Office Leasing and Investment Germany

MARKET REPORT 217/218 Accelerating success. Office Leasing and Investment Germany

Market Data Office Leasing TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART STOCK OF OFFICE SPACE 9.52 19.5 7.6 11.57 13.75 7.85 22.4 7.85 in million sq m OFFICE SPACE TAKE-UP 4,156,7 937, 333, 71,1 622, 32, 984,2 268,4 217 in sq m Change year-on-year in % 6 9-9 29 14-2 26-38 for 218 OFFICE SPACE TAKE-UP 3,167,9 634,3 331,8 462,7 55,13 261, 718,4 254,6 (for the entire year) 1-year Ø PRIME RENT 31.3 27. 41. 26. 21.5 35.6 24.3 in /sq m for 218 AVERAGE RENT in /sq m 19.15 15.4 2. 15.4 12.9 17.3 13.4 for 218 VACANT OFFICE SPACE in sq m 3,652,8 39, 532,4 1,14,9 625, 314, 535,9 164,6 VACANCY RATE in % 4.1 2. 7. 9.6 4.5 4. 2.4 2.1 Change year-on-year in basis points -8-1 -5-16 -5-1 -6-7 for 218 The data for Berlin, Düsseldorf, Hamburg and Cologne are related to the respective city area. The data for Frankfurt, Munich and Stuttgart are related to each of the respective markets on the whole. Investment GERMANY TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART TRANSACTION VOLUME 57,289 29,954 7,522 2,74 6,912 3,41 2, 6,17 1,2 217 in million Change versus prior year in % 9 4 54 26 13-31 14-1 -37 for 218 TRANSACTION VOLUME (for the entire year) 1-year Ø PRIME YIELD OFFICES in % PRIME YIELD HIGHSTREET RETAIL in % PRIME YIELD INDUSTRIAL & LOGISTICS in % 33,667 18,49 4,9 1,538 3,79 2,912 1,11 4,1 95 3.2 3.75 3.3 3.3 4.25 3.2 3.8 3.2 3.5 2.8 3.2 3.5 2.8 3.1 4.65* *) Refers to the defined logistics market areas 2

Office Space Take-up in the TOP 7 (in million sq m) 4. 3.5 3. 2.5 2. 1.5 1..5. 2.9 213 3. 214 3.5 215 Whole year Forecast Average of the past 1 years 3.9 216 4.2 217 Vacancy Rate in the TOP 7 (in %) and Vacancy (in million sq m) 8 6 4 2 Fast Facts OFFICE LEASING TOP 7 217 CHANGE Office Space Take-up in sq m 4,156,7 6 % Vacant Floor Space in sq m 3,652,8-17 % Vacancy Rate in % 4.1-8 bp* Office Space Stock in sq m 9,52 1 % *) basis point Completions of Office Properties in the TOP 7 in total (in 1, sq m) 1,4 1,2 1, 8 6 4 2 874 213 214 Completions Pre-let 7.7% 6.8 6. 5. 4.4 3.7 213 1,67 6.7% 214 996 842 215 5.6% 215 939 782 77 4.9% 216 1,194 744 4.1% 217 218 1,363 832 216 217 218 219 Average 213 217 Office Leasing Take-up Take-up throughout all of Germany s seven office hubs exceeded 4 million sq m for the first time in 217, reflecting a 6 % increase from the previous year s record result of 3.9 million sq m. 217 results also surpassed the 1-year average by 31 %. Munich came out at the top of the ranks among Germany s Big 7 with take-up exceeding 98, sq m, registering the highest result since 2. Berlin posted an all-time high with 937, sq m in take-up, thus solidifying its position as one of the most popular locations for office tenants and occupiers nationwide. Strong demand in Frankfurt throughout all space segments, including a number of deals other than those for more than 1, sq m typical to Germany s banking capital, boosted take-up to over 7, sq m for the first time since 2. Hamburg came in 4 th with over 62, sq m in take-up. Some cities, however, recorded a yoy drop despite above-average take-up levels in a long-term comparison. This particularly applies to Stuttgart, which recorded the lowest take-up result among the Big 7 at 27, sq m. This decrease can primarily be attributed to drastically limited supply insufficient to meet the high demand in the city. The drop in take-up recorded in Cologne by year-end can also be attributed to an extraordinarily strong previous year result, which was primarily due to a large-scale lease. The city, however, still managed to post decent office take-up results of 3, sq m. The neighboring city of Düsseldorf posted takeup of 33, sq m, a markedly milder yoy drop indicating favorable overall office leasing fundamentals. Rents Strong leasing performance led to higher rents in most locations. As in the previous year, Berlin continued to experience extraordinary rental growth. Prime rent at year-end came to 31.3 per sq m, up almost 1 % compared to December 216. That makes Berlin the third city among the Big 7 to list prime rents of more than 3 per sq m, just behind Munich ( 35.6) and Frankfurt ( 41.). More than one-third of take-up in Berlin was recorded in the segment of over 2. per sq m. Average rent increased markedly by 18 % to 19.15 as a result, approaching the 2. per sq m recorded in Frankfurt with Germany s banking capital leading the pack in terms of prime rent as well. Frankfurt managed to exceed the 4. mark in H2 217 for the first time since 21. 3

