MAiN REGiONAL REAL ESTATE MARKETS in GERMANY 2013

Transcription

1 MAiN REGiONAL REAL ESTATE MARKETS in GERMANY 2013 A RESEARCH PuBLiCATiON BY DG HYP OFFiCE AND RETAiL: OuTLOOK FOR MAiN REGiONS REMAiNS POSiTiVE MARCH 2013

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3 Table of Contents Preface 2 Stability gives regional centres the edge 3 Augsburg 11 Berlin 1 Bremen 16 Cologne 19 Darmstadt 21 Dresden 2 Dusseldorf 27 Essen 29 Frankfurt 32 Hamburg 3 Hanover 36 Karlsruhe 39 Leipzig 2 Mainz 5 Mannheim Munich 51 Münster 53 Nuremberg 56 Stuttgart 59 Overviews: 61 Locations at a glance Imprint 6 Disclaimer DG HYP Offices 65 1

4 Preface As the commercial real estate bank in the Volksbanken Raiffeisenbanken cooperative financial network, we support our business divisions and risk management teams with their credit and lending decisions through regular analysis of the markets which we actively cover. We publish the results of our analyses in commercial real estate market reports. We are active throughout the German regions, thanks to our decentralised presence with six Real Estate Centres, working together closely with local cooperative banks in Commercial Real Estate Finance. Against this background, we started enhancing our market reports with a regional dimension three years ago. The present study summarises developments of recent years in the office and retail property segments, based on local market data, and also provides an outlook for the remainder of this year. For this purpose, we analysed the main regional real estate markets of Augsburg, Bremen, Darmstadt, Dresden, Essen, Hanover, Karlsruhe, Leipzig, Mainz, Mannheim, Münster and Nuremberg. To compare these with the top German economic centres, we also analysed the prime locations of Hamburg, Berlin, Cologne, Dusseldorf, Frankfurt, Stuttgart and Munich, and collated the results in this market report. The current study will be published each spring, to supplement The German Real Estate Market our series of specialist publications published in the autumn. We also started analysing the commercial real estate markets in individual federal states two years ago. The results are published in the spring and autumn of each year; to date, we issued market reports for Bavaria, Baden-Württemberg, North Rhine-Westphalia, the federal states in East Germany and Berlin. An overview of DG HYP s real estate market reports is available on our website: Deutsche Genossenschafts-Hypothekenbank AG March

5 STABILITY GIVES REGIONAL CENTRES THE EDGE The office and retail sectors are traditionally the most important segments of the commercial property market. However, analysis often focuses here on the top seven German locations, although there are signs of increasing interest in the next level of the property markets - regional centres or "B" locations. For this reason, the fourth issue of our annual market report concentrates on 12 regional centres throughout Germany. The top locations will also be evaluated, for purposes of comparison and completeness. OVERVIEW OF LOCATIONS 12 regional centres 7 top locations City Federal state City Federal state City Federal state Augsburg Bavaria Leipzig Saxony Berlin Berlin Bremen Bremen Dresden Saxony Cologne North Rhine- Westphalia Darmstadt Hesse Mainz Rhineland-Pal. Dusseldorf North Rhine- Westphalia Essen North Rhine- Westphalia Mannheim Baden-Württemb. Frankfurt Hesse Hanover Lower Saxony Münster North Rhine- Westphalia Hamburg Hamburg Karlsruhe Baden-Württemb. Nuremberg Bavaria Munich Bavaria Stuttgart Baden-Württemb. Following the summary on the office and retail market segments, the individual locations are reviewed in alphabetical order from page 11. An overview of market data is shown in tables from page 591. Office and retail: 12 regional centres and 7 top locations Trend in the office market The positive trend of the previous year continued in 2012 with a decline in vacancies and growth in rents Solid economic growth in Germany - in defiance of the European trend - led to a positive performance in German office markets last year, although results failed to match 2011 levels. In virtually all locations, buoyant demand for attractive office space came up against a supply shortage. Consequently, prime rents for office space have increased by almost 5 per cent in the two years jointly in the regional centres, and by more than 6 per cent in the top locations. As a result of the financial market crisis and the related severe economic downturn, which led to a real decline of more than 5 per cent in German GDP, virtually no new office projects have been started, and the growing demand for office space has increasingly used up the supply of modern office space. Nevertheless, vacancy rates remain high at 9 per cent despite showing, on average, a marked decline in the top locations. In contrast, the regional centres are performing much better with vacancy rates of 6.5 per cent. In virtually all locations, vacant office space consists mainly of outdated buildings which are no longer marketable. Prime rents in regional centres grew by a total of 5 per cent in 2011 and

