LSH National Office Report July2010

National Office
Report 2010
First signs of occupational recovery in 2010
Inside this report:

Q1 2010 shows an upturn with 5.5m sq ft of take-up Central London to lead UK out of downturn Occupiers to drive refurbishment of second hand stock Rental growth to return to 2006/07 height by 2014
www.lsh.co.uk
National Office Report / 2010 / Executive summary
Executive summary
The office market in the UK has experienced a significant downturn in activity over the past two years. Take-up for 2009 was around 17m sq ft, 29% below the long run average take-up level for the market. The major slowdown in activity has been in the South East, South West and East regions, where take-up levels were more than 40% down on historic trend levels. The Midlands, Scotland and Northern regions showed a greater resilience to the economic slowdown, with take-up levels down by between 4% and 20%. Q1 2010 has shown the first signs of an improving market, with take-up for the quarter recording 5.5m sq ft of transactions. The Central London market has led the recovery, accounting for 3.4m sq ft of activity in Q1 2010. Central Londons dominance of the market is expected to continue for a further 12 months before filtering out to the provincial office markets. Short term predictions Demand has reduced significantly over the past two years but there are signs that the market may be seeing a recovery in occupational requirements. Returning demand, coupled with the shortage of new built stock in most markets, is signalling a recovery in rental growth, much earlier than in previous cycles. While rental values are expected to fall by 3% in 2010, this should be the last year of declines for the market as a whole. Weak growth is expected in 2011, followed by a continued recovery in 2012/13. Availability has risen significantly over the past two years, with the availability rate for the UK as a whole standing at 12.7%. Further increases in availability may arise with the release of second hand stock continuing to be the driver.
2 / Lambert Smith Hampton
Regional key
Scotland
North
Midlands
Wales
East
London South East South West
Medium term predictions As the corporate sector gains momentum, replacing the public sector as the major source of growth in the UK economy, availability rates will fall and the scope for renewed development activity will return. Significant amounts of poor quality, second hand office floor space will need to be redeveloped in order to meet the next generation of occupiers. Rental growth is expected to return to 2006/07 levels by 2014, with the Central London market leading the rest of the UK out of the downturn.
National Office Report / 2010 / Overview
Overview
Economy
The move out of recession which began in Q4 2009 eased in Q1 2010 with provisional estimates for GDP growth registering a disappointing quarter on quarter growth of 0.2% Chart 1. The principal cause for the lower than expected growth in the economy was the easing in public sector growth which is estimated to have remained flat. Growth in financial and business services continued its upward trend, growing by 0.6% in the first three months of 2010 Chart 2. There is no doubt that the private business sector saw a much greater downturn during the recession, with financial and business services output falling by 6.2%, while public sector output contracted by 1.2% Chart 2.
Chart 1
The corporate sector will have to fill the gap left by government austerity measures.
GDP growth % quarterly
GDP Growth
Forecast
1.0 0.5 0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0
Q4 Q1 2007 2008
Q2
Q3
Q4
Q1 2009
Q2
Q3
Q4
Q1 2010
Q2
Q3
Q4
Q1 2011
Q2
Q3
Q4
Source: ONS and Consensus Economics
Chart 2
Government and business service sector output growth % quarterly

Public services Financial and business services
1.5 1.0 0.5 0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 Q4 Q1 2007 2008 Q2 Q3 Q4 Q1 2009 Q2 Q3 Q4 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3
Source: ONS
Lambert Smith Hampton / 3
Overview continued
Employment and unemployment

One of the major casualties of the downturn has been the labour market, with more than 500,000 jobs being lost since the end of 2008. While the major job losses has been in the manufacturing and construction sectors, the service sector has felt the impact too. Financial and business services employment fell by 2.8% between 2008/09 while public sector employment grew by 1.5% Chart 3.
Forecasts
The debate since the general election has indicated the extent of cuts to public spending that are required in order to return government borrowing to acceptable levels. Therefore, the dynamics of the economic recovery are set to change over the next few years. Consensus forecasts suggest that the recovery will continue through the remainder of 2010 and into 2011 and if this prognosis is to prove correct, the corporate sector will have to fill the gap left by government austerity measures Chart 1. The expected performance of corporate profitability will largely determine the strength of the economic recovery. Forecasts for the corporate sector show a significant turn round in fortunes in 2010, with profitability growing by 4.2% in the current year after a decline of 5.1% in the previous year Chart 4.
Chart 3
Office based employment growth index December 2004 = 100

Public services Financial and business services
108 107 106 105 104 103 102 101 100 99 98 2004 2005 2006 2007 2008 Q1 2009 Q2 Q3 Q4
UK office market
Take-up
The analysis of the UK office market contained in this publication is based upon the 37 locations in the following pages, which represents approximately two thirds of the overall office floor space in the UK.
Source: ONS Chart 4
Take-up of office floor space in the UK has fallen below long run trend levels in
Forecast
Growth in corporate profitability % year on year
each of the past two years of 2008 and 2009 as the recession has taken its toll on occupiers Chart 5. Following the five year peak in activity in 2007, when take-up in our 37 centres reached 27.4m sq ft, 2008 saw a fall in activity of 23.6%, with activity in 2009 down a further 19.6% Chart 5. Q1 2010 has seen an improvement in activity levels, with 5.5m sq ft of take-up across the UKs office market. If this level of activity is repeated over the remaining nine months of the year, annual take-up will reach just over 22m sq ft. One of the major trends of the past few years has been the proportionate increase in take-up of Grade A floor space. In general, the acquisition of Grade A space accounts for 25% of overall letting activity. During 2008/09 this increased to more than one third of all take-up, with Q1 2010
14 12 10 8 6 4 2 0 -2 -4 -6 2006 2007 2008 2009 2010 (f) 2011 (f) 2012 (f) 2013 (f) 2014 (f) 2015 (f)
Source: Consensus Economics
Grade A take-up accounting for 48% of all lettings in the UK office market Chart 1. This recent trend has been heavily influenced by the City of London office market, where in the first three months of 2010, the takeup of Grade A floor space represented 69% of total take-up in that market.
Chart 5
National office market take-up million sq ft

Second hand New
40 35 30 10 year average 25
Take-up by size
20
The balance in letting activity during 2009 was towards buildings and suites of less than 20,000 sq ft which accounted for 56% of overall UK office market take-up Chart 6. Excluding Central London, the proportion of activity focused towards lettings of 20,000 sq ft and less was higher, accounting for almost two thirds of market activity outside of the capital. This emphasises the dominance of the Central London market in larger lettings, with 55% 60% of lettings above 50,000 sq ft concentrated in Central London.
Chart 6 Chart 7
15 10 5 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Source: LSH Research
Take-up by size 2009 % of total sq ft
Take-up by tenant type 2009 %
Take-up by tenant type

Financial and business occupiers accounted for almost 64% of market activity covered by our analysis, while the public sector accounted for only 14% of UK office market take-up Chart 7. An interesting trend among public sector acquisitions of floor space, was the surprising number of freehold purchases that this occupier type was responsible for during 2009. Despite the difficulties in the financial sector, 23% of overall lettings were to this tenant type, although unsurprisingly 85% of financial sector take-up was in the Central London market. Service industries, such as media, IT and recruitment, were the most significant single tenant group, accounting for 24% of overall take-up. Professional services occupiers were the third most significant occupier group in 2009, accounting for 17% of take-up. However, outside of Central London, professional services occupiers play a far more significant role. Excluding take-up in Central London, professional services were responsible for 24% of overall take-up.
< 5,000 21% 5,001-10,000 20% 10,001-20,000 15% 20,001-30,000 12% 30,001-50,000 12% >50,000 20%
Public sector 14% Financial services 23% Professional services 17% Service industries 24% Manufacturing and construction 7% Other 15%
Supply
The supply of floor space has become one of the single most influential factors on the performance of the UK office market in previous cycles and this current cycle is no different. The total availability of office floor space has been increasing since 2007, rising from 50.3m sq ft to 67.8m sq ft at the end of March 2010, an increase of 35% on the 2007 figure Chart 8.
Q1 2010 has seen an improvement in activity levels.
Overview continued
Chart 8
The principal cause of this increase in availability has been the release of second hand stock onto the market. Grade A stock has remained a relatively modest element of available stock, representing 12.2m sq ft in 2008 and 15.1m sq ft at the end of Q1 2010.
Second hand
New
National office market availability million sq ft
Grade A stock currently represents 22.2% of overall stock on the market in the centres covered by this analysis with only limited amounts of office floor space under construction.
80 70 60 50 40 30 20 10 0
Availability rates
The overall availability rate across the markets covered by our analysis stands at 12.7% of total built stock, as at the end of Q1 2010, up from the recent low point of 9.6% at the end of 2006 Chart 9.
2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
There are significant regional variations

around the national average, with the range of availability rates varying from 9% in the Central London office market, to 17% in the South East Table 1.
Source: LSH Research Chart 9
National office market availability rate %
14
There is further variation amongst regional availability rates and local markets, as is shown in the feature on local market trends in the following pages.
13
12
11
Availability by size
Take-up in 2009 for building sub 20,000 sq ft was 56%. Properties of this size account for 39% of the overall availability Chart 10.
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
The major shortage of floor space exists in buildings of 30,000 sq ft to 50,000 sq ft which account for only 11% of overall floor space on the market. Larger office buildings, over 50,000 sq ft, account for 25% of overall available floor space, although a proportion of these buildings will be second hand stock, which may not be suitable for larger occupiers.
Source: LSH Research Table 1 Chart 10
Regional availability rates % Central London Scotland Wales UK average East Midlands South West Northern South East
Availability by size 2009 % of total sq ft 9.0 10.6 11.1 12.7 13.5 15.1 15.9 15.9 17.0
< 5,000 13% 5,001-10,000 13% 10,001-20,000 16% 20,001-30,000 18% 30,001-50,000 15% >50,000 25%
Demand for floor space

The major focus of current occupational demand is for larger office buildings (>50,000 sq ft), which accounts for 42% of all requirements. This element of demand is heavily focused towards Central London and the South East, which represents 80% of requirements for buildings of this size Chart 11.
The analysis of occupational demand extends to the types of occupiers that are looking for new or additional office accommodation. Professional services was the largest group with outstanding requirements for office accommodation at the end of 2009, accounting for 24% of total occupational demand Chart 12. While a significant proportion of floor space demanded by professional services is in Central London, more than half of demand identified is for office space within the regions. Although the public sector has been a significant driver behind occupational market activity over the previous five to 10 years, demand has eased, representing only 11% of the total requirements at the end of last year Chart 12. The large representation of demand from outside of the main tenant types is due to the large number of agent led instructions which appear on the demand register, where details of the occupier and their business remain confidential.
In addition to the historic series we have also included our forecast for rental value growth for the period 2010/14 which are represented by the bars. While in the first three months of 2010 rental values have remained relatively stable, we expect further falls in rents to feed through during the remainder of the year. The overall decline in rents forecast for 2010 is 3%, with the majority of the fall registered in markets outside of Central London.
Chart 11
Chart 12
Occupier demand by size 2009 %
Occupier demand by tenant type 2009 %
< 5,000 9% 5,001-10,000 11% 10,001-20,000 12% 20,001-30,000 15% 30,001-50,000 11% >50,000 42%
Public sector 11% Financial services 23% Professional services 24% Service Industries 22% Manufacturing and construction 6% Other 14%
Rental growth
Office rental values have been constrained during the economic recession, falling by 16.9% from the peak of the market in March 2008 to the end of Q1 2010. Chart 13 illustrates the pattern of rental growth in the office market as measured by the IPD Monthly Index. For comparison purposes we have also included the movement in values of the Lambert Smith Hampton (LSH) average prime rental values index, which looks at the movement in prime rents across the 37 office locations covered in the analysis. As expected, there is a significant correlation between the historic IPD rental growth series and the LSH indices. There are divergences at both highs and lows of the market, but these can be explained by the slight differences in the types of property being measured. The IPD series is based on valuations of all grades of property within the monthly index sample, while the LSH prime rent series looks at the movement in prime headline rents across our 37 locations.
15.0 12.5 10.0 7.5 5.0 2.5
Chart 13
National office market rental value growth LSH prime rents and IPD Monthly Index % y on y
LSH average prime rent
IPD Monthly Index Forecast
0
-2.5 -5.0 -7.5 -10.0 -12.5
-15.0
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10 (f)
11 (f)
12 (f)
13 (f)
14 (f)
Source: LSH Research and IPD
Overview continued
Regional perspective
The regional office markets have experienced mixed fortunes over 2009. While all markets have seen take-up levels fall below the long run trend levels, some regions have fared better than others. The most significant falls in activity levels have been focused in the South and East of the UK, with the South East, South West and the East regions experiencing the weakest market conditions. In contrast, the North and Midlands have seen occupational market activity perform better than the UK average.
Q1 2010 has seen take-up dominated by the Central London market, which has accounted for 62% of overall market activity so far this year, although the regions may begin to see some improvements in activity towards the latter stages of the year.
Take-up across the regions

