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Research

2010

GLOBAL REAL ESTATE MARKETS Annual review & outlook

Highlights • At the start of 2009, nearly every global office market was in the midst of a period of weak occupier demand, falling rents and rising vacancy rates.

As the year progressed, however, there was a divergence in the fortunes of the major global markets, as some showed early signs of recovery, while others continued to suffer. By the end of the year, prime office rents had begun to move upwards in Hong Kong, stabilised in the West End of London, and continued on a downward trend in New York.

• Commercial property investment volumes were significantly down on 2008 levels, though a general improvement in sentiment led to an uptick in activity towards the end of 2009 in most regions of the world.

• A continued recovery in occupier and investment activity can be anticipated during 2010, however there are mixed prospects for global markets. The fragility of the economies of Spain and Dubai, for example, clouds the outlook for their property markets.

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

Contents

2

Europe

3

The Americas

9

Middle East

17

Africa

19

Asia-Pacific

21

Global office rents

24

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London

EUROPE

The European economy began 2009 in very bad shape, with the Eurozone contracting by 2.4% in the first quarter of the year.

Since then, Europe has been on a gradual but faltering path to recovery. Germany and France both began to grow in Q2, while countries including Italy, Belgium and the Netherlands followed suit in Q3. Others have lagged behind; the UK only came out of recession in Q4, while Spain continued to contract. Overall, the Eurozone is estimated to have contracted by 4.1% in 2009, while UK GDP fell by 4.9%.

Europe should continue to pull away from recession in 2010, but growth is likely to remain relatively muted, with the IMF forecasting an expansion of 1.0% for the Eurozone. While inventory restocking was key to the recovery in 2009, this will be a less important factor in 2010 and continued growth momentum may depend on improvements in domestic demand and the availability of bank lending. Constraints to growth may come from high unemployment and a likely shift in government policies away from fiscal and monetary stimulus towards deficit reduction.

Across Europe, occupational market conditions were balanced firmly in the favour of tenants in 2009. With demand weak and vacancy rates rising, landlords have had to offer reduced rents and significantly increased incentives in order to attract and

retain occupiers. Tenants have been able to reduce costs and rationalise their use of space through measures such as lease renegotiations and the subletting of space.

Prime office rents fell in nearly every major European market, with some particularly sharp drops in the first half of the year, but the pace of rental decline generally slowed as the year progressed and rents now appear to have stabilised in many cities.

European investment markets started to recover ahead of occupational markets.

Market activity ground almost to a halt during Q1 2009, but since then investor confidence and transaction volumes have improved, gathering momentum in the second half of the year. The revival in activity was primarily led by core markets, notably London and Paris, with investors attracted by the opportunity to purchase prime properties

3

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

in 2010. Overall, take-up in Central London was down on 2008 by around 23%, though activity improved as the year progressed.

Take-up in the City was actually up on the previous year, as it benefitted from an upswing in financial markets in the second half of 2009.

Paris

in these locations at historically low prices.

Securing income has been key to most investors’ strategies, and as a result their attention has been focused very selectively on prime assets providing long-term income and let to strong covenants.

quarters of 2009, to reach £65 per sq ft per annum in the West End and £42.50 per sq ft in the City. In both submarkets, rents dropped by more than a third since the end of 2007.

However, in Q4 West End rents stabilised, while City rents ticked upwards as landlords recovered some of the over-correction that occurred earlier in the year. Strong rental growth is now anticipated in both submarkets

Prime office rents in the Central London market continued to fall during the first three

Investor interest in Central London improved markedly following an exceptionally low level of activity in Q1. The huge correction in prices, with capital values in the City falling by about 50% between Q2 2007 and Q2 2009, combined with the weakness of the Pound, made the pricing of London offices particularly attractive to overseas investors.

However, with investors concentrating their demand on prime assets, and with owners reluctant to sell at the bottom of the market, investment product has been in very short supply. With demand outstripping supply, prime yields hardened; having peaked earlier in the year at 6.00% in the West End and 6.75% in the City, they ended 2009 at 5.00% and 6.00%, respectively.

UK retail market conditions remained challenging in 2009, though retail sales volumes did prove quite resilient. A number of UK retailers have gone out of business, but others have been able to ride the difficult economic circumstances by offloading poorly

Figure 1

European office vacancy rates % 25 20 15 10

Q4 2008 Source: Knight Frank Research

4

Q4 2009

Warsaw

Prague

Paris

Munich

Moscow

Milan

Madrid

London

Frankfurt

Dublin

0

Brussels

5

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Prime office rents are expected to stabilise in Paris during 2010, while strong growth is forecast in the Central London market

performing outlets, reducing staff numbers and adjusting their supply chains. Retail rents have come under pressure, with average high street rents falling by 7.4% over the twelve months to December according to IPD. Demand for space in the prime pitches of Greater London and affluent regional towns has remained much stronger than in secondary and tertiary markets, many of which now suffer from high vacancies.

Take-up in the Paris office market in 2009 came to 1.8 million sq m, about 25% down of the previous year, with Q4 proving to be clearly the strongest quarter of the year.

Prime office rents fell by around 15% over the course of the year, but are expected to stabilise in 2010. The vacancy rate has been creeping upwards, ending the year at 7.1%, and while there is no prospect of serious oversupply, pockets of new modern office supply have been emerging in suburban districts such as Montreuil and Saint-Denis, providing increased competition to the more established central office areas.

The take-up of retail space in France has slowed, and retailers have sought to concentrate their activities in prime low-risk locations. However, the prime Paris market stands somewhat apart from the rest of France due to its status as a global centre for tourism and luxury retailing, and key locations such the Champs-Élysées, rue

Frankfurt

Saint-Honoré and Avenue Montaigne have remained in demand from high-end retailers, helping to keep prime rents in these streets stable during 2009.

Investment activity in Paris picked up in the second half of the year, with increased numbers of foreign investors, including German funds, renewing their interest in the market. Approximately €2.5 billion was invested in Ile de France in Q4; almost as much as the previous three quarters combined. As in London, interest has been focused on the prime end of the market and supply is restricted, causing prime yields to compress towards the end of the year.

The key German office markets have recorded relatively modest falls in prime rents compared with most of western Europe, with rents in Munich and Frankfurt, for example, falling by 5-10% during 2009. Annual take-up in these two cities was down by approximately 35% and 20%, respectively, compared with 2008. Given its dependence on banking and financial occupiers, the Frankfurt market has proved more resilient to the effects of the global financial crisis than might have been expected. Rents now appear to be stabilising in Frankfurt, and there is relatively little new supply expected to be delivered in 2009, which should restrict growth in the vacancy rate.

Though the main German investment markets saw smaller pricing corrections than London or Paris, there has been interest in these markets, primarily from equity-rich domestic investors. Properties in the centre of Munich have remained in demand from wealthy private investors, and yields in this market were fairly stable throughout the year.

The Brussels office market is suffering from oversupply. Several new office projects delivered in 2009 failed to find tenants and competition for occupiers will increase with the delivery of new projects in 2010. In light of this, the rental outlook for offices is likely to remain weak. Demand for logistics properties has also been low, though supply looks likely to tighten in 2010 as developers have put new schemes on hold and are reluctant to build space speculatively, which could push logistics rents up moderately.

