EUROPEAN OFFICE MARKET

Transcription

1 RESEARCH EUROPEAN OFFICE MARKET 215 PROPERTY DEVELOPMENT TRANSACTION CONSULTING VALUATION PROPERTY MANAGEMENT INVESTMENT MANAGEMENT

2 Contents Office Market 4 Investment Market 6 Amsterdam 8 Athens 9 Barcelona 1 Belgrade 11 Berlin 12 Birmingham 13 Bratislava 14 Brussels 15 Bucharest 16 Budapest 17 Dublin 18 Frankfurt 19 Geneva 2 Hamburg 21 Helsinki 22 Istanbul 23 Lille 24 Lisbon 25 Central London 26 Luxembourg 27 Lyon 28 Madrid 29 Manchester 3 Marseille 31 Milan 32 Moscow 33 Munich 34 Oslo 35 Central Paris 36 Prague 37 Riga 38 Rome 39 Saint Petersburg 4 Stockholm 41 Tallinn 42 Vienna 43 Vilnius 44 Warsaw 45 Zurich 46 Glossary 48 Contacts 49

3 Editorial Brighter economic prospects for Europe clouded by political uncertainties. The global economic situation has never been as supportive to European economic growth as now. At the same time, many significant geo-political events will be ongoing across Europe in 215. Indeed the ongoing conflict in Ukraine is not solved and will be the fundamental external issue for the European Union to deal with in 215. The recent electoral victory by the far left Syriza party in Greece has brought, again, the Greek debt crisis to the fore. However we believe it will have less impact on the European economy this time round given the concentration of its debts in the hands of government institutions. Nonetheless it is still uncertain as to how the situation will evolve over the next few months. Going forward, the Spanish and UK elections could have a significant impact. In Spain recent polls of voter intention show that the left wing Populist Party, Podemos, is ahead of its rivals. Like Syriza in Greece, it seeks to address the economic malaise that followed in the wake of the European debt crisis. The upcoming UK election could be equally critical because of the promise by the Conservative party of an in/out referendum on EU membership if they are returned to power. Despite these strong political uncertainties, there is reason to be optimistic for economic development in 215. As inflation in the Eurozone is moving deeper into negative territory, the European Central Bank (ECB) has just started its quantitative easing (QE) policy which has already had a significant impact. Divergent expectations in central bank policy now exist. Hikes in interest rates are expected to start in in the US and the UK and the start of QE in the Eurozone has led to a sharp depreciation of the Euro against the major currencies. With the decrease in oil prices likely to be sustained for some time, there are now strong structural pillars that will support the Eurozone. Following the strong UK recovery, Europe s economic growth expectation is poised to strengthen in 215. On the back of these positive economic developments, we expect that the fundamentals in most European office markets will improve significantly in 215. Christophe PINEAU MRICS Head of International Research

4 Office Market The European office market started to grow again in 214 The improvement of economic conditions and the better labour market performance in 214 positively impacted the office markets in Europe. in our sample of 35 European cities totalled closed to 11.7 million m² in 214, rebounding by over twelve months. The re-emergence of large deals supported strong results in most markets, especially Central Paris, Berlin and Brussels. Cost reduction and rationalisation remained the main drivers of demand and occupiers continued to favour new buildings in well-located areas. Despite a significant rise in office take-up, the average vacancy rate only decreased by 1 basis points and still stood above the threshold. Overall, vacant space reduction was offset by a stronger level of completions and relocation of tenants led to further release of second hand premises onto the market. However, the dearth of new supply in central areas kept rental values under pressure for prime properties. Consequently, the average prime rent rose (+), boosted by strong rental growth in buoyant markets like Central London and Dublin. The great contrast is that peripheral office districts still suffer from abundant vacancy and significant incentives have to be offered by owners to prevent decline in rental values. Economic growth and employment growth in Europe are expected to gain more momentum in 215. Accordingly, office market fundamentals are likely to strengthen throughout the main cities in Europe. Take-up (m²) Vacancy Rate (%) Prime Rent () Q4 214 Q4 213 Q4 212 Q4 214 Q4 213 Q4 212 Amsterdam 229,9 236, 234, Athens n.a n.a n.a Barcelona 233,7 172,9 157, Belgrade 53,9 25,8 48, Berlin 69, 453, 548, Birmingham 66, 61,7 46, Bratislava 155, 8, 55, Brussels 437,8 314,6 442, Bucharest 233,8 173,9 243, Budapest 251,6 19,6 174, Central London 1,49,9 1,199, 919, ,63 1,487 1,364 Central Paris 1,87,8 1,597, 2,24, Cologne 241, 276, 261, Dublin 246,9 195,7 145, Düsseldorf 325, 415, 346, Edinburgh 8, 68, 54, Frankfurt 411, 493, 58, Geneva* -4,8-21, -53, Glasgow 85,5 77, 44, Hamburg 513, 44, 435, Helsinki* 23,6 9,5-118, Istanbul* 469,6 323,8 263, Lille 165,8 171, 16, n.a n.a n.a Lisbon 126,5 77,8 12, Luxembourg 214,, 147, Lyon 242,6 251,7 189, Madrid 37, 365, 253, Manchester 189, 16,6 156, Marseille 126, 16,7 156, n.a n.a n.a Milan 275, 231,5 241, Moscow 56,9 523, 991, Munich 597, 63, 715, Oslo, 11, 16, Prague 189, 151, 125, Riga* 39, 12, 28, Rome 11,8 159,9 66, Saint Petersburg 189, 153,9 141, Stockolm* 175, 17,9 48, Tallinn* 17,7 35, 32, Toulouse 139,9 19,8 129, Vienna,, 32, Vilnius* 34, 3, 15, Warsaw, 451, 441, Zurich* 31, 31, 136, *Net absorption - Note: Conversion rates as at 31 st of December 214

5 European office demand million m² 16 Take-up* Total employment growth** European office prime rent and vacancy (43 cities) Average prime rent Average vacancy rate % BNP Paribas Real Estate Research BNP Paribas Real Estate Research *35 cities - **27 European countries Source : Datastream, BNP Paribas Take-up volumes 2, ,8 1,6 1, 1, 1, 8 6 2, 1,8 1,6 1, 1, 1, 8 6 Central Paris Central London Berlin Munich Hamburg Moscow Brussels Frankfurt Warsaw Madrid Düsseldorf Milan Budapest Vienna Dublin Lyon Cologne Bucharest Barcelona Prime rents and vacancy rates Amsterdam Luxembourg Manchester Prague Saint Petersburg Lille Bratislava Toulouse Lisbon Marseille Rome Oslo Glasgow Edinburgh Birmingham Belgrade Q4 213 Q4 214 Vacancy rate 2% BNP Paribas Real Estate Research BNP Paribas Real Estate Research Central London Zurich Central Paris Geneva Oslo Moscow Stockholm Dublin Luxembourg Milan Frankfurt Manchester Munich Birmingham Rome Saint Petersburg Glasgow Edinburgh Istanbul Amsterdam Helsinki Madrid Düsseldorf Vienna Hamburg Lyon Berlin Warsaw Brussels Marseille Cologne Prague Lisbon Barcelona Lille Bucharest Athens Tallinn Toulouse Belgrade Budapest Bratislava Vilnius Riga 5

6 Investment Market New post crisis record in the investment market The commercial real estate investment volume in the 38 markets monitored in this report amounted to 18 billion ( 74 billion for offices) making 214 the best year since 7. This represented a significant increase of 1 (2% for offices) compared to an already good year in witnessed the recovery of the markets hardest hit by the crisis. With +12 and +27 growth recorded between 213 and 214, Dublin and Madrid are the best examples of resurgence. Few European countries still suffer from economic and political uncertainties. Central London little changed from 213 and achieved the best volume in Europe with almost 3 billion invested. 214 was largely characterised by rising cross-border investment and a progressive but continuous decline in risk aversion. The global strength of real estate investment in the European markets is still concentrated in core and liquid assets even though more value-added and speculative deals were recorded. The pursuit of economic recovery will support all European markets. Moreover, the ECB announcement of a 1.1 trillion quantitative easing program will have a significant impact on property markets. By maintaining low bond yields, QE will assert the attractiveness of real estate. Thus, we will see further investor interest in good quality assets with long-term leases to high calibre tenants, pushing prime yields even lower in 215. Total investment volume () volume () Net office prime yield (%) Amsterdam 2,148 1,546 1,8 1,462 1, Athens n.a n.a n.a n.a n.a n.a Barcelona 1,327 1, Belgrade Berlin 4,276 3,589 3,848 1,72 1,621 1, Birmingham 1, Bratislava Brussels 1,79 1, , Bucharest Budapest Central London 29,265 3,84 19,56 25,286 26,77 17, Central Paris 16,834 12,437 12,31 13,119 9,54 9, Cologne 1,335 1, Dublin 3,59 1, , Düsseldorf 2,161 2, ,296 1, Edinburgh Frankfurt 5,318 3,893 3,23 3,692 2,557 2, Geneva Glasgow Hamburg 3,824 2,674 2,164 2,239 1,454 1, Helsinki* 3,536 2,38 2, , Istanbul 1, Lille Lisbon Luxembourg Lyon Madrid 3, , Manchester 1,712 1, , Marseille Milan 1,229 1, Moscow 3,125 7,135 7,4 1, 3,377 2, Munich 5,347 4,74 3,624 2,999 2,899 2, Oslo* 8,148 4,738 5,884 4,71 2,856 2, Prague 1,99 1, Riga Rome 717 1, Saint Petersburg Stockholm 7,454 4,267 5,141 5,696 2,586 2, Tallinn The Hague Toulouse Vienna 2,45 1,3 1,165 1, Vilnius Warsaw 1,278 1, , Zurich n.a n.a n.a n.a n.a n.a *Data for the country - Note: Conversion rates as at 31 st of December 214

7 European real estate investment volume (38 cities) billion Real Estate investment 14 Average European prime yield (44 cities) 7.% BNP Paribas Real Estate Research 6.% 5. BNP Paribas Real Estate Research volumes billion billion 3 3, , Central London Central Paris Stockholm Frankfurt Munich Hamburg Berlin Brussels Vienna Amsterdam Net office prime yield 1 2,1 1,4,7, Düsseldorf Moscow Madrid Warsaw Manchester Dublin Barcelona Milan Luxembourg Cologne Birmingham Prague Lyon Istanbul Marseille Edinburgh Rome Glasgow Lisbon Geneva Budapest Toulouse Lille Bucharest Vilnius Saint Petersburg Bratislava Riga Tallinn BNP Paribas Real Estate Research BNP Paribas Real Estate Research Zurich Geneva Central London Central Paris Munich Hamburg Berlin Stockholm Frankfurt Luxembourg Düsseldorf Helsinki Vienna Dublin Oslo Cologne Brussels Madrid Birmingham Edinburgh Glasgow Manchester Lyon Milan Amsterdam Barcelona Lille Rome Prague Toulouse Marseille Warsaw Lisbon The Hague Istanbul Tallinn Vilnius Bratislava Riga Budapest Bucharest Athens Moscow Saint Petersburg 7

