CITY SURVEY Germany 2017/2018 Accelerating success. Office and Investment Markets an Overview

Transcription

1 CITY SURVEY Germany /218 Accelerating success. Office and Investment Markets an Overview

2 Beyond all expectations! Matthias Leube Chief Executive Officer At the start of, we already forecast unusually strong results in Germany s seven investment and office hubs. The year finished off even stronger than expected, with bringing in the highest take-up and transaction volumes we have seen this decade. In view of the exceptionally strong landlord and seller market, there is naturally always the chance that increasing shortage of supply will be a limiting factor. Our outlook for 218 is almost a blueprint of last year s forecast. In light of the fact that the current economic trend as well as the trends we are seeing in terms of investment capital and the real estate market are set to continue in the medium term, activity in both market segments are expected to remain lively. However, the shortage of supply on both the leasing and investment market continues to intensify with vacancy rates and additional capital declining. Questions regarding how long the low-interest environment will hold, the stability of the eurozone and the geopolitical landscape will also remain hot topics in 218. Nevertheless, Germany s export activities and domestic economy are extremely robust at the moment, guaranteeing the country an exceptionally stable, diversified real estate market in this environment with demand from both German and foreign occupiers and buyers continuing to rise. As such, take-up and transaction volumes will not be the only indicators in 218 to highlight the strong trend in the German real estate hubs. Increasing purchase prices that have yet to hit the ceiling, widespread rent hikes, the lowest vacancy rates ever recorded and the high number of bids on deals being marketed will also reflect and accompany this remarkably consistent, ongoing boom. 2

3 Contents Market Data Office Leasing and Investment 4 Commercial Real Estate Market Gemany Berlin Office Leasing 6 Investment 8 Retail Investment 1 Industrial and Logistics Investment 12 Hotel Investment 14 Office Leasing 16 Investment 18 Düsseldorf Office Leasing 2 Investment 22 Frankfurt Office Leasing 24 Investment 26 Hamburg Office Leasing 28 Investment 3 Cologne Office Leasing 32 Investment 34 Munich Office Leasing 36 Investment 38 Stuttgart Office Leasing 4 Investment 42 Research Services 44 Glossary / Definitions 46 Locations / Contacts 47 3

4 Market Data Office Leasing TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART STOCK OF OFFICE SPACE in million sq m OFFICE SPACE TAKE-UP 4,156,7 937, 333, 71,1 622, 32, 984,2 268,4 in sq m Change year-on-year in % FORECAST for 218 OFFICE SPACE TAKE-UP 3,167,9 634,3 331,8 462,7 55,13 261, 718,4 254,6 (for the entire year) 1-year Ø PRIME RENT in /sq m FORECAST for 218 AVERAGE RENT in /sq m FORECAST for 218 VACANT OFFICE SPACE in sq m 3,652,8 39, 532,4 1,14,9 625, 314, 535,9 164,6 VACANCY RATE in % Change year-on-year in basis points FORECAST for 218 The data for Berlin, Düsseldorf, Hamburg and Cologne are related to the respective city area. The data for Frankfurt, Munich and Stuttgart are related to each of the respective markets on the whole. Investment GERMANY TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART TRANSACTION VOLUME 57,289 29,954 7,522 2,74 6,912 3,41 2, 6,17 1,2 in million Change versus prior year in % FORECAST for 218 TRANSACTION VOLUME (for the entire year) 1-year Ø PRIME YIELD OFFICES in % PRIME YIELD HIGHSTREET RETAIL in % PRIME YIELD INDUSTRIAL & LOGISTICS in % 33,667 18,49 4,9 1,538 3,79 2,912 1,11 4, * *) Refers to the defined logistics market areas 4

5 TOP 7 Cities Market Conditions for Occupiers and Investors 5

6 Office Space Take-up in the TOP 7 (in million sq m) Whole year Forecast Average of the past 1 years Vacancy Rate in the TOP 7 (in %) and Vacancy (in million sq m) Fast Facts OFFICE LEASING TOP 7 CHANGE Office Space Take-up in sq m 4,156,7 6 % Vacant Floor Space in sq m 3,652,8-17 % Vacancy Rate in % bp* Office Space Stock in sq m 9,52 1 % *) basis point Completions of Office Properties in the TOP 7 in total (in 1, sq m) 1,4 1,2 1, Completions Pre-let 7.7% ,67 6.7% % % 216 1, % 218 1, Average 213 Office Leasing Take-up Take-up throughout all of Germany s seven office hubs exceeded 4 million sq m for the first time in, reflecting a 6 % increase from the previous year s record result of 3.9 million sq m. results also surpassed the 1-year average by 31 %. Munich came out at the top of the ranks among Germany s Big 7 with take-up exceeding 98, sq m, registering the highest result since 2. Berlin posted an all-time high with 937, sq m in take-up, thus solidifying its position as one of the most popular locations for office tenants and occupiers nationwide. Strong demand in Frankfurt throughout all space segments, including a number of deals other than those for more than 1, sq m typical to Germany s banking capital, boosted take-up to over 7, sq m for the first time since 2. Hamburg came in 4 th with over 62, sq m in take-up. Some cities, however, recorded a yoy drop despite above-average take-up levels in a long-term comparison. This particularly applies to Stuttgart, which recorded the lowest take-up result among the Big 7 at 27, sq m. This decrease can primarily be attributed to drastically limited supply insufficient to meet the high demand in the city. The drop in take-up recorded in Cologne by year-end can also be attributed to an extraordinarily strong previous year result, which was primarily due to a large-scale lease. The city, however, still managed to post decent office take-up results of 3, sq m. The neighboring city of Düsseldorf posted takeup of 33, sq m, a markedly milder yoy drop indicating favorable overall office leasing fundamentals. Rents Strong leasing performance led to higher rents in most locations. As in the previous year, Berlin continued to experience extraordinary rental growth. Prime rent at year-end came to 31.3 per sq m, up almost 1 % compared to December 216. That makes Berlin the third city among the Big 7 to list prime rents of more than 3 per sq m, just behind Munich ( 35.6) and Frankfurt ( 41.). More than one-third of take-up in Berlin was recorded in the segment of over 2. per sq m. Average rent increased markedly by 18 % to as a result, approaching the 2. per sq m recorded in Frankfurt with Germany s banking capital leading the pack in terms of prime rent as well. Frankfurt managed to exceed the 4. mark in H2 for the first time since 21. 6

7 Average rent rose considerably particularly in Munich to 17.3 per sq m (+8 %). That put Munich well ahead of Hamburg and Düsseldorf ( 15.4 per sq m each), Stuttgart ( 13.4 per sq m), and Cologne ( 12.9 per sq m), all of which recorded moderate increases during the year ranging from 2 % in Hamburg to more than 3 % in Düsseldorf. Vacancy Rate in the TOP 7 (in %) 15 1 Supply and Vacancy Vacancy continued to drop rapidly in all locations for the seventh year in a row. For the first time, the amount of space available for immediate tenancy at the end of December (less than 3.7 million sq m) was lower than take-up for the entire year. The vacancy rate has now reached 4.1 %, 8 bp below previous-year results. The drop in vacancy was particularly strong in Frankfurt, Berlin and Stuttgart. Down 16 bp to 9.6 %, the vacancy rate in Frankfurt moved into the single-digit range for the first time since 22. Nevertheless, the city still has 1.1 million sq m available for immediate tenancy, the highest among Germany s Big 7. In Berlin and Stuttgart a drop of one percentage point within the year resulted in the lowest vacancy rates nationwide at 2. % and 2.1 %, respectively. As a result, only 39, sq m of office space was vacant in the German capital at year-end with only around 165, sq m available in Stuttgart. 5 Q4 13 Q4 14 Q4 15 Q4 16 Q4 17 Berlin Düsseldorf Frankfurt Hamburg Cologne Munich Stuttgart Average Rents in the TOP 7 (in /sq m) With vacancy at 2.4 %, only 536, sq m was available for immediate tenancy at year-end in Munich as well, proving increasingly challenging for office tenants on the lookout for modern space in downtown locations. Even Cologne and Hamburg, with vacancy rates at 4. % and 4.5 %, respectively, were not able to maintain the 5. % necessary for market equilibrium. The general situation in Düsseldorf was somewhat more relaxed with vacancy at 7. %, although the amount of space available in the city continues to pursue a downward trajectory Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich Only roughly 2.5 million sq m are expected to be added to the market by property developments in 218 and 219. In light of unabated high demand, however, this new space will not be sufficient to significantly ease the situation. Summary and Outlook The general situation on the office leasing market will remain unchanged in 218. We expect the conditions for ongoing lively take-up activity in the office sector to remain extremely favorable due to Germany s continued robust economic fundamentals, which are increasingly being supported by a broad economic recovery across Europe and which will drive corporate investment even more than in. Supply will continue to shrink dramatically as a result. In light of these trends, we consider strong take-up in 218 of up to 3.5 million sq m realistic, with results, however, remaining below take-up levels. Susanne Kiese Head of Research I Germany susanne.kiese@colliers.com 7

8 Fast Facts INVESTMENT 216 CHANGE Transaction Volume 57,289 52,59 9 % in million Total TOP 7 29,954 28,666 4 % TYPE OF TRANSACTION 216 CHANGE Individual Transactions 36,88 33, % Share in the TOP 7 24,527 21,9 12 % Portfolio Transactions 2,482 19,41 6 % Share in the TOP 7 5,427 6,766-2% SOURCE OF CAPITAL 216 CHANGE Share by International 25,612 2, % Buyers Share in the TOP 7 14,752 1, % Share by International 24,761 15,24 62 % Sellers Share in the TOP 7 11,58 5, % Transaction Volume in Germany (in billion ) Transaction Volume in Germany Forecast thereof Office Properties Average Transaction Volume according to Size Categories in Germany (share in %) above 25 m 3 7 up to 1 m m to 25 m 25 m to 5 m Investment Transaction Volume The German commercial investment market closed out with a transaction volume of 57.3 bn, a 1-year record high. is the third consecutive year to post a total-year result of over 5 bn, also beating out 215 s recent high of 55.4 bn. A 7 % increase compared to the 1-year average also points to an exceptionally favorable market situation. Transaction volume was primarily driven by four deals in the billion-euro range. The largest deal of the year involved a logistics platform deal with China Investment Corporation acquiring a pan-european real estate portfolio from Blackstone subsidiary Logicor. China Investment Corporation paid more than 2 bn for the properties located in Germany alone. The Primus portfolio deal was the second-largest transaction of the year. The portfolio s five high-reputation prime assets were sold for 1.5 bn by RFR Holding to Austrian Signa Prime Selection. The third-largest transaction involved the sale of a portfolio comprising more than 4 assets. Intown Invest, an asset/fund manager handling Israeli capital, purchased the portfolio for roughly 1.2 bn from Apollo Global Real Estate. The share generated by portfolio transactions was down slightly compared to the previous year at 36 % despite the portfolios that changed hands in the billion-euro range. High-volume single-asset deals included the sale of the Sony Center in Berlin for roughly 1.1 bn by South Korean sovereign wealth fund NPS to Canadian pension fund OMERS. Single-asset deals claimed a share of 64 % at year-end. Supply and Demand In terms of transaction volume s regional distribution, Germany s seven investment hubs continued to dominate the field at around 52 %, reflecting a slight drop of 3 percentage points compared with 216. Many of the high-volume portfolios traded in contained assets located outside the Big 7. This applies not only to logistics, retail warehouse and hotel portfolios, but also in increasing numbers to office portfolios. We saw an increased presence of foreign investors on the German investment market. The share of foreign direct investments increased year-over-year from 4 % to 45 % with 16 % of foreign capital coming from the US and 11 % from the UK. Due to the exceptional platform deals traded in, France shared 3 rd place with China, both claiming an 8 % market share. Another Asian country, Singapore, placed high in the ranks practically neck-and-neck with China. 1 m to 25 m m to 1 m 8

