real estate market germany 2016 | 2017 - DG HYP · PDF file3 Real Estate Market Germany 2016 |...

REAL ESTATE MARKET GERMANY 2016 | 2017

A RESEARCH PUBLICATION BY DG HYP | OCTOBER 2016

STRONG DEMAND IN METROPOLITAN AREAS – LACK OF SUPPLY IN OFFICE FLOOR SPACE FOLLOWS SHORTAGE IN RESIDENTIAL SPACE

1

TABLE OF CONTENTS

Greeting ___________________________________________________________________ 3

Summary __________________________________________________________________ 5

Current economic situation in Germany ______________________________________ 8

Brexit: an opportunity for the German offi ce market? ________________________ 9

Residential and commercial construction struggling to gain momentum _______ 10

Yield compression persists for commercial investments _______________________ 13

Retail space _______________________________________________________________ 15

Offi ce space _______________________________________________________________ 29

Residential property _______________________________________________________ 41

Overview of forecasts ______________________________________________________ 46

Imprint ____________________________________________________________________ 47

Disclaimer _________________________________________________________________ 47

DG HYP offi ces _____________________________________________________________ 48

Real Estate Market Germany 2016 | 2017

3


GREETING

Dear Readers,

As the commercial real estate bank within the Volksbanken Raiffeisenbanken coop-

erative fi nancial network, we regularly analyse the markets we actively cover, in order

to better assess opportunities and risks. The present report continues our series of

studies concerning the German real estate market, published in the autumn of each

year. This research study looks at market developments for retail, offi ce and residential

real estate in German metropolitan areas during 2016, and provides an outlook for

2017.

The real estate markets in the prime locations the report covers – Hamburg, Berlin,

Cologne, Dusseldorf, Frankfurt, Stuttgart and Munich – have continued to benefi t

from the positive economic environment. Hence, the trend of rising rents remains

intact, even though the upward momentum seen over recent years cannot be main-

tained, despite strong demand. Given the high rent levels reached already, there are

signs of saturation for retail real estate, particularly in top locations, whereas rent

increases in the offi ce and residential sectors are increasingly the result of a decline in

available space. Whilst the housing sector is burdened by a lack of completions, the

development of offi ce markets is being impeded by the level of construction activity,

which is still too low. We will discuss the causes holding back stronger growth in more

detail in a separate chapter. Furthermore, this market report looks at opportunities for

the German offi ce market in the wake of ‚Brexit‘, and illustrates different yield devel-

opments for commercial real estate in the seven German economic hubs.

The German real estate market report is of course also available in German. All

previously published DG HYP market reports can be downloaded from our website

(on www.dghyp.de/en/unternehmen/market-research); contact us if you prefer a hard

copy.

Yours sincerely,

DG HYP

October 2016

5

SUMMARY

» The German property market is continuing to develop very positively. The key growth drivers are the sound economic situation, the robust employment market, increasing population figures thanks to inward migration and low interest rates. This is generating strong demand for commercial space and housing as well as considerable enthusiasm for buying German property among investors. Rents, but most notably property prices, are maintaining their upward trend while yields for commercial real estate and blocks of flats have been falling for around seven years.

» The trend described above is particularly marked at top locations. In these areas, strong demand for office and retail space as well as the housing needed to house the rapidly increasing numbers of inhabitants are encountering a limited supply. Offices and homes, where new construction has failed to match demand for some time, are particularly scarce. There has already been a dramatic fall in vacant office space, which was so abundant a few years ago. However, a whole series of retail projects have been developed in response to the boom in city-centre shopping, meaning that there are now signs of saturation in the trend in rents.

» It is likely that the property market will continue to benefit from favourable condi-tions, even though economic growth in Germany is likely to soften somewhat. In this respect, we assume that demand for offices, retail space and homes will by and large persist. Investor interest in German commercial real estate and blocks of flats is likely to continue unabated, as commercial real estate will still offer a relatively advantageous yield compared with bond yields, which are expected to remain in the doldrums.

» With regard to the trend in rents, we are assuming an increase of around 3 per cent in average annual prime office rents and the first-time occupancy rents for the seven top locations until 2017. However, growth in prime retail rents is likely to be more modest. Following the sharp increase in rents in recent years, there has been a perceptible decline in retailers’ willingness to accept still higher rents.

TOP LOCATIONS: RENTS CONTINUE TO RISE, BUT NOT QUITE SO RAPIDLY

Source: BulwienGesa, DZ BANK AG forecast

-15

-12

-9

-6

-3

0

3

6

9

12

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e2017eretail (prime rent) office (prime rent) residential (average rent first occupation) average

top location: rent yoy in %


6

» There has been a further improvement in the favourable conditions enjoyed by retailers: low inflation means that sharply rising incomes and pensions can be enjoyed almost to the full, the number of people in employment is increasing and saving is becoming ever less rewarding. This is generating a positive consumer climate, which is reflected in booming retail sales, as it was last year; the German Retail Federation (HDE) expects growth of 2 per cent in 2016. Retailers close to the city centres in the top locations are also benefiting from the expanding urban population and increasing numbers of tourists. E-commerce is also more of an opportunity than a challenge for retailers in 1A locations thanks to their hybrid sales concepts.

» Demand for first-class retail space in shopping malls and city centre shopping centres therefore remains strong. The sound economic situation in Germany is also contributing to strong interest in the German market among international retailers. Given that large cities with their substantial markets and international clientele are just as suitable for establishing an initial market presence as for test-ing new retailing concepts, prime rents could rise sharply as a result of high de-mand for space in top locations. They have almost doubled within 20 years.

» However, despite favourable conditions, the strong upward trend in rents is likely to be thing of the past. Since prime rents have now reached around EUR 300 per sqm on average, there has been a perceptible decline in retailers’ willingness to accept still higher rents.

FORECAST FOR RETAIL SPACE

Retail prime rents in EUR pro sqm

Change in retail prime rentsyoy (%)

2015 2016e 2017e 2015 2016e 2017e

Berlin 300 315 320 3.4 5.0 1.6

Cologne 250 250 255 4.2 0.0 2.0

Dusseldorf 270 270 270 3.8 0.0 0.0

Frankfurt 300 300 305 3.4 0.0 1.7

Hamburg 285 285 285 3.6 0.0 0.0

Munich 340 345 350 4.6 1.5 1.4

Stuttgart 245 250 250 2.1 2.0 0.0

Top location average 292 299 303 3.6 2.3 1.2

Source: BulwienGesa, Feri, forecast DZ BANK AG The prime rent represents an average of the top 3-to-5 per cent of market lettings, meaning that the figure quoted does not equate to the absolute prime rent.

» The positive trend in employment figures has led to high demand for first-class office space in major cities in the last few years and hence to a noticeable rise in prime rents. At the same time, the previously high vacancy rates have fallen sharply because construction of new space has not kept pace with demand in recent years.

» The scarcity of office space that has now emerged in some locations combined with persistently high demand are likely to result in a further rise in prime rents this year and next. Demand for space could also be boosted if British companies relocate staff to other EU member countries because of the imminent Brexit. In Germany, Frankfurt is likely to benefit most from this because of its status as a financial centre. Ultimately, we expect prime rents to grow by around 3 per cent per year up to 2017.

Retail sector: prime rents closer to peaking

Office: the shortage of office space is pushing rents higher


7

FORECAST FOR OFFICE SPACE

Office prime rents in EUR pro sqm

Change in office prime rentsyoy (%)

2015 2016e 2017e 2015 2016e 2017e

Berlin 24.0 26.0 27.0 4.3 8.3 3.8

Cologne 21.0 21.2 21.4 0.0 1.0 0.9

Dusseldorf 24.0 24.5 25.0 0.0 2.1 2.0

Frankfurt 35.5 36.2 38.0 1.4 2.0 5.0

Hamburg 25.0 25.4 25.7 2.0 1.5 1.3

Munich 34.1 34.8 35.5 1.8 2.1 2.0

Stuttgart 19.3 19.7 20.0 1.6 1.8 1.8

Top location average 26.7 27.5 28.3 1.9 3.2 2.7

Source: BulwienGesa, Feri, DZ BANK AG forecast The prime rent represents an average of the top 3-to-5 per cent of market lettings, meaning that the figure quoted does not equate to the absolute top rent.

» Although the number of people living in major cities has been rising sharply for some years, residential construction has failed to keep pace with this trend. As a result, there are practically no vacant flats, meaning that the increasing demand for housing can only be met through construction. However, completion figures are – the sole exception is Hamburg – far from being sufficient to satisfy current demand, let alone deal with the shortage that has arisen in recent years. Demand also continues to grow, as more people move to cities, households have fewer people living in them and as a result of the refugees who arrived in 2015 and are now gradually moving from temporary accommodation to normal housing.

» The increasing shortage of housing in top locations has resulted in residential rents rising sharply over the last ten years or so. Cumulatively, they have increased by around a quarter over this period. Today, tenants can expect to pay around EUR 13 per sqm on average as a first occupancy rent, while rents in the prime segment of the housing market are EUR 5 per sqm more expensive.

» However, the growth in rents for newly built flats has slowed. The annual increases of 5 per cent and more in some cases are no longer being achieved on average in top locations. This is because there is a limited number of people look-ing for property in this comparatively expensive part of the housing market, while supply is expanding thanks to the increase in the amount of new properties being built. We assume that first occupancy rates will firm by around 3 per cent per year up to 2017.

FORECAST FOR RESIDENTIAL REAL ESTATE

Average first occupancy rents in EUR per sqm

Average first occupancy rents, yoy % change

2015 2016e 2017e 2015 2016e 2017e

Berlin 11.5 11.8 12.1 1.8 2.6 2.5

Cologne 11.5 11.8 12.1 0.9 2.6 2.5

Dusseldorf 12.4 12.6 12.8 1.6 1.6 1.6

Frankfurt 13.5 14.0 15.0 3.1 4.0 6.8

Hamburg 13.2 13.4 13.6 0.8 1.5 1.5

Munich 15.8 16.8 17.3 6.0 6.3 3.0

Stuttgart 12.0 12.8 13.3 7.1 6.7 3.9

Top location average 12.7 13.1 13.5 2.7 3.4 2.8

Source: BulwienGesa, Feri, DZ BANK AG forecast

Residential: the shortage of housing combined with high demand is pushing rents higher


8

CURRENT ECONOMIC SITUATION IN GERMANY

The German economy reported robust growth in the first half of 2016. Gross domestic product grew by 0.7 per cent in the first quarter and by 0.4 per cent in the second quarter. Momentum has therefore weakened slightly, but remained fairly strong until the summer. Compared year on year, the growth rate in gross domestic product was still 1.7 per cent, not a bad figure given the numerous negative factors affecting the international economy. However, there are signs of growth slowing in the second half of the year. Not least because of a downturn in expectations, the Ifo Business Climate Index consequently fell from 108.3 to 106.2 points in August, which indicates a marked downturn in sentiment. The companies questioned by the Ifo Institute have now seemingly revised their business forecasts downwards in response to the Brexit decision. Sentiment has deteriorated sharply among wholesalers, who are heavily de-pendent on exports, but retailers are also less confident than they were in early sum-mer.

It looks as though economic growth will be respectable in 2016 as a whole, primarily because of positive momentum in the first half of the year. At 1.8 per cent, the rate is even likely to be slightly higher than in 2015 and will be somewhat better than our recent forecasts. However, we are assuming a slowdown in the second half of the year, not least because of the negative impact of the UK’s Brexit vote on the European economy. We are therefore sticking to our cautious forecast of 1.1 per cent growth for the coming year.

ECONOMIC FORECAST GERMANY

% yoy 2014 2015 2016e 2017e

GDP 1.6 1.7 1.8 1.1

Private consumption 0.9 2.0 1.6 1.1

Public consumption 1.1 2.8 3.8 1.5

Investment 3.5 1.9 2.5 1.5

Exports 4.1 5.1 2.9 2.8

Imports 4.0 5.5 3.1 3.8

Unemployment rate (%) 6.7 6.4 6.2 6.4

Inflation rate (HCPI) 0.8 0.1 0.3 1.4

Public budget balance (% of GDP) 0.3 0.7 0.2 0.0

GDP GROWTH VS PREVIOUS YEAR (IN PER CENT) UNEMPLOYMENT RATE (IN PER CENT)

Source: DZ BANK AG

-6

-4

-2

0

2

4

6

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

Germany

Eurozone5

6

7

8

9

10

11

12

13

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

GermanyEurozone

Robust economic activity in the first half of the year …

... but downturn in sentiment in the summer

Strong growth in 2016 as a whole, but a slowdown is expected


9

BREXIT: AN OPPORTUNITY FOR THE GERMAN OFFICE MARKET?

