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Home , Brandenburg an der Havel, Chemnitz, Cottbus, Potsdam, Schwerin

HOUSING MARKET REPORT EASTERN 2018

Pressekonferenz 18. Oktober 2017

The entire study is available online at: https://www.tag-ag.com/en/service/downloads/housingmarketreport/ Speakers 22

Claudia Hoyer Martin Thiel Karsten Jungk Chief Operating Officer Chief Financial Officer Managing Director and Partner TAG Immobilien AG TAG Immobilien AG Wüest Partner Deutschland

TAG Immobilien AG | October 2018

Table of Contents 33

I. Intention of the study 4

II. Key question: How viable are Eastern German cities for the future? 5  Economics 6  Demographics 7  Housing market 8  Housing costs 9  Risk / reward profiles 10

III. The Region 11

IV. The / Region 14

V. The Region 17

VI. The Region 20

VII. The Region 23

VIII. The Region 26

TAG Immobilien AG | October 2018

I. Intention of the study 44

To map the future viability of 27 large and medium-sized cities in Eastern Germany

. Continuously monitor market and housing industry indicators . Provide current market data on rents, property prices, vacancies and yields

. Raise transparency on smaller real estate markets

. Promote the turnaround in Eastern Germany

TAG Immobilien AG | October 2018

II. Key question: How viable are 55

Eastern German cities for the future?

1. Economics: Developments in employment, purchasing power, GDP and commuter traffic provide valuable information.

2. Demographics: Cities face the triple challenge of population growth, increasing numbers of households and evolving societal trends.

3. Housing market:

Rental and property price dynamics must be considered alongside purchasing power and housing cost burdens.

4. Housing costs:

The amount of housing costs determines the settlement of professionals and families.

5. Risk/reward profiles:

For residential investors, opportunities for higher yields are the decisive factor where risks are calculable.

TAG Immobilien AG | October 2018

II.1. Economics 66

The dynamic labour market is boosting productivity and incomes across the region as a whole.

Regional unemployment rates and GDP in comparison with national average:

Avg. Germany -1.2 8.3 -8.1 9.0 . Employment has increased in -7.0 13.4 almost all locations. Waren -5.8 14.9 Görlitz -5.4 13.0 Examples: , Berlin, Leipzig, Dessau-Roßlau -5,4 14.6 Greifswald, Dresden, Erfurt and Brandenburg a.d.H. -5.2 11.4 Leipzig -5.1 13.8 Strausberg registered growth of -5.0 19.3 >10% (2012-2017). Rostock -5.0 8.8 Strausberg -4.9 14.0 . Dresden, Chemnitz, , Döbeln -4.5 3.3 -4.5 3.3 Erfurt and Berlin have seen the Nauen -4.4 23.4 greatest increases in commuter -4.2 17.0 trafic. -3.9 20.4 -3.9 15.9 Chemnitz -3.9 13.2 . Purchasing power rose Berlin -3.9 6.1 significantly in all cities. -3.7 16.0 Merseburg -3.6 7.1 Examples: Cottbus, Leipzig, Berlin, Eisenach -3.6 26.2 Merseburg, and Erfurt Dresden -3.5 16.8 registered growth of ≥ 20% (2011- -3.4 13.3 Weimar -3.3 16.2 2018). Erfurt -2.9 17.5 Potsdam -2.5 16.9 Unemployment rate 2013-2017 in percentage points -1.7 17.4 GDP 2011-2015 in %

TAG Immobilien AG | October 2018

II.2. Demographics 77

Strong population growth over the last five years has had a very positive impact on the number of households and demand for housing.

Growth in household numbers

Schwerin 8.6% Rostock Nauen 5.1% . The number of households Greifswald 6.2% (+0.5%) in communities around the Potsdam 4.6% region’s major cities has Waren 4.4% increased significantly. Strausberg 4.6% Halle 6.4% . The strongest growth in the number of households was Berlin Merseburg 6.0% registered in Schwerin, (+3.1%) Leipzig, Halle and Görlitz 5.8% Magdeburg 4.8% Greifswald. Leipzig Freiberg 5.5% (+7.9%) Eisenach 3.8% Erfurt Dresden Chemnitz 2.8% (+4.3%) (+4.2%) Gera 3.7%

Weimar 3.4%

2015/2016-2016/2017 in %

TAG Immobilien AG | October 2018

II.3. Housing market 88

Strong population growth in communities around major cities is driving rental and property price growth.

