WARSAW OFFICE MARKETVIEW Q3 2014

WARSAW OFFICE MARKETVIEW Q3 2014

2 ECONOMY Population 38.5 m GDP growth (2015 forecast) 3.2% CPI (Y-o-Y, September 2014) -0.3% Reference interest rate 2.0% Unemployment rate (September 2014) 11.5% Source: Oxford Economics, 2014 Unemplyment rate in selected European cities Unemployment rate in selected cities 12% 10% 8% 6% 4% Source: Oxford Economics, 2014 Prague Bucharest 0% 2% Stockholm Transport infrastructure in has developed rapidly over the last few years, distinctly enhancing the city s impression as a modern and engaging metropolis. This is exemplified by such infrastructure investments as the second metro line construction, s southern bypass, the construction of new bridges and tram routes, the renovation of the existing road system and the extension of the airport. Q3 2014 Vienna The average monthly salary in the enterprise sector in totals around EUR 1,200. The capital city has also the highest purchasing power in the country with the GFK s PPIndex per captia at 173 in relation to the country s average (100) and 79 in relation to the European average (100). Measure Budapest With 1.7 million inhabitants living within the city limits and 3.2 million people in the whole agglomeration, is the biggest urban area, the capital city as well as the economic and cultural centre of the country. The labour market in the city has been constantly growing with the unemployment rate at 4.5%, in comparison to 11.5% registered for the whole country at the end of the third quarter of 2014. An important factor within the labour market is the BPO / SSC sector (innovative business services), which accounts for around 19,000 workplaces in the capital, as reported by ABSL. is positioned as 32 in terms of its BPO / SSC attractive environment according to Tholons Top Outsourcing Destinations 2014 ranking, which is four positions higher than in comparison with the previous year s results. Polish economy Berlin The GDP Growth amounted to 1.6% in 2013, tied for seventh highest in the EU, although the result was the lowest since 1.4% tallied in 2002. The Central Bank of Poland announced that the country s GDP grew at the rate of 3.3% Y-o-Y at the end of the second quarter of 2014. Initial projections indicate that the GDP growth will fall below 3% in the third quarter, though the 3.2% Y-o-Y growth forecast for the year is expected to be met. A general improvement of the labour and investment markets is considered a major catalyst for this development. CPI inflation has remained persistently low at a level of -0.3% in the third quarter. The reference interest rate have been decreased in October and currently stand at 2%.

PROPERTY INVESTMENT Wis ła S CHOSZCZÓWKA Ż a ńs i a a KOBYLAK TARCHOMIN DĄBROWA E BIAŁOŁĘKA 5 MŁOCINY 14 BIELANY TARGÓWEK PRAGA PN. 3 ŻOLIBORZ REMBERTÓW BEMOWO STR. MIASTO WESOŁA GROCHÓW WOLA PRAGA PD. ŚRÓDMIEŚCIE ANIN WAWER OCHOTA 18 23 STR. MIŁO MIĘDZYLESIE SIEKIERKI URSUS RADOŚĆ MOKOTÓW 8 MIED WŁOCHY STEGNY ALEKSAN WILANÓW W -OKĘCIE isł 15 a URSYNÓW FALENICA POWSIN aa 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2009 2010 2011 2012 Other cities 2013 Q1-Q3 2014 Source: CBRE, Sept 2014 Prime office yields in selected cities Dublin London Berlin Brussels Madrid Prague 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Budapest Office schemes in Poland have been a popular asset among investors in recent years. This can be backed by its 42% share in transaction volume between years 2010-2014. Office schemes such as Rondo 1 (EUR 297 million), New City (EUR 127 million), Mokotow Nova (EUR 121 million), or Senator (EUR 120 million) were traded in in recent past. Investors demand is relatively strong and focused both on the prime assets as well as the value-add opportunities. Deutsche Asset & Wealth Management, Starwood, Blackstone, WP Carey, and Segro are the biggest spenders so far this year having spent almost EUR 1.1 billion altogether. continues to capture most of investors attention. Prime assets remained of major interest, although investors are showing a growing appetite for non-central locations and secondary schemes with asset management potential. As prime commercial assets available for purchase are still at a premium, this should have profound implications for the further development of the investment market. Therefore, secondary assets and markets should gain more popularity. Yields remain relatively stable throughout the main sectors. Prime office, retail, and industrial yields are estimated at 6.00%, 5.90%, and 7.00% respectively. Property investment volume (EUR million) Moscow The investments into commercial properties have always been crucial for the development of the market as a whole. s real estate is one of the key targets for all institutional funds and private investors, looking to diversify their investment portfolio across Europe. Low market risk and the relative strength of economic fundamentals enables Poland and its capital city to be seen as a promising destination and continue to attract foreign companies. Total investment volume in the commercial property sector exceeded EUR 3.2 billion in 60 transactions last year. A figure of nearly EUR 2.1 billion was recorded in Q1-Q3 2014, which shows a 9% decrease in volume in comparison to the corresponding period last year. 3

