SWITZERLAND. Country Snapshots. Second quarter Please click on the appropriate sector to view. Economy Offices Retail Industrial

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1 SWITZERLAND Country Snapshots Second quarter 2016 Please click on the appropriate sector to view Economy Offices Retail Industrial About & Contacts

2 Economic Snapshot The Swiss economy has performed steadily in H1 2016, despite the challenges posed by the strength of the Swiss franc (CHF). The KOF Economic Barometer showed an improved outlook for several sectors of the economy in May, but it also signaled some weakness in private consumption. The Swiss National Bank (SNB) continues its efforts to keep the franc from appreciating further by keeping interest rates negative at its June meeting, while also reiterating its commitment to intervene in the foreign exchange market in order to ease the pressure on the currency. Weaker indicators for private consumption Retail sales contracted for the eighth consecutive month in March, while recent confidence indicators suggest that consumers have become more pessimistic in recent months. Much of this decline in consumer sentiment is linked to deteriorating labour market conditions, with the strong currency weighing heavily on industries such as consumer services, tourism and manufacturing. On the flip side, the strong currency has made imports cheaper, which is boosting consumers purchasing power and keeping inflation in negative territory. Private consumption growth is expected to modestly slow to 0.9% in 2016, but is forecast to steadily recover over the medium term. Exports struggling but better prospects forecast Leading indicators for the export sector remain weak and the outlook for 2016 is still very challenging for many exporters. Medium term prospects appear more positive however. Many of s exports are high quality consumer and investment goods, which are in high demand from both developed and emerging markets. Exports are expected to grow by 1.7% in 2016 but growth is forecast to accelerate to 3.8% per annum in GDP: Inflation: Interest rate: Employment: Economic Summary Growth is forecast to remain relatively subdued in 2016, but medium term prospects are more positive. Deflationary pressures to persist in 2016, due to low oil prices. Prices expected to modestly rise in The SNB bank will maintain its very loose monetary policy, with interest rates staying negative. Weakening in sectors hit hardest by the stronger CHF, such as tourism and consumer services. ECONOMIC INDICATORS E 2016 F 2017 F GDP Growth Consumer Spending Industrial Production Investment Unemployment rate (ILO%) Inflation CHF/EUR (average) CHF/USD (average) Interest Rates: 3-month (%) Interest Rates: 10-year (%) NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Oxford Economics Ltd. and Consensus Economics Inc Economic & Political Breakdown Population 8.3 million (2015) GDP US$ billion (2015) Public Sector Balance 0.0% of GDP (2015) Public Sector Debt 34.8% of GDP (2015) Current Account Balance 9.8% of GDP (2015) Parliament National Council (200 members) and Council of the States (46 members) Government Federal Council (seven members) President (2016) Johann Schneider-Ammann Election Dates October 2019 (Parliamentary) The short term outlook for the economy is relatively weak, with GDP growth forecast to reach 0.8% in Beyond that the outlook is more positive, with domestic and external demand expected to pick up. While there is still a lot of uncertainty around the future path of the CHF, the impact of the exchange rate shock from 2015 should start to fade over the medium term. Economic Activity GDP GROWTH (annual %) - left INFLATION (annual %) - right F

3 Office Market Snapshot Business investment is subdued, with the strength of the Swiss franc eroding competitiveness and weighing on profit margins. This has prompted some companies to cut spending or outsource investment to their overseas operations. There are also concerns that the Brexit vote could fuel an EU-wide slowdown. Occupier, investment and office construction activity has been notably weaker in H Occupier focus Office availability continued to increase across most markets in Q2, with several large financial companies consolidating their operations and focusing on cost control. Many companies have put expansion plans on hold and this is expected to continue until the outlook for the economy becomes clearer. Some business sectors - especially the banking, insurance and travel sectors have seen an increase in merger activity in recent quarters and this has resulted in excess space being put back on the market. Developers have also become more cautious and speculative construction has slowed since the start of the year. Rising vacancy is giving tenants bargaining power, although rents have remained relatively stable, with landlords reluctant to reduce rents and are instead offering more generous incentive packages, such as rent free periods or contributing to fit out costs. Investment focus Office investment volumes were 409mn in Q2, which was 18% down on the volumes recorded in Q1. Demand is relatively stable from institutions, funds and private property companies, but activity is being hampered by the lack of core stock in key locations. Prime office yields were unchanged at 3.70% in Zurich and 4.00% in Geneva in Q2 and are expected to remain at these levels in the second half of Yields in non-core locations may see some upward pressure in the short term. Prime Rents: Prime Yields: Supply: Demand: Stable in core locations, with landlords willing to offer attractive packages to avoid reducing rents. Prime yields are likely to hold firm, although non-core locations may see some upward pressure on yields. Increasing. Rationalisation of real estate portfolios to continue, with excess stock returned to the market. Stable, with cost control and consolidation remaining the key drivers of activity. Prime Office rents June 2016 LOCATION SFR US$ GROWTH % SQ.FT 1 5 CAGR Zurich Geneva Basle Prime Office yields June 2016 LOCATION Zurich Geneva Basle With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property. Recent performance Yields Yield - Country Average Yield - Prime Rental Growth - Prime Rental Growth - Country Average 5.50% 15.0% 5.00% 10.0% 4.50% 5.0% 4.00% 0.0% 3.50% -5.0% 3.00% -10.0% Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Rental growth (y/y) The short term economic outlook is unclear and cost control and rationalisation of real estate portfolios will remain key drivers of occupational demand, with core locations performing solidly, although prospects for non-core locations are more uncertain. Investment demand is expected to remain focused on prime stock, although there should also be some attractively priced opportunities for core plus and opportunistic investors.

