Middle East & Africa: Corporate Occupier Conditions

EMEA Corporate Occupier Conditions - Q4 2011 Middle East & Africa: Corporate Occupier Conditions Falling sentiment increases pressure on CRE teams

2 On Point EMEA Corporate Occupier Conditions Q4 2011 MIDDLE EAST AND AFRICA: Corporate Occupier Conditions The region is very mixed in terms of economic and market outlook with political and social unrest hampering business investment. The UAE has generally positioned itself as a safe haven from the troubles and is better protected than most due to its oil output and increased government spending. The finalisation of Dubai s debt deal has also improved confidence and lifted the outlook. GDP growth is forecast to be 5.1% over 2011 and 5.0% next year. In Egypt, the Interim Government which took power in February is facing up to serious social and policy challenges which are creating a difficult operating environment for business. GDP forecasts have been dramatically lowered to just 0.3% growth for 2011 compared with a forecast of 5.8% at the start of the year. Forecasts have also been downgraded in Morocco as regional unrest creates uncertainty. In a number of the regions markets, demand levels have been inflated by an active government sector. The Kingdom of Saudi Arabia continues to display strong public spending and is generously funding public services such as health care and education. These are translating into new expansionary office demand. In Riyadh for example, the General Organisation for Social Insurance is negotiating for a single tenant deal for some 80,000 sq m. A similar situation is apparent in Doha. Against a backdrop of the Arab Spring, GDP growth of 13% and substantial exports of liquefied gas, the state is equipped to spend. Government agencies and affiliated companies continue to control much of the new and high quality stock and maintain rents at high levels. The markets in the UAE remain oversupplied and there is no clear end to this dynamic, although the future supply pipeline continues to diminish. Many development projects are delayed given the economic environment. It should also be noted that much of the emerging supply is located in areas outside of the well-connected inner city areas demand by international occupiers or the licensed sub-markets that are a pre-requisite for many financial occupiers. Real estate costs are also varied across the MEA region. Two markets, Casablanca and Istanbul, are predicted to witness rental growth over the next 12 months. Four of the sub-regions markets are likely to witness rental stability whilst oversupplied markets such as Abu Dhabi, Doha, Jeddah and Riyadh will see rents under downward pressure. MEA Office Occupier Clock Rental Growth Slowing Rents Falling Tel Aviv Casablanca Algiers Rental Growth Accelerating Rents Bottoming Out Cairo, Abu Dhabi Doha, Dubai, Jeddah Riyadh Istanbul, Johannesburg, Tunis

