THE BELFAST MARKET THE OFFICE MARKET

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1 THE BELFAST MARKET The occupier markets in Northern Ireland continue to perform well, buoyed to some extent by the attractive deals on offer in the current climate. The big news story in the office sector in recent weeks was the announcement that international law firm Allen & Overy intend to locate as many as 300 jobs in Belfast. They are currently in negotiations to lease approximately 4,000m 2 of accommodation in the city. This follows London law firm Herbert Smith also recently signing for 1,400m 2 of space in the Gasworks, Belfast. Both of these inward investment deals are broadly welcomed. Recent research from CB Richard Ellis shows that while there are a large number of potential office schemes in Belfast with planning permission, there is currently only 36,600 square metres of new office accommodation completed and available to let in the city. This equates to slightly more than one year s average take-up in Belfast. It is encouraging that recent announcements such as Allen & Overy and Citigroup will see a substantial proportion of the current stock of available properties being absorbed over the course of the next 12 months. Prime office rents appear to be stabilising at approximately per square metre although retail rents in Belfast continue to come under some pressure. A number of retailers continue to look for opportunities in the region with attention firmly focussed on the pedestrianised streets around Victoria Square in Belfast. Asda have recently applied for planning permission to develop a store on a 4.5 acre site in Banbridge, Co. Down. Institutional appetite for investment property remains strong and is restrained only by a lack of prime assets being brought to the market. NAMA have announced that approximately 4bn or 5% of their portfolio is located in Northern Ireland with approximately 2.4 billion of the Northern Ireland assets comprising development land. One third of NAMA s portfolio in Northern Ireland is located in Belfast with a further 21% located in County Down and 19% located in County Antrim. For further information contact: Brian Lavery in our Belfast Office at brian.lavery@cbre.com THE OFFICE MARKET Following a year in which office take-up in Dublin exceeded all expectations having reached more than 1.4 million square feet (130,000 m 2 ), letting activity has continued at pace since the beginning of 2011 with as much as 1.2 million square feet or approximately 110,00m 2 of office lettings likely to be achieved in the capital in The biggest news story in the office sector in recent weeks was the acquisition of the 15 storey Montevetro building in Dublin 4 by CB Richard Ellis on behalf of Google. The sale of this building effectively reduces the vacancy rate in the Dublin 2/4 office district from 19.5% to 18.3% and reduces the quantum of new Grade A buildings extending to more than 75,000 square feet in Dublin 2/4 to five buildings. Apart from this transaction, a number of significant lettings have been negotiated in recent weeks including the letting of approximately 5,000m 2 to ESB at Swift s Square in the north suburbs; the letting of 4,459m 2 to Tullow Oil at Central Park in the south suburbs and the letting of approximately 1,000 m 2 to LinkedIn at Gardiner House, Wilton Place, Dublin 2. There are also a number of other significant transactions in legals, which is encouraging. Having experienced a further decline in Q4, prime headline office rents in the Dublin market have remained stable since the beginning of 2011, currently standing at 345 per square metre, a reduction of almost 50% from peak. The significant improvement in competitiveness that has occurred over the last two years coupled with the availability of shorter lease lengths has helped encourage potential occupiers to make location decisions. For further information contact: Willie Dowling or Darren Nugent in our Offices Department at willie.dowling@cbre.com ; darren.nugent@cbre.com or Paddy Conlon in our GCS/Tenant Rep Department at paddy.conlon@cbre.com CBRE Bi-Monthly Irish Commercial Property Research Report Page 1 of 5