Shortly after the Brexit vote, the price of real estate shares on the London stock market slumped. Many of the listed companies have invested in UK commercial real estate – often in the London area. However, the voters’ decision also led to substantial outflows from UK real estate funds, meaning that several funds with assets in the dou-ble-digit billions had to suspend trading. The reason for this strong reaction is investors’ fear that the real estate market will suffer from both the anticipated economic downturn and the relocation of a large number of employees to locations in the EU. The picture looks very different in Frankfurt am Main. The city and conse-quently the real estate market could benefit considerably if a large number of British bankers were relocated from London to Frankfurt.

The fact that the Brexit vote has such an impact on real estate markets is largely because supply only responds sluggishly to changes in demand at a location. However, it is not easy to forecast how this will now change on the European markets for commercial and residential real estate. It will depend on the extent to which the British and the European economy is adversely affected by Brexit. In a “soft” scenario, for instance, the macroeconomic growth rate could fall by only a few percentage points, while there is a risk of recession if things go badly in the UK and on the conti-nent. However, so far it looks as though both the UK and the continental Europe will be spared the latter.

BREXIT CAUSES A SLUMP IN UK REAL ESTATE SHARES MATHEMATICALLY, THOUSANDS OF STAFF CAN BE ACCOMMO-DATED IN THE EMPTY OFFICES IN TOP LOCATIONS

Source: Bloomberg Source: BulwienGesa, DZ BANK AG Assumption: 35 sqm per office workplace

There is also no reliable basis for assessing the extent to which economic activities would have to be relocated from the UK to other EU countries in order for the UK to continue benefiting from the EU’s internal market. Will the notorious offshore company in an EU country suffice or will large parts of the value added chain have to be relocated? And to what extent does that make economic sense? Whether the company will require new offices or office blocks at its new location will depend on the answers. However, the question as to where the journey is headed is also important. Accordingly, Frankfurt should keep in mind that cities such as Amsterdam, Dublin, Luxembourg and Paris are also possible locations.

5000

5300

5600

5900

6200

6500

6800

7100

1400

1500

1600

1700

1800

1900

2000

2100

UK real estate equities / FTSE EPRA (lhs) FTSE 100 (rhs)

650 631

1100

760

438 428262

18600 18000

31400

21700

12500 122007500

Berlin Dussel-dorf

Frank-furt

Ham-burg

Cologne Munich Stutt-gart

vacant office space in '000 sqmvacant office space sufficient for x additional office work stations

Brexit is putting the UK real estate market under pressure

Supply on the real estate market is sluggish; the impact of Brexit on demand will be crucial

To what extent will economic activities be relocated?


10

Consequently, the extent to which staff will actually be relocated to Frankfurt is entirely unclear, but even if the decision is made for only a small part of the London financial sector, it will still come to a considerable number given that 700,000 are em-ployed there in total. Frankfurt’s chances are not bad either: it is already home to the ECB’s headquarters, offers excellent international connections, with the airport only ten minutes from the city, and – compared with London – rents and salaries are moderate.

It is not only companies in the financial sector that may be affected by relocations. An example of this is the telecommunications group Vodafone, which generates a majority of its revenues in EU countries. Dusseldorf could stand to benefit because the com-pany has had a substantial presence in the city since the acquisition of Mannesmann many years ago. EU authorities such as the European Medicines Agency and the European Banking Authority, which is responsible for banking supervision, will almost certainly leave the UK.

However, the fact that there is an increasing shortage of attractive office space in cen-tral German office locations could prove problematic. The vacancy rate has decreased significantly in recent years. Nevertheless, sufficient office space for new workplaces could be “found”, as the vacancy rate is still relatively high in the two locations mentioned, namely Dusseldorf and Frankfurt. However, in practice, it would be difficult to fully exhaust the mathematical “potential accommodation” shown in the diagram on the previous page because some buildings are obsolete, in poor locations or the space is too small. However, the space is likely to be sufficient for a few thou-sand UK workers.

Is Brexit therefore an opportunity for the German office market despite the risks for the European economy? It is difficult to say, as the positive effects resulting from the relocation of staff from the UK to German locations could rapidly be more than offset if the macroeconomic slowdown has a more adverse effect on growth in employment.

RESIDENTIAL AND COMMERCIAL CONSTRUCTION STRUGGLING TO GAIN MOMENTUM

The construction industry has not always had an easy time in recent years, but the prospects of full order books are currently good. Scarcely a week goes by in which the lack of housing is not raised in the media. The reasons are well known: people moving into towns and cities, immigration from outside Germany, increasing numbers of smaller households and, not least, a failure to construct enough housing over many years. However, attention is also regularly focused on ageing public infrastructure, be it dilapidated roads and bridges or schools needing redevelopment. By contrast, the public is less aware that demand for commercial space is also consider-able. This is clear merely from the space needed for additional workplaces resulting from the sharp increase in the number of people in employment, but logistics proper-ties are also needed for the expanding online retail sector and hotels for the steadily increasing number of visitors.

It is not unusual for construction projects to fail because of insufficient funding, but this is not a problem either: interest rates have fallen sharply meaning that repayments on property loans have become noticeably less onerous. Many investors are also looking for alternative investments to the bond market. And even the usually cash-strapped public purse is well-filled at the moment thanks to soaring income tax receipts.

Frankfurt’s chances are not bad

Other sectors and other German office locations could also benefit from Brexit

In purely mathematical terms, there is space for 150,000 office workplaces in the top locations

A more marked downturn may rapidly undo the positive effect of staff relocating

Housing, commerce, infrastructure: demand for new construction is considerable …

... and the funds needed are also available


11

NET IMMIGRATION INCREASES TO RECORD LEVELS SURGE IN EMPLOYMENT CONTINUES UNABATED

Source: Federal Statistical Office Source: Federal Employment Agency

In actual fact, far more is being built than was the case a few years ago. This is evidenced by the large number of cranes seen in cities, but there has been no real construction boom. Strong growth is still most apparent in housing construction. Com-pared with the low reached at the end of the last decade, the number of construction permits has doubled to date. At the end of June 2016, the figure increased by 20 per cent year on year to an annualised level of over 400,000 construction permits. However, completions are lagging behind. Compared with 2014, they also increased marginally by 1 per cent to approximately 248,000 units last year.

WHILE RESIDENTIAL CONSTRUCTION HAS BEEN SLOWLY PICKING UP SINCE 2010 …

… THERE ARE NO SIGNS OF GENERAL GROWTH IN COMMERCIAL CONSTRUCTION

Source: Federal Statistical Office Source: Federal Statistical Office

By contrast, office construction has not picked up significantly so far. Although the completions reached their highest level since 2009, at 2.6 million sqm in 2015, this is still low compared with the annual volume up to 2006. And unlike residential construction, construction permits do not point to an upward trend, albeit one that has only been delayed somewhat. The consequences of this meagre construction activity are very apparent in office markets (see page 29), since the huge amount of vacant office space that was a feature ten years ago has decreased significantly. In some locations, the vacancy rate is so low that an increasing number of companies are failing to find suitable space.

-300

0

300

600

900

1,200

1,500

1,800

2,100

2,400

1975 1980 1985 1990 1995 2000 2005 2010 2015net migration immigration emigration

migrants in thousand

36

37

38

39

40

41

42

43

44

1995 2000 2005 2010 2015employees in million

0

100

200

300

400

500

600

700

800

1990 1995 2000 2005 2010 2015completions building permits

dwelling construction in '000 dwelling units

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1990 1995 2000 2005 2010 2015

completions building permits

construction of office and administration buildings, space '000 sqm

Residential construction is increas-ing sharply, but completions are still lagging behind construction permits

Office construction is struggling to gain momentum


12

Overall, construction investment is also picking up in commercial construction, although the increase is far less than in residential construction. Growth is even reported in public construction, which has been stagnant for many years. On an annu-alised basis, investment in residential construction is accelerating by not quite 5 per cent, but by only around 2 per cent in commercial and public construction. Aggregate construction investment is currently growing by just under 4 per cent per year.

CONSTRUCTION INVESTMENT IS MORE OR LESS STAGNANT IN RELA-TION TO GDP

CAPACITY UTILISATION IN THE CONSTRUCTION TRADES RISES TO THE HIGHEST FIGURE SINCE THE BEGINNING OF THE 1990S

Source: Feri, Federal Statistical Office Source: Ifo Institute

However, the nominal growth, which appears gratifying at first sight, is less impressive when construction investment is looked at in relation to GDP. On this basis, construc-tion investment has been stagnant at around 10 per cent for around five years. Only residential construction investment increased its share of GDP from 5 per cent to 6 per cent in recent years. Why is construction investment growth not higher, when there is both demand and financial resources? Rents are also trending upwards; the prospects are good for homes and offices, at least. And investor interest in the real estate market remains keen.

There is no obvious principal factor curbing investment. It is possible that there are various factors preventing a marked upturn in construction investment. The process of concentrating on cities and conurbations has reduced the space available here for residential and commercial buildings and resulted in higher land prices. However, in regions where there is sufficient space available, there is often no demand. Construction has also become significantly more expensive. The Federal Statistical Office reports that the cost for constructing rental flats has risen by 32 per cent per sqm since 2005. At 42 per cent, the costs for office and administrative buildings have increased even faster. By contrast, consumer prices have only risen by 16 per cent in this period. Capacity bottlenecks in the construction industry could be another factor. However, capacity utilisation in the construction trades has climbed to the high-est level since the beginning of the 1990s – although far more was built at the time.

0

1

2

3

4

5

6

7

8

1992 1996 2000 2004 2008 2012 2016public sector commercial residential

investments in construction in % of the GDP

50

55

60

65

70

75

80

1992 1996 2000 2004 2008 2012 2016capacity utilisation in the construction industry in %

Nominal construction investment increased by just under 4 per cent

Construction investment is stagnant in relation to GDP

Various factors may be curbing an upturn in construction activity


13

YIELD COMPRESSION PERSISTS FOR COMMERCIAL INVESTMENTS

Where can funds be invested? The fact that bond yields have been falling for many years has made this question far more difficult to answer. Increased interest in alternative investments, such as real estate, has also squeezed its yield. Admittedly, the fall in yields is less dramatic here, which means that real estate investments offer a significant yield advantage over government bonds. As a result, opportunity/risk analyses often lead to the conclusion that commercial real estate or flats in major German cities should be purchased despite the sharp increase in property prices. This project is also becoming increasingly difficult because the “concrete gold” search pro-file – acceptable yields combined with manageable risks – looks identical for many investors, whereas the supply of their preferred core properties in major cities is small. On the one hand, these properties only account for a fraction of the market; on the other hand, owners are not prepared to sell despite being able to achieve high prices. Ultimately, the former owner will be confronted by the above question immediately after selling.

YIELDS ON COMMERCIAL REAL ESTATE CONTINUE TO FALL, BUT ARE FAR HIGHER THAN THOSE ON GOVERNMENT BONDS

INVESTMENT VOLUME FALLING DUE TO LACK OF PURCHASE OPPOR-TUNITIES

Source: Datastream, BulwienGesa Source: JLL

The lack of supply is particularly responsible for the fact that demand for German commercial real estate can only be satisfied to a limited degree. The 25 per cent fall in investment volume in the first half of the current year compared with the first half of 2015 must also be construed to this effect. The gap could be closed if investors would increasingly focus on less favoured locations or other cities, which would also offer higher yields. However, this move might also expose investors to greater risk. The investment of substantial sums outside top locations is also far more onerous, as a larger number of properties would have to be purchased there to achieve the investment objective.

In any case, the top locations’ appeal is undimmed, while the “run” to B or C locations, which has been forecast again and again, has not occurred to the extent anticipated despite their yield advantage. This is apparent from the fact that the gap in yields between the city categories (illustrated overleaf in the diagrams on the left) between the categories of cities has only shrunk relatively slightly. By and large, a yield disadvantage of around one percentage point is accepted for a real estate investment in the top locations in the retail, office and residential segments.

0

1

2

3

4

5

6

7

8

9

1990 1995 2000 2005 2010 2015

German Federal bonds 9-10 yearsoffice central location (Top-7)office peripheral location (Top-7)

yield in %

12,99,6

11,1

8,4

0

3

6

9

12

15

18

21

24

27

H1 2015 H1 2016other location top location

investments in German commercial real estate in EUR bn

-25%

Homes and commercial real estate offer relatively high yields compared with the bond market

Despite the limited supply, investors are reluctant to look at alternative lo-cations and cities

The gap in yields between the top seven and the B/C locations has only shrunk slightly


14

The fall in yields described above affects all seven top locations. However, the extent differs from location to location. As a result, a gap in yields has opened in the three segments under consideration. This is attributable, in particular, to the sustained upward trend in prices in Munich, as a result of which the yield achievable for offices and retail properties or rather the multiplier for blocks of flats has visibly moved away from the other six locations. The cross-location gap in yields is lowest in the retail sector, with all locations – bar Munich – at a similar level. The range for offices is somewhat wider, but is still exceeded by blocks of flats.