9 Open-ended real estate funds and special funds continued to dominate the German market buy-side in, claiming more than one-quarter of total transaction volume. Asset/fund managers, which are increasingly acting on behalf of foreign investors, took 2 nd place with a 21 % market share. They were active sell-side as well, dominating the market at year-end with 22 %, in the lead ahead of property developers with 17 %. Yields Excess demand for investment opportunities and the ongoing boom on the leasing markets continued to put yields under pressure in some of Germany s seven investment hubs, although compression did lose some of its momentum due to high prices. Prime yields for office properties fell most significantly in Frankfurt and Hamburg to a current 3.3 %. Berlin and Munich also saw slight adjustments with yields currently at 3.2 %. Cologne (4.25 %), Stuttgart (3.8 %) and Düsseldorf (3.75 %) came in at the other end of the narrow spectrum. Investments in buildings featuring an office-retail mix in prime locations of Germany s top 7 cities continued to record the lowest yields. Prime yields for this property type in Frankfurt and Munich came to 2.8 %, with Cologne and Düsseldorf claiming the highest yields at 3.5 %. Prime yields of 4.65 % proved the norm in the logistics segment across all locations and experienced the highest compression in, in some cases dropping from well over 5 %. Office Investment Office properties maintained their status in as the most coveted asset class. Similar to the previous year, they accounted for a market share of 47 % with a transaction volume of 26.7 bn. In contrast to the other asset classes, properties located in the Big 7 dominated transaction activity, accounting for 78 % of transaction volume. Landmark deals such as the sale of the Sony Center and Frankfurt s Tower 185 office highrise for 775m together with other Frankfurt high-rises contributed their fair share to this result. Summary and Outlook With the central banks, especially the ECB, continuing to pursue a low-interest policy and in light of ongoing strong economic growth and rents increasing in almost all asset classes, most investors continue to find German real estate highly attractive. We therefore expect to see a similarly high transaction volume in 218 somewhere in the range of 55 bn. If one thing proves limiting, it will be a lack of products suitable to meet demand and not a lack of capital. Buyers and Sellers in Germany (in billion ) Open-ended real estate funds / Special funds Asset managers / Fund managers Property developers Listed property companies Pension funds Other investors Asset managers / Fund managers Property developers Opportunity funds / Private equity funds Open-ended real estate funds / Special funds Private investors / Family Offices Other investors Office Retail in Germany Buyers Sellers Types of Properties in Germany (Volume in billion ) Industrial & Logistics Hotel Mixed Building Other use site properties (commercial) thereof TOP 7 Office Prime Yield in the TOP 7 (in %) 5,5 5, 4,5 4, 3,5 3, Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich 9

10 Fast Facts INVESTMENT 216 Transaction Volume in million 11,956 9,253 Portfolio Transactions 63 % 48 % TOP 7 23 % 22 % Share by International Buyers 37 % 35 % Share by International Sellers 58 % 39 % Prime Yield Highstreet Retail 2.8 % 2.9 % Retail Investment Transaction Volume The sale of German retail assets generated a transaction volume of 12 bn in. Although this result fell shy of 215 s 16 bn, it did come in high in the double-digit billion-euro range, putting it among the top results recorded over the past ten years. retail transaction volume also managed to exceed the long-time average by 35 %. Transaction Volume Retail (in billion ) Whole Year Average The three largest transactions of the year were portfolio deals of between 65m and 7m. In addition to the major deal announced in Q2, in which Corestate sold 9 buildings featuring an office-retail mix to Universal Investment on behalf of Bayerische Versorgungskammer, two additional deals changed hands in a strong Q4. One of these deals involved two retail assets from the mixed Primus portfolio, which RFR Holding sold to Austrian Signa Prime Selection. The two assets are the Upper Zeil property development in Frankfurt and a 5 % share of the Karstadt department store at Munich central station. The other deal involved 13 Karstadt department stores located primarily in secondary and tertiary cities, which were sold by Israeli businessman Beny Steinmetz to RFR Holding. Total market share generated by portfolio deals increased yoy from 48 % (216) to 63 % (), reflecting a transaction volume of 7.5 bn. The largest single-asset deals involved three shopping centers: the Rhein-Ruhr-Zentrum in Mülheim an der Ruhr, the Nova Eventis Shopping Center near Leipzig and East Side Mall in Berlin, which opened in October and was sold during the project phase. Supply and Demand Transaction Volume by Type of Building (in %) Shopping Centers Retail Warehouses / Retail Parks Unlike what one would expect from the mega deals mentioned above, small-scale retail warehouse portfolios, individual retail warehouses and retail parks dominated market activity. Thus, broken down into individual retail formats, this format accounted for a 47 % share of transaction volume, well ahead of shopping centers (27 %) and downtown buildings featuring an office-retail mix (26 %). Supermarkets, discounters and hypermarkets, i.e. food retailers, were once again particularly popular among investors. 47 High Street The current demand structure is seeing a relatively high share of investments in assets located outside of Germany s investment hubs (over 75 %). 1

11 Foreign capital accounted for a market share of 37 %, or roughly 4.4 bn, in. This share continues to lag considerably behind foreign capital generally spent on German commercial properties amounting to 45 %. However, we are currently seeing intensified market research activity by German asset/fund managers on behalf of foreign investors and expect the share claimed by foreign investors to increase in 218. US investors accounted for the largest share of foreign investments at 1 %, followed by the UK (7 %) and Austria (6 %). Asset/fund managers were very active both buy and sell-side in. Acting as intermediaries, they accounted for roughly 2.2 bn, or 18 %, of transaction volume in, exceeded only by open-ended real estate funds and several new special funds, which invested 3.1 bn, or 26 %. Asset managers were even more dominant on the market sell-side, disposing of retail assets for a total of 3.4 bn (28 %) often only after relatively short holding periods and benefitting from recent price increases. Developers and private investors/family offices trailed behind with market shares of 11 % and 1 %, respectively. Yields Prime yields have yet to bottom out. Despite the fact that momentum is beginning to slip somewhat due to current price levels, we saw further yield compression at the end of. Looking at office-retail mix properties in prime locations, the yield spread among Germany s Big 7 currently comes to 7 bp. Munich and Frankfurt (2.8 %) are at the lower end of the spectrum with Düsseldorf and Cologne (3.5 %) recording the highest yields. Prime yields for shopping centers remain low, ranging from 3.8 % to 4.8 %. In comparison, retail warehouses and retail parks are currently recording the highest prime yields. Individual retail warehouses located in the Big 7 are still posting 5. % or higher, but retail parks in some locations have already fallen below the 5. % mark. Summary and Outlook The German retail investment market and the commercial investment market in general are in full swing. This trend is set to continue throughout 218 also in the retail segment due to the solid overall economic conditions such as the strong job market, income growth and low inflation. Assuming sufficient real estate product becomes available, we can expect to see a transaction volume of over 1 bn in 218. Current price levels, however, could prove a limiting factor, particularly if an increasing number of long-term portfolio managers begin to anticipate the peak of the current cycle and decide to reduce reselling. Transaction Volume by Buyer Groups (in billion, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Listed property companies Pension funds Private investors / Family offices Other investors % 18 % 13 % 11 % 5 % 27 % Transaction Volume by Seller Groups (in billion, share in %) Asset managers / 28 % Fund managers Property developers Private investors / Family offices Opportunity funds / Private equity funds Open-ended real estate funds / Special funds Other investors 11 % 1 % 8 % 7 % 36 % Prime Yield Highstreet Retail in the TOP 7 (in %) Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich 11

12 Fast Facts INVESTMENT 216 Transaction Volume in million 8,662 4,579 Portfolio Transactions 71 % 4 % TOP 7 21 % 4 % Share by International Buyers 65 % 38 % Share by International Sellers 6 % 3 % Prime Yield Industrial and Logistics in the TOP 7 (average in %) Transaction Volume Industrial and Logistics (in billion ) Logistics Industrial Average % 5.4 % Industrial and Logistics Investment Transaction Volume German industrial and logistics assets recorded a new record high in at 8.7 bn, accounting for a 15 % share in total commercial real estate transaction volume and representing the third largest asset class following office and retail. At midyear (June : 5.4 bn), industrial and logistics assets had already surpassed the total transaction volume generated in 216 ( 4.6 bn). High demand for logistics properties can be attributed to the e-commerce boom, which is driving demand for new and modern logistics space in Germany and pushing rents up in the logistics regions. Prime core assets, i.e. new-builds with a strong-covenant tenant under long-term lease, are often being snapped up before construction has even begun. Supply and Demand Several portfolio deals in the billion-euro range changed hands over the past 12 months. The highest-volume deal in was Blackstone s sale of the European logistics platform Logicor to China Investment Corporation. The German share alone accounted for 2 bn of total deal volume ( 12.2 bn), almost a quarter of s total transaction volume. Singapore-based GLP, the world s largest supplier of logistics space, announced at the end of Q3 that it would be entering the European market with its acquisition of property developer and investment company Gazeley. The acquisition comprises a 2.4 bn European portfolio, roughly 815m of which are assets in Germany. Portfolio deals changed hands for roughly 6.1 bn in, or around 71 % of total transaction volume. Foreign investors were involved in the majority of portfolio deals (8 %). Transaction Volume according to Size Categories (in %) above 1 m 66 4 up to 1 m 11 1 m to 3 m m to 5 m 5 m to 1 m Asian investors such as GLP and China Investment Corporation managed to acquire several assets in Europe and Germany with just a single deal in, securing significant market shares in a relatively short amount of time. Investors from the Middle East showed interest in German investments as well. Foreign investors poured a total of roughly 5.6 bn (65 %) into German industrial and logistics assets in, up a whopping 71 % yoy. Foreign investors also appear to be increasingly willing to take risks in their investments in Germany, focusing not only on traditional core and core+ properties but also increasingly on the value add sector, which almost tripled its share yoy to 13 %. 12

13 Yields The combination of increasing demand for logistics investments and a lack of immediately available product again put yields under pressure at the end of. Gross prime yields for core assets in Germany s Big 7 investment hubs plummeted by 75 bp from roughly 5.4 % in December 216 to a current 4.65 %. Logistics assets recorded the strongest yield compression in the past 12 months compared to other asset classes such as office and retail. We expect to see sustained growth in the light-industrial segment in 218 as well as lively activity both buy-side and sellside. Due to mega trends like globalization and digitization combined with Industry 4., the German industrial sector is undergoing a transformation. Germany has strong interest in consolidating and expanding its leading position in the manufacturing sector. Technological progress will therefore also drive demand for innovative and flexible warehouse and office concepts suitable for undertakings such as the increased use of robots in factories. This, in turn, will spark the interest of investors who can expect to see attractive yields of up to 6 % for light-industrial assets in the Big 7 markets. Summary and Outlook Looking back at it becomes clear that Germany remains one of the world s most popular investment locations and an increasing number of investors are looking to Germany due to a variety of factors including the country s considerable economic stability. The rapidly growing e-commerce sector continues to stimulate demand for warehouse and logistics assets in Germany as well. Property developments and new space hitting the market are struggling to keep up with demand, however, which is why forward funding will become increasingly important on the industrial and logistics investment market. We expect a similar run on logistics assets in 218, limited only by scarcity of supply. Transaction Volume by Buyer Groups (in billion, share in %) Open-ended real estate funds / Special funds Pension funds Asset managers / Fund managers Property developers Corporates / Owner-occupiers Other investors % 24 % 19 % 14 % 3 % 7 % Transaction Volume by Seller Groups (in billion, share in %) Asset managers / 45 % Fund managers Property developers Corporates / Owner-occupiers Private investors / Family Offices Open-ended real estate funds / Special funds Other investors 23 % 12 % 6 % 5 % 9 % Prime Yield Logistics in the TOP 7 (Average in %) Q4 13 Q4 14 Q4 15 Q4 16 Q

