gloal offic

8/12/2019 Gloal Offic

1/14

CB RICHARD ELLIS

www.cbre.com/research

Global Research and Consulting

Q1 2011

2011, CB Richard Ellis, Inc

Global Ofce

OVERVIEW

Global Ofce Rental Recovery

According to CB Richard Ellis Global Ofce Rent Index, all regions experienced year-over

year increases in their rents in Q1 2011, with the global index increasing by a healthy

4.3%, up from its previous year-over-year increase of 2.4% in Q4 2010. While global and

regional rents have not returned to pre-Great Recession levels, such news provides hope

to property owners that just endured seven quarters of consecutive Index declines.

Overall Global Economy

The global economy is recovering; however, its future has some ominous risks. The

European sovereign debt crisis continues, and the budgetary and labor market chal-lenges in the U.S. also

provide reason to be cau-

tious. Meanwhile, the Asia

Pacic region continues to

struggle with ination, while

Australia, New Zealand and

Japan must begin recover-

ing from their devastating

natural disasters.

Regional Performance

The Americas Ofce Rent

Index experienced a year-

over-year deceleration from

where it stood last year at

-8.2% to -0.4% year over

year this quarter. Such a

modest improvement is understandable, considering the high vacancy and unemploymen

rates prevailing in many markets.

Ofce rents across the EMEA region continue to post modest growth, constrained by a

tenuous economic recovery and continued concerns about the future impact of austerity

measures in several countries. The CB Richard Ellis Global Ofce Rent Index for the EMEA

region rose by 0.8% in the rst quarter of this year, producing a year-over-year increase o

2.6%. Both gures are almost identical to those recorded in the previous quarter.

The Asia Pacic Index continues to impress, with a year-over-year increase of 11.3% in

Q1. This region experienced a severe decline for seven quarters from Q4 2008 to Q2

2010 during the global nancial crisis with year-over-year declines measuring as large as

-25.2% during Q3 2009.

Quick Stats

Vacancy Rates

Q1 2011Change from

Last Year

US 16.4%

Asia 10.3%

EMEA 9.2%

CBRE Ofce Rent Index

Y-o-Y% Change Q1 2011Change from

Last Year

Americas -0.4%*

Asia Pacifc 11.3%

EMEA 2.6%

*For the Americas, the CBRE Ofce Rent IndexY-o-Y % Change was -8.2% for Q1 2010,hence the upward direction arrow.

Hot Topics

Despite headwinds, the CB Richard

Ellis Global Ofce Rent Index

increased this quarter 4.3% year

over year.

Expect gradual improvements in

rents and global ofce fundamentals

in the quarters to come.

Figure 1: CB Richard Ellis GlobalOfce Rent Index

GlobalAmericas

Asia PacifcEMEA

Y-o-Y % Change

Source: CB Richard Ellis

-30

-20

-10

0

10

20

30

40

Q102

Q104

Q308

Q107

Q103

Q305

Q310

Q109

Q302

Q304

Q309

Q108

Q303

Q307

Q106

Q306

Q105

Q111

Q110


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GLOBAL RESEARCH AND CONSULTING

Page 2

2011, CB Richard Ellis, Inc.

GLOBAL OFFICE DEVELOPMENT AND

CONSTRUCTION

Ofce rents reect the interaction between the demand

for space and its supply. Rents are starting to reect the

positive news about local economies. At the same time,

supply trends are reecting the regional disparities we

have already cited. The development of new ofce space

is trending downward in EMEA and the Americaswith

the latter dominated by U.S. activitywhile new supply

is growing rapidly in Asia Pacic.

In Figure 2, we show that the supply of new ofce spacein Asia Pacic will set a record of nearly 9% growth, and

has been above 5% for many years. By contrast, the

growth of stock for EMEA and the Americas is trending

lowerand running well under 1% in North America.

Asia Pacic

Asia and the Pacic region have adopted markedly dif-

ferent approaches towards new development projects,

a trend that has understandably resulted in divergent

development patterns, including the view on preleasing.

In Asia, developers commence construction of new

projects before launching pre-lease campaigns. Many

projects are often situated in government-planned de-

velopment zones, such as the Lujiazui Central Business

District (CBD) in Shanghai. Pre-commitments in emerg-

ing markets are few and far between, as developers

often reserve the option to sell off ofce oors for capital

gains. This stands in great contrast to the Pacic region,

where banks typically require a high level of pre-com-

mitments as a loan covenant to project nancing.

Ofce completions in the Pacic are currently experienc-

ing a lean period following subdued pre-leasing activity

in 2009 in the aftermath of the global nancial crisis.

Approximately 3.3 million sq. ft. of new space is due to

be completed in CBD markets in 2011, the majority of

which have pre-leases in place. In Asia, however, many

markets will face the possibility of oversupply. As a

result, the delivery of several projects in the pipeline

has been delayed to avoid excess competition for

tenants. The quantum of ofce completions in Asia

Pacic scheduled for 2011 has therefore been revised

downward from 64 million sq. ft. to 55 million sq. ft.,with Asia accounting for 95% of the new space.

Even after taking into account possible delays in proj-

ect delivery, the amount of ofce space slated to come

on stream in Asia Pacic in 2011 is substantial. This is

not, however, a uniform trend across the entire region.

Shanghai, Guangzhou, Singapore and Seoul are in

the midst of a commercial development upswing in

their city centers, while Kuala Lumpur, Hanoi and Ho

Chi Minh City are also seeing the addition of substan-tial new supply in prime districts. India, Mumbai and

Delhi NCR continue to suffer from oversupply in select

non-CBD areas. The supply pressure in these markets is

expected to offset the effects of growing expansionary

demand, either limiting or, in some cases, balancing

out rental growth.

