Market Survey. The MAN Index of Income-Producing Property in Israel: Q Brought to you by MAN Properties July What Is the MAN Index?

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1 Market Survey Brought to you by MAN Properties July 2014 The MAN Index of Income-Producing Property in Israel: Q Hot Topics After price stability in the first quarter of 2014, a decline of 2.5%, from points to 163.6, was recorded in the MAN Index for the second quarter, similar to the tendency we saw in The quarter was characterized by an economic slow-down and marginal growth in office demand. The office market is in the midst of a significant development drive, which will take its toll in the near future, presenting good alternatives for potential renters. Currently the problematic areas in the office market are the Bnei Brak and Ramat Hahayal zones, where there is a great surplus of space. There are similar supplies in Petah Tikva, Herzliya, and Tel-Aviv, but their influence on market trends are not yet felt. As a result of the scope of development that we have been witnessing in the past, which was based on acquisition groups, there is an increasing interest among professionals to switch from rental to acquisition, a trend that is expected to reduce the demand for rentals and to vacate spaces in existing towers. We anticipate a minor decline in the office market in the coming quarter as a result of small demand. What Is the MAN Index? As a market leader in the field of commercial real estate in general and of the office market in particular, MAN Properties has been collecting quarterly data of rental prices, sale prices, and office occupancy rates in all areas of high demand in Israel. The index combines the collected data into a single value that reflects the strength of the office market in the given quarter. MAN is a relative index, whose initial point is based on a value of 100 assigned to the first quarter of 2005 as a reference value. The changes in the value of the index between Q1 of 2005 and the present indicate both the market trends (strengthening or weakening) and the intensity of the change. Why Is the Index Important? The index increases the transparency of the income-producing real estate market. In every market, transparency is an essential mean for reducing uncertainty and market distortions, thereby improving and refining the market. The index enables investors to (continued on p. 2) MAN Index Case Study Berlin Investment Market View The Global Market % +4.3% +8.0% +11% +1.0% +3.2% +2.5% +3.7% +5.8% +3.3% +3.2% +1.3% +1.4% +4.8% +3.9% 1.2% -18% -7.6% -4.4% -1.8% -2.7% -5% -0.6% -0.8% 2.8% 2.5% 20 0 Q1 07 Q2 07 Q Q1 08 Q2 08 Q Q1 09 Q2 09 Q Q1 10 Q2 10 Q Q1 11 Q2 11 Q Q1 12 Q2 12 Q Q1 13 Q2 13 Q Q1 14 Q2 14

2 Market Survey Q In the second quarter a minor decline was recorded, reflecting the continued growth in the space supply being added to the market by new projects. At the same time, the slow-down has affected the sluggish absorption of new space by the commercial sector, and accordingly the pressure to reduce prices continues. The Office Market In the second quarter, the office sector was characterized by the relocation of firms in the process of reorganization, whereas demand for spaces owing to growth was marginal. The decline was manifested in areas of high demand in Tel-Aviv and in second tier cities such as Petah Tikva. In Tel-Aviv, average rents fell from ILS 88/sq m to ILS 86/sq m, and occupancy levels from 95% to 92%. In Ramat Gan, average rents remained stable at ILS 68/sq m, and occupancy levels at 90%. In Raanana, too, average rents remained stable at ILS 60/sq m, and occupancy levels at 92%. The Retail Market In general, a decline was recorded in this sector in the second quarter, partly owing to a reduction in private consumption. That said, we notice a clear demarcation in this sector between /12 9/12 Israeli Consumer Price Index (%) 11/12 1/13 3/13 5/13 7/13 Month / Year prime quality shopping centers and all the others. Whereas the modern, successful centers have maintained stability, other shopping centers have recorded a decline in occupancy and rents. One main reason is that the popular centers provide, in addition to shopping alternatives, entertainment, which is important for many consumers. Among the areas that saw a decline are Ramat Gan, where average rents dropped from ILS 140/sq m to ILS 130/sq m, and Raanana, where rents fell from ILS 92/sq m to ILS 90/sq m. By contrast, average rents in Tel-Aviv and Herzliya remained stable at ILS 180/sq m in Tel-Aviv and The Logistics Market As before, this sector continues to remain the most stable one in the commercial real estate market. Two reasons that explain this fact are the continuing conversion of industrial and logistic areas into office and commercial spaces, notably in the center of the country, and the absence of significant development of new properties by entrepreneurs. ILS 140/sq m in Herzliya. Price Index of Inputs in Residential Building (%) 7/12 9/12 11/12 1/13 3/13 5/13 7/13 Month / Year 9/13 9/13 11/13 11/13 