European - Office Market - 2011 PDF

ReSeARCH
eUROPeAN OFFICe mARkeT 2011
Contents
Office Market Investment Market Amsterdam Athens Barcelona Belgrade Berlin Birmingham Bratislava Brussels Bucharest Cologne Dsseldorf Edinburgh Frankfurt Geneva Glasgow Hamburg Kiev Lille Lisbon 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 Central London Luxembourg Lyon Madrid Manchester Marseille Milan Moscow Munich Central Paris Rome Saint Petersburg Sofia Stockholm The Hague Toulouse Vienna Warsaw Comparative Economic Data Understanding our data Contacts 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 87
Executive Summary
The vigorous GDP growth recorded in the Euro area during Q2 2010 (+1%), slowed down during the second half of the year and should stay sluggish during 2011. Indeed, as the key factors that drove GDP growth in 2010 faded away, recovery lost momentum. Discrepancies remain amongst the Euro area countries with Germany leading recovery at the fastest pace. In the rest of Western Europe, economic recovery should also be moderate in 2011 with Sweden leading the way. The United Kingdom GDP has fallen again in negative growth, cutting strongly 2011 economic development. Emerging economies, such as Poland, Hungary and Romania, that have lagged behind while the rest of Europe was starting to recover, will experience stronger growth. On the employment side, no strong rebound is expected. Indeed, with an economic growth below average, employment growth should be limited in the Euro area (+1%). While job losses cease in the core countries, falls are likely to continue in Greece, Ireland and Spain. Similarly, in the United Kingdom, jobs should drop over the next two years due to cuts in public spending, whereas labour markets across Emerging European countries should start their recovery in 2011. The main driver of office space demand in 2010 remained relocation, as part of company optimisation strategies in a context of economic uncertainty. Indeed, as office employment growth is expected to be anaemic for some time, net absorption, which turned positive in 2010 in most European markets, should remain weak in 2011. In turn, the Investment market is set to run at two-speeds along 2011 with buyers showing still little interest for riskier, secondary assets. Nonetheless, investment should record an increase of speculative development for the most active market registering a scarce supply of new offices. Economic uncertainty encourages cautiousness from investors. 2010 was a year of economic recovery with some encouraging trends confirmed in European real estate markets, but it is now clear that the global property recovery will continue along an uneven path. In fact, with the anticipated slowdown of economic growth in most of Europe, commercial real estate market conditions will not improve significantly in 2011.
EUROPEAN OFFICE MARKET 2011
Office Market
LOW LEVEL OF DELIVERIES PERMITTED VACANCY RATE TO STABILISE
Throughout the 35 cities analysed in this report, total take-up volume increased significantly (+27%) from 9.2 million m in 2009 to 11.6 million m in 2010. Indeed, our European Office Take-up Index recorded a fifth consecutive growth in Q4 2010, driven by large transactions in some major markets. However, the main driver of office space demand in 2010 remained relocation, as part of company optimisation strategies in a context of economic uncertainty. As office employment growth is expected to be anaemic for some time, net absorption, which turned positive in 2010 in most European markets, should remain weak in coming quarters. On the supply side, new deliveries have been decreasing following the slowdown in building starts during the crisis period. The
Take-up (m2) 2010
Central Paris Central London Moscow Munich Warsaw Frankfurt Berlin Hamburg Brussels Madrid Dsseldorf Milan Cologne Barcelona Amsterdam Lyon Rome Vienna Bucharest Lille Toulouse Marseille Manchester Luxembourg Saint-Petersburg Lisbon Bratislava Kiev The Hague Glasgow Belgrade Birmingham Edinburgh Sofia Athens Geneva Stockholm
decline in completions led to stabilisation in empty space by mid2010 and a slow reduction in vacancy rate was registered in most European markets in the final quarter. This positive development was reflected in the evolution of rents but the rising trend was restricted to the prime segment as new high quality offices witnessed strong demand. Indeed, at Q4 2010, our Prime Rent Index rose significantly by 2.3% compared to Q3 and by 7.6% on Q4 2009. Although prime rents increased in most major European cities, secondary market rents have only just started to stabilise and in a small number of markets it is yet to bottom out. 2010 was a year of economic recovery with some positive trends confirmed in European real estate markets. However, with the anticipated low level of economic activity in most of the European countries, we think that office market conditions should not improve significantly in 2011.
Vacancy Rate (%) Prime Rent (/m2/year) Q4 2008 5.4 7.2 10.0 8.4 2.9 12.2 7.7 6.1 9.8 8.9 10.0 7.0 8.3 8.7 15.3 5.3 6.2 5.5 4.5 n.a. n.a. n.a. 8.8 2.1 17.0 7.1 6 10.0 11.6 7.9 12.0 9.6 12.0 11.0 10.0 1.2 9.5 Q4 2010 830 1,128 514 360 276 420 258 276 295 342 288 520 259 240 350 241 420 276 216 200 200 240 350 456 330 234 204 275 215 326 174 339 350 162 280 743 434 Q4 2009 710 939 420 372 264 420 242 288 275 384 282 500 257 264 360 285 420 264 216 185 190 250 357 480 370 234 210 267 205 326 200 338 350 192 336 643 412 Q4 2008 830 1,252 821 408 324 450 264 312 285 492 282 550 258 303 370 260 500 282 264 185 205 220 376 576 463 240 222 615 205 357 240 401 357 213 336 775 478
2009 1,482,000 999,000 735,000 542,000 280,000 422,000 414,000 390,000 416,000 297,000 220,000 188,000 228,000 180,000 220,000 160,000 107,000 295,000 133,000 142,000 136,000 95,000 102,000 126,000 158,000 116,000 87,000 63,000 85,000 50,000 60,000 61,000 42,000 80,000 60,000 -34,000* -195,000*
2008 1,956,000 850,000 2,400,000 786,000 524,000 596,000 468,000 544,000 459,000 490,000 424,000 275,000 290,000 319,000 295,000 244,000 111,000 400,000 312,000 148,000 113,000 106,000 103,000 257,000 409,000 233,000 107,000 30,000 120,000 55,000 125,000 89,000 51,000 115,000 125,000 27,000* 130,000*
Q4 2010 7.6 7.5 16.0 9.0 7.2 13.3 7.1 8.0 11.5 12.9 11.5 10.3 8.3 14.0 19.6 7.4 5.9 5.1 17.0 n.a. n.a. n.a. 9.4 7.2 10.0 11.2 11.3 17.0 13.1 11.6 22.5 15.6 14.7 22.0 16.5 0.9 11.5
Q4 2009 7.8 10.4 21.0 8.6 7.0 13.8 7.6 7.4 11.5 12.5 11.3 9.5 8.9 11.7 20.2 6.4 6.4 5.0 15.5 n.a. n.a. n.a. 8.7 5.4 18.0 9.7 10.7 24.0 12.4 11.7 16.0 12.3 15.0 19.0 12.1 1.2 11.5
Note: *: Net absorption Constant Exchange Rate: (/): 0.8592 - (/CHF): 1.3225 - (/SEK): 9.2139
BNP Paribas Real Estate Research
1,796,000 1,522,000 1,010,000 599,000 550,000 516,000 512,000 505,000 476,000 399,000 383,000 310,000 234,000 234,000 231,000 220,000 208,000 202,000 190,000 182,000 141,000 131,000 124,000 117,000 116,000 105,000 90,000 85,000 74,000 74,000 70,000 62,000 55,000 50,000 41,000 102,000* 160,000*
95
100
105
110
115
120
125
250
300 600 900 1,200 1,800 1,500
Index
500
750
1,000
1,250
Central Paris
Central Paris
2005
Central London
Central London Moscow Munich
Moscow
Prime Rents (/m2/year):
Munich
2006
Warsaw
Warsaw Frankfurt
Q4 2009
Frankfurt
2007
TAKE-UP VOLUME (Thousand m2)
Berlin
Berlin Hamburg
PRIME RENTS AND VACANCY RATES
Hamburg
Q4 2010
EUROPEAN PRIME OFFICE RENT INDEX
Brussels
2008
Madrid
Madrid Dsseldorf
Brussels
Dsseldorf
Milan
2009
Cologne
Cologne
Milan
Barcelona
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010
Amsterdam
Amsterdam Lyon Rome
Barcelona
Lyon
Rome
Quarterly variation
Bucharest
Vienna
-9%
-6%
-3%
Vienna
0%
3%
6%
9%
60
80
100
120
140
Lille
Lille Toulouse
Bucharest
Index
Toulouse
Marseille
2005
Manchester
Marseille Manchester Luxembourg Saint-Petersburg Lisbon Bratislava Kiev The Hague Glasgow Belgrade Birmingham Edinburgh So a Athens
2009
Luxembourg
Saint-Petersburg
2006
Lisbon
Bratislava
2007
Kiev
EUROPEAN OFFICE TAKE-UP INDEX
The Hague
Glasgow
2008
Belgrade
Birmingham
Edinburgh
2009
So a
Athens
2010
Stockholm
Quarterly variation
Geneva
-10%
2010
10%
-5%
0%
5%
Vacancy Rates (%)
10%
15%
20%
25%
5%
Investment Market
A TWO SPEED MARKET DRIVEN BY PRIME ASSETS
With approximately 54.6bn invested during 2010, the investment volume in the 35 markets analysed in this report increased by 46% compared to the previous year. However, the level achieved is moderate; investment volumes recorded in 2010 are still 40% down on 2005. Central London and Central Paris remain the most active city markets in Europe registering respectively a 46% and 40% year-on-year increase. However, more significant rises were observed in Stockholm, Moscow and Germany. In 2010, the office market still accounted for the largest share of investment total volume (65%), even though growth for this sector remained relatively flat. It was left to other property types to push investment volumes up. The contribution of portfolio retail transactions was particularly noticeable, moreover trophy assets sales in Central London or Central Paris allowed to double hotel investment volume, albeit coming from a very low in 2009.
Investment volume ( million) 2010
Central London Central Paris Stockholm Berlin Moscow Hamburg Madrid Frankfurt Munich Vienna Milan Rome Dsseldorf Cologne Saint-Petersburg Warsaw Barcelona Birmingham Amsterdam Lisbon Glasgow Manchester Brussels Geneva Lyon The Hague Luxembourg Edinburgh Bratislava Toulouse Belgrade Lille Bucharest Marseille Athens Kiev Sofia 14,401 7,462 4,385 3,173 2,050 1,998 1,998 1,883 1,720 1,375 1,318 1,208 1,188 1,095 915 820 819 807 733 704 659 636 590 479 388 361 345 270 249 156 143 124 117 90 31 n.a n.a
The Investment market continued to run at two speeds. Indeed, buyers remained focused on prime assets and still showed little interest for riskier, secondary assets. The fierce competition, and therefore the aggressive bidding by investors over scarce prime properties, mainly drove growth in investment turnover. The significant prime yield compression during 2010, steered capital growth. Prime office yields have now bottomed out on primary markets. 2010 marked a turning point in the upturn of the commercial real estate investment markets in the European core markets. It is now clear that the global property recovery will continue along an uneven path. The economic forecasts for 2011 are encouraging companies and investors to remain cautious. Markets with strong economic and occupier basics will continue to attract investors interest, but the path to full recovery will be postponed because of the necessity of fiscal austerity plans.
Net Prime Office Yield (%) Q4 2010
4.00 4.75 5.00 5.10 9.50 4.85 5.50 4.90 7.80 5.20 5.30 6.00 5.20 5.30 12.00 6.75 5.75 6.00 5.70 7.00 6.00 6.00 6.25 3.50 6.25 5.80 6.00 6.00 7.75 6.35 9.25 6.50 8.75 6.35 7.00 16.00 9.00
Investment volume by product as% of 2010 % Office

78 87 29 47 75 45 45 85 58 59 75 55 81 23 46 65 53 59 59 13 59 60 87 52 77 72 15 47 82 17 52 78 100 88 100 n.a n.a
2009
9,866 5,314 1,710 1,348 1,150 1,098 1,570 744 1,327 585 1,538 935 793 520 786 646 827 901 555 514 812 375 503 426 448 474 500 406 32 108 268 215 9 76 196 n.a n.a
2008
9,988 8,899 7,274 2,287 2,872 1,920 4,096 1,453 1,457 2,000 1,344 1,422 943 1,188 1,000 1,680 1,569 503 1,089 600 266 493 1,132 631 825 338 472 559 130 328 217 197 715 188 150 n.a n.a
% Retail
8 4 13 43 8 41 18 8 22 5 8 42 16 57 31 22 14 16 18 37 34 18 4 11 2 18 13 5 7 71 21 0 0 8 0 n.a n.a
% Industrial & Logistics Warehousing
% Others
14 8 47 8 14 6 25 4 18 33 13 3 0 15 16 12 31 18 16 13 4 17 9 2 0 9 69 48 11 11 0 5 0 1 0 n.a n.a
Q4 2009
5.50 5.50 5.25 5.40 12.00 5.10 6.00 5.20 5.10 5.80 5.30 6.20 5.40 5.50 13.00 6.88 6.30 5.75 6.30 7.00 5.75 5.75 6.50 3.50 6.50 7.20 6.40 5.75 8.00 7.65 9.70 7.35 9.50 7.15 6.25 17.00 10.00
Q4 2008
5.75 5.65 5.00 5.30 10.00 5.10 5.75 5.15 5.00 5.70 5.50 6.00 5.30 5.40 9.00 6.75 5.75 7.00 5.70 7.00 7.00 7.00 6.00 3.50 6.60 6.90 6.20 7.00 6.20 7.15 8.00 7.00 8.00 6.85 6.25 15.00 8.00
0 1 11 2 3 8 12 3 2 3 4 0 3 5 7 1 2 7 7 37 3 5 0 35 21 1 3 0 0 2 27 17 0 3 0 n.a n.a
65
90
115
140
165
190
215
240
5,000
10,000
2,500
7,500
12,500
15,000
4
Index
6
Central London
10
12
14
16
18
Kiev
2005
Saint-Petersburg
Stockholm Berlin
Central Paris
Moscow
Belgrade
2006
NET PRIME OFFICE YIELDS

Moscow Hamburg
So a
Bucharest
2007
INVESTMENT VOLUME ( billion)
Bratislava
Frankfurt Munich
Madrid
Lisbon
Athens
2008
Warsaw
Milan Rome
Vienna
EUROPEAN REAL ESTATE INVESTMENT INDEX
Lille
Toulouse
2009
Marseille
Cologne
Dsseldorf
Brussels
2010
Lyon
Saint-Petersburg Warsaw Barcelona Amsterdam
Rome
Birmingham
Quarterly variation
-30%
-20%
-10%
10%
20%
30%
40%
Glasgow
Birmingham
0%
Manchester
Luxembourg
Lisbon Glasgow Manchester
100
70
80
90
110
120
Index
Edinburgh
The Hague
Barcelona
Brussels Geneva Lyon The Hague Luxembourg Edinburgh Bratislava Toulouse Belgrade Lille Bucharest Marseille Athens Kiev So a
2009 n.a n.a
2005
Amsterdam
Madrid
2006
Milan
Cologne
Vienna
2007
Dsseldorf
Berlin
EUROPEAN NET PRIME OFFICE YIELD INDEX
2008
Stockholm
Frankfurt
Hamburg
2009
Munich
Central Paris
Q4 2009
Central London
2010
Geneva
Quarterly variation
Q4 2010
2010
-10%
10%
15%
-5%
0%
5%
Amsterdam
DECLINE IN PRIME RENT CEASED IN H2 2010
Prime rents dropped during the first six months of 2010 (-3%) reaching a level of 350/m/year before stabilising during the second half of the year. The current rent level is expected to remain unchanged for the immediate future due to a sustainable demand for prime office space. Nonprime areas are still coping with oversupply meaning that rent levels are staying under downward pressure.
220 0% 280 5%
BNP Paribas Real Estate Research BNP Paribas Real Estate Research BNP Paribas Real Estate Research
PRIME RENT
/m2/year % change
400
15%
340
10%
160
-5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP CHARACTERISED BY LARGE CORPORATE DEALS

Overall take-up improved slightly during 2010 being around 11,000 m m higher compared to 2009. Take-up in 2010 was characterised by large corporate transactions that were mainly realised in prime areas and significantly contributed to the 231,000 m of total take-up. The secondary areas, in contrast to prime areas, continue to have difficulties in achieving good take-up levels. In some parts of these areas, negative sentiment has to be turned around before take-up levels increase.
TAKE-UP
Thousand m
400 350 300 250 200 150 100 50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
CHANGES IN BUILDING USE CLASS DECREASE VACANCY

Overall vacancy levels decreased between Q4 2009 and Q4 2010 to stand at 19.8%, which is still very high for Amsterdam, but nevertheless an improvement. This was due to the large transactions that took place, mainly spurred by consolidation of office space within and to Amsterdam from elsewhere in the Netherlands. Another important factor that drove the vacancy level down was that the municipality granted changes in use of office space in some areas. This resulted in a number of large office buildings being transformed into hotels. This might be an increasing trend since a shortage of hotel rooms remains a feature of Amsterdam.
SUPPLY
Thousand m Vacancy rate (%)
1,500
25%
1,200
20%
900
15%
600
10%
300
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
COMPLETIONS (Thousand m)
New supply completed Under construction (year of delivery)
400 350 300 250

MUNICIPALITY STILL ASSESSING ITS DEVELOPMENT PLAN

Future developments are still being reassessed by the municipality, so new developments will remain at the current low level or will even decrease further in the future. During 2010 it was announced that Deloitte would move its Amsterdam office to the South Axis. This development was the first major announcement in 2010 and one of the few developments to be announced in the South Axis in recent years. In secondary areas the development pipeline for office space has come to a halt.
200 150 100 50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
INVESTMENT ( million)
1,800
Total investment
Of ce investment
INVESTMENT VOLUME GOES UP BY A THIRD

Transaction volumes increased to a level of 733m representing a growth of 32% compared to 2009. The third quarter of 2010 recorded an investment volume of 350 million which was the highest quarterly volume recorded since the first quarter of 2008. Increasing competition in the banking sector for real estate investment
1,500
1,200
900
has improved financing opportunities and consequently led to more liquidity in the market.
600
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NET PRIME OFFICE YIELD (%)

7%
PRIME OFFICE YIELD BACK TO PRE-CRISIS LEVEL

Yields for prime office space with long term lease contracts decreased to 5.7%. Core office investors are aiming for the same scarce investment product. With this high increase in demand for safer investments yields dropped remarkably during 2010. At the same time, yields for secondary assets have increased or remained stable, thereby widening the
6%
5%
gap between prime and non-prime assets.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10
Athens
PRIME RENT UNDERGOES TOUGH DOWNWARD ADjUSTMENTS
Prime rents in Athens dropped to 280/m/year from 336/m/year in 2009 (-17%). The rental drop is mostly a consequence of low demand arising from the economic crisis the country has been facing since the end of 2009. The major negative shift in all indicators is taking its toll on the rise in unemployment rate (12.5%) and widening public deficit (15.4% of GDP in 2009) are spurring relocations or renegotiations of existing leases pressurising rents as a result. An average rental drop of 20% is estimated in all major office districts in Athens.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PRIME RENT
/m2/year % change
460
10%
400
5%
340
0%
property prime rents. The decrease in GDP growth (-4.2%),
280
-5%
220
-10%
160
-15%
TAKE-UP CONTINUED TO CONTRACT IN 2010

Aggregate take-up of office space in Athens reached 40,500 m, a fall of about 32% compared to 2009 (59,660 m). The main reason for the drop is that tenants renegotiated their existing leases with more favourable terms in reduced space. In the meantime, companies, which were planning to expand their businesses and acquire extra space, have frozen their plans due to the economic crisis.
TAKE-UP
Thousand m
150
125
100
75
50
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LACK OF PRE-LETS HELPS PUSHING SUPPLY VOLUME UP