New supply in Beijing, Hong Kong and Taipei will

remain limited, encouraging landlords to raise asking

rents. Pacic markets maintain a controlled hold onfuture development projects, with most new schemes in

the pipeline pre-committed. This delivery of new prime

space will be a detriment to secondary locations, with

the volume of vacant lower-quality accommodation

likely to increase over the year as companies relocate

to new premises. This could result in secondary stock

being taken off the market for refurbishment, a trend

Figure 2: Regional Development CompletionsNorth America

EMEAAsia Pacifc

Completions as % of Total Stock

Source: CB Richard Ellis, CBRE Econometric Advisors

10

9

5

7

3

1

8

4

6

2

0

2002

2005

2009

2003

2007

2011

2006

2010

2004

2008

2012


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that is anticipated to happen in Canberra and Sydney

in 2011. This is not the case in Perth, where secondary

space will be absorbed by the anticipated increase in

demand from expanding companies.

EMEA

With development nance still very restricted, there is

little pick-up in new ofce construction in EMEA, even

in markets with strong value growth. There are a few

exceptionsnotably in

London and Warsaw, where

new starts showed signs of

picking up in Q1but even

these are not solely driven

by conventional forms of

development nance, with

many involving signicant

contributions of overseas equity. Such overseas contri-

butions have arisen in this region due to the relative

shortage of high-yield properties. Furthermore, the

preponderance of these contributions has been driven

by the fact that this vehicle of capital possesses high

levels of liquidity.

The general pattern of development activity across the

major European markets shows a drop of more than

20% in expected 2011 completions compared with last

year. Completions are set to rise in 2012 in a small group

of cities, including London, Warsaw, Hamburg, Vienna,

Milan and Stockholm, but in general, the pattern is one

of little change compared with 2011. Indeed, there are

several markets, including Paris, Berlin, Brussels and

Amsterdam, where a further signicant drop in comple-

tion levels is likely.

The resultant squeeze on new supply in core districts

is likely to produce growing interest in refurbishment

activity, and further pre-lets, as pressure grows from

corporations faced with a reduced choice of new build-

ings. A rise in the incidence of pre-lets is, in turn, likely

to make viable certain developments that would not be

started on a purely speculative basis.

North America

New ofce construction in the U.S. remains restrained

due to high vacancy rates, high shadow vacancy, lack of

construction nancing, and the fact that rents are low and

not at replacement rent levels. Such shadow vacant

space is preventing any new absorption in this phase of

the ofce cycle. Even has rms add to their payrolls, they

will ll their shadow space rst prior to signing leases

for new space. Ofce projects in core downtowns typi-

cally take three to ve years

to develop, from the plan-

ning stage through building

completion. Developers are

not inclined to start a new

project until the space is at

least 70% pre-leased, unlessof course a developer opts to use his own capital. With

vacancy rates over 15% in some markets, correspond-

ing rental rates have not moved to a level that would

justify the costs associated with new projects. Therefore,

new ofce construction will remain lowand well below

historic trendsin most markets until the economy sig-

nicantly improves.

GLOBAL RENTAL CYCLE AND PERFORMANCE

SUMMARY

The U.S. ofce market had the highest vacancy rate, of

16.4%, relative to Asia and EMEA; however, the vacancy

rate is expected to continue on a gradual downward path

as the U.S. economy and job market improve further.

Even more dramatic is the story in Asia, where vacancy

has experienced a sharp decline of more than 300 basis

points (bps), from 13.5% in Q4 2009 to 10.3% in Q1

2011. This strong vacancy recovery has been attributed

to robust absorption. The EMEA region has experienced

the least-volatile and lowest vacancy, which dropped 10

bps in Q1 to 9.2%. However, this rate is still above its

trough of 6.9% in Q2 2008, demonstrating that the cur-

rent market remains soft in the aftermath of the global

nancial crisis and in the midst of the sovereign debt

crisis.

The U.S. ofce market had the high-est vacancy rate, of 16.4%. However,the vacancy rate is expected to con-tinue on a gradual downward path asthe U.S. economy and job marketimprove further.


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Asia continues to exhibit strong net absorption rates,

as occupiers were active in absorbing space in China,

India and Singapore in Q1. China alone accounted

for more than half of the additional demand for ofce

space recorded during the period in Asia. The trend

towards expansion and consolidation is shifting some

activities to new business nodes in markets that have

low capacity to satisfy such requirements in traditional

CBDs, such as Hong Kong, Brisbane and Melbourne.

Net absorption rates in the U.S. and EMEA have

bounced along the same path, though it is clear that

the U.S. experienced a more substantial decline in its

net absorption rate during the global nancial crisis.

Most recently, the U.S.s net absorption rate of 0.2% was

only slightly higher (by 20 bps) this quarter than it was

last year, demonstrating many corporations continued

caution when making the decision to expand, relocate

and hire.

Completion rates in the U.S. remain at the lowest level

globally, while strong economic and demand growth in

Asia have fueled the development of property through-

out that region. However, many parts of Asia are

anticipating the possibility of oversupply in the coming

quarters, and some pipeline projects have been delayed

as a result.

In the U.S., historically high vacancy rates of 16.4%,

as well as low demand and rental trends, have made

for very low completion rates for the previous several

quarters, as well as for the near future. For EMEA, the

scale of developments over the next two years as a

proportion of current stock tends to be highest in central

Eastern Europe, particularly in the smaller markets such

as Zagreb, Soa and Bratislava. Development activity

in these marketssome of it in marginal locations and

much of it sponsored by local developershas not beenconstricted to the same extent as elsewhere in Europe.

