Quick Stats. Market Topics OVERVIEW

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1 CBRE MarketView Italian Retail Quick Stats Investimenti Retail SC Prime Yields Change from Q Q OVERVIEW Confidence in the Country s economy improves slightly Following an improvement in consumer confidence in July, with the index up to 86.5 (from 85.4 in June), a slight decline was recorded in August, bringing the index down to 86. However, expectations on the overall economy continue to improve, while consumers confidence has worsened slightly on their own personal situation. At the regional level, confidence is up in the North-West and slightly down in the Centre, South and North-East. Capital Values Cross-Border % Market Topics Seven retail projects completed during the first half of 2012, for a total GLA of almost 190,000 sqm. Italy among the European countries with the highest volume of shopping centres under construction. Increase in the supply of shopping centres (> 10,000 sqm) per inhabitant: Italy 13th in the European ranking. Widening gap between prime and secondary centres, with the former keeping the rent level stable and the latter seeing an increasing number of renegotiations of existing contracts at lower rents. Prime yields for shopping centres increased, amounting to 6.25% net, due to the limited number of transactions and the expectations of potential buyers, which exceed the expected yields of vendors by at least 100 bps. The pipeline is steady: construction continues in sites already underway Italy continues to have the highest volume of new shopping centre stock under construction in Europe, and the second highest, if Turkey is considered as well. Its relative delay compared to the more mature markets in building modern retail structures - although it ranks 13th in Europe in terms of per capita supply of shopping centres - together with steady demand for modern, quality space despite the crisis, is encouraging this pipeline level. The opening of at least ten new shopping centres is envisaged between the end of the year and the first half of 2013, including the Villesse Shopping centre in Villesse, IKEA s first shopping centre in Italy. Retail investment: increasing gap between the expectations of buyers and vendors The volume of retail investment during the first six months of the year amounted to 1.1 bn. Compared to the prior quarter, this volume was updated with the estimated value of the disposal of 49% of the quotas of Simon Property in GCI to Immochan, equal to just under 1 bn. Although there is continued interest by international retail specialists and financial investors, negotiation times are becoming increasingly longer. Italian institutions are also beginning to explore the potential of this sector, for now limited to high street rather than the large shopping centres. Yields are on the rise, even for prime assets: few transactions and still wide gap between asking and expected values. Retailer demand steady but with a more cautious approach with respect to new openings Gradual weakening of the Italian economy, with household consumption declining and economic growth that is slow in resuming, are still not enough to keep away retailers with plans for expansion in the Country. However, a more cautious approach is used in selecting the locations in which to enter/expand. Milan and Rome are the key targets for those opening flagship stores in cities, while retailers are more carefully evaluating the possibility of expansion into other cities and secondary markets. If the catchment area of shops in the city overlaps with that of one or more shopping centres in adjacent areas, units in the shopping centre rather than the city are selected, taking advantage of the security of an already consolidated catchment area. Italian retail investment evolution

2 ECONOMIC OVERVIEW GDP, yearly change (%) MarketView Retail Italy The signs of economic recovery in the Euro zone observed in early 2012 worsened during second quarter, fuelled by new uncertainty regarding the political developments in Greece and renewed fears on the solvency of the Spanish banking sector. The decline in economic activity continued in Italy as well, mainly reflecting weak internal demand in terms of consumption as well as investment. A reduction in the households disposable income, burdened by the fiscal consolidation measures, the decline in confidence by companies on the prospects of a short-term recovery and deterioration of the labor market are hindering the recovery. Exports are once again supporting the national economy. GDP There is a continued decline in GDP, which in Q was down 0.8% over the previous quarter and, according to preliminary estimates, dropped 0.7% in. Once again, the decline in internal consumption and fixed investments impacted results, with a quarterly downturn of 0.6% and 3.6%, respectively. The worsening economic results are fuelled by slowing industrial production, down from the summer of 2011 and concentrated in industry and construction, while the services sector is stable. The weakness in production levels also reflects the effects of the recent earthquakes in several zones of the Emilia Romagna region. Companies operating in this area, which is industrially oriented, generally account for approximately 1% of national turnover. Retail sales The retail trade index recorded a 0.4% increase in June. Compared to June 2011, the index declined by 0.5%, due to a drop in sales of non-food products (-1.4%) and an increase in sales of food products (+1.3%). The decline continues to impact mainly small retailers, while the large-scale retail distribution segment is stable. In fact, a comparison with June 2011 shows a positive variation in the large-scale distribution index (+1.8%), but a 2.1% drop for businesses occupying small areas. During the first six months of 2012, the index declined 1.4% over the same period in Sales of food products recorded a slight increase (+0.2%), while nonfood products showed a sharp decline (-2.2%). Consumption indicators The consumer price index in July was almost in line with the prior month, for an average annual variation of 3.1%. The trend in household consumption is down and remains weak, due to deterioration of the prospects in the employment market as well as the decrease in disposable income. In Q1 2012, household consumption decreased by 1% on a quarterly basis. However, the propensity to save is unvaried and household debt during the initial months of the year declined slightly. Page 2 Retail trade index CPI index, Italy Unemployment rate, Italy