Central London continued to dominate office market activity, accounting for 46% of total take-up completed in 2009, broadly in line with the long run average proportion of UK take-up accounted for by the Central London market Chart 14. The most significant shift in market share
Chart 14
Chart 15
amongst the regions in 2009 was in the Northern regions, which saw the overall proportion of office market take-up rise to 16%, compared to 14% over the past 10 years Chart 14. Q1 2010 has seen Central Londons share of total activity in the office market rise to 63% of UK take-up Chart 15. The most disappointing start to 2010 has been in the South East and the East office markets, where take-up levels have been
Regional distribution of take-up 2009 %
Regional distribution of take-up Q1 2010 %
London 46% South East 11% East 5% South West 3% Midlands 9% North 16% Wales 3% Scotland 6%
London 63% South East 4% East 2% South West 5% Midlands 7% North 12% Wales 2% Scotland 5%
particularly weak Chart 15. The Midlands and Northern regions remained relatively buoyant but have seen their share of UK market activity fall below their trend levels within the UK. The South East office market has seen its share of activity in the UK fall to 4%, with less than 250,000 sq ft of take-up registered in Q1 2010, while the East markets have seen 106,600 sq ft
10 year average 2009
Chart 16
Regional take-up levels compared to long run trend levels million sq ft
of activity, which represents 2% of national activity Chart 15.
12
All regions saw take-up levels fall against their long run average levels. The total of take-up in the UK was some 29% below the 10 year average for the country. The most significant falls in activity across
10
the major regions were seen in the South East, South West and the East office markets, where take-up was down 40%, 48% and 39% respectively on trend levels Chart 16.
on nd Lo
st Ea th ou S
st Ea
t es hW ut So
ds an idl M
rth No
s ale W
d lan ot Sc
Compared to long run trend levels of take-up, the strongest regions over 2009 were in the North and Scotland. Take-up activity was less than 20% down on trend levels, being 18% and 19% below trend respectively Chart 16.
Chart 17
Activity ratio locations %
Bristol Newcastle upon Tyne Cambridge Guildford 5.9% 5.9% 5.6% 5.6% 5.6% 5.6% 5.1% 5.1% 4.8% 4.7% 4.6% 4.6% 4.5% 4.5% 4.5% 4.4% 4.4% 4.3% 4.2% 4.1% 4.1% 4.1% 4.1% 3.7% 3.6% 3.4% 3.4% 3.4% 3.3% 3.2% 3.2% 3.1% 2.9% 2.5% 2.3% 2.2% 1.7% 6.5%
7.5% 7.1%
Longer term activity rates

While 2009 was a period of slowing activity for the UK office market, the longer term trend in activity rates across the 37 locations covered by this report indicate some unexpected results. The analysis contained in Chart 17 focuses on the activity ratio, the long run trend level of take-up for each of the 37 locations covered in the report and other key areas, divided by the total stock of office floor space in the area. For example, the Central London office markets 10 average take-up level is 10.7m sq ft per annum, while the total office stock for Central London is 208.8m sq ft. The activity ratio for the Central London market is, therefore, 5.1%. This illustrates how much, on average, of the total Central London office market turns over in any one year. So, by inference, 5.1% of the Central London market is traded, on average, in any one year. An individual year may see this figure rise above the average, if there is a large transaction, or if there is a significant new development that attracts a large number of new occupiers to the locality. The activity ratio is a good measure of the buoyancy of each of the local markets. The three most active markets amongst the 37 locations are Bristol, Newcastle upon Tyne and Cambridge, each of these markets having activity ratios some way ahead of the national average of 4.6% of turnover per annum. The reason for the relative buoyancy of each of these markets is also varied, as the dynamics of the markets are significantly different. Both the Bristol and Newcastle upon Tyne office markets are largely dependent on central and local government for occupational demand. Public sector demand has been a major driver behind office market take-up over the past decade.
Salford Quays Slough Watford Birmingham Nottingham
South Manchester
Central London Peterborough Manchester City Centre UK average Leeds Northampton Cardiff Milton Keynes Southampton Reading Blackwater Valley Luton Leicester Hemel Hempstead Newport Maidenhead St Albans Swansea Chelmsford Oxford Bracknell Edinburgh Staines Welwyn Garden City Sheffield Heathrow Uxbridge Glasgow Newbury Fareham
0
The most active markets in the UK are Bristol, Newcastle upon Tyne and Cambridge.
Overview continued
Chart 18
The Cambridge market, on the other hand, has seen activity buoyed in recent years by the influx of new economy and biotech businesses into the area, prompted by the growth of the science park sector which surrounds the university. Surprisingly, the Central London office market is ranked only eleventh amongst the 37 locations, although activity in the market has probably been eroded by the growth of new locations outside of the traditional Central London market.
Availability rate locations Q1 2010 %
Bracknell Blackwater Valley Watford Milton Keynes
30.4% 23.7% 23.4% 22.9% 22.0% 22.0% 21.1% 21.0% 19.3% 19.2% 18.8% 17.5% 16.8% 16.7% 16.5% 15.9% 15.6% 15.4% 14.5% 14.1% 13.8% 13.5% 13.4% 12.7% 12.2% 11.9% 11.9% 10.9% 10.8% 10.1% 9.9% 9.6% 9.5% 9.2% 9.0% 7.5% 7.0% 6.5% 5.8% 5.6% 0 5 10 15 20 25 30 35
Fareham Reading Slough Manchester City Centre Staines Salford Quays Heathrow Leeds
Newport Birmingham Hemel Hempstead Bristol South Manchester Luton Cambridge Nottingham Edinburgh Maidenhead Welwyn Garden City UK average Oxford Newcastle upon Tyne Leicester Swansea Peterborough Guildford Cardiff Glasgow Southampton Northampton Central London Chelmsford Sheffield St Albans Newbury Uxbridge
Availability rates across the UK

Further dynamics contributing to the buoyancy of local markets is the availability of office floor space and, in particular, the availability rate. Chart 18 ranks each of the locations by their respective availability rates. The UK average availability rate was 12.7% of total built office stock at the end of March 2010. More than 23 (62%) of the locations covered by the analysis had availability rates above the national average. The most significant figures being in Bracknell, the Blackwater Valley and Birmingham. The South East markets have been most affected by the recession, with the release of second hand stock onto the market playing a significant role in the rising levels of availability in those markets. Birmingham has also experienced a significant release of stock onto the market over the past few years, with some of the traditional occupiers of the city suffering from the fall in economic activity. One of the most significant features across all of the local office markets is the lack of new built, Grade A, office accommodation. This factor is expected to play a significant role in the growth of rental values over
The South East markets have been hit hardest by the recession.
the next few years. As occupational demand improves, the market is set for a return of rental growth as the stock of Grade A accommodation is acquired.
National Office Report / 2010 / Investment
Investment
Investment
Given the challenges facing the UK economy and particularly the financial and business services sector the recovery in office market performance has been surprising, generating positive total return over the 12 months to the year ending March 2010 Table 2. As can be seen from Table 3 the total return performance has been achieved against a
rising void rate for the sector, which has experienced the greatest rate of tenant default and resultant voids when compared with its sector competitors. Despite the significant contribution of income return, the recovery has been led by Central London, which has seen capital growth of 10.6% over the 12 months to the end of March 2010. The capital growth can be attributed to
Table 2
consistent demand for Central London stock with international demand historically Capital growth 10.6% 0.2% 2.8% -1.2% 5.7% Rental growth -9.6% -7.6% -6.5% -6.0% -8.2% Initial yield 5.85% 7.64% 7.42% 8.09% 6.87% drawn to the UK capital and the perception of increased take-up activity driving pricing. As can be seen in Table 2, capital growth beyond Central London has been extremely limited. Table 4 illustrates the net initial yield on transactions across the rest of the UK which is significantly below the IPD
Table 3
Investment performance year to Q1 2010 Sector Central London Rest of South East Rest of UK Office Parks All Offices
Source: IPD Monthly Index
Total return 18.5% 9.2% 12.0% 8.0% 14.2%
Monthly Index, demonstrating the gap between valuation sentiment and the March 2009 12.7% 9.7% 15.9% March 2010 14.9% 6.5% 15.3% liquidity of prime assets as opposed to secondary product.
Void rates Sector Office Retail Industrial

Source: IPD Monthly Index Table 4
Investment market turnover As with the investment market in general, the office sector turnover has fallen since the onset of the financial crisis in August 2007. Turnover levels have plummeted from 9.7bn in Q3 2007 to a low point of 1.5bn in Q1 2009 Chart 19, while the office sectors share of overall investment turnover fell from 53% to 32% over the same time frame.
Net initial yields on transactions Sector Central London Rest of South East Rest of UK Office Parks All Offices
Source: LSH Research Chart 19
Q1 2009 7.32% 9.62% 7.53% 9.41% 8.11%
Q3 2009 6.96% 7.99% 7.39% 8.57% 7.44%
Q1 2010 6.26% 7.88% 6.55% 8.08% 6.87%
National office market investment bn

Central London Rest of UK
10
Q1 2007
Q2
Q3
Q4
Q1 2008
Q2
Q3
Q4
Q1 2009
Q2
Q3
Q4
Q1 2010
Source: LSH Research/Property Data/Co Star Group
National Office Report / 2010 / Investment
Investment continued
Table 5
Throughout the downturn in investment levels, the Central London market has dominated office market transactions, usually accounting for between half to two thirds of the total investment into the sector in any one quarter Table 5. Value 1,070.0 772.5 333.8 208.0 183.0 134.4 101.0 73.1 55.7 55.5 Initial Yield 7.10% n/a 7.30% 5.80% 6.85% 8.00% 7.16% 5.94% 6.98% 7.75% Purchaser Recent activity has seen investor interest expand beyond Central London with prime product in major metropolitan cities and Blackstone Real Estate NPS Central London LP Oman Investment Fund Bermuda based investor NPS Central London LP Harel Insurance Tritax Asset Management Strathclyde Pension Fund iii-BVK Europa Immobilien Blenheim Properties Looking forward The more positive forecasts for the occupational markets in Central London will continue to fuel global demand for the investment product. This level of competition has and will continue to Value 183.4 175.0 126.0 110.0 90.0 89.5 85.0 71.5 60.0 57.0 51.3 Initial Yield 6.10% 6.13% 6.20% 6.10% n/a 5.50% n/a 7.00% n/a 8.12% 5.68% Purchaser Aerium Finance M1 Real Estate CommerzReal HIH Global Invest Delancey Overseas investor London & Regional Properties Confidential Middle Eastern investors Legal & General Property NFU Mutual Insurance encourage the UK institutions to broaden their geographical demand while maintaining a focus on prime product in tighter markets. There is now a huge disconnect between prime and secondary assets which is unlikely to close significantly until a trend of increased take-up followed by reducing incentives and subsequently rental growth is established. It does however produce opportunities to purchase secondary investment assets at or around the vacant possession value where medium term occupational prospects remain positive. established locations such as the Thames Valley being pursued Table 6. Q1 2010 has seen a progression in the focus of investor behaviour beyond Central London with higher yields being coveted. While the largest lot sizes still generate international demand, the rest of the UK is driven by the UK institutional market Table 7.
Top five major office deals 2009 Property Central London Broadgate Estate, EC2 (50% share) 8-16 Canada Square, E14 1-10 Bishops Square, E1 5 Churchill Place, E14 88 Wood Street, EC2 Rest of UK Surrey House, Norwich 7, 8 & 10 Brindley Place, Birmingham 141 Bothwell Street, Glasgow New Uberior House, Edinburgh Solent Business Park, Fareham
Table 6
Top major office deals Q1 2010 Property 3 Hardman Street, Manchester 37-63 Southampton Row, WC1 One Snowhill, Birmingham 100 New Bridge Street, EC4 40 Holborn Viaduct, EC1 77 Grosvenor Street, W1 Elizabeth House, SE1 St Mary Axe, EC2 5-7 Chesterfield Gardens, W1 26 Red Lion Square, WC1 1 Whitehall Riverside, Leeds
Table 7
Most active office investors by number of transactions six months to end March 2010 Investor Threadneedle Property Scottish Widows Legal & General Property Standard Life Aviva Investors Primary Health Properties
Value m 100.3 53.5 128.5 110.5 64.5 40.7
Number of transactions 7 5 4 4 4 4
tistics National Office Statistics National Office Stati
July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010 July 2010
Overview
The UK office market showed early signs of recovery in Q1 2010, with take-up levels returning to long run trend rates for the first time in two years. The recovery is being led by Central London, which experienced its highest quarterly take-up in five years. The upturn in activity is expected to filter out from Central London to the rest of the UK over the next 12 to 18 months. The South East and East have continued to struggle in Q1 2010 due to the occupational market still feeling the effects of the economic downturn. The Midlands, the North and Scottish markets have proved to be more resilient during the recession, with take-up levels experiencing a more modest slowdown. The reduced level of activity outside of Central London has seen availability rates rise across most of the UK to 12.7% of the total built stock in Q1 2010, from 11% at the end of 2008. Availability rates across the regions range from 17.1% in the South East compared to 9% in Central London. The South West, the North and the Midlands all have availability rates in excess of 15%, while Scotland and Wales have less available office stock. The rise in availability primarily occurred because second hand stock was released onto the market. Due to the lack of development in 2009 only 22% of UK stock currently available is Grade A space. This shortage of Grade A stock is likely to result in a return of rental growth much earlier than in previous cycles. Prime rents have already begun rising in Central London markets and this should filter out to the major metropolitan cities during 2011/12. However as demand in the occupier market increases the lack of Grade A space could spell trouble ahead.
Lambert Smith Hampton / 13 www.lsh.co.uk
Central London
Executive summary
The start of 2010 has seen the Central London market strengthen significantly, with take-up levels improving and availability reducing. Prime rents have begun to reflect the improving market conditions, with City and Midtown rents rising by 5.6% and 11.8% respectively to end Q1 2010 at 47.50 per sq ft. West End rents have stabilised at their Q4 2009 level at 75.00 per sq ft. The next 12 months are expected to see further increases in rental values as the market continues to improve.
Office market take-up 000 sq ft
City Midtown West End
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
Activity in 2009 fell to the lowest levels since the downturn of 2001/02, with 7.7m sq ft of lettings across the whole of the Central London market. Q1 2010 has seen a significant turnaround in the position, with 3.4m sq ft of take-up recorded and substantial levels of demand for floor space still waiting to be satisfied. All three of the Central London sub markets saw a marked improvement, although the City of London saw the most impressive increase in activity, with take-up of 2.2m sq ft, 69% of this being in Grade A stock. The West End and Midtown markets saw more modest improvements in letting activity, with take-up of 0.8m sq ft and 0.4m sq ft respectively.
The picture across the three sub markets is varied, with the City recording a decline in availability of 9.2% from the end of 2009, while both Midtown and West End markets saw a slight increase in available stock, up by 5.1% and 8.7% respectively. Grade A stock represents just 21% of overall built stock on the market with a further 4.1m sq ft of floor space currently under construction. Total availability represents 1.8 years supply based on the 10 year average of take-up for the Central London market, 10.7m sq ft per annum, with Grade A availability accounting for just over four months supply.
Source: London Office Database/LSH Research
Office market availability 000 sq ft

City Midtown West End
12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 Q1 2010
Source: London Office Database/LSH Research
Prime rents
Prime rents improved in both the City and Midtown markets in Q1 2010, rising by 5.6% and 11.8% to end the period at 47.50 per sq ft. West End rents remained at their end 2009 level of 75.00 per sq ft, bringing two years of decline to an end. The next 12 months should see a continuation of the improvements that began in Q1 2010, with availability continuing to reduce and occupational demand remaining strong. The limited development pipeline of new stock will add further upward pressure on rents as well as increasing lease terms and reducing the financial incentives offered to tenants.
Availability by size % of total sq ft
Availability
Q1 2010 saw Central London availability fall from its end 2009 level, a reduction of 1% to 18.7m sq ft, representing 9% of total built stock.
The City saw the most impressive increase in activity.