RETAIL: TREND IN YIELDS MOVEMENT IN YIELDS AT THE INDIVIDUAL TOP LOCATIONS

OFFICE: TREND IN YIELDS MOVEMENT IN YIELDS AT THE INDIVIDUAL TOP LOCATIONS

RESIDENTIAL: MULTIPLIER FOR APARMENT BLOCKS MULTIPLIER AT THE INDIVIDUAL TOP LOCATIONS

Source: BulwienGesa Source: BulwienGesa

The initial net yield for office and retail is calculated by dividing the annual net income through the total purchase price including fees and taxes. The gross rent multi-plier is calculated by dividing the purchase price through the base rent (excluding fees and taxes).

0

20

40

60

80

100

120

140

160

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1995 1999 2003 2007 2011 2015spread in basis points (rhs) top-7 (lhs) regional-12 (lhs)

net initial yield in % of retail investments in central locations

3.4

3.7

4.0

4.3

4.6

4.9

5.2

5.5

5.8

6.1

1992 1996 2000 2004 2008 2012 H12016

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart

net initial yield in % of retail investments in central locations

0

20

40

60

80

100

120

140

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1995 1999 2003 2007 2011 2015spread in basis points (rhs) top-7 (lhs) regional-12 (lhs)

net initial yield in % of office investments in central locations

3.43.74.04.34.64.95.25.55.86.16.46.7

1992 1996 2000 2004 2008 2012 H12016

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart

net initial yield in % of office investments in central locations

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

11

12

13

14

15

16

17

18

19

20

21

1995 1999 2003 2007 2011 2015difference (rhs) top-7 (lhs) regional-12 (lhs)

average gross rent multiplier of multifamily investments

1314151617181920212223242526

1992 1996 2000 2004 2008 2012 H12016

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart

average gross rent multiplier of multifamily investments

The gap in yields between the top locations has widened


15

RETAIL SPACE

Market development, trend and outlook In last year’s issue of this market report, we stated that “economic conditions could hardly be better for the German retail sector”. They have actually improved further still: employment has increased. Private households are receiving significant increases in wages with virtually nothing being lost to inflation and, at over 4 per cent in western Germany and almost 6 per cent in eastern Germany, this year’s increase in pensions could be viewed as a typing error. Overall, private households’ disposable income adjusted for inflation is likely to increase by over 2 per cent once more this year. Cumulatively, this implies an increase of more than 6 per cent from 2014 to 2016, which would previously have taken ten years. In light of the positive trend in incomes and economic stability in Germany, not even the many international crises have put a damper on the excellent consumer climate. Furthermore, the retail sector has acquired around one million additional consumers due to the refugees who came to Germany in 2015. Purchasing power is also being supported by the flourishing tourism sector.

Given the positive conditions, it would be extremely surprising if retail sales had not grown strongly. Consequently, the German Retail Federation (HDE) expects growth

AVAILABLE INCOME ADJUSTED FOR INFLATION AGAIN INCREASES PERCEPTIBLY

STILL AT A VERY HIGH LEVEL: THE GERMAN CONSUMER CLIMATE DEFIES INTERNATIONAL CRISES

Source: AMECO Source: GfK

STRONG REAL WAGE GROWTH BOOSTS THE SCOPE FOR ADDI-TIONAL CONSUMPTION

PENSIONERS ARE BENEFITING FROM THE LARGEST PENSION IN-CREASE IN THE LAST 20 YEARS

Source: Federal Statistical Office, Thomson Reuters Source: German pension insurance

90

95

100

105

110

115

120

125

130

135

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1992 1996 2000 2004 2008 2012 2016real disposable income of private households yoy in % (lhs)real disposable income of private households 1992 = 100 (rhs)

-4-202468

1012141618

2001 2004 2007 2010 2013 2016GfK consumer climate

-2

-1

0

1

2

3

4

5

1995 1998 2001 2004 2007 2010 2013 2016consumer prices Nominallöhne real wages

yoy in %

0

1

2

3

4

5

6

7

1995 1998 2001 2004 2007 2010 2013 2016

Western Germany Eastern Germany

yoy in %

The positive conditions enjoyed by the retail sector have improved further still


16

of 2 per cent in its sales forecast for 2016, which would boost retail sales – excluding the vehicle trade, fuel and pharmacies – to around EUR 482bn. However, the expected increase in sales is not outstandingly positive either. Growth of 2 per cent corresponds exactly to the average rise from 2010 to 2015. Consequently, neither the increase in cash paid into current accounts each month nor the continuing fall in interest rates are boosting consumption. Admittedly, the further deterioration in investment options is resulting in surging purchase prices for houses and flats, but it is not benefiting retailers more than in previous years.

RETAIL SALES HAVE RISEN NOTICEABLY SINCE 2010 THE SHARE ATTRIBUTABLE TO E-COMMERCE IS INCREASING CONSTANTLY

Source: HDE Source: HDE, DZ BANK AG

The expansion in retail sales is also not impressive when one considers that they were more or less stagnant a few years ago; as in previous years, increased high-street sales are being squeezed by the rapid growth in e-commerce. With annual growth of around 10 per cent, online sales are likely to top EUR 45bn this year. At first glance, the share of less than a tenth of total retail sales might be viewed as less significant, but in actual fact strong online growth means that sales growth in local shops only amounts to 1 per cent not 2 per cent. In view of the positive conditions enjoyed by retailers at present, this is not much.

Retail: Comparison of top locations Retailers in top locations not only benefit fully from the favourable economic environ-ment, but also from other additional advantages. Large cities in which many jobs are created act as drivers of economic growth. Combined with the preference for city-living shared by many people despite the higher living costs, this is generating rapid population growth. In the seven cities alone, the number of inhabitants increased by around 800,000 people or 9 per cent from 1995 to 2015. However, the positive trend in the population has not been linear and has accelerated significantly in the recent past, in particular. Accordingly, more than two thirds of the population growth is attributable to the last five of the past 20 years. Consequently, the number of inhabitants in the top locations has increased by around 1.2 per cent per year on average during these five years. This alone has resulted in noticeably higher sales in the retail sector. Since the expansion of the large cities is continuing, retailers based there are also likely to benefit from this effect over the next few years.

400410420430440450460470480490500

-5-4-3-2-1012345

2000 2002 2004 2006 2008 2010 2012 2014 2016e

yoy in % (lhs) in EUR bn (rhs)

retail sales excl. VAT, vehicle sales, service station sales, fueland pharmacy sales

0

2

4

6

8

10

12

380

400

420

440

460

480

500

2000 2002 2004 2006 2008 2010 2012 2014 2016ee-commerce sales in EUR bn (lhs)retail sales in stores in EUR bn (lhs)e-commerce in % of total retail sales (rhs)

The HDE expects growth in sales of 2 per cent in 2016

The marked expansion in e-commerce does not leave much for the high street

Rapid population growth in the last five years


17

WITHIN 20 YEARS, THE NUMBER OF PURCHASERS HAS ALSO RISEN SHARPLY IN LINE WITH POPULATION GROWTH

THE TOP LOCATIONS ARE BENEFITING GREATLY FROM BOOMING CITY TOURISM

Source: Feri Source: BulwienGesa, statistical offices of the cities (2015)

Customer potential at the top locations has also benefited from growing visitor numbers. The increase overnight stays is by far most marked in Berlin: after 7.5 million visitors stayed overnight in 1995, the figure rose to just over 30 million in 2015. This corresponds to growth of around 300 per cent. Admittedly, the increase is less dramatic at the other top locations; however, here too, the rates of increase are considerable, ranging from around 100 per cent in Dusseldorf to just over 200 per cent in Hamburg. This is good news for the city centre retailers that are the focus in this analysis, because this is where visitors generally shop.

Even rapidly expanding e-commerce, which has seen its market share increase con-tinuously, is not a problem for retailers in city centre A1 locations. Rather it offers chain stores and brands the opportunity to combine in-store browsing with shopping online at home: products can be ideally “staged” in attractive stores, while user-friendly online shops score highly with a wide range, the fact that they can be visited at any time from anywhere and the comprehensive product information they provide.

The upward trend in retail sales in A1 sites in top locations now dates back 20 years. Essentially, the trend is based on three factors: first, the upturn in the seven top locations overall, second the increased attractiveness of city centre shopping areas, thanks to successful architecture and the range of places to eat and drink, and third, Germany’s economic success, which has also boosted its profile outside Germany. This has generated interest among national and international retailers, whose products have added to the appeal of city centres.

With these tail winds, prime rents have headed almost continuously in just one direction: up. As a result, the rent level has almost doubled within 20 years. At the same time, the lead enjoyed by the top locations with their unique mix of appealing factors over other large cities is massive. For instance, prime rents in regional centres – often described as B or C locations – have only increased by around one quarter in this period.

90

95

100

105

110

115

120

Berlin Cologne Dussel-dorf

Frank-furt

Ham-burg

Munich Stutt-gart

1995 2000 2005 2010 2015

population 1995 = 100

growth from 1995 to 2015 in thousand inhabitants

195 38 88 141 210 51860

4

8

12

16

20

24

28

32


Frank-furt

Ham-burg

Munich Stutt-gart

1995 2000 2005 2010 2015

overnight stays in million

growth from1995 to 2015

302%

104%

165%

204%130%

132%128%

City tourism is booming, especially in Berlin

Retailers in city centres often benefit from the internet

Retail sales in A1 sites in top locations have been trending upwards for 20 years …

… which means that prime rents have almost doubled in this period


18

RETAIL SECTOR: PRIME RENTS IN THE TOP LOCATIONS HAVE ALMOST DOUBLED WITHIN 20 YEARS

HOWEVER, THE UPWARD TREND IN PRIME RENTS HAS SLACKENED

Source: BulwienGesa, DZ BANK AG forecast Source: BulwienGesa, DZ BANK AG forecast Top-7: Index of top locations Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart Regional-12: Index of regional centres Augsburg, Bremen, Darmstadt, Dresden, Essen, Hanover, Karlsruhe, Leipzig, Mainz, Mannheim, Münster and Nuremberg

The upward trend in rents has accelerated dramatically in recent years, in particular, with Berlin’s phoenix-like ascent playing a considerable role here. Having been rather a problem case, Berlin has muscled its way into the top league of major European cities. As a result, retail space has become considerably more expensive in a few years, which has raised the average of top locations significantly. The other cities have also contributed greatly to the upward trend in rents. Five years ago, it was still remarkable that Munich’s prime locations had topped EUR 300 per sqm. Today, this prime rent only equates to the average rent payable in top locations, which has in-creased by 20 per cent in this period – from EUR 250 per sqm. However, this 20 per cent increase in rent coincides with growth in retail sales of only half this rate. High-street sales only managed an increase of 6 per cent.

Growth in retail sales in A1 locations is also likely to have outperformed sales growth in less favoured locations, which would justify a disproportionate increase in rents. However, prime rents in top locations had previously risen sharply. City centre retail concepts are therefore likely to be gradually reaching the limits of their economic viability. This assumption is underlined by the visible slowdown in the rent increase in recent quarters. Apart from rent increases in Berlin and Stuttgart, prime rents in top locations have been stagnant since the fourth quarter of 2015. This might indeed only be a respite in a continuing upward trend, but we think, that the rent level reached has come relatively close to the “end of the road”. We no longer expect any dramatic increases in the period covered by our forecasts up to the end of 2017.

However, the chart overleaf not only illustrates the slowdown in the upward trend in rents, it also shows the shift in the rankings of the top locations in terms of prime rents, which has applied for many years. Both the real estate market’s star performer, namely Berlin, and the established shopping centre, Dusseldorf, have climbed a few places. While Dusseldorf overtook Cologne and Stuttgart some time ago, Berlin only succeeded in pushing the “perennial No. 2” Frankfurt behind Munich into third place this year.

80100120140160180200220240260280300320

1997 2001 2005 2009 2013 2017eTop-7 Regional-12

retail prime rent in EUR per sqm

-8

-6

-4

-2

0

2

4

6

8

10

12

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017e

Top-7 Regional-12

retail prime rent yoy in %

Average prime rent reaches EUR 300 per sqm

Are retail concepts in A1 locations gradually reaching the limits of economic viability?

Berlin moves up the ratings: measured by prime rents, Frankfurt falls back to third place


19

However, it is not only the upward trend in prime rents that has ground to a halt. The longstanding expansion in per capita retail space over many years has also slowed significantly. This is initially surprising given the very large number of project developments in A1 locations and a whole series of inner-city shopping centres which have been constructed in the recent past. However, the number of inhabitants is growing rapidly and consequently reducing the growth in per capita retail space. In addition, this figure takes total retail space across all sites at the respective locations into account, which makes it less meaningful.