Figure 4: Global Ofce PerformanceComparison: Net Absorption Rate

AsiaUS

EMEA

Net Absorption as % of Occupied Stock

Source: CBRE Econometric Advisors Summer 2011 Outlook, CB Richard Ellis

Note: the Asia series has been calculated from the quarterly data using a 4-quartermoving average.

-1.0

-1.5

-2.0

3.5

3.0

2.5

2.01.5

1.0

0.5

0.0

-0.5

Q101

Q301

Q103

Q303

Q107

Q307

Q105

Q305

Q109

Q309

Q111

Q104

Q304

Q108

Q308

Q106

Q306

Q102

Q302

Q110

Q310

Figure 5: Global Ofce PerformanceComparison: Completions Rate

Completions as % of Total Stock

Source: CBRE Econometric Advisors Summer 2011 Outlook, CB Richard Ellis

Note: the Asia series has been calculated from the quarterly data using a 4-quartermoving average.

0.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Q201

Q401

Q203

Q403

Q207

Q407

Q205

Q405

Q209

Q409

Q211

Q204

Q404

Q208

Q408

Q206

Q406

Q202

Q402

Q210

Q410

AsiaUS

EMEA

Figure 3: Global Ofce PerformanceComparison: Vacancy Rates

AsiaUS

EMEA

Vacancy Rate, %

Note: The EMEA markets covered are the same as those listed in Figure 10.Source: CBRE Econometric Advisors Summer 2011 Outlook, CB Richard Ellis

4

2

0

18

16

14

12

10

8

6

Q101

Q301

Q103

Q303

Q107

Q307

Q105

Q305

Q109

Q309

Q111

Q104

Q304

Q108

Q308

Q106

Q306

Q102

Q302

Q110

Q310


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The global rental cycle results for Q1 2011 reect

that the global ofce recovery is nally gaining trac-

tion. Figure 6 shows accelerating rental growth for the

majority of the selected markets rental cycles. Markets

such as Singapore, Hong Kong, Shanghai, London

West End and New York led the way with rental and

demand growth. And, another very promising sign is

the absence of select markets in the accelerating rental

decline category. Markets such as Madrid, Chicago, Los

Angeles and the Washington, D.C. metro area are well

positioned for growth, with their rental declines slow-

ing. Once their economies undergo a more substantial

recovery, these markets are set to experience rental

growth in the future.

AMERICAS

Chicago

The Chicago CBD showed signs of continued market

stability during Q1 2011. Net absorption was positive

for the third consecutive quarter at 145,773 sq. ft., and

direct vacancy decreased another 10 bps to 14.9%.

Average gross weighted rental rates once again expe-

rienced a slight increase, to $31.72 per sq. ft. Asking

rents for Class A space experienced the largest increase,

of 1.9% to $37.95 per sq. ft. It is anticipated the CBD

market will follow its current trend with possible moder-

ate improvement in vacancy rates and asking rents over

the year.

Los Angeles

Overall market fundamentals are still a bit soft in Los

Angeles. The market is projected to experience a slow

rebound as the economy continues to strengthen. During

the past few months, jobless claims have decreased,

consumer condence has strengthened and overall

employment levels have grown. The general feeling is

that the commercial real estate industry is moving past

the bottom of the cycle, but the speed with which the

economy is improving is slow and inconsistent.

Although total vacancy increased 70 bps over the past

12 months to 17.8%, the market experienced a quar-

terly drop of 30 bps compared to the end of 2010.

The quarterly decrease in vacancy followed a series of

15-straight quarterly increases, indicating that the mar-

ket recovery period may be right around the corner. As

a result, net absorption during Q1 2011 totaled more

than positive 472,000 sq. ft. in Greater Los Angeles;

most of the activity has come from small to mid-size

companies.

Given the elevated level of vacancy in the market,

landlords continue to compete for tenants by offering

concessions and exible lease terms. The leasing mar-

ket is expected to begin to stabilize by the end of 2011,

leading to modest rent improvements in 2012.

Figure 6: Global Ofce Market Rent Cycles, Q1 2011

Rental Decline Accelerating Rental Growth AcceleratingRental Decline Slowing

Los Angeles

Chicago

London West EndAuckland

MadridSydney

Paris

London City

New York

Hong Kong

Shanghai

Washington, DC

Singapore

Mexico City

Tokyo

TorontoFrankfurt

Rental Growth Slowing

Markets do not necessarily move along the curve in the same direction or at thesame speed. The rental cycle is intended to display the trend in net effective rents.


Figure 7: Americas Ofce Market Rent Cycles, Q1 2011


Santiago

Atlanta

CharlotteDenver Lima

Mexico City

Orlando

Toronto

Dallas

Vancouver

Washington, DC

Austin

Panama City

San Diego

Chicago

Los Angeles

Houston

Buenos Aires

Ft. LauderdaleMiamiPhoenixSeattle

Edmonton

So Paulo

Rio de Janeiro




Orange County

Northern New Jersey

San Francisco

New York

Boston

Calgary


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Mexico City

The asking lease rate for class A+/A buildings increased

slightly from the previous quarter, from US$23.06 to

US$23.59 per sq. m. per month as of the end of Q1

2011. Market activity for sublet space continues to trend

downward. Low demand and a large supply of new

space at competitive prices have meant progressively

fewer deals in these types of spaces. As of quarters

end, the submarkets that posted the highest average

lease rates were Reforma Centro, at US$27.84 per sq.

m. per month, Lomas Palmas, at US$27.40 per sq.

m. per month, and Polanco, at US$26.80 per sq. m.

per month. Conversely, the lowest asking rents were

recorded in the Perinorte and Interlomas submarkets,

nishing the quarter at US$16.50 per sq. m. per month

and US$19.40 per sq. m. per month, respectively.

