National Voice Q1 2011
Published on: Mar 3, 2016
Transcripts - National Voice Q1 2011
UK National Voice - Q1 2011Office Market ConditionsAcross the UKBuilding on improved leasing activity over the second half of2010, 2011 has seen continued interest from occupiers, althoughthis has not yet translated into deals. Q1 take-up activity wasdown 9% compared with the equivalent period last year,although performance remains mixed across the UK.Supply constraints resulted in further polarisation between GradeA and Grade B space. Rents continue to be heavily supportedby incentives. While we expect to see further prime rentalgrowth averaging around 1.1% for 2011, the Grade B marketcarries significantly more downside risk.Investment volumes were relatively weak this quarter as buyerscontinued to focus on Central London and the South Eastmarkets. Increased competition for the best space as well asstrengthening market fundamentals may drive increased investoractivity outside of London this year.
2 On Point • UK National Voice • Q1 2011UK Summary Change* 12 Month Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook Take-up (000s sq ft) 906 -30.6 % -8.7 % Supply (000s sq ft) 23,067 2.8 % -3.1 % Vacancy Rate (%) 12.6 % 0 bps -20 bps Prime Rent (£ psf) £27.08 0.8 % 1.7 % U/C (000s sq ft) 488.6 8.3 % -20.7% Investment Vol. (£m) £185.5 27.3 % -70.8 %* % Change for Prime Rents, Investment Volumes and Capital Values calculated using local currencyUK Office Rental Clock Rental Growth Rents London City Slowing Falling London West End Rental Growth Rents Accelerating Bottoming Out Edinburgh, Leeds West London Manchester Birmingham, Glasgow, Thames ValleyFor information on the Central London market, please see the Jones Lang LaSalle Central London Market Report
On Point • UK National Voice Q1 2011 3National Overview2011 witnessed continued interest from occupiers, however this new speculative commencements due this year outside of these twofailed to translate into a substantial amount of take-up activity. The locations. While we expect developers to begin positioninggradual erosion of Grade A supply continued, and with very little in themselves strategically to take advantage of the impendingthe development pipeline we expect a return to preletting activity in shortage of Grade A supply, the lack of speculative developmentsome markets. Investment volumes were relatively weak this quarter funding will mean that the pipeline will remain severely limited. Asas buyers continued to focus on Central London and the South East. Grade A supply reduces further we therefore expect to see a returnHowever, increased competition and strengthening market to preletting activity.fundamentals for prime space should drive increased investoractivity outside of London this year. Q1 witnessed further polarisation between Grade A and Grade B space. Prime rents increased in Birmingham, Glasgow and theContinued interest from occupiers, but conversion to deals Western Corridor, while rents in the remaining regional centres wereremains slow stable. Prime rents continue to be supported by significantUK office take-up reached around 906,000 sq ft over the first quarter incentives, with up to 30 months rent free achievable on a 10 yearof 2011, down 9% compared with the equivalent period last year term in most markets. We expect to see further prime rental growthand down 36% compared with the five year quarterly average. averaging at around 1.1% for 2011, driven by the anticipatedPerformance was down year-on-year in all markets with the shortage of Grade A space. In contrast the Grade B market carriesexception of the Thames Valley and Glasgow where take-up significantly more downside risk with landlords continuing toincreased, but remained below their respective five year averages. compete for occupiers. While we have not yet seen any significantIn the Thames valley take-up increased from a very low base and release of Grade B space onto the market, we do expect the level ofwas boosted by several large deals of more than 25,000 sq ft. Grade B supply to remain inflated.There was no single sector driving activity in Q1. In line with theprevious quarter, activity was driven by a broad range of companies, Strengthening market fundamentals likely to encourageparticularly from within the Business services sector, including investment activity outside of Londonrecruitment consultants, IT companies and Media firms. Investment activity remained relatively subdued in the UK regional markets as most investors have continued to seek assets in LondonAlthough occupier demand will continue to be dominated by and the South East. Prime yields have been stable at 6.00% in thestructural events this year, we anticipate a growing number of Scottish and regional markets and at 6.50% in the South East.companies launching requirements in the coming months. While we Purchasers continued to focus on good quality, well let propertiesexpect demand to pick up, given the outlook for the economy and a clear divergence between prime