Growth in per capita retail space has slowed significantly

IS THE UPWARD TREND IN PRIME RENTS COMING TO AN END? DESPITE OPTIMAL CONDITIONS, RENTS ARE STAGNANT BEYOND THE SPRUCED-UP SHOPPING AREAS

Source: BulwienGesa Source: BulwienGesa, DZ BANK AG

Prime rents in Berlin have increased by almost 70 per cent over ten years – from 2005 to 2015 – more than twice as much as in Stuttgart. In Hamburg, Dusseldorf and Frankfurt, they have risen by approximately 50 per cent. At less than 40 per cent, the increases have been somewhat more moderate in Cologne and Munich.

Halfway through 2016, prime rents currently range from EUR 250 in Cologne and Stuttgart to EUR 340 in Munich. At EUR 270 and EUR 285 respectively, Dusseldorf and Hamburg are just below the average for top locations of around EUR 300 per sqm. Frankfurt’s prime rents equal the market average, while Berlin is somewhat more expensive at EUR 310 per sqm.

BERLIN’S PRIME RENTS HAVE RISEN MOST RAPIDLY IN 2017, PRIME RENTS AT 4 OF THE 7 TOP LOCATIONS COULD EXCEED EUR 300 PER SQM

5

Source: BulwienGesa Source: BulwienGesa, DZ BANK AG

175

200

225

250

275

300

325

350

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart


0

5

10

15

20

25

30

1997 2001 2005 2009 2013 2017e

Top-7 Regional-12

retail rent peripheral location in EUR per sqm

32 3539

4650 50

69

52

Stutt-gart

Cologne Munich Ham-burg

Dussel-dorf

Frank-furt

Berlin Top-7

growth of the retail prime rent from 2005 to 2015 in %

320

255270

305

285

350

250

303

200

220

240

260

280

300

320

340

360


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

2012 2013 2014 2015 2016e 2017e


Prime rents have risen by 30 to 70 per cent in 10 years

A presence in A1 sites in top locations will cost at least EUR 250 per sqm


20

The development has also had a positive effect on sales floor productivity – measured as sales per sqm – which is increasing slightly once more, having fallen for many years. It is, however, well down on the high level of the past. Even if things look better in city centre locations than in the locations as a whole, the trend still makes clear that the scope for further growth in rents in the retail sector is limited.

INCREASE IN PER CAPITA RETAIL SPACE HAS STOPPED SALES FLOOR PRODUCTIVITY CONTINUES TO GROW IN THE TOP LO-CATIONS

Source: Feri N.B.: gap between bars 3 years in each case Source: Feri in 2000 prices

The purchasing power and centrality indicators show the usual picture. Purchasing power is above average – with the exception of Berlin. Munich towers over the other cities and is well ahead of number two Dusseldorf. In the case of the second key retail figure, centrality, the figures are relatively close. All locations out-perform the national average, which is not surprising given the attractiveness of the shopping locations. Here also, Berlin has the lowest score. In contrast, the city offering the high-est degree of centrality is Cologne, although the gap in relation to the number two and three – Stuttgart and Dusseldorf – is small.

APART FROM BERLIN, THE TOP LOCATIONS BENEFIT FROM HIGH PURCHASING POWER

IN TERMS OF CENTRALITY, THE DIFFERENCES BETWEEN THE SEVEN TOP LOCATIONS ARE SMALL

Source: BulwienGesa Source: BulwienGesa

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

retail space per capita in sqm

1994

2015

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

5,000

1992 1996 2000 2004 2008 2012 2016e

retail sales in EUR per sqm(average of top locations)

80

90

100

110

120

130

140

Berlin Cologne Ham-burg

Stutt-gart

Frank-furt

Dussel-dorf

Munich

purchasing power federal average

80

90

100

110

120

130

140

Berlin Frank-furt

Ham-burg

Munich Dussel-dorf

Stutt-gart

Cologne

retail centrality federal average

Sales floor productivity is edging up once more

Top locations score well in terms of purchasing power


21

European retail – comparison of top locations A European comparison shows that prime rents in top German locations are only roughly in line with the average. In the light of the positive performance, they might have been expected to do better. The discrepancy can be explained by the relatively substantial average figure of EUR 330 per sqm, which is boosted significantly by the three most expensive European shopping locations: London, Paris and Zurich. If instead, we consider the median, i.e. the rent which divides the cities into two groups of equal size, which is around EUR 100 less, then the figure shifts in the anticipated direction: the top German locations are definitely in the “more expensive” half. In any comparison with other European countries, account should also be taken of the fact that they often have only one city that functions as an outstanding and correspondingly expensive real estate location whereas Germany has several strong locations, which have to share the comparatively small premium segment of the real estate market.

PRIME RETAIL RENTS IN EUROPE: FIGURES FOR GERMAN CITIES ARE AVERAGE

Source: CBRE, own calculations As at: Q2/2015

0

200

400

600

800

1,000

1,200

average


Top German locations are on the “expensive” side compared with other European cities


22

Berlin: retail space

PRIME RETAIL RENTS IN EURO PER SQM PER CAPITA RETAIL SPACE IN SQM

Source: BulwienGesa, Feri, DZ BANK AG forecast Source: Feri

Berlin has undergone an outstanding development as a shopping location, which has boosted interest among investors and retailers significantly. This is also illustrated by the sharp rise in prime rents. With an increase in rents of over 40 per cent within five years, Berlin has worked its way into the leading group of top locations. Prime rents currently stand at EUR 310 per sqm, making only Munich more expensive. This reflects a number of factors: Germany’s economic strength has attracted greater international attention for Germany’s capital than was the case in the past. In addition, there is the size, importance and international character of the market in the city of 3.5 million inhabitants – by far the largest city in Germany. Berlin therefore offers the right conditions for market-testing new retail concepts and is consequently predestined as the first location for market entry by foreign retailers on the German market. The downside of its persistent economic problems is gradually becoming less significant thanks to gratifying economic growth, although the purchasing power of Berlin’s residents is still far lower than that of the other top locations. Demand among retailers for A1 locations is so great that Berlin is probably the only top location which might still report rents rising significantly in 2016. Thereafter, the upward trend in rents is likely to level off even in Berlin. Demand for Hackescher Markt, which scores highly with its range of places to eat and cultural activities and will continue to develop into an A1 location, remains high. However, the highest rents for retail space are generated in Tauentzienstrasse off Ku’damm.

RETAIL SPACE IN BERLIN

2014 2015 2016e 2017e

Demand

Per capita disp. income EUR per year 17,556 17,549 17,623 17,741

Unemployment rate (BA) % 11.1 10.7 10.4 10.9

Retail sales EUR bn / % yoy 14.4 / 2.9 14.7 / 1.9 14.9 / 1.4 15.1 / 1.4

Retail sales EUR per capita 4,190 4,214 4,244 4,281

Supply

Total retail space million sqm 6.2 6.3 6.5 6.6

Total retail space % yoy 2.7 1.7 2.2 2.0

Retail rents

Prime rents/location EUR/sqm 290 / 14.0 300 / 14.5 315 / 14.5 320 / 14.5

Prime rents/location % yoy 7.4 / 0.0 3.4 / 3.6 5.0 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK AG forecast

50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

Top-7Regional-12Berlin

1,0

1,2

1,4

1,6

1,8

2,0

2,2

2,4

2002 2005 2008 2011 2014 2017e

Berlin Top-7 Regional-12

Berlin has worked its way into the leading group of top shopping locations

Among the top locations, Berlin, in particular, still has a chance of further growth in rents in 2016


23

Cologne: retail space



The city of Cologne, which has a population of one million, is the second shopping location in western Germany of international significance. Its focus is concentrated on the mainstream consumer. This is particularly true of Schildergasse, where almost 90 per cent of the stores are chain stores, which attract substantial footfall. Cologne also has attractive, hip locations, which stand out from the typical mix of retailers in A1 locations. By contrast, the luxury segment – concentrated in the Domkloster/Wallraffplatz area – is less heavily represented, unlike Dusseldorf. Here, however, Cologne may move upmarket in the next few years thanks to the redevelopment of the former Dom Hotel as a luxury location, which has just started. There are also plans to upgrade the buildings around the cathedral and the main rail-way station. Breslauer Platz, which is located on the side of the main railway station away from the cathedral, is also to be redeveloped. Cologne remains highly attractive to retailers due in part to its three-million strong conurbation and the highest level of centrality among the top locations. It does not score so highly in terms of Cologne residents’ purchasing power, but this is boosted by large numbers of tourists and trade fair visitors. Cologne’s advantages include the inner-city locations with the three-kilometre long shopping trail in A1 locations and the fact that it is an attractive place to stay. At 11 per cent, prime rents have risen more slowly than in other top locations in the last five years. This is likely to be linked to the comparatively good supply of space in sought-after locations and the city’s proximity to Dusseldorf. For the period covered by the forecast up to 2017, we expect prime rents to trend sideways mainly.

RETAIL SPACE IN COLOGNE

2014 2015 2016e 2017e

Demand





Supply



Retail rents




50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

CologneTop-7Regional-12

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2002 2005 2008 2011 2014 2017e

Cologne Top-7 Regional-12

“Mainstream-consumer oriented” shopping location in the West

Prime rents likely to remain stable


24

Dusseldorf: retail space



Dusseldorf is a sought-after retail location for retailers: one reason is the large catch-ment area of two million inhabitants in the Rhine-Ruhr region with a per capita retail purchasing power of over EUR 7,400 per year, which is only outclassed by Munich. The luxury shopping street “Kö” also has an international reputation. The location’s strength is underscored by the fact that inner-city retail space accounts for almost 40 per cent of the total retail space. Dusseldorf city centre is also being upgraded with a series of urban development measures as well as both the develop-ment of new retail properties and the renovation of existing ones. The latter include the Kö-Galerie, the Sevens and the Kö-Karree, while the Kö-Bogen designed by Daniel Libeskind, which was opened at the end of 2013, is a new development. Additional attractive retail space is also to be added over the next few years with the planned Kö-Bogen II. The project has been delayed by discussions about the devel-opment, which have not concluded so far. Work started on demolishing the old development in the summer but while the future of the Kö-Bogen II remains unclear, the transformation of Schadowstrasse as a pedestrianized area is also dragging on. The fact that the A1 retail location has been connected to the U-Bahn network via the Wehrhahn line since spring 2016 is positive. The positive development of Dusseldorf city centre overall has helped rents to rise by 25 per cent within five years to the current level of EUR 270 per square metre. However, they are not likely to rise further in the period covered by the forecast because of the ongoing problems caused by building works.

RETAIL SPACE IN DUSSELDORF

2014 2015 2016e 2017e

Demand





Supply



Retail rents




50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

DusseldorfTop-7Regional-12

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2002 2005 2008 2011 2014 2017e

Dusseldorf Top-7 Regional-12

The upgrading of Dusseldorf’s urban fabric is ongoing

Having grown rapidly, prime rents are likely to trend sideways


25

Frankfurt: retail space


Source: BulwienGesa, Feri, DZ BANK AG forecast Source: Feri Frankfurt is one of the strongest locations in the German retail sector: the catchment area in the flourishing Rhine-Main area comprises some 2.3 million people, who often have considerable purchasing power. The sustained growth of the city and the sur-rounding area is also evidenced by the increase in the figures for inhabitants, people in gainful employment as well as for visitors from Germany and abroad. Its attractive-ness is such that interest in city centre retail space is steady. The newest shopping centre, the Skyline Plaza close to the exhibition centre, which was opened in 2013, was rapidly absorbed by the market. However, footfall in its third year is still not what had been hoped. There are also signs that prime rents, which increased by 20 per cent to EUR 300 within five years, are reaching saturation point. Furhtermore, Frankfurt has lost its number two ranking among the most expensive German retail locations to Berlin. At present, city centre projects are concentrated on Zeil and Goethestrasse. The largest project on Frankfurt’s shopping mile is the recently started demolition of the Zeilgalerie, which is to be replaced by a new building by 2018. This will allow Kauf-hof, which is adjacent to the left-hand side and will use all the floors above ground floor, to expand its floor space by almost 11,000 sqm. The A1 locations will also be extended somewhat. Following the extension of the Goethestrasse luxury location to-wards Goetheplatz through One GoethePlaza at the end of 2013, the appearance of Neue Rothhofstrasse, which runs parallel to it, has been significantly improved through the recently opened ma’ro, situation in the direction of Alte Oper. The Hessen-Center on the eastern edge of the city is also to be extended and modernised. While retail space increases, growth in prime rents is, however, likely to be largely exhausted.