14 Fast Facts INVESTMENT 216 Transaction Volume in million 4,186 5,161 Portfolio Transactions 31 % 46 % TOP 7 69 % 52 % Share by International Buyers 46 % 54 % Share by International Sellers 41 % 4 % Prime Yield Hotel 4.1 % 4.5 % Hotel Investment Transaction Volume The German hotel investment market cooled down somewhat in in the wake of several record-breaking years but still managed to post a strong annual result. With a transaction volume of roughly 4.2 bn, fell short of record year 216 by 19 %, nevertheless giving us the third-best result we have seen in the past ten years. Transaction Volume Hotel (in billion ) Whole Year Average Single hotel assets again accounted for the majority of transactions in. The lack of assets available on the hotel investment market limits transaction volume despite ongoing high demand and could be felt in the shrinking share of high-volume portfolio deals. Portfolio deals saw a yoy decrease of 15 percentage points with a 31 % share of transaction volume, or more than 1.3 bn. Single-asset deals accounted for just under 2.9 bn. One of the larger transactions to change hands in was the sale of a Hamburg hotel project, comprised of a Holiday Inn and a Super 8, to Union Investment. Supply and Demand Compared to the previous year, German investors claimed the lion s share of the market from foreign investors, basically trading places in terms of market share. Whereas in 216 foreign investors accounted for around 54 % of transaction volume, in German investors were involved in the majority of investments buy-side, pouring almost 2.3 bn into the German hotel market. Activity was similar sell-side with German investors disposing of hotel assets for almost 2.5 bn, maintaining their 59 % share. Transaction Volume by Star Segment (in %) 1 Star Other 2 Stars Boarding House Stars Stars 4-star hotels again generated the largest share of transaction volume in, down a mere 2 percentage points yoy and accounting for roughly 2.2 bn of total transaction volume, or 52 %. They were followed by 3-star hotels, which represent the lion s share of all rated hotels in Germany. They increased their market share yoy by 7 percentage points to around 1.1 bn. 5-star-hotels managed to maintain a relatively stable share of transaction volume with around 4 m. 1 and 2-star hotels generated around 23 m. Boarding houses again increased their share of transaction volume, accounting for roughly 22 m. 3 Stars 26 14

15 As in the two previous years, open-ended real estate funds and special funds were most active buy-side, down by 2 percentage points yoy to 28 % ( 1.2 bn). Asset/fund managers followed in the ranks, accounting for roughly 78m. REITs came in third with a transaction volume of roughly 48m (12 %). Property developers and development companies came out on top sell-side, disposing of hotel assets for just under 1.2 bn (28 %). Open-ended and special funds followed in the ranks at 18 %, corporates and owner-occupiers accounted for 13 %. Yields Lower yields, which can primarily be attributed to scarce supply and high demand, resulted in price hikes, particularly in prime locations. Germany s seven major hotel locations, Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart, generated almost 2.9 bn, or 69 % of total transaction volume. The majority of deals, however, took place outside the Big 7. The shortage of suitable properties in prime locations goes hand-in-hand with rising prices, forcing an increasing number of investors to shift their focus to secondary locations. Property developments in the BIG 7 particularly experienced significant price increases, which, in combination with rising construction costs, considerably impacted their cost effectiveness. Nevertheless, property developments managed to maintain a fairly stable share of transaction volume at 19 %, trailing behind stock buildings (61 %). Buildings under construction and new-builds accounted for a combined share of 12 %. The lively activity we saw on the part of developers/construction companies is also an indication of Germany s robust, prospering tourism sector, which favors an increase in accommodation capacity. Summary and Outlook Even though fell shy of 216 s record result, it was still a strong year for the German hotel investment market. High demand combined with limited supply put a damper on the overall result. Stock properties and portfolios proved particularly popular but were in short supply. We therefore expect investors to increasingly shift their focus to property developments and assets in secondary locations. Despite the unabated shortage of product and the yield compression that goes with it, we expect 218 to perform similarly to a strong. Transaction Volume by Buyer Groups (in billion, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Listed property companies Private investors / Family Offices Corporates / Owner-occupiers Other investors Open-ended real estate funds / Special funds Corporates / Owner-occupiers Asset managers / Fund managers Opportunity funds / Private equity funds Other investors % 19 % 12 % 1 % 8 % 23 % Transaction Volume by Seller Groups (in billion, share in %) Property developers 28 % % 13 % 12 % 1 % 19 % Prime Yield Hotel in the TOP 7 (in %) Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich 15

16 Berlin City Facts BERLIN Population in 1, 3,688 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING BERLIN Change vs. prior year Office Space Take-up 937, sq m 8.6 % Leasing Take-up 836,8 sq m 11.6 % Prime Rent 31.1/sq m 9.8 % Average Rent 19.15/sq m 17.5 % Vacancy Rate 2. % -1 bp* Office Space Stock 19.5 m sq m 3. % Achieved Rents BERLIN Price range in / sq m Average rent in /sq m 1 City West City East Potsdamer Platz / Leipziger Platz Central Station Mediaspree City Area West City Area East City Margins North City Margins South Periphery North Periphery West Periphery South Periphery East Adlershof Schönefeld *) basis points 1,366 Unemployment Rate in % 8.4 Per Capita Disposable Income in 2,8 Office Leasing Take-up Demand for office space in Berlin is at a record-high. Take-up in Germany s capital came to 937, sq m in, up around 9% yoy and reaching an all-time high. Spurred by ongoing strong demand, the Berlin office market has once again surpassed all expectations. The fact that office take-up in Berlin again experienced a slight increase reflects the city s growing importance for office occupiers. A number of large-scale leases for over 5, sq m, several of which were signed by coworking providers, boosted take-up and accounted for around 4% of total office take-up. The market particularly benefited from an increasing number of large-scale leases signed for more than 1, sq m. Nine new leases in this segment accounted for 23, sq m combined. Due to the extremely limited supply of stock space, project developments accounted for the lion s share. Examples Spandau Steglitz-Zehlendorf Reinickendorf Charlottenburg-Wilmersdorf 96a 1 Mitte Berlin Pankow 19 Friedrichshain-Kreuzberg 9 Neukölln Tempelhof-Schöneberg 96a 96 2 Lichtenberg Marzahn-Hellersdorf Treptow-Köpenick 16

17 include the deals involving a federal agency at Puschkinallee and Deutscher Gewerkschaftsbund at Keithstraße, both owner-occupiers. Demand for office space was strongest among retail companies in. Around 179,3 sq m, or 19% of take-up, can be attributed to the retail and e-commerce sector, followed by public administration. Demand from government and community institutions was almost equally strong at 18%, or 175,7 sq m. In terms of number, IT companies clearly took the lead with almost 2 leases signed. Because companies in this sector tend to lease smaller units, however, they only accounted for 165, sq m. The submarkets with the highest take-up volumes were City South and Mediaspree with 16, sq m and 122, sq m, respectively, thanks to several large-scale leases. Rents Average and prime rents skyrocketed in light of exceptionally high demand for space in CBD locations, up yoy by 15% to per sq m (average) and by 9% to 31.3 per sq m (prime). The strongest rental growth yoy at 4% was recorded in the Mediaspree submarket where average rents are currently being asked at 27.5 per sq m. The City West submarket also recorded significant rental growth of 2% to a current average of 18.3 per sq m. Prime rents for new leases in the Upper West office tower located in the CBD West submarket currently run at between 36. and 42. per sq m. More than one-third of total office take-up within Berlin city limits, or 36, sq m, can be attributed to the highest price segment of over 2. per sq m with 17 new leases signed in. The high-priced segment of between 17.5 and 2. per sq m accounted for almost 19, sq m. In light of the significant rental growth in the past year, it does not come as a surprise that not many leases were signed in the lowest price segment of less than 1. per sq m. Only 8 new leases were signed for units in this price category, accounting for 53, sq m. The price segment of between 1. and 12.5 per sq m also saw only 8 new leases signed for a total of 59, sq m. Supply and Vacancy Berlin s office market has basically dried up and new developments are much needed with vacancy rate at a critical 2%. This situation is making it increasingly difficult to find suitable space even in the smaller space segment, particularly in popular CBD locations. Demand has been shifting to the surrounding downtown submarkets for some time now. Key Developments By the end of 218, we expect around 32,7 sq m of office space to be completed, 6% of which has already been preleased. Considerably more space is expected to hit the market in 219 (around 434, sq m), around 5% of which, however, has already been preleased. Office Space Take-up in 1, sq m 1, Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Prime and Average Rents (in /sq m) Completions Prime Rent thereof Pre-let/Owner-occupied Leasing Owner-occupiers Vacancy Rate (in %) and Vacancy (in 1, sq m) 1,2 1, % % % % 1, Average Rent %

18 The submarkets with the greatest development potential are Alexanderplatz with several high-rises in the pipeline as well as the southern sections around Alexanderstraße/Dircksenstraße and Jannowitzbrücke. New-builds encompassing around 7, sq m are currently being developed by OVG, Ludger Inholte and Hines in the Südkreuz submarket. Summary and Outlook The Berlin market lived up to its reputation as a lively, highly attractive market in. Thanks to the German capital s popularity throughout Germany and Europe, the continued increase in take-up can primarily be attributed to the influx of new tenants as well as new businesses, not just to relocations and expansions. The run on Berlin office properties is expected to continue in 218. The fact that each new year the city manages to outperform the previous year in terms of take-up reflects the growing importance of Berlin as an office hotspot. More and more companies are feeling the pressure to compete for modern office space, which often requires relocating. In light of the extremely scarce supply of prime office space in coveted downtown locations, many large occupiers are considering a move to adjacent peripheral locations. We therefore expect 218 to again exceed the 9, sq m mark. Fast Facts INVESTMENT BERLIN 216 Transaction Volume in million 7,522 4,9 Portfolio Transactions 18 % 25 % Share by International Buyers 66 % 34 % Share by International Sellers 36 % 35 % Most Important Property Type Office: 69 % Office: 61 % Prime Yield Office 3.2 % 3.5 % Commercial Transaction Volume (in million ) 8, 7, 6, 5, 4, 3, 2, 1, 3, , 214 Types of Properties (in %) Mixed Use Building Site (commercial) Hotel 11 8, ,9 216 Industrial & Logistics 7,522 Investment Transaction Volume The Berlin investment market for commercial real estate closed out with a transaction volume of 7.5 bn, up 54 % yoy. That puts Berlin at the top of all German investment markets. results almost matched 215 s record high of 8.1 bn. The most significant single-asset deal on the market was the sale of Sony Center for roughly 1.1 bn by South Korean sovereign wealth fund NPS to Canadian pension fund OMERS at the end of Q3. High-volume deals in the triple-digit million euro range led the pack with a 55 % share in total transaction volume, with 16 transactions changing hands in this price segment over the course of the year. Other examples besides the Sony Center deal include the West, Axel Springer Headquarters, Axel Springer Passage, Allianz Campus, East Side Mall and Zalando Headquarters. Supply and Demand An extraordinarily successful is proof of how attractive Berlin continues to be among both German and foreign investors. The Berlin investment market saw lively activity throughout all asset classes and locations. Investors poured just shy of 7 % of total transaction volume, or 5.2 bn, into office assets. Thanks to consistently high demand and tremendous rental growth, office properties remain the most sought-after asset class. Retail assets and hotels trailed at some distance with transaction volumes of roughly 86m and 8 m, respectively. Commercial building sites changed hands for more than 45 m. Retail Office 18