Office market prime rental values per sq ft
<5,000 4% 5,001-10,000 8% 10,001-20,000 11%
20,001-30,000 14% 30,001-50,000 23% >50,001 40%
City
Midtown
West End
140 120 100 80 60 40 20 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Lambert Smith Hampton Research | 14
Blackwater Valley
Executive summary
The occupational market in the Blackwater Valley almost ground to a halt in the 15 months to the end of Q1 2010, with only one transaction above 5,000 sq ft completing. Since the end of Q1 2010 market sentiment has improved resulting in the promise of renewed activity in the second half of the year. Total availability almost doubled, rising to 1.9m sq ft or 23.4% of built stock. Grade A stock remains in short supply, with only 142,233 sq ft of new built floor space on the market. Prime rents fell to 20.00 per sq ft in both town centre and out of town locations.
Poor second hand Good second hand New
600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
Occupational market activity in the Blackwater Valley all but came to a halt in 2009 and Q1 2010, with only one transaction of above 5,000 sq ft completing over the 15 month period. The 22,000 sq ft letting to IT services company Telindus, at Watchmoor Park, Camberley, was the largest transaction in the area and represents the most significant transaction in the Thames Valley in Q1 2010. Further activity has been recorded since the quarter end with the 20,000 sq ft letting to First Drinks at Bartley Wood Business Park, Hook. The tail off in activity in 2009 may be partially attributable to the buoyant market in the previous year, when take-up hit a seven year high of 540,000 sq ft.
Availability
Availability has almost doubled since the end of 2008, rising to 1.9m sq ft at the end of Q1 2010. There is a hidden supply of good quality corporate space that is available off market but is not reflected in the current statistics. The major cause of the increase in availability has been the release of second hand floor space onto the market. Good quality second hand space increased to 1.3m sq ft from 0.5m sq ft, while poor quality stock on the market more than doubled, rising to 465,000 sq ft. Grade A accommodation remains in short supply, with only 142,233 sq ft available, with no further floor space currently under construction. The availability rate rose to 23.7% of total built stock, representing 4.5 years supply at the 10 year average level of take-up.

2,000 1,750 1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Requirements by size % of total sq ft
Prime rents
There have been signs of an improvement in demand since Q1 2010 which should be reflected in take-up figures for the second half of the year.
The weak occupational market exerted downward pressure on both town centre and out of town rents. Out of town rents fell by 14.9% to reach 20.00 per sq ft at the end of 2009, while town centre rents fell by 9.1% to reach the same level. No further falls were recorded in Q1 2010.
5,001-10,000 13% 10,001-20,000 29% 20,001-30,000 18% 30,001-50,000 40% >50,001 0%
Town centre
Out of town
25
20
15
10
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
www.lsh.co.uk
Bracknell
Executive summary
The Bracknell market has remained under pressure throughout 2009 and early 2010, with take-up some 44% down on long run trend levels. Availability is dominated by a number of large buildings on the market, more than 70% of floor space currently being marketed is in buildings of 30,000 sq ft and above. Prime rents fell by 8.0% in 2009, but remained stable in Q1 2010 as some signs of improving occupational demand were evident.
Poor second-hand Good second-hand New
250 200 10 year average 150 100 50
Take-up
Take-up levels fell below its long run trend level in 2009, with the total of 82,700 sq ft of activity some 44% below the 10 year average level. Activity was focused on the second hand market, with the two largest transactions in poorer quality stock. The largest of these deals was the 30,000 sq ft letting to Waitrose at the Panasonic Building. The slow occupational market has continued into Q1 2010, with only one transaction in excess of 5,000 sq ft completing, the 5,500 sq ft letting to MCM Select at 1 Bracknell Beeches. Current demand is focused towards the smaller end of the market, with 78% of requirements for buildings of 30,000 sq ft and below.
Availability
Availability has risen by 51% since the end of 2008, to stand at 1.3m sq ft at the end of Q1 2010, with Grade A stock accounting for 36% of floor space. Grade A stock is based in four large buildings, the largest being the 185,104 sq ft Capitol building at Oldbury. Availability is dominated by larger buildings with more than 70% of floor space on the market in buildings of 30,000 sq ft and above. Total availability represents 30.4% of total built stock, or, nine years supply based on historic trend take-up levels.
2005
2006
2007
2008
2009
Q1 2010

1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents fell by 8% to 23.00 per sq ft by the end of 2009, prompted by the weak occupational market. Rental values will remain under pressure, with the high availability rate holding
Bracknell now offers the best value for money in the Thames Valley.
back growth.
5,001-10,000 8% 10,001-20,000 13% 20,001-30,000 9%
30,001-50,000 19% >50,001 51%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Fareham
Executive summary
The office market in Fareham is focused towards out of town with almost two thirds of letting activity over the past 15 months in out of town locations. Almost 90% of current availability, 1.3m sq ft, is out of town, with only 210,000 sq ft in Grade A stock. Prime rents in the town centre market have fallen by 21.1% to 15.00 per sq ft since the end of 2008, while out of town rents have remained stable at 19.00 per sq ft.
300 250 200 150 100 50 10 year average
Take-up
The slowdown in the occupier market in 2009 appears to be the low point in the market, with take-up in the first three months of 2010 showing a notable improvement on Q1 2009 levels. The first three months of 2010 have seen lettings of 40,500 sq ft compared to approximately 90,000 sq ft of transactions for the whole of 2009. Occupational market activity has been focused towards the out of town market, which accounts for 64% of total activity over the 15 month period to the end of Q1 2010. The majority of activity is directed towards the second hand market, which accounts for 83% of overall take-up since the start of 2009.
Availability
Availability has remained relatively stable since the end of 2008, rising by 2.7% to end Q1 2010 at 1.3m sq ft. Grade A stock accounts for 16% (210,000 sq ft) of overall availability. Almost 90% of availability is located out of town, the principal focus of the office market in Fareham. Town centre availability accounts for 145,000 sq ft of floor space currently on the market. The availability rate stood at 22% at the end of Q1 2010, up from 21.5% at the end of 2008. This represents 10.6 years supply of floor space at the long run average take-up for Fareham.
2005
2006
2007
2008
2009
Q1 2010

1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
The dominance of the out of town market in Fareham has seen prime out of town rents move ahead of town centre rents over the past couple of years.
The first three months of 2010 has seen lettings of 40,500 sq ft compared to approximately 90,000 sq ft of transactions for the whole of 2009.
Prime out of town rents remained stable at 19.00 per sq ft while town centre rents have fallen by 21.1% to 15.00 per sq ft due to a shortage of Grade A stock. The level of incentives being negotiated by tenants has notably increased over the last 12 months.
<5,000 28% 5,001-10,000 30% 10,001-20,000 16% 20,001-30,000 26% 30,001-50,000 0% >50,001 0%

Town centre Out of town
20 18 16 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Guildford
Executive summary
Prime rents have remained relatively stable in Guildford throughout the economic downturn. Supply has remained tight, with availability standing at 10.1% of total built stock, well below the regional average. Grade A availability accounts for less than 10% of overall stock on the market with no new buildings currently under construction. The weak occupational market has seen take-up remain below trend over the past two years and signs in Q1 2010 are for a continuation of this trend.
250 10 year average 200 150 100 50
Take-up
The level of take-up in Guildford remained below the long run trend level in 2009, with 108,000 sq ft of lettings. The largest transaction was the 46,000 sq ft letting to lawyers, Stevens & Bolton, at Wey Court. Remaining letting were focused on suites of less than 10,000 sq ft. The market has remained difficult in Q1 2010, with lettings of 11,700 sq ft completing in five transactions. Demand levels have weakened considerably over the past two years as occupiers have held back requirements due to economic and political uncertainty.
Availability
Availability remained tight, with only 343,600 sq ft on the market and Grade A availability representing only 9.1% of overall availability. Almost 40% of available stock is in suites and buildings of less than 10,000 sq ft while there is only one building above 50,000 sq ft on the market. The availability rate stands at 10.1% of total built stock, well below the average for the Thames Valley and South East office markets.
2005
2006
2007
2008
2009
Q1 2010

400 350 300 250 200 150 100 50
Prime rents
Prime rents have remained relatively stable because of the tight supply conditions in the Guildford market. Prime town centre rents eased back to 27.00 per sq ft in 2009, a fall of 1.8%, but remained steady at that level through to the end of Q1 2010. Rents in the out of town market have remained stable at 25.00 per sq ft although tenant incentives have risen. Rents are likely to rise in the town centre, where the supply of large Grade A space is limited.
2005
2006
2007
2008
2009
Q1 2010
Take-up has remained below trend and signs in Q1 2010 are for a continuation of this.
<5,000 21% 5,001-10,000 17% 10,001-20,000 18%
20,001-30,000 6% 30,001-50,000 22% >50,001 16%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Heathrow
Executive summary
The Heathrow market has remained weak since the onset of the recession, with take-up below its 10 year average level and availability rates rising. Tenants have targeted Grade A accommodation, taking advantage of the favourable terms on offer from landlords looking to secure lettings and reduce their empty rates liability. Prime rents fell back to their 2004 level, falling back to 25.00 per sq ft at the end of 2009 although tenant incentive packages have increased.
350 300 250 200 150 100 50 10 year average
Take-up
Take-up in the Heathrow office market remained weak over 2009 and into Q1 2010, continuing the trend that was established in the previous year. Total activity was 170,600 sq ft in 2009, with more than 70% of take-up accounted for by the four lettings at Stockley Park. The largest of these was the 93,055 sq ft letting to Canon at The Square, Stockley Park. Occupiers have taken advantage of the favourable terms on offer, targeting Grade A stock, which accounted for 81% of total letting activity in 2009 and almost 90% of the take-up in Q1 2010.
Availability
Availability increased by 61% from its end 2008 level, rising to 1.5m sq ft at the end of Q1 2010. Both Grade A and second hand availability rose, increasing by 50% and 79% respectively. Grade A stock accounts for 57% of total availability, with 824,300 sq ft on the market. Two thirds of Grade A availability is contained in four buildings of above 50,000 sq ft, the largest of these being the 275,750 sq ft building at London Gate, Hayes. Availability stands at 18.8% of total built stock, which represents 4.3 years supply based on the 10 year average take-up trend level.
2005
2006
2007
2008
2009
Q1 2010

1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
The Heathrow market continues to struggle and, once again, Stockley Park is expected to account for most of the activity in 2010.
Prime rents returned to their 2004 level, falling to 25.00 per sq ft at the end of 2009, a decline of 9.1% and will remain under pressure until supply conditions improve. Tenant incentives increased significantly over the year, although there are signs that these may have levelled.
<5,000 7% 5,001-10,000 2% 10,001-20,000 15% 20,001-30,000 14% 30,001-50,000 13% >50,001 49%

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Maidenhead
Executive summary
Take-up has yet to recover from its 2009 level, with Q1 2010 take-up standing at 11,500 sq ft compared to 112,000 sq ft in the previous 12 months. Availability has increased over the past 15 months with an increase in Grade A new build stock. Almost 60% of total availability is in Grade A new build accommodation. Lack of deals makes assessing prime rents less than scientific but current levels are likely to be mid/late 20.00 per sq ft ahead of incentives.
250 10 year average 200 150 100 50 0
Take-up
Take-up fell in 2009, below its long run trend level of 200,000 sq ft per annum, registering 112,000 sq ft for the year. Activity was focused on second hand space, which accounted for 75% of total activity. Three lettings over 5,000 sq ft stole the headlines with two transactions in the town centre. Bell Tower House let for Mapeley to BCD Travel and Third Floor, The Place, Bridge Avenue, let for CBRE to Alfresco Software. The third and largest transaction was the 25,000 sq ft letting at Q1 Quantum to Compuware.
Availability
Availability has increased since the end of 2008, rising by 20% to reach approximately 600,000 sq ft at the end of Q1 2010. Almost 60% of overall availability is in Grade A new build stock. The out of town and town centre markets both offer a range of buildings up to 85,000 sq ft. The overall availability rate rose to 14.6% of total built stock at the end of 2009 but moved to 13.5% by the end of Q1 2010. Current availability represents approximately three years supply, based on historic average take-up levels.
2005
2006
2007
2008
2009
Q1 2010

800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents in Maidenhead continued to fall during 2009 and into Q1 2010. The overall fall in rents over the past 15 months has been 13.3%, with the sentiment for headline rents standing at 26.00 to 28.00 per sq ft at the end of Q1 2010. With so many options available, tenants have great leverage in the market, not least in lease regear situations where the negotiation of concessionary terms has been a significant characteristic of this market.
With some 40,000 sq ft in solicitors hands in Q2 and enquiries on the increase we expect the second half of 2010 to be more successful.
<5,000 6% 5,001-10,000 12% 10,001-20,000 15%
20,001-30,000 13% 30,001-50,000 19% >50,001 35%

