bulwiengesa REF! REF! WHERE IT STILL PAYS OFF TO INVEST The 5% Study REF! REF! REF! REF! 1/4

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1 REF! REF! WHERE IT STILL PYS OFF TO INVEST The 5% Study 2016 REF! REF! REF! REF! 1/4

2 THE STUY 2016 ontents page FOREWORS 1 ONTENT N METHOOLOGY 2 MROEONOMI ONITIONS 4 SUMMRY 6 THE 6-PERENTERS 8 THE 5-PERENTERS 14 THE 4-PERENTERS 18 THE 3-PERENTERS 28 THE RESULTS IN ETIL 34 EFINITIONS N OMMENTS 40 ONTTS 44 REF! REF! REF! G 2016

3 THE STUY The Study study by G on behalf of G 2016

4 THE STUY 2016 Forewords The publication of the first study last year met with a big response on the market in light of its new approach to real estate market research. For the first time, markets are not (just) clustered by region and use. Instead, the focus is on their income opportunities. nother innovative aspect is that it includes not just a static yield assessment, but an analysis of the internal rate of return (IRR) on the investment assumed. The study also raises questions that have already been discussed a great deal but have not yet been answered definitively, and certainly not consistently: What are core properties? nd what are non-core properties? The meanings of these terms vary considerably, particularly in market phases characterised by high excess demand. The study provides an analytical approach in which core properties are examined particularly with regard to securing ongoing income, and which therefore focuses on the liquidity of the individual asset classes. The responses from readers last year reaffirmed our approach of continuing in this new direction and releasing a new issue of the study with updated figures. Sven arstensen, Frankfurt am Main ranch Manager, G emand on the German property market is currently almost unlimited. Persistently low interest rates and the stable economic situation are also attracting international investors to Germany. This is leading to rising prices and falling yields in the established real estate asset classes of residential, retail and office property. s a result, there is a growing need to seek out investments that offer more interesting income opportunities. s a lessor, portfolio holder and project developer, urelis has a clear focus on production-related properties and Unternehmensimmobilien. For a long time, these were regarded as specific, unsuitable for alternative uses and therefore not fit for the capital market. ut there is gradually growing recognition that significant differences exist within this category. International investors in particular recognise the strength of the German manufacturing industry and are willing to invest in this area. Furthermore, the higher cash flow returns in this segment do not necessarily go hand in hand with higher risks. Instead, these assets can be seen to hold their value in the case of demonstrable management success and may therefore be suitable for investment. However, availability of market data is a key factor for the success of each asset class. The study provides an objective basis for examining the yield opportunities on the property market and possibly also alternative investment strategies. We regularly support initiatives that aim to increase the transparency of the real estate investment market. This gives investors a well-founded overview of where it still pays off to invest today. r Joachim Wieland, EO urelis Real Estate GmbH & o. KG ompared with the rest of Europe, Germany is still seen as an attractive location for real estate investments in In both the commercial and the residential property segment, and cities are continuing to record significant price increases and lucrative yields partly because the anticipated turnaround in interest rates has not yet materialised. The key issues for the property market in 2016 are the influx of refugees and (as before) urbanisation/rural exodus. oth of these issues are prompting growing calls for state subsidies for affordable housing in urban areas and a reduction in the high legal standards in residential construction, which contribute to the price increases. The German real estate market is currently characterised by high liquidity and a lack of attractive investment opportunities. t the same time, Germany has a developed and stable market in a strong national economy which means that the German market and its yields are also of interest to foreign investors in particular. This positive trend may well continue in the coming years, particularly due to the as yet unforeseeable consequences of the rexit vote: assuming just a moderate loss of employment in London, this could provide a strong boost to the real estate environment in the Frankfurt/Rhine-Main region in particular. With its many years of experience, EITEN URKHRT provides advice on all phases of property management: from financing to the land purchase and project development through to letting or selling the property. We implement innovative forms of property sales and trading, as well as designing German and foreign real estate funds. r etlef Koch, EITEN URKHRT Rechtsanwaltsgesellschaft mbh G 2016 page 1/44

5 THE STUY 2016 ontent and Methodology ontent Using dynamic performance measurement, the study provides a new approach for describing property markets. The yield prospects of various asset classes are presented on the basis of an analysis of the internal rate of return on an investment. In light of the recognition that a single data point can reflect the complexity of a market only to a very limited extent, this study also highlights the range of investment profitability. escriptions of property markets in market reports are usually based on top properties that generate prime rents and are accordingly traded at prime yields. However, this does not take account of the high diversification of the investor landscape, where extremely security-focussed investors increasingly find themselves alongside players seeking to identify and take advantage of market opportunities. This study also offers these players an overview of the market. The subject matter analysed in this study is the performance expectations in the asset classes that currently dominate the German investment market. These include: office residential shopping centres specialist retail parks hotels modern logistics as well as the new property types micro-apartments and "Unternehmensimmobilien" asic concept The study uses a dynamic model to determine the probable internal rate of return (IRR) on an investment, assuming a holding period of ten years. It is assumed that the investment takes place at typical parameters for the market in question. cash flow approach was applied, describing the anticipated future cash flows (purchase, rental income, property and operating costs, sale). The internal rate of return of these payment flows represents the IRR. No financing effects In addition to the success of the properties themselves, successful real estate investments are also dependent on financing strategies (e.g. taking advantage of interest leverage through increased borrowing). There is typically a very wide range of variants on the market in this respect. To allow for clear statements regarding the property performance, these effects and investor-specific adjustments were not included in the model. No project developments This model assumes that the investment is made in buildings that do not require renovation or restructuring. Project developments as part of asset management strategies are therefore not included in the analysis. Procedure ased on the assumption that the success of the investment may be influenced by various different determinants such as management performance and market fluctuations, a simulation (Monte arlo, see glossary) of possible results was performed on the basis of changing parameters. To this end, the relevant characteristics affecting the success of the investment were assigned fluctuation ranges that were derived in advance based on consideration and analysis of the respective market. Using Monte arlo simulation, the probability of occurrence of the individual results was also calculated on the basis of 1,000 draws. Monte arlo simulation Monte arlo simulation is a stochastic model for the projection of a forecast value. Put simply, this statistical method is sort of a limited random number generator that operates within framework conditions and values defined by the user. To map these parameters realistically and in line with market conditions as far as possible, a base value can also be defined in addition to a value range. fter the simulation has been performed, the user receives a large number of results (depending on the number of draws) taking account of the predefined conditions. The modelling calculates probabilities of occurrence for the individual results within this range. The value range itself has a probability of occurrence of 100 %. For the performance of the simulation, base values and ranges were defined depending on the asset class under review for the following groups of variables: rent, vacancy rate, property and operating costs, fluctuation (space becoming vacant/re-letting). The internal rate of return on the investment resulting from the cash flow calculation was set as the forecast value. ore versus non-core ore and non-core have become established as terms for investment strategies on the market, but there are no fixed definitions for them (at property level). Instead, there are a wide range of attempts at definitions, most of which are suggested by the respective investors themselves. G 2016 page 2/44