19 Asset/fund managers were the strongest investor group buyside, accounting for around 1.76 bn of invested capital and a 23 % market share. Pension funds followed in the ranks due to several large-scale transactions, recording a volume of 1.2 bn, or a 16 % market share. Open-ended real estate funds/special funds invested over 8m. Asset/fund managers also dominated market activity sell-side ( 1.32 bn, 18 %), followed by pension funds (1.17 bn, 16 %) and private investors/family offices ( 96m, 13 %). Foreign investors increasingly focused on the Berlin investment market over the course of the year thanks to the city s growing job market and stable population growth. They accounted for 7 %, or 5.3 bn, of investments in commercial real estate. As Germany s capital, Berlin is considered a safe haven for investments with high rental upside potential. Yields Pressure to invest in caused gross initial yields to drop further, a development reflected in the fact that numerous deals were signed at top prices considerably exceeding vendor expectations. Transaction Volume by Buyer Groups (in million, share in %) Asset managers / Fund managers Pension funds Open-ended real estate funds / Special funds Opportunity funds / Private equity funds Listed property companies Other investors 5 1, 1,5 2, 2,5 23 % 16 % 11 % 9 % 8 % 33 % Transaction Volume by Seller Groups (in million, share in %) 5 1, 1,5 2, 2,5 Asset managers / 18 % Fund managers Pension funds 16 % Gross initial yields in the office segment have now reached a low of 3.2 %, putting Berlin at the top of Germany s most expensive real estate markets alongside Munich. As for the logistics market, gross initial yields are currently stable at 4.65 %. Summary and Outlook Activity on the Berlin investment market remained exceptionally lively in. Berlin is one of the most favored investment locations not only in Germany but also in Europe. The German capital continues to be immensely popular among both German and foreign investors. Persistently high transaction volumes reflect Berlin s growing significance among real estate investors. Private investors / Family Offices Property developers Corporates / Owner-occupiers Other investors 13 % 11 % 9 % 33 % The run on Berlin commercial assets is expected to continue in 218. Since there is no lack of capital, the only limiting factor could be the shortage of supply. In view of the far-reaching economic upswing and rising employment levels, which are fueling the Berlin office leasing market, we can expect 218 to be an exciting year, once again bringing in a total transaction volume of over 6 bn. Margit Lippold Director Research margit.lippold@colliers.com 19

20 Düsseldorf City Facts DÜSSELDORF Population in 1, 636 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING DÜSSELDORF Change vs. prior year Office Space Take-up 333, sq m -9. % Leasing Take-up 322,2 sq m -1.3 % Prime Rent 27./sq m 1.9 % Average Rent 15.4/sq m 3.4 % Vacancy Rate 7. % -5 bp* Office Space Stock 7.6 m sq m -.5 % Achieved Rents 49 Unemployment Rate in % 6.9 Per Capita Disposable Income in 27,137 Office Leasing Take-up The Düsseldorf office leasing market generated 333, sq m in take-up in, falling short of its excellent previous-year result by 9 %. A total of 45 leases were signed, six of which by owner-occupiers. Despite the remarkable number of largescale leases signed, results could not quite keep up with those posted in 216. This can be attributed to the yoy decline in take-up involving medi-um-sized units. Nonetheless, results did prove above-average, beating the 1-year average by almost 4 %. Eleven leases were signed in the space segment of 5, sq m and up (96,2 sq m), reflecting a yoy increase of roughly 37 %. All other space segments experienced a yoy drop. The small-space segment (up to 5 sq m) saw the most moderate decline (-8 %) with take-up at 8,8 sq m. The space seg- DÜSSELDORF Price range in / sq m Average rent in /sq m 1 CBD Ratingen 2 City Center Harbor Area Kennedydamm Left of the Rhine D-North Meerbusch Unterrath Airport City Grafenberger Allee City Center East D-South *) basis points Heerdt Oberkassel 3 Derendorf 8 Golzheim Pempelfort Altstadt 2 1 Düsseldorf CBD 1 Friedrichstadt Mörsenbroich 2 8 Grafenberg 9 7 Neuss

21 ment of between 1,1 and 2, sq m took a 16 % hit to a current 53,4 sq m. The two remaining space segments registered even higher drops. The space segment of between 2, and 5, sq m felt the strongest impact (-34 %) while the space segment of between 51 and 1, sq m was down by almost 24 %. The following submarkets generated the highest office take-up results: Linksrheinisch (76, sq m), City Center (64,6 sq m) and Düsseldorf Nord (57,5 sq m). The CBD posted 32,5 sq m, in line with previous-year results. Across all space segments, tenants were mostly interested in three submarkets. Boosted by a large-scale lease signed by HSBC for a property on Hansaallee, the Linksrheinisch submarket took pole position with 76, sq m (64 leases signed). Almost twice as many leases were signed in the City Center submarket, which saw take-up totaling at 64,6 sq m. Düsseldorf Nord also recorded strong results with around 57,5 sq m and 68 leases signed. Rents Düsseldorf CBD prime rents were on the rise in Q4. The Kö-Quartier property development saw several high-volume leases signed, bringing prime rents up yoy by 2 % to a current 27. per sq m. We expect to see similar rent levels in 218. Solid take-up results and the reduced vacancy that co-mes with lively leasing activity also caused average rents for new leases to spike almost 4 % yoy to a current 15.4 per sq m. That puts weighted average rent in the Düsseldorf municipal area at an all-time high. Supply and Vacancy The remarkable reduction in excess supply in Düsseldorf continued in in the wake of solid take-up results. Take-up at year-end was recorded at 532,4 sq m, reflecting a vacancy rate of 7. % (down.5 percentage points compared to yearend 216). Space available for sublease only played a minor role at just shy of 1, sq m. The Linksrheinisch and Düsseldorf Nord submarkets continued to exhibit the highest vacancy with 131,6 sq m and 118,5 sq m available, respectively. 31,6 sq m is currently available for immediate tenancy in the CBD, reflecting a vacancy rate of 4.7 %. Only slightly less than 12, sq m, however, can be classified as grade A quality. Key Developments Completions in 218 (almost 79, sq m) are not expected to significantly impact vacancy rates as almost 75 % of this space has already been pre-leased. An additional 5, sq m of office space is expected to hit the market in 219, almost half of which has already been pre-leased or taken up by owner-occupiers. The majority of new property developments are focused around the Harbor and CBD/City Center submarkets. Office Space Take-up in 1, sq m Vacancy Rate (in %) and Vacancy (in 1, sq m) 1, Prime and Average Rents (in /sq m) % 1.4% % % 7.% Leasing Owner-occupiers Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Completions thereof Pre-let/Owner-occupied Prime Rent Average Rent 21

22 Summary and Outlook The Düsseldorf office leasing market recorded a decent, slightly above-average take-up result in. Prospects for 218 remain favorable. We expect take-up results to once again exceed the long-term average with at least 33, sq m. Vacancy in Düsseldorf is expected to drop further in light of high pre-leasing rates for property developments. This could lead to additional moderate rent hikes affecting prime rents as well as weighted average rents. Fast Facts INVESTMENT DÜSSELDORF 216 Transaction Volume in million 2,74 2,18 Portfolio Transactions 19 % 18 % Share by International Buyers 56 % 53 % Share by International Sellers 5 % 16 % Most Important Property Type Office: 8 % Office: 65 % Prime Yield Office 3.75 % 4.15 % Investment Transaction Volume With a breathtaking finish to the year ( 1.2 bn in Q4 alone), the Düsseldorf commercial investment market set a new record high. The city recorded a total investment volume of 2.74 bn in, reflec-ting an almost 26 % increase yoy and a 7 % increase from the previous all-time high of 2.55 bn recor-ded in 215. If we include all deals from the neighboring cities of Ratingen and Neuss, transac-tion volume for greater Düsseldorf surpassed the 3 bn mark for the first time. Commercial Transaction Volume (in million ) 3, 2,5 2, 1,5 1, 5 Types of Properties (in %) Hotel Industrial & Logistics Building Site (commercial) 1,92 1, Retail , Other 8 2, Office 2,74 This result was bolstered by four large-scale deals in the nine-figure range, e.g. the sale of Vodafone headquarters and the New Office development with HSBC as main tenant (both located in the Links-rheinisch submarket). 2 deals changed hands in the 3 to 1 million euro range and contributed their fair share to the record result. Supply and Demand Office deals were dominant in, accounting for 8 % of total transaction volume. The 2 largest transactions involved office assets with only two exceptions. Retail assets and commercial assets followed in the ranks at around 2m and 16m, respectively. Investor interest particularly revolved around the City Center and Düsseldorf Nord submarkets. The Kennedydamm submarket deserves particular mention, generating almost 4m in transaction volume. The two centrally located City Center and CBD submarkets accounted for roughly 85m in transaction volume. German and foreign asset/fund managers dominated buy-side with 1.1 bn in transaction volume. Pro-perty developers/development companies followed suit at 45m, an impressive testament to Düssel-dorf s future development potential. Open-ended real estate funds and special funds generated a simi-lar result at 43m. Opportunity funds/private equity funds dominated sell-side at 64m followed by asset/fund managers at 57m. 22

23 Foreign investors once again matched their previous-year results, snapping up assets for more than 1.5 bn, or 56 %. Asian investors played a more significant role on the Düsseldorf market for the first time in. The Quantum Group acquired the North Rhine-Westphalian Ministry of Interior and Community Affairs on behalf of Korean institutional investors managed by Capstone Asset Manage-ment. South Korea-based Mirae Asset Global Investments acquired Vodafone headquarters. Other major foreign players came from France, the UK, the US and Israel. Numerous foreign investors were active sell-side as well, accounting for half of total transaction volume. Yields Prime office yields significantly dropped during to a current 3.75 %, or 4 bp yoy. This applies exclusively to absolute prime CBD locations, but 4. % is realistic in very good downtown locations as well. Prime properties in top locations in the Kennedydamm and Hafen submarkets are also offering yields of up to 4. %. Summary and Outlook Demand for Düsseldorf commercial real estate in all risk classes remained strong in, resulting in a new all-time high. The 1-year average (approx. 1.5 bn) was exceeded by 78 % thanks to an excep-tionally impressive end-of-year rally. We expect activity on the Düsseldorf market to remain high in 218 as well and to reflect the current record result despite scarce supply in the core segment. Transaction Volume by Buyer Groups (in million, share in %) Asset managers / Fund managers Property developers Open-ended real estate funds / Special funds Pension funds Opportunity funds / Private equity funds Other investors , 1,2 41 % 16 % 16 % 1 % 3 % 14 % Transaction Volume by Seller Groups (in million, share in %) Opportunity funds / 23 % Private equity funds Asset managers / Fund managers Property developers Open-ended real estate funds / Special funds Corporates / Owner-occupiers 21 % 16 % 9 % 8 % Other investors 23 % Lars Zenke Director Research lars.zenke@colliers.com 23