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2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

The Brussels investment market saw limited activity in 2009, with only a handful of major transactions occurring. However, there have been signs of increased activity, and a number of new investors, including German funds, have confirmed an interest in the market. The gap between yields for primary and secondary properties has widened noticeably; while well-let properties in the CBD generally trade at initial yields between 6-7%, many decentralized properties now struggle to find buyers at yields well above 8%.

In Amsterdam, leasing activity proved slow throughout 2009 and the main feature of the market was the large number of existing tenants renegotiating their lease agreements.

Investment activity in the Netherlands during

Warsaw

2009 was largely confined to relatively small transactions, with very few deals occurring above the €100 million mark. However, greater numbers of foreign investors started

the falls from being as severe as those seen

deals, most notably a RREEF-led consortium’s

in many other western European cities.

€1.15 billion deal for a large portfolio of

With high levels of job losses in Spain,

to return to the market towards the end of

property assets owned by BBVA bank.

demand for office space in Madrid has

In Portugal, the Lisbon office market has

remain sought-after.

been weak, keeping take-up down at levels

seen a slowing of leasing activity and falling

The historical city centres of Milan and

last seen in 1990s. Though there was an

rents. The availability of newly completed

improvement in leasing activity towards the

offices at competitive rents has made it

end of the year, prime rents have continued

increasingly difficult to lease second-hand

accommodation, and there has been some

to fall. The investment market was subdued in

space. A number of new projects in the office

shift of activity towards peripheral markets

2009; while there is demand for prime offices

and retail sectors have been postponed,

able to provide newly built, high quality office

in the Madrid CBD, very little suitable product

though there is some speculative activity in

buildings with good transport links. Though

has been available on the market. A number

the industrial sector, which could push up the

prime rents have weakened, the tightness of

of the biggest investment transactions in

vacancy rate in 2010.

supply in these cities’ CBDs has prevented

Spain during 2009 were sale and leaseback

the year, and prime centrally-located offices

Rome offer limited amounts of modern office

The Dublin market has seen one of Europe’s sharpest rental corrections, with prime office

Figure 2

rents ending 2009 more than 40% below

Prime office rents – annual change, Q4 2008 to Q4 2009

the peak level recorded in 2007. The city’s

%

-35

vacancy rate has reached over 20%, although

-30

-25

-20

*Changes calculated in local currency terms Source: Knight Frank Research

6

-15

-10

-5

0

Dublin London (West End) Kiev Madrid Birmingham Barcelona London (City) Warsaw Paris Stockholm Frankfurt Berlin Munich Lisbon Prague Milan Brussels Amsterdam

much of the empty space is in older buildings in suburban locations. While the rate of rental declines has now slowed, landlords remain under pressure to offer increasingly attractive rents and lease terms.

The major office markets of Central and Eastern Europe all saw rising vacancy rates during 2009 as a result of the completion of new developments commenced during earlier boom years. Vacancy rates in both Budapest and Bucharest have risen sharply and, with considerable space remaining in the pipeline, could increase further in 2010.

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Figure 3

Pan European office prime rents vs vacancy rate indices Rental index

Vacancy rate index

130

250

120

200

110

150

100

100

90

50

80

H2 2001

H1

H2 2002

H1

H2 2003

H1

H2 2004

H1

H2 2005

H1

H2 2006

H1

H2 2007

H1

H2 2008

H1

H2

0

2009

Rental index (LHS) Vacancy rate index (RHS) Indices are based on 15 key European markets, weighted according to size and market maturity (H2 2001=100) Source: Knight Frank Research

Development completions have added to vacancy levels in the markets of the CEE region

The Warsaw and Prague markets appear to be more healthy; while both cities have seen their vacancy rates rise, to 7.9% and 11.9% respectively, their development pipelines for 2010 are relatively small, which should restrict further growth in availability levels.

Many CEE investment markets saw torpid levels of activity during 2009, with almost no major transactions occurring in cities including Budapest and Bucharest. Activity in the Prague market did pick up slightly in the final quarter of the year with the sale of two office properties, the Gemini Building and City

Tower, both for over â‚Ź100 million. The sale of the Gemini Building to Deka underlines the importance of the German funds to CEE markets, and the strength of any recovery in transaction volumes during 2010 may depend on German investors returning to the region in greater numbers.

Further east, a degree of stability has returned to the office markets of Moscow, St Petersburg and Kiev following a turbulent end to 2008 and first half of 2009. Prime rents fell sharply over this period as a result of an abruptly reduced occupier demand

Dublin

7

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

European investment markets should continue to improve throughout 2010, though transaction volumes will remain well short of the levels seen prior to the downturn, with the availability of investment product and bank lending remaining restricted. While investor interest will continue to focus mainly on prime assets in core cities, there are already some signs of a greater risk appetite emerging among investors. This should mean that some activity will filter down to better quality secondary assets, but there is likely to be a continued divergence between prime and secondary values.

Moscow

While occupational market conditions are and large quantities of new space coming to

significant numbers of construction projects

these markets, but the pace of rental declines

has now helped completions to slow to more

slowed in H2 2009. Prime rents in Moscow

sustainable levels.

are now around half the peak levels recorded

likely to remain broadly in the favour of tenants in the short term, occupiers may find that the strength of their negotiating positions with landlords is slowly eroded

Prime warehouse rents in Moscow stabilised

during 2010 as demand for space gradually

by the end of 2009 in the range of US$100-110

improves as the economy recovers.

per sq m per annum. New space has

Development pipelines have been squeezed,

continued to come to the market, though

which may cause supply to tighten in

looking to take advantage of lower rents

the future pipeline is uncertain with many

many markets, expediting a recovery in the

available in prime central areas of the city. In

schemes on hold and a shortage of new

rental cycle. Some office markets are still

all three cities, the office vacancy rate rose

projects being announced. It is possible that

anticipated to see moderate falls in rents in

during 2009 to end the year close to 20%,

a tightening of supply will push rents up in

2010, but others, led by London, look set to

but the cancellation and postponement of

this sector by the end of 2010.

bounce back into recovery mode.

in the middle of 2008, and this has helped to encourage some improvement in demand, with increasing numbers of companies

Figure 4

European prime office yields % 12 10 8 6 4

Q2 2008 Source: Knight Frank Research

8

Q4 2008

Q2 2009

Q4 2009

Warsaw

Stockholm

Prague

Paris

Munich

Moscow

Milan

Madrid

London (West End)

London (City)

Lisbon

Frankfurt

Dublin

Brussels

0

Amsterdam

2

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United States As 2009 began the assault on the systemic financial meltdown of 2008, stiff headwinds were on the horizon for commercial real estate. The implementation of TARP (the Troubled Asset Relief Program), monetary and fiscal policy held the banks afloat and returned stability to the market. The balance between inflation and deflation moved forward precariously as the expansion of the money supply was offset by lower overall demand and increasing unemployment.

