Regional Real Estate Markets in Germany 2015

MAIN REGIONAL REAL ESTATE MARKETS IN GERMANY 2015

A RESEARCH PuBLICATION BY DG HYP MARCH 2015

OFFICE AND RETAIL: CONTINuED STRONG DEMAND FOR FLOORSPACE, WITH MODERATE RENT INCREASES Main regional real estate markets in Germany | 2015

1 Main regional real estate markets in Germany | 2015

Table of Contents

Preface ______2

Office and retail: The pace is slackening somewhat______3 Office rents – although weaker, 2014 was not a bad year Retail – consumer climate close to optimum

Augsburg ______14

Berlin ______17

Bremen ______19

Cologne______22

Darmstadt ______24

Dresden ______27

Dusseldorf ______30

Essen ______32

Frankfurt ______35

Hamburg ______37

Hannover ______39

Karlsruhe ______42

Leipzig ______45

Mainz ______48

Mannheim ______51

Munich ______54

Munster ______56

Nuremberg ______59

Stuttgart ______62

Overviews______64

Imprint ______67 Disclaimer

DG HYP Offices ______68

1 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

PREFACE

As the commercial real estate bank within the Volksbanken Raiffeisenbanken cooperative financial network, we regularly analyse the markets we actively cover, in order to better assess opportunities and risks. We publish the results of this analysis in real estate market reports, targeting investors as well as our partners within the network: these are German cooperative banks, with whom we successfully originate financings in the various regions.

Given our decentralised market coverage – DG HYP has a nationwide presence in six of Germany‘s major cities, plus three regional offices – and our close cooperation with the German cooperative banks, we introduced a regional focus to our market reports five years ago. For this purpose, we publish a study analysing the main regional real estate markets for office and retail properties in Augsburg, Bremen, Darmstadt, Dresden, Essen, Hannover, Karlsruhe, Leipzig, Mannheim, Mainz, Münster and Nuremberg, comparing developments there with the seven top locations in Germany. Covering these 19 markets, with a broad regional diversification, the report thus provides a comprehensive analysis of the German commercial property market.

During 2014, we saw slower market performance at the locations covered, compared to the previous year, for both office and retail properties. Amongst other factors, those looking for floorspace were generally adopting a more cautious stance, as a result of heightened geopolitical risks. Nevertheless, investor sentiment is positive at the beginning of this year. The market was looking for an upturn: lower oil prices and a weaker euro (amongst other factors) duly delivered better performance in the fourth quarter. Looking ahead to 2015, we are optimistic regarding market developments for office properties: given a moderate level of completed projects, attractive office space is likely to remain scarce, supporting rent levels. The main regional markets for retail properties are expected to see a somewhat reduced performance, due to various reasons; nevertheless, top rents are still likely to rise slightly.

This sixth market report on „Regional Real Estate Markets“ supplements „The German Real Estate Market“ – our series of specialist publications published in the autumn of each year. Moreover, we analyse the commercial real estate markets in individual German federal states. The results are published in the spring and autumn of each year; this year‘s issues will cover Berlin and the eastern German states (due in June), and Bavaria (November).

An overview of DG HYP‘s real estate market reports is available on our website: http://www.dghyp.de/en/unternehmen/markt-research/

Deutsche Genossenschafts-Hypothekenbank AG

March 2015

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OFFICE AND RETAIL: THE PACE IS SLACKENING SOMEWHAT

The two most important segments of the commercial property market are office and retail. The main focus here is on the major cities, with their considerable economic power and the importance and liquidity of their property markets. Globally, half of investment in commercial properties is focused on only 30 cities. And the market trend in these locations is often used as a bellwether for the property market as a whole. Applied to Germany, this role is assumed by the top locations - the seven most densely populated cities. However, the strong growth in demand for German commercial properties here in recent years is increasingly outpacing supply. The group of locations is therefore being extended to include "second tier" cities. This also means that more information and market data is required for these cities, in order to evaluate the risks and opportunities. We address this issue in the sixth edition of our market report on regional property centres. As before, we focus on the 12 regional centres throughout the whole of Germany. The top locations are also included as points of reference.

