Rostock. Rostock. Berlin. Leipzig. Office Retail market Hotel. Potsdam

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1 Rostock Dresden Erfurt Rostock Berlin Leipzig Potsdam Office Retail market Hotel Property market in Berlin and Eastern Germany2016

2 Contents Contents Editorial Executive Summary Economic Environment Berlin Office Property Market Berlin Retail Property Market Berlin Hotel Property Market Berlin Economic Environment eastern Germany Office Property Market eastern Germany Retail Property Market eastern Germany Hotel Property Market eastern Germany List of references Contacts Company and legal information

3 Editorial Executive Summary Dear readers, In 2016 we are continuing a success story that began almost 10 years ago. In the intervening decade, the German capital, Berlin, and the country's eastern regions, have evolved. They have shaken off their image of always lagging behind their western counterparts, and have emerged to attract heightened investor interest, including from international investors. Our figures, which detail the growth in the region's office, retail and hotel markets, confirm this positive trend. Growth was recorded across the board for all relevant key market indicators in Berlin and eastern Germany's regional centres: Dresden, Leipzig, Rostock, Erfurt and Potsdam. The populations of all six cities are on the rise, especially as a result of the large numbers of young people they are attracting. Leipzig's population alone has increased by 7.5 percent over the last five years, and, at the same time, the city's unemployment rate has fallen by almost 25 percent. Berlin aside, the quintet of eastern German cities comprising Dresden, Leipzig, Rostock, Erfurt and Potsdam have seen their unemployment rates drop to below 10 percent, a level that beats even the Ruhr region's biggest cities. The five cities have also been able to significantly expand their economies, with double-digit GDP growth in Erfurt and Leipzig since The region's tourism industry has been a major contributor. Taken together, overnight stays have surged by 21 percent over the last five years in Dresden, Erfurt, Leipzig, Potsdam and Rostock. For its part, the German capital enjoyed a record year in Berlin was Germany's most important market for commercial property investments, and the city also ranked first for retail space take-up and transactions. In the office investment market, Berlin narrowly lost out to the long-term reigning champion, Frankfurt am Main, last year. Berlin's flourishing hotel market is the direct result of the city's growing popularity, which has elevated the city to third place in Europe's tourism league, trailing just behind London and Paris in terms of overnight stays and visitor numbers. There were, admittedly, a number of large-scale, individual transactions in the sector which attracted international attention, and gave a major boost to the hotel market's exceptional results. Nevertheless, the capital's sustained economic upswing means that conditions will remain favourable in the long term, enabling the city to maintain its key market position. In this report, we are pleased to be able to present a full range of detailed figures and indicators that document the positive developments in eastern Germany's property markets. Based on the information we have compiled, we continue to view these markets as attractive locations that offer highly profitable investment opportunities. With our specific regional expertise, we are committed to helping our region to write the next chapters of its success story. We wish you an enjoyable and insightful read! Peter Finkbeiner Member of the Management Board Niclas Karoff Member of the Management Board Berlin Berlin's economic growth leaves the rest of Germany in its wake With year-on-year growth of 3 percent, the German capital's economy grew by almost twice the national average (1.7 percent). This positive growth in real GDP is reflected in the city's labour market. Although the unemployment rate in Berlin was still relatively high at the end of 2015 at 10.1 percent, the year also saw significant employment growth in comparison to The number of people in active employment in the Spree metropolis grew to 1.85 million last year. This is not only the highest figure since 1991, it also strengthened Berlin's position as the state with the fastest-growing labour force in Germany. There is a direct correlation between the growth in employment and the growth in the per capita purchasing power, which averaged EUR 20,300 for the 12 months of 2015, and represented an increase of 2.6 percent over the previous year. Berlin's robust economic environment has prompted investors to view the city as one of the top investment centres in Europe. This is reflected equally in both the rankings of investment attractiveness and in the city's overall property investment volume. Investment in commercial property in Berlin totalled EUR 8.3 billion in 2015, breaking single-year commercial property investment records not only for Berlin, but for all German cities. Office Building Mediaspree, Berlin Record transaction volume for office property in Berlin The number of office employees subject to social security contributions in Berlin has been increasing steadily since There were a total of around 556,000 office employees in Berlin in 2015, an increase of 2.9 percent over the previous year. Young, innovative companies are driving much of this growth. Each of Berlin's start-ups creates an average of 28 jobs far in excess of the national average, and more than enough to place Berlin firmly at the top of national rankings on this measure. The strong rise in service sector employment also had a positive impact on the take-up of office space in Berlin, which amounted to 848,000 square metres for the year. The central districts of Mitte and Kreuzberg secured a large slice of this activity. They also recorded the strongest growth in the development of new office space in One of the most significant developments in Mitte last year was the addition of substantial amounts of new office space in the Europacity area around the main railway station and in the Mediaspree area in Friedrichshain-Kreuzberg. Throughout 2015, the availability of office space continued to lag far behind demand, leading to further significant reductions in vacancy rates. The average vacancy rate in 4 5

4 Executive Summary Executive Summary Eastern Germany Eastern Germany's cities develop into vital regional centres Berlin's office sector was 3.8 percent in 2015, a decrease of 1.2 percent compared to Berlin's booming economy has had a positive impact on the city's office investment market. A new record was set in 2015, as the office transaction volume totalled around EUR 4.45 billion. As Berlin's office investment and rental markets have gained in attractiveness and stability, net initial yields have fallen. The yield for offices in central locations declined from 4.6 percent in the previous year to 4.1 percent in 2015, and from 6.5 percent to 6 percent in Berlin's city fringe locations. In contrast, the rental market was characterised by solid growth. Rents in the prime segment climbed to EUR 23.70/sqm in 2015, adding 5 percent to the prior year's figure. Berlin's retail property market leading the way in take-up and transactions Berlin's retailers have benefited from the city's favourable economic environment. The stable employment situation, rising employment figures, positive wage growth and greater purchasing power have all fuelled retail sales in the city. For 2015, Berlin's retailers reported annualised sales revenue growth of 2.2 percent At the same time, sales Kurfürstendamm, Berlin revenues per capita amounted to around EUR 6,140, which is above the national average. Grocery and drinks retailers were amongst the biggest winners. In real terms, sales revenues in this segment were up by 3.6 percent in 2015, compared to These healthy retail performance indicators have, in turn, had a positive impact on the rental and investment retail property markets. As a result, Berlin has a strong lead at the top of the German retail property league table, both in terms of the highest take-up volume in Germany, at 42,000 square metres, and the most spectacular transaction volume of around EUR 2.1 billion. Strong investor demand throughout 2015 was seen to put increasing pressure on yields in Berlin's retail property market. The biggest declines were observed in central districts, where yields fell to a low of 3.9 percent in In parallel, rents for retail space continued to rise especially for large retailers and retail chains in the non-food segment. In comparison to 2014, prime rents for large retail spaces added as much as 19 percent. Germany's capital shatters all tourism records For a number of years, Berlin has been the leading destination for city breaks within Germany and one of the most important tourism centres in Europe. Berlin further strengthened its leading position in 2015, with 12 million tourists checking into the city's hotels, which translated into more than 30 million overnight stays. Berlin has established itself as an extremely attractive tourist destination, which has fuelled a surge in demand for rooms in the city's hotels and led to increased room occupancy rates. This is demonstrated by the impressive 12 percent growth in hotel room occupancy rates since In the five years between 2010 and 2015, the average daily rate (ADR) for a hotel room increased by 8 percent and the revenue per available room (RevPAR) rose by 21 percent. Berlin's hotel investment market responded enthusiastically to the city's charismatic performance on the tourist stage and, with EUR 650 million of investment, set a new record for hotel transaction volumes. As a result, Berlin ranked second among Germany's major seven cities, just behind Munich. Eastern Germany's regions and, above all, its major cities, Dresden, Leipzig, Rostock, Erfurt and Potsdam, are increasingly developing into key drivers of the German economy. This has had a noticeably positive impact on the region's labour markets. At the end of 2015, all of the five above-mentioned cities reported single-digit unemployment rates for the very first time. The jobless rates in Potsdam and Dresden, at 6.9 percent and 7.7 percent were low, even in relation to the national average. The five cities also reported high rates of population growth. The highest nominal population growth last year was recorded in Leipzig, which added almost 13,000 inhabitants. Leipzig's office workforce booms as vacancies plummet Over the last five years, office workforces in eastern Germany's cities have experienced particularly rapid growth. This boom was particularly strong in Leipzig, where the office workforce grew by 12.9 percent in the period between 2011 and The healthy jobs figures in these five cities had a positive impact on office markets, fuelling demand for office space and leading to reductions in vacancy rates. As the supply of newly developed office space remained stagnant, largely as a result of the region's relatively low rents, there was a marked increase in the take-up of vacant space in existing office schemes. Leipzig is once again setting the pace, with vacancy rates falling by 6.1 percent since Despite the economic gains made in the cities included in this report, rents remained stable and rental yields solidified at a relatively high level. Retail market: Positive trends for rents and purchasing power With the exception of Erfurt, consumer purchasing power has increased in all of these cities since Potsdam achieved a purchasing power index score of 99, thereby almost matching the national average, and establishing itself as the top eastern German city, nearly three index points ahead of Berlin. In terms of per capita retail spending and retail centrality, retail markets in eastern Germany remained stable during the same period. Fishmarket, Erfurt On the whole, rents in the retail property market are trending positively in eastern Germany's cities. Prime rents grew fastest in Leipzig and Rostock, adding 8 percent and 6 percent for smaller spaces up to 100 square metres and as much as 11 percent and 18 percent for larger spaces over 150 square metres. Tourists flock to eastern Germany's cities Eastern Germany's positive employment and economic growth has been given a significant boost by the region's attractiveness as a tourist destination for both culture lovers and recreational travellers. The five cities of Dresden, Leipzig, Rostock, Erfurt and Potsdam have been successfully attracting larger volumes of visitors for years, along with a rising quantity of domestic and international business travellers. With the exception of Dresden, the number of overnight stays in the region's hotels was up again in 2015, with the strongest growth recorded in Potsdam and Erfurt, at almost 7 percent and just under 5 percent respectively. Increased demand from guests pushed room prices higher in all five cities, correspondingly resulting in an increase in revenues per room. Rostock's near 8 percent jump in room revenues is particularly striking. 6 7