3 MarketView Retail Italy SUPPLY Retail stock in Italy during the first six months of 2012 amounted to million sqm of GLA, corresponding to a density of 266 sqm per 1,000 inhabitants, up over the prior year. Approximately 190,000 sqm of new stock was completed during the first six months of the year, of which 68,000 sqm during the second quarter. In particular, four new schemes were completed over the last three months, of which only one medium/large-sized, namely La Cartiera shopping centre in Pompei, in the province of Naples. The other three cases consisted of the completion of the Retail Park near I Gigli di Firenze shopping centre, a small shopping centre in the province of Macerata in the Marche region and a retail park in the province of Milan. The greatest contribution to growth in stock was again provided by the shopping centre segment, which accounted for 83% of the new stock completed during the first six months of the year. This results in a half-yearly stock of 14.4 million sqm of GLA for this type of property. The density of shopping centre stock, up over the prior year, is at the same level as the prior quarter, equal to 238 sqm/1,000 inhabitants. For the purposes of comparison with other markets of the EMEA region, data on stock of shopping centres with over 10,000 sqm of GLA are also provided, accounting for 85% of the total stock. In this case, the stock of shopping centres in Italy during the first six months of 2012 is equal to approximately 12.3 million sqm of GLA. The density is 203 sqm of GLA/1,000 inhabitants, slightly above the average of the EU 27 Countries. PIPELINE Limiting the analysis to projects with a GLA over 10,000 sqm, there were 29 retail projects under construction in June 2012, for a total GLA of 884,000 sqm, with delivery envisaged between the second half of 2012 and Compared to the prior quarter, new stock under construction has been updated with the inclusion of two schemes previously recorded in the pipeline (planning stage). Regarding shopping centres alone (>10,000 sqm), the area under construction amounts to approximately 750,000 sqm, corresponding to 22 projects. The potential volume of new developments (pipeline) is essentially unchanged compared to the prior quarter, with 32 projects that could begin construction in upcoming months. The total area in the pipeline (>10,000 sqm), with expected delivery in is approximately 1.2 million sqm of GLA. The majority of the 22 projects in the pipeline involve shopping centres. RENTS Rents for prime shopping centres in the best locations continue to show a stable trend, despite worsening of the overall economic climate. This is an immediate reflection of retailers flight to quality during periods of general uncertainty, preferring to concentrate their resources on the best spaces and in already consolidated areas. In the High Street sector, there is a growing tendency to reduce/eliminate key money. New retail completions in Italy, GLA sqm and units Main retail completions in Italy, H Name (city) GLA sqm Type La Cartiera (Pompei) 30,500 Shopping center Le Terrazze (La Spezia) 38,600 Shopping center Conca d Oro (Palermo) 54,890 Shopping center Shopping center GLA per capita in EU 15, H1 2012, GLA > 10,000 sqm and PMA Shopping center stock in EU 15 and GLA under construction, H1 2012, GLA > 10,000 sqm e PMA Page 3

4 RETAILERS DEMAND MarketView Retail Italy Retailers demand in prime shopping centres is in line with that of previous months, while demand in secondary centres and/or locations is down. Over the last few months, the worsening global crisis has led retailers to adopt a more cautious approach with respect to a potential market entry and/or expansion, and to increasingly evaluate prime, consolidated markets rather than secondary ones. As observed in other market segments, two diverging trends are becoming clear in retail demand as well: the major national and international retail chains which, despite the decline in sales, are able to limit their losses, continuing with expansion plans that had been launched previously (Inditex, H&M, Coin, Apple,Desigual), and the other, smaller and/or domestic retailers, which are the ones most impacted by the current market situation. For example, some retailers are gradually vacating areas following bankruptcy, such as Coimport and Blockbuster, while others are merely reducing their presence and/or re-thinking their relocation strategy following the contraction of retail sales, such as Kiabi,FNAC and Eldo, which has already closed 12 stores and plans to close others, and Darty, testifying to the extreme difficulty of the electronics segment during this market cycle. On the other hand, retailers that are actively seeking new space in order to strengthen/expand their presence in Italy include: Nike, Pandora - Danish brand of jewellery at affordable prices, present in Italian department stores, Apple - which has opened its tenth store, and Cos, which is planning new locations in Rome