4 OFFICE MARKET IN WARSAW Total modern office stock in amounts to almost 4.4 million sq m, out of which 30% is located in the City Centre. Currently, there are 46 new office schemes under construction totalling over 660,000 sq m. That puts among the top five European cities (after Paris, London, and Moscow) with the highest office development activity. The biggest schemes under construction in include Spire A & C (80,000 sq m) developed by Ghelamco and Q22 (52,000 sq m) by Echo Investment. Over 75% of developed office space is concentrated in the three biggest office zones the City Centre, Mokotow, and Jerozolimskie & Okecie. Strong developer activity is also registered in the Wola district, in the vicinity of Rondo Daszynskiego. The new infrastructure improvements have had a direct impact on the office locations. The office zones are constantly increasing as a result of the construction of the second metro line, new road connections, and ring roads. The City Centre expands, while the boundaries between the southern zones are melting, giving space to one big airport zone, with significant potential to grow in importance and join the ranks as one of the most important business districts in Europe. The vacancy rate in surged to the level of 13.8% at the end of Q3 2014, in comparison to 10.9% registered in the corresponding period in 2013. The increased level of vacant space is caused mainly by a relatively high number of speculative deliveries and a high propensity of office tenants to relocate from B-class schemes to modern A-class buildings. Strong activity from developers will contribute to a further growth in the level of vacancy. In the long run, the new space should be gradually absorbed by the market. Prime headline rents in have reached EUR 24.5-25.5/sq m/month in the City Centre and EUR 14-15/sq m/month in the Non-Central locations. The prime rental level in City Centre has registered a decline since the beginning of the year, caused mainly by a high level of competition among office developers. Average rents are around EUR 20/sq m/month (central) and EUR 12/sq m/month (non-central) with an increasing number of offered incentives lowering the effective rates even by 25% below the level of headline rents. This trend should continue at least until 2016. Increasing levels of activity from office developers is strongly connected with a robust demand from tenants. In Q3 2014 leasing activity in reached 162,900 sq m. As much as 430,000 sq m was leased over the last three quarters. The large number of new schemes being constructed along with on-going leasing processes could soon yield record numbers in this regard. Tenants still want to expand and improve the standard of their premises, triggering strong demand for new office space. Vacancy rates forecasts/scenarios in 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% Q3 2013 Q4 2013 Q1 2014 Prime office rents in (EUR/sq m/month) Central locations Non-central locations Prime headline rents 24.5-25.5 14-15 Prime effective rents 19.5-21.5 11-12 Average headline rents pessimistic realistic optimistic Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Leasing Activity in Warasw Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 20.5-22.5 11-13 The largest lease transactions since the beginning of 2014 included a pre-let agreement signed by Raiffeisen Bank at Prime Corporate Center (19,500 sq m), a renewal contract signed by Netia at Marynarska Business Park (13,200 sq m), as well as a renewal with an expansion of Marynarska 12 by Citibank (12,600 sq m). The demand for office space remains strong, hence it is expected that the total demand in 2014 should meet the result registered in 2013. In the first three quarters of 2014, office absorption amounted to 132,000 sq m in respect to the 250,000 sq m of office space delivered in the same period. This translates into a surge in the vacancy level. Completions (sq m) Absorption (sq m) 0 50 000 100 000 150 000 200 000 250 000 80,400 SQ M NEW AGREEMENTS 47,000 SQ M RENEWALS 30,200 SQ M PRE-LETS 7,900 EXPANSIONS 1,900 SQ M OWNER OCCUPATION

Office zones in NORTH PRAGA WOLA CITY CENTRE JEROZOLIMSKIE &OKECIE MOKOTOW PULAWSKA Rondo 1 (DAWM) WILANOW & SADYBA Office zones Stock (sq m) Vacancy rate City centre 1,325,000 14.9% Central Business District 493,000 15.5% City Centre Fringe 832,000 14.5% Non-central locations 3,040,000 13.3% Mokotow 1,180,000 11.8% Jerozolimskie & Okecie 799,000 15.8% Wola 314,000 11.9% Wilanow & Sadyba 197,500 7.1% Pulawska 176,500 10.9% Praga Source: CBRE, 2013 173,500 13.6% North (Zoliborz and Bemowo) 199,500 22.1% Total 4,365,000 13.8% Nowy Swiat 2.0 (MARS FIZ) Source: CBRE, WRF, Q3 2014 5 Plac Unii (BDI/L&W)

6 CBRE sp. z o.o. Rondo ONZ 1 00-124 Poland www.cbre.pl CBRE Poland Colin Waddell Managing Director Tel. + 48 512 000 012 E: colin.waddell@cbre.com Capital Markets Mike Atwell Head of Capital Markets, CBRE CEE tel. +48 500 100 018 E: mike.atwell@cbre.com Research & Consultancy Joanna Mroczek Director Tel. +48 500 000 583 E: joanna.mroczek@cbre.com Industrial & Warehouse Agency Patrick Kurowski Director Tel. +48 509 696 926 E: patrick.kurowski@cbre.com Office Agency Daniel Bienias Tel. +48 501 433 618 E: daniel.bienias@cbre.com Lukasz Kaledkiewicz Tel. +48 501 501 586 E: lukasz.kaledkiewicz@cbre.com Retail Agency Beata Kokeli Tel. +48 605 998 898 E: beata.kokeli@cbre.com Magda Fratczak Director Tel. +48 508 083 498 E: magda.fratczak@cbre.com Development Consultancy Mikolaj Martynuska Tel. +48 501 433 718 E: mikolaj.martynuska@cbre.com Valuation Maciej Wojcikiewicz Tel. +48 501 746 503 E: maciej.wojcikiewcz@cbre.com linkedin + FOLLOW US www.cbre.pl Research and Consulting This report was prepared by the CBRE Poland Research & Consulting Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE sp. z o.o. confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.