Office and Investment Markets an overview

CITY SURVEY Germany 2014/2015 Office and Investment Markets – an overview Accelerating success. Achim Degen CEO Germany [email protected] ...
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CITY SURVEY Germany 2014/2015

Office and Investment Markets – an overview

Accelerating success.

Achim Degen CEO Germany [email protected]

Lively end to the year on German office market – Investment market outperforms previous year results considerably The German commercial real estate market posted favorable results in 2014. It was obvious right from the start that 2014 would generate the best results on the investment market we have seen since 2007. The office leasing market experienced an end-of-year rally, which boosted results to record a slight year-on-year increase. Greater interest on the part of international investors and an increasing number of portfolio deals were the main reasons for the year-on-year increase in transaction volume on the commercial real estate market to slightly below €40 billion, or 30%, in 2014. Limited supply of office properties in the core segment gave value-add, logistics and hotel properties a significantly larger market share. We expect this trend to continue in 2015. Due to ongoing low interest rates and an increase in capital flow, transaction volume is likely to exceed the €40 billion mark considerably in 2015. The office leasing market recorded excellent results in Q4, generating the strongest results since late 2007. Despite significant regional differences, take-up recorded a yearon-year increase of 3% to 3 million square meter, matching its 10-year average. In view of current geopolitical and economic uncertainties, we expect the office market to once again post average results in 2015. Many companies are postponing relocation or rental decisions. Low completion rates also lead to us expect the vacancy rate to continue to decline.

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City Survey | 2014/2015 | Germany | Colliers International

Contents Survey of the market data

4 5 5

Office Leasing Investment Location Information

Germany on the whole

6 8

Office Leasing Investment

Berlin

10 12

Office Leasing Investment

Düsseldorf

14 16

Office Leasing Investment

Frankfurt Office Leasing Investment

Hamburg Office Leasing Investment

Cologne Office Leasing Investment

Munich Office Leasing Investment

18 20 22 24 26 28 30 32

Stuttgart

34 Investment 36 Glossary / Definitions 38 Locations / Contacts 39 Office Leasing

City Survey | 2014/2015 | Germany | Colliers International

3

Office Leasing GERMANY

STOCK OF OFFICE SPACE in million m²

BERLIN

DÜSSELDORF

FRANKFURT

HAMBURG

COLOGNE

MUNICH

STUTTGART

88.79

18.50

7.62

11.61

13.35

7.66

22.77

7.54

OFFICE SPACE TAKE-UP 2014 approx. in m²

3,003,500

701,300

241,000

367,500

525,000

269,000

620,900

278,900

OFFICE SPACE TAKE-UP 2013 approx. in m²

2,914,400

553,900

346,000

449,500

440,000

272,000

594,700

258,300

OFFICE SPACE TAKE-UP 10-year Ø

3,005,900

583,400

307,200

473,700

486,300

254,400

696,000

201,100

up to 500 m²

711,600

176,400

84,300

96,300

82,000

86,200

120,700

65,800

501-1,000 m²

555,400

143,900

55,200

63,900

102,000

53,700

102,800

33,900

1,001-2,000 m²

430,000

95,600

30,000

56,000

76,000

27,800

111,400

33,200

2,001-5,000 m²

562,700

128,800

47,500

76,200

81,000

39,700

156,000

33,500

over 5,000 m²

743,800

156,600

24,000

75,100

184,000

61,600

130,000

112,500

35.00

23.00

26.00

38.00

24.50

20.90

34.50

21.50

14.99

13.70

14.00

19.50

14.50

11.50

14.90

12.60

5,989,000

925,000

788,400

1,454,500

798,400

552,000

1,156,500

314,200

6.7

5.0

10.4

12.5

6.0

7.2

5.1

4.2

Information and telecom­ munications

Information and telecom­ munications

Consulting Banking firms and Finance

Information and telecom­ munications

Public adminis­ tration, organi­ zations, welfare agencies

Manu­ facturing industry

Manu­ facturing industry

17

19

22

18

21

30

FORECAST for the entire 2015 TAKE-UP BY SIZE in m²

PRIME RENT in €/m² FORECAST for the entire 2015 AVERAGE RENT in €/m² FORECAST for the entire 2015 VACANT OFFICE SPACE in m² FORECAST for the entire 2015 VACANCY RATE in % SECTORS WITH HIGHEST TAKE-UP in %

22

36

The data for Berlin, Düsseldorf, Hamburg, Frankfurt, Cologne and Stuttgart are related to the respective city area. The data for Munich are related to each of the respective markets on the whole.

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City Survey | 2014/2015 | Germany | Colliers International

Investment GERMANY

BERLIN

DÜSSELDORF

FRANKFURT

HAMBURG

COLOGNE

MUNICH

STUTTGART

TRANSACTION VOLUME 2014 in million €

39,797.9

4,000.0

1,950.0

5,011.3

3,650.0

1,316.1

5,153.7

1,001.7

TRANSACTION VOLUME 2013 in million €

30,699.6

3,508.0

1,920.0

3,421.8

2,800.0

953.8

4,765.0

934.1

TRANSACTION VOLUME 10-year Ø

30,146.7

3,328.2

1,400.0

3,414.6

2,601.0

920.6

3,551.1

834.6

43

33

34

37

44

67

29

25

Open-ended real estate funds / Special funds 23

Asset managers / Fund managers

Opportunity funds / Private equity funds

31

25

Open-ended real estate funds / Special funds 33

Open-ended real estate funds / Special funds 35

Open-ended real estate funds / Special funds 23

Open-ended real estate funds / Special funds 26

Open-ended real estate funds / Special funds 48

Property developers

Asset managers / Fund managers

Opportunity funds / Private equity funds

Property developers

Private investors / Family offices

Property developers

FORECAST for the entire 2015 FOREIGN INVESTORS in % LARGEST GROUP OF INVESTORS in %

LARGEST GROUP OF SELLERS in %

21

23

31

Open-ended real estate funds / Special funds 33

35

Open-ended real estate funds / Special funds 22

18

27

Office 50

Office 59

Office 70

Office 75

Office 74

Office 65

Office 61

Office 73

PRIME YIELD, OFFICES in %

4.58

4.75

4.90

4.75

4.50

5.10

4.00

5.10

PRIME YIELD, RETAIL in %

4.16

4.50

4.25

4.20

4.60

4.20

3.50

4.20

PRIME YIELD, LOGISTICS / INDUSTRIAL in %

6.40

6.55

6.45

6.25

6.50

6.45

6.30

6.50

MOST IMPORTANT TYPE OF REAL ESTATE in %

Location Information GERMANY

INHABITANTS in 1,000 GEOGRAPHIC AREA in km² EMPLOYED AND PAYING INTO SOCIAL SECURITY in 1,000 UNEMPLOYMENT 2014 in %

80,768

BERLIN

DÜSSELDORF

FRANKFURT

HAMBURG

COLOGNE

MUNICH

STUTTGART

3,422

598

701

1,746

1,034

1,408

604

357,201

892

217

249

755

405

310

207

30,175

1,269

378

528

893

512

776

380

6.7

11.1

8.8

7.3

7.6

9.6

5.2

5.7

RETAIL – RELEVANT PURCHASING POWER 2014 (GERMANY=100 AS AN INDEX)

100.0

102.6

116.3

110.5

104.8

106.6

118.0

111.7

DISPOSABLE INCOME PER CAPITA in € (2011)

19,901

19,796

26,563

24,897

23,609

23,774

28,252

25,125

Sources: Federal Statistical Office, Land Statistical Offices, Federal Employment Agency, Nexiga GmbH

City Survey | 2014/2015 | Germany | Colliers International

5

Office Leasing

Fast Facts OFFICE LEASING TOP 7

CHANGE FROM 2013

2014

CHANGE FROM 2012

Take-up of space in m²

3,003,500

3.1%

-0.7%

Vacant floor space in m²

5,989,000

-11.4%

-15.2%

6.7%

-1.0

-1.3

89,042,000

0.9%

1.3%

Vacancy in % Existing floor space in million m²

Take-Up Slightly more than 3.0 million square meter of office space was taken up in 2014 in the seven top German real estate hubs. These results signify a slight year-on-year increase of around 3% for the market as a whole and a 2% increase compared to the ten-year average. Q4 was by far the strongest in terms of take-up this year, exceeding our somewhat conservative expectations. However, we did see strong regional differences between the top locations. While office tenants in Berlin, Hamburg, Cologne, Munich and Stuttgart seemed unimpressed by the ongoing sluggish economic trend, leasing considerably more space than in 2013, they held back in Frankfurt and Düsseldorf in the last 12 months. We particularly saw a lack of major deals in 2014 in the metropolitan areas along the Main and Rhine rivers, the kind of deals that are needed to generate high take-up results.

Take up of space in m² in 2014 in comparison to 2013 and 2012 (change in percent) Vacancy rate in % in 2014 in comparison to 2013 and 2012 (change in percentage points) Prime office rent in €/m² in 2014 in comparison to 2013 and 2012 (change in percent)

Hamburg

Commercial transaction volume in millions of euros in 2014 in comparison to 2013 and 2012 (change in percent) Gross prime yield for office properties in % in 2014 in comparison to 2013 and 2012 (change in percentage points)

Rents

2014

2013

2012

525,000

19.3%

22.1%

6.0%

-1.0

-1.4

24.50

2.1%

2.1%

3,650

30.4%

92.1%

4.50%

0.00

-0.20

With just a few exceptions, prime and average rents in the top locations came in above previous year levels. Prime rent in Frankfurt am Main was recorded at €38.00 per square meter. High-priced leases in new builds or projects like TanusTurm

Düsseldorf

Berlin

2014

2013

2012

2014

2013

2012

241,000

-30.3%

-21.0%

701,300

26.6%

10.1%

10.4%

-0.5

-1.0

5.0%

-1.0

-2.0

26.00

-5.5%

0.0%

23.00

4.5%

4.5%

1,950

1.6%

143.8%

4,000

14.0%

-2.6%

4.90%

-0.20

-0.30

4.75%

0.00

-0.25

Cologne

Frankfurt

2014

2013

2012

2014

2013

2012

269,000

-1.1%

8.9%

367,500

-18.2%

-28.6%

7.2%

-0.4

-0.5

12.5%

-1.3

-1.4

20.90

-7.1%

5.8%

38.00

0.0%

8.6%

1,316

38.5%

186.1%

5,011

46.5%

68.1%

5.10%

-0.30

-0.60

4.75%

-0.10

-0.40

Munich

Stuttgart

6

2014

2013

2012

2014

2013

2012

278,900

8.0%

46.0%

620,900

4.4%

-11.4%

4.2%

-0.7

-1.2

5.1%

-1.0

-1.0

21.50

7.5%

7.5%

34.50

5.5%

12.7%

1,002

7.2%

-11.5%

5,154

8.2%

37.8%

5.10%

-0.10

-0.10

4.00%

-0.25

-0.50

City Survey | 2014/2015 | Germany | Colliers International

or the Maintor Quartier complex caused levels to remain stable year over year despite low take-up results. Premium space was in high demand in other cities as well, a development that we saw reflected in an increase in prime rents. In Munich we saw an increase of almost 6%, putting prime rent at €34.50 per square meter. Prime rents were on the rise in Stuttgart (€21.50 per square meter, up 8%), Berlin (€23.00 per square meter, up 5%) and Hamburg (€24.50 per square meter, up 2%). In contrast, prime rents fell in Düsseldorf (€26.00 per square meter, down 6%) and Cologne (€20.90 per square meter, down 7%). Although both cities saw a few lease transactions in the high-price segment, they did not manage to match previous year results or take-up volume because of hesitation among potential tenants. Average rents experienced a similar trend. Both Cologne (€11.50 per square meter, down 3%) and Düsseldorf (€14.00 per square meter, down 5%) came in below previous year levels. Average rent in Munich posted a slight decrease to €14.90 per square meter due to larger-scale leases in the more reasonable submarkets in the city outskirts and near the city limits. Average rent in Berlin increased 5% to €13.70 per square meter. This can be attributed to the fact that main leasing activity was seen in central locations like City East and City West as well as in high-quality properties. Frankfurt (€19.50 per square meter, up 5%), Stuttgart (€12.60 per square meter, up 5%) and Hamburg also saw an upward trend.

