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ResearchGlobal RealEstate MarketsAnnual Review and Outlook 2012

2012GLOBAL REALESTATE MARKETSAnnual review and outlookHighlights• International commercial property markets have reacted to the increased uncertaintyin the global economy in late 2011 and early 2012 with varying degrees of resilience.Demand for office space has remained robust in many markets in the US, Germanyand mainland China, but reduced occupier confidence and falling rents have beenwitnessed in a number of major Asian financial centres and in the European marketsmost affected by the debt crisis.• Strong recent leasing activity in Central and Eastern Europe, Germany and the Nordicregion has contrasted with the weaker performance of markets in other Europeancountries that have been more severely impacted by sovereign debt concerns. Thepace of prime office rental growth has slowed significantly across most of Europe,and rental increases are expected to be relatively subdued in 2012.• The momentum of the recovery in the US commercial property sector has beenmaintained, supported by an improving labour market. Class A office rents havebeen rising in most US markets, with the strongest growth being recorded inManhattan and San Francisco, where occupier demand has been driven by thethriving technology sector.• Asian office markets have experienced contrasting recent fortunes. Strong demandfor space and low vacancy rates have pushed prime office rents sharply upwardsin the major markets of mainland China, especially Beijing, and rental growth isexpected to continue during 2012. In contrast, prime rents have started to comeunder downward pressure in Hong Kong and Singapore.• The markets of the Middle East have been affected by both the recent politicalturbulence in the region and high levels of development activity, which have leftmany locations with substantial volumes of vacant office space. Occupier marketactivity in Dubai has, however, benefited from its perceived status as a “safe haven”within the region.• Africa’s emerging property markets have continued to develop, supported by strongeconomic growth and increased foreign direct investment, particularly from China.However, high quality office space remains in short supply in many cities.• Globally, commercial property investment volumes rose moderately in 2011compared with 2010. It is anticipated that annual transaction volumes in 2012 willbe similar to 2011, albeit the second half of the year is expected to be stronger thanthe first half. Investor caution, continued constraints on debt financing and a lack oflarge-scale transactions have led to reduced investment volumes in early 2012 in anumber of international markets. However, activity should improve if wider economicconditions stabilise over the course of the year, particularly in the Eurozone.2

www.knightfrank.comContentsEurope 4North America 12Middle East 20Africa 24Asia-Pacific 28Global office rents 333

2012GLOBAL REALESTATE MARKETSAnnual review and outlookEuropeThe debt crisis in the Eurozone escalated over the course of2011, putting increased strains on the European economy. For2011 as a whole, Eurozone GDP rose by 1.4%, but growth wasconcentrated towards the start of the year, and a quarterlycontraction of -0.3% was observed in Q4. With fiscal austeritymeasures dragging on growth, it appears likely that theEurozone re-entered recession in Q1 2012. Negative growthis most likely during 2012 in the countries that are under thegreatest pressure to reduce their deficits, notably Greece,Portugal, Ireland, Italy and Spain.4

Figure 1European office vacancy rates%2520151050AmsterdamBrusselsDublinFrankfurtLisbonLondonMadridMilanMoscowMunichParisPragueWarsawQ2 2010 Q4 2010 Q2 2011 Q4 2011Source: Knight Frank ResearchDespite the gathering economic gloom, anumber of European occupier and investmentmarkets performed remarkably well in 2011.Several Central and Eastern European (CEE)cities, for example, had record-breaking yearsfor office take-up. However, property marketperformance varied greatly, and broadlymirrored the economic strength of individualcountries. Increased leasing and investmentactivity was recorded in most German, Nordicand CEE cities in 2011, but activity wassubdued in the more peripheral marketsaffected by sovereign debt concerns.Knight Frank’s European office take-up index,which provides a cumulative measure of officemarket activity across 15 major cities,recorded a moderate increase in overallEuropean leasing volumes in 2011 comparedwith 2010. Decreased activity in centralLondon, Madrid and Brussels wascounterbalanced by improved take-up in theCEE region and Munich. Increases in primerents were recorded in a number of Europeanoffice markets in 2011, but the pace of rentalgrowth generally slowed in the second half ofthe year, as economic concerns led toincreased occupier caution.Overall European commercial propertyinvestment volumes amounted to €113.7billion in 2011, according to Real CapitalAnalytics/Knight Frank data. This was anincrease of 11% on 2010, with theimprovement in activity largely driven byRecord officetake-up waswitnessedin severalCentraland EasternEuropeanmarkets in 2011London5

2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 4European office take-up and vacancy rate indicesH1 2005=100160140120100Despite the negative news surrounding theItalian economy, there were robust levels ofleasing activity in Milan in 2011. Nonetheless,availability has increased, particularly inperipheral areas, as occupier interest hasbeen focused on prime central space at theexpense of lower quality offices in secondarylocations.806040200H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H22005 2006 2007 2008 2009 2010 2011Recent office market activity in Vienna haslargely been driven by tenants relocating tomore cost-effective premises. The city’svacancy rate has risen to 6.3%, but this remainslow compared with most other Europeancapitals. Prime rents were stable at €24.50per sq m per month throughout the year.Indices are based on 15 key European markets, weighted by size and market maturitySource: Knight Frank Researchremains high at over 20%, but there are veryfew large spaces available in the city centreand no significant office developments arecurrently under construction.In Belgium, occupier and investor sentimentweakened in 2011, influenced by concernsover both the wider Eurozone debt crisis andthe country’s own troubled public financesand political instability. Office take-up in theBrussels market was 324,000 sq m, whichwas the lowest for nearly 20 years. There werea number of large leasing transactionsinvolving public sector occupiers, butcorporate tenants remained cautious, puttingexpansion and relocation decisions on hold.FrankfurtOffice take-up indexOffice vacancy rate indexThe uncertain climate also led to a 25 basispoints softening of prime office yields, to6.25% in the final quarter of 2011.The Amsterdam market remained relativelyrobust in 2011, with office take-up rising by7%, to 258,000 sq m. The strength ofdemand, together with decisions to changethe use of some unmarketable officebuildings, contributed to a slight decrease inAmsterdam’s structurally high vacancy rate,taking it from 17.5% to 17.0% over the courseof the year. In contrast, other Dutch marketsincluding Rotterdam and The Hague sawreduced take-up and continued rises inavailability in 2011.Occupier and investor confidence in theNordic region was relatively high in 2011. TheNordic countries have been comparativelyunaffected by the debt crisis, having lowlevels of public debt and, with the exceptionof Finland, being outside the Eurozone.Stockholm and Oslo recorded some of thestrongest prime office rental growth anywherein Europe in 2011. Commercial propertyinvestment in Sweden amounted to €7.1billion, up by 20% on 2010, making it thefourth most active country in Europe, behindthe “big three” markets of the UK, Germanyand France.The CEE region also performed strongly in2011, being home to some of Europe’s fastestgrowing economies and largely immune fromthe worst effects of the Eurozone debt crisis.Poland, in particular, continued to seebuoyant economic growth, with GDP rising by4.3%. This translated into strong demand inthe Warsaw office market, which saw take-upreach a record 573,000 sq m. Prime officerents moved upwards by 8% during 2011, toend the year at €25.60 per sq m per month.The Prague office market also witnessedrecord take-up, of 276,000 sq m, in 2011.While tenant renegotiations have continuedto be an important driver of the market,corporate expansion accounted for anincreased proportion of activity. The city’svacancy rate fell to 12.0% at the end of 2011,from 13.2% a year earlier, but this was notenough to put serious upward pressure onprime rents, which remained unchanged at€20-21 per sq m per month.8

Bucharest was another CEE office market tohave its strongest year on record, with annualtake-up of 240,000 sq m in 2011. Only115,000 sq m of new office space was broughtto the market, 70% down on the previousyear, and there are very few large-scaleprojects currently in the developmentpipeline. Vacancy rates have fallen, currentlystanding at 10% in the CBD, and below 1% inthe Calea Floreasca/Barbu Vacarescu area,which has become an increasing focus ofoccupier demand in recent years.The CEE area saw some of the sharpest rises ininvestment activity seen anywhere in the worldin 2011, as commercial property sales came toapproximately €8.2 billion, well over doublethe 2010 figure. Over 80% of investmentvolumes came from cross-border sources, withinstitutional investors from Germany, Austriaand the US among the most active buyers.Further east, Russian commercial propertymarkets have recovered well over the last twoyears, after occupier demand collapsed in2009. Take-up of Class A and B office space inMoscow was 989,000 sq m in 2011, almostexactly the same level as 2010, but still someway short of the totals recorded in the boomyears of 2006-08. Since peaking at 19.5% in2009, the Class A vacancy rate has steadilyfallen, ending 2011 at 12.5%. Average Class AMoscowrents rose by 9% in 2011, and furtherincreases are expected in 2012. Rental growthis anticipated to be strongest in the citycentre, as a result of falling supply levels andnew government restrictions on constructionactivity.Figure 5European prime office yields%10St Petersburg also recorded rising office rentsand falling vacancy rates. The most significantrecent development in the market has been thegrowth of the Pulkovo business district, southof the city and near the airport. This locationhas become a significant focus of constructionactivity, and the availability of large, modernoffices has attracted international and Russianoccupiers to the area.8642The weakening of economic conditionsaround the turn of the year has added to thealready uncertain outlook for Europeanoccupier markets in 2012, and it is possiblethat activity may yet be impacted by furtherdevelopments in the Eurozone. Generally,0AmsterdamBrusselsDublinFrankfurtSource: Knight Frank ResearchLisbonLondon (City)London(West End)MadridMilanQ4 2010 Q4 2011MoscowMunichParisPragueStockholmWarsaw9

