LLP – PROPERTY CONSULTANTS CRANE SURVEY CENTRAL FIRST QUARTER 2009

DJ RESEARCH

EXPECT MORE

www.driversjonas.com/research DRIVERS JONAS LLP RESEARCH

The development pipeline is reducing dramatically – the amount of speculative space under construction in London is down 35% on a year ago with this survey recording just six new starts over the last six months. However, transaction activity remains very muted with few occupiers willing to commit to new office space.

The London office market has broken a number of records over the of this is the office element of a large-scale student housing-led project last few years: the highest rent per sq ft, the largest single building rather than a stand-alone speculative office scheme. This means there is investment transaction, the largest occupational deals. But it is now a large void appearing from mid 2011 onwards with nothing scheduled creating new records of a less positive kind: the lowest ever quarterly for delivery. With few developers looking to start this year, this lack of take-up volume and the sharpest capital value falls since records began. completions will be getting more and more obvious as time moves on. London offices are taking the full force of the financial crisis and the deep economic recession that has engulfed the world. However a few developers are determined to move their schemes along and get prepared for the inevitable shortage of new quality space in a Unsurprisingly this is reflected in the latest Crane Survey results. Only six few years time. The most visible of these are The Pinnacle where the new schemes have started over the last six months; the lowest number contracts are now in place for the piling while the demolition continues, ever recorded by this research. This means only 23 new developments and the redevelopment over by Hines where the have started over the past year compared with 61 in the previous 12 team are working towards a 2012 completion. History shows that months. Speculative space under construction totals 7.2 million sq ft, developers that get in at the start of the new cycle have the greatest down 35% on 12 months ago. chance of profiting from the volatile City development market – but are these developers prescient or premature? This survey shows that the development pipeline is slowly clearing. But this is not a quick process and there won’t be much relief this year as WEST END 4.1 million sq ft of speculative space is scheduled to complete and add The shelter afforded to the West End market from the financial crisis has to the 5.8 million sq ft of available Grade A space already on the market. now been blown away as the fully-fledged recession has made itself felt. Rents in ‘hedge-fund alley’ aka core Mayfair were already falling as demand disappeared but this effect has now spread out to the wider Life is as tough as it gets in the City office market at the moment. West End market and rents in the first quarter of 2009 have actually Take-up in quarter one totalled just 300,000 sq ft with only one deal fallen faster than in the City. Q1 saw just two leasing deals over 20,000 over 20,000 sq ft. Q2 is shaping up better with 350,000 sq ft of deals sq ft with the largest (60,000 sq ft to New Look at Wells & More) the signed at the time of writing but it is looking like a pretty wretched year only transaction on space under construction in the last six months. for a market that has been struggling to reach average levels of take-up even during the “booming” conditions over the last five years. But West End supply levels appear more able to deal with the Compounding the misery for developers is the 4.3 million sq ft of slowdown in demand than the City market. New projects have been speculative space that is currently under construction, which will add to at a relatively low level for some time now with only 15 new starts the 3.2 million sq ft of new space already complete and available to let. recorded in the previous two surveys combined and just three new At the ten-year average annual take-up rate of new space (two million starts this survey. There is 1.6 million sq ft of speculative space being sq ft per annum) this is nearly 3.5 years supply. At the 2008 level of new built, down 18% on six months ago, and just four buildings over space take-up (1.2 million sq ft) it is a lot more. 100,000 sq ft. As identified in the last report, taking these four schemes (totalling 913,000 sq ft) out of the equation shows how tight Therefore it is no surprise that this latest research shows that new the market is for ‘traditional’ West End space. Interestingly, our recent development activity has dried up. The survey has recorded two new experience shows us that it is the units outside of the core Mayfair starts in the last six months; a total of just 86,000 sq ft, and 49,000 sq ft area that are currently attracting the greater share of tenant demand.