In spite of bank lending at an all time low

Negative net absorption in Class A office

since the 1940s, and virtually no CMBS

space accelerated to 559,000 sq ft on the

issuance, the real estate market has raised

year, and average asking rents fell to $21.85

liquidity through REIT, Private Equity and

per sq ft per annum from $23.04 per sq ft in

Closed End Funds at a blistering rate. A

the previous year. Even with the limited need

significant portion of assets remain impaired

for new space, 1.7 million sq ft remained

on a loan to value basis leaving a large

under construction with 2.1 million sq ft of

spread from bid to ask. Ultimately, these

THE AMERICAS

market conditions present the landscape for unique investment and leasing opportunities and a new frontier for the market in 2010.

new space delivered to the market during the year. The unemployment rate in Atlanta ended 2009 at 10.1%, and was as high as 10.6% during the course of the year. This is up

Following four years of positive net

sharply from the unemployment rate of 7.6%

absorption and declining vacancy rates, the

reported at the end of 2008. Robust with

Atlanta market started to weaken in 2008,

an available workforce and newly delivered

and continued its decline throughout 2009.

space, companies looking to relocate to a

New York

9

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

lower cost urban centre have the option in Atlanta to move without worker in hand and lower potential capital expenditure.

The Boston office market remains volatile from its unique CBD/Suburban market profile as the vacancy rate for Class A space increased to 14.0% by the end of 2009, up sharply from 11.2% reported one year ago. The average asking rent declined to $26.17Â per sq ft at the end of 2009 and rents have plummeted 40.1% from the market high of $43.73 per sq ft reached in the beginning of 2001. In 2009, total net absorption was negative as 2.7 million sq ft were returned to the market. New construction was active in Boston as 1.8 million sq ft of Class A office space remained under construction at the end of 2009, although less than 1 million sq ft of new space was delivered to the market during the year. Leasing activity for Class A space in 2009 was the weakest on record going back 11 years. The unemployment rate in Boston reached 8.2% at the end of 2009, a loss of 34,800 jobs, and recovery is anticipated to emerge towards the later part of 2010 with mild improvement in the labour market.

With the economic crisis hitting both manufacturing and service industries, Chicago was in the firing line across both bows. By the end of 2009, the vacancy rate for Class A office space had risen to 19.4%, from 15.6% reported in the prior year, and reached its highest level in four years. The average asking rent declined to $26.40 per sq ft at the end of 2009, a 6.3% drop from $28.19 per sq ft reported one year ago. The Chicago industrial market continued to weaken in 2009 as the vacancy rate rose to 16.2%, its highest level on record since 1996. The overall average asking rent for industrial space declined to $4.30 per sq ft at the end of 2009, down from $4.64 per sq ft at the end of 2008.

Development in Chicago came to a near halt at the end of 2009 with a mere 222,000 sq ft of Class A office space under construction, compared to the high of 10.4 million sq ft in 2000. Only 38,400 sq ft of industrial space was under construction, compared to the peak of 18.4 million sq ft in 1999. In 2009, 4.3Â million sq ft of Class A office space and 3.4 million sq ft of industrial space were delivered to the market, which added to the

already stressed market. The unemployment rate rose to 10.6% at the end of 2009, and had reached 11.3% earlier in the year. The unemployment rate in Chicago had been less than 7% for the past six years, and has been in the 4-6% range for most of the past 15 years. Total nonfarm employment dropped 4.3% in 2009 as 163,200 jobs were lost and the prospect for a quick turnaround is oblique from the significant job loss.

The Dallas market was less impacted in 2009 compared to other major markets across the country. The vacancy rate in Class A office space in Dallas rose to 21.7% at the end of 2009, up from 20.4% reported at the end of 2008. The average asking rent for Class A space declined to $22.79 per sq ft from $23.89 per sq ft one year ago. Average asking rents for Class A space have not fluctuated much in this market, logging consistent numbers in the $20-$24 per sq ft range for the past 13 years. The net absorption total for 2009 in Dallas was positive with the removal of 128,000 sq ft of space from the market.

Leasing activity was down 26.4% compared to 2008. The average asking rent for industrial

Figure 5

Class A office average asking rents $ per sq ft per annum 80 70 60 50 40 30 20

Source: Newmark Knight Frank Research

10

2007

2008

2009

Washington, D.C.

San Francisco

Miami

Manhattan

Los Angeles

Houston

Dallas

Chicago

Boston

0

Atlanta

10

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The Los Angeles market was hit hard by the recession and vacancy rates have risen sharply

Chicago

space in Dallas fell to $3.68 per sq ft at the

the historical peak of $29.29 per sq ft at the

end of 2009, a 1.1% drop from the $3.72 per

end of 2008. The vacancy rate in the Class

sq ft average at the end of 2008. The vacancy

A Houston market finished 2009 at 15.9%,

rate rose slightly, finishing the year at

the highest since the first quarter of 2006.

17.4%, compared to 14.2% one year ago. Net

Despite the economic downturn, more Class

absorption for industrial space was negative

A space was delivered to the market in

on the year as 3.4 million sq ft of space was

2009 than was delivered in 2008. In 2009,

added to the market. The net absorption total

4.9 million sq ft of new space came online,

in 2008 was positive at 3.3 million sq ft.

representing 5.1% of the existing market,

At the end of 2009, 1.5 million sq ft of Class A office space remained under construction in Dallas, compared to 3.2 million sq ft at the end of 2008, and 1.8 million sq ft were added to the inventory on the year. In the industrial market, 1.0 million sq ft of space was under construction at the end of the year, compared to 9.7 million sq ft under construction at the end of 2008, and 9.9 million sq ft of new space was delivered to the market in 2009, a little more than half of the 2008 total. The Dallas market remains well diversified, and with lower economic shocks from oil, gas and technology, the Dallas market should continue with stable performance throughout the next year.

compared to 4.1 million sq ft of space in 2008. Annual total net absorption has not been negative in the Houston Class A market since 2002. Total nonfarm employment in the Houston metropolitan area fell by 3.5% in 2009, a loss of 92,500 jobs. The unemployment rate stood at 8.3% at the end of 2009, and had previously not been above 8.0% since mid-1993. With modest momentum in the oil and commodity markets, Houston should maintain its composure through the balance of the next year.

Aligned with the collapse of the housing market and the mortgage industry, the Los Angeles market was one of the first major markets in the U.S. to suffer the recession, and those negative effects continued

The Houston office market stumbled in 2009,

throughout 2009. Vacancy rates continued

and recovery in 2010 will be mostly driven by

to climb, as the rate for Class A office space

the recovery of the oil and shipping industry

rose to 15.7%, the highest rate since early

as Houston has become predominantly

2004. The fourth quarter of 2009 marked

commodity dependent. The average asking

the eighth consecutive quarter for negative

rent for Class A space in Houston at the end

net absorption in the Los Angeles industrial

of 2009 was $29.00 per sq ft, just below

market and 15.0 million sq ft of space was

11

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

Figure 6

Class A office vacancy rates % 25 20 15 10

2007

2008

Washington, D.C.

