Central London Offices Outlook 2010

Transcription

1 Research Central London Offices Outlook 21 Image Source: 4 Gracechurch Street GVA Grimley are letting agents on 11, sq ft of office space

2 Central London Offices Outlook 21 Summary Economic overview The UK is at last emerging from the deepest recession since the 193s. The latest consensus view from UK economists is for 1.3% growth in 21 and 2% in 211, well below the longterm trend rate of 2.7% pa, although the Bank of England expects 4% pa growth by early 211. Whilst a sharper recovery is possible, and did indeed occur after the last recession, the scale of public debt, consumer indebtedness and the willingness and ability of the banks to lend, is much greater today. Major cuts in public sector expenditure and increased taxation following the general election will inevitably slow the pace of the recovery. Development activity has plummeted and the UK commercial property sector has seen a 75% decline in real terms in the value of new construction orders between the peak in Q2 27 and Q3 29. Indeed, development activity in real terms is now much weaker than in the depth of the last two recessions. As a result, development completions in two or three years time will be exceptionally weak, which suggests that severe supply shortages will occur just when occupier demand will be strengthening. Woolgate Exchange, 25 Basinghall Street (EC2). GVA Grimley acquired 39,4 sq ft for Navigant Consulting during Q4 29. Trends Prime rents during 29 fell 26% across all central London Markets, with prime Mayfair rents experiencing a fall of 37%. During 21, we expect rental performance to be much steadier in the West End with rents increasing in the City and Docklands. increased by 27% during 29 across central London. However, the vacancy rate has not risen as much as was expected at the start of the year, with many occupiers choosing to hold space that is currently being unused. We believe that vacancy rates have hit the bottom in the West End and City, with Docklands lagging behind, although even here we will only see a small rise in availability. Central London takeup has, by and large, been muted during 29, with takeup for the year hitting the 6.5 million sq ft mark, due to a strong final quarter. Takeup in Docklands has been low, with the West End gradually improving as the year went on. However in the City, after a poor first half, the second half has been very active. We believe that next year should see takeup increase in the West End and Docklands, whilst the City will experience a similar year. An imbalance between the demand for and supply of good quality investment opportunities has resulted in a sharp fall in yields in recent months. In central London, this has been driven by overseas buyers, but demand from institutional investors has also been rising rapidly. Improving conditions in the occupational market will be a key driver of investor demand next year, but the supply side will still play an important role, with much uncertainty over how much property will come onto the market, and there will continue to be a shortage of rack rented stock. 2 GVA Grimley Ltd 1 Stratton Street London W1J 8JR

3 Central London Offices Outlook 21 West End Supply During 21, 1.9 million sq ft of development will complete, with 1.2 million sq ft of this currently available. The largest speculative space to complete during 21 will be the 387, sq ft Central St Giles (WC2) which is wholly available, with floorplates typically 43, sq ft. The largest building to complete in Mayfair will be Scottish Widows 51, sq ft St George Street (W1), which is wholly available. Many tenants will be unwilling to release unused space this year, providing they anticipate using it within the next 1 to 3 years, as they expect the cost of taking additional space in the future to be considerably higher than today. Consequently, we believe that the vacancy rate will come down slightly to 7.5% during the year. Demand 21 should benefit from latent demand that rolls over from 29, with many occupiers having chosen to sit this year out to see how far the market would fall. Takeup for 29 was very low at 2 million sq ft, the second lowest since the last recession, despite