OFFICE SPACE UNDER CONSTRUCTION DEVELOPMENT PIPELINE

Q1 2008 Q3 2008 Q1 2009 COMPLETED AVAILABLE U/C LET U/C (sq ft) (sq ft)

9,000,000 10,000,000 8,000,000 9,000,000 7,000,000 8,000,000 6,000,000 7,000,000 5,000,000 6,000,000 4,000,000 5,000,000 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 2,000,000 0 1,000,000 0 S SS N TON CITY G T END , S CRO S G MIDTOW OUTHBANK WE 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 DOCKLANDKIN PADDIN S SOURCE: DJ Research SOURCE: DJ Research FIRST QUARTER 2009

Total U/C Let U/C Available U/C the next survey in six months time. However, groundworks are now (sq ft) (sq ft) (sq ft) underway for London (). This 1,000 foot tower will be the tallest in the country when complete and will comprise City 5,355,000 1,031,000 4,324,000 580,000 sq ft of offices of which 180,000 sq ft is pre-let to Transport Docklands 1,000,000 800,000 200,000 for London. Full construction is yet to start but works are underway and completion is scheduled for mid 2012. King's Cross 82,000 0 82,000 CONCLUSION Midtown 669,000 205,000 464,000 The London office market is currently in the middle of the cyclical downturn that we have been flagging for some time. The development 558,000 160,000 398,000 pipeline chart in this report (see left) shows the reality of the situation: Southbank 543,000 450,000 93,000 2009 and 2010 will see further high levels of construction completions at a time when the economy is in poor shape. The only conclusion is West End 2,140,000 551,000 1,589,000 that we will see further rental falls and increasing void periods before the supply/demand balance readjusts. Unfortunately for developers Totals 10,347,000 3,197,000 7,150,000 there is no quick fix to reduce their exposure to construction activity; although clearly those offering the most aggressive deals are the ones Occupiers are not yet taking the opportunity of significantly lower rents securing the tenants. in Mayfair to move back in to this area – we believe the threat of a large increase in rent at review in a stronger market and the forthcoming huge Is this the time to get back into play and start development? increases in business rates will keep the majority out. Profiting from the London market is all about getting the timing and the pricing right and it is a very fine line. Given the supply levels The smaller supply pipeline recorded by this survey suggests the West and the outlook for the economy it is too early for most to start End will prove to be a more robust market relative to other parts of building now but the savvy should get ready to take advantage of London. This will not stop rents from continuing to fall as the pipeline some good opportunities over the next 6-12 months. For example, delivers more space to an already oversupplied market with weak banks will start looking to take control of failing developers and demand, but should mean a shorter downcycle and a stronger recovery non-viable sites. Once triggered, the lenders will want a developer than other sub-markets of London once economic conditions improve. alongside to complete the project or will sell the site on at a discounted level. OTHER MARKETS Outside the core markets new development activity remains very low So what will the London office market look like in the future? with just one new start over the last six months. Speculative construction Should you be building towers or town houses, trading floors or across all the markets totals 1.3 million sq ft with the majority of this technical studios? The shape of the financial industry and the space in Midtown and Paddington. Midtown has 464,000 sq ft of economy coming out of the recession is still to be determined but available space scheduled for delivery between now and summer 2010 the office market won’t be quite the same. For example fringe office in nine schemes including the one new start - 32,000 sq ft on St John schemes will be converted to residential, student housing or hotels; Street. Paddington has a similar amount (398,000 sq ft) but in just three and with lower levels of tenant demand expected over the next few developments. After a flurry of large lettings last summer the area has years the old mantra of location, location, location will be the order since seen limited tenant activity. of the day.

The core Southbank area has seen development come to Anthony Duggan a grinding halt. There are just two speculative schemes under Drivers Jonas Research construction totalling 93,000 sq ft; both are due to complete before

KEY OFFICE DEVELOPERS KEY OFFICE DEVELOPERS KEY SPECULATIVE KEY COMPLETED (by amount of space (by amount of space under under construction) construction and available to let) SCHEMES SCHEMES

