THE SOUTH AXIS. an insider s view

THE SOUTH AXIS an insider s view CBRE OCTOBER 2011

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Quick stats (2011 Q3) TOTAL OFFICE STOCK 797,000 sq m NUMBER OF OFFICE BUILDINGS 55 AVERAGE ANNUAL TAKE UP 45,000 SQ M VACANCY RATE 11% Dear reader, Since its conception in the mid-nineties, the Amsterdam South Axis district has witnessed a stunning growth and expansion. In little more than a decade it has developed into the most prestigious office location of not only the greater Amsterdam area but also of the entire country. The combination of prime office property with firstclass tenants, excellent accessibility by all modes of transport, its favourable location with respect to Schiphol Airport and a high-quality living environment make the South Axis the pre-eminent location for corporate office users to locate their employees and activities. Demand for office space in the area has been particularly strong from companies in the business services and the financial sectors, which are willing to pay high rents for top quality accommodation. The market rent levels achieved for office space at the South Axis are the highest in the Netherlands. The South Axis represents a strong cluster of prime office stock and a solid pool of high-grade tenants, making it one of the most important locations for core investment assets. Little is known, however, about the details of the market dynamics in the district. Particularly in a situation where the office market in general is consolidating and general vacancy in the Netherlands is high, it is important to emphasise the strong qualitative differences that exist in the market and to highlight the success stories. Reason for CBRE to present an in-depth analysis of the entire South Axis, which offers an invaluable tool for investors, financers and corporate tenants to support a strategic vision on their presence in the prime office district of the Netherlands. Please feel free to contact us with any specific questions. Robert-Jan van Dijk CBRE Research & Consultancy

The South Axis an insider s view 1 2 3 4 5 7 6 8 9 10 11 14 13 12 15 16 1 Gemini 2 Forum 3 Garden Court 4 Olympic Plaza 5 Tripolis Building 100 6 Tripolis Building 200 7 Tripolis Building 300 8 ING House 9 Zuiderhof Pavillion 1 10 Zuiderhof Pavillion 2 11 Zuiderhof Pavillion 3 12 Zuiderhof Pavillion 4 13 Zuiderhof I 14 Zuiderhof II 15 Meerparc 16 Boer & Croon 17 Parnassus Tower 18 Vitrium 19 Anrooy Building 20 Parnascomplex 21 Prinses Irene Building 22 Freshfields 23 Strawinskyhuis 24 Winterthur 25 Atrium 26 Stibbe Tower 27 AKZO Tower 28 WTC H, I

17 18 19 21 22 23 24 20 25 26 27 28 29 30 34 31 32 33 35 37 36 39 38 42 43 44 45 46 49 50 51 52 47 48 41 40 55 53 54 Source map: Projectbureau Zuidas 29 WTC A - D, F, G 30 WTC E 31 The Rock 32 Graves 33 Viñoly 34 UN Tower 35 FOZ 36 SOM 37 Toyo Ito 38 ABN AMRO 39 Symphony 40 Léons 41 Metropolitan 42 Cross Towers 43 Vivaldi Offices I 44 Vivaldi Offices II 45 Antonio Vivaldistraat 12 46 Nijkerk Building 47 Binck Bank 48 Eurocenter II 49 NIVRA 50 The Boardyard 51 Sotheby s 52 XL Insurance Building 53 Officia I 54 Officia II 55 Officia III