Average rent rose considerably particularly in Munich to 17.3 per sq m (+8 %). That put Munich well ahead of Hamburg and Düsseldorf ( 15.4 per sq m each), Stuttgart ( 13.4 per sq m), and Cologne ( 12.9 per sq m), all of which recorded moderate increases during the year ranging from 2 % in Hamburg to more than 3 % in Düsseldorf. Vacancy Rate in the TOP 7 (in %) 15 1 Supply and Vacancy Vacancy continued to drop rapidly in all locations for the seventh year in a row. For the first time, the amount of space available for immediate tenancy at the end of December (less than 3.7 million sq m) was lower than take-up for the entire year. The vacancy rate has now reached 4.1 %, 8 bp below previous-year results. The drop in vacancy was particularly strong in Frankfurt, Berlin and Stuttgart. Down 16 bp to 9.6 %, the vacancy rate in Frankfurt moved into the single-digit range for the first time since 22. Nevertheless, the city still has 1.1 million sq m available for immediate tenancy, the highest among Germany s Big 7. In Berlin and Stuttgart a drop of one percentage point within the year resulted in the lowest vacancy rates nationwide at 2. % and 2.1 %, respectively. As a result, only 39, sq m of office space was vacant in the German capital at year-end with only around 165, sq m available in Stuttgart. 5 Q4 13 Q4 14 Q4 15 Q4 16 Q4 17 Berlin Düsseldorf Frankfurt Hamburg Cologne Munich Stuttgart Average Rents in the TOP 7 (in /sq m) 22 2 18 16 With vacancy at 2.4 %, only 536, sq m was available for immediate tenancy at year-end in Munich as well, proving increasingly challenging for office tenants on the lookout for modern space in downtown locations. Even Cologne and Hamburg, with vacancy rates at 4. % and 4.5 %, respectively, were not able to maintain the 5. % necessary for market equilibrium. The general situation in Düsseldorf was somewhat more relaxed with vacancy at 7. %, although the amount of space available in the city continues to pursue a downward trajectory. 14 12 1 Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich Only roughly 2.5 million sq m are expected to be added to the market by property developments in 218 and 219. In light of unabated high demand, however, this new space will not be sufficient to significantly ease the situation. Summary and Outlook The general situation on the office leasing market will remain unchanged in 218. We expect the conditions for ongoing lively take-up activity in the office sector to remain extremely favorable due to Germany s continued robust economic fundamentals, which are increasingly being supported by a broad economic recovery across Europe and which will drive corporate investment even more than in 217. Supply will continue to shrink dramatically as a result. In light of these trends, we consider strong take-up in 218 of up to 3.5 million sq m realistic, with results, however, remaining below 217 take-up levels. Susanne Kiese Head of Research I Germany +49 211 86262-47 susanne.kiese@colliers.com 4