1 Watermark Place, 1 Canary Wharf 1 90 Upper Thames Street, EC4 1 20 Churchill Place, E14

2 2 British Land 2 St Botolphs, 138 , EC3 2 60 Threadneedle Street, EC2

3 , 3 Land Securities 3 Heron International 106-126 , EC2 3 30 Crown Place, EC2 4 Ropemaker Place, 4 Minerva 4 Land Securities Ropemaker Street, EC2 4 107 , EC2

5 Heron International 5 Canary Wharf 5 The , EC4 5 Dashwood, 69 Old , EC2

6 Wells & More, 6 More London 6 Aviva 6 Central Saint Giles, WC2 45 Mortimer Street, W1

7 =7 Legal & General 7 , 200 Aldersgate, EC1 7 111 New Cavendish Street, W1

8 Drapers Gardens, 8 Evans Randall =7 Mitsubishi 8 Rex Building, 64 Queen Street, EC4 12 Throgmorton Avenue, EC2 9 Regents Place Building 2, Western 9 Camomile Court, 9 European Land =9 Quarter, Osnaburgh Street, NW1 23 Camomile Street, EC3

10 Aviva =9 RREEF 10 Two Kingdom Street, W2 10 10 , EC4 DRIVERS JONAS LLP RESEARCH

No Name / Address Postcode Developer Tenant Completion sq ft Space available to let

Paddington - Under Construction 1 30 Eastbourne Terrace W2 Land Securities Q2 2009 48,000 48,000 2 Two Kingdom Street W2 Development Securities / Aviva / Quinlan Private Q1 2010 250,000 250,000 3 Carmine, Merchant Square, W2 European Land Marks & Spencer Q3 2010 260,000 100,000 Paddington Basin (Building 1) TOTAL 558,000 398,000 Paddington - Completed TOTAL 0 0 West End - Under Construction 4 23 Savile Row W1 D2 Private Q2 2009 90,000 90,000 5 265 W1 London & Regional Q2 2009 23,000 23,000 6 3-4 Bentinck Street W1 Howard de Walden Estates Q2 2009 13,000 13,000 7 Iona, 224-244 W1 Delancey / Shearer Property Och Ziff Q2 2009 81,000 54,000 8 10 Hills Place W1 Clarendon Group Q2 2009 14,000 14,000 9 12 Charles II Street SW1 Standard Life MWM Consulting Q2 2009 47,000 39,000 10 49 W1 49 Park Lane Ltd / Pembroke Real Estate Q2 2009 25,000 25,000 11 The Peak, Wilton Road SW1 Heron International / Axa REIM Q2 2009 78,000 78,000 12 14 St George Street W1 Scottish Widows Q3 2009 50,000 50,000 13 50 New W1 Scottish Widows Q3 2009 33,000 33,000 14 Regents Place Building 1, NW1 British Land Q3 2009 117,000 117,000 Western Quarter, Osnaburgh Street 15 Regents Place Building 2, NW1 British Land Q3 2009 251,000 251,000 Western Quarter, Osnaburgh Street 16 Stratton House, 1 Stratton Street W1 WELPUT Q4 2009 70,000 70,000 17 44 Dover Street W1 Royal London Asset Management Q4 2009 35,000 35,000 18 Charlotte Building, 16-19 Gresse Street W1 Derwent London Q4 