2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 7Top ten European commercialinvestment markets, 2011€ billionLondonParisMoscowFrankfurtStockholmHamburgManchesterMunichBerlinWarsaw0 2 4 6 8 10 12 14 16 18 20PragueOffice Retail Industrial HotelSource: Knight Frank Research/Real Capital Analyticshowever, the trends that characterisedEuropean markets in 2011 look set to continueover the next twelve months. Corporateoccupiers will remain cautious and focused onsaving costs and improving the efficiency oftheir leased space. Development completionswill continue to be well below historical levels,albeit there are signs of construction activityincreasing moderately in certain markets,including London and Warsaw.Figure 6European commercial investment volumes€ billion4035302520151050The prospects for office rental growth haveweakened, although the continued scarcity ofprime space in many city centres may lead tosome modest rental increases in 2012,especially if sentiment improves in thesecond half of the year. However, rents maycontinue to come under downward pressurein peripheral markets, particularly on theIberian peninsula.Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42008 2009 2010 2011UK Germany France Nordics Benelux Central/ Rest ofEastern Europe EuropeSource: Knight Frank Research/Real Capital AnalyticsInvestment volumes in 2012 are expected tobe at fairly similar levels to 2011, albeit thereis potential for activity to improve in thesecond half of the year if economic conditionsstabilise. There remains an appetite for primeproperty, particularly with prime yieldscurrently offering a significant premium overhistorically low “risk free” rates. However, theavailability of debt seems unlikely to improvesignificantly in the short-to-medium term,which will continue to restrict transactionalactivity. Cash-rich investors will remain in anadvantageous position within the market, andthe recent movement of capital into Europefrom overseas sovereign wealth funds andpension funds, which has so far been largelyconcentrated in London, may spread furtherto other markets, particularly in France andGermany.With the majority of investors remainingcautious, demand will continue to beconcentrated on perceived “safe havens” suchas London, Paris and Germany. This shouldhelp to support prime yields in these marketsat their current levels, although yields forsecondary assets and properties in peripheralmarkets are likely to come under outwardpressure in 2012. The divergence in theperformance of prime and secondary property,which has characterised European marketsover the last three years, is therefore expectedto continue for the foreseeable future.10


2012GLOBAL REALESTATE MARKETSAnnual review and outlookNorth AmericaUnited StatesUS commercial real estate performance continued to improve in2011, adding to the momentum spurred by the recovery in 2010.Investor interest, liquidity and leasing activity all combined tocreate a substantial tailwind that buoyed prospects for boththe industrial and office sectors. Other positives, like reducedunemployment, higher market indices and headline-driven IPOs,combined to establish a firm foundation for the fundamentals tocontinue to improve into 2012.12

In the office sector, $58.0 billion in salesvolume took place in 2011 – more thandoubling the $26.4 billion total for 2010,although still less than half of the $118.7billion annual average volume seen from2006 to 2008. Office sales averaged $207 persq ft in 2011, a 21.8% improvement over the2010 average price of $170 per sq ft, while theaverage cap rate for the office market in 2011was 7.1% compared with 7.8% in 2010.Figure 8US Class A CBD office average asking rentsUS$ per sq ft per annum7060504030Investment activity for industrial properties inthe US also increased in 2011. A total of $24.4billion in industrial sales took place duringthe year, compared with $13.7 billion in 2010.Volume has yet to reach the amount of activityseen from 2006 to 2009 when the marketaveraged an annual $40.4 billion of sales.The average sale price for industrialproperties in the US was $55 per sq ft in 2011,the same as 2010, while the average cap ratewas 7.5% compared with 8.1%.20100AtlantaBostonChicagoDallasDenver2009 2010 2011Source: Newmark Knight Frank ResearchDetroitHoustonLos AngelesManhattanMiamiNashvilleNew JerseyPhiladelphiaSan FranciscoWashington, DCThe average asking rent for Class A officespace in select US CBD markets at the end of2011 improved to $40.42 per sq ft per annumfrom the 2010 year-end average of $37.83per sq ft, a 6.8% increase that providedpricing strength to the market. The overallvacancy rate for office space in the select USmarkets finished at 13.4% at the end of 2011,compared with 13.8% at the end of 2010 and13.7% at the end of 2009.Net absorption of office space in the select USmarkets was positive on the year at 8.5million sq ft, an improvement over the 3.4million sq ft of positive net absorption thattook place in 2010, and the best yearlyperformance since 2006 when 18.0million sq ft were removed from the market.Leasing activity totalled 36.0 million sq ft in2011, representing a slight decline over the37.3 million sq ft of leasing that took place in2010. Between 2006 and 2009, leasingactivity in these select markets averaged 30.8million sq ft per year.Factors that influenced the marketperformance included improvement in thefinancial position of companies as shown bytheir total liquid assets. By the end of thethird quarter of 2011, corporate assets were attheir highest level in more than 50 years. Theaccumulation of cash, or assets easilyconvertible to cash, was $2.1 trillion, up 19.1%over the $1.8 trillion reported in the thirdquarter of the prior year. As companies beginto invest in growth, market activity will start topush upward.The US unemployment rate, which was 9.4%at the start of the year, finished the year at8.5%, while job openings hit a nearlythree-year high. There were 3.4 million jobsavailable at the end of December 2011, upfrom 3.1 million in the prior month, accordingNew Yorkto the US Bureau of Labor Statistics’ JobOpenings and Labor Turnover Survey.Development of new office properties slowedas a total of 7.1 million sq ft of Class A officespace were under construction in select USmarkets in 2011, the lowest yearly figure inwell over a decade. This figure was less thanhalf of the 14.7 million sq ft that were underconstruction in 2010, down significantly fromthe annual average of 35.0 million sq ft underconstruction between 2006 and 2009.13

2012GLOBAL REALESTATE MARKETSAnnual review and outlookThe US industrial market experienced abounce in the fourth quarter of 2011 as 25.7million sq ft of net absorption took place,nearly matching the results from the prior twoquarters of 26.7 million sq ft. The 2011 totalnet absorption was positive as 62.7 millionsq ft were removed, reversing conditions thatsaw 9.3 million sq ft returned to the market inFigure 9US Class A CBD office vacancy rates%35302520151050AtlantaBostonChicagoDallasDenverSource: Newmark Knight Frank ResearchDetroitFigure 10US industrial average asking rentsU$ per sq ft per annumHoustonLos Angeles2010, and was the best performance since2007 when 98.2 million sq ft were removedfrom the market.The US industrial vacancy rate fell to 12.1% atthe end of the year, down from 12.5% at theend of 2010. The 2011 year-end averageasking rental rate was $4.90 per sq ft, slightlyManhattanMiami2009 2010 2011NashvilleNew JerseyPhiladelphiaSan FranciscoWashington, DChigher than the asking rent of the priorquarter and the end of 2010, both of whichreported $4.87 per sq ft. Leasing activity inUS industrial properties was 294.5 millionsq ft in 2011, compared with 428.1 millionsq ft in 2010 and the annual average of 320.9million sq ft leased between 2006 and 2009.The industrial market continued with therehabilitation of existing infrastructure andthe continued attrition rate of performingassets. New construction in 2011 in theindustrial sector remained well off theprevious decade’s pace. At the end of theyear, a total of 17.1 million sq ft of newindustrial space was delivered in the US, aslight increase over the 15.9 million sq ft thatwere delivered in 2010 and still significantlylower than the annual average of 105.1 millionsq ft of industrial space that were deliveredbetween 2006 and 2009.Sustainability and energy efficiency carriedthe upbeat tone in the market throughout2011 with an emphasis on propertiesassociated with LEED, also known as thegreen office market. The national green officemarket strengthened in 2011 as the vacancyrate improved to 13.4% at the end of the yearfrom the 14.9% rate at the end of 2010. Netabsorption totalled 2.1 million sq ft in 2011,adding to the 1.7 million sq ft removed fromthe market in 2010. The average asking rentfor green office space at the end of 2011 was$39.54 per sq ft, down from the $39.79 persq ft average at the end of 2010.14121086420AtlantaBostonChicagoDallasDenverDetroitHoustonLos AngelesMiamiNashville2009 2010 2011Source: Newmark Knight Frank ResearchNew JerseyNew York CityPhiladelphiaSan FranciscoWashington, DCBy the end of 2011, conditions for office spacein the Atlanta market showed signs ofimprovement with total net absorption of55,878 sq ft. Although positive for the year,the net absorption total was below the levelseen in 2010 when 169,093 sq ft of positivenet absorption took place. The average askingrental rate declined throughout the year,finishing 2011 at $19.54 per sq ft, comparedwith $19.70 per sq ft at the end of 2010. Thevacancy rate was 19.9% at the end of 2011, animprovement from the 20.8% vacancy ratereported at the end of 2010.Based on dollar volume, the Atlanta officemarket experienced tremendous year-overyeargrowth in investment activity in 2011.Following a weak year in 2010 with $38514