The South Axis an insider s view INTRODUCTION The South Axis office district lies on both sides of the A10 motorway ring road in the southern part of Amsterdam (hence the name), and has been in full development since the end of the 1990s. Broadly speaking the area begins at the RAI complex in the east and ends in the west at the Tripolis office complex and the Zuiderhof subarea. In north-south direction the district extends from Stadionkade to De Boelelaan. Effectively, the district is divided into three distinctive subareas. The heart of the district is formed by the large-scale office cluster around the Amsterdam Zuid railway station ( High South, buildings 21 to 39 on the map). This is by far the largest and is generally also regarded as the most prominent subarea of the South Axis. The area is dominated by the World Trade Centre, the ABN AMRO headquarters, the Symphony towers and the Mahler4-complex with architectural eye catchers such as The Rock and Toyo Ito. Two other clusters are found on the western and eastern edge of the district. The eastern subarea ( Vivaldi, buildings 42 to 55) contains a number of older buildings that date from before the planned development of the South Axis. A prominent new development as Ernst & Young s Cross Towers is, however, also to be found here. The Vivaldi subarea lies in the direct vicinity of railway station Amsterdam RAI, named after the nearby conference centre. The western subarea is more diverse and contains a number of prominent buildings such as the Amsterdam law court, the ING House and the Zuiderhof complex. The buildings here are virtually all located along the north-south axes Amstelveenseweg and Parnassusweg/Buitenveldertselaan. Office stock 900 800 700 600 500 1,000 sq m 400 300 200 100 0 Net absorption 70 60 50 40 1,000 sq m 30 20 10 0-10 -20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 H1 2011 H1 Most of the South Axis office buildings are large in scale and have a characteristically impressive and modern architecture. The area includes prominent high-rise buildings as the World Trade Centre, Mahler4-complex, the Cross Towers and the head offices of ABN AMRO and ING. Aside offices, however, the South Axis also includes more than 500 residential apartments, spread out over 5 buildings, various shops, restaurants, hotels and cafes. -30 Vacancy 20 19 18 17 16 A partial explanation to the success story of the South Axis is the fact that, initially, it formed an extension to the traditional prime office districts of Amsterdam: Oud Zuid ( Old South ) and the city centre. The South Axis presented many large companies in those inner city districts the large-scale and modern office property they were looking for. This is also the reason why, initially, particularly financial and business services found their way to the district, as these were the companies that dominated the inner city districts. % 15 14 13 12 11 10 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2

In more recent years, the strengthening of the robust financial and business services cluster has caused a flywheel-effect that has started to attract related enterprises, head offices, and national branches of foreign companies to the district. As a result, the inflow of tenants has been consistently high. At a long-term (10 year) annual average of 45,000 sq m per year, the South Axis has a steady take-up of office space. It should be noted that most office buildings in the district were only recently built: 35% of the stock was constructed after the turn of the century. Most of this space has been taken up in a short period of time. Even more impressive is the performance since the mid-2008 financial crisis. From the second quarter of 2008 onwards, 125,000 sq m of new office space has been delivered, while immediately available vacancy remained more or less stable at some 100,000 sq m. This effectively means an occupied stock expansion or net absorption of 125,000 sq m in the past three difficult years, a period during which the office market in general has consolidated and vacancy has risen in virtually every other location in the country.

The South Axis an insider s view OCCUPIERS An impressive total of approximately 600 companies have chosen the South Axis as their designated home of business. It should be noted that approximately 330 of them are located at the WTC. The multinational nature of the South Axis can already be felt whilst walking over Zuidplein, the square in front of the Amsterdam Zuid railway station which forms the heart of the district. Employees from all continents rush by, contributing to the most international business atmosphere the Netherlands has to offer. More than half of the companies situated at the South Axis have a global coverage. Although the vast majority of companies have their origin in Europe, a considerable amount of companies present in the district are founded in North America (19%) and Asia (11%). The Asian companies at the South Axis are dominated by Japanese enterprises, who have predominantly settled in the World Trade Centre. In fact, this office complex forms a true Japanese overseas business cluster. American companies are also strongly present in the district, with illustrious names as Google and Accenture among the tenant ranks. The Indian work force has also rapidly expanded with a current head count of around 4,000 expats in the Amsterdam region, of which most are employed at the South Axis, and companies such as Tata Consultancy present. Even Russian can be heard in the vicinity of the Mahler4- complex, as employees of the rapidly growing telecom enterprise VimpelCom leave the company s headquarter, situated right in the middle of the district. In terms of branches, it is no surprise that the sectors financial services and business services alone take up more than half the number of companies situated in the district. Particularly law firms play a prominent role at the South Axis, not only in number of companies, but also in size of occupied square meters. A solid five out of the ten biggest office users of the South Axis are law firms. In fact, all of the national head offices of the country s largest law firms are located in the district. The presence of many corporate clients and Amsterdam s law court in the district are a strong plus for the sector. Equally striking, for that matter, is the fact that the public sector only represents 3% of the office users at the South Axis. This implies that business networks, rather than the presence of public bodies, form the cement that binds the district. The office users of the South Axis are loyal to the area. Of all the new transactions since 2009, more than one third concerned a relocation within the district. Companies rather upgrade to a better suitable office within the South Axis than move away to an entirely different office location. The city centre of Amsterdam still provides an important source of tenants as well, although most large-scale financial and business services have already made the step to move their office to the South Axis. As the office user profiles of both districts are diverging, the flow of tenants from the city centre to the South Axis will steadily decline. Headquarters based in France 2% Other 11% Japan 7% UK 8% USA 14% Coverage of company NL 37% EU 10% Continent of origin North America 19% Asia 12% Europe 69% NL 58% WORLD 53% Origin tenants in case of new transactions as of 2009 Other 49% Amsterdam South Axis 34% Amsterdam Centre 17%