2 THE RETAIL MARKET The coming into force of the Universal Social Charge last month impacted negatively on consumer sentiment and retail spend, putting further pressure on many retailers in Ireland. This was evidenced by the Celtic Bookmaker chain going into receivership in January and the closure of a number of well-known retail outlets including four Toni & Guy salons, two Waterstone s bookstores in Dublin and the Zhivago music store in Galway City. Despite this, activity in the retail sector of the property market has been brisk during the first two months of 2011, particularly in Dublin shopping centres, where new operators are emerging to occupy vacated units. Much of the bad news in recent weeks has been balanced by a number of high-profile announcements such as the opening of an Abercrombie & Fitch store in Dublin city centre later this year and the news that Hollister intend commencing trading at Dundrum Town Centre in Danish retailer group Bestseller are planning on opening 30 new stores in Ireland this year; convenience retailer Centra has announced they will open 17 new stores in Ireland in 2011; UK retailer Poundstretcher who already have a large presence in Northern Ireland has announced plans to open 20 new stores in the Republic this year while 99p Stores also plan to open 20 stores in Ireland over the next 12 months. Boylesports have announced plans to take over the leases of 17 stores in the Celtic Bookmaker chain while the Four Star Pizza franchise which went into examinership last year was bought by an investor after renegotiating leases for some of the 37 outlets across the country. Donnybrook Fair is currently fitting out a store in Stillorgan Shopping Centre in south Dublin; children s furniture retailer Flexa have opened a new unit at Main Street in Blackrock; O Brien s Fine Wines are to open a new store at Carrickmines in South Dublin and Milanos have agreed to lease the former Café Bar Deli premises in Ranelagh on a new 25 year lease. Also in Dublin, John Brereton jewellers have purchased the former West s jewellery store on Dublin s Grafton Street for a reported 5 million. There has been much coverage of recent circuit court decisions on lease renewals on Grafton Street. The rent reductions are in line with our CBRE series of prime rents which clearly indicate a 50% decrease in retail rental values from peak. There is huge concern in the market about the proposals by the incoming Government regarding retrospectively reviewing rental agreements. While it is acknowledged that many retailers are currently struggling to meet existing rental commitments, instead of implementing a broad brush approach that will ultimately impact negatively on taxpayers, pensioners and indeed NAMA, the best way for the rent issue to be resolved is if landlords, tenants, banks and other stakeholders work together to come up with sensible solutions. If this is not forthcoming, an independent adjudication process or an improved administrative system should be available to ensure fair solutions are arrived at. Another issue that is crippling many retailers and urgently needs to be addressed by the new administration is the issue of local authority rates. For further information contact: Cormac Kennedy or Florence Stanley in our Retail Department at cormac.kennedy@cbre.com or florence.stanley@cbre.com THE INDUSTRIAL MARKET Take-up levels in the Dublin industrial sector were up almost 30% year-on-year in This trend has continued in recent months. There has been considerable activity in the industrial sector of the Irish property market since the beginning of 2011 with letting transactions of all sizes signed and a number of other transactions currently in legals. Many of the lettings being negotiated are short-term lettings. Some of the lettings completed within the past two months include the letting of Unit E6 at Riverview in south west Dublin on a 2 year lease and the letting of Unit 5 Turvey Business Centre in north east Dublin on a 3 year lease. Three units have recently been reserved at Kingswood Business Park in south west Dublin. Also in south west Dublin a 10 year letting was recently signed at Unit B4 in Ballymount. Meanwhile, Unit 603A at Greenouge Business Park which extends to 1,115m 2 has been CBRE Bi-Monthly Irish Commercial Property Research Report Page 2 of 5

3 let on a 2 year lease and Carroll Transport have taken a lease for a 937m 2 facility on Kylemore Road. There have been no industrial sales closed in the Dublin market since the beginning of the year. However terms have been agreed on the high-profile 3,716m 2 former Mitsubishi HQ facility at Westgate in Ballymount in recent weeks. While demand from data centre occupiers is particularly strong, there are a number of large requirements from other sectors in the market at present, some of which are relocations and some of which are new requirements, which is encouraging. Most of the demand is being fuelled by the very competitive deals on offer in the current climate. Prime rents have fallen again in recent weeks and now appear to be stabilising at approximately 65 per square metre a fall of 50% from peak levels. Following a number of years of no new speculative development taking place in the Dublin market, the availability of good quality accommodation in sought-after locations is being eroded. The significant gap between rents for prime and secondary buildings will therefore continue to escalate. For further information contact: Garrett McClean in our Industrial Department at: garrett.mcclean@cbre.com THE IRISH INVESTMENT MARKET The issue that has dominated the Irish investment market in recent weeks is the proposal by the incoming Government to retrospectively review rent provisions in business leases. The uncertainty that this proposal is creating has weakened overseas appetite for Irish real estate assets and if introduced, will force capital values in the Irish market to fall further. Based on data from IPD, retail values in the Irish market are already down by 64% from peak; office values are down 58% and industrial values down 55%. The fact that total returns only declined by 2.4% in 2010 compared to 23.3% the previous year suggested that commercial property values were showing signs of stabilisation before these proposals were made. While we have no transactional evidence to justify increasing prime yields from current levels, until such time as there is clarity on the Government proposals, the likelihood is that yields will trend weaker. Indeed, the IPD suggest that values could fall by as much as 20% if these proposals go ahead. 30% of the 242 million that was invested in the Irish investment market in 2010 was invested by overseas buyers. Many of these investors will now focus on investment opportunities in other jurisdictions. Indeed, it has been reported that the sale of Liffey Valley shopping centre in West Dublin has fallen through as a direct result of the election proposals. Transactional activity remains very weak with the most recent transaction that completed being the sale to the OPW of a building on Clare Street in Dublin 2 for 5.65 million. The only appetite is for prime assets, of which there are very few properties being publicly offered for sale. The ability to sell secondary properties in a market where liquidity remains constrained and demand is purely focused on prime is very limited unless significant value write down s are taken. For further information contact: Sean O Brien or Colm Luddy in our Investment Department at sean.obrien@cbre.com or colm.luddy@cbre.com THE UK INVESTMENT MARKET Over the course of 2010, many Irish investors took advantage of the strength of demand for prime investment opportunities in the UK and were net sellers of real estate investments in the market. Recent sales by Irish investors in the UK include the sale of the Goldman Sachs headquarters building in London for c. 280 million to a Hong Kong investor for a yield of approximately 5.25%. More high-profile sales are scheduled to occur over the coming months. NAMA have appointed a receiver to the building in which Rothschild are headquartered in London City, a property which is expected to be offered for sale later this year guiding 65 million, reflecting a yield of approximately 5.75%. In addition, two prime buildings on Oxford CBRE Bi-Monthly Irish Commercial Property Research Report Page 3 of 5