Take-up of space in the top 7 (in million m2) 3,5 3,0 2,5

Summary and Outlook

3.4

3.0

2.9

3.0

2010

2011

2012

2013

2014

2,0 1,5 1,0 0,5 0,0

Average of the past 10 years

Prime and average rents in the top 7 (in €/m2) 34.76

Supply and Vacancy Office vacancy dropped by around 770,000 square meter in the last 12 months, registering at not quite 6 million square meter in total in the seven real estate hubs at the end of 2014. This reflects an average vacancy rate of 6.7%. The decrease can be attributed to strong leasing results, which continued up to the end of the year, as well as to comparably low newbuild volumes. What’s more, a number of office properties were taken off the market in 2014 because they were repurposed or torn down and rebuilt. Slightly more than 1.8 million square meter is scheduled to be completed in the seven German real estate hubs by the end of 2016. Almost 58% of that space was already preleased at the start of the year. Completion rates continue to be below average compared to previous years.

2.9

35.00

35.00

14.54

14.89

14.99

2012

2013

2014

31.82

31.82

14.84

14.52

2010

2011

Prime rent

Average rent

Vacancy rate in the top 7 (in %) and vacancy (in million m2) 10

In view of growing uncertainty as to the stability of the Eurozone, current geopolitical unpredictability and the reserved outlook for economic growth in Germany resulting from these factors, we expect to see another average year on the office market in 2015. These general conditions lead us to expect that many companies will hold back on their plans to move or make longer-term lease decisions until the situation changes. Because of ongoing low completion volumes and a low number of speculative project developments, vacancy can be expected to continue to drop for some time to come.

8 6

10.0%

8.9%

4

8.0%

7.7%

6.7%

2 0

8.7

7.8

7.1

6.8

6.0

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

7

Fast Facts INVESTMENT

2014

Transaction volume in million €

2013

2012

39,797.9

29.6%

56.6%

Prime yield Office

4.58%

-0.14

-0.33

Prime yield Retail

4.16%

-0.07

-0.17

Prime yield Industrial / Logistics

6.40%

-0.54

-0.69

TYPE OF TRANSACTION

2014

Individual transactions

2013

CHANGE

20.3%

27,441

22,814

Share in the top 7

17,616

15,088

16.8%

Portfolio transactions

12,357

7,885

56.7%

Share in the top 7

4,467

2,261

97.6%

Total Germany

39,798

30,700

29.6%

Total in the top 7

22,083

17,349

27.3%

2014

2013

CHANGE

9,157

86.2%

SOURCE OF CAPITAL

Share by international purchasers

17,050

Share in the top 7 Share by international sellers

8,007

5,579

43.5%

15,873

11,063

43.5%

8,207

5,584

47.0%

Share in the top 7

Investment Transaction Volume Almost €39.8 billion was invested in Germany’s commercial real estate market in 2014, a level not seen since 2007. This reflects a year-on-year increase of almost 30%. One reason for this development was an increase in the share of portfolio transactions, which totaled at around 31%. Around €12.4 billion in total were invested in real estate package deals, up approx. 57% year over year. Spurred by low interest rates, 2014 saw a tangible increase in transaction volume on most European real estate investment markets as a significant number of investors continued to be on the lookout for profitable investment properties. The German real estate market benefited considerably from this development. German commercial real estate changed hands for more than €14 billion in Q4 alone. International investors played a key role in this, just as they did throughout 2014. They invested a total of more than €17 billion in Germany in 2014 and increased their investment volume year over year by a considerable 86%, upping their market share to 43% in total.

Purchaser and Seller Groups Transaction volume in Germany (in million €)

44,000

40

39,798

35 30

30,700

25 20 15

25,409

23,170

24,000

19,390

10 5 0

10,897

11,849

15,035

18,299

2010

2011

2012

2013

Investment Properties

22,083

2014

2015

Transaction volume Germany

Share in top 7

Forecast 2015

Forecast 2015

Transaction volume according to size categories in Germany 100 to 250 million €

50 to 100 million €

20,6%

15,3%

8

above 250 million €

8,5%

17,7% 25 to 50 million €

23,3%

Special funds and asset managers were very active on the market in 2014. Open-ended real estate funds / special funds generated almost €9.3 billion of total transaction volume (23% market share) while asset / fund managers accounted for €5.7 billion (14%). These were followed closely by private investors / family offices, who invested €3.6 billion, project developers project developers with €3.2 billion and opportunity funds / private equity funds with €3.1 billion.

up to 10 million €

14,6%

Investor interest in office properties remained very high in 2014. Every second Euro of transaction volume throughout Germany was invested in this type of property, totaling at around €20 billion. Around €8.4 billion, or a 21% market share, was invested in retail properties. The record results for logistics and hotel real estate, however, were remarkable. Logistics properties at €3.6 billion and hotel real estate at €3.1 billion reached a new all-time high with year-on-year rates of increase of 57% and 82%, respectively. Until a few years ago, only a modest number of investors were investing in these two property types. We are now seeing an increasing number of investors taking an interest in this market segment, which is why it is inevitable that their transaction volume and market share have increased. Logistics and hotel properties also

10 to 25 million €

City Survey | 2014/2015 | Germany | Colliers International

generate higher yields on average than office or retail properties.

Top 7 Cities Slightly more than €22.1 billion was poured into in the German real estate hubs of Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart in the last year, around €3.8 billion more than in 2013. That’s an increase of around 21%. Even though more than half of total transaction volume in Germany was once again generated in the seven top locations only, a number of B locations have also benefited from the ongoing real estate boom. Between €200 million and slightly more than €500 million each were invested in cities like Bremen, Dresden, Essen, Hanover and Leipzig.

Purchasers and sellers in Germany balken (in billion €) Open-ended real estate funds / Special funds Asset managers / Fund managers Private investors / Family offices Property developers Opportunity funds / Private equity funds Pension funds Corporates / Owner-occupiers Insurance companies Listed property companies REITs Closed-ended real estate funds Banks Public administration

The weighted average gross initial yield for prime office property dropped by 14 basis points year over year as the result of ongoing demand for suitable products, registering at 4.58% at the end of 2014. This indicator fell by up to 30 basis points over the course of the year, remaining stable only in Berlin. The spectrum in the top locations ranged from 4.00% in Munich to 5.10% in both Cologne and Stuttgart.

Other Investors 0

2

4

6

8

10

Sellers

Purchasers

balken Purchasers and sellers in the top 7 (in billion €) Open-ended real estate funds / Special funds Asset managers / Fund managers

Summary and Outlook

Property developers Insurance companies

In view of foreseeable general conditions, we expect activity on the German investment market to remain lively in the coming months. Although transaction volumes may initially drop again in Q1 of 2015 following the end-of-year rally in 2014, the ongoing low interest rates and steady increase in capital flow lead us to expect strong investment in German commercial real estate to continue. This is complimented by the fact that non-European investors can benefit from the currently favorable exchange rates. The most active non-European investors are currently to be found in Asia and North America. Many companies are seriously considering entering the market in Germany, have already begun making initial purchases or are planning to further expand their portfolio. That makes them competition for established German and European investors, which is why we expect yields to remain low. In addition to core and core plus products, an increasing number of value-add properties will benefit from the high demand. Despite current geopolitical uncertainty with the high risk they carry for the capital market and limited supply in some market segments, we expect transaction volume in 2015 to by far exceed the €40 billion mark.

Private investors / Family offices Pension funds Opportunity funds / Private equity funds Corporates / Owner-occupiers Listed property companies REITs Banks Closed-ended real estate funds Public administration Public administration / unknown

0

1

2

Purchasers

3

4

5

6

Sellers

Share of property types (in %) in Germany (in billion €) 20 18 16 14 12 10 8 6 4 2 0

Office

Retail Logistics / Hotel Industrial

Share of property types Germany

Mixed Commercial Other use premises properties Share in top 7

City Survey | 2014/2015 | Germany | Colliers International

9

Berlin

Fast Facts OFFICE LEASING BERLIN

Take-up of space

701,300 m²

Leased space

661,700 m²

Prime rent

€23.00/m²

Average rent

€13.70/m²

Vacancy rate Stock of office space

5.0% 18.50 million m²

Achieved rents BERLIN

€ / m²

1 City West

8.00-23.00        

2 City East

10.00-23.00     

3 Potsdamer Platz / Leipziger Platz

12.00-25.00

4 City Area East

6.50-23.00

5 City Area West

5.90-18.00

6 City Margins

6.30-16.00

7 Outskirts

3.50-15.50

10

Office Leasing Take-Up After a strong last quarter of 2014, the Berlin office leasing market recorded a take-up result that exceeded all expectations. A total of 701,300 square meter of office space was snapped up by new tenants, reflecting a significant increase of 21% year over year. This record result can be attributed to the large number of new leases signed by telcos and consulting firms, which accounted for more than one-third of total take-up. This remarkable increase was spurred by a number of leases signed in the space segment of over 5,000 square meter. An impressive 16 new leases were signed in this space segment (156,600 square meter). The smallest space segment of up to 500 square

City Survey | 2014/2015 | Germany | Colliers International

meter remained a stable basis of the Berlin office market. With take-up of 176,400 square meter, this space segment accounted for one-quarter of total take-up. City East remains the most coveted office leasing submarket, once again posting a year-on-year increase in take-up of 219,600 square meter, an impressive 47%. This considerable increase can be attributed to the large number of large-scale leases signed in the Hauptbahnof submarket. In contrast, the top locations in City East took a hit. This submarket recorded 62,700 square meter, reflecting a yearon-year decrease of almost 40% in new leasing activity. The top locations around the Kurfürstendamm and City West submarkets roughly matched previous year results with around 215 new leases signed for 135,000 square meter. Berlin is particularly popular among innovative start-ups. Berlin is hip; a large number of businesses are expanding or relocating their company headquarters to the German capital. Since the availability of extensive adjoining office space in top locations is slowly but surely reaching its limits, business are increasingly moving into neighboring areas. Demand for commercial space in one of the many GSG business parks, in particular in the city’s periphery, is higher than ever. This is reflected in the above-average increase we experienced in 2014 in the City Periphery and City Outskirts submarkets where new leases were signed for a total of 128,400 square meter (+43%) and 124,600 square meter (+17%), respectively.