New York

The average asking rent in Manhattan ticked up 3.3%

quarter over quarter to $49.93 per sq. ft. per annum.

This is the fourth consecutive quarter in which the overall

asking rent has increased

incrementally. Leasing

activity in Q1 was slightly

down, at 6.2 million sq. ft.,

compared to 6.9 million sq. ft. at the end of Q4 2010. Itis important to note that historically, Q4 is the strongest

quarter in terms of velocity. Both Midtown and Midtown

South experienced quarterly leasing well above the ve-

year quarterly average, though Downtown experienced

leasing below the ve-year quarterly average. Vacancy

rates decreased 30 bps, from 8.6% in Q4 2010 to 8.3%

in Q1 2011. The availability rate decreased quarter

over quarter from 12.6% to 12.4%.

TorontoAlthough vacancy and rents in the suburban markets

have only now started to solidify with some suburban

submarkets remaining largely stagnant, the Toronto

CBD experienced rental growth in some pockets cou-

pled with a 60-bps point drop in vacancy in Q1 to 6.3%.

Notably, the net effective rents in premier Class A towers

have almost returned to pre-recession levels, up almost

$10 per sq. ft. year over year. There continues to be a

few large blocks of vacant space expected to come to

market throughout 2011, which will temper rental rate

growth and raise vacancy rates in the CBD to match the

overall conditions present in the Greater Toronto Area.

Washington, DC

After an historic take-up of space in 2010, the market

saw the vacancy rate increase to over 10.0% at the end

of Q1 2011 after reaching single digits for the rst time

in 21 months. Despite this occurrence, fundamentals re-

mained strong as the amount of space in leases signed

during Q1 2011 increased from the previous quarter.

Tenants took advantage of market conditions before

rental rates increase and concession packages are

scaled down, continuing a ight to quality trend.

However, the gains during the rst quarter in the Class A

and trophy markets were offset by tenants leaving Class

B space. This followed

similar trends over the

past two years. The overall

direct asking rental rate for

Q1 2011 was $51.02 per sq. ft. on a full-service basis,

down from the rates last quarter and one year ago. This

was a direct result of the additional Class B space that

came on the market.

U.S. Regional Ofce Summary

The U.S. economic recovery continues its slow but

steady pace. Its progress has been moderated by ex-

ternal forces such as the turmoil and uncertainty in the

Middle East and dampened consumer sentiment, as

well as spending brought on by elevated energy and

food prices. GDP rose a lackluster 1.8% in Q1 2011,

signaling that the recovery remains modest. However,

ofce-using jobs rose by 0.9% in Q1. This demonstrates

that although job growth has been positive thus far

in 2011, there remains great room for improvement,

The U.S. economic recovery continues itsslow but steady pace.


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considering only 1.3 million of the nearly 8 million jobs

lost during the recession were recovered in 2010.

The U.S. ofce recovery has been better than the overall

U.S. economic recovery. Vacancy dropped 10 bps to

16.4%, which is the lowest its been since Q3 2009,

yet still 400 bps above its pre-recession low of 12.4%.

This was the third consecutive quarterly decline in ofce

vacancy rates and the rst occasion in which downtown

submarkets outperformed suburban markets. The

downtown vacancy rate fell 10 bps to 13.2%, and the

suburban vacancy rate remained unchanged at 18.2%.

Net absorption decreased slightly in Q1 2011; however,

the outlook is cautiously bright. A continued recovery in

space demand will require corresponding improvements

in employment growth, which was subdued in 2010.

On the bright side, corporate prots have experienced

considerable growth thanks to strong productivity gains.

Such gains were largely attributed to lean corporate

employment structures that prevailed in the months

following the Great Recessions layoffs and hiring

freezes. Such productivity gains provide good reason

for optimism, considering that corporations will at some

point be forced to begin hiring in order to maintain such

productivity in the face of rising demand and solid bal-

ance sheets. Last month, 216,000 jobs were addeda

promising gain, considering the drag that federal

and state budget cuts have imposed on such growth.

Thanks to an optimistic outlook for the manufacturing

and service sectors, this pace of job-growth recovery

is expected to continue at approximately 200,000 jobs

added per month. Once a greater share of the lost

jobs are recouped, vacancy rates will experience more

substantial recovery, net absorption will improve in re-

sponse to increased demand, sq.-ft.-per-worker levels

will fall, and ofce completions will once again return to

more normal levels. Until then, the outlook for the U.S.

ofce market is moderate, but hopeful.

Latin America

Latin America is more stable and stronger than it was

10 years ago; as a result, its countries were not as nega-

tively affected by nancial crisis as were the U.S. and

the European Union. Therefore, the region recovered

more rapidly and efciently. Latin Americas regional

economic growth for 2010 was 5.2%, with 6% growth

projected for 2011.

Continuing the trend from 2009, major class A/A+

ofce developments came to the market in 2010 and

sometimes exceeded local demand, resulting in the

addition of more than 1 million sq. m. to the regions

inventory. The vacancy rate has remained mostly at,

with a slight increase from 7.5% in 2009 to 7.7% in

2010. Demand for space has been mainly from local

and regional companies, as these rms continue to

benet from the growing regional economies. Average

asking rents increased signicantly in local currencies,

especially in Sao Paulo, Santiago and Panama.