4 Street are currently being offered for sale by Irish investors. Having achieved a total return of 14.5% in 2010, capital values in the UK market started to level off towards the end of last year and while values continue to appreciate on a monthly basis, the pace of appreciation has certainly eased considerably in recent months. Demand is largely focussed on Central London. Indeed, there was a 30% increase in transactional activity in the investment market in Central London last year with a total of 9.1 billion invested and 12 transactions with a value of more than 100 million completed. Office rents in the City increased by almost 20% last year while rents in the West End grew by 10%. This positive rental growth is underpinning values in Central London, despite the economic backdrop and fears about inflation and interest rate increases. Outside of London, investor appetite is considerably weaker with demand very location and asset specific. The focus of demand is for well-let office properties, prime shopping centres and high street properties in the Top 50 UK towns. For further information contact: Caroline McCarthy in our International Investment Department at caroline.mccarthy@cbre.com THE DEVELOPMENT LAND MARKET Other than a number of agricultural land sales negotiated during the first two months of 2011, transactional activity in the development land sector has been very weak since the beginning of the year with very few sales recorded. One of the most significant transactions concluded in recent weeks was the sale of 4.46 acres at Glenamuck in Carrickmines for approximately 3 million. This situation is expected to change somewhat with a number of development sites expected to be offered for sale over the coming weeks. Some of these sales are being affected by the borrowers while other sites are due to come to the market on the instructions of receivers. In the absence of liquidity, the appetite for land remains relatively limited, particularly outside of Dublin. However, we expect to see reasonably strong demand for the sites that are about to be brought to the market, which will generate much-needed evidence for pricing levels in the current climate. It has been reported that the IDA are considering selling some of their landbank to local authorities around the country, following the completion of some sales of this nature in The decision to allocate 5 million in funding to enable local authorities to secure unfinished housing estates is broadly welcome in the development sector although it has been suggested that additional funding will be required to ensure that all dangerous housing estates around the country are fully secured. For further information contact: Ronan Webster or Wesley Rothwell in our Development Department at ronan.webster@cbre.com or wesley.rothwell@cbre.com THE HOTELS & LICENSED MARKET CB Richard Ellis Hotels has recently sold the 494 bed 5 Star Grosvenor Hotel in London s Mayfair to an Indian buyer for 470 million. This sale was significant as it is the largest ever single asset hotel transaction in Europe. We have also been instructed recently to sell the Cavendish Hotel in the St James area of London. The guide price for this 230 bed 4 Star hotel is 230 million. Although there is considerable overseas appetite for prime hotel assets in Dublin, sales activity in the hotel sector in Ireland remains relatively weak. While there were no hotel transactions concluded in the first two months of the year, negotiations are progressing well on a number of properties. We understand that the 5 Star hotel at Grand Canal Square in Dublin is at an advanced stage of negotiation. Receivers were recently appointed to the company that owns the Hilton Hotel at Charlemont Place in Dublin 2; the 4 star Shandon Hotel in Donegal; Holiday Inn Hotel on Pearse Street in Dublin and three hotels in the Lynch Hotel Group - the West County Hotel in Ennis, Co. Clare; Breaffy House Hotel in Castlebar in Co. Mayo and the Clare Inn in Dromoland, Co. Clare in recent weeks. All of these properties continue to trade. There has been strong interest in the Rock Glen Hotel in Clifden, Co. Galway which was brought to the market on the instructions of a receiver in recent weeks. The 36 bed Kilkea Castle Hotel & Golf Resort which includes 27 golf lodges in Kildare is now being offered for sale on the instruction of a receiver guiding 6 million. The property has already generated strong interest at this level having been previously offered for sale guiding a much higher figure. Although liquidity remains of significant concern, we expect to see some hotel sales being concluded over CBRE Bi-Monthly Irish Commercial Property Research Report Page 4 of 5

5 the coming months. Encouragingly, there has been somewhat of an improvement in hotel performance data in recent months with the latest STR Revpar figures for Dublin showing positive Revpar for the last four months of This has continued into January 2011 with Revpar up 9.3% on the same month last year as a result of an improvement on both occupancy and ADR. However, much of this improvement is confined to Dublin city centre hotels with provincial hotels still finding conditions challenging. For further information contact: Paul Collins or Dermot Curtin in our Hotels & Licensed Department at paul.collins@cbre.com or dermot.curtin@cbre.com CBRE Bi-Monthly Irish Commercial Property Research Report Page 5 of 5