San Francisco

Miami

Manhattan

Los Angeles

Houston

Dallas

Chicago

Boston

0

Atlanta

5

2009

Source: Newmark Knight Frank Research

added to the market in 2009. The industrial vacancy rate rose to 5.6% at the end of 2009, up from 4.1% at the end of 2008, while asking rents fell to $6.63 per sq ft, a 10.3% drop from the $7.39 per sq ft average at the end of 2008. Adding to the pressure in the market, development continued to outpace demand in Los Angeles with 2.4 million sq ft of new Class A space delivered to the market in 2009, more than twice the amount

Los Angeles

12

of space delivered in 2008, and 1.2 million sq ft of industrial space was delivered to the market. The deterioration of the market led to a slowdown in construction activity with 1.2 million sq ft of Class A space under construction at the end of 2009, and a mere 27,716 sq ft of industrial space under construction. Total nonfarm employment in the Los Angeles metro area fell 2.9% in 2009 with a loss of 115,300 jobs. Although

the losses were significant, they were not as high as in 2008 when 151,500 jobs were lost. With the international business climate and consumer spending tied together as part of the recovery, overdevelopment in the commercial market and reliance on the housing sector, the recovery outlook for the market in 2010 looks muted.

After eight consecutive quarters of negative net absorption in Manhattan, the fourth quarter of 2009 ended with positive absorption as 550,471 sq ft of space was removed from the Class A market. Despite the uptick in absorption at the end of the year, net absorption in 2009 was negative at 7.2 million sq ft. The average asking rent for Class A space dropped to $50.27 per sq ft at the end of 2009, and is down 32.9% from the market high of $74.91 per sq ft reached in the third quarter of 2008. The Class A vacancy rate jumped to 8.1% and finished the year at its highest level since 2005, while leasing activity was up 6.6% in 2009, and was the highest level of leasing activity to take place since 2003. In 2009, $2.2 billion in sales took place in the New York City office investment market, compared to $13.1 billion in 2008.

Cap rates began to show an increase, rising to 7.6% at the end of the year, compared to the

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The Manhattan office market showed signs of improvement in Q4 2009, recording positive net absorption for the first time since Q3 2007

Miami

5.0% average at the end of 2008, although

was returned to the market, compared to

property values declined 24.7% on the year.

924,496 sq ft of positive absorption in 2008.

Total nonfarm employment in the New York metropolitan division declined 2.0% in 2009,

The unemployment rate in Miami began 2009 at 6.9% and climbed sharply throughout

a loss of 103,500 jobs. The unemployment

the year, and finished the year at 11.3%.

rate has steadily risen to 9.9%, its highest

The highest rate of unemployment in Miami

level since 1993. The prospect for recovery

before 2009 was 8.1% in September 2001.

in Manhattan has been bridged significantly

Overall the Miami market should benefit from

with the support of the financial institutions,

its international appeal and the migration to

and given the continued legislative risk towards the financial sector, a full blown recovery of the Manhattan market may be tepid. In the interim, with construction deliveries on hold, a resurgence of confidence could create short term undersupply conditions in the market.

The Miami office market struggled in 2009 as asking rents declined and vacancy rates climbed to historic highs. Continued development has created significant supply in the market in recent years, and has finally slowed. In 2009, 1.7 million sq ft of new Class A space was delivered to the market compared to 2.8 million sq ft delivered in 2008. At the end of 2009, 2.5 million sq ft of Class A space was still under construction, just less than half of the 2008 level. The vacancy rate reached 20.8% at the end of 2009, higher than the 17.2% rate at the end of 2008 and the highest on record going back ten years. Net absorption was negative in 2009 as 335,305 sq ft of space

San Francisco

13

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

warmer climates as the flow of resettlement from North to South resumes with the recovery of the housing market.

In 2009, the economic collapse marked the worst market downturn in the San Francisco office market since the dot-com bust earlier in the decade. The average asking rent for Class A space in San Francisco fell to $30.11 per sq ft in 2009, an 18.7% drop from 2008, although rents in the volatile San Francisco market have still not fallen to levels seen during the last market downturn five years ago when the average rent fell to the $25 per sq ft range. Development of Class A space has come to a near halt in San Francisco over the last few years. In 2009, only one new building consisting of 157,929 sq ft of new space was delivered to the market. In 2008, 2.4 million sq ft of space was delivered. Leasing activity in 2009 for Class A space in San Francisco showed a mild decrease of 0.6% compared to 2008 and the Class A vacancy rate in San Francisco rose to 14.7% at the end of 2009.

The unemployment rate in the San Francisco metropolitan area finished 2009 at 8.9% and was as high as 9.6% during the year, the highest rate on record going back to 1990. With the lack of new development and a swift bottoming of the market, a modest economic recovery should swing the volatile

San Francisco market upward. The indication for the market recovery should be weighted towards the technology and financial sector influence.

With the high concentration of government related industries, the Washington, D.C. office market seemed impervious to the economic downturn compared to other U.S. markets as stimulus packages and other benefits of a new administration stabilised the market.

Asking rents in Washington, D.C. finished 2009 slightly below 2008 levels with the historical high of the market at $37.98 per sq ft average in the second quarter of 2008.

The vacancy rate for Class A space in the nation’s capital finished 2009 at 17.1%, the highest quarterly rate on record since the market high of 17.5% in the second quarter of 1993. Albeit, annual net absorption has been positive in the market as far as records go back to 1993, and 1.1 million sq ft of space was taken off the market in 2009, following 2.4 million sq ft of positive absorption in 2008. The average cap rate for investment sales in Washington, D.C. increased to 7.5% in the fourth quarter of 2009, higher than the 6.1% average in the fourth quarter of 2008. Sales volume decreased on the year posting $1.2 billion, compared to $2.4 billion in 2008. The unemployment rate in

Washington, DC

the Washington, D.C. metropolitan area finished 2009 at 6.4%, up from 4.9% at the end of 2008. The government industry sector, representing almost 25% of employment in the area, increased by 2.7% in 2009. With the continued growth in the government industry sector and planned government expansion over the next term, Washington remains resilient to market forces.

Figure 7

Industrial average asking rents $ per sq ft per annum 14 12 10 8 6 4

14

2008

San Francisco

Miami

Manhattan 2009

Washington, D.C.

2007 Source: Newmark Knight Frank Research

Los Angeles

Houston

Dallas

Chicago

Boston

0

Atlanta

2

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Montreal

Canada

While office supply remains tight in Vancouver and DOWNTOWN Ottawa, vacancy rates have grown substantially in Montreal, Toronto and Calgary

During the second half of 2008 and the first six months of 2009 the global economic slowdown had the predicted negative impact on corporate real estate markets in Canada.

While a relatively strong banking sector shielded the economy from some of the more severe financial shocks suffered elsewhere in the world, businesses across the country began to cut costs and put growth plans on indefinite hold. Canada’s unemployment rate also climbed sharply, from 6.0% in mid-2008 to 8.7% in August 2009. Additionally, through the first three quarters of 2009 the country’s GDP growth rate contracted by 3.19%. Office vacancies in most of the major cities rose and rental rates levelled off.

By year end, however, the economy began to recover its footing. In January 2010 the unemployment rate had dipped back down to 8.3%, the supply of sublease space in most major cities was shrinking and the Conference Board of Canada was forecasting 2.9% growth through to the end of the year. Rental rates are expected to remain stable in most cities throughout the year and, while a measure of balance has returned to most of the corporate real estate markets, the best opportunities for tenants will be found on a building-bybuilding basis.