2009 48,000 48,000 19 18/24 Howland Street (Phase III) W1 Derwent London Arup Q4 2009 86,000 0 20 175 W1 NFU Mutual / Salmon Developments Q4 2009 12,000 12,000 21 55 New Bond Street W1 Fenwick Q1 2010 21,000 21,000 22 150 New Bond Street W1 Prudential Q1 2010 15,000 15,000 23 Marshall Street Leisure Centre W1 Resolution Property Q1 2010 30,000 30,000 24 Central Saint Giles WC2 Legal & General / Mitsubishi Q1 2010 375,000 375,000 25 1 Grafton Street W1 Hines Q2 2010 26,000 26,000 26 144 Euston Road NW1 UNISON UNISON Q3 2010 80,000 0 27 Broadcasting House (Phase II) W1 Land Securities BBC Q3 2010 350,000 0 28 Park House, Park Street W1 Land Securities Q3 2011 170,000 170,000 TOTAL 2,140,000 1,589,000 West End - Completed 29 Clareville House 47 Whitcomb Street WC2 Helical Bar Q4 2008 34,000 34,000 30 83-117 Euston Road NW1 Romulus Securities Q4 2008 14,000 14,000 31 227-233 Tottenham Court Road W1 Corporation of London Gardiner & Theobald Q4 2008 45,000 0 32 101 New Cavendish Square W1 Core Q1 2009 90,000 90,000 33 Wells & More, 45 Mortimer Street W1 New Look Q1 2009 94,000 34,000 34 GPS House, 215-227 Great Portland Street W1 Amsprop Portland Q1 2009 30,000 30,000 35 63 Brook Street W1 GE Real Estate Q1 2009 24,000 24,000 36 3-7 Portman Mews South W1 Portman Estate Q1 2009 13,000 13,000 TOTAL 344,000 239,000 King's Cross - Under Construction 37 210 Pentonville Road N1 Castlemore Ltd Q3 2009 82,000 82,000 TOTAL 82,000 82,000 King's Cross - Completed TOTAL 0 0 Midtown - Under Construction 38 One Southampton Row WC1 Englander Group Metro Bank Q2 2009 100,000 80,000 39 1 Tudor Street EC4 Stockland Halladale Q2 2009 70,000 70,000 40 272 High WC1 Private Investor Q3 2009 72,000 72,000 41 156-165 St John Street EC1 Carrot Limited Q3 2009 32,000 32,000 42 10 St Bride Street EC4 Development Securities / Q4 2009 56,000 56,000 Sireo Investment Management 43 62 St Martin's Lane WC2 ING Real Estate Q4 2009 32,000 32,000 44 110 Fetter Lane EC4 Delancey / Invista Real Estate Her Majesty's Courts Service Q1 2010 253,000 68,000 45 132-135 Long Acre WC2 Longmartin Properties / Shaftesbury Q2 2010 42,000 42,000 46 128-131 Long Acre WC2 Longmartin Properties / Shaftesbury Q2 2010 12,000 12,000 TOTAL 669,000 464,000 Midtown- Completed 47 16-18 New Bridge Street EC4 Moorevale / GE Capital Q1 2009 19,000 19,000 48 22 Chancery Lane WC2 Standard Life Dixon Wilson Q1 2009 39,000 15,000 TOTAL 58,000 34,000 F A Y R R S M T O