8 Amsterdam Little impact on office take-up from economic recovery Economic sentiment in the Netherlands improved noticeably over the year. After two years of contraction, the economy will grow by. in 214. Prospects are positive, as growth is expected to pick up further to 1. in 215 and 1. in 216. The labour market improved slightly with the unemployment rate expected to decline to 6.7 in 215, although still high by Dutch standards. Office takeup will remain weak in upcoming years. In 214 total takeup reached 23, m², down on 213. Service sector companies are still optimizing their real estate portfolios. The vast majority of office transactions are replacements, resulting in lower net absorption figures. Low grade A supply is seeing development go forward Due to modest office take-up performance, the overall vacancy rate stayed high at 17.. Improvements in market conditions were seen in the CBD (ZuidAs). In this district, strong demand translated into a rise in the prime rent to 365/m²/year, which is expected to go up again in 215. The market still suffered from a lack of high quality supply in prime locations, enabling new office development to go forward in the main business district. Several secondary locations benefit from the fierce competition in the central areas. This will help push up rents in secondary markets in 215, allowing owners to undertake renovation of their existing stock to meet occupier demand. Obsolete properties in unattractive locations are likely to have no future office use. The government actively stimulates the withdrawal of this office space from the market through incentives for redevelopment to other uses. Foreign investors dominate investment market The upturn of the economy greatly improved the willingness to invest in the real estate market. totalled 1.5 billion, representing 7% of the total investment volume in Amsterdam ( 2.1 billion). Foreign investors were the main source of buyers in their global search for secure assets with good yields. Amongst them, German institutional investors targeted prime assets especially in Amsterdam, supporting new office development that is mostly pre-let. Conversely, UK and US investors focused on non-performing properties and loan portfolios which are being sold at significant discounts. The strengthening activity triggered a decline in prime yields of 35 basis points to reach 5.4 at the end of 214. This trend should continue for prime assets. However, the lack of prime products will push investors to look at value-added properties. *Oxford Economics / BNP Paribas - Data for the Netherlands 35 1% % 2,5 2, 1,5 1, % % 6. 6.% 5. 5.%

9 Athens Key economic indicators are stabilising Despite the increased volatility, key macroeconomic indicators in Greece have stabilised or turned positive for the first time since 8. Economic activity expanded by. in 214 and the rate of decline in employment has been slowing since 212. The economy is expected to continue to stabilise in the near term. Although confidence has been improving, uncertainties surrounding the outcome of the ongoing negotiations with the country s creditors remain the biggest threat to the economic recovery. Improvement is supporting rents The signs of improvement in the Greek economy are gradually being expressed in the real estate market. After 5 years of decline, rents in the CBD and in most traditional office location in Athens started to improve in 214. The market witnessed several relocations of large companies to bigger and better space. Tenants with bargaining power have been able to take advantage of grade A quality accommodation at lower rents. Polarization is evident in the market as the stock of ageing buildings continues to rise. The vacancy rates for grade C and D units range between 2% to whilst grade B units stand between to and grade A between to as demand for good quality buildings is predominant. High yields and low investment volumes The notable drop in real estate prices in the last 6 years enabled a number of transactions in 214. These contributed to cessation in the increase of prime yields. Employment % *Oxford Economics / BNP Paribas - Data for Greece 5 Yield 11% 9% 7% 2 2%

10 Barcelona A major improvement in office take-up Around new lease contracts were closed for offices in Barcelona during 214, a remarkable figure which comfortably exceeds the record of 282 deals signed in 7. In terms of floor space, take-up amounted to 233,7 m 2, representing an improvement of 3 on 213. This data together with lower levels of vacancy shows that the office market in the Catalonian capital turned a corner in 214. The main drivers for companies changing offices during 214 continued to be relocation and consolidation, although expansions grew in importance towards the close of year. Prime rent rises for the first time in five years Greater activity on the demand side and a speculative new-build market that remains inactive had an impact on availability in the market. Barcelona closed 214 with 91, less vacant floor space than 213, pushing the vacancy rate down to 15.. Although the figures are somewhat modest, the trend is heartening: this percentage figure has fallen for five consecutive quarters. It has also led to positive performance in rents. In average terms, rental values in the CBD stood at 194/m²/year at the close of year. This level is distancing itself from the trough ( 181/m²/year) seen in 213 and will strengthen during 215. The prime rent ( 222/m²/year) rose for the first time in five years during the second quarter of 214. Second best year for the office investment market With a total volume of 7 billion in 214, Spain recorded its second-best real estate investment level since 7, the peak of the previous economic real estate cycle. In Barcelona, active acquisitions and capital markets are a consequence of an improvement in investor sentiment towards Spain. The commercial real estate investment volume reached 1.3 billion in 214, 9% up on 213. Nevertheless office investment turnover surged to 1 billion (+16 compared to 213). The increased interest from investors led to a strong compression of net office prime yields. They decreased to 5. compared to months ago. 5 - *Oxford Economics / BNP Paribas - Data for Spain 35 % - 2, 2, 1,6 1, 8 2% % 6. 6.% 5. 5.% 4.

11 Belgrade Job growth is resulting in expansion of take-up Net take-up reached nearly 54, m² with a further 9, m² accounted for by leases renewals. Take-up increased significantly in 214 compared to last year reflecting job creation over the past two years. Traditionally, most of the activity occurred within New Belgrade CBD zone. Most occupiers have been seeking smaller units of up to 5 m², although several transactions exceeded 1, m². Strongest demand by business sector came from IT, followed by the public and consumer goods sectors. The lack of new supply is pushing rents up The limited office space in the Belgrade market and the increasing demand from tenants caused a large drop in total vacancy rate from previous years. With only two buildings delivered in 212 and one small scale office building in 214, vacancy rates dropped as new companies entered and existing tenants expanded within the Belgrade market. Rental levels increased significantly in the New Belgrade CBD zone due to no development of Grade A and B office buildings and the subsequent lack of new supply. As a result, the market has become landlord driven and potential tenants are forced to accept landlord terms. It is expected that rental levels of Grade A and B office buildings will follow a similar trend during 215. Belgrade office market is beginning to create interest After the European commission in Brussels decided to launch negotiations on EU membership with Serbia in March 212, the first inter-governmental conference was held in January 214. This EU approach was a positive signal for foreign investors, who started several office projects in the Belgrade market in the CBD. This is favourable for further development *Datastream / Serbian Statistical office - Data for Serbia Prime rent Employment growth* % 7. 5.% 2..% % % % 9%

12 Berlin A record result in take-up volume At 69, m², take-up in the Berlin office market set a new record in 214, exceeding the long-term average of around 19% and bettering the 213 figure by more than one third. No other major German city matched such a performance in 214. This result gives the German capital first place in the national ranking, ahead of the traditionally strong Bavarian capital, Munich (597, m²). The increase in take-up volume was not only due to the revival of the deal segment over 1, m² but above all to a more buoyant demand across all size bands. Furthermore, almost all the Berlin submarkets stepped up their turnover compared with the year before. The vacancy rate fell below the threshold In the course of the year, the lively demand led to a further fall in vacancy, dropping below the mark by Q4 214 (4.7%) for the first time in well over ten years. The total volume of vacant office space now stands at 888, m², 1 lower than at the same time last year. The volume of modern unoccupied premises was actually cut by 3 and now represents less than one quarter of total vacancy an extremely low level. The combination of buoyant demand, sustained low level of construction activity and falling vacancy led to a steady increase in the prime rent throughout the year. At the end of the fourth quarter it reached 276/m²/year. A very strong performance of the investment activity With an investment volume in 214 of close to 4.3 billion, Berlin registered its best result since the boom year of 7. This performance bettered the 213 figure by 19% and the ten-year average by 27%. This strong result was achieved with comparatively few large deals in the triple-digit million range. In fact, only 7 sales were posted in this size segment and 3 of them were portfolio transactions included on a pro rata basis. All the other size bands together generated more than deals, underlining the broad basis of demand. Offices represented 4% of the total investment volume versus 4 in 213. The buoyant demand coupled with limited supply has intensified competition among investors, especially in the core segment. Thus, the prime yield for office buildings has slipped further to *Oxford Economics / BNP Paribas - Data for Germany % 1. 1.%..% 8, 6, 4, 2, 6.% 5. 5.% 4.

13 Birmingham Renewed confidence in the occupier market Take-up rebounded to over 66, m² for the first time since 8. This strong result was helped by the largest deal of the year completing in the final quarter: HS2 taking 9, m² across the 3 rd to 6 th floors for 15 years within the Two Snowhill scheme in December. Other key deals over the year included Vodafone for 2, m² at Colmore Plaza, HSBC Private Bank on 3, m² at 12 Edmund Street and DAC Beachcroft at 9 Brindleyplace for 3, m². These transactions show occupiers renewed confidence within the Birmingham market. Solid GDP and employment forecasts bode well for 215, therefore occupational levels should be in line with the historic average. Sharp reduction in vacant space Prime rents have edged up throughout 214 to stand at 323/m²/year ( 49) established at Two Snowhill in the CBD. Supply fell over 2% during 214 with a raft of office to residential conversions. These change of use schemes combined with increased occupier demand, led to a significant fall in office vacancy levels. The supply imbalance is set to continue with a dearth of Grade A space currently on the market and no new developments are set to come on-line until late 215 at the earliest, when Brockton capital should complete circa 5, m² at the MailBox. Schemes with 1, m² + floorplates required by professional occupiers will not be completed until late 216 at the earliest. Surge in office investment volume Investment into the Birmingham office market rebounded in 214 with volumes touching 481 million ( 61 million) by the end of the year, which was the strongest year for volumes since 7. Like many of the UK s regional office markets, Birmingham was targeted mainly by the UK institutions, who accounted for 325 million ( 412 million) of purchases, approximately 6 of the total volume transacted. The biggest deal of the year was M&G Real Estate s purchase of Two Snowhill for 14 million ( 177 million) at 5. net initial yield. The prime yield continued to move downwards throughout the year to stand at 5. by the end of 214. The investment market should remain buoyant in 215 with further yield compression expected *Oxford Economics / BNP Paribas - Data for the UK % % -1% 2, 1,5 1, % 7% 13

14 Bratislava Large scale deals boosted take-up The Bratislava office market enjoyed particularly strong activity during the second and the fourth quarters of 214, resulting in net office take-up almost doubling and topping the last 1 years performance. This surge was mainly due to several large transactions such as the 17, m² in the Westend Gate pre-let to IBM or the 19, m² taken by Johnson Controls. Market activity mostly involved international companies, mainly from the finance and banking sector, followed by the IT sector. The total office stock reached 1.5 million m², of which 6% is classified as grade A. One of the biggest projects completed in 214 was the Westend Gate building offering 35, m² of office space. By the end of 215, the first phase of Twin City should be finalised, adding further 16, m² to the market. Prime rents are unchanged even with better occupancy Prime rents in Bratislava were unchanged at 186/m²/year despite increase in letting activity. In secondary locations the average rents range from 12 to 156/m²/year. In 215 effective rents will be lower, as landlords grant attractive incentive packages. The vacancy rate decreased slightly to 13.. It is expected to increase in 215 with release of second hand offices resulting from relocations to the newly supplied modern offices. Investment activity at its strongest since 6 Activity in the Slovak investment market is at its strongest since 6. Investors targeted the capital, focusing on prime properties, searching for a top quality building with good location, long lease terms and strong tenant covenant. Offices and mixed-use buildings were the leading sectors whereas outside the Bratislava investment market was driven by retail and industrial properties. The largest investment transaction in 214 in Slovakia was the acquisition of the Eurovea retail and office property in Bratislava. The prime initial yield is currently at 7.1, having slightly dropped since the end of 213. The initial yield ranged between 8.5 and 9.% in well-leased secondary properties in good locations. 5 *Oxford Economics - Data for Slovakia % % %

