Frankfurt Office MarketView

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1 Frankfurt Office MarketView Q2 213 GDP Q1 GER +.1% Q-o-Q GDP Q4 GER -.6% Q-o-Q IFO BUSINESS CLIMATE INDEX 1.9 June 213 Global Research and Consulting GFK CONSUMER CLIMATE INDEX 6. June 213 UR FFM 7.3% June 213 OVERVIEW Quick Stats Q2 213 Hot Topics Take-up increased markedly in the second quarter of 213 (up 87% on Q1 213) 13% lower take-up than the first half of 212 Vacancy rate continuing to decline yearon-year Stable demand for modern space in central locations Q-o-Q Take-up 132,9 sq m Vacancy 1.7m sq m Prime rent 38. /sq m Prime yield 4.8% Completions 77, sq m Two major deals (approx. 46% of second quarter take-up) dominated the letting market Economy In addition to the positive fundamental data for the general economy at national level, including for example slight (.1%) economic growth compared with the first quarter and similar slight increases in the ifo business climate index and the GfK consumer climate index, the unemployment rate is on a downward trend. The national average has fallen by.4 percentage points, from 7.1% in April 213 to 6.6% at the end of June. The unemployment rate in Frankfurt also fell by.4 percentage points, to 7.3%, in the same period. According to a current report by the specialist magazine Karriere, Frankfurt has the best market for highly-qualified personnel in Germany. Particularly in times of an impending shortage of specialist staff, this gives the city as a centre of international services positive economic prospects and a strong potential for innovation. Office market Following a restrained start to the 213 letting year, take-up in the Frankfurt office market was sharply higher in the second quarter. Take-up in the second quarter was 132,9 sq m, 34% higher year-on-year and 11% above the tenyear average. In total approx. 24, sq m of office space was let in the first half of 213. At the end of the first half of 213 there was around 1.7m sq m of office vacancy, approx. 8% lower year-on-year. The corresponding vacancy rate declined by 1.2 percentage points, to 14.%. The achievable prime rent maintained the high level of the previous year, 38. /sq m/month. The weighted average rent in Frankfurt was 16.8 /sq m/month at the end of the half-year. Investment market In the wake of a good first quarter, the commercial property investment market in Frankfurt, the financial centre, considerably increased in impetus in the second quarter. The investment volume in the first half of 213 was 1.63bn, a 121% increase year-on-year. Frankfurt accounted for 13% of the total national transaction volume, underlining the great attractiveness of the city as an investment location. 1.12bn, 68% of the total investment volume, was attributable to individual transactions. Portfolio investments therefore accounted for 32% of the investment volume. Table 1: Office market key data Q2 212 Q2 213 Y-o-Y Stock, million sq m % Take-up, cum. 1, sq m % Vacancy, million sq m % 1 Vacancy rate, % %-Pts. Prime rent, /sq m/month % Prime yield, % %-Pts. Capital value index (Q = 1) % 213, GmbH

2 1, sq m % 1, sq m Q2 213 Frankfurt Office MarketView TAKE-UP In the first half of 213, 24, sq m of space in the Frankfurt office market was taken up, 13% less than in the first half of 212. However, the weak take-up in the first quarter of 213 was largely offset by the very strong second quarter. Two major lettings in the over-1, sq m category, representing 46% of take-up in the second quarter and 31% of the total for the half-year, were the main drivers of this increase in letting performance. These were the letting of around 46, sq m to Commerzbank in the Lateral Towers in the Sossenheim/Rödelheim/Hausen submarket and approx. 14,6 sq m, in a planned office property in Eschborn, to Telekom. As a result, these submarkets were among the most important in the first halfyear, with unusually high proportions of the total take-up: Sossenheim/Rödelheim/Hausen, with around 2%, and Eschborn with 1%. Next came the submarkets forming the CBD (Banking District, Frankfurt City and Westend), with their traditionally high take-up. A total of 63,7 sq m was let there in the first half-year, almost a third of the total takeup. In terms of sectors, the market was clearly led by Banks and financial services, accounting for approx. 32%. The next-largest groups of new tenants were Consultancy firms, with 12%, and the Telecommunication sector, accounting for 11% of lettings. Telecommunication companies have primarily taken space in project developments in Eschborn (New Wave and the Deutsche Telekom marketing and service centre). Almost two-thirds of the space let in the first half-year was in the superior category of fit-out (so-called A space), while around a third of the take-up was of averagequality accommodation. The average floor area of the units let in the first half-year was 764 sq m, 1% lower than in the same period of the previous year. Chart 1: Office space take-up Chart 2: Office space take-up (cumulated, %) by sectors* - Top - Remaining sectors 36% 1 year average: 469,6 sq m Q1 Q2 Q3 Q4 Banks, Financial S. 32% Real Estate 4% IT % Telecomm. 11% Legal Adv., Chart. Acc. 12% 2 VACANCY At the end of the first half of m sq m of office space was vacant, an 8% reduction year-on-year. Based on an office stock of 11.8m sq m, this equates to a vacancy rate of 14.%, 1.2 percentage points lower than in the first half of 212. At the end of the first quarter, the supply of office space, comprising completions in the next twelve months, space currently available for subletting and vacancy, totalled 1.84m sq m. Although speculative completions in the next twelve months, at 78,6 sq m, are nearly four times more than in the previous year, space on offer has fallen by 121, sq m (6%), as the amount of vacancy and space offered for subletting have substantially declined. The volume of vacant office space in both the superior and average-quality categories of fit-out has declined by 2%, whereas there is 8% more vacant outdated office accommodation. Chart 3: Office space vacancy 2, 1 year average: 14.% 2, 1, 1, *in total 2 sectors Q2 Vacancy Vacancy rate. 213, GmbH