5 Economic Environment in Berlin Economic Environment in Berlin Economic Environment in Berlin Berlin is growing almost twice as fast as the rest of Germany Population development in Berlin District Change in % ( ) Pankow 384, , % Mitte 356, , % Tempelhof-Schöneberg 335, , % Berlin s commercial property market continues to benefit from the city s sustained economic expansion and generally favourable economic conditions. For the third year in a row, Berlin s economy grew. With a 3 percent rise in real GDP, growth significantly outstripped the national average of 1.7 percent Among Germany s 16 federal states, Berlin ranked second, behind only Baden-Württemberg. 1 Constant population growth has had a positive effect on the entire property market, including the take-up of space by commercial tenants. According to Berlin s official census statistics, the city had 3.6 million inhabitants at the end of 2015, 1.3 percent more than at the same time one year earlier. The city s population growth has primarily been driven by the arrival of large numbers of refugees and citizens from other European Union countries. With above-average annual growth of 2.5 percent, the district of Berlin-Lichtenberg registered the largest gains. The next Development of real gross domestic product Change according to previous year in % Berlin Germany 6 % 5 % 4 % 3 % 2 % 1 % 0 % -1% -2% Senate Department for Economics, Technology and Research, press release from 30 March 2016, Berliner Wirtschaft auf Wachstumskurs [Berlin s Economy on Growth Trajectory] Highest increase of population in Berlin-Lichtenberg 0.2 biggest increase in population was seen in the districts of Mitte (+1.9 percent) and Spandau (+1.8 percent). Tempelhof- Schöneberg and Treptow-Köpenick also ran ahead of the national average, with both districts reporting 1.6 percent more inhabitants at the end of the year. Steglitz- Zehlendorf was the Berlin district with the lowest rate of growth, at 0.2 percent. Berlin Germany s new job creation engine The labour market provided a range of positive signals for Berlin s commercial property sector throughout The year-end unemployment rate was 0.4 percent lower, having fallen to 10.1 percent according to the Federal Employment Agency. 2 Last year s drop in unemployment was accompanied by a steady rise in employment. The workforce grew by 2 percent in 2015 in comparison with 2014 s figures, reaching a total of around 1.85 million. This means that employment in Berlin is at its highest level since 1991 and this growth rate lifts Berlin to first place among Germany s 16 federal states. 2.1 Source: Federal States Annual Accounts 2 Federal Employment Agency, Arbeitsmarkt in Zahlen. Arbeitsmarktstatistik 2014 und 2015 [Labour Market in Figures, employment statistics for 2014 and 2015] 3.0 Charlottenburg-Wilmersdorf 326, , % These new jobs are primarily concentrated in the service industry sector, and are above all attributable to finance, insurance and corporate service providers, along with retail, transportation, hospitality and information and communication technology companies. 3 With such strong employment figures, Berlin can be described as one of Germany s major job creation engines. Positive labour market developments in Berlin have consequently led to an increase in consumer purchasing power. According to MB Research, per capita purchasing power for the full year 2015 amounted to just under EUR 20,300, which represents a Neukölln 325, , % Steglitz-Zehlendorf 299, , % Friedrichshain-Kreuzberg 275, , % Lichtenberg 268, , % Marzahn-Hellersdorf 256, , % Reinickendorf 254, , % Treptow-Köpenick 249, , % Spandau 230, , % Berlin 3,562,166 3,610, % * These census statistics include data from the population register maintained by the Landesamt für Bürger- und Ordnungsangelegenheiten (LABO). In contrast to official census reports, these population figures offer a more detailed assessment of demographic developments beyond district level and are therefore viewed as more reliable, a fact which is reflected in the debate surrounding the lower than expected official assessment of Berlin s total population in the recent census. The figures contained in the population register statistics differ from the data presented by the 2011 census and the official assessment of Berlin s population figures. It is therefore not possible to compare the population figures presented in this report with the figures presented in previous years. 3 BBS, press release from 17 March 2016, Erwerbstätigkeit im 4. Quartal 2015: in Berlin weiterhin höchster Anstieg aller Bundesländer, positive Entwicklung im Land Brandenburg [Employment in Q4 2015: Berlin again registers fastest growth in Germany, positive growth in Brandenburg] Source: Berlin-Brandenburg Office of Statistics, population register* year-on-year increase of 2.6 percent. Nevertheless, with an index score of 92.9, Berlin s per capita purchasing power was still 7 points lower than the national average for 2015 of EUR 21,865. Two of Berlin s districts Steglitz-Zehlendorf and Charlottenburg-Wilmersdorf recorded above-average per capita purchasing power of EUR 23,530 and EUR 22,890, respectively. The lowest figures for per capita purchasing power were reported in Lichtenberg (EUR 18,605 per person) and Marzahn-Hellersdorf (EUR 18,756 per person), although these two districts have registered the most dynamic gains in per capita purchasing power over the last two years. 8 9

6 Economic Environment in Berlin Economic Environment in Berlin Labour market in Berlin Unemployment rate Per capita purchasing power in Berlin in EUR Growth rate in % ( ) Lichtenberg Marzahn-Hellersdorf Neukölln Mitte Friedrichshain-Kreuzberg Pankow Spandau Treptow-Köpenick Reinickendorf Tempelhof-Schöneberg Charlottenburg-Wilmersdorf Steglitz-Zehlendorf Size of workforce Berlin Deutschland % % ,846, ,810,256 Employment rate development % Source: Federal Employment Agency, Berlin-Brandenburg Office for Statistics 18,035 18,605 18,155 18,756 18,547 18,987 18,591 18,856 18,867 19,409 19,175 19,771 19,356 19,826 19,472 20,128 20,214 20,675 20,331 20,834 22,887 23,375 23,531 24,077 19,782 20,303 21,323 21, % 3.3% 2.4 % 1.4 % 2.9 % 3.1 % 2.4 % 3.4 % 2.3 % 2.5 % 2.1 % 2.3 % 2.6 % 2.5 % Source: MB Research Sound economic conditions and a healthy business environment are two of the major factors that have enabled Berlin to establish itself as one of Europe s most attractive property markets. This is demonstrated by the fact that Berlin has held onto first place among Europe s real estate centres in PwC/ULI s latest city ranking Emerging Trends in Real Estate Europe Berlin is hailed as the European city with the best investment prospects for 2016, thanks to its strong socio-economic conditions and relatively low property prices. 4 Investment volume surges to new record Berlin s transaction market broke all national records in Investment in commercial property surged to EUR 8.3 billion, more than has ever been invested in a single German city in any 12-month period. The spectacular 94 percent surge in investment volume in comparison to 2014 meant that Berlin knocked the previous leaders, Frankfurt and Munich, off the top of the ranking tables. Berlin s incredible transaction volume is mainly due to a number of large-scale deals of EUR 100 million and more. In 2014, deals worth more than EUR 100 million accounted for 24 percent of commercial property transactions, a share that surged to 45 percent in The biggest transactions in the EUR 100-million-plus category included the sale of the Potsdamer Platz Ensemble and the deal for the mixed-use The Q scheme. Office properties continued to dominate the investment market, accounting for 54 percent of all commercial property investment in Berlin in In comparison with the previous year, office properties extended their lead over other property categories by a further 14 percent. Retail properties also increased their share of Berlin s transaction market during the course of The retail property segment accounted for a quarter of the total investment volume in 2015, adding approximately 4 percent to the share it achieved in the previous year. The third biggest share of investment in 2015, at around 8 percent was taken by hotel property, which slipped back 0.4 percent in comparison to PwC/ULI, Emerging Trends in Real Estate, Europe 2016, London 2016 Oberbaumbrücke, Berlin The edge of the city is getting more attractive In terms of geography, investments in commercial property were fairly evenly spread across Berlin. Around 35 percent of overall commercial property investment was targeted at prime, central locations, representing an increase of 9 percent over the previous year. Much of this increase is attributable to the deal for the Potsdamer Platz Ensemble. City locations, with a 31 percent share of the 2015 transaction market, were narrowly beaten into second place. The share of investment in city locations was actually down on 2014, declining by roughly seven percentage points. It is interesting to note that commercial property investments in city fringe locations became significantly more attractive to investors in comparison with Thus, investment in city fringe locations rose by around 5 percent climbing to a share of 20.5 percent of overall investment. Investment in commercial properties in peripheral locations totalled 13 percent, a slight decline of 1.5 percent in relation to the prior year. Conditions in Berlin s property investment market should remain positive Growing interest in investment in city fringe locations Investment according to property type in Berlin in % Other 9.8 Development land 8.2 Hotel Logistics 7.1 Other 4.4 Development land 7.8 Hotel 1.8 Logistics throughout Sustained economic growth and strong demand for property investments create the ideal climate for further healthy transaction volumes in Berlin. That said, few expect that the transaction volume for 2016 will beat the record set in Office 20.8 Retail 53.7 Office 25.2 Retail Source: BNP Paribas Real Estate

