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News Release

London

Capturing Outperformance and Opportunities in the Central London Office Market

Jones Lang LaSalle Reveals Outlook at Annual Client Seminar


London, 11th November 2009 – Jones Lang LaSalle today shared market insights and guidance with over 150 clients at its annual Central London Office Seminar, held this morning at BAFTA on Piccadilly. The key message conveyed - which applies to both the investment and occupier markets - is the necessity to act on opportunities now, rather than waiting in the wings.  

Neil Prime, Head of Markets Group, Jones Lang LaSalle said: “The occupational markets are turning a corner and although we do not forecast demand to expand rapidly, it is certainly more active and underpinned by significant lease events over the next 3-4 years. Coupled with this, Grade A supply in the Central London is rapidly being eroded at a time that there are no new speculative development starts. If there are no such starts in the next 12 months there will be, in our opinion significant and potentially acute shortages of grade A space in 2012 and 2013. Developers who can to start building now will, we believe, reap significant rewards.”
Richard Stanley, Head of Real Estate Workout EMEA at Jones Lang LaSalle commented: “Banks are definitely being realistic about their problems, although we expect to see some sales from UK banks. The position in relation to NAMA is evolving and we will see their strategy mature in the coming weeks rather than the coming months; it will not be a flood. Lenders increasingly want lend and margins are more under pressure than LTVs. Banks are quite rightly looking at cash flow rather than valuation as a rating of their exposure however development finance now, when product will come to the market in 24-36 months will be viewed with some appetite in the context of our view of the current availability of new stock in this period.” 
Damian Corbett, Head of West End Markets, Jones Lang LaSalle said: “From the investment perspective the Central London market has moved on enormously from this time a year ago. We have witnessed a huge increase in the nationalities and investor types buying in the capital, and with current yields still above the long term average and very solid fundamentals investors still see value in London. There is significant depth of equity seeking to enter the market and this is likely to continue for the foreseeable future.”
Paul Guest, Head of EMEA Research, set the scene, outlining a series of factors which will contribute to a gradual economic recovery over the next several years including: UK economy turning a corner but lagging other countries; slowly rising interest rates but finance costs remaining fairly high; corporate defaults peaking at the end of 2009 but rehiring of staff slow.
According to Jones Lang LaSalle, the Central London market is characterised by the following factors: vacancy will peak in early 2010; prime rents have stopped falling, whilst grade B rents have further to fall; rent free periods have peaked; prime yields will stabilise before further reductions; and total returns will be double digit after 2010, with City and West End offices being the top sector performers. Bill Page, Head of UK Offices Research at Jones Lang LaSalle warned the audience to beware of the impact of business rates which in some villages within the West End will see increases of over 100%.
In summary:
·         There are fragilities to economic improvements and market recovery will be from the supply side
·         Opportunities are in risk
·         Prime rents and incentives have bottomed out
·         “Village” differential can provide outperformance
·         The arguments for speculative commencement are compelling
·         Prime yields have compressed and the weight of money is likely to continue
·         Banks will release more investment stock