years, reflecting a yield of 5.5%. The second sale was of Sovereign House, 227 Marsh Wall, a 72,000 sq ft building sold by AXA Real Estate from a managed fund in which they had co-invested with private investor clients from Saudi Arabia. Evans Randall paid £27m, which equated to a yield of 7.2%.

(12)

Farringdon Place, 20 Farringdon Road: 66,000 sq ft let in two deals

Exchange House, Exchange Square, EC2: Asking rent of £45 per sq ft

City fringe

193,000

sq ft let

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take-up

New/Refurb existing 24,172 -85.85 -76.11 62.02 Premarketing - n/a n/a n/a Secondhand 168,984 -24.34 -31.84 -40.18 Under Construction - n/a n/a n/a Total 193,156 -51.00 -44.67 -38.69

City fringe take-up was low in Q1 at 193,000 sq ft, although the 50,000 sq ft letting to Pushbutton in 26-28 Glasshouse Yard, EC1, which fell within the geographical definition of City core, could be considered to be a part of this market. Even then, the quarterly total would have been well below the five-year average of 1.3m sq ft. Annual take-up is unusually consistent in this market, ranging between 1.1m sq ft and 1.5m sq ft in the past seven years.

The largest two units let were both in Farringdon Place, 20 Farringdon Road, EC1, where 32,500 sq ft was let to Karma Communications Group for 10 years and 33,500 sq ft was let to Amec plc for five years. Both achieved rents reported to be £27.50 per sq ft. At 42-46 Princelet Street, E1, Unruly Media took 18,500 sq ft of secondhand grade A space. No other lettings exceeded 10,000 sq ft in this quarter.

supply

New/Refurb existing 134,973 -54.89 -50.82 -41.29 Premarketing 1,755,722 -35.78 -13.10 -15.56 Secondhand 1,590,261 -30.66 -13.07 -1.73 Under Construction 187,645 29.58 28.66 -10.40 Total 3,668,601 -32.95 -14.08 -11.32

There is 3.7m sq ft available to let on the City fringe, of which 1.76m sq ft is being premarketed and most of the 2m sq ft balance is secondhand stock. Only 325,000 sq ft is either newly built or under

construction and the largest unit of newly built space on the market is just 22,250 sq ft at 518-522, Cable Street, E1. There are some larger secondhand grade A units available, such as 66 Prescot Street, E1, (103,000 sq ft), Bishops Court, Artillery Lane, E1, (52,500 sq ft) and Exchange House, Exchange Square, EC2 (46,200 sq ft). Nevertheless, with an average annual take-up of 1.3m sq ft, a ready to occupy stock of less than 2m sq ft looks low.

availability rates

At 7.8% the availability rate is lower than it has been at any time in the past seven years. It has been declining fairly steadily over that period. With less than 200,000 sq ft under construction in this area, there is little prospect of an increase in availability and it is reasonable to expect this rate to continue falling over the next couple of years.

asking rents

10 20 30 40 50 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09 Secondhand New build (existing)

The average asking rent for secondhand grade A space is £25.25 per sq ft but there is no evidence for newly built space. However, the best of the grade A secondhand space at Exchange House, Exchange Square, EC2, is being marketed for £45 per sq ft, the same rent as at Aldgate Place, Buckle Street, E1 and 49 Clerkenwell Green, EC1, both of which are currently under construction. The asking rent for 66 Prescot Street, E1 (103,000 sq ft), which is also classed as grade A secondhand, is £34.50 per sq ft and at the 32,600 sq ft Brewhouse Yard, 156-176 St John’s Street, EC1, it is £35 per sq ft.

ConstruCtion

110,000 sq ft was put under construction on the City fringe in Q1 2012 in six buildings including a new build of 32,500 sq ft at Fabbrica, 33-35 Commercial Road, E1 and the 28,100 sq ft refurbishment of Interglobe House, 76-80 Great Eastern Street, EC2. Gretton House, 28-30 Kirby Street, EC1 is also undergoing refurbishment of 23,600 sq ft and a 19,300 sq ft new building has begun at 18-30 Leonard Street, EC2.

investment

There were nine investment transactions in Q1, the largest of which was 1 Bunhill Row EC1, a 260,300 sq ft building sold for £180m at a yield equating to 5.5% by ING Real Estate Investment Management and Canadian Pension Plan Investment Board, to St Martin’s Estates. 110-114 Middlesex Street E1, changed hands for £19m for the 33,500 sq ft building, equating to a yield of 7.3%, sold by Palmer Capital Partners.