OVERVIEW OF LOCATIONS

7 Top locations 12 main regional centres (Index: Regional 12) (Index: Top 7)

City German Land City German Land City German Land Augsburg Bavaria Leipzig Saxony Berlin Berlin North Rhine- Bremen Bremen Dresden Saxony Cologne Westphalia North Rhine- Darmstadt Hesse Mainz Rhineland-Pal. Dusseldorf Westphalia North Rhine- Essen Mannheim Baden-Württemb. Frankfurt Hesse Westphalia North Rhine- Hannover Lower Saxony Munster Hamburg Hamburg Westphalia Karlsruhe Baden-Württemb. Nuremberg Bavaria Munich Bavaria Stuttgart Baden-Württemb.

The section of the report summarising the office and retail market segments is fol- Office and retail: 12 regional centres lowed by sections on the individual locations, starting from page 14, in alphabetical and 7 top locations order. From page 64 we provide an overview of market data in table form.

Office rents – although weaker, 2014 was not a bad year

At the beginning of last year it looked as if the economy would pick up again strongly Geopolitical risks hampered the after zero growth in two weak previous years. Macroeconomic growth was expected strong upturn expected in 2014 to clearly exceed 2 per cent. Accordingly, there were high hopes that 2014 would be a good year for the German office market. However, that's not how it turned out. Prospects deteriorated steadily as the year progressed. Geopolitical flashpoints, particularly connected with the sanctions imposed on Russia in response to the crisis in Ukraine, had a negative impact on our heavily export-driven economy. And after a dynamic first quarter, the forecast for German GDP had to be revised down sharply. However, conditions improved again at year-end. The oil price also helped here, having more than halved within a few months. And important trend indicators such as the ZEW and ifo-Institute indices showed upward movement again. Below the line, German GDP grew by 1.6 per cent in 2014. This was lower than expected, but better than had been feared.

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ECONOMY: CLEAR DETERIORATION IN 2014 AFTER PROMISING LABOUR MARKET: STILL ON A GROWTH COURSE DESPITE MUTED START ECONOMIC GROWTH

10 GDP qoq in % (annualised) 44 13 GDP yoy in % 8 43 12 42 11 6 41 10

4 40 9

39 8 2 38 7

0 37 6 1994 1998 2002 2006 2010 2014 -2 employees in million (lhs) 2010 2011 2012 2013 2014 unemployment rate in % (rhs)

Source: DZ BANK Source: BA, Destatis

It is not therefore surprising that companies have adopted a slightly more cautious Labour market remains on a steady approach when concluding new rental contracts for office space. However, the con- growth course tinuing robust labour market and the ongoing demand for labour has supported the office market. Despite the generally negative economic growth of the last three years, employment still increased to its highest level so far of 43 million at the end of last year. The unemployment rate fell to 6.7 per cent in 2014, its lowest level since 1991. The growing regional centres and major cities benefited particularly here. Population growth due to immigration from within Germany and abroad is helping companies to find the skilled workers they need. And both the number of office workers and the associated demand for office space in the top locations and regional centres have therefore continued to grow.

REGIONAL CENTRES: OFFICE EMPLOYMENT AND OFFICE SPACE TOP LOCATIONS: OFFICE EMPLOYMENT AND OFFICE SPACE

1.000 36 2.200 84

2.100 80 950 34 2.000 76 900 32 1.900 72

850 30 1.800 68

1.700 64 800 28 1.600 60 750 26 1.500 56

700 24 1.400 52 1992 94 96 98 00 02 04 06 08 10 12 14 1992 94 96 98 00 02 04 06 08 10 12 14 office workers in thousand (lhs) office workers in thousand (lhs) office space in sqm m (rhs) office space in sqm m (rhs)

Source: Feri, own calculations Source: Feri, own calculations

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The number of office jobs has thus been growing more rapidly than office space for Supply shortage of attractive offices some years. The global financial market and European sovereign debt crises have offset by relatively large supply of had a particularly negative impact on speculative construction of new office space - outdated space which was already at a low level in the regional centres. Growth in the supply of space and demand thus continues to run counter to the trend in the 1990s. The strong growth in office space following reunification was counterbalanced by what was essentially a stagnation in the number of office jobs. This had two consequences: firstly, the supply of attractive modern office space has declined steadily in recent years. Specifically, it has become increasingly difficult to meet demand for large, interconnected space from the available stock. Secondly, the stock of properties in the locations has in many respects "seen better days". And demand for outdated office space is therefore limited despite the shortage of modern space. Thanks to the housing shortage in almost all the major cities, these properties are nevertheless being increasingly converted into living space. This is having a particularly beneficial effect on the high vacancy rate in some locations.