and secondary has emerged.remains mixed, we expect occupiers to remain cautious. The According to the IPD monthly index, UK offices recorded capitalannual consumer price index (CPI) inflation rate fell to 4.0% in value growth of just 0.47% over the three months to March with aMarch, down from 4.4% in February, however this downward trend yield impact of 0.50% compared to 1.3% in the second half of lastis likely to be temporary. Inflation is expected to remain well above year. With yields forecast to remain stable in the medium termthe official target of 2% year-on-year for the rest of 2011 and will investment performance will be dependent on income return andremain a key concern for occupiers this year as costs remain rental growth. Local occupier conditions will be vital to performance.inflated. Economic activity is expected to recover from its end 2010dip, but expectations are now at, or slightly below, trend growth in Competition for prime core lots in Central London, and a lack ofQ1. In the absence of significant economic growth we therefore supply, has created a very competitive market that is pricing manyexpect take-up this year will be at similar levels to 2010. investors out to alternative areas. Combined with the strengthening market fundamentals for prime space, which will result in improvedDwindling Grade A supply continued over the first quarter rental growth, this has the potential to encourage increasedIn almost all markets Grade A vacancy rates are now below 4% and investment activity outside of London this year.trending downwards - albeit approximately in line with their five yearaverages. There is currently nothing under construction The biggest concern for 2011 within the UK investment market isspeculatively in either Glasgow or Manchester. Across the likely to be the restriction placed on transactional activity as a resultremaining UK Regional Markets there is only around 488,000 sq ft of a lack of product. Volumes will be limited by tight supply asof space under construction speculatively, of which only 38,000 sq ft opposed to a weakening in sentiment. While we anticipate moreis scheduled to complete this year. We therefore anticipate further product deriving from banks seeking to reduce their exposure to realgradual erosion of Grade A supply. estate, a significant influx remains unlikely. We expect to see continuing demand from a range of investors with the best spaceConversely, we expect further influxes of Grade B space as a result continuing to trade well but there is concern for pricing on secondaryof public sector cutbacks although this could well drive interest in the space.conversion of secondary stock to alternative uses such asresidential, as supported by announcements made in theChancellor’s recent Budget.With the exception of the Western Corridor and Manchester, theresponse to the impending supply shortage remains limited, with no
4 On Point • UK National Voice • Q1 2011Birmingham Change* 12 Month Figure 1: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 1,200 Take-up 5 Year Av erage Take-up (000s sq ft) 101.6 -16.3% -44.5 1,000 Supply (000s sq ft) 3,182 0.9 % 6.1 % 800 Vacancy Rate (%) 18.2% 10 bps 60 bps 600 Prime Rent (£ psf) £28.50 1.8 % 3.6 % 400 U/C (000s sq ft) 129.2 -59.3 % -73.1 % 200 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) % £475 1.8 % -0.7 % Investment Vol. (£m) £7.9 -54.6 % -95.2% Figure 2: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.00 % 0 bps 25 bps 350 Supply (LHS) Vacancy Rate (RHS) 20% 18% 300* % Change for Prime Rents, Investment Volumes and Capital Values calculated 16%using local currency 250 14% 200 12% 10% 150 8%Market Overview 100 6% 4%Building on improved leasing activity over the second half of 2010, 50 2%2011 has seen continued interest from occupiers, however this has 0 0%not necessarily translated into deals. Take-up exceeded 100,000 sq 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010ft in Q1, down 45% compared with the equivalent period last yearand still 25% below the five year quarterly average for Q1 take-up.The average deal size remains relatively small and there were only Figure 3: Prime Rents and Rental Growthseven deals greater than 5,000 sq ft in the quarter. Activity was % £psf Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS)driven primarily by the services sector which accounted for 64% of 20.0% 35total take-up. 15.0% 30 10.0% 25Supply in Birmingham city centre remained relatively stable 5.0% 20 0.0%compared with the previous quarter. No speculative completions 15 -5.0%are scheduled for this year and as a result even modest levels of 10 -10.0%take-up will absorb supply. Availability of Grade A supply remains 5 -15.0%relatively healthy, but given occupier preference for Grade A Space -20.0% 0we expect this to gradually decline. Looking ahead there is just 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010129,000 sq ft due to complete speculatively over 2012-13. As aresult, occupiers seeking larger units of Grade A space may have toconsider preletting options. Figure 4: Prime YieldsPrime rents increased slightly, up 1.8%, to £28.50 per sq ft in the 8.0% %first quarter. This was driven by demand for arguably the bestquality space in Birmingham, which is more limited in supply. 