15 Brussels Take-up underpinned by public sector demand 214 was marked by an impressive bounce back in takeup volume. In 214, some 437, m² were let or sold in the Brussels office market, corresponding to a 39% increase compared to 213 and standing above the 5-year average. Take-up activity in 214 saw the return of the public sector to the spotlight, which accounted for 4 of the take-up with a total transacted volume of 192, m². The largest deal was the lease agreement signed by the Flemish government on 5, m² in the "Meander" project on the Tour & Taxis site. In an uncertain economic climate, the activity emanating from corporates remained primarily driven by cost issues, with virtually no demand based on expansion. Totalling 245, m², the office demand of the private sector remained 7% below the 5-year average. Slight reduction in vacant space At the end of 214, the vacancy rate in Brussels was at 1., slightly down on the previous year. It reflects a supply of 1.36 million m² with 6 outside of the CBD. The level of quality supply continued to fall due to the small number of speculative projects delivered onto the market. This trend should continue in the quarters ahead, given the developers cautiousness and the lack of financing to launch speculative schemes. At the same time, the market is still suffering from tenants strategy of reducing their office space, thus increasing availability of second hand premises. As a result, the polarisation of supply is not set to reverse for some months. Headline rents remained stable overall in the Brussels office market. The office prime rent in the Leopold District is stable at 265/m²/year, whereas the average rent decreased to 157/m²/year due to the deterioration of supply quality. Investment activity was boosted by large deals With 1.5 billion invested in 214, the office investment market in Brussels continued to perform extremely well. Thanks to big-ticket deals, the investment volume recorded the strongest activity since 7. The 2 main transactions of the year included the sale of North Galaxy for 475 million and the acquisition of Covent Garden. Considering the persistent supply tension in the "Core" market due to limited supply, some British players and US funds are taking advantage of "Core+" or "added value" asset sales to make their entrance onto the Brussels market. The abundance of capital to invest in real estate and the shortage of products caused a contraction of 25 bps in prime yields for 3/6/9- year leases since 213, standing at around 6.% at the end of 214. The prime yield for assets with long-term leases continues to fluctuate at around 5.% *Oxford Economics / BNP Paribas - Data for Belgium % 1. 1.%. 2,5 2, 1,5 1, % 5. 5.% 4. 4.% 15

16 Bucharest on the rise in 214 The leasing activity increased by 3 in 214 compared to 213 reaching 233,8 m² of office space, excluding renewals and re-negotiations. Office transactions have been concentrated in the northern part of Bucharest, representing 6 of the total take-up. The geographic pattern of transactions mirrors the concentration of office development activity as almost of newly completed offices in 214 were located in this same northern submarket. The major contributor to performance was the IT&C industry that generated around 4% of the total take-up. Large tenants had to consider pre-lease of office premises as the existing stock did not provide sufficient good quality vacant space. As a consequence, pre-lets accounted for approximately 2% of the total take-up in 214. Equilibrium between demand and supply sees still no change to rents The vacancy rate declined to around 1 thanks to take-up absorbing space faster than the volume of office completions being delivered. However this downward trend was also counterbalanced by the significant share of relocations, a main driving force of demand that generated further vacant space. Take-up included pre-lets as well, which do not affect the vacancy rate of the existing stock. Consequently, the prime rent still remained stable for the fourth consecutive year at around 216/m²/year. On the one hand, the completed developments and proposed schemes that were already pre-let have lessened the pressure on prices. On the other hand, the upward pressure on rents, specifically for prime offices, is getting stronger. Growing investor interest results in yield compression Driven by improvement in occupier market fundamentals, the prime office yield went down by 25 bp during the second half of 214, reaching 8.% at the end of the year. Investor interest is reflected by the significant increase of the total investment volume during H2 214 with each asset class contributing to recovery. The most significant transactions have been concluded by foreign investment funds that consolidated portfolios acquired during previous years. The local market is benefitting from the availability of foreign financial resources. With higher returns, a favourable economic context and the further sales of commercial property, Bucharest has very good prospects for its investment market during *Oxford Economics / BNP Paribas - Data for Romania 1 1 9% % %

17 Budapest Record high volume of office take-up In 214 office take-up rose to an outstanding 251,6 m² and reached its highest figure over the past five years. This represented a 3 increase compared to 213. The market was boosted by large deals: 15 lease agreements over 3, m² were recorded in 214. The majority of the large deals were pre-let agreements and therefore the proportion of pre-lets significantly increased, reaching 1 of total take-up. The public sector was the most active player of the market, 1 of the annual take-up was acquired by state-owned companies. This sector was followed by IT and telecom companies as well as Business Service Centres (BSC). Gross take-up including lease renewals grew by 2 compared to the previous year, reaching 465,6 m². The office market is running out of large prime office space As anticipated, the vacancy rate for grade A and B offices continued its downward trend in 214. Although the vacancy rate remained high, the lack of new supply and the record volume of take-up helped to reduce the vacancy rate to 16.. Concerning second hand premises, the availability of prime office space drastically reduced in the key office submarkets (CBD, Central Pest, Central Buda, South Buda). The volume of new supply remained low even though it doubled compared to 213. It is expected to stay flat in 215 with only 3,5 m² currently in the pipeline. Rental values varied according to the location and the quality of premises but remained overall stable over the year. Due to the strong leasing activity and the low volume of new supply, positive rental growth is forecasted for 215. Office properties still in the main focus of investors The investment market showed increased activity in 214. By the end of the year investment volumes rose by 5 compared to 213. In line with 213, office properties were the main focus of purchasers. Primary local property funds were the most active players in the acquisition of office i.e. Green House, Óbuda Gate, Vision Towers- North Tower, Dexagon. In the largest office investment transaction recorded in 214, Eiffel Palace was bought by the National Bank of Hungary. Investors favour core assets with long-term income, properties with favourable price and the possibility of high capital gain in the long term. Due to the improving economic achievement of the country and attractive investment yields, international investors interest also turned towards Hungary. A number of investment transactions currently in the pipeline are expected to be concluded in *Oxford Economics / BNP Paribas - Data for Hungary 35 1 % 2, 1,6 1, % % 7% 17

18 Dublin Ireland turns the corner into growth Real GDP in Ireland grew by 5. y/y in 214 sustained by a good level of exports and a robust domestic economy. It enabled further acceleration in employment growth in the service sector by the end of 214. On the back of this very favourable economic backdrop, office take-up in Dublin showed a strong performance, improving by 2 compared to 213. Demand from the TMT sector supported this upturn as it represented more than one third of the take-up. A set of large transactions from "dot-com" companies boosted the market, such as Facebook (11,741 m²), Yahoo (6,968 m²), Amazon (6,53 m²), or Dropbox (5,17 m²). It is worth noting that new tenants entering the Dublin office market contributed a large share of the take-up. The strongest rental growth in Europe The reduction in vacant office space in Dublin has accelerated since 213 as no completion occurred over the last 2 years. The vacancy rate was down to 13. at the end of Q4 214, comprising a large share of 198 s and older generation buildings. The shortage of good quality new space has led to older buildings being refurbished and are filling up fast. The re-emergence of office development is visible with projects under construction, such as No. 1 Ballsbridge (15,6 m²), St. Stephens Green (6,9 m²) or in Hatch Street (12, m²). Lack of new supply and strong demand in the CBD drove the prime rent upwards by 2 over 214 to 488/m²/year and there is still room to gain more ground in 215. This level should encourage new office development over the next year. Rents also grew in suburban locations where occupier demand increased. Record investment sales Investment in commercial real estate exceeded 4.5 billion in Ireland, way above the peak in 6. Irish REITs became a dominant player in 214 with over 1 billion invested. The largest purchases were an office and retail portfolio for 375 million by Green REIT and the Central Park Sandyford office and residential scheme for 311 million by Green REIT and Kennedy Wilson. UK and US investors are still present to support the Irish market with some major deals in Dublin, such as the Liffey Valley Shopping Centre bought by Hines and HSBC. We expect 215 to be another busy year whether transactions are by way of loan sales or direct property sales. There remains a significant volume of assets still to be brought to the market from bank deleveraging. The competition over prime properties is pushing yields down below. - *Oxford Economics / BNP Paribas - Data for Ireland , 3,5 3, 2,5 2, 1,5 1, % % 1%

19 Frankfurt Lack of large space limits letting activity Although office take-up rose in the final quarter (136, m²), Frankfurt produced a poor result for 214 as a whole. The figure for the overall market area was 411, m², 17% down on 213 and the worst performance in the past twenty years. The drop in turnover was due both to the not exactly easy economic framework and to the low proportion of large deals. Transactions for premises larger than 5, m² accounted for only 21% of total take-up against a longterm average of over 4% for this size band. One reason for this downturn is the restricted supply of sizeable modern premises, which discourage many would-be tenants from moving. The central office market zones of the City Centre accounted for more than 5 of aggregate turnover. Vacancy continues to shrink The reduction in vacancy already apparent since 9 continued in 214 and in the market as a whole the vacancy rate is 11.. At the end of the year, it stood at 1.8 million m² ( less than 12 months before) and included 4 of modern premises. The largest amount of vacant space is located in the Inner City office market, where modern space actually accounts for 69 % of the unoccupied stock. This was due to the completion of buildings like the Taunusturm. The prime rent remained stable at 456/m²/year in 214, achieved in the submarket Bankenviertel. With a top rent of 444/m²/year, the Westend district remains the second most expensive precinct. Second-best investment turnover ever With a transaction volume of around 5.3 billion, the investment market registered its second-highest total of all time. It exceeded the already very good 213 result by 37% and the ten-year average by 5. The outstanding result was fuelled by a very large number of deals. Furthermore a whole series of large-volume transactions in the triple-digit million euro range boosted the market. Altogether, there were 11 such deals, including the mixed-use Palais Quartier, the Silberturm, the Trade Fair Tower and the Winx Tower project development on the MainTor site, an off-sell acquisition. In view of the tough competition among investors and the very favourable financing environment, the office prime yield slipped further down to *Oxford Economics / BNP Paribas - Data for Germany % 1. 1.%..% 8, 6, 4, 2, % 5. 5.% 4. 19