Montreal’s Class A vacancy rate jumped from 4.6% to 7.6% in 2009, though it should be noted that a high proportion of the vacant space is located in only a few buildings.

There has been a recent uptick in activity, however, and absorption is expected to pick

up as 2010 progresses. Downtown Ottawa continues to be a very tight market, with overall vacancy rates in the 2.5% range, but the opportunities in the west end of the city are far more abundant, and vacancies in the Kanata area have soared into the 20% range as its fledgling high-tech sector was hard hit by the credit crunch. The Class A vacancy rate in Toronto nearly doubled during the year, but this was attributable to the addition of approximately 3.5 million sq ft of new inventory to the downtown market. In fact, there was positive absorption of roughly 1.5 million sq ft in the city. The new towers are quickly being filled, and most of the empty space in the downtown area is concentrated in a limited number of older buildings. These properties should provide very attractive options for prospective tenants.

Calgary’s market has been very hard hit by the combination of plummeting commodity prices and an influx of new space that was built to address the dramatic supply shortage that existed only a few years ago. Class A occupancy rates were at nearly 100% in 2007, but by the end of this year, with another 2.4 million sq ft of new inventory coming online, the vacancy rate will exceed 10%. Rents have dropped by as much as C$10 per sq ft.

Vancouver, on the other hand, continues to be a landlord’s market, with very few spaces larger than 20,000 sq ft available. At the end of 2009, Class A vacancy rates were in the 3.6% range and there is only a minimal amount of new product coming to the market over the next couple of years.

South America Despite the impact of the 2008 crisis, Brazil’s economy responded relatively well from the second quarter of 2009 onwards.

Companies believed they had a clear path in terms of potential growth for the future with interest rates at the lowest level in 20 years (8.75% average asking), improved currency stabilisation and monetary reserves at their highest level. Industries such as oil and gas, logistics, infrastructure, automotive, construction and consumer goods expanded their operations based on the improved confidence in the market. These conditions

15

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

Figure 8

Industrial vacancy rates % 25 20 15 10

2007

2008

Washington, D.C.

San Francisco

Miami

Manhattan

Los Angeles

Houston

Dallas

Chicago

Boston

0

Atlanta

5

2009

Source: Newmark Knight Frank Research

bode well for São Paulo and Rio de Janeiro, as a significant portion of the country’s GDP is concentrated in these markets.

In São Paulo, Class A buildings represented a stock of 1.66 million sq m distributed among 143 buildings in the city, with a vacancy rate of 11% and average lease rates at approximately R$90 per sq m per month.

This presents a sharp contrast to the previous year’s vacancy rate of 6% and average lease rate of R$75 per sq m per month. It is anticipated that the São Paulo market will see lower vacancy at current lease rates, and capital values will experience a mild increase owing to 2008 projects postponing delivery estimates by at least two years.

In Rio de Janeiro, the Class A market maintains a strong demand with a limited number of current options and few projects forecasted. Areas such as Barra da Tijuca and Downtown are highly concentrated markets.

The stock in 2009 comprised 1.48 million sq m, with a vacancy rate at 2.62% and values from R$76-130 per sq m per month. This contrasts with 2008 figures, when vacancy was 2.06% and lease rates ranged from R$71-120 per sq m per month. The projection

16

for the Rio de Janeiro market in 2010 is that the vacancy rate will remain at a similar level to 2009, and that there will be an increase in lease rates and sale values until new retrofit projects are delivered and new development comes online. This will likely happen with the defined goal of supplying the current and future demand from the oil and gas industries, the 2014 soccer World Cup and the 2016 Olympics.

The economic crisis was felt in Chile last year as the Class A office vacancy rose from 1% to 3%. Many land transactions that were intended for industrial use were delayed due to higher financing costs, although the land price did not fall. The new president, Sebastian Piñera, as a wealthy businessman and economist, provides confidence to the business community, and the outlook of stability and a pro-market government is expected with numerous investments in different areas that have already been announced.

On the other hand, as a centre-right government, there may come some social stress on areas such as the public copper company (Codelco), and the public education

system workers union. Chile remains within the lower risk classification of the region; with its quality of life and strong security attributes putting it in the top tier of countries in Latin America. These characteristics attract a number of international companies to establish regional headquarters in Santiago, although the market may be smaller in scale than others in the region.

For 2010, the Class A office market is expected to return to the lower level vacancy rate of 1.5%, pushing prices to a new high. It is not expected that the delivery of new large Class A buildings will have an impact on the market until Q3 2011, normalising the vacancy rate.

One of the largest earthquakes registered in modern times punished south central Chile on 27th February 2010. Despite the relatively low death count of 452 casualties for an 8.8 Richter scale earthquake, private and public wreckage is valued somewhere near US$30 billion, with over 370,000 houses affected, most which will need to be rebuilt. This could provoke a spike in specialised manual labour salaries and a shortage of some construction materials, which could in turn be reflected in higher costs for developers.

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Two events around the turn of the year symbolised recent trends in Middle Eastern property markets. Firstly, the opening of Dubai’s Burj Khalifa skyscraper in January 2010, by some way the world’s tallest building at 828 metres, marked the culmination of the intense development activity that has been seen in the region over the last decade as cities including Dubai have attempted to establish themselves on the world stage.

However, the second event, the Dubai World debt crisis in late 2009, came as a reminder that much of this development has been founded on troubling levels of debt.

MIDDLE EAST

The strong demand for office space from international financial occupiers which helped to fuel Dubai’s recent construction boom has waned since late 2008, leading to substantial falls in rents. The city-wide vacancy rate reached approximately 40% at the end of 2009 and while the slowdown encouraged many developers to moderate their plans, the city has been left with a large hangover of supply still in the pipeline. Office rents have so far held more firmly in the Dubai International Financial Centre (DIFC) than elsewhere in the CBD, but further rental falls can be expected across the city in 2010.

Abu Dhabi has seen less intensive development activity than Dubai, leaving it with a relatively small stock of prime offices.

Consequently, the vacancy rate has risen by a more modest degree and rental corrections have been less pronounced. However, supply is likely increase in 2010, and rents will come under pressure.

Manama, the capital of Bahrain, saw weakening occupier demand and falling rents in 2009. Though many office projects have been delayed or cancelled, significant amounts of new space remain in the pipeline.

Abu Dhabi

17

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

Dubai

18

Figure 10

Middle East prime office rents

Middle East prime office yields

US$ per sq m per annum

%

1,000

12 11

800

10

600

9 400

8

200

Source: Knight Frank Research

Source: Knight Frank Research

Manama

Abu Dhabi

Dubai

Riyadh

Kuwait City

6

Doha

Riyadh

Manama

Kuwait City

0

7

Doha

which look most clearly set to endure a further period of falling rents and high vacancy rates.

Dubai, in particular, is likely to suffer, with the

Figure 9

Abu Dhabi

Economic conditions across most of the Middle East should improve during 2010, which will help aid a moderate upturn in office demand. However, this is unlikely to be enough to satisfy the excess supply that has emerged in many cities. Among all global regions, it is the markets of the Middle East

IMF now forecasting that the Dubai economy will contract in 2010, and the problems of Dubai World casting a shadow of uncertainty over the emirate’s property markets.