RETAIL SPACE IN FRANKFURT

2014 2015 2016e 2017e

Demand





Supply



Retail rents




50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

Top-7Regional-12Frankfurt

1,0

1,2

1,4

1,6

1,8

2,0

2,2

2,4

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Frankfurt

Frankfurt is expanding and proving equally attractive to retailers and investors

Growth in prime rents is largely exhausted


26

Hamburg: retail space



Hamburg is the leading shopping location in northern Germany. It is helped by both sound economic growth and a rapid expansion in the number of tourists. In addition to city tourists, many cruise passengers – the third cruise terminal was opened in 2015 – visit Hamburg. The city’s large catchment area is also a significant factor in high consumer demand because, with regard to the number of consumers, its population of 1.8 million more than doubles the population of Germany’s second larg-est city. Another plus point is Hamburg’s broad offer, which ranges from classic shop-ping locations, such as Spitalerstrasse, to the ultra-luxury end of the spectrum such as Neuer Wall. However, Hamburg still has some catching up to do in terms of available inner-city space, which only accounts for around a seventh of total retail space in the Hanseatic city. However, retail space is being extended through various development projects, some of which will expand the borders of A1 locations. One example of this is the shopping mall PERLE Hamburg, which opened in May. The projects, with which new space will be marketed over the next few years, include Alter Wall, Stadthöfe and Jungfernstieg 22. However, the planned shopping centre in HafenCity extend the total sales area by a noticeable amount. A property containing 200 shops providing 80,000 sqm of retail space is to be constructed in the southern section of the Überseequartier by 2021. This equates to almost a quarter of the inner-city retail space. Prime rents in Hamburg have risen to EUR 285 per sqm. In the light of this level and the new space being created, prime rents are mainly expected to remain stable in the period covered by the forecast.

RETAIL SPACE IN HAMBURG

2014 2015 2016e 2017e

Demand





Supply



Retail rents


Prime rents/location % yoy


50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

Top-7Regional-12Hamburg

1,0

1,2

1,4

1,6

1,8

2,0

2,2

2,4

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Hamburg

Impressive shopping location in northern Germany

Having risen to EUR 285 per sqm, prime rents are likely to stagnate for now


27

RETAIL SPACE IN MUNICH

2014 2015 2016e 2017e

Demand





Supply



Retail rents




Munich: retail space



Munich remains Germany’s leading shopping destination. Kaufingerstrasse often emerges as the winner among German shopping areas in the regular surveys of foot-fall. It also wins in terms of sales floor productivity and purchasing power. At almost EUR 8,000 per year, per capita retail purchasing power exceeds the other top locations by 7 to 27 per cent. And the catchment area includes a further 1.6 million people living in the prosperous surrounding area in addition to 1.4 million people living in Munich. The city is also visited by large numbers of business travellers and city tourists; these include a not inconsiderable number of Arabs, for whom Munich ranks as one of their preferred shopping destinations. However, Munich is also attractive as a shopping city because it is a very pleasant place to stay and offers a very diverse range of goods. In addition to the usual range of mainstream consumer and luxury stores, Munich has a large number of local shops. Accordingly, the per-centage of chain stores in inner-city locations is comparatively low. The sum of these factors is reflected in the highest prime rents in the German retail sector of EUR 340 per sqm at present. Space from new developments is usually absorbed immediately by the market. It is therefore not surprising that the development project pipeline is well-stocked. The largest project of relevance to the retail sector is the construction of the new main railway station, which will not be completed for many years. Given the high level of prime rents, any additional headroom is low. We expect minor increases at most.

50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

Munich Top-7 Regional-121.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2002 2005 2008 2011 2014 2017e

Munich Top-7 Regional-12

Munich remains Germany’s leading shopping destination

The headroom for prime rents is low at best


28

Stuttgart: retail space



Retail activity in Germany’s sixth largest city benefits from a population of 2.7 million and an economically strong hinterland, from fairly high purchasing power and above-average centrality. As in Munich and Cologne, the proportion of chain stores is also slightly less in Stuttgart, which has a positive impact on the diversity of shops. Thanks to its strength as a location, the Stuttgart retail sector coped well with the almost simultaneous opening of the two large inner-city shopping centres MILANEO and GERBER comprising a total of around 60,000 sqm of retail space in autumn 2014. This is reflected in the trend in prime rents, which rose from EUR 235 per sqm in the third quarter of 2014 to EUR 250 in mid-2016. The imminent opening of the Dorotheen-Quartier comprising an additional 10,000 sqm of retail space by fashion retailer Breuninger, which will probably take place in spring 2017, is therefore not likely to constitute a stress test for the retail sector either. The next big shopping project in Stuttgart will probably be completed in autumn next year with the opening of the former Karstadt branch in Königstrasse. The Irish fashion chain Primark has already rented almost half the 17,000 sqm sales floor space, which will then give it two branches in Stuttgart. In view of the current level and continuing growth in retail space, prime rents are likely to remain stable until the end of the forecast period.

RETAIL SPACE IN STUTTGART

2014 2015 2016e 2017e

Demand





Supply



Retail rents




50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017e

Top-7Regional-12Stuttgart

1,0

1,2

1,4

1,6

1,8

2,0

2,2

2,4

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Stuttgart

Attractive shopping location in economically strong region

Continuing growth in retail space is keeping prime rents stable

Retail sector coped well with the simultaneous opening of GERBER and MILANEO, which indicates the strength of the location


29

OFFICE SPACE

Market development, trend and outlook Office markets in the top locations – especially in Dusseldorf and Frankfurt – were characterised by substantial vacancies until a few years ago. Because a considerable proportion of these, particularly in older properties, no longer met tenants’ requirements, there was a push to convert them into housing. These measures bene-fited from the sharp rise in residential rents, which consequently overtook office rents in peripheral locations. This picture has, however, changed fundamentally in the mean-time: as a result of repurposing into residential space and strong demand for office space, the amount of vacant office space has thinned dramatically, especially as there is still the problem that only modest amounts of new office space are being constructed.

But while there are still reserves in Dusseldorf, Frankfurt, Hamburg and Cologne, which have vacancy rates of between 6 and 10 per cent, the situation in Berlin, Munich and Stuttgart is already far tighter: here, it is not just flats but also office space that have become a scarce commodity; with vacancy rates of less than 4 per cent. Admittedly, it is theoretically possible – see the illustration on page 9 – to accommodate a few thousand additional workplaces in the offices that are still vacant. However, that does not help the companies that cannot find any office space which meets their requirements in terms of size, location, equipment and rent. This could cause the gratifying economic growth which has led to the reduction in vacancies to stutter, as it is an increasing locational disadvantage if companies as well as their employees have difficulty in finding suitable premises in which to live and work.

OFFICE SPACE IS GRADUALLY BECOMING SCARCE IN TOP LOCATIONS

EMPLOYMENT IN GERMANY IS STILL TRENDING UPWARDS

Source: BulwienGesa Source: Federal Employment Agency

The solid economic situation is faced with one new crisis after another The developments described above are not likely to change much in the near future. Firstly, there is still the problem that only moderate amounts of new office space are being constructed. Secondly, economic growth is robust, which militates in favour of more jobs being created. This development should, however, not be extrapolated thoughtlessly: the risks to the economy have increased because of a series of international crises. These include fears about the Chinese economy, Islamist terrorism and the crisis in Ukraine. Another set of problems was opened with the British voters’ decision to opt for Brexit. There are also political tensions with Turkey, which is a key trading partner.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

20032004200520062007200820092010201120122013201420152016

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart

vacant office space in '000 sqm

5

6

7

8

9

10

11

12

13

36

37

38

39

40

41

42

43

44

1995 2000 2005 2010 2015employees in million (lhs) unemployment rate in % (rhs)

Office space is gradually becoming scarce in top locations

A lack of housing and office space can become a locational disadvantage


30

This is also reflected in the surveys of financial experts carried out by the ZEW, which view the economic situation as being relatively good. However, expectations regarding the economy are far less encouraging, although they have recovered from the dramatic slump into negative territory following the Brexit vote. The level is, however, comparatively low as the figure is only just positive. There is a similar picture when it comes to the monthly statistics on the business climate collected by the ifo Institute. By and large, the index remains very stable but the gap in the components is getting larger because of falling expectations and an improvement in the business situation.

ZEW INDEX: WHILE THE ECONOMIC SITUATION IS VIEWED FAIRLY POSITIVELY, EXPECTATIONS ARE NOT SO GOOD

IFO INDEX BUSINESS SENTIMENT HAS DETERIORATED NOTICEABLY RECENTLY

Source: ZEW Source: ifo Institute

Offices: Comparison of top locations Robust economic growth and strong demand for staff is flanked by good locational conditions for companies in the major cities. The sustained gratifying growth in the office markets of the seven cities is attributable to these factors. Their advantages include first-class connections by road, rail and air, good access to specialist staff in conurbations and, of course, large office markets. Above all, these cities offer large, attractive office space – thanks in some cases to speculative office development projects. However, this factor is slowly disappearing as vacancies are reduced.

TAKE-UP AT THE TOP LOCATIONS: 2016 HAS AN EXCELLENT CHANCE OF BECOMING THE BEST YEAR TO DATE

NEW SPACE ON THE MARKET: CONSTRUCTION OF NEW OFFICE SPACE IS NOT REALLY GAINING MOMENTUM

Source: BulwienGesa, DZ BANK AG Source: BulwienGesa, DZ BANK AG

-100

-80

-60

-40

-20

0

20

40

60

80

100

2000 2002 2004 2006 2008 2010 2012 2014 2016economic sentiment economic situation 75

85

95

105

115

125

2000 2002 2004 2006 2008 2010 2012 2014 2016

business expectationsbusiness climatebusiness contitions

indices 2005 = 100

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1992 1997 2002 2007 2012 2017eoffice space take-up average (1992-2015)

office space in '000 sqmforecast

0

500

1,000

1,500

2,000

2,500

1992 1997 2002 2007 2012 2017enew office space average (1992-2015)

in '000 sqm

forecast

However, the current situation is viewed as relatively good overall

Top locations are particularly attractive for companies


31

The substantial take-up of around 1.6 million sqm in the first half of 2016 – 20 per cent above the average since 2010, growth of over 10 per cent year on year – could make 2016 the most successful year on the office market to date. If demand for space is maintained at this high level, combined with the fact that take-up is usually higher in the second half, cumulative take-up of 3.5 million sqm is achievable. This would even exceed the previous record years of 2000, 2006 and 2015 with a take-up ranging 3.2 to 3.4 million sqm. In particular, the office markets in the established economic driver Munich, the rising star Berlin and Cologne, where the office market is normally quieter, contributed significantly to the excellent half-year result.

In contrast to the above-average take-up, new office space on the market still lags behind the longstanding average. Although the supply of vacant space is falling as a result of strong demand for office space and rents are rising, construction of new offices is not really gaining momentum. Although new office space on the market increased in recent years, a high level has not yet been achieved and next year, it looks as though there may again be somewhat less new space on the market. Consequently, there is likely to be another reduction in vacancies and the increasing lack of supply in some locations will intensify.

PRIME RENTS: APPROACHING THE MAXIMUM OF THE DOT-COM ERA ONCE MORE

THE “WILD YEARS” ARE OVER – INSTEAD OF FLUCTUATING WILDLY, RENTS ARE TRENDING UPWARDS AT A MODERATE RATE

Source: BulwienGesa, DZ BANK AG forecast Source: BulwienGesa, DZ BANK AG forecast

As a result of strong demand for office space and the ever diminishing supply, rents in the top locations are trending upwards, just as they are in the regional centres. Consequently, average prime rents in top locations are gradually approaching the level of the dot-com-boom. Currently, however, average prime rents, at EUR 27 per sqm, are still a good 10 per cent below the not quite EUR 30 per sqm they reached in 2001. Unlike earlier years, the trend in rents is far less volatile now. While substantial annual growth rates occurred at the end of the 1990s and, to a lesser extent, in the middle of the last decade, prime rents have been increasing far more moderately since 2011, at annual rates of between 2 and 4 per cent.

There seems to have been a sustained change in tenants’ behaviour. The exuberance, which led to rents for attractive office space rising sharply in previous years, has now been replaced with a more sober approach. If tenants have any doubts, they opt not to conclude a tenancy that is too expensive. They will opt instead to extend the existing tenancy agreement. This could prove advantageous if the current strong demand should diminish, as in the past a boom was often followed by disillusionment and rapidly falling office rents. If future corrections are less dramatic, the risk of

5

10

15

20

25

30

35

1997 2001 2005 2009 2013 2017e

Top-7 Regional-12

office prime rent in EUR per sqm

-16

-12

-8

-4

0

4

8

12

1997 2001 2005 2009 2013 2017e

Regional-12 Top-7

office prime rent yoy in %

2016 is heading towards record take-up

The persistent lack of new space on the market is reducing office space vacancies

Office rents continue to rise, but major fluctuations are passé

Tenants are apparently more cautious now


32

re-letting when tenancy agreements expire in less buoyant periods will therefore decrease.