1/14 1/14 3/14 3/14 5/14 5/14 continued from p. 1 track the character of the Israeli market and serves as yet another input into the decision-making process regarding any activity in the incomeproducing property market. Unlike in the U.S. and in European countries, where a great deal of information is being collected on rental deals, occupancy rates, sale prices, and so forth, in Israel there is no statutory body that collects data about the office market, and it is difficult to extract information from local authorities about the inventory of rental spaces. The Israeli tax authorities do not publish transaction prices, and the only available data is published by stakeholders and in public corporations declarations to the stock market. Consequently, accurate and reliable information is available only to those players who are routinely active in the field. What Does the Index Reflect? The MAN Index is calculated based on rental and sale prices per sq m (nominal values). It takes into account rates of occupancy and supply in areas of high demand in the Tel- Aviv metropolis, as well as office spaces in other cities of high quality office market. The index is expressed in relative points rather than prices, thus it reflects the state of the office market in relation to previous quarters. As can be seen in the chart, the results indicate the actual, quarterby-quarter, behavior of the office market over the period of 2005 until the second quarter of

3 Comparision Table between Leasing/ Selling Rates of Q and Q Tel-Aviv Ramat Gan Herzliya Raanana Petach Tikva Netanya Rechovot Lod Haifa Jerusalem Q Q Average Average Average Average Average rent per selling Average rent per selling occupancy month per price per Occupancy month per price per Category rate sq m (ILS) sq m (ILS) rate sq m (ILS) sq m (ILS) Office , ,760 Commercial , ,800 Industry , ,000 Storage & logistic , ,400 Office , ,880 Commercial , ,800 Industry , ,680 Storage & logistic , ,520 Office , ,320 Commercial , ,400 Industry , ,000 Storage & logistic , ,200 Office , ,600 Commercial , ,400 Industry Storage & logistic , ,400 Office , ,600 Commercial , ,200 Industry , ,400 Storage & logistic , ,400 Office , ,480 Commercial , ,600 Industry , ,400 Storage & logistic , ,400 Office , ,800 Commercial , ,480 Industry , ,800 logistic , ,944 Office , ,800 Commercial , ,200 Industry , ,400 Storage & logistic , ,603 Office , ,080 Commercial , ,008 Industry , ,400 Storage & logistic , ,925 Office , ,400 Commercial , ,600 Industry , ,262 Storage & logistic , ,768 For Q2, the yield for income producing properties was 7.5%. The review is based on the sampled submarkets that appear in the table and on transactions carried out during the quarter. Because of fluctuations in the USD exchange rate, starting with Q we are quoting prices in local currency (ILS). Prices are for fitted out properties (core and shell price + ILS 1,750/gross sq m for fitting out, on a 10-year lease). The above data does not include new development expected to be completed after

4 National Rental Fee Trends and Occupancy Research Department MAN Properties National averages of office rental fees and occupancy Q Q Q Q Q Q Q average rent average occupancy 90.0% 89.5% 89.0% 88.5% 88.0% 87.5% 200 Rental fee trends - commercial areas (ILS per Sq m) From the Editor Q Q Q Q Q Q Q Tel-Aviv Nataniya Jerusalem Haifa Petach Tikva National averages of office rental fees and occupancy Q Q Q Q Q Q Q average rent average occupancy Rental fee trends - offices (ILS per Sq m) Q Q Q Q Q Q Q Tel-Aviv Nataniya Jerusalem Haifa Petach Tikva Because of fluctuations in USD exchange rate, starting with Q we are quoting prices in local currency (ILS). 91.5% 91% 90.5% 90% 89.5% 89% 88.5% At the time of this writing, as this issue is going to print, we are in the midst of a military operation in Gaza. Naturally, security incidents such as these affect the market, including the real estate sector. The State of Israel continues to fight for its independence as an island of stability, prosperity, and democracy in the face of the risks developing in the region. I hope that calm will return to the region soon and that all residents of Israel will benefit from the security they deserve and from a flourishing economy. In the second quarter of 2014, we witnessed continued moderate declines in price levels and occupancy rates, as part of what appears to be a general trend in recent quarters. We continue to monitor the progress of the many projects in the center of the country and in Tel-Aviv, especially along the Yigal Alon axis. Currently the developers are waiting to see how the situation develops and are in no hurry to offer special discounts. We will continue to follow developments in the property market and update our readership. We wish a pleasant summer holiday to all our readers and customers. Sincerely, Jacky Mukmel CEO and Joint Managing Director MAN Properties 4