million in sales transactions closed, 2011ended with $1.4 billion in closed deals, a270% increase in dollar volume. The averageprice per sq ft paid grew to $120 per sq ft in2011 from $98 per sq ft in 2010. The averagecap rate for office properties sold in 2011 was7.7%, compared with 8.4% in 2010.CMBS debt totalling $4.6 billion was securedby office properties in the Atlanta market bythe end of 2011. Of the $4.6 billionoutstanding, nearly $1.6 billion, or 34%, wasconsidered delinquent by the end of the year.The vacancy rate for office properties in Bostonsettled at the end of 2011 at 11.8%, followingrates as high as 13.0% earlier in the year, andremained above the 11.2% rate reported at theend of 2010. The average asking rent grew to$43.51 per sq ft by the end of 2011, improving2.6% from the $42.39 per sq ft rate reported atthe end of 2010. The year-end net absorptiontotal for office space in Boston was positive at472,342 sq ft in 2011, a considerableimprovement from the combined 1.8 millionsq ft of negative absorption which took placein 2009 and 2010.In 2011, 700,000 sq ft of new office spacewere delivered to the market, while another580,000 sq ft remained under construction.Little development has taken place over thepast few years, with 920,000 sq ft of spacedelivered to the market in the past five years.By comparison, from 2001 to 2006, a total of3.4 million sq ft of new space was delivered tothe market.The average asking rent for green office spacein Boston finished 2011 at $47.48 per sq ft,which stands at 9.1% over standard Class Aoffice spaces in the Boston market. Thevacancy rate for green office space ended theyear at 11.1%, almost 200 bps above the 9.3%rate reported in 2010. A total of 662,000 sq ftof transactions were signed for green officespace in 2011.The 2011 year-end total for net absorption inthe Chicago office market was positive at787,033 sq ft, adding to the 605,296 sq ft ofpositive net absorption in 2010. The vacancyrate in the market finished 2011 at 14.6%, aslight improvement over the 14.8% ratereported at the end of 2010, and the lowestBostonlevel seen since mid-2009. Average askingrents in the Chicago market fell to $31.34 persq ft at the end of 2011 from $31.79 per sq ftreported at the end of 2010.In 2011, office investment activity in Chicagogrew by more than 20.0% from the previousyear as $3.3 billion worth of transactions wereclosed, the highest level seen in this marketsince 2007. The average sale price for officeproperties in Chicago in 2011 was $164 persq ft, a drop from the $182 per sq ft rate seenin 2010. The average cap rate for the year was7.4%, down from 7.9% in 2010.The Chicago industrial market, one of thelargest in the US, finished 2011 with a vacancyrate of 14.4%, an improvement over the 15.5%rate reported in 2010 and its lowest levelsince 2009. The average asking rent forindustrial space reached $4.17 per sq ft at theend of the year, up slightly from $4.13 persq ft reached in 2010. Ozburn HesseyLogistics signed one of the largest industrialleases in the Chicago market in 2011, inking adeal for 477,000 sq ft at 2780 McDonoughStreet.The average asking rent in the Dallas officemarket remained nearly flat throughout 2011,finishing the year at $20.83 per sq ft, a 1.4%decline from the average reported at the endof 2010. The Dallas vacancy rate ended 2011 at25.6%, its highest level since 1997 and one ofthe highest office vacancy rates within the USCBD marketplace. The third quarter of 2011was the only quarter in the year to postpositive absorption, bringing the year-endtotal for net absorption to negative258,815 sq ft, retreating further from the133,012 sq ft of negative net absorptionin 2010.Although development of new office towersslowed in 2011, investment activity grew inthe year as more than $120 million in salesactivity took place, from a nearly inactive2010. One of the largest leasing transactionsin 2011 was for the advertising firmTracyLocke. The firm signed a renewal leasefor 112,000 sq ft at 1999 Bryan Street in theDallas CBD.Delinquencies of CMBS debt on Dallas officeproperties stood at 12.5% or $516 million bythe end of 2011. $4.2 billion of securitiseddebt remained outstanding by the end of2011, 88% of which was originated priorto 2009.15

2012GLOBAL REALESTATE MARKETSAnnual review and outlookChicagoIn the Houston office market, 2011 marked ayear of new construction and active leasing.The year-end total for net absorption waspositive at 842,400 sq ft, compared with thenegative 240,345 sq ft of net absorption in2010. By the end of 2011, leasing activity hadFigure 11US industrial vacancy rates%252015improved to nearly 3.2 million sq ft, a levelnot seen since 2006 when 3.4 million sq ft oftransactions took place.The vacancy rate in the market finished theyear at 10.6%, an increase from the 8.6% ratereported at the end of 2010, as 1.8 million sq ftof new construction was completed andbrought to the market. The average askingrent rose to $36.02 per sq ft at the end of 2011,from $35.68 per sq ft reported in 2010. One ofthe largest transactions of the year was signedby Shell Oil Company. The company signed arenewal lease for nearly 800,000 sq ft ofspace at 910 Louisiana Street.The Houston market is home to the fourthlargest green office market in the US. In thepast year, more than 1.8 million sq ft of greenoffice space was delivered to the market. Thevacancy rate ended 2011 at 9.3%, 130 bpsbelow the overall vacancy rate. The averageasking rent for green spaces ended the yearat $37.19 per sq ft.1050AtlantaBostonChicagoDallasDenverDetroitHoustonLos AngelesMiamiNashville2009 2010 2011Source: Newmark Knight Frank ResearchNew JerseyNew York CityPhiladelphiaSan FranciscoWashington, DCThe office market in Los Angeles sawdeclining conditions during 2011, with theexception of asking rents which grew to$34.18 per sq ft from $33.37 per sq ft reportedat the end of 2010. The market vacancy raterose to 16.0%, compared with 14.3% at theend of 2010, reaching the highest rate in themarket since the end of 2004. The year-endtotal for net absorption was negative381,515 sq ft, making 2011 the fourthconsecutive year to post negative netabsorption. By the end of 2011, nearly16