Rents Prime rents experienced a slight year-on-year increase of 5% to €23.00 per square meter. Weighted average rent throughout the city also registered a slight 5% increase to €13.70 per square meter. This upward trend, which we expect to continue in 2015, can be attributed to scarce supply of space and high demand.

Supply and Vacancy

Margit Lippold Research Analyst +49 30 202993-43 [email protected]

Take-up of office space (in 1,000 m2)

800

700 600 500 400 300 200 100 0

542

607

637

554

701

2010

2011

2012

2013

2014

Prime and average rents (in €/m2) 22.00

22.00

22.00

23.00

12.40

12.50

13.00

13.00

13.70

2010

2011

2012

2013

2014

20.45

Prime rent

In 2014, office vacancy once again dropped. This can be attributed to the comparatively low number of new-build completions in combination with a high pre-leasing rate. Vacancy in the German capital is currently recorded at around 900,000 square meter, reflecting a vacancy rate of slightly below 5.0%. By the end of 2015, we expect around 143,000 square meter of office space to be completed, 70% of which has already been pre-leased. Only a limited amount of space is scheduled to become available on the market in 2016 with 148,000 square meter. 60% of this space has already been taken up. This space comes from projects primarily located in the submarkets of Mitte, Hauptbahnhof and Friedrichshain-Kreuzberg.

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 1600 1200 8.4%

7.9%

800

7.0%

6.0%

5.0%

400 0

1,511

1,400

1,270

1,090

925

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

11

Key Developments

Summary and Outlook

Another landmark building will be added to City West with the completion of Upper West in late 2016. More premium office space in all space segments will become available over the next few years, thanks to additional project developments at Kurfürstendamm (Kudamm Karree and Palais Holler), near Hauptbahnhof and in Friedrichshain between Ostbahnhof and the o2 Arena.

The 2014 leasing results once again showed the popularity of the Berlin office market. If new office properties become available or are completed in 2015, we could see leasing take-up of 650,000 square meter.

Investment

Fast Facts INVESTMENT BERLIN

Transaction volume

4,000.0 million €

Largest group of purchasers

Asset managers / Fund managers 31%

Largest group of sellers

Asset managers / Fund managers 23%

Most important property type

Office 59%

Premium yield

4.75%

Transaction Volume The Berlin commercial investment market finished up 2014 with above-average results. Transaction volume recorded more than €4.0 billion at the end of Q4, almost matching the record results from 2012. This reflects a year-on-year increase of roughly 14%. The Upper West sale to RFR Holding for more than €250 million and Deka Immobilien’s purchase of the Hackescher Markt building complex for around €150 million contributed significantly to this increase. Activity on the Berlin investment market picked up again at the end of the year. Commercial properties changed hands in the German capital for almost €1.5 billion in Q4 alone. Kudamm Karree was the largest deal in Q4. Large-volume deals like these, which are typical for the German capital, combined with a large number of transactions in the small and mid-sized segments, were responsible for the excellent results we saw on the Berlin investment market. This high transaction volume can also be attributed to a considerable year-on-year increase in the share of portfolios by around 40%. More than €1.6 billion was invested in real estate packages.

Purchaser and Seller Groups Asset / fund managers were particularly active when it came to buying property. They accounted for more than one-third of total transaction volume, generating over €1.2 billion. Open-ended real estate funds / special funds purchased property for more than €700 million (18%) in Berlin. Project developers and development companies followed in the ranks with more than €470 million (12%). They were considerably more active than in the previous year. Asset / fund managers also clinched first place among the seller groups with a transaction volume of around €911 million (23%), followed closely by project developers and development companies with around €812 million (20%). Open-ended real estate funds / special funds and opportunity funds / private equity funds each posted a 12% share of total transaction volume in terms of property sold.

12

City Survey | 2014/2015 | Germany | Colliers International

Over the course of 2014, we saw more and more signs of international investors putting their trust in the Berlin investment market. International buyers purchased significantly more property in 2014, increasing their 2013 share of 28%. More than 40% of capital invested came from investors based outside of Germany.

Commercial transaction volume (in million €) 4000 3000 2000

Investment Properties The trend in past years has shown that office property is by far the most popular investment property type. This was again confirmed in 2014. Almost €2.4 billion, or 60% of total transaction volume, was invested in office properties. Retail properties came in second with a 21% share. Hotels (7%), commercial sites (6%) and logistics and industrial properties (5%) followed in the ranks. Gross initial yield for premium office property in the German capital remained stable at 4.75% thanks to ongoing high demand. That makes Berlin Germany’s third most-expensive real estate location after Munich and Hamburg. At the end of 2014, downtown real estate properties and buildings featuring an office-retail mix recorded 4.50% while logistics properties registered 6.55%.

Investment Highlights The majority of investment capital, or more than €1.2 billion, was poured into prime locations in the City East and City West submarkets in 2014. Investment properties located in peripheral areas of Berlin were highly coveted as well. Primarily retail, industrial and commercial properties as well as commercial sites changed hands in these areas for almost €1 billion.

We recorded seven deals over the course of 2014 with a volume of considerably more than €100 million. A number of deals signed for up to almost €100 million were followed by a solid midfield of almost 50 properties, which sold for between €20 million and €50 million. This is another excellent example of the broad range of various products available for purchase to investors in Berlin.

1000 0

3,113

2,204

4,107

3,508

4,000

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 0 Asset managers / Fund managers

31%

Open-ended real estate funds / Special funds

18%

Property developers

12%

Private investors / Family offices

5%

Corporates / Owner-occupiers

5%

Other Investors

The Berlin commercial property investment market recorded an above-average year in 2014 with numerous large-volume transactions. Investors continued to focus on core properties in coveted downtown locations in 2014. Due to the fact that domestic and foreign investors continue to show interest in the German capital with its increasing popularity and ongoing favorable conditions combined with low interest rates, we expect to see a similar transaction volume in 2015 of around €4 billion.

500

750

1000 1250 1500

30%

Sellers (in million € / share in%) 0

250

Asset managers / Fund managers

23%

Property developers

20%

Open-ended real estate funds / Special funds

12%

Opportunity funds / Private equity funds

12%

Private investors / Family offices

11%

500

750

1000

23%

Other Investors

Summary and Outlook

250

Share of property types (in %) Logistic / Industrial Commercial premises Hotel

Retail

6

Other property types

5 2

7 21

59

Office

City Survey | 2014/2015 | Germany | Colliers International

13

Düsseldorf

Fast Facts OFFICE LEASING DÜSSELDORF

Take-up of space

241,000 m²

Leased space

217,900 m²

Prime rent

€26.00/m²

Average rent

€14.00/m²

Vacancy rate Stock of office space

10.4% 7.62 million m²

Achieved rents DÜSSELDORF

€ / m²

1 CBD

15.00-26.00

2 City Center

10.00-19.00

3 Harbor Area

14.00-22.00

4 Kennedydamm

13.50-20.50

5 Left of the Rhine

10.00-15.50

6 D-North

10.50-16.50

7 Airport City

14.50-16.50

8 Grafenberger Allee

10.00-12.50

9 City Center East

10.00-13.50

10 D-South

14

Office Leasing Take-up The Düsseldorf office leasing market (within city limits only) fell short of previous year results due to a lack of large-scale leases in 2014 with office take-up totaling at 241,000 square meter. While we saw four large-scale leases signed in 2013 for more than 10,000 square meter in addition to a major lease signed by the German Ministry of the Interior (45,000 square meter), no leases of that dimension were signed in 2014. This means that the 2014 results fell short of previous year results (346,000 square meter) by around 30%. The largest deal in 2014 was the lease signed by SPX Cooling Technologies GmbH (approx. 6,500 m²) with the company moving

8.00-11.50

City Survey | 2014/2015 | Germany | Colliers International

its headquarters from the city of Ratingen to Theodorstraße in Düsseldorf. The largest leases of the year also included leases signed by Trivago GmbH for space at Karl-Arnold-Platz (almost 5,900 m²), mfi management for immobilien AG (approx 5,000 m² in the Airport City complex) and the Techniker Krankenkasse insurance company (around 4,250 square meter in the Grafenberger Allee submarket). In contrast, the small-space segment of up to 500 square meter showed lively activity in 2014. Total take-up in this space segment was recorded at 84,300 square meter, reflecting a year-on-year increase of almost 10%. The number of signed lease agreements rose from 287 to 340. The space segment of between 501 and 1,000 square meter generated a total take-up result of slightly more than 55,000 square meter in 2014, putting it level with previous year results. By mid-year it was already apparent that the medium-sized space segments would post lower take-up results than the previous year. The space segment of between 1,001 and 2,000 square meter experienced a drop of 20%. A total of 22 lease agreements were signed with take-up of 30,000 square meter. The space segment of between 2,001 and 5,000 square meter generated a take-up result of 47,500 square meter, reflecting a significant year-on-year decrease (down 16%). The north of Düsseldorf took the lead, accounting for around one-quarter of total take-up. However, these figures include the two major owner-occupiers, Rheinmetall and FOM. 40,800 square meter were taken up in the city center and leases were signed in the Kennedydamm submarket for a total of almost 30,000 square meter.

Lars Zenke Research Analyst +49 211 862062-48 [email protected]

Take-up of office space (in 1,000 m2) 400

300

200

100

0

340

310

305

346

241

2010

2011

2012

2013

2014

Prime and average rents (in €/m2)

Rents With prime rent registering an all-time high of €27.50 per square meter in 2013, it gradually fell once again as expected in 2014 to a current €26.00 per square meter. We also saw a slight decrease in weighted average rent in 2014 in connection with this development. Compared to the previous year in which several large-scale leases were signed in the high-price segment (affecting average rent), weighted average rent fell 5% to a current €14.00 per square meter. The highest weighted average rent was once again recorded in the central business district at €19.50 per square meter. The CBD was followed almost neck-and-neck by the Hafen (€16.20 per square meter) and Kennedydamm (€16.10 per square meter) submarkets.

26.00 23.00

23.00

14.30

13.60

2010

2011

26.00

14.90

14.80

14.00

2012

2013

2014

Prime rent

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 800 11.5%

Supply and Vacancy Office vacancy (including sublets) in the city of Düsseldorf was recorded at 788,400 square meter at the end of 2014. This gives us a current vacancy rate of 10.4%, down 0.4 percentage points year over year. 61,400 square meter was available for immediate occupancy in the CBD at the

27.50

10.8%

10.7%

400

0

11.4% 10.4%

890

832

863

811

788

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

15

end of December. Project developments, which had not been fully leased by completion, had little impact on vacancy in the market as a whole in 2014.

Key Developments A total of 123,800 square meter of office space was introduced to the Düsseldorf market in 2014, more than onethird of which was located in the CBD. The prelease rate was recorded at almost 80%. 96,800 square meter of space is scheduled to be completed in 2015, almost half of which has already been leased or taken up by owner-occupiers.