higher incentives and shorter leaselengths. Takeup next year is likely to rebound to more normal levels at about 2.7 million sq ft. Demand will be driven by the governmentbacked sectors, wealth management, recruitment companies and those affected by mergers/ takeovers. We believe that some occupiers could wait until the results of the general election before taking decisions about their property strategy. There will be strong demand for secondhand Grade A space which is available at good value, whilst the best buildings should continue to perform relatively well. With good deals to be had on quality space, the secondary market will continue to be weak. Rental growth We believe that rents in the West End have bottomed out at 6 psf, with rentfree periods likely to increase slightly to 24 months on a tenyear lease with no breaks. Other increased incentives that we saw during 29, such as capital contributions are unlikely to be a fixture during 21. Due to the makeup of the West End office market, there will continue to be deals which transact at above the prime rent. Superprime space at buildings such as 23 Saville Row and 14 St George Street (all W1) will be on the market at approximately 8 psf during 21. The performance of prime rents will be affected by the rise in occupational costs from the rating revaluation, which will come into effect in April, with rates set to rise circa 2% in the West End this year, with further increases over the next few years due to the phasing of the overall increases. West End Availability 2 21 West West Source: End End Availability Availability GVA Grimley/Focus Source: Source: GVA GVA Grimley/Focus West End Availability 2 21 West 9,,End availability 221 (%) 12.% 9,, 9,, (sq ft) Vacancy rate (%) (%) 12.% 12.% 8,, 9,, Available Available Vacancy space rate space (%) 12.% 8,, 8,, Vacancy rate 1.% 7,, 1.% 1.% 8,, Average available 7,, 7,, Average Average space available 229 available 1.% space space ,, 8.% 7,, Average available 6,, 6,, space % 8.% 5,, 6,, 8.% 5,, 5,, 6.% 4,, 6.% 6.% 5,, 4,, 4,, 6.% 3,, 4.% 4,, 3,, 3,, 4.% 4.% 3,, 4.% 2.% 1,, 2.% 2.% 1,, 1,, 2.%.% 1,, Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1.%.% Q4 Q4 Q4 Q4 1 1Q4 Q4 2 2Q4 Q4 3 3Q4 Q4 4 4Q4 Q4 5 5Q4 Q4 6 6Q4 Q4 7 7Q4 Q4 8 8Q4 Q4 9 9Q4 Q4 1 1.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Major West End completions 21 5, 6, 5, 5, 4, 5, 4, 4, 3, 4, 3, 3, 2, 3, 2, 2, 1, 2, 1, 1, 1, West End Take Up 2 21 West End take up 221 West West End End Take Take Up Up West End Take Up 2 6,, 21 6,, 6,,(sq ft) 6,, 5,, 5,, 5,, 5,, 4,, 229 average annual 4,, 4,, takeup average average annual annual takeup takeup 4,, 3,, 229 average annual takeup 3,, 3,, 3,, 1,, 1,, 1,, 1,, Major West End Completions 21 Ireland House New Ireland Bond House Street Ireland New Bond Ireland House Street 1 The Piazza House New Bond New Street 1 The Piazza Bond Street 1 Grafton 1 The Street Piazza 1 The Piazza 1 Grafton Street Maddox Grafton 1 Grafton Street Street Street 5258 Maddox Street Westminster Maddox 5258 Maddox Street Street Bridge 4347 Road Westminster 4347 Bridge Westminster 4347 Road Westminster 662 Bridge St Martins' Bridge Road Road Lane 662 St Martins' Lane St George St 662 Martins' Street Martins' Lane Lane 1214 St George Street Euston St 1214 George Road St George Street Street Euston Road 1 Kingsway Euston Euston Road Road 1 Kingsway 2 Kingdom 1 Kingsway Street 1 Kingsway 2 Kingdom Street Merchant 2 Kingdom Square 2 Kingdom Street Street Carmine Merchant Building, Square Merchant Carmine Merchant Building, Square Square Central Carmine St Giles Carmine Building, Building, Central St Giles Broadcasting Central Central St House, Giles St Giles Portland Broadcasting Place House, Broadcasting Portland Broadcasting Place House, House, Portland Portland Place Place 6, 6, 6, (sq ft) West End prime rents Major West End Completions 21 Major Major West West End End Completions West End Prime Rents 221 West West End End Prime Prime Rents Rents West End Prime Rents 221 Available space Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 Q4 2 2 Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 Q Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 GVA Grimley Ltd 1 Stratton Street London W1J 8JR 3

