Q OCCUPIER MARKET INVESTMENT MARKET

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1 1 RESEARCH Central London office analysis 2017 OCCUPIER MARKET in was 10% up on the previous quarter, as availability and rents remain relatively stable, with some submarkets seeing an increase in incentives. INVESTMENT MARKET Investment for the second quarter totalled.1 billion, 5% up on the five-year quarterly average, with yields in some submarkets coming in 25bps.

2 2Cover photo : GVA are marketing the freehold interest in 22 King Street, St James s (SW1). 3 Occupier market in brief Welcome to GVA s central London office analysis; our detailed view of the market in Before we start One of the prevalent trends of the last few years has been the robust levels of pre-letting. This quarter saw pre-letting decrease, with just 383,000 sq ft transacting the second lowest quarter since However, what is perhaps the most notable is the lack of preconstruction letting during the quarter, with the only pre-construction deal of the year occurring in the first quarter of the year when Arup committed to 80 Charlotte Street (W1). Comparatively, 2016 saw six pre-construction lettings. Heigh Ho It s off to WeWork, we go The most eye catching deal of the second quarter was the continued expansion of co-working office space providers WeWork, who completed on the largest deal of the quarter at 2 Southbank Place, taking the entire 280,000 sq ft. This was the largest ever co-working deal in London. During the quarter, WeWork also committed to 10,000 sq ft at another of Almacantar s development sites, 125 Shaftesbury Avenue, as well as starting negotiations to take 50,000 sq ft at U+I s Hammersmith Grove. The continued expansion of WeWork means that in the last year, they have single-handedly accounted for 7.7% of central London take-up. Need a little patience Depending on the particular submarket, headline rents have seen little to no upward movement, with some markets in the seeing significant decreases. At the same time, rent free periods have moved out across almost all markets, meaning that on a net effective basis, rents are now almost universally cheaper than this time in However, whilst we have seen pressure on rents, we must not ignore the fact that these are still at historically high levels. There is still active demand from many sectors, although it seems generally event-driven rather than due to business expansion. The real difference we have seen in the letting market is the amount of time it is now taking to identify tenants, negotiate terms and complete deals. In addition, landlords are increasingly agreeing to delayed completions in order to get deals done, with plenty of deals under offer for over six months. Patrick O Keeffe Head of London Agency and Investment pok@gva.co.uk The real difference in the letting market is the amount of time it is now taking to complete deals

3 5 Central London Central London take-up for 2017 totalled 2.2 million sq ft, 10% up on the previous quarter, but 12% down on the five-year quarterly average of 2.5 million sq ft. This brings take-up for the first half of the year to.3 million sq ft, which, whilst 20% down on the second half of 2016, was 6% up on the corresponding period in During the quarter the majority of the activity was in the fringe, accounting for 1.1 million sq ft (6%) of take up, with the fringe seeing the second most activity at 681,000 sq ft (31%). The fringe and core were the best performing markets, and the only markets to see take-up in excess of their respective five-year quarterly averages, at 17% and 21% respectively. The largest deal of the quarter was on the Southbank where WeWork took 280,000 sq ft at Almacantar s Two Southbank Place (SE1), due for completion at the end of The same serviced office operator was also responsible for the second largest deal of the quarter, when they agreed to take 150,000 sq ft at 125 Shaftesbury Avenue (WC1). At 28 Chancery (WC2), Framestore took 9,000 sq ft across eight floors. of newly completed space made up 750,500 (3%) of the total for the quarter, with pre-letting making up an additional 383,100 sq ft (17%). Second-hand grade A space 821,300 sq ft (39%) and second-hand grade B space made up a further 283,000 sq ft (1%). During the quarter, five deals completed over 50,000 sq ft, down from the eight seen in the previous quarter. There is currently 10.3 million sq ft available across central London, increasing from 10.2 million sq ft as of the end of Q Since this time last year, the amount of available space has increased by 27% with 2.2 million sq ft more on the market than this time last year. The vacancy rate is stable at 5.3%, the highest it has been since Q1 2015, and in line with the five-year end-quarter average. Central London (million sq ft) Central London office availability rates 10 rate (%) Years Source: GVA / EGi / CoStar 5 year quarterly average Central London During the quarter, nine buildings totalling 53,500 sq ft completed, including two over 100,000 sq ft. The largest building to complete in the was Ocubis 115,000 sq ft Cannon Green (EC), which was 70% let on completion. In the West End, work completed at British Land s 16,000 sq ft Kingdom Street (W2), with only one floor remaining just a week after completion. The remaining floor is likely to be offered by British Land under their new managed office concept Storey. Six buildings totalling 1. million sq ft started during the quarter including GIC and British Land s 530,000 sq ft 100 Liverpool Street (EC2) and the refurbishment of 290,000 sq ft 1 Finsbury Avenue (EC2). Work also started on additional buildings King s Cross Central (N1). There is currently 16. million sq ft under construction across central London, with.7 million sq ft (28%) due for completion before the end of 2017 and a further 7.1 million sq ft (%) due before the end of Of the space currently under construction, 6.5 million sq ft (0%) has already been let, leaving 9.9 million sq ft of available space currently under construction. Central London prime rents fell 0.9% during the quarter, the fourth successive quarterly decrease after a record 26 quarters of consecutive growth. Prime rents were down 6.7% on the year and are now down to levels last seen at the end of 201. During the first half of the year, prime rents are down 1.5%. By and large, prime rents in the and were stable, although the saw rents fall by 1.%. Annual development completions Space (million sq ft) Central London prime rental growth (%) Completed (under construction) Source: GVA Central London Years () Source: GVA / CoStar Years () Source: GVA

