CSE 14: CORPUS SIREO AND EMPIRICA POTENTIAL INDEX

CSE 14: CORPUS SIREO AND EMPIRICA POTENTIAL INDEX Evaluation of asking rents in selected regional office locations marked by high development potential TH E R EAL E STATE P E O P LE

Overview Index Trend Focal City Contact THE 14 HIGH-POTENTIAL OFFICE LOCA- TIONS STAND OUT DUE TO LONG-TERM GROWTH IN OFFICE EMPLOYMENT AND DEMAND Cities with potential move increasingly into the focus of investors and developers The office markets of many major German cities that are not grouped with the so-called Class A locations are showing a development more stable than that of the top office locations. Hence they are increasing ly moving into the focus of investors and project developers. Then again: Comparatively little is known about these high-potential office markets. This is where the CORPUS SIREO empirica Potential Index comes in, as it highlights the rental growth of selected regional office locations against the background of key supply and demand parameters of the office market. The 14 office locations mapped by the CORPUS SIREO empirica Potential Index were selected from a large number of regional office locations in Germany on the basis of the following criteria: office market size, importance of office jobs for the respective local economy, excellent historic and promising future demand trends. Change in Office Employment 2007-2025, in % below -15% -15% to -5% -5% to 5% 5% to 15% above 15% Münster Dortmund Essen Aachen Bonn Bremen Wiesbaden Mainz Mannheim Karlsruhe Hanover Leipzig Nuremberg Dresden Source: empirica, BulwienGesa, Wirtschaftsförderungen der Städte 2011 2 3

Overview Index Trend Focal City Contact THE 14 HIGH-POTENTIAL OFFICE LOCA- TIONS STAND OUT DUE TO LONG-TERM GROWTH IN OFFICE EMPLOYMENT AND DEMAND White collar jobs are migrating south Bremen 3.1 Hanover 5.3 Münster 2.6 The map is based on the long-term trend for office employment in Germany s regional development areas through 2025. Prime rent " 12.75 Yield ( 6.4 " 12.80 ( 6.2 " 12.50 ( 6.5 The map clearly shows the south-north and the west-east gradient. The 14 regional office locations at issue are situated in regions where the number of office jobs and thus the demand for office space will be subject to long-term growth. In addition to these high-potential locations, there are other regions or office markets with a positive development dynamic, especially in Southern Germany, that were, however, excluded from this index because of their comparatively small size. Take-up ( 74 Vacancy " 3.7 Dortmund 3.2 Prime rent " 13.00 Yield ( 6.3 ( 106 " 4.9 Essen 3.6 " 12.50 ( 6.0 & 49 ( 5.1 Leipzig 3.5 " 10.80 ( 6.3 Take-up ( 63 ( 120 & 72 Vacancy " 4.8 ( 4.8 " 17.1 City Trend (YoY change) Office stock (GBA, in MM sqm)) Dresden 3.4 Bonn 4.0 Aachen 1.7 Prime rent " stable EUR/sqm/month Prime rent " 10.50 " 12.10 ( 12.10 Yield & rising Prime yield (in %) Yield ( 6.5 ( 5.8 ( 6.5 Take-up ( declining Take-up (in 000 sqm) Take-up " 88 & 85 ( 38 Vacancy Vacancy rate (in %) Vacancy ( 10.7 " 3.8 " 7.0 4 5

Overview Index Trend Focal City Contact THE 14 HIGH-POTENTIAL OFFICE LOCA- TIONS STAND OUT DUE TO LONG-TERM GROWTH IN OFFICE EMPLOYMENT AND DEMAND Overview office market benchmarks Wiesbaden 2.8 Mainz 1.9 Nuremberg 4.3 In addition to office employment, important office market benchmarks are listed for each of the 14 locations: prime rent, purchase yield, take-up, and vacancy. With the exception of Bonn and Nuremberg, the purchase yield rates clearly exceed 6% in all of the 14 office locations, while the vacancy rates of half of the locations undercut the standard fluctuation level of 5%. Prime rents show only marginal differences between the cities only in Leipzig and Dresden are prime rents lower by approximately one Euro. Prime rent " 13.20 Yield ( 6.4 Take-up & 62 Vacancy " 6.2 Mannheim 2.4 " 12.20 ( 6.6 " 30 " 5.8 Karlsruhe 2.8 " 12.00 ( 5.7 " 85 ( 8.0 Prime rent & 13.00 " 11.50 Yield ( 6.4 ( 6.4 Take-up " 61 & 33 Vacany ( 7.0 ( 4.6 6 7