On Point EMEA Corporate Occupier Conditions Q4 2011 3 Abu Dhabi Cost: 355 / sq m Choice: 20.0% While estimations of the future supply for the market continue to be scaled back as developers cancel or delay projects, more than 1.1 million sq m of additional office space could still enter the market before the end of 2013. Overall choice increased to approximately 20% and is expected to rise further. Government entities and stateowned occupiers currently comprise the majority of competition for large requirements. However, this has limited impact on demand in private developments as they typically occupy purpose built sites. Competition for private sector buildings is dominated by the professional services and financial sectors, along with engineering and construction firms and those in the energy sector. In the short term, occupier activity will be driven by existing occupiers upgrading their space but many occupiers are also delaying decision making until the market has adjusted for further supply deliveries. Overall costs decreased over the quarter, with Grade A rents down in Q3 to AED 1,750 per sq m per annum, while rents for Grade B space remained unchanged in Q3 (AED 1,300 per sq m per annum). Whilst rents for both grades are expected to decline, Grade B quality rents are likely to drop at a greater pace. The expanding choice of high quality space is making Abu Dhabi s office market increasingly tenant favourable and this will lead to further rental incentives and inducements. Algiers Cost: 480 / sq m Choice: 4% Demand for office space is starting to become increasingly driven by established foreign companies and those looking to hurdle the legislative and authority constraints in setting up a business. International Grade A office space still remains very scarce and supply of new space is often limited to residential conversions. The centre of Algiers continues to suffer from a poor operational environment. Modern space is sporadic around the city apart from Bab Ezzouar, which is moving slowly towards a financial and business hub benefiting from good infrastructure, modern office space and good accessibility. The ongoing construction of additional towers will increase choice and bring larger floor plate availability. There are also signs of new, fully serviced properties starting to be planned around the Les Pins area as well as the Bab Ezzouar area. Overall Grade A office space is available at rents of DZD 3,500-4,200 per sq m per month. Good Grade B space which continues to compete with Grade A space given its low availability remains at levels of DZD 2,500-3,000 per sq m per month. Cairo Cost: 367 / sq m Choice: 35% The Cairo office market is expected to see high volumes of completions, increasing stock from c. 700,000 sq m now to over 2.9 million sq m by the year 2015. New choice will continue to be added to the new, preferred satellite areas. These areas have grown in popularity and see the majority of demand as they offer modern office stock, access to business services, amenities for staff, enhanced security and the opportunity to avoid the congested and polluted downtown areas of Cairo. However, accessibility is vital and dedicated business parks on the outskirts of Cairo continue to see vacancies because of poor access. While activity is returning it continues to be focused on upgrading and yet many occupiers remain in a wait-and-see mode until the medium future becomes more obvious. As choice increases the balance of power has shifted more towards the occupier, evident in increasing flexibility of landlords on rental terms. Asking rents for the Nile City Tower are at US$50 per sq m per month and at US$44 per sq m per month for the Star Capital building. However average Grade A rents in Central Cairo are around US$41 per sq m per month and around US$22 per sq m per month in New Cairo. Casablanca Cost: 220 / sq m Choice: 10% The market continues to lack international Grade A quality space, with the majority of new supply of Grade B or A- quality and designed to suit local demand. While the supply situation is likely to improve over the medium term, a lack of quality stock continues to be a market constraint and it remains difficult for occupiers to find larger single floor plates. Larger lots are more frequently available in larger developments such as the Marina or Anfa Place, which will be developed on euro-norm standards, alongside some singular developments in the area of Sidi-Maârouf. The latter continues to be a popular office area alongside isolated developments in the CBD. The first deliveries of the Casablanca Marina are expected in 2012 but the pricing may be prohibitive to many given high costs of land acquisition. Occupier demand remains high especially for larger and high quality space, but also as an effect of the decline in the business confidence in other countries in the area. In the core areas rents are around MAD 210 per sq m per month and continue to grow. Rents for new Grade A new space in non-central areas have remained at marginally to MAD 150 per sq m per month.

