Luxembourg Office MarketView

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1 Luxembourg Office MarketView Q CBRE Research & Consulting 2012 GDP 0,5% TAKE-UP m² PRIME RENT 40 EUR/m²/mth PIPELINE m² VACANCY RATE 6,08% PRIME YIELD 5,5% 2012 CATCHES UP DURING THE LAST QUARTER OF THE YEAR Quick Stats Q QoQ YoY Take-up Prime rent Pipeline Vacancy rate Prime yield Chart 1: Economic growth & inflation in Luxembourg 8% 6% 4% 2% 0% -2% Quick Links -4% -6% Despite a certain decline compared to 2011 the take up displays results above average. The supply of new office spaces becomes the limiting factor in the real estate market. The vacancy rate keeps on decreasing. The investment market is reawakening gradually. GDP Growth Overview In terms of results, the first two quarters of 2012 were quite similar to the previous year. However, the market has deteriorated in the third quarter. The end result of about m² occupied space was performed thanks to important transactions achieved during the last three months of the year. The supply of new office spaces is still decreasing. This will continue at least until the end of 2013, because few projects will be finalized in the coming months. In consequence, the vacancy rate will continue to fall. Prime rents are stable and there is even some upward pressure in the districts with low availabilities. The investment market is revitalizing gradually. Inflation Source: Statec Luxembourg The economic environment remains tensed According to the latest publications of the Statec, economic forecasts are not the most optimistic. In early 2012, the growth rate of GDP was still planned to reach 1,4%, but it shows only 0,5% at the end of the year. The slowdown in GDP growth gradually spreads to the labor market, which results into an unemployment rate of 6,2% in late 2012 and a 6,5% rate is expected at the end of The growth of domestic employment having a positive rate of 2,8% in 2011 also decreased and amounts to only 2,2% at the end of the year In 2013, this rate should continue to weaken to 1,3%. It is likely that consumer prices will decline further in At the end of 2013 the inflation rate is expected to be equal to 2%.

2 DEMAND THE TAKE UP STAYS ABOVE THE RESULTS OF THE CRISIS YEARS 2009 AND 2010 Chart 2: Take up Take-up (in m²) Expected Q4 Q3 Q2 Q1 Chart 3: Type of occupants (2012) 3% 2% 2% 2% 1%1% Bank Finance Insurance 5% Services 36% Government IT 6% EU Lawyers Real Estate Industry 8% Retail Not Specified Building Association Transports 16% 18% THE TAKE UP OF THE YEAR 2012 IS CLOSE TO M² The take up of the year 2012, amounting to approximately m², has deteriorated by about 10% compared to the result reached in It is however not a bad performance, as the take up is much higher than the results of the crisis years 2009 and The BFI sector remains the catalyst of the occupation market The major players in the occupation market have been as in 2011 the banks, finance and insurances sector (35,8%), the services sector (17,7%) and the Luxembourgish Government (16,1 %). The most significant transactions have been the preletting of about m² in the Central Plaza Office project located in the station area by Société Générale Bank & Trust, the letting of about m² in the Weicker building in the Kirchberg district by Université du Luxembourg and the letting of Chart 4: Split by size of transaction 100% 90% 80% 70% 60% 50% 40% 30% >=5000 m² m² m² m² m² 2 20% 10% 0% m² m² m² m² m² m² m² m² m² m²