2.0 million sq ft of office leasing transactionstook place, compared with the 2.2 millionsq ft which took place in 2010.As the second largest in the nation at nearly490 million sq ft, the Los Angeles industrialmarket did not fare much better than theoffice market throughout 2011. In the fourthquarter of 2011, 624,155 sq ft of positiveabsorption took place. While positive for thequarter, the year-end total for net absorptionwas negative 2.8 million sq ft. As with theoffice market, 2011 marked the fourthconsecutive year of negative net absorption.The vacancy rate for industrial properties inLos Angeles ended the year at 6.5%,compared with 6.1% at the end of 2010.Average asking rents finished the year at$6.36 per sq ft, down from $6.40 per sq ft atthe end of 2010, and were 19.5% below themarket high of $7.90 per sq ft reportedin 2008.As one of the stronger performing US officemarkets, conditions in Manhattan showedsigns of improvement in 2011. The averageasking rent rose by the end of 2011 to $66.48per sq ft from $61.44 per sq ft, an 8.2%increase year over year. The year-end total fornet absorption was positive 3.7 million sq ft,3.2 million of which occurred in the first halfof the year. By comparison, the 2010 year-endtotal was positive 3.0 million sq ft. Thevacancy rate improved by the end of 2011 to7.1% from 7.3% reported at the end of 2010,and remained above the 6.9% rate reportedin 2009.Conditions in the Miami office marketimproved by the end of 2011 as the vacancyrate fell to 22.3% from 23.1% reported at theend of 2010. The vacancy rate in Miami hasbeen above the 22.0% mark since thebeginning of 2010. Following a strong finishto 2010 with positive net absorption of120,490 sq ft, the pace of absorption slowedFigure 12US average office cap rates%1086420AtlantaBostonChicagoDallasDenverDetroitHoustonLos AngelesSource: Newmark Knight Frank Research/Real Capital AnalyticsFigure 13US average industrial cap rates%12a little in 2011 as the year-end total ended atpositive 61,681 sq ft. The average asking rentin the market ended the year at $42.08 persq ft, a slight drop from the $42.53 per sq ftrate reported in 2010, and remained 6.6%below the market peak reached in 2008.Rents in the Miami office market are amongthe top five highest in the country.ManhattanMiami2009 2010 2011NashvilleNew JerseyPhiladelphiaSan FranciscoWashington, DCLeasing activity in Manhattan slowed a littlein the second half of 2011, following a strongfirst half in which 9.5 million sq ft of leasingactivity took place. By the end of the year,16.3 million sq ft of leasing transactions tookplace compared with 18.9 million sq ftreported in 2010. The annual average forleasing activity over the past 10 years hasbeen 14.4 million sq ft.108642While several Class A projects remain in theplanning stages in Midtown, 1.8 million sq ftof Class A space is scheduled to be deliveredto the market in the next two years. In 2010,the tower at 11 Times Square was completedand delivered to the market, adding1.1 million sq ft of Class A office space.0AtlantaBostonChicagoDallasDenverDetroitHoustonLos AngelesManhattanMiami2009 2010 2011Source: Newmark Knight Frank Research/Real Capital AnalyticsNashvilleNew JerseyPhiladelphiaSan FranciscoWashington, DC17

2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 14US Class A CBD office rents, annual change, Q4 2010 to Q4 2011%San FranciscoManhattanBostonLos AngelesHoustonNashvilleDenverWashington, DCPhiladelphiaDallasDetroitAtlantaChicagoMiamiNew Jersey-5 0 5 10 15 20 25Source: Newmark Knight Frank ResearchIn 2011, nearly $360 million in investmentsales activity took place, an increase over the$220 million of activity seen in 2010. Theaverage price per sq ft also increased to $166per sq ft from $127 per sq ft in 2010. One ofthe larger leases signed in 2011 was for theGeneral Services Administration for33,000 sq ft at 100 SE 2nd Street.Following the effects of the economicdownturn, the San Francisco office market hasbeen surging over the past year. Leasingactivity in the market grew to nearly 5.6million sq ft in 2011 from 4.7 million sq ft oftransactions in 2010. The year-end total fornet absorption finished the year at924,752 sq ft, compared with the negative218,235 sq ft of net absorption in 2010.Average asking rents in San Francisco grew25.3% to $40.77 per sq ft from $32.53 persq ft reported at the end of 2010. Rents in thismarket still remain below the peak of $72.44per sq ft reached during the dot-com period in2000. The vacancy rate finished the year at10.4%, nearly 200 bps below the 12.1% ratereached at the end of 2010, and the lowestlevel since 2008.In the San Francisco green office market, theaverage asking rent rose to $41.31 per sq ft atthe end of 2011, indicating a 23.2% climbfrom the $30.01 per sq ft rate reported in2010. The vacancy rate improved to 9.8% from12.6% in 2010, making San Francisco one ofthe leading green markets for vacancyimprovement over the past year. Nearly 3.3million sq ft of green office leasingtransactions took place in 2011, comparedwith 3.0 million sq ft in 2010.Following a rough first half of 2011 in theWashington, DC market as nearly330,000 sq ft of negative absorption tookplace, the second half of the year appeared torebound as 280,572 sq ft of positiveabsorption took place. The vacancy rate forthe market ended 2011 at 13.7%, rising abovethe 12.8% rate reported at the end of 2010.The average asking rent in Washington, DCended 2011 at $54.74 per sq ft, up 1.4% fromthe $53.98 per sq ft average at the end of2010. The average asking rent in the markethas been more resilient to the declines seenin other major markets over the past fewyears. Average asking rents have actuallygrown 2.3% since 2008. Leasing activity wasrobust in 2011 as 2.0 million sq ft of leaseswere signed. This level of leasing activity hasnot been seen in the Washington, DC officemarket since 2003.Construction activity in the Washington, DCmarket remained strong over the past twoyears with more than 1.0 million sq ft of newspace brought to the market. In theinvestment sales arena, average cap rates in2011 were 6.0%, a slight drop from the 6.5%seen in 2010, as investors continue to seekout prime properties in core markets.CanadaThe Canadian economy performedsolidly throughout 2011, despite thedifficulties experienced elsewhere inthe world. Foreign trade accounts forapproximately 45% of the country’s GDP,and an improving economic outlook in theUnited States bodes well for maintainedeconomic stability throughout 2012.According to Statistics Canada, thecountry’s economy grew by 2.5% in 2011,down from 3.2% in 2010, but surpassingeconomists’ earlier forecasts. Over thecourse of the year, all major sectors postedgains, with mining, oil and gas extraction,construction, public sector spendingand manufacturing leading the way.As of March 2012, the Canadian dollar wastrading above par with its US counterpart,which causes challenges for the country’sexporters, and the consensus is thatannualised GDP growth will slow in 2012, withforecasts coming in at around 2.0%. Overallunemployment levels are expected to remainrelatively stable, at approximately 7.5%.The overall Class A and B vacancy rate inCanada’s major cities stood at 4.7% at theend of 2011, down from 6.8% a year earlier.In most major cities, office space, especiallyhigh quality space in new towers, continuesto be leased at an accelerated rate. Indeed,while vacancy rates declined by over 200bps in 2011, the total inventory of built spaceincreased by nearly 2 million sq ft, most ofthis coming online in Calgary and Toronto.In 2012, it is expected that there will bepositive space absorption in virtuallyall of Canada’s major cities, more newoffice tower developments and upwardpressure on asking rents in most cities asspace availability continues to decline.Montreal’s combined Class A and B vacancyrate fell from 7.7% to 5.9% in 2011, and ClassA rates dropped from 6.8% to 6.2%. With thedecline in vacancy rates, asking net rentalrates began to creep upward by the year-end.Development and pre-development activityis energising the downtown real estatemarket, and the imminent announcement of18

at least two new projects is expected. Thisis significant news, as there have been onlytwo major office building projects in theGreater Montreal area in the last decade, withthe completion of Phase 2 of E-CommercePlace in 2004 and the delivery of the BellCanada campus on Nun’s Island in 2009.Ottawa, as the nation’s capital, is generallyprotected from economic downturns by thetenancies of the federal government, anddowntown Class A vacancy rates dippedas low as 4.0% at the beginning of 2011.However, the completion of a major newoffice tower, coupled with the federalgovernment’s decision to address some ofits space needs outside of the downtowncore, caused vacancy rates to skyrocketto 8.0% at the end of 2011. It remains tobe seen how announced federal spendingreductions will further impact downtownoccupancy rates. In the western region ofthe Greater Ottawa area, where there is astrong concentration of hi-tech businesses,vacancy rates at the end of 2011 were 13.7%.Toronto’s office market is the largestin Canada, with a total inventory ofapproximately 62 million sq ft of Class Aand B space in the downtown district. Thedowntown office market is very much ingrowth mode; over the past three years,more than 3.5 million sq ft of new spacehas been delivered to the market. Most ofthis new space has been absorbed, and theClass A vacancy rate at the end of 2011 was at4.5%, down from 6.3% a year earlier. In thenew towers, where demand continues to bestrong, landlords will be focused on fillingthe remaining smaller pockets of space andshould be able to achieve healthy rents asdemand is currently outstripping supply.However, there are still leasing opportunitiesin the older Class A space that has beenfreed up by tenants relocating to the newtowers. The substantial demand for the newbreed of office space has led to late-stagediscussions for further development projects.Calgary’s office market has surged over thepast two years, and occupancy rates nowapproach 100% in the downtown core’sClass A buildings. As a consequence, tenantsare turning to Class B properties for officespace, where there is somewhat greateravailability, but even in this space classasking rents are rising rapidly. A numberof new developments are planned or inprogress, which should bring 3.5-5.0 millionsq ft to the downtown market, but nothingwill be completed before mid-2014, so themarket will remain exceedingly tight.Vancouver continues to experience an officespace squeeze in the downtown core. Thecombined Class A and B vacancy rate wasa very low 2.9% at the end of 2011, andthere is little relief in sight for tenants.Larger blocks of available space, greaterthan 20,000 sq ft, are extremely rare, andasking rents are rising. There are newdevelopments in the pipeline, which willprovide over 1 million sq ft of high qualityinventory, but none of these projects arescheduled to be completed until mid-2014.As has been the case for the past few years,tenants will find more abundant leasingopportunities in the suburban markets.Montreal19