Representation of sectors at the South Axis Government Food and 3% catering 2% Education 4% IT and media 6% Other services 9% Business services 36% Industry, transport and trading 14% Financial services 26% Breakdown of business services (36%) Law firm 25% Other business services 62% Real estate firm 13% Top 10 largest occupiers Rank Property name Sq m Occupier 1 ABN AMRO 90.000 ABN AMRO 2 Parnascomplex 46.300 Court House Amsterdam 3 Cross Towers 25.950 Ernst & Young 4 The Rock 24.300 De Brauw Blackstone Westbroek 5 Forum 17.300 Loyens & Loeff 6 ING House 17.000 ING Group 7 World Trade Center, Tower I 15.000 NautaDutilh 8 Symphony 12.500 APG Algemene Pensioen Groep 9 ZuiderHof I 12.450 Van Doorne 10 Stibbetoren 11.950 Stibbe

The South Axis an insider s view BUILDINGS The South Axis is a young office district. Although a significant number of buildings were already constructed before the district was founded as such, the South Axis concept was only conceived in the mid nineties by the Amsterdam city government and large-scale, planned development did not gain pace before the turn of the century. More than one third of the offices that make up the South Axis are less than 10 years old. In the heart of the South Axis ( High South ) nearly all property is less than five years old. Dutch office buildings are, equal to their residential counterparts, rated with an energy label. The rating scale goes from A to G; A being awarded to the most energy efficient buildings, G awarded to the most energy inefficient buildings. Consistent with the age of the buildings of the South Axis, the vast majority of the office property is bearing the A-label, making the South Axis a very energy efficient office location. Energy labels at the South Axis 0% 10% 20% 30% 40% 50% A 44% B 8% C 10% D 4% E 13% F 13% G 8% Top 10 available office space As noted, the most significant development on the level of market dynamics has been the strongly declining amount of available office space, mainly in existing buildings. Mid 2011, general vacancy stood at some 11%, compared to 19% only two years ago. In the past years, the inflow of tenants has been partly compensated by a high volume of new construction, but since the 2008 crisis no new building schemes have been started. At the moment, new development at the South Axis is focused on residential projects, and plans for additional office space only exist in the form of incidental pre-let buildings, such as for Deloitte and Akzo Nobel. However, even these projects are uncertain due to difficult financing conditions. The office stock in the district will, therefore, remain stable in the next few years. Related to the steady inflow of tenants, this means that vacancy is expected to fall further in a rapid pace. If the post-crisis net absorption is continued the entire district is likely to reach friction vacancy levels of 5 to 6% in only two years time. The current vacancy in the South Axis district stands at 11%. Striking, however, is that only three buildings are entirely empty, which in this case concerns mid-sized buildings (5,000 to 10,000 sq m) of at least 20 years old. The remaining vacancy concerns often small parts of buildings. The recently completed UN Tower currently has the largest supply, followed by the temporarily occupied Vivaldi Offices 2. The UN Tower is, however, shedding its recently delivered vacant surface quite rapidly with a number of tenants filling up the floors, Royal Bank of Scotland being the most prominent. Symphony and FOZ are also likely to be completely occupied within a short period of time. More persistent vacancy can be found at the completely vacated Winterthur building (which needs renovation) and Tripolis Building 100. Rank Property name Year of construction Sq m available 1 UN TOWER 10,286 2 VIVALDI OFFICES II 8,687 3 ATRIUM 7,950 4 TRIPOLIS BUILDING 100 7,422 5 WORLD TRADE CENTER., TOWER A-D 6,978 6 WINTERTHUR 6,790 7 SYMPHONY 6,566 8 FOZ 6,325 9 OFFICIA III 6,035 10 EUROCENTER II 5,970 00's 35% 90's 27% 60's 11% 70's 14% 80's 13%