7 Office Property Market Berlin Office Property Market Berlin Further Gains in Office Employment Office-space turnover according to sub-market Sub-market Office space stock (sqm) Share of Berlin office space stock Office space stock change ( ) Office space turnover (sqm) Share of Berlin turnover Adlershof 355, % 4.5% 61,000 7% Demand for office space in Berlin continues to rise, largely as a result of steady overall employment growth. The number of office employees subject to social security contributions has grown at an average annualised rate of 2.9 percent since There were around 556,000 office employees in Berlin in 2015, a rise of 2.9 percent since The strongest employment gains have been seen in the service sector, which accounts for 88 percent of all employment in Berlin. 5 Mitte and Kreuzberg strengthen position as magnets for office tenants Employment in Berlin has been given a major boost by the huge number of new start-ups in the city: Young and innovative companies with a focus on e-commerce, the media and creative economy, as well as business advisory services and IT/software development. 6 Figures compiled by the German Start-Up Monitor reveal that Germany's start-ups created an average of 18 jobs each (including their founders), while start-ups in Berlin were responsible for creating an average of 28 jobs each. This placed Berlin at the top, yet again, when Germany's cities are ranked according to this benchmark. 7 A majority of Berlin's start-ups are located on the fringes of central districts largely following the sweep of the city's circular commuter rail line, i. e. in the districts of Kreuzberg or Prenzlauer Berg. Convenient links to Berlin's public transportation system are clearly an important factor. Interest in office space in the districts of Mitte and Kreuzberg has been particularly pronounced. This strong expansion of Berlin's start-up sector has combined with the steady growth enjoyed by the city's more established companies to have a positive impact on the take-up of office space. Compared to 2014, office space take-up in Berlin during 2015 surged by 24 percent. Mitte and Kreuzberg shared first position among Berlin's submarkets, each securing 11 percent of the overall take-up volume. These two submarkets were closely followed by Mediaspree and Mitte 1a, which each accounted for 10 percent of the office take-up volume. Shortage of available office space and dynamic development of Europacity At the end of 2015, Berlin had approximately 18.9 million square metres of office space on offer, which represented an increase of 1 percent compared to the previous year. There has been no change in the share of total office space across the city's submarkets since 2010, and the largest volumes of office space continue to be in Mitte and Berlin's southern and eastern peripheral locations. These urban markets account for 11.8 percent, 10.9 percent and 10.5 percent of Berlin's office market, respectively. The central area around Europacity at Berlin's main train station has enjoyed reinforced office construction in recent years. The amount of office space in the area grew by an enormous 42 percent between 2014 and 2015, whereas Berlin's largest office submarket, Mitte, only added 6 percent more space over the same period. Berlin's Senate approved the Masterplan Berlin Heidestraße in 2009, outlining its urban development concept for the 40-hectare quarter between Nordhafen, Heidestraße and Humboldthafen. What was once seldom used brownfield land has now become one of the biggest construction sites in Berlin, and will soon be home to a large number of residential and commercial properties. Despite high levels of demand, the amount of office space on offer in many of Berlin's submarkets remained relatively flat between 2014 and 2015, with some submarkets even retreating into negative territory. The supply of available space in Tiergarten, home to both Europe's largest inner-city green space and a concentration of embassies, registered a slight decline of 0.7 percent for the year. Potsdamer Platz and Leipziger Platz, once the biggest office construction sites in Berlin, have seen supply stagnate over the last two years. Potsdamer Platz has lost a number of major tenants, including Daimler, PriceWaterhouseCoopers (PwC) and JLL. The centre of Berlin's office market has been steadily, and noticeably, gravitating towards Hauptbahnhof/Europacity, which has already been able to attract a number of significant tenants and towards Mediaspree, where a lot of new offices are being built. Charlottenburg 1,149, % 0.2% 52,000 6% Friedrichshain (without Mediaspree) 410, % 0.0% 7,500 1% Main train station / Europacity 183, % 42.3% 32,900 4% Kreuzberg 1,068, % 0.2% 89,600 11% Kurfürstendamm and side streets 507, % 0.0% 31,000 4% Mediaspree 572, % 0.7% 89,000 10% Mitte 2,224, % 5.6% 90,000 11% Mitte 1a 1,884, % 0.3% 82,200 10% Periphery North 1,588, % 0.1% 50,361 6% Periphery East 1,980, % -0.3% 34,100 4% Periphery South 2,058, % -0.1% 35,000 4% Periphery West 1,087, % -0.3% 31,800 4% Potsdamer-/ Leipziger Platz 500, % 0.0% 24,000 3% Reinickendorf 449, % 0.0% 20,500 2% Schöneberg 696, % -0.1% 29,910 4% Tiergarten 1,279, % -0.7% 52,100 6% Wilmersdorf 933, % 1.0% 35,029 4% Berlin 18,929, % 1.0% 848, % Source: Bulwiengesa, own research 5 BBS, Volkswirtschaftliche Gesamtrechnungen, Bruttoinlandsprodukt und Bruttowertschöpfung im Land Berlin nach Wirtschaftsbereichen 1991 bis 2015, Berlin 2015 [National economic accounts, GDP and gross value added in Berlin by sector between 1991 and 2015, Berlin 2015] 6 JLL, Berliner Start-Ups als Büronutzer Auf dem Weg zum Establishment?, [Berlin's start-ups as office tenants on their way to joining the establishment? ], October KPMG, 3rd German Start-up Monitor, 2015

8 Office Property Market Berlin Office Property Market Berlin Substantial reduction of office vacancies in Berlin Strong demand and relatively moderate levels of office construction have led to significant reductions in office vacancies in Berlin. The average vacancy rate for office properties in the city fell to 3.8 percent in 2015, a decline of 1.4 percent in the 12 months from In 10 of the 18 submarkets included in this report, office vacancies were below the Berlin average with the greatest variance between prime and city centre locations. The lowest vacancy rate in 2015 of just 0.6 percent was reported in Kreuzberg, followed by Mediaspree (1.0 percent vacancy rate), Friedrichshain (1.2 percent) and Wilmersdorf (1.6 percent). Reinickendorf, a district on the fringe of the central business district, saw the biggest decline in vacancies, which were 3.1 percentage points lower than in 2014, followed by Kurfürstendamm and its side streets, which enjoyed a decrease of 2.8 percent. There was also a substantial decline in vacancies in the district of Wilmersdorf, to the south of Kurfürstendamm, with a 2.1 percent drop for the year as a whole. Office property transaction volume in Berlin Transaction volume in EUR million Change compared to previous year in % 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,487-47% % -14% 6% 1,881 1,621 1, % transaction volume of EUR 4.45 billion 4, Source: BNP Paribas Real Estate, own research for offices in Berlin a new record 2015 Record year for Berlin's office transaction market Berlin's office transaction market celebrated a new record high in 2015, as the transaction volume climbed to EUR 4.45 billion. Compared with 2014, this represents an increase of just below 160 percent. This spectacular transaction volume puts Berlin hot on the heels of the current reigning champion, Frankfurt, which has yet to lose its status as the leading German office transaction market, and reported a transaction volume of EUR 4.53 billion for Berlin's record year-end transaction volume was largely the result of the sale of the Potsdamer Platz Ensemble for billions of euros to the Canadian investor, Brookfield. The deal involved 17 buildings, many of which are high-rise office towers, for what was widely reported as an estimated price of around EUR 1.4 billion. The scale of this portfolio sale made it one of the biggest commercial property transactions in Germany in recent years. According to BNPP RE, office property accounted for around 54 percent of all property transactions in Berlin during 2015, which represents a rise of approximately 14 percent compared with This ensured that the office segment strengthened its position as the most popular property category. 8 Boosted by low interest rates and cheap loan capital, in combination with a moderate number of pipeline office developments and rising office employment, demand for office space in Berlin is set to remain at high levels throughout 2016, and the city's office market is forecast to enjoy further positive growth. At the same time, this year's transaction volume is not expected to beat the extraordinarily positive result in 2015, unless we see similar large-scale deals involving billions of euros, as was the case for the Potsdamer Platz Ensemble mentioned above. Pressure on office yields intensifies Berlin's ongoing economic growth has served to make investments in the city's office sector more attractive than ever. The Spree metropolis is widely regarded as having stable investment and rental markets, and enjoys one of the highest levels of demand for office 8 BNPPB RE, Investmentmarkt Deutschland. Property Report 2016 space in Germany. The enormously high level of activity on the transaction market, and rising demand for core properties, combined with the scarcity of available office properties, intensified pressure on yields in Net initial yields for office properties in central and peripheral locations in Berlin have been falling continuously since This trend continued in 2014 and yields in central submarkets were squeezed to 4.1 percent, which represents a decrease of 0.5 percent in comparison with the previous year. Year-on-year, the rate of return for office properties in peripheral locations also fell by 0.5 percent and was down to just under 6 percent by the end of The long-term trend for the period between 2010 and 2015 has seen yields for office properties in Berlin's central locations pushed 1.2 percent lower, with returns in peripheral locations sinking over the same period by 1.5 percent. Prime rents rise by 8 percent In 2015 Berlin office prime rents rose to EUR 24.30/sqm, an increase of 8 % in comparison with 2014's figure. This was mainly the result of the district Mitte with the most sought after office submarkets within Berlin. The lowest prime rents were however recorded in the peripheral districts in eastern Berlin. Average office rents climbed to EUR 14.80/sqm. Current analyses show that rents for office properties in Berlin are on the rise as well in the first half of Thus, Savills office Office rents Berlin Average rent prices in EUR/sqm Prime rent prices in EUR/sqm Average rent prices for Berlin office property Average rent prices (EUR/sqm) market report for Berlin reports an average rent of EUR 15.60/sqm and prime rents of EUR 25.90/sqm. Highest rents where recorded in Mitte, averaging EUR 16.80/ sqm, followed by the districts of Charlottenburg with EUR 15.80/sqm, Kreuzberg with EUR 15.20/sqm and Friedrichshain with EUR 14.70/sqm. Office owners in Prenzlauer Berg and Tiergarten also achieved high rents of EUR 14.10/sqm and EUR 13.40/sqm. Initial net yields for office property in central and peripheral locations in Berlin Initial net yields for central office property in % Initial net yields for peripheral office property in % 10 % 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 0 % Source: bulwiengesa, own research Source: Savills Mitte Charlottenburg Kreuzberg Friedrichshain Prenzlauer Berg Tiergarten Berlin Source: Savills