6 OFFICE PRIME RENTS YOY IN % VACANCY RATE IN % Regional-12 Top Regional-12 Top-7 5 Source: BulwienGesa Source: Feri As a result of the slightly steeper rent increases in the top locations in the last two years, the divergence in prime rents between these locations and the regional centres has widened again slightly. On average, prime rents of more than EUR 25 in the top locations are twice as high as the figure of around EUR in the regional centres. In contrast, if we look at the last five years, the divergence from the top locations has however narrowed as a result of the positive trend in rents. Between 2007 and 2012, i.e. for six years in succession, prime rents here have increased on average by slightly more than 2 per cent per annum with a fairly low rate of fluctuation, while the much more volatile prime rents in the top locations have increased by only 1.6 per cent annually in this period. Regional centres show stable positive trend in rents PRIME RENTS 2012 IN EURO PER SQM IN ALL 19 LOCATIONS 30,5 33,0 11,0 11,5 11,5 12,0 12, 12,5 12,5 12,5 12,7 12, 13,0 13, 1,1 1, 20,5 22,0 23,5 2,1 25,2 Dresden Augsburg Leipziberg Nurem- Reg- 12 Essen Karlsruhe Mainz Darmstadt Bremen Münster Hannoveheim Mann- Stuttgart Cologne Berlin Düsseldorf Hamburg Top- 7 Munich Frankfurt Source: BulwienGesa Viewed overall, market conditions in the regional centres - measured by prime rents - are much more homogeneous. For example, the difference between Dresden, the cheapest location at EUR 11 per sqm, and Mannheim, the most expensive, at EUR 1 per sqm, is not even 30 per cent. In contrast, the divergence is much greater for the top locations, at more than 70 per cent between Stuttgart at Range of rents much narrower in regional centres than in top locations

7 EUR 19 per sqm and Frankfurt at EUR 33. The size of the location is fairly insignificant here. The two frontrunners in their segment - Mannheim and Frankfurt - do not have above-average levels of either office space or population. Economic weakening slows down demand for office space However, the positive trend in the office market will at best continue at a weaker pace this year. We expect prime rents to show only a slow growth this year at only half of one per cent. The vacancy level is likely to be reduced slightly at best. On the one hand, demand for office space is likely to have weakened as a result of the slower pace of economic growth in the second half of last year - we expect GDP to grow by only 0. per cent in Consequently, the employment situation - which has improved significantly in recent years throughout Germany - could deteriorate slightly. Accordingly, we expect growth in the number of office jobs in the locations reviewed to slow, and consequently lower demand for additional space. Furthermore, the positive market trend of recent years has led to an acceleration of project development which should result in further growth in the volume of completed office space. RENTS AND VACANCIES - FORECAST FOR 19 GERMAN OFFICE LOCATIONS Unemployment rate will increase slightly in 2013 Unemployment rate in per cent e Quelle: DZ BANK Research e 12 regional centres Prime rents in EUR/sqm (% yoy) 12.2 (+3.0) 12. (+1.) 12.5 (+0.5) Rents in secondary locations in EUR/sqm (% yoy) 6.0 (+0.3) 6.1 (+2.0) 6.1 (0) Vacancy rate in % (% points yoy) 9. (-0.6). (-0.6).7 (-0.1) 7 top locations Prime rents in EUR/sqm (% yoy) 2.5 (+3.7) 25.2 (+2.) 25. (+0.6) Rents in secondary locations in EUR/sqm (% yoy).6 (+0.3).7 (+1.2).7 (0) Vacancy rate in % (% points yoy) 6. (-0.) 6.6 (-0.2) 6.5 (-0.1) Source: BulwienGesa, Feri, DZ BANK Research forecast all averages weighted for space In the last twenty years, trends in the number of office jobs and office rents have shown a very close convergence. This is clear from the four charts below - on the left for regional centres, and on the right for top locations. Growth in the number of office jobs is also generally accompanied by an increase in office rents. It is striking that the volatility of office employment in regional centres and top locations is very comparable, while rent levels in the regional centres fluctuate much less than those in the top locations. Changes in office rents tend to be supported by diverging trends in office employment and office space. However, no such trend is expected over the next year. In fact, we expect the opposing trends of weaker growth in office jobs and an increasing volume of completed office space "neutralise" each other with reference to their effect on rents, thus resulting in the modest growth in prime rents which we have forecast. A slight increase in office employment is plausible despite marginal overall growth in unemployment. Finally, office employment has shown an above-average positive trend as a result of the shift towards a service-based economy. Close convergence between trends in office jobs and office rents 5

8 REGIONAL CENTRES: OFFICE SPACE AND EMPLOYMENT SINCE 199 TOP LOCATIONS: OFFICE SPACE AND EMPLOYMENT SINCE 199 in thousand office workers chance of number of office w orkers (lhs) change of office space (rhs) in thousand sqm in thousand office workers change of number of office w orkers (lhs) change of office space (rhs) in thousand sqm Source: Feri Source: Feri REGIONAL CENTRES: TREND IN PRIME OFFICE RENTS TOP LOCATIONS: TREND IN PRIME OFFICE RENTS 12 YOY in % (lhs) in Euro per sqm (rhs) YOY in % (lhs) in Euro per sqm (rhs) 32 prime rent YOY in % in Euro per sqm prime rent YOY in % in Euro per sqm Source: BulwienGesa Source: BulwienGesa In 201 we expect GDP to increase more strongly again and growth in employment as the economic recovery gets under way. The outlook for office rents is therefore more positive again in the next year. However, looking further ahead, it is at least doubtful whether the number of office jobs can be increased again significantly in the long run. Employment potential has been exhausted to a certain extent as a result of the sharp decline in unemployment; in many sectors a shortage of skilled personnel is already becoming evident. Given the generally stagnating and also ageing society, the number of people active in the labour market is also expected to decline in future. for office space could also suffer as a result of the continuous expansion of communications technology, because this will make employees less dependent on a fixed workplace in an office, for example by encouraging home working. for office space could decline in the long term 6