OWNERS As noted, the South Axis district offers typical investmenttype office stock. Only five out of the 55 office buildings are owner-occupied; and this share is largely made up by the corporate headquarters of ABN AMRO and ING. The remaining owner-occupied buildings are small in scale and older, often dating from before the planned development of the district. All in all, the South Axis is a typical letting market. Type of owner Institutional 8 OOC 5 REIM 16 Striking is the large share of institutional-type investors among the property owners. Eight office buildings are directly owned by institutional parties (pension funds and insurance companies), and an additional 16 of the 55 buildings at the South Axis are in the hands of Real Estate Investment Funds that generally target institutional money. As the South Axis offers high-grade, core assets with noted, solvable tenants, this should come as no surprise. Still, private investors also have found their way to the district. It should be noted that in many cases, these private parties are large-scale enterprises with a similar investment scope as funds or institutional investors. Private 13 Nationality of owner USA 10 France 4 Open/closed fund 13 UK 1 IE 1 Although most investors are of domestic origin, a large share is comprised by German investors. These are mostly the well-known open- and closed-ended funds, but also a number of REIMs. US owners come third, French owners fourth. Surprisingly, British or Irish investors are hardly present in the district. Germany 14 NL 25 It should be noted that many buildings in the district, and most of the larger ones, are multi-tenant facilities. Although these are more complex to manage, they simultaneously offer a lower vacancy risk, a fact which is illustrated by the low volume of completely vacant buildings at the South Axis. % Prime yield South Axis 6,5 6 Surprisingly, perhaps, investment transactions at the South Axis are rare. In fact, the last five years have not seen more than eight buildings in the district change ownership, and since the 2008 crisis only the two parts of the Zuiderhof complex were traded. Aside from the owner-occupied buildings, it appears investors tend to hold on to their assets at the South Axis, an illustration of the core and stable character of the property and its tenants. When transactions do occur, however, top prices are paid. The initial office yields at the South Axis are generally the lowest in the Netherlands and are frequently used as the prime office benchmark in the country. In the past five years, prime net initial yields hovered between 4.8% and 6.2%, with a current level of approximately 5.35%. 5,5 5 4,5 sep-08 dec-08 mrt-09 jun-09 sep-09 dec-09 mrt-10 jun-10 sep-10 dec-10 mrt-11 jun-11 5.35 % sep-11

The South Axis an insider s view LEASES The conditions in the lease contracts signed by tenants at the South Axis are an interesting reflection of the quality of the South Axis, its buildings and its tenants. The most common lease length is 10 years and the top market rent is 350 per sq m per year. So far the obvious facts: let s focus on the details. As of 2009, 64 transactions are accounted for in the South Axis. These were either new contracts or renewals, both concerning office space with a minimum size of 500 sq m. A total of some 210,000 sq m was occupied in these transactions. 55% of the volume was newly let, the other 45% concerned lease renewals. A good 70% related to transactions of less than 2,500 sq m. Transactions above 5,000 sq m were represented with a share of 20%. This illustrates the diversity of the office stock. Most lease contracts (30%) were signed at the World Trade Centre (WTC), which is not surprising taken into account its size and number of lettable office units. The amount of transactional square meters at the WTC exceeds 34,000, as at least 19 transactions of 500 sq m and more have been recorded. The total number of let square meters is higher, since a lot of smaller sized transactions took place as well. The transactions at the WTC concerned mostly renewals. All other office buildings mentioned in the pie-chart dealt mostly with new transactions. The Symphony tower stands out in this respect, comprising 12% of the transaction total, all of which were new transactions. Division of transactions in sq m as of 2009 VIVALDI OFFICES 3% EUROCENTER 5% ATRIUM 5% >2,500-5,000 9% VINOLY 9% >5,000 20% OTHER 17% UN/ FOA 6% >1,000-2,500 36% TOYO ITO/ SOM 13% >500-1,000 35% Division of transactions over buildings as of 2009 WTC 30% SYMPHONY 12% Rental prices vary greatly within the South Axis. While a mere 160 per sq m per year is paid for the older office buildings at the Vivaldi quarter, some of the better offices at the WTC are pricey with around 380 per sq m per year. The average rent paid as of 2009 is 301 per sq m per year. A good measurement seems to be the distance to the Amsterdam Zuid public transportation hub; the closer you get, the better the office buildings are and the more you pay.

Incentives play an important part in the game between tenants and landlords. This typical Dutch phenomenon reduces the market s transparency because it makes it often hard to figure out what the exact rent paid is. The average granted incentive as of 2009 in the South Axis is 17%, considering all transactions, both renewals and new contracts. Average incentives are highest at the Vivaldi area, followed closely by the High South area. In the other areas the picture is more diffuse; some larger deals without any incentives involved influence the average incentive percentage downwards. It s worth mentioning that the highest incentives granted exceed 30% of the contract s worth. New lease contracts with a lease length of 10 years at the High South area are typically rewarded with incentives of around 20%. Rent levels and incentives as of 2009 350 per sq m per year 300 320 250 262 259 265 240 200 207 150 100 18 20 50 10 301 249 17 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Incentive It is also interesting to know when lease contracts expire. The current average lease length is approximately 7.5 years, while the standard lease length for new contracts is 10 years. We have put together all known lease contracts and created a lease expiry graph. This graph shows an interesting dip in 2018. Almost no let square meters will expire on that date. The explanation is simple but striking. Calculating back the average 10 years, we end up in 2008, the year of the financial crisis. In this year almost no 10 year lease contracts were signed. The expiring meters in 2018 can still increase in the coming years though, since shorter lease lengths become more and more accustomed. The years 2016 and 2017 tell the exact opposite story. Ten years prior, in 2006 and 2007, tenants happily signed lease contracts of 10 years. This will result in, as we predict, a fairly busy market for the real estate sector operating at the South Axis in 2016 and 2017. 0 0% High South Vivaldi Other areas Average Rent after reduction of incentives Rent per sq m per year Incentive % Expiring contracts in square meters per year 90.000 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