20 Geneva Low job creation leading to poor take-up Once again the letting market has been driven by deals for units under 6 m²; there have been few transactions for units over 1, m² due to low job creation. Companies, such as Société Générale and Crédit Agricole, have been taking advantage of favourable rental conditions to relocate and regroup their staff in new or refurbished buildings. Such premises thereby released have been occupied for many years and are therefore ageing and in need of refurbishment. Over the first nine months of the year 6, m² of offices have been completed in the canton of Geneva. Although this looks like a relatively low figure, there are 19, m² of offices under construction, which in the coming years will add to the already abundant supply. Prime rents under pressure According to OCSTAT Office Cantonal de la Statistique, the vacancy rate fell from 1.9% to 1.5 in 214, representing less than 7, m² of vacancy in the canton of Geneva. Published decline in vacancy is in sharp contrast to the reality on the ground. Indeed, market figures tend to indicate that supply has increased by to about 22, m²; representing 5. of the existing stock. Supply still outstrips demand and we see that the widespread slide in rents that began in 211 has continued. The prime rent is still falling and now stands at CHF 83/m²/year ( 689), a fall of 17. since 211. The average rent stands at CHF 537/m²/year ( 446), having slipped by 4. in a year. Occupiers are not only benefiting from lower rents, but also substantial incentives such as staggered rents, rent-free periods or contribution in fitting out costs for their premises. Poor finish to 214 but 215 off to a flying start Investment in commercial real estate hit a historic low in 214 at CHF 438 million ( 364 million). Investment in offices represented over CHF 247 million ( 25 million), half of the figure for 213, a record year that saw four exceptional office building sales. 214 did not get the same boost with only two office buildings sold in the city centre and eight more in the suburbs. The prime yield edged up from 3.19% to 3.. The figures for 215 already suggest a sharp rise in investment. The announcement in early January of a transaction between two major Swiss players for offices on Rue du Rhône for CHF 535 million ( 444 million) and a yield close to 3. already exceeds the total for the whole of 214. Employment 1% *Oxford Economics / BNP Paribas - Data for Switzerland *OCSTAT - Office Cantonal de la Statistique * , % 1. 1.%. 5.% 4. 4.% 3. 3.%

21 Hamburg Major deals see an increase in turnover Take-up in the Hamburg office market in 214 totalled 513, m². This excellent result not only exceeded the 213 figure by 17% but was also 7% higher than the ten-year average. As with Berlin, Hamburg was the only key German office location to significantly step up its performance yearon-year and even took third place at a national level in total take-up volumes. It was fuelled by an exceptional number of major deals upwards of 1, m², including a high owneroccupier proportion. The biggest contracts were concluded by the Telekom in Centre North (32, m²) and the VBG statutory accident insurance organisation in Barmbek (22, m²). Vacant space volumes remain unchanged In the past twelve months, there has been hardly any change in office vacancy; it stood at 853, m² at the end of 214. The volume of modern empty premises the segment attracting the strongest demand now accounts for only 2 of total vacancy, which represents a further relative fall. The vacancy rate in the market as a whole is 6.. The prime rent remained steady over the course of the year at /m²/year and is obtained for high-grade premises in very good parts of the City Centre. Although there have also been modest falls in rental prices in some office market zones, the overall trend is upwards in both top and average rents. Very high investment volume In 214, the investment market registered a transaction volume of 3.8 billion and thus exceeded the very good 213 total by 4. The result was also 4 up on the ten-year average and almost reached the level achieved in 6. A very lively end-of-year spurt generated more than 1.3 billion, the third-highest quarterly performance ever recorded. Several large deals upwards of together contributed almost one billion euros to total investment. The volume of investment produced just by single asset deals was by far the biggest ever with 3.3 billion. The buoyant demand, tough competition in the core segment combined with favourable financing conditions, saw the net prime yield for office buildings decline by 25 basis points over 213 to stand at 4.4%. 6 *Oxford Economics / BNP Paribas - Data for Germany 35 1% % 6, 5, 4, 3, 2, 1, 9% 7% 6.% 5. 5.% 4. 4.% 3. 21

22 Helsinki Occupiers in search for space efficiency The Helsinki Metropolitan area is still facing challenges. Sluggish trends in the office market have been reflecting weak trends in service employment with little job creation in 214. Large companies have been downsizing and subletting their premises. At the same time, companies have been looking for new premises with multi-activity office solutions generating more efficient space usage. The effects of this space efficiency have resulted in the release of vacant space. Helsinki metropolitan area is facing oversupply The combined effect of a slow economic cycle and the enduser preference to efficient space resulted in increased vacancy rates. Slow office demand impacted on rental growth even in the city centre. Although prime rents have been increasing moderately, the rate of growth has been slowing down during the past few years. The office market is oversupplied and approximately, m² of new offices is in the pipeline in the metropolitan area. This means that the volume of vacant space will not decrease without a significant economic recovery and office demand. Shift toward uncertainty Until last year, investment demand in Finland was very selective and focused on prime locations in the city centre of Helsinki and on fully-rented new properties. There has been a limited supply of low-risk properties. As a result the focus has clearly started to spread out towards riskier properties including properties with some vacancy or with development opportunities. However, due to the weak economic environment with lay-offs and decreased sales volumes, the value increase is hindered by the negative development of net proceeds. As properties are both an investment tool and a resource for the user, reaching a sustainable value increase through cash flow requires a significant growth in the national economy. Net absorption - Employment Office net absorption *Oxford Economics / BNP Paribas - Data for Finland % % -1% Finland - 6, 5, 4, 3, 2, 1, %

23 Istanbul Record net absorption despite slower economic conditions Turkish economic activity has been gaining momentum after a weak second quarter, although the pick-up has not been strong enough to push GDP growth significantly above in 214. In 215, the main drivers of growth will be the government s infrastructure investment and public-private partnership (PPP) mega-projects, such as a third bridge over the Bosphorus, a third airport in Istanbul and the highway connecting Istanbul to Izmir. Net absorption figures in 214 reached a new record high, exceeding, m². The market sectors most in demand by national and multinational occupiers in 214 were Levent in CBD and Ataşehir on the Asian side. Strong increase in supply pushed up the vacancy rate At the end of 214, the total stock of grade A offices was standing at 4.6 million m 2 in Istanbul, of which 1.9 million m 2 was located in CBD. Supply was rather strong this year with 76, m² of new offices completed during 214. While some of the floorspace was pre-let, a large amount was delivered on a speculative basis, pushing the vacancy rate to a 9-year high of 1. In Levent, 14, of new offices were added increasing the vacancy rate in this prime submarket to 11%. Developer activity continues strongly, 1.3 million m² new office stock is expected to add in the main business districts of Istanbul and total stock should reach 5.9 million m² at the end of 217. Prime rent was $48/m²/year ( 384) and average rent $28/m²/year ( 224) in Istanbul grade A office market in 214. Rents are anticipated to remain stable for prime locations in 215. A market dominated by national investors Despite economic slowdown, national investor demand dominated the office investment market in 214. Gulf investors have been back since the end of elections but stay mostly focused on residential properties. volume jumped to $6 million ( 48 million), an increase of 4% compared to 213. The major transaction was recorded in the CBD, the Kristal Kule located on Buyukdere Avenue for a total of $33 million ( 24 million). Prime office yields decreased to 6.7 in 214. Net absorption - Employment Office net absorption *Oxford Economics / BNP Paribas - Data for Turkey 7% 1% % 1, 1, 8 6 4% 2% 8.% 7. 7.% 6. 6.%

24 Lille is in good condition The take-up result remained well above the long-term average, despite an uncertain economic background. Nevertheless, the Lille office market slightly declined (-) in 214 to 165,8 m². Each main district was negatively affected by the shortage of new supply, especially in Euralille (-7%). Small-sized transactions supported the market in 214 representing more than 4% of the transacted volumes. Deals over 5, m² were exclusively owner-occupier operations, such as "la Cité des Métiers et de l Artisanat" in Lille City Centre with 12, m², Boulanger with 9, m² in the South Periphery and Eiffinov in the district of Eurasanté with 8, m². Vacancy reduction sees prime rent stay at a high level After three years of growth, vacant space dropped by 7%. For second hand premises, supply decreased only by and has remained high over the last 3 years. New premises supply saw a sharp fall with only 35, m² available (-69%), which represents barely more than 1 of the vacant stock, the lowest share in 1 years. Due to these tight market conditions, rents were maintained at their previous levels and the prime rent remained at 22/m²/year in Euralille. The situation is likely to change in 216 onwards for the Lille metropolitan area, as a substantial amount of new office space will be delivered into the market. Healthy figures for the investment market After a fall in 213 mainly due to the lack of assets for sale, the transaction volume in Lille increased in 214 with 242 million invested. Offices accounted for 7 of this total. Several significant deals were recorded in 214, such as the acquisition of Les Arcuriales building in Lille for 44 million and the Opéra Faidherbe building by AEW Europe for 17 million. Many investors are still looking at Lille. It remains a favourite location amongst regional cities along with Lyon thanks to the relative liquidity of the market. Given the stiff competition for "core" assets, the prime yield decreased to around 5. at the end of 214. This contraction in yield will continue further in *Oxford Economics / BNP Paribas - Data for France Prime rent - Vacant Space 5 Office vacant space 5 1% % 8.% 7. 7.% 6. 6.% 5.

25 Lisbon Improved economic climate benefited the office market A significant improvement in the economy has had positive impact on the office market in Lisbon. The employment rate rose from negative values to 2. during 214. This boosted leasing activity and occupier motivation to relocate to newer and more efficient buildings. increased by over 6 when compared to 213, confirming the rise in confidence levels. This stimulated demand for offices over 8 m² and large transactions over 3, m². Overall, the annual number of office transactions grew from 186 to 239 in 214. Decrease in the vacancy rate The vacancy rate diminished at the end of 214, down to 12.1% compared to 13. last year. This was mainly caused by the reduction of new space available. This trend is expected to continue throughout 215 and 216 helped by the low volume of availability in new deliveries that have been already pre-let at at least. Some office buildings have been converted into hotels or luxury houses in central areas and are therefore taken out of supply. The lack of office supply shifted rents up in the prime CBD. However, this trend was not seen in the other Lisbon office areas, where a general decrease in rents was recorded (with the exception of zone 3). Considering the pressing demand for new products and the lack of new supply, rents are expected to slightly increase in 215. The office investment market is healthy The performance of the Portuguese investment market has reinforced the climate of recovery that was felt in other segments. In 214, commercial real estate investment in Lisbon reached 317 million, representing a 1 increase compared to the previous year. This mainly attributed to a rise in the retail sector. slightly decreased when compared to the peak observed in 213, but it stood well above its 1-year average. The returning interest of international investors, the growing number of buyers, asset values and the improved market activity, generated a significant compression in yields in the last year. In this context, prime office yields recorded a contraction to *Oxford Economics / BNP Paribas - Data for Portugal % % 7%

26 Central London Exceptional occupier demand sees take-up hit a high 214 Central London office take-up totalled 1.49 million m², 2 up on 213 and the highest level recorded since the height of the dot-com boom in. Against the backdrop of continuing economic recovery, occupier sentiment strengthened significantly. Increases in employment and business investment helped facilitate the re-emergence of large occupiers agreeing pre-let deals well in advance of their move dates. The importance of TMT occupiers in Central London continued with 2 of overall take-up, whilst augmented by the revival of the finance sector that accounted for 1 of take-up. Finally, it is worth noting the growth of serviced office operators in the capital. The sector made up less than 1% of the market in 21 & 211 but surged to 7% of total take-up during 214. Supply Crunch to push rents higher A combination of exceptional growth in take-up and a constrained development pipeline resulted in a dramatic decline in the availability of office space across Central London markets. At 1.5 million m 2 supply was down on the previous year, producing one of the lowest vacancy rates on record at 5.1%. In particular the Midtown (4.), Southbank (3.) and West End (3.) markets are all experiencing an acute shortage of space with vacancy rates firmly below and further drops expected during 215. The Southbank office market has seen one of the largest drops in vacancy, with a 379bps movement in the final quarter alone. 215 will see one of the lowest levels of development completions on record, further exacerbating supply issues and resulting in upwards pressure on rents as competition for the remaining space intensifies. Further yield compression as appetite for assets continues Downward pressure on government bond yields, a surging occupier market and a strong rental growth forecast has ensured Central London remains a key target for investors. Large trophy asset purchases by foreign buyers boosted Q4 214 office investment to more than 8.5 billion ( 1 billion), breaking the record set during the final quarter of 213 and pushing the overall 214 volume to 2 billion ( 25.3 billion). Around 81% of Q4 office investment involved foreign buyers, bringing the annual total to 7. Volumes within the City office market were particularly high at 8.2 billion ( 1.4 billion). There were 24 deals of more than million, 21 of these involved cross-border capital. The weight of money being deployed into the Central London office market has pushed the prime City office yield down to, whilst the West End currently remains at 3.. 1,6 1, 8 - *Oxford Economics / BNP Paribas - Data for the UK 1,8 1,6 1, 1, 1, 8 1% % -1% billion % 5. 5.% 4. 4.% 3. 3.%

