OnPoint. Revival in Regional Office Market. UK Office Market Outlook Q4 2013

Transcription

1 OnPoint UK Office Market Outlook Q4 213 Revival in Regional Office Market A revival in the UK economy during 213 has been mirrored in activity levels across the Big 8 regional office markets. The intensification of the Grade A supply shortage is driving a more active development market. Prime rents increased by 3. over 213, with an average of 2. per annum forecast over the period , led by the Western Corridor.

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3 Summary Summary statistics* () (s sq ft) 5,342 7, Vacancy Rate (%) % -13bps Average Weighted Prime Rent ( psf) U/C Spec (s sq ft) 1,321 2,78 +5 *Includes Birmingham, Bristol, Cardiff, Leeds, Manchester, Western Corridor, Edinburgh and Glasgow UK office rental clock Rental Growth Slowing Rents Falling London West End London City Rental Growth Accelerating Rents Bottoming Out West London, Manchester, Edinburgh Thames Valley Glasgow Birmingham, Bristol, Cardiff Leeds For information on the Central London market, please see the Jones Lang LaSalle Central London Market Report OnPoint UK Office Market Outlook Q

4 UK Outlook Highlights Occupier take-up totalled 7.5 million sq ft in 213, up 3 compared to 212. Continued shortage of Grade A supply in most markets Rising confidence and an uptick in pre-letting activity boosts development starts. Investors look to the regional cities and secondary property as prime product becomes scarce. Rising confidence in UK economy 213 saw a revival in fortunes for the UK economy that is set to continue into 214. After several years of lacklustre performance, the economy recovered strongly in 213 with the pace of growth accelerating through the year. GDP growth of. was recorded in Q4, bringing overall growth for the year to 1.9%, the strongest rate since 27. On the back of this improvement, the economy is expected to grow by 2.9% this year - faster than any other major European economy - against its previous forecast of 1.9%. Bristol, Manchester and the South East region are all expected to outperform the UK average for growth in 214. Figure 1: GVA growth across the UK 3% 1% Revival in office markets outside of London in 213 The professional services sector was responsible for some notable deals, particularly in Leeds and Glasgow, with the legal and accounting sub-sectors actively acquiring space. 213 also witnessed an uptick in activity within the banking & finance sector. In 212 the banking & finance sector was responsible for just 13 deals over 1, sq ft (295, sq ft) across the Big 6. In 213 this increased to 21 deals and 569,5 sq ft. Notable transactions include the acquisition of 83, sq ft by Sainsbury s Bank at 3 Lochside Avenue, Edinburgh. The Yorkshire Building Society was also responsible for the largest deal in Leeds in 213, taking 76,413 sq ft at Broad Gate, The Headrow. Volumes in 213 were boosted by a return of larger lettings with the number of deals over 1, sq ft up substantially. Across the Big 6 markets alone, deals over 1, sq ft increased from 56 in 212 to 79 in 213. In Glasgow, Scottish Power signed a deal to build a new 14 storey headquarters building on St Vincent Street totalling 22, sq ft. Deutsche Bank also brought a boost to the Birmingham office market after it signed up to take 134, sq ft of space at 5 Brindleyplace. The Western Corridor saw the largest deal of the year with BMW consolidating its subsidiaries into one office complex of over 3, sq ft at Nokia s former campus, in Farnborough. Return of larger deals boosts volumes Figure 2: Big 8 office take-up % -1% 9, 8, 7, - Bristol Manchester Source: Oxford Economics South East UK Edinburgh Birmingham Leeds Glasgow Cardiff s sq ft 6, 5, 4, 3, 2, Strong increase in take-up 1, Office markets outside of London recovered strongly in 213. across the core eight markets outside of London totalled 7.5 million sq ft, up 3 compared to 212 and well ahead of the five and ten year average levels. Markets which have seen a particular turnaround in fortunes include Leeds, which recorded take-up of almost 8, sq ft, almost double the level achieved in 212. Elsewhere, Glasgow and the Western Corridor also witnessed substantial growth in volumes with leasing activity up 9 and 4 respectively. Source: Jones Lang LaSalle Big 8: Birmingham, Bristol, Cardiff, Leeds, Manchester, Edinburgh, Glasgow & Western Corridor This momentum is expected to continue into 214 as occupational requirements come to a head. There are a number of substantial active requirements as well as pent up demand, as a result of short term regears, which could come back to the market in 214. There are also a number of significant lease events in the next 2-3 years which should drive occupational markets forward. In 214 alone we track around 2.5 million sq ft of structural events across the key English cities outside of London (Birmingham, Bristol, Leeds, Manchester) While some 4 OnPoint UK Office Market Outlook Q4 213