Overview Index Trend Focal City Contact ROBUST PERFORMANCE OF HIGH-POTEN- TIAL CITIES IN BENCHMARK COMPARISON WITH METROPOLIAN AREAS High-potential cities offer faster rental growth and less volatile rent histories The CSE 14 index shows the development of average asking rents in the 14 high-potential cities for the time of Q1/2008 through Q4/2011. Compared to Germany s seven Class A metropolises, the CSE-14 index shows not only a higher rent increase, but also a more stable and less volatile rent history. In a comparison using long-term time series, the contrast between the major cities analysed and the metropolitan regions is even more conspicuous. The Potential Index lends itself to a comparison with the average rental growth of the major cities, which manifests a considerably narrower fluctuation width than the prime rent level of the metropolitan regions. Yet more conspicuous are the high rental discounts of the intensely cyclical office markets in the top rental segment of the metropolises. Despite the recovery stages, the levels of the early years of the millennium were not regained. Metropolises: Berlin, Hamburg, Munich, Cologne, Frankfurt, Dusseldorf, Stuttgart Source: empirica Preisdatenbank (IDN Immodaten GmbH), PMA, BulwienGesa 8 9

Overview Index Trend Focal City Contact ROBUST PERFORMANCE OF HIGH-POTEN- TIAL CITIES IN BENCHMARK COMPARISON WITH METROPOLIAN AREAS Stability & continuity in the high-potential cities imply opportunities for investors The development shows the opportunities that office real estate offer in the major cities included in the CSE 14: On the one hand, the rent levels are subject to lower fluctuations, while, on the other hand, rent increases during the period under review are higher in sum than in the metropolises. This development is moreover substantiated by the reference index Average Rents in Major Cities, which also exceeds the figures reported from the metropolitan regions. Another advantage of investing in major cities outside the metropolitan regions is the connection between higher purchase yield rates and lower rent rates for prime properties. This makes purchase prices more affordable, a fact which in turn reduces the capital commitment for each property. A capital commitment of equal value thus permits spreading the risk across several properties and minimising them in the process. Metropolises: Berlin, Hamburg, Munich, Cologne, Frankfurt, Dusseldorf, Stuttgart Source: empirica Preisdatenbank (IDN Immodaten GmbH), PMA, BulwienGesa 10 11

Overview Index Trend Focal City Contact THE EVALUATION ACCORDING TO AGE CA- TEGORY SHOWS: HISTORICAL BUILDINGS ARE AS MUCH IN DEMAND AS NEW ONES Age categories of buildings clearly influence rental growth Compared to the overall index, buildings belonging in different age categories developed along comparatively different and altogether more volatile lines. When considering the period between Q1/2008 and Q2/2011, it is striking to see the positive performance of the rent index for properties built after 1995. Only in the second quarter of 2011 does this building category lag slightly behind the index total. The redevelopment status and fit-out of historical buildings plays as much of a role as the location and site criteria for the rent level. The poor rating of newly constructed buildings is the remarkably sound result for historic properties raised before 1945. Following significant mark-ups and markdowns at the end of 2010, buildings in this age category currently show the highest index scores. Despite the fluctuations, this rent history reflects the high attractiveness of historic properties in regional office locations, even though the rent levels in this age category are more dependent on a building s repair and fit-out than properties of more recent provenience are. By contrast, properties raised between 1945 an 1995 show a stable rent history with few positive and negative outliers over time. This moderate dynamic is also explained by the fact that this building age category accounts for the largest share of vacant and less sought real estate. This fact is moreover reflected in the asking rents, which are lower in absolute terms than in other age categories. Source: empirica Preisdatenbank (IDN Immodaten GmbH) 12 13

