Global Office Thermometer

Global Office Thermometer

Lower costs driven by appreciating US dollar, weaker economic growth in Europe and increased supply in emerging markets

May 2015

4.8

New York

23

London

29

Moscow

11

San Fran

15

Bejing

12

Chongqing

2.3

Tokyo

12

Singapore

11

Hyderabad

1.2

1.8

Chennai

1.8

Sydney

11

AMERICAS 2014

-7.8

2014

2.4

2014

-8.3

2014

-3.9 ^{GLOBAL %}

2014

Changes in occpancy costs

This is the 18th edition of our annual report taking the temperature of global office markets, measuring the cost of occupying office space on a workstation basis, now and in the future, in 138 cities worldwide.

Occupancy costs have increased in

60% of markets in the past year

Occupancy costs have decreased in

32% of markets in the past year International occupiers are benefiting from significant falls in workstation

occupancy costs. Globally the average annual USD cost of occupying a workstation fell by 3.9% in 2014. Broadly this reflected the sharp depreciation of local currencies against the US dollar, slower economic growth in Europe and increased supply in emerging markets. In addition, occupiers are using space more intensively in some cities, thereby reducing the average cost of a workstation.

Stripping out currency effects reveals that global workstation occupancy costs, measured in local currency, increased by just 1.8% in 2014.

On a USD basis, Asia Pacific saw the fastest decline, down 8.3% in 2014. Similarly, EMEA posted an average fall of 7.8% in 2014. Occupancy costs in North America and Greater China, however, increased by 4.8% and 2.4%, respectively.

On a local currency basis occupancy costs in the Americas increased (1.7%), in 2014. In EMEA costs increased by 2.5%. Similarly in Greater China costs increased by 4.3%, but fell by 1.2% in Asia Pacific.

Occupancy costs, measured in USD, fell in six out of ten global office markets in 2014. Costs increased in less than a third.

Measured in local currency, occupancy costs increased in 64% of office markets covered. Conversely, costs fell in 34% of markets

MARKETS

Rising & Falling

Report highlights

• Globally the average annual USD cost of occupying a workstation fell by 3.9% in 2014

• USD occupancy costs fell in six out of ten global office markets

• London’s West End remains the world’s most expensive location

• Global occupancy costs are forecast to increase on average by just

0.5% per year over the next two years, on local currency basis

4.8

New York

23

London

29

Moscow

11

San Fran

15

Bejing

12

Chongqing

2.3

Tokyo

12

Singapore

11

Hyderabad

1.2

1.8

Chennai

1.8

Sydney

11

AMERICAS 2014

-7.8

2014

2.4

2014

-8.3

2014

-3.9 ^{GLOBAL %}

2014

+

-

SAN FRANCISCO HOUSTON MIAMI SHENZHEN DUBLIN ABU DHABI

MOSCOW PRAGUE

TORONTO PERTH NEW YORK

BERLIN PARIS KUALA LUMPUR

-35% -30^% -25% -20% -15^% -10% -5% 0 5% 10% 15^% 20% 25% 30% 35%

Moscow saw the sharpest fall in occupancy costs in 2014, falling by a third on a USD basis. Other Eastern European cities including Bucharest (25%), Bratislava (23%) and Prague (21%) also posted sharp falls.

Some of the big Canadian cities also experienced sudden falls including Toronto (30%), Ottawa (11%) and Montreal (11%). Boston was the only major US city to post a fall (-2%).

In Australia all the major office markets posted falls, measured in USD, including Perth (16%), Canberra (14%), Brisbane (13%), Adelaide (12%) and Sydney (12%).

Some of the sharpest increases were in Middle East & Africa markets. Abu Dhabi saw the fastest increase in occupancy costs of any city in our global ranking in 2014, increasing by 36% on a USD basis. Other Middle East markets also saw some of the fastest increases notably Jeddah (20%) and Riyadh (11%). Similarly, occupancy costs in Lagos increased 8%.

In Greater China, Shenzhen posted the fastest increase (20%). Other China cities posting fast increases included Nanjing (9%), Tianjin (8%) and Wuhan (8%).

Dublin posted the fastest increase (13%) in Europe, echoing the turnaround in the Irish economy. London (West End) witnessed the second fastest increase (12%).

San Francisco led US cost increases (12%) followed by Silicon valley (9%) and Houston (9%). New York workstation occupancy costs increased 6%.