9 Market trend for retail properties Prime rents increased again in 2012 Rents in the retail sector showed the same picture in 2012 as in previous years: while levels in secondary locations have remained stable, rents for prime sites, particularly in the top locations, have increased further. The main reason for this is the continuing buoyant demand for retail space in the best locations. In contrast, the supply of attractive sales space in the regional centres, as in the top locations, is generally very limited. However, the positive trend in the retail sector in 2011 weakened last year. Total retail sales - excluding cars - thus increased by only 1.7 per cent in 2012, resulting in a price-adjusted modest decline in sales of about 0,5 per cent. Retail rents: weaker growth expected in 2013 due to... The German economy was already cooling down significantly in the second half of However, there is unlikely to be a more pronounced decline in private consumption or respectively in the retail sector. On the one hand, we expect the economy to pick up again already in the course of this year, and on the other hand we anticipate only a slight increase in the unemployment rate. Private households will only therefore be affected by this temporary economic slowdown to a limited extent. This trend, combined with what is now a very high level of prime rents in many locations, will continue to drive up retail rents, however the pace of growth is likely to slow visibly compared to the two previous years. economic slowdown, but also because of already high rent levels FORECAST FOR 19 RETAIL LOCATIONS IN GERMANY e 12 regional centres Rent in top location in EUR (2.9) (1.5) 126. (0.6) Rent in secondary location in EUR 11.7 (-1.) 11.7 (0.) 11.7 (-0.1) 7 top locations Rent in top location in EUR (.0) 2.7 (.6) (1.) Rent in secondary location in EUR 21.6 (0.3) 21.6 (0.1) 21.6 (0.0) Figures in brackets in % yoy; all averages weighted for space Source: BulwienGesa, DZ BANK Research forecast Retail space and retail sales are not growing at the same rate While in the last two decades, retail space and retail sales in the top locations have grown at fairly similar rates, retail space in the regional centres grew much more strongly than sales up to Although per capita retail sales of EUR 5,59 in the seven top locations were only slightly higher than the figure of EUR 5,27 (priceadjusted, basis year 2000) in the regional centres, per capita retail space is however significantly greater in the regional centres at 2.2 sqm than in the top locations at 1.7 sqm. Growing retail space on the one hand, and stagnating retail sales on the other, severely limit the potential for rents to increase in terms of total retail space, if all other factors remain unchanged. This results in a much steeper decline - of 15 per cent in ten years - in sales space productivity in the regional centres - than in the top locations. Sales per sqm of sales space have shown a much weaker decline here of 9 per cent. In the regional centres, per capita retail space has strongly outpaced per capita retail sales 7

10 GROWTH IN SALES SPACE AND RETAIL SALES IN THE REGIONAL CENTRES AND IN THE TOP LOCATIONS 6 5 Retail sales per capita Sales space per capita 5 3 Retail sales per capita Sales space per capita YOY in % YOY in % Source: Feri, own calculations moving 2-period average Source: Feri, own calculations moving 2-period average Diverging trends in prime rents in the two types of location This diverging trend in sales space productivity between the regional centres and top locations is likely to be responsible for some of the widely diverging trends in retail rents in the two types of location. While prime rents in the top locations have increased sharply, particularly in the last ten years, the regional centres are not achieving anything close to this growth rate. However, another reason for the diverging trends in rents could be the increasing importance of chain stores in the best shopping locations, with branches in the top seven German locations enjoying a particular status in the hierarchy. This results in an ultimately unfavourable demand/supply ratio in the top locations compared to the regional centres, which is also reflected in the relatively wide divergence in rents. However, it remains to be seen whether the regional centres will be able to benefit in future from a gradual "chain store saturation". Top locations show much more dynamic trend in rents RETAIL: PRIME RENTS IN EURO PER SQM RETAIL: SIDE LOCATION RENTS IN EURO PER SQM Top-7 Regional Top-7 Regional Source: BulwienGesa Source: BulwienGesa