7.0%Incentives remain generous at around 36 months based on a 10 6.0%year term. The rest of the market is still competing hard foroccupiers with the gap between prime and secondary widening 5.0%further. 4.0% 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11Just one investment transaction completed in Q1: Capital Trustpurchased The Stock Exchange from Stoford for £7.95 million, Prime Yields 10 Year Av erage 20 Year Av eragereflecting a net initial yield of 6.40%. Prime yields have stabilised at6.00%, but with upward pressure. Source all Charts: Jones Lang LaSalle
Pulse • UK National Voice • Q1 2011 5Leeds Change* 12 Month Figure 5: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 800 Take-up 5 Year Av erage Take-up (000s sq ft) 36.8 -54.5% -56.5 % 700 Supply (000s sq ft) 1,342 7.7 % -2.6% 600 500 Vacancy Rate (%) 10.8 % 70 bps -30bps 400 Prime Rent (£ psf) £26.00 0.0 % 0.0 % 300 200 U/C (000s sq ft) 38.0 -51.3% -5.1 % 100 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) £433 0.0 % 0.0 % Investment Vol. (£m) £14.4 160 % -79.1% Figure 6: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.00 % 0 bps 0 bps 160 Supply (LHS) Vacancy Rate (RHS) 14% 140 12%* % Change for Prime Rents, Investment Volumes and Capital Values calculated 120using local currency 10% 100 8% 80 6% 60Market Overview 4% 40Office supply increased 8% over the first quarter, pushing overall 20 2%vacancy rates up to 10.8% and 5.8% for Grade A space. Despite 0 0%this, there is very little space in the development pipeline. Just 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201038,000 sq ft of space remains under construction speculatively, withno further speculative starts anticipated this year. As result weexpect supply to fall gradually over the coming year. The most Figure 7: Prime Rents and Rental Growthsignificant risk to this is the potential for the Public sector to release % £psfspace back onto the market. However, we have not yet seen any 16.0% Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS) 30dramatic changes with the public sector still trying to utilise their 14.0% 25 12.0%existing space. 10.0% 20 8.0%Despite an increase in the number of enquiries, take-up was 6.0% 15disappointing with just 36,670 sq ft let during the first quarter. Take- 4.0% 10up was down 57% compared with the equivalent period last year 2.0% 5 0.0%and remains 66% below the five year quarterly average. The -2.0% 0majority of activity was generated by deals of less than 2,000 sq ft, 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010with only two deals greater than 5,000 sq ft. Occupiers remaincautious with the majority continuing to assess the impact of thecurrent economic conditions on their business. As a consequenceactivity remains driven largely by lease events and market churn. Figure 8: Prime Yields % 8.0%Prime rents were stable at £26.00 per sq ft. Incentives remainstable but generous with around 30 months rent free achievable on 7.0%a 10 year term. Rents for Grade B space remain under greaterpressure with landlords continuing to price competitively in order to 6.0%attract tenants. 5.0%The investment market remained fairly subdued over the first 4.0%quarter. Just £14.4 million was traded this quarter across one deal. 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11Prime yields were stable at 6.00%. Prime Yield 10 Year Av erage 20 Year Av erage Source all Charts: Jones Lang LaSalle
Pulse • UK National Voice • Q1 2011 6Manchester Change* 12 Month Figure 9: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 1,400 Take-up 5 Year Av erage Take-up (000s sq ft) 134.7 -59.4% -28.7 % 1,200 Supply (000s sq ft) 2,555 8.5 % -5.1 % 1,000 Vacancy Rate (%) 11.9 % 100bps -80 bps 800 600 Prime Rent (£ psf) £28.50 0.0 % 1.8 % 400 U/C (000s sq ft) 0 0.0 % n/a 200 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) £475 0.0 % -2.5 % Investment Vol. (£m) £22.8 n/a -92.0% Figure 10: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.00 % 0 bps 25 bps 300 Supply (LHS) Vacancy Rate (RHS) 14% 250 12%* % Change for Prime Rents, Investment Volumes and Capital Values calculatedusing local currency 200 10% 8% 150 6%Market Overview 100 4% 50Take-up volumes were disappointing over the first quarter of 2011, 2%with less than 135,000 sq ft let, 29% below the equivalent period last 0 0%year and 41% below the five year quarterly average. The largest 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010deal was to The London School of Business & Finance who took25,100 sq ft at Linley House, Dickinson Street. The majority oftransactions were for deals of less than 2,500 sq ft with the average Figure 11: Prime Rents and Rental Growthdeal size falling from around 5,500 sq ft to just 3,300 sq ft. Activity % £psfwas generated by a variety of sectors, however the majority came 14.0% Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS) 35from the Services & Professional Services sectors which together 12.0% 30accounted for over half of Q1 take-up. 10.0% 8.0% 25 6.0% 20There were no new completions within the City centre in Q1. 