The South Axis an insider s view CONCLUSIONS AND OUTLOOK In the period of a decade the South Axis has emerged as the prime office district of Amsterdam, and, as such, of the entire country. The rapid forming of a strong financial and business services cluster has created a gravitational effect that is attracting national head offices and branches of foreign companies, which in turn feed the business services sector, thus creating a virtuous circle. Tenant demand has been consistently high, even in the years after the 2008 crisis, and is expected to continue. Moreover, there are hardly any new office developments in the pipeline. As a result, the vacancy rate is falling rapidly. It is expected that friction vacancy rates (around 5%) will be reached within two or three years. The office market in the Netherlands is now and again pictured as a vacancy-ridden market with a high tenant mobility. This is, however, a superficial picture that does not take into account the strong qualitative differences that exist. Under the surface, the market is being sorted and a polarization between prime and secondary office locations is taking place. Tenants are looking for office locations that offer them accessibility, services, leisure, and a lively atmosphere. Tenants are also looking for well-fitted, sustainable property which offers them the flexibility and floor plate size to design their work processes in an optimal way. The South Axis has all of that. The district is not comprised of high quality offices alone: premium apartments, quality restaurants and retail areas are present at this date and will increase in importance in the near future. This has created the working environment most office users look for: well-accessible and utilized, in the midst of a vibrant international community. For investors, the South Axis offers an attractive pool of core-type investment opportunities. It should be taken into account, however, that most property concerns multi-tenant facilities. These assets are doubtlessly more complex to manage, compared to their single-tenant counterparts. However, investing in multi-tenant assets substantially reduces vacancy risk due to the spread of expiration dates of the lease contracts signed by the various tenants. Furthermore, rental growth is expected to surface in the district in the near future due to the fact that the development pipeline is minimal and existing availability is decreasing rapidly. In the further future, the decreasing availability may result in new office and residential development plans. The municipality of Amsterdam still contemplates the creation of a dock area over the A10 motorway. This concept would bring all public transport and the A10 motorway underground, and office buildings on top. Perhaps, in the further future, these ambitious plans can be carried out and will help to create an even stronger South Axis. For more information regarding this report, please contact: CBRE Research & Consultancy T: 020 626 26 91 www.cbre.nl Machiel Wolters Robert-Jan van Dijk Ratih Bach Director Analyst Senior Analyst E: machiel.wolters@cbre.com E: robert-jan.vandijk@cbre.com E: ratih.bach@cbre.com robert-jan.vandijk@cbre.com

1. Gemini 15. Meerparc 29. WTC A - D, F, G 43. Vivaldi Offices I 2. Forum 16. Boer & Croon 30. WTC E 44. Vivaldi Offices II 3. Garden Court 17. Parnassus Tower 31. The Rock 45. Antonio Vivaldistraat 12 4. Olympic Plaza 18. Vitrium 32. Graves 46. Nijkerk Building 5. Tripolis Building 100 19. Anrooy Building 33. Viñoly 47. Binck Bank 6. Tripolis Building 200 20. Parnascomplex 34. UN Tower 48. Eurocenter II 7. Tripolis Building 300 21. Prinses Irene Building 35. FOZ 49. NIVRA 8. ING House 22. Freshfields 36. SOM 50. The Boardyard 9. Zuiderhof Pavillion 1 23. Strawinskyhuis 37. Toyo Ito 51. Sotheby s 10. Zuiderhof Pavillion 2 24. Winterthur 38. ABN AMRO 52. XL Insurance Building 11. Zuiderhof Pavillion 3 25. Atrium 39. Symphony 53. Officia I 12. Zuiderhof Pavillion 4 26. Stibbe Tower 40. Léons 54. Officiia II 13. Zuiderhof I 27. AKZO Tower 41. Metropolitan 55. Officia III 14. Zuiderhof II 28. WTC H, I 42. Cross Towers