EMEA

The main EMEA ofce markets are split between those

where prime rents are at or approaching the bottom

of the cycle and those where rents have seen some

measure of recovery. The rst group includes Frankfurt,

Amsterdam, Milan and Prague, none of which saw any

change in prime rent levels this quarter. Few markets

are still seeing absolute decline in prime rent levels,

and for most of those that areincluding Madrid,

Barcelona and Lisbonthe pace of decline has eased

Figure 8: U.S. PerformanceCompletions

Net AbsorptionVacancy Rate

Net Absorption & Completions, SF x 1,000 Vacancy Rate, %

Data for the US represents the CBRE Econometric Advisors Ofce Sum of Markets.Source: CBRE Econometric Advisors Summer 2011 Outlook.

30,000 18

16

14

12

10

8

6

2

4

0

10,000

20,000

0

-10,000

-20,000

-30,000

Q105

Q107

Q307

Q111

Q305

Q109

Q309

Q112

Q108

Q308

Q311

Q106

Q306

Q110

Q310

Q312


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considerably. The clear exception is Athens, where rents

are falling sharply in a weakening economy.

Among cities where rents are rising, some, includ-

ing London, Paris and Stockholm, had been growing

through much of 2010 as a result of stronger regional

economic growth and/or diminishing supply, and in

some cases may be entering a period of slower growth.

Others, such as Munich, Berlin and Geneva, saw little

if any growth last year and are only now starting to see

positive rental momentum as their economies improve.

In many markets, occupiers are exhibiting a growing

preference for higher-quality space, which has often be-

come cheaper, in absolute terms, during the downturn.

This polarity is producing disparate patterns in terms of

rental performance, vacancy and tenant choice between

prime and secondary space. In many of the stronger

markets such as London and Stockholm, impending

shortages of prime space in CBDs will push prime rents

upward in these areas, even in the context of higher

vacancy of poorer space in peripheral areas.

This is not the case in all markets, however. In some of

the weaker markets in southern Europe, such as Madrid,

tenants remain acutely price-sensitive and more likely to

consider secondary space in decentralized areas, which

results in less pressure on core prime rents.

Frankfurt

Take-up stood at 80,400 sq. m. in Q1 2011, comfortably

ahead of the corresponding gure in the rst quarter of

last year. Unlike other recent quarters when the share

of owner-occupier transactions was relatively high, this

result was achieved solely through letting activity. The

largest letting was that of DB Schenker (11,800 sq. m.)

in the Airport submarket.

Despite a small reduction, vacancy remains high at

over 17%. As a result, while the demand for quality of-

ce space in the CBD remains high, prime rents have

remained stable at 38.00 per sq. m. per month. It is

expected that overall demand in 2011 will be similar to

that of 2010. On the supply side, completions so far this

year have been low and concentrated mainly in periph-

eral submarkets. Furthermore, ofce completions over

the next three years are expected to run at historically

low levels. The resultant shortage of high-quality space

in core locations should produce some upward pressure

on rents in the short to medium term.

London West End

West End take-up remained on trend at 1 million sq. ft.

in Q1 2011, marking the sixth consecutive quarter in

which transactions were at, or above, the long-term av-

erage. This brought transactions in the past 12 months

to 4.5 million sq. ft., which is substantially stronger than

the average of 4.1 million sq. ft. per annum. As was the

case throughout 2010, Q1 saw continued strength of

demand for newly completed space. The level of space

under offer also increased considerably over the quarter

to 1.2 million sq. ft.

The volume of vacant space fell sharply this quarter and,

overall, supply has almost halved since the mid-2009

peak, pushing the vacancy rate down to approximately

4%. Development levels are exceptionally low and will

underpin further contraction in supply over the short

term.

The benchmark prime rent in the West End core rose

from 87.50 per sq. ft. at the end of 2010 to 92.50 per

Figure 9: EMEA Ofce Market Rent Cycles, Q1 2011


Athens

Madrid

Dublin

Barcelona

Bucharest




Milan

Lisbon

Edinburgh

Amsterdam

Geneva

Munich

Budapest

Prague

Frankfurt

Copenhagen

Rotterdam

Hamburg

Warsaw

Zurich

Brussels

Moscow

DusseldorfOslo

Helsinki

Vienna

Manchester

Berlin

Rome London City

Paris

BirminghamLondon West End

Stockholm


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Page 9


sq ft. at the end of Q1 2011. There was also resumed

recompression of rent-free periods, which fell to 16 to

18 months in the core and 18 to 22 months elsewhere.

London City

Given the exceptionally strong levels of leasing recorded

in 2010, a slowdown in demand was expected, and the

984,700 sq. ft. recorded in Q1 2011 marked the lowest

level of take-up since 2009. The reduction was largely

attributable to more limited pre-letting activity.

Despite the slower take-up, availability continued to fall

and is now nearly 33% lower than at the peak. There

was a slight rise in the amount of secondhand supply,

while new space fell by 7%. Overall, the vacancy rate

remained stable at 6.8%

With demand softening, rental growth stalled during Q1

as prime City rents remained stable at 55.00 per sq. ft.

However, with completion levels expected to dip further

in 2012, rents are expected to resume growth later in

the year, although the pace of growth is likely to moder-

ate compared with last year. Development completion

rates are then expected to

rise above 3 million sq.

ft. in 2013 and again in

2014. A large number of

refurbishments are behind

the rise in completion levels in 2013, while three tower

buildings make up the bulk of completions in 2014.