VOLUME OF NEW OFFICE SPACE INCREASED IN 2014 DECLINE IN VACANT OFFICE SPACE HAS SLOWED

new office space in % of the total office space vacancy rate in % 4,0 12 Regional-12 3,5 Top-7 10 3,0 8 2,5

2,0 6

1,5 4 1,0 2 0,5 Regional-12 Top-7

0,0 0 1992 94 96 98 00 02 04 06 08 10 12 14 1995 1999 2003 2007 2011 2015e

Source: BulwienGesa, Feri, own calculations Source: Feri, own calculations, DZ BANK Research forecasts

The huge proportion of vacant office space in some places - and particularly in the Volume of vacant office space has top locations - has fallen gratifyingly in recent years. Contributory factors here have fallen sharply been the growth in demand for office space and the crisis-related low volume of completions, but also housing conversions. At currently 6.1 per cent in the regional centres, and 8.3 per cent in the top locations, levels are lower than at any time since 1996 in the regional centres and 2002 in the top locations. However, the reduction in vacant space has slowed recently, probably due to three factors: firstly, as a result of the already reduced vacancy level, the volume of marketable office space available has declined increasingly. Secondly, new build activity in the office sector has gained momentum again somewhat based on continuing high demand for office space, a high level of interest from investors in German commercial properties, and improved financing conditions. And thirdly, the pace of market growth slackened last year, partly due to insufficient supply, as well as weaker demand as a result of slug- gish economic growth.

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TWO THIRDS OF LOCATIONS SHOWED DOUBLE-DIGIT GROWTH IN PRIME RENTS IN THE LAST FIVE YEARS

prime rent 2014 in EUR per sqm rent growth from 2009 to 2014 in % 20 18 15 16 14 13 14 14 11 12 11 12 11 11 11 8 7 5 6 3 -2

12,0 12,1 12,5 12,5 12,6 12,7 13,0 13,1 13,2 13,5 14,0 14,2 14,3 18,9 21,1 23,0 24,5 25,0 26,6 33,5 35,0

Augs- Dres- Bre- Leip- Mainz Karls- Darm- Reg- Nurem- Mun- Essen Hann- Mann- Stutt- Cologne Ber- Dussel- Ham- Top- Munich Frank- burg den men zig ruhe stadt 12 berg ster over heim gart lin dorf burg 7 furt

Source: BulwienGesa, own calculations

In parallel to the reduction in vacant office space, prime rents in most of the locations Since 2009, prime rents in regional reviewed have shown a pleasingly positive trend. Only Bremen shows a slight de- centres have increased by 12, and in cline in rents over five years. Below the line, the pace of growth in rents is roughly top locations by 11 per cent the same in regional centres and top locations. Conversely, the narrow range of rents in the regional centres is striking. Mannheim, as the most expensive location, exceeds the prime rent level in Augsburg - the cheapest city for office space - by only 20 per cent. On the other hand, in the top locations, the range is much larger at 85 per cent. Frankfurt remains Germany's most expensive office location. The divergence from Munich, in second position, has however narrowed.

OFFICE SPACE TAKE-UP FALLS FOR THREE YEARS IN SUCCESSION … HOWEVER PRIME RENTS HAVE NEVERTHELESS INCREASED …

office space take-up in % of the total office space prime rent in EUR per sqm 5,0 32 Regional-12 4,5 30 Regional-12 Top-7 Top-7 28 4,0 26 3,5 24 3,0 22 2,5 20 2,0 18 16 1,5 14 1,0 12 0,5 10 0,0 8 1992 94 96 98 00 02 04 06 08 10 12 14 1995 1999 2003 2007 2011 2015e

Source: BulwienGesa, Feri, own calculations Source: BulwienGesa, own calculations, DZ BANK Research forecasts

The pace has slowed recently in the German office market. This is evident from the Space take-up falling decline in office space take-up. In the regional locations, office space take-up has declined to 1.9 per cent of the available space, although this is not an unusually low level. The same applies to the top locations. Here, space take-up has fallen for the third year in succession to 3.3 per cent of the supply, but is also within the long-term

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range of fluctuation. The decline in space take-up last year - down by 17 per cent in the regional centres, and by 5 per cent in the top locations - is mainly attributable to a much smaller number of large completions compared to the previous year. Be- cause there was insufficient space of the quality and size required, office tenants opted instead to move to peripheral locations or, alternatively, to extend existing contracts. However, the latter option is not included in space take-up. Also, companies are increasingly interested in improving the efficiency of the space they occupy.