3 approximately m² of office space in the building Espace Strassen in Strassen by DZ Bank. Different departments of the Luxembourgish Government have occupied about m² of office space in their new building in Belval and the EIB has leased about m² in the building BHK in the Kirchberg district. The National Lottery has settled down in its new development with a size of m² located in Leudelange and Société de la Bourse de Luxembourg has preleased about m² in the Aurora project in the city centre. New trends in the occupation market Compared to 2011, the average transaction size dropped. It amounts to approximately 640 m² at the end of 2012, compared to the average of 2011 which was around 760 m². The number of prelettings and prepurchases is lower than in 2011 but still represents 18% of all transactions. This is a positive sign for the real estate market in Luxembourg: the companies that made these real estate decisions in the medium term are confident about the future of their business and the Luxembourgish market. The central districts gather the majority of occupied m² The district having achieved the most important take up is the Kirchberg where approximately 20% of the leased areas are concentrated. The central business district and the station area follow with 13% and 11%. Once again the central districts remain the most wanted areas. By analyzing the number of transactions, the CBD is ranked first with about 19% of the realized transactions, followed by Capellen-Mamer and the station area having both a market share of 14%. Table 1: Key transactions in 2012 Date Address Submarket m² Occupant Q Central Plaza Office, 28 place de la gare Station m² SGBT - Sté Générale Bank & Trust Q Weicker Building, 4 rue Alphonse Weicker Kirchberg m² Université du Luxembourg Q Espace Strassen, 5 rue des Primeurs Strassen m² DZ Bank Q Bâtiment Administratif, Terrasse des Hauts-Fourneaux Esch/Belval m² Luxembourgish Government Q BHK, 15 Avenue J.F. Kennedy Kirchberg m² EIB- European Investment Bank Q Immeuble Loterie, ZA Am Bann Leudelange m² Loterie Nationale Q Aurora, Bld Joseph II/ Av. Emile Reuter CBD m² Sté de la Bourse de Luxembourg Q Stena, rue J-P Brasseur Lux-West m² Banque Privée Edmond de Rothschild Europe Q KUBIK, 6a circuit de la Foire Internationale Kirchberg m² EFSF - European Financial Stability Facility Q /672, route de Neudorf Hamm m² Deloitte Q , rue Jean Monnet Kirchberg m² HSH Nordbank 3

4 DEVELOPMENT THE SUPPLY OF NEW OFFICE SPACE FOLLOWS A DOWNWARD TREND 4 Chart 4: Development pipeline m² m² m² m² m² 0 m² In 2012, the volume of deliveries has been very limited with only m². The shortage of new office spaces will be felt during 2013 as only few projects will be finalized in the coming months. Only m² of the areas delivered in 2012 are still available, the rest having already been the object of prelettings, prepurchases or developments for own occupation. Figures for 2013 are slightly higher, but still remain limited: about m² of new space should arrive on the market, from which more than 50% have already been reserved by occupants. This is why the number of new available areas will be restricted until 2014 at least. However the majority of these delivered areas in 2014 will be used for own occupation and only 32% will still be available for occupation. What is changing for the occupants and owners? Occupants are aware of this reduction of available spaces through a more restricted choice as well as through less attractive leasing conditions than before. Available pipeline Commited pipeline Deliveries The landlords are the winners: even buildings that were vacant for several months or even years gradually fill. Major planned projects Among the projects that will be delivered in 2013 the project Central Plaza Office ( m²) within the station district can be mentioned, the Aurora project (approximately m²) in the city centre or the new headquarters of the bank Raiffeisen in Leudelange (approximately m²). Developers face many constraints In recent years, developers have encountered great difficulties to start their projects. Indeed, starting a speculative project without a signed lease agreement or without a substantial amount of equity has become particularly compromised. With these more difficult market conditions some developers have turned their projects to alternative uses, when others were completely abandoned. Another observation is that the average size of buildings coming on the market is decreasing. Actually, large buildings such as the President building ( m²) have become hard to fund. THE LANDLORDS ARE THE WINNERS

5 VACANCY THE VACANCY RATE IS DECREASING GRADUALLY SOME M² OF OFFICE SPACES ARE AVAILABLE ON THE MARKET AT THE END OF Q The vacancy rate is expected to fall below 5% at the end of Evolution between 2008 and 2013 After a sharp increase of the vacancy rate between the end of 2008 and 2010 a stabilization began in The vacancy rate has begun to weaken and represents more or less 6% of the total stock, which amounts to approximately m². As the number of deliveries of available projects is limited during the year 2013, Chart 5: Vacancy rate the vacancy rate is expected to decrease further and to stabilize at around 4,5% at the end of the year. Return to a landlords market? The vacancy rate decline puts the owners in a more comfortable situation. Even if the demand does not beat records, supply is reducing. This should lead fairly quickly to a landlords market. Q ,00% 7,00% 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00%