Madrid

The Madrid market remains subdued, and companies

are still fairly hesitant to make real estate decisions. The

majority of corporate relocations stem from a desire to

reduce costs, which often produces a net reduction in

the volume of space occupied. As a result, gross take-up

in Q1, at 76,000 sq. m., was 18% lower than during the

previous quarter and also signicantly lower than in the

same quarter last year. The overall vacancy rate has re-

mained above 12%, and there are no immediate signs

of a reduction in coming quarters, despite a very limited

pipeline of new completions. Prime rents continued to

fall in Q1, by 1.9% to 318.00 per sq. m. per annum,

and rising incentives are preventing even sharper drops

in nominal asking rents. Although the supply pipeline is

limited, the continuing weakness of demand is likely to

produce further rental reductions.

Paris

Occupier interest in Paris nally steadied in Q1 2011,

having mostly weakened throughout 2010. Overall

take-up rose by 15% compared with Q4 2010, boosted

by a 70,000-sq.-m. landmark transaction to Thals in

the Gennevillers area. Activity is also becoming more

evenly spread among the different size brackets, al-

though transactions of more than 5,000 sq. m. remain

limited. Cost cutting is still a key driver of activity, es-

pecially for large companies, although some SMEs are

actually growing and need more space, especially in the

IT, consultancy and marketing sectors.

The vacancy rate edged up slightly to 7% in Q1, partly

due to new completions during the quarter. While in

some parts of the market occupiers will still have a de-

gree of choice of premises,

the scarcity of new space

will become more and

more of an issue. Indeed,

prime rents rose by 3.75% in Q1 (10.5% year over year)

to 830.00 per sq. m. per annum. Further upward

pricing pressure is expected in areas likely to see more

contraction in supply; elsewhere, rents are expected to

remain stable.

EMEA Regional Ofce Summary

After a strong bounce-back in 2010, ofce take-up in

EMEA was subdued in the rst quarter. Gross leasing

activity in the main European cities totaled 2.4 million

sq. m. in Q1, down by over 20% compared to the pre-

vious quarter. Although this is partly due to seasonal

effects, take-up was also 14% lower compared with

the same quarter last year, with London, Brussels and

Moscow registering substantial year-over-year declines.

After a strong bounce-back in 2010,ofce take-up in EMEA was subdued

in the rst quarter.


10/14


Page 10


This partially reects the legacy of a sharp spike in activ-

ity towards the tail-end of last year, but it also indicates

continuing caution on the part of some corporations.

In contrast, other ofce markets such as Warsaw,

Milan, Dublin and Frankfurt showed an improvement

in take-up compared with last year. Even here, it re-

mains the case that, while volumes are modest, activity

is still heavily inuenced by the incidence and timing

of large one-off deals. For instance, the largest letting

in Frankfurt was 11,800 sq. m., to DB Schenker in the

Airport submarket, which accounted for nearly 15% of

the markets quarterly velocity.

A more positive sign for rental growth is that overall sup-

ply appears to be peaking, and is trending downward in

some of the more signicant markets. Having increased

steadily since the end of 2007, vacancy levels dipped in

the Q1 2011. Vacancy is falling sharply in London, is

stable in Paris and has just begun to fall in Frankfurt with

the prospect of further declines during the remainder of

the year. A number of other markets including Dublin,

Copenhagen and Brussels are also seeing drops in

vacancy. As a general result, as completions dry up and

occupiers continue to upgrade and consolidate into new

premises, vacancy is increasingly concentrated in older

or poorly located buildings. This is further accentuating

the polarization of rents between prime and secondary

stock.

Only a small number of cities, including Lisbon, Madrid

and Barcelona, are likely to see further rises throughout

2011, due to a combination of higher development and

weak demand prospects.

ASIA PACIFIC

The majority of the markets in Asia Pacic are on an

upward trend in their rental cycle on the back of ex-pansionary demand and/or consolidation activities to

improve efciency, led by cities in Greater China and

Singapore. While the downward cycle in Tokyo that has

lasted for 13 quarters was previously expected to come

to an end, the quarter recorded a 1.6% quarter-over-

quarter decline in Tokyos ofce rentals as business

sentiment weakened following the Japan earthquake. In

the Pacic, rental growth in Sydney and Adelaide began

to gather momentum as landlords reduced incentives

and demand began to outweigh supply.

Sydney

The Sydney CBD ofce market is continuing along the

early stage of its rental recovery, albeit not yet at the full

momentum that was expected for 2011. As employment

continues to grow, leasing enquiries and transactions

Figure 10: EMEA PerformanceCompletions


Net Absorption & Completions, SQ M x 1,000 Vacancy Rate, %

Note: Based on Amsterdam, Barcelona, Berlin, Brussels, Copenhagen, Dublin,Frankfurt, London City, London West End, Madrid, Munich, Paris, Prague, Vienna,Warsaw and Zurich.Source: CB Richard Ellis

1,400

600

800

0

1,000

1,200

200

400

-400

-200

10

9

8

7

65

4

3

2

1

0

Q105

Q107

Q307

Q111

Q305

Q109

Q309

Q112

Q108

Q308

Q311

Q106

Q306

Q110

Q310

Q312

Figure 11: Asia Pacic OfceMarket Rent Cycles, Q1 2011


Seoul

HCM City

Tokyo

HanoiBangkok

ManilaAuckland

Wellington


Markets do not necessarily move along the curve in the same d irection or at thesame speed. The rental cycle is intended to display the trend in net effective rents.


Kuala Lumpur

Canberra

Adelaide

Taipei

New Delhi

Hong Kong

Shanghai

GuangzhouBangalore

Beijing

Sydney

Brisbane

Singapore

Perth

Melbourne

Mumbai


11/14


Page 11


have picked up in recent months, resulting in a reduc-

tion in landlord incentives and a resumption of prime

net face rental growth. While the quarters 0.9% growth

was somewhat moderate, it represents a trend that is

expected to continue during 2011, as the level of over-

all vacancy in the prime CBD market contracts further.