27 Luxembourg Robust take-up boosted by large deals in Luxembourg ended the year with a buoyant final quarter and recorded its highest level since 8. During Q4 214 some 78,9 m² were let or sold, bringing the annual result to 214, m², 4 up compared to 213. Consultancy and financial services represented around two third of total take-up. In fact, the 2 largest transactions in 214 were the occupancy by PWC of 27, m² into their new building Crystal Park in Gasperich and the move of KMPG into their new headquarter (17, m²) in Kirchberg. A significant shrinkage of availability Thanks to strong leasing activity and few speculative completions, the availability in the Luxembourg office market is back to its historic low level. Over the course of 214, availability declined sharply to reach to 17, m² reflecting a vacancy rate of 3. vs 5. a year earlier. The decrease masks variable supply conditions across the different office markets and has not had any impact on rental values yet. Prime office space continues to be trade close to 48/m²/year in the CBD. Before seeing an upward movement on rents, decreases in commercial incentives granted by the owner will have to occur that will reduce the gap between headline and effective rental values. The strongest investment volume since 7 On the investment side, 214 was also a record year with an investment volume reaching 837 million - its highest result since 7. The office segment remained by far the favoured asset segment for investors. The most notable transactions achieved were the acquisition of Galerie Kons (2,5 m²) by AXA for an investment volume close to million and the sale of Le Dôme by Prameca to Blackstone for an estimated amount of 12 million. Following a first half year marked by downward movement, the prime yield for 3/6/9-year leases flattened by Q4 at 5.4%. For prime assets providing a secure long-term cash flow or small lot sizes, the prime yield stood well below *Oxford Economics / BNP Paribas - Data for Luxembourg 6 5 7% 1% 2,8 2, 2, 1,6 1, 8 7.% 6. 6.% 5. 5.% 4. 4.% 27

28 Lyon A solid occupier market After a buoyant year 213, office take-up in Lyon kept up the same pace in 214 with 245,6 m² transacted (-), above its 5-year average. As with 213 some major deals boosted the market, such as Caisse d Epargne in the Incity tower for 17,6 m², the turnkey lease for Sanofi in Gerland for 15,5 m², and the owner-occupier deal of 1,6 m² for Seb in Ecully, North West. Furthermore, demand stayed buoyant in the medium and small size band, and the volume of transactions below 1, m² increased by. It is worth noticing that for the first time, Gerland took the first position amongst office districts in Lyon (58, m²), ahead of the traditionally strong Part-Dieu (46, m²). This trend should continue in 215 with major transactions in the pipeline in Gerland. Vacancy rate slightly up after 3 years of decline The office vacancy rate stood at 6. in 214. This is an upswing following 3 years of decline and is due to a significant rise of both new and second-hand supply. On the one hand, new supply increased in central areas because of office completions. On the other hand, office space released into the market in the same districts fuelled the secondhand vacant stock. Average rents remained stable whereas the prime rent dropped back to more standard levels at 28/m²/year, after the historic peak recorded in 213 in the Part-Dieu district. The most active investment market amongst France s regional cities With 856 million invested in commercial real estate in 214, the investment market in Lyon was stable compared to 213. Although offices were down 1 compared to the same period in 213, amounting to 573 million, this is still high levels compared to the previous years. There have been 7 office deals over 25 million each since the beginning of the year. One of the most notable included the off-plan acquisition of the Incity tower by CERA in Lyon Part-Dieu. The scarcity of secured assets to sell in Lyon CBD already caused the prime yield to contract in 214, which now stands at 5.. Since 214, investors have been looking at new areas as Villeurbanne Carré de Soie or Gerland, where they can find more attractive initial yields of over for new buildings. 5 *Oxford Economics / BNP Paribas - Data for France 35 1% % 1, 1, 8 6 7% 8.% 7. 7.% 6. 6.% 5.

29 Madrid Stable take-up despite the scarcity of large-scale deals In terms of take-up, the Madrid office market in 214 showed a very similar picture to 213, with 37, m² let. The number of deals grew by 17% year-on-year, demonstrating a more dynamic market although average volume per deal was lower. The city centre remained attractive to companies looking for office space as it has been since the beginning of the crisis. The central zone of Madrid cornered 5 of office transactions last year, a rise of 6 percentage points on 213. Office rents in Madrid rising for the first time since 8 The pressure generated by demand translated into an increase of compared to 213 for prime rents on the Castellana-Recoletos thoroughfare and 11% for average rents within the M-3 inner ring road. Prime rents reached 312/m 2 /year at the end of 214, whereas average rents in the central zone stood at around 219/m 2 /year. Supply, however, is another matter. The vacancy rate climbed from 15. in 213 to 16. in 214. An increase of one percentage point was a consequence of the release of second-hand space over the past year, mainly through consolidation transactions. The rise occurred despite the scarce deliveries of new space. Record year for the investment market With a total volume of 7 billion in 214, Spain recorded its second-best real estate investment figures since the 7 peak. In Madrid, the active acquisitions and capital markets are a consequence of an improvement in investor sentiment towards Spain. The investment volume in the capital city reached 3.6 billion in 214, 27 up on 213 and even exceeding the record volumes seen in 7. Investor interest led to a strong compression of net prime yields. They decreased to for offices compared to at the end of , *Oxford Economics / BNP Paribas - Data for Spain % - 4,8 4, 3, 2, 1, % 6. 6.% 5. 5.% 4. 4.% 29

30 Manchester An overall improvement in the occupational office market Manchester s take-up in 214 for both city centre and out-of-town stood at circa 189, m², which was only lower than the record take-up witnessed in 1 and 7. It represented an annual increase of 1 on 213 and up 2 on the 5-year average of 153, m². Demand was spread across the city centre in developments such as in Spinningfields, Piccadilly and St Peters Square, and with growth in the take-up of all unit sizes. Professional services were the main driver for take-up and there was an increase of new entrants into the market. Amongst them, TLT Solicitors and Towergate Insurance in 3 Hardman Square whilst Trader Media Group and Ford Capital selected Manchester for their business expansion. The biggest transaction was Slater and Gordon s move to 58 Mosley Street fora 9,958 m² unit. Shortage of good quality supply Driven by strong occupier activity and an absence of any significant completions over 214, Grade A supply dwindled further. This led to an increase in the office prime rent, which stands now at 344/m²/year ( 436) within the prime city centre core. Meanwhile a lot of the vacant space is obsolete and will be converted to other uses such as residential. For good quality second hand premises, headline rents can achieve circa 296/m²/year ( 375). For all grades, incentive packages are starting to reduce as choices become more limited for occupiers. With the dearth of new supply, occupiers are increasingly left with no other option but to consider pre-let solutions and we expect to see rental growth during 215. With improving economic fundamentals, there is the potential for speculative development to return to the market. Manchester dominated the UK regional office investment market Manchester saw a record level of transactional volume with 877 million ( 1.1 billion) ploughed into the city s offices in 214. The weight of money targeting Manchester was underpinned by the combination of strong tenant demand and the lack of supply; investors are anticipating rental growth. Furthermore, Manchester was the strongest performing regional office market, accounting for 4 of the total office investment amongst the UK s "Big 6" cities. Investors, particularly the UK institutions such as M&G Real Estate and NFU Mutual, were driven by the attractive yield spread to London. Manchester prime yields are now estimated to be in the region of and reduced significantly through 214 as pressure on pricing intensified *Oxford Economics / BNP Paribas - Data for the UK % 1. 1.%..% % 3, 2,5 2, 1,5 1, % 7.% 6. 6.% 5. 5.% 4.

31 Marseille New office space was the main source of demand In 214, take-up in Marseille showed a substantial rebound and reached 126, m², which represented 2% growth. This progression was mainly sustained by occupier activity for new office premises that account for 4 of the total takeup. Pre-let transactions absorbed 23,82 m² of the 35, m² of the tower "La Marseillaise" located in the growing business district of Euroméditerranée, with 16, m² taken by the Greater Marseille Authority alone. Take-up for second hand premises remained subdued at 65, m². Marseille s central business district - Euroméditerranée - was the most sought-after district of the city with more than 6 of the take-up for new offices, confirming its attractiveness to occupiers. Little rental growth in Marseille centre Supply jumped by 1 due to growth in second-hand vacant space that represented 79% of the total available office space. Supply for new premises reduced by 1, representing 54,7 m². Rental values rose particularly for new premises located in the central area of Marseille, where they now stand at 185/m²/year in average. The prime rent reached 265/m²/year in Euroméditerranée and most of the available new premises are actually located in Marseille centre. Availability of new office premises will be maintained by the important deliveries coming onto the market in These future completions include "Le Virage" in Marseille South and the 3 buildings of "Astrolabe" in Euroméditerranée. An outstanding year for investment 214 was an outstanding year for investment in commercial real estate in Marseille, with 548 million invested over 214 (+2 on 213). This is the second best year ever for investment after 7. In terms of asset, investors mainly opted for offices as these are the most liquid assets, accounting for 57% of investment in Marseille. There were two significant deals over 5 million in 214, including the off-plan acquisition by CDC and CEPAC of the new tower La Marseillaise for 18 million and the Europrogramme building by Primonial REIM for 51 million. In terms of yield, the trend was flat overall. 5 *Oxford Economics / BNP Paribas - Data for France Prime rent - Vacant Space 1, 75 5 Office vacant space 1% % 7% 31

32 Milan Rebound in take-up despite recession Employment has been reducing over the last two years with Italy experiencing a third recession since the 8 crisis. Take-up volume reduced in 213 but bounced back in 214 thanks to some large operations that resulted in companies moving into more modern premises. This improvement in occupier activity does not change the overall market trend. It remains a substitution market with companies trying to reduce their real estate costs. In the coming year, Italy will face a period of 3 lows; low GDP growth, low employment growth and low inflation. Thus the market s driver will remain large deals; tenants will catch an opportunity to secure a new lease with lower rent. Further rental reduction Supply increased in all the different sub-markets, even in the CBD. Thus the prime rent declined during 214, and now stands at 48/m²/year. A drop was also registered in average rents in the CBD and in the other market districts. Tenants continued to drive the market, securing deals with lower rents and good incentives. Incentives reached high levels but are not sufficient anymore to ensure lettings alone. We anticipate that growth in GDP and employment will be below 1% pa over the next two years, as such the Milan market will not record a significant decrease in supply that will allow rents to grow. Therefore they are likely to reduce again in 215 and only stabilise in 216. A lack of good products Commercial real estate investment volume fell by 9% from a very strong 213 to 1.2 billion. Investment activity may improve in 215 as buyers are looking actively at the Italian market. Specifically there is a strong interest again for investing in Milanese offices. The two main areas of interest are around Piazza Cordusio, the main square of the CBD, and between the two train stations of Porta Garibaldi and Centrale, the new CBD area. The increased activity in the market, particularly in the CBD and the Semi Central areas, triggered a decline in prime yields down by 35 basis points to 5.4%. This trend should continue for prime assets. However, the lack of products will push investors to look at value-added properties. - *Oxford Economics / BNP Paribas - Data for Italy , 3, 2, 1, 1% % -1% % 5. 5.%