Despite reluctance on the part of large-scale users in 2015, several potential tenants are currently looking for large-scale space on the Düsseldorf market, some of which are already well into the negotiation phase and are expected to be finalized in the first half of 2015. Based on these developments, 2015 could see take-up amounting to 275,000 square meter.

Investment

Fast Facts INVESTMENT DÜSSELDORF

Transaction volume

Summary and Outlook

1,950.0 million €

Largest group of purchasers

Opportunity Fonds / Private Equity Fonds 25%

Largest group of sellers

Opportunity Fonds / Private Equity Fonds 31%

Most important property type

Office 70%

Premium yield

4.90%

Transaction Volume Almost €2 billion was invested in Düsseldorf’s commercial investment market in 2014, a seamless continuation of the already very high transaction volume we saw in the previous year (€1.9 billion). Several large-volume deals were signed over the course of the year including the Herzogterrassen complex, which was sold to Blackstone for around €350 million, Kö-Galerie, which was snapped up by Allianz Real Estate for around €300 million, and Metro headquarters, which was sold to a special fund managed by IVG for around €200 million. These transactions, all of which were finalized during the 1st half of the year, accounted for the lion’s share of total investment volume. An additional five transactions were recorded in the €50 million to €100 million range.

Purchaser and Seller Groups

Opportunity funds / private equity funds were the most active buyers and sellers. They sold property worth almost half a billion euros, followed by pension funds (€419 million) and insurance companies (€397 million). In terms of selling, opportunity funds / private equity funds generated a transaction volume of more than €600 million. Next in the ranks were project developers (€403 million) and banks (€354 million). Another remarkable development in 2014 was the strong activity we saw from international investors. They invested slightly more than €660 million in Düsseldorf, accounting for a market share of approx. 34%. We expect strong investment activity from international investors to continue this year as well due to ongoing low interest rates and steady increase in capital flow. The most active non-European investors are currently to be found in North America and Asia.

16

City Survey | 2014/2015 | Germany | Colliers International

Investment Properties Office properties remain the most coveted asset class by far for investors in Düsseldorf, pocketing a market share of 70 percent. In line with the Germany-wide trend, we also saw an increased share in portfolio transactions, which came to around 30% in the capital of North Rhine-Westphalia in the previous year. Around €405 million was invested in retail properties, or a market share of almost 21%. Mixed-use properties totaled at almost €100 million, or a 5% market share. All other asset classes tended to play only a subordinate role in 2014. Transactions tended to center around the downtown areas in 2014. The highest transaction volume was generated in the central business district (CBD) and city center submarkets, almost €1.2 billion combined. In terms of the number of deals signed, the city center came out on top (18 transactions) followed by the Düsseldorf North submarket with 12 transactions. 12 transactions were also recorded in the CBD in 2014.

Investment Highlights Ongoing strong demand for commercial properties in Düsseldorf is also reflected in gross initial prime yield trends for office properties. While prime yields for premium office property in Düsseldorf had been holding steady at 5.10% since Q2 2013, they fell by 20 basis points to a current 4.9% at the end of 2014. This development, however, indicates that Düsseldorf is still a highly attractive investment location compared to other top German cities. Prime yields in the retail sector in Düsseldorf’s premium retail locations remained unchanged at 4.25% year over year. Excellent listings in the specialist store segment are currently recording yields of around 6.00%.

Summary and Outlook The transaction volume in Düsseldorf in 2014 could have been somewhat higher. However, a number of large-volume transactions had not been completed by the end of the year. We therefore expect to see lively market activity in the first half of 2015 as well. Transaction volume for 2015 can be expected to come to at least €1.5 billion. Insufficient property supply is the only thing standing in the way of an even higher transaction volume, which would be realistic based on the currently strong demand.

Commercial transaction volume (in million €) 2000 1500 1000 500 0

1,200

670

800

1,920

1,950

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 100 Opportunity funds / Private equity funds

25%

Pension funds

21%

Insurance companies

20%

Property developers

6%

Open-ended real estate funds / Special funds

5%

Other Investors

200

300

400

500

21%

Sellers (in million € / share in %) 0

250

Opportunity funds / Private equity funds

31%

Property developers

21%

Banks

18%

Corporates / Owner-occupiers

10%

Open-ended real estate funds / Special funds Other Investors

500

750

7% 13%

Share of property types (in %) Hotel Commercial premises Mixed use

1 5 3

Retail

21 70

Office

City Survey | 2014/2015 | Germany | Colliers International

17

Frankfurt

Fast Facts OFFICE LEASING FRANKFURT

Take-up of space

367,500 m²

Leased space

359,700 m²

Prime rent

€38.00/m²

Average rent

€19.50/m²

Vacancy rate Stock of office space

12.5% 11.61 million m²

Achieved rents FRANKFURT

€ / m²

CBD 1 Banking District

25.00-41.00

2 Westend

18.00-35.00

3 City

12.00-32.50

Office Leasing Take-up The Frankfurt office leasing market recorded take-up results of around 367,500 square meter in 2014, down roughly 18% year over year. Only four large-scale leases were signed for a total of approx. 75,000 square meter, an almost 50% decrease in this market segment. Despite the fact that fewer leases were signed in the space segment of under 5,000 square meter, this segment recorded an increase of around 3%. This development was spurred by the space segment of between 1,000 and 5,000 square meter, in which a number of companies from the finance and consulting sectors in Frankfurt are active.

Other submarkets 4 Central Station / Westhafen

9.00-22.50

5 Bockenheim

12.00-17.00

6 Europaviertel / Fair District

16.50-19.50

7 City West

11.50-18.50

8 Frankfurt South

10.50-17.50

9 Airport

15.00-26.00

10 Frankfurt West

9.00-13.00

11 Frankfurt North

8.50-12.50

12 Mertonviertel

9.50-12.00

13 Eastend West

8.00-16.00

14 Eastend East

8.00-12.50

15 Niederrad

9.00-14.50

16 Eschborn

9.00-14.50

17 Kaiserlei

9.00-11.00

18

City Survey | 2014/2015 | Germany | Colliers International

The CBD continued to be Frankfurt’s top office location in 2014 with a market share of around 50%. The Central station / Westhafen submarket directly adjacent to the CBD once again recorded considerable growth year over year, coming in as the most popular submarket after the CBD with a market share of 9%. The City West submarket benefited from decisions to expand made by current tenants from the banking sector, including KfW, Commerzbank and Degussa Bank, putting this submarket in fifth place. The company and industry mix was typical for Frankfurt. Banks and financial service providers were the most active office tenants, taking up more than 130,000 square meter and generating a market share of approx. 36%. Consulting firms signed the largest number of lease agreements but considerably trailed the financial sector with only around 43,800 square meter in take-up. IT companies came in third just like in 2013.

Rents

Dr. Tobias Dichtl Research Analyst +49 69 719192-29 [email protected] 600

Take-up of office space (in 1,000 m2) 500

400

Large-scale leases in in the Banking distirct and the CBD’s high market share on the leasing market once again led to an increase in average rent. Tenants paid around €1 per square meter more than 12 months ago at a current €19.50 per square meter, an increase of around 5.5% Lease agreements at Taunusturm and MainTor Quartier solidified prime rent, which remained stable at the end of the year at €38.00 per square meter.

300

200

100

0

Supply and Vacancy

The reduction in vacancy, which has been ongoing since 2010, increased again in 2014. Around 1.5 million square meter of office space was available for immediate tenancy at the end of the year, down 150,000 square meter from the end of 2013. The vacancy rate dropped significantly year over year by 130 basis points to 12.5%, accordingly. The low volume of speculative project completions and the ongoing conversion of outdated office space played a role here. Of the approx. 295,000 square meter that were completed in 2014, only around 16% is currently still available. We expect pre-lease rates of around 50% for the next two years as well, numbers that should increase by the time this office space has been completed.

472

444

500

450

368

2010

2011

2012

2013

2014

Prime and average rents (in €/m2) 38.00

20.00

2010

35.00

35.00

17.50

17.50

2011

2012

Prime rent

38.00

38.00

18.50

19.50

2013

2014

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 2400

Key Developments

2000

The lease signed by Union Investment in the Winx project at MainTor Areal was the kickoff to the final construction phase at the former Degussa site. The site should be fully developed by the end of 2017. The development located in the direct vicinity of the Main river will expand the Bankenviertel district and open the site to the public. Frankfurt’s east was upvalued with the completion of the new European Central Bank headquarters, which will

1600

17.8%

1200

15.8%

13.9%

13.8%

1,856

1,622

1,606

1,455

2011

2012

2013

2014

800 400 2,099 0

2010

City Survey | 2014/2015 | Germany | Colliers International

12.5%

19

lead to additional residential and commercial space developments in the surrounding area.

Summary and Outlook The office leasing market in Frankfurt recorded a significantly below-average year in 2014 at first glance. This development, however, can be attributed to a lack

Investment

Fast Facts INVESTMENT FRANKFURT

Transaction volume

of large-scale leases. Due to the low supply of high-end alternative space and very attractive rental offers from current landlords, several large companies again decided to renew their lease agreements at their current locations in 2014 after first taking a look at the market. We expect activity on the leasing market to pick up in 2015, giving us a take-up volume of over 400,000 square meter.

5,011.3 million €

Largest group of purchasers

Open-ended real estate funds / Special funds 33%

Largest group of sellers

Open-ended real estate funds / Special funds 33%

Most important property type

Office 75%

Premium yield

4.75%

Transaction Volume With a strong finish to the year and a transaction volume of €2.8 billion in Q4 2014, the Frankfurt investment market recorded its strongest year since 2007. A transaction volume of slightly more than €5.0 billion reflects a 46% increase of an already excellent previous year result. In addition to the very lively market activity we saw over the course of the year with 124 transactions, big tickets typical for Frankfurt also changed hands in Q4. Two of the three largest single deals in Germany were conducted in Frankfurt with the sale of the PalaisQuartier for around €800 million and Silberturm for more than €450 million. The sale of police headquarters within the scope of the Leo I portfolio, the Winx office project and IBC generated more than €300 million as well. A total of 10 deals with a volume of more than €100 million were signed in 2014.

Purchaser and Seller Groups

Open-ended real estate funds and special funds were again the most active buyer group in 2014 along with asset and fund managers, who invested money on behalf of third parties. Open-ended real estate funds and special funds purchased property valued at almost €1.7 billion in total, claiming first place ahead of asset and fund managers with €897 million. Private investors and family offices invested around €600 million. Open-ended real estate funds and special funds also very active as sellers, selling property for around €1.7 billion. Second place went to project developers and development companies with around €1.0 billion. Banks took third place with around €974 million. International investors increased their market share as both buyers and sellers. They sold real estate totaling at around €2.2 billion, generating around 45% of total transaction volume. They also invested around €1.8 billion, or a 37% market share. A number of foreign investors participated in bids for top properties in Frankfurt, indicating ongoing interest in the Frankfurt investment market, particularly by investors from Asia.

20

City Survey | 2014/2015 | Germany | Colliers International

Investment Properties Slightly more than €3.7 billion of the capital invested in Frankfurt, or 75%, was poured into office property in 2014, putting this property type once again in the lead. Retail and hotel properties followed at a considerable distance with an investment volume of €550 million and €413 million, respectively. Both retail and hotel properties once again increased their transaction volume and market share year over year.