6 THE STUY 2016 This study does not aim to add a further suggestion to these definitions. The division into core and non-core investors is therefore made at a purely statistical level. In the study, the corridor for core and non-core investors was delimited based on the assumption that core investors assume less risk and accept lower yields while non-core investors are less risk-averse but have higher yield targets. ccordingly, the Monte arlo results/irrs between the 2 quantile and the 7 quantile (corresponding to a 50 % probability) are defined as the range within which core investors operate. The rest of the range starting from an attainable rate of return of 6.49 % is seen as being for non-core investors. Here, there is a probability of 2 that internal rates of return beyond the core range will be achieved but equally, non-core investors may fall below the attainable rate of return for core investors and in some cases may even generate negative IRRs. Parameters and fluctuation ranges 's data system (RIWIS) was generally used as the source for rental, vacancy and yield information. For Unternehmensimmobilien, information from the INITITIVE UNTERNEHMENS- IMMOILIEN was selected as the basis. The data for hotels and retail properties were also checked for plausibility using analyses of investment transactions and other secondary sources (e.g. data from HypZert). The cost data were calculated using primary analyses (where possible) and on the basis of typical market assumptions. The fluctuation ranges for costs and income were defined individually for each type of use and are based on typical market parameters. Extreme values were excluded in this context. The internal rate of return method The internal rate of return method shows the rate of return for which the net cash flows/the net present value is exactly zero. It thus represents the average rate of return on an investment. The internal rate of return method is not to be recommended as the sole basis for an investment decision, since it has a number of methodological shortcomings the reinvestment assumption is criticised, for example. However, calculating the internal rate of return offers the advantage that this represents the success of a certain investment period (in the case of this study, ten years). This differentiates it from the static yield assessments that are typical on the market. In addition, the internal rate of return method is used by many investors and thus enjoys widespread acceptance. Performance Measurement Guidance for Readers In view of the complex subject matter, guidance for readers is provided below for better understanding of the results. This guidance relates to the right-hand column in the sections on the 3-, 4-, 5- and 6-percenters. In general, all calculations in the study are based on property sizes and parameters in line with the market. The Selected Model ssumptions table shows the key parameters incorporated in the cash flow calculation and simulation. The results box in the right-hand column presents/summarises the results of the Monte arlo simulation. In the diagram, the x-axis shows the projected IRRs based on the Monte arlo simulation, while the y-axis shows the probability of occurrence for each projected IRR. The dark blue bars represent the IRR range relevant to core investors as defined by the study. This has a 50 % probability of occurrence and is delimited by the 2 and 7 quantiles. In line with this, the dark blue field of the results box shows the core range with values. The rest of the range relevant to non-core investors according to the study's definition is marked in medium blue. This is above the core range in 2 of cases, but may also be below this range. The maximum attainable IRR according to the simulation is specified in the medium blue field below the core range. The internal rate of return on the investment (IRR), calculated using the base values in line with the cash flow method, corresponds to the forecast value of the simulation. G 2016 page 3/44

7 THE STUY 2016 Macroeconomic onditions Sentiment remains positive The German property market remains very lively and the general sentiment is therefore positive. However, eutsche Hypo s real estate climate index based on a survey panel of over 1,000 experts points to increasing reticence among players on the property market. One reason for this could be the ritons vote for rexit and a resulting phase of uncertainty. evelopment eutsche Hypo Property Index by Sectors office retail Source: eutsche Hypo/ G residential ind./logistics On the one hand, hopes of migration/relocations from London are growing in Frankfurt in particular, but on the other hand the possible effects are still unclear and could be overshadowed by outstanding consolidation in the banking industry. Objectively speaking, the local factors of the interest rate development, the unemployment rate and migration have a greater impact on the property markets than possible rexit effects. The current phase of uncertainty could therefore slightly encourage investments in concrete gold. Strong momentum on the investment market German commercial properties are in high demand, with the transaction volume for commercial real estate in Germany posting another significant increase in t approximately 56 billion euros (commercial properties only), it reached roughly the level of Only 2007, when a transaction volume of over 67 billion euros was recorded, is still regarded as an exceptional year. The market is still driven by foreign investors, who are increasingly extending their focus to smaller markets are less established assets classes, too. round 50 % of the transactions in 2015 were attributable to this category of investors. Office properties were the most popular asset class again last year. They accounted for around 4 of the commercial investment market, while the share of retail properties was 33 %. Residential properties are not included in these statistics, but nonetheless should not be left unmentioned. round 22 billion euros was invested in the residential segment in the professional real estate market meaning that the total transaction volume (commercial and residential) increased to 78 billion euros. The development over the course of 2016 shows that the investment market is still lively although it is doubtful whether the high figures from 2015 will be matched. 75 New Property Investments of Institutional Investors in ommercial Property in Germany 60 in bn euro property-leasing/leasing fund closed property fund open-end mutual fund property special fund insurances/pension funds listed property companies foreign investors other forecast Source: VI, afin, undesverband eutscher Leasing-Gesellschaften, ankhaus Ellwanger & Geiger, eutsche undesbank, analyses by Loipfinger, Scope, FERI, data is based on research and calculations by G G 2016 page 4/44

8 THE STUY 2016 High liquidity as a driving factor on the investment market The abundance of liquidity as described in the previous study is continuing to boost the equity and real estate markets. espite continued positive economic fundamentals, the increase in the money supply and economic growth are drifting further apart. s in the previous year, two risk scenarios are theoretically possible as a result: inflation and a bubble. evelopment GP and Money Supply M3 in the Eurozone Source: Eurostat, eutsche undesbank espite the high money supply, the risk of inflation can currently be described as manageable. onsumer prices recently increased compared to the previous month, mainly due to rising energy prices, but this may just be a temporary effect (cf. undesbank monthly report for July 2016). Expectations for the year as whole indicate only extremely low inflation rates of 0.2 % to 0.4 %. There are also no signs of a bubble forming on the market as a whole at present. However, risks of regional and sectoral overheating on the property market can be seen in a few cases particularly in markets where rent and price increases cannot be explained by the socio-economic variables. 4 % 3 % 2 % 1 % GP at market prices Money Supply M3/EZ Overview Risk Premium of Office Property 0 % Q1/16 Interest rates still in downward spiral The downward spiral in interest rates has continued since the previous study. The E s key interest rate has now fallen to 0 % for the first time in European history. German government bonds are even heading into negative territory. Following a rule of thumb according to which the difference between the risk-free interest rate (i.e. that of the 10-year German government bond) and the attainable yield represents the risk premium, this is currently at an all-time high. In the Frankfurt office market, for example, it now amounts to 440 basis points, whereas in the crisis year 2009 it was only 203. From this perspective, there would thus seem to be scope for a further increase in property prices. Performance of German properties The German Property Index (GPI) reflects the performance of individual property segments. Overall it shows the total return, consisting of the capital growth return and the cash flow return. 20 % 1 10 % 0 % Forecast Total Return in Germany logistics residential Source: G, forecast office retail Office properties generated the highest returns in 2015, at around 1. However, the other property classes also proved very dynamic with returns of around 1 (residential), 13 % (logistics) and roughly 11 % (retail). The driving factor is still the capital growth returns, which have been significantly positive since back in Positive returns are expected in the future, too, although the momentum in capital growth returns particularly in the office and retail sector is likely to decrease. Ger Gov. ond net initial yield FFM E-prime rate Source: undesbank, EZ, G G 2016 page 5/44

