OFFICE LEASING VIABILITY REPORT

OFFICE LEASING VIABILITY REPORT Regal House, 198 King s Road, London, SW3 Friese Green House, 7 Chelsea Manor Street, London, SW3 Prepared by CBRE and Miles Commercial 19 th September 2013

1. CREDENTIALS CBRE and Miles Commercial have been instructed to provide a professional opinion on the leasing viability of the existing buildings, Regal House, 198 King s Road and Friese Green House, 7 Chelsea Manor Street, London, SW3. CBRE is the largest real estate company and globally, including affiliates, has over 37,050 people in over 300 offices across 60+ countries with a 2012 turnover of $6.5 billion. CBRE is a single, powerful, coordinated and integrated network combining the skills of a real estate market-making and management consultancy with the accountability of the professional advisor. We have 26 Agents that work in West End and Midtown office agency and a further 18 in the City office agency market giving us significant exposure to occupier activity across Central London. The Kensington and Chelsea office market sits alongside Mayfair, St James s, Belgravia, and Victoria within Central London and is driven by its own specific tenant demands. CBRE has a wealth of insight into what attracts and deters tenants, which we have gained from both leasing and acquiring numerous buildings in the West End and specifically in Kensington and Chelsea. Our experience from working with The Cadogan Estate for the past 25 years provides us with leading edge insight into trends emerging in the Kensington and Chelsea sub-market. Miles Commercial was formed in June 1991 as local surveyors based in the Royal Borough of Kensington & Chelsea specialising in all forms of commercial property having a wide and varied knowledge of Knightsbridge, South Kensington and surrounding areas. Miles Commercial currently work with major London land owners, property companies, developers and private individuals providing them with our professional advice focusing on their immediate and future needs. CBRE and Miles Commercial have been advising The Cadogan Estate on office leasing for over 25 years. 2. MARKET OVERVIEW

The West End Office Market The West End is the largest of the Central London markets, comprising c. 86m sq. ft. of office stock. The West End itself is a diverse market made up of 13 distinct submarkets, all attracting distinct occupier types. West End Demand After two years of above-trend demand in the West End, take-up in 2012 was subdued. Demand remained weak at the beginning of 2013 with take-up of just 681,400 sq. ft. in Q1 compared with a long-term average of 1.04m sq. ft. However, demand recovered strongly in Q2 2013, with quarterly take-up of over 1 million sq. ft. acquired for the first time since Q1 2012. Looking ahead, the recovery will gain momentum in 2014 as economic and employment growth strengthens and uncertainty around the future direction of the UK economy recedes. As a result, take-up is expected to increase to above-trend levels in 2014 and 2015 as the economic recovery gains traction. In addition to employment growth, forthcoming lease breaks and expiries will provide another source of demand. Improving economic conditions will ensure that many of the 10.8m sq. ft. of lease breaks and expiries that will occur in the West End between 2013 and 2018 will materialise into new demand. The Kensington and Chelsea Office Submarket Due to its proximity to the West End submarkets of Mayfair, St James s, Belgravia and Victoria office space in the Kensington and Chelsea sub-market attracts boutique financial, professional and luxury lifestyle businesses seeking small office suites who wish to be within easy reach of the core West End and whose staff live locally. Due to its perception as a western fringe office location and relatively poor transport links the area does not command rents as high as Mayfair and St James s. Sloane Street and the King s Road have a reputation for being two of London s most fashionable shopping streets and the immediate area is predominantly residential. It is generally considered to be a secondary office location. The majority of office accommodation within the area is located closer to Sloane Square on Sloane Street and along Brompton Road and Knightsbridge where the transport links are within easier reach. Take-up / Demand There were no occupational transactions in Knightsbridge/Chelsea in Q2 2013. As a result of the lack of activity, the rolling four quarter total fell to its lowest level since the end of 2008.

Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 000 sq ft 000 sq ft Chart 1: Take-up 100 Secondhand Pre-let Rolling Annual Take-up (RHS) Newly Completed 10-year Average 250 80 200 60 150 40 20 0 100 50 0 Source: CBRE The micro location of the King s Road is not popular with medium to large office occupiers generally because it is perceived as being a residential as opposed to a business location and due to the distance from the underground network. Office tenants in the immediate area tend to be smaller businesses run by people who live locally and demand is consistently higher for smaller high quality office suites of less than 3,000 sq ft located closer to Sloane Square and Knightsbridge underground stations. Tenant demand is typically from financial occupiers and luxury lifestyle businesses whose affairs are synonymous with the affluent and fashionable nature of Kensington / Chelsea and Knightsbridge. These types of occupier are seeking high quality and well specified office accommodation. A smart office entrance, passenger lifts, air conditioning, raised flooring, an attractive outlook and good levels of natural light are all requisites of a typical tenant. Supply Availability increased for the second consecutive quarter, rising by 44% to stand at 62,100 sq ft, reflecting an availability rate of 2.0%. The largest available unit is at 1 Knightsbridge Green, where 16,800 sq ft of secondhand space is being marketed. The lack of newly developed accommodation or space under construction is highlighted by Chart 2: Availability.

Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 000 sq ft Chart 2: Availability 250 Secondhand New Completed New u/c 10-year Average 200 150 100 50 0 Source: CBRE Rents The difference in the demand and rents achieved for office accommodation on the King s Road compared to office accommodation close to Sloane Square and on Sloane Street is significant. The second floor at 2 Jubilee Place located above retail on the King s Road is currently available. It totals 6,113 sq ft and is newly refurbished with a smart entrance and good levels of natural light albeit it has perimeter trunking as opposed to a raised floor. It has been available since February 2013 at a quoting rent of 39.50 per sq ft and has attracted very little interest to date. In contrast rents of 50-55.00 per sq ft have been achieved at Duke of York Square which provides Grade A office accommodation closer to Sloane Square and Knightsbridge. Prime rents in the Knightsbridge area are currently 60.00 per sq ft.

3. REGAL HOUSE, 198 KING S ROAD Schedule of Office Accommodation Floor Area (sq ft) Tenant Lease Expiry Rent (per sq ft) Total Rent pa Quality of Accommodation Part 2,340 Facade 2 nd Employments September 2016 25.06 58,650 C Part 1 st Front 2,087 Sir Robert McAlpine October 2014 19.50 40,697 C Part 1 st Rear 5,696 Under Offer to Barrecise C Quality of location Regal House is located on The King s Road approximately 10 minutes walking distance from Sloane Square underground (District Line) and approximately 12 minutes walking distance from South Kensington underground (District, Circle and Piccadilly Lines). The distance from local transport links has been perceived negatively by potential tenants and was a consistent reason for the space being discounted from searches during marketing. Condition and key problems for letting The existing office accommodation comprises 8,079 sq ft on the first floor and a further 2,340 sq ft on the second floor. The office accommodation is accessed via a self contained entrance with a single passenger lift next to the entrance to Waitrose supermarket which is on the ground floor of the property. Being a fashionable shopping street the office entrance is narrow and understated (Ref Appendix I Photographs) yet a smart and visible entrance is an important factor for the majority of office occupiers. The unimpressive and shabby office entrance was certainly a deterrent to successful marketing. The first floor is configured in an L shape with 12 columns. The floor fronts the King s Road and is deep towards the rear of the building with poor natural light and an unattractive outlook over the roof of the ground floor retail. At the rear some of the window glass is obscured due to planning restrictions which further affects the outlook. The floor has a basic office specification consisting of perimeter trunking, a dated air conditioning system and mineral fibre suspended ceiling tiles. The passenger lift and WCs are also in a tired condition. The first floor at Regal House was vacated by the previous tenant in December 2011 and following a light redecoration was advertised to let from March 2012 at a quoting rent of 25.00 per sq ft which reflected the quality of the accommodation. 15 viewings were undertaken, the majority of which were for a part of the floor as opposed to the whole. This is because there is very little demand for sizeable amounts of office accommodation in the location. In November 2012 a letting was secured of the part front to Sir Robert McAlpine