Investment Highlights Core real estate once again enjoyed high popularity with investors, leaving a considerable mark on the investment market with large-volume deals. However, the market share of this property class fell year over year from 60% to 51%. This can be attributed to investors making adjustments to their investment profiles in order to meet their return targets. Transaction volume for core-plus real estate more than doubled compared to 2013. This property class was in high demand, recording a market share of more than 30% and a total of 40 transactions. The valueadd and opportunistic risk classes also increased their market shares year over year. High demand continues to put pressure on yields. Gross initial yield for class A office properties in top locations fell 10 basis points to 4.75%. Yields for properties in B locations and in the city periphery experienced an even steeper drop of 15 and 20 basis points to a current 5.35% and 6.80%, respectively.

Summary and Outlook In 2014 the Frankfurt investment market benefited from high demand and an investment property offer ranging from small commercial properties to big tickets in the mid to high 9-figure range. And we do not expect demand to slow down in 2015. In addition to the investors we are familiar with from past years, new players from Asia are entering the market, bringing capital for largevolume investments and possibly playing an even bigger role in 2015. A number of transactions are already in the pipeline and major deals can be expected during the first half of the year. We expect activity to remain lively in the price segment of up to €100 million, as numerous private and institutional investors are looking for properties in this range and this segment can serve a variety of investment portfolios. We expect to see lively market activity and a transaction volume of up to €5 billion in 2015 as well.

Commercial transaction volume (in million €) 6000 5000 4000 3000 2000 1000 0

1,768

2,800

2,945

3,422

5,011

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 500 Open-ended real estate funds / Special funds

33%

Asset managers / Fund managers

18%

Private investors / Family offices

12%

Property developers

9%

Insurance companies

8%

1000

1500

2000

19%

Other Investors

Sellers (in million € / share in %) 0

250 500 750 1000 1250 1500 1750

Open-ended real estate funds / Special funds

33%

Property developers

20%

Banks

19%

Asset managers / Fund managers

14%

Corporates / Owner-occupiers Other Investors

2% 10%

Share of property types (in %) Commercial premises Hotel

8 Retail

Logistic / Industrial Other property types

22

2

11

75

Office

City Survey | 2014/2015 | Germany | Colliers International

21

Hamburg

Fast Facts OFFICE LEASING HAMBURG

Take-up of space

525,000 m²

Leased space

426,300 m²

Prime rent

€24.50/m²

Average rent

€14.50/m²

Vacancy rate Stock of office space

6.0% 13.35 million m²

Achieved rents HAMBURG

€ / m²

1 City

12.00-25.00

2 Hafen City

16.00-23.00

3 Port Rim

13.00-24.00

4 Alster West

10.00-22.00

5 Alster East

10.00-18.00

6 St. Georg

12.00-15.00

7 City South

6.50-13.50

8 St. Pauli

9.00-23.00

9 Altona

7.00-16.50

10 Bahrenfeld

7.50-16.00

11 Eimsbüttel

7.50-13.50

12 Eppendorf

9.50-17.00

13 Airport

7.00-11.00

14 City North

6.00-15.00

15 Barmbek

7.00-18.00

16 Wandsbek

6.00-12.00

17 Harburg

7.50-13.00

18 Periphery East

5.00-12.50

19 Periphery West

6.00-12.00

Office Leasing Take-up Around 525,000 square meter of office space was taken up on the Hamburg office leasing market in 2014, recording an impressive year-on-year increase of slightly more than 19% and significantly exceeding the ten-year average. Owner-occupiers played a key role in two ways with net leasing performance increasing a mere 426,000 square meter (+1%). First, owner-occupiers generated aboveaverage take-up of almost 99,000 square meter, a market share of 19%. Second, they signed several large-scale leases, contributing their share to the number of leases for over 5,000 square meter, an unusually high number

Source: Grossmann & Berger GmbH

22

City Survey | 2014/2015 | Germany | Colliers International

for Hamburg. Roughly 184,000 square meter of office space was taken up in this market segment in 2014 within the scope of 16 lease agreements. The last time we saw numbers higher than this was 2007. These numbers tend to come in considerably lower. The importance of the large-scale space segment becomes clear when taking a closer look at leases signed in the other segments. Around 10% less space was leased in the space segments below 5,000 square meter in 2014 than in 2013. The most extensive lease agreements in 2014 were signed by Deutsche Telekom in Q2 for around 32,000 square meter in the City North submarket, by the VGB administrative and professional association for roughly 22,000 square meter in Barmbek as an owner-occupier and by PricewaterhouseCoopers in the Alster West submarket. The latter was the largest lease agreement signed in Q4 for around 16,000 square meter. As in the previous year, telcos rented the most office space with 113,300 square meter, expanding their market share thanks to the large-scale lease signed by Deutsche Telekom and coming in significantly ahead of the retail and gastronomy sector, which posted around 87,200 square meter with a large-scale office owneroccupier deal signed by Edeka, and consulting firms, who leased around 84,000 square meter but were the most active industry in terms of number of leases signed (93).

Andreas Trumpp MRICS Head of Research +49 89 540411-040 [email protected]

Take-up of office space (in 1,000 m2) 600

500

400

300

200

100

Rents Prime rent experienced a 2% increase over the course of 2014 to €24.50 with average rent rising by almost 4% to €14.50 per square meter. A number of leases signed in the high-price new-build segment for more than €20.00 per square meter were decisive here, with more than twice as much spaced leased in this segment than in 2013. However, the segment of up to €10.00 per square meter remained the strongest rent segment in 2014 as well. This amount was paid as basic rent for 106,100 square meter of office space.

0

506

540

430

440

525

2010

2011

2012

2013

2014

Prime and average rents (in €/m2) 23.00

13.00

2010

23.50

24.00

24.00

24.50

14.50

14.00

14.00

14.50

2011

2012

2013

2014

Prime rent

Supply and Vacancy Due to the low completion volumes of past years, a high pre-lease rate, space conversions and solid takeup results, vacancy fell over the past 12 months to 798,400 square meter of office space. This reflects a vacancy rate of 6.0%. The decreasing vacancy numbers and the scarcity of extensive, adjacent office space in some of the most popular submarkets generated increased activity in project developments over the course of the year. Around 407,500 square meter of office space is scheduled for completion in Hamburg by the end of 2016. However, almost 52% of this space has already been leased or taken up by owner-occupiers.

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 1200

800

9.8% 8.0%

7.4%

7.0%

400

0

6.0%

1,301

1,046

970

932

798

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

23

Key Developments The Hamburg Heights project got underway with Hochtief Projektentwicklung’s sale of the 12-story former SPIEGEL high-rise to a Berenberg Bank subsidiary and the space being fully let to the Happ Luther and MDS Möhrle law offices. The SPIEGEL high-rise, which is a protected building, will be revitalized under the name “Height1” by early 2016 as the first project in the area between Jungfernstieg and Überseequartier. Both tenants are planning to move in with around 240 employees after the revitalization has been completed. The second part of the project will involve renovating the 16-story former IBM high-rise, also a protected building, under the name “Height2”. Total rental space at the two renovated properties comes to more than 14,000 square meter. There is also space for three new-builds: “Height3”, “Height4” and

INVESTMENT HAMBURG

Largest group of purchasers

Largest group of sellers

Summary and Outlook The above-average results on the Hamburg office market in 2014 can particularly be attributed to strong owneroccupier activity. We expect this activity to slow down considerably in 2015. Despite uncertainties regarding the current economic trend, quite a number of potential tenants are currently on the lookout for space and a large number of negotiations that were started in 2014 should enter the signing phase within the next few months. Although the increase on the leasing market will not be able to fully compensate for the foreseeably lower owner-occupier take-up, take-up volume of up to 500,000 square meter is possible based on current information.

Investment

Fast Facts Transaction volume

“Height5”. All of the properties are connected to each other via an underground parking structure.

3,650.0 million € Open-ended real estate funds / Special funds 35% Property developers 35%

Most important property type

Office 74%

Premium yield

4.50%

Transaction Volume The Hamburg commercial investment market recorded a very lively Q4, up year-on-year by around 30%, or a transaction volume of almost €3.7 billion, the highest we have seen since 2007. International investors contributed significantly to these above-average results. Slightly more than €1.6 billion of total transaction volume, or more than half as much as in 2013, was generated by investors located outside of Germany. Most investment activity took place in the central City and HafenCity submarkets with investors pouring half of total invested capital into these areas. The St. Pauli submarket recorded above-average investment activity of more than €420 million, spurred by the sale of the Atlantic Kempinski Hotel, the two Tanzende Türme high-rises and the office building at Millerntorplatz.

Purchaser and Seller Groups Special funds were particularly active in buying property, helping the open-ended real estate funds and special funds sector attain a market share of 35%. Companies like Hines, IVG Institutional Funds, Union Investment and Cordea Savills invested almost €1.3 billion in Hamburg commercial property. Project developers purchased land sites and existing properties for around €372 million, making them the only other sector to generate a doubledigit market share (10%). The sectors traded places when it came to selling property. Project developers sold well-known developments

24

City Survey | 2014/2015 | Germany | Colliers International

Commercial transaction volume (in million €)

for around €1.3 billion, including the Tanzende Türme complex, Burstah Offices and Ericus-Contor, giving them a 35% market share. Open-ended real estate funds / special funds followed in second place, selling commercial property for more than €830 million. This high sales volume can be partially attributed to the dissolution of a few open-ended real estate funds.

2000

Investment Properties

1000

Office property remained a favorite by far among many investors in 2014. Eight of the ten largest deals of 2014 involved office property. Almost three-quarters of total capital invested, or €2.7 billion, went into office property. Aside from a few large-volume deals such as Karstadt Sport in the City submarket, investors poured even less into retail properties than in 2013 with €434 million. Increasing demand for office property in particular affected gross initial yields for premium properties in central locations. These dropped to 4.50% over the course of the year, down 20 basis points year over year. Premium retail properties in downtown locations generated gross initial yields of 4.60%, falling 10 basis points from the previous year. Class A logistics properties experienced the most drastic change, down 70 basis points year over year to a current 6.50%.

Investment Highlights Several well-known properties changed hands in 2014 as the result of the dissolution of several open-ended real estate funds. Blackstone purchased Sumatrakontor from TMW Pramerica for more than €100 million at the start of the year. The property was formerly part of the company’s global fund. Canadian REIT Dream Global purchased the Millerntorplatz 1 building from Credit Suisse’s CS Euroreal for almost €96 million. The Deutschlandhaus building, which was sold to the ABG Group for around €82 million, was part of the same fund. An office complex located at Drehbahn 47-48 went up for sale from the SEB ImmoInvest fund within the scope of a pan-European portfolio sale and was snatched up by US REIT NorthStar Realty Finance Corp. in collaboration with British Cale Street Partners LLP.

Summary and Outlook 2014 surpassed even the high expectations we had at the start of the year. Ongoing excess demand, large-scale deals currently in the pipeline and the fact that investors are expanding their search criteria and increasingly turning to value-add products in addition to core and core plus properties, will once again bring about an aboveaverage transaction volume of more than €3 billion.