9 low medium high THE STUY 2016 Summary ore-matrix* * Within the categories of low, medium and high market liquidity shown in the diagram, there is no further assessment of the liquidity of the individual types of use. office residential -4.0 % shopping centres -3.8 % modern logistics -6.1 % retail parks -7.0 % micro-apartments -5.4 % -6.3 % mark market liquidity residential -5.3 % hotels -7.3 % micro-apartments -5.4 % residential -2.9 % micro-apartments -7.2 % office -9.8 % UI business park -6.2 % UI light manufacturing -4.2% UI warehouses -5.7 % office -7.4 % office -3.2 % 1 % 2 % 3 % 4 % 7 % 8 % 9 % 10 % property-specific IRR Y-O-Y hange IRR base value For the purposes of this study, core properties are defined as properties with a stable letting situation and sustainable location parameters. The matrix above shows the relationship between the probable internal rate of return on a property investment and the liquidity of the respective market. Here, market liquidity refers to the ability to generate investment demand independently of economic cycles and to offer exit opportunities even in years of low demand. The yield potential for core properties has decreased year-onyear in all asset classes, with a particularly marked decline for office properties in markets. The low level of supply on the markets is prompting institutional investors in particular to shift to markets, and this trend increased significantly again during the period under review. The consequences are an increasingly scarce supply and relevant price increases in these markets, too. The base value for the attainable IRR in the secure core range has therefore declined by 9.8 %. The attainable range for core investors is currently between 2. and 5.2 %. s a result, investment pressure is also spilling over into the markets, where the performance of office properties has decreased by 7.4 %. The base value for the attainable IRR for residential properties in markets is below the 3 % mark. It is becoming increasingly difficult to generate profits here. On the other hand, the attainable cash flows are considered very secure. One use category that still offers high yields is office properties in small markets. However, investments here are only recommended in small area sizes and in line with the market. Shopping centres offer considerably larger-volume investment opportunities. With a yield range for core investors of between 3.0 % and, the expected performance is increasingly limited. The IRR potential of logistics properties has also decreased again by around 6.1 % year-on-year in terms of the base value. The secured yield range for Unternehmensimmobilien (UI) is between 4.7 % and 7.3 %. s this new asset class represented in the study with three types of Unternehmensimmobilien: production properties, business parks and warehouse properties becomes more established, this process is also reflected in falling yields. Overall, the probability of reaching the mark with secured investments in the conventional asset classes is becoming ever smaller. Such yields can usually be achieved only in smaller markets or in management-intensive property classes. In these cases, however, there is generally the problem of liquidity in declining investment markets. G 2016 page 6/44

10 low market liquidity medium high THE STUY 2016 Summary Non-ore-Matrix* * Within the categories of low, medium and high market liquidity shown in the diagram, there is no further assessment of the liquidity of the individual types of use. office modern logistics office hotels UI business park UI light manufacturing UI warehouses mark office office 4 % 7 % 8 % 9 % 10 % 11 % 12 % 13 % property-specific IRR Properties with an increased risk profile and thus also higher performance opportunities are defined as non-core properties in this study. They are characterised by vacancies and are usually situated outside the central locations. The matrix above only shows their market potential; extensive restructuring or renovations are not taken into account in this study. No outliers are included in the analysis either, meaning that in some individual cases the attainable yields (and also the economic risks) may be considerably higher than those determined in the model calculation. Residential property investments in established markets do not currently offer high enough yield potential for non-core investors. Similarly, modern shopping centres and specialist retail centres (without any need for restructuring/modernisation) also are not included in the non-core analysis. In the office markets of the cities, non-core properties are generally to be found in peripheral locations. If investors succeed in purchasing properties with management deficiencies (e.g. vacant space) and stabilising the rental structure, maximum yields of up to 9.1 % can be generated. However, this is countered by significantly higher economic risks. Non-core investors can expect a rate of return of up to 12. from smaller office markets. However, the small size of these markets considerably limits the investment volumes. s well as the typical cash flow risks, there are also high liquidity risks. Good local market knowledge is therefore a basic prerequisite for operating successfully in these markets. The non-core segment for modern logistics properties is to be found primarily in regions outside the major hubs. The yield potential here comes to a maximum of 7.8 %. Non-core hotel investments usually relate to the purchase of short-term lease contracts with corresponding re-letting risks. The potential here comes to a maximum of 7.0 %. Unternehmensimmobilien (UI) continue to offer increased performance opportunities, amounting to up to 10. for business parks, up to 10.4 % for production properties and up to 9.3 % for warehouse space. ecause this asset class is generally dominated by very regional demand, a high degree of networking of asset management is a key criterion for the long-term success of the investment, in addition to technical expertise. emand on the investment market is also limited after adjustment for economic cycles. ccess to specialised sales channels is therefore also important. G 2016 page 7/44

11 THE STUY 2016 The 6-Percenters G 2016 page 8/44

12 THE STUY 2016 The Market for Light Manufacturing Properties (UI) The 5.50 to 6.49-Percenters Property-Specific IRR s the asset class of Unternehmensimmobilien becomes increasingly established, this process is also reflected in the transaction volume for production properties. In 2015, investment activities thus reached a new high of approximately 450 million euros. However, the ratio of the transaction volume to the total monetary volume of production properties, which is estimated at around 299 billion euros, clearly shows that the investment potential of this asset class is far from exhausted. in m euro Investment Volume UI Light Manufacturing H H H H H H Source: INITITIVE UNTERNEHMENSIMMOILIEN, Market Report No. 1 to 4 probability IRR Range UI Light Manufacturing core 4 % 3 % non-core 2 % 1 % 0 % 3 % 3.9 % 5.2 % % 9.0 % 10.2 % property-specific IRR Results Range IRR base value 6.00 % The current transaction market is characterised by growing demand pressure combined with limited supply. emand for this asset group currently still comes primarily from specialised German investors. The 2016 performance analysis for production properties shows a decrease in the attainable IRR (base value) of 0.26 percentage points. The range for the internal rate of return is currently between 5.4 % and 7.3 % (secured range). Production properties are characterised by particular management requirements (especially in the technical field) and are therefore to be recommended as core properties only if corresponding expertise is involved. espite growing interest from investors, it is assumed that production properties may potentially lose fungibility in less prosperous market phases. Unlike established asset classes, production properties are generally very user-specific, which results in a special risk profile, particularly with regard to their capacity for alternative uses. This results in yield opportunities of up to 10.4 % at present for non-core investors. performance expectation % Who should invest? previous year up to 10.4 % up to 11.2 % onclusion coreinvestors non-coreinvestors previous year Production properties have a particular risk profile and are consequently especially suitable for specialists. However, there are growing efforts to standardise this market. Selected Model ssumptions type existing building typical property size 10,000 sqm net initial yield 6.2 % vacancy acquisition date 2,500 sqm (3 months) market rent acquisition date 4.10 euros/sqm avg. term of lease 5 years Market Environment investment demand regional up to national demand for space regional up to national liquidity low volatility medium marketable size > 1 m euros (wide range) G 2016 page 9/44

