CB RICHARD ELLIS

www.cbre.com/research
Global Research and Consulting
Q1 2011
2011, CB Richard Ellis, Inc.
Global Offce
OVERVIEW
Global Offce Rental Recovery
According to CB Richard Ellis Global Offce 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
Pacifc region continues to
struggle with infation, while
Australia, New Zealand and
Japan must begin recover-
ing from their devastating
natural disasters.
Regional Performance
The Americas Offce 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 unemployment
rates prevailing in many markets.
Offce 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 Offce Rent Index for the EMEA
region rose by 0.8% in the frst quarter of this year, producing a year-over-year increase of
2.6%. Both fgures are almost identical to those recorded in the previous quarter.
The Asia Pacifc 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 fnancial crisis with year-over-year declines measuring as large as
-25.2% during Q3 2009.
Quick Stats
Vacancy Rates
Q1 2011
Change from
Last Year
US 16.4%
Asia 10.3%
EMEA 9.2%
CBRE Offce Rent Index
Y-o-Y% Change Q1 2011
Change from
Last Year
Americas -0.4%
*
Asia Pacifc 11.3%
EMEA 2.6%
*For the Americas, the CBRE Offce Rent Index
Y-o-Y % Change was -8.2% for Q1 2010,
hence the upward direction arrow.
Hot Topics
Despite headwinds, the CB Richard
Ellis Global Offce Rent Index
increased this quarter 4.3% year
over year.
Expect gradual improvements in
rents and global offce fundamentals
in the quarters to come.
Figure 1: CB Richard Ellis Global
Offce Rent Index
Global
Americas
Asia Pacifc
EMEA
Y-o-Y % Change
Source: CB Richard Ellis
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GLOBAL OFFICE DEVELOPMENT AND
CONSTRUCTION
Offce rents refect the interaction between the demand
for space and its supply. Rents are starting to refect the
positive news about local economies. At the same time,
supply trends are refecting the regional disparities we
have already cited. The development of new offce space
is trending downward in EMEA and the Americaswith
the latter dominated by U.S. activitywhile new supply
is growing rapidly in Asia Pacifc.
In Figure 2, we show that the supply of new offce space
in Asia Pacifc 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 Pacifc
Asia and the Pacifc 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 offce foors for capital
gains. This stands in great contrast to the Pacifc region,
where banks typically require a high level of pre-com-
mitments as a loan covenant to project fnancing.
Offce completions in the Pacifc are currently experienc-
ing a lean period following subdued pre-leasing activity
in 2009 in the aftermath of the global fnancial 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 offce completions in Asia
Pacifc 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 offce space slated to come
on stream in Asia Pacifc 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. Pacifc markets maintain a controlled hold on
future 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 Completions
North America
EMEA
Asia Pacifc
Completions as % of Total Stock
Source: CB Richard Ellis, CBRE Econometric Advisors
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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 fnance still very restricted, there is
little pick-up in new offce 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 fnance, with
many involving signifcant
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 signifcant 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 offce construction in the U.S. remains restrained
due to high vacancy rates, high shadow vacancy, lack of
construction fnancing, 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 offce cycle. Even has frms add to their payrolls, they
will fll their shadow space frst prior to signing leases
for new space. Offce projects in core downtowns typi-
cally take three to fve 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, unless
of 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 offce construction will remain lowand well below
historic trendsin most markets until the economy sig-
nifcantly improves.
GLOBAL RENTAL CYCLE AND PERFORMANCE
SUMMARY
The U.S. offce 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
fnancial crisis and in the midst of the sovereign debt
crisis.
The U.S. offce market had the high-
est vacancy rate, of 16.4%. However,
the vacancy rate is expected to con-
tinue on a gradual downward path as
the U.S. economy and job market
improve 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 offce
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 fnancial 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, Sofa and Bratislava. Development activity
in these marketssome of it in marginal locations and
much of it sponsored by local developershas not been
constricted to the same extent as elsewhere in Europe.
Figure 4: Global Offce Performance
Comparison: Net Absorption Rate
Asia
US
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-quarter
moving average.
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Figure 5: Global Offce Performance
Comparison: 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-quarter
moving average.
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Figure 3: Global Offce Performance
Comparison: Vacancy Rates
Asia
US
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
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The global rental cycle results for Q1 2011 refect
that the global offce recovery is fnally 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 confdence 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 fexible 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 Offce Market Rent Cycles, Q1 2011
Rental Decline Accelerating Rental Growth Accelerating Rental Decline Slowing
Los Angeles
Chicago
London West End
Auckland
Madrid
Sydney
Paris
London City
New York
Hong Kong
Shanghai
Washington, DC
Singapore
Mexico City
Tokyo
Toronto
Frankfurt
Rental Growth Slowing
Markets do not necessarily move along the curve in the same direction or at the
same speed. The rental cycle is intended to display the trend in net effective rents.