PRIME RENTS RISING CONSISTENTLY BUT … … AT VERY DIFFERENT RATES

Source: BulwienGesa, DZ BANK AG forecast Source: BulwienGesa

In mid-2016, the range in prime rents extends from EUR 19.50 per sqm in Stuttgart to EUR 35.50 in Frankfurt. At the same time, there have been significant differences in the development of prime rents. The diagram above right illustrates the discrepancy. In the five years from the middle of 2011 to the middle of 2016, the increase ranges from 5 per cent in Cologne – with Hamburg and Frankfurt being only slightly above this figure – to 20 per cent in Munich and 24 per cent in Berlin. Dusseldorf and Stuttgart, at 14 and not quite 15 per cent respectively, more or less match the average growth in prime rents.

THE PROPORTION OF EMPTY OFFICE SPACE IS DECREASING CON-TINUOUSLY

SHORTAGE OF SPACE: IN BERLIN, MUNICH AND STUTTGART, VACAN-CIES HAVE FALLEN BELOW 4 PER CENT

Source: BulwienGesa, DZ BANK AG forecast Source: BulwienGesa, DZ BANK AG forecast

12

16

20

24

28

32

36

40


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

office prime rent in EUR per sqm from 2007 to 2017e

2007

2017e

5.06.4

7.6

14.0 14.7

19.8

23.9

14.4

Cologne Ham-burg

Frank-furt

Dussel-dorf

Stutt-gart

Munich Berlin Top-7

growth of the office prime rent in % from Q2/2011 to Q2/2016

0

2

4

6

8

10

12

1997 2001 2005 2009 2013 2017eTop-7 Regional-12

vacancy rate in %

0

2

4

6

8

10

12

14

16

18

20


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

vacancy rate in % (2005, 2007, 2009, 2011, 2013, 2015 and 2017e)

2005

2017e

In Berlin, prime rents have risen five times as fast as in Cologne since 2011

We have already explained the reduction in the supply of space. This is particularly true of Berlin, Munich and Stuttgart where vacancy rates are less than 4 per cent and trending downwards. However, at 5.5 per cent, the average level of vacancies in the top locations is not much higher either. Only Dusseldorf and Frankfurt still have relatively substantial stocks of vacant office space, with a proportion of vacant space of around 8 and 10 per cent respectively. Here too, however, the trend is downwards in view of rising employment figures and only moderate growth in new space. For

Vacancy rate has halved within 10 years


33

potential tenants on the office market, the search for suitable space will not get any easier in the foreseeable future. Rather the situation, which is already tight in some locations, is likely to become more difficult.

OFFICE EMPLOYMENT IS GROWING FAR MORE RAPIDLY THAN OF-FICE SPACE

OFFICE CONSTRUCTION LAGS BEHIND GROWTH IN EMPLOYMENT IN ALL LOCATIONS

Source: BulwienGesa, Feri, DZ BANK AG Source: BulwienGesa, Feri

Top locations in a European context

Given its economic strength and sound economic growth, German office rents are relatively modest. This is likely to be linked to the fact that Germany has several strong economic locations and the office market is not therefore concentrated in one dominant economic centre.

PRIME OFFICE RENTS IN EUROPE IN EUR PER SQM – TOP GERMAN LOCATIONS ARE AT MOST AVERAGE

Source: BNP PARIBAS Real Estate As at: Q4/2015

1,700

1,800

1,900

2,000

2,100

2,200

2,300

60

65

70

75

80

85

90

1997 2001 2005 2009 2013 2017e

office space in sqm m (lhs) office workers in thousand (rhs)

0

4

8

12

16

20

24


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

office space office workers

growht from 2005 to 2015 in %

0

20

40

60

80

100

120

140

160

average

office prime rent in EUR per sqm

German office rents are average by European standards


34

Berlin: office space

PRIME RENTS IN PER CENT COMPARED TO PREVIOUS YEAR VACANCY RATE IN PER CENT

Source: BulwienGesa, DZ BANK AG forecast Source: Feri, DZ BANK AG forecast

A few years ago, scarcely anybody would have believed Berlin would have a future as a dynamic business location. In fact, today, Berlin is a sought-after location for e-commerce providers and fintechs just as for established sectors. It is helped by the fact that Berlin is also a sought-after residential location, which in turn makes access to sought-after specialist staff easier. Newcomers are tempted by the Berlin “scene”, the huge range of cultural activities and the cost of living, which is still modest for a major city. The economic upturn is clearly apparent on the office market. Annual take-up has doubled within ten years to around 850,000 sqm last year. Dynamic market growth continued unabated in the first half of 2016: at 380,000 sqm let, the substantial figure from the first half of 2015 was exceeded by 15 per cent. Consequently, it is likely that this year too take-up of more than 800,000 sqm will be achieved. However, the shortage in supply could act as a brake. The vacancy rate fell to 3.4 per cent half way through the year thanks to strong demand for office space, having stood at almost 10 per cent in 2004. Although new construction has increased, it is not sufficient, so the downward trend is likely to continue. Prime rents have moved rapidly in the opposite direction. They could rise by 8 per cent this year to EUR 26 per sqm. If demand remains strong, even EUR 27 per sqm is possible next year.

OFFICE SPACE IN BERLIN

2014 2015 2016e 2017e

Demand

GDP % yoy 2.6 3.3 1.9 1.8

Per capita GDP EUR ‘000 32.1 32.8 33.2 33.6

Per capita GDP % yoy 1.2 2.0 1.2 1.2

No. of office workers % yoy 1.3 1.4 1.5 1.4

Supply

Total office space million sqm 18.7 18.9 19.1 19.2

Total office space % yoy 0.6 1.0 0.7 0.7

Vacancy rate % 5.0 3.8 3.4 3.2

Office rents

Prime rents/secondary location EUR/sqm 23.0 / 8.5 24.0 / 9.5 26.0 / 9.5 27.0 / 9.5

Prime rents/secondary location % yoy 2.2 / 7.6 4.3 / 11.8 8.3 / 0.0 3.8 / 0.0


-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Berlin2

3

4

5

6

7

8

9

10

11

12

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Berlin

The Berlin office market is booming

Shortage of supply and strong demand are pushing prime rents significantly higher


35

Cologne: office space

PRIME RENTS COMPARED TO PREVIOUS YEAR (IN PER CENT) VACANCY RATE (IN PER CENT)

Source BulwienGesa, DZ BANK AG forecast Source: Feri, DZ BANK AG forecast

For the Cologne office market, 2015 was a very good year. Take-up was around 10 per cent up on the ten-year average, at 285,000 sqm. The current year should be even better, as there is a good chance that it will exceed the existing maximum from 2006 when the take-up was 300,000 sqm. After all, rental agreements with a total volume of more than 190,000 sqm were already recorded in the first half-year, around 50 per cent more than normal. The main driving force was the agreement signed with Zurich Versicherung for 60,000 sqm in MesseCity. In addition, there were two large-scale transactions with the City of Cologne totalling 26,000 sqm. The second half of the year should also provide quite a high volume, as the transaction involves two contracts for the European headquarters of the owner of Kaufhof Hudson’s Bay for 38,000 sqm. Prime rents, which have stood at EUR 21 per sqm since 2013, will not benefit from these major transactions in owner-occupied properties. Instead the shortage of available space could have an impact. The vacancy rate for office space has also steadily declined in Cologne, and in the course of the year the rate has plummeted to less than 6 per cent. The decrease is likely to continue given the manageable amount of new space on the market. We therefore see scope for a slight increase in prime rents of around 1 per cent both by the end of the year and in the coming year.

OFFICE SPACE IN COLOGNE

2014 2015 2016e 2017e

Demand

GDP % yoy 2.4 0.3 1.6 1.8

Per capita GDP EUR '000 49.6 49.4 49.8 50.5

Per capita GDP % yoy 1.3 -0.4 1.0 1.3


Supply


Total office space % yoy -0.4 0.5 0.7 0.4

Vacancy rate % 7.1 6.0 5.7 5.5

Office rents

Prime rent/secondary locations EUR/sqm 21.0 / 8,1 21.0 / 8.0 21.2 / 8.0 21.4 / 8.0

Prime rent/secondary locations % yoy -0.5 / 1.3 0.0 / -1.2 1.0 / 0.0 0.9 / 0.0


-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Cologne2

4

6

8

10

12

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Cologne

Good opportunities for 2016 to be a record year on the Cologne office market

Vacancy rate plummets to less than 6 per cent


36

Dusseldorf: office space



Last year, the Dusseldorf office market picked up pace again perceptibly after the weak performance in 2014. The take-up was just under 420,000 sqm and 100,000 sqm higher than the 10-year average. This was helped by two major transactions, namely 28,000 sqm by Uniper – the company operating E.on’s conventional power station business – and 26,000 sqm by the hotel search engine Trivago. While the vacancy rate for office space has been steadily declining, the prime rent, which fell in 2014 to EUR 24 per sqm, failed to recover in 2015. This could happen in 2016, as the continuing positive demand for office space and the relatively small amount of space coming onto the market for the third year in succession means that the supply of attractive office space will gradually become scarcer. The vacancy rate should fall to around 8 per cent in the course of the year. The high market activity made it possible to achieve the best figure since 2010 in the first half of 2016 of almost 170,000 sqm, although no major transactions of more than 10,000 sqm were recorded. The largest space amounting to 8,000 sqm was leased by Douglas. By the middle of 2016, the prime rent was 2 per cent up on the year-end figure for 2015 at EUR 24.50 per sqm. A further increase is somewhat unlikely, though. On the one hand, the supply of space is still quite good and, on the other hand, no exclusive new construction projects are being marketed.

OFFICE SPACE IN DUSSELDORF

2014 2015 2016e 2017e

Demand

GDP % yoy 2.6 0.5 1.7 2.0


Per capita GDP % yoy 1.6 -0.5 1.1 1.6


Supply



Vacancy rate % 10.5 8.8 8.1 7.8

Office rents


Prime rent/secondary locations % yoy -4.0 / 2.2 0.0 / 5.3 2.1 / 0,0 2.0 / 0.0


-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Dusseldorf2

4

6

8

10

12

14

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Dusseldorf

Dusseldorf office market is back on growth course after weak performance in 2014


37

Frankfurt: office space



After two weak years, the most expensive German office market has gained momentum again. In the first half of this year, the highest take-up since 2011 was posted of just over 200,000 sqm. It included two major transactions in excess of 10,000 sqm, with the ECB leasing around 18,000 sqm and Commerzbank over 10,600 sqm. The finance sector is still the strongest industry in the financial hub, accounting for approximately one quarter of leased space, despite all the problems currently facing banks. Projected over the whole year, a take-up of 450,000 sqm is achievable, which would then be slightly higher than the ten-year average. Assuming the good demand situation continues, prime rents, which have largely remained unchanged for the last three years, could go up again. We are anticipating a rise of around 2 per cent to just under EUR 36 per sqm by the end of the year. The vacancy rate has fallen sharply in the last few years, which is due to only modest space expansion and the conversion of offices to flats, but the vacancy level should still remain in double digits in 2016. In future, the high vacancy rate could however prove to be a blessing, if London-based banks relocate their staff to the continent following the Brexit vote. Should expectations of an influx of bankers in the five-digit range be met, the vacancy rate will be further reduced, while prime rents could rise significantly.

OFFICE SPACE IN FRANKFURT

2014 2015 2016e 2017e

Demand

GDP % yoy 2.9 2.5 1.7 2.0




Supply


Total office space % yoy 0.8 -0.4 0.5 0.4

Vacancy rate % 12.1 11.3 10.4 9.5

Office rents

Prime rent/secondary locations EUR/sqm 35.0 / 9.4 35.5 / 9.5 36.2 / 9.5 38.0 / 9.5

Prime rent/secondary locations % yoy 0.0 / 0.0 1.4 / 1.1 2.0 / 0.0 5.0 / 0.0


-20

-15

-10

-5

0

5

10

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Frankfurt2

4

6

8

10

12

14

16

18

20

2002 2005 2008 2011 2014 2017e

Frankfurt Top-7 Regional-12

Brexit as an opportunity: will bankers actually move from London to Frankfurt in their tens of thousands?

Despite weakened banking sector, office market is back on the up


38

Hamburg: office space



Hamburg’s office market is characterised by its comparatively strong stability. This goes for both rental trends and rental performance. On average, a take-up of not quite 500,000 sqm is achieved each year without any notable fluctuation. However, the past two years have seen something of an improvement with a figure of 530,000 sqm or 530,000 sqm. This may also be the case in 2016, as the take-up in the first half of 2016 of 235,000 sqm equates to exactly the average of the two previous periods. Maybe the current year will be even better, as the ordinary half-yearly result was achieved without the help of major transactions in excess of 10,000 sqm. After a contract was signed by AXA just shy of this figure, several contracts in the range of 6,000 sqm were concluded, including TUI Cruises, Hanseatische Krankenkasse (HEK) and the Otto Group. Prime rents currently stand at EUR 25 per sqm. Cumulatively they have only risen by 6 per cent over five years. The reduction in vacant office space has also been slower than at other locations. These two factors can probably be attributed to the relatively high space expansion during the development of HafenCity. As the vacancy rate has now reached 5.5 per cent, space is now in shorter supply. We therefore expect an increase in rents in the current and coming year of a little more than 1 per cent. The vacancy rate should essentially remain stable.