9 Retail Property Market Berlin Retail Property Market Berlin Retail Property Market Berlin Strong economic growth had a positive impact on both consumer confidence and consumer spending in The increase in consumer spending has fuelled retail growth and consequently given a boost to the retail property market. The German market research company GfK's Consumer Confidence Index, which serves as an important indicator for consumer spending, rose to 9.3 points in December 2015, an increase of 0.6 points compared to the same prior year month. 9 A significant increase was also registered in price-adjusted private consumer spending in Germany, which grew at a faster rate than at any point in the last 15 years, finishing the year 1.9 percent higher than at the same point in Key retail indicators trending upwards The retail market in Berlin benefits from a range of favourable economic conditions. A stable labour market and steady wage growth, both of which are set to continue for the foreseeable future, have been key contributors to retail growth. A further key factor is retail-related consumer purchasing power, assessed as the proportion of households' disposable incomes used for retail purchases. The retail-related purchasing power for households in Berlin in 2015 was Development of private consumer expenditure in Germany Change compared to previous year in % EUR 6,226 per head of population, which represents an increase of 1 percent compared to The Berlin purchasing power index climbed to just 3.6 points below the national average in The districts with the highest levels of purchasing power were Steglitz-Zehlendorf and Charlottenburg-Wilmersdorf, where purchase power index scores of and points were significantly higher than the national average. Households in the central district of Mitte had the most limited budgets for retail purchases (91.2 index points), which is a direct result of the high proportion of low-income households in the area (e.g. students and people with a migration background). Purchasing power was only slightly higher in other districts with comparatively large numbers of low-income households, such as Lichtenberg (91.8 points) and Marzahn-Hellersdorf (92 points). Berlin's economic growth, driven by higher employment, increased purchasing power and buoyant consumer confidence, contributed to strong retail sales growth in Sales for the year were 2.2 percent higher than in 2014, and Berlin's retailers generated sales revenues of EUR 21.3 billion. Retail spending per capita rose to EUR 6,140, which is around EUR 380 higher than the national average. Food and Mall of Berlin, Leipziger Platz, Berlin drink retailers were the biggest winners as consumer confidence picked up. Real retail sales in this segment rose by 3.6 percent in Within Berlin, Mitte's strong retail market and large department stores accounted for the greatest share of total retail sales (15 percent). The district of Charlottenburg-Wilmersdorf, home to a multitude of luxury retailers and fashion boutiques along Kurfürstendamm, ended up 0.7 percentage points behind Mitte. Nearby Tauentzienstraße, the most frequented street in Berlin (7,576 pedestrians per hour), made a major contribution to the district's impressive retail sales volume. 10 The smallest share of retail sales (5 percent) was reported in Lichtenberg, which is an overwhelmingly residential district. The relationship between retail sales and retail-relevant purchasing power is commonly referred to as retail centrality, and acts as a measure of a city's attractiveness as a retail Source: Federal Office of Statistics. Volkswirtschaftliche Gesamtrechnungen 9 Gfk, press release from 27 January 2016, Konsumklima steigt wieder leicht [Consumer climate improves marginally] 10 BNPPBRE, Retailmarkt Deutschland. Property Report 2016 ; Retail property transaction volumes in Berlin Transaction volume in EUR million Change according to previous year in % ,500 2,300 2,100 1,900 1,700 1,500 1,300 1, , % % 1,153 12% 1,297 ascending -32% 888 descending 135% ,090 Source: BNP Paribas Real Estate, own research

10 Retail Property Market Berlin Retail Property Market Berlin Retail relevant purchasing power in Berlin Purchasing power index, Germany = 100 Steglitz-Zehlendorf Charlottenburg-Wilmersdorf Tempelhof-Schöneberg Treptow-Köpenick Reinickendorf Pankow Friedrichshain-Kreuzberg Spandau Neukölln Marzahn-Hellersdorf Lichtenberg Mitte Berlin 80 Mitte Charlottenburg-Wilmersdorf Tempelhof-Schöneberg Steglitz-Zehlendorf Pankow Neukölln Reinickendorf Spandau Treptow-Köpenick Friedrichshain-Kreuzberg Marzahn-Hellersdorf Lichtenberg 0 % 90 5 % Source: MB Research Share of Berlin retail turnover according to city district in % % 15 % Source: MB Research, own research Retail centrality scores in Berlin according to city district Retail centrality score, Germany = 100 Mitte Charlottenburg-Wilmersdorf Tempelhof-Schöneberg Spandau Steglitz-Zehlendorf Reinickendorf Treptow-Köpenick Marzahn-Hellersdorf Neukölln Friedrichshain-Kreuzberg Pankow Lichtenberg Berlin Source: MB Research centre. Berlin had a retail centrality score of in 2015, placing the city well ahead of the national average of 100. In comparison with the previous year, Berlin's retail centrality increased by 0.7 points. Nevertheless, retail centrality in the Spree metropolis varies considerably from district to district. Major tourist destinations, such as Mitte and Charlottenburg-Wilmersdorf, had incredibly high retail centrality scores of 175 and 160 respectively. As these two districts are popular among both tourists and business travellers, it is no surprise that the volume of sales attributable to these guests, and the correspondingly high retail centrality scores, are so significant. These two districts are by far the most important and most attractive retail centres in Berlin. In marked contrast, Lichtenberg's retail centrality score of 77.5 was far below the national average in Berlin Number one for take-up and transactions Berlin's retail property market was the top performer in Germany in two respects: Take-up volume and transaction volume. At 42,000 square metres, Berlin reported by far the highest take-up volume for retail space among Germany's top ten cities.* The full-year result meant that Berlin beat second-place Cologne by almost 11,200 square metres. 11 At 23,410 square metres, the city's central A-rated locations accounted for the lion's share of take-up volume. First place was seized by Kurfürstendamm, with a total of 16 concluded leases in the luxury and consumer segments. Berlin is also the absolute pace setter in terms of retail property transactions. At around EUR 2.1 billion, the volume of retail property transactions in the Spree metropolis in 2015 was nothing short of spectacular, and more than doubled the EUR 910 million result achieved by second-place Düsseldorf. In comparison with 2014, the transaction volume in Berlin's retail property segment grew by an exceptional 135 percent. This noteworthy developments owes much to a number of large-scale shopping centre transactions, including, for example, the sale of the Potsdamer Platz Ensemble and deals for centrally-located commercial properties such as the Gloria Galerie on Kurfürstendamm. 12 Retail property yields continue to slip After stagnating in 2012, the net initial yield for retail property in Berlin has steadily declined. As a result of further price rises in 2015, pressure on retail property yields continued to intensify. Strong demand combined with fierce competition between investors to squeeze yields even further. The net initial yield in Berlin's central retail locations suffered the sharpest drop, falling by around 6 percent in comparison with the previous year, and finished the year at 3.9 percent. In Berlin's peripheral locations, the net initial yield in 2015 stood at 5.9 percent, a year-on-year decline of 5 percent. Higher yields in peripheral locations are a direct reflection of the elevated investment risk in these areas. Strongest demand for larger retail spaces DRents for retail spaces in Berlin vary significantly by location and size. The prime rent for smaller retail spaces of up to 100 square metres rose to around EUR 320/sqm in 2015, which represents a year-on-year increase of almost 7 percent. The rate of increase was faster still for larger spaces over 150 square metres, which are primarily let to non-food Average rents in Berlin 2015 (EUR/sqm) Retail space up to 100 sqm Retail space from 150 sqm Low to medium utility / peripheral location Prime rents in Berlin (EUR/sqm) Retail space up to 100 sqm Retail space from 150 sqm Change compared to previous % % Source: Wüest & Partner retailers and saw rents surge by 19 percent. The prime rent for these larger spaces in Berlin climbed to EUR 250/sqm in Charlottenburg-Wilmersdorf is one of the most sought-after and expensive retail destinations in the city. On the other side of the city, in Berlin's eastern districts, retail rents ranged between EUR /sqm, with prime rents of EUR 120/sqm for larger spaces and EUR 150/sqm for smaller spaces. As a result, retail rents in the east of the city remain at approximately 50 percent of the level seen in western districts. Unsurprisingly, retail rents vary strongly by location. Rents for retail spaces of up to 100 square metres in Berlin's peripheral locations averaged EUR 25/sqm in 2015, with an average of EUR 16/sqm payable for larger spaces in the same areas. In contrast, average retail rents in central locations reached EUR 90/sqm for spaces up to 100 square metres and EUR 70/sqm for larger spaces over 150 square metres. Irrespective of location or size, there was a general rise in retail rents in Berlin in Change compared to previous year ascending constant High utility / central location Change compared to previous year / Source: Wüest & Partner *Berlin, Cologne, Düsseldorf, Munich, Hamburg, Stuttgart, Frankfurt, Leipzig, Nuremberg, Hanover. 11 BNPPBRE, At a Glance Focus retail 12 BNPP RE, German Retail Property Market. Property Report

