CBRE MarketView Office Market Hamburg www.cbre.de Q4 211 OVERVIEW Q4 211 compared to Q3 11 Q4 1 Take-up Vacancy Prime rent Prime yield Completions Q4 211 from expert s point of view Heiko Fischer, Head of Agency Hamburg: Current developments on the markets have not had an effect on Hamburg s real estate market yet. Compared to the average of the last 1 years, real estate markets developed very positively in 211 andgeneratedasolidtake-upof536,8 sq m. Economy Despite the on-going sovereign debt crisis in the euro zone, the country s economy once again proved to be quite solid. The positive development in the fourth quarter of 211 was also reflected by the ifo-business climate index, which rose slightly and is now at 17.2 index points. After the economic upswing at the beginning of the year, the GDP (gross domestic product) developed positively and by the third quarter it already surpassed the previous years result by.5%. According to preliminary results of the Federal Statistical Office, the German gross domestic product grew by 3.% year-on-year. Hence, the German economy continued to catch up in the second year of the economic crisis. Although economic outlooks remain positive, growth will be more moderate. For 212, a growth of only.5% is forecast (Consensus Forecast), which means that forecasts had to be revised downwards by.5% since the last quarter. Despite the economic slowdown in Germany, unemployment rates remain on a low level. In Hamburg, unemployment is unchanged at 7.3%, which is slightly above the German average of 6.6%. As Germany s most important centre for foreign trade and principal transport hub, Hamburg will profit significantly from the worldwide increasing goods turnover. For 212, it is very likely that Hamburg will experience a development contrary to global trends and that exports will increase despite the economic downswing. The same effect was already observed in 29 when exports increased by 2.6% regardless of the global economic crisis. Office market Hamburg s office market performed well in 211 and, as expected, take-up amounted to 5, sq m, compared to the previous year an increase of 5.7%. In the fourth quarter, however, take-up was not as high as in the same period of the previous year. The overall take-up volume of 536,8 sq m is nevertheless the third best result since 27. As expected after the results of the third quarter, the completion volume was very low with only 2, sq m, the lowest volume of space completed since 26. By the end of the year, approximately 1.15m sq m office space was vacant. Hence, vacancy decreased by 3.4% compared to 21. For 212, we expect vacancy to decline further, particularly due to the low proportion of speculative completions. Investment market While the German investment market for commercial properties saw a total investment volume of 22.6bn, Hamburg s investment market for commercial properties amounted to approximately 2.1bn, which is a plus of 9% compared to the previous year. It is also the third best result since 27. The prime yield will remain stable due to the continuously high demand for core products. At the end of the fourth quarter, it remained unchanged at 4.9%. Office market key data Q4 21 Q4 211 Annual change Stock, million sq m 13.25 13.31 +.5% Take-up, cum. 1, sq m 57.9 536.8 + 5.7% Vacancy, million sq m 1.19 1.15 3.3% Vacancy rate, % 9. 8.7.3%-Pts. Prime rent, /sq m/month 22.5 23. + 2.2% Prime yield, % 4.9 4.9.%-Pts. Capital value index (Q1 1986 = 1) 158 161 + 1.9% Source: CBRE 212, CBRE GmbH
Q4 211 MarketView Office Market Hamburg TAKE-UP With 136, sq m take-up at year-end, the City submarket once again accounted for the largest share of the overall volume (25%). The letting of about 1, sq m by BDO Warentreuhand was the largest single transaction in this submarket; there were no lettings in the size category above 4, sq m. The Harburg/Süderelbe submarket registered the second best result with a take-up of 76,1 sq m. The result can be mainly attributed to a newbuild with about 45, sq m in Wilhelmsburg used by the city s authority for urban development and environment, which was also the only letting above 5, sq m in the submarket. With a take-up of about 48,4 sq m, it was followed by the HafenCity submarket. In