4.0%Nevertheless, overall supply increased 8% driven by the release of 2.0% 15second hand space. Overall vacancy rates currently stand at 0.0% 10 -2.0%11.9%, slightly above the five year average of 11.1%. Grade A -4.0% 5supply remains much more constrained at just 2.4%, compared with -6.0% 0a five year average of 1.9%. Looking ahead the development 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010pipeline remains constrained with nothing under constructionspeculatively. Around 150,000 sq ft is expected to startspeculatively this year, however, delivery is not expected before Figure 12: Prime Yields2013. Consequently, we expect supply for Grade A space willcontinue to decline over the coming year. 8.0% %Prime rents remained stable over the first quarter at £28.50 per sq 7.0%ft. Incentives were also stable at around 30 months rent freeachievable on a 10 year term. While occupiers were still being 6.0%driven primarily by cost and not quality there was continuedevidence of tenants acting opportunistically to take advantage of 5.0%market conditions to secure good quality space on tenant favourableterms. As a result 86% of take-up in the final quarter was comprised 4.0% 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11of new or refurbished units. Prime Yield 10 Year Av erage 20 Year Av erageJust one investment transaction took place over the first quarter. Source all Charts: Jones Lang LaSalleHimor Group purchased Ship Canal House for £22.8 million,reflecting a net initial yield of 6.70%. Prime yields remainedunchanged at 6.00%.
Pulse • UK National Voice • Q1 2011 7Western Corridor Change* 12 Month Figure 13: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 9,000 Take-up 5 Year Av erage Take-up (000s sq ft) 393.1 -4.3% 48.4 % 8,000 Supply (000s sq ft) 12,516 2.7 % -3.9 % 7,000 6,000 Vacancy Rate (%) 14.6 % 40 bps -50 bps 5,000 4,000 Prime Rent (£ psf) £26.00 0.8 % 2.2 % 3,000 2,000 U/C (000s sq ft) 131.6 77.1 % -30.6 % 1,000 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) £400 0.8 % 2.0 % Investment Vol. (£m) £111.7 53.2 % 9.2 % Figure 14: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.50 % 0 bps 0 bps 1,200 Supply (LHS) Vacancy Rate (RHS) 16% 14%* % Change for Prime Rents, Investment Volumes and Capital Values calculated 1,000 12%using local currency 800 10% 600 8% 6%Market Overview 400 4% 200Over 393,000 sq ft of office space was let in Q1, an increase of 48% 2%year on year and broadly in line with the previous quarter. Despite 0 0%clear improvement, take-up fell short of the 10 year average, down 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201036%. Activity remains driven by lease events rather than any singlegrowth sector. Occupiers continued to favour Grade A space, withmany taking of the opportunity to upgrade. Grade A take-up Figure 15: Prime Rents and Rental Growthaccounted for nearly two thirds of the total compared with an % £psfaverage of nearer half. 15.0% Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS) 35 10.0% 30Overall supply increased slightly reflecting a vacancy rate of 14.6%. 25 5.0%This was driven by an increase in the level of Grade B supply. In 20contrast, Grade A vacancy rates remained stable at 6.0%. Just 0.0% 15130,000 sq ft of office space is under construction speculatively, -5.0% 10none of which is due to complete this year. Developers and -10.0%investors are becoming aware of this historically low level of stock 5replacement and there are signs of a development market re- -15.0% 0emerging. As the level of Grade A supply reduces further we will 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010see more pre-lets. Conversely, we expect further influxes of GradeB space which could drive interest in the conversion of secondarystock to alternative uses such as residential, as supported by Figure 16: Prime Yieldsannouncements made in the Chancellor’s recent Budget. 8.0%Across the Western Corridor market, rents increased 0.8% over the 7.0%quarter driven by Windsor and Chiswick. Incentives were alsostable at up to 30 months rent free on a 10-year lease in the 6.0%Thames Valley and 24 months in West London. We anticipateannual growth of 3.6% taking average prime rents to around £28.42 5.0%by the end of this year. 4.0% 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11Investment activity picked up in Q1 with £111.7 million traded, Thames Valley Prime Yield TV 10 Year Av eragereflecting an increase of 9% compared with Q1 2009. UK investors West London Prime Yield WL 10 Year Av eragewere net buyers of £31.1 million, while UK institutions were the Source all Charts: Jones Lang LaSalleprimary vendors, selling £42.1 million. Prime yields were stable at6.50% in both West London and the Thames Valley.