2012GLOBAL REALESTATE MARKETSAnnual review and outlookMiddle EastThe Middle East remains overshadowed by the politicalupheaval taking place in a number of countries, which hasled to considerable caution over the outlook for business andinvestment. Nonetheless, the IMF estimates that GDP growth forthe region was a solid 4.9% in 2011. Looking forward, growthin 2012 is expected be lower at around 4%, although thereremains a considerable degree of uncertainty surrounding thewider global economy and the ongoing push towards greaterdemocracy across the region.20

2012GLOBAL REALESTATE MARKETSAnnual review and outlookoccupiers are aware of this and are trading upin order to secure best deals. In contrast,rents in secondary locations are stillexperiencing downward pressure, notablywith vacancy rates across the city remainingat very high levels.For many retailers, Dubai remains the majorentry point into the wider Middle East,attracted by the presence of western-stylemega-malls, high spending power and ayoung population eager for new brands.Large regional malls account for 60% of retailspace, although an increasing number ofsmaller community malls are beingdeveloped. Rents have not movedsignificantly over the year, although primeschemes recorded a modest degree ofgrowth, while more secondary schemes sawrents edge down.As in much of the region, Dubai has a limitedsupply of good quality industrial and logisticsstock for which there is strong competition.As a result, many occupiers are seekingpre-let options in order to secure betterquality, purpose-built units.The Abu Dhabi office occupier market remainssubdued as a result of the current economicclimate, with requirements averaging around250 sq m. Supply increased significantly in2011, with the delivery of over 300,000 sq mof new Grade A space.The retail market remains active, althoughthere are limited opportunities in thetraditional downtown areas to source thequality of space required by internationalbrands. Rents remain stable, withforthcoming developments expected to soonprovide retailers with new opportunities.In Abu Dhabi’s industrial market, rents areexpected to fall further as more stock entersthe market, although the better quality stockcoming through should mitigate the extent ofany declines.In the Middle East as a whole, investmentactivity remains generally muted, with mostinvestors adopting a “wait-and-see” approachto see how political events play out. However,given the sharp correction in rental levelsseen in the last 2-3 years and the softening inproperty yields which are now in the range of8-9%, the region offers some potentially veryattractive investment opportunities.Abu Dhabi22


2012GLOBAL REALESTATE MARKETSAnnual review and outlookAfricaMany African economies continued to grow at an impressivespeed in 2011, with the global slowdown having a relativelylimited effect on the continent. The IMF estimates that GDPgrowth in Sub-Saharan Africa was approximately 4.9%, howevergrowth in North Africa decelerated sharply to around 2.0% as aresult of the economic impact of the Arab Spring.24

Figure 17Africa prime office rentsUS$ per sq m per annum2,0001,5001,0005000Luanda,AngolaLagos,NigeriaCairo,EgyptLusaka,ZambiaDar es Salaam,TanzaniaKampala,UgandaJohannesburg,South AfricaDurban,South AfricaGaborone,BotswanaCape Town,South AfricaLilongwe,MalawiHarare,ZimbabweNairobi,KenyaBlantyre,MalawiEconomicgrowthand inwardinvestmenthavecontinued tosupport thedevelopmentof Africa’spropertymarketsSource: Knight Frank ResearchWhile high commodity prices have buoyedgrowth in Sub-Saharan Africa, its economieshave also been aided by advances intechnology and communications, improvedregional trade integration and increasedpolitical stability in a number of countries.GDP growth of over 6% was estimated in 2011not only in oil-rich West African countries suchas Nigeria and Equatorial Guinea, but also inEast African nations including Tanzania andUganda.The IMF forecasts that annual GDP growth inSub-Saharan Africa will continue to run atabove 5% over the next five years, althoughserious challenges, including infrastructuredifficulties and skills shortages, remainpresent in many countries. Any slowdown inChina’s economic growth would also causeconcern, as it has become a hugely importanttrade partner and investor in Africa.The economic development of Africa hassupported the growth of its commercialproperty sector. However, outside of SouthAfrica, property markets generally remainsmall and underdeveloped, with many majorcities having a limited stock of high qualityoffice space. African retail property marketscontinue to grow; while small-scale informalretail activity remains very common, modernshopping centres, targeted at Africa’sgrowing middle class, continue to be builtacross the continent.Luanda, Angola, and Lagos, Nigeria, areamong the most expensive cities in the worldin which to rent offices, with both marketshaving a very limited supply of high qualityspace able to meet the requirements ofinternational occupiers, particularly thosefrom the oil and gas industries. Lagoscontinues to be severely affected byovercrowding and poor infrastructure, butCape Townseveral very large projects aimed at improvingthe city’s built environment are in thepipeline, including Eko Atlantic City and theLekki Free Trade Zone.The development of the new Central BusinessDistrict in Gaborone, Botswana, is expectedto have a major impact on the city’s officemarket in the coming years. While a limitedamount of space has been completed so far inthe new district, nearly 90,000 sq m of officesare due to be delivered in 2012, most of whichwill be completed on a speculative basis.25

2012GLOBAL REALESTATE MARKETSAnnual review and outlookCairoA number of major occupiers, from both theprivate and public sector, are planning tomove to the new CBD, which may causeavailability to increase in the city’s existingbusiness parks.In Lusaka, Zambia, over 14,000 sq m of newoffice space is currently under constructionand expected come to the market in 2012.While Zambian tenants remain reluctant topre-let space, there has been increasedevidence of pre-let demand from internationalcompanies entering the Zambian market.Lusaka’s retail sector has continued to grow,with Levy Business Park and Makeni Junctionadding approximately 40,000 sq m of newretail space in 2011, but no new retailschemes are due for completion in 2012.There is currently a surfeit of Grade B officesavailable in Kampala, Uganda, with vacancyrates for such space currently standing atapproximately 30%. Occupation costs haverisen considerably as a result of increasedpower outages, which have necessitated theuse of standby generators for longer periods.A number of new office projects weredelivered to the market in Dar es Salaam,Tanzania, in the second half of 2011, with mostof the space being let to tenants moving fromdilapidated premises. Several major officeschemes are currently under construction thecity, with development activity beingencouraged by strong occupier demand and alack of available space in the CBD.Office market activity in Harare, Zimbabwe,has been restricted by the recent liquiditycrisis in the country’s economy. The highestoffice rents are currently recorded in suburbanbusiness parks, while the CBD continues tosee significant vacancy rates. Demand forretail space has remained relatively strong, inboth the CBD and better quality suburbanshopping centres. This has put some upwardpressure on retail rents, albeit increases arelikely to be limited by the low spending powerof much of the population.In Nairobi, Kenya, significant volumes of newoffice space have continued to be delivered tothe market, most of which have been well-let.New completions in 2011 included 14Riverside, with approximately 30,000 sq m ofcommercial space. Over the longer term,there are ambitious plans for severallarge-scale urban developments in Kenya,notably TATU City and Konza Technology City.Of Malawi’s two largest cities, Lilongwe hasseen a greater level of office developmentactivity in recent years than Blantyre, whereavailability rates are high. In the retail sector,the 18,000 sq m Gateway Mall, which will beMalawi’s largest shopping centre whencompleted, is currently under construction inLilongwe and due for completion in 2013.Occupier demand for office space in SouthAfrica was fairly subdued in 2011, and vacancyrates drifted upwards during the year in manyof the country’s major cities. While primeoffice rents were generally stable, rents forlower quality space came under downwardpressure.In Johannesburg, demand has been strongestin decentralised nodes including Illovo andSandton, and these areas have been able tocommand higher rents than the CBD. Whilevacancy rates rose in most of Cape Town’ssubmarkets during 2011, the availability ofpremium grade space has remained low. InDurban, demand has been healthy in theUmhlanga/La Lucia Ridge area, but the CBDhas continued to record high vacancy rates.26


2012GLOBAL REALESTATE MARKETSAnnual review and outlookAsia-PacificAsia-Pacific led global economic growth in 2011, with GDP forthe region as a whole rising by 6.2% according to IMF estimates.However, growth slowed by the end of year in many parts of Asia,with mounting global economic uncertainties, particularly in theEurozone, dampening international demand for Asian exports.Government measures aimed at tackling high inflation and therisk of a residential property market bubble have also affectedeconomic activity in markets including China, India, Singaporeand Hong Kong.28