4 On Point EMEA Corporate Occupier Conditions Q4 2011 Doha Cost: 435/ sq m Choice: 20 % Recent turmoil in other countries in the region has not affected Doha. Total city-wide office stock is currently estimated at 3.4 million sq m with the majority of Grade A stock, approximately 1.2 million sq m, located in the Diplomatic District and West Bay. Office buildings in these areas continue to lead the prime market, housing major government bodies, financial institutions, oil and gas and other multinationals and can command a cost premium of up to 35% above average asking rental rates. Despite Qatar s strong economic fundamentals, the market continues to see oversupply due to a marked slowdown in competition and smaller requirement sizes. Choice in West Bay has increased significantly and rents are under pressure. The overall vacancy rate stands at around 20%. Government sector activity has led to some stabilisation in costs with prime office rents now QAR 190 per sq m per month. Although government entities will continue to provide the major proportion of office demand, we will see an increasing number of construction, engineering and professional services occupiers setting up in Doha to expand their regional operations, to service the large amount of infrastructure work in advance of the 2022 World Cup. Dubai Cost: 328 / sq m Choice: 44% The future development pipeline has reduced significantly but despite the welcome slowdown, the future supply pipeline for 2012 and 2013 still totals 1.3 million sq m, though consisting largely of strata-title properties in non-cbd areas. Despite increased supply, overall choice remained relatively unchanged at 44% city-wide (27% for CBD Single Ownership Properties) indicating positive absorption levels. On the demand side, foreign occupiers continue to be cautious and delaying decision making. Occupiers remain selective preferring single-ownership buildings in well-connected CBD locations. Competition in the short term will remain driven by occupiers looking to upgrade to better quality and / or locations at lower rents. Costs remained unchanged on the quarter, with prime rents in the CBD stable at AED 1,615 per sq m per annum although the range of buildings being able to attract these rents has decreased. Rents in the DIFC remained stable, too, at AED 1,615-2,370 per sq m per annum. Space outside the CBD or DIFC decreased to AED 1,060 per sq m per annum in Q3 2011. While the lower end of asking rents remained stable, the higher range reduced in many parts as landlords compete aggressively for occupiers, offering generous incentives which continues to widen the gap between asking and achievable rents. Istanbul Cost: 360 / sq m Choice: 9.1 % The Istanbul office market continues to see high volumes of new supply. Since the beginning of the year 227,000 sq m has been added, compared to a mere 62,000 sq m in the same period last year. For the rest of the year, another 190,000 sq m is expected to complete with a total volume of new supply of 793,000 sq m. 242,000 sq m of this will be located on the Asian-side and 551,000 sq m on the European side. On the demand side, take-up remains strong with 18,000 sq m leased in Q3. The total take-up for Q1-Q3 2011 reached 85,000 sq m, 46% higher than in the same period last year. Despite this, the increase in demand wasn t able to absorb the high levels of supply and vacancy rates increased further. While the vacancy for the overall market now stands at 9.1%, vacancy in the CBD remains low at 3.2%. Prime rents remained stable at 30 per sq m per month and are expected to remain stable until mid 2012. The completion of a few landmark projects are however expected to lead to an increase in prime rents. Jeddah Cost: 209 / sq m Choice: 15% The office market continues to see new completions with 15,000 sq m completed in Q3. The current estimate for completions by end 2013 is approximately 1.1 million sq m. However, actual deliveries might be lower as projects continue to be cancelled and delayed. Nevertheless, the market will experience a major increase in supply in 2012 when Zahran business centre and Headquarter will be completed. Most of the pipeline supply will increase the availability of quality space and increase competition amongst landlords for tenants resulting in further incentives. The private sector remains the major driver of competition which is focused on the CBD. Choice in the CBD decreased from 29% in Q2 to 26% in Q3. However, citywide choice averaged at more or less same level of 15% during Q3 2011. The high volume of supply is certainly not being able to be absorbed by future demand and vacancy is expected to increase. Office rents remained stable in Q3. Overall, Grade A rents are around SAR 1,050, per sq m per month while Grade B rents average SAR 882 per sq m per month. Average city-wide rents stabilized around SAR 700 per sq m per month during Q3 2011.