Occupancy Cost Increase Occupancy Cost Decrease 1

2 Occupancy cost (USD per workstation, 2014)

Change in occpancy costs (USD per workstation, 2013-2014)

Markets posting the sharpest falls and increases in occupancy costs (USD per workstation, 2013-2014)

Global Office Thermometer Report | 3

HONG KONG: (21,110) NEW YORK: (22,990) LAGOS: (19,080)

SAN FRANCISCO: (15,070) GENEVA: (15,160)

ZURICH: (15,210)

LUXEMBOURG: (14,370) PARIS: (13,690)

DOHA: (13,590) LONDON WEST END

London West End is the most expensive location in the world. (29,340)

BARCELONA by comparison, is 86% cheaper

than London West End

London (West End) remains the most expensive market at over 29,000 USD per workstation (2014). London is 28% more expensive than the second placed city, New York.

The remainder of the Top 10 most expensive markets are regionally diverse including Hong Kong (3rd), Lagos (4th), San Francisco (7th) and Doha (10th). Four European cities – Zurich (5th), Geneva (6th), Luxembourg (8th) and Paris (9th) – complete the Top 10.

Mumbai was the biggest faller in 2014, falling 25 places from 68th to 93rd on our list of 133 global cities. Likewise Toronto (down 19 places), Malmo (19 paces), Moscow (17 places) and Sao Paulo (16 places) fell markedly.

Conversely, the biggest risers were Abu Dhabi (up 32 places), Jedah (22 places), Shenzen (20 places) and Minneapolis (14 places).

ABU DHABI DUBLIN

CHICAGO KUALA LUMPUR

SHENZHEN MINNEAPOLIS STOCKHOLM

MOSCOW

PERTH WARSAW

MUMBAI

BRATISLAVA 0

30 -30

20 -20

25 -25

-15 15

5

-5 10

-10

LONDON (WEST END)

TORONTO

Global Dashboard

3

4

Biggest changes in market placings (2013-2014)

Top 10 most expensive markets (USD per workstation, 2014)

HONG KONG: (21,110) NEW YORK: (22,990) LAGOS: (19,080)

SAN FRANCISCO: (15,070) GENEVA: (15,160)

ZURICH: (15,210)

LUXEMBOURG: (14,370) PARIS: (13,690)

DOHA: (13,590) LONDON WEST END

London West End is the most expensive location in the world. (29,340)

BARCELONA by comparison, is 86% cheaper

than London West End

There are significant inter and intra regional differences in the use of space. Emerging markets have higher than average space efficiency rates than more mature markets in Europe and North America. In Europe, the most efficient market – Bucharest – uses nearly the amount of space occupied by a workstation in the least efficient market – Helsinki. This reflects very different local requirements and standards across Europe, especially between Western and Central & Eastern Europe. The intensive use of space is also driven by cost. Higher cost locations, especially in Europe and North America US, use space more efficiently than lower cost locations.

HYDERABAD CHENNAI LISBON MANILA CHICAGO DUBLIN SAN FRANCISCO LONDON (WEST END)

11.6

GLOBAL AVERAGE

MIN: 5.8 (MUMBAI) MAX: 21.2 (HELSINKI)

8.8

GREATER CHINA

MIN: 6.9 (CHONGQING)

MAX: 13.5 (TAIPEI)

12.5

EUROPE

MIN: 7.0 (BUCHAREST)

MAX: 21.2 (HELSINKI)

13.0

MIDDLE EAST & AFRICA

MIN: 9.3 (TEL AVIV)

MAX: 15.0 (ABU DHABI)

11.1

ASIA PACIFIC

MIN: 5.8 (MUMBAI)

MAX: 16.6 (AUCKLAND)

12.6

NORTH AMERICA

MIN: 8.2 (CHICAGO)

MAX: 17.1 (OTTAWA)

Maximum Average Space Per Workstation (SQM) Minimum Average Space Per Workstation (SQM)

The cost of one workstation in London is equivalent to 24 workstations in Hyderabad, the cheapest city in our global ranking. Similarly, one workstation in London is equivalent to 11 workstations in Lisbon, the cheapest European office market in our ranking.

Broadly, the cheapest markets are in India, China and Eastern Europe. Chennai, Pune and Bengaluru are amongst the five cheapest markets. Similarly, Chongqing and Qingdao are on the bottom ten. Likewise, Bucharest also appears in the bottom ten.