4 Central London Offices Outlook 21 6, 6, 6, 5, 5, 5, 4, 4, 4, 3, 3, 3, 2, 2, 2, 1, 1, 1, 6,, 6,, 6,, 5,, 5,, 5,, 4,, 4,, 4,, 3,, 3,, 3,, 1,, 1,, 1,, City Supply 9,, 9,, 8,, 9,, 8,, 7,, 8,, 7,, 6,, 7,, 6,, 5,, 6,, 5,, 4,, 5,, 4,, 3,, 4,, 3,, 3,, 1,, 1,, 1,, West End Availability 2 21 West Source: End GVA Availability Grimley/Focus 2 21 Source: West End GVA Availability Grimley/Focus 2 21 (%) 12.% A large amount of speculative development where construction (%) 12.% 1.% commenced during 27 and 28 Vacancy has rate now been completed Average available 1.% and subsequently let. The only space 229 available space of 25, sq Average available 1.% space % ft+ is at Ropemaker Place (EC2) Average available and 2 Aldersgate (EC1). 8.% In 29, 4.4 million sq ft completed, where as completion 6.% 6.% is during 21 will fall to 3.3 million sq ft. 43, sq ft will 6.% complete at the Walbrook (EC4) early in the year with 4.% 522, 4.% sq ft completing at St Botolphs (EC3), where Clyde & Co and 4.% 2.% Lockton have already taken 145, sq ft and 84, sq ft 2.% respectively. Other space due to complete next year includes 2.%.% 221, Q4 Q4 1sq Q4 ft 2available Q4 3 Q4 4 at Q4 One 5 Q4 6 New Q4 7Change Q4 8 Q4 9 (EC4) Q4 1 and 11,.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 sq ft at 4 Gracechurch Street (EC3), available through.% GVA Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Grimley. Major West End Completions 21 Major West End Completions 21 During 21 occupiers are likely to be more resistant to offering Major West End Completions 21 grey space onto the market than they were during 29, as there will be little value in doing so. will be at a premium in EC3 and on the Southbank, with large floorplates in Midtown also difficult to come by. Due to less occupier space on the market and consistent letting activity, we envisage the vacancy rate decreasing marginally from 9.5% to 9.3%. Ireland Ireland House House New New Bond Bond Street Street Ireland House 1 The The Piazza Piazza New Ireland Bond Street House New Bond Street 1 The Piazza 1 Grafton Grafton Street Street 1 The Piazza 1 Grafton Street Maddox Maddox 1 Grafton Street Street Street Westminster Westminster 5258 Maddox Street Bridge Bridge Road Road 5258 Maddox Street 4347 Westminster St St Bridge Martins' Martins' 4347 Road Lane Lane Westminster Bridge Road 662 St Martins' Lane St St George George 662 Street Street Martins' Lane 1214 St George Street Euston Euston 1214 Road Road St George Street Euston Road 1 Kingsway Kingsway Euston Road 2 1 Kingsway Kingdom Kingdom Street 1 Street Kingsway Merchant Merchant 2 Kingdom Square Square Street Carmine Carmine Building, Building, 2 Kingdom Street Merchant Square Central Central St Carmine St Giles Giles Merchant Building, Square Carmine Building, Broadcasting Broadcasting Central House, House, St Giles Portland Central St Giles Portland Place Place Broadcasting House, Portland Broadcasting Place House, Portland Place space 229 Demand The backend of 29 has been very active with occupiers taking space on the assumption that the market has bottomed out. The majority of major requirements were fulfilled during the last quarter of the year, with a few more likely to transact in early 21. Other than that, there will be very few opportunistic lessees West during End Take 21 Up 2 as landlords take a harder line 21 and there is less value West for End Take money Up 2 21 in the market. West End Take Up 2 21 Demand for additional space will come from businesses involved in the delivery of the Olympics, Banks, the insurance sector, fund management and the legal sector. Chinese occupiers are taking highprofile, quality space in the City, 229 average annual takeup Notably Bank of China 229 has average just annual taken 116, sq ft by takeup 229 average annual purchasing 1 Lothbury takeup (EC2), and ICBC are in the market for 1, sq ft. During 29 there was very little demand for secondary space but this will change during 21. Demand will be focused on very large blocks of space, where the lack of supply is most evident There 22will 23 be virtually no 26 organic 27 growth 28 29in the 21 market with 2 occupiers moving out 25 of necessity 26 27and 28consolidation We nevertheless expect that the volume of takeup during 21 will be similar to that West experienced End Prime Rents 221 in 29, with the largest West End Prime Rents 221 movers including Bloomberg, Macquarie and Deutsche Bank. West End Prime Rents 221 (%) 12.