Slovakia MARKET OVERVIEW

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1 Slovakia MARKET OVERVIEW H1 217

2 Contents 2 Market Overview H1 217 Slovakia Economic overview 3 Investment 4 Office 6 Industrial 8 Retail 1

3 Economic overview > > 217 is believed to be another year of continuously strong economic growth for Slovakia. In 216 country s GDP grew at 3.3% (almost double the growth rate of the single currency area) and Q1 217 continued with a robust 3.1% year-on-year figure. > > Country s outperformance of the Eurozone is significantly facilitated by positive labour market with continuous downwards trend in unemployment, which is currently at its historically low level of 8.%; and low interest rates on loans, demonstrating a sharp average fall from Q4 216 to 2.8 p.a. in May 217. Lending to households is growing by more than 1% year-onyear while lending to non-financial corporations has started to pick up since the beginning of 217. > > Main industry clusters in the country are automotive, electronics, mechanical engineering, chemical engineering and information technology. Three modern automobile assembly plants are currently in operation with the forth one planned to open in 218. Advantageous country location and well developed infrastructure make Slovakia a continuously attractive destination for car manufacturers. Key Economic Figures (annual var. in %) 1,5% 8,% 12,7% 13, 13,5% 1, 8,% Unemployment > > Wage growth has picked up in Q2 216, and is expected to average at around 4% this year in nominal terms. > > Overall economic risk is estimated as moderate to low. Slovakia is ranked lower in terms of risk than its Central and Eastern European peers. Moody s credit rating for the country was set at A2 with positive outlook (rated April 217), while the last reported evaluations of Standard & Poor and Fitch are both at A+, stable outlook. > > Economic analysts forecast that in the medium term Slovakia will continue to outperform its Eurozone peers, the economy is expected to expand by robust 2.4% per annum over the next decade. While decreasing supply of labour will exert a drag on the economy, rising total factor productivity and capital accumulation will provide significant offsets. Research also highlights the possibility of upside risks to the GDP forecast, taking into account that the capital spending, especially in the car industry, might increase if the companies choose to invest more in continental Europe than in the UK. 4,1% 4,2% GDP 3,1% 1,9% HICP 1,4%,9% 3,%,9%,9% -,3% Q f 219f -4,9% Average nominal monthly wage ( ) Q1 217 Source: Statistical office of Slovak Republic/Symsite Research 3 Market Overview H1 217 Slovakia

Investment > > CEE region as a whole remains a focus of new institutional investors, reflecting a significant slowdown in activity in the developed Europe attributed to the reaction to Brexit and

4 Investment > > CEE region as a whole remains a focus of new institutional investors, reflecting a significant slowdown in activity in the developed Europe attributed to the reaction to Brexit and maturing markets. In H1 investment activity in CEE region was equal to 12,185m (compared to 5,422m in the corresponding period of 216). > > Following a record performance in 216, in H1 217 investment market in Slovakia slowed down slightly as per the number of transactions closed. Eleven transactions took place in the first half of 217, which, according to the information available (excluding confidential deals), has brought more than 135m investment. It is important to understand the role of confidential and pending transactions in what might seems as an activity slump compared to H > > Annual figures for investment market in Slovakia in 217 are forecasted to be much higher than the long term average of 29m per annum (29 215), taking into account the number of investment transactions, which are currently at the closing phase, favourable macroeconomic conditions and availability of competitively priced stock. Total Investment Volume (mil EUR) 9 Retail 8 Residential 7 Office 6 Industrial Hotel H1 217* *excluding confidential deals and pending transactions /RCA Prime (Net Initial) Yields (%) 11,% 1,% > > The market is currently experiencing high activity from local investors, such as family offices and regional investment funds, some of which have grown into important players both locally and on the CEE scale. Local investors are usually interested in the value add/distressed properties, where there is a possibility to increase the value of the project through active property management with further opportunity to benefit from yield compression. Global players are also active in the country, however, this is mostly the result of the common regional strategy for the CEE. 9,% 8,% 7,% 6,% 5,% > > Institutional investors are mostly interested in the core investments in office, retail and industrial sectors. However, they often face a lack of projects with a necessary quality standard. Industrial Office Retail 4 Market Overview H1 217 Slovakia