5 occupiers may seek to preserve flexibility by regearing on shorter leases, improved business confidence will encourage other occupiers to acquire new space. Further contraction in Grade A supply The need for occupiers to act on office space requirements will become more pressing in 214 due to further intensification of Grade A shortages in the major cities outside of London. We are now beginning to see a real shortage of Grade A office space in most locations, with the shortage particularly acute in the Western Corridor, Edinburgh and Leeds. In the Western Corridor Grade A vacancy rates are at their lowest level since 21. Leeds saw a significant contraction in Grade A supply in 213 with the Grade A vacancy rate falling from 3. at the end of 212 to just 1.9% at the end of 213. Similarly in Edinburgh city centre, the new build Grade A vacancy rate is just.9%. Intensification of Grade A supply shortages will encourage development activity With Grade A supply continuing to contract in most locations we expect occupiers, particularly those with larger requirements, to consider pre-let options. The lack of Grade A space is already driving a much more active development market than has been the case in recent years. At the end of 213 there was over 2 million sq ft of space under construction on a speculative basis, up 5 compared to the equivalent period in 212. Of the total space currently under construction, around half is within the Western Corridor market alone. In Glasgow, construction commenced on 485, sq ft of much needed new Grade A office space in 213. In Leeds, pre-let commitments from KPMG at Sovereign Square and Shulmans at Wellington Place helped to kick start development activity and have provided the stimulus to other schemes; and in Bristol 184, sq ft of speculative space is now under construction in 3 schemes. Rents and rental expectations While there is still further to go before occupational markets have fully recovered the limited Grade A supply drove rental growth of 3. in the UK Regional Office Rental Index over the year to end-213. Average weighted prime rents stood at 28.7 at the end of Q4 as increases in the Western Corridor, Edinburgh, Manchester and Glasgow supported growth. The lack of Grade A supply will continue to drive rents for the very best space. On aggregate, we forecast growth of 2. per annum over in the major UK cities. The Western Corridor is predicted to outperform this, with growth of 4. per annum over the same period. Turning to the secondary market, rental growth is expected to be far more limited, although some growth is anticipated. Jones Lang LaSalle s forecasts of IPD data indicate rental growth to a lesser extent of just 1. per annum over for UK Offices. Investment volumes and yields Recovery in the investment market has moved ahead of the occupational market as Investor demand has spread from London to the South East and beyond to the core regional cities. The sheer weight of money now targeting the Western Corridor and prime regional cities has driven yields inwards in most locations over the course of 213. Prime yields in the Western Corridor moved in to 5. at the end of 213, from 6.2 a year earlier. Yields also moved in by as much as 5 basis points (compared to end 212) in Leeds, Birmingham and Manchester to 6.%. We expect yields to trend keener over the course of 214. Figure 4: UK prime weighted office yields index 9% Figure 3: Big 8 speculative development activity 4, 3% 4Q3 4Q4 4Q5 4Q6 4Q7 4Q8 4Q9 4Q1 4Q11 4Q12 4Q13 s sq ft 3,5 3, 2,5 2, 1,5 1, Completed U/C Definite Spec Start Likely Spec Start Likely Spec Start Source: Jones Lang LaSalle Source: Jones Lang LaSalle UK incl. London UK excl. London Investment volumes in the core eight markets outside of London totalled 3.5 billion in 213, almost three times the level achieved in 212. A significant proportion of this was targeted at the Western Corridor, which accounted for over of the total. That said 213 has seen greater interest in the regional cities from a wide range of sources. There is a considerable weight of money competing for limited investment product in London and the South East. Investors are increasingly looking to the Western Corridor and key regional cities in search of better returns. OnPoint UK Office Market Outlook Q