40 35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Milton Keynes
Executive summary
Take-up levels remained buoyant in the Milton Keynes market during 2009, although activity levels have eased in Q1 2010. Availability has risen by 21% since the end of 2008 to 1.7m sq ft, due principally to the release of second hand space onto the market. There continues to be a shortage of Grade A accommodation, with only 94,000 sq ft of space available. Prime rents have remained steady in both town centre and out of town markets, at 20.00 per sq ft and 17.50 per sq ft respectively.
400 350 300 250 200 150 100 50 10 year average
Take-up
Take-up remained at long run trend levels in 2009, with 319,408 sq ft of activity recorded. Almost 40% of take-up was of Grade A accommodation, with the largest transaction being the 62,000 sq ft letting to Network Rail at MK Central. More than 63% of activity in 2009 was focused towards the town centre market, although this trend was reversed in the early part of 2010, with the majority of lettings arising out of town. The market slowed in Q1 2010 with 54,200 sq ft of lettings completed. The majority of this activity was focused towards the second hand market.
Availability
Overall availability increased by 21% in the 15 months to the end of 2009 as the levels of second hand stock released onto the market has gathered momentum. Total availability amounts to 1.7m sq ft at the end of Q1 2010. Current availability amounts to 5.1 years supply, based on the historic trend rate of take-up, while there continues to be a shortage of Grade A accommodation, which amounts to 94,000 sq ft of space. Availability is dominated by second hand space, which accounts for 94% of floor space, the majority of second hand space being in good quality accommodation. The current availability rate stands at 22.9% of total built stock, up from 18.9% at the end of 2008.
2005
2006
2007
2008
2009
Q1 2010

1,750 1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
The relatively buoyant occupational market has seen prime town centre and out of town rents remain stable.
The relatively buoyant occupational market throughout 2009 has seen prime town centre and out of town rents remain stable at 20.00 per sq ft and 17.50 per sq ft respectively. An easing in the demand for floor space may challenge these levels, although the shortage of Grade A stock may help to support rental levels.
<5,000 9% 5,001-10,000 9% 10,001-20,000 10% 20,001-30,000 10% 30,001-50,000 15% >50,001 47%

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1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
www.lsh.co.uk
Newbury
Executive summary
Take-up was down by 61% from the low point in 2008, with 49,711 sq ft of take-up recorded for the year. Despite the recovery in activity, take-up in 2009 was still 40% below the long run trend. Availability has increased over the past 15 months. The increase is due to the release of good quality, second hand space onto the market. The lack of development activity around the town has resulted in no Grade A stock being marketed. Prime rents grew by 3% in 2009 to end 2009 at 17.00 per sq ft.
150 125 100 75 50 25

10 year average
Take-up
Take-up in Newbury recovered from a low point in 2008, with total occupational market activity of 49,711 sq ft for the calendar year 2009. This was up from 30,800 sq ft in the previous year. Activity was focused on good quality, second hand space, with no Grade A stock currently available in the town. The largest transaction in 2009 was the purchase by West Berkshire Council of the freehold interest in 24,000 sq ft West Street House, West Street, for 4.2m. No transactions over 5,000 sq ft were completed in the town in Q1 2010 due to tenants deferring their occupational decisions.
Availability
Total availability increased by 15% between the year-end 2008 and the end of Q1 2010 due to the release of good quality, second hand space onto the market. Overall stock on the market amounted to 232,000 sq ft. Availability has remained low in relation to other markets in the Thames Valley because of the lack of new development in the town. Floor space on the market consists entirely of second hand space, with almost three quarters of stock in good quality, second hand buildings. The availability rate increased to 5.8% of total built stock, up from 5% at the end of 2008, which equates to 2.7 years supply at long run historic take-up levels.
2005
2006
2007
2008
2009
Q1 2010

400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Rental values have been volatile over the past few years, recovering from the downturn in 2008 which resulted from a slump in letting activity. Prime rents increased by 3% in 2009 to 17.00 per sq ft on the back of increased activity in the Newbury market.
5,001-10,000 43% 10,001-20,000 47% 20,001-30,000 10% 30,001-50,000 0% >50,001 0%
The Newbury market lacks new, high quality, refurbished office space.

20
15
10
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Oxford
Executive summary
Take-up of 279,970 sq ft in 2009 represented a 44% increase over the previous years total, establishing Oxford as one of the few markets in the South East to see an increase in occupational activity during the year. Availability fell to 869,500 sq ft, 12.2% of total built stock, a decline of 24% from the levels of floor space on the market at the end of 2008. Prime rents city centre fell back to 23.00 per sq ft by the end of 2009, the first fall in Oxford office rents since 2004.
300 10 year average 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
Take-up recovered sharply in 2009, with overall lettings up to 279,970 sq ft, 44% higher than the previous years total. The first three months of 2010 has been particularly slow with no letting greater than 5,000 sq ft completing. Activity was boosted by several large transactions out of town, the biggest being the 41,500 sq ft letting to Vertex at 86-87 Milton Park. Overall, activity in the out of town market accounted for more than three quarters of letting activity. Lettings of Grade A accommodation accounted for 53% of activity. The remaining activity was mainly good quality, second hand space.
Availability
Following the strong occupier market in 2009, availability reduced in Oxford, falling by 24% to 869,500 sq ft, 12.2% of total built stock, representing 3.6 years supply at long run trend levels of take-up. Grade A availability stands at 413,596 sq ft, 48% of total built stock, with 57% of new built stock in out of town locations. This is indicative of the Oxford market where almost 70% of overall availability is in out of town locations. Availability is focused towards the smaller end of the market, with buildings of less than 20,000 sq ft accounting for 64% of total floor space.

1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents in the city centre market re-adjusted to their 2007 levels in Q1 2010, falling by 4.2% to 23.00 per sq ft. This re-established the parity between city centre and out of town markets which diverged in 2008. This is the first fall in rents recorded in the Oxford office market since 2004.
5,001-10,000 34% 10,001-20,000 31% 20,001-30,000 14% 30,001-50,000 14% >50,001 7%
The main focus of demand in Oxford has been derived from the biotech and pharmaceutical sectors.

City centre Out of town
25
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10
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
www.lsh.co.uk
Reading
Executive summary
The occupational market in Reading has been difficult over the past 15 months with take-up in 2009 reaching 185,764 sq ft, the lowest recorded in over 10 years. The difficult market conditions pushed availability up to 22% of total built stock, the highest recorded since 2001/02. Grade A accommodation accounts for 47% of the total 2.1m sq ft. Readings out of town market has suffered like other Thames Valley centres and rents have fallen to 23.00 per sq ft. The town centre market has been a phenomena, with rents on new/prime offices close to the station remaining at 28.50 per sq ft over the last 18 months, in contrast to the rest of the Thames Valley market.
800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
Take-up recorded its lowest total in more than 10 years, with total occupational market activity of 185,764 sq ft in 2009. The major slowing in activity occurred in the town centre market, which accounted for only 38,820 sq ft, while out of town take-up was 146,944 sq ft. The two largest transactions were out of town; the 55,000 sq ft letting to the University of Reading at the Enterprise Centre was the largest deal, while Thames Waters acquisition of 43,314 sq ft at 550, South Oak Way, registered the second largest transaction. These lettings accounted for the total of Grade A take-up, while the remainder of take-up for the year was focused on second hand space. Q1 2010 has got off to a slow start with only 22,260 sq ft let, in two transactions at Plaza West in the town centre.
Since the end of Q1, Kaplan completed the acquisition of 12,425 sq ft at The Blade.

Availability
Availability surpassed the 2m sq ft mark for the first time in Q1 2010, increasing by 7.3% from the end 2008 level. Grade A availability also increased, rising to just over 1m sq ft, with 80% of available new built stock out of town. The increase in floor space on the market was wholly attributable to the increase in stock being marketed out of town, which accounted for 62% of overall availability at 1.3m sq ft. The current availability rate stands at 22% of total built stock, which represents five years supply based on the long run trend rate of take-up for the Reading market.
2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Readings out of town market has seen prime rental values come under pressure, falling by 11.5% since the end of 2008. Town centre rents have remained relatively firm at 28.50 per sq ft with only limited occupational activity recorded.
5,001-10,000 12% 10,001-20,000 11% 20,001-30,000 11% 30,001-50,000 9% >50,001 57%
Town centre rents remain firm while out of town rents are under pressure.

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Slough
Executive summary
Take-up levels have remained below the long run trend rate for Slough for the past two years but early indications are that 2010 may prove to be a year of recovery. The supply of stock on the market has also increased, rising to 21% of total built stock, with the majority of the increase due to the rise in Grade A stock which represents 32% of total availability. Prime rents fell back to mid 1990 levels, standing at 20.00 per sq ft at the end of Q1 2010, 37.5% below their 2001 peak.
400 350 300

10 year average
250 200 150 100 50
Take-up
Occupational market activity in Slough fell below its long run average level for the second successive year in 2009, recording take-up of 126,300 sq ft, some 48% down on the 10 year average for the town. Q1 2010 saw 25,000 sq ft of transactions recorded although in the weeks following the quarter end a number of transactions completed suggesting that the Slough market may be recovering from a period of weak occupational demand. Take-up was held back by the shortage of large transactions. No transactions have completed in excess of 20,000 sq ft over the past 15 months. The largest transaction was the 18,000 sq ft letting at Betjeman Place, Bath Road. Following the end of Q1 2010, the freeing up of space by Hospedias move to Landmark Place has enabled RIM (Blackberry) to increase its occupation
at Thames Valley Court by 45,000 sq ft. The RIM transaction was completed in April 2010.
2005
2006
2007
2008
2009
Q1 2010
Availability
Availability increased by 11% from its end 2008 level, to end Q1 2010 at 917,690 sq ft. The increase in availability was largely due to the rise in Grade A stock on the market, which rose by 32% to 296,300 sq ft. The availability rate increased to 21% of total floor space at the end of Q1 2010, up from 17.1% at the end of 2008. Current availability represents 7.3 years supply of floor space based on the take-up levels in 2009. However, this reduces to 3.7 years when compared to the long run trend take-up level. Current market supply is dominated by building of 20,000 sq ft and above, which accounts for 70% of total floor space on the market.

1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
2010 may be the year for the Slough market to rebound from the doldrums.
Prime town centre rents have now fallen to 20.00 per sq ft. Rental levels in Slough have fallen back to mid 1990 levels, having peaked at 32.00 per sq ft in 2001.
5,001-10,000 13% 10,001-20,000 16% 20,001-30,000 26% 30,001-50,000 19% >50,001 26%

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Southampton
Executive summary
The office market in Southampton is focused around the town centre, with take-up over the past 15 months split 80:20 between town centre and out of town lettings. Town centre availability accounts for 72% of the total 504,000 sq ft of floor space on the market. Shortages exist in Grade A stock which represents just 20% of overall availability. Town centre rents have fallen by 4.8% over the past 15 months, compared to the 10% falls seen in the out of town market.
400 350 300 250 200 150 100 50

10 year average
Take-up
Take-up in the Southampton market has fallen below the 10 year average for the town since 2007, averaging 125,000 sq ft over the past two years compared to the long run average of 235,000 sq ft per annum. Activity in the town is dominated by lettings of less than 20,000 sq ft. All activity over the past 15 months has been focused entirely towards this area of the market. An improvement in activity has been seen in 2010, with 54,000 sq ft of take-up registered in the first three months of the year.
Availability
Availability has fallen during Q1 2010, as letting activity has begun to gather momentum. Total availability fell to 504,000 sq ft, with 20% of floor space on the market in Grade A stock. The town centre market dominates availability, accounting for 72% (364,000 sq ft) of floor space on the market. More than 59% of availability, both in town and out of town, is in buildings or suites of less than 10,000 sq ft.
2005
2006
2007
2008
2009
Q1 2010

1,000 800 600 400 200
Prime rents
Prime town centre rents fell by 4.8% over the last 12 months to the end of 2009 but have remained stable at 20.00 per sq ft over the first three months of 2010, although tenant incentives continue to rise. The out of town market has seen greater falls, with prime rents down by 10% from
2005
2006
2007
2008
2009
Q1 2010
Availability has fallen during Q1 2010 as letting activity has begun to gather momentum.
their end 2008 levels to 18.00 per sq ft.
<5,000 22% 5,001-10,000 36% 10,001-20,000 19%
20,001-30,000 23% 30,001-50,000 0% >50,001 0%

25
20
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1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Staines
Executive summary
The second half of 2009 saw activity levels slow, after a buoyant start to the year, which was prompted by several large lettings at Pine Trees Office Park. This trend was continued into Q1 2010. Availability has eased marginally, but remains at 19.3% of total built stock, with 151,800 sq ft of Grade A space on the market. Prime rents have fallen back by 10.3% to 26.00 per sq ft, although lack of evidence has made it difficult to establish the true rental level.
300 250 200 150

10 year average
100 50
Take-up
Occupational market activity has remained strong in the Staines market over the past three years, registering take-up levels at, or above, the long run trend level of take-up for the town. Overall take-up in 2009 was 20% higher than in previous years. Grade A stock accounted for 53% of the lettings. The largest lettings were at Pine Trees Office Park, Chertsey Lane, where BUPA acquired a total of 81,560 sq ft. The first three months of 2010 has seen a disappointing start to the year with only one deal of 1,200 sq ft completing.
Availability
The rise in availability at the end of 2009 was partially reversed in the first three months of the current year, standing at 594,300 sq ft at the end of Q1 2010. More than 60% of total availability is in buildings of 30,000 sq ft or above, with a shortage of stock below 10,000 sq ft. Grade A availability represents 26% of total availability, with a further 93,800 sq ft approaching completion at Opus 1, The Causeway. The availability rate stands at 19.3% of total built stock, which represents 5.4 years supply of floor space at long run trend rates of take-up.
2005
2006
2007
2008
2009
Q1 2010