33 Moscow Key indicators are all turning negative The economic crisis that hit Russia in 214 impacted strongly on the office market in Moscow. During the whole year, the market showed negative dynamics in all key indicators. First, plans to increase the number of staff were deferred and subsequently followed by job cuts in many companies. This led to a lack of demand for new office space, and consequently contributed to the increase in the vacancy rate and downward pressure on rents. The volume of net absorption, reflecting demand for office space, significantly decreased this year. Vacancy rate on the rise By the end of the year, 17% of the existing office space remained unoccupied. This has been the highest level of vacancy in Moscow since 21. The office market is traditionally a vulnerable sector during macroeconomic instability. One of the major trends that affected the market in 214 is the transfer of commercial real estate pricing from dollars into rubles. The transition of many owners to ruble rental values has been mainly evident in grade B+ offices. Against the background of increasing supply, owners have had to be flexible and make further concessions to tenants, adjusting rents and providing various types of incentives. Investment dropped by more than 6% in 214 The volume of investment in 214 amounted to billion, a 6% decrease compared with 213. Most funds were invested in office, 4% of total real estate investment. Yields are subject to upwards pressure and will increase in ,5 2, 1,5 1, 5 *Oxford Economics / BNP Paribas - Data for Russia 1, 8 6 7,5 6, 4,5 3, 1,5 1% 2 2% % 9%

34 Munich Take-up remained stable Totalling 597, m², office take-up in Munich finished 214 on a par with the 213 figure (63, m²) but more than 1 down on the ten-year average. A contrast is that the owneroccupier proportion was greatly reduced whereas the year before this factor had contributed over 9, m². Therefore the actual volume of lettings, excluding owner-occupier deals, increased quite appreciably in 214. For once, Munich, a regular winner, failed to head the national ranking and was relegated to second place by Berlin. The biggest deals included those concluded by Brainlab (21, m²), BayWa AG (2, m²) and Panasonic Automotive (12, m²). Decline in vacancy is slowing As expected, the reduction in vacancy has slowed down. Amounting to 1.27 million m², vacant office space was lower than at the end of 213 and in the final quarter, the volume actually increased slightly. Modern unoccupied premises now total 337, m², corresponding to 27% of aggregate vacancy, still at low levels by national standards. In the market as a whole the vacancy rate is 6.. In some parts of the favoured downtown precincts there is a shortage of high-grade modern premises, and in 214 this led to a rise of in the prime rent to 414/m². As before, this is achieved in the City Centre. Rents have also climbed in several other office market zones. Historic low prime yields With aggregate turnover of close to 5.4 billion, the Munich investment market outpaced the already very good 213 figure by 1 and achieved the second-largest investment volume ever recorded. Only the boom year of 7 saw a higher result. The ten-year average was actually exceeded by well over. This outstanding performance was fuelled both by a very large number of single asset deals and also by a whole series of substantial transactions in the triple-digit million range 14 altogether. In the past twelve months, the buoyant scale of demand, especially for high-grade core assets, the competition among investors and the historically low 1-year Bund led to a further compression in the office prime yield to , 8 6 *Oxford Economics / BNP Paribas - Data for Germany , 6, 4, 2, 2. 2.% 1. 1.%..% 11% 9% 7% 6.% 5. 5.% 4.

35 Oslo Slight decrease in demand as occupiers show caution Growth in employment services remained stable and the unemployment rate was still extremely low (3.). In 214, GDP grew by 1. and is anticipated to increase by 2. in 215. The upside growth potential will probably be hindered by falling oil prices and reduced exports. In this context, take-up decreased slightly and occupiers have been more cautious in a number of criteria when renting including quality of the building, location and rationalisation of space before moving to another building. Rental growth reflects limited supply of prime products Rent levels in Oslo continued their growth reflecting a strong demand for top quality premises and limited supply for such products. The office vacancy rate stabilised at 8.1% by the end of 214 and vacant office space accounted for 8, in Greater Oslo. A further 12, m² of deliveries is expected for 215. Vacancy varies greatly when segmented by submarket, with central areas and inner city low and relatively stable. Real estate yields continued to decline over the year Since 9 there has been a steady increase in investments in the Norwegian office market. Likewise there has been a steady decline in the office net prime yield, going as far back as ended with a prime yield of 4.7, down from 5.%. Low interest rates and a volatile stock market make real estate a relatively more attractive asset class, offering a higher return relative to risk. This has, and is likely continue, to put downward pressure on the prime yield. 5-5 *Oxford Economics / BNP Paribas - Data for Norway Norway - 1, 8, 6, 4, 2, 1% % -1% 9% 7% 7.% 6. 6.% 5. 5.%

36 Central Paris Sharp upturn in take-up over 214 Employment growth in France remained stable in 214 (+.1%). However, employment in Île-de-France, driven by the service sector, proved resilient compared to the rest of France with 1, jobs estimated to have been created in 214. As a consequence, take-up in the Central Paris office market climbed by 1 over 213 to 1.8 million m². Large units were the most robust performers. As such, deals over 5, m² bounced back by 31% in 214 versus 213. Small and medium-sized units remained a solid base for the market, showing a increase. The traditional business districts (Paris inner city, Neuilly-Levallois and La Défense especially) performed most strongly over 214. Conversely, the other districts of the Western Crescent and the Inner Rim failed to reach their ten-year average. The prime rent and the vacancy rate remained stable The vacancy rate now stands at 8., compared to just 8. at the end of 213. It remains the highest in the districts of the Western Crescent (1 in Péri-Défense) and the lowest in Paris Inner City (). Immediate supply stood above 2.85 million m² as of December 214, including only 21% of new offices. The vacancy rate should start to decrease at the end of 215, due to the low level of completions in the recent months. The high availability is holding back rental growth as tenants have a large choice of quality premises. Prime rents, which dwindled from 83/m²/year in 212 to 75/m²/year in 213, remained stable in 214. Likewise, incentives increased from 1 to 2% in 214. Outstanding performance for the investment market Amounting to 16.8 billion, the investment volume in Central Paris in 214 increased outstandingly, up 3 compared to 213. Offices attracted 7 of investment, with 12 deals for over recorded in 214, including the acquisition by a Saudi family office of the Risanamento portfolio in Paris CBD for about 1.2 billion. Given a massive flow of "new cash" and the low level of the lending rate, the prime yield continued to decrease to stand at around at the end of 214. The high levels of risk premium and the strong demand for "core" assets will push prime yields further down. For these reasons, a new yield compression - of up to 25 basis points - can be foreseen in Paris CBD in ,5 2, 1,5 1, 5 *Oxford Economics / BNP Paribas - Data for France % % billion %

37 Prague Significant net take-up level recorded in Prague Prague s letting activity was dominated by new lease deals. Nearly 189, m² of offices were taken up in 214 with new deals accounting for almost 61% of all lease transactions. The last quarter was particularly active generating 77, m² of new leases. Net leasing activity in 214 reached the secondhighest level of the past 6 years; only 211 ranked higher with a figure exceeding, m². Excess supply is seeing the vacancy rate rise Supply coming onto the market continued to drive the vacancy rate upwards in the last quarter of 214 where it reached 15.. Even higher office vacancy can be expected in 215. Prime rents continued to decrease further in the CBD of Prague to 19.5/m²/month in 214. Prime rents in the rest of Prague stagnated and ranged from /m²/month in Inner City and /m²/month in Outer City. Strong investment activity boosted by one major logistics deal In the past three years the trend for investment activity has moved upwards with almost 2 billion transacted just during 214. The Czech Republic experienced a 5 increase in investment volume compared to the 1.3 billion registered in the previous year and also saw the third strongest investment performance ever recorded. The industrial market was the most active sector in 214 followed by the office and retail segments. The market was particularly boosted by one of the largest single logistics deal recorded in Europe during the year: VGP and its jointventure partner Tristan Capital Partners sold a portfolio of prime logistics assets in the Czech Republic to Prague-based PointPark Properties (P3) for 523 million *Oxford Economics / BNP Paribas - Data for the Czech Republic % % -1% 2,5 2, 1,5 1, % 7% 37

38 Riga Office market pushed up by major deals Total office absorption during 214 reached more than 39, m², which is three times higher than it was in 213. Absorption was boosted by the relocation of the State Revenue office HQ into 41, m² at Talejas street 1. The office market was mainly driven by comparatively large relocations of existing players, and by the entrance of several newcomers establishing shared service centres and back offices functions. These include the American corporation Cabot, SSC Allnex and the aviation company Primera Air. During 214, IT companies as well as SSC/BSC (shared & business service centres) were the most active players in the Riga office market, accounting for of total take-up. Second-hand supply led to increased office vacancy rate Moderate growth in prime rents continued in Riga during 214 due to shortage of new developments and low vacancy in prime locations. Prime office rents in the CBD rose by 1. on average whilst rents for other modern offices remained stable throughout the year. At the end of 214, the office vacancy rate stood at 8.. It increased slightly over 213 due to second-hand supply released into the market. Whilst the vacancy rate for grade A offices was still at 3.7%, it rose by 1.1% for grade B office space to 9.. Given the insufficient new supply during the next two years, it is expected that vacancy rates will decrease slightly. Foreign investors actively looking for city centre buildings With a transaction volume of 13 million the Riga investment market achieved good results again, exceeding the long-term average figure. As expected though, the total was lower by 2 than the previous year due to geopolitical uncertainty, global economic slowdown and cautiousness among investors. Office investment accounted for more than of the total real estate investment volume. The most active investors in 214 came originally from Sweden, Estonia and Norway such as Nordic and Baltic Property Group (NBP), EfTEN Capital, New Agenda Partners. EfTEN Capital has been active by investing more than 37.6 million in the office and industrial segments during 214. Investors have been looking for well-located office buildings, especially in the city centre. This activity led the net office prime yield in Riga to decrease to 7.2. Net absorption - Employment *Oxford Economics - Data for Latvia Office net absorption % % % 9% 7%