% Rental growth We believe that prime rents bottomed out during the third quarter of 29 at 42.5 psf, and will see a gradual increase during 21. As the economic situation slightly improves, landlords will be less willing to let space at discounted rates. With supply tightening and less new space coming onto the market, tenants will be required to pay higher levels than in 29. By the end of 21 rents will have risen to 53.5 psf from 44 psf at the end of 29. Rentfree periods will come down to between 24 and 27 months on a typical tenyear lease, from 31 months at Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 the moment... Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q % City availability ,, 16,, 16,, 14,, 14,, 14,, ,, 1,, 1,, 8,, 8,, 8,, 6,, 6,, 6,, 4,, 4,, 4,, 6, 6, 5, 5, 5, 4, 4, 4, 3, 3, 3, 2, 2, 2, 1, 1, 1, City Availability 221 City Availability 221 City Availability 221 (%) 18.% Available Vacancy space 16.% rate (%) 18.% 16.% 14.% 16.% 14.% 12.% 14.% Average available space % Average available space % 12.% Average available space % 8.% 1.% 8.% 6.% 8.% 6.% 4.% 6.% 4.% 2.% 4.% 2.%.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 12.%.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Major City completions 21 6, City Take Up 221 City Take Up 221 City Take Up 221 1,, 9,, 1,, 9,, 8,, 9,, 8,, 7,, 229 average annual 8,, takeup 7,, 229 average 6,, annual takeup 7,, 229 average 6,, annual takeup 5,, 6,, 5,, 4,, 5,, 4,, 3,, 4,, 3,, 3,, 1,, 1,, 1,, ,, Major City Completions 21 Major City Completions Bride Bride Street Street 1 Bride Street 1 Bartholomew Bartholomew 1 Bride Lane Lane Street 1 Bartholomew Lane Gresham Gresham Street 1 Street Bartholomew Lane 95 Gresham Street 4 4 Gracechurch Gracechurch Street 95 Gresham Street Street New New Court Court 4 Gracechurch Street 4 Gracechurch Street New Court Angel Angel Building Building New Court Angel Building Fetter Fetter Lane Lane Angel Building Riverbank Riverbank 11 House House Fetter Lane 11 Fetter Lane Riverbank House One One New New Change Change Riverbank House One New Change The The Walbrook Walbrook One New Change The Walbrook 7 More More London London The Walbrook St St Botolphs Botolphs 7 More London 7 More London St Botolphs St Botolphs City take up 221 City prime rents Major City Completions 21 City Prime Rents 221 City Prime Rents 221 City Prime Rents 221 Source: GVA Vacancy Grimley/Focus rate (%) 18.% Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21. Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21. Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q GVA Grimley Ltd 1 Stratton Street London W1J 8JR

5 Central London Offices Outlook 21 16,, 16,, 16,, 14,, 14,, 14,, ,, 1,, 1,, 8,, 8,, 8,, 6,, 6,, 6,, 4,, 4,, 4,, Supply There are no completions due in 21 within Vacancy the rate (%) Docklands 18.% 16.% (%) 18.% market, with 2 Churchill Place, 5 Churchill Place, 3 North 16.% 14.% Vacancy Colonnade and 15 Canada Square all completed Available ratespace 16.% towards the 14.% 12.% back end of 29. The majority of this space was prelet 14.% and so Average available space % has not added to availability, although some is due to 1.% come back Average available space % to the market via subletting. Average available space % There is currently approximately 1.4 million sq ft on the 6.% 8.% market 6.% in Docklands. However, in reality, there is closer to 3 4.% million sq 6.% ft that is unused and available at the right price. We 4.% believe 2.% 4.% that the vacancy rate will not rise too much more from 7.3% 2.%.% as Q4 occupiers Q4 1 Q4 will 2 Q4 not 3 formally Q4 4 Q4 5 market Q4 6 Q4 7 their Q4 8unused Q4 9 Q4 space 1 2.% for the.% time Q4 being. Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 6, 6, 6, 5, 5, 5, 4, 4, 4, 3, 3, 3, 2, 2, 2, 1, 1, 1, 1,, Canary Wharf will benefit Major City from Completions the 21 fact that most of the large buildings in the City have Major City been Completions let 21 during the second half of Major City Completions Any remaining space in the City is likely to see a great deal of activity in early 21. Therefore, occupiers looking for Available space large floorplates will have little option but to look at Canary Wharf where there will be space available, notably from Nomura leaving 25 Bank Street, KPMG vacating space in 1 Canada Square and 1 Upper Bank Street as well as space that will be sublet by Fitch Ratings at the recently completed 3 North Colonnade. Demand City Availability 221 City Availability 221 City Availability % 1.% 8.%.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Takeup in 29 hit 36, sq ft, the quietest year since 23. There are however, large requirements in the market, and these are likely to transact early 21. Potential occupiers include MF Global, who are looking City at Take 4 Up 221 Bank Street, as well as Shell and Thomson Reuters. It is City believed Take Up 221 that many occupiers will call the City Take Up 221 bottom of the market during 21 and move on opportunistic grounds, with takeup likely to reach at least 1 million sq ft. 1,, 9,, 1,, 9,, 8,, 9,, 8,, 7,, 8,, 7,, 6,, 7,, 6,, 5,, 6,, 5,, 4,, 5,, 4,, 3,, 4,, 3,, 3,, 1,, 1,, Rental growth 1,, Docklands 1 Bride Street 1 Bartholomew 1 Bride 1 Bride Lane Street Street 95 Gresham 1 Bartholomew Street 1 Bartholomew Lane Lane 4 Gracechurch 95 Gresham 95 Gresham Street Street Street New Court 4 Gracechurch 4 Gracechurch Street Street New New Court Angel Building Court Angel Angel Building 11 Fetter Lane Building Riverbank 11 House 11 Fetter Fetter Lane Lane One New Riverbank Change Riverbank House House The Walbrook One One New New Change Change 7 More London The The Walbrook Walbrook St Botolphs 7 More 7 More London London St Botolphs St Botolphs (%) 18.% However, despite the fact that there is interest in space from existing Canary Wharf occupiers, there is currently relatively 229 average annual takeup little demand from 229 outside average the Docklands market. Therefore annual takeup demand will not result 229 in any average annual takeup net absorption. We believe that this will change in 21 as traditional City occupiers see value in the area. Demand for space outside the Canary Wharf estate is minimal and will continue to be so as long as prime rents remain low and there is ample space within the estate. As 2 a general rule, 23 the 24 Docklands market 27 lags 28 behind the City market by just under a year. However, we believe that the City Prime Rents 221 Docklands market has now hit the bottom. Rents will rise during City Prime Rents 221 the year, with rents at City 37.5 Prime Rents 221 by the end of the year Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21..Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 3,, Docklands availability 221 Docklands Availability 2 21 Docklands Availability 2 21 Docklands Availability ,, (%) 16.% 3,, (%) 14.% 16.% 2,5, 14.% 2,5, 2,5, Vacancy Available rate space 12.% 14.% 12.% 1.% 12.% Average available space % 1,5, Average available space % 1.% 1,5, Average available space % 1,5, 6.% 8.% 1,, 6.% 1,, 4.% 6.% 1,, 5, 4.% 5, 2.% 4.% 5, 2.%.% 2.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Docklands take up 221 4,5, Docklands Take Up 221 Docklands Take Up 221 Docklands Take Up 221 4,5, 4,, 4,5, 4,, 3,5, 4,, 3,5, 3,, 3,5, 3,, 2,5, 3,, 2,5, 2,5, 1,5, 1,5, 1,, 1,5, 1,, 5, 1,, 5, 5, Docklands prime rents Docklands Prime Rents 221 Docklands Prime Rents 221 Docklands Prime Rents 221 (%) 16.% Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21..Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q GVA Grimley Ltd 1 Stratton Street London W1J 8JR 5