4 6 7 during the quarter reached 80,700 sq ft. This was just 1% down on the previous quarter and 2.5% down on the five-year quarterly average of 862,600 sq. for the first half of the year totalled 1.7 million sq ft, in line with activity measured during the second half of 2016, but 35% up on the corresponding period last year. WeWork did the largest deal in the when they agreed to take 150,000 sq ft at 125 Shaftesbury Avenue (WC1). At LSQ (WC2), Hearst committed to 71,000 sq ft across five floors, paying a rent of 85 per sq ft. During 2017 deals on new space accounted for 326,900 sq ft or 39% of the total take up across the. Second-hand grade A space accounted for a further 2,500 sq ft of activity (37%), with pre-letting accounting for just 2%. Second-hand grade B space made up 6% of take-up (53,200 sq ft). increased from 3.8 million sq ft to 3.9 million sq ft during the quarter. The vacancy rate is now up to.7%, its highest since Q is % higher than this time last year, equating to 1.2 million sq ft more space. Available space is now 13% above the five-year end-quarter average. During the second quarter of the year, 190,000 sq ft was delivered across just two buildings. The largest of these was British Land s 16,000 sq ft Kingdom Street (W2). In Mayfair, New Estate International s 10 Stratton Street (W1) completed. There is currently 3.5 million sq ft of development activity in the. The second quarter saw prime rents decrease by 1.% across the. The has now not seen positive rental growth since Q In Mayfair and St James s, prime rents were stable at 105 per sq ft with rent free periods increasing from 18 to 22 months. Net effective rents are now per sq ft, the lowest since Q and 18% cheaper than the corresponding period last year. Super-prime headline rents are 125 per sq ft, with rent free periods stable at 18 months. KEY STATS THIS QUARTER 80, % sq ft let 2.5% down on 5-year quarterly average.7% 3.5 m 105 vacancy rate sq ft under construction per sq ft prime rent annual rental growth during 2017 totalled 1. million sq ft, which was 20% up on the previous quarter, but 8% down on the five-year quarterly average. for H was 2.5 million sq ft, which whilst 1% down on the second half of 2016, despite being % up on the first half of The largest deals during the quarter were to WeWork, who took 280,000 sq ft at Almacantar s Two Southbank Place (SE1), Framestore who took 93,900 sq ft at 28 Chancery (WC2) and Bupa who committed to 56,300 sq ft across three floors at Angel Court (EC2). Other notable deals included ILM taking 6,900 sq ft at Lacon House (WC1) and Hermes acquisition of 6,300 sq ft at 150 Cheapside (EC2). of new space accounted for 10,300 sq ft and 31% of total activity for the quarter, with pre-letting and take-up of second-hand grade A space both accounting for 365,100 sq ft 27% apiece. Secondhand grade B space made up 207,000 sq ft (15%). in the increased slightly from 5.6 million sq ft to 5.7 million sq ft, with the vacancy rate stable at 6.1%. is 20% up on the corresponding quarter in 2016 but still 3% below the five-year end-quarter average. During the quarter 353,500 sq ft completed across seven buildings, with the largest being Ocubis 115,000 sq ft Cannon Green (EC), which was 70% let on completion. Other notable completions during the quarter included Network Rail and Brookfield s 95,000 sq ft 1 Puddle Dock (EC) and Amsprop s 1,000 sq ft Crosspoint (EC2). Construction started on 875,100 sq ft across three buildings during the quarter including British Land and GIC s 530,000 sq ft 100 Liverpool Street (EC2) and the refurbishments of the 290,000 sq ft 1 Finsbury Avenue (EC2), and Frederick s Place (EC2). There is now 12 million sq ft under construction in the. Of this, 3.7 million sq ft is due to complete in 2017, with 6.2 million sq ft earmarked for There is currently 2 million sq ft under construction due for completion in Of the total space under construction, 5.7 million sq ft is already let (8%), leaving just 6.3 million sq ft of available space in the pipeline. Prime rents in the remained stable for a fourth successive quarter. KEY STATS THIS QUARTER 1. m 6.1% 12 m 70 0% sq ft let 8% down on 5-year quarterly average vacancy rate sq ft under construction per sq ft prime rent annual rental growth Prime rents remained stable across all submarkets during the quarter, whilst rent free periods also saw no movement. On a net effective basis, prime rents are now cheaper than they were this time last year in all submarkets. Prime headline rents in the core remain at 70 per sq ft, where they have been since Q1 2016, with rent free periods at 22 months. Net effective rents in the core are now at per sq ft.