11 Hotel Property Market Berlin Hotel Property Market Berlin Hotel Property Market Berlin Berlin Europe's newest tourist magnet In the space of just a few short years, Berlin has established itself as a major tourism centre and has risen to become the third most popular tourist destination in Europe, behind only London and Paris. 13 Berlin is also the top travel destination for domestic travellers. The city s tourism industry had a record year in 2015; it was the first time that Berlin registered more than 30 million overnight stays. An impressive 45 percent of visitors came from overseas, with British and U.S. tourists among the most heavily represented. Figures for the last five years show continuous growth in the number of overnight stays in Berlin. This peaked in 2012, when overnight stays shot up by more than 11 percent in comparison with the preceding year. The rate of growth may have lost some of its momentum since 2012, but the 5.5 percent growth Lobby Hotel Adlon, Berlin registered in 2015 was still more than many other cities could dream of. As overnight stays reached a new peak, so did the number of individual tourist visitors in Berlin. Some 12 million guests were registered in the city on the Spree last year, an increase of 4.2 percent over 2014's figure. In terms of visitor numbers and overnight stays, the most popular districts in Berlin last year were Mitte, Charlottenburg-Wilmersdorf and Friedrichshain-Kreuzber. 14 Berlin continues to exert a strong appeal to both holidaymakers and business travellers. A large proportion of visitors came to Berlin to attend trade fairs, conferences and congresses. There has also been a noticeable recent increase in medical tourism. 15 Key hotel market indicators paint a clear picture: Demand is outpacing supply Strong growth in tourist numbers has been matched by a sizeable increase in Berlin's hotel capacity. Although the number of hotel operators in Berlin has only increased by around 4 percent since 2010, rising to 780 in 2015 according to figures compiled by the Federal Office of Statistics, there has been an impressive 23 percent increase in hotel capacity over the same period. The number of hotel beds on offer in Berlin has risen from 114,100 to 140,00 over the past five years. 16 The mismatch between the number of hotel operators and the number of hotel beds is explained by a strong trend towards larger hotels. This was most pronounced towards the top end of the market, in the three-, four- and five-star segments. Berlin celebrated a number of major hotel openings in the luxury, first class and comfort segments in These included, for example, the five-star Hotel Titanic Deluxe Berlin (208 rooms), the four-star Hotel Riu Plaza Berlin (357 rooms) and the three-star Hotel Amano Grand Central (250 rooms). Given the strong appeal of Berlin as a travel and tourism destination, the supply of new hotel rooms has so far been unable to keep pace with the hike in demand. As the market has grown, new capacity has been absorbed almost immediately, leaving substantial potential for further growth. The fact that demand exceeds supply is clearly mirrored in rising occupancy rates. On average, Berlin's hotels reported an occupancy rate of 76.5 percent in 2015, which translates to an impressive rise of 12 percent since Compared to the previous year, room occupancy in Berlin rose by a notable 3 percent in Berlin's City East and City West central submarkets have both enjoyed significant increases in room occupancy rates over the last six years. The room occupancy rate in City East has risen by 8 percent since 2010, reaching 81 percent in Over the same period, there has been a more rapid increase in the room occupancy rate in City West, which has risen by 12 percent. Nevertheless, occupancy rates, at 78.3 percent, were still lower for hotels in City West. Berlin's healthy Number of overnight stays in Berlin Overnight stays Change compared to previous year in % 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000, ,359,000 20,796, ,896, ,942, ,250,000 28,689, Average room occupancy rate in % Berlin East Berlin West Berlin ascending Source: Berlin-Brandenburg Office of Statistics, own research Source: STR Global It should be noted that the City East and City West submarkets do not necessarily represent the entirety of the Berlin hotel market. A number of other submarkets (e.g. peripheral locations) are included in the figures for Berlin as a whole. 13 Deloitte, Hotelmarkt Berlin. Eine Hauptstadt meistert Wachstum [Berlin Hotel Property Market. A capital mastering growth], BBS, Statistischer Bericht. Gäste, Übernachtungen und Beherbergungskapazität im Land Berlin. [Statistical report. Guests, overnight stays and hotel capacity in Berlin], 2015 edition 15 Deloitte, Hotelmarkt Berlin. Eine Hauptstadt meistert Wachstum [Berlin Hotel Property 16 BBS, Statistischer Bericht. Gäste, Übernachtungen und Beherbergungskapazität im Land Berlin. [Statistical report. Guests, overnight stays and hotel capacity in Berlin], 2010 and 2015 editions Market. A capital mastering growth],

12 Hotel Property Market Berlin Hotel Property Market Berlin Average daily rate and revenue per available room in Berlin Average daily rate (ADR) in EUR Revenue per available room (RevPAR) in EUR Source: STR Global room occupancy figures in 2015 owe a great deal to the large number of events that took place in the city during the year, as well as to Berlin's popularity as a conference and congress destination. Berlin's hotels benefited in particular from the UEFA Champions League Final, the visit of Britain's Queen Elizabeth II, the fashion industry's Panorama and Fashion Week events, and from numerous medical congresses (e.g. the EAN Congress). As room occupancy rates have increased, so have room revenues. Over the last six years, Berlin's hotel market has registered a significant rise in average revenues per available room (RevPAR), which have increased by 21 percent to reach EUR for the year High demand, primarily measured in terms of the growth in overnight stays, has not only had a positive impact on the RevPAR figures, but also on the average daily rate (ADR) for hotel rooms in Berlin. The average daily rate in Berlin has risen by 8 percent since 2010 and reached EUR in Hotel transaction volume in Berlin Transaction volume in EUR million Change compared to previous year in % % % % 200 ascending 76% 351 descending % Source: BNP Paribas Real Estate, own research Transaction volume races to new record in Berlin's hotel property market The importance of Berlin, both as Germany's capital and as an overwhelmingly popular city break destination, has had a major impact on the city's hotel transaction market. The Spree metropolis continues to attract large numbers of both institutional and private investors. With a number of interesting hotel openings and projects under development, competition in the market has intensified and put pressure on room rates (ADR) and room revenues (RevPAR), which remain relatively low in comparison to the levels recorded in Germany's other top seven cities.* Following the above-mentioned hotel openings at the top end of the market, it is now likely that investors will shift their medium-range focus to the value and mid-market segments. For example, the two new hotels being developed by Motel One are set to add a further 1,300 rooms to the city's hotel market by And Berlin will be home to Germany's tallest hotel when the Estrel Tower in Neukölln opens its doors in The attractiveness of Berlin's hotel investment market is reflected in a sharp rise in the volume of hotel property transactions. Following a short-term nhow Hotel, Berlin reverse to around EUR 200 million in 2013, the transaction volume in the hotel sector has risen consistently over the last three years and set a new record in 2015 as it reached EUR 650 million. A long-term comparison for the years 2010 to 2015 shows that the volume of hotel property transactions in Berlin has grown nine fold. Last year alone, the transaction volume swelled by 85 percent. This means that Berlin was only beaten by Munich, which recorded a transaction volume of EUR 747 million in 2015 to once again confirm its position as the leading hotel investment market among Germany's top seven cities. Still, Berlin's result meant that it raced past Frankfurt, which registered EUR 250 million of hotel investment in 2015, to seize second place in the major cities' ranking. 18 Nine fold increase in hotel transaction volume since 2010 The impressive volume of hotel transactions in Berlin in 2015 was given a significant boost by a number of large-scale individual transactions. These deals included the acquisition of the Steigenberger Hotel am Kanzleramt Berlin by a joint venture between Amundi Real Estate and the investment arm of Electricité de France (EDF Invest), a Berlin-based private investor buying the Ramada Hotel Mitte and Foncière des Murs snapping up the Motel One Berlin-Mitte. As if this wasn't enough, Union Investment Real Estate acquired the fourstar andel's Hotel Berlin for a total of EUR 105 million, along with the four-star Hotel Meliá Berlin, for a figure in the high doubledigit millions. 19 * Berlin, Hamburg, Munich, Cologne, Düsseldorf, Frankfurt, Stuttgart 17 Deloitte, Hotelmarkt Berlin. Eine Hauptstadt meistert Wachstum [Berlin Hotel Property Market...A capital mastering growth], BNPP RE, At a Glance. Hotel-Investmentmarkt Deutschland. Q Deloitte, Hotelmarkt Berlin. Eine Hauptstadt meistert Wachstum [Berlin Hotel Property Market...A capital mastering growth],

13 Economic Environment in eastern Germany Economic Environment in eastern Germany Property Markets in eastern Germany Eastern Germany profits from net inward migration The population exodus from eastern Germany since German reunification has become a thing of the past. According to the Berlin-based Institute for Population and Development, 2012 was the turning point. Since the, net outward migration from Germany's eastern regions has transformed into net gains, as increasing numbers of people have relocated from western Germany and overseas. 20 The major beneficiaries have been eastern Germany's biggest cities, Dresden, Leipzig, Rostock, Erfurt and Potsdam. Above all, these eastern German cities are drawing growing numbers of young people, apprentices and university students, many of whom are attracted by the region's relatively low cost of living. Unfortunately, only a minority of the region's smaller municipalities have been able to ride this trend. In 85 percent of eastern Germany's communities, population decline is still the overwhelming reality. Nevertheless, eastern Germany still boasts a number of cities that are enjoying dynamic economic and population growth, and are well positioned to compete both nationally and internationally. Dresden cultural riches and economic dynamism in the Florence on the Elbe Dresden can't seem to stop growing. Last year alone, the population of the city on the Elbe River increased by around 4,900. This continues an established, long-term trend. Over the last few years, net inward migration has added some 19,000 people to Dresden's population. 21 As the number of people living in Dresden has grown, so has the city's economy and workforce. Compared to 2014, the city's unemployment rate fell by 0.5 percent to 7.4 percent in This robust development is reflected in an increase in GDP per Attracting students and trainees employed person, which rose by 4.2 percent in Dresden has also strengthened its position as a city with a strong arts scene and large numbers of culture lovers. During the 2013/2014 theatre season, the average person in Dresden went to the theatre or opera 1.8 times a frequency that no other major German city could match, and which owes a great deal to the city's importance as a culture and tourism centre. 22 But Saxony's capital has more to offer than just cultural riches; it is also an important centre of scientific research. There are a projected 20.7 research institutes for every 1 million inhabitants. Large numbers of academics have also made Dresden their home and, in 2014, around one quarter of all employees subject to social security contributions were university graduates. 23 Leipzig economy continues to soar Leipzig's economy is also booming: Between 2010 and 2013, GDP per employed person rose by 14.4 percent. The city's unemployment rate, admittedly high in comparison with other German cities, fell from 11.6 percent in 2011 to 8.8 percent in Thus, Leipzig's labour market is confirmed as the most dynamic in Germany. The number of employees subject to social security contributions also rose by 23.2 percent between 2009 and As a result, Leipzig has become an increasingly attractive city for working-age people. On the back of these positive developments, Leipzig's population increased by around 12,700 last year. With 548,456 inhabitants, the city has established itself as Saxony's biggest city. 26 Rostock major growth in tourism The sustained economic success of the Hanseatic City of Rostock is demonstrated by its GDP growth and its Zwinger, Dresden Unemployment rate ( ) with regard to civilian workforce in December in % Dresden Leipzig Rostock Erfurt Potsdam Source: Federal Employment Agency Town hall, Leipzig 20 Berlin Institute for Population and Development (2016): Im Osten auf Wanderschaft [Population migration in eastern Germany]; 21 Saxony Office of Statistics; 22 IW Cologne Consult/ Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; 23 IW Cologne Consult/ Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; 24 Federal Employment Agency ; IW Cologne Consult/Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; 26 Saxony Office of Statistics;