6 Birmingham Summary statistics 213 (s sq ft) 664 Vacancy Rate (%) 12. Prime Rent ( psf) 28.5 U/C Spec (s sq ft) Investment market 213 Investment Vol. ( m) 26 Figure 5: s sq ft 1, Prime Yield (%) 6.% Market overview Leasing volumes in 213 exceed five and ten year average. Availability now at its lowest level since 28. Prime rents stable, with slight growth anticipated in net effective rents in 214. Figure 6: Supply and vacancy rates s sq ft totalled c15, sq ft in the fourth quarter, bringing the 213 year-end total to just over 664, sq ft. Leasing volumes were 1% ahead of the 1 year average (65, sq ft). Volumes were boosted by the acquisition of 134, sq ft at 5 Brindleyplace by Deutsche Bank in the second quarter. This was the most substantial deal in 213, however there were a further eleven deals over 1, sq ft, an improvement on 212. Sentiment in the occupational market has gradually improved throughout 213, however corporates remain relatively cautious with deals still protracted. In some instances a lack of confidence continues to prevent some deals from crossing the line and we continue to see some occupiers opting to renew or regear leases. Overall supply has fallen substantially over 213 as a result of increased take-up and the removal of outdated stock for alternative uses. Vacancy rates currently stand at 12., with Grade A vacancy rates in the region of just Supply (lhs) Figure 7: Prime rents and rental growth % - -1% Vacancy rate (rhs) % per sq ft At present there is sufficient Grade A supply in the market to meet demand. However it would take only a couple of substantial deals for this to change. The market remains broadly tenant favourable with prime rents stable at 28.5 per sq ft. Incentives remain generous although we expect these to move inwards over 214 as supply tightens. Figure 8: Prime yields Rental growth (y-on-y) (lhs) Prime rent (rhs) Recovery in the investment market has been more rapid, with the sheer weight of money now targeting the regions driving down pricing. Prime office yields moved in 5 basis points over the course of 213 and are currently at 6.% but trending keener. The most significant deal in Q4 involved the sale of One Snowhill to Union Investment for 125 million, reflecting a NIY of Prime yields 1 year average 2 year average Source all Charts: Jones Lang LaSalle 6 OnPoint UK Office Market Outlook Q4 213

7 Bristol Summary statistics 213 Figure 9: 8 (s sq ft) 55 Vacancy Rate (%) 9. Prime Rent ( psf) 27.5 U/C Spec (s sq ft) 184 Investment market 213 Investment Vol. ( m) 121 s sq ft Prime Yield (%) 6. Market overview City centre take-up exceeds the 5-year average. Development activity addresses the Grade A shortage. Rental growth forecast during 214. Bristol experienced a strong 213 with total take-up for the year reaching 54,5 sq ft, some 19% higher than the 5-year average of 425,2 sq ft. However, a closer look shows the city centre only saw a handful of Grade A transactions over the whole year. The largest deal during 213 was Imperial Tobacco s move into its owner-occupied new headquarters (85, sq ft), although this is a grey area of take-up as Imperial Tobacco already owned the site. Looking ahead to 214, sentiment in the market is improving with the organic growth of existing occupiers showing strength in the local economy. Overall supply in Bristol has fallen significantly over the course of 213 with the vacancy rate coming in by 15 basis points to stand at 9.. The Grade A vacancy rate is just 1. but with 184, sq ft under construction on a speculative basis the shortage may be eased slightly, although latent demand could soon absorb this. The Bristol market is undergoing a period of structural change with up to 1 million sq ft of planning applications for student housing or residential uses submitted during 213; this has been reflected in a revision to our total stock figure at end-213. The introduction of Controlled Parking Zones during 214 will also add a new dynamic to the market with businesses on the periphery of the city centre likely to be most impacted. Figure 1: Supply and vacancy rates s sq ft 2, 1,6 1, Supply (lhs) Vacancy rate (rhs) Figure 11: Prime rents and rental growth % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 12: Prime yields % % per sq ft Prime rents in the city centre remain stable at 27.5 per sq ft with up to three months rent free for each year of lease commitment. Bristol s investment market recorded a strong year with a total of million invested, almost half of this in Q4 when Portwall Place was sold for 51.5 million. Prime yields stood at 6. at end-213, moving in by 25 basis points over the course of the year and will move in further during Prime yields 1 year average Source all Charts: Jones Lang LaSalle OnPoint UK Office Market Outlook Q