Indeed, as the majority of new developments due to

be completed in 2011 have pre-commitments in place

and the level of sublease

accommodation available

on the market continues

to contract, further rental

growth throughout the

prime CBD markets seems

likely. That said, such

trends may be stalled if the backll space vacated bythe tenants moving to new schemes is not removed from

the market for refurbishment, as is expected to occur.

Tokyo

In Tokyo, while the early months of 2011 saw an in-

creased number of inquiries and robust tenant activity

on the back of the more optimistic economic outlook,

businesses were largely interrupted after the Japan

earthquake on March 11. The economic destruction of

the tragedy is expected to be conned to Japan andwill not drag on the global economic recovery, and the

shock to the Tokyo leasing market was observed to be

less severe than the situation experienced at the time

of the Lehman Brothers failure. While the impact of the

earthquake and tsunami disaster has not fully unfolded,

the quarter recorded a 1.6% decline in Tokyos ofce

rentals and a slight increase in vacancy, to 5.1%. Grade

A buildings in Tokyo did not suffer signicant damage,

thanks to their sophisticated quake-resistant design.

Although suspensions of development projects have yet

to be announced, some delay in ofce completion is

likely, given issues procuring building materials in the

aftermath of the earthquake.

The earthquake and the radiation crisis have prompt-

ed companies to re-think their real estate plans.

Energy-generating capacity for Tokyo substantially

declined due to the crippling of the Fukushima power

plant, and the city may face power cuts in the summer

when energy usage for air conditioning surges. Thus,

companies are looking for ways to relocate to core

areas, including Chiyoda, Chuo and Minato Wards,

where planned blackouts are least likely. There is a

distinct preference for Grade A buildings built on non-

reclaimed land with high

earthquake resistance,

disaster-prevention capa-

bilities and minimal chance

of liquefaction. Also, some

tenants are considering

relocating parts of their

operations out of Tokyo city to the Kansai region, par-ticularly the Osaka-Kobe-Kyoto metropolitan area. Due

to the dimmer economic environment, it is unlikely we

will see companies pursuing any plans for expansion

in the coming quarter. Demand for Tokyo ofce space

will therefore be driven largely by relocation and ight-

to-quality activity to Grade A buildings at currently low

rental levels.

Hong Kong

In Q1 2011, rental appreciation in Hong Kong acceler-ated to 8.4% from 6.6% in the previous quarter, despite

the fact that occupiers have started to resist the high

rents. There has been a slowdown in activity in Central

in recent months, possibly due to the high level of rents,

whereas tenants were more interested in space in the pe-

ripheral areas of Central as rents were more affordable.

Landlords in the decentralized Kowloon East submarket

were notably more optimistic about rental escalation,

particularly those on full-oor space with harbor views,

as availability of such space was very limited in other

submarkets. On the back of the rapid upswing in rent-

als, some tenants took cautious steps when expanding

by relocating part of their operations to low-cost build-

ings, while some opted to move their premises across

the harbor to Kowloon. New supply in 2011 will amount

to approximately 1.3 million sq. ft., but this amount is

In Q1 2011, rental appreciationin Hong Kong accelerated to 8.4%from 6.6% in the previous quarter, de-spite the fact that occupiers have startedto resist the high rents.


12/14


Page 12


not expected to be sufcient to accommodate the strong

corporate demand in the city. Ofce rents are expected

to remain on an upward trend and vacancy will tighten

further from the already-low level of 5.6% as of the end

of Q1 2011.

Singapore

After the sharp upward market adjustments of 2010,

the Singapore ofce market gained stability in Q1 2011

as occupiers digested the signicant expansion space

taken up last year. Although ofce rents continued to

trend upward, the pace of rental hike has moderated

to 3.6% quarter over quarter versus 12.2% in the last

quarter, in line with the less-frenetic pace of leasing.

Approximately 7 million sq. ft. of ofce space is targeted

for completion between Q2 2011 and 2015. Some

developers have rescheduled their projects so that the

project launches over the next few years will be more

evenly spread. Forecast completion for 2012 has been

lowered from 2.1 million sq. ft. to 1.4 million sq. ft.

There will be a higher volume of secondary space com-

ing onto the market in late 2011 and into 2012, when

major occupiers relocate to new premises, principally at

Marina Bay. It is likely that older buildings will under-

perform against the Grade A segment, given the sheer

volume of new Grade A space.

Asia Pacic Regional Ofce Summary

Corporate expansion remained the major demand

driver for prime ofce space in Asia Pacic during Q1

2011, with occupiers particularly active in absorbing

space in the leading cities of China and India, as well

as in Singapore. Asia Pacic was hit by a series of natu-

ral disasters in Q1 2011, including the Christchurch

earthquake and Queensland oods, as well as the

Japan earthquake and tsunami and subsequent radia-

tion leakages. Despite these devastating events, robust

export demand and domestic consumption continued

to fuel regional economic growth during the period.

However, growth is expected to moderate to a certain

extent in future quarters as the full impact of these di-

sasters begins to lter through to the regional economy.

Business condence across most of the region remained

strong in Q1 with companies actively looking to hire

new staff, particularly in Singapore, India, Australia and

Greater China. The upward pressure on prime rents

across the region continued to gather momentum during

the quarter. The CB Richard Ellis Asia Pacic Ofce Rent

Index gained 3.0% during the period, a gure slightly

lower than the 3.6% recorded in Q4 2010. Cities in

Greater China and Singapore led growth in terms of

both rental appreciation and expansionary demand.

