The EU economy is entering its sixth year of uninterrupted growth and all Member States are expected to grow over the forecast horizon, but at a slower pace. The strength of Europe’s domestic growth drivers should, however, be su� cient to allow activity to continue rising and unemployment falling. Looking ahead to 2019, most companies continue to start the year with positive growth expectations, although the outlook for 2019 as a whole depends on the resolution of political uncertainties. Part of the weakness in the fi nal months of 2018 was temporary, but uncertainty weighed on confi dence and investment decisions. In addition, investment should enjoy the continued support of still favourable fi nancing conditions, even assuming the gradual normalisation of monetary policy.

COMMERCIAL TRANSACTION

VOLUME IN EUR BN11.65

PRIME YIELD OFFICE

%3.75

6.74OFFICE

VACANCY RATE

%

40.18PRIME RENT OFFICE EUR/

SQMPER MONTH

34 .00HELS INK I

19.04COPEN -HAGEN

19. 58BRUSSELS

56 .00STOCK-HOL M

58 . 50ZUR ICH

32 . 50M ADR ID

20 . 50WARSAW

35 .05OSLO

33 . 33A MSTER -DA M

18 .00TAL L INN

67. 50PAR IS (CBD)

35 .00BER L IN

47.00LUXE M -BOURG

104.65LONDON (WESTEND AND MIDTOWN)

23 .00V IENNA

4 .76

1.80

1.70

12 .78

7.24

8 .11

6 . 346 .67

7.67

9.45

10 .97

5 .98

7.25

4 . 50

5 .00

4 .20

2 .80

2 .90

3 .80

3 .71

4 .19

3 .70

6 .203 . 50

2 .60

3 . 50

3 . 30

4 .87

3 . 50

3 .49

2.00

3.38

0.61

2.31

3.35

9.83

3.31

6.00

8.90

4.59

61.16

60.59

2.24

1.34

28.50

Ø

Netherlands2.81

2.50

3.90

Belgium1.52

1.40

6.40

Denmark1.96

1.70

5.40

Baltics*Ø 3.65

Ø 3.89

Ø 7.02

Finland2.65

1.80

7.67

Germany1.91

1.40

3.47

Luxembourg4.04

2.50

5.45

Norway2.11

2.00

3.80

Spain2.65

2.10

15.58

Poland4.35

4.40

4.12

Sweden2.42

2.40

6.16

Switzerland3.01

1.57

2.84

France1.56

1.00

8.84

Austria 2.82

2.00

5.20

United Kingdom1.36

1.53

4.07

Q1 2019 2.91

Investment Market Europe 2019

OFFICE VACANCY R ATE %

OFFICE PRIME YIELD%

COMMERCIAL TRANSACTION

VOLUME, EUR bn

OFFICE PRIME RENTEUR /sqm per month

* only macroeconomic data and commercial transaction volume are summarized for the Baltic countries

** The volume is the average of specifi ed countries. Vacancy rate, prime yield and prime rent are the average of specifi ed loactions

* Average value of the location

specifi ed

Macroeconomic indicators

0.00–1.50 1.51–3.00 3.01–5.00 GDP IN %, CHANGE PA, REAL

0.00–1.50 1.51–3.00 3.01–5.00 CONSUMER SPENDING IN %, PA

0.00–5.00 5.01–10.00 10.01–20.00 UNEMPLOYMENT RATE IN %

6 MONTHS TREND

AVERAGE FORECAST 2019–2021

BUBBLE SIZE REPRESENTS THE STRENGHTS OF THE MARKET: A LARGE BUBBLE STANDS FOR A HIGH VALUE

Source: Catella Research, PMA, RCA

Warsaw

Europe*

Berlin

Tallinn

Europe*

Berlin

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

OFFICE VACANCY RATE, %

1614121086420

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

OFFICE PRIME YIELD, %

12

10

8

6

4

2

0

COUNTRY SPECIFIED

LOCATION SPECIFIED

EUROPEAN AVERAGE**

In respect of the macroeconomic landscape, we expect the current cycle to get further stretched although with more muted economic growth. From 2.4% in 2017, euro area GDP growth is forecast to moderate to 2.1% this year and 1.9% in 2019. It is then expected to ease smoothly to 1.7% in 2020. A small worry is the q3 2018 GDP growth in Germany. While the q3 slowdown can certainly be attributed to the deadline put upon the car industry in respect of new EU regulations, this does not provide a full explanation. Therefore, this could imply a further slowing of the German economy, although its fundamentals remain strong. Exogenous factors, such as fading world trade growth, rising uncertainty and higher oil prices should have a dampening e� ect on growth in general.

There is still a large amount of available capital for real estate investments on the market, but the biggest challenge is fi nding high quality assets and portfolios to invest in. Prices and yields have reached new peak levels in nearly all major markets on the continent, thus it remains challenging for many investors to achieve their target returns. One of the key factors here is the increasing shift of core investors towards “manage-to-core” strategies. Another factor is the increasing investment activity towards second-tier locations and markets, and thus underpin higher risk willingness of investors. Concerning ULI/PWC Emerging trends in Real Estate, almost 53% of respondents agree, that investors are taking on more risk to achieve target returns. Alternative real estate assets and residential properties like co-living, fl exible/serviced o� ces, student housing and serviced apartments are gaining momentum. This is mainly because of the rise of the “millennial generation” with growing demand for those sectors. Logistics properties will remain the most attractive sector, together with light industrial, which is benefi ting from re-shoring trends, as well as newly emerged risks due to the trade war.

