At a Glance

CENTRAL LONDON OFFICE MARKET

2014Demand & Supply Investment

Central London take-up

Central London key indicators Central London Development Pipeline

Q4

2014

Q3

2014

Q4

2013

Change

Q-on-Q

Change

Y-on-Y

Take-up (m sq ft) 3.95 4.29 4.1 -8% -3.7%

Supply (m sq ft) 11.01 12.32 15.39 -10.6% -28.4%

Vacancy rate (%) 3.75 % 3.7% 4.7% 1.2% -20.1%

• 3.95m sq ft of take-up was recorded during Q4 2014, bringingthe 2014 annual total to 15m sq ft, the highest since after thefinancial crisis.

• Supply has fallen dramatically across Central London. Officeavailability was at 11.01m sq ft at the end of Q4 2014, well belowthe 10 yr average of 15.41m sq ft. A decrease in office supplyshould further boost the growth in rental value. The suddendecrease in office availability brought the one of the lowestvacancy rates on record at 3.75%.

• Demand should remain strong throughout the year ahead andwith a limited supply pipeline, 2015 will witness increases inrental growth across the central London office market.

Source: CBRE

• Fears of deflation in combination with weaknesses in the ChineseEconomy have increased the volatility and therefore the risk in the equity capital markets. In addition, the European debt problem has forced Central Banks to provide capital through the QE program driving bond yieldss to historic lows; therefore, Central London office yields provide an attractive spread over bond yields to investors looking for a safe heaven.

Central London office equivalent yield provides an attractive required return of 5.11% to investors in comparison to the 1.8% 10 yr UK government gilt.

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Property development remained strong in 2014 adding another 5.9m sq ft of office space in Central London. City was the area with the highest office development with just over 2m sq ft already constructed.

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Central London Availability

Source: CBRESource: CBRE

Source: Deloitte Real Estate

UK Property Index Return Return in % since Dec. 2000 Total

Return

CapitalReturn

TotalY-on-Y

5 yrReturn

All Property 276 120 18% 66%

All Offices 231 117 22% 83%

London Offices

Income Return

230

271

332 210 158 23.5% 115%

Source: MSCI/IPD

CENTRAL LONDON OFFICE MARKET

Central London

Central London Vacancy Rate (%)

Source: CBRE

Under Offers

• Central London under offers saw a decline in Q4 2014 at 2.9m sqft from 4.3m sq ft in Q1 2014, but still remained above the 10 yraverage sustaining the momentum for a strong demand in 2015.

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The supply and demand imbalance within the market has led to a continued rental value growth. The current growth rate in Q4 2014 stands at 5% from the previous quarter and well above the 10 yr average of 1%.

Total return for the central offices according MSCI/IPD index was at 23.5%. The majority of the return came from capital appreciation at 17.7% mainly due to the increase in rental value and a decrease of 48 bps of equivalent yield.

Source: CBRE

Source: Datastream/BloombergSource: Datastream/Bloomberg

Source: MSCI/IPD

Total Return Breakup

With the upcoming increases in the bank rate from the Central Bank we should see swap rates slightly increasing. The slight increase in the 5 yr swap rate -considered as a cost of debt used to finance property acquisition- should not affect the equivalent yield for Central London offices. Mainly due to the offset provided from the growth in rental value. In fact, the strong rental value growth should slightly decrease the equivalent yield in 2015.

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CENTRAL LONDON OFFICE MARKET

UK Economical Environment UK Gross Domestic Product

Consumption

Source: DataStream

UK Job Market

Source: Datastream

• GDP growth continues to provide support to commercial realestate. After a solid growth of about 3% in real terms during 2014,the UK economy is posed for further expansion in 2015. Inparticular, real consumer spending -a major component of GDPcalculation- should see a further increase in 2015 mainly due tothe large drop in commodity prices in particular oil. Finally,business confidence as measured by the CBI fell in Q4 2014 fromthe previous quarter but still remained in positive territory.

Source: DataStreamSource: DataStream

UK Business Confidence

The demand for office properties depends heavily on employment growth. London employment growth has outpaced the rest of the UK, reaching 4% by the end of 2014. This is also evidenced through the outperformance that Central London offices offered to investors relative to all other UK properties. It also supports the notion that we should see further demand in central London offices.

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London Leading the recovery

Disclosure: Anything presented in this report should not be used/taken as an investment reccomendation, its only for educational purposes.