the fourth quarter and together with the Harbour submarket, the submarket also accounted for two of the few lettings in the size category above 5, sq m by Kühne Logistic University and Bundesanstalt für Immobilienaufgaben. About 8% of this category was generated in the second half of the year. Together with the public services, the sectors trade, further education, legal advisors/chartered accountants and transport/traffic contributed just under half of all take-up volume this year. Lettings in the size category of up to 1, sq m accounted for largest share of overall take-up. Demand for office space is highest in the city centre, in particular for high-priced assets in the City submarket. VACANCY Due to the good take-up volume in 211, vacancy was relatively low with 1.15m sq m un-let office space compared to the previous year. With about 21% and 18% respectively, the City-South and City submarket had the highest share of the overall vacancy. With 19.3%, the City-South submarket accounted for the highest vacancy rate of all submarkets, particularly due to a relatively high proportion of space of average or older fit-out quality, which amounted to about 56% of the overall space volume in the submarket. In peripheral locations such as in the Hamburg-North/East and Hamburg-South/East submarkets, the proportion is even higher and amounts to over 7%. In general, demand still focuses on areas fit-out to a high standard. On the demand side, around 83% of the take-up in the current year is of space with the best quality fit-out (so-called A-grade), whereas on the supply side just above 5% of the office space is of average or older fit-out quality (B/C-grade). Thus, it can be expected that the structural vacancy in Hamburg, in particular in the peripheral locations, will remain on a similar level in 212. Due to the low volume of speculative completions, however, office vacancy in general might decrease. Page 2 212, CBRE GmbH Office space take-up 1, sq m 6 5 4 3 2 1 Annual average (22-21): 443,9 sq m 22 23 24 25 26 27 28 29 21 211 Office space vacancy Q1 Q2 Q3 Q4 Office space take-up (cumulated, %) by sectors* -Top 5-1, sq m 1,4 1,2 1, 8 6 4 2 Remaining sectors 51% Legal Adv., Chart. Acc. 13% Average vacancy rate (22-21): 7.5% 22 23 24 25 26 27 28 29 21 211 Vacancy Vacancy rate Public Services 13% Trade 8% Transport, Traffic Further 8% Education 7% * in total 2 sectors 1. 9. 8. 7. 6. 5. 4. 3. 2. 1.. %
Prime rent/weighted average rent /sq m/month Rent index Index Q1 1986 = 1 1, sq m 3 25 2 15 1 5 22 23 24 25 26 27 28 29 21 211 3 25 2 15 1 5 Office space future supply 6 5 4 3 2 1 Prime rent Completions annual average (22-21): 245,3 sq m Weighted average rent 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 Germany Hamburg 22 23 24 25 26 27 28 29 21 211 212 213 214 Completed Speculative Pre-let Owner-occupied RENTS The prime rent for top locations in the Hamburg office market amounted to 23. sq m/month. Hence, it remained unchanged compared to the previous year, after a slight increase of 2% in the third quarter of 211. For 212, the prime rent is expected to increase due to the rising demand for top locations close to the city centre. The weighted average rent rose by about 4% to 14.68 sq m/month, particularly due to the high number of lettings in the sought-after locations of the City, Westlicher Hafenrand and HafenCity submarkets. With each approximately 18. sq m/ month, the highest average rents at the Hamburg Office Market were achieved in these submarkets. Rental levels only plummeted in the Außenalster. The average weighted rent declined from about 17. sq m/month in the third quarter to 15.45 sq m/ month at the end of the year. The CBRE rent index (reference year Q1 1986) rose by 4 points compared to the previous year and is now at 158 index points. PIPELINE In 211, almost 2, sq m of office space was completed in Hamburg, the lowest volume in the past five years. The by far largest proportion of the completed space, about 67%, was already pre-let. The share of speculative completions was at about 28% and the share of owner-occupied space at approximately 5%. The largest share of speculative completions could be found in the favorite City and HafenCity submarkets. For the next twelve