and Florence. Moreover, H&M has announced its desire to launch a new brand in 2013, & other stories, aimed at a higher target. Other retailers actively searching for retail space in Italy are Porsche Design, Coolway, Tally Weijl, Six and Nordsee, in addition to Victoria s Secret and Claire s. Potential demand that could increase numbers of active retailers over the next monthts includes brands such as American Eagle, Clas Ohlson, Crabtree & Evelyn, The Sting and TopShop, still absent in Italy. HIGH STREET Rome and Milan are still the main cities in which to open a flagship store, enjoying a level of attention by retailers that is unchanged and steady with respect to prior months, despite the overall difficult economic conditions. New openings continue, the vacancy level remains very low and investors continue to seek opportunities in this market segment as well. More specifically, new flagship stores opened in Milan during second quarter include: Cos, Vionnet (the first singlebrand shop in Corso Monforte), Agent Provocateur (Via Verri, 1), Ash (Via Madonnina) and Deborah (the first singlebrand shop in Corso Buenos Aires). Corso Matteotti continues to attract new retailers such as Borbonese, with a new sales point featuring 4 windows, and Versace and Just Cavalli, to open in upcoming months. In Rome, following the opening of Eataly in April, the new concept of the food chain (sale and supply of food and drink), a new concept store of the Feltrinelli Group was inaugurated, called Red (Read-Eat-Dream), along Via del Corso, offering a new experience of social networking and sharing, with Books as the central focus, accompanied by the offer of food for direct consumption as well as public sale. The first Burberry flagship store entirely dedicated to accessories was also inaugurated in July, in the prestigious Piazza S. Lorenzo in Lucina, where Louis Vuitton recently established its flagship store. Opening of the first single-brand shop of Brook Brothers in the capital is envisaged in the upcoming months. Finally, works have begun to transform the building on Via del Tritone, purchased in July by Central Retail Corporation, into the new Rinascente flagship store in Rome. Works should be completed by mid Future openings in other markets include the March 2013 planned inauguration of the new luxury format of Coin in Verona, named Excelsior. Growing economic pressures are gradually changing the typical characteristics of the High Street sector, which has historically been very stable and landlords driven. For the first time in years, landlords are willing to negotiate contractual terms with retailers, satisfying the requirements of both parties in order to avoid the risk of having empty space for lengthy periods of time. Length of leasing negotiation for high street units is increasing, from months, a standard range for this type of product, to months. The terms and conditions of lease agreements are changing as well: there is an increased tendency among landlords to grant incentives, with the use of key money becoming less frequent. Furthermore, the practice of MGR and turnover-based rent is becoming more widespread in lease agreements for high street units as well, and landlords are gradually replacing property lease agreements with business lease agreements. Prime rents in the main high street in Milan for a standard unit size store, Q2 12 Address Prime rent sqm year (ex.key money) Address Prime rent sqm year (ex.key money) Via Montenapoleone 4,000 Via della Spiga 3,800 Via S.Andrea 2,200 Via S.Pietro all orto 2,200 Page 4 Via Vittorio Emanuele 2,500 Corso Venezia 2,200 Via Manzoni 1,400 Corso Matteotti 1,400

5 MarketView Retail Italy INVESTMENT Investment in Europe s retail sector increased during the second quarter of the year compared to the first, amounting to 6.13 bn, for a total of nearly 11 bn for the first half of the year, a sharp decline compared to the over 20 bn invested during the first half of This is mainly a reflection of the gradual reduction of available core/prime product. The volume of retail investment in Italy during the first half of 2012 amounted to 1.1 bn. Compared to the prior quarter, this volume was updated with the estimated value of disposal of 49% of the quotas of Simon Property in GCI to Immochan, equal to just under 1 bn. This contributed to a 20% increase in investment over the first half of In the second quarter alone, however, investments amounted to 119 million, down 7% compared to the same period of the prior year. Excluding from the analysis the 46 Auchan galleries sold by Simon Property to Immochan, the total volume invested in Italy's retail sector during the first six months of the year amounted to just under 200 million, of which 49% invested in shopping centres, 31% in the HS sector and the remaining 20% in other retail structures such as supermarkets and medium-sized stand-alone units. Italy is seeing growth in product offered for sale, which is predominantly non-prime, and active investors include several international retail specialists and a number of financial investors. Among national investors, domestic Pension Funds are beginning to evaluate investments in shopping centres, although they are still perceived as a highly complex investment. In fact, HS investment enjoys higher demand by local investors, as it is considered more liquid and safer. The growing difficulties encountered in secure a buyer in the sales negotiations involving shopping centre investment continue to be linked to various factors: country risk and availability of debt, sustainability of rents and the still wide gap between buyers and sellers. YIELDS Yields increased for all types of retail properties, both prime assets as well as secondary, reflecting worsening investor confidence in the Italian market and the limited volume of transactions carried out. Prime yield in the high street sector, which continues to be the main target of investors, amounted to 5.5% (gross), +25 bps compared to the prior quarter. Shopping center prime net stood at 6.25%, increased on previous quarter. The analysis of the evolution of the Shopping Centres capital value indicates that the current value is approaching the level prior to 2004, with a nearly 30% decline compared to the peak reached in the second half of The decline is predominantly due to the decompression of yields rather than a decline in rents, which drove value s growth up to Italian Retail investment by type of sub-sector, H Italian Retail investment by purchasers' nationality, H Capital value evolution, prime shopping center vs prime high street, Italy, index Q404=100 Page 5