6 Central London Offices Outlook 21 Central London Investment Recent trends 3,, (sq ft) 3,, After a (sq very ft) quiet Q1 29, the central London investment (%) 16.% market space 14.% witnessed 2,5, a dramatic and perhaps surprising reversal of fortune Available Vacancy space rate rate 14.% 2,5, during the later quarters. The upward movement in property 12.% 12.% yields that started back in mid 27 finally came to a halt, by 1.% which time they were well above gilt Average yields, available borrowing space space 229 costs 1.% Average available space 229 (although 1,5, debt finance remained very restricted) and their % 8.% 1,5, 8.% year averages. 1,, 1,, Against this background, a combination of strong investor demand 4.% 4.% 4.% and 5, only a limited number of investment opportunities resulted 5, 2.% 2.% in a sharp fall in yields for prime and good quality secondary 2.% buildings during the latter part of 29..%.% The improved investment market conditions resulted in IPD total returns becoming positive Docklands in Q3 Take Take for Up Up 221 the first time in two years at Source: GVA GVA Grimley/EGi Docklands Take Up %. This has been further Source: GVA underlined Grimley/EGi by transactional evidence in Q4 that has set new benchmark yields. 4,5, (sq ft) 4,5, 4,, 4,, 3,5, 3,5, Prime yields 3,, As at the end of 29, the prime West End (Mayfair) office yield had tightened to 5.%, having compressed aggressively during 2,5, Q4. This compares with a peak of 6.% in early 29. In the City, the prime office yield stands at 6.%, compared with a peak 1,5, of 6.75%. 3,, 2,5, 1,5, 1,, 1,, Despite the recent tightening in yields, the market remains 5, 5, attractively priced relative to gilt and interest rates although clearly finance remains restricted. Whilst Prime yields have moved back towards their 1 year average of 5.1% for the West End (Mayfair) and 5.8% for the City (Core), they remain attractive as rents in both West End (Mayfair) and Docklands the Prime City Rents Rents (Core) 221 are currently 2% Docklands Prime Rents 221 below the 1 year average. 5. ( psf) 5. So where will yields move in 21? The demand / supply balance 45. going forward will be the key factor in determining the movement 4. of yields Investor demand Docklands Availability Docklands Availability % 6.% 6.% Q4 Q4 Q4 Q4 1 1 Q4 Q4 2 2 Q4 Q4 3 3 Q4 Q4 4 4 Q4 Q4 5 5 Q4 Q4 6 6 Q4 Q4 7 7 Q4 Q4 8 8 Q4 Q4 9 9 Q4 Q4 1.% Q4 Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 In % of purchases by value were made by overseas investors 15. attracted by the weakness of Sterling. Our central forecast 1. is for only a modest rise in the value of Sterling against the Dollar 5. and the Euro in rate (%) (%) 16.%. Even Q4 with Q4 2 2 a Q4 Q4 modest 21 21Q4 Q rise Q4 Q4 23 in 23Q4 Sterling, Q Q4 Q the Q4 Q4 26 central 26Q4 Q London Q4 Q Q4 Q4 market Q4 Q will Q4 2 Q4 21 Q4 22 Q4 23 Q4 24 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 continue to retain many advantages and attractions for overseas buyers such as fiveyearly upwardonly rent reviews, FRI leases and comparatively long lease lengths. This, combined with high market transparency and the sheer size of the central London market will continue to encourage demand. The UK institutions have returned to the market towards the end of 29 having been net sellers in 28 / 29, due to inflows into retail funds. Following recapitalisation and fund raising, the majority of the UK REITs and Property Companies now have access to substantial funds as well. Prime Central London Office Prime Central London Yields Office Yields Prime yield, yield, %% 7. Prime yield, % Dec Dec 3 3 Dec4 Dec5 Dec6 Dec7 Dec8 Dec9 Dec 3 Dec4 Dec5 Dec6 Dec7 Dec8 Dec %% per per annum 3. % per annum Prime central London office yields Overseas investors Overseas investors 78% 78% 78% City City core core Mayfair City core Mayfair Total Total investment value value by by type type of of purchaser Total investment value by type of purchaser 29 Investment value by purchaser type 29 Central London Office Investment Performance Central London Source: Office Investment IPD, IPD, Experian, Performance GVA GVA Grimley Source: IPD, Experian, GVA Grimley Central London office performance Private investors Private investors 8% 8% 8% UK UK institutions UK institutions 3% 3% UK UK property 3% UK companies property Occupiers companies 8% 8% Occupiers 3% 3% 8% 3% %% per per quarter 1. % per quarter Income return Capital growth Total Total return Income return Capital growth Total return Quarterly Central London Office Total Total Returns Quarterly Central London Source: Office IPD IPD Quarterly Total Returns Index Index Source: IPD Quarterly Index Source: Property Data, GVA Grimley Source: IPD, Experian, GVA Grimley... Sep6 Dec6 Mar7 Jun7 Sep7 Dec7 Mar8 Jun8 Sep8 Dec8 Mar9 Jun9 Sep9 Sep6 Dec6 Mar7 Jun7 Sep7 Dec7 Mar8 Jun8 Sep8 Dec8 Mar9 Jun9 Sep Income return Capital growth Total Total return Income return Capital growth Total return 6 GVA Grimley Ltd 1 Stratton Street London W1J 8JR

