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.