4 Retail Market Snapshot The retail segment and turnovers within the industry remain affected by the strong Swiss franc. Even though turnovers in the whole industry are expected to grow to 0.3% in 2016, predictions in the non-food segment remain negative. To the contrary, online sales are expected to grow further by 7-10%. Due to the results of recent Brexit referendum in the UK, the Swiss franc is expected to appreciate further, although the Swiss National Bank is likely to intervene as needed. Occupier focus In comparison to the previous year, the total number of vacant business units has increased by 4.7%, reflecting the cautious mood amongst retailers to take space or indeed expand their store footprints. This will impact negatively on rental levels and some landlords will need to react and lower rents in order to keep tenants. This is the case across the Swiss market but is more prevalent in border cities with any activity focused on Zurich and Geneva. Shopping centre development has been quite limited during the last two years and no significant improvement is expected in the future with 56,000 sq.m of new shopping centre space being delivered across four new schemes by the end of Prime high street rents in in Zurich increased by a moderate 1.1% yearon-year but remained more or less stable in other main cities. Rents in prime shopping centres dropped by 3.7% year-on-year. Investment focus Investment volumes for the retail market reached 200 million for the quarter. Overall activity has been difficult to measure due to the number of off market deals, however retail transactions are believed to be low in numbers. High street properties and retail parks are the asset type attracting the most focus when the product comes to market. According to SECO (State Secretariat for Economic Affairs) within a positive, yet fragile, global economic environment, the Swiss economy is set to grow by an average of 1.4% in 2016; real growth of 1.8% is forecast for Furthermore unemployment will rise marginally over the coming months (average for 2016: 3.6%, 2017: 3.5%), while a small increase in employment is expected (+0.4% on average) by the end of the year. Prime Rents: Prime Yields: Supply: Demand: Stable rents in prime high streets with decreased rents in shopping centres and secondary locations. Stable yields in prime retail segments expected. Low new supply level with limited development pipeline Strong demand for prime retail locations and weak demand in secondary locations expected to persist. Prime Retail Rents - June 2016 HIGH STREET SHOPS SFR US$ GROWTH % SQ.FT 1 5 CAGR Zurich (Bahnhofstrasse) 9,100 8, Geneva (Rue du Rhône) 4,000 3, Basel (Freie Strasse) 2,300 2, Prime Retail Yields - June 2016 HIGH STREET SHOPS Zurich (Bahnhofstrasse) Geneva (Rue du Rhône) Basle (Freie Strasse) SHOPPING CENTRES Country prime With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property. Recent performance Yields Yield - Country Average Yield - Prime Rental Growth - Prime Rental Growth - Country Average 5.00% 25.0% 4.50% 20.0% 15.0% 4.00% 10.0% 3.50% 5.0% 0.0% 3.00% -5.0% Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Rental growth (y/y)

5 Industrial Market Snapshot The Swiss export sector has modestly improved in recent quarters, but the ongoing strength of the Swiss franc has meant that trading conditions remain challenging for many exporters. Some important service sectors such as finance and tourism continued to weaken in Q2, while their future prospects remain modest. Occupational and investment activity is relatively stable in Geneva, but demand in Zurich and markets in the Germanspeaking parts of the country is still weak. Occupier focus Geneva is one of the better performing occupational markets, due to its position as a leading hub for high quality and high tech consumer and investment goods. These goods are still in high demand from both developed and emerging markets, despite the reduced cost competitiveness due to the stronger currency. Supply levels are stable and, consequently, rents have been unchanged in the year to June By contrast, the manufacturing sector in Zurich has been hit harder and several export-oriented companies have been shifting production offshore to retain the competitiveness of their product. Some of the decline in demand from industrial operators for logistics space is being offset by rising demand from retailers and third party logistics providers, who are involved in the fast growing e-commerce sector. Supply levels are still rising, however, as firms consolidate operations and release excess space back to the market. This is maintaining downward pressure on rents in Zurich and in other key regional cities, such as Berne and Basel. Investment focus Industrial investment volumes were a weak 96mn in Q2, with activity driven predominantly by domestic investors. Foreign investors continue to shy away from the market due to the uncertain economic outlook and lack of suitable stock, while the strong currency also makes pricing unattractive relative to other European markets. Prime Rents: Prime Yields: Supply: Demand: Mainly stable, but rising supply in Zurich and in German speaking cities is putting pressure on rents. Stable in Geneva, but yields in other markets will continue to see some upward pressure in H Rising - except in Geneva - with firms expected to continue rationalising their property requirements. Low but stable. E-commerce expected to be a key driver of future demand for logistics space. Prime Industrial Rents June 2016 LOGISTICS LOCATION SFR US$ GROWTH % SQ.FT 1 5 CAGR Zurich Geneva Basle Prime Industrial Yields June 2016 LOGISTICS LOCATION Zurich Geneva Basle With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property. Recent performance Yields Yield - Country Average Yield - Prime Rental Growth - Prime Rental Growth - Country Average 7.00% 15.0% 6.00% 10.0% 5.0% 5.00% 0.0% 4.00% -5.0% 3.00% -10.0% Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Rental growth (y/y) The short term outlook for the economy and industrial sector is weak, but medium term prospects are more positive with domestic and external demand expected to pick up. Geneva will remain the top performing market overall.

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