5 > > Highest investment activity in H1 217 was attributed to the industrial sector followed by offices. Residential sector, which have been enjoying a sharp activity increase in the recent years, currently has a limited investment opportunities on offer. There is likely to be a time lag before new residential schemes become available. > > The largest investment transaction in H1 217 involved a sale of Lozorno Logistis Park with the total area of 118, sq.m. in Lozorno, Bratislava region. The transaction took place between CPI property group and White Star Institutional investor, increasing its market share in Slovak industrial class A property market to. Overall, industrial sector is currently offering the most investment opportunities with high quality projects and reasonable yields. Sale & leaseback transactions are common within the sector. Bratislava prime blended commercial real estate yields and Slovak 8yr bond yields (%) Bratislava blended prime real estate yield (%) Slovakia 8 yr sovereign bond yield (%) > > As at the end of H1 217, highest prime (net initial) yields were recorded in the industrial sector 7.25%, followed by offices 6.5% and retail 6.%. There is a common trend for the compression of yields in industrial and office segments, while the yields for retail are fluctuating slightly around > > We expect 217 to be a strong year for investment transactions in Slovakia, driven by continued momentum in consumption-led GDP growth. Whilst funding rates stay low, the superior real estate yields, compared to Developed Europe, on offer both in Slovakia and elsewhere in CEE, remain an incentive to commit to long-term investments. Slovakia s political and economic stability continue making the county an attractive CEE destination average 5.3% premium to average 1.8% > > Premium to bond yields are still very wide and above the long term average, thus prime yields are not likely to feel upward pressure in the near term > > Even though we expect a number of large (more than EUR 5m) deals in industrial and retail segments, liquidity for office projects of that size is limited. > > We believe the nature of investment transactions to become more global in line with the common CEE strategy leading to increased interest from pan European, South African and Czech investors, coupled with the rise of local private wealth investors already apparent in the market. > > Major risks come from the possibility of rising interest rates as the quantitative easing policy adopted by ECB ends and subsequent inflation spikes. Further uncertainties come from the risk of increased taxation and downturn in EMEA real estate investment cycle, as well as risky asset prices tumbling (including Emerging Markets) provoked by China s debt instability and US policy uncertainty 5 Market Overview H1 217 Slovakia

Bratislava Office Supply > > In H1 217 total stock of grade A and B office buildings in Bratislava amounted to more than 1.7 mln sq.m. 58% of the office spaces are classified as class A and 42% are class B.

6 Bratislava Office Supply > > In H1 217 total stock of grade A and B office buildings in Bratislava amounted to more than 1.7 mln sq.m. 58% of the office spaces are classified as class A and 42% are class B. > > With completion of Phase I of Blumental project and blocks B and CA of the Zuckermander in Q1 217, as well as commissioning of UNIQ Staromestská and Panorama Business Center II in Q2 217, supply of office spaces in Bratislava in H1 217 increased by approximately 69, sq.m. > > Majority of the office spaces are located in the BA II district (37%), followed by BA I (3). > > 23 buildings with an approximate area of 455, sq.m. (27% of the total stock) are certified with either LEED or BREEAM. Three more buildings with a total area of around 37, sq.m. are currently going through the process of certification. Green certifications enable office developments to increase competitiveness as well as decrease operating costs. Pipeline > > There are currently around 234, sq.m. of additional office premises under active construction in Bratislava. By the end of 219 office stock is expected to increase by at least 14%. Change in Office Stock over Time (m 2 ) 2 Vacancy Rate in Bratislava (%) 1 14% 12% 1% % Previous Stock New Supply 69, sqm Development completitions H1 217 H1 217 Grade A Grade B f218 f219 Overal Vacancy Rate 9,42% 6,77% 4,89% > > Four more projects with a total are of more than 4, sq.m. are expected to be delivered before the end of % Q2 217 /BRF 6 Market Overview H1 217 Slovakia

Demand > > Office transactions for H1 217 represent a total amount of 73,92 sq.m., demonstrating 37% decrease in activity compared to the corresponding period of 216.

> > Majority of transactions were recorded with the professional services sector (23%), followed by IT (21%) and pharmaceutical and medical (12%).

In terms of the total area, the largest take up was attributed to transactions between 1, and 5, sq.m. > > Most significant office transitions included: 5,5 sq.m. Twin City C, New Lease (Other sector), 4,434 sq.

Development Completition (m 2 ) 2 15 1 5 - Sub-Lease Pre-Let Expansion 29 21 211 212 213 214 215 216 217 /BRF Take-Up Composition H1 217 (no.