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N E E W R O AD COMPLETED FIRST QUARTER 2009

No Name / Address Postcode Developer Tenant Completion sq ft Space available to let

City - Under Construction 49 Ropemaker Place, Ropemaker Street EC2 British Land Bank of Tokyo-Mitsubishi Q2 2009 575,000 395,000 50 Aldersgate, 200 Aldersgate EC1 RREEF / Allied London Q2 2009 370,000 370,000 51 20 EC3 Aviva / Atlas First Rand Group, Egerton Capital, Q2 2009 270,000 220,000 Adelphi Capital 52 Nexus Place, 22-25 Farringdon Street EC4 Tishman Speyer Q2 2009 157,000 157,000 53 10 EC3 Bellhouse Joseph / Standard Life Q2 2009 72,000 72,000 54 1 Whittington Avenue EC3 City of London Q2 2009 43,000 43,000 55 10 Lime Street EC3 Premier Property Group / Q2 2009 43,000 43,000 Greenhall Asset Management 56 Forum House, 15-18 Lime Street EC3 F&C REIT Q2 2009 34,000 34,000 57 50 EC3 Frogmore Q2 2009 33,000 33,000 58 40 Fashion Street E1 Meritcape Q2 2009 26,000 26,000 59 Watermark Place, 90 Upper Thames Street EC4 Core / UBS / Oxford Properties Q3 2009 474,000 474,000 60 One EC2 Westfield Investments / Welbeck Land Q3 2009 117,000 117,000 61 13-17 Worship Street EC2 City of London Q3 2009 37,000 37,000 62 155 Fenchurch Street EC3 Walbrook Land Q3 2009 36,000 36,000 63 30 King Street EC2 Cornerstone / F&C REIT Q3 2009 34,000 34,000 64 2 Copthall Avenue EC2 Walbrook Land / GE Real Estate Q3 2009 30,000 30,000 65 Drapers Gardens, 12 Throgmorton Avenue EC2 Canary Wharf / Exemplar Q4 2009 290,000 290,000 66 100 Street E1 The Blackstone Group Q4 2009 49,000 49,000 67 The Walbrook EC4 Minerva Q1 2010 385,000 385,000 68 95 Gresham Street EC2 Standard Life Q1 2010 93,000 93,000 69 1 Bartholomew Lane EC2 Cornerstone / F&C REIT Q1 2010 79,000 79,000 70 40 Gracechurch Street EC3 Arab Investments Q2 2010 110,000 110,000 71 Riverbank House, 2 Swan Lane EC4 Evans Randall Man Group Q2 2010 292,000 0 72 St Botolphs, 138 Houndsditch EC3 Minerva Lockton International Q3 2010 523,000 442,000 73 Angel Building, 411 St John Street EC1 Derwent London Cancer Research Q3 2010 263,000 110,000 74 EC2 Land Securities KL Gates Q4 2010 340,000 205,000 75 New Court, 1-10 St Swithins Lane EC4 NM Rothschild NM Rothschild Q4 2010 140,000 0 76 Heron Tower, 106-126 Bishopsgate EC2 Heron International Q1 2011 440,000 440,000 TOTAL 5,355,000 4,324,000 City - Completed 77 Dashwood, 69 Old Broad Street EC2 Land Securities RGL Forensic Accountants Q4 2008 154,000 145,000 78 Rex Building, 64 Queen Street EC4 UBS / Exemplar Q4 2008 75,000 75,000 79 1 King's Arm Yard EC2 Cornerstone / F&C REIT Albion Ventures Q4 2008 57,000 53,000 80 41 EC2 RREEF International Centre for Q4 2008 25,000 21,000 Financial Regulation 81 17 Moorgate EC2 Stockland Halladale Q4 2008 13,000 13,000 82 60 Threadneedle Street EC2 Q1 2009 210,000 210,000 83 30 Crown Place EC2 Core / Greycoat Q1 2009 189,000 189,000 84 107 Cheapside EC2 Menolly Investments Q1 2009 160,000 160,000 85 Camomile Court, 23 Camomile Street EC3 MBK Real Estate Q1 2009 75,000 75,000 86 10 Old Bailey EC4 Standard Life / MWB Q1 2009 73,000 73,000 87 60 Gresham Street EC2 Arab Investments Q1 2009 51,000 51,000 88 25-29 Worship Street EC2 Freshwater Group Q1 2009 22,000 22,000 89 38 Threadneedle Street EC2 Scarborough Development Group EGL Q1 2009 22,000 19,000 90 Regina House, 5 Queen Street EC4 Government of Ghana Ghana National Bank Q1 2009 31,000 17,000 TOTAL 1,157,000 1,123,000 Southbank - Under Construction 91 75 York Road SE1 Scottish Widows Investment Partnership Q2 2009 56,000 56,000 92 46-48 Bermondsey Street SE1 Great Portland Estates Q2 2009 37,000 37,000 93 7 More London SE1 More London PricewaterhouseCoopers Q1 2010 450,000 0 TOTAL 543,000 93,000 Southbank - Completed TOTAL 0 0 Docklands - Under Construction 94 5 Churchill Place E14 Canary Wharf JP Morgan / Bear Stearns Q3 2009 300,000 50,000 95 30 North Colonnade E14 Canary Wharf Fimalac Q1 2010 300,000 150,000 96 15 Canada Square E14 Canary Wharf KPMG Q1 2010 400,000 0 TOTAL 1,000,000 200,000 Docklands- Completed 97 20 Churchill Place E14 Canary Wharf State Street Bank Q1 2009 360,000 0 TOTAL 360,000 0

RED TEXT – NEW START THIS SURVEY Source: DJ Research DRIVERS JONAS LLP RESEARCH

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