14 Economic Environment in eastern Germany Economic Environment in eastern Germany declining unemployment rate. Over the four years from 2011 to 2015, the city's jobless rate fell from 12.3 percent to 9.9 percent. 27 Between 2010 and 2013, GDP rose by 5.2 percent. Rostock has become especially attractive for young families. The city had a day nursery place available for every single child between the ages of three and six in March 2014 something no other major city in Germany could equal. 28 Such extensive provision of childcare facilities is one reason why 57 percent of working-age women in Rostock are in active employment an economic factor that, in relation to the growing nationwide shortage of skilled workers, is sure to play a key role in business relocation decisions. An average of 50 percent of working-age women are currently in employment in Germany's major cities. Tourists have also been flocking to Rostock in ever-greater numbers. Since 2011, the number of overnight stays in Rostock has increased by around 28 percent, equivalent to average annual growth of 5.5 percent. Erfurt Knowledge-intensive service industries fuel economic growth Erfurt's economy is strong and dynamic: GDP per employed person rose by 10.9 percent between 2010 and The city's unemployment rate fell to 7.7 percent in 2015, well below the eastern German average of 9.2 percent. 29 The proportion of employees engaged in the knowledge-intensive service sector grew by 2.2 Since 2011 overnight stays in Rostock have risen by 28 % percent in the period from 2009 to At the same time, the proportion of long-term unemployed in the population decreased by 2.5 percent. No other major German city recorded such a significant drop in long-term unemployment as Erfurt during the period in question. 30 The fact that Erfurt has become a more attractive city is reflected in its population growth figures. In the 12 months between June 2014 and June 2015, Erfurt added approximately 2,500 inhabitants, increasing its population to 207,656. Potsdam dynamic centre for science and research Within eastern Germany, Potsdam is one of the most appealing cities to live and work. In 2015, the city had a population of 165,165 up 2,740 in comparison with the previous year. 31 One reason for this growth is the city's dynamic economy, another its proximity to Berlin. Potsdam is also a world-renowned science centre, home to the Hasso-Plattner-Institute for Software System Technology, and SAP's Innovation Lab2, among others. The proportion of employees with university and master's degrees rose by 1.6 percent from 2009 to 2014, and is 0.6 percent higher than the average across Germany's other major cities. 32 The unemployment rate may have risen by 0.2 percent from 2014 to 2015, climbing to 6.9 percent, but it has still fallen by 0.5 percent overall since Historic lighthouse, Rostock-Warnemünde Benediktplatz, Erfurt modern meets historic Demographics and economy City Population on Absolute population growth ( / ) GDP per employed person in EUR (2013) Change in GDP per employed person in % (2010/2013) Change in GDP per employed person in % (2012/2013) Dresden 536,911 4,929 55, Leipzig 548,456 12,724 55, Rostock* 206,033 1,866 60, Erfurt 207,656 2,380 51, Potsdam 165,165 2,740 53, *Population as of , Source: City of Rostock, Federal Employment Agency Hans Otto theatre, Potsdam 27 Federal Employment Agency ; 28 IW Cologne Consult/Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; 29 Federal Employment Agency ; 30 IW Cologne Consult/Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; 31 Berlin-Brandenburg Office of Statistics; 32 IW Cologne Consult/Wirtschaftswoche/Immobilienscout24 : Städteranking 2015 Deutsche Großstädte im Vergleich [2015 city ranking Germany's major cities compared]; Federal Employment Agency

15 Office Property Market in eastern Germany Office Property Market in eastern Germany Office Property Market in eastern Germany Employment in eastern Germany's regional centres has increased as a result of the region's generally strong economic development. Consequently, there has been a corresponding increase in office employment. At the same time, the region's comparatively low rents have meant that almost no new office space has been developed in the eastern German cities included in this report. Rather, the substantial oversupply of office space from the 1990s is being steadily absorbed. The last few years have seen significant reductions in office vacancy rates, and a great deal of progress has been made since their peak of 25 percent. Having said that, there is little chance of an accelerated increase in office capacity any time soon, particularly as vacancy rates remain stubbornly high, and office rents low, in a number of areas. Overall, office rents are expected to continue their gradual upward trend. Expecting Uptrend for office space Vacancy rates down in all five cities Vacancy rates have been declining for a number of years and the trend continued in The biggest fall was registered in Leipzig, where the vacancy rate fell by 6.1 percent between 2011 and 2015, finishing the year at 12.6 percent. It is assumed that strong demand from service sector companies was the driving force behind this reduction. In Potsdam, in contrast, the vacancy rate was only down by a slight 0.1 percent over the last five years. Still, at 4.3 percent, Brandenburg's state capital has the lowest vacancy rate of these five eastern German cities. This owes a great deal to the large public administration presence and the city's extensive TMT sector (technology, media and telecommunication). Despite falling from 17.2 percent in 2011 to 15.5 percent in 2015, Erfurt still registered the Leipzig highest vacancy rate. Rostock's 7.2 percent and Dresden's 8.6 percent mean both cities clearly undershot the 10 percent threshold. Dresden's vacancy rate fell by one full percentage point during 2015 alone. Employment boom in eastern Germany's metropolises One major reason for the reduction in office vacancies is the strong growth in employment recorded in these five eastern German cities. In particular, Rostock, Dresden and Leipzig, each of which plays a key role in its region, have enjoyed continuous increases in office employment over the previous five years. Leipzig has set the pace, with a 12.9 percent increase in office employment over the last five years. A popular conference and congress location, Leipzig added 2.4 percent to its office workforce last year alone. Office employment in Dresden increased by 6.6 percent over the same period, and Rostock also experienced strong office employment growth of 5 percent. Office employment also showed healthy development in Potsdam and Erfurt during the same period from 2011 to 2015, but a slight recent reverse has resulted in more moderate overall growth. Overall, there were 1.9 percent more office employees in the two cities than in The figure for Potsdam was 2.6 percent, and in Erfurt office employment was 1.0 percent higher. Moderate growth in total office space The fact that almost no new office space has been added in the region over the last few years is another reason for declining vacancy rates in these five eastern German cities. The most new space was added in Rostock, where total Office property figures City Number of office workers Change in number of office workers in % (2014/2015) Change in number of office workers in % (2011/2015) Office vacancy rate in % Change in vacancy rate in percentage points (2014/2015) Change in vacancy rate in percentage points (2011/2015) Office space stock in sqm Change in office space stock in % (2014/2015) Change in office space stock in % (2011/2015) Dresden 112, Leipzig 112, Rostock 39, Erfurt 52, Potsdam 41, ,642, ,733, , ,617, ,331, Source: bulwiengesa, own research 28 29