7 Demand > > Office transactions for H1 217 represent a total amount of 73,92 sq.m., demonstrating 37% decrease in activity compared to the corresponding period of 216. Out of the total amount, new leases represent 57%, renegotiations 22%, pre-leases 17%, and expansions 4%. > > Majority of transactions were recorded with the professional services sector (23%), followed by IT (21%) and pharmaceutical and medical (12%). > > The largest number of transactions was recorded in the segment of less than 2 sq.m. office premises. In terms of the total area, the largest take up was attributed to transactions between 1, and 5, sq.m. > > Most significant office transitions included: 5,5 sq.m. Twin City C, New Lease (Other sector), 4,434 sq.m. Einsteinova Offices, Pre-lease (under construction, Finance/Banking/Insurance), 3,5 sq.m. BA Business Centre, Renegotiation (IT); Development evolution vs. Development Completition (m 2 ) Sub-Lease Pre-Let Expansion /BRF Take-Up Composition H1 217 (no. of transactions/m 2 ) Area of transactions Renewal New Occupation Development Completitions 3,37 sq.m. Zuckermandel CA, New Lease (Professional Services), 2,935 sq.m. Digital Park II, New lease (IT). > > In H1 217 the overall vacancy rate insignificantly increased to 6.77%. 4.89% of grade A premises were recorded as vacant, while the vacancy rate for grade B offices was equal to 9.42%. The highest vacancy (1.67%) was recorded in BA III district, while BA IV had the lowest vacancy of 1.23%. Rental Rates > > In H1 217 headline rental rates in Bratislava varied between: Grade A: (EUR per sq.m.); Grade B: (EUR per sq.m.). 63% 11% 1 No. of transactions 2 8% /BRF Stock Vacancy rate Average headline rent City Center 554,8 m² 6.6 % /m² 1 47% 13% Inner City 73,6 m² 6.88 % /m² < ,-4,999 Outer City 412,3 m² 6.83 % /m² 7 Market Overview H1 217 Slovakia

Industrial Supply > > The development of Slovakia s industrial and logistics real estate market is positive, in line with general trends across major markets in Europe.

8 Industrial Supply > > The development of Slovakia s industrial and logistics real estate market is positive, in line with general trends across major markets in Europe. located around Senec and Nitra regions, half of the new supply is represented by speculative development. New supply in Nitra region is mainly delivered by Prologis, which is going to locate Jaguar Land Rover in its Prologis Park Nitra. Industrial Stock in Slovakia (thousand m²) > > Majority of logistic spaces are concentrated in the capital city Bratislava and the Western part of the country strategically located and well connected by D1, D2 and R1 highways > > Further popular industrial and logistics destinations include Sereď, where Amazon s 6, sq.m. new logistics centre is planned to be opened in Q3 217 and more than 44, sq.m. of additional I&L premises are being developed by the investors from Russia; as well as Nitra region, development of which relates to the Jaguar Land Rover s new plant where the production is planned to start in 218. > > In H1 217 total modern industrial supply of class A premises in the country amounted to 1.88 million sq.m. The majority of the premises (6) are located in Bratislava Major industrial developers, H H1 217 > > The industrial market is dominated by three largest players Prologis (which is also the owner of the largest industrial park in the country located in Senec), P3 and CTP. Together they hold around 53% of the total market share. Other strong industrial players include Goodman, active in Senci and the Eastern part of Slovakia, Karimpol, Macquarie Group and VGP, located in Malacca near the D2 motorway in the direction of Brno. Pipeline > > thousand sq.m. of additional industrial spaces were under active construction in H Most of the projects are 12% 4% 11% 3% 13% ProLogis P3 CTP Goodman International AU Optronics Macquarie White Star Karimpol VGP Other 8 Market Overview H1 217 Slovakia

9 Demand > > The automotive industry has a strong tradition in Slovakia and has become the most important sector and driving force of the Slovak economy. The recent entry of Jaguar Land Rover, which became the fourth automotive producer in the country, continued the trend. Production is planned to commence in 218. > > Strong demand for cars from the Western Europe stimulated 9% year-on-year growth for the Slovak automotive industry in H The following number of vehicles was produced by three major automotive companies located in the country: Volkswagen Bratislava: 214,3 vehicles; Trnava PSA, Peugeout Citroen: over 178,7 vehicles; Žilina KIA: 177,9 vehicles. > > All of the three automative players mentioned above are among Slovakia s most important exporters. Except of the car manufacturing, industrial production is strong for Tier 1,2 and 3 automotive suppliers. > > Jaguar Land Rover started construction of its new plant in Nitra in September , sq.m. industrial building is being developed by Prologis. Currently, it is going to provide employment for 2,8 people. However, in future, if investment is increased from initial 1.4 billion to 1.9 billion, the number of workers will be increased to 3,9. Start of production is planned for 218. Industrial Take-Up in Slovakia (thousand m²) H Industrial Vacancy Rate in Slovakia (%) 1,% 8,3% 7,4% 5,3% 8,5% 7,3% 6,5% 3,2% 3,2% 2,2% > > Trend for speculative development continues. Market demonstrates a strong demand for preparatory halls. For production facilities, companies usually demand an early access (up to 6 months upfront) to the warehouses. > > In some locations vacancy rates for industrial premises have reached their historical minimum, reacting to the dynamic pace of development of industrial market in the country, as well as overall positive global industrial development trends. > > In H1 217 industrial vacancy rate decreased to 2.3% (compared to 3.2% in the end of 216). Prime headline rent was equal to 3.6 per sq.m./month for warehouses and to 3.4 per sq.m./month for logistics and distribution premises. > > Even though there is a high degree of competition between parks in the same region, very low vacancy rates make the market favourable to developers. > > Total occupational market activity figures in H1 217 amounted to around 222, sqm. Most of the transactions (47%) were attributed to the new occupation, 27% were represented by expansions and 2 by renewals. Electronics sector drove most of the demand (22%), followed by retail (19%) and 3PL (14%). E-commerce is playing and important role in generating demand for industrial premises in the country H1 217 > > Good accessibility, proximity to business partners, strategic location in terms of supply and distribution, rental costs and satisfaction with the services provided by the parks are the major influences on the tenant activity. > > The trend for dynamic supply of new modern warehouse and production premises is likely to continue. Locations in the proximity of D1 motorway look particularly attractive. We expect new developers to enter Slovakia s I&L real estate market. > > Automotive industry is forecasted to form a dominant part of the I&L demand. Another fast-growing sector is believed to be e-commerce the pace of which is determined by increasing volume of transported goods, rapid growth in on-line purchases and higher degree of globalization. > > Tenants are demonstrating higher demand for innovation and technology. Thus, to be successful in the longer-term developers should provide for those changing needs. 9 Market Overview H1 217 Slovakia