4000 3000

0

1,900

2,200

1,900

2,800

3,650

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 250 Open-ended real estate funds / Special funds

35%

Property developers

10%

Corporates / Owner-occupiers

8%

Listed property companies

7%

Private investors / Family offices

7%

Other Investors

500

750

1000 1250 1500

32%

Sellers (in million € / share in %) 0

250

Property developers

35%

Open-ended real estate funds / Special funds

23%

Opportunity funds / Private equity funds

750 1000 1250 1500

9%

Listed property companies

6%

Corporates / Owner-occupiers

5%

Other Investors

500

23%

Share of property types (in %) Logistic / Industrial Hotel

7 Retail

Commercial premises Other property types

1 42

12 74

Office

City Survey | 2014/2015 | Germany | Colliers International

25

COLOGNE

Fast Facts OFFICE LEASING COLOGNE

Take-up of space

269,000 m²

Leased space

232,400 m²

Prime rent

€20.90/m²

Average rent

€11.50/m²

Vacancy rate Stock of office space

7.2% 7.66 million m²

Achieved rents COLOGNE

1 Old Town North

€ / m²

10.00-20.90

2 Old Town South

11.50-19.50

3 Deutz

12.50-15.50

4 New Town North

11.00-18.00

5 New Town South

11.00-14.50

6 Niehl

Office Leasing Take-Up Take-up on the Cologne office leasing market was recorded at around 269,000 square meter at the end of the year. This reflects a slight year-on-year decrease of one percent, exceeding the 10-year average, which was recorded at roughly 231,400 square meter. However, the share generated by owner-occupiers was comparatively high in 2014. Slightly more than 13% of total take-up (36,000 square meter) was taken up by owner-occupiers. The university of public administration (Fachhochschule für öffentliche Verwaltung) signed the largest lease agreement in 2014. The university leased 12,600 square

9.50-11.50

7 Ossendorf

7.50-11.50

8 Ehrenfeld / Braunsfeld

8.50-13.50

9 Lindenthal

9.00-14.00

10 Zollstock

8.50-11.50

11 Marienburg / Bayenthal

10.50-13.50

12 Rodenkirchen

9.50-12.50

13 Cologne West

7.50-12.50

14 Cologne North-West

6.50-9.00

15 Mülheim

8.00-13.50

16 Kalk

8.50-12.50

17 Gremberghoven

7.50-12.50

Source: Larbig & Mortag GmbH

26

City Survey | 2014/2015 | Germany | Colliers International

meter in Cologne’s Kalk district. Another large-scale lease was signed in Cologne’s Poll district. The new office building of the Technical Inspection Agency (TÜV Rheinland), which is currently under construction, generated take-up of 11,000 square meter. The seven lease agreements signed in the large-space segment of 5,000 square meter and up accounted for a market share of 23% (61,600 square meter). A total of eleven lease agreements were signed in the space segment of between 2,001 and 5,000 square meter. Around 39,700 square meter of total space leased in this space segment accounted for a share in total take-up of 15%. Leases signed in the space segment of up to 1,000 square meter, however, were the driving force on the market. The space segment of between 501 and 1,000 square meter boasted a total of 74 leases signed in 2014, accounting for a share of 20% (53,700 square meter). The small space segment of up to 500 square meter registered take-up of 86,200 square meter, or 32%, giving it the strongest take-up result on the Cologne leasing market, just like in the previous year.

Rents

Uwe Mortag Managing Director Larbig & Mortag +49 221 998 997-98 [email protected]

Take-up of office space (in 1,000 m2)

400

300

200

Due to the limited supply of new, high-end properties in premium locations, prime rent did not manage to match previous year results (€22.50 per square meter). However, prime rent once again increased at the end of 2014 compared to the result recorded at the half-year mark, posting an end-of-year result of around €20.90 per square meter. The highest rents for new offices were recorded in Rheinauhafen, Mediapark and Gerling Quartier as well as in high-end downtown office projects. Average rents did not increase any further due to low construction activity. In fact, they decreased over the past 12 months for the first time in three years by around 3.5 percentage points. By the end of the year, they were recorded at roughly €11.50 per square meter.

100

0

In general, vacancies are primarily to be found in downtown locations and the Deutz, Ehrenfeld and Ossendorf submarkets. However, around 65% of all leases were signed in these submarkets. In contrast, office locations in the Lindenthal and Rodenkirchen submarkets

352

247

272

269

2010

2011

2012

2013

2014

Prime and average rents (in €/m2) 22.50

20.90

19.50

20.30

19.75

10.70

11.00

11.00

11.90

11.50

2010

2011

2012

2013

2014

Supply and Vacancy

Cologne experienced a drop in vacancy rate, as did the rest of Germany. In 2014, office space available for immediate tenancy experienced a 10,000 square meter drop year over year, reflecting a drop in the vacancy rate from 7.6% to 7.2%. If the vacancy rate continues to decline, as it has in the five previous years, there is a chance that the fluctuation reserve can no longer be maintained, which would inevitably lead to a supply bottleneck for companies looking to rent.

271

Prime rent

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 800 600 9.1% 8.1%

400

7.7%

7.6%

7.2%

200 0

670

600

570

560

552

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

27

recorded a lower vacancy rate. The basic vacancy rate continued to decline as well. Office space that was no longer marketable or outdated was often repurposed for residential usage.

Key Developments In addition to the RheinEnergie buildings and the Torhaus property at the Büro•Campus•Deutz location, a number of smaller projects were completed. Construction activity generally continues to be low. A total of 71,000 square meter of office space was completed in 2014. By the end of the year, a total of 133,000 square meter was under construction. This space is scheduled to become available on the market in the coming two years. Due to the large share of owner-occupiers, only 40% will become available on the rental market, however. This

Summary and Outlook After moderate leasing performance in the first half of the year, the Cologne leasing market ended up posting a positive end-of-year result, exceeding the 10-year average. In particular, small and medium-sized enterprises are expected to contribute to a stable take-up result in 2015. Zürich Versicherung is currently scouting the market for 60,000 square meter of office space. If a lease of this volume is signed, a take-up result of more than 300,000 square meter will be realistic for 2015.

Investment

Fast Facts INVESTMENT COLOGNE

Transaction volume

becomes particularly apparent at Deutzer Feld. There are practically no purely speculative projects left. This is due to the fact that despite favorable leasing perspectives, e.g., in central city locations, a required pre-leasing rate of at least 40% brings many projects to a halt.

1,316.1 million €

Largest group of purchasers

Open-ended real estate funds / Special funds 23%

Largest group of sellers

Open-ended real estate funds / Special funds 22%

Most important property type

Office 65%

Premium yield

5.10%

Transaction Volume Thanks to a strong finish to the year, the Cologne commercial investment market recorded a transaction volume of more than €1.3 billion in Q4, reflecting a yearon-year increase of almost 40%. Q4 posted the highest transaction volume by far with a share of 61%. Not only were the majority of deals signed in the last three months of the year (46%), Q4 also saw the deals with the highest volume. Three deals with a volume of more than €100 million were signed in Q4. The KölnTurm tower at Mediapark is an excellent example. Owners InfraRed Capital Partners and Art-Invest sold the property in the scope of two transactions for a total of €143 million. Canadian REIT Dream Global purchased the office section for more than €113 million and Internos purchased the hotel section for almost €30 million.

Purchaser and Seller Groups

Open-ended real estate funds and special funds purchased property for around €355 million, generating slightly more than one quarter of total transaction volume. Union Investment, for example, purchased the Holzmarkt 1 new-build, featuring 18,700 square meter, from Bauwens Development und Revisco. Insurance companies followed in second place with €245 million and project developers and development companies came in third with almost €164 million. The Cologne investment market is traditionally characterized by a large number of private investors. This sector has constituted the most active buyer group in terms of office investment for years now with a volume of almost €5 million. They are familiar with the area, investing not only in preferred city locations but in outskirt locations as well.

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City Survey | 2014/2015 | Germany | Colliers International

Cologne was very popular with international investors in 2014. They accounted for 62% of total transaction volume particularly as the result of a few high-volume deals. International investors also generated slightly more than 40% of transaction volume as sellers.

Commercial transaction volume (in million €) 1500

1000

Investment Properties Office property tends to attract the most investment capital in the German real estate hubs, and Cologne is no exception. German and international investors poured around €883 million into Cologne office property last year. Hotel real estate followed at some distance with €281 million and a 21% share of total transaction volume. The share generated by logistics properties, light industrial, retail and development sites played a subordinate role. This can be attributed to scarce supply, which kept these segments from recording larger transaction volumes. Strong investor interest was reflected in a drop in prime yields. Gross initial yield for prime office properties fell 30 basis points year over year to a current 5.10%. Gross initial yield in the price segment of between €4 million and €8 million per single investment considerably exceeded 6.00%. Premium retail properties generated prime yields of 4.20%. Premium logistics properties posted 6.45%.

Investment Highlights

500

0

740

740

460

950

1,316

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 100 Open-ended real estate funds / Special funds

27%

Insurance companies

19%

Property developers

12%

Private investors / Family offices

9%

REITs

9%

200

300

400

24%

Other Investors

Sellers (in million € / share in %)

Slightly more than one-third or the majority of investments focused on the Neustadt Nord submarket with a transaction volume of around €357 million. The Altstadt Süd submarket trailed with €137 million and 13% of total transaction volume. The Deutz submarket posted €119 million, or 11%. Aside from the three large-volume transactions mentioned above for over €100 million, the increase in transaction volume can particularly be attributed to a number of smaller deals for slightly more than €80 million.

Summary and Outlook

The Cologne investment market has established itself as one of the most important German real estate hubs and, thanks to an exceptional Q4, posted an excellent end-ofyear result, by far exceeding the results of the past five years. The number of large-volume deals will primarily decide whether and to what extent the market is able to break through the €1 billion barrier in 2015. In general, we expect the Cologne investment market to stabilize at above the €1 billion threshold in the long term. If demand for core real estate in good locations remains high, gross initial yield will continue to drop in the coming year.