Total available supply of office space remained at the same level but very few new buildings are being constructed. Indeed, new supply completed has dropped to 20,000 m from 58,000 m in 2009. In most cases, new deliveries that came onto the market are still unoccupied, contributing to a rise in vacancy rate (16.5% in 2010 from 12.1% in 2009) already growing from space released by companies downsizing.
SUPPLY
Vacancy rate (%)
18%
15%
12%
9%
6%
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
11
DEVELOPMENT PIPELINE WILL BE LOW IN 2011-2012

The number of planning permissions in Athens area has decreased by 12.4%, and volume of square meters under construction has fallen by 35%. The above figures show that developers are not confident that they can lease or sell within a reasonable time frame. Therefore, they are holding back new developments, until prices stabilise. New
150
120
90
projects still cannot source financing on favourable terms.
60
30 n.a. n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
400
Total investment
Of ce investment
CRASH IN INVESTMENT TRANSACTIONS

Transaction volume declined sharply to 31m in 2010 from 196m in 2009, a fall of 84%. The main reason for low investment appetite was the uncertainty created by the ongoing recession and the lack of financing.
300
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
UPWARD YIELD SHIFTS TO CONTINUE IN THE SHORT TERM

The very weak investment activity in the market is being reflected in the evolution of net prime office yields. Although yields were stable between 2008 and 2009, a strong rise in yields occurred during 2010. By the end of the year, they reached 7% compared to the 6.25% recorded in 2009 and
7%
6%
5%
are expected to further increase in 2011.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
12
Barcelona
SUBMARKET COMPETITION SEES PRIME RENT DECREASE
The variation in office prime rents over 2010 was remarkable. In the second quarter, transactions were closed to 300/m/year but by the end of the year rents were at 240/m/year. The CBD saw a strong competition from recently developed zones in the Decentralised area offering better access and an increasing number of international corporative occupiers have chosen to move there. As a consequence, prime rents shifted downwards.
PRIME RENT
/m2/year % change
450 400 350 300 250 200 150
50% 40% 30% 20% 10% 0% -10%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP RISES BUT REMAINS UNDER 10-YEAR AVERAGE

Office space let in 2010 reached 234,500 m representing a 30% increase on 2009. This growth, though significant, is not seen as a brisk recovery but as an easy to beat goal imposed by the weak take-up level seen in 2009. In fact, take-up in 2010 remains below the ten-year average (290,000 m). As the local economic performance is expected to be modest in 2011, take-up volumes are expected to remain beneath their long run trend.
TAKE-UP
Thousand m
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DELIVERIES OF NEW BUILDINGS PUSH SUPPLY UP

Barcelonas office stock rose in 2010 by 144,000 m, mainly through new deliveries in Decentralised zones; thus 2010 ended with a vacant space of 776,000 m. This represented a vacancy rate of 14%, which significantly increased during the second half of the year due to new completions delivered onto the market and to second hand surfaces released in Q4. Decentralised areas and the CBD recorded constant vacancy rates, around 22% and 9% respectively. The city centre and the outskirts saw a rise of space available and reached 6.5% and 26.7% of vacancy rate respectively.
SUPPLY
800
16%
600
12%
400
8%
200
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
13
PIPELINE TO BECOME LOW IN 2012

Office buildings to be delivered in 2011 will represent around 100,000 m, with 55% in the Decentralised area and 45% in the outskirts of Barcelona. This number drops to some 30,000 m in 2012 and is made up entirely by one building in the city centre. No new deliveries are expected beyond 2012 due to the currently high level of immediate
250
200
150
supply and the expected moderate performance of the local economy and employment level.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
2,100 1,800 1,500 1,200 900 600 300
Total investment
Of ce investment
OFFICE INVESTMENT FUELLED BY MEDIUM SIzE DEALS

In 2010, office investment in Barcelona represented 33% of total volume invested in offices in Spain. This share is very similar to that seen in 2009, however the 430m turnover represented a 71% growth compared to 2009 and was fuelled by medium size transactions, between 40m
and 60m. The main players on the market were private investors as well as international institutional funds, mainly from Germany.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
YIELDS STEADY SINCE THE SECOND HALF OF 2010

Office prime yields ended 2010 at 5.75% dropping from 6.3% one year ago, and were unchanged since the second quarter. It reflects a relatively scarce supply of prime fully rented buildings with long lease in the CBD.
6%
5%
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
14
Belgrade
PRIME RENT MODERATELY INCREASED IN H2
After the significant slump in rents during 2009 due to the high volume of delivered office space and economic downturn driving up vacancy, prime rents in Belgrade started to increase during the second half of 2010 after recording a strong fall in H1. With stronger demand for offices, especially in the last quarter, prime office rents have reached 174/m/year. The highest rents were recorded in the Central Business District of Belgrade.
180 -10% 220 -5%
PRIME RENT
/m2/year % change
300
5%
260
0%
140
-15%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP RECOVERY FOCUSED ON SMALL UNITS

Aggregate take-up of office space in 2010 was about 70,000 m, which is approximately equal to the level of take-up in the years before the economic crisis. Furthermore, compared to previous years, rent negotiations were significantly more in favour of tenants than landlords as a consequence of the increased vacancy and number of new buildings on the market. Analysis of the size of leased office units indicates that more than 55% of the deals were for small office units (up to 300 m) and 20% were for large office units (more than 600 m).
TAKE-UP
Thousand m
150
125
100
75
50
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DELIVERIES OF NEW BUILDINGS PUSH UP VACANCY RATES

Office stock in Belgrade increased by about 99,000 m as several buildings in the Central Business District were finished, which lead to a 14% growth in immediate supply compared to 2009 figures. The higher level of supply occurred despite the ongoing financial crisis due to the completion of projects initiated before the triggering of economic recession. As a consequence, the vacancy rate increased sharply and reached 22.5% at the end of 2010. Several projects which are still active will be delivered in 2011 and will move the vacancy rate figure up again.
SUPPLY
800
24%
600
18%
400
12%
200
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
15
250
CONSTRUCTION ACTIVITY STILL REMAINS AT A LOW LEVEL

As a consequence of the economic crisis, development of new projects continued to slowdown. Several significant projects due for delivery in 2010 were postponed to 2011 and 2012, because of the oversupplied market and still uncertain signs of recovery. There is about 87,000 m of new
200
150
office space in the pipeline for 2011 and about 21,000 m for 2012. Given the current market conditions, a majority of developers are still reluctant to start new schemes and many announced projects are on hold waiting for more favourable investment prospects.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
INVESTMENT VOLUME ( million)

300
Total investment
Of ce investment
OFFICE INVESTMENT MODEST RECOVERY
VOLUMES
ExPERIENCED
The period from 2004 until 2008 was marked by strong investors interest, especially in the office sector, but after the beginning of the global economic crisis, the volume of real estate investment experienced significant deterioration. However, contrary to 2009 which was
250
200
150
characterised by a lack of office investment activity, 2010 volumes recovered with 75m invested with strong activity from local commercial banks. Trends for 2011 and 2012 do not clearly point to major revitalisation, due to a lack of clear recovery signs in the occupational market.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

12%
YIELD COMPRESSION OF 2010 SHOULD STOP IN 2011

Compared to 2009, prime office yields in 2010 decreased from 9.7% to 9.25% due to the completion of several projects started before the recession. Over 2009 and 2010 the oversupply situation in the office market encouraged investors to reduce buying and developers to postpone activity to 2011 and 2012. As a consequence, current net
10%
8%
prime office yields are likely to remain at the same level, without significant modification in nearest future.
6%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
16
Berlin
PRIME RENT CLIMBS TO 258/M/YEAR
Benefiting from the favourable market environment, the prime rent in Berlin rose by more than 6% by the end of the year to 258/m/year. As in 2009, it was achieved in the top city locations of Potsdamer Platz and Leipziger Platz. Similar positive developments were also observed in many other submarkets. Average rents increased as well, especially in the City Centre office areas. Indeed, with the exception of the Government District and Charlottenburg, where average rents generally climbed by around 5%, all the submarkets registered growths between 10% and 19%.
150 -10% 200 -5%
PRIME RENT
/m2/year % change
400
15%
350
10%
300 250
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP OVER 500,000 M

In 2010, the Berlin office market broke through the 500,000 m threshold and achieved its second-best result in the last ten years, exceeding the 2009 volume by 24%. Only in the boom year of 2006 was the take-up higher. This excellent result was due to a large number of lettings in the size category over 5,000 m, which accounted for more developments made up a big proportion of these leases. As in 2009, demand favoured the office locations in the City Centre. than half of total take-up. It is also notable that project
TAKE-UP
Thousand m
600
500
400
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
FALLS IN VACANT SPACE FASTEST FOR MODERN OFFICES

Thanks to the buoyant demand, there has been a further reduction in supply. At the end of 2010, the volume of premises available totalled 1.34 million m, which represents a year-on-year drop of more than 6%. The reduction was particularly marked for modern space on 2009. Since 2005, the proportion of modern premises as part of total supply has declined from 41% to stand at 26% in 2010. The vacancy rate decreased to 7.1% in 2010 (-50bp) due to rising demand and slowing completions. vacancy which amounted to 353,000 m in 2010, down 13%
SUPPLY
1,800
12% 10%
1,500
1,200
8%
600
4%
300
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
900
6%
300
0%
17
LITTLE SPACE UNDER CONSTRUCTION AVAILABLE TO LET

The volume of space under construction has grown again to 276,000 m (+26% compared to a year ago) with around 86% of construction located in downtown Berlin. However, despite the increased level of construction activity, the volume of space under construction that is available has fallen to 51,000 m. In fact, a large proportion of the space
500
400
300
now being created is destined for owner-occupation or has already been let to the future tenants. At about 18%, the proportion of available space under construction in Berlin is lower than in any other major German office market.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
7,000 6,000 5,000 4,000
Total investment
Of ce investment
BERLIN: GERMANYS KEY INVESTMENT MARKET

With a transaction volume at around 3.2bn in 2010, the Berlin investment market more than doubled its 2009 total, with the third-best turnover in the past 10 years. Only in 2006 and 2007 was this excellent performance exceeded. The result is also more than 30% up on the 10-year average. Thus, Berlin is increasing its lead over
Germanys five other key real estate markets Cologne, Dsseldorf, Frankfurt, Hamburg and Munich. Portfolio sales generated around 606m, representing a share of about one fifth of the total investment volume.
3,000 2,000 1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
GREATER INVESTMENT ACTIVITY SEES PRIME YIELD EASE FURTHER

The net prime office yield had already started to ease at the end of 2009 and slipped further in the course of 2010. This was due not only to the limited supply of fully let, attractive office buildings in the top locations of the Berlin market, but also to a larger circle of investors drawn to the
5%
4%
city. Towards the end of the year, the net prime office yield underwent a further decline reaching 5.1% in Q4 2010, 30bp lower than the year before.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
18
Birmingham
PRIME RENT REMAINS SUBDUED INTO THEIR SECOND YEAR
The Birmingham prime rental level has stayed unchanged at 291/m/year ( 339) for six consecutive quarters. Indeed, there is no pressure on prime office rents to grow as occupier market activity remains subdued. The last time true rental growth was experienced in the Birmingham market was at the peak in 2008 when prime rental levels rose to 344/m/year ( 401).
200 -10% 250 -5%
PRIME RENT
/m2/year % change
400
10%
350
5%
300
0%
150
-15%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
exchange rate /: 0.8592 (Q4 2010 average)
TAKE-UP LEVEL STAYS FLAT OVER 2010

The 2010 take-up reached 62,094 m, marginally higher than the 61,061 m achieved in 2009, but markedly down on the 2008 market peak of 89,121 m. The lack of sizeable deals, with the majority of deals falling below 1,000 m means there is little insufficient demand to push up take-up. The two largest deals of the year was the Q3 2010 9,944 m long leasehold sale of Calthorpe Estates Calthorpe House, Edgbaston to The Binding Site and the Q1 2010 3,775 m letting of Targetfollows Baskerville House.
TAKE-UP
Thousand m
100
80
60
40
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
FEWER OPTIONS FOR OCCUPIERS LOOKING FOR GRADE A

The Birmingham supply level gradually increased during the course of 2010. At the end of Q4 2009 it was estimated at 213,670 m, compared to 271,491 m at the end of 2010. The lack of recent development means that those looking for Grade A space are starting to see their options diminish, there is becoming a supply imbalance, with regional office markets becoming increasingly dominated by Grade B second hand space. as the best space is taken up. Like most UK regional centres
SUPPLY
280
16%
210
12%
70
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
140
8%
19
100
THE DEVELOPMENT FROzEN
PIPELINE
IS
COMPLETELY
There are no new developments underway with the pipeline, not likely to reactivate in the short term .
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
1,600 1,400 1,200 1,000
Total investment
Of ce investment
OFFICE INVESTMENT DOMINATED BY TWO DEALS

Total investment activity in Birmingham posted at around 692m ( 807m), 10% down on 2009 with a clear switch from retail to offices. The lower aggregate volumes in 2010 are due to the fall off in retail investment which, in 2009, reached its highest level for over 5 years. Most of the investment volume can be accounted by two very
800 600 400 200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
large deals. The sales of Brindley Place (190m/ 222m) to an American REIT and One Snowhill (126m/ 147m) to a German fund, showed the importance of overseas investors to the Birmingham market in 2010. These are high profile deals; UK institutions still made the majority of purchases at much lower deal sizes.
exchange rate /: 0.8573 (2010 average)

7%
PRIME OFFICE YIELD SETS TO SPREAD OUTWARDS IN 2011

Net prime office yields that moved down rapidly in Birminghams core area in 2009 stabilised in the first half of 2010 and subsequently moved outwards. Although takeup in 2010 is better than anticipated, secondary supply is growing faster resulting in increasing vacancy rates and
6%
5%
a less attractive investment scenario. The two largest deals of the year show that appetite for high quality office buildings continues, particularly as supply of prime is greatly diminished, but it is not likely that it will result in yield compression in 2011. With the short term prospects for the occupational market being poor, a degree of outward movement is more likely to occur.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
20
Bratislava
PRIME RENT SETS TO GROW IN 2011
Prime rent in the Bratislava Central Business District stabilised in 2010 as a result of gradually strengthening demand and a reduction in availability. At the same time the gap between headline and net effective rents narrowed, ending 2010 with a headline figure of 204/m/year. We believe an upward trend could start in areas and older lower quality premises remain under pressure.
150 0%
PRIME RENT
/m2/year % change
250
16%
225
12%
200
8%
2011. Market districts that are outside the prime business
175
4%
125
-4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP VOLUME INCREASING AT SUSTAINABLE LEVELS

Take-up in 2010 increased compared to 2009 levels and ended the year at a higher level than expected. A competitive market offering attractive incentives to tenants helped to let space that had been standing vacant. However demand has not been sufficient yet for developers to launch speculative developments or restart the many projects that were put on hold during the recession.
TAKE-UP
Thousand m
125
100
75
50
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATE ON A DOWNWARD TREND

Vacancy rate dropped to just over 11% during 2010. Thanks to stable demand and low level of new supply coming onto the market. The most expensive offices, developed at the peak of the last cycle, and the lowest quality premises are proving to be difficult to let.
SUPPLY
180
12%
150
10%
120
8%
90
6%
60
4%
30
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
21
DEVELOPMENT PIPELINE IS RUNNING LOW

There has been a major fall in the amount of new supply coming onto the market, a trend which emerged at the end of 2009. Completions remain below the medium term average as developers look for the security of pre-let schemes. There have been no major building starts without first securing tenants, the exception being small-sized
180
150
120
90
office premises within mixed-use schemes. In the absence of a surge in demand, few schemes are scheduled to start in 2011.
60
30 n.a. n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
600 500
Total investment
Of ce investment
INVESTMENT VOLUME IMPROVED IN H2 2010

The investment story of 2010 is one of movement from thought into action. The first half of the year saw a change in sentiment and an increase in confidence, which translated to improvement in deals in the second half of 2010. The result is that transaction levels have surged compared to 2009. Major international investment activity is limited and
400
300
local players are likely to remain the dominant investors into 2011.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
PRIME OFFICE YIELD IS SLIGHTLY DECREASING

Prime office yield hardened slightly from 8% in 2009 to 7.75% at the end of the year. They may fall further in 2011 as the investment market continues to strengthen and sentiment improves.
7%
6%
5%
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
22
Brussels
STABLE PRIME RENT IN A TWO-TIER LETTING MARKET
Over the last 12 months, the letting market continued to evolve as a two-tier market. While prime rents started to stabilise, rents for secondary assets remained under pressure due to the significant amount of office stock available. Rental incentives for prime products are also following the same trend and maybe on the wane. By contrast, landlords of Grade B office space continue to use highly rental incentives to attract new occupiers or keep their tenants. Currently, headline rents for prime office units (>500m) are trading at 295/m/year in Leopold District.
150 -5% 200 0%
PRIME RENT
/m2/year % change
400
20%
350
15%
300 250
10%
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BEST LEVEL OF TAKE-UP FOR THREE YEARS

Although take-up was led by optimisation strategies, letting activity continued to improve over the year driven by some large transactions. Take-up in 2010 rose by 12% year-onyear to reach 476,200 m, which is the best performance of the last three years. Meanwhile, demand remained mainly focused on prime products because the crisis made them more affordable and attractive. Letting activity in 2010 was dominated by demand from the private sector which accounted for 63% of annual take-up. Nevertheless, takeup from public sector was strong, especially during Q4, with 70,400 m of office space being let.
TAKE-UP
Thousand m
750
600
450
300
150
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DECLINE IN COMPLETIONS STABILISES VACANCY RATE

In contrast to 2009, when new supply completed increased significantly and pushed vacancy up from 9.8% in 2008 to 11.5%, there was a marked decline in deliveries to the market in 2010. The decrease in completions led to a stabilisation in vacant space. After slight increases in the vacancy rate during the second and third quarters of 2010, it returned to the 11.5% level seen in December 2009 meaning that supply situation in Brussels has not radically altered.
SUPPLY
1,600
12%
1,200
9%
800
6%
400
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
23
600 500
SPECULATIVE DEVELOPMENT TO REACH HISTORIC LOWS

The past year was marked by a slowdown in development activity in the Brussels office market. Indeed, speculative completions coming onto the market have been decreasing following the reduction in office building starts since the second half of 2009. Over the next two years, the fall in
400
300
development activity will be more visible with an historic low level of speculative completions with only 55,300 m delivered (at risk) to the market in 2011 and 2012. The majority of speculative office schemes (70%) were for small and medium size offices, mainly located in the Leopold District.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
2,500
Total investment
Of ce investment
MODEST RECOVERY IN INVESTMENT WILL CONTINUE

The Brussels office market experienced a modest recovery in investment activity with a total turnover reaching 501m, well below the pre-crisis levels. In 2010, investor strategies remained focused on high quality assets in top locations with long-term leases. As long as the occupier market remains in slow recovery, investment activity will
2,000
1,500
only gradually improve. Although financial conditions and credit availability have improved, the investment market during 2010 was still dominated by equity players.
1,000
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
COMPETITION FOR PRIME ASSETS WILL PUSH DOWN YIELDS

The prime office yield for 3/6/9-year leases remains stable at 6.25% in the CBD. The asset with a long-term lease is currently negotiable at 5.25%. Nevertheless, due to the fierce competition over core products, the downward movement of prime office yield is expected to continue in
6%
5%
the coming months.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
24
Bucharest
AVERAGE RENT DECREASE IS SLOWING
During 2010, prime rents were stable at 216/m/year. But, even though owners preferred to grant incentives (fit-out costs, rent free periods) instead of reducing rents; as a consequence, asking and headline average rents decreased only by approximately 5 to 10% compared to 2009. Nevertheless this can be seen as a sign of rents are currently ranging between 156 and 180/m/ year.
180 -8%
PRIME RENT
/m2/year % change
340
24%
300
16%
260
8%
stabilisation. Grade B buildings in very good locations,
220
0%
140
-16%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LEASE RENEWAL THE FIRST OPTION OF THE TENANTS