11 However, the picture is slightly different for side locations: rents have been falling here since the 1990s in both the top locations and also the regional centres, and have only recovered again somewhat since True, rents in the secondary locations are also higher than in the regional centres. However, the trend in recent years - largely stagnation - is virtually identical. Stagnating rents in secondary locations affect regional centres and top locations On closer examination of the trend in prime rents by individual locations, a differentiated picture emerges. True, in the last five years prime rents have increased on average in the top locations as well as in the regional centres (17. per cent and 10.2 per cent respectively). However, while they have increased in all the top locations, there is a much more mixed picture in the regional centres. For example, prime rents have fallen by almost 9 per cent in Essen, but by 2 per cent in Münster. One factor which certainly plays an important role here is the overall momentum of growth in the individual locations as reflected, for example, in the employment trend. Münster - which was awarded the title of "The World's Most Livable City" at the Livecom Awards in 200 and which is also attractive to young people because of its university, therefore scores here. In contrast, Essen still has a comparatively high unemployment rate of just over 12 per cent today due to structural change, and its population is already declining. Major differences in prime rent trends between the regional centres MAJOR DIFFERENCES IN THE DEVELOPMENT OF PRIME RENTS IN REGIONAL CENTRES OVER THE LAST FIVE YEARS 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 6,3%,1% 1,7% Münster Darmstadt Nuremberg Prime rent 2012 vs 2007 Population development,2%,3% 1,7% 1,9% 1,7% 3,5% 1,3% 0,0% -1,% Mannheim Dresden Leipzig Augsburg Mainz Bremen Hanover Karlsruhe Essen Source: Bulwien Gesa, Feri Little upward potential for retail rents in medium term Although there has been a steady upward trend in retail rents so far, we anticipate fairly limited overall potential for further growth in the medium term. In addition to the unfavourable trend in retail space and retail sales in relation to rent, the scope is also limited in a direct comparison of trends in rents and sales. While sales of textiles, shoes and leather goods - the most important segment on high streets - have increased by about five per cent in the last five years, prime rents in all locations have risen by just over 15 per cent in the same period. Retail sales have risen much more slowly than retail rents 9

12 FAIRLY FLAT SALES TREND IN GERMAN RETAIL SECTOR FOR TEXTILES, SHOES AND LEATHER GOODS YOY in % (lhs) Retail sales index (rhs) 110 YOY in % Index 2005 = Q1/00 Q1/02 Q1/0 Q1/06 Q1/0 Q1/10 Q1/12 5 Source: Feri Another negative factor which represents a major challenge for the textile sector in future, is the expansion of online retail. In the book sector, online sales are already providing strong competition for bookshops. Even for large chains such as Thalia and Hugendubel this means the scaling down or closure of branches. However, online sales are also becoming increasingly established in the clothing sector. For example, according to the "Proposition Index 2012" report from OC&C Strategy Consultants, online concepts such as Zalando are becoming increasingly popular with consumers, while established suppliers such as Esprit or S.Oliver are lagging behind. This is already leading to a decline in footfall in city centre locations. The receptiveness of customers to online shopping is playing a crucial role here and online traders currently seem to be achieving greater success. If this trend continues, it will lead to losses of sales in the high street retail textile sector and possibly to a decline in demand for sales space and thus in retail rents. Growing competition from online clothing sales Demographic change will also be a factor in the longer term. While most of the cities covered in this report currently still show positive population growth - albeit mainly only as a result of immigration - this will slacken in future years, particularly in the regional centres. This, in conjunction with the expansion of sales space, low sales growth and increasing competition from online shopping, indicates that future growth will more and more be at the expense of other locations or retail segments, thus limiting the potential for rent increases. Decline in population an additional negative factor 10

13 AUGSBURG Office space OFFICE PRIME RENT YOY IN % VACANCY RATE IN % Augsburg Regional-12 Munich -12 Augsburg Regional-12 Munich Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast With around 1.7m sqm of office space, Augsburg is the smallest of the 19 office locations covered in this report. Despite its geographic proximity to the regional capital Munich, the third largest city in Bavaria does not benefit from its neighbour in terms of rent levels, which are slightly below average for the 12 regional centres in the report. Smallest office market in the report Although Augsburg is a university city and a seat of government for the region of Bayerisch-Schwaben, the proportion of jobs in the services sector is no higher than in other cities of similar size. In contrast, the unemployment rate is well above average for Bavaria. This still reflects the consequences of the decline of the important Augsburg textile industry since the 1970s and the withdrawal of 25,000 US soldiers and support personnel in the 1990s. Structural change impacts on economic trend for office space in Augsburg has been fairly subdued in the last decade. The number of office employees in Augsburg is thus roughly the same level as ten years ago at around 9,000. However, office space has increased by about 7 per cent in this period, and the vacancy rate has thus grown from less than to more than 5 per cent. The economic situation has however been improving for some years, resulting in a further increase in the number of office jobs and a decline in the unemployment rate. Constant demand and growing supply lead to increase in vacancy rate 11

14 OFFICE SPACE PER OFFICE WORKER IN SQM AUGSBURG: TREND IN OFFICE SPACE AND EMPLOYMENT Augsburg Regional-12 Munich office space office w orkers 90 Source: Feri, DZ BANK Research forecast Source: Feri Index 2003 = 100 In the recent past the trend in the Augsburg office property market has been much more dynamic than average for the locations covered in the report - despite the large proportion of owner-occupiers. Prime rents in Augsburg have thus increased by almost 2 per cent since Nevertheless, of the regional centres, Augsburg shows a comparatively low level of rents. The prime rent of EUR 11.5 per sqm is approximately EUR 1 below average for the regional centres as a whole. The expansion of Augsburg as a centre of science and the increasing importance of the logistics sector in the city which has good transport links - the route to Munich has improved again significantly with the expansion of the A and the ICE - have supported the positive economic trend in Augsburg in recent years. On the other hand, since the total volume of office space will probably only be increased marginally in the near future, the vacancy rate may fall again slightly. However, given the strong growth of recent years and the economic slowdown in Germany, rent levels are likely to show at best only an average increase. 2 per cent rent increase since 2006 Trend likely to remain positive OFFICE SPACE IN AUGSBURG GDP % yoy Per capita GDP EUR ' Per capita GDP % yoy No. of office workers % yoy Total office space in million sqm Total office space % yoy Vacancy rate % Office rents Prime /secondary locations in EUR/sqm 11.0 / / / / 5.0 Prime/secondary locations % yoy. / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 12