Fast Facts INVESTMENT 217 216 CHANGE Transaction Volume 57,289 52,59 9 % in million Total TOP 7 29,954 28,666 4 % TYPE OF TRANSACTION 217 216 CHANGE Individual Transactions 36,88 33,189 11 % Share in the TOP 7 24,527 21,9 12 % Portfolio Transactions 2,482 19,41 6 % Share in the TOP 7 5,427 6,766-2% SOURCE OF CAPITAL 217 216 CHANGE Share by International 25,612 2,857 23 % Buyers Share in the TOP 7 14,752 1,689 38 % Share by International 24,761 15,24 62 % Sellers Share in the TOP 7 11,58 5,852 89 % Transaction Volume in Germany (in billion ) 6 5 4 3 2 3.7 39.8 55.42 52.59 1 14.7 2.1 24.6 24.92 213 214 215 216 Transaction Volume in Germany 57.29 26.68 217 218 Forecast thereof Office Properties Average 213-217 Transaction Volume according to Size Categories in Germany (share in %) above 25 m 3 7 up to 1 m 12 15 1 m to 25 m 25 m to 5 m Investment Transaction Volume The German commercial investment market closed out 217 with a transaction volume of 57.3 bn, a 1-year record high. 217 is the third consecutive year to post a total-year result of over 5 bn, also beating out 215 s recent high of 55.4 bn. A 7 % increase compared to the 1-year average also points to an exceptionally favorable market situation. Transaction volume was primarily driven by four deals in the billion-euro range. The largest deal of the year involved a logistics platform deal with China Investment Corporation acquiring a pan-european real estate portfolio from Blackstone subsidiary Logicor. China Investment Corporation paid more than 2 bn for the properties located in Germany alone. The Primus portfolio deal was the second-largest transaction of the year. The portfolio s five high-reputation prime assets were sold for 1.5 bn by RFR Holding to Austrian Signa Prime Selection. The third-largest transaction involved the sale of a portfolio comprising more than 4 assets. Intown Invest, an asset/fund manager handling Israeli capital, purchased the portfolio for roughly 1.2 bn from Apollo Global Real Estate. The share generated by portfolio transactions was down slightly compared to the previous year at 36 % despite the portfolios that changed hands in the billion-euro range. High-volume single-asset deals included the sale of the Sony Center in Berlin for roughly 1.1 bn by South Korean sovereign wealth fund NPS to Canadian pension fund OMERS. Single-asset deals claimed a share of 64 % at year-end. Supply and Demand Bei der räumlichen Verteilung der Investmentvolumina domiin terms of transaction volume s regional distribution, Germany s seven investment hubs continued to dominate the field at around 52 %, reflecting a slight drop of 3 percentage points compared with 216. Many of the high-volume portfolios traded in 217 contained assets located outside the Big 7. This applies not only to logistics, retail warehouse and hotel portfolios, but also in increasing numbers to office portfolios. We saw an increased presence of foreign investors on the German investment market. The share of foreign direct investments increased year-over-year from 4 % to 45 % with 16 % of foreign capital coming from the US and 11 % from the UK. Due to the exceptional platform deals traded in 217, France shared 3 rd place with China, both claiming an 8 % market share. Another Asian country, Singapore, placed high in the ranks practically neck-and-neck with China. 1 m to 25 m 2 16 5 m to 1 m 5