OFFICE SPACE IN HAMBURG

2014 2015 2016e 2017e

Demand

GDP % yoy 1.0 1.8 2.7 2.0




Supply



Vacancy rate % 5.9 5.5 5.5 5.3

Office rents

Prime rent/secondary locations EUR/sqm 24.5 / 9.7 25.0 / 10,3 25.4 / 10.3 25.7 / 10.3

Prime rent/secondary locations % yoy 2.1 / 2.1 2.0 / 6.2 1.5 / 0.0 1.3 / 0.0


-18

-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Hamburg0

2

4

6

8

10

12

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Hamburg

Third-largest German office market in terms of space is characterised by its stability


39

Munich: office space



The dynamic Munich office market actually has a good chance of catching up with or even overtaking Frankfurt as the most expensive German office location, given its continuing positive development and the high demand for office space. With a take-up of around 330,000 sqm, a good 35 per cent above the average since 2010, the first quarter has once again underlined the upward trend. If this positive trend continues, the 700,000 sqm mark might be topped by the year-end for the second time. The transactions are equally balanced over industries and size categories. Prime rents rose to EUR 34.50 per sqm and are therefore only EUR 1 less than in Frankfurt. Two factors could stand in the way of Munich taking the number one spot. The first is Brexit, which could create a boom in Frankfurt, despite the ailing financial services industry. The second factor is the city’s own success, in that in mid-2016, the amount of vacant office space fell to a good 430,000 sqm, which is 3 per cent of the existing supply of office space. In 2010, the volume of vacant space was three times as high. This supply will make it more and more difficult to find large connected space that meets the requirements of prospective clients. The likelihood of transactions in the premium segment is therefore also decreasing. We assume that the vacancy rate will continue to fall. In terms of prime rents, we expect a modest year-on-year increase of 2 per cent in both 2016 and 2017.

OFFICE SPACE IN MUNICH

2014 2015 2016e 2017e

Demand

GDP % yoy 1.8 2.1 1.9 2.3




Supply



Vacancy rate % 5.6 3.8 2.8 2.5

Office rents


Prime rent/secondary locations % yoy 6.3 / 4,2 1.8 / 0.0 2.1 / 0.0 2.0 / 0.0


-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Munich0

2

4

6

8

10

12

2002 2005 2008 2011 2014 2017e

Top-7 Regional-12 Munich

High demand for office space leads to a shortage of supply


40

Stuttgart: office space



The second top location in the south of Germany cannot match Munich in terms of market size, take-up and prime rents, but there are certainly parallels. The Stuttgart office market has also been developing positively for years. Take-up has steadily increased. It has doubled within ten years to around 290,000 sqm last year,. Space is also in short supply in Stuttgart, and the vacancy rate is only minimally higher than in the Bavarian capital. As the existing supply is much smaller, the available space has been reduced to around 260,000 sqm. By way of comparison, in 2010 it was twice as high. This means that, like in Berlin and Munich, it is difficult for prospective tenants to find suitable office space. Contrary to the existing market trend in Stuttgart, the take-up in the first half-year has decreased when compared with 2015, to 110,000 sqm. This is only slightly less than the average since 2010, but represents a year-on-year decline by almost a quarter. The reason is not a shortage in demand, but rather the lack of major transactions as a volume driver. However, these transactions should come in the second half of the year, with almost 80,000 sqm due to be taken up by Daimler in the Vaihinger BüroCampus and 11,000 sqm by Südwestmetall. We assume that prime rents will increase by almost 2 per cent in both the current and coming year, if space continues to be in short supply. The vacancy rate might still fall slightly.

OFFICE SPACE IN STUTTGART

2014 2015 2016e 2017e

Demand

GDP % yoy 1.4 2.9 1.6 1.9




Supply



Vacancy rate % 4.3 3.7 3.2 3.0

Office rents

Prime rent/secondary locations EUR/sqm 19.0 / 8.7 19.3 / 8,7 19.7 / 8.7 20.0 / 8.7

Prime rent/secondary locations % yoy 1.6 / 0.0 1.6 / 0,0 1.8 / 0.0 1.8 / 0.0


-15

-12

-9

-6

-3

0

3

6

9

2002 2005 2008 2011 2014 2017e

Top-7

Regional-12

Stuttgart0

2

4

6

8

10

12

2002 2005 2008 2011 2014 2017e

Stuttgart Top-7 Regional-12

The comparatively low prime rents could increase a little by 2017

Office space also becoming scarce on Stuttgart office market


41

RESIDENTIAL PROPERTY

Housebuilding in Germany is now in full swing, with over 34,000 building permits issued in June. Projected over the year as a whole, this would amount to more than 400,000, i.e. the figure which is currently seen as the target required to meet demand on the housing market. However, completions are still lagging far behind: 248,000 flats were completed last year and it could rise to 270,000 this year, but this is still not enough, although at least it is going in the right direction. The same applies for all the top locations: in 2015 the number of building permits accumulating over the seven cities increased to just above 50,000, while the number of completions rose to around 35,000. This means that the number of building permits has doubled within five years. Completions have increased by around three-quarters.

THE NUMBER OF PERMITS FOR RESIDENTIAL CONSTRUCTION HAS INCREASED SIGNIFICANTLY ACROSS THE WHOLE OF GERMANY

BUILDING WORK IS TAKING PLACE ON A LARGE SCALE AT THE TOP LOCATIONS, BUT IT IS FAR FROM ENOUGH

Source: Federal Statistical Office Source: Feri, statistical offices of the cities and of the federal states

Complaints about the fraught situation on the housing markets of the major cities are not dying down. The fact remains that the housing markets of the fast-growing cities have been “cleaned out”, which is why rents are still rising significantly despite rent control. Ultimately, this is hardly surprising. First, a large demand gap has been created as a result of the low construction activity after the turn of the milennium and, second, the current construction figures are not even sufficient to cover current housing needs for the growing number of inhabitants. In Cologne, Dusseldorf and Hamburg, the number of residents has grown by 4-to-5 per cent, which is the slowest rate in the last five years. At the other end of the scale, in Frankfurt and Munich, the population increase is about twice that. Berlin and Stuttgart are in the middle, with a plus of 6-to-7 per cent. However, the actual demand for housing is much higher than the population growth, as the number of private households – the key demand parameter for homes – is growing disproportionately due to the trend towards fewer persons per household.

This problem is illustrated in the chart on the left overleaf: in the last ten years, the growing number of private households in all the top locations has exceeded the number of housing completions by two or three times. As a result, the housing markets of the top locations have had practically no more vacancies for quite some time now. The vacancy rates are mostly well below 1 per cent, and in Berlin the rate is still the highest at slightly above 1 per cent. This means that the high demand for housing has to be met through new builds, but this is not enough.

0

100

200

300

400

500

600

700

800

900

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016building permits 12 month average

in '000 dwelling units, annualised

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1995 2000 2005 2010 2015

dwelling permits dwelling completions

Housebuilding is in full swing, but it is still not enough

Housing shortage has built up over many years

Housing markets of top locations have virtually no spare vacancies


42

The high demand for housing and the continuing housing shortages are causing rents to rise further. However, high growth rates for residential rents of more than 6 per cent per year in some cases are a thing of the past. Currently housing rents at the top locations are increasing by around 3 per cent annually. Given the low inflation rate, which is only slightly above zero, this increase in rents is actually more substantial

Despite shortages and high demand, an acceleration of rent increases has failed to materialise

A LARGE DEMAND GAP HAS BUILT UP ON THE HOUSING MARKET AT ALL THE TOP LOCATIONS

THE NUMBERS OF COMPLETIONS ARE TOO LOW FOR THE FAST-GROWING CONURBATIONS

Source: Feri, statistical offices of the cities and of the federal states Source: Feri, statistical offices of the cities and of the federal states

In the recent past, population growth at the top locations was around 1.2 per cent per year on average. This is equivalent to an annual population growth of around 115,000 people, which means that approximately 58,000 homes are required based on two persons per household. If there are ten million inhabitants in the top locations, this equates to six flats per year per 1,000 inhabitants. In the fast-growing cities such as Munich it would be even more, whereas Dusseldorf could manage with slightly fewer new builds. The flats that are already lacking now would have to be added to this figure. However, the reality is far removed from these new build figures. On average, only approximately 3.5 flats are actually completed per 1,000 inhabitants at the top locations. Only Hamburg is in a relatively good position: the number of inhabitants is growing at a more moderate rate and housebuilding has been drastically stepped up. Last year, Hamburg was therefore a leader in housing construction, with almost five units per 1,000 inhabitants.

RESIDENTIAL RENTS CONTINUE TO RISE ... ... BUT THE RATE OF THE RENT GROWTH IS REASONABLE

Source: BulwienGesa, DZ BANK AG Source: BulwienGesa, DZ BANK AG

0

40,000

80,000

120,000

160,000

200,000

240,000


Frank-furt

Ham-burg

Munich Stutt-gart

growth of the number of private householdscumulative dwelling completions

from 2005 to 2015

0

1

2

3

4

5

6


Frank-furt

Ham-burg

Munich Stutt-gart

Top-7

2010 2011 2012 2013 2014 2015

dwelling completions per 1000 inhabitantsaverage from2010 to 2015

2,92,9

4,7

3,03,2

3,8

1,92,0

5

6

7

8

9

10

11

12

13

14

1997 2001 2005 2009 2013 2017eTop-7 Regional-12

average rent first occupation in EUR per sqm

-6

-4

-2

0

2

4

6

8

1997 2001 2005 2009 2013 2017eTop-7 Regional-12

average rent first occupation yoy in %

Only Hamburg’s housing construction rate comes close to meeting demand

Housing construction far from covers actual housing requirements


43

than the nominal growth rate makes it appear. However, would faster rental growth be plausible nevertheless in light of the tense market situation? In this connection, two dampening factors especially have to be considered. First, flats are generally being built to a high standard, so this market segment has a comparatively good supply. The most severe bottlenecks occur in the case of low-cost housing, which are only produced on a small scale. Second, households have to be able to afford the relatively high rents. In this respect the number of takers for the newly-built flats looked at here is limited by the budget restrictions of private households.

RESIDENTIAL RENTS AT THE TOP LOCATIONS HAVE BECOME MUCH MORE EXPENSIVE

Source: BulwienGesa

The shortage of housing unites the seven top locations. This is also reflected in the rental momentum. Apart from a somewhat slower rise in Cologne and Hamburg, housing rents rose by a good quarter within five years. In Cologne, the less pronounced gap between the growth in the number of private households and housebuilding has perhaps curbed the increase in rents, whereas in Hamburg the housebuilding boom and above all the disproportionately large increase in rents from 2006 to 2011 have seemingly led to the recent slowdown in rental growth. This sharp rental increase meant that the housing rents in Hamburg were a long way off the average of the top locations, but the flattening of rent prices that has been visible since 2012 has caused the gap to close again.

Lately the rate of rent growth has been divided: while the pattern of rental growth in Berlin, Cologne, Dusseldorf and Hamburg has remained flat, rents in Munich and Stuttgart, and recently also in Frankfurt, have been rising very rapidly. In Frankfurt and Munich the continuing strong influx of inhabitants should cause rents to rise quickly, but in Stuttgart a certain catch-up effect could contribute to rental growth. Presumably the tough negotiations over the new main railway station have in the meantime led to slower rental growth.

11.5 11.5 12.0 12.4 13.2 13.5 15.8 12.7

15.9 15.9 16.5 16.3

19.5 20.523.0

18.0

29

12

25 27

15

27 2723

Berlin Cologne Stuttgart Dusseldorf Hamburg Frankfurt Munich Top-7average rent first occupation in EUR per sqm maximum rent first occupatin in EUR per sqm average rent growth from 2010 to 2015 in %

Housing rents at the top locations rose by a quarter within five years

Currently rents are rising fastest in Frankfurt, Munich and Stuttgart


44

In terms of absolute rent, the picture is less homogenous than in the case of rent growth. In 2015, the average first occupancy rent in the top locations was not quite EUR 13 per sqm. In the prime segment, rents are EUR 5 per sqm more expensive. The four cities of Berlin, Cologne, Dusseldorf and Stuttgart are cheaper than the average with an average first occupancy rent of around EUR 12 per sqm – in the prime segment the figure is around EUR 16. In Frankfurt and Hamburg, the average first occupancy rent is higher than the comparative value over all seven cities by EUR 1 and even over EUR 2 in the prime market segment. As always, Munich falls well out of this range. In the Bavarian capital, rents cost around a quarter more than the average for the top locations. The average first occupancy rent is around EUR 16 per sqm, and in the prime segment it is even EUR 23.