24 Frankfurt City Facts FRANKFURT Population in 1, 736 Employees Paying Social Se cu rity Contributions 563 in 1, Unemployment Rate in % 5.6 Per Capita Disposable Income in 25,55 Fast Facts OFFICE LEASING FRANKFURT Change vs. prior year Office Space Take-up 71,1 sq m 28.6 % Leasing Take-up 667,5 sq m 21.7 % Prime Rent 41./sq m 9.3 % Average Rent 2./sq m 7. % Vacancy Rate 9.6 % -16 bp* Office Space Stock m sq m -.4 % Achieved Rents FRANKFURT Price range in / sq m Average rent in /sq m 1 Banking District Westend City Central Station / Westhafen Bockenheim Europaviertel / Fair District City West Frankfurt South Airport Frankfurt West Frankfurt North Mertonviertel Eastend West Eastend East Niederrad Eschborn Kaiserlei *) basis points Office Leasing Take-up The Frankfurt office leasing market, including Eschborn and Offenbach-Kaiserlei, achieved an outstanding result in with take-up at roughly 71,1 sq m. s results managed to exceed the strong previous year s results by almost 3 % and to beat the 1-year average by more than 5 %. These results reflect ongoing high demand for office space in Frankfurt. The last time we saw similar take-up levels was in 2. This record result can mainly be attributed to large-scale leases signed for more than 1, sq m. The largest-scale single lease of the year was signed in Q4 by Deutsche Bundesbank for around 44,4 sq m of office space at the Frankfurter Büro Center. Similar to the previous year, Deutsche Bahn was particularly active, signing two leases for just over 3, sq m and 23, sq m at new-build developments in Europaviertel. The state-owned company was responsible for almost 84, sq m in take-up in, spread across a total of 9 deals a Zeilsheim 455 Bad Soden am Taunus Hattersheim am Main Sulzbach (Taunus) 43 Kelsterbach Steinbach (Taunus) Schwalbach am Taunus 16 Oberursel (Taunus) Eschborn Hausen 44 Kalbach Ginnheim 43 Bonames Eschersheim Nieder-Eschbach Nordend Rödelheim Sossenheim 7 Westend 13 Ostend Bockenheim Innenstadt 1 6 Frankfurt 1 Höchst am Main Gallus 4 Griesheim Sachsenhausen 5 8 Schwanheim 15 4 Niederrad Neu-Isenburg Dreieich 46 3 Bad Vilbel Seckbach 4 Riederwald Fechenheim Offenbach am Main Heusenstamm 67 24

25 The CBD remains particularly popular among tenants. The Banking District, Westend and City submarkets posted around 298, sq m in take-up combined, or 42 %. Other submarkets, such as Europaviertel and Kaiserlei, benefited from high-volume single-asset deals. After getting off to a slow start in, the banking sector became the most active tenant group in Frankfurt as expected, claiming more than 2 % of total take-up, even though we have yet to see an increase in the number of new leases signed by international banks in the wake of Brexit. Consulting firms secured second place among the most active sectors with more than 115, sq m in take-up. Construction and real estate proved the third-strongest sector in. The real estate sector was able to more than double its take-up yoy. This outstanding result can largely be attributed to leases signed by coworking space providers and business centers. The leases signed by WeWork in the Banking District had a particularly strong impact on the market. Rents Office Space Take-up in 1, sq m Leasing 215 Owner-occupiers Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Prime rents recorded a 9 % yoy increase to 41. per sq m thanks to new leases signed for space at prime properties and at a number of property developments. As a result, rent levels exceeded the 4. per sq m mark for the first time since 21. The average rents followed suit, up roughly 7 % yoy to 2. per sq m. Supply and Vacancy Completions thereof Pre-let/Owner-occupied The drop in vacancy continued to plummet in, down 16 bp yoy to 9.6 %. Roughly 1.1 million sq m of space was available for lease at year-end, just under 184, sq m less than at the end of 216. Central locations recorded particularly significant drops in vacancy. The vacancy rate recorded at year-end in the Banking District came to a mere 7.8 %. This reflects a reduction of available space in this submarket by nearly 5 % compared to 216. Vacancy Rate (in %) and Vacancy (in 1, sq m) 2, 1,6 1, % 12.5% 11.8% 11.2% 9.6% 4 1,67 1,455 1,358 1, ,15 Prime and Average Rents (in /sq m) Prime Rent Average Rent 25

26 Key Developments Completion rates are far from being able to compensate for shrinking supply with the 82,2 sq m of office space completed in already completely taken-up by tenants or owner-occupiers. As things currently stand, completion volumes in 218 are expected to increase to 127,6 sq m, but the majority of this additional space (72 %) already has been leased as well. Significant amounts of space will be added to the market until 219 with the OMNITURM and Marieninsel property developments. However, tenants are already showing considerable interest in these products. Summary and Outlook The office leasing market benefited from high demand across all sectors in, posting a result that was well above average. We expect this trend to continue in 218 with limited construction activity turning tenant focus to stock buildings, causing the drop in vacancy rates to continue. If interest in central locations remains strong in 218, we can also expect average rents to continue to rise. Fast Facts INVESTMENT FRANKFURT 216 Transaction Volume in million 6,912 6,143 Portfolio Transactions 12 % 24 % Share by International Buyers 43 % 44 % Share by International Sellers 2 % 17 % Most important Property Type Office: 88 % Office: 9 % Prime Yield Office 3.3 % 4.2 % Commercial Transaction Volume (in million ) 7, 6, 5, 4, 5,11 5,687 6,143 6,912 Investment Transaction Volume Investors poured roughly 6.9 bn into the Frankfurt commercial property market, including Eschborn and Offenbach-Kaiserlei, in. That puts commercial transaction volume up 13 % from an already strong previous year result. This growth trend has been ongoing now for 8 years. Mega-deals remained the key driving force behind market activity in, accounting for more than 1 m. 16 deals of this magnitude were signed in the past 12 months, bringing in almost half of total transaction volume. This solid result can be attributed to several high-rise deals including Japan Center and the T8 and T11 towers in Taunusanlage. The acquisition of Tower 185 by Deka Immobilien deserved particular mention: Going for roughly 775 m, this deal was by far the largest single transaction of the year. Supply and Demand 3, 2, 1, 3, Types of Properties (in %) 216 Office properties continued to be the most coveted asset class on the Frankfurt market in. The office segment accounted for around 88 % of total transaction volume, or just over 6 bn. Hotel and retail assets only managed to generate single-digit transaction volumes. The sale of Upper Zeil office-retail mix building to Signa while still under construction within the scope of a portfolio deal was the only transaction among the top 1 deals that cannot be attributed to the office segment. Building Site (commercial) Retail Hotel Other 88 Office 26

27 Open-ended real estate funds and special funds were the most active investor groups with transaction volume at just over 1.8 bn and a market share of more than 26 %. Their high ranking can largely be attributed to the acquisition of Tower 185 by several Deka funds. Asset/fund managers took second place with a transaction volume of roughly 1.4 bn, often acted on behalf of foreign investors as in previous years. REITs trailed behind to claim third place with a transaction volume of around 79 m. The breakdown is similar sell-side with real estate funds and asset/fund managers occupying the two top spots. Property developers played a significant role in the past 12 months as well, taking advantage of the current market situation and disposing of assets valued at just shy of 96 m. That put them in third place sell-side. In terms of location, market activity tended to revolve around Banking District as in previous years with this submarket claiming almost 25 % of transaction volume. The growing significance of submarkets outside the CBD was again apparent in. Only two of the five largest deals signed were actually located in the Banking District. Peripheral locations such as Niederrad and Eschborn, benefited from the shortage of assets in top locations and managed to clearly exceed previous year s results. Yields Yield compression continued as the result of the ongoing euphoria on the investment market. (Gross) prime yields for office properties in the CBD fell 5 bp down from the previous quarter to a current 3.3 %. Frankfurt s submarkets posted prime yields of 4.2 % at the end of year. Logistics assets also saw strong yield compression, again bringing prime yields down to 4.65 %. Transaction Volume by Buyer Groups (in million, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Listed property companies Property developers Pension funds Other investors Asset managers / Fund managers Property developers Pension funds Listed property companies Other investors 4 8 1,2 1,6 2, 26 % 2 % 11 % 7 % 5 % 31 % Transaction Volume by Seller Groups (in million, share in %) 4 8 1,2 1,6 Open-ended real estate 23 % funds / Special funds 19 % 14 % 12 % 9 % 23 % Summary and Outlook Favorable general conditions, also on the office leasing market, will continue to drive activity on the Frankfurt investment market. We can therefore expect to see strong momentum on the market in 218 despite the prevailing shortage of assets and steep price increases. This will in part be supported by several high-volume transactions that are already in the pipeline. Laura Müller Senior Consultant Research laura.mueller@colliers.com 27

28 Hamburg City Facts HAMBURG Population in 1, 1,861 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING HAMBURG Change vs. prior year Office Space Take-up 622, sq m 13.7 % Leasing Take-up 583,5 sq m 19. % Prime Rent 26./sq m. % Average Rent 15.4/sq m 2. % Vacancy Rate 4.5 % -5 bp* Office Space Stock m sq m 1.2 % Achieved Rents 949 Unemployment Rate in % 6.5 Per Capita Disposable Income in 24,241 Office Leasing Take-up By the end of the total take-up on the Hamburg office leasing market was recorded at approximately 622, sq m. It therefore surpassed the forecast of 6, sq m and outperformed the excellent previous year s result of 547,3 sq m by 14 %. Take-up in beat the 5-year average by more than 16 %. Leases signed in the large-space segment of 1, sq m and up, significantly boosted the overall result in. These include Hamburg University s interim lease at Überseering 35 (City North) in Q1 of around 2, sq m and the leases signed by publishing house Gruner+Jahr at Hannoverscher Bahnhof (HafenCity) and Olympus at Wendenstraße (City South), each signed for more than 3, sq m office space. Construction on the expansion of the Jungheinrich headquarters at the company s current location at Friedrich-Ebert-Damm 129 (Barmbek) got underway as well in. The new-build will HAMBURG Price range in / sq m Average rent in /sq m 1 City HafenCity Harbour Fringe Alster West Alster East St. Georg City South Eppendorf Winterhude 8 St. Pauli Altona Bahrenfeld Eimsbüttel Eimsbüttel 1 11 Bahrenfeld Harvestehude Uhlenhorst 15 Barmbek Wandsbek 12 Eppendorf Sternschanze Airport City North Barmbek Wandsbek Harburg Periphery East Altona 3 8 St. Pauli Hamburg 1 St.Georg Altstadt HafenCity 2 Hammerbrook Harburg Periphery West *) basis points 28

29 encompass roughly 15, sq m. These four leases accounted for one-sixth of total take-up generated in. However, only the expansion project applied to Q4. Leases signed for office spaces between 2, and 5, sq m contributed the lion s share to the strong year-end result. Rents The ongoing high demand on the Hamburg office market resulted in a rise of rental levels in : The average rent increased by 2 % from 15.1 per sq m to 15.4 per sq m. In 218 we expect a further increase due to ongoing high demand. Rents in the City and HafenCity submarkets are already priced for more than 2. per sq m for units of 1, sq m and up. Along with the City South submarket, the City and HafenCity submarkets are experiencing the highest demand in Hamburg, and we expect to see rents particularly increase in these submarkets. Prime rent in Hamburg has remained steady at 26. per sq m since late 216. With the start of the marketing activities for completed project developments, particularly in the HafenCity and City submarkets, prime rents will likely rise even further. Supply and Vacancy ICT and media companies were particularly active in leasing office space. A lease signed by Gruner+Jahr publishing house contributed its fair share to the sector s 17 % in take-up. Traditionally the most active tenants, consulting firms, took second place only at 14 %. The manufacturing industry also accounted for 14 %, followed by the construction and real estate sector at around 13 %. Business centers and coworking spaces accounted for more than half of the sector s share in take-up. Regus (Spaces), for example, signed a lease for approximately 7,2 sq m in the Kallmorgen Tower located at Willy-Brandt- Straße 23. Lively take-up activity in Hamburg diminished supply to 625, sq m at year s-end. In the vacancy rate gained some momentum after stagnating at 5. % throughout 216 and dropped 5 bp to 4.5 % over the course of the year. We expect to see the vacancy rate continue to decline in 218 driven by the high demand. Key Developments Leasing deals in the pipeline for 218 encompass around 25, sq m. Most notably, new properties, e.g. Watermark and Shipyard in the HafenCity submarket, will be introduced to the market. Speculative property developers have been particularly active in the construction of new office buildings in the HafenCity. Ongoing high demand, particularly for modern office space, puts the chance of vacancy in the new office buildings at close to zero. Occupiers especially appreciate the location and infrastructure of HafenCity and view the submarket as more than just an alternative to scarce supply in the City. Office Space Take-up in 1, sq m Prime and Average Rents (in /sq m) Prime Rent Leasing Owner-occupiers Average Rent Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Completions thereof Pre-let/Owner-occupied Vacancy Rate (in %) and Vacancy (in 1, sq m) 1, % % % 5.% %