for a term to October 2014 with a rolling break option from July 2014. The remaining part rear is now under offer to a company called Barrecise who has made a successful application for change of use to D1 for an exercise studio. The three main reasons for the accommodation being rejected by potential tenants were: Poor transport links o Distance from the underground Poor quality of the accommodation o Narrow and unimpressive entrance, tired appearance, lack of natural light, poor outlook to the rear, lack of raised floor. Size o The comparatively large size of the floor which could potentially accommodate up to 80 people and lack of demand from businesses of this size meant we were unable to attract a tenant to lease the floor in its entirety. Summary of letting strategy Our marketing campaign included the following initiatives: CBRE and Miles Commercial property particulars Postal mail out of the property particulars to all active London commercial property agents Advertisement on the following websites: CBRE, Miles Commercial, Cadogan, EGI, Focus, West End Office Agency Society. Email advertising to all members of the West End Office Agents Society Active tenant targeting of other tenants located on or close to the Cadogan Estate. A total of 15 viewings were carried out from March 2012 with the majority of viewings being for part of the floor. 5 viewings were undertaken subsequent to the part front being let in November 2012. Quality and success of tenants secured The first floor was vacated by Caspian Media when they exercised a lease break in December 2011. The empty floor was brought to the leasing market in March 2012 at a quoting rent of 25.00 per sq ft per annum. In November 2012 we agreed to split the floor and let c. 3,000 sq ft of the front and, therefore, the best part of the floor, to Sir Robert McAlpine Ltd. The letting was opportunistic as it was for their use as a project office for a nearby development. The poor specification did not matter to them and the low rent achieved of c. 19.50 per sq ft per annum suited their limited budget. The remaining rear part of the floor has failed to attract interest from an office user and as a consequence we obtained planning permission for change of use to D1 as defined by The Town and Country (Use Classes) Order 1987. This part of the floor is now under offer for use as an Exercise Studio (Barrecise). The second floor is occupied by Façade Employments, a model agency, paying 25.06 per sq ft per annum.

Realistic opportunity for upgrading/refurbishment Accessibility and transport links are a key factor in many occupiers decision making process when acquiring new office accommodation. The distance of Regal House to the underground network is always going to be a limitation to the lettability of the office accommodation and the issue is likely to correlate to the size of space available. The larger the tenant the more likely this will be seen as a problem due to a larger proportion of staff travelling from a broader range of locations. In order to be viable a refurbishment would need to allow for an easily identifiable and smart entrance with DDA compliant access. The office floors would need to be comfort cooled / air conditioned with raised floors and a floor to ceiling height of 2.7m. Lettability would be enhanced by the divisibility of floors to create small suites of c. 1,000 sq ft or less. The provision of secure cycle racks and shower facilities is now a pre-requisite for new or comprehensively refurbished office accommodation in the Central London market and is desirable to tenants. This quality of accommodation required cannot be achieved by refurbishing the existing space as the configuration is inadaptable. The cost of making improvements to the existing accommodation in order to bring it to a lettable standard, the subsequent void periods and subsequent rental levels make refurbishment of the existing space financially unviable. Conclusion of ability to let in its current form As indicated by the recent leasing of accommodation within the building the existing accommodation is virtually unlettable due to its poor condition and configuration to the extent that the part rear has failed to attract interest from a typical office occupier and is now under offer for use as an exercise studio. 4. FRIESE GREEN HOUSE, 7 CHELSEA MANOR STREET Schedule of Office Accommodation Floor Area (sq ft) Tenant Lease Expiry Rent (per sq ft) Total Rent pa Quality of Accommodation 1 st 4 th 7,625 Royal Marsden Foundation NHS Trust September 2016 36.78 280,452 C Quality of location Friese Green House is located off the Kings Road being approximately 12 minutes walking distance from Sloane Square underground (District line)and approximately 14 minutes walking distance from South Kensington underground (District, Circle and Piccadilly Lines). The existing office building is located on a narrow one way side street leading off