Overview Index Trend Focal City Contact OVER TIME, ABSOLUTE RENT LEVELS SHOW REGIONAL DIFFERENCES BET- WEEN THE HIGH-POTENTIAL CITIES Long-term rental growth trend levels short-term differences among high-potential cities In the context of a 4% rent increase in the 14 CSE cities since Q1/2008, rents in the regional office locations developed quite differently. Fastest rent hike in Münster Top-performer with a rent increase of around 10% is the campus town of Münster in North Rhine-Westphalia. Main factors for the price hike included an increase in demand for office space by more than 4% (the top rate among the CSE 14), a very moderate vacancy rate (5.1%), as well as a successive decline in the office supply due to the contracting project development pipeline. Assuming a steady office take-up of 50,000 to 60,000 square metres, there is reason to expect rates in Münster to keep rising for another year or two. Source: empirica Preisdatenbank (IDN Immodaten GmbH) 14 15

Overview Index Trend Focal City Contact OVER TIME, ABSOLUTE RENT LEVELS SHOW REGIONAL DIFFERENCES BET- WEEN THE HIGH-POTENTIAL CITIES Rent rates in Hanover benefit from low development pipeline and low vacancy rate In Hanover, state capital and most important office location of Lower Saxony, rent rates increased by nearly 10% since Q1/2008. While the demand for office space in Hanover grew at a lower percentage than in Münster, the volume of additional new floor space was lower when set in relation to the size of the office market. Since considerably more new space is coming on-stream on the Hanover market in 2011, and a significant surge in demand for office space is not to be expected in the short run, it is safe to assume that the rent level will either remain stable or soften slightly. Above-average rental growth in Bonn, Karlsruhe, and Mannheim, too Rent rates in Bonn, Karlsruhe and Mannheim similarly grew at an above-average 5-6% since Q1/2008. Given a continued increase in demand for office space in these attractive office locations, a very low to moderate vacancy rate (in Bonn just 3.8%, for instance), and scant additional building land becoming available within the next year, it is safe to expect rent rates to keep rising. Cities like Essen, Wiesbaden or Mainz merely reported a lateral movement of the rent level, despite the sometimes low vacancy rate. The same is true for Leipzig and Dresden. Yet despite the comparatively low vacancy rates, both cities managed to maintain their rent level of 2008. 16 17

Overview Index Trend Focal City Contact THE SUPPLY DISTRIBUTION BY RENT LE- VEL SHOWS THE BIGGEST DIFFERENCES IN RENT LEVELS AMONG AVERAGE PRO- PERTIES Rent brackets in the high-potential cities are less differentiated than in the metropolises The asking rent bracket in the 14 CSE high-potential cities extends from less than 5/ sqm to just under 20/ sqm in Q2/2011. In contrast to metropolises, the regional office locations are less differentiated. For the majority of properties (covering percentiles 10 through 90), rent rates fall into the narrow bracket of 5 to 10/ sqm). This means that rents paid in top properties in CSE 14 high-potential cities are merely twice as high on average as that paid in very low-priced properties. In the metropolises, by contrast, the rent rates for top segment venues are three times as high as those of very affordable properties. This is to some extent explained by the absolute size of the metropolises and their highly differentiated locations. Source: empirica Preisdatenbank (IDN Immodaten GmbH) 18 19