Rental and property price growth in selected Eastern German cities

Rents Purchase prices (existing properties) . Year-on-year, asking rents Rostock 23.6% Nauen 41.6% have risen almost Berlin 14.8% Eberswalde 35.7% everywhere in the region. Brandenburg a.d.H. 9.2% Rostock 26.7% Nauen 9.1% Waren 18.6% . Rental price growth ranges Schwerin 7.3% Berlin 17.9% Strausberg 6.8% Merseburg 17.0% from 0.3% in Döbeln to Leipzig 6.7% Leipzig 15.4% 23.6% in Rostock. Cottbus 6.6% Gera 12.9% Waren 5.4% Erfurt 10.6% . Purchase prices for Erfurt 4.8% Weimar 10.4% Jena 4.6% Magdeburg 10.3% existing properties have Dresden 4.1% Eisenach 9.6% risen in 23 cities since Magdeburg 4.1% Chemnitz 8.5% 2017 – including increases Weimar 4.1% Dresden 7.9% Eberswalde 3.8% Potsdam 6.8% of ≥ 10% in 11 cities Eisenach 3.2% Strausberg 6.0% Stralsund 3.0% Döbeln 4.7% . Prices in the new-build Gera 2.9% Schwerin 4.7% sector rose by between 3% Görlitz 2.6% Jena 4.3% in Magdeburg and > 50% in Brandenburg a. d. . Rental and property price growth H1 2018 vs. H1 2017 in %

TAG Immobilien AG | October 2018

II.4. Housing costs 99

. Housing cost burdens are falling in spite of rising rents - thanks to the positive purchasing power dynamics.

23.8 Purchasing power, 2011-2018, in % 22.0 21.1 21.0 20.6 Development of housing costs, 2008-2018 in %-points 19.9

17.5 17.4 17.4 17.2 16.6 16.6 16.4 16.4 15.4 14.5 14.2 12.8 12.7 12.3 12.1 11.9 11.6 11.4 9.5 9.9 8.8

6.2

3.6 2.9 1.8 0.7 0.3 0.1 0.3

-0.2 -0.4 -0.3 -0.6 -0.7 -0.6 -0.9 -0.6 -0.7 -1.9 -1.8 -1.4 -2.5 -2.3 -2.1 -2.9 -3.3 -4.0 -3.6

TAG Immobilien AG | October 2018

II.5. Risk / reward profiles 1010

Economic upswing, unemployment rates down across the board, strengthening purchasing power and declining vacancies are making Eastern Germany’s small and medium-sized cities ever more attractive.

Risk/reward profiles in Eastern German cities in comparison with 50 reference cities in % . Weimar is more attractive than Potsdam, with the same level of risk. . Greifswald and Schwerin are more attractive than Erfurt.

Yields . Many markets in Eastern Germany offer investors yield potentials of between 8% and 10%. Depending on investors’ individual risk acceptance, these represent genuine investment Risk: 1 = very low alternatives. to Risk 5 = very high

TAG Immobilien AG | October 2018

III. The Rostock Region 1111

Purchase prices continue to rise strongly . Value of existing properties in Rostock and Waren (Müritz) rose significantly – Rostock: EUR 2,750/sqm, Waren: EUR 2,000/sqm. . Strong demand for new-builds in Greifswald, Schwerin, Rostock and Waren. . Prices in the new-build segment range from EUR 2,550 (Greifswald and Waren) to EUR 3,650/sqm (Rostock). . Schwerin: Following price surges over the last two years, prices have now stagnated in both the new-build and existing segments.

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+26.7 %

+18.6%

+6.3% Existing +4.7%+3.8 % New-build +3.6% +3.2% +2.3% 0.0% +0.6% Rostock Waren Schwerin Greifswald Stralsund TAG Immobilien AG | October 2018

III. The Rostock Region 1212

Attractive risk/reward profiles in -West . Residential investments in Greifswald and Schwerin carry the same average risk as investments in Erfurt, but with achievable yields of approximately 8.5%. . 8.3% yields in Schwerin available to investors with higher levels of risk acceptance. Risk/reward profiles in Mecklenburg-West Pomerania