the King s Road close to the junction with Sydney Street. This could be classified as a tertiary office location. Condition and key problems for letting The office accommodation comprises four floors of office accommodation totalling 7,625 sq ft with a passenger lift serving all floors. The entrance is small and lacks visibility being on a side street. The entrance and common parts are shared with residential tenants occupying the fifth and sixth floors, this shared entrance is an inconvenience for office tenants as residential occupiers frequently leave bikes and prams in the common parts. The quality of the accommodation is effected by low floor to ceiling heights meaning that perimeter trunking had to be installed as opposed to raised floors which in today s market is expected by the majority of tenants as a standard office specification. In addition the crittal windows are outdated and prone to warping hence there is poor sound proofing and in the winter months there is a lot of heat loss. The rear of the building overlooks a service yard which is used for deliveries and distribution of goods by Habitat. This is not only an unattractive outlook it is also noisy throughout the day. Summary of letting strategy We were instructed in April 1998 to market the second floor totalling approximately 1,962 sq ft and agreed terms with Beaveraction Ltd in July 1998 for a term until December 2001. I attach a marketing report which was dated 27 th July 1998 showing the list of various parties shown over the premises. In May 2001 we were asked to provide a marketing report for the first to fourth floor offices which is duly attached. We then commenced marketing the offices in September 2002 and finally agreed terms to let the 1 st floor to Hawksworth Management in April 2003 and the 3 rd floor to Naf Naf Ltd in April 2003 and finally the 2 nd floor in July 2003 to Marquis Jets Partners (Europe) Ltd all for a term until September 2004. In June 2005 part 3 rd floor was let to The Sloane Square Hotel for a term of 1 year. In March 2005 we were instructed to market the whole building except for the 3 rd floor which was let until June 2006. It took some considerable time to find a tenant and eventually in December 2005 The Royal Marsden Hospital expressed interest and in May 2006 terms were agreed for their use as administration offices. Due to the proximity of Royal Marsden Hospital they were a special purchaser. Quality and success of tenants secured The accommodation was brought to the leasing market in 2004. Due to the location of the property and its distance from underground transport it certainly had an effect when marketing the offices. A series of short term lettings were agreed as well as quite long void periods encountered before a final deal was agreed with The Royal Marsden in March 2006 for their administrative offices which was a special purchaser situation due to their locality.

Conclusion of ability to let in its current form Prior to securing Royal Marsden as a tenant the office floors were often vacant with long voids and lettings were short term to tenants with weak business credentials. The accommodation would be virtually unlettable in its current form for the following reasons: Location o Poor transport links o Not an established office location Poor entrance o Anonymous side street o Small entrance lacking visibility o Shared with residential tenants Poor quality o Low floor to ceiling heights o Poor fenestration lacking double glazing o Lack of raised floor o Unattractive aspect over goods service yard 5. CONCLUSION The King s Road is renowned as retail as opposed to office location and suffers from its distance to the London underground network. This has fundamentally hindered the lettability and rental value of the existing office accommodation at Regal House and Friese Green House. In addition to this the second hand nature of the accommodation and larger floor plates do not appeal to tenant demand. Highest demand from potential occupiers in the Chelsea area is for flexible high quality office suites with prestige and the Grade A specification afforded by new modern developments. The new office accommodation to be created as part of the redevelopment will have a top quality specification with dedicated entrances and common parts, including lifts which are fully accessible. The new office accommodation will be designed in accordance with the BCO standards, with a BREAM Excellent rating targeted. They will have fully accessible raised floors, full comfort cooling /heating intelligent lighting and dedicated WC/shower facilities. The space will also be designed with future leasing flexibility in mind.

APPENDIX I REGAL HOUSE PHOTOGRAPHS Office entrance to left of Waitrose supermarket

APPENDIX II FREISE GREEN PHOTOGRAPHS AND MARKETING PARTICULARS The rear view of Freise Green House office accommodation overlooking service yard for Habitat. Small side street entrance with poor visibility from the King s Road.

LOW COST OFFICES TO LET IN CHELSEA FRIESE GREEN HOUSE, CHELSEA MANOR STREET, LONDON SW3 LOCATION ACCOMMODATION The building is on the east side of Chelsea Manor Street close to the junction of Kings Road. The area is well known for its quality shops and restaurants. Sloane Square underground station (Circle and District lines) are within a 10 minutes walk. The offices are arranged as four self contained units over first to fourth floor being a mixture of mainly open plan space and individual offices. Each office benefits from its own internal WCs and kitchenette. The approximate floor areas are as follows: Sq.ft. Sq.mts. 1 st floor Let 1,902 176.70 2 nd floor Let 1,967 182.74 3 rd floor Let 1,878 174.47 4 th floor 1,878 174.47 Total 7,625 708.37 AMENITIES * Automatic passenger lift * 24 hour access * Central heating * Perimeter trunking * Male & female W.Cs * Kitchenette TERMS LEASE RENT OCCUPATION LEGAL COSTS VIEWING For a term until 28 th September 2004 contracting outside the provisions of the Landlord & Tenant Act, 1954 Part II as amended 15 psf Immediate upon completion of legal formalities Both parties legal costs to be borne by the ingoing tenant Strictly by appointment through sole agents Miles Commercial 020 7581 9722