3 1, sq m Index Q = 1 /sq m/month Chart 4: Prime rent & Weighted average rent Q2 213 Prime rent Weighted average rent Chart : Prime office rent index RENT For almost five years, the achievable prime rent in Frankfurt has been stable at 38. /sq m/month. This is achievable in high-quality new accommodation in the Banking District. We consider that the prime rent will remain stable during the rest of this year, due to the limited availability of first-class office space and the high level of demand in the market. A significant increase in the upper range of rental values was registered in the Frankfurt City submarket, where the prime rent has risen by 4. (a year-on-year increase of 1%) to 34. /sq m/month. The primary reasons for the increase were lettings of space in project developments, for example OneGoetheplaza, and modern office buildings with highquality fit-out, such as Nextower. In the other submarkets prime rents were stable, apart from in Sachsenhausen, where they increased by 6%, and Frankfurt East, which saw a 3% decline. The top rent realised, assessed as the median of the highest rents agreed on 3% of the new lettings in the total take-up in the last twelve months, has increased by almost 1% year-on-year, to 38. /sq m/month. As a result of the large-scale lettings at comparatively low rents in the peripheral submarkets of Sossenheim/Rödelheim/Hausen and Eschborn, the weighted average rent for Frankfurt fell by 9% compared with the first half of 212, to 16.8 /sq m/month. Weighted average rents rose most strongly in the Railway Station District and in the Frankfurt West submarket (each by 2%). The sharpest decline was recorded in the City West submarket, which was down by 24%. The unchanged achievable prime rent means that the rental value index also remains stable at 219 index points. Q2 213 Frankfurt Office MarketView PIPELINE At present, we anticipate a volume of completions of 78,1 sq m in the current year, including 18,1 sq m of refurbishments. Only around 2% (19,3 sq m) of the space that will come on to the market in 213 is available for letting, as 49% (38,4 sq m) has been pre-let and 26% (2,4 sq m) is being constructed for owner-occupation. In the whole of 213, a total of 192,9 sq m of new accommodation (already completed and forthcoming) is expected to come onto the market, more than twice as much as in 212 (132% increase). Nevertheless, the volume of completions in 213 is around 2% below the ten-year average (26,2 sq m). In 214 we anticipate an increase in the volume of completions, to a total of just under 268, sq m. The new 14, sq m European Central Bank (ECB) building and the TaunusTurm, with around 6, sq m of office space, make up a significant proportion of this. A feature of the completions due next year is the relatively high (39%) proportion of owner-occupiers, primarily due to the ECB. So far, completions in 21 are anticipated to total only 48, sq m, based on the present status 82% of which will be constructed speculatively. However, in view of the stable general economic conditions, the positive trend of the employment market and continuing high demand for modern office space, we assume that further projects will come on to the market for 21 and that the proportion of pre-lets will increase Germany Frankfurt Chart 6: Office space future supply year average: 26,2 sq m Completed Speculative Pre-let Owner-occupied 3 213, GmbH