In a context of a tough economic environment, tenants were looking for greater flexibility and shorter commitments. A number of tenants prefer to renew their lease instead of relocating their activities and committing for up to 5 years. Besides lease renewals, relocations represented a high number of deals concluded in 2010. Take-up increased by 42.5% over 2009, totalling approximately 190,000 m (excl. renewals and renegotiations).
TAKE-UP
Thousand m
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SUBLETTING IS CREATING SUPPLY CHOICE FOR TENANTS

Take-up level increased significantly during 2010 while development activity was declining. However, as demand is generated especially by relocations this year, the vacancy rate did not record a notable variation, growing from 16% in 2009 to 17% in 2010. Available supply increased because of growing subletting activity, which is an option for tenants looking to offset costs with their existing buildings, and for companies who are looking for office space in areas where development activity is low such as the central submarket. As a result the total vacant space amounted to around 450,000 m at the end of 2010.
SUPPLY
480 420 360 300 240 180 120 60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
24% 21% 18% 15% 12% 9% 6% 3%
25
500
NO MAjOR PROGRESS IN NEW OFFICE DELIVERIES FOR 2011

We do not expect 2011 to record significant improvement in speculative development activity due to a combination of factors such as the difficult access to financing, high vacancy rates and an inconsistent demand. However, with the first signs of market recovery underway, supply will
400
300
be initially sustained by proposed developments already initiated and those postponed during the economic crisis. Consequently roughly 155,000 m of office developments were in the pipeline at the end of 2010.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
800 700 600 500 400 300 200 100
Total investment
Of ce investment
OFFICE SEGMENT MAINTAINS GOOD PROSPECTS

The local market remained attractive for opportunistic investors, who were prospecting the market and were particularly interested in acquiring either office space with strong covenants or vacant properties in good locations. During 2010 the investment market in Bucharest recorded two office deals totalling 117m, while in 2009 the volume
of investment only reached 9m. Despite the uncertain market sentiment, investors were still willing to acquire properties expecting a recovery on the medium term. After a difficult 2009 year marked by declining rents and weak leasing activity, the office segment showed better prospects in 2010.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

12%
YIELD SLOWLY REACTIVATES
COMPRESSED
AS
SELLING
For most of 2010, prime office yield remained stable in Bucharest at around 9% as owners were not willing to start the negotiation process to sell by considering a higher yield. Indeed, investors became aware that the demand for higher yields for prime office buildings was becoming an
10%
8%
obstructive attitude to negotiation. During the last quarter of 2010, yields started to move downward slightly as opportunistic investors have been obliged to acknowledge the position of landlords who own well located quality buildings.
6%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
26
Cologne
RENTAL ADjUSTMENTS CONCLUDED ACROSS MARKET AREA
The prime rent in the Cologne office market picked up slightly at the beginning of 2010 and has been able to stay steady since then at 259/m/year. As in 2009, it was achieved in the city centre. Top rents climbed over the entire market area and especially in the right-bank district of Deutz. In the sub-centres, rents rose moderately in almost all office market zones. Thus, it appears that rents, particularly in the market segment of modern premises, have now definitely ceased declining.
150 -4% 200 0% 250 4%
PRIME RENT
/m2/year % change
350
12%
300
8%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ABOVE AVERAGE TAKE-UP SUPPORTED BY LARGE DEALS

With take-up of 234,000 m, the Cologne market improved on its 2009 total by 3%. Particularly notable was the very buoyant fourth quarter, which generated one of the best results of recent years. In contrast to 2009, turnover was supported by transactions above 10,000 m although demand was also lively in the small-unit segments. The buoyancy of the market is underlined by the high number of newly concluded leases. Just like the previous year, the demand breakdown by business sector was headed by other services (27%), well ahead of consultancies (18%).
TAKE-UP
Thousand m
300
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
RAPID DROP IN VACANCY LEVEL OF MODERN PREMISES

Supply at the end of 2010 totalled 625,000 m, rising over the course of the year, before falling quickly in the final quarter. Overall, this resulted in a reduction of 6% in supply compared with 2009. The vacancy rate fell from 8.9% in 2009 to 8.3% at the end of 2010. The fall was especially marked in the segment of modern office units, which contracted by about 11%. As the result of the heavy demand for such units, they now represent around 26% of aggregate vacancy and in some office market zones, empty modern premises are now in very short supply.
SUPPLY
750
10%
600
8%
450
6%
300
4%
150
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
27
HEALTHY CONSTRUCTION VOLUMES

In 2010, office space under construction totalled 134,000 m, almost 56% up on the end of 2009 figure. Less than one third of the space is due to be completed in 2011. Most of the premises now being built are in the two downtown locations of Deutz (48,000 m) and city centre (43,000 m). The proportion of space under construction
300
250
200
150
still available for letting is around 72%, which is very high compared to other major German cities.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
2,000
Total investment
Of ce investment
INVESTMENT VOLUME BREAKS THROUGH BILLION BARRIER

The transaction volume in Cologne in 2010 totalled just under 1.1bn. This excellent result was over twice as high as the year before and 22% up on the ten-year average. Unlike in 2009, there was a high number of deals in the two or three-digit million range and consequently, transactions
1,500
1,000
above 50 m accounted for more than half of the aggregate investment volume. Above-average performances were recorded in the first and last quarters of the year. The renewed market buoyancy was underlined by the broad structure of demand on the buying side. Nevertheless, office investment decreased strongly.
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
HIGHEST YIELD OF THE GERMAN BIG SIx

With investment showing growing dynamism again, the beginning of 2010 was marked by a fall of 20bp in the net prime office yield. This is due to the sharp competition among investors for a limited supply of prime properties; something directly reflected by the way purchase prices have developed. In the course of the year, the yield for
5%
4%
high-grade, fully let office properties in good areas then stabilised at 5.3%. Thus, Cologne still records the highest yield of the big six investment markets in Germany.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
28
Dsseldorf
PRIME RENT AT HISTORIC HIGH
The prime rent in the Dsseldorf market area had already started to rise slightly at the end of 2009; then in the course of 2010, it achieved a new historic high with 288/m/year in the banking district. Only Frankfurt and Munich boasted higher prime rents in 2010. Many other Dsseldorf submarkets also registered higher top rents with the biggest increase in the office market district of Seestern (+27% to 198/m/year). Generally speaking, average rents are either stable or moving upward.
140 -2% 180 0% 220 2%
PRIME RENT
/m2/year % change
300
6%
260
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ExCEPTIONAL UPTURN IN THE DSSELDORF OFFICE MARKET

With a total take-up of 383,000 m in 2010, the Dsseldorf market made its comeback in the league of major office locations, following the slump it had suffered in 2009. Its turnover increased by 74% over the prior-year figure and was about 21% above the 10-year average. It was also the third-best performance of the past 15 years, exceeded only by the record results in 2007 and 2008. The very good total take-up was substantially fuelled by the significant Vodafone D2 lease in the Seestern district (90,000 m). However, even without this one-off factor, the Dsseldorf office market has evidently recovered.
TAKE-UP
Thousand m
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATE STARTED TO DECLINE IN Q2

Despite the strong demand, the volume of vacant office premises registered a moderate year-on-year rise of 3.5% to stand at 1,043,000 m at the end of 2010. However, the majority of this increase occurred during the first quarter and subsequently, total vacancy started to fall again steadily during the second half of 2010. There was a reduction in the volume of vacant modern premises which at the end of 2010 accounted for only 25% of all unoccupied space. The vacancy rate dropped by 70bp compared with Q1 2010 and stood at 11.5% in the market area as a whole.
SUPPLY
1,200
12%
1,000
10%
800
8%
600
6%
400
4%
200
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
29
MARKED INCREASE OF SPACE UNDER CONSTRUCTION

In the course of 2010, a considerable number of projects were completed. There was a further marked increase in the volume of space under construction, which reached 239,000 m (+73% compared to 2009). This large increase is mainly due to the start of work on the new Vodafone campus in the Seestern district, which is also where
350 300 250 200 150 100 50
the largest proportion of space under construction is to be found. In the market area, the proportion of space under construction which is still available for letting has increased by 34% compared to 2009, reaching 78,000 m in 2010.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
2,500
Total investment
Of ce investment
INVESTMENT TURNOVER PASSES THE BILLION THRESHOLD

The transaction volume in Dsseldorf took the billion hurdle in 2010 to achieve a total of approximately 1.2bn. This corresponded to a marked increase of 50% over 2009 and represented the third-best investment result in the last twelve years. This performance puts Dsseldorf in
2,000
1,500
fifth place nationwide behind Berlin, Hamburg, Frankfurt and Munich. The gratifying result was fuelled by buoyant demand in all market segments. However, the biggest slice of investment went into deals above 50m (57%).
1,000
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
STRONG COMPETITION RESULTS IN AN EASING OF YIELDS

In Dsseldorf, just as in the other German markets, the net prime office yields eased again during the first half of 2010. Since then, they have remained at 5.20%. This development is a clear reflection of the increasing competition among investors for particularly coveted core properties, which
5%
4%
are still in short supply. In view of the ongoing strong level of demand, the possibility cannot be excluded that they will ease somewhat further in the course of 2011.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
30
Edinburgh
INCENTIVES REMAIN AN IMPORTANT RENTAL FACTOR
There was no change in the prime rental level in 2010, remaining at 301/m/year ( 350) for the second consecutive year. Incentives have however continued to be an important component of prime rents, although there has been little increase on the previous year. A rent-free period of three months per year of term certain is not
PRIME RENT
/m2/year % change
400
24%
325
16%
uncommon in the current market.
250
8%
175
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP IMPROVES BUT STILL A LACK OF LARGE DEALS

When looking at demand levels, 2010 saw an improvement of 30% on 2009 with annual take-up reaching 55,368 m. But the market continues to be dominated by smaller deals, with only two deals exceeding 2,787 m. Previously, in more buoyant years, we would have expected to see three to four transactions in the 3,000-4,000 m range. In addition, there have also been no major pre-lets, which has further dampened take-up levels.
TAKE-UP
Thousand m
120
100 80
60
40
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
FALLING SUPPLY OF GRADE A SPACE IS A MARKET CONCERN

Supply at the end of Q4 2010 was 291,028 m, marginally down on the Q4 2009 level. Unlike previous cycles, there is no overhang of developed space from the last cycle swamping the market. The concern is now more focused on the growing lack of vacant Grade A space and mushrooming supply of Grade B. A large amount of second-hand space could hit the market if the expected job cuts are severe. Since the majority of this surplus space is unlikely to satisfy the occupier markets current focus on Grade A space and with landlords reticence to undertake speculative refurbishment programmes, Grade B oversupply will rise inevitably.
SUPPLY
300
18%
250
15%
200
12%
150
9%
100
6%
50
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
31
NO DELIVERY SCHEDULED FOR 2011 AND 2012

There is only one speculative scheme currently under construction in the entire Edinburgh office market. This is the 17,650 m Conference Square scheme on Morrison Street, which is being developed by the City of Edinburgh Council and due to complete in 2013.
80
60
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
1,600 1,400 1,200 1,000 800 600 400 200
Total investment
Of ce investment
INVESTORS MORE PURCHASES
SELECTIVE
ABOUT
OFFICE
Total investment in Edinburgh offices for 2010 was estimated to be 109m ( 127m), down 45% on 2009 when it reached 201m ( 234). This is predominantly a reflection of the tough occupational market, which has resulted in a very limited supply of new Grade A investment stock
coming onto the market. Grade A stock with long-term income streams has largely been the product of choice for investors in 2010. Secondary offices continued to suffer, due to the shortage of active lenders.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
LIMITED STOCK NOT LIKELY TO PUT PRESSURE ON YIELDS

The reduction of Grade A stock, resulting in prime office yields moving in during 2009, despite the prime rents falling, reached the limit of its impact in 2010. Yields remained flat in most of the year and have moved out slightly during H2 2010. Edinburghs plus points of highly
6%
5%
limited Grade A supply have to be offset by burgeoning supply elsewhere, limiting the scope for rental growth overall. Yields are not likely to narrow, particularly if stock is released onto the market from bank disposal of troubled assets. Conversely, gradual movement out in prime office yields is expected in 2011.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
32
Frankfurt
PRIME RENT ACCELERATED IN THE FINAL QUARTER
In Frankfurt, the prime rent continued to ease slightly in the first quarter of 2010, dropping back to 408/m/year, before stabilising again. Then, in Q4 2010, the lively scale of demand and a decline in the supply of modern office premises enabled it to rise again by 3% to 420/m/year. This prime rent was obtained in both the Bankenviertel and the Westend districts. In many other office market zones, top and average rents followed an upward trend as well, which is especially noticeable in the market segment for modern office units.
PRIME RENT
/m2/year % change
800 700 600 500 400 300 200
18% 12% 6% 0% -6% -12% -18%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TURNOVER CONSIDERABLY HIGHER

Following the distinct downturn in the Frankfurt market area in 2009, take-up of office space in 2010 was back above the 500,000 m threshold. It totalled 516,000 m, corresponding to a year-on-year rise of over 22%. In the narrower market area, as defined jointly by the key market players, turnover came to 471,000 m (+27%). After a comparatively weak first quarter, demand became increasingly lively in the course of 2010. This was reflected mainly by growing take-up levels in the mid-range market segment between 500 m and 5,000 m.
TAKE-UP
Thousand m
1,000
800
600
400
200
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DECREASE IN VACANT SPACE DUE TO STRONGER DEMAND

Supply declined overall by almost 3% to 2.1 million m. The reduction in the volume of modern unoccupied premises was slightly more marked, falling by 30,000 m (-4%). Its proportion of total supply has now declined to less than 39%. Sizeable volumes of modern vacant space are to be found especially in the city centre zones of Bankenviertel, Westend and Inner City, where demand is also generally strong. The overall vacancy rate is now 13.3%.
SUPPLY
2,400
18%
2,000 1,600
15% 12%
1,200
9%
800
6%
400
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
33
INCREASE IN CONSTRUCTION ABSORBED BY PRE-LETS

Because of the start of work on the new ECB premises, the volume of space under construction in the last twelve months has risen by just under 6% to 381,000 m. On the other hand, the volume of this space which is still available to the rental market has declined substantially, by 16.5% to 111,000 m. This means that only around 29% of all the
800
600
400
space currently being created is still available for letting. The only locations where sizeable office units are under construction are Inner City with a total of 33,000 m and the office market zone Airport, with a total of just over 50,000 m.
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
8,000
Total investment
Of ce investment
MARKED RISE IN INVESTMENT VOLUME

The investment volume registered in 2010 in the Frankfurt market was around 1.9bn, which represented a rise of 153% over 2009. It also exceeded the result achieved in 2008 by 30%. One key factor in the good turnover was that in contrast to 2009, there were numerous large deals above 50m. In the long-term average, deals of this size
6,000
4,000
account for about two-thirds of the transaction volume in Frankfurt; this was again the case in 2010, with 65% of deals over 50 m, compared to only 37% in 2009.
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
RISE IN PURCHASE PRICES FOR PREMIUM PRODUCTS

The trend already apparent since the end of 2009 towards decline in net prime office yields continued in 2010. By easing a further 10bp in Q4 2010, they dipped below the 5% mark for the first time in two years, to 4.9%. This development is a clear reflection of the increasing competition among investors for particularly coveted prime properties, which
5%
4%
are still in short supply. Only Hamburg and Munich have lower initial yields.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
34
Geneva
HIGH PRESSURE ON PRIME RENT
Prime rents peaked in 2008 at CHF 1,025/m/year ( 775) before slumping in the wake of the financial crisis in 2009. As of 2010, they rose 16% to approximately CHF 950/m/year ( 718) compared to 2009. This rise was due to the lack of new units available in the centre of Geneva and buoyant demand. Prospective tenants seeking prime locations are moving their back offices outside Geneva to trim costs. The lack of visibility on new construction suggests that prime rents may stabilise at this level over 2011 and 2012.
200 -10%
PRIME RENT
/m2/year % change
800
20%
600
10%
spilling over into more outlying districts and banks are
400
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
exchange rate /CHF: 1.3225 (Q4 2010 average)
FLAT TAKE-UP BUT ABSORPTION IS POSITIVE

Take-up is not currently measured in Geneva. However, given the limited size of the canton there is little construction. Tenant rotation is also rare and consequently take-up is relatively low compared to leading European cities. After recording a negative net absorption in 2009, for the first time in 10 years, demand in the Geneva office market recovered and net absorption amounted to 102,000 m at the end of 2010. Geneva continues to be a significant market in Europe for relocation projects of international companies and the financial sector which remains dynamic.
NET ABSORPTION
Thousand m
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VICTIM OF ITS OWN SUCCESS: VACANCY BELOW 1%

The vacancy rate in Geneva over 2010 was very low at 0.93%, equating to around 41,000 m of vacant space. Current construction stands at 132,715 m. Most schemes in the suburbs that are connected by public transport or access roads should find occupiers 3-6 months after their completion. Vacancy rate is unlikely to exceed 1% in 2011.
SUPPLY
200
4%
150
3%
100
2%
50
1%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
35
100
BARELY ANY NEW CONSTRUCTION IN THE CITY CENTRE

A few new schemes in the periphery will be completed in 2011, but barely over 50,000 m. The amount of building is low and the administration in securing development permission is very time-consuming.
80
60
40
20 n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
750
Total investment
Of ce investment
SLOWER SALES OF COMMERCIAL REAL ESTATE BUILDINGS

In 2010, total investment in Geneva stood at just CHF 661m ( 479m). Sales slumped by 32% in 2009. They regained 12% in 2010, but the amount was still 24% lower than in 2008. Landlords are unwilling to sell, as they are unsure about what to reinvest in afterwards. The average sale price is
600
450
about CHF 15m ( 10.8m). The quality of an investment in Geneva and in Switzerland is rooted in the stability of the Swiss franc and low mortgage rates (the average fixed rate for a 10-year mortgage is 2.87% and the Libor rate is 0.5%).
300
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
exchange rate /CHF: 1.3803 (2010 average)

5%
PRIME YIELDS AS LOW AS EVER

Prime locations rarely come up for sale and the last deals observed changed hands at 3.5% in the heart of Rues Basses. The minimum net yield required by institutional Swiss investors is 4% for a building in the CBD.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
36
Glasgow
INCENTIVE LEVELS REMAIN AGGRESSIVE
At the end of 2010 Glasgow prime rent was 280/m/year ( 326), down 9% from its 2008 peak of 307/m/year ( 357). Incentive levels continued to remain aggressive throughout 2010. With no speculative completions due until 2014, incentive levels are likely to decrease as Grade A availability tightens.
280 7%
PRIME RENT
/m2/year % change
400
21%
340
14%
220
0%
160
-7%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
HEALTHY TAKE-UP OF WELL POSITIONED BUILDINGS

Glasgow has enjoyed healthy take-up levels throughout 2010. For the central Glasgow area, 2010 annual take-up totalled 53,789 m, up 25% on the 2009 level. Throughout the year there has been strong competition for well located city centre schemes offering quality Grade A space. In the out of town market, activity levels were subdued, with the largest letting of 2010 being a 4,924 m pre-let. Overall the market continued to be dominated by deals below 465 m.
TAKE-UP
Thousand m
100
80
60
40
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PROBLEMS OF RESTRICTED GRADE A SUPPLY RESURFACE

The limited supply of new Grade A, with floor plates in excess of 1,000 m, has historically affected the Glasgow city centre office market. This problem was temporarily alleviated in early 2010, following the completion of a number of speculative schemes in late 2009 and early 2010. Following strong take-up of this space in 2010, this situation is now reverting back to trend and the problem is again beginning to resurface.
SUPPLY
300
15%
240
12%
180
9%
120
6%
60
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
37
FUNDING DIFFICULTIES DELAY SPECULATIVE STARTS