15 Retail space RETAIL PRIME RENT IN EURO PER SQM PER CAPITA RETAIL SPACE IN SQM Augsburg Regional-12 Munich,0 3,5 Augsburg Regional-12 Munich 250 3, , , ,5 50 1,0 Source: Feri, BulwienGesa, DZ BANK forecast Source: Feri, DZ BANK Research forecast At 3. sqm per inhabitant, Augsburg has more retail space than any other city covered in this report. Correspondingly, the level of retail rents is below-average despite high purchasing power as a result of a catchment area of 00,000 people. While high purchasing power makes prime locations in the centre of Augsburg, such as Annastraße or Bürgermeister-Fischer-Straße, attractive to businesses seeking sales space, the City-Galerie, which opened in 2001 just outside the city, has now exerted downward pressure on rents in prime locations, compounded by the increase in the unemployment rate to more than 13 per cent by However, rent levels are once again slightly higher than ten years ago. It has become evident that the City-Galerie is not so much in competition with the city, but in fact draws additional customers from the surrounding area. The planned new Peek & Cloppenburg building is likely to lead to a further upgrading of the city centre, while the associated possible relocation of the fashion store could have a considerably negative impact on Viktoriapassage which is close to the railway station. In the Fuggerstadt-Center, which is also located near the station, the anchor tenant Cinestar has not yet extended its rental agreement which runs out at the end of We expect rents in both prime and secondary locations to remain generally stable. Large supply of retail space Augsburg an attractive retail destination Upheaval in city centre RETAIL SPACE IN AUGSBURG Per capita disp. income EUR/month 1,27 1,299 1,322 1,33 Per capita disp. income % yoy Unemployment rate (BA) % Retail sales % yoy Total retail space in million sqm Total retail space % yoy Retail rents Prime /secondary locations EUR/sqm 100 / / / /.0 Prime /secondary locations % yoy 0.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 13

16 BERLIN Office space OFFICE PRIME RENT YOY IN % VACANCY RATE (%) Berlin Top-7 Regional Berlin Top-7 Regional-12 5 Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast for office space in Berlin has shown a positive trend, although economic output in the federal capital is growing more slowly than in other top locations. As a result of the many people employed in administration and by organisations and other special interest groups, the number of office employees has shown above-average growth of 13 per cent in the last five years. In contrast, office space has increased by only 1 per cent. As in the other locations, high-value office space is in particular demand, since it is in increasingly short supply and rents for this type of property have risen by 7 per cent in 2011 and 2012 together. In both years office space takeup was above the long-term average. The vacancy rate has fallen further to below per cent. However, given the favourable market conditions, project development activities have also increased, with around 300,000 sqm for the most part it is already pre-let of office space likely to be completed in 2013 and 201 jointly. As a result of the weakened economic environment, we therefore expect at best weak growth in rents this year. The vacancy level is likely to remain essentially stable. Lively demand for office space in Berlin Prime rents likely to show virtually no growth this year OFFICE SPACE IN BERLIN GDP % yoy Per capita GDP in EUR ' Per capita GDP % yoy No. of office workers % yoy Total office space in million sqm Total office space % yoy Vacancy rate % Office rents Prime/secondary locations in EUR/sqm 20.5 / / / / 6.7 Prime /secondary locations % yoy 2.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 1

17 Retail space RETAIL PRIME RENT IN EURO PER SQM PER CAPITA RETAIL SPACE IN SQM Berlin Top-7 Regional-12 2, 2,2 2,0 Berlin Top-7 Regional , ,6 1, 100 1,2 Source: BulwienGesa, Feri, DZ BANK Research forecast Source: Feri With sales space of almost 6m sqm and retail sales of EUR 1bn annually, Berlin is the leader in Germany. However, based on the population of 3.5m, sales are low, since the figure of EUR,00 per sqm is only 70 per cent of the average level for the top locations. The economic situation in the German capital is improving gradually, however incomes which are well below average and relatively high unemployment - the rate is around 12 per cent - remain a drawback for the retail location. In contrast, the high and rising number of tourists, which has doubled since 2000 to around 10 million annually, is a positive factor. Tourists consequently contribute a quarter of Berlin's retail sales, with particular benefit for the top locations. High demand for sales space there caused prime rents to increase by almost 5 per cent in 2011 and close to 7 per cent in 2012, and the figure of EUR 20 per sqm is only marginally lower than average for the top locations. The demand overhang has been eased by the opening at the beginning of last year of the "Boulevard Berlin" shopping centre. "Leipziger Platz No. 12 Berlin" - another large shopping centre with 270 units - will open at the end of this year. Next year we expect the upward movement in prime rents to slow to around 2 per cent. Largest German retail location with relatively low purchasing power Tourists an important demand group in Berlin RETAIL SPACE IN BERLIN Per capita disp. income EUR/month 1,13 1,190 1,205 1,221 Per capita disp. Income % yoy Unemployment rate (BA) % Retail sales % yoy Total retail space in million sqm Total retail space % yoy Retail rents Prime /secondary locations EUR/sqm 215 / / / / 1.0 Prime /secondary locations % yoy 0.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 15