12.0 Yields in %

2.0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

III. The Rostock Region 1313

. In Rostock, rents rose by a significant 23.6%. The causes are above all new construction projects, which were rented for the first time. . Schwerin (+7.3%), Waren (+5.4%) and Stralsund (+3.0%) also registered further rental price growth. . Rents in Greifswald remained unchanged at an already above-average EUR 8.00/sqm.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

8.00 8.01 7.51 6.53 6.44 6.43

6.08 6.35 6.00 6.10

H1 2018 H1 2017

Greifswald Rostock Stralsund Schwerin Waren TAG Immobilien AG | October 2018

IV. The Berlin/Brandenburg Region 1414

Property purchase prices rise significantly around Berlin . Most dramatic increases for existing properties registered in Nauen and Eberswalde. . In contrast, in Brandenburg a.d.H., Potsdam and Strausberg, the new-build segment saw the most dynamic price growth. . Prices for existing properties range from EUR 1,000 (Eberswalde) to EUR 1,700/sqm (Strausberg), rising to EUR 3,000 in Potsdam and EUR 3,600/sqm in Berlin. . Prices for new-build properties average between EUR 2,400 and EUR 3,000/sqm in surrounding communities, rising to EUR 4,800 in Potsdam and EUR 5,400/sqm in Berlin.

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+52.2% +41.6%

+35.7%

+27.4% +17.9% +17.2% +14.4% +6.8% +6.0% Existing New-build Nauen Eberswalde Berlin Potsdam Strausberg Brandenburg a.d.H. TAG Immobilien AG | October 2018

IV. The Berlin/Brandenburg Region 1515

Investors would be well advised to consider the communities surrounding Berlin . Eberswalde and Nauen boast achievable yields of 9% to 10% with lower than average risk exposure. . offers an attractive combination of moderate risk and average yields. Risk/reward profiles in Berlin/Brandenburg 12,0 Yields in %

2,0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

IV. The Berlin/Brandenburg Region 1616

. Strong year-on-year rental growth in Brandenburg a.d.H. (+9.2%), Nauen (+9.1%) and Strausberg (+6.8%). . Rents are also rising in Eberswalde and Potsdam – by 3.8% and 2.3% respectively. . Berlin, already at a high level, again registered the strongest increase with +14.8%.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

11.58 10.09 10.22 9.99

7.33 6.87 7.08

6.49 5.98 5.48 5.85 5.64

H1 2018 H1 2017

Berlin Potsdam Strausberg Nauen Brandenburg a.d.H. Eberswalde TAG Immobilien AG | October 2018

V. The Leipzig Region 1717

Rising prices in the Leipzig area . The growing demand for housing in Leipzig extends to the surrounding area. . Prices for new and existing buildings are also rising in Merseburg, Halle and Dessau-Roßlau year-on-year. . Merseburg saw the highest increases, with +17% (existing properties) and +23.1% (new-builds). . New apartments are particularly in demand in Halle: +14.2% price growth.

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+23.1%

+17.0% +15.4%

+14.2%

+10.3%

+5.3% +5.5% Existing +3.0% +3.0% +2.4% New-build

Merseburg Leipzig Magdeburg Halle Dessau-Roßlau TAG Immobilien AG | October 2018

V. The Leipzig Region 1818

Variety of risk/reward options . Magdeburg very interesting from a risk/reward perspective with a yield of around 8% and below-average risk. . Merseburg and Halle are also attractive. . Investors willing to take risks should consider Dessau-Roßlau. Risk/reward profiles for the Leipzig region 12.0 Yields in %

2.0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

V. The Leipzig Region 1919

. Within a single year, rents increased in Leipzig (+6.7%) and Magdeburg (+4.1%). . Moderate rental growth also in Dessau-Roßlau (+2.0%), Halle (+1.9%) and Merseburg (+1.6%). . Rents in all five cities are still affordable at prices between EUR 5.30 and EUR 6.70/sqm.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

6.67 6.25 6.00 5.89 6.00 5.76

5.49 5.38 5.31 5.23

H1 2018 H1 2017

Leipzig Halle Magdeburg Dessau-Roßlau Merseburg TAG Immobilien AG | October 2018

VI. The Dresden Region 2020

Purchase prices continue to rise . Purchase prices for new-builds rose almost uniformly in the region – between 4.7% in Görlitz and 8.9% in Dresden. . Prices for existing residential properties also rose noticeably in Dresden and Cottbus, with almost no change in Görlitz after a significant increase in 2016.