GDP, % change, pa, real

Consumer spending, %, pa

Infl ation, %, pa

Main refi nancing rate, %, pa

10 years government bond yield, %

Unemployment rate, % Export, % change, pa

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Q12019

Q32019

2019–2021

Austria 2.82 $ 1.72 2.00 $ 1.47 1.96 # 2.09 0.00 " 0.10 0.87 # 1.73 5.20 $ 5.03 7.82 $ 2.98

Belgium 1.52 # 1.50 1.40 # 1.23 2.19 $ 1.83 0.00 " 0.10 1.02 # 1.90 6.40 # 6.67 4.38 $ 3.73

Denmark 1.96 $ 1.84 1.70 # 1.67 1.40 # 1.90 0.01 # 0.34 0.62 # 1.51 5.40 $ 5.33 2.50 $ 2.07

Estonia 3.70 $ 3.04 4.00 # 4.00 3.00 $ 2.33 0.00 " 0.10 0.00 $ 0.00 6.67 # 6.95 2.60 # 3.25

Finland 2.65 $ 1.53 1.80 $ 1.63 1.21 # 1.84 0.00 " 0.10 0.81 # 1.65 7.67 $ 7.17 3.94 $ 3.15

France 1.56 # 1.61 1.00 # 1.43 1.86 $ 1.81 0.00 " 0.10 0.90 # 1.73 8.84 $ 8.14 4.36 # 4.14

Germany 1.91 $ 1.64 1.40 # 1.40 1.81 $ 2.05 0.00 " 0.10 0.60 # 1.43 3.47 $ 3.32 3.66 # 4.16

Latvia 3.72 $ 3.12 3.70 $ 3.45 2.71 $ 2.40 0.00 " 0.10 4.30 $ 4.30 7.89 $ 7.73 3.15 $ 3.03

Lithuania 3.54 $ 2.66 3.96 $ 3.57 2.46 $ 2.30 0.00 " 0.10 2.84 # 2.93 6.50 $ 6.17 5.90 $ 3.93

Luxembourg 4.04 $ 3.33 2.50 $ 2.07 1.53 # 1.90 0.00 " 0.10 1.86 # 2.22 5.45 $ 5.12 -1.29 # 2.13

Netherlands 2.81 $ 2.32 2.50 $ 1.53 1.45 # 1.81 0.00 " 0.10 0.80 # 1.53 3.90 $ 3.70 5.40 $ 4.33

Norway 2.11 $ 1.94 2.00 # 2.20 1.90 # 2.00 0.50 # 0.88 2.00 # 2.47 3.80 $ 3.70 1.58 # 2.56

Poland 4.35 $ 3.10 4.40 $ 3.17 1.99 # 2.61 1.53 # 2.05 3.41 # 4.11 4.12 $ 3.92 7.68 $ 6.37

Spain 2.65 $ 1.92 2.10 $ 1.80 1.81 $ 1.84 0.00 " 0.10 1.60 # 2.53 15.58 $ 14.33 2.09 # 3.87

Sweden 2.42 $ 2.09 2.40 $ 1.93 1.93 $ 1.82 -0.44 # 0.25 0.80 # 1.90 6.16 # 6.30 3.28 # 3.20

Switzerland 3.01 $ 1.72 1.57 # 1.69 1.08 # 1.12 -0.75 " -0.53 0.31 # 0.76 2.84 $ 2.75 7.81 $ 4.23

United Kingdom 1.36 # 1.52 1.53 # 1.41 2.51 $ 2.06 0.50 # 0.83 1.50 # 2.25 4.07 # 4.39 -0.43 # 1.22

Source: Eurostat, Oxford Economics

MACROECONOMIC INDICATORS 2019–2021

The struggle of the retail sector will continue, although reformed retail formats will provide attractive returns to investors. At this point, however, it is di� cult to assess which retail formats will be successful in the future.Real estate investments will remain relatively healthy in the short- to medium-term with prices and rents still on the rise. Nevertheless, in many markets prime o� ce and retail yields already achieved all-time lows and have no space for further yield compression. In most European countries bonds still look very unattractive and stock markets are very volatile. How-ever, a slowdown of investment activity can be expected due to the end of ECB’s QE program and the forthcoming rise of interest rates.

WHAT TO LOOK FOR:

• From a risk perspective, investors in 2019 continue to show a strong focus

on their home markets, although the majority of portfolios are increasingly

heterogeneous. Residential and logistics investments in particular are responsible

for this.

• Regardless of investor types, core dominates current real estate portfolios, with

the exception of corporation where value added is most prominent.

• European B-cities o� er attractive yields in core segment.

• Germany, UK and France remain the top 3 choices for investors, while the UK,

Netherlands and Spain will also show opportunities.

• In Denmark, the o� ce investment market is going to be characterized by core/

core+ strategies and value-add. We also expect to see a growing focus on

co-working/o� ce hotel concepts among the Nordic countries, as investors still

struggle to compete for large anchor tenants.

• O� ce, retail and residential are the top 3 ranking sectors in our view, with

student housing, micro living and healthcare gaining in popularity. However, retail

properties, mainly high-street locations in top markets are increasingly being

acquired against the background of repositioning. In Germany, retail centers are

getting more attractive, especially in second-tier markets. Source: Catella Research 2019

Investment Intensions and Macro-economic framework Europe 2019

Catella is a leading specialist in property investments, fund manage-ment and banking. We occupy a leading position in the real estate sector, with a strong local presence in Europe with around 500 employees across 14 countries

Research Contacts: Dr. Thomas Beyerlethomas.beyerle@catella.de

Andreas Slupikandreas.slupik@catella.de