Figure 18Asia-Pacific office vacancy rates%35302520151050HanoiKuala LumpurMumbaiGuangzhouNew DelhiHo Chi Minh CityBangaloreBangkokSingaporeSydneyTokyoSeoulQ4 2010 Q4 2011JakartaBrisbaneMelbourneBeijingShanghaiPerthHong KongOffice vacancyrates havefallen below5% in Shanghaiand Beijing,puttingupwardpressureon rentsSource: Knight Frank ResearchSome moderation in economic growth isexpected in Asia-Pacific in 2012, albeit itshould remain the fastest expanding regionof the global economy. The IMF anticipatesthat GDP growth in China will ease from 9.2%in 2011 to 8.2% in 2012; likewise, growth inIndia is forecast to fall from 7.4% to 7.0%.Demand for office space in the region wasaffected by global economic concerns towardsthe end of 2011, particularly in cities mostclosely integrated with international financialmarkets. Hong Kong and Singapore becameShanghaitwo of the first major global office markets tosee rents reach their peak in the current cycle,and recorded falls in prime rents in the finalquarter of the year.The major office markets of mainland Chinaperformed strongly in 2011, in sharp contrastto the residential property sector, which sawprices decrease as a result of governmentmoves aimed at cooling the market. Primeoffice rents rose rapidly in Shanghai andBeijing, and vacancy rates fell below 5% inboth cities, driven by strong demand andlimited development completions. The Beijingmarket recorded exceptionally strong rentalgrowth in 2011, with prime rents rising by46%. Beijing and Shanghai are both forecastto see continued rental growth in 2012.The rapid growth of China’s retail market andthe rising spending power of its consumershave continued to attract investors anddevelopers. A notable example is theSingaporean mall owner CapitaMalls Asia,which has quickly expanded its operations inChina, and now has interests in more than 50shopping centres in the country. Internationalretailers continue to grow their presence inChina; during 2011, IKEA opened its secondlargeststore in the world in Shanghai, USclothing retailers Hollister and AmericanEagle Outfitters launched their first shops inmainland China, while luxury retailers Diorand Marni opened new flagship stores inBeijing.Following two years of exceptional growth,prime office rents peaked in the Central districtof Hong Kong in the second half of 2011, andrental falls were recorded in the final fourmonths of the year. Hong Kong’s exposure toglobal economic headwinds has engenderedincreased occupier caution, and a growingnumber of tenants have sought to reduce theiroperating costs by moving to less expensive29

2012GLOBAL REALESTATE MARKETSAnnual review and outlookFigure 19Asia-Pacific prime office rentsUS$ per sq m per annum1,8001,6001,4001,2001,0008006004002000Hong KongTokyoSingaporePerthSydneySource: Knight Frank ResearchMumbaiBrisbaneBeijingoffices. Prime rents in Central are anticipatedto fall by 10-15% during 2012, but rents shouldremain firm in non-core districts such asCauseway Bay, Quarry Bay and Wan Chai.While sentiment in the Hong Kong officemarket has cooled, the retail sector hasNew Delhicontinued to perform well, buoyed by strongprivate consumption and increased touristarrivals from the mainland. Prime retail rentsrose by around 20% in 2011, and furthergrowth is anticipated in 2012 withinternational retailers maintaining an interestin expanding into Hong Kong’s majorshopping centres. The Hong Kong retail sectoralso provided the largest global commercialproperty investment transaction of 2011, withthe sale of Festival Walk shopping centre toMapletree Investments for HK$18.8 billion(c.US$2.4 billion), reportedly reflecting aninitial yield of c.4.5%.Following the devastating earthquake inMarch, the Japanese economy picked up wellin the third quarter of 2011, but activityweakened again in the final quarter, withexports hit by slowing global trade. Primeoffice rents in Tokyo remain under moderatedownward pressure, with landlords needingto offer competitive rents in order to attractMelbourneHo Chi Minh CityQ4 2010 Q4 2011ShanghaiHanoiSeoulGuangzhouBangkokPhnom PenhBangaloreJakartaKuala Lumpurcost-conscious tenants. The opening of the138,600 sq m Sumitomo Fudosan ShinjukuGrand Tower added to availability in Tokyotowards the end of 2011, and vacancy ratesmay edge further upwards with a significantnumber of projects due for completionin 2012.The outlook for Singapore’s trade-basedeconomy has worsened, with governmentforecasts suggesting that GDP growth willslow from 4.8% in 2011 to no more than 3%in 2012. This is expected to cause officeoccupiers to rein in their expansion plans andoffice market activity is likely to weaken in thenext year. Prime office rents began to fall inthe final quarter of 2011, and are forecast todecrease by up to 15% over the courseof 2012.Grade A office rents in Seoul have continuedon a downward trend in the face of relativelyweak demand and rising levels of new supply.There were a number of large completions inthe CBD during 2011, while the YeouidoBusiness District will also see major deliveriesover the next two years, most notably theFederation of Korean Industries Hall, with afloor space of 169,000 sq m, and Two IFC andThree IFC, part of the mixed-use InternationalFinancial Center project, which will include atotal office space of 328,000 sq m in threetowers when complete.Grade A vacancy levels have remained high inHanoi and Ho Chi Minh City, keeping primerents under downward pressure. The Grade Avacancy rate in Hanoi rose sharply to reach33% at the end of 2011, mainly due to thedelivery of a large volume of new space in thewest of the city. In HCMC, the Grade A vacancyrate is 14%, but this figure is skewed by theBitexco Financial Tower, a 262 metre tallbuilding opened in 2010, which remains lessthan 50% occupied. The recent sale of SaigonTower to the Japanese investor Daibirureflected a yield of approximately 8.5%, settinga new benchmark for prime offices in HCMC.Strong demand for office space in Jakartahelped to push the vacancy rate down to6.3% at the end of 2011, from 11.9% a yearearlier. While demand is expected to weakensomewhat in 2012 as a result of concerns inthe global economy, most of the new spaceexpected to be delivered to the market overthe next 12 months is already pre-let, whichwill help to support occupancy levels.Jakarta30

Phnom Penh Tower was completed in 2011,while the 39-storey Vattanac Capital Tower,due for completion in 2012, is expected to setnew standards of quality for Cambodianoffices. Asking rents for the new Grade Aspace are significantly higher, at US$20-25per sq m per month, than those achieved inexisting Grade B buildings, where rents aretypically US$9-15 per sq m per month.Prime office rents in Kuala Lumpur remainedflat over the course of 2011. Office leasingactivity was healthy, driven by the oil and gasand financial sectors, but the vacancy rateedged up to 20%. With a significant amountof new space due for completion over the nexttwelve months, rental growth is not expectedin 2012.Occupier demand in the Bangkok officemarket has remained robust and largelyunaffected by the severe floods seen inFigure 20Asia-Pacific commercial investment volumesUS$ billion302520151050TokyoQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42008 2009 2010 2011Japan China Australia Hong Kong South Korea Singapore Rest of India(Mainland)South East AsiaOffice, retail, industrial and hotel transactions onlySource: Knight Frank Research/Real Capital AnalyticsThailand in the second half of 2011. However,the floods have had a greater impact on theindustrial sector, causing considerabledamage and disruption to many industrialestates and factories. In some cases,industrial occupiers are consideringrelocating operations to less flood-proneareas, either within Thailand or in othercountries.The Grade A office market in Phnom Penhremains in its infancy, although the 22-storeyThe major Indian office markets have seen agradual recovery in demand over the last twoyears, albeit vacancy rates remain high inmany locations. The majority of leasingactivity within the National Capital Regionduring 2011 occurred in peripheral businessdistricts such as Noida and Gurgaon, while alimited number of transactions were recordedin the New Delhi CBD, due to a lack ofavailable space. Prime office rents were eitherstable or showed modest rises across theNCR’s submarkets in 2011.The Mumbai office market was relativelysubdued in 2011, with occupiers from thebusiness, financial and insurance sector,traditionally the major drivers of the market,accounting for a reduced share of leasingactivity compared with recent years. Primeoffice rents were flat over the course of 2011 inNariman Point, the central business district,while modest rises were recorded in westernsuburbs such as Malad and Andheri. Highvacancy rates and a large developmentpipeline are likely to keep rental levels inMumbai under downward pressure in 2012.The Bangalore office market rebounded in2011, with prime rents rising by 10% in theCBD and by around 15% in Whitefield andElectronic City, submarkets favoured by IToccupiers.The Indian organised retail sector showedsigns of recovery in 2011, with increaseddemand noted in a number of cities, althoughretailers remain cautious about expansion.Several major markets are expected to seeincreased new supply over the next year, asdevelopers gradually restart projects that hadbeen delayed during the global economicdownturn. Significantly, though, the Indiangovernment suspended plans to open up theretail market to foreign investment inlate 2011.31

