1. Corporate Real Estate Investor view: implications of the change in user preferences on investment strategies Nick French Professor in Real Estate & DTZ Fellow in Commercial Property Department of Real Estate & Construction Oxford Brookes University

2. Rents and Leases Investment Strategy – UK/ Europe  Existing Portfolio  New Acquisitions What is happening out there ?? Conclusions - a change of sea level Agenda

3. UK Leases – changed in 2000s; 15 years with 5 years upward only rent reviews for HQ buildings only Most UK offices are between 5 and 10 years and with the latter, a 5 year upward only rent review but many are now with a break clause. Rents are falling dramatically Rents and Leases

4. A Pilot Survey of 22 Property Management Departments in London was undertaken in May 2009. The response rate was 50% (11/22 ) The respondents were asked to comment on what activity they had observed in the UK Office market since summer 2008 The relationship between Landlord and Tenant was examined. The results are indicative but we hope to analyse an occupancy database at DTZ to provide empirical evidence to add to this qualitative study The Advsiors - Observations

5. Survey Results Total number of respondents = 11 YESNO Have you seen an increase in the activation of break clauses by tenants? 110 Have you seen an increase in Sale and Leaseback Activity? 92 Are Landlords waiving rents where tenants are in distress? 92 Are Landlords willing to consider surrender and renewal for longer leases at a lower rent? 74 Are Landlords willing to accept surrenders for capital payments? 65 Are Landlords talking to their tenants more? 110

6. All respondents have indicated that both parties are more willing to negotiate. Landlords have been struggling to raise capital with banks not providing new capital and worried about loan/value ratios based on revaluation Tenants are wanting to rationalises their portfolios – operating breaks and trying to lower rent roll. Landlords are wanting longer cash flows Survey Comments

7. “ Cash flow, cash flow, cash flow ” has become “ negotiate, negotiate, negotiate ” The requirement for cash to has meant that many landlords are accepting side agreements not to demand the full rent or amending the payment schedule Surrender and renewal, surrender for capital and consolidation/contraction The Investor – Existing Portfolio

8. Landlords are being much more receptive to discussions. In the current downturn, they want to maintain cash flows even at lower levels. They are being flexible if occupiers TALK to them. But will resort to legal protection if no dialogue. Landlords are open to a myriad of solutions to ensure that cash flows are maintained or capital recouped. The Investor – Relationships

9. Reluctance to buy new assets as the pricing of risk is difficult  Distressed Tenants  Rental Decline  Covenant Strength  Bank’s paranoia Some equity investors are considering “ sale and leaseback ” for long cash flows (10 years +) with top covenant. But priced accordingly The Investor – New Portfolio

10. “ Location, Location, Location ” became “ covenant, covenant, covenant ” but it is now “ cash flow, cash flow, cash flow ” In the last six years (2002-2008), investors have looked to capital return as the main contributor of total return. They are now looking for secure income or capital realisation. Problem of “ pricing ” risk today The Investor - Aspirations

11. The current world economic climate is uncertain. The credit crunch has led to occupiers rethinking their RE strategies. At the same time, tenants are fire-fighting to keep their occupation costs at a level that will allow the companies to survive. In this market, more than any other, tenants are approaching landlords with the idea of renegotiating there rental liabilities. A cahnge in sea level?

12. Landlords are considering each proposal on its merits and solutions are ranging from  side agreements that don ’ t demanding full payment  Surrender and renewals to provide a more even cash flow  Outright surrenders with a reverse premium being paid A cahnge in sea level?

13. The booming investment market of the last few years has shielded the profession from the need to consider fully the role of proactive management Good relationship management and a foresight to negotiate to protect future cash flows means that, now more than ever, management surveyors can enhance and protect capital values A cahnge in sea level?

14. Landlords and Tenants are at a crossroads. Negotiations and discussions are appropriate and required. The reliance on the “ lease ” has passed; cash flows will come from client management Opportunity for corporates to reorganise there space requirements in new and existing space. Transition period Conclusion – Change of Sea Level