5 8 9 & Stratford Midtown There was very little activity in the quarter with take up in the reaching just 30,500 sq ft. Coupled with a very slow first quarter of the year, it means that take-up for the first half of 2017 totalled just 69,00 sq ft, just 10% of the volume transacted during the second half of Only two deals completed during the quarter, at Quay House (E1) and The Columbus Building (E1), with the latter to an occupier from the Level 39 incubator space. Available space increased slightly from 750,000 sq ft to 795,000 sq ft during the quarter, with most of this available on a sublet basis. The vacancy rate increased from 3.9% to.1% during the quarter, with vacancy now above % for the first time in six quarters. Available space is 12% higher than this time last year and at its highest since Q Despite this, available space is still 33% below the five year end-quarter average. 695,000 sq ft is under construction at 1 Bank Street (E1), due to complete in Elsewhere, Canary Wharf Group have submitted new plans for 10 Bank Street (E1), which would see a further 700,000 sq ft delivered to the market. At Canary Wharf s New District, phase 1 is to be delivered in 2020, with the 150,000 sq ft 15 Water Street (E1) and 210,000 sq ft 20 Water Street (E1). The former is rumoured to be under offer. In Canary Wharf, prime rents remained stable at 2.50 per sq ft, with rent free periods stable at 22 months. Outside the Wharf, prime rents remain at 35 per sq ft with rent free periods at 20 months, whilst in Stratford prime rents are now at 7.50 per sq ft, with 22 months rent free. KEY DEALS THIS QUARTER in Midtown during 2017 was muted, totalling just 20,000 sq ft which was 59% down on the previous quarter and 35% down on the five-year quarterly average. Quarterly take-up was the lowest since Q 201. However, a strong first quarter means that take-up for H1 was 825,700 sq ft 63% up on the last half of 2016, and 5% up on H The largest deal of the quarter was at 28 Chancery (WC2), where Framestore took 93,900 sq ft. Elsewhere, Industrial Light & Magic acquired 6,900 sq ft at Lacon House (WC1). of new space accounted for 185,000 sq ft and 77% of total activity for the quarter. of second-hand space totalled 55,000 sq ft and 22%. of newly completed space accounted for 185,000 sq ft, (77%) of take-up, with second-hand grade B space making up 9,000 sq ft (20%), and second-hand grade A space just 3%. There was no preletting during the quarter. in Midtown was stable at 1.6 million sq ft, with the vacancy rate also remaining stable at.1%. is in line with the corresponding quarter in During the quarter 137,000 sq ft completed across three buildings all refurbishments, with the largest being Network Rail and Brookfield s 1 Puddle Dock (EC). The other completions during the quarter included the of London and Bridge Trust s 18,000 sq ft Bridge House (EC) and Boultbee Brooks 25,000 sq ft Black Bull Yard (EC1). There were no new starts during the quarter. There is now 2.1 million sq ft under construction across Midtown. Prime rents across all Midtown submarkets remained stable during the quarter, with prime rents up 1.2% on the corresponding period last year. KEY DEALS THIS QUARTER 30,500 sq ft 20,000 let 85% down on 5-year quarterly average 35% down on 5-year quarterly average.1% vacancy.1% rate 886,350 sq ft under 2.1 m construction 7.50 per sq ft 75 prime rent vacancy rate per sq ft prime rent sq ft let sq ft under construction