7 Central London Offices Outlook 21 Improving conditions in the occupational market will be a key driver of investor demand in 21. Rental growth in the central London office market should return earlier and accelerate faster than the rest of the commercial property sector. As the previous sections have described, 21 should see prime rents bottom out in the West End whilst in the City we believe that prime rents have already hit the bottom and should see good growth during 21. The central London office market will look to be an increasingly attractive prospect for all investors and not principally a safe haven for those seeking a flight to quality. Overseas demand is likely to remain for the foreseeable future due to continuing economic and geopolitical threats affecting countries such as Russia, the Middle East, Africa and Asia. Hines 1 Grafton Street (W1). GVA Grimley are letting agents on 25,716 sq ft of office space. Completion due in Q3 21 Investment supply There is some considerable uncertainty over how much property will come onto the market in 21. We believe that the rate at which banks decide to put distressed assets onto the market is likely to increase as the rise in values witnessed in 29 allows banks to take profit or at least cover their liabilities. Banks in the UK are becoming more active in managing their distressed loans which could increase supply of investment stock. However, the UK s Asset Protection Scheme should mean that the participating banks will release property to the market in an orderly fashion, without the risk of fire sales. Irish owned stock is a potentially a source of new investment supply. Irish investors have been very active UK purchasers in recent years. A large number of distressed assets will be transferred into the National Asset Management Agency (NAMA). We believe that where it is possible, investors may try to sell assets and recover any remaining equity before all their assets are transferred to NAMA. How many sales this might trigger is difficult to quantify. We also expect that the market will be buoyed by an increase in corporateled opportunities including sale & leasebacks and acquisitions for owner occupation. However, we do not foresee a sudden massive supply of stock and the current shortage of prime and rack rented stock is likely to continue. Outlook for 21 Central London will remain an attractive market to both domestic and overseas investors. A restricted development pipeline will lead to rental growth, most notably for prime City stock, even though the economy is still recovering. Investors will become more optimistic about active management opportunities. We do not believe there will be a risk of a supply driven correction in yields in 21 and there will continue to be a lack of supply of rack rented stock. IPD is forecast to report a total return for 21 of 15%, driven by further downward yield movement and improving rental performance. GVA Grimley Ltd 1 Stratton Street London W1J 8JR 7

8 Principal contact details: West End Agency Patrick O Keeffe pok@gvasaxonlaw.com City Agency Tony Joyce tony.joyce@gvagrimley.co.uk Docklands Agency Rod Parker rod.parker@gvagrimley.co.uk West End Investment Piers Glover piers.glover@gvasaxonlaw.com City Investment Richard Garside richard.garside@gvagrimley.co.uk Head of Capital Markets Rob Bould rob.bould@gvagrimley.co.uk Research Daryl Perry daryl.perry@gvagrimley.co.uk Published by GVA Grimley Ltd 1 Stratton Street, London W1J 8JR copyright GVA Grimley Ltd Printed on recycled paper GVA Grimley Limited is a principal shareholder of GVA Worldwide, an independent partnership of property advisers operating globally This report has been prepared by GVA Grimley Ltd for general information purposes only. Whilst GVA Grimley Ltd endeavour to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. GVA Grimley Ltd assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation GVA Grimley Ltd exclude all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from GVA Grimley Ltd to reproduce material contained in this report. GVA Grimley Ltd