Business in Tokyo was hit by the Japan earthquake andtsunami, with a number of occupiers suspending reloca-

tion plans. While the full impact of the disaster on the

ofce market and wider economy is still emerging, ofce

rents recorded a decline of 1.6% quarter over quarter.

The bulk of demand came from tenants looking to

secure ofce space with larger oor plates. Vacancy re-

mained on a downward trend with almost all markets in

Asia recording a decline during the review period. The

overall vacancy rate for the 16 Asian markets tracked bythe CB Richard Ellis Global Ofce Rent Index declined

by 90 bps quarter over quarter to 10.3% as of the end

of Q1.

Ofce construction in the Pacic is limited following re-

strained pre-leasing activity in 2009. In contrast, many

parts of Asia are anticipating the possibility of oversupply

Figure 12: Asia PerformanceCompletions


Net Absorption & Completions, SF x 1,000 Vacancy Rate, %

Note: The rst quarter 2011 numbers are ex Pacic.Source: CB Richard Ellis

14,000 16

14

12

10

8

6

4

2

0

12,000

10,000

8,000

4,000

6,000

2,000

0

Q105

Q109

Q309

Q110

Q305

Q106

Q306

Q310

Q107

Q307

Q108

Q308

Q111


13/14


Page 13


in future quarters, with several pipeline projects opting

to delay their completion. In Tokyo, the delay in some

ofce completions is due to issues procuring building

materials following the disaster. Meanwhile, new supply

in Beijing, Hong Kong and Taipei will remain limited, a

trend that will encourage landlords to raise asking rents.

SUMMARY

Despite headwinds, this quarter, the CB Richard Ellis

Global Ofce Rent Index increased markedly by

4.3%, year over year. This increase was undoubtedly

welcomed by property owners, as it was not too long

ago that the same index went on a freefall for seven

consecutive quarters (Q1 2009 through Q3 2010),

reaching year-over-year declines as large as -15.5%

during Q3 2009. While we cant promise a speedy

recovery, we can assure that better days are ahead,

barring a serious tail event.

The global ofce recovery continues despite several

moderating forces, including the European sovereign

debt crisis, high unemployment rates and budget bal-

ancing in the U.S., and ination concerns and natural

disasters in Asia Pacic. Global oil prices, notwith-

standing the current pause, continue to be an area

of distress for all regions. The increases in commodity

costs further hinder consumer spending, consumer

sentiment, and company balance sheets and hiring.

On a regional basis, the CB Richard Ellis Americas

Ofce Rent Index came in at the end of Q1 2011 at

-0.4%, yet this is still higher than the index was Q1

2010. It is anticipated that Q2 2011 will catapult the

Americas Rent Index into its rst positive value in nine

quarters. EMEAs Ofce Rent Index recorded a 2.6%

year-over-year increase. This modest increase reects

tenant caution and more modest absorption rates in

the face of the current European sovereign debt crisis.

On the other hand, the ever-impressive Asia Pacic

region weighed in this quarter with an 11.3% year-

over-year increase in its Index.

From the performance of the CB Richard Ellis Global

Ofce Rent Index, it is clear that global demand is

gradually improving. The other factor of the rental

equation is, of course, supply. Development comple-

tions for the U.S. are anticipated to remain historically

low due to the prevalence of high vacancy rates and

low rents. Rents are just too low to justify new projects

in the U.S. The story is similar in EMEA, with the main

determinants being low rents and cautious demand,

all circulating around concerns of the future of the

Eurozone and the European sovereign debt crisis.

The development patterns in Asia Pacic, on the otherhand, are quite divergent. Asia is feeling a bit bloated

with its supply, and in many regions fears of oversup-

ply have temporarily halted the progress of several

pipeline projects. Meanwhile, in the Pacic, ofce

completions have been experiencing a lean period

following subdued pre-leasing activity in 2009.

Despite the commotion occurring throughout the

economies, global ofce fundamentals as a whole

recorded solid gains in Q1, indicating that we canexpect gradual improvement in the quarters to

come. However, patience is going to be the name

of the game for the remainder of 2011. The global

economy, as well as the major regional economies,

still have several obstacles to overcome. We are not

anticipating that the global recovery is going to be

derailed while confronting such challenges, but it is

important to keep a close watch on the European

sovereign debt crisis and the U.S. labor market recov-

ery and budgetary rebalancing, as well as monitor

inations reaction to the rising commodities costs in

the Asia Pacic region.


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Page 14

CB RICHARD ELLIS GLOBAL RESEARCH AND CONSULTING

This report was prepared by the Global Team, which forms part of CB Richard Ellis Global Research and

Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market

research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

For more information regarding this MarketView, please contact:Abigail PitznerEconomist, Global Research and Consulting+617 912 5263

[email protected]

The CB Richard Ellis Global Research and Consulting team would like to acknowledge Ada Choi and Suzanne Barrett

for their contributions to this report.

For more information regarding global research activity, please contact:

Disclaimer 2011 CB Richard EllisInformation contained herein, including projections, has been obtained from sources believed to be reliable. Whilewe do not doubt its accuracy, we have not veried it and make no guarantee, warranty or representat ion about it. It isyour responsibility to conrm independently its accuracy and completeness. This information is presented exclusively for

Nick Axford, Ph.D

Head of Research, Asia Pacic andSenior Managing Director, Global Research+852 2820 [email protected]

Peter DamesickEMEA Chief Economist+44 20 7182 [email protected]

Asieh Mansour, Ph.D

Head of Research, Americas andSenior Managing Director, Global Research+415 772 [email protected]

Raymond Torto, Ph.D., CREGlobal Chief Economist andExecutive Managing Director, Global Research+617 912 [email protected]

gloal offic

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