6 11 Investment market in brief We are now more than a year since the decision was made to leave the European Union, in which time the UK has experienced further political turmoil through a hung parliament. However, every cloud has a silver lining and with the threat of a hard Brexit receding, in the investment market has seen a hardening of net initial yields. The weakening of the pound continues to present opportunities to overseas investors looking to benefit from stronger local currencies and investors seem to be confident in London remaining as a global business destination. Goldman Sachs has continued building their 350m European headquarters totalling 850,000 sq ft and Deutsche Bank is still in detailed negotiations with Land Securities for a new HQ at Moorfields. We have seen capital value growth, with a lot deals over 100 million now exchanging for over 1,100 per sq ft on average. The bigger picture sees the rolling 12-month total turnover for deals at 8.3bn, 11% up on the long-term average. The stats seem to dispel the rumours that the market is slowing down but it would seem that the breadth of buyers is thinner than for some time. Whilst the Chinese wave continues there have been a number of high profile deals by German investors. DEKA purchased 78 Cannon Street for 500m reflecting a NIY of.6% and Deustche AM purchased 2 & 3 Bankside SE1 for 310m reflecting a NIY of 5%, Union Investments purchased 160 Aldersgate for 203m reflecting a NIY of.73% from Mercer Real Estate The Copyright Building 30 Berners Street for 165 at a NIY of.2% from Derwent London. It is not all one way traffic though, as German owners are also selling in this market. Commerz Real has triggered the sale of Athene Place for 120m. However there is no denying that the Far East is the dominant force which has seen Chinese and other Asian money accounting for over half of 2017 transaction volume to date. Notable 2017 overseas deals include the purchase of 33 Old Broad Street for 260m at a NIY of 3.9% by the Hong Kong listed investor SEA Holdings and 20 Gresham Street to Colony North Star and China Resources Land for 310m at a NIY of 3.9%. Singaporean Steam Field Investments purchased 67 Lombard Street for 10m reflecting a NIY of %, and it was Thai group Utopia Properties who purchased Pinners Hall, Old Broad Street for 98.6m at a NIY of %. Despite being at the start of 2017 the purchase of The Leadenhall Building for 1.115bn for a NIY of 3.5% by Chinese CC Land is symbolic of the current investment tone and where the bulk of the money is coming from. Who else should we watch? The advance of serviced office operators continues. This has been taken a step further; WorkSpace Group acquired Salisbury House for 159m NIY 6% in the back end of and US co-working group WeWork are set to acquire 120 Moorgate for c 0m and 51 Eastcheap. Chris Gore Head of Transactions Senior Director chris.gore@gva.co.uk The weakening of the pound continues to present opportunities to overseas investors GVA are advising on the sale of Carter Lane (EC)