6 OUTLOOK MarketView Retail Italy According to many operators, Italy s economic recovery is postponed until 2014, and they are therefore preparing to face two years of almost zero growth and declining consumption. According to some estimates, the new austerity measures in 2012, in conjunction with the increase in utilities and petrol prices, will result in an added burden of approximately 450 on household budgets compared to This will clearly have a negative impact on household consumption as well as what is expected within other European households. It will be reflected in a generalised decline in retail sales at the European level. Thus, investors will look at other variables in order to make their decision on where to invest in shopping center, like the quality of the scheme, the competition and the merchandising mix. Some of the trends impacting retail sector and which may strengthen in upcoming months are summarized below: Re-positioning, development of existing assets and creation of value through asset management. Due to the limited availability of credit, the attention of promoters/owners of shopping centres is now turning to the refurbishment/development of existing centres, many of which are now headed towards obsolescence. The layout, merchandising mix and structure of these centres, many of which were built over 15 years ago, no longer satisfy the requirements of new and continuously evolving demand by retailers and consumers. Some have begun to examine their space, excessively large in some cases (such as hypermarkets), and modify their product mix. The crisis is accelerating a change in consumer behavior. As in 2009, Italians are exercising a more restrained and aware approach to consumption, focusing on the quality-cost ratio and with a view to better quality of life, both at the individual level (health and savings) as well as collective (pollution-environment-culture and tradition). For example, in terms of food consumption, we have seen an increase in the number of farmers markets, where the farmers/producers sell directly, a trend that is underway in the other Western countries as well (USA, Germany and France). In 2011 alone, the number of direct consumers increased 15% over 2010, according to the CIA (Confederazione Italiana Agricoltori Italian Farmers Confederation), and the trend is growing: in the first 6 months of 2012, over 2 million consumers purchased directly from the producer. New sales channels are being explored: large-scale retail distribution in petrol stations. Italy is considered one of the core markets by the large Oil & Gas corporations and, despite the rationalisation carried out in recent years by the companies already present, new companies are still entering Italy, such as Lukoil, which opened 11 new locations in our Country in Less than one-third of petrol stations in Italy have a shop. This is due to planning rules which have until now encouraged the development of small shops and hindered the creation of large sales structures. Now that legislation is increasingly oriented towards liberalisation of retail activities, a number of retailers are starting to view petrol stations as a potential channel for growth. For example, Carrefour, which alone accounts for 0.1% of the fuel sold in Italy, has inaugurated the first Carrefour Express in the network of Agip stations near Bologna. Some interest from financial investors in the acquisition of retail portfolio and/or assets trough JV with retail specialist is still alive. As it was highlighted during 2011, the shopping center/retail park investment demand from financial investors that are willing to invest trough a JV structure with a retail specialist, continues to be sound. This investment structure, used by Allianz and Corio in the purchase of Porta di Roma at the end of 2010 in Italy, allows financial investors to benefit from the know-how, expertise and asset management skills of the retail specialist, and the specialist, to share the risk of the investment and to invest in large lot sizes. The retail market is now entering a new era, no longer characterized by accelerated growth. The shopping centre product will be a key factor in creating/recovering value in upcoming months, through the capacity to attract a new type of consumer and offset the additional expected decline in household consumption and retail sales. It will likely boost the attractiveness of shopping centres for the investors too, who are still seeking a safer and less risky investment, with a stable cash flows over time. For further information please contact: Raffaella Pinto Head of Research, Italy Via del Lauro 5/ Milan t: e: raffaella.pinto@cbre.com Disclaimer 2012 CBRE S.P.A. Information herein has been obtained from sources believed to be 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 CBRE clients, and cannot be reproduced without prior written permission of CBRE. Copyright 2012 CBRE Page 6