39 Rome Take-up activity is still reducing Take-up activity in Rome was low in 214 with few deals recorded. The largest one was the 27, m² transaction initiated by Wind in the new development Europarco in the Greater Eur district. The Europarco has attracted important companies such as P&G, Cofely, Wind, Atac and Provincia di Roma in new offices, close to the Core Eur district. The occupier market in Rome is facing three main problems. Firstly, the difficult economic situation does not encourage companies to move but rather to renegotiate their leases. Secondly, the public sector, the main driver of the market, is less active than in the past. Finally, the abundant low quality vacant space and the shortage of well-located new supply restrain occupiers in their plan to move. Abundant vacancy puts rents under pressure The volume of supply in Rome continued to increase as the recession led companies to release space. In this context, new office developments do not start before securing a tenant. The result is that the office stock in the capital is dated, in some cases obsolete and not renewed, whereas the few developments that exist have difficulties being absorbed by the market. The office supply increase and demand reduction continued to put rents under pressure. Some tenants try to renegotiate their lease contract to obtain a rental reduction. This is the case also for new leases since the market is driven by companies that want to reduce their real estate cost. Low investment volume The Roman investment market did not follow the same trend of increase seen in the Italian market since volumes in the city remained low. It amounted to 717 million in 214, of which 585 million just in the fourth quarter. The deals closed are quite significant in terms of size and product: GIC bought the remaining part of Roma Est shopping centre and the Qatar Investment Authority bought two other hotels including the St Regis. Concerning American investors, the main one was Colony Capitals who purchased 14 "villini" from Unicredit. This last transaction is a good example of what the city lacks; a value-added operation on trophy assets. The few office transactions recorded led to a reduction in prime yields, the first in years. Likewise in most cities in Western Europe, this trend will carry on in 215 for prime products *Oxford Economics / BNP Paribas - Data for Italy % % -1% 2,5 2, 1,5 1, % 7% 6. 6.% 5. 5.% 4. 39

40 Saint Petersburg Office space is being optimized Despite the economic crisis, overall demand for office space in 214 remained stable, especially for grade B properties. Unsurprisingly Grade A offices in current conditions are less in demand because economic conditions have changed. Companies are now more cautious, renting less space than they had initially planned and opting for the most cost effective units. At the beginning of the year the most popular premises ranged from to 5 m². At the end of 214, demand shifted towards offices of to m². They also moved into offices with lower rents, or sublet part of their premises to offset costs. Companies are not choosing to move to locations that are perceived as showing excessive rents. Tenants are determining lease conditions During 214 the office market became tenant friendly, a result of increased vacancy rates and weaker activity. This forced owners to be more pliant in determining rents and in 215 this trend is expected to continue. There are few expectations of rental growth and because of financial difficulties, future rents will be established in Russian ruble only. New office centres, which are planned to open in 215, will be faced with occupancy issues and it will be difficult to find the same volume of tenants as in 214. Taking into consideration the current political and economic situation and complicated access to financing, new projects are not expected to appear in 215. First signs of investment decline A predictable rise in yields and a reduction of investment volume appeared in 214. The volume of real estate investment dropped to less than 28 million and office prime yields increased to 11.% in 214. This is believed to be only a beginning; this process is expected to continue in *Oxford Economics / BNP Paribas - Data for Russia % 2, 1,6 1, 8 2 2% %

41 Stockholm Steady demand for high quality offices Employment in Stockholm is continuing to show a stable rate of increase. Stockholm s labour market is strongly serviceoriented and accounts for almost one-third of employment. It is the employment growth within the service sector in Stockholm that, more than anything, stimulates demand for high-quality office premises in good locations. This sector as well as private consumption will both continue to be important growth engines in the coming years. Key variables like cost per employee are becoming more decisive, resulting in even more efficient use of office premises and the regrouping strategies of many larger companies. A high proportion of pre-lets show a steady demand for office premises whereas inefficient offices are being converted for other use. Low vacancy rate in the CBD pushes rents up The rental growth gathered speed in 214 and the market rent for newly renovated and space-efficient properties in Stockholm CBD now stands at 52/m² (SEK4,65). Rents are expected to continue to rise during 215 and 216. High demand for new and modernised premises will keep upward pressure on rents. This is the result of the low supply of office space in the CBD that will continue for the next few years despite new developments and refurbishments. The shortage of available office space together with a strong and office-dependent service sector have resulted in a low vacancy rate of about in the CBD. Following the completion of several CBD projects and the movement of several larger companies to office areas outside the Inner city, the vacancy rate is expected to reach 4. in 215 and 5. in 216. more than doubled in 214 Factors such as the low interest-rate level, the lack of highyielding alternatives and good access to financing resulted in a transaction volume approaching previous record years. Stockholm dominated geographically but only two of the ten largest transactions actually took place in the Stockholm area; few of the largest transactions occurred in the CBD. Offices continue to be the dominant investment category and yields have fallen in prime locations in the inner city and suburbs. Private and listed property companies were the largest investors. Private property companies were also active on the selling side, thanks to a refinement in property portfolios during the past year. Foreign investors accounted for several of the year s largest transactions; however the total proportion of domestic buyers remained high. Net absorption - Employment 45 - Office net absorption *Oxford Economics / BNP Paribas - Data for Sweden % % -1% , 8, 6, 4, 2, % 9% 6.% 5. 5.% 4. 4.% 41

42 Tallinn Supply boost to come from increased development activity Many new projects were started during 214 but actual deliveries accounted for only around 19, m². Supply is expected to increase as several large-scale projects will be delivered in Net absorption has moved in accordance with the volume of office completions. Estonian labour market indicators have been positive, especially compared to other countries of the Eurozone. Services employment has been growing since 211 and unemployment rate has halved over the past five years to stand at 7. in 214. Nevertheless structural unemployment still exists in some economic sectors and a lack of available labour force in other industries. Increases in the prime rent are likely to slow In 214 the vacancy rate remained the same as the previous year: below for grade A offices and for grade B, with slight decrease in grade A. Such segmentation is derived from market demand. Despite moderate optimism with the economy and uncertainty caused by geopolitical reasons, tenants realize that the total expenses of new quality premises will be lower compared to amortize grade B spaces. Prime rents will keep moving up until the completion of new offices in the next few years that will help bring stabilisation. It will also create stronger negotiation power for tenants. Steady investment activity driven by local buyers Total investment in Tallinn remained stable to 85 million in 214 compared to 213, whilst it decreased by 2 in overall Estonia to 16 million. This decline was caused by uncertainty in the market as well as a shortage of highgrade investment projects. Local investors have been the main players, taking advantage of strong knowledge of the local market. The industrial/logistics and retail segments were the most active market segments, and yields in these segments have compressed. In 215, little increase in real estate investment is expected and focus will remain on properties with re-development potential. Despite the overall decrease in investment volume, office investment rose in 214 and yields declined. Net absorption - Employment *Oxford Economics - Data for Estonia Office net absorption % 2..% %

43 Vienna Slow momentum leaves take-up down in Vienna declined in 214 to, m². This represented a drop of 17% in comparison to 213 and reflecting a slow start to the year before take-up gained momentum in the second half of 214. The highest transaction volumes were recorded in the CBD and the Central Station area, followed by Wienerberg. Scarcity of high quality supply pushed prime rents up The prime rent slightly increased in 214 to 39/m²/year, reflecting the shortage of supply for prime premises, while the average rent in the CBD remained constant at around 216/m²/year. Globally, rents have slightly risen for secondhand offices located in quality locations. However, older office buildings or properties located in peripheral areas with poor transport connections have been receiving less demand, thus still recording falling rents. On the supply side, the limited development activity has kept the vacancy rate at around 6. in 214. Current projects in the pipeline for 215 are already pre-let or owner occupied, thus the overall vacancy rate is expected to remain stable over the year. Investment volume back to pre-crisis levels Commercial real estate investment volumes in Austria nearly reached the pre-crisis record level. In Vienna the market volume nearly doubled compared to 213 and reached 2 billion. Office remained the most favoured assets representing a 7% share of the total investment volume. Investors have focused on prime assets with good location, long-term leases and good tenants. However, decreasing supply of such buildings due to continuous decline in new deliveries is maintaining fierce competition and high prices. As a consequence, investors showed increased interest in properties with uplift potential. At the end of 214 the prime yield in Vienna slightly declined by 2 bp compared to Q4 213 and reached an historic low of 4.7%. 6 5 *Oxford Economics / BNP Paribas - Data for Austria 35 3.% 2. 2.% 1. 1.%. 3, 2,5 2, 1,5 1, 5 7% 6.% %

44 Vilnius Strong net absorption from high demand At the end of 214 the stock of modern offices in Vilnius rose by 5. to reach 45, m². It is expected that during the Vilnius office market will increase by, m² of modern office space. Developers no longer focus on prime premises only. Indeed, half of the planned office developments will be accounted for by grade B offices located outside the CBD. High office demand in 214 led to positive market absorption largely exceeding the volume of new supply available. The largest lease transactions recorded in 214 were made by shared service centres and IT companies that occupy over 2% of all office stock in Vilnius. The trend for pre-lets is occurring again in Vilnius and agreements have often been signed 6 to 9 months in advance. It is expected that market absorption will follow the supply trend in 215. Vacancy rates hit bottom Vacant space of modern office buildings, especially in the CBD of Vilnius, was very low at the end of 214. The vacancy rate for prime offices even fell below. at the end of 214 with no major completions in this segment for grade A properties. High demand for quality premises in grade B offices forced supply in this segment to decline as well; the vacancy rate dropped quickly from 8. in Q1 to 3. in Q4. Record low supply turned the Vilnius office market into a landlords market, where asking rents could be easily increased. However this trend cannot last for long as new buildings are coming to the market, especially in the prime segment, and the old ones will be forced to face competition. Record investment volumes boosted by offices Real estate investment in Vilnius reached 178 million in 214 and was the highest among Baltic capitals. Office investment was the most active segment and covered 7 of all investment. Local, Nordic and Russian investors were again the key players in the Baltic market in 214. International investors who were previously reluctant to enter the Baltic region are currently investigating possibilities to include the region in their investment strategies. Although yields have decreased significantly in recent years, there is still an attractive gap compared to Western European levels. Average yields for prime office assets are around 7.% and the most attractive properties could stand 5 basis points lower. Lithuania followed the path of Estonia and Latvia in transferring currency risk to the Euro when it joined the Eurozone on 1 st January 215. Net absorption - Employment *Oxford Economics - Data for Lithuania Office net absorption % 1 1 1

45 Warsaw A market dominated by high level of deliveries Net take-up in 214 amounted to around, m², representing a decline compared with the corresponding period last year although still above the long-term average. Renegotiations accounted for an additional 17, m². Considering the positive forecast for the Polish economy and the vibrant business environment in Warsaw, the volume of net take-up is expected to remain relatively stable over the course of Due to a large amount of office vacant space currently available on the market, occupiers will continue to have a strong negotiation position. Indeed, with nearly 29, m² completed in 214, the total stock in Warsaw crept above 4.4 million m². A total of 55, m² is currently under construction, of which approximately 6% will be delivered by the end of 215. Completions see the vacancy rate increase At the end 214 over 67, m² of office space remained available, representing a vacancy rate of 13.7%. Compared with the same period last year it rose by 2 percentage point. Central locations recorded a higher vacancy rate with 15., while in non-central areas it was closer to 1. This rise would have been stronger if a large part of completions scheduled for delivery was not postponed. The upward trend in vacancy is likely to continue over the next months and the vacancy rate could climb to more than 1 in 215. The bulk of vacant space is concentrated in buildings more than 15 years old. However, prime and well-managed schemes within key submarkets should remain relatively resistant to negative market trends. Weaker demand plus development pushes yields up With a total volume of 1.1 billion spent on Warsaw offices in 214, the market share of the capital city accounted for 3 of the overall investment market in Poland. It represents a 6% y-o-y increase, boosted with large deals such as the sale of "Rondo 1" for 295 million or "Plac Unii" for 226 million. The pressure from reducing demand and the potential hike in the vacancy rate is exerting a negative impact on rents, both headline and effective. Consequently the office prime yield is also moving up, growing by.25 bps over the last six months to stand currently at *Oxford Economics / BNP Paribas - Data for Poland 35 % , 2,5 2, 1,5 1, 5 2% 1 9% 7%