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents fell back by 10.3% to 26.00 per sq ft by the end of 2009 as activity
The supply of Grade A space will increase this year resulting in further downward pressure on rents as void rates rise.
levels slowed in the second half of the year. Rents remained stable at their end 2009 levels during Q1 2010, although the lack of activity in the occupational market has made it difficult to identify the current rental level.
<5,000 6% 5,001-10,000 8% 10,001-20,000 15% 20,001-30,000 9% 30,001-50,000 41% >50,001 21%

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Uxbridge
Executive summary
The occupational market has been slow in Uxbridge over the past two years, with take-up falling below the 10 year average for the town. Total take-up in 2009 was 133,100 sq ft, some 38% below the long run average level and 27% down on the previous years figure. Despite the slow letting market, availability has remained relatively low standing at 483,100 sq ft, 5.6% of total built stock in the Uxbridge area. Rental values have adjusted quickly to the slow market, falling by 9.3% since the end of 2008, with prime rents standing at 24.50 per sq ft.
500 400 300

10 year average
200 100 0
Take-up
Occupational market activity in Uxbridge has fallen below the 10 year average for the town in each of the past two years. Take-up in 2009 was 27% down on the previous years total, with 133,100 sq ft of lettings. The two largest transactions accounted for more than half of total take-up for the year. The largest of these was the 46,677 sq ft letting to Norgine at Chaplin House, Moorhall Road, with the second transaction of 22,060 sq ft let to Convatec at Harrington House, Milton Road. Both these transactions were Grade A stock, helping to boost activity in this area of the market to 90,556 sq ft, 68% of total market activity.
Availability
Availability has reduced since the end of 2008, falling by 12% to end Q1 2010 at 483,100 sq ft, 5.6% of total built stock in the Uxbridge area. The balance of availability is in second hand stock, with Grade A space accounting for 28% of the total supply of floor space on the market. The current level of availability equates to 2.3 years supply of floor space based on the 10 year average take-up figure, although the years supply figure rises to 3.6 years when compared to the disappointing takeup figure achieved in 2009.
2005
2006
2007
2008
2009
Q1 2010

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents in the Uxbridge market have failed to return to the peak levels of 29.00 per sq ft achieved in 2001,
The release of second hand stock will push up availability in 2010, although several significant lettings in Q3 and Q4 will counter this trend.
touching 27.00 per sq ft in 2008 before falling to 24.50 per sq ft at the end of Q1 2010. Rents have fallen by 9.3% in the past 15 months, returning to levels last seen in 2003/04.
<5,000 17% 5,001-10,000 15% 10,001-20,000 30% 20,001-30,000 24% 30,001-50,000 14% >50,001 0%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Cambridge
Executive summary
Take-up levels fell below its long run trend level in Cambridge as the market was dominated by lettings below 20,000 sq ft. Availability fell marginally in the first three months of 2010, as the amount of Grade A stock on the market reduced. Almost 38% of stock on the market is Grade A stock with a further 49% in good quality, second hand space. Prime city centre rents have risen above out of town rents, the headline figure increasing to 28.00 per sq ft and out of town remaining steady at 26.00 per sq ft.
600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
The Cambridge office market saw take-up fall to 310,000 sq ft in 2009, 27% below the previous years annual total and more than 30% below the long run trend rate of take-up for the city. The focus of occupier activity is on out of town offices which are less than 20,000 sq ft. The only transaction above the 20,000 sq ft threshold was the 27,000 sq ft letting at Cambridge Science Park that transacted in the early part of 2009. Q1 2010 has seen the slow occupational market of 2009 continue, with lettings of 48,600 sq ft completed. However, current requirement levels suggest a more active Q2 with rents forecast to remain strong.
Availability
Availability fell in Q1 2010 as the amount of Grade A stock on the market fell to 377,700 sq ft, with a further 203,500 sq ft of space currently under construction. Total availability now stands at 1.0m sq ft with Grade A stock accounting for 38% of available floor space and good quality, second hand stock a further 49%.

1,200 1,000 800 600
The availability rate has fallen to 14.5%, down from 16.1% at the end of 2009, but still significantly higher than at any other time since early 2000/01. Total availability represents 2.2 years supply based on the 10 year average level of take-up. Requirements by size % of total sq ft
400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rental values have stayed strong in both the city centre and out of town markets mainly due to the shortage of Grade A stock. Q1 2010 saw headline rents in the city centre improve to 28.00 per sq ft while out of town rents remained stable at 26.00 per sq ft.
<5,000 21% 5,001-10,000 17% 10,001-20,000 18% 20,001-30,000 6% 30,001-50,000 22% >50,001 16%
The availability rate has fallen to 14.5% but is still higher than anytime since early 2000/01.

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Chelmsford
Executive summary
Take-up in Chelmsford has been dominated by the largest letting in the out of town market over the past 15 months, the 32,230 sq ft transaction at Chelmsford Business Park. Activity has been hampered by the lack of Grade A stock on the market. At the end of Q1 2010, only 16,000 sq ft of Grade A stock was on the market, with total availability standing at 263,000 sq ft. Prime rents fell to 22.50 per sq ft during 2009, a decline of 8.2% but have remained stable at their year end level in Q1 2010.
175 150 10 year average 125 100 75 50 25 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
The occupier market has remained slow in Chelmsford over the past couple of years, with take-up levels recorded in each of the past two years being below the 10 year average for the town. Take-up of offices above 5,000 sq ft in 2009 amounted to 58,630 sq ft, with more than 55% of activity in this sector of the market accounted for by the largest letting, the 32,230 sq ft letting at Chelmsford Business Park. The out of town market has been the most active sector in Chelmsford over the past 15 months accounting for more than 80% of letting activity.
Availability
There is a shortage of Grade A stock in the Chelmsford market, with only 16,000 sq ft of new built accommodation on the market at the end of Q1 2010. Availability is dominated by second hand space, which accounts for 94% of total availability, with a relatively even split between good quality and poor quality accommodation. More than 85% of accommodation is in buildings of less than 20,000 sq ft. The availability rate stands at 7.5% of total built stock in the town, which represents 2.2 years supply at the long run trend rate of take-up for the town.

400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents in both the town centre and out of town market fell by 8.2% during 2009, falling to 22.50 per sq ft from 24.50 per sq ft in 2008. Rents are now 10% below their 2003 peak of 25.00 per sq ft.
Prime rents have remained stable at their year end level in Q1 2010.
<5,000 50% 5,001-10,000 0% 10,001-20,000 14%
20,001-30,000 14% 30,001-50,000 22% >50,001 0%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Hemel Hempstead
Executive summary
The occupational market in Hemel Hempstead saw good levels of take-up in 2009 due to four transactions, the largest of which was the letting to Epson (UK), which accounted for 32% of the years activity. Availability of 675,000 sq ft is evenly spread between Grade A and second hand floor space, with the availability rate representing 16.4% of total built stock. Prime rents have fallen by 5% to 19.00 per sq ft as activity levels have eased.
300 250 200

10 year average
150 100 50
Take-up
The level of occupational market activity improved in the Hemel Hempstead market in 2009, recording its highest total for two years, with 147,863 sq ft of space acquired, an improvement of 28% over the previous years total. The largest transaction was the 52,000 sq ft sub-let of British Telecoms offices at Westside, London Road to Epson (UK). The Hemel Hempstead market is focused out of town, with 95% of recent activity focused on the decentralised market. The occupational market has remained slow in the first three months of 2010, with activity focused towards smaller transactions.
Availability
Availability at the end of Q1 2010 stood at 675,000 sq ft, an increase on the levels of availability at the end of 2009. The levels of availability are evenly spread between Grade A and second hand stock, Grade A availability of 325,000 sq ft is focused in the out of town market, with space at Westside Breakspear Park accounting for more than half of good quality space. Current availability equates to 16.4% of total built stock, representing 4.6 years supply at 2009s take-up levels.
2005
2006
2007
2008
2009
Q1 2010

900 750 600 450 300 150 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents fell to 19.00 per sq ft, a decline of 5%, but have remained stable at that level in Q1 2010. Any improvement in rental levels will be dependent on increased occupier demand Availability by size % of total sq ft
Activity improved in the Hemel Hempstead market in 2009, recording its highest total for two years.
in the remainder of the year.
<5,000 10% 5,001-10,000 7% 10,001-20,000 25%
20,001-30,000 0% 30,001-50,000 21% >50,001 37%

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Luton
Executive summary
Following a disappointing 2009 when only 39,950 sq ft of take-up was recorded, the current year has begun on a more positive note, with letting activity in Q1 2010 surpassing last years total. After a sharp upturn in availability in 2008, due primarily to the release of second hand space onto the market, the availability rate has remained stable at around 15%. Grade A stock has remained in short supply over the past few years, standing at 51,100 sq ft at the end of Q1 2010, accounting for less than 10% of overall availability. Prime headline rents in the out of town market have fallen by 7.5% since their peak in 2007, standing at 18.50 per sq ft at the end of Q1 2010. Town centre rents are significantly lower at 10.00 per sq ft.
300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010 10 year average
Take-up
Take-up levels in the Luton market were down significantly in 2009, falling to 39,950 sq ft from 193,500 sq ft in the previous year. Last years activity levels are the lowest for over 10 years with few transactions completing. The current year has started on a more positive note, with lettings in excess of the total activity for the whole of last year, standing at 41,260 sq ft. If activity continues at a similar pace for the remainder of the year, take-up levels will approach trend levels of activity. Activity over the past 15 months has been evenly spread between town centre and out of town market, although activity in Grade A stock has been held back by the lack of supply in the market.
Availability
Availability has shifted upwards over the past couple of years, rising from 335,100 sq ft to 639,800 sq ft at the end of Q1 2010. The principal rise in availability has been derived from the release of second hand stock onto the market. Grade A stock has remained in short supply, with only 51,100 sq ft of new built floor space on the market at the end of Q1 2010. The availability rate stands at 15.4% of total built stock, almost double the end 2007 figure of 8.7%. Current availability equates to 3.7 years supply of floor space at historic average take-up levels.

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
The out of town office market has provided the majority of Grade A stock in recent years with the majority of stock coming to the market at Capability Green and Butterfield. Out of town headline rents peaked at 20.00 per sq ft at the end of 2007 but eased back by 7.5% to 18.50 per sq ft over the past couple of years. Town centre prime rents remain some way below the out of town market, standing at 10.00 per sq ft at the end of Q1 2010.
The current year has begun on a more positive note, with letting activity in Q1 2010 surpassing last years total.
<5,000 32% 5,001-10,000 24% 10,001-20,000 25%

20,001-30,000 6% 30,001-50,000 5% >50,001 8%
Town centre
Out of town
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Q1 2010
Peterborough
Executive summary
Take-up in 2009 fell by more than 50% from 2008s total, as the demand for office space contracted. Overall, take-up amounted to 152,500 sq ft, with 84% of activity focused towards the out of town market. Availability increased to 530,000 sq ft, representing 10.8% of total built stock, although 43% of the current space on the market is in poor quality stock. Excluding poorer quality, second hand space, the availability rate reduced to 6.1%. Prime out of town rents have declined to around 13.50 per sq ft. City centre rents have fallen to around 13.00 per sq ft, reflecting the trend for occupiers to move out of town.
350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
Take-up fell to less than half of the previous years total in 2009, with 152,500 sq ft of activity recorded for the year as a whole. The start of the current year has continued in a similar vein with around 30,000 sq ft of lettings in transactions above 5,000 sq ft. Offices in Peterborough are dominated by the out of town market. Activity in 2009 reflected this with the out of town market accounting for 128,000 sq ft (84%) of take-up. The largest transaction was the letting of 56,000 sq ft in Nene Hall, Linchwood Park to Royal Sun Alliance. This typified the sentiment amongst occupiers, with a number of other transactions favouring Grade A stock, which accounted for two thirds of overall take-up.
Availability
The level of available floor space has risen by 32% from the end 2008 figure, standing at 530,000 sq ft at Q1 2010. Availability is entirely second hand stock, with shortages existing in buildings of 5,000 to 20,000 sq ft. Including all grades of stock, the availability rate stands at 10.8% of built stock in the Peterborough area. Although 43% of floor space is in poorer quality stock, which if excluded, reduces the effective availability rate to 6.1%. The total of available floor space equates to 2.3 years supply at the long run historic trend rate of take-up for Peterborough, or 3.5 years at 2009s disappointing levels of activity. Office market availability 000 sq ft
600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime out of town rents in Peterborough declined to about 13.50 per sq ft, currently standing at a small premium to city centre rents, although this is due to limited availability of Grade A stock in the city centre market.
A persisting lack of Grade A stock in the City centre will continue to drive occupiers out of town.
The city centre market has seen a greater fluctuation in values, with prime rents falling by 18.8% since 2007 to 13.00 per sq ft, reflecting the shift in occupier preferences towards out of town, with the lack of prime city centre space fuelling this trend.
5,001-10,000 22% 10,001-20,000 11% 20,001-30,000 67%

30,001-50,000 0% >50,001 0%
City centre
Out of town
18 16 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
St Albans
Executive summary
St Albans experienced a difficult market in 2009, with take-up falling to its lowest level on record and occupier demand stagnating. Total take-up for 2009 was 12,770 sq ft compared to 131,500 sq ft in 2008. The average take-up for the city was 93,700 sq ft per annum. The availability rate for the city is one of the lowest in the the East region, standing at 6.5% of total floor space, with almost two thirds of availability in Grade A stock. The office market is predominantly focused in the town centre, with only limited activity out of the city. Rents have fallen over the past 15 months, and tenant incentives have increased, as the lack of activity and occupational demand has impacted on landlords ability to maintain rental levels. Prime rents stood at 22.70 per sq ft at the end of Q1 2010, some 9.2% lower than their end 2008 level.
Almost two thirds of available floor space is in Grade A stock, with the remaining second hand space evenly distributed between good quality, second hand space and poor quality stock The availability rate for St Albans stands at 6.5% of total built stock, significantly lower than the average availability rate for the East region, which stands at 14.2%. Based on the current levels of availability, there is 1.8 years supply of floor space on the market, assuming the 10 year average take-up level of 93,700 sq ft per annum. There are few opportunities for new office development going forward with most sites being allocated to residential. Office market take-up 000 sq ft
200 175 150 125 100 75 50 25 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
The occupier market in St Albans slowed significantly in 2009, after three years (2006 to 2008) of above average activity. Total take-up in 2009 fell to 12,770 sq ft from 131,500 sq ft in the previous year. The first three months of 2010, while showing some element of improvement from the previous years slow market, has still only recorded 14,100 sq ft of activity in one transaction. The St Albans market is focused on the town centre with only small buildings available out of town.
Poor second hand
Good second hand
New
350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
Availability
The level of availability has been reducing since 2006, falling from 300,600 sq ft to 165,800 sq ft as at the end of Q1 2010.
Prime rents
Prime town centre office rents have eased back since the end of 2008, falling by 9.2% to 22.70 per sq ft at the end of 2009, as the lack of occupier activity impacted on rental levels. Rental values are likely to continue softening over the remainder of 2010, with the occupational market remaining weak.
5,001-10,000 0% 10,001-20,000 35% 20,001-30,000 65% 30,001-50,000 0% >50,001 0%
The availability rate for the city is one of the lowest in the East region.