30 Summary and Outlook The Hamburg office leasing market has a strong track record when it comes to take-up. outperformed the 1 and 5-year averages by around 23 % and 16 %, respectively. The Hamburg office market continues to boom, in part due to a robust job market. Although we currently do not see any indication of market activity slowing down, we do not expect to see comparable take-up results in 218. A take-up in excess of 5, sq m does, however, appear realistic. Fast Facts INVESTMENT HAMBURG 216 Transaction Volume in million 3,41 4,91 Portfolio Transactions 37 % 29 % Share by International Buyers 43 % 36 % Share by International Sellers 29 % 1 % Most Important Property Type Office: 67 % Office: 7 % Prime Yield Office 3.3 % 3.5 % Commercial Transaction Volume (in million ) 5, 4, 3, 2, 1, 2, , , 215 Types of Properties (in %) 4, Mixed Use Industrial & Logistics Retail Building Site 4 1 (commercial) 5 7 3,41 Investment Transaction Volume In the transaction volume at the Hamburg commercial real estate market reached 3.4 bn, 17 % above the 1-year average but roughly 31 % below the 216 record year s figures ( 4.9 bn). The result can be attributed to a very strong Q4 that attained a transaction volume of 1.4 bn spread over 36 real estate deals. The sale of two assets from the Germany-wide Signa portfolio, each in the three-digit million euro range, had a particularly strong impact on the total transaction volume. Signa Holding was able to add two core assets located in Hamburg to its portfolio by purchasing the Alsterarkaden and the Kaufmannshaus in the submarket City from RFR Holding GmbH. The initial reservation observed at the Hamburg investment market in the first three quarters of turned into a spectacular year-end rally. Supply and Demand The ongoing shortage of supply on the market, especially of core assets in the City submarket, prevented an even higher transaction volume in Hamburg. In total, five transactions surpassing the 1 m mark were registered, including Patrizia AG s purchase of the HafenCity Gate in the submarket HafenCity from Orion Capital Managers (as part of the Odin Portfolio). Other transactions included the Hotel Radisson Blue at Marseiller Straße 2 (around 2 m, Alster West submarket), Kaisergalerie at Große Bleichen 31 (around 17 m, City submarket) and the two assets from the Signa portfolio (Alsterarkaden and Kaufmannshaus, City submarket). The three major deals in the City were responsibe for more than 5 % of total transaction volume in the submarket. Similar to previous years, office assets accounted for roughly two-thirds (67 %) of total transaction volume in. Hotel assets trailed far behind, finishing second place at around 16 %. Hotel Office 3

31 Lot sales came in third at 7 %, beating out retail assets with a low market share of 5 %. Mixed-use properties accounted for 4 % of transaction activity. Practically none of the assets sold in Hamburg in could be associated with the industrial and logistics sector. Asset/fund managers were most active as buyers at the Hamburg commercial market, accounting for 22 % of the total transaction volume. Open-ended real estate funds and special funds came in second place with a share of roughly 18 %, followed by REITs with a share of around 17 %. Asset/fund managers were also the most active sellers, accounting for 23 %. Opportunity and equity funds sold assets worth roughly 21 % of total transaction volume with property developers and development companies accounting for around 16 %. In, Hamburg real estate was not only coveted by german investors but internationally sought after. Foreign investors accounted for 43 % and predominantly came from neighboring countries, such as Austria, Switzerland and France. In addition a substantial part of the capital originated from Norway and the UK. Asian investors, who were more active in on the German market than in previous years, have yet to make a significant impact in Hamburg. The share of international investors selling assets in reached 29 % of the total transaction volume. Yields All types of usage experienced significant yield compression in, especially logistics assets. A drop of 85 bp from 5.5 % to 4.65 % could be observed in the sector. Prime rents for office space and properties featuring an office-retail mix recorded a 2 bp decline with current yields at 3.3 % and 3.2 %, respectively. The combination of scarce supply, in particular looking at downtown core assets, and the ongoing low interest rate environment continues to drive yield compression. This trend can be strongly felt in the CBD as well as in the surrounding submarkets such as City South and St. Georg. Transaction Volume by Buyer Groups (in million, share in %) Asset managers / Fund managers Open-ended real estate funds / Special funds Listed property companies Property developers Private investors / Family Offices Other investors Open-ended real estate funds / Special funds Property developers Listed property companies Private investors / Family Offices Other investors % 18 % 17 % 14 % 8 % 21 % Transaction Volume by Seller Groups (in million, share in %) Asset managers / Fund managers 23 % 21 % 16 % 9 % 7 % 25 % Summary and Outlook The Hamburg commercial real estate investment market is in good shape despite the ongoing shortage in supply. The fact that the demand on the office leasing market remains high is one of the factors that keep investors coming back. A number of forward deals and large-volume deals are in the pipeline for 218, which makes it safe to say that transaction volume can be expected to once again reach the 4. bn mark in 218. Corinna Nürnberger Consultant Research corinna.nuernberger@colliers.com 31

32 Cologne City Facts COLOGNE Population in 1, 1,82 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING COLOGNE Change vs. prior year Office Space Take-up 32, sq m -2.5 % Leasing Take-up 274, sq m % Prime Rent 21.5/sq m 2.2 % Average Rent 12.9/sq m 8.9 % Vacancy Rate 4. % -1 bp* Office Space Stock 7.85 m sq m.2 % Achieved Rents 553 Unemployment Rate in % 8.1 Per Capita Disposable Income in 24,37 Office Leasing Take-up The Cologne office leasing market generated an above-average result in with take-up at 32, sq m (including owner-occupiers), outperforming the 1-year average (261, sq m) by around 16 %. As expected, results were considerably lower yoy (-21 %) as 216 saw the signing of a large-scale lease for 6, sq m at a property development for Zurich Versicherung insurance in MesseCity (Deutz submarket). The public administration sector accounted for a large share of take-up activity in Cologne. The German Institute for Federal Real Estate (BImA), for example, signed the largest-scale lease of the year for roughly 19, sq m of office space. The offices will be occupied by the German Federal Office for Family and Civil Affairs. The leased property is located at Von- Gablenz-Straße 2-6 and was previously occupied by Lufthansa COLOGNE Price range in / sq m Average rent in /sq m 1 City Rheinufer Deutz Cologne East Ossendorf / Niehl Ehrenfeld / Braunsfeld Cologne West Cologne North Sülz/Lindenthal/Klettenberg Cologne South Airport / Porz *) basis points Pulheim 59 7 Frechen Hürth Chorweiler Müngersdorf 9 Ossendorf 6 Lindenthal Junkersdorf/ Marsdorf Nippes Neustadt-Nord Altstadt-Nord Ehrenfeld Köln Neustadt-Süd Deutz Marienburg 51 3 Mülheim Kalk Leverkusen 4 56 Gremberghoven 8 51 Bergisch Gladbach Hahnwald

33 until the end of. Owner-occupier Strabag accounted for the second-largest deal. The company s current site at Siegburger Straße 241 will see development of a new-build featuring 17, sq m of office space. Lufthansa airlines and its relocation activities in Cologne also accounted for considerable large-scale take-up in early. Lufthansa is planning to move its administrative offices to the One Cologne office building on Venloer Straße in fall 218, where the company has leased roughly 4,6 sq m. Until then, the company has signed an interim lease for space in the Braunsfeld district. A largescale lease signed in Q4 by Design Offices, a coworking space provider, is worth mentioning as well. The company has leased around 9,3 sq m of office space at Tunisstraße 19-23, a prime Cologne downtown location. The premises are scheduled to be converted for use as coworking space. painted a diverse picture in terms of take-up by industry. In addition to the public administration sector and associations mentioned above, which accounted for almost 15 % of total take-up, the construction and real estate industry as well as the media and ICT industry generated similar results. Trade, tourism and transportation trailed just behind. Rents Average rents have posted a noticeable increase over the past 18 months following the slight decline the Cologne market experienced in H1 216 after five consecutive years of upward movement. The city saw an increase of almost 9 % yoy, putting weighted average rent at 12.9 per sq m. Prime rents in Cologne followed a similar, although weaker, trend in recent quarters, up 2 % yoy to a current 21.5 per sq m. Supply and Vacancy Office Space Take-up in 1, sq m Leasing Owner-occupiers Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Completions thereof Pre-let/Owner-occupied 9 Vacancy Rate (in %) and Vacancy (in 1, sq m) Vacancy in Cologne took another nosedive at year-end due to lively leasing activity. Only 314, sq m were available for immediate tenancy at the end of the year, around 8, sq m less than in the previous year. The vacancy rate currently comes to 4. %, continuing the downward trend we have been seeing since 21. Although supply of rental properties featuring units under 1, sq m remains sufficient, units of more than 1, sq m can be hard to come by, particularly for tenants looking for high-end accommodation. Key Developments % 7.2% 5.9% 5.% % 314 The submarkets located along the right bank of the Rhine River continue to offer the highest development potential. Developments currently underway in this area include MesseCity, Euroforum Nord and Deutzer Hafen. Property developer Gerchgroup recently acquired a 16-hectar lot from Deutz AG and is planning to develop a new urban district on the former works site in Mülheim including commercial space. Prime and Average Rents (in /sq m) Prime Rent Average Rent 33

34 Summary and Outlook generated above-average take-up results of more than 3, sq m. We expect the Cologne market to post similar take-up results of between 28, and 3, sq m in 218 as well. There is room for upward movement in terms of both average and prime rents as ongoing absorption will further intensify competition for available space. Fast Facts INVESTMENT COLOGNE 216 Transaction Volume in million 2, 1,76 Portfolio Transactions 2 % 17 % Share by International Buyers 4 % 28 % Share by International Sellers 42 % 18 % Most Important Property Type Office: 5 % Office: 77 % Prime Yield Office 4.25 % 4.5 % Investment Transaction Volume Cologne s commercial investment market recorded an all-time high in with a total investment volume of 2. bn, reflecting a 14 % yoy increase and even an 8 % increase over the 1-year average. 215 set the last record at 1.9 bn, which means that in, Cologne breached the 2 bn mark for the first time. Commercial Transaction Volume (in million ) 2, 1,6 1, ,316 1,94 1,76 2, A significant share of transaction volume can be attributed to high-volume deals. One deal signed in early involved the sale of the large-scale mixed-use project Gerling-Quartier located in the city center by Austria-based Immofinanz to a joint venture consisting of Quantum Immobilien AG and Proximus Real Estate. Quantum and Proximus also acquired the neighboring building complex Friesenquartier from Immofinanz. Other significant deals included Swiss Life s acquisition of the former Kaufhof headquarters on Leonhard-Tietz-Straße and the purchase of the Deutsche Bank complex (An den Dominikanern) in the banking district by a special fund for institutional investors established by Momeni. Larger transactions were not confined to downtown areas, as Apollo Global Management s acquisition of 17 assets located at Cologne s TechnologiePark in Müngersdorf shows Types of Properties (in %) 216 A total of 16 transactions were conducted in the 3 m to 1 m range, with another 8 going for between 2 m to 3 m and a number of smaller transactions (27 deals) for under 2 m. Investor interest particularly tended to revolve around downtown Cologne, which claimed a share of around 4 %. Core and core+ investments combined accounted for two-thirds of transaction volume. Building Site (commercial) Other Hotel Industrial & Logistics Mixed Use 11 5 Office 22 Retail 34