Pulse • UK National Voice • Q1 2011 8Edinburgh Change* 12 Month Figure 17: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 1,400 Take-up 5 Year Av erage Take-up (000s sq ft) 149.1 -33.8% -18.5% 1,200 Supply (000s sq ft) 1,738 -3.4 % -14.3 % 1,000 Vacancy Rate (%) 7.3 % -20 bps -120bps 800 600 Prime Rent (£ psf) £27.50 -1.8 % -1.8 % 400 U/C (000s sq ft) 190.0 0.0 % n/a 200 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) £458 0.0 % -1.9 % Investment Vol. (£m) £11.1 -57.2 % -69.0 % Figure 18: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.00 % 0 bps 0 bps 250 Supply (LHS) Vacancy Rate (RHS) 10% 9%* % Change for Prime Rents, Investment Volumes and Capital Values calculated 200 8%using local currency 7% 150 6% 5% 100 4%Market Overview 3% 50 2%In terms of occupier take-up, activity was down compared with the 1%previous quarter. Occupier take-up in Q1 reached around 150,000 0 0%sq ft, down -33.8% compared with Q4 2010 and -18.5% compared 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010with the same period in 2010. The majority of transactions weresmall, with around 80% of deals in units of less than 5,000 sq ft.Despite the drop in take-up there remains a good level of enquiries Figure 19: Prime Rents and Rental Growthwithin the market. While we expect to see increased activity in the % £psf Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS)second half of the year, growth will remain limited with deals driven 25.0% 30largely by lease events. 20.0% 29 29 15.0%Supply continued to decline gradually over Q1. Overall vacancy 10.0% 28 28rates fell to 7.3%, driven largely by declining Grade B space. The 5.0% 27Grade A market remains constrained however, with vacancy rates 0.0% 27stable at just 3.5%. Speculative development remains turned off, -5.0% 26with just one scheme currently under construction speculatively, due -10.0% 26to complete in 2013. We therefore predict supply will continue to 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010decline as existing space is gradually absorbed. Developers arebeginning to position themselves strategically to take advantage ofthe impending shortage of Grade A supply and the anticipatedincrease in lease events expected in the next 2-3 years. Figure 20: Prime Yields % 8.0%Prime rents remained stable at £27.50 per sq ft. Incentives werealso stable with between 32-36 months achievable on a 10 year 7.0%term. Despite the impending supply shortages, overall demandremains fairly weak. While rents are forecast to remain stable 6.0%throughout 2011, there is a slight downside risk to this scenario 5.0%depending on the speed with which demand recovers. 4.0%Investment volumes picked up slightly in Q1, with volumes totalling 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11£11.1 million. Volumes were up 35% compared with the previous Prime Yield 10 Year Av erage 20 Year Av eragequarter. Prime yields remained stable at 6.00% and are expected toremain flat for the remainder of 2011. Source all Charts: Jones Lang LaSalle
Pulse • UK National Voice • Q1 2011 9Glasgow Change* 12 Month Figure 21: Take-up Summary Statistics Q1 11 Q-o-Q Y-o-Y Outlook 000s sq ft 900 Take-up 5 Year Av erage Take-up (000s sq ft) 91.1 -32.9% 3.7 % 800 Supply (000s sq ft) 1,683 3.4 % 12.4 % 700 600 Vacancy Rate (%) 10.5 % 30 bps 110 bps 500 400 Prime Rent (£ psf) £27.00 1.9 % 3.8 % 300 200 U/C (000s sq ft) 0 n/a n/a 100 0 Change* 12 Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 11 Q-o-Q Y-o-Y Outlook Cap. Value (£ psf) £450 1.9 % -0.5 % Investment Vol. (£m) £17.6 -55.4 % -52.1 % Figure 22: Supply and Vacancy Rates 000s sq ft % Prime Yield (%) 6.00 % 0 bps 25 bps 160 Supply (LHS) Vacancy Rate (RHS) 12% 140* % Change for Prime Rents, Investment Volumes and Capital