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Watford
Executive summary
Take-up in 2009 was down by 30% from the previous years levels, however the level of activity remained broadly in line with the historic average of take-up for the town at 145,900 sq ft. Availability at the end of Q1 2010 remained relatively stable at 641,554 sq ft although almost one third is poorer quality, second hand space. There is a shortage of new built space, particularly in the town centre, and no buildings of above 50,000 sq ft are currently on the market. Prime rents have remained stable, supported by the moderate supply of Grade A space.
buildings in the town, with no availability of floor space in buildings of more than 50,000 sq ft. Current availability is split between the town centre and out of town markets, with almost two thirds out of town. Grade A stock accounts for 20% of overall availability, with only 17,394 sq ft in the town centre. The availability rate stands at 23.4% of total built stock which represents 4.1 years supply at historic take-up levels. However, discounting the poor quality, second hand space, availability reduces to 16.2% and less than three years supply. Grade A stock represents just over one years supply of space at 2009 take-up levels. Office market take-up 000 sq ft
300 250 200

10 year average
150 100 50 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
Take-up during 2009 in the Watford market was 30% below the previous years figure with 145,900 sq ft of transactions. Almost half of activity was in Grade A stock, the largest transaction being the 43,259 sq ft freehold purchase by Action for Children at 3 The Boulevard for 6.8m. The out of town market accounted for 65% of overall activity in the Watford area, with almost half of out of town activity focused on Croxley Green Business Park. The momentum in the market has slowed significantly in Q1 2010, with a number of small lettings completing, resulting in total activity of 6,095 sq ft.

1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Availability
Availability remains high in the town, with 641,554 sq ft on the market at the end of Q1 2010. There is a shortage of large
Prime rents
Prime rents have remained relatively stable over the past few years, with town centre rents at 22.00 per sq ft and out of town rents at 18.00 per sq ft, although tenant incentives currently represents 12 months rent free on a five year term. While the slow occupier market in Q1 2010 may hold back any immediate growth in rental values, the shortage of Grade A stock will help to maintain values.
Prime rents have remained stable supported by the lack of Grade A stock.
5,001-10,000 22% 10,001-20,000 23% 20,001-30,000 36%
30,001-50,000 19% >50,001 0%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Welwyn Garden City & Hatfield

Executive summary
Take-up levels have remained close to their long run average levels in each of the past two years with around one third of activity focused towards Grade A floor space. The Welwyn Garden City & Hatfield office market is predominantly focused out of town, with 92% of available stock in this sector. The current availability rate stands at 13.4% of total built stock with limited availability of Grade A space. Prime rents reached 19.50 per sq ft by the end of 2009, growing by 5.4% in the year, although tenant incentives have increased.
120 100 80 60 40 20 0 2005 2006 2007 2008 2009 Q1 2010

10 year average
Take-up
Aside from the exceptional year of take-up in 2001 when activity was boosted by the 450,000 sq ft letting to One to One at Hatfield Business Park, the Welwyn Garden City & Hatfield market has experience take-up level of 50,000 to 100,000 sq ft per annum, with the 10 average for take-up standing at 69,500 sq ft, excluding 2001. The past two years have seen activity levels fall below the long run average, with take-up for 2009 some 13% below the trend level for the town at 69,500 sq ft. The largest letting was at Albany Place, Broadwater Road, where Cereal Partners UK took 18,992 sq ft at a rent of 19.50 per sq ft. Take-up in Q1 2010 has continued at a similar pace with a number of small lettings totalling 12,486 sq ft.
Availability
Availability has increased over the past 15 months, rising to 468,400 sq ft at the end of Q1 2010, with almost the entire stock of floor space on the market out of town. Availability in the town centre market is limited to 38,900 sq ft with floor space contained in a number of small suites. The availability rate stands at 13.4% of total built stock, with the majority of space in second hand space. Grade A availability accounts for only 18% of floor space on the market. Based on historic average take-up levels, current availability represents 5.9 years supply of floor space although this figure is reduced when discounting the levels of poor quality, second hand space.

500 400 300 200 100 0
2005
2006
2007
2008
2009
Q1 2010
Prime rents
Welwyn Garden City & Hatfield is dominated by the out of town market and prime rents rose by 5.4% in 2009 to 19.50 per sq ft, although these rents are only achievable with significant tenant incentives. Rents in the town are still some 7.1% below their peak levels which were achieved in 2000/01.
<5,000 20% 5,001-10,000 13% 10,001-20,000 21% 20,001-30,000 5% 30,001-50,000 15% >50,001 26%
Prime rents reached 19.50 per sq ft by the end of 2009, growing by 5.4% in the year.

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Q1 2010
Bristol
Executive summary
After two years of below trend activity in the occupational market, Q1 2010 saw take-up register its highest quarterly total since 2007 at 300,400 sq ft, although 28% of this total was a freehold sale to North Somerset Council. Availability reduced on the active market, with total availability standing at 2.1m sq ft, although one quarter of the total stock on the market is in poor quality, second hand accommodation. Prime rents adjusted downwards over 2009, falling by 1.8% and 4.5% in city centre and out of town markets respectively. Rental values have remained stable at their end 2009 level in Q1 2010.
1,500 1,250 10 year average 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
Following two years of below trend levels of take-up, Q1 2010 showed signs that the occupational market was improving with 300,400 sq ft of lettings, the highest quarterly total for two years. Significant transactions in the first three months of 2010 have been the 40,000 sq ft sale to Avon & Somerset Constabulary, while NFU Mutual and Ernst & Young took 22,800 sq ft and 20,000 sq ft respectively. The city centre market has held the balance in letting activity over the past 15 months, accounting for 55% of take-up, despite the majority of larger transactions being focused towards the out of town market.
Availability
The start to 2010 has seen availability reduce, falling by 4% to 2.1m sq ft. Grade A stock accounts for 28% (583,700 sq ft) of total floor space on the market, while more than one third of second hand availability is in poorer quality stock. The availability rate adjusted downwards to 15.9% of total built stock at the end of Q1 2010, after rising steadily through the previous 12 months. Current availability represents two years supply of floor space at historic take-up levels, although significantly higher based on 2008/09 activity rates. Office market availability 000 sq ft
2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents fell in both the city centre and out of town markets over 2009, the out of town market seeing the most significant falls, with rents down by 4.5% compared to 1.8% in the city centre. The active occupational market in Q1 2010 has seen rental values remain stable at their end 2009 levels, with city centre rents remaining at 27.00 per sq ft and out of town rents at 21.00 per sq ft.
Q1 2010 saw take-up register its highest quarterly total since 2007.
<5,000 13% 5,001-10,000 12% 10,001-20,000 5%
20,001-30,000 14% 30,001-50,000 14% >50,001 42%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Leicester
Executive summary
The occupier market in Leicester has remained below the 10 year average for the town over the past seven years. Take-up for 2009 amounted to 155,000 sq ft and Q1 2010 has already registered 87,000 sq ft of activity, 56% of last years annual total. Availability in the Leicester market is traditionally dominated by second hand floor space, with the delivery of new stock limited. The availability rate in the town has fallen to 11.9% of built stock with Grade A floor space accounting for 8% of total availability. Prime headline rents have remained fairly stable although tenant incentives and rent free periods have increased significantly.
300 250 200 150 100 50 0 2005 2006 2007 2008
10 year average
2009
Q1 2010
Take-up
The Leicester office market has shown a significant improvement over the past 15 months, although take-up levels have remained below the 10 year average. Take-up was 155,000 sq ft in 2009 and the 87,000 sq ft of activity recorded in Q1 2010 suggest that the current year will result in a further improvement. Take-up was relatively evenly spread between the town centre and out of town market in 2009, with 52% of take-up in the town centre market. Q1 2010 has seen a greater bias towards the town centre market, accounting for 63% of activity, although the out of town market has now overtaken the city in the level of enquiries and is anticipated that the balance will swing to out of town in the next quarters figures. The demand for floor space has improved over the past nine months, with the majority of demand derived from the public sector and private sector companies where there is a high level of public sector involvement. Demand from professional services has shown some improvement in recent months.
Availability
The availability rate has reduced over the past couple of years, reducing from 16% of total built stock at the end of 2007 to 11.9% at the end of Q1 2010. The majority of stock is in second hand floor space. The Leicester market typically focuses on the second hand market and the current supply of Grade A floor space is 57,500 sq ft with only modest amounts of new stock currently under construction. Overall availability represents 2.9 years supply based on the 10 year average take-up level, although disregarding the poor quality second hand space, the effective supply of floor space equates to 1.7 years supply. Office market availability 000 sq ft
1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime headline rents have remained relatively stable in both town centre and out of town markets since the end of 2008, although rent free periods have increased significantly in order to secure lettings. Town centre prime rents stood at a marginal premium to the out of town market, standing at 16.50 per sq ft compared to 16.00 per sq ft.
<5,000 29% 5,001-10,000 7% 10,001-20,000 24%
Activity recorded in Q1 suggests that 2010 should be a stronger year than 2009.
20,001-30,000 11% 30,001-50,000 29% >50,001 0%
Town centre
Out of town
18 16 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Northampton
Executive summary
Take-up fell significantly below the long term trend, recording only 88,000 sq ft of activity, the lowest annual total on record since the mid 1990s. The supply of floor space remains in line with historic levels, with 433,000 sq ft of stock currently on the market, which represents 9.2% of total built stock in the locality. However, there is an acute shortage of Grade A stock with only 35,000 sq ft currently available and no new stock under construction. In the short term, the difference between town centre and out of town rents has narrowed, with out of town rents falling by 17.6% to 14.00 per sq ft.
second hand space reduced. Interestingly, second hand space accounts for 92% of overall stock on the market, with almost 40% of the second hand total in poor quality stock. The overall availability rate fell to 9.2% of built stock, which represents two years supply of floor space based on historic average take-up levels. There is an acute shortage of Grade A supply, with no new stock currently under construction. Heron House at Swan Valley is one of the few new build opportunities with a detailed consent and funding. New schemes are being planned at Swan Valley, Waterside and Grange Park but will not commence until occupier interest has been secured. Office market take-up 000 sq ft
300 250 200 150 100 50 0 2005 2006 2007 2008 2009 Q1 2010 10 year average
Take-up
Take-up in 2009 was down by 67% compared to the previous years total, with only 88,000 sq ft of lettings. This is the lowest annual total on record since the mid 1990s. 2010 has shown an improvement in activity, with 48,000 sq ft of transactions already recorded in Q1, 54% of the annual figure for 2009. The majority of activity over the past 15 months has been focused on smaller lettings. The largest transaction was the 24,000 sq ft letting to Ricoh at 800 Pavilion Drive, Northampton Business Park, carried out by Lambert Smith Hampton.