35 Supply and Demand Although activity on the Cologne investment market was characterized in the first half of the year by relatively equal distribution of transaction volume across the different asset classes, office assets managed to expand their lead during H2. At year-end, office assets accounted for 5 % of transaction volume. Retail and mixed-use assets followed in the ranks at just shy of 22 % and around 11 %, respectively. The logistics and warehousing sector secured a market share of 7 %. Commercial sites and hotel assets each accounted for shares of between 4 % and 5 %. REITs were most active buy-side with roughly 64 m in transaction volume, followed by open-ended real estate/special funds with around 47 m. Insurance companies also accounted for a significant share of transaction volume with roughly 26 m. REITs also recorded the highest number of deals signed (12 transactions). Property developers/development companies generated the highest transaction volume sell-side with roughly 48 m, followed by opportunity funds/ private equity funds ( 37 m) and closed-ended real estate funds ( 34 m). Transaction Volume by Buyer Groups (in million, share in %) Listed property companies Open-ended real estate funds / Special funds Insurance companies Opportunity funds / Private equity funds Asset managers / Fund managers Other investors % 23 % 13 % 6 % 6 % 2 % Transaction Volume by Seller Groups (in million, share in %) Property developers 24 % Foreign investor activity remained strong in, bringing in 4 % both buy and sell-side. The major players involved came from the US, the UK, Switzerland and Israel. Yields Prime yields for office assets dropped to 4.25 % at year-end, or 25 bp yoy. If supply remains limited, we can expect yield compression to continue. High-street retail properties are still recording prime yields of up to 3.5 %, down 7 bp yoy. Summary and Outlook Cologne s investment market set a new record high driven by several large-scale transactions, but we saw strong activity in the other market segments as well. Available properties in central locations remain scarce, causing investors to increasingly turn to alternative assets. It will likely be difficult for the Cologne investment market to bring in results in 218 that are similar to s record high. We therefore expect transaction volume in the municipal area to come in at around the 1.5 bn mark. Opportunity funds / Private equity funds Closed-ended real estate funds Private investors / Family Offices Asset managers / Fund managers Other investors 18 % 17 % 11 % 9 % 21 % Lars Zenke Director Research lars.zenke@colliers.com 35

36 Munich City Facts MUNICH Population in 1, 1,543 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING MUNICH 843 Unemployment Rate in % 3.9 Per Capita Disposable Income in 28,757 Change vs. prior year Office Space Take-up 984,2 sq m 26. % Leasing Take-up 784,8 sq m 7. % Prime Rent 35.6/sq m 2. % Average Rent 17.3/sq m 8. % Vacancy Rate 2.4 % -6 bp* Office Space Stock 22.4 m sq m.5 % Office Leasing Take-up The Munich office market continues on its record-breaking course. saw take-up at 984,2 sq m, reflecting the best result since 2 and a 26 % yoy increase. This impressive result can primarily be attributed to owner-occupiers, who accounted for almost 2, sq m. BMW alone contributed more than 15, sq m through the extension of its Research and Innovation Centre (FIZ) and the company s new Zentrum III located in Freimann. Take-up excluding owner-occupiers came to around 784,8 sq m, up 7 % yoy with 25 leases signed for units over 5, sq m. Large-scale leases claimed a total of 28 % share of take-up. Achieved Rents MUNICH Price range in / sq m Average rent in /sq m 1 Center Center Northwest Center Northeast Center Southeast Center Southwest City Northwest City Northeast City Southeast City Southwest Periphery Southwest Periphery Northwest Periphery Northeast ,8 13 Periphery Southeast ,4 *) basis points Bergkirchen Gröbenzell 99 Germering 96 Gauting Dachau 11 Allach-Untermenzing Karlsfeld Moosach R Neuhausen-Nymphenburg Maxvorstadt Pasing-Obermenzing 3 Bogenhausen Arabellapark Aschheim Feldkirchen 1 Hirschgarten Arnulfpark Laim München Moosfeld 94 Messe Riem 2 Westend Au-Haidhausen Werksviertel Gräfelfing 9 Planegg Martinsried Sendling Obergiesing Haar Krailling Neuried Obersendling Pullach im Isartal Unterschleißheim Oberschleißheim Milbertshofen-Am Hart 13 7 Business Campus Garching Schwabing-Freimann Parkstadt Schwabing Neuperlach Unterhaching Garching Unterföhring Neubiberg 12 Ismaning Ottobrunn Putzbrunn Hohenbrunn Baierbrunn Oberhaching Taufkirchen 13 Höhenkirchen 36

37 Rents Average rents on the overall market climbed to 17.3 per sq m (+8 %) due to an increase in asking rents in the municipal area, a trend fueled by increasing shortage of space. Average rents in the municipal area are higher than ever, up 9 % to 19.3 per sq m. Rents in the periphery remained stable and are currently at 11. per sq m. Prime rents rose slightly to 35.6 per sq m, up 2 % yoy. Premium space is mostly going for more than 3. per sq m within the city s Altstadtring (inner ring road) and in high-rises. Office Space Take-up in 1, sq m 1, Leasing Owner-occupiers Supply and Vacancy Office vacancy in Munich continued to drop rapidly in due to high take-up. Office space available for immediate tenancy is currently recorded at just under 535,9 sq m (2.4 %). Vacancy within city limits currently comes to 1.6 %, making it increasingly difficult for businesses to find suitable space. Depending on the submarket, vacancy rates especially within the Mittlerer Ring central ring road are at critical levels of between.4 % and 1.8 %. Although vacancy in the areas surrounding the city is comparably high at 4.5 %, high-end space has already become a rare find in many of these locations. Despite the fact that space in some areas is becoming increasingly harder to come by, the number of property developments in the pipeline continues to be low. Around 163,8 sq m of new space was added to the market in, and 93 % of this space has already been taken up. Even with 217,5 sq m scheduled for completion in 218, these numbers are still considerably below the 1-year average with pre-leasing rates currently at 47 %. The number of developments scheduled for completion is set to increase significantly in 219 with 35, sq m of new space expected to hit the market. However, since most of these developments were commissioned by owner-occupiers, 8 % has already been taken up. Key Developments Two larger-scale projects along the western section of the main suburban train route got underway in H1 with Kap West at Hirschgarten and MY.O in Laim. Construction was also started on a number of projects in the east of Munich in H2. Werksviertel continues to grow with HighriseOne soon to be completed and the renovation and extension of the ATLAS high-rise in full swing. Construction of Die Macherei, an urban office and commercial center, began in late on a former factory site in Berg am Laim. Construction of the Bavaria Towers development is already well underway with completion scheduled for H Although speculative developments are easing pressure on Munich s tight office market, we expect vacancy rates to drop further in light of ongoing strong demand for office space. Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Prime and Average Rents (in /sq m) Completions thereof Pre-let/Owner-occupied 218 Vacancy Rate (in %) and Vacancy (in 1, sq m) 1,4 1,2 1, % % % 1,392 1, % % 536 Prime Rent Average Rent 37

38 Summary and Outlook Although demand for office space in Munich remains high, space is becoming increasingly hard to come by with supply at critical levels especially in the municipal areas. Often the only chance that large-scale occupiers have to meet their space requirements is to sign leases for space still in the development phase. This, however, typically involves an average planning horizon of at least three years. Speculative developments featuring leasing concepts well suited to their location would be welcomed with open arms. Over the long-term, we see a risk that the lack of space could limit expansion opportunities and discourage companies from moving to the city. We expect above-average take-up in 218, potentially above the 7, sq m mark. However, it remains to be seen to what extent increasingly limited supply will affect take-up levels. Fast Facts INVESTMENT MUNICH 216 Transaction Volume in million 6,17 6,86 Portfolio Transactions 17 % 18 % Share by International Buyers 41 % 33 % Share by International Sellers 33 % 2 % Most Important Property Type Office: 49 % Office: 71 % Prime Yield Office 3.2 % 3.3 % Commercial Transaction Volume (in million ) 7, 6, 5, 4, 3, 2, 1, 4, , , , ,17 Investment Transaction Volume The Munich market for commercial real estate generated a transaction volume of around 6.2 bn in. Even though this result beat out the long-time average by about 5 %, it fell short of 216 s extraordinary result of 6.8 bn. Nevertheless there is no sign that demand has cooled. The decline can instead be attributed to a shortage in supply. Be that as it may, numerous large deals are currently in the pipeline for 218 and scheduled to be finalized in the spring. Strong market activity can be observed across all asset classes. Munich therefore continues to be among Germany s investment hubs with the highest liquidity. Supply and Demand Although open-ended real estate funds and special funds have proven to be most active in the buy-side in past years, competition intensified in. With a share of 21 %, open-ended real estate funds and special funds ranked just ahead of asset/fund managers with 17 %. Property developers and development companies (14 %) and private investors (11 %) followed behind. REITs also exceeded the 5m mark, claiming a 9 % share. This narrow span among the different buyer groups highlights intensified competition and reflects the variety of investors active in the Munich market. Types of Properties (in %) Industrial & Logistics Building Site (commercial) Mixed Use Other 49 Office Roughly 41 %, or 2.5 bn, of capital poured into commercial assets came from foreign investors, who invested directly in the Munich market and via asset/fund managers. Foreign investors participated in just under half of the high-volume transactions of more than 1m. The largest share of foreign capital came from the UK and Europe, while Asian investors accounted for a total share of only 5 %. Retail Hotel 38

39 Half of transaction volume, or 3.1 bn, focused on office assets, which, in light of strong demand and significant rental growth, remain by far the most popular asset class among investors. Investments in hotel and retail assets secured a market share of more than 14 % and 13 %, respectively, with the latter benefiting from a number of large deals. Mixed-use assets and commercial sites brought in just under 65m (11 %) and 45m (7 %), respectively. The distribution of market share per asset class is currently much more balanced than only a few years ago when office assets accounted for between 6 % and 75 %. This can be attributed to the increasing attractiveness of other asset classes and pressure to diversify among asset classes due to the shortage in supply and much lower yields for office properties. Transaction Volume by Buyer Groups (in million, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Property developers Private investors / Family Offices Listed property companies Other investors ,2 1,5 1.8, 21 % 17 % 14 % 11 % 9 % 28 % Yields Yields in all locations and asset classes continued their downward trend over the past 12 months. Prime yields for office buildings in the Munich city center came to 3.2 % at the end of. As for peripheral locations, prime yields slipped significantly below the 5 % mark, following the path taken by industrial and logistics assets at the beginning of the year to a current 4.65 %. In view of the fact that interest rates remain low and with pressure to invest still high, we expect yield compression to increase, making itself felt particularly in value add and opportunistic investments. Summary and Outlook We do not see any signs of a reversal in the current favorable trend that has driven Munich s commercial investment market for several years now. Quite to the contrary, we expect very strong results in Q1 218 with several high-volume transactions already in their final stages. The number of forward deals is likely to increase as well as investors are looking to secure properties early on and leasing risk remains low. With business good for Munich s companies and the population expected to grow, secondary and tertiary locations can also expect to attract more attention and 218 is likely to see another above-average year-end result. Transaction Volume by Seller Groups (in million, share in %) Property developers 24 % Asset managers / Fund managers Opportunity funds / Private equity funds Private investors / Family Offices Open-ended real estate funds / Special funds Other investors 17 % 12 % 1 % 7 % 3 % ,2 1,5 1,8 Tobias Seiler Associate Director Research tobias.seiler@colliers.com 39