Overview Index Trend Focal City Contact THE SUPPLY DISTRIBUTION BY RENT LE- VEL SHOWS THE BIGGEST DIFFERENCES IN RENT LEVELS AMONG AVERAGE PRO- PERTIES The market in the top segment of the high-potential locations is smaller than in the metropolises Another difference between the 14 regional office locations under review and Germany s metropolises involves the priciest ten percent of the supply (percentiles 90 through 100): Here, the price curve is steeper. This reflects the tight market in the top segment of the regional office locations, marked by comparatively small scale. All things considered, there are fewer properties, and these are quickly absorbed by the market as soon as demand perks up. The absolute premium properties of the regional office locations are often concentrated in close vicinity of each other, whereas metropolises tend to have more than one top location. While the rent level of an average metropolitan property is 60% higher than it would be in the regional office locations, projected asking rents for prime properties in the metropolises exceed the regional big-city level by only 40%. The situation is similar for the most affordable properties (up to the 20th percentile) on the market. Here, too, the big cities under review are closing the gap to the metropolises. Price curves differ considerably in the high-potential cities There are, however, substantial differences in the price gaps among the various CSE 14 high-potential cities. For instance, the price curves in Bonn and Mainz are steeper than those in Dresden and Nuremberg. This means, on the one hand, that fewer affordable properties are available in Bonn and Mainz, while, on the other hand, rent rates in the absolute top segments in Mainz and Bonn are substantially higher. A premium property in Bonn, for example, costs nearly 50% more than a comparable property in Nuremberg, whereas an average quality property in Bonn is only 20% more expensive than it would be in Nuremberg. This means inversely, though, that Nuremberg is more likely to offer opportunities for developing new prime locations than Bonn. 20 21

Overview Index Trend Focal City Contact FOCAL CITY OF NUREMBERG OFFERS POSITIVE RENTAL GROWTH AND FLOOR SPACE POTENTIAL FOR PROJECT DEVE- LOPEMENTS Sound development options in Nuremberg The Nuremberg office market includes nearly 113,000 whitecollar employees and an office stock of more than four million square metres. The average asking rent for office space in Nuremberg rose by roughly 7% between 2008 and 2011, and rose fastest in historic buildings raised before 1945. Top rents in Nuremberg exceed the mark of 12/ sqm for office properties. The vacancy rate is expectec to decline to a level of about 6% in 2011. Nuremberg office market rent rate level Deviation from average rate in major cities (=100%) Below 70 100-105 70-80 105-110 Green space Built-up area Other area 80-85 85-90 90-100 110-120 120-140 Above 140 Source: empirica Preisdatenbank (IDN Immodaten GmbH) 22 23

Overview Index Trend Focal City Contact FOCAL CITY OF NUREMBERG OFFERS POSITIVE RENTAL GROWTH AND FLOOR SPACE POTENTIAL FOR PROJECT DEVE- LOPEMENTS Like most regional office locations, Nuremberg s office market is characterised by owner occupation projects (e.g. easy credit and Datev at the moment) and to a lesser extent by speculative developments. The spaces becoming available as a result of economic changes (e.g. the former Quelle areas) imply great options to act upon in terms of new office projects in the coming years, thus offering the chance of a forward-looking response to peak demand in the future. Index Development Nuremberg Center Periphery The top-price areas on the Nuremberg office market are located downtown (e.g. Tafelhof) and in the north-western part of town. This fact is also reflected in the level of the asking rents in the town centre and in peripheral locations, respectively. While the asking rents downtown have held their high level, peripherals did catch up in recent years. Representative for this positive development are, for instance the TM50 scheme in Langwasser and Campus Marienberg en route to the airport. Source: empirica Preisdatenbank (IDN Immodaten GmbH) 24 25

Overview Index Trend Focal City Contact CONTACT DATA & METHODOLOGY Methodology The quoted prices for office properties as represented in the maps are the result of an evaluation of the empirica price database (in collaboration with IDN Immodaten GmbH). It covers around 213 million online real estate ads from 113 sources (or large real estate portals or dailies), and thus maps a large part of the German real estate market. In order to achieve a high degree of valid results, the office ads are filtered in a graduated cleansing process. In a first step, recurrent listings are isolated by matching multiple characteristics. In a second step, improbable ads are removed from the data record by setting threshold values. As a result, only 15% to 20% of the original sample remain. Overall, nearly 550,000 data items entered into the evaluation for the time period between Q1/2008 and Q2/2011. The Rent/ Location Index (see sheet 04) represent zones of identical rent rates in office quarters of the analysed cities as deviation from the city s average, and irrespective of urban district boundaries. This identifies not only the office rent price structure within a given city, but also highlights the price differences within a given district. Methodologically speaking, the Rent/ Location Index is based on a geostatic process that links price quotes from the years 2008 through 2010 geographically, down to the very address. To plausibilize the Rent/ Location Index, the findings are finally coordinated with office market experts on the ground. The empirica office job forecast for the regional planning regions is based on the empirica job forecast and a forecast for the office job ratios on 60 business departments (backed by a regression analysis of the office job ratio). The CSE 14 CORPUS SIREO empirica potential index maps a variety of prices. On the one hand, average rents, calculated as arithmetic medians, and, on the other hand, price percentiles. They represent the entire price range of a given office market, making it possible to show how many percent of the supply go into each price segment. For instance, it is easy to show which price segment includes the priciest 10% of the supply. The 50th percentile represents the median. 26 27