5

Workstation equivalence (2014) 6

Average Space Per Workstation (SQM 2014)

Global Office Thermometer Report | 5

7,850

Denver

4%

9,540

Vancouver

6%

15,070

San Francisco

8,280

Houston

12%

10,080

San Jose

9%

8,800

San Diego

3%

7,510

Phoenix

5%

4,230

Monterrey

7%

6,640

Miami

1%

8,740

Washington DC

0%

4,580

Chicago

3%

5,940

Minneapolis

7%

11,360

Ottawa

3%

6,750

Montreal

0%

9%

7,400

Los Angeles

3%

7,390

Seattle

7%

22,990

New York

6%

5,090

Dallas

3%

5,260

Atlanta

2%

10,100

Boston

-2%

9,210

Toronto

-21%

5,760

Mexico City

-2%

7,860

São Paulo

-5%

9,390

Rio de Janeiro

-1%

4,940

Santiago

-7%

4,280

Buenos Aires

-7%

11,340

Calgary

8%

Americas

In the Americas, New York is the most expensive market at USD 23,000, reflecting a 6% increase in workstation occupancy costs in 2014. Occupiers are using space more intensively in the most expensive markets such as New York, thereby offsetting the full impact of rising rents.

San Francisco registered the fastest increase in costs in 2014, up 12% to over USD 15,000. Similarly Silicon Valley increased 9%. In total we recorded increases in 16 US markets.

Conversely, 6 US cities recorded falls. In Canada Calgary and Vancouver posted the sharpest increases, but Toronto saw falls in 2014. Most of the big Central and South American cities in our ranking posted falls, reflecting slowing economic activity.

7 Occupancy cost (USD per workstation, 2014) and change over last 12 months (local currency)

29,340

London

16%

7,430

Birmingham

11%

8,160

Manchester

4%

5,060

Mardid

-1%

3,530

Casablanca

-17%

15,210

Zurich

-2%

8,260

Tel Aviv

-2%

5,230

Warsaw

4,010

Prague

-12%

5,100

Kiev

-20%

2,940

Bucharest

-16%

10,500

Moscow

-33%

10,530

Helsinki

-5%

5,790

Newcastle

12%

8,220

Edinburgh

8%

9,690

Dublin

5,610

Cardiff

3%

7,040

Bristol

4%

13,690

Paris

10%

14,370

Luxembourg

11%

11,110

Munich

4%

7,980

Berlin

1%

13,130

Stockholm

4%

7,020

Malmo

2%

10,260

Istanbul

4%

10,350

Amsterdam

6%

5,660

The Hague

3%

5,280

Jeddah

20%

19,080

Lagos

8%

3,440

Johannesburg

7%

9,230

Riyadh

11%

10,830

Abu Dhabi

35%

8,360

Dubai

8%

5,280

Al Khobar

9%

2,740

Lisbon

-5%

EMEA

In Europe, London (West End) is the most expensive city at over 29,000 USD. This is 11 times more expensive than the cheapest city, Lisbon. Dublin registered the fastest increase in costs, increasing by 27% in 2014. London West End was second with 16%. This reflected strong demand and limited supply of suitable Grade A space.

Conversely, Moscow saw the sharpest fall in occupancy costs in 2014, falling by a third. Occupier demand faltered because of the deepening recession. Middle East markets led by Abu Dhabi posted relatively strong increases despite fears of softer demand from the oil & gas sector

and expanding supply. 8 Occupancy cost (USD per workstation, 2014) and

change over last 12 months (local currency) Global Office Thermometer Report | 7

Greater China

In Greater China, Hong Kong is the most expensive office market at USD 21,100. Beijing, the second most expensive market, is considerably cheaper at USD 11,700. Chongqing is the cheapest market at USD 2,300, reflecting significant levels of new supply.

Shenzhen saw the fastest growth in occupancy costs in 2014, up 23%, underpinned by strong occupier demand and rising rents.

Conversely, Shanghai posted fastest decline, down 4% thanks to a spike in new supply.