2012GLOBAL REALESTATE MARKETSAnnual review and outlookDemand for office space in Sydney remainsrelatively patchy, although primeaccommodation has been surprisinglyresilient in the face of reduced businessconfidence caused by the uncertainty in theglobal economy. The vacancy rate stood at9.6% at the year-end, an increase from 8.3%at the start of 2011 caused primarily by thecompletion of several large newdevelopments in the first half of the year.In Melbourne, the office vacancy rate fell from6.6% to 5.3% during 2011, although the rateat which availability fell slowed during H2 asleasing activity softened. In both Sydney andMelbourne, demand is strongest for offices atthe prime end of the market, particularlyspace with large contiguous floor plates.The Brisbane and Perth markets have bothbenefitted from increased demand fromAustralia’s booming resources sector. InBrisbane, the vacancy rate fell steadily in2011, to reach 6.2% at the year-end, and rentsrose modestly. However, an ampledevelopment pipeline may dampen the rate ofrental growth in Brisbane during 2012.The lack of available supply is more acute inPerth, with the vacancy rate now standing at3.3% and nearly all of the new space due fordelivery in 2012 already pre-let. Perth now hasthe highest prime office rents in the country,albeit Sydney still achieves the highestindividual rents in trophy, premium buildings.Office rents in Perth are expected to risefurther in 2012, with demand supported bythe strength of Western Australia’s economy,which is currently outperforming the rest ofthe nation.Consumer spending was subdued during2011, contributing to challenging conditionswithin the Australian retail market. Despitethis, a number of international retailers areactively pursuing expansion strategies withinthe country, with Topshop and Zara beingnotable new entrants to the market during thelast twelve months. Demand from largeretailers seeking prime locations for flagshipstores has underpinned modest rental growthin Sydney, but rents have remained flat inother locations within the city. Average retailrental growth in Sydney is expected to be flatto negative in 2012.Marginal rental increases were recorded inthe Australian industrial sector in 2011, withdemand for the limited available prime spaceremaining strong. An increased level ofspeculative and pre-lease development isexpected to be seen in 2012, although this islikely to remain at a fairly low level until theglobal economy picks up a head of steam.Overall, investment in commercial property inthe Asia-Pacific region came to just underUS$93.8 billion in 2011, 10% up on theprevious year, according to Real CapitalAnalytics/Knight Frank data. While increasedactivity was recorded in China and Australia,volumes in Japan inevitably fell in theaftermath of the Tōhoku earthquake.Investment activity in Australia was driven bya notable increase in offshore demand, withcross-border investors accounting for around50% of office transaction volumes in bothSydney and Melbourne.SydneyInvestment volumes slowed in the finalquarter of 2011, and the outlook for 2012appears uncertain. The relative strength ofeconomic growth in the region shouldcontinue to encourage activity, but there aresigns that aggressive pricing is causing somelocal investors to look further afield at otherinternational markets in search of bettervalue, with prime office yields at sub-4% inmarkets such as Tokyo and Hong Kong.The occupational markets of the region face amixed outlook in 2012, and prime office rentsare expected to come under pressure in anumber of major cities. Paradoxically, theeconomic downturn that started in theEurozone may actually be having a greaterimpact on some Asian markets, with occupiercaution in the historically volatile markets ofHong Kong and Singapore causing thesecities to have some of the weakest rentalgrowth prospects globally in 2012.32

Table 1Global CBD office rents, Q4 2011Market Region Rent(€/sq m/yr)Rent(US$/sq ft/yr)Rent(UK£/sq ft/yr)Hong Kong, SAR China Asia-Pacific 1,247.58 150.09 97.11 3 1 êLondon (West End), UK Europe 1,188.16 142.94 92.50 1 2 ìTokyo, Japan Asia-Pacific 988.25 118.89 76.93 2 3 îMoscow, Russia Europe 926.64 111.48 72.13 4 4 ìParis, France Europe 830.00 99.84 64.60 5 5 èSingapore Asia-Pacific 728.54 87.65 56.71 6 6 êPerth, Australia Asia-Pacific 718.89 86.49 55.96 N/A 7 éLondon (City), UK Europe 706.48 84.99 55.00 7 8 èGeneva, Switzerland Europe 698.39 84.01 54.36 11 9 èSydney, Australia Asia-Pacific 686.67 82.61 53.45 8 10 ìLagos, Nigeria Africa 648.65 78.04 50.49 10 11 èSt Petersburg, Russia Europe 594.59 71.53 46.28 17 12 èDubai, UAE Middle East 566.02 68.10 44.06 12 13 èMumbai, India Asia-Pacific 563.49 67.79 43.86 9 14 èBrisbane, Australia Asia-Pacific 538.18 64.75 41.89 14 15 ìManhattan, USA North America 534.96 64.36 41.64 22 16 éMilan, Italy Europe 525.00 63.15 40.86 16 17 îStockholm, Sweden Europe 503.91 60.62 39.22 20 18 ìBeijing, China Asia-Pacific 465.89 56.05 36.27 48 19 éDelhi NCR, India Asia-Pacific 457.38 55.03 35.60 15 20 èMelbourne, Australia Asia-Pacific 452.54 54.44 35.23 23 21 ìOslo, Norway Europe 450.53 54.20 35.07 25 22 ìWashington, DC, USA North America 439.54 52.88 34.21 40 23 èFrankfurt, Germany Europe 432.00 51.97 33.63 26 24 èAbu Dhabi, UAE Middle East 420.41 50.58 32.73 13 25 èRome, Italy Europe 420.00 50.52 32.69 24 26 îHo Chi Minh City, Vietnam Asia-Pacific 416.99 50.17 32.46 19 27 êShanghai, China Asia-Pacific 408.65 49.16 31.81 35 28 éAberdeen, UK Europe 404.62 48.68 31.50 27 29 ìIstanbul, Turkey Europe 398.46 47.94 31.02 29 30 ìManchester, UK Europe 378.93 45.59 29.50 33 31 èHanoi, Vietnam Asia-Pacific 370.66 44.59 28.85 21 32 îBirmingham, UK Europe 366.08 44.04 28.50 31 33 èDoha, Qatar Middle East 362.93 43.66 28.25 18 34 îMunich, Germany Europe 360.00 43.31 28.02 32 35 èBristol, UK Europe 353.24 42.50 27.50 34 36 èHelsinki, Finland Europe 348.00 41.86 27.09 41 37 èEdinburgh, UK Europe 346.82 41.72 27.00 36 38 èGlasgow, UK Europe 346.82 41.72 27.00 37 39 èBoston, USA North America 344.03 41.39 26.78 68 40 ìMiami, USA North America 342.87 41.25 26.69 51 41 èAmsterdam, Netherlands Europe 340.00 40.90 26.46 39 42 èRiyadh, Saudi Arabia Middle East 339.77 40.88 26.45 43 43 êDublin, Ireland Europe 325.00 39.10 25.30 28 44 îMadrid, Spain Europe 324.00 38.98 25.22 38 45 îKiev, Ukraine Europe 320.46 38.55 24.94 30 46 èSan Francisco, USA North America 313.78 37.75 24.42 54 47 éLeeds, UK Europe 308.28 37.09 24.00 44 48 ìWarsaw, Poland Europe 307.20 36.95 23.91 49 49 ìBrussels, Belgium Europe 295.00 35.49 22.96 42 50 èVienna, Austria Europe 294.00 35.37 22.88 47 51 èHouston, USA North America 288.76 34.74 22.48 67 52 ìNewcastle, UK Europe 282.59 34.00 22.00 46 53 èLos Angeles, USA North America 278.45 33.50 21.67 58 54 èCardiff, UK Europe 269.75 32.45 21.00 53 55 èRank2010Rank2011Outlook201233