500 400 300 200 100 0
2005
2006
2007
2008
2009
Q1 2010
Availability
After a sharp rise in availability in 2009, Q1 2010 has seen the amount of floor space on the market reduce slightly. Overall availability fell by 11% in Q1 2010, as the amount of Grade A stock and
Prime rents
Prime out of town rents fell by 17.6% to circa 14.00 per sq ft with landlords willing to agree competitive terms in order to secure lettings. Given the lack of Grade A stock on the market in the centre of Northampton, rents on town centre office space have remained more stable, however quality refurbished space is available at 13.50 per sq ft.
There is an acute shortage of Grade A supply, which currently stands at 35,000 sq ft.
<5,000 47% 5,001-10,000 29% 10,001-20,000 14%

20,001-30,000 10% 30,001-50,000 0% >50,001 0%
Town centre
Out of town
18 16 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Nottingham
Executive summary
The Nottingham office market has remained buoyant over the past few years, although activity in 2009 was boosted by take-up by the public sector. Q1 2010 has seen a balanced market with both public and private sector occupiers active. Availability rates have crept up over the past few years as new space has come to the market. Strong take-up of Grade A stock over this period has resulted in a tranche of poor quality space being released onto the market. Prime rents have remained stable throughout, boosted by the demand for better quality stock.
600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
Take-up levels have been maintained at historic trend levels over the past three years despite the weaker economy and tighter financial conditions. The calendar year 2009 saw activity of 480,000 sq ft, the second highest annual total in more than seven years. Activity levels in 2009 were boosted by the freehold purchase of Loxley House by Nottingham City Council, which accounted for 213,500 sq ft of activity in the city centre market. In total, activity in the city centre accounted for more than three quarters of overall take-up for the year. Q1 2010 has had a relatively quiet start to the year, with 63,100 sq ft of take-up, with an even balance of activity between city centre and out of town markets.
Availability
Availability has risen over the past few years, principally on the back of new built stock coming to the market. At the end of Q1 2010, total availability stood at almost 1.2m sq ft, with Grade A space accounting for 12% of the overall total. The Nottingham office market has been through a period of renewal, and the amount of poor quality, second hand stock that is now on the market has reached 485,000 sq ft, more than one third of total availability. The overall availability rate stood at 14.1% of total built stock in the Nottingham area, equating to 2.5 years supply at historic annual take-up levels. This figure reduces to under 1.5 years when discounting the levels of poor quality, second hand floor space. Office market availability 000 sq ft
1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents have remained stable throughout, boosted by the demand for better quality stock.
Prime rents have remained stable over the past few years as occupiers have targeted Grade A stock. City centre rents continued to hold their premium to the out of town market, standing at 18.50 per sq ft, compared to 16.50 out of town.
<5,000 32% 5,001-10,000 24% 10,001-20,000 25% 20,001-30,000 6% 30,001-50,000 5% >50,001 8%
City centre
Out of town
20
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1995
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1998
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2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Birmingham
Executive summary
The occupational market in Birmingham has remained subdued compared to historic take-up levels. The last five years have fallen below the 10 year average of take-up. The current year has continued the trend, with Q1 take-up of 210,961 sq ft. Availability has risen since the end of 2008, rising to 5.7m sq ft with 24% of overall availability in Grade A stock. The most significant rise in availability has been in the city centre market, where available floor space has increased by 49% to 3.9m sq ft. Prime rents in the city reflected the increase in supply, with rents falling by 12.3% from their 2007 level to 28.50 per sq ft. Out of town rents remained stable at 22.50 per sq ft.
1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008
10 year average
2009
Q1 2010
Take-up
Take-up in the Birmingham market has fallen short of the 10 year average figure for the city in each of the past five years. Activity in 2009 was 827,206 sq ft, some 39% below the long run average figure of 1.4m sq ft per annum. The city centre market has been the main focus of activity, accounting for 75% of the years total, with almost three quarters of the lettings in the city boundary of Grade A stock. The first three months of 2010 have seen the momentum in the occupational market continue in a similar vein, with 210,961 sq ft of take-up recorded. Lettings in the city centre once again dominated the market by accounting for 87% of activity.
Availability
Availability increased by 25% from its end 2008 level, reaching 5.7m sq ft at the end of Q1 2010. Two thirds of available floor space, 3.9m sq ft, is in the city centre market, with 1.9m sq ft in the M42 area. City centre availability has shown the greatest rise, increasing by 49% to 3.9m sq ft while out of town availability has reduced slightly, falling by 5% to 1.9m sq ft. Grade A stock accounts for 24% of overall availability, although the majority of new built floor space is in the city centre market, which accounts for 89% of total Grade A stock. The overall availability rate for Birmingham stands at 16.7% at the end of Q1 2010, up from 13.3% at the end of 2008. This equates to 4.2 years supply of floor space at the historic average for the city.

6,000 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 Q1 2010
The city centre market has been the main focus of activity, accounting for 75% of the years total.
Prime rents
Prime city centre rents stabilised at 28.50 per sq ft after two years of decline. The total fall from their peak level of 32.50 per sq ft in 2007 amounts to 12.3%.
<5,000 13% 5,001-10,000 17% 10,001-20,000 12%
20,001-30,000 23% 30,001-50,000 0% >50,001 35%

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Leeds
Executive summary
The Leeds office market has seen activity levels remain below the long run trend for take-up in each of the past four years. Take-up in 2009 was 37% below the trend level, although Q1 2010 has seen an improvement in activity. Availability increased to 3.8m sq ft at the end of Q1 2010, although a significant proportion of floor space is poor quality stock. The availability rate of good quality space equates to 11.3% of total built stock, a reduction from 17.5% of total availability. Prime rental values have remained robust, continuing to grow over 2009 in both the city centre and out of town markets.
1,250
10 year average
1,000 750 500 250 0
2005
2006
2007
2008
2009
Q1 2010
Take-up
Take-up levels in the Leeds office market have dipped below their long run average of 1m sq ft per annum in each of the past four years. Take-up in 2009 was 37% below the average figure, as occupiers continued to reign in their requirements for space. Despite the slow occupational market, the demand for Grade A stock has remained strong, with 50% of take-up in 2008 and 2009 focused on this sector of the market. The largest transaction in 2009 was the 56,683 sq ft letting to Yorkshire Water Authority at Livingstone House, Clarence Dock. The market in the first three months of 2010 has proved healthy, with 195,570 sq ft of activity. The majority of activity has been for office space below 20,000 sq ft.
Availability
The level of stock on the market has increased since the end of 2008, rising by 10% to 3.8m sq ft by the end of Q1 2010. More than 1.1m sq ft of availability is in Grade A stock, with three quarters of the total in the city centre. Despite the high levels of availability, a significant proportion of floor space on the market is poor quality, second hand space, which accounts for 36% of total stock on the market. Excluding this element of supply from the calculation reduces the effective availability rate to 11.3% of total built stock, a significant reduction from the overall availability rate of 17.5%. Office market availability 000 sq ft
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents have continued to grow over the past 15 months, despite the difficult economic conditions.
Prime rents have continued to grow over the past 15 months, despite the difficult economic conditions.
City centre rents grew by 3.8% in 2009 to 27.00 per sq ft, remaining stable at that level through Q1 2010. The out of town market saw headline rents increase by 2.6% over the same period.
<5,000 53% 5,001-10,000 22% 10,001-20,000 25%
20,001-30,000 0% 30,001-50,000 0% >50,001 0%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Sheffield
Executive summary
The occupational market in Sheffield has remained buoyant throughout the past 15 months with activity rates at or around the long run average take-up level for the city. Take-up of 386,885 sq ft in 2009 has given way to a poor start to 2010, with Q1 activity of around 45,000 sq ft. Availability of 792,800 sq ft is evenly distributed between Grade A and good quality second hand stock. Almost 60% of Grade A availability is in the city centre market, which, given occupiers focus on acquiring good quality floor space, equates to 1.5 years supply. Prime headline rents have fallen over the past 15 months. City centre rents are down by 7% and out of town rents by 9.7%.
600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
10 year average
Take-up
Occupational market activity levels in Sheffield have remained above their longterm average rate of take-up for the town for the past three years, with total lettings in 2009s amounting to 386,885 sq ft, some 9% higher than the 10 year annual average. Take-up was focused towards the city centre market, which accounted for 63% of overall occupational market activity, the largest letting being the 66,160 sq ft freehold purchase by the Department for Children, Schools & Families, at St Pauls Place, Norfolk Street. Take-up levels for Q1 2010 have been disappointing, with the unsatisfied demand for floor space also dropping back in the light of continued economic uncertainty.
Availability
Grade A city centre stock now accounts for 40% of total availability, down from previous years. Take-up is higher on Grade A specification stock rather than poorer second hand space, with no new office stock under construction. This suggests that there will be an abundance of 1960s and 1970s office stock on the market in the coming years. Overall availability represents 7% of total built stock in the Sheffield market, which represents 2.2 years supply of stock at the average level of take-up for the market. Occupiers focus on Grade A stock over the past two years implies that Grade A stock represents 1.5 years supply of new built floor space.

1,500 1,250 1,000 750 500 250 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime headline rents in the city and out of town have fallen during 2009. Net rental values have also fallen significantly as tenant incentives have increased. The downward movement in city centre rents pushed notional Grade A values to 20.00 per sq ft while the out of town market saw headline rental levels fall by 9.7% to 14.00 per sq ft.
<5,000 23% 5,001-10,000 3% 10,001-20,000 27% 20,001-30,000 21% 30,001-50,000 0% >50,001 26%
Almost 60% of notional Grade A stock in Sheffield town centre is contained in five buildings.
City centre
Out of town
25
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1995
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2004
2005
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2007
2008
2009
Q1 2010
www.lsh.co.uk
Manchester
Executive summary
This analysis covers three main locations; Manchester City Centre, South Manchester and Salford Quays. The decentralised markets were hardest hit with activity down 25% and 38% on long run average levels respectively. development there has been a reduction in both City Centre and South Manchester.
City Centre South Manchester Salford Quays
1,250 1,000 750 500 250 0
Prime rents in the City Centre have remained stable over the past two years while there has been a degree of volatility in both South Manchester and Availability across the three markets Salford Quays rents. has averaged at 19%, although due to the lack of speculative
A similar trend of availability is noted in the South Manchester market where Grade A stock accounts for 21% of the total 1.9m sq ft on the market, while Salford Quays has a higher proportion of Grade A stock, at 28% of the total 479,300 sq ft of availability. The overall availability rate for the Manchester markets as a whole amounts to 19%, with the City Centre and Salford Quays markets standing above the average for the area at 21% and 19.2% respectively, while South Manchester equates to 15.6%.
2005
2006
2007
2008
2009
Q1 2010
Take-up
Take-up in the Manchester markets weakened in 2009 with 1.7m sq ft of lettings across the three main markets of Manchester City Centre, South Manchester and Salford Quays. The City Centre market saw take-up levels hold up relatively well with activity levels falling 13% below the long run average, with 819,000 sq ft of activity in 2009. Salford Quays was affected the most, with take-up for 2009 down 38% on the long run average. South Manchester was also affected by the economic slowdown, with take-up levels for 2009 some 25% below its long run trend rate, at 459,300 sq ft for the year. Q1 2010 has shown some improvement with take-up of 405,800 sq ft across the three markets, implying an annualised take-up figure approaching the long run trend figure of 1.7m for the year as a whole.

5,000 4,000 3,000 2,000 1,000 0
2005
2006
2007
2008
2009
Prime rents
Prime City Centre rents have remained at 28.50 per sq ft throughout the economic downturn, a level first achieved during 2008. Incentives have increased substantially over this period, although they are beginning to harden for Grade A space. Both South Manchester and Salford Quays markets have had varying experiences. The prime rent in South Manchester has stabilised at 18.50 per sq ft since recovering from the downturn in values in 2007, while rents in Salford Quays have fallen from 20.00 per sq ft at the end of 2007 to 18.50 per sq ft in Q1 2010.
Q1 2010
Availability
Availability of 4.1m sq ft in the City Centre market is heavily biased towards second hand floor space, with only 20% of total stock on the market in Grade A accommodation.
<5,000 13% 5,001-10,000 12% 10,001-20,000 20%
20,001-30,000 13% 30,001-50,000 19% >50,001 23%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Newcastle upon Tyne

Executive summary
Newcastle upon Tyne has seen take-up fall below the long run trend rate for the city over the past two years, with activity being held back by shortages of Grade A stock. The demand for new stock has seen a number of schemes progress with almost 1m sq ft of floor space under construction at the end of Q1 2010, in particular at the former Enterpise Zone business parks. Prime rents in the city centre have remained steady at 22.00 per sq ft since the end of 2007, as have out of town rents at up to 20.00 per sq ft over the same period.
800 10 year average 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 Q1 2010
Take-up
Take-up in Newcastle upon Tyne has fallen below the 10 year average of activity for the city in each of the past two years. The annual take-up in 2009 amounted to 358,500 sq ft, 47% below the annual average for the city. Almost 80% of activity, 285,300 sq ft, was Grade A stock, with the largest transaction being the sale of The Tower at the Regent Centre to the city council. This was followed by the lease of 100,300 sq ft of space at Quorum Business Park to Tesco Personal Finance. Other notable large deals in the Newcastle upon Tyne area were the 50,000 sq ft letting to Convergys at Quorum Business Park and the 43,300 sq ft letting to the Strategic Health Authority at Waterfront 4, Newburn Riverside. Q1 2010 has seen activity slow further with only 12,913 sq ft of lettings, with all of the activity focused in the city centre.
Availability
The total level of availability has reduced since the end of 2008, falling by 5% to 1.1m sq ft. Grade A stock accounts for 21% of total availability although there were still 20 schemes under construction at the end of Q1 2010, with total floor space amounting to almost 1m sq ft. Poor quality, second hand stock accounts for a significant amount of overall availability, with 481,200 sq ft of space falling into this category. On this basis, the effective supply of Grade A and good quality, second hand stock equates to 6.9% of the total built stock of 9.5m sq ft in the city. This figure will change significantly over the coming months as current schemes reach completion and newly developed space is brought to the market.