Although Glasgow has a number of suitable development sites with full planning consent, the reality is that despite the impending Grade A supply issues, they are unlikely to proceed in the near future because of the difficulty in securing funding. The only sizeable city centre scheme currently under construction and due to complete in
120
100
80
60
the latter half of 2011 is Dawn Groups Collegelands regeneration project. The first phase includes 9,476 m of office space, pre-let to Glasgow City Council.
40
20 n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,800
Total investment
Of ce investment
A GOOD YEAR FOR GLASGOWS OFFICE INVESTMENT MARKET

Total investment in Glasgow is around 20% lower than 2009, which is due to investors switching out of buying retail. In contrast, office transaction levels in the Glasgow office investment market improved in 2010 with investment reaching 333m ( 388), up on both the 2008
1,500
1,200
900
and 2009 levels. Driving this investment is the perception that Glasgow offices are fairly cheap to buy. There are early signs that city centre development sites are becoming increasingly attractive to investors, who are acutely aware of the impending Grade A supply issues facing the occupier market.
600
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
PRIME YIELDS WILL MOVE OUT DESPITE SUPPLY ISSUES

The Grade A supply issue in Glasgow would suggest that prime office yields will move in over 2011, but investors are likely to remain cautious about the overall supply situation that is still expanding and the prospects for the occupational market that are poorer in the short term. So
6%
5%
although investment was good in 2010 it did not lead to yield compression. Prime office yields were rather steady for most of 2010 and are likely to move out over 2011.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
38
Hamburg
PRIME AND AVERAGE RENTS HELD STEADY IN LATE 2010
In 2010, the prime rent in the Hamburg market area was 276/m/year, achieved in very good areas of the inner city. Compared with 2009, it represented a fall of 4%, but this adjustment was already completed by mid-2010; since then, the level has stayed steady. At 270/m/year, the top rents in the submarkets HafenCity and Extended Inner City are only slightly lower. Overall, top rents are picking up again moderately in the individual office market zones and average rents have now largely stabilised.
150 -10% 200 -5% 250 0%
PRIME RENT
/m2/year % change
350
10%
300
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LARGE UNIT LEASES ENSURE AN ABOVE AVERAGE TAKE-UP

Take-up in the Hamburg office market in 2010 totalled 505,000 m, representing a year-on-year rise of almost 30%. In the second half of the year in particular, demand picked up considerably and Q3 registered one of the best quarterly results ever, with 177,000 m. The gratifying result for the year was fuelled by a greater number of lettings overall and, also by several large-unit leases that exceeded the ten-year average by a substantial margin of 17%. As in 2009, the two biggest sources of demand were other services (approx. 17%) and public administration (over 16%).
TAKE-UP
Thousand m
600
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY PASSES ITS PEAK

Supply at the end of 2010 totalled almost 1.1 million m, equivalent to a year-on-year increase of over 10%. From the middle of the year onwards, however, the volume declined by 1.5%; suggesting it has reached a ceiling. Although demand focused mostly on premises offering modern specifications, supply in this category exhibited an aboveaverage increase. Extensive completions, with premises that have not yet been let, made the volume expand by almost 33%. Nevertheless during Q4 2010, the vacancy rate fell to 8% indicating that the take-up boost seen in Q3 is starting to reduce supply.
SUPPLY
1,200
12%
1,000
10%
800
8%
600
6%
400
4%
200
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
39
SMALL DROP IN SPACE UNDER CONSTRUCTION

Building activity in Hamburg is still at a high level but the volume of space under construction registered a year-onyear decline of almost 5% to 466,000 m. Available space within this total fell even more sharply, by over 19% to around 58%, which is relatively high by German standards. The largest volumes of space under construction are in
500
400
300
HafenCity (137,000 m) and the city centre (107,000 m) two areas where there are still extensive quantities of space waiting to be marketed.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
6,000
Total investment
Of ce investment
HAMBURG ACHIEVES SECOND-HIGHEST VOLUME NATIONWIDE

With an investment volume of around 2bn in 2010, the Hamburg real estate market was back to its old standards and topped its 2009 achievement by 82%. Only in the boom years of 2006 and 2007 was this outstanding result exceeded; it is more than 4% up on the ten-year average.
5,000
4,000
3,000
It is particularly notable that this turnover was achieved without any significant contribution from portfolios (about 5%). Investment in single deals only just missed the previous record of 2007 (-0.5%). The excellent result gave Hamburg second place nationwide behind Berlin.
2,000
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
PRIME OFFICE YIELD EASES BELOW 5%

As early as the last quarter of 2009, prime office yields had eased and in 2010 this downward movement continued. In Q2, the net prime office yields for high-grade office buildings in top areas dropped to below 5%. Competition for the few available core properties then led to a further fall of 10bp during the last quarter, giving a net prime
5%
4%
office yield of 4.85% at the end of the year. This means that Hamburg together with Munich records the lowest prime office yields in Germany.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
40
Kiev
RENTAL RATE IS GROWING AGAIN
After a sharp 60% decrease in prime rent, in 2009, rental values recorded a 3% increase in 2010 and were stable during the year. In 2011, a slight rise in office rental rates is expected from the current level of 275/m/year.
PRIME RENT
/m2/year % change
700
60%
600
40%
500
20%
300
-20%
200
-40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP ACTIVITY RISES BY 35%

Demand for office premises in Kiev increased significantly in 2010. Stable and rather low rental value was the principle stimulus for tenants activity. Most of the demand for offices came from companies moving into premises in better locations or with more attractive pricing policy. The greatest demand in Kiev was for small and middle-sized offices located in the central district dominating letting activity.
TAKE-UP
Thousand m
100
80
60
40
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATE DROPS SHARPLY FOR GRADE A SPACE

Though vacancy rates were quite high at the beginning of the year 2010, an active demand led to a decline in vacant space in the market. The vacancy level for Grade A offices decreased due to the small volume of new supply coming onto the market. Therefore, the year end saw a vacancy rate of 17% compared to 24% in 2009. In 2011 a further reduction in vacant space is likely.
SUPPLY
300
24%
250
20%
200
16%
100
8%
50
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
150
12%
400
0%
41
250
ONGOING DROP IN ALREADY LOW LEVELS OF NEW SUPPLY

The volume of new office completions in 2010 represented 72,000 m. During the last two years office completion volumes decreased sharply compared to both 2008 and 2007. This occurred despite the fact that the volume of new offices planned for completion in 2010 had been
200
150
rather big; in the end only a small amount was actually delivered by the end of the year. Nevertheless, compared to 2009, total new supply completed was still 11% higher with the majority of premises delivered in 2010 being Grade B offices. Due to a freeze in many office projects in 20092010 the volume of space under construction is constantly decreasing.
100
50 n.a. n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
POSITIVE DYNAMICS IN THE INVESTMENT MARKET

In 2010 some positive signs were observed in the investment market, with an increase in the number of deals and improved sentiment among potential investors. Due to the stabilisation in average rental rates and the rising demand for prime offices, investment activity in 2010 rose compared to 2009. However, the Kiev investment market is still under the strain of the financial crisis and its consequences so activity overall is restrained.

18% 16% 14% 12%
MARKET IMPROVEMENT DECREASE
SEES
OFFICE
YIELDS
After having reached a peak in 2009, prime office yields spent 2010 gradually declining. In the last quarter of the year, yields for Grade A premises stood at 16%, which represents a 100bp yield shift down over the same period in 2009. The majority of investment deals in the Kiev commercial real estate market in general and in the office market in particular were confidential.
10% 8% 6% 4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
42
Lille
SCARCITY OF NEW OFFICES PUSHES PRIME RENT UP
The spread of rents has widened in Lille under the dual impact of abundant second hand supply and scarcity of new available offices. As such, the prime rent has increased this year to break through the 200/m/year threshold in Euralille for the first time. This was for the pre-let of a building scheduled for completion by the end of 2012 at the
150 175 10%
PRIME RENT
/m2/year % change
200
15%
have remained between 135 and 145/m/year, whereas they are very varied for second hand offices depending on the quality and location of the premises.
125 0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SHARP TAKE-UP RECOVERY

Take-up rose sharply in 2010 by 27%. After two difficult years, the level of take-up once again exceeded the 150,000 m threshold that was achieved in 2006 and 2007, and puts Lille in second place among the main regional cities, behind Lyon. Major deals resumed in 2010. Major occupiers are pressing ahead with their policy of regrouping sector has also made a major contribution to the health of the Lille market, with moves into Euralille by the SNCF (8,500 m) and the Agence Rgionale de Sant (8,800 m).
TAKE-UP
Thousand m
200
150
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
RESTORING THE BALANCE

Supply has fallen thanks to the resumption of take-up in 2010 and particularly the healthy consumption of new products. Supply at the beginning of 2011 corresponds to 18 months of take-up, compared to over two years at the beginning of 2010. The market is steadily retreating from an oversupplied situation. The arrival of new low energy and high environmental quality (BBC and HQE certification) units is influencing the habits of major occupiers, who prefer these premium buildings. Part of the stock of second hand supply will also have to bow to these demands.
SUPPLY
Thousand m
300
250
200
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
150
and streamlining by opting for new premises. The public
100
foot of the TGV station. In other districts, rents for new offices
5%
43
NEW SUPPLY AVAILABLE WITHIN A YEAR (Thousand m)

120
SEVERE SHORTAGE ExPECTED DUE TO LITTLE WORK UNDERWAY

New supply on the Lille market corresponds to barely a year of take-up, but current construction will not be able to meet demand over the next two years (on the basis of take-up in 2010). There are only three new buildings in Euralille big enough to hold large occupiers. Two of these
100
80
60
buildings are right next to the station; one of them already two thirds pre-let. The other is unlikely to struggle in terms of occupancy given the lack of competition.
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
300
Total investment
Of ce investment
INVESTMENT MARKET IN SLOW MOTION

It was a very quiet year for the investment market in Lille. Most investors are still risk averse and only buy into high quality assets in established business districts with wellknown tenants that have long leases. The Lille market has suffered from the lack of this type of asset available for investment. Nevertheless, office investment reached back
250
200
150
the 100m usual threshold. The biggest deal was the acquisition by the Crdit Mutuel insurance company of the Perspective office building in the Euralille business district. This building is mostly rented by the SNCF and was bought off plan for 44.6m.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
LIMITED SUPPLY DROVE PRIME OFFICE YIELDS DOWN

As in other markets, prime yields contracted in Lille. The estimated prime yield for Lille fell 110bp between mid2009 and end-2010. There is a shortage of this type of asset: owners of secured assets prefer to hang onto them to manage them as well as possible and sell them when the market improves.
7%
6%
5%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
44
Lisbon
RECOVERY IN Q3 LEAVES PRIME RENT UNCHANGED
After reaching in H1 2010 the lowest level for the last 10 years, the prime rent ended the year at 234/m/year, unchanged from 2009. Average rents dropped sharply in all areas during the first quarter of 2010 before recovering slightly in the subsequent quarters. Rent incentives are still high, and companies continue to move from the city even if located far from the city core.
150 -5%
PRIME RENT
/m2/year % change
300
10%
250
5%
centre towards peripheral areas and prefer new buildings
200
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
OFFICE SECTOR STILL STRUGGLING

In 2010, take-up volume amounted to 105,000 m representing a decrease of 9% compared to an already low volume achieved in 2009. About 56% of the take-up concentrated in Parque das Naes (Zone 5) and Corredor Oeste (Zone 6), reflecting that companies are above all seeking a better quality/price ratio. The largest transactions of the year were completed in Parque das Naes with the occupation of Bltico Office Centre by CTT (14,704m) and of Edifcio Sony by AXA Seguros (6,229 m).
TAKE-UP
Thousand m
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
OVERALL VACANCY RATE SLOWS; zONAL DIFFERENCES REMAIN

Even though vacancy rate stopped its upward movement, it remained at a high level. Indeed, since Q1 2009, the vacancy rate has increased continuously reaching 11.2% in Q3 2010, the highest value since 2005. At the end of 2010, vacancy rate stabilised at 11.2%. The areas with the largest take-up volume, Parque das Naes (Zone 5) and Corredor Oeste (Zone 7), are also the ones with the highest vacancy rate, at 24.8% and 22.1% respectively. These values are substantially above those experienced in other zones. In fact, CBD (Zone 2) and Zona Histrica (Zone 4) present the lowest vacancy rates at nearly 7%.
SUPPLY
600
16%
450
12%
300
8%
150
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
45
NEW SUPPLY GOES UP BY ALMOST A THIRD

In 2009, and for the first time since 2004, new supply decreased over the previous year. The total volume of new supply completed in 2010 was around 91,500 m, represents an increase of 27% over 2009; the highest value of completion registered since 2002. This is a very significant growth despite the low level of take-up. A lot
160 140 120 100 80 60 40 20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
of supply has been created by buildings refurbished for use as offices, developed in response to the demand for modern buildings in prime zones. They comply with current standards of comfort, flexibility and energetic efficiency.
1,800
Total investment
Of ce investment
RECOVERY IN INVESTMENT ACTIVITY MARKED BY CAUTION

In 2010, the volume of total investment grew by 37% and reached 704m. Investors preferences changed significantly, with the largest share of investment in 2010 taken by the industrial and logistics sector followed by retail. Market liquidity has increased although there are still
1,500
1,200
900
difficulties in financing and in borrowing terms. Thus, deals are preceded by long period of analysis and negotiation. The main investment transaction was completed by the Dutch institutional investor Corio for Espao Guimares Shopping Centre.
600
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
YIELD IS STABLE AT 7% FOR THE ENTIRE YEAR

Prime office yields are adjusting gradually and have remained relatively stable at 7% since the end of 2009. However, occasional deals were done below 7% yields where the specific merits of the property or specific terms of the deal warrant a reduction. Non prime asset yields went through adjustments and experienced significant
7%
6%
5%
increases.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
46
Central London
PRIME RENT GROWTH SET TO CONTINUE FOR NExT FEW YEARS
Central London prime office rents grew quickly, expanding consistently for three quarters over 2010. The top rent was set in the West End market and this reached 969/m/year ( 1,128) by Q4 2010. The current rental value is now 20% higher than the low in 2009 when headline rents dipped to 807/m/year ( 939). Prime rents are forecasted to hit 1,049/m/year ( 1,221) by the end of 2011. City rental values have also recovered quickly in 2010, standing 23% above its 2009 low at 576/m/year ( 670) City prime rents will rise by a further 8% to 619 ( 720) at the end of 2011 and should return to their peak by 2013.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PRIME RENT
/m2/year % change
1,500 1,300 1,100 900 700 500 300
40% 30% 20% 10% 0% -10% -20%

AN OUTSTANDING YEAR FOR TAKE-UP IN THE CITY

2010 has been exceptional for take-up. Across Central London, overall transaction levels rose 47% year-on-year to over 1.5 million m, making it the best performing year of the decade. The City market contributed over half of this amount, with 700,000 m let. The letting activity in 2010 was dominated by demand from financial services with the largest deal being Bloomberg who agreed to buy the long leasehold interest in the Walbrook Square site, EC4. Generally the largest transactions have been focused on the fringe market which may become a feature of the London market in upcoming years as these areas develop.
TAKE-UP
Thousand m
2,000
1,500
1,000
500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
MASSIVE DROP IN SUPPLY LEVELS IN LONDON

The number of huge lettings diminished supply levels in London over the year, particularly impacting on supply in the City that saw supply drop 30% to 745,000 m. Vacancy rate has fallen from its peak at 13.6% in Q4 2009 to 8.9% by Q4 2010. Supply of Grade A is now especially low and is the main factor driving forward rents and developments in this area of London. West End supply also fell by 22% and vacancy rate decreased from 7.4% to 5.8% by close of 2010, with a serious lack of good quality space in the core West End area. The declines in vacancy mark a reversal from last years situation of expanding supply due to release of second hand space.
SUPPLY
2,800 2,400 2,000 1,600 1,200 800 400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
14% 12% 10% 8% 6% 4% 2%
47
DEVELOPMENT PIPELINE IS STARTING TO ACCELERATE

A notable feature of the 2010 market was the return of big pre-letting or site purchases as diminished supply. This helped to generate confidence among developers to bring forward new or reactivate existing schemes. Aside from the Walkie-Talkie and the Cheesegrater which will start work soon, a number of high profile schemes are already being
900
750
600
450 300
built including Heron Tower, the Pinnacle, the Shard and Walbrook Square. Development completions remain low in the West End. Most large scale development over 2011 is likely to focus on areas such as Kings Cross, an upcoming market in London
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
25,000
Total investment
Of ce investment
OVERSEAS INVESTORS ARE STILL THE MAjOR PLAYERS

Total investment in the London market in 2010 was up 46% over 2009, posting around 12bn ( 14bn) with office investment accounting for 9.5bn ( 11.1bn), a growth of 26% over 2009. There was some drop off in overseas investment as a share of total investment in Central London, falling 11% to close the year at 62%, but almost all
20,000
15,000
of the major deals over 100 million have been undertaken by foreign companies. There has been a corresponding increase in acquisition by UK institutions and by property companies, the latter seeking to do low cost refurbishments and redevelopments.
10,000
5,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
PRIME OFFICE YIELD TO INCREASE IN 2011

Prime office yields in the West End reached their low point in September when they dropped to 4% and have subsequently remained flat. In contrast, City yields have spent most of the year trading at 5.25%. Lack of yield movement has occurred despite the money coming into the London market from abroad. Investors are starting to
6%
5%
think about interest rate rises again so it is unlikely that London will experience yield compression in 2011. There is sufficient weight of money being spent to prevent the sort of rapid yield correction seen in 2009 so yields will start back on an outwards path with incremental increases.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
48
Luxembourg
PRIME RENT HAS YET TO REGAIN ITS PRE-CRISIS LEVEL
Due to the sharp rise in total available office space since 2009, office rents have been adjusted. As most of the rental correction occurred in 2009, rents were stable by the second half of 2010 in most districts of Luxembourg City. The 2010 prime office rent ( 456/m/year recorded in the CBD) is 21% lower compared to the peak reached in 2008 ( 576) and just 5% lower compared to 2009. In 2010, CBD average rent was at the same level as a year before ( 372/m/year).
200 -10% 300 0% 400 10%
PRIME RENT
/m2/year % change
600
30%
500
20%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP DIPS DUE TO LARGE TRANSACTIONS REDUCED SHARE

In 2010, total take-up accounted for 117,272 m that represents a 7% drop on 2009. The weaker level of transactions can be explained by the smaller share of large deals in the size category >5,000 m. Thanks mainly to the large transaction done by the Ministry of Finance taking 10,000 m in the CBD, the second half of the year recorded a 27% increase in take-up compared to H1 2010. The letting market seems to have reached a low point in 2010, and transactions are expected to rise in 2011 with increasing demand and some new projects coming to the market.
TAKE-UP
Thousand m
300
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
REDUCTION IN VACANCY RATE HAS ALREADY STARTED

The vacancy rate peaked during mid 2010 and thanks to the slowdown in deliveries; it started to drop in the second half year reaching 7.2% in Q4 2010. This represents an increase on the same period last year but great variation exists in submarkets. Compared to last year, the vacancy rate dropped slightly in central locations enjoying healthy demand, whilst decentralised and peripheral areas recorded significantly higher vacancy rates. Nevertheless, the vacancy rate in Luxembourg remains relatively low compared to the average of major European markets. As demand for offices is expected to pick up in 2011, the vacancy rate should drop slightly in the following quarters.
SUPPLY
250
10%
200
8%
150
6%
100
4%
50
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
49
NEW DELIVERIES FELL SHARPLY DURING 2010