13 THE STUY 2016 Office Markets in -ities The 5.50 to 6.49-Percenters Property-Specific IRR When analysing the office markets in cities, the variation between them must be taken into account. This means that general statements are possible to a limited extent only. These structural differences are particularly clear in the analysis of the rental markets. Whereas office rents in cities such as Ulm and Friedrichshafen average euros/sqm R- or more, the rent level in cities such as Görlitz and Halberstadt is below 5.00 euros/sqm R % % 6. evelopment Net Initial Yield -ities probability IRR Range Office -ities core 4 % 3 % non-core 2 % 1 % 0 % % 8.3 % 10.3 %12.2 % property-specific IRR 6.0 % forecast Results Range IRR base value 5.83 % However, the demand pressure on the residential property market is increasingly spilling over to regional office markets, too. This is reflected in the decline in net initial yields, which have fallen from 7.2 % in 2015 to 6.8 % now. The average vacancy rate has also decreased by 30 basis points to 7.0 %. The office markets in Ulm, Marburg, Kassel and Pforzheim proved particularly dynamic, with yields here decreasing by 2.1 % or more year-on-year. The performance expectations for office markets in cities have fallen by around 0.2 percentage points year-on-year to an IRR base value of 5.83 % in ore investors can expect an IRR of 4.3 % to 7.0 %. However, the limited investment opportunities due to the small market sizes and the regional structure of demand for space must be taken into account here. Security-focussed investors should therefore concentrate on properties with very good location and building characteristics (particularly amounts of space in line with the market). Non-core investments are recommended only for those investors with a high level of market expertise. Yields of up to 12. are possible here. performance expectation % Who should invest? % previous year up to 12. up to 12.0 % onclusion coreinvestors non-coreinvestors previous year cities have the highest yield prospects in the office segment combined with very limited investment volumes. Selected Model ssumptions Market Environment type existing building investment demand regional up to national typical property size net initial yield market vacancy market rent acquisition date avg. term of lease 3,900 sqm 6.8 % 7.0 % 7.20 euros/sqm 3 years demand for space liquidity volatility marketable size regional up to national low low approx m euros G 2016 page 10/44

14 THE STUY 2016 The Office Market in -ities Maximal Obtainable Property-Specific IRR for ore-investors ummyseite Logistikkarte G 2016 page 11/44

15 THE STUY 2016 The Market for usiness Parks (UI) The 5.50 to 6.49-Percenters Property-Specific IRR usiness parks belong to the asset class of Unternehmensimmobilien and are characterised by mixed uses (particularly office and service/warehousing). nother structural characteristic is high reversibility of the space. The attractiveness of this asset segment is reflected in a growing transaction volume, which totalled around 700 million euros in However, the investment market is held back by a limited supply of business parks. in m euro Investment Volume UI usiness Park H H H H H H Source: INITITIVE UNTERNEHMENSIMMOILIEN, Market Report No. 1 to 4 probability IRR Range UI usiness Park 7 % core 4 % non-core 3 % 2 % 1 % 0 % % % 7.4 % 8.9 % 10.4 % property-specific IRR Results Range IRR base value 5.63 % s a result of falling yields, the performance for the product segment of business parks has also declined significantly yearon-year. The IRR base value has thus fallen by 0.37 percentage points to a current level of 5.63 %. usiness parks are management-intensive properties. Specialists can generate upside potential here, particularly by purchasing properties with management deficiencies that are reflected in a low rent level or a relevant vacancy rate. For core investors, an investment in a business park is to be recommended only if specialist management expertise is involved. However, the yield prospects are also higher than for other asset classes at between 4.7 % and 6.. The fungibility of business parks is increasing as they become more accepted as an investment product, but has not reached the level of established use segments. Specialised non-core investors can achieve values of up to 10., particularly in properties in less prosperous regions with higher income risks. Selected Model ssumptions performance expectation Who should invest? % previous year up to 10. up to 11.0 % onclusion coreinvestors non-coreinvestors previous year usiness parks are becoming increasingly established on the investment market. Increased asset management requirements need to be taken into account. type typical property size office to warehouse ratio net initial yield vacancy acquisition date market rent office market rent warehouse avg. term of lease existing building 12,000 sqm 30 to % approx. 1,000 sqm 8.10 euros/sqm 4.00 euros/sqm 2 years Market Environment investment demand regional up to international demand for space local up to national liquidity medium volatility medium marketable size approx m euros G 2016 page 12/44

16 THE STUY 2016 The Market for Warehouse Properties (UI) The 5.50 to 6.49-Percenters Property-Specific IRR Warehouse properties represent another use segment in the Unternehmensimmobilien asset class. round 245 million euros was invested in this type of property in This is the lowest transaction volume within the category of Unternehmensimmobilien. The estimated total value of approximately 192 billion euros clearly shows that the investment potential in this use segment is not yet exhausted. Owing to the simple space and property structure, the investment market for warehouse properties is characterised by generally small-scale demand as compared to modern logistics properties. ccess to the regional and local economy is particularly important here. 200 Investment Volume UI Warehouse probability IRR Range UI Warehouse core 4 % 3 % non-core 2 % 1 % 0 % 3.0 % 4.0 % 5.1 % 6.1 % 7.1 % 8.2 % 9.2 % 150 property-specific IRR in m euro Results Range IRR base value 5.59 % H H H H H H performance expectation Who should invest? Source: INITITIVE UNTERNEHMENSIMMOILIEN, Market Report No. 1 to 4 In line with the other use segment of the Unternehmensimmobilien asset class, the performance expectation for warehouse properties has declined. The current IRR base value is thus 5.59 %, representing a year-on-year decrease of 0.34 percentage points. ore investors with regional expertise achieve values of 4.9 % to % previous year up to 9.3 % coreinvestors non-coreinvestors The professionalisation of management, as reflected in reduced vacancies and rent adjustments, is the main factor driving the profitability of warehouse properties. up to 10.0 % previous year The yield expectations for non-core investors have also decreased in comparison to the previous year. The yield corridor here is up to 9.3 % for properties that are located outside the major metropolises and are therefore characterised by very local demand. onclusion Warehouse properties are characterised by very regional demand for space. s a result, they are suitable only for those investors with corresponding market access. Selected Model ssumptions type existing building typical property size 10,000 sqm net initial yield 6.1 % vacancy acquisition date 2,500 sqm (3 months) market rent acquisition date 3.80 euros/sqm avg. term of lease 3 years Market Environment investment demand regional up to international demand for space regional up to national liquidity low up to medium volatility medium marketable size approx m euro G 2016 page 13/44