8 Cardiff Summary statistics 213 Figure 13: 6 (s sq ft) Vacancy Rate (%) 9.% 4 Prime Rent ( psf) 22. U/C Spec (s sq ft) 76 Investment market 213 Investment Vol. ( m) 7 s sq ft Prime Yield (%) 6. Market overview Subdued take-up below the 5-year average. Market needs to address Grade A supply pinch point through refurbishment opportunities. Potential for growth in prime rents during 214. Figure 14: Supply and vacancy rates s sq ft 1,4 1,2 1, % levels were relatively subdued in Cardiff during 213 with a total of 248,4 sq ft transacted, compared to a 5-year average of 35,7 sq ft. Key Grade A transactions included ITV and the Life Science Hub (Welsh Government), collectively acquiring 23, sq ft at 3 Assembly Square. Although a drop in take-up, the for 214 is more positive with a number of large requirements remaining active, including the BBC (14, sq ft), Legal & General (up to 1, sq ft), Geldards (4, sq ft), Morgan Cole (35, sq ft) and the AA (up to 3, sq ft). Total supply reduced over 213 with the overall vacancy rate falling by 9 basis points to 9.%. The supply of new Grade A space has diminished substantially with only 37, sq ft available in 2 schemes at end-213. There is only 76, sq ft under construction on a speculative basis (Capital Quarter, Phase 2), which is due to complete in Q It is essential that the market maximises refurbishment opportunities to bridge the gap in Grade A supply as the Welsh Government s and Cardiff Council/Rightacres/JR Smart s respective schemes will not bring new office stock to the market until 215/216. Prime rents in the city centre remain at 21 to 22 per sq ft with rent free incentives tightening from the previous 24 month level for a typical 1-year term. With headline rents of 22 per sq ft achieved during 213, there is room for some rental growth Supply (lhs) Vacancy rate (rhs) Figure 15: Prime rents and rental growth 1% % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 16: Prime yields 9% % per sq ft The largest investment transaction during 213 was the sale of Helmont House for 25.5m. During Q4 the key transaction was the sale of Hodge House by Aberdeen Asset Management to Legal & General Property for 18.8m. Activity levels are certainly increasing, with large investments such as Crickhowell House and Willcox House under offer to foreign funds. Prime yields at year-end were in the region of 6., but with limited activity in the prime sector, and are expected to move in during 214 in response to increased investor demand for regional office products Prime yields Source all Charts: Jones Lang LaSalle year average OnPoint UK Office Market Outlook Q4 213

9 Leeds Summary statistics 213 (s sq ft) 798 Vacancy Rate (%) 7. Prime Rent ( psf) 25. U/C Spec (s sq ft) 118 Investment market 213 Investment Vol. ( m) 145 Figure 17: s sq ft Prime Yield (%) 6.% Market overview Leasing volumes reach highest level in more than ten years. Grade A supply well below average levels. Improved optimism encourages development activity. 213 was a bumper year for the Leeds office market, with take-up volumes of almost 8, sq ft. Leasing volumes were almost double the level achieved in 212, and exceeded both 1 and 15 year average levels. Volumes were boosted by a clutch of pre-lets and by a substantial increase in the number of larger deals. Leeds outpaced all other markets in the Big 6 with the greatest number and volume of deals over 1, sq ft in 213. There were 18 deals over 1, sq ft equating to over 51, sq ft, compared with just 7 deals in 212 (191, sq ft). Leeds City Council was responsible for the largest deal in the fourth quarter, acquiring a further 5, sq ft at Merrion House. The professional service sector was also active in Q4 with KPMG acquiring 28,271 sq ft at Broad Gate, The Headrow and accountants Hentons, taking 22,627 sq ft at 118 North Street. Overall vacancy rates are now at their lowest level since 26 and well below average levels. Grade A supply is particularly constrained with vacancy rates falling to less than 2.%. The lack of Grade A supply has driven pre-letting activity in Leeds over 213, with commitments from KPMG at Sovereign Square and Shulmans at Wellington Place. This has kick started much needed development activity and has provided the stimulus to other schemes. There is currently 118, sq ft under construction on a speculative basis, all of which is scheduled to complete in 214. Prime rents were static over 213 at 25. per sq ft. Incentives remain in the region of up to 3 months rent free based on a 1 year term. Looking ahead we anticipate modest rental growth over the course of 214 with incentives reducing. City centre investment volumes improved significantly over 213. In the fourth quarter key investment deals include the sale of Sovereign House for circa 2 million, reflecting a NIY of 7.8. CBREGi also purchased 2 The Embankment for 7.3 million (9. NIY). Figure 18: Supply and vacancy rates s sq ft 1,6 1,4 1,2 1, Supply (lhs) Vacancy rate (rhs) Figure 19: Prime rents and rental growth 1% % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 2: Prime yields Prime yields 1 year average 2 year average Source all Charts: Jones Lang LaSalle 1 1 1% % per sq ft OnPoint UK Office Market Outlook Q