Dubai

The main focus of current demand is the Seef District, built on reclaimed land, which has seen considerable residential and office development, rather than the more established districts of the Diplomatic Area and Central Manama, which suffers from traffic congestion and poor parking access.

There is a continuing trend within the market for converted residential properties, particularly in Seef, to be used as offices.

Though such properties are poorly suited to office uses, they can meet the needs of representative offices requiring only small amounts of space, at an affordable price.

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Cape Town

AfRICA

The slowdown in global trade in 2009 affected Africa, with international demand for its goods and commodities falling, and capital flows into the continent being reduced. Commercial real estate markets have been impacted, with demand from international occupiers falling as companies have looked to downsize and reduce their occupation costs.

The IMF estimate that, having grown at an

Rents have also reached extremely high

average of 6% in the previous five years,

levels in the Lagos market, where there is

African GDP growth in 2009 amounted to

strong demand from international occupiers,

about 1.9%. An acceleration to growth of

a severe lack of good quality office buildings

4.3% is forecast for 2010. South Africa, the

and very low vacancy rates. Even offices that

continent’s largest economy, is thought

would be considered to be poor quality by

to have contracted by 1.8% in 2009. Oil

international standards can command rents

exporters including Angola and Nigeria have

well in excess of prime levels in most major

seen sharp falls in their oil revenues, while

European and North American markets.

Botswana has been particularly badly hit by

In Botswana, the Gaborone market has

collapsing demand for diamonds.

Luanda in Angola commands some of the highest office rents in the world. Prime rents in the CBD currently range from US$140-175 per sq m per month, while they are US$100130 per sq m per month in the alternative location of Luanda Sul, 20 km south of the city centre. Though the city has seen

outperformed that of Francistown over the last year. Occupation rates within Gaborone have remained high, with a steady stream of new developments under construction.

Francistown has suffered badly from a dramatic decrease in mining activity in the local area, and there is currently very limited demand within the market.

considerable development activity in recent

The office markets of Kampala, Uganda, and

years, the supply of good quality office space

Nairobi, Kenya, are both likely to see vacancy

remains very limited and unable to satisfy the

rates grow over the next year. Kampala has

strong demand from the oil sector.

seen development continue at a steady pace,

19

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

The Zimbabwean economy is thought to have grown for the first time in a decade in 2009, and hyperinflation has officially ended. However, the economy remains in a fragile state. With very little investment coming into the country, demand for offices in Harare is low. There is high demand for retail space, though the lack of new stock has caused a rise in unauthorised subletting. The investment market has remained dormant with severe liquidity restrictions persisting.

Figure 11

Africa prime office rents US$ per sq m per annum 2,500 2,000 1,500 1,000

Harare, Zimbabwe

Francistown, Botswana

Nairobi, Kenya

Lilongwe, Malawi

Blantyre, Malawi

Kampala, Uganda

Gaborone, Botswana

Cape Town, South Africa

Johannesburg, South Africa

Lusaka, Zambia

Dar es Salaam, Tanzania

Lagos, Nigeria

0

Luanda, Angola

500

Source: Knight Frank Research

and 60,000 sq m of new space is expected to come to the market by the end of 2010.

However, demand from the banking and telecoms sectors has waned in Kampala as a result of global financial market conditions. In Nairobi, the construction boom which began in 2007 threatens to push the market into oversupply in 2010.

In Malawi, market dynamics are healthier in Lilongwe, the administrative capital, than in Blantyre, the commercial capital. There is currently around 4,000 sq m of vacant office space in Blantyre and there is limited development activity aside from owner occupation projects. In Lilongwe, rents have been pushed upwards by a shortage of space, and construction activity has been discouraged by a local town planning directive that buildings should be a minimum of seven storeys high.

schemes also incorporating residential and retail space. Occupier demand has been adversely affected by the global financial crisis, with occupiers decreasing their space requirements or negotiating rent reductions.

Vacancy rates in key South African office markets such as Sandton (Johannesburg) and Cape Town have been increasing, with the availability of grade B and C space rising most sharply. Rental growth has slowed and landlords have come under increased pressure to offer increased incentives in order to attract or retain tenants.

The office vacancy rate in Lusaka, Zambia, remains low and there are few buildings offering space built to the high quality specifications demanded by tenants. Space coming to the market tends to be quickly filled; for example, recent new construction in the area behind Arcades Shopping Centre was predominantly pre-leased.

New office supply in Dar es Salaam, Tanzania, has largely come from mixed used

20

Nairobi

African retail markets have continued to develop, with shopping centres under construction across the continent.

Completions during 2009 included the Oasis Mall in Kampala and the T-Mall in Nairobi.

The success of the Palms Shopping Mall at Lekki Peninsula, Lagos, a 40,000 sq m centre opened in 2006, has encouraged further activity in Nigeria, with expansion plans already in place for the Palms centre and new malls in the pipeline for other locations across the country.

There remains a shortage of prime industrial property in much of Africa, with limited amounts of new space in the pipeline.

Development activity has, though, increased in the Blantyre and Kampala markets, most notably with work commencing on the construction of the Kampala Industrial Business Park (KIBP) at Namanve.

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Having been hit by the slowdown in global trade in late 2008 and early 2009, the economies of Asia-Pacific generally rebounded well in the second half of 2009, primarily driven by domestic demand, which was boosted by expansionary fiscal and monetary policies. The IMF estimate that Asia-Pacific GDP grew by 2.5% in 2009, though there were considerable variations within the region.

ASIA-PACIfIC

China and India have continued to be the

National Capital Region (NCR), New Delhi’s

main sources of growth; both seeing a

Connaught Place has continued to be the

relatively mild slowing, to 8.7% and 5.6%,

focus of occupier demand, while the Jasola

respectively. In contrast, Japan and the “Asia

district has also emerged as an increasingly

Tigers� of Hong Kong, Singapore, South Korea

attractive office location. Other peripheral

and Taiwan are all thought to have contracted

markets including Gurgaon and Noida,

in 2009, largely because of their closer

however, witnessed substantial declines in

integration into global economy. Growth

absorption as a result of the financial crisis,

momentum should continue into 2010, with

and though some stability appeared to return

the IMF forecasting growth of 5.6% for the

to these markets in late 2009, availability

region, but risks remain should policymakers

remains high.

misjudge their exit strategies from stimulus

There are signs of improvement in the

measures.

The Indian real estate sector was badly affected by the global financial crisis, with occupier demand stalling and substantial falls in rents and capital values being observed. However, activity revived somewhat in the second half of 2009, and

Mumbai office market, though the supply of Grade A space is likely to outstrip demand throughout 2010-11, which may impact on rental growth. Office rents are expected to remain stagnant in Bangalore for the immediate future, particularly with high levels of newly constructed properties available.

though leasing transaction volumes remain

The Indian retail sector was marked by

low, an increasing number of companies have

increased caution in 2009, with many

been actively looking for space in anticipation

retailers putting expansion plans on hold.

that rents may be bottoming out. Within the

Retail rents have been falling substantially,

Hong Kong

21

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

In mainland China, prime office rents corrected more sharply in Shanghai than in either Beijing or Guangzhou, ending the year at US$36.70 per sq m per month, about 20% down on the market peak of Q3 2008.