6 RENTAL VALUES PRIME RENTS MAINTAIN THEIR LEVEL Chart 6: Rental bands CBD Kirchberg Station Limpertsberg Luxembourg-West Gasperich Strassen Howald Airport Bertrange Leudelange Capellen-Mamer Munsbach Hamm Esch-sur-Alzette/Belval Contern 10 eur/m²/mth 15 eur/m²/mth 20 eur/m²/mth 25 eur/m²/mth 30 eur/m²/mth 35 eur/m²/mth 40 eur/m²/mth UPWARD PRESSURE ON RENTS INCREASES AS DELIVERY RATES ARE LOW Despite a more pronounced downward pressure in 2009 and 2010, headline rents maintained their level of 40 EUR/ m²/month (prime rents) in new high standard buildings in the city centre. The economic rents (especially for surfaces in the periphery) had decreased as landlords granted more easily rent free periods and incentives (for example fitting out allowances). Following the decrease of the vacancy rate, which is expected to intensify further due to low delivery rates, the upward pressure on rents gradually increases. A two-tier market In this context it is necessary to differentiate the central from the more peripheral areas. Currently this upward pressure is especially present in areas where vacancy rates are very low, as in the station area for example, where the vacancy rate stands at 2,5% or in the CBD with a rate of 3,3%. Areas located further away from the city center, as Bertrange with a vacancy rate of about 25%, are not yet concerned and the owners are still willing to make attractive offers to potential occupants. 6

7 INVESTMENT ACTIVITY THE INVESTMENT MARKET IS GRADUALLY RECOVERING Q IN 2012 AN INVESTMENT VOLUME OF ABOUT 550 MILLION EUR HAS BEEN REALIZED Varied investment targets In 2012 an investment volume of about 550 million EUR has been realized. The prime yield stands at 5,5%. These transactions include investments, purchases for own occupation as well as land purchases. Purchases and prepurchases for own occupation represent roughly 11% of the investment volume. These transactions include office buildings, as well as commercial or industrial properties. Office buildings represent however the major part with a market share of almost 78%. Over 90% of these transactions regarding office spaces have been realized in the commune of Luxembourg City. More interest for Luxembourg, more assets for sale There is a growing interest from all types of investors (institutional funds, family offices, privates, etc..) for the Luxembourgish market. The shortage of products that had paralyzed the investment market in Luxembourg seems to come to an end. Some owners are starting to sell some of their premises. In addition, various institutional funds especially German Open Ended Funds may be forced to sell their assets in Luxembourg at short and medium term following regulatory changes in this field. This should revive the investment market. However, difficulties in obtaining credit from banks remain an unresolved matter. Chart 7: Investment volume Chart 8: Split by type of investment Millions ,0% 6,5% 21% 1% ,0% 5,5% Office Retail Warehouse Volume of transactions Prime yield 5,0% 78% 7

8 Table 2: Statistics per submarket SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM SQM 8 Submarket Stock Take-up 2012 Vacancy Prime yield Prime rent Kirchberg m² m² 3,33% 6,5% 33 euro/m² Gasperich m² m² 15,04% 6,75% 28,5 euro/m² Station m² m² 2,47% 6,5% 32,5 euro/m² Strassen m² m² 1,72% 7% 28 euro/m² Airport m² m² 13,67% 6,75% 25 euro/m² Hamm m² m² 19,73% 7,5% 20,5 euro/m² CBD m² 35,359 m² 3,26% 5,5% 40 euro/m² Munsbach m² 450 m² 3,95% 8% 21,5 euro/m² Bertrange m² m² 25,13% 7,5% 23,5 euro/m² Contern m² 345 m² 13,44% 8% 18,5 euro/m² Lux-West m² m² 4,21% 6,5% 28,5 euro/m² Howald m² m² 2,80% 7,5% 25,5 euro/m² Limpertsberg m² m² 6,55% 6% 31,5 euro/m² Capellen-Mamer m² m² 10,55% 8% 22 euro/m² Leudelange m² m² 18,91% 7,5% 23 euro/m² Belval m² m² 3,25% 7,5% 20 euro/m² TOTAL m² m² 6,08%

9 CONTACTS Q For more information about this Local MarketView, please contact: LUXEMBOURG RESEARCH Véronique Koch Head of Research t: e: +FOLLOW US GOOGLE+ FACEBOOK TWITTER CBRE RESEARCH This report was prepared by the CBRE Luxembourg Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. DISCLAIMER CBRE s.a. confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 9