10 Manchester Summary statistics 213 Figure 21: 1,4 (s sq ft) 86 1,2 Vacancy Rate (%) 9.1% 1, Prime Rent ( psf) 31. U/C Spec (s sq ft) 25 Investment market 213 Investment Vol. ( m) 353 s sq ft Prime Yield (%) 6.% Market overview Leasing volumes broadly in line with average levels. Overall supply down 9% year on year. Prime rents edge upwards to 31. per sq ft. A strong end to the year resulted in leasing volumes of 86, sq ft in 213. This was broadly in line with average levels and 9% above 212 levels. Activity was dominated by a number of larger deals with 16 deals over 1, sq ft, totalling 36, sq ft (3 total take-up). The most significant deal in Q4 involved the acquisition of 2, sq ft at 3 Picadilly Place by engineering firm Arup. Conveyancer myhomemove, acquired c.2, sq ft at Linley House. Barclays bank is also under offer on 8, sq ft at 4 Piccadilly place in a deal which is likely to complete in Q Activity continues to be driven by a broad sectoral base although there have been a number of notable deals from within the service and professional services subsector. Supply continued to fall, with vacancy rates edging down to just 9.1%, compared to an average of around 1.%. The vast majority of available supply is of Grade B quality. Grade A vacancy rates are now in the region of 2. in the city centre. Despite the contraction in Grade A space, there has been very little change to the development pipeline this year with no new starts recorded. One St Peters square remains the only scheme under construction delivering 268, sq ft of new Grade A space in 214. We could well see another spurt of development activity in 214, although this is likely to be underpinned by pre-lets. Prime rents increased to 31. per sq ft in the fourth quarter, up 3.3% compared to the equivalent period in 212. Incentives are in the region of around 3 months rent free on a 1 year term for existing space and are expected to gradually move inwards over the course of 214. In the investment market volumes totalled 353 million in 213, more than three times the level seen in 212. There were 6 notable transactions in Q4 one of which was the sale of Vantage Point for 19.9 million to Lothbury Property Trust, reflecting a NIY of. We anticipate continued interest from investors in the regional office market as investors become priced out of London and the South East. Figure 22: Supply and vacancy rates s sq ft 3, 2,5 2, 1,5 1, Supply (lhs) Vacancy rate (rhs) Figure 23: Prime rents and rental growth 1 1 % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 24: Prime yields Prime yields 1 year average 2 year average Source all Charts: Jones Lang LaSalle 1 1 1% % per sq ft 1 OnPoint UK Office Market Outlook Q4 213

11 Edinburgh Summary statistics 213 (s sq ft) 774 Vacancy Rate (%) 7.1% Prime Rent ( psf) 29.5 U/C Spec (s sq ft) Investment market 213 Investment Vol. ( m) 298 Figure 25: s sq ft Prime Yield (%) 6.% Market overview Leasing activity comfortably exceeds 1 year average levels. New Grade A supply is severely constrained. Prime rents increase to 29.5 per sq ft. volumes in the Edinburgh office market exceeded 77, sq ft in 213, the greatest level of activity since 27 and ahead of the 1 year average level (74, sq ft). The number of larger deals was fairly consistent with the previous year, with 11 deals in excess of 1, sq ft, equating to 357,5 sq ft or around 4 of the total take-up. 213 saw the return of the financial sector with the most significant deal of 213 involving the acquistion of 83, sq ft by Sainsbury s Bank at 3 Lochside Avenue. Other notable deals include Bank of New York Mellon s acquisition of 54,6 sq ft at Capital House. Optimisim in the occupational market has improved over 213 however there remains some uncertainty with regards to current requirements with a limited number of big enquiries. Overall availability fell slightly over 213, reflecting a vacancy rate of 7.1% at the end of Q4. New Grade A space is particularly constrained within the city centre where vacancy rates have now dropped below 1.%. There is currently nothing under construction in the Edinburgh Office market, however developers are gearing up for the next wave of activity with work likely to start at several high profile developments in 214. This will be key to ensuring that the market continues to provide a good level of choice for corporates going forward. Prime rents increased to 29.5 at the end of 213, driven by the lack of new Grade A supply within the city centre. Looking ahead to 214 we expect to see further growth in prime rents as the supply of quality office space continues to tighten. In the investment market one of the most significant deals of the year was Prupim s purchase of 2-4 Waterloo place for 46 million, reflecting a NIY of c.7.3%. GLL also purchased Calton Square for million in the third quarter. As a result of this renewed investor interest, prime yields moved inwards by 25 bps over the course of the year. Quarter 4 saw a number of significant deals totalling c 75 million including Interpoint (Aviva Investors), 3-5 Morrison Street (AXA Real Estate) and Excel House (CBREGi ). Figure 26: Supply and vacancy rates s sq ft 2,5 2, 1,5 1, Supply (lhs) Vacancy rate (rhs) Figure 27: Prime rents and rental growth 1% % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 28: Prime yields Prime yields 1 year average 2 year average Source all Charts: Jones Lang LaSalle 1% % per sq ft OnPoint UK Office Market Outlook Q