Office stock at the end of 2010 represented 3.14 million m. After the deliveries of several speculative projects in 2009 and H1 2010 which lead to a surplus of supply in the market, office development slowed down; no deliveries were recorded in the second part of the year. Amongst major completions in H1 2010 were the Vertigo building
200 175 150 125 100 75 50 25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(24,306 m) at the Cloche dOr and the Excio and Extimus buildings in the Atrium Business Park in Bertrange (11,010 m). For both 2011 and 2012, deliveries are expected to slow down further thanks to a reduction in future speculative completions.
2,800 2,400 2,000 1,600
Total investment
Of ce investment
ABSENCE OF GERMAN FUNDS LEADS TO UNEVEN INVESTMENT

The investment market performance was very uneven in 2010. Following a very weak year start, investment activity picked up in the second half of the year thanks to the return of large deals. Nevertheless, total investment accounted for 345 million in 2010, representing a 30% drop on 2009.
As regards the breakdown of investment by product, offices represented the great majority of total volume in 2010, followed by retail. In 2010, Benelux players dominated the investment market in the absence of German funds.
1,200 800 400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
PRIME YIELDS STARTED TO FALL BY THE END OF 2010

Until the years last quarter, prime office yield was stable at 6.2% due to weak activity in the investment market. In Q4 2010, yields started to fall again reaching 6% but since mid-2009, when the first drops occurred in most major European markets, Luxembourg has only recorded a 40bp yield shift. Therefore, yields offered are relatively attractive
7%
6%
5%
compared to most major markets.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
50
Lyon
PRIME RENT BACK TO A SUSTAINABLE LEVEL
The fall in rents for prime premises is only due to one exceptional transaction that took place in 2009 in the Oxygen Tower. Apart from this deal, prime rents have been remaining slightly above 250/m/year since 2007. In 2010, the fall in prime rents mainly reflects occupiers budget constraints despite the scarcity of prime supply.
PRIME RENT
/m2/year % change
300
60%
250
40%
200
20%
150
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LARGE DEALS PUSH TAKE-UP ABOVE AVERAGE

Take-up increased sharply by 38% in 2010, to break through the 200,000 m threshold, which is the average for the last 10 years. This outstanding level was driven by large deals for both new offices and high quality second hand premises. Deals for new offices have therefore been brisk. Most of them have been in non-CBD districts, where the most appealing rents are to be found. As in Lille and Marseille, the public sector has helped to prop the market up.
TAKE-UP
Thousand m
300
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SECOND HAND OFFICES ARE ABUNDANT

Available supply fell for the first time since 2007. However, this trend was chiefly due to a decline in new supply deliveries combined with the lack of speculative building starts over the past two years and high consumption of new offices by occupiers. Second hand supply has continued to rise, becoming increasingly obsolete in the suburbs. The abundance of second hand supply will continue to weigh on the Lyon market in the coming quarters.
SUPPLY
400
8%
300
6%
200
4%
100
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
51

200
MINIMAL DEVELOPMENT IN THE PRIME DISTRICT

The volume of space under construction is low in the city and new supply is particularly scarce in the Part-Dieu business district. Just one building under construction will be completed in 2012 and is already the subject of advanced negotiations. New supply will be insufficient in this much sought-after district, at least for the next three
150
100
years. The same goes for the Confluence district, which is in the midst of development but with no completions for several years yet. This lack of new supply could be helpful to landlords with second hand offices of outstanding quality in the best locations.
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1,200
Total investment
Of ce investment
INVESTMENT STILL SLOW BECAUSE OF SUPPLY DEADLOCK

Volumes are still very low and well short of the long term average of 520m. Amounts invested have been curbed significantly by the dramatic slowdown in building starts. Deadlocks between supply and demand, especially for offices, have weighed heavily on market activity and,
1,000
800
600
although there is still lively demand, the supply of secured assets is very scarce. Offices are still favourite, accounting for 77% of investment. Warehouses accounted for 14% compared to 21% the previous decade. This trend is largely due to the imbalance of the underlying market, which experienced a sharp rise in supply during the crisis.
400
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
SCARCE SUPPLY PUSHES YIELDS DOWN

The fall in estimated prime office yields in Lyon has been confirmed with a 100bp decline for the city over 18 months, down to 6.25%. The lack of prime deals is not due to poor demand, but rather to the shortage of supply.
7%
6%
5%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
52
Madrid
DECLINE IN RENTS CEASED IN FINAL QUARTER OF YEAR
After seven quarters of consecutive drops, prime rents in Madrid stabilised at 336/m/year and closed 2010 with no variation compared to the third quarter. However, on a year-on-year basis rents still fell; Q4 2010 was the eighth consecutive quarter recording a negative variation. The prime rent was achieved in the office buildings located on the axis of Recoletos-Castellana in the CBD. The feeble economic context expected for 2011 may put a downward pressure on average rents.
180 -11% 260 0% 340 11%
PRIME RENT
/m2/year % change
500
33%
420
22%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP INCREASES BY A THIRD IN 2010

2010 ended with a total take-up of nearly 400,000 m, representing a 33% annual increase. Given the tough conditions of real estate markets faced in 2009 such a trend is not surprising as a bounce-back in activity. In this context it is too early to announce an established recovery, although it is certainly better property market performance. The end of 2010 saw an increasing number of letting deals due to space expansion. However, sustained growth in the commercial real estate markets is expected by the end of 2011.
TAKE-UP
Thousand m
1,000
800
600
400
200
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATES DECREASE IN MOST AREAS OF THE CITY

As economic conditions did not worsen last year, less second hand space was released onto the market. In the meantime, a small amount of new deliveries were registered onto the market in the second half of the year, creating less pressure on vacancy rates. In the last quarter of 2010 vacancy rates decreased by 60bp compared to Q3 and reached 12.9%. All districts managed to reduce their vacancy rates, except the Decentralised area, where they increased due to second hand space.
SUPPLY
1,600
16%
1,200
12%
800
8%
400
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
53
600
PIPELINE MODERATES IN RESPONSE TO VACANT SPACE

Economic recession during the last three years has diminished both development activities as well as existing pipeline beyond 2012. Currently, future supply in Madrid is moderate with less than 200,000 m to be delivered in 2011/2012. However, we do not expect a lack of new supply
500 400
300 200
in 2013/2014 given the level of existing vacant space and the number of approved projects that could start in very quickly with financing.
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
4,500
Total investment
Of ce investment
81% GROWTH IN INVESTMENT: CONFIDENCE IS BACK

In 2010 office investment increased by 81% to 891m. We cannot state that this growth is a clear sign of recovery, but confidence is coming back to the real estate sector. Madrid gathered nearly 70% of the national office investment with major transactions located in the city centre and Outskirt business parks. Most active purchasers were British and
3,600
2,700
German institutional investors as well as national private investors. We expect an increasing investment volume in 2011, as property values in other European cities are under positive pressure and local yields are well compensating investors expectations.
1,800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
YIELDS FALL IN THE SECOND HALF OF THE YEAR

After peaking in the second quarter of 2009 by around 6.5%, prime office yields became stable in the third quarter of 2010 at a level of 5.5%. This steadiness corresponds to a more active market as well as to the relative scarcity of prime assets, as seen in the majority of European capitals.
6%
5%
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
54
Manchester
MANCHESTER RENTS PLATEAU
Manchester city centre prime rents have remained steady at around 300/m/year ( 350) for the duration of 2010. This reflects the lack of pressure currently exerted on prime rental levels as the market continues to remain oversupplied, with office availability averaging 300,000 m per quarter since Q1 2008.
PRIME RENT
/m2/year % change
400
12%
350
9%
300
6%
250
3%
200
0%
150
-3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP BOOSTED BY CO-OPERATIVE GROUPS PRE-LET

At 123,550 m Manchester take-up was up 20% on 2009 when 101,600 m was transacted. This rise began with an excellent start to the year after the 11,612 m pre-let deal to the Greater Manchester Police (GMP) was signed. The premises, which are due to complete late 2011, will be used as their divisional headquarters and will be located next to the GMPs 22,296 m Force Headquarters, which is also currently under construction. There was further good news to come, with the Co-operative Group signing a 30,470 m pre-let deal in the citys Northern Gateway to build a new headquarters building.
TAKE-UP
Thousand m
300
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
MANCHESTER AVAILABILITY REMAINS STUBBORNLY HIGH

At the end of 2010 Manchester availability was 316,170 m, up 7% on the 2009 level. Although there were two sizeable deals completed in 2010, these were both pre-lets which made no impact on the already high availability level. It was also not helped by the collapse of law firm Halliwells in July 2010 which released 15,924 m of second hand space onto the already oversupplied market.
SUPPLY
420 360 300 240 180 120 60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
14% 12% 10% 8% 6% 4% 2%
55
ACTIVITY IN THE DEVELOPMENT MARKET IS LIMITED

The only Manchester city centre development currently under construction is the 30,470 m Co-operative Groups new headquarters building in the Northern Gateway area of the city, which should be delivered in 2012 for owner occupation. Out of town there is slightly more activity, with three buildings currently under construction in Salford
350 300 250 200 150 100 50
Quays and two further buildings at Ask:Goodmans Central Park in east Manchester.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
1,600
Total investment
Of ce investment
OFFICE INVESTMENT INCREASE DUE TO SINGLE OVERSEAS DEAL

Manchester was one of the few regional cities that saw a sharp increase in total investment in 2010 reaching around 544m ( 635m), a 70% increase over 2009. Offices were the main spur to this rise reaching 335m ( 391m), an increase of over 100%. The rise is not due to more
1,200
800
transactions per se, but attributable to a single deal at Hardman Street for 183m ( 213m). As with Birmingham, this was one of the largest deals outside of London, and again involved an overseas purchaser. Strip out this deal and investment volumes barely differ from 2009.
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
OVERSUPPLY LIKELY TO MOVE PRIME OFFICE YIELDS UP

The contraction in prime office yields in Manchester came to an end in 2010 and stabilised before edging out again slightly in the second half of the year. Opportunities remain to buy good property but the supply remains a problem. A number of lettings, like the Co-operative Group one, are effectively relocations and have not had a large impact on
6%
5%
supply. With demand possibly stalling in 2011, it suggests that office yields may be back on an upward path towards the end of 2011.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
56
Marseille
LITTLE MOVEMENT: INCENTIVES TAKE CENTRE STAGE
There have been no dramatic shifts in rental levels over the year, as negotiations are on other aspects, such as rent-free periods and having work done. The prime rent has fallen to 240/m/year for new premises in Euromditerrane. However, there is little in the way of a benchmark deal to verify. Conversely, rents for second hand, high quality slightly, thanks to the shortage of new offices that meet these criteria.
140 0%
PRIME RENT
/m2/year % change
260
15%
220
10%
office space that are well located in Marseille have risen
180
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
THE PUBLIC SECTOR DROVE THE MARKET IN 2010

Like other major French cities, there was a sharp rise in take-up in Marseille in 2010 (+34%). As in Lyon and Lille, this recovery was helped along by the sort of large transactions that were lacking in 2009. The market was also boosted by the government real estate strategy, which in Marseille meant the arrival of the Agence Rgionale de Sant (regional health authority) accounting for 8,900 m and the Ple Emploi (employment office) for 8,500 m. A lot of public demand has been satisfied over the last two years; the question now is whether the private sector will be able to take over in 2011.
TAKE-UP
Thousand m
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
STABILISATION IN NEW SUPPLY BUT INCREASE IN SECOND HAND

Supply stabilised since Q3 2010, primarily thanks to healthy consumption of new offices, while the second hand supply continued to increase. There are strong discrepancies in supply among market sectors. High quality supply is now rare in the most sought-after districts such as Euromditerrane. The further away premises are from the CBD, the longer they take to transact.
SUPPLY
Thousand m
200
160
120
80
40
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
57
NEW SUPPLY WITHIN A YEAR (Thousand m)

120
SHORTAGE OF COMPLETIONS TO 2012 AND 2013

The new supply is very spread out around the various districts of the city. In Euromditerrane, schemes that were finished over the past two years were taken up as soon as they were complete. There is little new work starting and it will not be enough to cater to market demand over the next two years if it remains at the same level as in 2010. The
100
80
60
market will be clearly undersupplied at Euromditerrane in 2011 and there could be shortages of completions to 2012 and 2013 given the lack of speculative building starts.
40
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
800
Total investment
Of ce investment
WEAK INVESTMENT ACTIVITY

Investment in commercial real estate in Marseille rose slightly, by 18% to 90m compared to 2009, but this was still way below its long-term average of 230m. Like the other main regional cities, the market was dented by the lack of new construction. Landlords are also unwilling to sell secured assets in the hope of selling them with higher
600
400
capital gains in the medium term. One of the biggest deals was the acquisition by Caisse dEpargne PACA of a building on Quai dArenc in Marseille for 39m.
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
SHORT SUPPLY MAKES YIELD SLIPPED DOWN

The short supply of high quality prime assets on the market has caused yields to slip. As such, the prime yield for the best office assets stands at 6.35% compared to 7.25% in the second quarter of 2009. This trend is due to fierce competition on the niche of guaranteed assets.
7%
6%
5%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
58
Milan
PRIME RENTS STARTED TO GROW AT THE END OF THE YEAR
After being stable throughout the year, the prime rent increased to 520/m/year in Q4 2010 as a result of two deals recorded in the CBD, by a financial company and an ICT company. Average rents increased in semi central areas, thanks to new completions launched onto the market in 2010. Peripheral and hinterland areas experienced a slight decrease in terms of average rents. Incentives are still high and companies continue to move from the city centre to peripheral areas but prefer new buildings even if located far from the city core.
PRIME RENT
/m2/year % change
590 520 450 380 310 240 170
25% 20% 15% 10% 5% 0% -5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LARGE DEALS AND PRE-LETS CHARACTERISE 2010 TAKE-UP

In 2010, take-up activity increased significantly compared to 2009, reaching 310,000 m, thanks to large deals registered during the year. In the first half year, the letting market was fuelled by two large deals: the new Unicredit Headquarter in Porta Nuova (35,000 m) and another large financial company which let 16,000 m. In H2, the occupier market registered a further increase thanks to some large deals. Siemens pre-let some 27,000 m for its new headquarters and Marie Tecnimont took 38,000 m in Torri Garibaldi. Take-up in 2010 was dominated by pre-lets that represented 40% of the total volume.
TAKE-UP
Thousand m
600
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY GROWING FASTEST IN POORLY CONNECTED AREAS

After a first half-year of stabilisation, vacancy rate started to grow in H2 2010 reaching a level of 10.3% for a total volume of supply of around 1,226,000 m. Moreover, vacant space is concentrated mainly in the peripheral areas of the city (41%) and hinterland (30%). Conversely, supply is lower in the core areas where demand is higher and premises are more interesting for companies. Thus, CBD and semi-central areas have the lowest vacancy rates. Offices, which are not well connected by public transport, are experiencing the worst levels of vacancy and hence large decreases in rents.
SUPPLY
1,500
12%
1,250
10%
1,000
8%
750
6%
500
4%
250
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
59
HIGH LEVEL OF COMPLETIONS BUT MANY HAVE PRE-LETS

The total volume of new supply completed in 2010 was around 228,000 m (excluding the around 125,000 m building of the Regione Lombardia), of which 41% were speculative projects and 59% pre-let. New premises were the segment that raised most of the interest from occupiers and represented a big part of the deals signed in 2010.
350 300 250 200 150 100 50
In 2011 roughly 260,000 m are expected to come onto the market, of which around 195,000 m are speculative projects and around 65,000 m already pre-let.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
3,200
Total investment
Of ce investment
RISING ACTIVITY OF ITALIAN PROPERTY FUNDS

Investment volume in Milan (around 1.3bn) decreased by 14% in 2010, going back to 2008 levels. Investors were still highly focused on prime assets and the share of foreign investments continued to decline, reaching the minimum of the last five years. The main difference between 2010 and the previous year is that domestic institutional investors
2,400
1,600
(mainly Italian property funds) increased their activity while, in contrast, private investors were less present in the Milan investment market. Consequently, a greater number of deals over 50m took place in 2010.
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
DOWNWARD PRESSURE ON PRIME PROPERTY YIELDS

The CBD prime yield was stable for the whole year at 5.30%, the same level recorded at the end of 2009. However, downward pressure was recorded in other decentralised areas of the city, but only for prime properties (fully leased, with good tenants and a long length contract). Some deals of this type were closed in semi central areas with a yield
6%
5%
lower than 6.50%, while at the end of 2009 the semi central prime yield was around 6.75%.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
60
Moscow
PRIME AND SECONDARY RENTAL VALUES GROWING QUICKLY
During 2010, prime rents for Moscow office premises were constantly increasing so that by the end of the year they had risen by an average of 20%. The increases meant that rents were between 300-640/m/year for Grade A offices and 190-450/m/year for Grade B premises. Globally, faster than in other districts. Additionally, the discounts and incentives that had been offered by landlords in the crisis period were reduced in 2010.
250 -40% 400 -20%
PRIME RENT
/m2/year % change
1,000
60%
850
40%
700
20%
rents for the offices located in the CBD were climbing
550
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP VOLUME INCREASES ALTHOUGH FEW PRELETS

In 2010, demand for office premises was stable and quite high. The annual take-up at around 1 million m significantly exceeded last years result with revival of letting activity in all the segments of the Moscow office market. Lettings were mainly for completed office facilities, with tenants preferring not to lease premises in projects that were still under construction.
TAKE-UP
Thousand m
2,500
2,000
1,500
1,000
500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
HIGHER VACANCY FOR NEW BUILD

The vacancy rate started dropping since the fourth quarter of 2009 and combined with small volumes of new office construction in 2010, led to a decrease in vacant space. At the end of the year 2010, the vacancy rate in Moscow fell to 16% from around 21% in 2009. However, large discrepancies exist depending on the quality of buildings with Grade A office premises recording a higher vacancy rate than Grade B buildings. For the projects that were delivered to the market in the crisis period, the vacancy rate can vary even more and reach 30-35%.
SUPPLY
2,400
24%
2,000
20%
1,600 1,200
16%
12%
800
8%
400
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
61
NEW CONSTRUCTION AT ITS LOWEST LEVEL SINCE 2005

At the end of 2010 the total modern office stock in Moscow represented 11.25 million m, having increased by 7% since the end of 2009. The pace of new construction slowed down considerably during 2010. In total, about 730,000 m of offices came onto the market, the lowest level since 2005 and dropping by 42% compared to 2009. However, some
1,800 1,600 1,400 1,200 1,000 800 600 400 200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
developers declared that they were planning to restart projects in the near future.
n.a.
2011 2012
3,000
Total investment
Of ce investment
MASSIVE INCREASE IN OFFICE INVESTMENT

The year 2010 was marked by great improvement of the Moscow investment market. The investment volume registered in the commercial real estate market of Moscow in 2010 was about 2bn, a 78% increase on 2009. In 2010,
2,000
offices were the most attractive real estate products for investors. They recorded the biggest share (75%) of the
total investment volume, amounting to about 1.5bn.
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

14%
RECOVERY ENSURES COMPRESSION
RAPID
OFFICE
YIELDS
Having reached their highest level in 2009, prime office yields in 2010 slid constantly over the year. At the end of 2010, office yields for Grade A premises were 9.5%, 250bp lower than in 2009 and 100bp higher than in 2007. In the near future, further decreases in prime office yields are
12%
10%
8%
expected.
6%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
62
Munich
PRIME AND AVERAGE RENTS MOVING CLEARLY INTO GROWTH
The prime rent in Munich eased in the course of 2010, falling to 348/m/year before stabilising by the middle of the year. Then, in Q4 2010, buoyant market demand enabled it to climb by more than 3%, to 360/m/year, achieved in the city centre. There was also a slight upward trend in both top and average rents in several other office market zones. Thus it appears that the positive rental price adjustments, particularly in the market segment of modern premises, have definitely been achieved.
170 -10% 240 0% 310 10%
PRIME RENT
/m2/year % change
450
30%
380
20%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
MUNICH STAYS GERMANYS PREMIER LETTING MARKET