18 BREMEN Office space OFFICE PRIME RENT YOY IN % VACANCY RATE IN % Bremen Regional-12 Hamburg Bremen Regional-12 Hamburg 3 Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast The Hanseatic city of Bremen, together with Bremerhaven, which is 60 kilometres away, is the smallest German Land in terms of both size and population. The city of Bremen with its population of around 550,000 is thus the undisputed centre of the comparatively sparsely populated North West of Germany - the closest major cities with the same or greater economic importance, such as Hamburg, Hanover and Dortmund are more than 100 km away to the South and the East. Bremen also acts as the main focus of the metropolitan region of Bremen-Oldenburg. Central city in North West Germany As a former shipbuilding centre, Bremen is affected disproportionately by structural change, accompanied by what is a relatively high unemployment rate for a major west German city. Since 1970, around half of the jobs in the formerly important manufacturing sector have been lost. The unemployment rate has consequently increased from less than 1 per cent to almost 20 per cent at its peak. Supported by research, in cooperation with the University of Bremen many companies have been successfully established - particularly in the vehicle construction, aerospace technology, food and drink, biotechnology and logistics sectors. The employment situation has consequently improved visibly, although the unemployment rate is still above average for the regional centres. One positive factor is that per capita economic output is slightly higher than average for the regional locations. From shipbuilding to a granular economic location Relatively speaking, the Bremen office market is one of the smallest reviewed in this report in terms of population size. This is not surprising considering that the proportion of office jobs to total employment is fairly low. In terms of absolute office space, Bremen is however at the median of the regional centres with 3.3 sqm. A shortage of attractive office space, particularly in the city, is resulting in prime rents which are slightly higher than average for the regional centres at almost EUR 13 per sqm. Virtually no more up-to-date office space available 16

19 OFFICE SPACE PER OFFICE WORKER IN SQM BREMEN: TREND IN OFFICE SPACE AND EMPLOYMENT Bremen Regional-12 Hamburg office space office w orkers 95 Source: Feri, DZ BANK Research forecast Source: Feri Index 2003 = 100 The highest take-up related in the last year to the Überseestadt where new office properties have been constructed in recent years on converted harbour areas. However, almost all of the best sites on the waterside have now been used up. The third highest take-up after the city was achieved in the Airport City where new properties have been since 2000 caused for a continuously notable increase of office space a development which is likely to continue until The vacancy rate is also therefore very low at less than 5 per cent. Since most of the vacant space is in outdated and relatively small units, there is virtually no reserve supply of contemporary and large interconnected space. Low vacancy rate In the last two years the level of completions has been decidedly low. In contrast, various projects are being realised this year, some of which are in the "Überseestadt" district which will increase the volume of completions again significantly. However, as in many regional centres, there is a high level of pre-letting and available attractive office space is likely to remain in short supply. We therefore expect prime rents to increase by just under 1 per cent to almost EUR 13 per sqm. Rent levels in non-central locations are likely to remain stable. and supply shortage lead to high prime rents OFFICE SPACE IN BREMEN GDP % yoy Per capita GDP EUR ' Per capita GDP % yoy No. of office workers % yoy Total office space in million sqm Total office space % yoy Vacancy rate in % Office rents Prime /secondary locations EUR/sqm 12. / / / / 5. Prime /secondary locations % yoy 0.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 17

20 Retail space RETAIL PRIME RENT IN EURO PER SQM PER CAPITA RETAIL SPACE IN SQM Bremen Regional-12 Hamburg ,6 2, 2,2 2,0 1, 1,6 1, 1,2 Bremen Regional-12 Hamburg Source: BulwienGesa, Feri, DZ BANK Research forecast Source: Feri The large catchment area and attractive city centre with a baroque and renaissance market square provide major potential for city centre retail, which is however not being optimally utilised, partly because the proportion of the city centre devoted to sales space is relatively small in Bremen. While the Hanseatic city has several large shopping centres on its periphery, there is no attractive city centre shopping centre. This results in moderate prime rents of EUR 120 per sqm in the prime Bremen locations of Sögestraße and Obernstraße for the size and potential of the location. City centre retail suffers due to outlying shopping centres The interest of chain stores in large and high-value retail space in Bremen cannot be satisfied. However, this could change in future, since the Senate has decided to buy the Lloydhof on the Ansgarkirchof in order to build a shopping centre with 17,000 sqm of sales space there. However, since this will not be completed until 2017 at the earliest - if it does actually go ahead - there will be no impact on the market for the time being. The development of the area in front of the railway station, including retail space, will also not be completed until the end of 201. We therefore expect prime rents this year to more or less follow the average trend. and current lack of attractive sales space in the city RETAIL SPACE IN BREMEN Per capita disp. income EUR/month 1,627 1,6 1,62 1,70 Per capita disp. income % yoy Unemployment rate (BA) % Retail sales % yoy Total retail space in million sqm Total retail space % yoy Retail rents Prime / secondary locations EUR/sqm / / / / 10.0 Prime / secondary locations % yoy 0.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 1