12 Glasgow Summary statistics 213 Figure 29: 8 (s sq ft) 71 Vacancy Rate (%) 1. Prime Rent ( psf) 28. U/C Spec (s sq ft) 46 Investment market 213 Investment Vol. ( m) 222 s sq ft Prime Yield (%) 6.% Market overview Strong end to 213 results in the best year for take-up volumes since 27. Availability falls by 9% year-on-year. Prime rents edge up to 28. per sq ft. in the Glasgow office market exceeded 348, sq ft in Q4, bringing the 213 year-end total to just over 71, sq ft. Volumes were boosted by two significant pre-lets in the final quarter of the year. Scottish Power signed a deal to build a new 14 storey headquarter building on St Vincent Street totalling 22, sq ft. Legal firm Brodies, also acquired 24,449 sq ft of space at 11 Queen Street, which is currently under construction and will deliver 165, sq ft in 215. While these two deals alone account for around 3 of total take-up, even if these deals are stripped out, volumes are well in excess of the. Overall supply continued to fall in 213, with vacancy rates edging down to 1., compared to 11. at the end of 212. While this is still slightly ahead of the 1 year average, there is limited supply of the right quality of space. Grade A vacancy rates are now at their lowest level since 28 and there is limited supply of quality Grade B stock within the right locations. This has stimulated activity in the development market with a total of 485, sq ft currently under construction of which 46, remains available. This is the most substantial amount of space currently under construction on a speculative basis across the Big 6 and underlines the need for good quality space in the city centre. Prime rents edged upwards to 28. at the end of 213 as the market begins to rebalance itself and demand prospects improve. We expect greater optimism moving into 214 with incentives beginning to gradually move inwards over the course of the year. Investor appetite for regional office assets picked up in 213, with investor interest driving prime yields inwards by 25 basis points to 6.%. Israeli investor CLAL Insurance purchased 15 Broomielaw for 42 million, reflecting a NIY of 6.3. M&G also reached a deal with Scottish Power in excess of 1 million to fund the development of the utilities company s headquarters. Figure 3: Supply and vacancy rates s sq ft 2, 1,6 1, Supply (lhs) Vacancy rate (rhs) Figure 31: Prime rents and rental growth % % Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 32: Prime yields Prime yields 1 year average 2 year average Source all Charts: Jones Lang LaSalle 1 1 1% % per sq ft 12 OnPoint UK Office Market Outlook Q4 213