17 THE STUY The 5-Percenters 4 3 G 2016 page 14/44

18 THE STUY 2016 Office Markets in -ities The 4.50 to 5.49-Percenters Property-Specific IRR The cluster of cities comprises 22 cities, meaning that there is a wide range of structural differences. The office markets in cities are generally in good shape. For example, the average vacancy rate has fallen from 5.9 % in the previous year to 5.7 %. While Rostock and Magdeburg saw a particularly dynamic decrease in available space, armstadt and Saarbrücken posted slight increases in their vacancy rates. The average rents rose from 8.60 euros/sqm R- in the previous year to 8.70 euros/sqm R- now. Increases were recorded in all markets, with particularly strong growth in ielefeld and Erlangen. 8 % 7 % evelopment Net Initial Yield -ities probability IRR Range Office -ities 7 % core 4 % 3 % non-core 2 % 1 % 0 % -0.7 % 1.1 % 3.0 % 4.8 % 6.7 % % property-specific IRR Results Range IRR base value performance expectation Who should invest? forecast s a result of this positive market environment on the one hand and the tense investment market on the other, initial net yields fell from 6.2 % to 5.7 %. The investor groups increasingly come from foreign countries % % previous year The significant decline in yields is also reflected in the performance expectation. The IRR base value has thus fallen from 5.13 % in the previous year to 4.7 now. The attainable IRR range for core investors is between 3.2 % and 6.0 %. These values are achieved particularly for property sizes in line with the market in sustainable (generally central) locations. up to 10. up to 12.0 % Non-core investors, particularly those who buy up vacant space and/or invest in non-central locations, can achieve an IRR of up to 10.. It should be noted here that properties requiring restructuring or modernisation were not included in the assessment. coreinvestors non-coreinvestors previous year In general, regional marketing expertise is a prerequisite for successful investment in cities. onclusion cities are increasingly coming to the attention of investors and the market here is currently in good shape. Investors should have regional market expertise. Selected Model ssumptions Market Environment type existing building investment demand regional up to international typical property size net initial yield market vacancy market rent acquisition date avg. term of lease 6,100 sqm 5.7 % 5.7 % 8.70 euros/sqm 3 years demand for space liquidity volatility marketable size regional up to national low low approx m euros G 2016 page 15/44

19 THE STUY 2016 The Market for Modern Logistics Properties The 4.50 to 5.49-Percenters Property-Specific IRR Modern logistics properties have become established as an asset class on the investment market. The transaction volume for logistics properties (including industry) came to around 4 billion euros in both 2014 and Whereas just a few years ago the market was dominated by owner-occupiers and specialists in particular, current demand comes from a wide range of national and international investors. The German logistics property market can essentially be broken down into 28 regions, with the main hotspots including the Rhine-Main/Frankfurt, Hamburg, Hanover/raunschweig and Munich regions. Investment demand remains at a very high level. onsequently, yields are displaying a downward trend. This development is also expected to continue in the medium term. 8.0 % 7.0 % 6.0 % evelopment Gross Initial Yield probability IRR Range Modern Logistics core 4 % 3 % non-core 2 % 1 % 0 % 2.3 % 3.2 % 5.0 % 5.9 % 6.8 % 7.7 % property-specific IRR Results Range IRR base value 4.61 % 5.0 % forecast Munich Stuttgart ologne Frankfurt Hamburg Investments in modern logistics properties generate a performance of between 3.9 % and 5.2 %. There was a significant decrease in the base value from 4.91 % in the previous year to 4.61 %. The markets are still very diverse in this respect, with the core range varying between 4. in Munich and 5.9 % in Magdeburg. ue to the limited potential for rent increases, the rent at the time of the acquisition is a decisive factor for a sustainable investment. Increases in performance can be generated in particular by purchasing (and rapidly reducing) vacant space. Noncore investors can thus achieve an IRR of up to 7.8 % for modern logistics space. Logistics users have special requirements with regard to both the structure of the property and the technical management. type typical property size net initial yield vacancy acquisition date market rent acquisition date avg. term of lease Selected Model ssumptions existing building 20,000 sqm 5.3 % 5,000 sqm (3 months) 3.90 euros/sqm 3 years performance expectation % Who should invest? previous year up to 7.8 % up to 7.7 % onclusion coreinvestors non-coreinvestors previous year Modern logistics properties represent an established asset class and are well-suited for large-volume investments. investment demand demand for space liquidity volatility marketable size Market Environment regional up to international regional up to international high low > 10 m euros G 2016 page 16/44

20 THE STUY 2016 The Market for Logistics Maximal Obtainable Property-Specific IRR for ore-investors ummyseite Logistikkarte G 2016 page 17/44

21 THE STUY The 4-Percenters 3 G 2016 page 18/44

22 THE STUY 2016 The Market for Specialist Retail Parks The 3.50 to 4.49-Percenters Property-Specific IRR Specialist stores and retail centres were regarded as an inexpensive alternative to conventional investments, e.g. in shopping centres or office properties. There has been a substantial increase in prices in the segment, particularly since Initial gross yields have thus fallen from 7. in 2013 to 6.1 % now. IRR Rate Specialist Retail Parks core Specialist stores display a very diverse tenant structure. The rental ranges largely depend on the provider groups. For example, up to 9.00 euros/sqm is paid for specialist toy stores, while specialist health and beauty stores usually command rents of up to euros/sqm. In-depth knowledge of the retail market and the competition is therefore a prerequisite for a successful investment in specialist retail centres. nchor tenants play a particularly important role here, since the conditions of their rental agreements (amount of rent, term and incentives) have a decisive impact on the overall performance. 9 % 8 % evelopment Gross Initial Yield probability 4 % 3 % 2 % 1 % 0 % 2.2 % 2.8 % % 5.3 % 6.0 % property-specific IRR Results Range IRR base value 4.41 % 7 % Q15 Q2/ 16 ore investors currently achieve an IRR value of between 3. and 4.. The IRR base value has decreased by 0.23 percentage points year-on-year to 4.41 %. Non-core investors can achieve up to 6.0 %. Higher yields are possible in the case of restructuring measures, which do not form part of this model assessment. In general, it should be noted that retail concepts and the associated requirements for space are subject to regular change. It is therefore always advisable to examine the marketability and sustainability of the existing space structures before purchasing a property. type state typical property size net initial yield Selected Model ssumptions base rent e. g. construction market base rent e. g. electronics store base rent e. g. clothes store base rent e. g. drugstore * no restructuring existing building good condition* approx. 25,000 sqm 5.1 % 8.00 euros/sqm euros/sqm euros/sqm euros/sqm performance expectation Who should invest? coreinvestors % previous year max. up to 6.0 % max. up to 6.4 % onclusion previous year espite falling yields, specialist retail centres still represent a good investment alternative. efore making a purchase, structural and competition-related aspects should be examined. investment demand demand for space liquidity volatility marketable size Market Environment international international high medium approx m euros G 2016 page 19/44

23 THE STUY 2016 The Market for Office Properties in -ities The 3.50 to 4.49-Percenters Property-Specific IRR The cluster of cities consists of 14 office markets. These have established themselves alongside the traditional markets as lively user markets. The market environment is characterised by a high degree of stability. For example, the average vacancy rate has decreased from 5. in 2015 to 5.3 % now. The lowest vacancy rates are recorded in uisburg, Münster, onn and Karlsruhe at a maximum of 3.. espite a decrease in available space, Leipzig is still the only market with a vacancy rate above the 10 % mark. evelopment Net Initial Yield -ities probability 4 % 3 % 2 % IRR Range Office -ities core non-core 7 % 1 % 0 % -1.1 % 0.7 % 2.4 % 6.0 % 7.8 % 9. property-specific IRR 4 % 3 % Results Range IRR base value 4.04 % forecast verage rents in the cities increased from 9.70 to 9.80 euros/ sqm R-. Mannheim, onn, Wiesbaden and ortmund display the highest rents in this category at over euros/sqm R-. s investment opportunities in the major markets become increasingly scarce, investment demand in cities has grown substantially. In this context, yields for markets have fallen from 5. in 2015 to 5.2 % now. The highest prices are to be found in onn and Nuremberg, which each have a yield level of well below 5.0 %. y contrast, the yield values in ochum and uisburg come to 5.8 % and 5.9 % respectively. The performance expectation for non-core investors is currently at an IRR of 2. to 5.2 %. The base value has decreased significantly by 0.44 percentage points. s such, the office markets in cities were among the asset classes with the greatest yield compression last year. Non-core investors can achieve up to 9.8 % in the markets particularly with properties that are outside the central locations and have vacancies. performance expectation % Who should invest? previous year up to 9.8 % up to 10.2 % onclusion coreinvestors non-coreinvestors previous year cities represent attractive investment alternatives to the cities. However, the availability of assets in the core segment is limited. Selected Model ssumptions type existing building typical property size 9,300 sqm net initial yield 5.2 % market vacancy 5.3 % market rent acquisition date 9.80 euros/sqm avg. term of lease 3 years Market Environment investment demand regional up to international demand for space regional up to national liquidity medium volatility medium marketable size approx m euros G 2016 page 20/44