On Point EMEA Corporate Occupier Conditions Q4 2011 5 Johannesburg Cost: 205 / sq m Choice: 10.5% Competition for office space in Q3 2011 was strongest in secondary sub-markets which offer a rental discount relative to prime. Accessibility remains a key factor and nodes within reach of the new Gautrain transport network, are expected to see an increase in deals, with enquiries already increasing. Office supply in Johannesburg increased by 97,000 sq m, to total nearly 8.5 million sq m. In the current climate, the new stock offers occupiers increased opportunities to upgrade. Vacancies in Q3 demonstrated a marginal decline from 11.1% to 10.5. Choice varies between nodes with areas such as Illovo, Morningside, Houghton and Milpark witnessing rates below 6% with more secondary nodes (notably the Johannesburg CBD and Randburg) with rates as high as 15%. Average gross rents for Grade A offices range around ZAR 140-150 per sq m per month. Occupiers are increasingly focussed on consolidation, increased space utilisation and in some cases are prepared to relocate from prime to secondary nodes in an attempt to alleviate the increasing cost of occupancy. Gross rentals for Prime A+ office space appear to have reached a ceiling in 2010 and corporate occupiers have offered strong resistance in 2011 to move beyond that level, particularly as costs for utilities continue to increase. Prime rents in Q3 2011 remained at ZAR 185 per sq m per month. Riyadh Cost: 397/ sq m Choice: 12% Office space in Riyadh increased by 20,000 sq m over the quarter and the market is expected to experience a supply shock of c 1.4 million sq m when Granada Business Park, KAFD, and Olaya Tower complete in 2013/2014. Actual deliveries may be lower or delayed as developers are finding it difficult to meet their deadlines due to the huge work load for contracting firms. On the demand side, Riyadh is usually heavily influenced by public sector activity although the private sector was more active over Q3. Choice remained at Q2 levels, with city-wide vacancies of 12% and vacancies inside the CBD decreasing to 16%. Office rents were almost at the same level as Q2 with average rents paid for CBD space are c. SAR 1,060 per sq m per month with prime Grade A space commanding asking rents of SAR 2,000 per sq m per month compared to high quality space which usually trades around SAR 1,300 per sq m per month. Grade B rents average SAR 1,075 per sq m per month. With new supply being delivered early next year, rental levels are likely to face further downward pressure. Tel Aviv Cost: 307 / sq m Choice: 3-4% Israel s economy continues its expansion course despite the weaker prospects for the Eurozone and the US. The worries about the outlook for the Eurozone and the US are mainly of relevance for a few international occupiers that are reviewing earlier expansion plans. However these headwinds have not had any effects on local businesses or developers and the market for commercial properties remains characterised by ongoing strong demand for office space and low volumes of new supply. Supply existing and new - is very tight, especially in the City centre and occupiers struggle to find Grade A space especially if looking for larger floor plates. At ILS 125 per sq m per month, prime rents increased slightly over the quarter. However landlords face increased reluctance from occupiers to pay these levels. Rents in areas such as Herzliya or Ra anana in the North of Tel Aviv offer modern office space too, but at a significant discount to prime with ILS 70-80 per sq m per month and ILS 65-70 per sq m per month respectively. These areas prove particularly popular with occupiers from the software and high-tech industry. Tunis Cost: 80 / sq m Choice: 12-15% Tunis is in the early stages of evolving towards an office market of international standard and many developers have restarted development projects. The majority of the existing stock does not meet international standards and only a fraction of the market is available for lease as the dominating local private developers continue to prefer selling a building after completion for owner occupation. While this is likely to persist over the near future, leasing is now becoming an accepted practice considered for international occupiers. The main area for new construction of Grade A office space remains around the Lac de Tunis which is increasingly seen as the new prime office area offering a more secure environment and is seen as the main business location. Vacancy in the Lac de Tunis area in the past has been considerably lower than in other parts of Tunis and will be more so given the operational advantage of the area. This will accelerate possible business relocations from the city centre and also the development of other neighbouring business centres of around Lac de Tunis. For the short term, rents are expected to remain unchanged at around TND 160 per sq m per annum with current occupiers cautious about timing.

6 On Point EMEA Corporate Occupier Conditions Q4 2011 Middle East and African Corporate Occupier Markets at a glance Choice (% Vacancy Rate) Costs (Rents EUR/sq m/pa) Market Q3 2011 12-month outlook Prime, Q3 2011 12-month outlook MEA Abu Dhabi 20.0 355 Algiers 4 480 Cairo 35 (Grade A: 5) 367 Casablanca 10 220 Doha 20 465 Dubai 44 328 Istanbul 9.1 360 Jeddah 15 209 Johannesburg 10.5 205 Riyadh 12 397 Tel Aviv 3-4 307 Tunis 12-15 80

Business Contact: Corporate Solutions Vincent Lottefier Chief Executive Officer EMEA Corporate Solutions Paris +33 1 40 55 49 92 vincent.lottefier@eu.jll.com Report Contacts: Research Dr Lee Elliott Director EMEA Research London +44 (0)20 3147 1206 lee.elliott@eu.jll.com Tom Carroll Associate Director EMEA Research London +44 (0)20 3147 1207 tom.carroll@eu.jll.com Acknowledgements: We gratefully acknowledge the help and assistance of the following Jones Lang LaSalle alliance partner firms in the preparation of some of this material: Akershus Eiendom AS, Athens Economics and Sadolin & Albæk. EMEA Corporate Occupier Conditions November 2011 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. www.joneslanglasalle.eu COPYRIGHT JONES LANG LASALLE IP, INC. 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.