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+8.9% +7.9%

+6.3%

+4.7% +3.4%

Existing New-build

Dresden Cottbus Görlitz TAG Immobilien AG | October 2018

VI. The Dresden Region 2121

Risk/reward ratios: Hotspot Görlitz . Görlitz offers almost 12% return with average investment risk. . Cottbus with a balanced risk/reward profile.

Risk/reward profiles for the Dresden region 12.0 Yields in %

2.0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

VI. The Dresden Region 2222

. The rising demand for housing is causing rents to rise not only in Dresden (+4.1%), but also in the nearby cities of Cottbus (+6.6%) and Görlitz (+2.6%). . With an average housing cost burden of 20%, Cottbus and Görlitz remain affordable. Dresden is only slightly higher at 23%.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

7.60 7.30 5.94 5.57

4.85 4.73

H1 2018 H1 2017

Dresden Cottbus Görlitz TAG Immobilien AG | October 2018

VII. The Erfurt Region 2323

Purchase price boom in . In the entire region, prices for existing apartments have risen significantly by around 10% and more over the last year. . Exception Jena: At more than EUR 2,000/sqm, apartments here are already relatively expensive. . However, prices for new apartments in Jena continue to rise significantly, as do new-builds in Erfurt and Weimar

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+29.1%

+17.9%

+12.9% +14.8% +10.6% +10.4% +9.6%

+4.3% Existing +0.4% 0.0% New-build

Gera Erfurt Weimar Eisenach Jena TAG Immobilien AG | October 2018

VII. The Erfurt Region 2424

Attractive risk/reward ratios in Thuringia's second tier . Weimar, Eisenach and Gera have well balanced risk/reward ratios: achievable yields rise in line with increasing risk. . Weimar with below-average risk is similar to Potsdam, but offers 1 %-point better yields.

Risk/reward profiles for Thuringia 12.0 Yields in %

2.0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

VII. The Erfurt Region 2525

. Asking rents in Thuringia increased comparatively uniformly by between 2.9% (Gera) and 4.8% (Erfurt). . Rents in Jena of just under EUR 9.00/sqm are already at a high level, in Gera and Eisenach rents of less than EUR 6.00/sqm are still affordable. . The housing cost burden lies between 19% in Gera and 26% in Jena.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

8.97 8.57 7.36 7.02 7.28 7.00

5.94 5.76

5.00 4.86

H1 2018 H1 2017

Jena Erfurt Weimar Eisenach Gera TAG Immobilien AG | October 2018

VIII. The Chemnitz Region 2626

Growing demand in Chemnitz causes prices in the new-build segment to rise . Purchase prices in Chemnitz have risen considerably year-on-year, both for new-builds and for existing properties. . Rising prices also for existing apartments in Döbeln. . The new-build segment in Döbeln and Freiberg remains relatively small.

Purchase prices for existing and new-build properties (H1 2018 vs. H1 2017) in %

+9.0%

+8.5%

+4.7%

Existing New-build N/A 0.0%

Chemnitz Döbeln Freiberg TAG Immobilien AG | October 2018

VIII. The Chemnitz Region 2727

Risk/reward ratios in . Freiberg with average investment risks, but achievable yields of just under 10%. . Döbeln also offers returns of 10%, but at higher risks.

Risk/reward profiles for the Chemnitz region 12.0 Yields in %

2.0 Risk (1 = very low to 5 = very high) 1 2 3 4 TAG Immobilien AG | October 2018

VIII. The Chemnitz Region 2828

. Asking rents in the Chemnitz region remain unchanged year-on-year. . A five-year comparison shows slight rent increases of 1.8% in Döbeln and 2.7% in Chemnitz.

Apartment rents (2018 vs. 2017) in EUR/sqm/month

5.64 5.71

5.04 5.02 4.81 4.79 H1 2018 H1 2017

Freiberg Chemnitz Döbeln TAG Immobilien AG | October 2018

TAG Contacts 2929

Dominique Mann TAG Immobilien AG

Head of Investor & Public Relations APPENDIX Steckelhörn 5 Phone: +49 40 380 32-305 20457 Fax: +49 40 380 32-388 Phone: +49 40 380 32-0 [email protected] Fax: +49 40 380 32-388

www.tag-ag.com

TAG Immobilien AG | October 2018