24 THE STUY 2016 Residential Property Markets in University ities The 3.50 to 4.49-Percenters Property-Specific IRR total of 47 of the 127 markets are home to a university and have accordingly been classified as university cities (except for / cities). emand for housing has risen sharply in these cities in recent years as a result of growing numbers of students. Other general effects (especially the influx of refugees) are additionally limiting the supply of housing. Investors therefore regard student cities as an attractive alternative to the established major markets. The increased investment demand resulted in a sharp rise in prices. Whereas in 2012 the average multipliers of annual rent were still at around 13.2, a value of 15.5 is now expected. t the level of the individual cities, they range from 10.3 in Frankfurt (Oder) to 20.7 in onstance. Multipliers Multi-Family House*, avg. University ities 20.0 maximum probability IRR Range Residential University ities core 4 % 3 % 2 % 1 % 0 % 3.0 % 3.3 % 4.0 % 4.8 % 5.1 % property-specific IRR average Results Range IRR base value 4.02 % forecast, *existing properties performance expectation Who should invest? coreinvestors The attainable IRR range for core investors is currently between 3.8% and 4.4%, with a maximum of 5.2% being possible. The base value has decreased by 0.12 percentage points to 4.02%. When analysing the performance expectations for university cities, the significant structural differences and the associated different risk structures must be taken into account. Investments in thriving, structurally strong cities such as Freiburg thus represent a secure investment, but the attainable yields here only amount to 4.00% at most. y contrast, Frankfurt (Oder) has structural weaknesses and is experiencing population declines. However, the maximum attainable yield here is at a considerably higher level of 6.5% previous year max. up to 5.2 % max. up to 5.0 % onclusion previous year University cities display significant structural differences. For this reason, investment recommendations can be made at the level of the individual cities only. Selected Model ssumptions type multi-family house, stock typical property size 4,000 sqm no. of apartment units 55 apt. units net initial yield 4. vacancy acquisition date 200 sqm (1 month) market rent acquisition date 7.70 euros/sqm Market Environment investment demand regional up to international demand for space regional up to national liquidity medium volatility low marketable size up to approx. 50 m euros G 2016 page 21/44

25 THE STUY 2016 The Market for Micro-partments in University ities The 3.50 to 4.49-Percenters Property-Specific IRR hanging working worlds and lifestyles are leading to an increased need for flexibility. For example, demand for second apartments is continuously increasing due to commuting. This is also underscored by the growing number of single-person households. longside employees, students represent an important group when it comes to demand for flexible housing, particularly in structurally strong, internationally focussed university cities. Micro-apartments represent a housing industry response to these new requirements. The product range is highly diversified, running from simple, functional facilities to luxurious apartments with concierge services. Structurally weak markets can benefit from this development to a limited extent only, as there is usually no shortage of housing here. For the purposes of this analysis, micro-apartments are defined as small, furnished apartments for which individual rental agreements are concluded. Operator solutions were not included in the model calculation. evelopment No. of 1-Person-Households in Univ.-ities 130 probability Range IRR Micro-partments core 4 % 3 % 2 % 1 % 0 % 2.2 % 2.8 % 4.0 % % 5.8 % property-specific IRR Results Range IRR base value 4.00 % Index (2006 = 100) performance expectation Who should invest? coreinvestors % previous year Source: Federal Statistical Offices, forecast > 2015 The IRR analysis showed a year-on-year decrease in the base value of 0.05 percentage points to a current level of 4.00 %. Overall, core investors can achieve an IRR of between 3. and 4.. maximum of up to 5.9 % is possible. The major structural differences in university cities come to bear to a particularly strong degree in the investment analysis for micro-apartments. The suitability of markets in structurally weak regions should be scrutinised before making an investment. max. up to 5.9 % max. up to 6.0 % onclusion previous year For a successful investment in micro-apartments, investors should seek out particularly structurally strong locations with internationally focussed universities. Selected Model ssumptions type typical property size no. of apartment units net initial yield vacancy acquisition date market rent acquisition date avg. term of lease existing building 4,000 sqm 200 apt. units 200 sqm (1 month) euros/sqm max. 2 years Market Environment investment demand regional up to international demand for space regional up to international liquidity medium volatility medium marketable size up to approx. 20 m euros G 2016 page 22/44

26 THE STUY 2016 The Market for Micro-partments in -ities The 3.50 to 4.49-Percenters Property-Specific IRR efinition Micro-partments criteria Unlike student cities, for example, cities have a demand structure that is increasingly also founded on commuters. This is also underscored by the development of single-person households, for which the forecast anticipates continued growth in the future. The degree of attractiveness for microapartments varies significantly between the individual markets, as is also reflected in the different project development activities. In this context, please refer to the above definition of the micro-apartment product category for the purposes of this analysis. evelopment No. of 1-Person-Households in -ities Index (2006 = 100) complexes with around 100 to 300 units, mostly one-room apartments measuring 18 square metres to 35 square metres partly or fully furnished, always with a separate kitchen unit and bathroom in some cases, optional services such as fitness facilities, concierge, laundry location with good local public transport and road connections and accessibility of workplaces Source: Federal Statistical Offices, forecast > 2015 The expected performance for micro-apartments in markets has fallen by 0.22 percentage points year-on-year to a base value of 3.83 %. The attainable IRR range for core investors is between and 4.3 % and a maximum of 5.9% can be achieved. probability 4 % 3 % 2 % 1 % IRR Range Micro-partments -ities 0 % 1.9 % % 3.9 % % 5.8 % Results Range IRR base value 3.83 % performance expectation % Who should invest? coreinvestors previous year max. up to 5.9 % max. up to 5.2 % core property-specific IRR onclusion previous year Owing to their structural differences, only selected cities are suitable as investment locations for micro-apartments. Selected Model ssumptions type typical property size no. of apartment units net initial yield vacancy acquisition date market rent acquisition date avg. term of lease existing buildiing 4,000 sqm 200 apt. units 4.3 % 200 sqm (1 month) euros/sqm max. 2 years Market Environment investment demand regional up to national demand for space regional up to national liquidity medium volatility medium marketable size up to approx. 20 m euros G 2016 page 23/44