How will rental trends on the housing markets in the top locations play out in the future? In all probability, the trend will probably continue as before, as the pattern of a housing shortage combined with high demand is unlikely to change. Moreover, a good number of the refugees who arrived in Germany in 2015 will move into normal flats and therefore the demand for housing at the top locations will probably get even stronger, if anything. This especially applies to the low-price market segment. In terms of the first occupancy of flats looked at here, we expect a more moderate rate of increase of around 2-to-3 per cent per year for the reasons already mentioned, i.e. budgetary restrictions of households and increasing housebuilding activities. Another factor is that the high rental level is also leading to knee-jerk reactions and the search for a flat is being extended to surrounding areas with good transport connections.

The government has recognised that the increasingly scarcer supply of affordable housing is a socially explosive issue, although its efforts to provide affordable housing will not have too much of an impact in the foreseeable future. The increased construction of low-cost flats is only progressing slowly, also because the actual support required is clear: the specifications for affordable new builds are mostly based on a mixed calculation where the non-regulated part of a building project has to subsidise the regulated part. These flats must therefore be sold at higher prices. However, the planned tax incentives for rental housing have been put on hold. Other measures such as rental control or environmental protection regulations are missing the point, as they deal with the effect of rental increases, but not the cause. In addition, the public sector itself is causing a housing shortage because it is making building more expensive. The low availability of building land is leading to high land prices. This

First occupancy rents should continue to rise at a moderate pace

Average first occupancy rent is around EUR 13 per sqm, and EUR 5 more expensive in the premium segment

Government has recognised the problem of expensive housing, but is not making any progress with finding a solution

RENTS ARE CONTINUING TO RISE STRONGLY IN FRANKFURT, MUNICH AND STUTTGART

Source: BulwienGesa

7

8

9

10

11

12

13

14

15

16

17

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

Berlin

Dusseldorf

Frankfurt

Hamburg

Cologne

Munich

Stuttgart

average rent first occupation in Euro per sqm


45

is combined with cost-driving requirements for parking spaces and energy-related measures as well as the sharp rise in land transfer tax. Hence, the state government of Baden-Württemberg is currently considering raising this revenue source from 5.0 per cent to 6.5 per cent.

FORECAST "HOUSING" UP TO 2017

Source: BA, BulwienGesa, Feri, DZ BANK AG forecast

Despite the sharp increase in rents in recent years and the large number of reports on the rent explosion and the displacement of the less well-off from the cities, citizens have to pay considerably more for housing in many large European cities.

DESPITE THE HIGH RENT INCREASES, IT IS POSSIBLE TO LIVE COMPARATIVELY CHEAPLY IN BIG GERMAN CITIES COMPARED WITH THE REST OF EUROPE

Source: www.numbeo.com

year Berlin CologneDussel-

dorfFrank-

furtHam-burg Munich

Stutt-gart Top-7

demandpopulation in thoausand 2015 3,485 1,047 607 725 1,770 1,439 616 9,6885-year change in % 2010-2015 6.7 5.0 4.0 9.6 4.2 8.4 6.2 6.3private households in thousand 2015 2,135 572 329 418 1,054 851 340 5,699unemployment rate in % 2015 10.7 9.4 8.5 6.8 7.4 4.9 5.5 8.4Disposable income per capita 2015 1,462 1,637 1,909 1,580 1,855 2,002 1,810.6 1,692supplyDwelling units in thousand 2015 1,927 539 334 378 920 778 305 5,182completions annually 2004-2014 1.4 2.9 1.8 3.7 2.4 5.2 2.5 2.6per 1000 inhabitants 2015 3.1 3.0 1.6 4.4 4.8 4.6 3.5 3.6rentaverage rent first occupancy 2015 11.5 11.5 12.4 13.5 13.2 15.8 12.0 12.7in Euro per sqm 2016e 11.8 11.8 12.6 14.0 13.4 16.8 12.8 13.1

2017e 12.1 12.1 12.8 15.0 13.6 17.3 13.3 13.52015 1.8 0.9 1.6 3.1 0.8 6.0 7.1 2.7

yoy change in % 2016e 2.6 2.6 1.6 4.0 1.5 6.3 6.7 3.42017e 2.5 2.5 1.6 6.8 1.5 3.0 3.9 2.8

5-year change in % 2010-2015 38.6 9.5 27.8 26.2 14.8 23.4 23.7 25.0maximum rent first occupancy 2015 15.6 15.5 16.0 20.0 19.2 22.5 16.0 17.7in Euro per sqm 2016e 15.9 15.9 16.3 20.5 19.5 23.0 16.5 18.0

2017e 16.2 16.2 16.6 21.5 19.8 23.5 17.0 18.42015 0.6 4.7 1.9 4.2 1.1 2.3 5.3 2.1

yoy change in % 2016e 1.9 2.6 1.9 2.5 1.6 2.2 3.1 2.12017e 1.9 1.9 1.8 4.9 1.5 2.2 3.0 2.2

5-year change in % 2010-2015 16.4 10.7 23.6 25.0 12.9 28.6 23.1 18.7

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000 monthly rent in EUR per sqm (3 bed room flat, city location)

average

Rental housing is often more expensive in other European countries


46

OVERVIEW OF FORECASTS

Structural data (as at 2015) Population in 1,000 Population2005-2015 (%)

GDPin EUR m

P.c. GDPin EUR

P.c. disposable income in EUR per year

Unemployment rate (%)

Berlin 3,485 8.4 114.2 32,764 17,549 10.7

Cologne 1,047 7.7 51.7 49,358 19,645 9.4

Dusseldorf 607 6.4 41.1 67,720 22,913 8.5

Frankfurt 725 14.3 61.5 84,886 18,960 6.8

Hamburg 1,770 6.7 100.5 56,768 22,261 7.4

Munich 1,439 15.8 93.6 65,046 24,019 4.9

Stuttgart 616 8.2 45.0 73,111 21,727 5.5

Top locations 9,689 9.3 507.6 52,391 20,304 8.4

Retail properties Retail space as at 2015

Prime rent in EUR per sqm

Change in prime rent vs previous year (%)

Retail sales vs previous year (%)

in

1,000 sqm

2005-2015

(%)

Per inhabitant

in sqm 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e

Berlin 6,330 26.8 1.82 300 315 320 3.4 5.0 1.6 1.9 1.4 1.4

Cologne 1,404 5.1 1.34 250 250 255 4.2 0.0 2.0 2.1 1.7 1.7

Dusseldorf 1,234 36.8 2.03 270 270 270 3.8 0.0 0.0 2.3 2.0 1.8

Frankfurt 1,522 33.8 2.10 300 300 305 3.4 0.0 1.7 1.6 2.0 1.9

Hamburg 2,984 23.4 1.69 285 285 285 3.6 0.0 0.0 2.0 2.5 2.5

Munich 2,084 29.0 1.45 340 345 350 4.6 1.5 1.4 1.5 2.4 2.4

Stuttgart 1,060 29.9 1.72 245 250 250 2.1 2.0 0.0 1.4 1.7 1.5

Top locations 16,618 25.7 1.72 292 299 303 3.6 2.3 1.2 1.9 2.0 1.9

Office properties Office space as at 2015 Prime rent in

EUR per sqm Change in prime rent vs previous year (%) Vacancy rate

(%)

in

1,000 sqm

Per inhabitant

in sqm

Per office worker in

sqm 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e

Berlin 18,929 5.1 36.7 24.0 26.0 27.0 4.3 8.3 3.8 3.8 3.4 3.2

Cologne 7,527 7.0 33.8 21.0 21.2 21.4 0.0 1.0 0.9 6.0 5.7 5.5

Dusseldorf 7,554 12.6 38.3 24.0 24.5 25.0 0.0 2.1 2.0 8.8 8.1 7.8

Frankfurt 10,305 17.2 37.4 35.5 36.2 38.0 1.4 2.0 5.0 11.3 10.4 9.5

Hamburg 13,575 7.9 33.3 25.0 25.4 25.7 2.0 1.5 1.3 5.5 5.5 5.3

Munich 13,704 9.3 36.4 34.1 34.8 35.5 1.8 2.1 2.0 3.8 2.8 2.5

Stuttgart 7,603 11.7 41.5 19.3 19.7 20.0 1.6 1.8 1.8 3.7 3.2 3.0

Top locations 79,197 9.4 36.3 26.7 27.5 28.3 1.9 3.2 2.7 5.7 5.2 4.9

Residential properties Development from 2010 to 2015 (%)

First occupancy average rents in

EUR per sqm

First occupancy average rents vs previous year (%)

First occupancy rents

in prime locations EUR per sqm

Inhabitants

Households

Housing stock 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e

Berlin 6.7 7.4 1.5 11.5 11.8 12.1 1.8 2.6 2.5 15.6 15.9 16.2

Cologne 5.0 5.2 2.4 11.5 11.8 12.1 0.9 2.6 2.5 15.5 15.9 16.2

Dusseldorf 4.0 4.4 1.9 12.4 12.6 12.8 1.6 1.6 1.6 16.0 16.3 16.6

Frankfurt 9.6 10.9 4.5 13.5 14.0 15.0 3.1 4.0 6.8 20.0 20.5 21.5

Hamburg 4.2 6.0 3.0 13.2 13.4 13.6 0.8 1.5 1.5 19.2 19.5 19.8

Munich 8.4 10.4 3.7 15.8 16.8 17.3 6.0 6.3 3.0 22.5 23.0 23.5

Stuttgart 6.2 6.3 2.3 12.0 12.8 13.3 7.1 6.7 3.9 16.0 16.5 17.0

Top locations 6.3 7.3 2.5 12.7 13.1 13.5 2.7 3.4 2.8 17.7 18.0 18.4



47

IMPRINTPublished by: DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Rosenstrasse 2, 20095 Hamburg

Management Board: Dr. Georg Reutter (Chairman of the Management Board), Manfred Salber

Authors:

Responsible: Stefan Bielmeier, Head of Research and Volkswirtschaft

Author: Thorsten Lange, CIIA /CEFA Senior-Economist

All DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main 2016

Reprinting and reproduction requires the approval of DG HYP

DISCLAIMERThis document has been published by DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Hamburg.

This document has been prepared by DZ BANK AG Deutsche Zentral-Genossenschaftsbank („DZ BANK“) and is intended for distribution within the Federal Republic of Germany. This document is not intended for persons having their domicile and/or registered offi ce and/or branches outside Germany, particularly

in the United States of America, Canada, the United Kingdom or Japan. This brochure may only be distributed outside Germany in compliance with the laws and regulationsapplicable in the relevant country. Anyone gaining possession of this information or material must inform themselves of theapplicable laws and regulations and observe said laws and regulations.

Nothing contained herein constitutes a public offer to buy securities or fi nancial instruments.

This document constitutes an independent assessment of the relevant issuer and/or securities by DZ BANK. All assessments, expressions of opinion and statements contained herein are those of the writer and are not necessarily shared by the issuer or third parties. DZ BANK has obtained the information on which this document is based from sources that are considered reliable, but has not, however, verifi ed all of these documents. Accordingly, no representation or warranty as to the accuracy or completeness of the information or expressions of opinion contained herein is made byDZ BANK. DZ BANK shall not be liable for losses caused by the distribution and/or use of this document or any losses in connection with the distribution and/or use of this document.

Investors are urged not to base their investment decision regarding securities or other fi nancial instruments on this document, but rather on personal discussions with an adviser and the relevant sales prospectus or information memorandum.

Depending on the specifi c investment objectives, investment horizon, and fi nancial situation, any such recommendations may not suitable, in whole or in part, for individual investors. As trading recommendations are largely based on short-term market conditions, they may also confl ict with other recommendations made by DZ BANK.

The recommendations and expressions of opinion contained herein are as at the date of this document. They may becomeobsolete as a result of future developments, without this document being amended accordingly.

Competent supervisory authority

Bundesanstalt für Finanzdienstleistungsaufsicht (German Federal Financial Supervisory Authority), Lurgiallee 12, 60439 Frankfurt am Main, Germany


48

DG HYP Regional Office Hanover Berliner Allee 5 30175 Hanover, Germany Phone +49 511 86643808 Fax +49 40 3334-782-3775

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20095 Hamburg, Germany Rosenstrasse 2 PO Box 10 14 4620009 Hamburg Phone +49 40 33 34-0Fax +49 40 33 34-11 11Internet: www.dghyp.de

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Real Estate Centres

Regional Offices


DG HYPDeutsche Genossenschafts-Hypothekenbank AGRosenstrasse 2 | 20095 Hamburg | Germany

Phone: +49 40 33 34-0 | Fax: +49 40 33 34-11 11www.dghyp.de As

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