Take-up in the Munich office market in 2010 totalled 599,000 m and thus exceeded the prior-year result by a clear-cut margin of almost 11%. The upturn leaves take-up only 5% lower than the 10-year average. This result means that, as in previous years, Munich again heads the ranking of the key German office markets. It is notable that the Bavarian capital has not only recovered very quickly from the severe recession, but that the very good performance was achieved with only a small proportion of large lettings.
TAKE-UP
Thousand m
1,000
800
600
400
200
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SUPPLY OF MODERN OFFICES INCREASES SHARPLY

Supply registered a further increase of 7% to end 2010 with a total volume of about 1.8 million m and a vacancy rate of 9%. This was primarily due to a number of completions where premises have not been let. Moreover, unoccupied modern space increased even more significantly, by almost 21% to 745,000 m at present. This means that around 41% of all supply is of modern, high-grade quality. It is also noteworthy that about 28% of vacant space is in the office market zones outside the municipal boundaries.
SUPPLY
2,100
12%
1,750
10%
1,400
8%
1,050
6%
700
4%
350
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
63
SIGNIFICANT FALL IN CONSTRUCTION ACTIVITY

Compared with the prior-year period, space under construction fell considerably, by 35% to 301,000 m. The strongest drop was seen in the office market zones inside the municipal boundaries (-42%) whereas the space under construction in the periphery stayed at the same level as the year before. The volume of space under construction
700 600 500 400 300 200 100
still available to the rental market dropped rather sharply, by 40% to 185,000 m. Despite this, the proportion of space under construction still available for letting is around 61%, which is relatively high by German standards.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
7,000 6,000 5,000 4,000 3,000 2,000 1,000
Total investment
Of ce investment
INVESTMENT REACHED A TWELVE YEAR RECORDHIGH

The investment volume in Munich amounted to 1.7bn, a record high over the last twelve years (excluding the boom years of 2006 and 2007). This represented a rise of almost 30% on 2009 turnover. Nationally, Munich takes fourth place, behind Berlin, Hamburg and Frankfurt in total
investment volume. The 2010 performance was fuelled not only by large deals, but above all by substantial investment in the small and mid-range size premises. The latter was due to buoyant activity from private investors.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
ONGOING DECREASE IN PRIME OFFICE YIELDS

In Munich, the net prime office yields eased further in the second quarter of 2010, and in the last quarter this trend continued, slipping another 10bp. This is due to the sharp competition among investors for the limited supply of prime properties; something directly reflected by the way purchase prices have developed. At present, the net prime
5%
4%
office yield in Munich is 4.85%. This means that Munich together with Hamburg records the lowest prime office yields in Germany.
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
64
Central Paris
PRIME DEALS MAKE A COMEBACK IN 2010
After a very tricky year in 2009, the significant upturn in prime deals of over 750/m/year in Paris CBD, (mainly Paris inner city) signified a genuine turnaround in the office cycle in 2010. The prime rent reached 830/m/year in early 2010. Given the decline in the number of high quality assets, rents should rise again for prime deals in 2011.
PRIME RENT
/m2/year % change
900
45%
700
30%
500
15%
300
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP RECOVERY DRIVEN BY PARIS INNER CITY

Recovery in the Central Paris office market was confirmed with 21% growth in take-up to 1,796,000 m in 2010. With take-up of 922,000 m, Paris inner city was indisputably the busiest area over last year. This spectacular recovery was strongly due to the rental adjustment over previous quarters. Conversely, La Dfense recorded low take-up of large units in 2010.
TAKE-UP
Thousand m
2,500
2,000
1,500
1,000
500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
STABILISATION OF THE VACANCY RATE IN 2010

After several years of continuous increase, immediate supply stabilised in 2010 at around 2.4 million m, whereby the vacancy rate is stuck at 7.8%. This is due to the high consumption of new office space and the decline in building starts since September 2008.
SUPPLY
2,500
10%
2,000
8%
1,500
6%
1,000
4%
500
2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
65
HISTORIC LOW IN SPACE UNDER CONSTRUCTION

Although the low construction level of new buildings is now limiting the rise in available supply and therefore the vacancy rate, the trend is also leading to shortages in certain sub-districts such as the Southern Inner Rim and Northeast Paris. Supply for space under construction hit a historic low point of 505,000 m over the fourth quarter
1,200
1,000
800
600
of 2010 compared to an average of 763,000 m over the past ten years. Because of the low economic development, many investors with planning permissions wait to find occupiers before starting construction works.
400
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
20,000
Total investment
Of ce investment
CAPITAL RETURNS TO CENTRAL PARIS MARKET

Improvement in financing conditions has encouraged helped to increase demand. This recovery is also justified by the appealing real estate yield, which nowadays pays better than government bonds and is less volatile than equities. Offices and retail premises are favourite, thanks to the healthy rental markets for these segments. Buyers
15,000
10,000
main targets are high quality assets in established business districts, with long leases and well known tenants.
5,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
FIERCE COMPETITION CONTRACTS PRIME OFFICE YIELDS

Stiff competition between players in the segment of prime secured assets has caused a significant contraction in prime yields. This shrinkage began in Paris CBD before spreading to other districts of Ile-de-France since the second half of 2009. Prime office yields should stabilise in
6%
5%
2011 before starting to rise again slightly with growth in French government bonds (OAT).
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
66
Rome
PRIME RENTS STAY UNCHANGED IN THE CITY CENTRE
Prime rents in Rome remained stable at 420/m/year. Indeed, prime deals are usually registered in the city centre but, due to the economic crisis, they were quite rare in 2010. Moreover, companies preferred to move to Greater EUR or new business districts where they could find new modern offices at a lower rent. Therefore, average rents 258/m/year, while they increased in Greater EUR and the periphery.
250 0%
PRIME RENT
/m2/year % change
550
32%
475
24%
400
16%
in the city centre continued to decline, standing now at
325
8%
175
-8%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
STRONG PUBLIC SECTOR ACTIVITY PUSHES UP TAKE-UP

During the last year, the letting market in Rome showed a very good volume of take-up reaching around 210,000 m, representing an increase of 90% compared to 2009. Such a high take-up level compared to the previous years level was created by some particular market dynamics unique to Rome. Several companies finally closed deals that they started some time ago and the great part of large deals were done by the public sector, which remained the main player in 2010. Most deals were for premises located in the EUR area (68%), followed by the city centre area (30%).
TAKE-UP
Thousand m
240
180
120
60
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SUPPLY VOLUME FALL CONTINUALLY OVER 2010

With 562,000 m of supply in 2010, the Rome market recorded a further decrease in the vacancy rate that reached a level of 5.9% in Q4 2010, compared to 6.4% in Q3 and 6.6% in Q2. This decline was due to the high level of deals for existing buildings, but also fewer new buildings being delivered onto the market to bump up supply. Additionally, new market trends are leading some landlords to consider transforming premises into alternative uses, refurbishing them into residential units.
SUPPLY
700 600 500 400 300 200 100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
7% 6% 5% 4% 3% 2% 1%
67
NEW PROjECTS WAIT FOR PRE-LETS BEFORE STARTING

Development projects remained on stand-by and will start up again only when tenants are secured but pre-lets are still lacking. Therefore, during the whole 2010, only around 60,000 m of new development were completed and delivered onto the Rome market. The most significant was the Da Vinci Business Centre, close to Fiumicino international airport, that represented some 35,000 m of new offices.
2,400
Total investment
Of ce investment
GROWING VOLUMES BUT STILL A WEAK INVESTMENT MARKET

Investment volume in Rome (around 1.2bn) increased by 20% in 2010. However, apart from 2009, this level was the lowest since 2005. Furthermore, the increase was mainly due to the biggest Italian investment deal recorded this year (Porta di Roma shopping centre sold for 440m). Apart
2,000
1,600
1,200
from this deal only five deals over 30m were recorded during 2010, all of them concerned office premises. Moreover, the number of small size deals increased mainly thanks to private investor operations.
800
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7%
PRIVATE INVESTOR ACTIVITY IMPACTS ON YIELDS

The city centre prime yield decreased during 2010 from 6.20% to 6.00%. In this area, real estate investments from private investors were still frequent and this created an upward pressure on property values. Consequently yields decreased and, in some cases, were even lower than 6.00% when the buyer was a private investor who was more likely
6%
5%
to give greater importance to income stream rather than to initial yield levels. However, this yield level is considered too low for institutional investors who have different strategic needs.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
68
Saint-Petersburg
RENTAL RATE STILL BELOW 10 YEAR AVERAGE
The rental rate of prime offices in Saint-Petersburg stabilised at the beginning of 2010 after a continuous and severe decrease during 2008 and 2009. From this trough, rents gradually rose until the end of the year when they reached 330/m/year. The level recorded in Q4 2010 represents a 10% increase compared to prime rents in Q4 2009, but still significantly lower than their 10-year average.
PRIME RENT
/m2/year % change
820 740 660 580 500 420 340 260 180

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
32% 24% 16% 8% 0% -8% -16% -24% -32%

RELOCATION AND FDI SUPPORT TAKE-UP VOLUME INCREASE

In 2010, office take-up volume amounted to 116,000 m. A particularly buoyant last quarter alone recorded half of the yearly take-up. This increase in demand mainly relies on relocations but also on Foreign Direct Investment (FDI). Indeed, some international companies chose SaintPetersburg to install their headquarters in Russia. There was strong demand for Grade A premises in the CBD and in the historical city centre.
TAKE-UP
Thousand m
420
350
280
210
140
70
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GRADE B PROPERTIES ACCOUNT FOR MOST OF NEW SUPPLY

In 2010 about 180,000 m of offices were delivered on the market. Grade B+ office buildings represented the majority of the new supply completed (57%). As a result of the take-up increase, and with a limited volume of new supply delivered in 2010, the vacancy rate in Saint-Petersburg reduced from around 12% in 2009 to reach 10% at the end of the year.
SUPPLY
400
20%
320
16%
240
12%
160
8%
80
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
69
FALL IN COMPLETIONS IN 2011 REDUCES SUPPLY

During 2010 14 office buildings representing a total surface area of about 180,000 m were completed and delivered on the Saint-Petersburg office market, fewer than originally anticipated for the year. Thus at the end of 2010, total office stock amounted to 2.4 million m. New supply to be completed in 2011 is expected to increase to 256,000 m.
600
500
400
300
200
100 n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,000
Total investment
Of ce investment
SOLID INVESTMENT GAINS POINT TO MARKET RECOVERY

With a total volume of real estate investment that amounted to 915m, Saint-Petersburg investment turnover started to recover with a 16% increase on 2009 levels. Nevertheless, volumes were still slightly down on the 2008 record high of 1bn. Most investors were interested in
800
600
offices and retail premises, whose shares represent 46% and 31% respectively of 2010 total volume. Compared to the previous year, the share of offices largely decreased in favour of mixed-use premises or hotels.
400
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

18% 16% 14% 12%
OFFICE YIELD WILL FALL AGAIN IN 2011

Having reached a peak in 2009, prime office yield decreased slightly (-100bp) in the course of 2010. In 2011 we expect the same dynamics, so by the end of 2011 prime office yields in Saint-Petersburg could move down to 11%.
10% 8% 6% 4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
70
Sofia
PRIME RENT DOWN BY 16%
Prime rent in the Sofia office market marked the most significant decrease of the last 6 years, reaching 162/m/year in 2010, down from 192/m/year in 2009. There were no significant deals in 2010, as companies were mainly trying to renegotiate their lease, taking advantage of the fact that the market has turned into a tenant-driven one. Generally the crisis and many continued to lay off staff. This puts huge pressure on rental levels.
150 -10%
PRIME RENT
/m2/year % change
300
20%
250
10%
companies are still in the process of optimisation following
200
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP DROP CAUSED BY LACK OF LARGE DEALS

Take-up for 2010 reached about 50,000 m, which we deem was optimal under the current economic circumstances, although compared to 2009 it represented a 38% drop.
TAKE-UP
Thousand m
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATE INCREASES TO RECORD HIGH OF 22%

The increasing take-up/new supply gap pushed up the vacancy rates in all segments. The office segment in Sofia reached a record-high vacancy rate of 22%. The vacancy rate in the CBD stayed stable at 9%, while in the Midtown and Periphery areas it has increased to 20% and 27% respectively. Indeed, 50% of the office market supply is located in the suburban areas, and 36% is in the Midtown.
SUPPLY
300
24%
250
20%
200
16%
150
12%
100
8%
50
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
71
200,000 M ARE ExPECTED TO BE DELIVERED IN 2011

Total stock in Sofia reached 1,200,000 m, with 160,000 m new supply delivered onto the market in 2010, all of which were Grade A. The new office space to be delivered in 2011 is estimated to be about 200,000 m - the highest level yet seen in the market.
250
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
INVESTMENT DRIVEN BY RETAIL RATHER THAN OFFICES

Following two years of strong investors interest, the volume of investment significantly decreased during both 2009 and 2010. Investors were mostly attracted by the retail sector, where we witnessed aggressive expansions of the big box retail (warehouse) and supermarket chains.

10%
PRIME YIELDS IN THE 9%-10% RANGE

Prime office yields bottomed out in 2007 at 7% and have continuously risen until reaching 10% in 2009. They moved out by 100bp during 2010. Secondary locations and Grade B premises would generally command 10% to 13% initial yields, although there have been no significant transactions on the market to have an unbiased judgment.
8%
6%
Prime office yields in 2011 are expected to stabilise, as there are very few quality investment properties left on the market.
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
72
Stockholm
SHARP INCREASE IN TOP RENT DUE TO LIMITED SUPPLY
Stockholm is Swedens most volatile real estate market. In early 2010 the decline in prime office rent bottomed out, and the rent has since risen as the demand for office premises recovered. The increase compared with 2009 represented 5%, and prime rents are now estimated at SEK 4,000/m2/year ( 434). In 2011 market rent is expected to continue increasing, resulting in a year-end rent of SEK 4,200/m2/year ( 456).
300 0% 400 10%
PRIME RENT
/m2/year % change
600
30%
500
20%
200
-10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
exchange rate /SEK: 9.2139 (Q4 2010 average)
POSITIVE NET ABSORPTION IN A RECOVERING MARKET

In 2010 the economic upswing led to growing demand for modern premises. The net absorption on the Stockholm office market in 2010 was around 160,000 m2 compared to a negative 195,000 m2 in 2009, which was the first year with negative figures in five years. In 2011 and 2012 the net absorption is expected to stay at around 120,000 m2 which is equivalent to the average level during the period 2005 to 2008.
NET ABSORPTION
Thousand m
400
300
200
100
0 -100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
STABILISED VACANCY RATE IN THE CBD

In 2010, the vacancy rate in the CBD stood at 7%, an increase of 50bp over 2009 due to a high amount of newly developed office premises in this submarket. Global vacancy rate in Stockholm was around 11.5% in late 2010 unchanged from a year earlier. The amount of office premises to be added to the market in coming years is likely to lag behind employment growth. Hence vacancy should slightly decrease in the Stockholm office market during 2011-2012.
SUPPLY
1,400 1,200 1,000 800 600 400 200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
14% 12% 10% 8% 6% 4% 2%
73
300
TWOFOLD RISE IN NEWLY DEVELOPED OFFICE PREMISES

In 2010 approximately 140,000 m2 of newly developed office premises - twice the amount of 2009 - were completed in Greater Stockholm, of which 53,000 m2 are located in the CBD. The projects are close to fully let. In 2011 close to 40,000 m2 of office premises are scheduled
250
200
150
to be completed, of which about 65% is pre-let. The low amount is due to the recent economic downturn and the construction industrys lag in the economic cycle. In 2012 the amount of newly developed office premises coming onto the market is expected to be slightly over 140,000 m2, of which about 60% are already pre-let.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
8,000
Total investment
Of ce investment
SOARING TRANSACTION VOLUMES IN SWEDEN

Swedish transaction volumes more than tripled in 2010 due to strong fundamentals and an increased opportunity to obtain financing. Due to the Stockholm markets high liquidity and high-quality properties, it was one of the first regions in Europe to pick up when the market started to recover. The transaction volume for Stockholm office
6,000
4,000
segment rose from SEK 4.7bn ( 489m) to SEK 16.9bn ( 1.7bn), representing a 250% rise between 2009 and 2010. Foreign investors interest in the Swedish real estate market in general, and Stockholm in particular, increased during 2010.
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
exchange rate /SEK: 9.5373 (2010 average)

7%
RECOVERING YIELDS FOR PRIME PROPERTIES

As the market regained strength during 2010 faster than expected, the yield fell by around 50bp. During Q4 2010 CBD prime office yields in Stockholm were around 5%. The yields for high-quality properties in good locations are expected to decrease further during 2011 and 2012. However, the spread between high-quality and low-quality
6%
5%
properties, which grew during the recession, will remain. Indeed, investors stay risk adverse and selective, moreover high bank interest rate margins exist for secondary assets.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
74
The Hague
PRIME RENT INCREASE TO A RECORD LEVEL
During 2010, prime rent increased to 215/m/year, and remained at this level during the second half of 2010. The rent for prime office space showed a remarkably stable pattern in recent years and therefore are expected to remain stable in the course of 2011. Secondary markets are following a different trend due to a greater degree by government authorities, leasing conditions remain relatively conservative.
140 0%
PRIME RENT
/m2/year % change
220
12%
180
6%
of competition. Since The Hague is largely occupied
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP HAS NOT RECOVERED YET

Overall take-up during 2010 totalled around 75,000 m, 13% down on 2009 levels, but still near to the average level of the past three years, which stands at around 80,000 m. Demand from large corporate transactions that characterised The Hague market in 2010 should maintain these take-up levels alongside the always stable demand from government organisations.
TAKE-UP
Thousand m
350 300 250 200 150 100 50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NEW SUPPLY RESULTS IN INCREASE IN VACANCY RATES

The vacancy rate increased by 70bp to 13.1% at the end of 2010. This was mainly due to the 65,000 m of new supply that came onto the market during 2010 that was not absorbed. Vacancy continues to vary greatly by submarket with the area of Zoetermeer recording significantly larger levels of vacancy than average. Areas with the least amount of vacancy are still the prime areas around the central station and the Beatrixkwartier.
SUPPLY
850
15%
680
12%
510
9%
340
6%
170
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
75
CONSTRUCTION PIPELINE ON HOLD

Future developments are still being reassessed by the municipality, so new developments will remain at low levels. Currently, one large office building is under development in the area around the central station and will be completed in 2011. This office space will be occupied by the central government. Aside from this relatively large development,
200 175 150 125 100 75 50 25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
the pipeline for office space is negligible and slowing down.
1,250
Total investment
Of ce investment
WEAK START TO YEAR ExPLAINS INVESTMENT FALLS

The Hague showed the opposite trend in investment volumes compared to other markets in the Netherlands. During 2010, investment volume ( 361m) decreased by 24% compared to the level recorded in 2009. Except for the large transactions that took place during the second half of 2010, The Hague investment market never fully recovered
1,000
750
from the weak investment level of the first quarter of 2010 which only amounted to 43m. Future demand for prime office space with long lease contracts that mainly attracts German investors is expected to improve in 2011.
500
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

8%
SHARP DROP IN PRIME YIELD DESPITE INVESTMENT DECLINE

In The Hague, prime office yields decreased sharply to 5.8% at the end of 2010, a decline of approximately 100bp compared to Q4 2009. As German investors are focusing on prime office investments this level is expected to remain the same in 2011. However, if the scarcity of such product
7%
6%
5%
continues, prime office yields might move down yet further. Secondary areas with relatively new office space and average lease levels stay a difficult investment market due to the gap between asking and bid prices.
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
76
Toulouse
LOW RENTS SHOW LITTLE VARIANCE OVER LAST TWO YEARS
The prime rent in Toulouse has been between 190 and 200/m/year for the past two years. This is for city centre rents, where supply in the best districts is scarce. Suburban average rents rose slightly in 2010 for new buildings to 141/m/year. They range from 120/m/year in the north of the city to 149 in the east, which is very popular but with dwindling supply. Average rents for second hand offices have stabilised, ranging from 100 to 125 /m/year depending on the districts and the quality of the premises.
125 0% 150 10% 175 20%
PRIME RENT
/m2/year % change
225
40%
200
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
STRONG PERFORMANCE FOR THE TOULOUSE MARKET