27 THE STUY 2016 Residential Property Markets in -ities The 3.50 to 4.49-Percenters Property-Specific IRR uniform description of the housing markets in Germany s 14 cities is possible only to a limited extent, as they have developed very differently in some cases. While cities such as Leipzig, resden and Münster have recorded strong population growth in recent years, the number of residents in ochum and uisburg has decreased. The key market figures for the individual cities therefore cover wide ranges. The average multipliers in relation to actual rent for existing apartment buildings are 11.3 in uisburg and 12.1 in ochum, the average multiplier for Münster is probability 4 % 3 % 2 % IRR Range Residential -ities core Multipliers Multi-Family House (Existing), avg. -ities 1 % maximum 0 % % 3.8 % % property-specific IRR forecast average The performance expectation for residential properties in markets has fallen by 0.21 percentage points year-on-year and the IRR base value therefore currently amounts to 3.7. ore investors can expect a yield (IRR) of 3. to. maximum of 4.9 % can be achieved. This is based on the assumption of a stable existing property. Renovations and new buildings were not included in the analysis. The possibility to increase performance is limited. In many markets, there is only limited potential for rent increases for existing properties due to the higher regulatory requirements. s real estate transfer tax has been raised in many federal states in recent years, reducing transaction costs by way of share deal design has become increasingly important. Results Range IRR base value 3.7 performance expectation Who should invest? coreinvestors previous year max. up to 4.9 % max. up to 4.9 % onclusion previous year For security-focussed investors, investments in structurally strong markets are generally recommended. Selected Model ssumptions type multi-family house, stock typical property size 4,000 sqm no. of apartment units 55 apt. units net initial yield vacancy acquisition date 200 sqm (1 month) market rent acquisition date 7.70 euros/sqm Market Environment investment demand regional up to national demand for space regional up to national liquidity high volatility medium marketable size up to approx. 75 m euros G 2016 page 24/44

28 THE STUY 2016 The Market for Hotel Properties The 3.50 to 4.49-Percenters Property-Specific IRR 2015 was an excellent year for tourism in Germany. With million arrivals and million overnight stays, commercial accommodation providers in Germany achieved a new record. Over the past ten years, overnight stays in Germany have risen by around 27 % and arrivals by almost as much as 39 %. Index (2005 = 100) Overnight Stay* in Germany Source: destatis; * overnighter in hotel/bed and breakfast establishm. In line with this development, the asset class of hotels is becoming increasingly important in the real estate industry and this is also reflected in growing pressure on yields. The initial gross yield for hotel properties in Germany has thus decreased by 1.1 percentage points over the past five years. In line with this, there was also a high level of construction activity on the German hotel market and thus a corresponding supply. 8 % 7 % Gross Initial Yield Hotel Properties 4 % Q2/16 In the past five years, an average of around 9,700 new hotel rooms per year have been built. Last year alone, the completion volume amounted to approximately 9,730 rooms in 75 hotels. However, this did not quite match the peak level from Two emerging development trends are on the one hand the repurposing of existing buildings as hotels (for example as a result of rising land prices) and on the other hand a decrease in major projects with more than 300 rooms, although the hotels planned by Motel One, for example, are larger on average. Throughout Germany, only one hotel with more than 300 rooms was constructed in 2015 (in erlin), whereas in the previous years an average of more than 1,200 new rooms a year were attributable to large hotels. 15,000 12,000 9,000 6,000 3,000 0 ompletions Hotel Rooms* hotel chain/coop. * facilities with a minimum size of 40 rooms individual hotel onstruction activity continues to be driven by the expansion of chain hotel business ( multi-branding ). round 81 % of all rooms completed in 2015 were acquired by hotel chains. With brands such as loft (Starwood/Marriott), urio by Hilton, Tulip Inn lp Style (Louvre), Super 8 (Wyndham), moxy (Marriott), Harry s Home (Familie Ultsch) and the hotel apartment brand apri by Fraser (Frasers Hospitality), a wide range of concepts were launched in Germany in The centre of construction activity for new hotels in Germany is still the city of erlin, which exceeded the level of 30 million overnight stays in In the past five years, around 10,000 new rooms one-fifth of the total volume throughout Germany were built in the capital city. However, Munich moved ahead of erlin in terms of completions last year, with 1,661 new hotel rooms. For further information on the German hotel market, please refer to s short study on Hotel construction in Germany (download: building type of contract lease term typical property size (sqm) range of lease economy (euros/room/month) range of lease midscale (euros/room/month) leasing rate upscale (euros/room/month) net initial yield Selected Model ssumptions stock/no restructuring lease contract 5-25 years 2,600-9, , G 2016 page 25/44

29 THE STUY 2016 It is not just demand from users that is at a high level in all categories of hotel properties. This asset class is also becoming increasingly important on the investment market. s a result, prices for hotel properties have risen sharply in recent years. Whereas in 2011 initial gross yields were still at a level of 6., values of 5.1 % are now expected. probability 7 % 4 % 3 % 2 % 1 % IRR Range Economy Hotel core 0 % % 6.0 % 6.9 % property-specific IRR non-core This is also reflected in the performance expectation for hotel properties. In the analysis of all hotel categories (from economy to upscale), the base value has decreased by around 0.3 percentage points and currently amounted to between 3.73 % and 3.83 %, depending on the hotel category. The performance expectations for core investors are between and 4.8 %. Here, economic success is closely tied to the term of the lease contracts and the apex required as at the end of the lease term. Investments in operator-managed properties such as hotels still present particular challenges, as the relationship between the contract term and the rate of return/value regularly poses a dilemma for investors. On the one hand, secure income can be generated with very low administrative and maintenance costs, and on the other hand risk premiums rise as contract terms decrease, which has a negative impact in an exit scenario. This then presents opportunities for yield-focussed experts who buy up short-term lease contracts and thus take on the risk of medium-term yield losses (non-core investors). n IRR of up to 7.0 % can be achieved in this case. Refurbishment and restructuring measures were not included in the model assumptions. probability probability IRR Range Midscale Hotel 7 % core 4 % non-core 3 % 2 % 1 % 0 % 1.0 % 1.9 % 2.8 % 3.8 % 4.7 % 5.7 % 6. property-specific IRR IRR Range Upscale Hotel 7 % core ore 4 % non-core 3 % Non-ore 2 % 1 % 0 % % 3.3 % 5.1 % 6.0 % 6.9 % property-specific IRR IRR base value performance expectation % % up to 7.0 % up to 7. Results Range onclusion % Who should invest? previous year coreinvestors non-coreinvestors previous year For core investors, long-term lease contracts with established operators at sustainable locations are recommended. type of market investment demand demand for space liquidity volatility marketable size Market Environment hotels in magic cities national up to international national up to international medium medium approx m euros G 2016 page 26/44