Source: CB Richard Ellis
Figure 7: Americas Offce Market Rent Cycles, Q1 2011
Rental Decline Accelerating Rental Growth Accelerating Rental Decline Slowing
Santiago
Atlanta
Charlotte
Denver
Lima
Mexico City
Orlando
Toronto
Dallas
Vancouver
Washington, DC
Austin
PanamaCity
San Diego
Chicago
Los Angeles
Houston
Buenos Aires
Ft. Lauderdale
Miami
Phoenix
Seattle
Edmonton
So Paulo
Rio de Janeiro
Rental Growth Slowing
Markets do not necessarily move along the curve in the same direction or at the
same speed. The rental cycle is intended to display the trend in net effective rents.
Source: CB Richard Ellis
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,
fnishing 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. It
is 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 fve-
year quarterly average, though Downtown experienced
leasing below the fve-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%.
Toronto
Although 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 frst 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 fight to quality trend.
However, the gains during the frst 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 Offce 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,
offce-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 its
slow 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. offce 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 offce
vacancy rates and the frst 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 profts 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 offce completions will once again return to
more normal levels. Until then, the outlook for the U.S.
offce 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 fnancial crisis as were the U.S. and
the European Union. Therefore, the region recovered
more rapidly and effciently. 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+
offce 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 fat,
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 frms continue to
beneft from the growing regional economies. Average
asking rents increased signifcantly in local currencies,
especially in Sao Paulo, Santiago and Panama.
EMEA
The main EMEA offce 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 frst 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. Performance
Completions
Net Absorption
Vacancy Rate
Net Absorption & Completions, SF x 1,000 Vacancy Rate, %
Data for the US represents the CBRE Econometric Advisors Offce 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
Q
1
0
5
Q
1
0
7
Q
3
0
7
Q
1
1
1
Q
3
0
5
Q
1
0
9
Q
3
0
9
Q
1
1
2
Q
1
0
8
Q
3
0
8
Q
3
1
1
Q
1
0
6
Q
3
0
6
Q
1
1
0
Q
3
1
0
Q
3
1
2
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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 fgure in the frst 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-
fce 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, offce 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 Offce Market Rent Cycles, Q1 2011
Rental Decline Accelerating Rental Growth Accelerating Rental Decline Slowing
Athens
Madrid
Dublin
Barcelona
Bucharest
Rental Growth Slowing
Markets do not necessarily move along the curve in the same direction or at the
same speed. The rental cycle is intended to display the trend in net effective rents.
Source: CB Richard Ellis
Milan
Lisbon
Edinburgh
Amsterdam
Geneva
Munich
Budapest
Prague
Frankfurt
Copenhagen
Rotterdam
Hamburg
Warsaw
Zurich
Brussels
Moscow
Dusseldorf
Oslo
Helsinki
Vienna
Manchester
Berlin
Rome
London City
Paris
Birmingham
London West End
Stockholm
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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 signifcantly 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 fnally 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 Offce Summary
After a strong bounce-back in 2010, offce take-up in
EMEA was subdued in the frst 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,
offce take-up in EMEA was subdued
in the frst quarter.
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This partially refects 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 offce 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 infuenced 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 signifcant 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 Pacifc are on an
upward trend in their rental cycle on the back of ex-
pansionary demand and/or consolidation activities to
improve effciency, 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 offce rentals as business
sentiment weakened following the Japan earthquake. In
the Pacifc, rental growth in Sydney and Adelaide began
to gather momentum as landlords reduced incentives
and demand began to outweigh supply.
Sydney
The Sydney CBD offce 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 Performance
Completions
Net Absorption
Vacancy Rate
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
6
5
4
3
2
1
0
Q
1
0
5
Q
1
0
7
Q
3
0
7
Q
1
1
1
Q
3
0
5
Q
1
0
9
Q
3
0
9
Q
1
1
2
Q
1
0
8
Q
3
0
8
Q
3
1
1
Q
1
0
6
Q
3
0
6
Q
1
1
0
Q
3
1
0
Q
3
1
2
Figure 11: Asia Pacifc Offce
Market Rent Cycles, Q1 2011
Rental Decline Accelerating Rental Growth Accelerating Rental Decline Slowing
Seoul
HCM City
Tokyo
Hanoi
Bangkok
Manila
Auckland
Wellington
Rental Growth Slowing
Markets do not necessarily move along the curve in the same direction or at the
same speed. The rental cycle is intended to display the trend in net effective rents.