months, it is expected that about 247,7 sq m office space will be completed. However, a large share of the total completion volume, approximately 34,4 sq m, will be attributable to the refurbishment of the Allianz building in the City-North submarket. Speculative completions will amount to approximately 55, sq m. The low share of speculative completions will also have a positive effect on the development of office vacancy in the upcoming year. According to present know-ledge, about 5% of the space scheduled for completion up to the end of 214 is already pre-let and no speculative completions are projected for 214. Page 3 212, CBRE GmbH Q4 211 MarketView Office Market Hamburg
Q4 211 MarketView Office Market Hamburg PIPELINE BY SUBMARKETS Up to the end of 214, the greatest space volumes will be completed in the submarkets HafenCity and Harburg/Süderelbe with about 17% and 16% of the overall completion volume respectively. The high building activity underpins the submarkets image as structurally very dynamic urban districts. Especially large projects such as the new-build for the city s authority for urban development and environment in Wilhelmsburg (approx. 45, sq m) and the office and retail complex Palisander in the location Überseequartier (approx. 22, sq m) contribute to the overall volume. Building activity in the City sub-market will also remain high as about 73, sq m space is scheduled for completion. Of these, about 43% are speculative completions. The largest project development in 212 included not only the new-build for the government authority in Wilhelmsburg but also the office tower Tanzende Türme in the city district St. Pauli (approx. 26,5 sq m) and the large new-build of the Opern Plaza in the City submarket (12,5 sq m). The project development Hammerbrookhöfe by Deutsche Bahn with about 22,5 sq m in the City-South submarket is also scheduled for 213. The number of refurbishment projects is also expected to remain on a high level in 212 including the redevelopment of the Allianz building in the City-North submarket with approximately 34,4 sq m. INVESTMENT Despite a weaker second half, the Hamburg investment market exceeded the previous year s result by about 9% in 211 and achieved an overall investment volume of approximately 2.1bn, which is the third largest volume after the record years of 26 and 27. At 49%, the lion s share was generated by office properties. Investments in retail assets, however, increased significantly by about 48% and amounted to approximately 862m at the end of the year. This indicates clearly that investors increasingly confine in the performance of German retail. Page 4 1, sq m 9 8 7 6 5 4 3 2 1 Hafen- City Har. Süd. City Speculative Pre-let Owner-occupier FORECAST Considering the sovereign debt crisis in the euro zone, weexpecteconomicgrowthtobemoremoderateinthe next twelve months. Office vacancy might nevertheless decrease due to the fact that many companies have expressed growth ambitions on the one side and the proportion of speculative completions will remain low on the other side. Consequently, prime rents are likely to rise since demand for space with the best quality fit-out will even increase in the future and demand for space of average or older fit-out quality decrease. Thus, it can also be expected that not only structural vacancy in Hamburg, particularly in the peripheral locations, will increase in 212 but also vacancy in general if no further necessary refurbishment projects are initiated. 212, CBRE GmbH Office space future supply (Q4 212-214) by submarkets* -Top 5- Prime yield, capital value and benchmark yield Index Q1 1986 = 1 Auß.- alst. HH-W * in total 2 submarkets 22 23 24 25 26 27 28 29 21 211 With 632m invested, open-ended funds/special funds dominated the market on the purchaser side, followed by private investments in commercial properties of 348m (+39%). On the vendor side, project developers were the most active group with sold properties worth about 96m. The continuously high demand for low risk core properties is increasingly confronted with decreasing supply. Hence, prime yields for office properties remained unchanged at 4.9% at the end of the year. 18 16 14 12 1 8 6 4 2 Capital value index Prime yield (%) 1y government bond (%) 6 5 4 3 2 1 %