7 12 Central London investment Transaction volumes During 2017, central London investment totalled.1 billion across 37 deals, 3% down on the first quarter but 5% up on the five-year quarterly average. The saw 1.7 billion transacted, 27% down on the previous quarter but 30% up on the corresponding period last year was 3% up on the five-year quarterly average. The largest deal in the core was Chinese Estates purchase of St James s Square (SW1) for 175 million, representing a yield of.25%. Elsewhere, Wanda paid St Modwen for the Nine Elms Square (SW8) mixed use development site, due to complete later in the summer, but there are rumours abound this deal may not proceed as the Chinese authorities are currently investigating Wanda. In the, 2.0 billion was transacted across 18 deals during, in line with the previous quarter. Investment for Q1 was 7% down on the five-year quarterly average but % up on the corresponding quarter last year. The largest deal of the quarter was DEKA Immobilien s 85 million purchase of Cannon Place (EC) from Hines, representing a yield of.6%. On the Southbank, Deutsche Assets and Wealth Management paid M&G 310 million for Bankside 2&3 (SE1). This quarter overseas money accounted for 2.9 billion (72% of total investment). UK property companies accounted for 610 million of investment for 2017 (15%), whilst UK institutional investors were responsible for 11% of total investment for the quarter ( 50 million). During the quarter, there were 15 purchases of over 100 million, with six of these in excess of 200 million. Yields 2017 saw prime yields remain stable in all but two of our submarkets, with Paddington and the core both coming in 25 basis points. Prime yields in Mayfair and St James s remain at 3.5%, with core at.25%. The market seems to have readjusted post-brexit. Central London office investment transactions billion Central London prime office yields Years Source: GVA / PropertyData year quarterly average Mayfair/ St James s M bone/fitzrovia Soho/Covent Garden Core Holborn Victoria Paddington eastern fringe northern fringe Southwark Source: GVA GVA are disposing of 28,98 sq ft on behalf of REM at 8 Pall Mall (SW1)

8 Central London Markets Parks Camden King s Cross Stratford Regent s Park Euston Bloomsbury Clerkenwell Shoreditch/ Spitalfields Northern White Green Park / St. James s Park Paddington Hyde Park Marylebone Mayfair Fitzrovia Soho St James s Chancery Lane Covent Garden Core Aldgate Whitechapel West Hammersmith Kensington Belgravia/ Knightsbridge Victoria Waterloo London Bridge Canary Wharf Fringe Chelsea Fulham Battersea Park Vauxhall/ Battersea Prime headline rent Rent free period (months) Business rates Total occupancy costs Prime headline rent Rent free period (months) Business rates Total occupancy costs Belgravia / Knightsbridge Bloomsbury Camden Chelsea Covent Garden Euston Fitzrovia Fulham Hammersmith Kensington King s Cross Mayfair Mayfair/St James s super-prime Marylebone Paddington Soho St James s Vauxhall, Nine Elms, Battersea Victoria White Core Holborn Aldgate/Whitechapel Clerkenwell EC London Bridge Northern Shoreditch/Spitalfields Waterloo West Prime headline rent Rent free period (months) Business rates Total occupancy costs Canary Wharf Other Stratford

9 For further information please contact: Patrick O Keeffe Head of London Agency and Investment Regional Senior Director + (0) pok@gva.co.uk Justin James Senior Director, Investment + (0) justin.james@gva.co.uk Chris Gore Head of Transactions + (0) chris.gore@gva.co.uk Jeremy Prosser Senior Director, and Agency + (0) jeremy.prosser@gva.co.uk Daryl Perry Associate Research + (0) Our offices: Birmingham Bristol Cardiff Dublin Edinburgh Glasgow Leeds Liverpool London Manchester Newcastle GVA 65 Gresham Street, London EC2V 7NQ 1175 This report has been prepared by GVA for general information purposes only. Whilst GVA endeavours to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. GVA assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation GVA excludes all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from GVA to reproduce material contained in this report. GVA is the trading name of GVA Grimley Limited. GVA 2017.