Take-up in Toulouse has remained at a high level, up 4% over 2010. The striking aspect of the year was the reversal in the relative proportions of new and second hand. Indeed, take-up of second hand offices rose sharply (+52%) for all unit sizes. This was chiefly due to their appealing rents, whereas rents for new offices were sometimes off-putting. The fact that some new offices could not be divided below 1,000 m or 500 m may also have been an obstacle to their take-up in 2010.
TAKE-UP
Thousand m
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
THE MARKET IS STILL OVERSUPPLIED

After peaking at 292,000 m available at the end of the first half of 2010, supply within a year has started to decline for the first time since 2008. There is still plenty of new supply, but the availability is very mixed and some districts have hardly any on offer. This is the case for Balma-Gramont, and in Toulouse, the La Plaine park and the Montaudran and Le Palays districts. Meanwhile, second hand supply has risen slightly. Most of the premises require refurbishment, which landlords should be quick to perform as refurbished units are easier to let.
SUPPLY
Thousand m
300
250
200
150
100
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
77

160
INTERRUPTION TO NEW BUILDING STARTS

The Toulouse market has been substantially oversupplied in new offices for the past three years following the construction of new schemes to the west of Toulouse. They are split across two main sites: the Andromde mixed development zone and the Bordelongue site. These buildings are located in up-and-coming sites that are yet
120
80
to realise their full potential and occupiers are primarily interested in the east of the city. In December 2010, vacant new supply represented about 140,000 m, whereas the amount of supply under construction was at a record low of 11,000 m scheduled for completion in 2011.
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
500
Total investment
Of ce investment
LOW INVESTMENT IN 2010

Investment in Toulouse was low in 2010, at 156m. About 70% of this was in retail premises. The biggest deal was Espace Saint Georges, bought by Commerz Real for 90m. Just 26m was invested in offices. The market remains deadlocked by an imbalance between supply and demand. Indeed, buyers yield requirements still do not match with
400
300
sellers demands.
200
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

9%
SCARCE SUPPLY DRIVES FALL IN PRIME OFFICE YIELDS

The office market in Toulouse has been hit hard by the scarcity of suitable products to buy. Consequently, the return of capital into the market was no help to the Toulouse market. Nevertheless, the yield has fallen from 7.65% in Q2 2009 to 6.35% at the end of Q4 2010.
8%
7%
6%
5%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
78
Vienna
INCREASE IN PRIME OFFICE RENT LIKELY TO SLOW
At the end of 2010, prime office rents amounted to 276/m/year, an increase of 5% since the end of 2009. Prime office rents should stabilise at this level in 2011. In contrast, rental levels for non-prime offices of high quality are expected to continue to fall slightly in 2011. In secondary markets, rental values dropped significantly with many companies relocating and consolidating into more efficient space. There is no sign that this trend will stop, therefore, rents will continue to decline during 2011.
140 -3% 180 0% 220 3%
PRIME RENT
/m2/year % change
300
9%
260
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP VOLUME ERODED BY COST CUTTING STRATEGIES

Office take-up has been slowly decreasing since its peak of 282,000 m in 2008. In 2010, transactions reached a total of 220,000 m, representing a decrease of 29% compared to the previous year. This poor level of take-up is due to the weak and uncertain global economy outlook and the pressure on companies to cut costs and consolidate rather than expand. We expect the trend to continue during the first six months of the coming year. 2011 should record a take-up level similar to that of 2010.
TAKE-UP
Thousand m
450 400 350 300 250 200 150 100 50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GROWTH IN SECONDARY SUPPLY PUSHES UP VACANCY RATE

Total office stock at the end of 2010 reached around 11 million m with a vacancy rate of around 5.1%. However, it should increase closer to 5.4% during 2011, the reason being that weak take-up means most of the new supply coming onto the market will remain un-let. This applies in particular to secondary premises.
SUPPLY
700 600 500 400 300 200 100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
7% 6% 5% 4% 3% 2% 1%
79
400 350 300 250

COMPLETIONS TO INCREASE IN 2011 BEFORE FALLING BACK

Completions during 2010 amounted to 160,000 m which was around 11,000 m lower than in 2009. However, the amount of new projects coming on the market is expected to increase and total 200,000 m at the end 2011. Nevertheless, a number of projects have been put on hold or current construction slowed down, as a result of financing difficulties or lack of pre-letting success. This level of uncertainty is influencing the development pipeline for the next few years, as developers are unwilling to start new office schemes.
200 150 100 50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
n.a.
2011 2012
3,000
Total investment
Of ce investment
INVESTMENT VOLUMES DOUBLE FROM A RECORD LOW IN 2009

Total investment volume reached 1.4bn during 2010, which represented a 135% increase on 2009 with most of the transactions occurring during Q2 and Q4 2010. The investment activity was lead by institutional and private investors. The recovery mainly relied on investors
2,500
2,000
1,500
confidence in the Vienna market, particularly in offices, and also to the narrowing gap between sellers and buyers expectations. The investment activity is expected to rise again during 2011.
1,000
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6%
PRIME OFFICE YIELD MOVED DOWN

Prime office yield decreased continuously during 2010 as investors fiercely competed for high quality assets. It finally reached 5.2% in Q4 2010, a 60bp drop over Q4 2009. Conversely, yields for secondary assets remained stable in 2010.
5%
4%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
80
Warsaw
PRIME RENTS INCREASED SLIGHTLY IN 2010
At the end of 2010, prime office rents remained stable at 276/m/year in downtown Warsaw after having registered a slight increase in early 2010. In non-central locations rents were approximately 186/m/year. Thanks to increasing demand, decline in supply and the projected economic growth, rental rates may begin to rise slightly over the next twelve months, particularly in non-central locations.
PRIME RENT
/m2/year % change
450 400 350
50% 40% 30% 20% 10% 0% -10%

300 250 200 150
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TAKE-UP ALMOST DOUBLED

In 2010 as much as 550,000 m of office space was leased in Warsaw, of which pre-lets represented only 11%. Office parks in non-central locations continue to enjoy the greatest interest from tenants as, besides being easily accessible by transport, they often offer efficiently designed office space and therefore the best ratio of the building quality to lease costs. The largest percentage of lease transactions was for office space of less than 500 m. However, compared to 2009 deals for large space of over 3,000 m increased particularly.
TAKE-UP
Thousand m
600
500
400
300
200
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
VACANCY RATE TO PEAK IN 2010 AT 7.2%

At the end of 2010, there was approximately 246,000 m of modern vacant office space in the whole of Warsaw with an overall vacancy rate of 7.2%, a slight increase compared to 2009. The highest vacancy was recorded in Ursynow due to the delivery of the A1 and A2 buildings of the Poleczki Business Park offering 45,000 m and still available for letting. Demand is expected to rise steadily in 2011 both in terms of the number and the average size of leases. Rental rates may begin to rise slowly and vacancy rates may drop due to the projected decline in supply, compared to previous years. Indeed, relatively few projects are entering the development phase due to the continued stringent policy of banks towards financing commercial investments.
SUPPLY
360
18%
300
15%
240
12%
180
9%
120
6%
60
3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
81
FEWER DELIVERIES ARE ExPECTED IN COMING YEARS

New schemes totalling 190,000 m were delivered in 2010, most of them in non central locations. Currently, 296,000 m of office space are under construction and to be completed within the next two years in Warsaw. The biggest schemes in the pipeline are Plac Unii developed by BBI Development and Liebrecht & Wood on the city
300
250
200
150
centre fringe, and Mokotw Nova developed by Ghelamco in Mokotw Business District. Both projects will offer 41,000 m of Grade A modern office space. Development post 2012 is uncertain and expected to slow down.
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012
5,000
Total investment
Of ce investment
SHARP GROWTH IN OFFICE INVESTMENT

In 2010 the volume of investment in the Warsaw office market increased thanks to greater demand for offices and amounted to 530m. The largest deal was the acquisition by the Austrian fund CA Immo of CEE focused property company Europolis whose portfolio includes six office buildings located in Warsaw, including the Lipowy
4,000
3,000
Office Park. There were only two transactions concluded in Warsaw CBD being the sale of Paac Raczyskich of a total leasable area of 12,000 m and Lipiski Passage of 3,400 m.
2,000
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

10%
YIELDS MOVE BACK DOWN TO 2008 LEVELS

Prime office yields are estimated to be around 6.75% at the end of 2010, going back to 2008 levels after a slight increase to 6.9% at Q4 2009. Average yields for secondary assets stood between 7.5% and 8.5%.
8%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
6%
82
Comparative economic data

GDP GROWTH (annual rate %)
2000 Euro area Austria Belgium France Germany Greece Italy Luxembourg (1) Netherlands Portugal Slovak Republic Spain Bulgaria Romania Republic of Serbia (1) Poland Sweden Switzerland United Kingdom Russia (1) Ukraine (2) China (1) japan United States 3.9 3.7 3.7 3.9 3.2 4.5 3.7 8.4 3.9 3.9 1.4 5.0 5.7 2.4 5.3 4.3 4.5 3.6 3.9 10.0 5.9 8.4 2.9 4.1 2001 1.9 0.5 0.8 1.9 1.2 4.2 1.8 2.5 1.9 2.0 3.5 3.6 4.2 5.7 5.6 1.2 1.3 1.2 2.5 5.1 9.2 8.3 0.2 1.1 2002 0.9 1.6 1.4 1.0 0.0 3.4 0.5 4.1 0.1 0.7 4.6 2.7 4.7 5.1 3.9 1.4 2.5 0.4 2.1 4.7 5.2 9.1 0.3 1.8 2003 0.8 0.8 0.8 1.1 -0.2 5.9 0.0 1.5 0.3 -0.9 4.8 3.1 5.5 5.2 2.4 3.9 2.3 -0.2 2.8 7.3 9.6 10.0 1.4 2.5 2004 2.2 2.5 3.2 2.5 1.2 4.4 1.5 4.4 2.2 1.6 5.1 3.3 6.7 8.5 8.3 5.3 4.2 2.5 3.0 7.2 12.1 10.1 2.7 3.6 2005 1.7 2.5 1.7 1.9 0.8 2.3 0.7 5.4 2.0 0.8 6.7 3.6 6.4 4.2 5.6 3.6 3.2 2.6 2.2 6.4 2.7 10.4 1.9 3.1 2006 3.0 3.6 2.7 2.2 3.4 4.5 2.0 5.0 3.4 1.4 8.5 4.0 6.5 7.9 5.2 6.2 4.3 3.6 2.8 7.7 7.3 11.6 2.0 2.7 2007 2.8 3.7 2.9 2.4 2.7 4.3 1.5 6.6 3.9 2.4 10.5 3.6 6.4 6.3 6.9 6.8 3.3 3.6 2.7 8.1 7.9 13.0 2.4 1.9 2008 0.4 2.2 1.0 0.2 1.0 1.3 -1.3 1.4 1.9 0.0 5.8 0.9 6.2 7.3 5.5 5.1 -0.6 1.9 -0.1 5.6 2.1 9.6 -1.2 0.0 2009 -4.1 -3.9 -2.8 -2.5 -4.7 -2.3 -5.0 -3.7 -3.9 -2.6 -4.8 -3.7 -4.9 -7.1 -3.0 1.7 -5.3 -1.9 -4.9 -7.9 -15.0 9.2 -6.3 -2.6 2010* 1.8 2.0 2.0 1.6 3.6 -4.2 1.0 3.2 1.6 1.5 4.1 -0.2 -0.1 -1.9 1.5 3.5 4.8 2.6 1.7 3.7 4.2 10.3 4.3 2.8 2011** 1.5 2.1 1.7 1.6 2.2 -3.4 1.0 3.1 1.4 -1.1 1.7 0.6 2.2 1.7 3.0 3.1 3.2 2.0 2.0 4.5 4.0 9.6 1.6 3.0 2012** 1.7 2.3 1.9 1.8 2.0 0.4 1.3 3.0 1.6 0.1 3.7 1.5 2.3 2.6 5.0 3.1 2.8 2.4 2.3 4.4 4.0 9.5 1.8 2.7
Source: Eurostat & IMF - Note: (1) IMF forecasts Jan 2011 - (2) BNP Paribas forecasts Dec 2010 - * Estimates - ** BNP Paribas forecasts Dec 2010
TOTAL EMPLOYMENT GROWTH (annual rate %)

2000 Euro area Austria Belgium France Germany Greece Italy Luxembourg (1) Netherlands Portugal Slovak Republic Spain Bulgaria Romania Poland Sweden Switzerland japan United States
(1)
2001 1.6 1.0 -0.9 1.8 0.3 -0.1 2.1 5.6 2.5 2.3 0.9 4.1 -3.3 -0.5 -2.2 1.8 1.5 1.0 -0.8 0.0
2002 0.7 -0.9 0.4 0.8 -0.8 2.2 1.5 3.2 1.2 1.8 0.1 3.0 1.4 -9.5 -3.0 0.1 0.7 0.7 -1.6 -0.3
2003 1.1 2.2 0.0 3.1 -1.0 2.4 1.0 1.8 -0.6 0.5 1.8 4.0 3.4 -4.5 -1.2 -0.2 0.0 1.0 -0.3 0.9
2004 0.9 -1.3 1.7 0.4 -0.2 0.9 1.6 2.2 -0.2 -0.4 0.3 3.9 3.1 -0.6 1.3 -0.6 -0.1 1.1 0.2 1.1
2005 1.9 2.2 2.3 0.7 2.3 1.3 0.7 2.9 0.1 0.1 2.2 5.6 2.0 0.1 2.3 1.3 0.4 1.0 0.4 1.7
2006 2.0 2.7 0.7 0.7 2.0 1.9 1.9 3.6 1.8 0.0 3.9 4.1 4.3 1.9 3.4 1.9 1.5 0.9 0.4 1.9
2007 2.0 2.5 2.7 1.7 2.2 1.3 1.0 4.4 2.5 0.7 2.4 3.1 4.6 0.7 4.4 2.5 2.9 0.6 0.0 1.1
2008 1.1 1.5 1.5 1.3 1.8 1.1 0.8 4.7 1.5 0.2 3.2 -0.5 3.3 0.2 3.7 1.2 2.6 0.8 0.0 -0.4
2009 -1.9 -1.4 -0.3 -2.5 -0.1 -1.4 -1.5 0.3 -0.4 -2.8 -2.7 -6.6 -3.2 -1.3 0.4 -2.1 0.1 -1.6 -1.6 -4.3
2010* -0.5 0.6 0.5 0.1 0.6 -2.2 -0.6 -1.2 -0.8 -1.6 -1.8 -2.4 n.a. n.a. n.a. 0.9 0.5 0.3 -0.4 -0.5
2011** 0.2 0.7 0.6 0.4 1.0 -2.8 -0.2 1.4 -0.2 -1.9 0.8 -1.8 n.a. n.a. n.a. 1.6 0.5 0.0 0.1 1.0
2012** 0.6 0.7 1.2 0.4 1.2 -0.1 0.4 n.a. 0.2 0.2 0.3 -0.3 n.a. n.a. n.a. 1.2 n.a. -0.2 0.2 1.8
2.5 1.3 2.0 2.7 1.9 0.5 1.9 5.5 2.2 -2.0 5.1 -2.4 -0.8 -3.7 2.5 0.4 1.3 -0.6 2.5
United Kingdom
Source: Eurostat - Note: (1) IMF forecasts Oct 2010 - * Estimates - ** BNP Paribas forecasts Dec 2010
83
CONSUMER PRICES (annual rate %)

2000 Euro area Austria Belgium France Germany Greece Italy Luxembourg (1) Netherlands Portugal Slovak Republic Spain Bulgaria Romania Republic of Serbia Poland Sweden Switzerland United Kingdom Russia (1) Ukraine China japan United States
(1)
2001 2.4 2.3 2.4 1.8 1.9 3.7 2.3 2.4 5.1 4.4 7.2 2.8 7.4 34.5 91.8 5.3 2.7 1.0 1.2 21.5 11.9 0.7 -0.7 2.8
2002 2.3 1.7 1.6 1.9 1.4 3.9 2.6 2.1 3.9 3.7 3.5 3.6 5.8 22.5 19.5 1.9 1.9 0.6 1.3 15.8 0.7 -0.8 -0.9 1.6
2003 2.1 1.3 1.5 2.2 1.0 3.4 2.8 2.5 2.2 3.3 8.4 3.1 2.3 15.3 11.7 0.7 2.3 0.6 1.4 13.7 5.2 1.2 -0.3 2.3
2004 2.2 2.0 1.9 2.3 1.8 3.0 2.3 3.2 1.4 2.5 7.5 3.1 6.1 11.9 10.1 3.6 1.0 0.8 1.3 10.9 9.0 3.9 0.0 2.7
2005 2.2 2.1 2.5 1.9 1.9 3.5 2.2 3.8 1.5 2.1 2.8 3.4 6.0 9.1 17.3 2.2 0.8 1.2 2.1 12.7 13.5 1.8 -0.3 3.4
2006 2.2 1.7 2.3 1.9 1.8 3.3 2.2 3.0 1.7 3.0 4.3 3.6 7.4 6.6 12.7 1.3 1.5 1.1 2.3 9.7 9.1 1.5 0.3 3.2
2007 2.1 2.2 1.8 1.6 2.3 3.0 2.0 2.7 1.6 2.4 1.9 2.8 7.6 4.9 6.5 2.6 1.7 0.7 2.3 9.0 12.8 4.8 0.0 2.8
2008 3.3 3.2 4.5 3.2 2.8 4.2 3.5 4.1 2.2 2.7 3.9 4.1 12.0 7.9 12.4 4.2 3.3 2.4 3.6 14.1 25.2 5.9 1.4 3.8
2009 0.3 0.4 0.0 0.1 0.2 1.3 0.8 0.0 1.0 -0.9 0.9 -0.2 2.5 5.6 8.1 4.0 1.9 -0.5 2.2 11.7 15.9 -0.7 -1.4 -0.4
2010 1.6 1.7 2.3 1.7 1.2 4.7 1.6 2.8 0.9 1.3 0.7 1.8 3.0 6.1 4.6 2.7 1.9 0.7 3.3 6.9 9.5 3.2 -0.7 1.6
2011* 1.6 1.9 2.3 1.8 1.5 1.7 1.8 1.9 1.8 0.9 1.3 1.4 3.1 6.5 4.4 3.0 2.0 0.1 3.0 8.3 11.4 3.8 -1.0 1.1
2012* 1.2 1.7 1.4 1.3 1.0 1.3 1.5 1.8 0.8 0.9 0.4 1.7 4.8 4.3 1.6 2.3 1.2 1.9 8.7 9.3 3.8 0.1 0.8
Source: Eurostat & IMF - Note: (1) IMF Forecast Oct 2010 - * BNP Paribas forecasts Dec 2010 Source: Eurostat - Note: 10-year government bond yields
2.2 2.0 2.7 1.8 1.4 2.9 2.6 3.8 2.3 2.8 12.2 3.5 10.3 45.7 70.0 10.1 1.3 1.6 0.8 20.8 28.2 0.4 -0.7 3.4
1.8
LONG-TERM INTEREST RATES (annual average rate %)