0

100

Open-ended real estate funds / Special funds

23%

Corporates / Owner-occupiers

22%

Private investors / Family offices

11%

Property developers

10%

Opportunity funds / Private equity funds

8%

Other Investors

200

300

400

27%

Share of property types (in %) Commercial premises Mixed use

Logistic / Industrial Other property types

2 2 5 2

Hotel

21 67

Office

City Survey | 2014/2015 | Germany | Colliers International

29

Munich

Fast Facts OFFICE LEASING MUNICH

Take-up of space

620,900 m²

Leased space

601,900 m²

Prime rent

€34.50/m²

Average rent

€14.90/m²

Vacancy rate Stock of office space

5.1% 22.77 million m²

Achieved rents MUNICH

€ / m²

1 Center

16.50-42.00

2 Center Northwest

12.00-23.50

3 Center Northeast

14.00-21.00

4 Center Southeast

11.50-20.00

5 Center Southwest

10.50-23.00

6 City Northwest

10.00-20.00

7 City Northeast

8.00-21.00

8 City Southeast

8.00-15.00

9 City Southwest

8.00-17.50

10 Periphery Southwest

7.50-14.00

11 Periphery Northwest

5.50-11.00

12 Periphery Northeast

6.00-13.50

13 Periphery Southeast

6.00-11.00

30

Office Leasing Take-Up The take-up trend in Munich in 2014 followed a U-shaped curve. A decent start to the year was followed in the two middle quarters by very low take-up volumes until the final quarter brought a conciliatory end to the year with very high take-up volume. Take-up was recorded at 620,900 square meter, up almost 4% year over year. Net leasing performance (excluding owner-occupiers) came to 601,900 square meter, reflecting an increase of 21%. Nevertheless, take-up was recorded at slightly below the ten-year average of around 700,000 square meter in terms of take-up and around 615,000 square meter terms of leasing perfor-

City Survey | 2014/2015 | Germany | Colliers International

mance. 720 leases were signed, around the same number as in 2013. The majority of leases were signed in the space segment of between 2,001 and 5,000 square meter. Take-up here was up 88% year over year at 156,000 square meter. In contrast, the small space segment of under 500 square meter posted a year-on-year decrease at 120,000 square meter, down 10%. We also saw a drop in large-scale leases for more than 5,000 square meter with take-up down 29% to 130,000 square meter. This development, however, can be entirely attributed to the fact that no owner-occupiers were active in this space segment in 2014. Owner-occupiers took up almost 70,000 square meter in 2013. Five leases passed the 10,000 square meter mark. The two largest leases were signed at the beginning of the year with Brainlab and BayWay each leasing around 20,000 square meter. Panasonic signed the largest lease in Q4 for around 12,000 square meter in Ottobrunn.

800

Rents

700

Following a longer ongoing upward trend, average rent took a breather in 2014, down slightly by more than 2% year over year at €14.91. Several leases were signed outside central locations at comparably low rents, which affected the overall average. This can also be attributed to the fact that although take-up in the high-price segment of more than €20.00 per square meter was higher year over year, its relative share fell as the result of a higher total take-up volume.

600

Prime rent once again experienced an increase of 5.5% to €34.50 per square meter. The few available and soon-to-beavailable spaces in the premium space segment continued to meet with high demand. However, the increase in prime rent has recently slowed. On average, tenants paid €16.46 per square meter for space within the city, a slight 1% year-on-year increase. Space went for an average of €9.79 per square meter outside the city, up 3.5% from the end of 2013.

Supply and Vacancy

Tobias Seiler Research Analyst +49 89 624294-63 [email protected]

Take-up of office space (in 1,000 m2) 900

500 400 300 200 100 0

578

860

701

595

621

2010

2011

2012

2013

2014

Prime and average rents (in €/m2) 34.50

29.80

30.60

13.98

14.38

14.59

15.28

14.90

2010

2011

2012

2013

2014

28.00

Prime rent

1.2 million square meters of office space was vacant on the Munich market at the end of Q4, a rate of 5.1%. That is one whole percentage point down from the previous year, a decrease of 235,000 square meter. Around 762,000 square meter were vacant within the city, a rate of 4.4%. Vacancy in the city outskirts was recorded at 395,000 square meter, or 7.5%. Viewed over a longer period of time, we can see how much space has been absorbed on the Munich market over the past several years. Vacancy at the end of 2010 was recorded at 1.8 million square meter. Because existing office space has increased by more than 500,000 square meter since then, new tenants have taken up more than one million square meter of office space in the past four years.

32.70

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 1600 1200

7.9% 7.1% 6.1%

800 400 0

6.1% 5.1%

1,760

1,590

1,371

1,392

1,157

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

31

New-build activity remained low in 2014 as in previous years. Around 194,000 square meter of new office space became available on the market. Approximately 241,000 square meter of new office space is scheduled for completion in 2015, 56% of which had already been leased or taken-up by owner-occupiers at the end of 2014.

Key Developments The majority of project development activity was seen in the northern part of the Bavarian capital. Two extensive properties were completed in Moosach with 88north, comprising more than 40,000 square meter of office space, and the MONA mixed-use property featuring more than 11,000 square meter of office space. Two new-build projects near Parkstadt Schwabing also became available on the market, LEOPOLD (approx. 20,000 square meter) and the second section of NuOffice (approx. 11,000 square meter). New office buildings will be added to Parkstadt Schwabing in the next few years, Microsoft headquarters and TwinYards. The third segment of NuOffice will be completed in the immediate vicinity along with Connex on Frankfurter Ring, most of which has been pre-leased, and H2O on

INVESTMENT MUNICH

Largest group of purchasers

Largest group of sellers

Summary and Outlook Office take-up was higher in 2014 than in 2013 but still below the long-range average. Based on these results, this trend does not constitute a boom, and we do not expect to see one in 2015 either. Little has changed in terms of the economic landscape. Although the market has recovered from the very weak GDP growth phases we saw in 2012 and 2013, the economic trend has not yet picked up sufficient speed for businesses to be interested in expanding. That means that demand for additional office space on the leasing market remains sluggish. We therefore expect net leasing performance (excluding owner-occupiers) to record around 600,000 square meter in the coming year, matching the 2014 results.

Investment

Fast Facts Transaction volume

Moosacher Straße. Moving away from the north of Munich, Kontorhaus is scheduled for completion in 2015 and NOVE in 2016, the last office buildings in the Arnulfpark complex. The next part of Business Campus Garching is scheduled for completion outside the city, featuring more than 25,000 square meter of office space. Work is also about to begin on a new section.

5,153.7 million € Open-ended real estate funds / Special funds 26% Private investors / Family offices 18%

Most important property type

Office 61%

Premium yield

4.00%

Transaction Volume Around €5.2 billion were invested in commercial real estate on the Munich market in 2014. This reflects a year-on-year increase of 8% and the highest value recorded since 2007. Transaction volume exceeded the €1 billion mark in each quarter in 2014. This is the fifth year in a row that the Munich investment market outperformed the previous year.

Purchaser and Seller Groups As in the previous year, open-ended real estate funds / special funds were the most active buyers. They snapped up property in the amount of more than €1.3 billion. Insurance companies and private investors / family offices followed in the ranks with an acquisition volume of approx. €674 million and €653 million, respectively. In terms of selling real estate, it was a close race among the top three. Each investor group accounted for a market share of 18% and generated a transaction volume of slightly more than €900 million. Private investors / family offices came in first. They outperformed project developers / development companies, which have traditionally come out on top in previous years. Some opportunity funds / private equity funds took advantage of favorable market conditions and sold older investments, which had significantly appreciated. This seller group came in third.

32

City Survey | 2014/2015 | Germany | Colliers International

The share of international investors in total transaction volume recorded a year-on-year drop from 37% to 29%. In terms of selling real estate, international market players accounted for 39% of total transaction volume (previous year: 40%).

Investment Properties

Commercial transaction volume (in million €) 5000 4000 3000

61% of invested capital, or around €3.2 billion, was poured into office properties, which once again were the most popular real estate class, even if their share dropped slightly year over year. A new phenomenon was the high transaction volume generated by hotel real estate at €548 billion. The boom on Munich’s hotel market is having an impact on the investment market for this property type. Mixed-use property matched the result recorded for hotels, accounting for 11% of total transaction volume. Prime yields for high-end, fully let properties in good locations once again fell over the course of the year to a current 4.00%. Because general conditions have not changed, demand remains high. This is reflected in the high prices being paid for investment property. Investors tended to play it safe with their large purchases, focusing on core properties with deals below around €50 million attracting more opportunistic and value-add investments. This clearly illustrates the fact that investors consider Munich a stable location where properties with vacancy or located outside leasing market hot spots will meet with sufficient demand among tenants to justify the investment.

Investment Highlights

2000 1000 0

1,716

2,895

3,741

4,765

5,154

2010

2011

2012

2013

2014

Purchasers (in million € / share in %) 0

500

Open-ended real estate funds / Special funds

26%

Insurance companies

13%

Private investors / Family offices

13%

Property developers

12%

Pension funds

10%

Other Investors

27%

1500

Sellers (in million € / share in %) 250

The year’s largest deal was Deka Immobilien’s purchase of the Theresie property for €257 million. The building ensemble at Theresienhöhe comprises a total area of almost 70,000 square meter, most of which is office space as well as some retail and residential. The Allianz Group also invested more than €200 million, buying back part of their headquarters in Unterföhring, which they had sold to Whitehall in 2007. Centrally located Lenbachgärten, featuring around 28,000 square meter of leasable space, was sold to the Norwegian sovereign wealth fund for €176 million.

1000

Private investors / Family offices

18%

Property developers

18%

Opportunity funds / Private equity funds

18%

Open-ended real estate funds / Special funds

13%

Pension funds

10%

Other Investors

23%

500

750

1000

1250

Summary and Outlook

As expected, transaction volume continued to grow in 2014, breaking through the €5 billion barrier. The fact that nothing has changed in that alternative investments, particularly government bonds, barely generate any yields and market players are still liquid enough to invest, leads us to expect this upward trend to continue. We expect demand for core properties to remain high in 2015, changing hands at high prices, along with an increasing number of investments in value-add and opportunistic products. Transaction volume will most likely come in at levels similar to this past year at slightly more than €5 billion.

Share of property types (in %) Commercial premises Retail

Mixed use Hotel

7

Other property types

6 4

11 11

61

Office

City Survey | 2014/2015 | Germany | Colliers International

33

Stuttgart

Fast Facts OFFICE LEASING STUTTGART

Take-up of space

278,900 m²

Leased space

192,600 m²

Prime rent

€21.50/m²

Average rent

€12.60/m²

Vacancy rate Stock of office space

4.2% 7.54 million m²

Achieved rents STUTTGART

1 City

€ / m²

10.00-21.50

2 Center

8.50-17.50

3 Zuffenhausen / Feuerbach

9.50-12.00

4 Weilimdorf

7.50-10.00

5 Bad Cannstatt / Wangen

9.00-12.00

6 Vaihingen

8.50-16.50

8 Degerloch

8.50-10.50

9 Möhringen

8.50-12.00

10 Fasanenhof

9.00-10.00

11 Leinfelden-Echterdingen

9.00-12.00

34

Office Leasing Take-up The Stuttgart office leasing market (including Leinfelden-Echterdingen) can look back on vibrant activity in 2014. With take-up of approx. 278,900 square meter, the segment was able to exceed previous year results by approx. 20,000 square meter. However, these above-average take-up results can primarily be attributed to the high share in owner-occupiers. Leasing performance dropped by around 12% to roughly 192,600 square meter compared with 2013. Owner-occupiers accounted for a total of 86,300 square meter, reflecting a share in total take-up of 30%.

City Survey | 2014/2015 | Germany | Colliers International

The trend on the submarkets produced more varied results. While take-up (97,200 square meter) and leasing performance (91,500 square meter) in downtown locations posted year-on-year increases, leasing performance in the remaining submarkets dropped significantly by around 147,700 square meter to roughly 101,100 square meter. The Fasanenhof (plus 3,500 square meter), Weilimdorf (plus 3,700 square meter) and Feuerbach / Zuffenhausen (plus 23,800 square meter) submarkets were able to improve leasing performance.

