1. Commercial Real Estate Development and the “City Offer” Jeremy.Kelly@eu.joneslanglasalle.com 8 th February 2002 Gemaca II Seminar Economic Performance of the Major European Metro Regions Improving their Competitiveness

2. Project Conclusions Demand Analysis (Renaud Diziain IAURIF) Qualitative City Reviews Development Triggers Location of Development Characteristics of Development Supply-side Constraints Development Funding Key Developers / Investors Quantitative Analysis Office Completions Economic Growth Vacancy Rates Rental Growth Gross Returns Commercial Real Estate Development and the “City Offer” – Project Approach

3. Frankfurt Dusseldorf Brussels Paris Randstad London Dublin Edinburgh Coverage: North West Europe 8 Metro Areas Paris 44.3 London 27.1 Randstad 16.0 Brussels 10.6 Frankfurt 10.1 Dusseldorf 5.2 Dublin 2.0 Edinburgh 2.0 Office Stock (mill sqm)

4. 1. Office Development Analysis

5. ‘000 sqm % Source: Jones Lang LaSalle, August 2001 Completions % of Stock Office Completions in the 8 Metro Areas

6. Development Triggers: Office Completions and Economic Growth Source: Jones Lang LaSalle, August 2001; ERECO, July 2001 Completions % of stock GVA Growth % 8 Metro Areas

7. Development Triggers: Office Completions and Vacancy Rates Completions (% of Stock) Vacancy Rate (%) Completions Vacancy Rates Source: Jones Lang LaSalle, August 2001 8 Metro Areas

8. Development Triggers: Office Completions and Prime Rental Growth Rental Change (%) Completions Rental Growth Source: Jones Lang LaSalle, August 2001 8 Metro Areas Completions (% of Stock)

9. Development Triggers: Office Completions and Gross Returns Completions (% of Stock) Gross Returns (%) Completions Gross Returns Source: Jones Lang LaSalle, August 2001 8 Metro Areas

10. Development Response: Peak of Cycles Completions FRABRUEDI DUB DUS LON PAR RAN PAR EDI FRA BRU DUS LON PAR RAN

11. Development Response: Office Completions Dublin Brussels Dusseldorf Randstad London Frankfurt Edinburgh Paris 10 9.8 Development Cycles Compared 98 – 02 88 - 92 % of Stock pa Source: Jones Lang LaSalle,August 2001

12. Development Response: Volatility of Office Completions 1986 - 2002 Completions % p.a Standard Deviation Source: Jones Lang LaSalle, August 2001 BRU RAN EDI FRA PAR LON DUS DUB Least Volatile Markets

13. Development Triggers: Supply Responsiveness 1998 - 2002 Dublin Brussels Dusseldorf Frankfurt Paris London Edinburgh Randstad Economic Growth Vacancy Rates Rental Growth Gross Returns = X = X = na X = X = X X = Over response Under response Measured response

14. Supply Responsiveness – Current Cycle (1998 – 2002) High development activity reflecting strong economic growth But analysis indicates development market may have “over-responded” Low supply-side volatility (historically) Increasing supply side response in current cycle – driven by EU demand Above average supply side response, despite relatively weak economic and market fundamentals Dublin Brussels Dusseldorf

15. Supply Responsiveness – Current Cycle (1998 – 2002) Measured response in current development cycle. Reaction to stronger supply side response in last development cycle Measured supply-side response Relatively stable supply side response Analysis indicated “under response” in current cycle BUT increasing focus on Amsterdam Frankfurt London Paris Edinburgh Randstad

16. ‘80‘01 Rental Evolution 1980 – 2001: Cyclical Markets London Paris Dusseldorf Frankfurt ‘80‘01 ‘80‘01 ‘80‘01

17. Randstad Brussels Dublin Edinburgh Rental Evolution 1980 – 2001: Stepped Growth ‘80‘01 ‘80‘01 ‘80‘01 ‘80 ‘01

18. Dublin Frankfurt London Paris 2. City Reviews

19. Dublin Very strong supply-side response during both development cycles Response to strong economy and structural changes Analysis indicates that market may have “over-responded” in current cycle Relatively centralised office stock (three-quarters is located in the CBD) Development focus : -International Financial Services Centre – development zone during both cycles - Business/Office Parks in the suburbs – feature of the current cycle – focused within the M50 -Cheaper ‘edge of prime’ district – central location important for access to labour market Levels of refurbishment remain low – even in city centre – as sites still available in Docklands Few constraints – apart from planning delays – outweighed by grants and tax incentives Cautious bank lending during the current cycle – also funding by Irish institutions, property co’s Primarily Irish investors and developers, but also UK players Low levels of international activity reflect small size of market and lack of international grade stock

20. Frankfurt Measured supply-side response in the current cycle Frankfurt aggressively establishing itself as a financial centre – reflected in authorities positive stance towards development. CBD/Banking District is the focus of development Growth in mixed use development Site assembly constrains development Future re-development of Frankfurt Station Authorities forcing developers to consider ecological impacts Investment dominated by German funds Increasing number of investors (funds, banks, insurance) are considering development route Partnerships between developers/investors becoming more common Owner-occupation (est. 50%) is higher than in other cities

21. London London saw very strong supply-side response in last development cycle (1988-92) Current supply-side response (1998-2002) is much lower, and more in line with expectations Relatively centralised office stock (2/3rds of Greater London stock is in CBD) Development focus: -Docklands/Canary Wharf – benefiting from improved transport - developing critical mass – attracting occupier with large requirements – more “front office” functions - City – authorities responding to competition from Canary Wharf - Rail Termini – Paddington Basin, Kings Cross, Waterloo/South Bank Quality of stock is high (40-45% of Central London stock is Grade A) Trend towards mixed-use development London is very open to outside players – UK or US developers have dominated activity Development traditionally funded/forward-sold to institutions (UK, German) Lenders/funders have been reluctant to finance speculative development

22. Paris Paris saw strong supply-side response in last cycle (88-92) During the most recent development upswing, response has been more “measured” – reflecting weak market conditions of late 1990s. Also higher levels of pre-letting. Tightly controlled urban planning has forced new development outside the CBD Development Focus: -Established office satellites - La Defense/Golden Crescent - Emerging zones – esp. north between CBD and CdG Airport (St Denis, Clichy, St Ouen) - Government-backed schemes - Rive Gauche – occupiers attracted by Ministry of Finance/French National Library New office developments is of higher standard – large floorplates, high technical spec, design – but with low operating costs Balanced mix of domestic and international developers. US developers/funds have been very active. US funds forced into development International developers have tended to take greater risks.

23. Conclusions Real Estate product & prices do play a role in city competitiveness “Global Competitiveness” underpins many master plans Ability to accommodate large corporate occupiers is seen as a key competitive advantage New office development focussed on transport interchanges, CBD fringe, out-of-town But analysis has shown that different supply side responses have not significantly affected city competitiveness Other factors play a greater role in corporate location decision making – communications, labour force, regulation

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