30 THE STUY 2016 The Market for Shopping entres The 3.50 to 4.49-Percenters Property-Specific IRR fter office properties, retail properties still represent the next most important asset class on the German real estate investment market. In 2015, retail properties worth approximately 18 billion euros in total were sold, accounting for roughly a third of the total investment market. Shopping centres represent the largest-volume investment opportunities in the retail segment. For several years now, they have been going through a process of qualitative upheaval. For example, all new developments in the past few years have been in city-centre locations. dditional challenges are arising from the growing importance of online retail. The prevailing sector mix in shopping centres has also evolved in this context, with periodically required goods in particular becoming more important in the past few years. probability IRR Range Shopping entres core 4 % 3 % 2 % 1 % 0 % 1.9 % 2.4 % 2.9 % 3.8 % 4.3 % 4.8 % Investors in shopping centres should therefore have good knowledge of the industry and be able to participate in market developments. evelopment Gross Initial Yield of Shopping entres 7.0 % % % % Q Q Q Q Q Q Q s in the other asset classes, the IRR base value decreased year-on-year and currently amounts to 3.50 %. ore investors achieve an IRR of 3.0 % to and a maximum of up to 4.9 % is possible. One particularly important factor for shopping centres is the apex measures that need to be performed regularly as a result of the structural changes described above. type quality property size / number of shops net initial yield range of rent (p.m.) avg. weighted rent (basement) Selected Model ssumptions avg. weighted rent (ground floor) avg. weighted rent (first floor) *inner-city location stock, three-floor* no revitalisation 48,000 sqm / % euros/sqm euros/sqm euros/sqm euros/sqm Results Range IRR base value 3.50 % performance expectation Who should invest? coreinvestors % previous year max. up to 4.9 % max. up to 4.9 % onclusion previous year Shopping centres still represent a large-volume investment option. The sustainability of the existing space structures and the competitive environment in particular should be examined. investment demand demand for space liquidity volatility marketable size property-specific IRR Market Environment national up to international national up to international high medium approx m euros G 2016 page 27/44

31 THE STUY The 3-Percenters G 2016 page 28/44

32 THE STUY 2016 The Market for Office Properties in -ities The 2.50 to 3.49-Percenters Property-Specific IRR Whereas just a few years ago the office market in cities were characterised by a significant excess supply, some markets are now showing a shortage of space. For example, the vacancy rates in erlin, Munich and Stuttgart are currently between 3.3 % and. Frankfurt am Main, the office location with the most active property developer market, is the only city with a rate above the 10 % mark. The observable reduction in vacancies is generally attributable to two factors. Firstly, demand for office space is increasing in most markets, and secondly, structurally weak office properties are being converted into other types of use (housing, hotels). In line with this development, the trend in rents is also positive, with the average rent for cities rising from euros/sqm R- in the previous year to euros/sqm R- now. Yields decreased again compared to the previous year and are currently at a level of (net initial yield). probability IRR Range Office -ities core 4 % 3 % non-core 2 % 1 % 0 % -1.7 % 0.0 % 1.8 % % 7.1 % 8.9 % property-specific IRR evelopment Net Initial Yield -ities Results Range IRR base value 3.29 % 4 % performance expectation Who should invest? 3 % 2 % % previous year forecast s a result of the yield compression, the IRR base value decreased by 0.22 percentage points to 3.29 %. ore investors can expect a range of 1.9 % to 4.3 %. Non-core investments are made chiefly in those properties in peripheral locations and with structural weaknesses. If existing vacancies can be reduced and these properties can be stabilised, an IRR of up to 9.1 % can be expected. Refurbishment measures and project developments were not included in this assessment. up to 9.1 % up to 9.8 % onclusion coreinvestors non-coreinvestors previous year The office markets in the cities are generally proving very lively. Yield opportunities are very limited. Selected Model ssumptions type existing building typical property size 24,600 sqm net initial yield vacancy acquisition date 5.8 % market rent acquisition date euros/sqm avg. term of lease 3 years Market Environment investment demand regional up to international demand for space regional up to international liquidity high volatility high marketable size approx m euros G 2016 page 29/44

33 THE STUY 2016 The Market for Micro-partments in -ities The 2.50 to 3.49-Percenters Property-Specific IRR Whereas the micro-apartment product category still mostly represents a niche in the cities and university cities analysed, its importance in the markets is growing significantly. Microapartments are increasingly being developed here, particularly in international cities that are dominated by the service sector and in which commuters play a major role (erlin, üsseldorf, Frankfurt, Hamburg, Munich, ologne, Stuttgart). This is firstly due to the fact that higher rents can be generated here than in conventional rental apartments, and secondly to the growing demand for flexible housing. nother special feature of micro-apartments is that they offer the possibility to react to market changes directly, as the terms of the rental agreements are usually relatively short. number in thousand Number of 1-Person-Households in -ities 1, probability IRR Range Micro-partments -ities core 4 % 3 % 2 % 1 % 0 % 1.2 % 1.9 % % 4.3 % 5.0 % property-specific IRR Results Range IRR base value erlin Hamburg Munich ologne Frankfurt Stuttgart Source: undesinstitut für au-, Stadt- und Raumforschung üsseldorf performance expectation Who should invest? coreinvestors The model assessment assumes an existing building with individually let apartments. Renovation properties and buildings leased to an operator are not included in the assessment. The IRR base value is currently 3.1, down 0.18 percentage points on the previous year s level. ore investors achieve between 2.7 % and. Micro-apartments are not relevant to non-core investors due to the price level. The performance of micro-apartments depends to a large extent on their management and on avoiding vacancy periods. The need to replace furniture and fittings and the higher maintenance/administrative expenses must be taken into account % previous year max. up to 5.0 % max. up to 5.1 % onclusion previous year The office markets in the cities are generally proving very lively. Yield opportunities are very limited. Selected Model ssumptions type typical property size no. of apartment units net initial yield vacancy acquisition date market rent acquisition date avg. term of lease existing building 4,000 sqm 200 apt. units sqm (1 month) euros/sqm max. 2 years Market Environment investment demand regional up to international demand for space regional up to international liquidity high volatility medium marketable size up to approx. 40 m euros G 2016 page 30/44

34 THE STUY 2016 Residential Property Markets in -ities The 2.50 to 3.49-Percenters Property-Specific IRR emand for housing in the major cities is unabated and is also being driven by additional general effects (particularly influxes of refugees). The increasing project development activities are able to offset this demand pressure to a limited extent only. Owing to the limited availability of land, the product category of residential highrises is becoming increasingly important. Such properties generally command higher rents and higher purchase prices for owner-occupied apartments than standard housing concepts. Not least for this reason, the increase in market rents and prices is set to continue. The investment market remains characterised by a combination of high demand and very limited supply. In this context, the multipliers of annual rent are continuing to increase. The average level for all cities is currently at 20.7, with Munich representing the most expensive market with a value of Multipliers Multi-Family House (Existing), avg. -ities probability IRR Range Residential -ities core 4 % 3 % 2 % 1 % 0 % 1.7 % 2.1 % % 3.8 % 4.3 % property-specific IRR Results Range maximum average IRR base value 2.91 % performance expectation % Who should invest? Existing properties in markets do not offer any investment opportunities for yield-focussed non-core investors. Such opportunities are to be found at most in individual renovation properties in peripheral areas and were not included in the model calculation. coreinvestors % previous year forecast It is becoming increasingly difficult for core investors to generate relevant yields. The model calculation shows a yield range of 2. to 3.3 % and the IRR base value has fallen to 2.91 %. Residential properties in the markets are thus the only asset class below the 3 % mark. max. up to 4.3 % max. up to 4.0 % onclusion previous year Very limited yield opportunities for security-focussed investors. Selected Model ssumptions type multi-family house, stock typical property size 4,000 sqm no. of apartment units 55 apt. units net initial yield 3.3 % vacancy acquisition 200 sqm (1 month) market rent acquisition euros/sqm Market Environment investment demand regional up to international demand for space regional up to international liquidity high volatility low marketable size up to approx. 150 m euros G 2016 page 31/44

35 THE STUY 2016 The Residential Market Maximal Obtainable Property-Specific IRR for ore-investors ummyseite Logistikkarte G 2016 page 32/44