There is a considerable volume of new office supply expected in Shanghai during 2010, particularly with a number of large scale projects in the pipeline for the Lujiazui financial area, within Pudong district. This is likely to keep upward pressure on the Pudong vacancy rate and may restrict rental growth in 2010. It is hoped that the World Expo 2010, running between May and October, will give a boost to Shanghai’s commercial property markets.

Singapore

with NCR high street rents dropping by around 35% since September 2008. However, reduced rents alone have not been enough to encourage leasing activity, and developers have needed to offer alternative rental models in order to attract tenants; for example, revenue sharing, whereby retailers share a percentage of their sales with landlords rather than paying a fixed rent, has become increasingly common.

Investment market activity in China has remained robust. While many international investors withdrew from the market in 2009, domestic investors continued to be active, encouraged by the strength of the Chinese economy, government stimulus measures and relatively easy access to bank lending.

Hong Kong has been one of the first markets globally to see a recovery in prime office rents. Having bottomed out in August 2009, Grade A rents have since rebounded, with the strongest growth being observed for premium properties in Central. During the financial

Figure 12

Asia-Pacific office vacancy rates % 25 20 15 10

Q4 2008 Source: Knight Frank Research

22

Q4 2009

Hong Kong

Melbourne

Tokyo

Sydney

Singapore

Bangkok

Shanghai

Jakarta

New Delhi

Kuala Lumpur

Mumbai

0

Beijing

5

crisis, landlords reduced asking rents significantly in order to maintain occupancy levels, but as the vacancy rate has remained low, ending the year at 4.6%, landlords have since been able to increase rents. The recovery in the market should continue in 2010, though one cause for uncertainty is the expected relocation of several major tenants from Central to the new 484 metre tall International Commerce Centre in Tsim Sha Tsui.

The Singapore office market’s recent fortunes have been adversely influenced by its reliance on demand from financial and banking occupiers and the island has seen some of Asia’s largest rental declines. Prime rents are down by around 50% in the premier location, Raffles Place, though there have been smaller falls in other areas, causing a narrowing of the gap between rents in Raffles Place and markets such as Orchard Road and Suntec City. Though the pace of rental decline has now slowed, further falls are likely in 2010, with large amounts of new supply expected to come from projects including the Marina Bay Financial Centre.

The office markets of Bangkok, Kuala Lumpur and Jakarta all witnessed softening demand and weakening rents in the first half of 2009, before seeing modest revivals in leasing activity and stabilising rents later in the year.

Though there is increased optimism for 2010 in these markets, all three cities have supply issues, with their vacancy rates remaining well into double figures.

The Phnom Penh office market remains in its infancy, and with limited amounts of prime space available, the use of residential villas as offices can be a more economical alternative for many tenants setting up in Cambodia. The city’s stock of Grade A offices is likely to grow over the next two years, with over 30,000 sq m due from the completion of Phnom Penh Tower and Gold Tower 42, which may suppress rental growth.

Prime office rents in Ho Chi Minh City ended 2009 at US$40-45 per sq m per month. The city currently has six Grade A buildings, but there are large amounts of new supply due to be delivered in 2010, which is likely cause a drop in rental levels.

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With significant levels of new supply coming

market. The Melbourne market has performed

on stream in Tokyo, the office vacancy rate

better due to its diverse employment base

rose to its highest level for six years in

and cost competitiveness, which has enabled

2009. Prime rents have fallen, encouraging

employment growth to continue despite the

some tenants to move to higher grade

uncertain economic conditions. In Brisbane,

buildings available at reduced rents. Though

a surge in new supply has taken the vacancy

transaction levels were down on 2008, Tokyo

rate from 1.2% in July 2008 to 11.3% at the

has remained one of the most expensive

end of 2009, and availability is likely to

and active investment markets in the world,

remain high over the next two years. While

with Nippon Life Insurance’s purchase of

Sydney and Melbourne saw modest drops in

the AIG Otemachi Building for ¥115 billion

prime office rents in 2009, Brisbane saw a

(US$1.2 billion) and Secured Capital

more substantial fall of about 17%.

Japan’s acquisition of Pacific Century Place,

Australia’s retail sector rebounded well in the

Marunouchi, for ¥140 billion (US$1.5 billion) being two of 2009’s largest single-asset transactions globally.

Office rental levels in Seoul proved fairly

and government stimulus measures. Prime retail rents in Sydney and Melbourne showed moderate growth in 2009.

occupier demand. The vacancy rate has

Demand for Australian industrial space has proved relatively robust, with take-up in

upwards in Q4 2009 with the reopening of

the Sydney market in 2009 surpassing the

the Seoul Square building, and could grow

previous year’s total. Industrial rents have

further with the expected completion of

adjusted downwards slightly, with landlords

several major projects, such as Center 1, over

accepting below-peak rents and offering

the next year.

increased incentives in order to maintain

The Sydney office market was heavily exposed

Australian investment activity picked up towards the end of 2009, with prime yields showing signs of stabilising

proving resilient, aided by low interest rates

robust throughout 2009, despite weaker remained relatively low, though it did tick Sydney

second half of 2009, with consumer spending

income streams.

to the global financial crisis, and saw much

Investment market activity in Australia has

reduced net absorption, particularly in the

begun to pick up, as evidenced by the sale of

first half of 2009, as a result of falling demand

the landmark Aurora Place building in Sydney

from the financial and banking sector. The

to South Korea’s National Pension Service for

vacancy rate has grown to 8.1%, and is likely

AUS$658 million at the start of 2010. Prime

to rise further in 2010 with demand remaining

office yields ended 2009 at 7.00% in Sydney

weak and refurbished supply re-entering the

and 7.25% in Melbourne.

Shanghai

23

2010 GLOBAL REAL ESTATE MARKETS Annual review & outlook

Table 1

Global office rents, Q4 2009 Market

Region

Tokyo, Japan London (West End), UK Moscow, Russia Paris, France Lagos, Nigeria Abu Dhabi, UAE Dubai, UAE St Petersburg, Russia Singapore Hong Kong, SAR China Sydney, Australia London (City), UK Geneva, Switzerland Milan, Italy Mumbai, India Doha, Qatar Rome, Italy São Paulo, Brazil Delhi NCR, India Frankfurt, Germany Kuwait City, Kuwait Vancouver, Canada Brisbane, Australia Dublin, Ireland Seoul, South Korea New York, USA Ho Chi Minh City, Vietnam Madrid, Spain Toronto, Canada Aberdeen, UK Stockholm, Sweden Munich, Germany Edinburgh, UK Manchester, UK Glasgow, UK Ottawa, Canada Amsterdam, Netherlands Birmingham, UK Leeds, UK Melbourne, Australia Bristol, UK Shanghai, China Warsaw, Poland Kiev, Ukraine Montreal, Canada Manama, Bahrain Riyadh, Saudi Arabia Washington DC, USA Newcastle, UK Brussels, Belgium