5 Case Study Development Center for Broadcom at the Nazareth Industrial Park Description of the project In the past decade, Broadcom has spent hundreds of millions of dollars on acquisitions of companies and has deepened its involvement in Israel, as part of a strategic plan to support and develop its products using complementary technologies and local innovations. Broadcom operates six development centers in Israel as a result of various acquisitions and mergers. MAN Properties has been chosen as a local partner by Broadcom's headquarters in Irvine, USA, to support company's activities and be responsible for its real-estate needs in Israel. Broadcom has recently decided to explore the possibility of launching a development center in the North, in the first phase hiring 30 employees, including from the local Arab sector. The requirement was for a space of 500 sq m. As part of the project, MAN presented several alternatives in the region of Haifa, Yokneam, and Nazareth. The objective was to locate an ideal place for establishing a development center close to the relevant local population with a potential for supplying engineers and developers. The alternatives ranged from established office space, "as is," to new projects at the shell and core stage. Each had their pluses and minuses. After reviewing the options by the company officers in Israel and with the headquarter overseas, MAN recommended focusing on Nazareth because of its proximity to the relevant workforce and because it is an "A" (aleph) development area, which grants substantial economic benefits. After closely evaluating various local alternatives, it was decided to focus on the new Industrial Park, built on the Kedumim Mountain, at the southern entrance to Nazareth. This project is one of several industrial parks founded by Stef Werthheimer, who established a unique park of over 22,000 sq m of office space (3,500 sq m on each floor), with 6,000 sq m of parking spaces. The park, marvelously overlooking the entire geographic area and merging within it, provides workspaces that include such additional amenities as catering, central conference rooms, security 24/7, and all required technical essentials. Amdocs established a support and control center here on 2,000 sq m, where it employs dozens of employees from the vicinity. It is one of the first companies to have rented space in this park. As part of this project, MAN inspected several developing areas at the periphery of the country, which differ from most hi-tech areas in the Center as far as the supply of space and the needs and demands of the entrepreneurs are concerned. The challenge that MAN faced was to convey to headquarters in the US the unique qualities of the area, its advantages and disadvantages relative to what is customary in the Center of the country. Despite the challenges and dissimilarities, we believe that Broadcom has met its real-estate-related needs for a development center that complies with the company's high standards. We hope that this initiative will show the way to other global companies, encourage them to invest in the periphery of the country, and establish development centers that are based on local workforce, at the same time enjoying economic benefits and significant opportunities /12 7/12 9/12 9/12 Bank of Israel Interest Rate (%) 11/12 11/12 1/13 1/13 3/13 3/13 Location: Park Ta'asiot, Nazaret Service: Consulting and supervision of the establishment of a development center in the North. Value: ILS 1,100,000 Area: 677 sq m Lease: 3 years + an extension option Sector: High-tech Project manager on behalf of MAN Properties: Roy Silony, Senior Director Global Corporate Services 5/13 7/13 Month / Year 5/13 Month / Year 7/13 9/13 9/13 11/13 Average Mortgage Rate (%) 11/13 1/14 1/14 3/14 3/14 5/14 5/14 5

6 Berlin investment market Overview 2013 With a volume of almost 1B in the fourth quarter, Berlin s investment market for commercial real estate can look back on a strong finish to This means that the total transaction volume for the year as a whole was over 3.3B. Although the result was lower than that of the excellent year of 2012, it was almost24% above the 10-year average for the Berlin market. As in previous years, office property was the dominant asset class, accounting for over 58% of market volume, followed by retail property, with 34%. Compared to 2012, the prime office yield dropped in the final quarter by 0.25 percent-points, to 4.75%. The biggest share of the investment volume, around 750M, was registered in the City- East submarket. Several large transactions were concluded, in particular in Mediaspree, including the Mercedes-Benz sales center, the TRIAS, and the Jannowitz Center. Prime locations remain popular with investors, and deals included N 195 Kudamm and Kurfürstendamm in AAA City-West ( 395M), the Lindencorso and Quartier am Auswärtigen Amt in the AAA City-East submarket ( 315M). Investment volumes in the peripheral submarkets were also relatively high. For example, the southern submarkets reported the sale of the Forum Steglitz, Tempelhofer Hafen, and shares in the Gropiuspassagen shopping centers for around 439M. Transactions in the northern submarkets included the sale of the Hallen am Borsigturm