9,050

Shanghai

21,110

Hong Kong

-2%

5,590

Guangzhou

-3%

3,120

Chengdu

-1%

6,850

Shenzhen

23%

3,080

Nanjing

11%

3,390

Wuhan

10%

2,320

Chongqing

1%

3,350

Tianjin

10%

11,680

Beijing

1%

3,710

Dalian

8%

3,910

Shenyang

3%

2,720

Qingdao

4%

4,450

Hangzhou

2%

7,590

Taipei

1%

9 Occupancy cost (USD per workstation, 2014) and change over last 12 months (local currency)

10,560

Singapore

0%

1,200

Hyderabad

-3%

1,830

Pune

-8%

4,610

Mumbai

-30%

10,320

Perth

-4%

7,790

New Delhi

-4%

8,470

Brisbane

5,050

Canberra

-2%

4,460

Ho Chi Minh

-2%

11,370

Seoul

3%

11,660

Tokyo

6%

1,750

Chennai

-8%

2,440

Kolkata

-8%

7,150

Auckland

2%

5,460

Wellington

1%

7,220

Melbourne

2%

10,970

Sydney

1%

2,990

Bangkok

8%

4,130

Jakarta

4%

3,490

Kuala Lumpur

2%

2,320

Bengaluru

6%

3,320

Manila

7%

Asia Pacific

In South Asia, Sydney and Singapore are the most expensive market, with annual occupancy costs of nearly USD 11,000. India cities are generally the cheapest led by Hyderabad (USD 1,200), Chennai (USD 1,750) and Pune (USD 1,800). Bangkok and Manila posted the fastest increases in 2014. Conversely, Mumbai and Pune saw the sharpest falls. High levels of vacancy, weak demand from the BFSI (Banking, Finance and Insurance Services) sector and declining rents were exacerbated by a softening in the Indian Rupee.

Global Office Thermometer Report | 9 10 Occupancy cost (USD per workstation, 2014) and

change over last 12 months (local currency)

-1

2014

0.8

2014

0.0

2014

1.7

ASIA PACIFIC

2014

0.5 ^{GLOBAL %}

2014

GREATER CHINA AMERICAS

2014-2016 Forecast

International occupiers will continue to benefit from ebbing cost pressures in numerous office markets.

Overall global occupancy costs are expected increase on average by just 0.5% per year over the next two years (on a local currency basis). Occupiers in North America will enjoy an annual 1% cut in occupancy costs in 2015 and 2016. Conversely, Asia Pacific is expected to post the strongest average growth of 1.7%. Greater China, however, costs are likely to remain unchanged.

Similarly, EMEA cost increases are set to average just 0.8%.

In Asia Pacific, we expect Indian cities to post some of the strongest cost increases over the next couple of years. Hyderabad (5%), Pune (4.4%) and Bengaluru (3.5%) will lead cost increases, although these cities will remain amongst the cheapest in the world. Occupier demand, including that by international occupiers, will continue to be robust. Tokyo costs are expected to increase by 3.3% per year, thanks in part to stronger economic growth.

In Greater China, Taipei (1.4%) and Hong Kong (1.3%) are expected to lead growth, underpinned by relatively strong occupier demand. Mainland cities are expected to be broadly unchanged or post falls, reflecting continuing new supply. Shanghai costs are forecast to fall 1.6% per year. Beijing costs are expect to remain broadly unchanged.

We expect most of the big US cities to post lower occupancy costs over 2015 and 2016. Houston and Dallas are set to see costs fall by around 4% per year, due in part to slower demand from energy related occupiers. Likewise, Boston is forecast to see a 5% drop.

Conversely, Chicago (3%) and Washington DC (2%) will post the fastest annual increases.

In Europe the majority of major office centres will see cost increases due to improving economic prospects and inelastic new supply. Luxembourg (3%), Dublin (3%) and London West End (2%) will lead growth.

Moscow will continue to post the sharpest falls (down 2%) reflecting ongoing economic weakness.

+

-

SEOL CHICAGO DUBLIN PUNE HYDERABAD LUXEMBOURG

MOSCOW

HOUSTON BOSTON SHANGHAI TIANJIN

-6^% -4%

-2%

0 2%

4%

6^%

TOKYO

12 Markets posting the sharpest falls and increases in occupancy costs (local currency per workstation), 2014-2016 Occupancy Cost Increase

Occupancy Cost Decrease

11 Change in occpancy costs (local currency per workstation), 2014-2016

Definitions

Total occupancy cost

Total occupancy cost is defined as the average cost of leasing prime net usable space.

Total occupancy costs include rents and outgoings. Outgoings refer to costs controlled and charged by the landlord in a multi tenant building.

Outgoings normally consist of service charge and property tax.