Source: CB Richard Ellis
Kuala Lumpur
Canberra
Adelaide
Taipei
New Delhi
Hong Kong
Shanghai
Guangzhou
Bangalore
Beijing
Sydney
Brisbane
Singapore
Perth
Melbourne
Mumbai
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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 backfll space vacated by
the 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 confned to Japan and
will 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 offce
rentals and a slight increase in vacancy, to 5.1%. Grade
A buildings in Tokyo did not suffer signifcant damage,
thanks to their sophisticated quake-resistant design.
Although suspensions of development projects have yet
to be announced, some delay in offce 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 offce space
will therefore be driven largely by relocation and fight-
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-foor 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 appreciation
in Hong Kong accelerated to 8.4%
from 6.6% in the previous quarter, de-
spite the fact that occupiers have started
to resist the high rents.
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not expected to be suffcient to accommodate the strong
corporate demand in the city. Offce 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 offce market gained stability in Q1 2011
as occupiers digested the signifcant expansion space
taken up last year. Although offce 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 offce 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 Pacifc Regional Offce Summary
Corporate expansion remained the major demand
driver for prime offce space in Asia Pacifc during Q1
2011, with occupiers particularly active in absorbing
space in the leading cities of China and India, as well
as in Singapore. Asia Pacifc was hit by a series of natu-
ral disasters in Q1 2011, including the Christchurch
earthquake and Queensland foods, 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 flter through to the regional economy.
Business confdence 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 Pacifc Offce Rent
Index gained 3.0% during the period, a fgure 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 and
tsunami, with a number of occupiers suspending reloca-
tion plans. While the full impact of the disaster on the
offce market and wider economy is still emerging, offce
rents recorded a decline of 1.6% quarter over quarter.
The bulk of demand came from tenants looking to
secure offce space with larger foor 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 by
the CB Richard Ellis Global Offce Rent Index declined
by 90 bps quarter over quarter to 10.3% as of the end
of Q1.
Offce construction in the Pacifc 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 Performance
Completions
Net Absorption
Vacancy Rate
Net Absorption & Completions, SF x 1,000 Vacancy Rate, %
Note: The frst quarter 2011 numbers are ex Pacifc.
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
Q
1
0
5
Q
1
0
9
Q
3
0
9
Q
1
1
0
Q
3
0
5
Q
1
0
6
Q
3
0
6
Q
3
1
0
Q
1
0
7
Q
3
0
7
Q
1
0
8
Q
3
0
8
Q
1
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in future quarters, with several pipeline projects opting
to delay their completion. In Tokyo, the delay in some
offce 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 Offce 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 offce recovery continues despite several
moderating forces, including the European sovereign
debt crisis, high unemployment rates and budget bal-
ancing in the U.S., and infation concerns and natural
disasters in Asia Pacifc. 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
Offce 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 frst positive value in nine
quarters. EMEAs Offce Rent Index recorded a 2.6%
year-over-year increase. This modest increase refects
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 Pacifc
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
Offce 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 Pacifc, on the other
hand, 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 Pacifc, offce
completions have been experiencing a lean period
following subdued pre-leasing activity in 2009.
Despite the commotion occurring throughout the
economies, global offce fundamentals as a whole
recorded solid gains in Q1, indicating that we can
expect 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
infations reaction to the rising commodities costs in
the Asia Pacifc region.
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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 Pitzner
Economist, Global Research and Consulting
+617 912 5263
Abigail.Pitzner@cbre.com
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 Ellis
Information contained herein, including projections, has been obtained from sources believed to be reliable. While
we do not doubt its accuracy, we have not verifed it and make no guarantee, warranty or representation about it. It is
your responsibility to confrm independently its accuracy and completeness. This information is presented exclusively for
use by CB Richard Ellis clients and professionals and all rights to the material are reserved and cannot be reproduced
without prior written permission of the CBRE Global Chief Economist.
Nick Axford, Ph.D
Head of Research, Asia Pacifc and
Senior Managing Director, Global Research
+852 2820 8198
nick.axford@cbre.com.hk
Peter Damesick
EMEA Chief Economist
+44 20 7182 3163
peter.damesick@cbre.com
Asieh Mansour, Ph.D
Head of Research, Americas and
Senior Managing Director, Global Research
+415 772 0258
asieh.mansour@cbre.com
Raymond Torto, Ph.D., CRE
Global Chief Economist and
Executive Managing Director, Global Research
+617 912 5225
raymond.torto@cbre.com