46 Zurich Increasing vacant space in downtown Zurich Total office stock has been growing constantly in Zurich with low vacancy rates. Throughout 214, large companies reorganized their back offices and moved into new and refurbished buildings. These movements contributed to an increase in vacant space in downtown Zurich as demand was not able to absorb the ongoing growth in office stock. Compared to other major cities, Zurich is still a stable market. However, not all offices under construction or under refurbishment have been pre-let. A tenant s market is pushing rents down The vacancy rate is likely to grow further in the next few months as supply exceeds demand. Indeed, offices currently undergoing refurbishment will enter into the calculation of the vacancy rate when delivered. Prime rents in the city of Zurich have been declining over the past three years reflecting the increasing volume of vacant space. The market has become a tenant s market and landlords have been willing to grant incentives by staggering rents or by offering cost-sharing for major roll-outs rather than lowering headline rents. Real estate assets remain attractive Prime yields for core assets have declined due to growing demand by institutional real estate owners seeking return in a situation of decreasing yields on government bonds. As real estate is still considered to be an excellent safe haven and adequate alternatives are still missing, prices for core assets are still increasing. Fully let commercial properties in prime locations are in high demand. Low net prime yields are specific to these buildings. As long as mortgage rates stay at an all-time low, real estate investment will remain attractive. As the central bank of Switzerland has imposed negative interest rates on bank deposits, it is likely that mortgage rates will remain at low levels in the near future. 5 Office net absorption** *Oxford Economics / BNP Paribas - Data for Switzerland - **estimation for 214 1, Yield 5.% 4. 4.% 3. 3.% % 1%

47 47

48 Glossary BNP Paribas Real Estate is working on producing indicators which are as comparable as possible. This is a complex issue, due to cultural differences from market to market. Nevertheless, as we aim to actively contribute to the transparency of the markets, we have highlighted those definitions and indicators which are strictly comparable, so that our readers can understand what the indicators mean. Furthermore we have decided to adopt the PEPCIG1 definitions, on which most of the following indicators published by BNP Paribas Real Estate are based. Other indicators are from INREV2 and from BNP Paribas Real Estate. Central Business District average rent is the average of each of the last four quarters average headline rent in the CBD. Each quarterly average rent is weighted by the surface of each lease signed during the quarter, in either new or second-hand premises. The definition of CBD corresponds to local conventions. Completions represent the total amount of floor space that has reached practical completion and is occupied, ready for occupation or an occupancy permit where required has been issued during the survey period. Central London includes the following districts: West End, Midtown, City, Docklands, Southbank, Western Fringe and Northern Fringe. Central Paris includes the following districts: CBD, Paris out of CBD, La Défense, Western Crescent and Inner Rim. Core Investment Vehicles target returns at 11. and lower, with gearing level up to 6% of Gross Asset Value. Closed Ended Fund is a vehicle that has a targeted range of investor capital and a finite life. Development Pipeline represents the total amount of floor space for all developments under construction and/or schemes (including major refurbishments) that have the potential to be built in the future through having a secured level of planning permission but remain unimplemented at the survey date. It includes all proposed new buildings, those constructed behind retained facades and buildings (or parts of buildings) undergoing a change of use to offices. German Open Ended Fund is a public vehicle that does not have a finite life, continually accepts new investor capital and makes new property investments. The list of German Open Ended Funds is published by the BVI (Bundesverband Investment und Asset Management e.v.). Gross Asset Value is the sum of the Gross Capital Value of properties, cash and marketable securities and other (non-operating) assets. Investment volume takes into account all commercial properties BNP Paribas Real Estate is aware of, whose owner has changed during the studied period, whatever the purchasing price. It includes Office buildings, Retail (supermarkets, hypermarkets), Industrial and Logistics Warehousing and Others (Hotels, Cinema, Leisure, Car Parks, Care Homes, parts of portfolio which cannot be split up by product, and Development Sites in Germany). Quoted investment volumes are not definitive and are consequently subject to change. Prime Rent/Yield represents the top open-market rent/net yield at the survey date (or in Q4 for annual data) for an office unit: - of standard size commensurate with demand in each location - of the highest quality and specification - in the best location in a market Initial Gross Yield is defined as Gross income (i.e. income before costs of ownership) over purchase price excluding costs of acquisition. Initial Net Yield is defined as Net income (or NOI) over purchase price plus all other costs of acquisition. Investment volume by investor/seller type refers to the following categories: Insurance, Private Investors, Public Sector, Corporates, Property Companies & REITS, Consortium, Funds and Other. Investment volume by investor/seller nationality refers to the following categories: Eurozone, Non-Eurozone, North America, Other America, Asia, Middle East, Australia, International and Other. Major Refurbishments represent refurbishments, where building work must involve either structural alteration, and/or the substantial replacement of the main services and finishes. The quality of the floor space must have been substantially improved from its previous condition so as to offer accommodation of a modern standard although not necessarily to the standard of a completely new building. Opportunistic Investment Vehicles target returns in excess of 17%, with gearing levels above 6% of Gross Asset Value. Actual transactions are used in France, Germany and Belgium to support the headline prime rental quoted, but one-off deals, which do not represent the market, are disregarded. In the UK & Spain, if there are no prime transactions during the survey period a hypothetical rent is quoted, based on expert opinion of market conditions. Space calculation differs in Spain, where figures in m² (Take-Up, Vacancy, Pipeline, Completions) as well as Rental values are based on Gross Letting Area space, contrary to the other main European markets, which use Net Letting Area. In order to make the Spanish figures comparable across all monitored markets, they should be multiplied by.82 (NLA =.82 GLA). This ratio is applied by BNP Paribas Real Estate to produce international indices and benchmarks. Take-Up represents the total floor space known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers during the survey period. It does not include space that is under offer - A property is deemed to be taken-up only when contracts are signed or a binding agreement exists - Pre-let refers to take-up that was either in the planning or construction stage - All deals (including pre-lets) are recorded in the period in which they are signed - Contract renewals are not included - Sales and leasebacks are not included as there had been no change in occupation - Quoted take-up volumes are not definitive and are consequently subject to change. The breakdown of take-up by business sector is compatible with the European NACE code. Under Construction represents the total amount of floor space in properties where construction has commenced (on a new development or a major refurbishment) at the survey date. It includes properties for owner occupation, which are reported separately. It does not include sites being cleared for possible development in the future. Property that is under construction but pre-let or for owner occupation is recorded separately where appropriate. Value-added Investment Vehicles target returns of 11. to 17%, with gearing levels between and 7% of Gross Asset Value. Vacancy represents the total floor space in existing properties, which are physically vacant, ready for occupation in the next three months (this period covers fit-out time) and being actively marketed at the survey date. Vacancy includes sublet space (except in Germany), but where possible, vacant sub-let space is recorded separately. In France, vacancy excludes premises which the owner will renovate only once a lease is signed. Spain only counts immediately available space. Vacancy Rate represents the total vacant floor space including sublettings divided by the total stock at the survey date (or in Q4 for annual data). 1 Pan-European Property Common Interest Group. This group assembles a wide range of European advisors and investors and major agents. 2 European Association for Investors in Non-listed Real Estate Vehicles. BNP Paribas Real Estate Disclaimer clause BNP Paribas Real Estate cannot be held responsible if, despite its best efforts, the information contained in the present report turns out to be inaccurate or incomplete. This report is released by BNP Paribas Real Estate and the information in it is dedicated to the exclusive use of its clients. The report and the information contained in it may not be copied or reproduced without prior permission from BNP Paribas Real Estate. Should you no longer wish to receive this report, or wish to modify the conditions of reception of this report, please send an to: [email protected]

49 Contacts RESEARCH International Christophe PINEAU Global Head of Research Stephen ACKROYD Senior Analyst Handbook & Occupiers Pau BLASI Analyst Investment Management Céline COTASSON-FAUVET Head of European Analysis Investment, Retail & Hotels Samuel DUAH Head of Forecating Maurizio GRILLI Head of Investment Management Analysis and Strategy Vincent ROBION Head of Research Logistics & Alliances Julien SCARPA Analyst Offices Belgium Pascal MIKSE Head of Research France Richard MALLE Head of Research Germany Wolfgang SCHNEIDER Head of Research Ireland Julien SCARPA Analyst Italy Simone ROBERTI Head of Research Luxembourg Pascal MIKSE Head of Research Netherlands Julien SCARPA Analyst Poland Anna STANISZEWSKA Head of CEE Research Romania Catalin MARUNTELU Head of Research Spain Emilie GRADASSI Head of Research United Kingdom Alistair KEMP Associate Director 49

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52 Hong Kong U.A.E USA MAIN LOCATIONS FRANCE Headquarters 167, Quai de la Bataille de Stalingrad Issy-les-Moulineaux Tel.: Fax: BELGIUM Boulevard Louis Schmidtlaan 2 B3 14 Brussels Tel.: Fax: CZECH REPUBLIC Pobřežní Prague 8 Tel.: Fax: GERMANY Goetheplatz Frankfurt Tel.: Fax: HONG KONG 63 /F Two international finance Center - 8 Finance Street Hong Kong Tel.: Fax: HUNGARY Alkotás u. 53. H-1123 Budapest, Tel.: Fax: IRELAND 2 Merrion Road, Dublin 4 Tel.: Fax: ITALY Via Carlo Bo, Milan Tel.: Fax: JERSEY 3 Floor, Dialogue House 2-6 Anley Street St Helier, Jersey JE4 8RD Tel.: +44 () Fax: +44 () LUXEMBOURG Axento Building Avenue J.F. Kennedy Luxembourg Tel.: Fax: Investment Management Tel.: Fax: NETHERLANDS Antonio Vivaldistraat HP Amsterdam Tel.: POLAND Al. Jana Pawła II Warsaw Tel.: Fax: ROMANIA Union International Center 11 Ion Campineanu Street 6th floor, 1st district Bucharest 31 Tel.: Fax: SPAIN C/ Génova Madrid Tel.: Fax: U.A.E ABOU DHABI Al Bateen Area Plot n 144, W-11 New Al Bateen Municipality Street n 32 P.O. Box 2742 Abu Dhabi Tel.: Fax: DUBAI Emaar Square Building n 1, 7th Floor P.O. Box 7233, Dubaï Tel.: Fax: UNITED KINGDOM 5 Aldermanbury Square London EC2V 8HR Tel.: Fax: ALLIANCES ALGERIA * AUSTRIA CYPRUS ESTONIA FINLAND GREECE HUNGARY *** IVORY COAST * LATVIA LITHUANIA MOROCCO PLEASE CONTACT NORWAY RUSSIA SERBIA SLOVAKIA ** SWEDEN SWITZERLAND TUNISIA * TURKEY UKRAINE USA * Coverage via our alliance in Morocco ** Coverage via our alliance in Austria ***Covering Transaction, Valuation & Consulting Alliances Florence Hesse Tel.: +33 () [email protected] Research Christophe Pineau Tel.: +33 () [email protected] Non contractual document - Research department - BNPPRE March copies - Pictures copyrigth: Getty images BNP Paribas Real Estate: Simplified joint stock company with capital of RCS Nanterre - Code NAF 71 Z CE identification number FR Headquarters: 167, Quai de la Bataille de Stalingrad Issy Les Moulineaux Cedex BNP Paribas Real Estate is part of the BNP Paribas Banking Group - March 215