Our occupancy costs exclude easing incentives, such as rent-free periods and fit-out costs, as well as facilities costs specific to the tenant, such as cleaning or IT. We also exclude amortization of capital and related expenditure.

Space utilisation standard per workstation

Space utilisation standard per workstation is defined as the net internal area divided by the number of planned workstations for which the space is intended. It relates to the type of occupier that typically occupies prime Grade A office space for which this survey is intended. It gives a comparison of the amount of space required in different business districts, based on a given number of workstations.

Space utilisation standard does not change significantly from year to year as it is closely correlated to long-established working cultures/styles, building design and nature of the office markets.

Nevertheless, it does evolve over time, reflecting changing work styles and technology.

Prime space

Prime space refers to buildings newly developed or comprehensively refurbished (involving structural alteration, and/or the substantial replacement of the main services and finishes), not previously occupied, including sublet space not previously occupied.

Prime rent

The highest rent that could be achieved for a typical building/unit of the highest quality and specification in the best location to a tenant with a good (i.e. secure) covenant. This is a net rent, excluding service charge and tax, and is based on a standard lease, excluding exceptional deals for that particular market.

Gross Lettable Area (GLA)

Gross Lettable Area is the total of all covered areas occupied by the tenant. There is no standard global definition of “lease area”. Whilst a handful of countries have an official measuring code, the majority rely on accepted local market practice.

Furthermore, in some emerging markets the definition of a “leasable square metre” may vary depending on the landlord. This means that

€200 per sq m in Paris does not compare to €200 per sq m in Delhi.

For cross-border comparison, this report converts all local GLA data into the official RICS Net Internal Area (NIA) definition.

Net Internal Area (NIA)

Net Internal Area refers to space functional to the occupier.

It includes internal circulation space and meeting rooms. The area occupied by partitions within the premises is considered part of the net usable area as partitions are often an occupier’s option.

It excludes areas occupied by structural columns and common areas such as stairwells, lifts, lobbies, external walls, vertical ducts and common passages that are not used exclusively by the occupier.

Methodology

Coverage and methodology

This 18th edition of Global Occupancy Costs - Offices presents occupancy costs per workstation across 138 business districts in 60 countries worldwide.

Using data collected from our extensive network of local DTZ offices around the world, this survey looks at the main components of occu- pancy costs for prime offices across the globe (Figure 2). The report provides a ranking of occupancy costs based on annual costs per workstation, taking into account differences in space utilisation across markets. Our space utilisation data reflects the best practice approach in each market.

The data is submitted in local currency and according to local measurement practices. Our calculation of occupancy cuts through these local market practices to provide standardised cost units. We convert all data into the RICS definition of Net Internal Area (NIA) and USD. Thus, all data in this report is displayed on a Net Internal Area basis. This allows for true cross market comparison.

Forecast time horizon

Whilst we produce five-year forecasts, we believe that two year forecasts are more relevant to occupiers’ planning timeline. Not only do short-term forecasts offer a higher degree of certainty but landlords are also unlikely to address lease expiries that are beyond two years. It should be noted that our forecasts cover prime office space.

Costs controlled and charged by the landlord in a multi tenant building, normally property tax and service charge

Total Occupancy Costs (presented on a Net Internal Area Basis) The highest rent that could

be achieved for a typical building/unit of the highest quality and specification in the best location to a tenant with a good (i.e. secure) covenant

Outgoings

Prime Rent Main Components of DTZ occupancy costs

-1

2014

0.8

2014

0.0

2014

1.7

ASIA PACIFIC

2014

0.5 ^{GLOBAL %}

2014

GREATER CHINA AMERICAS

Global Office Thermometer Report | 11

w

Publication Date 05.2015

Copyright © 2015 DTZ. All rights reserved.

For further information, visit us at www.dtz.com Follow us on Twitter @DTZ

DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The company’s core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facilities services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the company’s culture of excellence, client advocacy, integrity and collaboration.

Steven Quick

CEO, Global Occupier Services +1 312 424 8000

[email protected] Richard Yorke

Global Head of Occupier Research +44 (0)20 3296 2319

[email protected] Magali Marton

Head of EMEA Research +33 (0)1 49 644 954 [email protected] Kevin Thorpe

Head of Americas Research +1 202 266 1161

[email protected] Dominic Brown

Head of SEA and ANZ Research +61 (0)2 8243 9999

[email protected] Andrew Ness

Head of North Asia Research +852 2507 0507

[email protected]

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