Values calculated 10% 120using local currency 8% 100 80 6% 60Market Overview 4% 40 2%The addition of some Grade B space pushed overall supply up 20slightly over the first quarter of the year. Conversely, the squeeze 0 0%on Grade A supply continued with Grade A vacancy rates falling to 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20103.2%. The development pipeline remains switched off with nospace under construction in the City centre and no speculative startsanticipated in the coming year. As a result we expect the gradual Figure 23: Prime Rents and Rental Growtherosion of Grade A supply to continue. In contrast there is still a % £psfsignificant amount of Grade B space which is expected to remain 20.0% Rental Grow th (Y-o-Y) (RHS) Prime Rent (LHS) 30inflated over 2011. 15.0% 25Unsurprisingly, take-up fell in comparison to the previously strong 10.0% 20fourth quarter, which was boosted by the 57,000 sq ft deal to 5.0% 15Scottish and Southern Energy. There were no deals over 40,000 sq 0.0% 10ft, with the average deal size falling to around 4,100 sq ft. Despitethis, Q1 take-up improved in comparison to the equivalent period -5.0% 5last year, up by 3.7%. Notable deals included the 34,000 sq ft deal -10.0% 0to Mercer at George Square and the acquisition by Ernst & Young of 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201011,600 sq ft at Pacific House. Activity was driven primarily by theServices sector which accounted for 60% of activity. The level ofnew enquiries was down slightly over the first quarter. While we do Figure 24: Prime Yieldsnot expect to see a significant bounceback in demand, we doanticipate an increasing number of new enquiries over the coming 8.0% %year. 7.0%Prime rents increased 1.9% to £27.00 per sq ft with incentivesremaining high at between 24-30 months on a 10 year term. We 6.0%expect this to increase further over the course of the year, driven bythe gradual decline of Grade A space. In contrast the Grade B 5.0%market remains competitive with landlords competing for occupiers. 4.0% 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11The investment market remained relatively quiet over the firstquarter with £17.6 million transacted across two deals. Prime yields Prime Yield 10 Year Av erage 20 Year Av erageremained stable at 6.0%. We do not anticipate any further Source all Charts: Jones Lang LaSallemovement in prime yields over the remainder of the year.
Pulse • UK National Voice • Q1 2011 10DefinitionsTake-upFloorspace acquired for occupation by lease, prelease, freehold or long leasehold sale. All deals are included with the exception of WesternCorridor, where a 500 sq m threshold is applied.SupplyFloorspace on the market and available for occupation. It includes space that is under offer.Under ConstructionSpeculative development of new building or substantial refurbishment where construction activity is ongoing.Prime RentThe Jones Lang LaSalle view of the highest rent achievable for a hypothetical 10,000 sq ft unit of Grade A space in a prime location, withoutany adjustment for incentives.Business SectorsBroad business sectors are classified as:Banking & Finance: Banks and other financial institutionsProfessional Services: Accountants, legal, management consultants etcService Industries: Advertising and PR, broadcasting, internet services, printing and publishing, software houses and data processing,telecommunications services, transport, retail, leisure etcManufacturing Industries: Pharmaceuticals, computer hardware, electronics, construction, mining, engineering, food and drink etcPublic Administration & Institutions: Central and local government, institutions, charities, quangos, health and social etc
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