Office and Investment Market Germany Analysis and forecast

PropertyEU Investment Briefing Germany

London, 19 Sep 2013

Germany in European comparison

5

Germany – Key facts and leading commercial real estate markets

2012 Trend 2013

Population (31 December) 80.5 million

GDP growth 0.7%

Working population 41.6 million

Unemployment rate 6.8 %

Inflation rate +2.0% Government surplus as a

percentage of the GDP 0.2% General government debt

as a percentage of GDP 81.9%

German top 6 real estate markets

- Berlin

- Düsseldorf

- Frankfurt

- Hamburg

- Munich

- Stuttgart

6

Office stock (in million m²) in selected European markets – German top 6 cities

• No dominating office market in

Germany

• Munich region no. 3 in EMEA

• 3 German office markets in

the Top 10

… …

… …

7

Office take-up (in 1,000 m²) Selected European markets

• Germany‘s office tenants

exercise restraint during H1

• All in all total take-up result for

H1 2013: 1.25 million m²

8

Prime office rents in comparison (in EUR/m²) Selected European markets

• Low rent level compared with

leading EMEA markets

9

Commercial transaction volume (in million €) Selected European markets

• No single top city due to the

federal structure

10

CBD prime office yields (in %) Selected European markets

• Office properties in German

top cities are in keen demand

• On the other hand there‘s a

lack of especially new

buildings in top locations

• Result = decreasing yields

German office market – an overview

12

Take-up of office space (in 1,000 m²) Top 6 cities in total

Lehman • Germany’s office tenants

exercise restraint during first

half of year

Backup take-up

13

Vacancy rate (in %) Top 6 cities in comparison

• Positive net absorption –

office vacancy rate continues

to decline slightly

• Conversions from office into

residential, hotel, student

housings: > 500,000 m² from

2010 to 2012

• Continuing low completion

rates due to banks not willing

to finance speculative

constructions

14

Completions of office properties in Germany (in 1,000s of m²) - Top 6 cities in total

• Almost two-thirds of the

developments (2.6 mn m²)

have already been leased out

• (Possible) consequences:

• Lack of new office spaces

• Lack of investment

opportunities which result

in increasing purchase

prices for prime properties

• Declining vacancy rates

• Rising rent prices

15

Prime office rents (in EUR/m²) German top 6 cities in comparison

• Tendentially rising prime office

rents

• Top locations still in keen

demand e.g. by consulting

firms, law firms, financial

sector etc.

• Nevertheless, top segment is

a comparatively small

segment (3% of take-up)

Commercial investment market Germany

16

17

Commercial transaction volume in comparison (in billion euros)

17,5 €

13,1 €

6,4 €

3,4 €

3,3 €

1,3 €1,0 €

2,3 €1,1 €

2013

UK Germany France Sweden Russia The Netherlands Poland Italy Spain

2012 H1

2013

Sources: Colliers International, RCA

• Germany’s commercial real

estate market is No. 2 in

Europe

• Domestic as well as cross

border investors place a lot of

trust in the German market

(“safe haven”)

18

Commercial transaction volume (in billion euros) – Germany in total

• Transaction volume in H1

39% higher than previous

year’s level

• More than half of investment

volume in the top 6 cities

• Domestic investors: 73%

(€ 9.57 bn)

• Cross border investors: 27%

(€ 3.49 bn)

Deals

19

Transaction volume in the top 6 cities Market share: international buyers

• 3 cities benefited from big

investment transactions:

• Berlin

Hallen am Borsigturm

Lindencorso

K195 (Prime Portfolio)

• Düsseldorf

Kö-Bogen

• Frankfurt

T11, One Goetheplaza

(Prime Portfolio)

Skyper

Gallileo

Deals

20

Commercial transaction volume in millions of Euro by property type in H1 2013

• Two-tier market:

• Top 6 cities: office

• Outside top 6 cities: retail

and industrial

Deals

21

Prime yields for office properties Top 6 cities (gross initial yields)

• First-rate office properties in

prime locations are hard to

come by

• Result = they have become

even more expensive in some

cases

• Stable market conditions with

a lack of new office properties

23

Foreign Capital Flow into Germany (H1 2013) (Market share international buyers: 27%)

Other countries: 180,533,939 € (=5.2%)

Investment volume H1 2013:

3.492 billion euros

AMERICAS in % of total

USA 638,847,392 € 18.3%

Canada 630,790,157 € 18.1%

In total 1,269,637,550 € 36%

EMEA in % of total

Israel 439,642,000 € 12.6%

Great Britain 307,592,075 € 8.8%

Austria 194,445,020 € 5.6%

Switzerland 177,506,624 € 5.1%

Italy 151,900,000 € 4.3%

Angola 108,500,000 € 3.1%

Luxembourg 105,679,000 € 3.0%

France 76,275,500 € 2.2%

EMEA others 162,977,850 € 4.7%

In total 1,724,518,069 € 49%

APAC in % of total

South Korea 288,610,000 € 8.3%

Australia 18,987,500 € 0.5%

APAC others 9,765,000 € 0.3%

In total 317,362,500 € 9.1%

24

Buyers and sellers by sectors in million of euros – Germany in total

• Real estate funds and

private investors with

highest investment volume

• Special funds (SPV), which

were involved in a number

of transactions, often acted

on behalf of state and

pension funds

• Continuing attractiveness of

German commercial real

estate particularly for

security-oriented investors

Deals

25

Reasons to invest in Germany (“Safe haven”)

- One of the world’s leading economies with a continuing positive business

climate

- Decentralized / diversified real estate market with at least 6 top locations

- Diversified product availability – office, retail, industrial, residential

- Price stability, low yield volatility

- Market liquidity leads to easy market entry and exit

- Attractive risk-adjusted returns (yield spread government bonds / prime office

yields)

- High level of economic and political stability lead to low external risks

35

Outlook

- Office market to pick up – but only after a delay: take-up of 2.5-2.6 million m²

forecasted – an average year

- Peak of the current market cycle for prime rents almost reached

- Lateral trend in terms of vacancy rates

- Deal pipeline on the commercial investment market is still well stocked for the

last months of 2013

- Persistently low interest rates and uninterrupted excess demand for core real

estate

- A Germany-wide transaction volume of more than 25 billion Euros is realistic

Reasons

49

Contact information

Ignaz Trombello MRICS Head of Investment Germany

Managing Partner Colliers International Düsseldorf

DIR +4921186206250

EMAIL ignaz.trombello@colliers.com

Andreas Trumpp Head of Research Germany

DIR +4989540411040

MOB + 4915155110942

EMAIL andreas.trumpp@colliers.com