2012GLOBAL REALESTATE MARKETSAnnual review and outlookTable 1Global CBD office rents, Q4 2011Market Region Rent(€/sq m/yr)Rent(US$/sq ft/yr)Rent(UK£/sq ft/yr)Westchester/Fairfield, USA North America 262.91 31.63 20.46 71 56 ìVancouver, Canada North America 262.57 31.59 20.44 50 57 îLong Island, USA North America 261.91 31.51 20.39 62 58 èNew Jersey, USA North America 258.59 31.11 20.13 73 59 èBerlin, Germany Europe 258.00 31.04 20.08 61 60 ìSheffield, UK Europe 256.90 30.91 20.00 56 61 èChicago, USA North America 255.59 30.75 19.90 74 62 îOttawa, Canada North America 252.52 30.38 19.66 60 63 îPrague, Czech Republic Europe 246.00 29.59 19.15 64 64 èManama, Bahrain Middle East 245.01 29.48 19.07 78 65 èCopenhagen, Denmark Europe 242.14 29.13 18.85 66 66 èToronto, Canada North America 241.55 29.06 18.80 63 67 îSeattle, USA North America 241.46 29.05 18.80 57 68 èBudapest, Hungary Europe 240.00 28.87 18.68 65 69 èLiverpool, UK Europe 237.63 28.59 18.50 55 70 èSeoul, South Korea Asia-Pacific 236.81 28.49 18.43 77 71 îSan Diego, USA North America 233.40 28.08 18.17 59 72 èKuwait City, Kuwait Middle East 232.61 27.98 18.11 52 73 îDenver, USA North America 224.59 27.02 17.48 82 74 ìLisbon, Portugal Europe 222.00 26.71 17.28 69 75 èMontreal, Canada North America 220.60 26.54 17.17 72 76 îPhiladelphia, USA North America 218.69 26.31 17.02 75 77 èBucharest, Romania Europe 216.00 25.98 16.81 85 78 ìGuangzhou, China Asia-Pacific 214.98 25.86 16.73 88 79 éOrange County, USA North America 214.61 25.82 16.71 76 80 îBarcelona, Spain Europe 210.00 25.26 16.35 70 81 îPortland, USA North America 207.63 24.98 16.16 83 82 èDetroit, USA North America 195.58 23.53 15.22 92 83 èLusaka, Zambia Africa 194.59 23.41 15.15 90 84 ìBangkok, Thailand Asia-Pacific 194.50 23.40 15.14 84 85 ìMuscat, Oman Middle East 191.96 23.09 14.94 87 86 îPhoenix, USA North America 189.01 22.74 14.71 81 87 îBaltimore, USA North America 186.94 22.49 14.55 79 88 èDar es Salaam, Tanzania Africa 185.33 22.30 14.43 89 89 îPhnom Penh, Cambodia Asia-Pacific 185.33 22.30 14.43 80 90 ìNashville, USA North America 177.96 21.41 13.85 94 91 èKampala, Uganda Africa 171.43 20.62 13.34 99 92 îDallas, USA North America 169.98 20.45 13.23 91 93 èJohannesburg, South Africa Africa 165.02 19.85 12.85 86 94 èBangalore, India Asia-Pacific 164.66 19.81 12.82 97 95 ìIndianapolis, USA North America 160.17 19.27 12.47 N/A 96 èSt. Louis, USA North America 159.92 19.24 12.45 93 97 èAtlanta, USA North America 158.26 19.04 12.32 95 98 èDurban, South Africa Africa 153.64 18.48 11.96 N/A 99 èJakarta, Indonesia Asia-Pacific 147.34 17.73 11.47 102 100 ìKansas City, USA North America 145.71 17.53 11.34 96 101 èKuala Lumpur, Malaysia Asia-Pacific 135.61 16.32 10.56 101 102 èGaborone, Botswana Africa 133.78 16.10 10.41 100 103 îCape Town, South Africa Africa 129.74 15.61 10.10 98 104 èHarare, Zimbabwe Africa 111.20 13.38 8.66 105 105 èNairobi, Kenya Africa 101.93 12.26 7.93 104 106 ìBlantyre, Malawi Africa 96.83 11.65 7.54 103 107 ìRank2010Rank2011Outlook2012The figures in this table provide indicative rents for prime, well-located office space. While local practices vary, in order to provide figures that are as comparable aspossible, the values quoted represent the rents that could be expected for high specification, standard size office units in the best location within a market.34

Global Corporate ServicesNewmark Knight Frank Global Corporate Services is an integratedglobal platform which provides seamless, beginning to end corporateservices solutions to clients on an international level. Operatingfrom three centres of excellence; New York, London and Hong Kong,Newmark Knight Frank Global Corporate Services oversees operationsfor all global accounts, ensuring consistent high levels of service forclients worldwide.Global Corporate ServicesThe Newmark Knight Frank Global Corporate Services model combinesstrategy and execution within a unified team. This integrated platformis crucial to the effective optimisation of clients’ internal corporatereal estate functions. Our approach has proven that by developingstrategies with a clear understanding of the execution phase, andmanaging the implementation of those plans from beginning to end,we can achieve optimal results for our clients.Demand of Space.........Global Corporate Operations Servicesand PortfolioStrategyFacilitiesand PropertyManagementLocationStrategy andOptimizationSTRATEGYTOIMPLEMENTATIONProgramand ProjectManagementWorkplaceandWorkflowStrategyReal EstateTransactionsand AdvisoryServices.........Supply of SpaceWe assign a senior leadership team to every account, providing atruly robust but nimble response to service clients’ needs, and depthand stability in every phase of execution. Our team of worldwideprofessionals brings crucial local expertise and an in-depthunderstanding of their respective markets, creating an environmentwhich is conducive to making quick and efficient business decisions.This highly integrated, senior-led organisational structure is based oneffective communications and proactive measurement of goals andobjectives, ensuring the highest level of quality and consistency for ourclients.Looking beyond real estate, the Newmark Knight Frank GlobalCorporate Services approach takes a holistic view of our clients’ overallobjectives, implementing strategies that provide exponential value byreducing costs and thereby increasing profitability. Our approach isfounded in the belief that real estate decisions should be made withconsideration of long-term goals, and not just as reactive measuresdriven by lease expirations and other immediate needs.• 1st Dimension:Targets a specific market(Americas, EMEA, APAC)• 2nd Dimension:Addresses a service requirement(transaction, project, facility)• 3rd Dimension:Leverages subject matterexpertise with each asset type• Supply Chain/Distribution• Manufacturing• Office and LabsServicesWhatever your business sector, location, corporate structure orcompany culture, our Newmark Knight Frank Global Corporate Servicesteam is ready to work alongside you, adopting your objectives as ourown and designing innovative solutions to bring you closer to yourgoals.Tony Nicholas, Global Corporate Services, EMEA, said “Businessstrategies continue to be focused on efficiencies and cost savings,whilst the workplace follows its trend towards activity-based workingin response to the arrival of the new generation in the workforce.Occupiers continue to seek consolidation opportunities and flexibilityon commitment given the changes in structure and reduced availabilityof high quality space in a number of prime CBDs. The decision processis still elongated, but the perceived importance of London versus theEurozone should lead to certainty on strategy in European markets.”Colin Fitzgerald, Global Corporate Services, APAC, said “Demand in keyAsian cities such as Hong Kong and Seoul is expected to be dampenedby the uncertain global economic outlook especially given that manydecisions are made at a European or American HQ. The growth ofAPAC continues, supported by strong domestic and tourist spending.However, the impact of wage increases on cost operations means thatinternational corporates are beginning to consider whether to onshoremanufacturing.”Michael Ippolito, Global Corporate Services, Americas, said “Thedecision-making process is critical for companies; not only for CREorganisations, but across the board for every business unit. Howcompanies and organisations make decisions plays a key role insuccessful operational and financial outcomes, from improvedproductivity to increased profits. Corporates are increasingly realisingthe importance of technology in this process as a force to align internaldata with global real estate strategies to achieve their goals.”Subject Matter ExpertiseGeographiesTony NicholasHead of Global Corporate Services – (0) 20 7861 1179Colin FitzgeraldManaging Director – Hong 2846 4848Michael IppolitoChairman, Global Corporate 212 372 204835

RESEARCHAmericasUSACanadaCaribbeanAustralasiaAustraliaNew ZealandEuropeUKAustriaBelgiumCzech RepublicFranceGermanyHungaryIrelandItalyMonacoPolandPortugalRomaniaRussiaSpainSwitzerlandThe NetherlandsUkraineEurope, Middle East and AfricaMatthew ColbourneSenior Analyst, International Research+44 (0) 20 7861 1238matthew.colbourne@knightfrank.comDarren YatesPartner, International Research+44 (0) 20 7861 1246darren.yates@knightfrank.comAsia-PacificNicholas HoltResearch Manager, Asia-Pacific+65 6228 7313nicholas.holt@asia.knightfrank.comThe AmericasNewmark Knight Frank Research+1 212 372 2000researchdepartment@newmarkkf.comAfricaBotswanaKenyaMalawiNigeriaSouth AfricaTanzaniaUgandaZambiaZimbabweAsiaCambodiaChinaHong KongIndiaIndonesiaMacauMalaysiaSingaporeSouth KoreaThailandVietnamThe GulfBahrainUAEKnight Frank Research provides strategic advice, consultancy services and forecastingto a wide range of clients worldwide including developers, investors, fundingorganisations, corporate institutions and the public sector. All our clients recognisethe need for expert independent advice customised to their specific needs.Knight Frank Reports are also available at© Knight Frank LLP 2012This report is published for general information only. Although high standards have been used in thepreparation of the information, analysis, views and projections presented in this report, no legal responsibilitycan be accepted by Knight Frank Research or Knight Frank LLP for any loss or damage resultant from thecontents of this document. As a general report, this material does not necessarily represent the view of KnightFrank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part isallowed with proper reference to Knight Frank Research.Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934.Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.NewmarkKnight FrankGlobal

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