Alexander Rutsch

Just like in previous years, the majority of the 187 leases signed in 2014 were signed by companies from the consulting, manufacturing and IT industries. They also accounted for the largest share in take-up (176,400 square meter). Manufacturing businesses only signed 34 leases for more than 84,000 square meter of office space.

Research Analyst +49 711 22733-395 [email protected]

While in 2013 the Stuttgart office leasing market was still dominated by leases signed in the segment for 5,000 square meter and up, companies once again focused on smaller space segments in 2014. With 238 signed agreements in the space segment of up to 500 square meter, small-space segments not only accounted for the highest number of agreements signed (74%) but also recorded the highest leasing performance by far at 65,300 square meter.

300

Take-up of office space (in 1,000 m2)

200

100

Rents Rents have been rising on the Stuttgart office leasing market since late 2013. This trend continued in 2014 as well. Prime rent rose from €20.00 per square meter at the beginning of the year to €21.50 per square meter by the end of the year, the highest level ever recorded on the Stuttgart office leasing market. Average rent in 2014 matched its record result from late 2012 at €12.60 per square meter. Compared with the previous year (€12.00 per square meter) this reflects a year-on-year increase of around 5%. This trend can also be seen in leases signed based on rental price segment. The only rent price segment to register a year-on-year drop was the segment of up to €10.00 per square meter. The rental price segment of between €15.00 and €17.50 per square meter recorded a significant year-on-year increase in leasing activity. Takeup almost tripled in this segment. The premium segment of €20.00 and up once again registered considerable take-up results. While 2013 only saw one lease signed for approx. 200 square meter in this segment, 2014 recorded a total of 7 leases signed for approx. 4,800 square meter.

0

194

285

191

258

279

2010

2011

2012

2013

2014

Prime and average rents (in €/m2)

17.50

18.80

20.00

20.00

21.50

11.00

11.60

12.40

12.00

12.60

2010

2011

2012

2013

2014

Prime rent

Average rent

Vacancy rate (in %) and vacancy (in 1,000 m2) 600

400 6.5%

5.7%

5.4%

200

0

4.9%

4.2%

452

479

398

365

314

2010

2011

2012

2013

2014

City Survey | 2014/2015 | Germany | Colliers International

35

Supply and Vacancy The Stuttgart vacancy rate has been decreasing since 2010. This trend also continued in 2014. The vacancy rate dropped by an additional 50,600 square meter to 314,200 square meter. In Q4, however, we saw a slight increase of around 1,400 square meter compared with Q3. With available space of around 7.5 million square meter, the vacancy rate came to around 4.2% at the end of the year – the lowest in 13 years. This can be attributed to ongoing high demand for office space as well as to high pre-leasing rates of close to 80% for new-build projects in 2014.

Key Developments In 2014, German and international investors placed even more focus on downtown locations. At total of more than 58,000 square meter of office space was completed in the two downtown submarkets City Center and City. Prominent examples include the City Gate, Rosenburghöfe and Gerber properties featuring of-

INVESTMENT STUTTGART

Largest group of purchasers

Largest group of sellers

Summary and Outlook Strong leasing activity in the recent past on the Stuttgart office leasing market continued in 2014 as well. Just like in previous years, the vacancy rate dropped significantly in 2014, and new leases in the high-priced segment once again became more common on the market. Due to the low vacancy rate, we expect rental income to remain stable in 2015. Due to stable demand and the high number of projects scheduled for completion, we expect to see office take-up of more than 200,000 square meter in 2015.

Investment

Fast Facts Transaction volume

fice space of around 14,000 square meter, 11,000 square meter and 7,000 square meter, respectively. Looking outside of downtown locations, the STEP 7.1 property was developed in Stuttgart-Vaihingen featuring approx. 5,700 square meter. STEP 7.2 and ZSW, featuring an additional of 11,000 square meter of office space, are scheduled to be completed by 2016. Airport City in Leinfelden-Echterdingen (25,000 square meter) and Oasis II (15,700 square meter) in Stuttgart-Feuerbach are also scheduled for completion in 2015.

€ 1,001.7 million Open-ended real estate funds / Special funds 48% Property developers 27%

Most important property type

Office 73%

Premium yield

5.10%

Transaction Volume The Stuttgart real estate investment market recorded a transaction volume of €1,155 million, exceeding the previous year’s above-average result by €145 million. Transactions on the commercial real estate market accounted for more than €1 billion. An additional €150 million were generated by large-scale residential investments, e.g., the residential portfolios sold by Bayerische Hausbau in the recently completed Milaneo shopping mall. This was the third year in a row that the Stuttgart real estate investment market managed to exceed the billion-euro mark. In view of ongoing favorable investment market conditions, we expect to see a similar transaction volume in 2015 as well.

Purchaser and Seller Groups Open-ended real estate funds and special funds were particularly active, accounting for an investment volume of almost €0.5 billion. This can be primarily attributed to their willingness to not only invest in core properties but increasingly in the core-plus and value-add segments as well, which bear higher risks but also generate higher returns.

36

City Survey | 2014/2015 | Germany | Colliers International

The most active seller group was project developers with a transaction volume of approx. €270 million, accounting for the highest share in total transaction volume. Openended real estate funds and special funds sold properties in the amount of €234 million, which also contributed significantly to transaction volume. The year 2014 was characterized by above-average activity by foreign investors, who invested in the Stuttgart area both directly as well as indirectly via managers and funds. Low interest rates, increasing capital flow and the willingness of German and international investors to take more risk fueled transaction activity.

Commercial transaction volume 1500million €) (in 1000

500

0

460

340

1,082

934

1,002

2010

2011

2012

2013

2014

Purchasers (in million € / share in %)

Investment Properties The office asset class dominated the Stuttgart real estate investment market in 2014, accounting for a 73% share in total transaction volume recorded for the commercial real estate market. Mixed-use properties were also able to pocket a significant market share of 23%. Downtown buildings featuring an office-retail mix deserve particular mention in this asset class. However, we did not see significant transactions in the retail and logistics segments due to lack of supply.

Investment Highlights

Summary and Outlook The Stuttgart real estate market recorded an above-average result for the third year in a row, generating a transaction volume of more than €1 billion in 2014.

This goes along with a particularly stable trend in prime yields, which came to 5.10% for office properties, 4.20% for downtown buildings featuring an office-retail mix and 6.50% for high-end logistics properties. Due to the favorable general conditions, we expect to see an ongoing high transaction volume and a further drop in yields in 2015.

200

300

400

500

48%

Private investors / Family offices

9%

Corporates / Owner-occupiers

8%

Property developers

7%

REITs

7% 22%

Other Investors

The two largest transactions in 2014 were signed by the investor Hines in Q2. Highlights included the sale of Kronprinzbau by Credit Suisse in the amount of €140 million and the sale of the Caleido by HTP HOCHTIEF Projektentwicklung in the amount of more than €75 million. Aside from these core investments made in downtown Stuttgart, other large-volume transactions were signed in the core-plus segment. Examples include the sale of the Friedrichs-Carré located downtown, the Bülow Tower in Löwentorzentrum or Compas in Stuttgart Degerloch.

100

0 Open-ended real estate funds / Special funds

Sellers (in million € / share in %) 0

100

Property developers

27 %

Open-ended real estate funds / Special funds

23 %

Corporates / Owner-occupiers

12 %

Public administration

8%

Opportunity funds / Private equity funds

8%

Other Investors

200

300

21 %

Share of property types (in %) Commercial premises

Logistic / Industrial Retail

2 11 Mixed use

23

73

Office

City Survey | 2014/2015 | Germany | Colliers International

37

Glossary Take-up of space Take-up of space is the sum of all spaces either newly let, sold to owner-occupiers, or built for or by an owner-occupier within the period under consideration. The salient date is that on which the lease or purchase agreement is signed. The renewal of an existing lease is not counted in the take-up of space.

Prime rent The premium rent represents the median of the top 3% of new lets (not counting owner-occupiers) during the 12 months just ended.

Average rent The average rent is calculated by taking the individual rents agreed to in all new leases, weighting them by the amount of space rented and computing the mean value.

Vacancy Vacancy is defined as all office space available for occupation within three months.

Property Index The Property Index expresses the relationship between space available on a determined date and the take-up of space in the previous 12 months. Available space takes vacancies as well as potential space, i.e. space available in new construction and in existing stock, within the next 12 months into consideration.

Prime yields Prime yields are the best return that can be realized for a property of highest quality and in the best location when leased under usual market conditions (highly solvent tenant). The figures here are gross yields.

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City Survey | 2014/2015 | Germany | Colliers International

Contacts Colliers Berlin Budapester Straße 50 D – 10787 Berlin Phone +49 30 202993-0

Peter Bigelmaier Head of Office Letting [email protected]

Peter Kunz FRICS Head of Industrial & Logistics [email protected]

Colliers Düsseldorf Königsallee 60 C | Entrance Grünstraße D – 40212 Düsseldorf Phone +49 211 862062-0 Colliers Frankfurt Thurn-und-Taxis-Platz 6 D – 60313 Frankfurt am Main Phone +49 69 719192-0 Colliers Hamburg Stadthausbrücke 1-3 D – 20355 Hamburg Phone +49 40 3764478-4

Ignaz Trombello MRICS Head of Investment [email protected]

Colliers Munich Dachauer Straße 63 D – 80335 Munich Phone +49 89 624294-0 Colliers Stuttgart Königstraße 5 D – 70173 Stuttgart Phone +49 711 22733-0

Andreas Trumpp MRICS Head of Research [email protected]

Colliers International Corporate Solutions Thurn-und-Taxis-Platz 6 D – 60313 Frankfurt am Main Phone +49 69 719192-0 Colliers Hotel Budapester Straße 50 D – 10787 Berlin Phone +49 30 5858178-11

Photo credit Cover: Europäische Zentralbank Frankfurt – iStock Photo credits inside Page 3, 38, 39 – Fotolia Berlin – Neuer Hauptsitz DGUV, Glinkastr. 40, 10117 Berlin Düsseldorf – Colliers International Düsseldorf GmbH Frankfurt – PalaisQuartier GmbH & Co. KG, Fotograf: Eibe Sönnecken Hamburg – Fotolia Cologne – Fotolia-Lars Böske Munich – Eberhard Franke Stuttgart – Caleido Stuttgart, Hines Immobilien GmbH

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City Survey | 2014/2015 | Germany | Colliers International

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485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84

€1.54

billion in annual revenue

Author: Andreas Trumpp MRICS Head of Research | Germany +49 89 540411-040 [email protected] Regional Authors: Margit Lippold I Research Analyst I Berlin Lars Zenke I Research Analyst I Düsseldorf Dr. Tobias Dichtl I Research Analyst I Frankfurt Alexander de Oliveira Kaeding I Research Analyst I Munich Tobias Seiler I Research Analyst I Munich Alexander Rutsch I Research Analyst I Stuttgart

Colliers International Deutschland Holding GmbH Dachauer Straße 65 D – 80335 Munich PHONE +49 89 540411-050

€57

billion in transaction volume with more than 80,000 investment and leasing deals

136

billion m2 under management

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About Colliers International Colliers International is a global leader in commercial real estate services, with 15,800 professionals operating out of more than 485 offices in 63 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. colliers.com

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