Asia-Pacific Europe Europe Europe Africa Middle East Middle East Europe Asia-Pacific Asia-Pacific Asia-Pacific Europe Europe Europe Asia-Pacific Middle East Europe South America Asia-Pacific Europe Middle East North America Asia-Pacific Europe Asia-Pacific North America Asia-Pacific Europe North America Europe Europe Europe Europe Europe Europe North America Europe Europe Europe Asia-Pacific Europe Asia-Pacific Europe Europe North America Middle East Middle East North America Europe Europe

Rent (€/sq m/yr)

Rent (US$/sq ft/yr)

Rent (UK£/sq ft/yr)

Rank 2008

Rank 2009

Outlook 2010

1,043.34 777.43 732.58 710.00 593.05 572.10 572.10 558.13 529.34 523.36 517.08 508.32 504.13 480.00 470.83 467.41 440.00 430.72 422.78 420.00 418.60 413.72 404.94 390.00 386.99 377.52 376.77 360.00 359.17 358.82 358.65 352.80 340.87 340.87 340.87 329.68 325.00 322.93 322.93 320.84 310.97 307.23 294.00 293.03 280.04 279.07 279.07 277.79 275.09 265.00

138.93 103.51 97.55 94.54 78.97 76.18 76.18 74.32 70.48 69.69 68.85 67.68 67.12 63.91 62.69 62.24 58.59 57.35 56.29 55.92 55.74 55.09 53.92 51.93 51.53 50.27 50.17 47.93 47.83 47.78 47.75 46.98 45.39 45.39 45.39 43.90 43.27 43.00 43.00 42.72 41.41 40.91 39.15 39.02 37.29 37.16 37.16 36.99 36.63 35.28

87.22 65.00 61.24 59.35 49.58 47.83 47.83 46.66 44.25 43.75 43.23 42.50 42.14 40.13 39.36 39.07 36.78 36.01 35.34 35.11 34.99 34.59 33.85 32.60 32.35 31.56 31.50 30.10 30.03 30.00 29.98 29.49 28.50 28.50 28.50 27.56 27.17 27.00 27.00 26.82 26.00 25.68 24.58 24.50 23.41 23.33 23.33 23.22 23.00 22.15

1 2 3 4 18 9 6 12 5 7 25 11 19 17 10 8 20 14 24 22 N/A N/A 27 13 N/A 15 N/A 16 N/A 33 26 29 35 31 37 N/A 34 30 41 48 39 28 32 21 N/A 38 N/A 43 53 45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

è é é è é ê ê è ê é è é è è ì è ê è é è è î ê î è ê ê î î è î î è ì î î è è î è è é è é è è è è è è Continued overleaf

24

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Table 1 (Continued)

Global office rents, Q4 2009 Market

Region

Barcelona, Spain Berlin, Germany Miami, USA Cardiff, UK San Diego, USA Westchester/Fairfield, USA Los Angeles, USA Prague, Czech Republic Budapest, Hungary Liverpool, UK Lisbon, Portugal Beijing, China Copenhagen, Denmark Long Island, (NY), USA San Francisco, USA Seattle, USA Houston, USA Bucharest, Romania Sheffield, UK Orange County, (CA), USA New Jersey, USA Chicago, USA Phoenix, USA Sacramento, USA Boston, USA Philadelphia, USA Baltimore, USA Denver, USA Portland, USA Dallas, USA Detroit, USA St Louis, USA Atlanta, USA Nashville, USA Kansas City, USA Dar es Salaam, Tanzania Bangkok, Thailand Guangzhou, China Lusaka, Zambia Phnom Penh, Cambodia Johannesburg, South Africa Cape Town, South Africa Bangalore, India Gaborone, Botswana Kampala, Uganda Kuala Lumpur, Malaysia Jakarta, Indonesia Blantyre, Malawi Nairobi, Kenya Harare, Zimbabwe

Europe Europe North America Europe North America North America North America Europe Europe Europe Europe Asia-Pacific Europe North America North America North America North America Europe Europe North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America Africa Asia-Pacific Asia-Pacific Africa Asia-Pacific Africa Africa Asia-Pacific Africa Africa Asia-Pacific Asia-Pacific Africa Africa Africa

Rent (€/sq m/yr)

Rent (US$/sq ft/yr)

Rent (UK£/sq ft/yr)

Rank 2008

Rank 2009

Outlook 2010

252.00 252.00 251.88 251.17 246.02 245.42 241.37 240.00 240.00 239.21 234.00 229.43 228.00 227.70 226.12 225.37 217.78 216.00 215.29 206.14 202.54 198.26 197.96 197.06 196.53 184.59 183.84 178.21 177.38 171.15 168.45 164.69 164.09 162.36 159.66 159.07 158.84 156.56 154.88 150.65 146.87 135.57 122.99 122.09 120.16 113.98 111.33 95.57 90.00 33.49

33.55 33.55 33.54 33.44 32.76 32.68 32.14 31.96 31.96 31.85 31.16 30.55 30.36 30.32 30.11 30.01 29.00 28.76 28.67 27.45 26.97 26.40 26.36 26.24 26.17 24.58 24.48 23.73 23.62 22.79 22.43 21.93 21.85 21.62 21.26 21.18 21.15 20.85 20.62 20.06 19.56 18.05 16.38 16.26 16.00 15.18 14.82 12.73 11.98 4.46

21.07 21.07 21.06 21.00 20.57 20.52 20.18 20.06 20.06 20.00 19.56 19.18 19.06 19.04 18.90 18.84 18.21 18.06 18.00 17.23 16.93 16.57 16.55 16.47 16.43 15.43 15.37 14.90 14.83 14.31 14.08 13.77 13.72 13.57 13.35 13.30 13.28 13.09 12.95 12.59 12.28 11.33 10.28 10.21 10.04 9.53 9.31 7.99 7.52 2.80

40 50 N/A 68 42 58 47 52 62 61 55 56 57 59 36 44 65 N/A 71 54 67 66 69 N/A 64 74 N/A 72 70 77 78 80 79 83 86 88 81 82 94 N/A 97 98 N/A 99 92 N/A N/A 101 100 102

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

î ê î è ê î ê î ì è ê è è è é ê î ì è ê î î ê î è î è î î î è ì î î ì é î è è è ì ì ê é ê î é é é è

25

RESEARCH

Americas USA Bermuda Brazil Canada Caribbean Chile

Europe, Asia-Pacific, Middle East and Africa Joe Simpson Partner, International Research +44 (0) 207 629 8171 joe.simpson@knightfrank.com Matthew Colbourne Senior Analyst +44 (0) 207 629 8171 matthew.colbourne@knightfrank.com

Australasia Australia New Zealand

The Americas Newmark Knight Frank Research +1 212 372 2000 researchdepartment@newmarkkf.com

Europe UK Belgium Czech Republic France Germany Hungary Ireland Italy Monaco Poland Portugal Romania Russia Spain The Netherlands Ukraine Africa Botswana Kenya Malawi Nigeria South Africa Tanzania Uganda Zambia Zimbabwe

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

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Knight Frank Reports are also available at www.knightfrank.com

Š Knight Frank LLP 2010 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank LLP for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.

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