40 Stuttgart City Facts STUTTGART Population in 1, 624 Employees Paying Social Se cu rity Contributions 43 in 1, Unemployment Rate in % 4.4 Per Capita Disposable Income in 25,634 Fast Facts OFFICE LEASING STUTTGART Change vs. prior year Office Space Take-up 268,4 sq m % Leasing Take-up 212,4 sq m % Prime Rent 24.3/sq m 5.7 % Average Rent 13.4/sq m 3.1 % Vacancy Rate 2.1 % -7 bp* Office Space Stock 7.9 m sq m 2.6 % Office Leasing Take-up As in previous years, the Stuttgart office leasing market (including Leinfelden-Echterdingen) posted above-average leasing activity in with roughly 268,4 sq m in take-up. This was the fourth highest result ever recorded in the capital of Baden-Wurttemberg, nevertheless reflecting a decrease of roughly 38 % yoy (216: around 431, sq m). This drop can be attributed to significant activity on the part of owner-occupiers in 216 combined with the fact that ongoing scarcity of available space prevented higher take-up levels in. Scarcity of space could particularly be felt in the segment of over 3, sq m. Achieved Rents STUTTGART Price range in / sq m Average rent in /sq m 1 City Center /4 Zuffenhausen / Feuerbach Weilimdorf /7 Bad Cannstatt / Wangen Vaihingen Degerloch Möhringen Fasanenhof Leinfelden-Echterdingen *) basis points Ditzingen Gerlingen Vaihingen Weilimdorf 5 81 Korntal Botnang Stammheim 295 Feuerbach Innenstadt Möhringen a Zuffenhausen Degerloch Fasanenhof 11 Stuttgart Münster Birkach Plieningen Mühlhausen 6 Bad Cannstatt 7 Sillenbuch Wangen Ruit 14 Hedelfingen Remseck am Neckar Fellbach Untertürkheim Waiblingen Obertürkheim Esslingen am Neckar 4

41 Leasing activity also dropped significantly with the number of leases signed falling from 351 in 216 to 25 in. Over the past 1 years, the only years to post lower leasing activity were 28 (29 leases) and 29 (214 leases). Looking at office take-up by industry, consulting firms were most active with 5 leases signed in, followed by IT companies with 49 leases signed. Because companies from the manufacturing industry traditionally lease larger spaces, the 33 leases signed by companies in this sector accounted for more than 4 % of take-up. Office Space Take-up in 1, sq m Rents Leasing Owner-occupiers With supply limited, tenants are willing to pay higher rent, which pushed prime rent to a new record high of 24.3 per sq m at the end of, up 1.3 per sq m yoy (+6 %). Tenants continue to pay the highest rents in the Stuttgart City submarket. Average rent in Stuttgart also set a new record at 13.4 per sq m, confirming the previous quarter s result and reflecting a significant yoy increase of over 3 % (216: 13. per sq m). Although the majority of leases were again signed in the price segment of between 1. and 15. per sq m, we also saw a significant increase in transactions in the price segment of over 2. per sq m. This high-priced segment accounted for around 17,5 sq m, up from 2,2 sq m in 216. Supply and Vacancy Even though the drop in vacancy rate continued until mid-, it had stabilized at a low level by the end of the year. With stock at roughly 7.9 million sq m and available space at around 164,6 sq m, the vacancy rate on the Stuttgart market came to a mere 2.1 % at 31 December. This is the lowest vacancy rate recorded on the Stuttgart office leasing market in over 14 years, reflecting a further decrease of 7 bp yoy. Vacancy has dropped considerably over the past several years, especially in city center locations. While the City and City Center submarkets recorded 14, sq m of vacant space at the end of 213, vacancy there only came to 42,2 sq m in late. The situation is significantly less homogenous in the peripheral submarkets. While Stuttgart s northern submarkets recorded vacancy rates similar to the city center, more space is available in southern Stuttgart, especially in the Möhringen, Vaihingen und Leinfelden-Echterdingen submarkets. Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied Vacancy Rate (in %) and Vacancy (in 1, sq m) Completions thereof Pre-let/Owner-occupied 4.9% % % % 216 Prime and Average Rents (in /sq m) % Prime Rent Average Rent 41

42 Key Developments Unlike the previous year, the majority of property developments in were to be found in central locations. Prelease rates were high as usual. The amount of stock office space in particular rose in some submarkets due to owner-occupier activity. Examples include a new-build by Robert Bosch encompassing roughly 2, sq m and located in Stuttgart-Zuffenhausen. Properties not developed by owner-occupiers included Europe Plaza with more than 17, sq m in Stuttgart Europaviertel and Dorotheen Quartier with around 25, sq m of office space in the Stuttgart City submarket. Summary and Outlook The Stuttgart office leasing market was characterized by high demand in with supply continuing to drop. This has kept take-up volume from reaching its full potential over the past 12 months while pushing rents to new record levels. We do not expect to see an improvement in the supply situation any time soon due to high pre-leasing rates for office completions in 218. Instead, tenants looking for space will have to accept higher rents and be willing to compromise. Fast Facts INVESTMENT STUTTGART 216 Transaction Volume in million 1,2 1,913 Portfolio Transactions 25 % 25 % Share by International Buyers 49 % 47 % Share by International Sellers 47 % 17 % Most Important Property Type Office: 8 % Office: 61 % Prime Yield Office 3.8 % 3.9 % Investment Transaction Volume With a transaction volume of roughly 1.4 bn, the Stuttgart real estate investment market remained very lively in, repeating the excellent results of the previous year. Commercial investments recorded a transaction volume of roughly 1.2 bn. Around 7 properties changed hands in, also reflecting an above-average result. However, activity was not as lively as in 216 (around 8 transactions) due to lack of supply. Commercial Transaction Volume (in million ) 2, 1,5 1, ,2 1,695 1,913 1,2 Supply and Demand Office assets were once again the strongest asset class on the Stuttgart market, accounting for about 8 % of total transaction volume. As in the previous year, this large share can primarily be attributed to high-volume investments in the office sector. Four office transactions were alone responsible for around 4 m. The largest transaction of was Mercedes-Benz Bank Headquarters, which was sold by international real estate investment firm Hines to the Baden-Württemberg Foundation. 213 Types of Properties (in %) Building Site (commercial) Mixed Use Hotel 5 5 Retail All four high-volume office deals mentioned above were lowrisk transactions in the core segment. Deals in the core+ and value-add segments nevertheless managed to account for over half of total transaction volume, proving that German and foreign investors are increasingly willing to take risks and reflecting a lack of supply in the low-risk core segment. While open-ended real estate funds and special funds generated the highest transaction volume in 216, asset managers dominated the market in with a share of around 315 m. Asset managers were also among the most active seller groups with a volume of roughly 28 m. 8 Office 42

43 Foreign investors once again accounted for a remarkably high share of transaction volume both buy and sell-side at just shy of 5 %. International investors appreciate Stuttgart s economic stability and low vacancy rate, which continued in the path of the previous year s trend in and dropped to an all-time low of 2.1 % for the entire city. Yields High demand across all asset and risk classes in light of inadequate supply caused another slight drop in yield levels over the past 12 months. At year-end, prime yields were recorded at 3.8 % for office assets, 3.1 % for downtown buildings featuring a retail-office mix and 4.65 % for modern logistics assets. Investors took advantage of ongoing yield compression in to tap significant increases in value. A good example is the sale of the City-Plaza downtown office building, which changed hands for more than 1 m after a holding period of just one year. Summary and Outlook In light of low completion rates in the core segment, we expect investors to continue to be willing to take risks in 218 as supply in the low-risk segments remains low. Long-term tenancies will become less relevant in light of all-time low vacancy rates in the office segment and high preleasing rates. Stuttgart yield curves are trending downward in the core, core + and value-add segments due to significant excess demand, and we expect transaction volume to once again fall short of its potential in 218. Transaction Volume by Buyer Groups (in million, share in %) Asset managers / Fund managers Insurance companies Open-ended real estate funds / Special funds Public administration REITs Other investors % 16 % 14 % 1 % 8 % 26 % Transaction Volume by Seller Groups (in million, share in %) Asset managers / Fund managers 23 % Property developers Opportunity funds / Private equity funds Listed property companies REITs Other investors 12 % 12 % 1 % 1 % 33 % Alexander Rutsch Senior Consultant Research alexander.rutsch@colliers.com 43

44 Take advantage of our research services. Quality real estate solutions require careful planning. Markets are constantly changing, which means you need a good eye, objective data analyses and an understanding of complex relationships. Our research and advisory services give you the tools you need to effectively make any decision regarding your property. We take a transparent, customer-oriented approach to analyzing market activity, giving you a sound, secure basis for all of your decisions. We provide you with custom, objective property analyses including target groups and industries, giving you a competitive advantage. 1 LAND ACQUISITION/ PROJECT PLANNING 2 NEW DEVELOPMENT/ REFURBISHMENT Analysis of marketability Macro & micro Potential environment analysis Feasibility analysis Letting potential analysis Target group & Usage analysis Location and market analysis We can assist you even in the earliest phases of your project We work with you to develop a concept and identify your project s potential. We help you lay the foundation for your project s success. You know property development, we know the market We analyze your project from a user perspective, identify target groups and assess leasing potential at the site in consideration of the surrounding area. We give you an objective third opinion that will help you with financing. THE PILLARS OF OUR MARKET EXPERTISE Germany-wide database containing primary data on more than 5, leases and 15, investment deals Geographic information specialists for mapped imaging and geoanalyses Local research experts with extensive market penetration and years of experience in Germany s top locations 44

45 Analyses for each stage of your property investment. Customer/property-specific analyses and advisory services Independent customized and trend analyses Analyses supported by geographic information systems (GIS) 3 LETTING/MARKEITNG 4 PURCHASE/SALE Property benchmarking Forecast tools Rent price indication + + Competition analysis Target group analysis Travel time analysis Comparables Buy-Side-Advice Market Due-Diligence Comparables How competitive is your property? We analyze market rents, identify your competitors and point out aspects that set your property apart from the competition. We know the conditions at which your competitors are leasing their space and use effective tools to help predict your success. We help you avoid risks and surprises in your property acquisition Our extensive buy-side advice illuminates all aspects of your planned investment and gives you comparable asset pricing to help you make the best decision. EFFECTIVE RESEARCH SERVICES Expert monitoring of current and future market trends Collaboration with investment and leasing teams as well as external market players Inclusion of trends driven by macroeconomic and capital market factors 45

46 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. Leasing performance Leasing performance reflects take-up excluding owner-occupied 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. 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. 46

47 Contacts Matthias Leube Chief Executive Officer Head of Capital Markets Ulf Buhlemann FRICS Head of Portfolio Investment & Advisory Thomas Dänzel Head of Retail Investment Andreas Erben Head of Hotel Colliers Berlin Budapester Straße Berlin Phone Colliers Düsseldorf Königsallee 6 C Entrance Grünstraße 4212 Düsseldorf Phone Colliers Frankfurt Thurn-und-Taxis-Platz Frankfurt am Main Phone Colliers Hamburg Burchardstraße Hamburg Phone Colliers Cologne Kranhaus 1, Im Zollhafen Cologne Phone Colliers Munich Dachauer Straße Munich Phone Colliers Stuttgart Königstraße Stuttgart Phone Susanne Kiese Head of Research susanne.kiese@colliers.com Hubert Reck Head of Industrial & Logistics Investment hubert.reck@colliers.com Wolfgang Speer Head of Office & Occupier Services wolfgang.speer@colliers.com Photo credits Front page Kölnturm - Dream Global Advisors Germany GmbH Photo credits inside pages Page 3, 4 Fotolia Page 5 istock Johnny Greig Page 46 istock william87 Berlin Palais Holler, Kurfürstendamm 17, 177 Berlin Düsseldorf Fotolia Frankfurt TRIANON Mainzer Landstraße 16, Colony NorthStar, Inc. Hamburg Europa-Passage, Allianz Real Estate GmbH Henning Kreft Fotograf Köln shutterstock r.classen München Thinkstock, Fotograf: Michael Abid Stuttgart Paulinenstraße 44-46, 7178 Stuttgart, Adrian Beck Photographer 47