shopping center and the Nordmeile retail park, with a total volume of 334M. % The most active investors, accounting for a share of around 976M (29%) of the total transaction volume, were Open-Ended Property and Special Funds. These were followed by Insurers and Pensions Funds, with acquisitions of over 867M (26%) and Asset and Fund Managers, who invested around 494M (15%). In contrast to 2012, German investors dominated market activities on the buy-side in Foreign investors, who claimed a market share of 60% in 2012 as the result of major portfolio deals, invested only around one third of the total volume in Most of this capital came from Europe. The sell-side was dominated by Asset and Fund Managers, with around 831M (25%), followed by Project and Property Developers with 552M(17%) and Open-Ended Property and Special Funds, with around 362M (11%). The latter exploited the dynamic market environment in Berlin to optimize and rejuvenate their portfolios by acquiring new properties. Significantly, portfolio deals played a lesser role in 2013 compared to the year before. In 2012, the large portfolio deals undertaken by i.a. Norges Bank IM, Signa Holding, and Lone Star, of 1.75B, accounted for around 41% of the annual transaction volume. By contrast, the total volume of such transactions was less than 718M in 2013, accounting for only one fifth of the result. Transactions included the sale of N 195 Kudamm, which together with One Goethe Plaza and T11 in Frankfurt, was transferred to IVG Institutional Funds GmbH. Chart 5: Prime yields commercial real estate Office High Street Retail Logistics/Industrial 10Y Bunds 2013 EMEA Offices Q1 OFFICE RENTS The first quarter of 2014 provided more evidence that the majority of EMEA markets on the downward curve of the cycle have reached a trough, with prime rents in key markets, including Paris and Madrid, now believed to be stable. Nevertheless, some declines were recorded in markets where there is an oversupply of new space, notably Prague, Geneva, and Zurich, where new speculative development has pushed vacancy to a locally high level. As was the case throughout 2013, prime rental growth was recorded in a few of the stronger markets, causing the EMEA Prime Office Rent Index to rise by 0.3%. Central London continued to be a strong performer, with prime rents in four out of five submarkets growing, including a 5% increase in the West End to 105/sq ft/annum. Other western European markets that registered growth included Amsterdam and Munich (both 1.5%). Oslo and Stockholm also posted quarterly increases. As we progress through 2014, the tight supply of high quality office space and growing occupier confidence supported by improving economic indicators is expected to move more markets to the rental growth stage of the cycle. But the timing and pace of this growth is likely to vary significantly with each market. OFFICE TAKE-UP Despite improving macro-economic data, take-up remained subdued in Q1 of 2014, on a par with the first quarter of 2013 (+1.1%) and of 2012 (-0.8%). This represented a drop of 17% over 2013, although a fall of this scale is not uncommon given seasonal fluctuations in demand. Although most of the main markets recorded quarterly declines, there were some encouraging figures by comparison with other recent first quarters. Take-up in Paris remains below trend, but at 506,000 sq m was a substantial improvement on the levels recorded in the first three quarters of Similarly, the Frankfurt market recorded a sharp quarterly decline but saw a significant improvement over Q In London, take-up declined from the exceptional 2013 level, but with the amount of space under offer reaching the highest level since 2000, take-up will improve in the remainder of the year. Encouragingly, although the Madrid market recorded a decline on both quarterly and yearly comparisons, at nearly 100,000 sq m it was significantly higher than typical levels recorded during the downturn, and demand was driven by an increase in volume of small and medium transactions, rather than one exceptionally large deal, as was the case in Q1 and, Aggregate demand is expected to improve in the remainder of the year. But an air of caution is likely to persist, and occupiers will continue to be selective in their decision-making. Reflecting the on-going challenges, Q1 also saw some very low take-up figures in markets such as Brussels and Amsterdam, with the latter recording the lowest ever take-up figure for the market, at just 21,500 sq m. OFFICE VACANCY The EU-28 vacancy decreased marginally in Q1 6