Retail > > The main drivers of the retail sector in the country continue to be strong economic growth, historically low levels of unemployment and rising real wages.

10 Retail > > The main drivers of the retail sector in the country continue to be strong economic growth, historically low levels of unemployment and rising real wages. Retail Stock in Regional Cities 216 (m²) > > In the first half of 217, the total retail stock of traditional and specialized shopping centres in Slovakia was equal to around 1.66 million sq.m. Traditional shopping centres represent 71% of the total stock, while 29% are attributed to specialized shopping centres (retail parks and big box retail). > > More than 18, of additional retail spaces are currently under active construction in the country. Despite already high saturation, most of the new developments are located in the capital city Bratislava, where two large projects are expected to be added to the stock in the upcoming years the Nivy bus station and expansion of the Eurovea shopping centre TT 9% TR 5% PO NR 1% ZA 1% KE 12% BB 9% BA 39% > > Bratislava features one of the largest per capita retail area in the CEE region sq.m. Bratislava s retail stock of traditional shopping centres per capita is in fact the highest in CEE and higher than the average of the major Western European Capitals. 1 Banská Bratislava Košice Nitra Prešov Trenčín Trnava Žilina Bystrica Specialized Shopping Center Traditional Shopping Center > > Currently, Bratislava s five dominant shopping centres include Aupark, Eurovea, Central, Avion and Bory Mall, which are typically being considered as an entry point for new international brands. > > High street retail in the city is not very developed and is mainly represented by Obchodna Street which has largely lost its popularity as a major shopping destination with the arrival of large shopping centres. TSC Retail Stock per capita (m²) 1,4 1,2 1,,8,6,4,2, 1,19,72,7,57 Bratislava Prague Warsaw Budapest Bucharest Sofia Major Western Europe capitals average,5,38,7 1 Market Overview H1 217 Slovakia

> > Prime headline rents for Bratislava s retail properties stay at the stable level of: High street

5 per sqm; Traditional shopping centres (anchor tenants): around 15 per sqm; Specialized shopping

Retail Space* in Regional Cities (m 2 /1,inhabitants) Retail Stock / Construction in Regional Cities

11 > > Prime headline rents for Bratislava s retail properties stay at the stable level of: High street retail: around 41 per sqm.; Traditional shopping centres (in-line tenants): around 38.5 per sqm; Traditional shopping centres (anchor tenants): around 15 per sqm; Specialized shopping centres (anchor tenants): around 8.25 per sqm. Retail Space* in Regional Cities (m 2 /1,inhabitants) Retail Stock / Construction in Regional Cities (m²) , ,4 1,35 1,46 *Retail Space= traditional shopping centers+specialized shopping centers(big box, retail park) 11 Market Overview H1 217 Slovakia

12 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111 Tamila Nussupbekova Associate Slovakia Research tamila.nussupbekova@colliers.com Colliers International Slovakia Europeum Business Center Suché Mýto Bratislava, Slovakia billion in annual revenue 17 million m 2 under management 15, professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15, professionals operating from 396 offices in 68 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 1 consecutive years, more than any other real estate services firm. Copyright 217 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

H Market Overview

H Market Overview Research & Forecast Report Slovakia Real Estate Market H1 2015 H1 2015 Market Overview Slovakia Contents Summary 3 Economic overview 4 Investment 6 Office 8 Industrial 10 Retail 12 2 Research & Forecast