2000 Euro area Austria Belgium France Germany Greece Italy Luxembourg Netherlands Portugal Slovak Republic Spain Bulgaria Romania Poland Sweden United Kingdom japan United States 5.4 5.6 5.6 5.4 5.3 6.1 5.6 5.5 5.4 5.6 n.a. 5.5 n.a. n.a. 11.8 5.4 5.3 1.8 6.0 2001 5.0 5.1 5.1 4.9 4.8 5.3 5.2 4.9 5.0 5.2 8.0 5.1 n.a. n.a. 10.7 5.1 5.0 1.3 5.0 2002 4.9 5.0 5.0 4.9 4.8 5.1 5.0 4.7 4.9 5.0 6.9 5.0 n.a. n.a. 7.3 5.3 4.9 1.3 4.6 2003 4.1 4.2 4.2 4.1 4.1 4.3 4.3 4.0 4.1 4.2 5.0 4.1 6.5 n.a. 5.8 4.6 4.6 1.0 4.0 2004 4.1 4.2 4.2 4.1 4.0 4.3 4.3 4.2 4.1 4.1 5.0 4.1 5.4 n.a. 6.9 4.4 4.9 1.5 4.3 2005 3.4 3.4 3.4 3.4 3.4 3.6 3.6 3.4 3.4 3.4 3.5 3.4 3.9 n.a. 5.2 3.4 4.5 1.4 4.3 2006 3.8 3.8 3.8 3.8 3.8 4.1 4.1 3.9 3.8 3.9 4.4 3.8 4.2 7.2 5.3 3.7 4.4 1.7 4.8 2007 4.3 4.3 4.3 4.3 4.2 4.5 4.5 4.6 4.3 4.4 4.5 4.3 4.5 7.1 5.5 4.2 5.1 1.7 4.6 2008 4.3 4.3 4.4 4.2 4.0 4.8 4.7 4.6 4.2 4.5 4.7 4.4 5.4 7.7 6.1 3.9 4.5 1.5 3.7 2009 3.8 3.7 3.9 3.7 3.2 5.2 4.3 4.2 3.7 4.2 4.7 4.0 7.2 9.7 6.1 3.3 3.4 1.4 3.3 2010 3.6 3.2 3.5 3.1 2.7 9.1 4.0 3.2 3.0 5.4 3.9 4.3 6.0 7.3 5.8 2.9 3.4 1.2 3.2
ExCHANGE RATE AGAINST THE EURO (annual average)

2000 US Dollar GB Pound japanese Yen Chinese Yuan 0.924 0.609 99.47 7.646 2001 0.896 0.622 108.68 7.414 2002 0.946 0.629 118.06 7.829 2003 1.131 0.692 130.97 9.366 2004 1.244 0.679 134.45 10.299 2005 1.244 0.684 136.85 10.196 2006 1.256 0.682 146.02 10.010 2007 1.370 0.684 161.25 10.418 2008 1.471 0.796 152.45 10.224 2009 1.395 0.891 130.34 9.528 2010 1.326 0.858 116.24 8.971
Source: European Central Bank
84
Glossary
BNP Paribas Real Estate is working on producing indicators which are as comparable as possible. This is a complex issue, due to cultural differences from market to market. Nevertheless, as we aim to actively contribute to the transparency of the markets, we have highlighted those definitions and indicators which are strictly comparable, so that our readers can understand what the indicators mean. Furthermore we have decided to adopt the PEPCIG1 definitions, on which most of the following indicators published by BNP Paribas Real Estate are based. Other indicators are from INREV2 and from BNP Paribas Real Estate. Central Business District average rent is the average of each of the last four quarters average headline rent in the CBD. Each quarterly average rent is weighted by the surface of each lease signed during the quarter, in either new or second-hand premises. The definition of CBD corresponds to local conventions. Completions represent the total amount of floor space that has reached practical completion and is occupied, ready for occupation or an occupancy permit where required has been issued during the survey period. Central London includes the following districts: West End, Midtown, City, Docklands, Southbank, Western Fringe and Northern Fringe. Central Paris includes the following districts: CBD, Paris out of CBD, La Dfense, Western Crescent and Inner Rim. Core Investment Vehicles target returns at 11.5% and lower, with gearing level up to 60% of Gross Asset Value. Closed Ended Fund is a vehicle that has a targeted range of investor capital and a finite life. Development Pipeline represents the total amount of floor space for all developments under construction and/or schemes (including major refurbishments) that have the potential to be built in the future through having a secured level of planning permission but remain unimplemented at the survey date. It includes all proposed new buildings, those constructed behind retained facades and buildings (or parts of buildings) undergoing a change of use to offices. Exchange Rate from into for rents is the average value observed over the quarter. Exchange Rate from into for investment volumes for each quarter is the average value over that period. Full-year investment volumes in both currencies are made up by adding the four quarters of each year. German Open Ended Fund is a public vehicle that does not have a finite life, continually accepts new investor capital and makes new property investments. The list of German Open Ended Funds is published by the BVI (Bundesverband Investment und Asset Management e.V.). Gross Asset Value is the sum of the Gross Capital Value of properties, cash and marketable securities and other (non-operating) assets. Investment volume takes into account all commercial properties BNP Paribas Real Estate is aware of, whose owner has changed during the studied period, whatever the purchasing price. It includes Office buildings, Retail (supermarkets, hypermarkets), Industrial and Logistics Warehousing and Others (Hotels, Cinema, Leisure, Car Parks, Care Homes, parts of portfolio which can not be split up by product, and Development Sites in Germany). Quoted investment volumes are not definitive and are consequently subject to change. Initial Gross Yield is defined as Gross income (i.e. income before costs of ownership) over purchase price excluding costs of acquisition. Initial Net Yield is defined as Net income (or NOI) over purchase price plus all other costs of acquisition. Prime Office Rent / Prime Office Yield represent the top open-market rent/yield at the survey date for an office unit: - of standard size commensurate with demand in each location - of the highest quality and specification - in the best location in a market Investment volume by investor/seller type refers to the following categories: Insurance, Private Investors, Public Sector, Corporates, Property Companies & REITS, Consortium, Funds and Other. Investment volume by investor/seller nationality refers to the following categories: Eurozone, Non-Eurozone, North America, Other America, Asia, Middle East, Australia, International and Other. Major Refurbishments represents refurbishments, where building work must involve either structural alteration, and/or the substantial replacement of the main services and finishes. The quality of the floor space must have been substantially improved from its previous condition so as to offer accommodation of a modern standard although not necessarily to the standard of a completely new building. Opportunistic Investment Vehicles target returns in excess of 17%, with gearing levels above 60% of Gross Asset Value. Actual transactions are used in France, Germany and Belgium to support the headline prime rental quoted, but one-off deals, which do not represent the market, are disregarded. In the UK & Spain, if there are no prime transactions during the survey period a hypothetical rent is quoted, based on expert opinion of market conditions. Space calculation differs in Spain, where figures in m (Take-Up, Vacancy, Pipeline, Completions) as well as Rental values are based on Gross Letting Area space, contrary to the other main European markets, which use Net Letting Area. In order to make the Spanish figures comparable across all monitored markets, they should be multiplied by 0.82 (NLA = 0.82 GLA). This ratio is applied by BNP Paribas Real Estate to produce international indices and benchmarks. Take-Up represents the total floor space known to have been let or prelet, sold or pre-sold to tenants or owner-occupiers during the survey period. It does not include space that is under offer
-
A property is deemed to be taken-up only when contracts are signed or a binding agreement exists Pre-let refers to take-up that was either in the planning or construction stage All deals (including pre-lets) are recorded in the period in which they are signed Contract renewals are not included Sales and leasebacks are not included as there had been no change in occupation Quoted take-up volumes are not definitive and are consequently subject to change.
The breakdown of take-up by business sector is compatible with the European NACE code. Under Construction represents the total amount of floor space in properties where construction has commenced on a new development or a major refurbishment (see separate definition) at the survey date. It includes properties for owner occupation, which are reported separately. It does not include sites being cleared for possible development in the future. Property that is under construction but pre-let or for owner occupation is recorded separately where appropriate. Value-added Investment Vehicles target returns of 11.5% to 17%, with gearing levels between 30% and 70% of Gross Asset Value. Vacancy represents the total floor space in existing properties, which are physically vacant, ready for occupation in the next three months (this period covers fit-out time) and being actively marketed at the survey date. Vacancy includes sublet space (except in Germany), but where possible, vacant sub-let space is recorded separately. In France, vacancy excludes premises which the owner will renovate only once a lease is signed. Spain only counts immediately available space. Vacancy Rate represents the total vacant floor space including sublettings divided by the total stock at the survey date.
1
Pan-European Property Common Interest Group. This group assembles a wide range of European advisors and investors and major agents. European Association for Investors in Non-listed Real Estate Vehicles.
BNP Paribas Real Estate Disclaimer clause BNP Paribas Real Estate cannot be held responsible if, despite its best efforts, the information contained in the present report turns out to be inaccurate or incomplete. This report is released by BNP Paribas Real Estate and the information in it is dedicated to the exclusive use of its clients. The report and the information contained in it may not be copied or reproduced without prior permission from BNP Paribas Real Estate. Should you no longer wish to receive this report, or wish to modify the conditions of reception of this report, please send an e-mail to: unsubscribe.mailing@bnpparibas.com
85
Notes
86
Notes
eUROPeAN OFFICe mARkeT 2011
87
Contacts
INTeRNATIONAl BUSINeSS lINeS & SeRvICeS
Client Solutions guillaume DelATTRe
guillaume.delattre@bnpparibas.com
ReSeARCH
International Christophe PINeAU Stephen ACkROyD
AllIANCeS*
Austria Vienna Dr. max Huber & Partner
www.dmhpartner.at
christophe.pineau@bnpparibas.com stephen.ackroyd@bnpparibas.com
Consulting Sylvain HASSe
sylvain.hasse@bnpparibas.com
eugne AgOSSOU-vOyeme Cline COTASSON Samuel DUAH
International Investment group Peter ROeSleR

peter.roesler@bnpparibas.com
eugene.agossou-voyeme@bnpparibas.com celine.cotasson@bnpparibas.com samuel.duah@bnpparibas.com
Bulgaria Sofia Danos greece Athens Danos
www.danos.bg
Investment management David AUBIN
www.danos.gr
david.aubin@bnpparibas.com
Zsolt NeNkOv
Property Development louis-Baudouin DeCAIX (Commercial)

louisbaudouin.decaix@bnpparibas.com
zsolt.nenkov@bnpparibas.com
Netherlands Amsterdam & The Hague Holland Realty Partners
eric vU-ANH-TUAN Belgium Pascal mIkSe
www.hollandrealtypartners.com
eric.vuanhtuan@bnpparibas.com
Ren meTZ (Residential)
rene.metz@bnpparibas.com
pascal.mikse@bnpparibas.com
Portugal Lisbon Worx
www.worx.pt
Property management lauric leCleRC
lauric.leclerc@bnpparibas.com
France Richard mAlle
richard.malle@bnpparibas.com
Republic of Serbia Belgrade Danos

www.danos.rs
valuation Jean-Claude DUBOIS
jean-claude.j.dubois@bnpparibas.com
germany Wolfgang SCHNeIDeR Italy Simone ROBeRTI luxembourg Zsolt NeNkOv
wolfgang.schneider@bnpparibas.com
Russia Saint Petersburg & Moscow Astera

www.asteragroup.com
simone.roberti@bnpparibas.com
Slovak Republic Bratislava modesta Ukraine Kiev Astera
www.modestagroup.com
zsolt.nenkov@bnpparibas.com
Romania Catalin mARUNTelU Spain emilie gRADASSI United kingdom Claire HIggINS
* which contributed to this report
catalin.maruntelu@bnpparibas.com
www.asteragroup.com
emilie.gradassi@bnpparibas.com
PARTNeR*
Sweden Stockholm Newsec
claire.higgins@bnpparibas.com
www.newsec.se
MAIN LOCATIONS
ABU DHABI Al Bateen Area Plot No. 144, W-11 New Al Bateen Municipality Street 32 P.O. Box 2742 Abu Dhabi, UAE Tel.: +971 44 248 271 Fax: +971-44 257 817 BelgIUm Boulevard Louis Schmidtlaan 2 B3 1040 Brussels Tel.: +32 2 646 49 49 Fax: +32 2 646 46 50 CZeCH RePUBlIC Poben 3 186 00 Praha 8 Czech Republic Tel.: +420 224 835 000 Fax: +420 222 323 723 DUBAI Emaar Square Building No. 1, 7th Floor P.O. Box 7233 Duba, UAE Tel.: +971 44 248 271 Fax: +971-44 257 817 FRANCe 167, quai de la Bataille de Stalingrad 92867 Issy-les-Moulineaux Tel.: +33-1-55 65 20 04 Fax: +33-1-55 65 20 00 geRmANy Goetheplatz 4 60311 Frankfurt Tel.: +49-69-2 98 99 0 Fax: +49-69-2 92 91 4 HUNgARy Alkots u. 53. H-1123 Budapest, Hungary Tel.: +36 1 487 5501 Fax: +36 1 487 5542 lUXemBOURg Axento Building Avenue J.F. Kennedy 44 1855 Luxembourg Tel.: +352-34 94 84 Fax: +352-34 94 73 POlAND ul. Grczewska 124 01-460 Warszawa Poland Tel.: +48 22 533 40 03 Fax: +48 22 533 40 04
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JAPAN* RISA Partners 5F Akasaka Intercity 1-11-44 Akasaka, Minato-ku 107-0052 Tokyo Tel.: +81-3-5573 8011 Fax: +81-3-5573 8012 NeTHeRlANDS* Holland Realty Partners J.J. Viottastraat 33 1071 JP Amsterdam Tel.: +31-20-305 97 20 Fax: +31-20-305 97 21 NORTHeRN IRelAND* Whelan Commercial Limited Arthur House 41 Arthur Street Belfast BT1 4GB Tel.: +44-28-9044 1000 Fax: +44-28-9033 2266 RUSSIA* Astera 10, b.2 Nikolskaya Str. Moscow, 109012 Tel./Fax: +7-495-925 00 05 SeRBIA* Danos & associates 6, Vladimira Popovica Street Office B31 11000 Belgrade Tel.: +381-11-2600 603 Fax: +381-11-2601 571
SlOvAkIA* Modesta (Dr. Max Huber & Partner Group) Heydukova 12-14 811 08 Bratislava Tel.: +421-2-3240 8888 Fax: +421-2-3214 4777 SWITZeRlAND* Naef Avenue Eugne-Pittard 14-16 Case Postale 30 1211 Geneva 17 Tel.: +41-22 839 39 39 Fax: +41-22 839 38 38 UkRAINe* Astera 2a Konstantinovskaya Street 04071, Kiev Tel.: +38-044-501 50 10 Fax: +38-044-501 50 11 USA* Cresa Partners 200 State Street 13th Floor Boston, Massachusetts 02109 Tel.: +1-617-758 6000 Fax: +1-617-742 0643 Falcon Real Estate 570 Lexington Avenue 32nd Floor New York, NY 10022 Tel.: +1-212 271-5445 Fax: +1-212 271-5588 *Alliance
BUlgARIA* Danos & Associates 28, Hristo Botev Boulevard INDIA Sofia Head Office ROmANIA Tel.: +359-2-9532314 704, Level 7, MMTC House, C-22, Union International Center Fax: +359-2-9532399 Bandra Kurla Complex, Bandra (E), 11 Ion Campineanu Street Mumbai 400 051 Sector 1 CANADA* Tel.: +91 22 6138 8088 Bucharest 010031 Cresa Partners Fax: +91 22 6138 8089 Tel.: +40-21-312 7000 Tel.: +1-617-758 6000 Fax: +40-21-312 7001 Fax: +1-617-742 0643 IRelAND 40 Fitzwilliam Place SPAIN CyPRUS* Dublin 2 Mara de Molina, 54 Danos & Associates Tel.: +353-1-66 11 233 28006 Madrid 35, I. Hatziosif Ave Fax: +353-1-67 89 981 Tel.: +34-91-454 96 00 2027, Nicosia Fax: +34-91-454 97 65 Tel.: +357-22 31 70 31 ITAly Fax: +357-22 31 70 11 Corso Italia, 15/A UNITeD kINgDOm 20122 Milan 5 Aldermanbury Square gReeCe* Tel.: +39-02-58 33 141 London EC2V 8HR Danos & Associates Fax: +39-02-58 33 14 39 Tel.: +44-20-7338 4000 1, Eratosthenous Str. Fax: +44-20-7430 2628 11635 Athens JeRSey Tel.: +30-210 7 567 567 Dialogue House Fax: +30-210 7 567 267 PO Box 158 Anley Street St Helier Jersey JE4 8RD Tel.: +44 (0)1 534 815 300 Fax: +44 (0)1 534 629 011
BNP Paribas Real Estate: Simplified joint stock company with capital of 329,196,608 - 692 012 180 RCS Nanterre - Code NAF 4110B - CE identification number FR 666 920 121 80 Headquarters: 167, Quai de la Bataille de Stalingrad - 92867 Issy Les Moulineaux Cedex - BNP Paribas Real Estate is part of the BN P Paribas Banking Group Non contractual document - Research department - BNPRE51 - March 2011 - 3,000 copies - Pictures copyrigth: Dreamstime

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eUROPeAN OFFICe mARkeT 2011

EUROPEAN OFFICE MARKET 2011

BNP Paribas Real Estate Research

Prime Rents (/m2/year):

TAKE-UP VOLUME (Thousand m2)

PRIME RENTS AND VACANCY RATES

EUROPEAN PRIME OFFICE RENT INDEX

BNP Paribas Real Estate Research

EUROPEAN OFFICE TAKE-UP INDEX

EUROPEAN OFFICE MARKET 2011

Vacancy Rates (%)

BNP Paribas Real Estate Research

BNP Paribas Real Estate Research

BNP Paribas Real Estate Research

EUROPEAN OFFICE MARKET 2011

Investment volume by product as% of 2010 % Office

% Industrial & Logistics Warehousing

BNP Paribas Real Estate Research

NET PRIME OFFICE YIELDS

INVESTMENT VOLUME ( billion)

EUROPEAN REAL ESTATE INVESTMENT INDEX

EUROPEAN NET PRIME OFFICE YIELD INDEX

EUROPEAN OFFICE MARKET 2011

BNP Paribas Real Estate Research

BNP Paribas Real Estate Research

BNP Paribas Real Estate Research

EUROPEAN OFFICE MARKET 2011

TAKE-UP CHARACTERISED BY LARGE CORPORATE DEALS

400 350 300 250 200 150 100 50

CHANGES IN BUILDING USE CLASS DECREASE VACANCY

EUROPEAN OFFICE MARKET 2011

400 350 300 250

MUNICIPALITY STILL ASSESSING ITS DEVELOPMENT PLAN

200 150 100 50

INVESTMENT VOLUME GOES UP BY A THIRD

NET PRIME OFFICE YIELD (%)

PRIME OFFICE YIELD BACK TO PRE-CRISIS LEVEL

gap between prime and non-prime assets.

EUROPEAN OFFICE MARKET 2011

property prime rents. The decrease in GDP growth (-4.2%),

TAKE-UP CONTINUED TO CONTRACT IN 2010

LACK OF PRE-LETS HELPS PUSHING SUPPLY VOLUME UP

EUROPEAN OFFICE MARKET 2011

DEVELOPMENT PIPELINE WILL BE LOW IN 2011-2012

projects still cannot source financing on favourable terms.

CRASH IN INVESTMENT TRANSACTIONS

BNP Paribas Real Estate Research

NET PRIME OFFICE YIELD (%)

UPWARD YIELD SHIFTS TO CONTINUE IN THE SHORT TERM

are expected to further increase in 2011.

EUROPEAN OFFICE MARKET 2011

450 400 350 300 250 200 150

50% 40% 30% 20% 10% 0% -10%

TAKE-UP RISES BUT REMAINS UNDER 10-YEAR AVERAGE

DELIVERIES OF NEW BUILDINGS PUSH SUPPLY UP

EUROPEAN OFFICE MARKET 2011