16 Office Property Market in eastern Germany Office Property Market in eastern Germany office space grew by 2.0 percent between 2011 and Potsdam was next, adding 1.9 percent, followed by Erfurt with 1.3 percent. The amount of office space in Leipzig and Dresden actually fell during the same period, by 1.5 percent in Leipzig and 1.8 percent in Dresden. The reduction in total office space in Dresden from 2014 to 2015 amounted to roughly square metres, equivalent to 1.6 percent. The development in Leipzig was very similar to the year before. Even with these reductions, Leipzig and Dresden are still the biggest office centres in eastern Germany excluding Berlin. With approximately 112,000 office employees each, and around 2.7 and 2.6 million square metres of office space, these two cities play a key role in the region's labour market. As the state capital of Saxony, employment in Dresden is boosted by the sizeable public sector workforce, and the city's universities and research institutions are also major engines of job creation. In contrast, Leipzig's office workforce is largely made up of employees in other service sector companies and an increasing number of internet and communication service providers. 34 Leipzig benefits from its proximity to Berlin and relatively low cost of living, which has fuelled a flourishing start-up scene in the city. Rents remain stable Despite the strong development of prices, office markets in the five eastern German cities have so far been largely unaffected. Rents have tended to develop sideways rather than upwards. In Dresden, Rostock and Erfurt, rents for offices in peripheral locations averaged EUR 6.00/sqm last year. While rents in Leipzig were at the lower end of the scale, averaging EUR 5.80/sqm, Potsdam put some distance between itself and the other four cities, registering an average rent of EUR 8.00/sqm in this segment. Brandenburg's state capital also recorded the highest average rent for offices in central locations at EUR 11.50/sqm. Dresden and Leipzig followed, with rents for central office space in both cities stable at around EUR 10.00/ sqm. Rostock and Erfurt brought up the rear, with rents in this segment averaging EUR 9.00 and EUR 8.00/sqm, respectively. Average rents according to location in eastern German cities in EUR, low to medium utility / peripheral location in EUR, high utility / central location Dresden Leipzig Rostock 8.00 Erfurt Prime rents for office property in EUR/sqm, 2014 in EUR/sqm, 2015 Dresden Leipzig Rostock Erfurt Net initial yields for office property 10 in %, net initial yields for central office property in %, net initial yields for peripheral office property Dresden 7.4 Leipzig Rostock Erfurt Potsdam Source: Wüest & Partner Potsdam Source: Wüest & Partner Potsdam Source: bulwiengesa, own research Quartier 1a at Neumarkt, office and retail, Dresden historical centre In the prime segment, it is still possible to rent office in all five cities for EUR 10.00/sqm. Nevertheless, with prime rents in Potsdam and Rostock averaging EUR 14.00/sqm, these two eastern German cities have caught up with the likes of Wiesbaden and Mannhei. 35 In Leipzig and Dresden, where prime rents reached EUR and EUR 12.20/sqm, the market situation is now similar to that of Mainz. Erfurt continues to offer significant upside potential, particularly as the prime rent of EUR 10.00/sqm belies the city's function as an important centre of higher education. Major yield potential in eastern Germany's office markets Although office rents in the region have only enjoyed moderate growth, office property in eastern Germany remains attractive to potential investors. Net initial yields of up to 7.4 percent were achieved in peripheral locations in Leipzig last year, and in Dresden the figure was even higher, at 7.6 percent. In the remaining three cities included in this report, yields of over 8 percent are par for the course. Erfurt takes the lead in this office property segment. Yields for office properties with fair to average utility value and for office space in peripheral locations in Erfurt stood at 8.8 percent. Rostock was hot on Erfurt's heels, with offices generating yields of up to 8.6 percent, closely followed by Potsdam at 8.5 percent. Space in central locations, or with good utility value, generated yields of just 5.2 percent in Leipzig and 5.4 percent in Dresden. The other three eastern German cities, however, offer investors the prospect of very attractive returns. Yields of 6.1 percent can be achieved in Erfurt, 6.0 percent in Rostock and 5.6 percent in Potsdam. Overall, net initial yields for office properties in each of these five eastern German cities fell in comparison with the previous year, a direct result of the increased demand for office space in the region as a whole. The only locations in which yields remained stable at previous year levels were the central peripheries of Erfurt and Rostock, where rates of return were unmoved at 8.8 percent and 8.6 percent, respectively. 34 BNP Paribas Real Estate: Leipzig Office Property Market, Q Catella German Office Property Market 2015, Rental and Investment Markets,

17 Retail Property Market in eastern Germany Retail Property Market in eastern Germany Retail Property Market in eastern Germany Key retail market indicators positive across the board above all in Leipzig Mädlerpassage, Leipzig Centrum-Galerie, Dresden Retail property markets in Dresden, Leipzig, Rostock, Erfurt and Potsdam are booming, and this growth is mirrored by the strong retail sales performances in each of these five cities. Retail spending has risen across the whole of Germany, and this increase has combined with the specifically favourable eastern German population and economic indicators. The Federal Office of Statistics calculated that private consumer spending increased by a national average of 1.9 percent last year, the strongest result in the last 15 years (2.1 percent). In combination with GDP growth of 1.7 percent, falling energy costs and low interest rates, retailers can expect to have another successful year in The populations in all five cities are experiencing significant growth. Leipzig registered the biggest population increase, adding 13,000 inhabitants over the last year. Dresden's population has been growing by an average of more than 1 percent per year since 2011, and similar developments have been registered in Erfurt und Rostock. Benefiting from its proximity to Berlin, Potsdam is an established population magnet, and grew by 2.4 percent in 2015 to around 167,000 inhabitants. Major university cities such as Leipzig and Rostock attracted above average numbers of students and academics; in Rostock, the largest city in Mecklenburg-Vorpommern, the university was founded in the 15th century and continues to be the city's largest employer. Favourable demographic developments have been accompanied by a definite economic upturn in these five eastern German cities, each of which now as an unemployment rate of below 10 percent. This places them ahead of most of the towns and cities in western Germany's Ruhr metropolitan region. Furthermore, eastern Germany's urban centres, largely unscathed during the Second World War and extensively refurbished since the fall of the Berlin Wall, are major tourist magnets. The region's tourism industry had a very successful 2015, registering growth in terms of both foreign and domestic visitors. The number of overnight stays in the region rose to an impressive 26.5 million for the year. Purchasing power continued to increase in all five cities with the biggest rises in Leipzig and Rostock The economic upswing in the five eastern German cities was reflected in yet another jump in retail purchasing power in comparison with Potsdam occupied the top spot in this regard, scoring more than 99 points on the purchasing power index, equivalent to the national average and three points higher then Germany's capital. Brandenburg's state capital appeals to the wealthy and well educated, who are attracted by its exceptional cultural sites and extensive green spaces, and are looking for an alternative to the metropolitan atmosphere in Berlin. The next two places on the purchasing power index are occupied by Dresden and Erfurt, which scored 94.7 and 94.4 Key retail market indicators City Retail-relevant purchasing power (2014) Retail-relevant purchasing power Change in % (2014 / 2015) Retail-relevant purchasing power Index, Germany = 100 Retail turnover in EUR per inhabitant (2014) Retail turnover in EUR per inhabitant Change in % (2014 / 2015) Retail centrality D = 100 (2014) Retail centrality D = 100 Change in index points (2014 / 2015) Dresden 6,053 6, ,903 Leipzig 5,814 5, ,720 Rostock 5,886 5, ,526 Erfurt 6,044 6, ,538 Potsdam 6,318 6, ,504 5, % , % , % , % , % Eastern Germany (incl. Berlin) 5,808 5, ,161 5, % Western Germany 6,536 6, ,898 Germany 6,392 6, ,752 5, % , % Source: MB Research, own research 32 33

18 Retail Property Market in eastern Germany Retail Property Market in eastern Germany index points, respectively. At the same time, only Dresden and Rostock registered increases in per capita retail spending, and even these increases were moderate, at 0.3 percent and 0.5 percent. The biggest fall was seen in Erfurt, where per capita retail spending declined by 1.7 percent, but Thuringia's state capital still maintained its tight grip on first place in absolute terms, with retail spending of more than EUR 6,400 per inhabitant (Dresden: EUR 5,900). Erfurt's unique position can be explained by its ability to draw significant spending power from its surrounding communities. As Erfurt's retail catchment area extends across almost the whole of the state of Thuringia, it is no surprise that this 210,000-inhabitant city has an elevated retail centrality score of Dresden and Leipzig both scored 108.6, which also confirms that they are well positioned to attract consumers from a fairly wide region. Average rents for retail space in eastern Germany in EUR City Average rents for retail space up to ca. 100 sqm Good utility value/ City centre up to ca. 100 sqm Fair to average utility value/fringe locations from ca. 150 sqm Good utility value/ City centre from ca. 150 sqm Dresden Leipzig Rostock Erfurt Potsdam Prime rents for retail space in eastern Germany in EUR City Prime rents for retail spaces up to ca. 100 sqm Prime rents for retail spaces up to ca. 100 sqm (2014) In contrast, Potsdam sacrifices purchasing power to neighbouring Berlin, which is why it is the only one of these five cities to register a below-average purchasing power rating of This situation is reflected in Potsdam's average retail rents, both in relation to smaller spaces up to 100 square metres and larger spaces over 150 square metres. Alongside Erfurt, retail rents in these categories are the lowest of the five eastern German cities. Nevertheless, there are no signs of a downtrend in Brandenburg's state capital. If anything, Potsdam's central and city fringe locations have registered moderate rental growth. Net initial yields for retail property investments in central Potsdam ranged between 5.5 percent and 6 percent in 2015, rising to between 7.4 percent and 8.2 percent in peripheral locations. Overall, there has been a decline in yields in the retail Prime rents for retail spaces from ca. 150 sqm Source: Wüest & Partner Prime rents for retail spaces from ca. 150 sqm (2014) Dresden Leipzig Rostock Erfurt Potsdam Source: Wüest & Partner property sector in the period from 2011 to 2015, which suggests that investment risk has also decreased. In terms of rents, Leipzig and Rostock registered the most positive developments. In 2015, Rostock's retail property market improved across all size and location categories in comparison to the previous year. The Hanseatic City benefits from its position as one of Germany's largest cruise ship terminals and its large number of transit travellers with relatively high purchasing power. Prime rents of EUR 90/sqm can now be achieved for smaller retail spaces in Rostock, an increase of 6 percent over the previous year. Rents for larger retail spaces in Rostock rank in the middle of the pack for eastern Germany's cities, averaging EUR 65/sqm. Nevertheless, retail sales revenues grew faster in Rostock (+0.5 percent last year) than in any other city in the region. Net initial yields in Rostock may be trending down, but the 8 percent achievable in city fringe locations and the 6.7 percent on offer in central locations, are the best in eastern Germany. Booming market in Leipzig Leipzig held onto the record for prime retail rents. The prime rent in the city's main shopping area around Grimmaische Straße and Petersstraße was EUR 120/sqm. Dresden's Prager Straße had to be content with a prime rent of EUR 100/ sqm. 36 According to BNP Paribas, a boom is underway in Leipzig's retail property market. The transaction volume for retail property in 2015 rose to EUR 565 million, a threefold increase in comparison to Above all, it was the city's central locations that benefited most from this enormous increase. Measured in relation to the number of transactions, city fringe locations in Leipzig accounted for 18 percent of transactions and 31.1 of transactions involved retail properties in peripheral locations, compared with a subdued 9.8 percent in Average rents of EUR 25/sqm for spaces up to 100 square metres and EUR 12.00/sqm for spaces over 150 square metres put Saxony's biggest city at the top of the eastern German rankings. Net initial yields ranged between 5 percent in central locations and 7.3 percent in Leipzig's city fringe locations. Dresden, Erfurt and Potsdam registered minimal upward movements in rents. In each of the three cities, prime rents remained stable at 2014 levels, and average rents also stagnated at between EUR 50.00/sqm to EUR 80.00/sqm in Potsdam for smaller retail spaces up to 100 square metres in central locations. At the same time, there was an increase in the development of new retail space in Dresden, much of which was taken up by fashion and clothing retailers. An additional 5,800 square metres of prime retail space is in the pipeline, with the Prager Carrée scheduled for completion in The developer has already secured a number of key anchor tenants for the development. 36 BNP German Retail Property Market, Property Report BNP German Investment Property Market, Property Report 2016 Kröpeliner Tor Center, Rostock Net initial yield for retail property in eastern German cities in %, net initial yield for central retail property in %, net initial yield for peripheral retail property Dresden Leipzig Rostock Erfurt Potsdam Source: bulwiengesa, own research