13 Western Corridor Summary statistics 213 Figure 33: 3,5 (s sq ft) 2,96 3, Vacancy Rate (%) 13.9% 2,5 Prime Rent ( psf) U/C Spec (s sq ft) 1,35 Investment market 213 Investment Vol. ( m) 2,138 s sq ft 2, 1,5 1, Prime Yield (%) 5. Market overview Annual take-up reaches highest level since 28. Grade A supply shortage continues although developer confidence is returning. Exceptional investment volumes achieved during 213 with an increasingly international purchaser profile. Total take up in the Western Corridor was 3 million sq ft in 213, exceeding the five year average of 2 million sq ft. Take up during 213 was characterised by a number of larger deals from a diverse range of occupiers including BMW, BP, Rackspace and Reading Borough Council. However, during Q4 occupier activity was dominated by smaller deals with only 3 transactions over 5, sq ft: Bechtel (75, sq ft) at First Central, Park Royal; Honda (69,825 sq ft) at Reflex, Bracknell and Abbott Laboratories (53, sq ft) at Vanwall Business Park, Maidenhead. At end-213 there was 3 million sq ft of named active demand circulating in the Western Corridor, providing a solid base going into 214. Service sector industries account for 4 of requirements by floorspace. Overall supply in the Western Corridor has remained largely static over 213, with the 12.3 million sq ft available at year-end reflecting a fall on end-212. However, there continues to be a shortage of Grade A space with the West London Grade A vacancy rate at just 3.3%. The equivalent rate for the Thames Valley remains consistently higher at 7. but has fallen by 8 basis points over the course of the year as new supply is taken-up. Development activity is returning to the market and at end-213 there was 1. million sq ft under construction on a speculative basis, of which 7 is due to complete during 214. The Western Corridor saw solid rental growth over 213, led by the West London sub market. The Western Corridor prime average rent increased by 5.% y-on-y, and is forecast to increase by an average of 4. per annum over the period Investment volumes in 213 reached a high of 2,138 million, boosted by the sale of Chiswick Park at the end of Q4 ( 78m) and IQ Winnersh ( 25m) earlier in the year. Prime yields tightened over the course of the year, moving in by 55 basis points to 5.. There is evidence in the London Boroughs of deals at sharper levels with a mixed-use element. Figure 34: Supply and vacancy rates s sq ft 14, 12, 1, 8, 6, 4, 2, Supply (lhs) Vacancy rate (rhs) Figure 35: Prime rents and rental growth Rental growth (y-on-y) (lhs) Prime rent (rhs) Figure 36: Prime yields Thames Valley prime yields TV 1 year average West London prime yields WL 1 year average Source all Charts: Jones Lang LaSalle % % per sq ft OnPoint UK Office Market Outlook Q

14 Definitions Floor space acquired for occupation by lease, prelease, freehold or long leasehold sale in the City Centre (unless otherwise stated). All deals are included with the exception of Western Corridor and Bristol where 5, sq ft and 1, sq ft thresholds are applied respectively. Cardiff includes City Centre and Cardiff Bay. Supply Floorspace on the market and available for occupation. It includes space that is under offer. Under Construction Speculative development of new building or substantial refurbishment where construction activity is ongoing. Demand New enquiries logged on a quarterly basis, over 2, sq ft for London and the South East and over 1, sq ft for the regional markets Prime Rent The Jones Lang LaSalle view of the highest rent achievable for a hypothetical 1, sq ft unit of Grade A space in a prime location, without any adjustment for incentives. Business Sectors Broad business sectors are classified as: Banking & Finance: Banks and other financial institutions Professional Services: Accountants, legal, management consultants etc Service Industries: Advertising and PR, broadcasting, internet services, printing and publishing, software houses and data processing, telecommunications services, transport, retail, leisure etc Manufacturing Industries: Pharmaceuticals, computer hardware, electronics, construction, mining, engineering, food and drink etc Public Administration & Institutions: Central and local government, institutions, charities, quangos, health and social etc Investment Volumes Investment volumes include city centre investment volumes, quoted in GBP (grossed up) 14 OnPoint UK Office Market Outlook Q4 213

15 Business contacts Jeremy Richards National Offices Bristol +44 () Angus Minford National Offices +44 () Leasing contacts Jonathan Carmalt Birmingham +44 () Ian Wills Bristol +44 () Rhydian Morris Cardiff +44 () Cameron Stott Edinburgh +44 () Andrew Pearce Exeter +44 () Mike Buchan Glasgow +44 () Jeff Pearey Leeds +44 () Chris Mulcahy Manchester +44 () Matthew Smith Nottingham +44 () Jason Webb Southampton +44 () James Finnis Western Corridor +44 () Chris Hiatt National Offices London West End +44 () OnPoint UK Office Market Outlook Q

16 Investment Contacts Mark Wilson National Offices +44 () Simon Merry North West +44 () Ben Kelly Midlands +44 () Olly Paine South West +44 () Ross Burns Glasgow +44 () Andrew Summersgill North East +44 () Chris Macfarlane Edinburgh +44 () Colin Finlayson Edinburgh +44 () Justin Millett Cardiff +44 () Research Contacts Karen Williamson Associate UK Research +44 () Vicky Heath Associate UK Research +44 () UK Office Market Outlook Q4 213 On Point reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. COPYRIGHT JONES LANG LASALLE IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.