Overview Index Trend Focal City Contact CONTACT DATA & METHODOLOGY empirica ag empirica, an independent economics and social science research and consulting firm, consists of three companies: empirica Qualitative Marktforschung, Stadt- und Strukturforschung GmbH in Bonn, empirica Forschung und Beratung AG in Berlin, and komet-empirica Regionalentwicklung, Stadtentwicklung, Immobilienforschung GmbH in Leipzig. empirica advises national, regional and international institutions as well as private clients in the areas real estate markets, economic research, as well as urban and regional planning, and maintains proprietary databases (empirica Price Database, techem-empirica Vacancy Index, empirica Regional Forecasts, and empirica Ward Database). For more information about empirica, go to www.empirica-institut.de. 28 29

Overview Index Trend Focal City Contact CONTACT DATA & METHODOLOGY Your contact: Contact for related issues: ROY BRÜMMER Managing Director CSAMC Transaction Mgmt. & Letting Jahnstrasse 64 63150 Heusenstamm Tel. +49 6104 664 160 Roy.Bruemmer@corpussireo.com MARTIN LIPPMANN CSAMC Jahnstrasse 64 63150 Heusenstamm Tel. +49 6104 664 371 Martin.Lippmann@corpussireo.com FRANZ KREWEL Managing Director CSM Aachener Str. 18650931 Köln Tel. +49 221 4737 658 Franz.Krewel@corpussireo.com THOMAS ABRAHAM empirica ag Kaiserstr. 2953113 Bonn Tel. +49 228 8914 8955 abraham@empirica-institut.de 30 31

Overview Index Trend Focal City Contact CONTACT DATA & METHODOLOGY PUBLISHED BY: CORPUS SIREO ASSET MA- NAGEMENT COMMERCIAL GMBH About CORPUS SIREO With a total of 14.5 million square metres of commercial and residential property space worth more than 15.4 billion Euros in assets under management, the Cologne-based CORPUS SIREO employs a staff of around 560 professionals at 11 locations in Germany and Luxembourg. This makes the company Germany s biggest asset manager. The company is also the market leader in regard to the number of managed asset classes: Serving seven asset classes (office, residential, retail, logistics, healthcare, production/technology, others), CORPUS SIREO offers the broadest spectrum of all German asset managers. Accordingly, even rival companies rate CORPUS SIREO as the chief competitor on the market. (These are the findings of the Real Estate Asset Management Report 2011 by Bell Management Consultants.) Dusseldorf Cologne Bonn Hamburg Berlin Leipzig Frankfurt a.m. To investors, banks, and companies with proprietary real estate portfolios, CORPUS SIREO offers investment management and asset management services along the entire real estate supply chain. Moreover, the company acts as broker and project developer for owneroccupiers and investors. Luxemburg Nuremberg StuAgart Munich 32 33

COPYRIGHT Copyright All rights to this edition reserved. Reprinting, including excerpts, subject to prior written permission. Photographs, charts, and layout designed by the editorial desk are protected by applicable copyright laws. The data and information contained in this publication are based on publicly available sources that the editor deems trustworthy. The CORPUS SIREO group of companies assumes no warranty regarding the accuracy or completeness of the information. Any opinion offered represents the current assessment of the editor. No warranty is assumed in regard to the opinions and forecasts ventured. Specifically, no liability is assumed for future developments in the real estate economy. The data and information contained in this publication is subject to change without notice both during the time of its publication and thereafter. Status: October 2011