21 COLOGNE Office space RENTS TOP LOCATIONS (% YOY) VACANCY RATE IN % Cologne Top-7 Regional Cologne Top-7 Regional-12 5 Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast Cologne has recently got back into the group of German cities of over a million inhabitants, along with Berlin, Hamburg and Munich. However, its office market is on the small side with just 7m sqm; Dusseldorf with just under 600,000 inhabitants has more office space. for office space in the last few years has been relatively high; although not quite as high as the 2011 figure which was buoyed by two big contracts, at around 250,000 sqm, the figure for the full year 2012 is still likely to be above the ten-year average. The prime office rent has therefore risen 2.5 per cent to EUR per sqm. The vacancy rate has fallen by half of 1 percentage point to per cent. Although as in other top locations, the overall amount of office space on offer is high because of vacancies, it consists mainly of older, less attractive space, and the kind of modern space which is required is hardly available. This is unlikely to change in the near future in view of a limited completion volume this year and next year. However, the economy is cooling, and we therefore expect a largely stable prime rent in The vacancy rate is also likely to remain stable. City with over a million inhabitants and relatively small office market Prime rent in 2013 likely to remain largely stable OFFICE SPACE IN COLOGNE GDP % yoy Per capita GDP EUR ' Per capita GDP % yoy No. of office workers % yoy Total office space in million sqm Total office space % yoy Vacancy rate % Office rents Prime/secondary locations EUR/sqm 20.0 / / / /.0 Prime/secondary locations % yoy -2. / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 19

22 Retail space RETAIL PRIME RENT IN EURO PER SQM Cologne Top-7 Regional PER CAPITA RETAIL SPACE (SQM) 2, Cologne Top-7 Regional-12 2,2 2,0 1, ,6 1, 1,2 Source: BulwienGesa, Feri, DZ BANK Research forecast Source: Feri Germany's fourth largest city is one of the favourite shopping locations in the whole country. The city has two of the shopping streets (the Schildergasse and Hohe Straße) with the highest footfall in Germany. Cologne is also more commercial than Dusseldorf for example, which means keen interest on the part of national and international chains and labels in Cologne as a location. Tourists significantly enhance purchasing-power potential. Unlike the rest of the top locations which have seen a growth rate of almost 30 per cent in overall retail space in the last ten years, the figure in Cologne has been only 7 per cent. This trend has meant that Cologne has changed from a location with a relatively high level of per capita retail space in the 1990s to the location with the lowest amount of retail space relatively at less than 1. sqm per inhabitant. At 19 per cent, the proportion of inner-city sales space is also below average. Since there are no major development plans in the city centre, there is no prospect of any noticeable increase in space near to the city either. The only larger project in the pipeline is the revitalisation of the Neumarkt Gallery, which is expected to be completed by the end of The attraction of the location and tight supply of retail space led to an increase in rents of over per cent to EUR 235 last year. This year, we expect a further rise in the prime rent of just under 2 per cent. Top location with the lowest per capita retail space figure Prime rent rising on the back of tight supply RETAIL SPACE IN COLOGNE Per capita disp. income EUR/month 1,510 1,529 1,55 1,570 Per capita disp. income % yoy Unemployment rate (BA) % Retail sales % yoy Total retail space in million sqm Total retail space % yoy Retail rents Prime/secondary locations EUR/sqm 220 / / / / 12.0 Prime/secondary locations % yoy 0.0 / / 0.0. / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 20

23 DARMSTADT Office space OFFICE PRIME RENT YOY IN % VACANCY RATE IN % Darmstadt Regional-12 Frankfurt Darmstadt Regional-12 Frankfurt Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast Darmstadt, the smallest of the regional centres reviewed here, is situated some 30 km from the Frankfurt catchment area, but is also a separate economic and office location. The fourth largest city in Hesse is a "science city" with a population of 13,000. This is attributable to the presence of the Technical University and college which have 37,000 students jointly, as well as a large number of research bodies, for example the European Space Agency (ESA) and the International Particle Accelerator facility (IPA) approved for construction in November. Small "science city" Office market small in absolute terms, but relatively large A number of important companies are also based in Darmstadt. These include Merck, Deutsche Telekom, P&G (Wella) and Goldwell. As a result of its research and technology orientation, the number of office workers in Darmstadt has grown by.7 per cent in the last five years which is roughly average. Per capita GDP is the highest of all the regional centres reviewed at almost EUR almost 30 per cent above average. Important location for companies with growing number of office workers While, in absolute terms, office space in Darmstadt is amongst the lowest levels of the centres covered in this report at just 1.m sqm, relatively speaking the office market is disproportionately large in relation to the population. The locations of Mainz and Augsburg - whose office markets are similar in size at 1.7m sqm - thus have populations which are 0 and 5 per cent higher respectively. Darmstadt also still has major conversion areas (Kelley-Barracks, Nathan-Hale-Depot, and Griesheim Airfield) which, according to calculations by the City of Darmstadt, will create another almost 200,000 sqm of office space. The Institute for Federal Real Estate plans to gradually sell off large commercial building space there from Office market small in absolute terms, but relatively large 21

