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2 CENTRAL LONDON OFFICE MARKET - Q WEST END CENTRAL LONDON OFFICE MARKET - Q CITY Office rents and vacancy rates Quarterly take-up levels increased by 13% in Q to reach 757,150 sq ft. This brings take-up for the first half of 2015 to 1.43m sq ft, 16% below the same period last year. Despite this, we remain optimistic about demand levels going forward, indeed, under offers are up 5% on the previous quarter. Furthermore, several large requirements have recently been announced including Twitter and Facebook. Demand for City office space remained robust during the second quarter with take-up totalling 1.68 million sq ft. Although only 1% ahead of the Q1 volume it is some 14% higher than the 5 year quarterly average. Indeed, the first half of the year has now seen 3.35 million sq ft of deals completed, 18% ahead of the same point in 2014 which, at 7.31 million sq ft, was one of the highest annual volumes ever recorded in the City office market. The vacancy rate rose marginally by 9bps in Q2 to 3.89%, this equates to 2.65m sq ft of supply, which is 40% below the 10 year average figure. Interestingly, it is the fringe West End submarkets that are feeling the supply squeeze the most with NW1, Victoria and North Oxford St West with supply levels more than 50% below the 10 year average. With no deals of over 70,000 sq ft recorded during Q2 it was the sheer number of deals that helped keep the leasing market buoyant. There has been an increasing amount of demand for space between 30,000 sq ft and 60,000 sq ft, with the amount of deals in this category moving from only 4 in Q to 13 deals during Q2. This will be short-lived in Victoria when just over 1m sq ft of development completions will be delivered in We predict a pick up in pre-letting activity which will impact future supply. Space at Nova is currently under offer to Egon Zehnder and Advent International a year before its predicted completion date. Encouraged by the record breaking rents at 8 St James s Square we have pushed our prime rent in the West End to 125/sq ft, up from 120/sq ft last quarter. With rumours of > 125/sq ft rents being achieved on similar spec buildings in St James s on lower floors, we estimate prime rental growth of 15% this year. The Media Tech sector continued to help drive the high level of demand for space in the City and was responsible for 22% of overall take-up. The sector s natural draw to City fringe locations was again evident with Expedia taking close to 60,000 sq ft at Angel Square & DKLW Lowe s 47,000 sq ft deal on City Road. Uber s much anticipated 30,000 sq ft deal at Aldgate Tower heralded the arrival of the location as a new Media Tech destination, further supported by the 60,000 sq ft deal to WeWork within the same building. Once again there was a 6% fall in availability during the quarter, with total available space standing at 5.01 million sq ft at quarter end, 31% below the 5 year average and 57% below the peak levels seen in The current vacancy rate of 5.72% is the lowest since Q (5.53%) and 306 bps below the 5 year quarterly average. The fall in vacancy has placed further upwards pressure on prime rents which now stand at 65/sq ft. In fact, there is evidence to support further increases in this level with deals on upper floors with terraces at 100 Cheapside, 125 Wood Street, One New Ludgate, the Steward Building and Moor Place all recorded at over 70/sq ft. Prime Tower rents are also being driven higher and a record rent of 90/sq ft was agreed by Insurance firm Affinity for 6,549 sq ft on the 44th floor at The Leadenhall Building. Prime yields remained unchanged at 4%, but further downwards pressure is building, combined with higher rental levels, new transactions are rebasing previous highs on capital value per sq ft. Investment volumes reached 1.20bn in Q2 bringing H total to 2.26bn. Although 21% below the same period last year the figure is 20% above the five year average first half investment volume. The prime yield now stands at 3.25%, down from 3.50% the previous quarter. This yield compression has been driven by chronic lack of supply and insatiable appetite for prime product as London continues to look increasingly attractive to investors looking for low risk and guaranteed returns. We foresee capital growth slowing next year as yields potentially begin to move out. However, the strong rental growth story across the West End should continue to attract investors. West End development pipeline (million sq ft) 2015 development completions 1.4M SQ FT 23% PRE-LET Prime rents vs vacancy 2.4M SQ FT 66% PRE-LET Source: BNP Paribas Real Estate Source: BNP Paribas Real Estate CONTACTS CONTACTS David Herzog, West End Office Agency, , david.herzog@bnppparibas.com Steven Skinner, West End Investment, , steven.skinner@bnpparibas.com Dan Bayley, City Office Agency, , dan.bayley@bnppparibas.com Richard Garside, City Investment, , richard.garside@bnpparibas.com

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