Open-ended real estate funds and special funds continued to dominate the German market buy-side in 217, claiming more than one-quarter of total transaction volume. Asset/fund managers, which are increasingly acting on behalf of foreign investors, took 2 nd place with a 21 % market share. They were active sell-side as well, dominating the market at year-end with 22 %, in the lead ahead of property developers with 17 %. Yields Excess demand for investment opportunities and the ongoing boom on the leasing markets continued to put yields under pressure in some of Germany s seven investment hubs, although compression did lose some of its momentum due to high prices. Prime yields for office properties fell most significantly in Frankfurt and Hamburg to a current 3.3 %. Berlin and Munich also saw slight adjustments with yields currently at 3.2 %. Cologne (4.25 %), Stuttgart (3.8 %) and Düsseldorf (3.75 %) came in at the other end of the narrow spectrum. Investments in buildings featuring an office-retail mix in prime locations of Germany s top 7 cities continued to record the lowest yields. Prime yields for this property type in Frankfurt and Munich came to 2.8 %, with Cologne and Düsseldorf claiming the highest yields at 3.5 %. Prime yields of 4.65 % proved the norm in the logistics segment across all locations and experienced the highest compression in 217, in some cases dropping from well over 5 %. Office Investment Office properties maintained their status in 217 as the most coveted asset class. Similar to the previous year, they accounted for a market share of 47 % with a transaction volume of 26.7 bn. In contrast to the other asset classes, properties located in the Big 7 dominated transaction activity, accounting for 78 % of transaction volume. Landmark deals such as the sale of the Sony Center and Frankfurt s Tower 185 office highrise for 775m together with other Frankfurt high-rises contributed their fair share to this result. Summary and Outlook With the central banks, especially the ECB, continuing to pursue a low-interest policy and in light of ongoing strong economic growth and rents increasing in almost all asset classes, most investors continue to find German real estate highly attractive. We therefore expect to see a similarly high transaction volume in 218 somewhere in the range of 55 bn. If one thing proves limiting, it will be a lack of products suitable to meet demand and not a lack of capital. Buyers and Sellers in Germany (in billion ) Open-ended real estate funds / Special funds Asset managers / Fund managers Property developers Listed property companies Pension funds Other investors Asset managers / Fund managers Property developers Opportunity funds / Private equity funds Open-ended real estate funds / Special funds Private investors / Family Offices 3 25 2 15 1 5 Other investors Office Retail in Germany 5 1 15 2 Buyers Sellers Types of Properties in Germany (Volume in billion ) Industrial & Logistics Hotel Mixed Building Other use site properties (commercial) thereof TOP 7 Office Prime Yield in the TOP 7 (in %) 5,5 5, 4,5 4, 3,5 3, Q4 13 Q4 14 Berlin Hamburg Stuttgart Q4 15 Düsseldorf Cologne Q4 16 Q4 17 Frankfurt Munich 6

Glossary Take-up of Space Take-up of space is the sum of all spaces either newly let, sold to owner-occupiers, or built for or by an owner-occupier within the period under consideration. The salient date is that on which the lease or purchase agreement is signed. The renewal of an existing lease is not counted in the take-up of space. Leasing performance Leasing performance reflects take-up excluding owner-occupied space. Prime Rent The premium rent represents the median of the top 3 % of new lets (not counting owner-occupiers) during the 12 months just ended. Average Rent The average rent is calculated by taking the individual rents agreed to in all new leases, weighting them by the amount of space rented and computing the mean value. Vacancy Vacancy is defined as all office space available for occupation within three months. Prime yields Prime yields are the best return that can be realized for a property of highest quality and in the best location when leased under usual market conditions (highly solvent tenant). The figures here are gross yields. Photo credits Front page Fotolia Photo credits inside pages Page 2 Fotolia Page 7 istock william87 7

43 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 Contact: Susanne Kiese Head of Research Germany +49 211 86262-47 susanne.kiese@colliers.com Colliers International Deutschland GmbH Thurn-und-Taxis-Platz 6 6313 Frankfurt 2.3 billion global turnover 95 billion in transaction volume with more than 8, investment and leasing deals 17 million sq m under management Over 15, professionals 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 43 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. For the latest news from Colliers International, visit Colliers.com, or follow us on Twitter: @ColliersIntl and LinkedIn. To see the latest news on Colliers International in Germany follow www.colliers.de. colliers.com Copyright 218 Colliers International Deutschland GmbH This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). 218. All rights reserved.