1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents have remained stable at 22.00 sq ft in the city centre since 2007, while the out of town market has seen a greater degree of growth.
Almost 80% of activity, 285,300 sq ft, was Grade A stock.
Out of town achieved prime rents have remained constant since the end of 2007, with a number of new schemes trying to push values to 20.00 per sq ft at locations such as the Regent Centre, Gosforth.
<5,000 21% 5,001-10,000 11% 10,001-20,000 15%
20,001-30,000 9% 30,001-50,000 7% >50,001 37%

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2009
Q1 2010
www.lsh.co.uk
Cardiff
Executive summary
Take-up levels in 2009 have remained below the 10 year average for the city (516,000 sq ft), registering 380,500 sq ft and show little evidence of exceeding the figure in Q1 2010. Availability was at a three year low at the end of Q1 2010, representing 9.9% of total office stock in the Cardiff market. Grade A stock represents only 21% of total floor space on the market, with only 38,000 sq ft under construction. Shortages of Grade A stock have maintained prime rental levels, with city centre rents standing at 21.00 per sq ft and out of town rents at 16.00 per sq ft.
600 500 400 300 200 100 0 2005 2006 2007 2008
10 year average
2009
Q1 2010
Take-up
Take-up in the Cardiff office market has remained below the 10 year average rate of activity during 2008/09. Q1 2010 has shown little sign that this is over. Lettings totalled 380,500 sq ft in 2009 and Q1 2010 has seen 81,000 sq ft of transactions completed. Overall activity in 2009 was boosted by two large transactions, the 75,000 sq ft freehold acquisition by Welsh Water at Linea, St Mellons Business Park and the 56,000 sq ft letting to Peacocks at Capital Link, Sanquahar Street. These two transactions tipped the balance of activity towards the take-up of Grade A stock, which accounted for 52% of total activity in 2009.
Availability
Availability fell to its lowest level in three years, falling to 1.1m sq ft, with almost 80% of floor space on the market being second hand stock. Almost one third of second hand availability is poor quality, second hand space.
800 1,200 1,000

The availability rate has fallen below 10% for the first time since 2007, standing at 9.9% at the end of Q1 2010. This represents 2.2 years supply of floor space based on historic take-up levels and three years at 2009 take-up levels. Grade A availability represents just over one years supply of new built floor space based upon 2009 Grade A take-up levels. Requirements by size % of total sq ft
600 400 200 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rental values remained stable in both the city centre and out of town markets
Shortages of Grade A stock have maintained prime rental levels, however the lack of speculative development is a concern.
due to the shortage of Grade A stock which is evident in the Cardiff market. City centre rents are at a 30% premium to the out of town market, standing at 21.00 per sq ft and 16.00 per sq ft respectively.
<5,000 33% 5,001-10,000 18% 10,001-20,000 49% 20,001-30,000 0% 30,001-50,000 0% >50,001 0%

25
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2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Newport
Executive summary
The occupier market in Newport has been dominated by lettings of new and refurbished stock over the past two years, with the take-up of Grade A stock accounting for almost two thirds of total letting activity. The supply of Grade A stock, while accounting for 42% of overall availability, represents only 2.5 years supply at recent take-up levels. Overall availability stands at 16.8% of total built stock. Prime rents have been maintained at their end 2009 levels due to the relatively limited market in good quality, Grade A accommodation.
200 175 150 125 100 75 50 25

10 year average
Take-up
The Newport market saw 2009 take-up levels fall below the long run trend rate for the town for the first time in two years, with 70,500 sq ft of lettings registered. Q1 2010 has seen activity levels remain low with only two small lettings completing. Activity has been focused towards good quality, Grade A stock over the past couple of years, with the take-up of new built or refurbished accommodation accounting for almost two thirds of total take-up. The largest transaction during 2009 was the 24,250 sq ft letting of Nexus House, Usk Way, to Newport City Homes, which completed in the first quarter of the year.
Availability
Availability edged higher in the first three months of 2010, rising to 428,000 sq ft, 16.8% of total built stock in the area. While Grade A accommodation accounts for 42% of overall availability, this represents only 2.5 years supply based on the take-up of Grade A stock in 2008/09. The slow market for second hand space means that supply in this area of the market is more significant, representing more than seven years supply of second hand take-up over the same period.
2005
2006
2007
2008
2009
Q1 2010

500 400 300 200 100 0
2005
2006
2007
2008
2009
Prime rents
The limited Grade A market has maintained prime rents in both the town centre and out of town. Prime town centre headline rents remained at 16.00 per sq ft at the end of Q1 2010 after reaching a new high in 2009, with out of town rents stable at 15.00 per sq ft.
Q1 2010
Activity has been focused towards good quality, Grade A stock over the past couple of years.
<5,000 17% 5,001-10,000 17% 10,001-20,000 17%
20,001-30,000 29% 30,001-50,000 20% >50,001 0%

18 16 14 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Swansea
Executive summary
Since the record level of take-up in 2008, the past 15 months of occupational market activity has been disappointing. Total lettings over the past 15 months amount to 86,600 sq ft. Availability has fallen to its lowest level for five years, down to 392,000 sq ft, with 28% of available stock in Grade A accommodation. Prime rents have remained stable since the end of 2009 with city centre rents at 14.50 per sq ft and out of town rents at 13.50 per sq ft.
250 200 150 100 50 10 year average
Take-up
Following the record level of take-up registered in 2008, the past 15 months has seen occupational market activity fall significantly below the historic trend levels of take-up for the market. Take-up in 2009 was 64,000 sq ft, 50% below the previous years total, with activity equally distributed between the city centre and out of town markets. The first three months of 2010 has seen 22,600 sq ft of lettings. Activity has been held back by the lack of large lettings, with only two transactions greater than 10,000 sq ft since the start of 2009. The majority of activity has been focused towards the second hand market, which has accounted for two thirds of overall take-up.
Availability
Availability is below 400,000 sq ft in Q1 2010, for the first time in five years. The decline in floor space on the market is due to a 6.2% fall in second hand space. Grade A stock accounts for 28% of total floor space being marketed, with 88% of new space out of town. Grade A stock in the city centre amounts to only 13,000 sq ft. The availability rate stands at 10.9% of total floor space, which at 2009 take-up levels, equates to 6.1 years supply of stock. This reduces to three years supply when compared to the 10 year average rate of take-up for the Swansea market.
2005
2006
2007
2008
2009
Q1 2010

500 400 300 200 100 0
2005
2006
2007
2008
2009
Q1 2010
Prime rents
Prime city centre rents have proved to be volatile over the past few years, with the supply of Grade A stock being the major determinant to rental levels. Prime rents reached 14.50 per sq ft at the end of 2009 and remained at that level in Q1 2010. Out of town rents have been more stable, remaining at 13.50 per sq ft since the end of 2008.
The majority of activity has been focused towards the second hand market.
<5,000 31% 5,001-10,000 7% 10,001-20,000 37%
20,001-30,000 25% 30,001-50,000 0% >50,001 0%

15
10
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2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Edinburgh
Executive summary
During 2009 Edinburgh saw take-up levels remain below the long term average for the city. There are early signs that the current year will see an improvement in activity. Availability has edged upwards since the end of 2008, standing at 3m sq ft at the end of Q1 2010, representing 13.8% of total built stock. City centre availability accounts for 61% of the total amount of floor space on the market. Prime rents have fallen on the back of weaker demand with the city centre rents standing at 28.00 per sq ft at the end of Q1 2010 and out of town rents at 19.00 per sq ft.
800 700 600 500 400 300 200 100 0 2005 2006 2007 2008
10 year average
2009
Take-up
Take-up for Edinburgh in 2009 was 365,809 sq ft, some 49% below the 10 year average take-up for the city. This is the fifth year in succession that take-up has fallen below the historic average. Activity in the city has been dominated by transactions of less than 20,000 sq ft with only two transactions above this size completing in 2009. The largest of these was Wood Mackenzies acquisition of 38,200 sq ft at Exchange Place, Semple Street. The demand for floor space has continued to consist of smaller requirements of less than 10,000 sq ft. There are signs of an improving occupier market in early 2010 with 157,891 sq ft of space already acquired in Q1.
Availability
Availability in Edinburgh has edged up marginally. Total availability amounts to 3.0m sq ft, with approximately 61% of floor space in the city centre. Grade A availability in the city centre accounts for almost 50% of the overall availability of stock although there are no new schemes currently under construction and no new schemes scheduled to start in the short term. The overall availability rate stands at 13.8% of total built stock, up from 12.2% at the end of 2008. This level of availability represents 4.1 years supply at the 10 year average take-up rate for the city.
Q1 2010

3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 Q1 2010
Prime rents
Prime rents have fallen over the past 15 months as the financial sector has consolidated and take-up levels have fallen below their long run average for the city.
Availability represents 4.1 years of supply at the 10 year average take-up rate for the city.
City centre rents have fallen by 6.7% since the end of 2008 to end Q1 2010 at 28.00 per sq ft, while out of town rents are down by 13.6% to 19.00 per sq ft.
<5,000 26% 5,001-10,000 11% 10,001-20,000 14% 20,001-30,000 8% 30,001-50,000 14% >50,001 27%

35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
www.lsh.co.uk
Glasgow
Executive summary
Take-up was 470,000 sq ft in 2009 but this was underpinned by a small number of large transactions. The hardening of incentives could be seen by Q3 2010, due to the lack of new Grade A supply. With no development completions after Q1 2010, a shortage of Grade A stock is likely to arise in 2011. There is an oversupply of space below 10,000 sq ft which is likely to continue throughout the year.
is around 479,520 sq ft which includes G1 George Square, which completed in Q1 2010. Currently around 100,000 sq ft is under offer within Grade A buildings. G1 is the last of the speculative office developments to complete in the market; thereafter there will be a substantial gap until the next developments commence. It is likely to be 2013, at the earliest, until we see any new build space coming to the market. Second hand supply is increasing, some of which is being marketed by tenants and the other by landlords/developers. The majority of these options have been refurbished to Grade A specification and include 150 St Vincent Street (21,583 sq ft), 140 West George Street (9,000 sq ft) and 123 St Vincent Street (97,215 sq ft). We anticipate more tenant space returning to the market during 2010. Office market take-up 000 sq ft
750 600 450 300
10 year average
Take-up
Take-up during 2009 fell just below the average 500,000 sq ft per annum which has been seen over the past decade, an increase on the 2008 figure. 2009 saw around 600,000 sq ft of brand new Grade A space come to the market and around 300,000 sq ft has been let within 141 Bothwell Street, Capella and Broadway One. Around 55,000 sq ft was pre let within 141 Bothwell Street in 2008 and the building is now let in its entirety. The most significant transaction was to Tesco Personal Finance at IVG Developments/Ediston Properties 125,000 sq ft Broadway One, Renfield Street. Significant relocations include PWC and Shell, who took 28,000 sq ft and 61,200 sq ft respectively. Gardiner & Theobald set the highest rent ever achieved in Glasgow at G1 George Square.
150 0
2005
2006
2007
2008
2009
Q1 2010

3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 Q1 2010
Availability
There has been a significant increase of Grade A office space and presently there
Prime rents
Rents of Grade A office developments range from 25.00 to 29.50 per sq ft. This depends on location as well as the market. Rental levels for second hand Grade A space is circa 22.00 per sq ft and rents in smaller space of 4,000 to 10,000 sq ft have dropped with refurbishments available for 15.00 per sq ft to 18.00 per sq ft.
A shortage of Grade A stock is likely to arise in 2011.
<5,000 7% 5,001-10,000 23% 10,001-20,000 21%
20,001-30,000 15% 30,001-50,000 17% >50,001 17%

30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010
Our National Office Network

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For more information on Lambert Smith Hampton's National Office Agency services, please contact: Tony Fisher National Head of Office Agency Tel: +44 (0)20 7198 2250 Email: tfisher@lsh.co.uk Steven Matheson Director West Region Tel: +44 (0)29 2052 3004 Email: smatheson@lsh.co.uk Nick Coote Director South Region Tel: +44 (0)118 960 6912 Email: ncoote@lsh.co.uk Ian Leather Director Central Region Tel: +44 (0)1604 662 551 Email: ileather@lsh.co.uk Peter Skelton Director North Region Tel: +44 (0)161 242 7005 Email: pskelton@lsh.co.uk
Details of other Lambert Smith Hampton research material can be viewed on our website at http://www.lsh.co.uk Due to space constraints within the report, it has not been possible to include both imperial and metric measurements. Lambert Smith Hampton July 2010. Regulated by RICS
This document is for general informative purposes only. The information in it is believed to be correct, but no express or implied representation or warranty is made by Lambert Smith Hampton as to its accuracy or completeness, and the opinions in it constitute our judgement as of this date but are subject to change. Reliance should not be placed upon the information, forecasts and opinions set out herein for the purpose of any particular transaction, and no responsibility or liability, whether in negligence or otherwise, is accepted by Lambert Smith Hampton or by any of its directors, officers, employees, agents or representatives for any direct, indirect or consequential loss or damage which may result from any such reliance or other use thereof. All rights reserved. No part of this publication may be transmitted or reproduced in any material form by any means, electronic, recording, mechanical, photocopying or otherwise, or stored in any information storage or retrieval system of any nature, without the prior written permission of the copyright holder, except in accordance with the provisions of the Copyright Designs and Patents Act 1988. Warning: the doing of an unauthorised act in relation to a copyright work may result in both a civil claim for damages and criminal prosecution.
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LSH National Office Report July2010

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LSH National Office Report July2010

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National Office

Inside this report:

National Office Report / 2010 / Executive summary

London South East South West

National Office Report / 2010 / Overview

1.0 0.5 0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0

Source: ONS and Consensus Economics

Government and business service sector output growth % quarterly

Lambert Smith Hampton / 3

National Office Report / 2010 / Overview

Employment and unemployment

Office based employment growth index December 2004 = 100

Source: ONS Chart 4

Growth in corporate profitability % year on year

Source: Consensus Economics

4 / Lambert Smith Hampton

National Office Report / 2010 / Overview

National office market take-up million sq ft

Source: LSH Research

Take-up by size 2009 % of total sq ft

Take-up by tenant type 2009 %

Take-up by tenant type

Source: LSH Research

Q1 2010 has seen an improvement in activity levels.

Lambert Smith Hampton / 5

National Office Report / 2010 / Overview

National office market availability million sq ft

There are significant regional variations

Source: LSH Research Chart 9

National office market availability rate %

Source: LSH Research Table 1 Chart 10

Demand for floor space

Source: LSH Research

6 / Lambert Smith Hampton

National Office Report / 2010 / Overview

Occupier demand by size 2009 %

Occupier demand by tenant type 2009 %

Source: LSH Research

Source: LSH Research

Source: LSH Research and IPD

Lambert Smith Hampton / 7

National Office Report / 2010 / Overview

Take-up across the regions

Regional distribution of take-up 2009 %

Regional distribution of take-up Q1 2010 %

Source: LSH Research

Regional take-up levels compared to long run trend levels million sq ft

of activity, which represents 2% of national activity Chart 15.

Source: LSH Research

8 / Lambert Smith Hampton

National Office Report / 2010 / Overview

Activity ratio locations %

Longer term activity rates

Salford Quays Slough Watford Birmingham Nottingham

Lambert Smith Hampton / 9

National Office Report / 2010 / Overview

Availability rate locations Q1 2010 %

Bracknell Blackwater Valley Watford Milton Keynes

Availability rates across the UK

Source: LSH Research

10 / Lambert Smith Hampton

National Office Report / 2010 / Investment

Total return 18.5% 9.2% 12.0% 8.0% 14.2%