7 The Global Market According to , falling by 0.02 percentage points (pp) to 11.3%, but remains 0.38 pp above the vacancy rate recorded twelve months ago. Among the sharpest declines in vacancy were two of the strongest performing markets, London City and Dublin, where the vacancy rate fell by 0.93 pp and 1.44 pp, respectively. In the latter, a strong recovery in demand combined with a nonexistent development pipeline has resulted in the vacancy rate falling from 20.3% at the end of 2011 to 13.9% in Q Although some speculative development is coming through in the London City market, current demand levels are far outweighing the completion of new space, with much of the speculative element being leased before completion. Elsewhere, the Frankfurt market recorded a significant drop of 0.96 pp. But unlike Dublin and London City, this was largely due to the removal of obsolete stock from vacancy and the conversion of older buildings into residential units, rather than strong occupier absorption. With much of the available space in Europe comprised of lower grade, non-central space, which struggles to attract demand, we are beginning to see more conversions of obsolete stock into alternative uses, as finance for such schemes becomes more abundant. The sharpest increases in vacancy were generally recorded in CEE markets, most notably Prague, Warsaw, and Moscow. A large volume of new speculative completions has been steadily boosting the vacancy rate in these markets, which has generally outweighed occupier demand. In the Moscow City submarket, for example, the vacancy rate grew to 36% in Q1 owing to one large completion that added substantially more space to vacancy than was absorbed by occupiers. While the overall EU-28 vacancy rate remains high in a historical context, the proportion of high quality, centrally located units has narrowed substantially in recent years. Even in some of the markets with the highest vacancy rates, occupiers have relatively few options when looking in this segment of the market. OFFICE DEVELOPMENT PIPELINE Completion levels will increase in 2014, driven by an upturn in development in core markets: Paris and London in Western Europe and Warsaw, Moscow, Prague, and St Petersburg in CEE. Elsewhere, completion levels will remain below trend, and of the space that is due to complete, a high proportion will be pre-let. Although more schemes are expected to progress in 2014 because of the improving economic outlook and financing opportunities, it will not be until 2016 and onward that this space comes through to the market. Completions for 2015, including some of the core markets that drove the upturn in development in , are forecast to drop back significantly. This is due largely to the low number of schemes that were started at the height of the eurozone crisis in H and As a result, a shortage of supply of high quality office space will continue to be a feature of many European markets for the foreseeable future. Prime Office Rent % Change Prime Last Last Office 3 12 From Yield Country City Local m 2 /y/ Months Months Through* % Austria Vienna 25.25/sq m/month Belgium Brussels /sq m/annum Croatia Zagreb 14.5/sq m/month Czech Republic Prague 19.5/sq m/month Denmark Copenhagen DKR 1,650/sq m/annum Finland Helsinki 396/sq m/annum France Lyon /sq m/annum France Marseille /sq m/month France Paris /sq m/annum Germany Berlin 22.50/sq m/month Germany Frankfurt 38.00/sq m/month Germany Hamburg 24.00/sq m/month Germany Munich 33/sq m/month Greece Athens 22.00/sq m/month Hungary Budapest 20.00/sq m/month Ireland Dublin 377/sq m/annum Israel Tel-Aviv ILS108/sq m/month Italy Milan /sq m/annum Italy Rome /sq m/annum Netherlands Amsterdam /sq m/annum Netherlands Rotterdam /sq m/annum Norway Oslo NKR4000/sq m/annum Poland Warsaw 26.00/sq m/month Portugal Lisbon 18.50/sq m/month Romania Bucharest 18.00/sq m/month Russia Moscow US$1200/sq m/annum Russia St Petersburg US$ /sq m/annum Serbia Belgrade 15/sq m/month Slovak Republic Bratislava 16/sq m/month Spain Barcelona 17.75/sq m/month Spain Madrid 24.5/sq m/month Sweden Stockholm SEK 4,500/sq m/annum Switzerland Geneva CHF 925/sq m/annum Switzerland Zurich CHF /sq m/annum Turkey Istambul $45/sq m/month UAE Dubai AED280/sq ft/month UK Birmingham 28.50/sq ft/annum UK Bristol 27.50/sq ft/annum UK Edinburgh 28.50/sq ft/annum UK Glasgow 27.00/sq ft/annum UK London City 58.50/sq ft/annum UK London West End 105/sq ft/annum 1, UK Manchester 30.00/sq ft/annum * Figres indicate degree of change from the lowest rent recorded since 2009 to the curent level 7

8 CommerCial real estate... it s a Job for Professionals. At MAN Properties we understand the responsibility involved in searching for the ideal real estate solution for you. We have the best answer for you whether you are looking for commercial, business, industrial or any other type of space. For more than 30 years we have been consulting and guiding international companies, and providing project marketing and investment services in Israel and abroad. man Properties Contributors: Publisher MAN Properties 92 Yigal Alon St., Tel-Aviv Israel Tel: Fax: CEO & Joint Managing Director Jacky Mukmel. Joint Managing Director Chaim Agi. Chief Editor Jacky Mukmel Associate Editors Smadar Pomerantz, Smadar Michaelov. Graphic Design and Production Moshe Pereg. Translation & Editing e-doc. us: feedback@man. co. il Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and not represent the current or future performance of the market. This information cannot be reproduced without prior written permission from M. A. N properties.