24 OFFICE SPACE PER OFFICE WORKER IN SQM DARMSTADT: TREND IN OFFICE SPACE AND EMPLOYMENT Darmstadt Regional-12 Frankfurt 125 office space 120 office w orkers Source: Feri, DZ BANK Research forecast Source: Feri Index 2003 = 100 The Darmstadt office market is much less volatile than that of neighbouring Frankfurt. As a result of the crisis, prime rents declined by a total of around EUR 1 in 2009 and 2010 jointly, but increased for the second time in succession in 2012, after the pre-crisis level was already reached in 2011 on the back of below-average take-up. The vacancy rate of less than.5 per cent is around 2 percentage points below average for the regional centres reviewed. Office rents reach pre-crisis levels As a result of the sale of the "ArcaDa City House" the revitalised former Helaba building with around 5,000 sqm of office space - and the completion of "space 20" with 6700 sqm of office space, the supply of high-quality office space improved again in At the beginning of 2013, another 6,000 sqm will be ready for occupancy in the "Connect" office project on Europaplatz close to the railway station. However, high demand on the one hand, and the sparse supply of new space on the other, should ensure that rents continue to increase slightly in 2013, particularly since new space is generally let at the upper end of the price scale. Prime rents likely to rise again slightly in 2013 OFFICE SPACE IN DARMSTADT GDP % yoy Per capita GDP EUR '000 Euro Per capita GDP % yoy No. of office workers % yoy Total office space in million sqm Total office space % yoy Vacancy rate % Office rents Prime /secondary locations EUR/sqm 11.0 / / / / 7.5 Prime /secondary locations % yoy -6.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 22

25 Retail space RETAIL PRIME RENT IN EURO PER SQM PER CAPITA RETAIL SPACE IN SQM Darmstadt Regional-12 Frankfurt 2, 2,6 2, 2,2 2,0 1, 1,6 1, 1,2 Darmstadt Regional-12 Frankfurt Source: BulwienGesa, Feri, DZ BANK Research forecast Source: Feri A large catchment area - mainly to the south of Darmstadt - and above-average disposable incomes create a positive environment for the retail sector. However, as a result of the city's proximity to Frankfurt and the comparatively large supply of retail space, prime rents are about a quarter below the average level. As a result of the major attractions of the city centre shopping facilities, despite the opening in 2009 of the large "Loop 5" shopping centre only a few kilometres from Darmstadt with 175 shops and 56,000 sqm of sales space in Weiterstadt, rents have declined only in secondary, but not in prime locations, since there is still demand for attractive (large-scale) space. Tenants had already been signed up before the expansion of the centrally located Luisen-Center with 2,600 sqm of retail, office and storage space. After a sharp increase in 2011, prime rents stagnated last year, while secondary locations showed an increase again. This year we do not expect any growth in retail rents in Darmstadt, but only a stable trend in rents. Attractive conditions for the retail sector Stable rents expected in 2013 RETAIL SPACE IN DARMSTADT Per capita disp. income EUR/month 1,671 1,66 1,717 1,7 Per capita disp. income % yoy Unemployment rate (BA) % Retail sales % yoy Total retail space in million sqm Total retail space % yoy Retail rents Prime /secondary locations EUR/sqm 90.0 / / / / 12.0 Prime /secondary locations % yoy 0.0 / / / / 0.0 Source: Feri, BulwienGesa, DZ BANK Research forecast 23

26 DRESDEN Office space OFFICE PRIME RENT YOY IN % VACANCY RATE IN % Dresden Regional-12 Berlin Dresden Regional-12 Berlin Source: BulwienGesa, DZ BANK Research forecast Source: Feri, DZ BANK Research forecast While Dresden is well known for its Frauenkirche, the Zwinger and the Semperoper, its positive economic growth is less well appreciated. Although per capita economic output is still much lower than in large west German cities, with an unemployment rate of just under 9 per cent, the image of the "structurally weak East" does not apply to Dresden. The city has developed successfully as a location for companies, particularly in the technology sector. Its positive development - in contrast with the East German trend - is also evident in stronger population growth of 10 per cent since 2001 compared to the other regional centres considered. Falling unemployment and population growth Dresden is not only the capital city of the Free State of Saxony, but is also the seat of administration of the Dresden regional district and the Higher Regional Court. Public administration therefore plays an important role as a local employer. The university and a large number of research bodies such as the Max-Planck, Fraunhofer, Leibnitz and Helmholtz companies also provide a large number of jobs in R&D. The number of office employees has increased by more than per cent since Important administration and research centre The colloquial designation "Silicon Saxony" illustrates the significance of microelectronics and information and communications technology for the city and the surrounding area. These sectors provide 0,000 jobs jointly. Dresden is also a leader in nanotechnology: more than 50 companies and 30 research institutions make the city the German centre for this sector of industry and research. A large number of companies from the vehicle construction, aviation and pharmacy sectors also contribute to the dynamic growth of local economic power. High-tech an engine of growth 2