19 Hotel Property Market in eastern Germany Hotel Property Market in eastern Germany Hotel Property Market in eastern Germany Germany has become an increasingly popular tourist destination, and not only among foreign visitors. Holidaying within their own country has also become a major trend for German tourists. The precarious political situation in a number of traditionally popular destinations along the southern Mediterranean has encouraged large numbers of German tourists to look for alternative destinations, including at home. This has been compounded by an increase in business travel and a surge in the number of short trips and city breaks. Over the last five years, the number of overnight stays in Germany has increased by 11 percent. In comparison with 2014, around 6 million more visitors came to Germany last year, an increase of roughly 3.7 percent. The city break category was the biggest winner, with 22 percent more guests attracted to Germany's cities than in The number of overnight stays in cities with more than 100,000 inhabitants rose by 5.5 million last year alone. 38 Eastern Germany was able to profit from the general increase in popularity of Germany as a tourist destination and from the simultaneous rise in business travellers. Around 1.3 million more guests stayed in eastern Germany's hotels (excluding Berlin) last year than the year before, an increase of 1.7 percent, and largely due to the disproportionate growth in foreign visitor numbers. About 2.2 million overseas guests chose to travel to eastern Germany last year (excluding Berlin), compared with 2.1 million in This is almost 5 percent more visitors than in 2014 and around 21 percent more than in The number of domestic visitors also increased, and a growing number of travellers chose to visit eastern Germany's regions. In comparison with 2014, the number of domestic tourists rose by 2.1 percent to 24.1 million. 39 Beyond Berlin, Dresden, Leipzig, Erfurt and Potsdam, with their historical monuments and cultural sites, are among eastern Germany's major tourist magnets, along with towns along the Baltic Sea coastline, such as Rostock. All five of these cities have registered growth in visitor numbers and overnight Hotel Neptun, Rostock-Warnemünde stays, and key hotel performance indicators, in particular room revenues, have risen significantly across the board. The biggest winners have been hoteliers in Potsdam and Erfurt, who reported a substantial increase in overnight guests in Overnight stays in Potsdam were up by 6.7 percent in comparison with 2014, and Erfurt's figure increased by 4.8 percent. Dresden Saxony's state capital has enjoyed continuous growth in both visitor numbers and overnight stays. Between 2011 and 2015, overnight stays increased by 13.4 percent. After Berlin, Dresden is the eastern German city with the largest volume of visitors. Only recently, the tripadvisor website selected Dresden as its fourth most attractive German travel destination, praising the city's rich cultural traditions, and ranking Dresden just behind Germany's top three metropolises, Berlin, Hotel and office building Wiener Platz, Dresden Munich and Hamburg. 40 It was in 2014 that hotels in Dresden first registered more than 4.4 million overnight stays. The regular political rallies in the centre of the city, staged in close proximity to popular landmarks and tourist attractions such as the Semperoper and Zwinger, had a negative impact on Dresden's tourism industry in The number of overnight stays suffered its first reversal in years, falling by 3 percent to 4.3 million, which pushed the room occupancy rate 0.9 percent lower to 65.9 percent. In the face of this development, Dresden's hotels nevertheless managed to increase their room revenues (RevPAR) by 1.8 percent, although this growth was not as strong as the growth reported in other major hotel markets in eastern Germany. The increased room revenues can be attributed to a 3 percent rise in room prices over the same period. The average daily rate (ADR) rose to EUR EUR, with Dresden sandwiched between Leipzig (EUR 77.90) and Potsdam (EUR 70.27). Key Hotel market indicators City Number of overnight stays Overnight stays, change in % (2014 / 2015) Average occupancy rate in % Average occupancy rate, change in % points (2014 / 2015) Revenue per room in EUR, RevPAR Revenue per room, RevPAR change in % (2014 / 2015) Average room rate in EUR, ADR Room price, ADR change in % (2014 / 2015) Dresden 4,308, Leipzig 2,829, Rostock 1,931, Erfurt 809, * -1.3 Potsdam 1,105, Berlin 30,250, * * * Erfurt 2015: data for January to August and December; Source: STR Global 38 Federal Office of Statistics 39 Federal Office of Statistics

20 Hotel Property Market in eastern Germany Hotel Property Market in eastern Germany Erfurt Erfurt scored highly due to its central location at the heart of Germany, and its direct connection to the A4 motorway that runs across the breadth of Germany. This makes the city easily accessible to tourists, business travellers and conference and congress guests. In spite of the rise in overnights stays, which for the first time topped 800,000, the occupancy rate across Erfurt's hotel rooms slipped back by 1.3 percent last year. This could well be the result of new capacity being added to the city's 5,000 hotel beds, which equated to an extra 200 beds in Firstly, the B&B Group opened a new hotel in central Erfurt. Secondly, the Bachmann Hotel Group expanded its Erfurt hotel by 100 beds. 41 In comparison with Dresden, Leipzig, Rostock and Potsdam, hoteliers in Erfurt were able to increase their average room rates the most, adding 4.4 percent to their average room revenues (RevPAR). Erfurt's hotel rooms remained the cheapest among the five eastern German cities (excluding Berlin), costing an average of EUR per room, which is nevertheless equivalent to a year-on-year increase of 6.2 percent. Half-timbered house beside Radisson Hotel, Erfurt Hotel Jägertor, Potsdam Leipzig There was positive development in all of the key hotel market indicators in Leipzig in The number of overnight stays rose by 2.3 percent last year, climbing above 2.8 million for the first time. From 2011 to 2015, the number of overnight stays increased by 32.5 percent, almost as rapidly as in the much-hyped German capital, Berlin ( percent). Leipzig's hotels reported an occupancy rate of 69.1 percent, which is not far off the healthy result in Rostock. At an average of EUR per room, Leipzig's hoteliers were able to continue the steady increases seen over the last few years. A direct comparison of 2015's room rates with prices in 2011 reveals that the ADR in Leipzig has risen by 16.2 percent, more than in any other eastern German city, including Berlin ( percent). During this same five year period, room revenues (RevPAR) rose by 25.1 percent to EUR 53.86, meaning that Leipzig comes third in the region, currently trailing just Berlin (EUR 71.70) and Rostock (EUR 66.97). Leipzig, a traditional conference, congress and university city, as well as home to a number of Nobel Prize winners, has developed a strong reputation as a major European logistics hub and has raised its international profile, attracting significant numbers of tourists and domestic and international business travellers. Rostock The hotel market in the Hanseatic City on the Baltic coast has been enjoying remarkably positive growth. The only eastern German city to experience a faster rise in the number of overnight stays was Leipzig. In comparison with 2011, Rostock registered around 27.7 percent more overnight stays in 2015 (Leipzig: 32.5 percent). Given last year's total of 1,930,000 overnight stays, it is highly likely that the city will surpass the 2 million mark this year. Even stronger growth was registered in room prices and room revenues. At an average of EUR 94.26, the average daily rate (ADR) added yet another 5 percent in comparison with 2014 and again landed slightly above the average rate for a hotel room in Berlin. Revenue per room (RevPAR) rose by an even stronger 7.9 percent last year, reaching just under EUR The hotel occupancy rate rose above 70 percent for the first time, finishing the year at an average of 71 percent. This placed Rostock second among eastern Germany's major cities, behind only Berlin. These healthy results certainly owe a great deal to Rostock's ideal position on the Baltic Sea coastline, which is a massively popular tourist destination. Potsdam The hotel property market in Brandenburg's state capital, Potsdam, has been boosted in recent years by the strong appeal of the city's numerous historical palaces, gardens, unspoilt nature and proliferation of lakes, all of which draw large numbers of tourists and recreational travellers. In addition, Potsdam profits from its proximity to Berlin, which makes it an ideal destination for conference and congress visitors wishing to avoid the elevated costs of hotel accommodation in the nearby capital. It is therefore no surprise that all of the key hotel market performance indicators for Potsdam reflect the market's outstanding growth and unparalleled appeal. Alongside an increase in overnight stays, occupancy rates also improved from 64.3 percent to 65.7 percent last year. Room revenues achieved by Potsdam's hoteliers (RevPAR) rose by 3.6 percent to EUR Despite this increase, room revenues are still lower than in four of the other five eastern German cities, which lands Potsdam in second-to-last position. Nevertheless, room revenues have been enjoying constant growth over the last five years, and have increased by 13.9 percent since Germany's hoteliers are in a positive mood and expect their businesses to develop positively in the short to medium-term. Their sentiment is buoyed by strong economic growth in Germany, the growing popularity of city-breaks, rising numbers of international and domestic business travellers, and increases in consumer spending power. 42 Given the strength of these developments, it is to be fully expected that the hotel markets in these eastern German cities will continue to enjoy strong growth. Lobby Maritim Hotel, Dresden 41 accessed on Dehoga Market Report, Autumn