4 Index Q = 1 % 1, sq m Q2 213 Frankfurt Office MarketView PIPELINE BY SUBMARKETS The new 14, sq m ECB building project means that the submarket with the largest amount of space planned up to the end of 21 is Frankfurt East. The volume of completions in the Banking District will be almost as great: in the same period around 1, sq m of office space will be completed there. This submarket is dominated by a high proportion (82%) of speculative project developments (TaunusTurm and T8), which will mainly come on to the market in 214 and 21. The only submarket with a higher proportion of speculative development is City West, where 1% of the 23,1 sq m of projected space is still available. The submarket with the third-largest anticipated volume of completions is Frankfurt City. 6% of the planned 69, sq m of space there is already pre-let. Chart 7: Office space future supply (Q ) by submarkets* -Top East Bank. D. City Eschborn City W. Speculative Pre-let Owner-occupier INVESTMENT Chart 8: Prime yield, capital value and benchmark yield *in total 2 submarkets The very good opening to the investment year in the first quarter of 213 is continuing and has further increased in impetus. The transaction volume in Frankfurt was around bn in the first half-year. This is an increase of around 4 121% on the already very good result in the previous year 1 and confirms the major importance and stability of Frankfurt as an investment location, even in times of financial and 3 Euro crises. Office property accounted for more than two 1 thirds (7%) of the capital invested in the first half-year. As a 2 result of the heavy demand for the limited supply of core 1 properties, the prime yield in this segment has hardened by 2 basis points year-on-year, to the present 4.8%. The over- m- lot size categories accounted for the lion s share (84%) of the investment volume. The investment volume in these categories was more than treble that in the first half of Capital value index Prime yield (%) 1y government bond (%) 212. However, the strongest increase in investment volume was in the 2m to (less than) m category. This increased more than sixfold (+32%) year-on-year. The average investment volume per transaction across all the categories was 6.3m, almost double the amount in the previous year. On the purchasers side the market was strongly dominated by Insurance companies, which accounted for nearly half (48%) the transaction volume, substantiating Frankfurt s status as a stable investment location. The second-largest purchaser group was Open-ended/Special Funds, which were responsible for 36% of the capital invested. In contrast to the same period in 212, when foreign investors made up the vast majority of the transaction volume, in the first half-year German investors showed particular interest in the Frankfurt real estate market, placing 6% of the total investment volume FORECAST In view of the positive trend of the employment market and the stable general economic conditions, in the second half of 213 we anticipate that the letting market will experience a further decline in the vacancy rate, with continuing high demand for modern office space and therefore stability of prime rents and take-up, which at the end of the year may be similar to 212. In the medium term we expect an increase in the prime rent for first-class modern office space in central locations. On the investment market, further transactions in the over- 1m category expected in 213 mean that a high transaction volume, which may even exceed the good result in 212, is anticipated. The prime yield on core office properties will stabilise at a low level. 213, GmbH

5 Table 2: Submarket key data Cumulated Take-up sq m Future supply Q sq m Vacancy rate % Rental band /sq m/month Weighted average rent /sq m/month Railway Station District 12, 11, Banking District 2, 1, Office Location/Niederrad 7, City West 13,2 23, Eschborn 29,6 31, Frankfurt City 22, 68, Frankfurt Airport 1, 17, Frankfurt North k. A. Frankfurt East 8, 14, Frankfurt South k. A. Frankfurt West 1, Merton District 3, Trade Fair/Europe District 1 19, k. A. Niedereschbach, Offenbach Kaiserlei 2, Rebstock k. A. Sachsenhausen 3,4 6, Sossenheim/Rödelheim/Hausen,4 3, Westend 16,7 1, Westhafen k. A. TOTAL 24, 39, Q2 213 Frankfurt Office MarketView 213, GmbH

6 Q2 213 Frankfurt Office MarketView For more information about this MarketView, please contact: Research Germany Dr. Jan Linsin Senior Director Head of Research Germany 6323 Frankfurt t: e: Johannes Dreher Analyst 6323 Frankfurt t: e: Agency Frankfurt Carsten Ape Managing Director Head of Agency Germany 6323 Frankfurt t: e: Alexander Riegel Director Co-Head of Agency Frankfurt 6323 Frankfurt t: e: + FOLLOW US GOOGLE+ FACEBOOK 6 Global Research and Consulting This report was prepared by the Germany Research Team which forms part of 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 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 do not represent the current or future performance of the market. This information is designed exclusively for use by GmbH clients, and cannot be reproduced without prior written permission of GmbH , GmbH