Future supply 212 214 sq m Vacancy rate % Rental band /sq m/month Weighted average rent /sq m/month Außenalster 28,1 52,6 1.6 1. 18.5 15.45 City 136,4 72,9 8.8 1. 23. 18.18 City-North 11,7 34,4 2.3 5.5 12. n/a City-East/St. Georg 16,4 1,2 5.8 8. 15.5 14.4 City-South 47,5 22,5 19.3 7. 14. 1.86 3,5 14.5 5.5 11. 9.17 City-South-Extension Eppendorf 7,3 7.1 8. 14. 12.68 Airport 18,7 5.8 6.5 12.5 1.47 Harbour 35, 13,5 8.5 9. 2.5 15.5 HafenCity 48,4 82,4 12.3 13. 22.5 18.1 Hamburg-North/East 3,4 16,9 5.1 9. 12. n/a Hamburg-South/East 1,8 3,3 9.4 6. 11. 7.5 Hamburg-West 31,4 52,4 8.9 6. 14. 12.17 Harburg/Süderelbe 76,1 75,5 4.7 6.5 12.5 11.47 5.5 7. 12.5 n/a 8,7 7,4 4. 6.5 13. 13.47 St. Pauli/Altona 22,6 31,8 6.7 8. 19.5 14.52 Wandsbek 8,4 2, 1.5 6. 12. 1.4 Westl. Hafenrand 1, 3, 13.8 12. 2. 17.73 Stellingen/Lokstedt/Eimsbüttel Schnelsen/Niendorf Winterhude/Barmbek TOTAL 12,4 15,4 6.8 8. 13. 1.78 536,8 496,2 8.7 5.5 23. 14.68 Page 5 212, CBRE GmbH MarketView Office Market Hamburg Cumulated Take-up sq m Q4 211 Submarket
Q4 211 MarketView Office Market Hamburg DEFINITIONS Take-up This is the sum of all office space that is let, leased, or sold to an owner-occupier in a defined (sub) market and a defined period. Take-up also includes sub-lets of leased premises or owner-occupied space. Lease renewals are registered as space take-up if the office space let is larger than the space previously occupied. Only the additional space in an existing location will be added to take-up. Vacancy This is the sum of all completed office space which, at the time the information was registered, was not occupied or was offered for let or sale (for the purposes of further use) and which may be occupied within three months. Subletting is not considered in vacancy figures and is registered separately. Supply Supply includes the sum of all office space on offer, which is intended for marketing at the time of observation (each quarter s end) and which is still available. This includes vacant space, space to sublet and speculative completions over the next 12 months. Prime rent Prime rents are the highest sustainable nominal rent in /sq m/month achieved in prime locations, and top-quality buildings with top-quality fit outs. These are based as much on lease transactions concluded within the defined period as on the market overview of the local letting department. Weighted average rent The weighted average rent represents the weighted average rent for space let for a defined region. It is based on all lease contracts concluded during a year. In principle, at least ten lease contracts have to be concluded in the relevant market and reporting period, in order to be used as a base. For lettings to businesses that can deduct input tax, rents are exclusive of statutory valueadded-tax. For lettings to value-added-tax exempt businesses, the rent may include a payment of a variable amount to compensate for the non-deductible input tax paid by the lessor for services provided in the construction or fit out of the demised premises. Prime yield The prime yield (net initial yield) is the ratio between initially annual net rental income (rent less non-recoverable costs) and the total amount invested (purchase price plus purchasers on-costs = gross purchase price), expressed as a percentage figure, achievable in the relevant prime location in a building with first-class fit out, fully let according to market conditions. It is based both on sale & purchase contracts concluded during a period and also on the market overview of the local investment department. Disclaimer 212 CBRE Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE GmbH clients, and cannot be reproduced without prior written permission of CBRE GmbH. Page 6 212, CBRE, GmbH For further information: AGENCY CONTACT Heiko Fischer Managing Director, Head of Agency Hamburg CBRE GmbH Neuer Wall 77 2354 Hamburg t: +49 4 882 e: heiko.fischer@cbre.com RESEARCH CONTACTS Dr. Jan Linsin Senior Director, Head of Research Germany CBRE GmbH WestendDuo Bockenheimer Landstr. 24 6323 Frankfurt/M. t: +49 69 1777 663 e: jan.linsin@cbre.com Frank Sgonina Analyst, Hamburg Research CBRE GmbH Neuer Wall 77 2354 Hamburg t: +49 4 882 38 e: frank.sgonina@cbre.com