As in previous years, prime rents have continued to rise despite a decline in space Upturn in fourth quarter helps to take-up. They increased by an average of 0.7 per cent to EUR 13.10 per sqm in the drive up prime rents regional centres reviewed in 2014. Conversely, there was stronger upward move- prime rent yoy in % 8 ment of 2.4 per cent in the top locations. Average prime rents in the seven largest 6 German cities reached EUR 26.60 per sqm of office space. However, the signifi- 4 cantly higher growth in rents in top locations is attributable to the strong growth in 2 rents in two large markets rather than a generally more positive trend in these cities. Prime rents in Hamburg increased by more than 4 per cent. In Munich the figure ex- 0 ceeded 6 per cent. Overall, there were two main reasons why rents moved in the -2 opposite direction to overall rental income last year despite an increase in new -4 space. In the first place, this is due to the continuing shortage of attractive space on -6 2005 07 09 11 13 15e offer. However, the positive fourth quarter had a greater influence. The upturn in the Regional-12 Top-7 German economy clearly revived the office rental markets. Although prime rents in- source: BulwienGesa, own calculations, creased, this was not therefore sufficient to balance out the weaker rental income in DZ BANK Research forecasts previous quarters.

The positive trend in prime rents evident for some years is likely to continue in the Prime rents could increase again current year. We expect an increase of 1.3 per cent in the regional centres. The in- slightly in 2015 crease in the lop locations could be a little bit more pronounced. This is supported by the gradual acceleration of economic growth in Germany, supported by the sharp fall in the oil price and a weaker euro. However, the economic impetus will not be overly strong. We expect fairly moderate growth of 1.5 per cent in macroeconomic output over the full year. The volume of new completions will remain moderate, and attractive office space will therefore remain in short supply. The vacancy rate should essentially remain stable.

OFFICE - FORECASTS FOR RENTS AND VACANCY RATES

2013 2014 2015e 12 regional centres Prime rents in EUR/sqm (% yoy) 13.0 (+2.7) 13.1 (+0.7) 13.2 (+1.3) Rents in secondary locations in EUR/sqm (% yoy) 6.3 6.3 6.3 Vacancy rate in % (% points yoy) 6.3 (-0.1) 6.1 (-0.2) 6.1 (0.0) 7 top locations Prime rents in EUR/sqm (% yoy) 26.0 (+3.4) 26.6 (+2.4) 27.0 (+1.7) Rents in secondary locations in EUR/sqm (% yoy) 9.2 9.2 9.2 Vacancy rate in % (% points yoy) 8.4 (-0.4) 8.3 (-0.1) 8.3 (0.0)

Source: BulwienGesa, Feri, DZ BANK Research forecasts all averages weighted for space

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Retail – consumer climate close to optimum

The omens for the German retail sector are excellent. This is despite the sedate Retail opportunities: it does not get pace of growth in domestic economic output. The positive conditions are not attrib- much better than this utable to any one single favourable factor. The basis for the positive sentiment is in fact more broadly defined. This has also boosted the consumer climate index calcu- lated by GfK, taking it to the high levels of the end of 2006 - shortly before the out- break of the severe financial and economic crisis. What are the individual favourable factors for the retail sector? One major element is the positive conditions in the labour market (see also the diagram on page 4), associated with high employment and low unemployment. Also, as shown in the graph below, high wage settlements have been agreed by the various parties, and, thanks to low inflation, these are also benefiting workers to a significant degree in real terms. Private households are also having to spend considerably less on petrol and heating oil as a result of the sharp fall in the oil price. The consumer base is also becoming broader as a result of strong demographic growth in many cities. Another factor is the growing trend in the number of people travelling to cities, most of whom shop in city centres.

CONSUMER CLIMATE RETURNS TO "PRE-CRISIS LEVEL" INCOMES RISING SHARPLY (WAGE AGREEMENTS)

10 average 2014: 2,84%

GfK consumer climate 07/2014 metal industry NRW 2014 2015 8 06/2014 banking 06/2014 transport/logistics NRW

6 06/2014 construction East 06/2014 construction West 05/2014 printing 4 04/2014 public sector 02/2014 chemical industry 2 02/2014 sweets industry, East 12/2013 retail 0 0 1 2 3 4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 collective wage agreement in %

Source: GfK Source: Destatis

CITY TOURISM BOOMING HEATING OIL AND PETROL CHEAPER THAN FOR A LONG TIME

140 260 arrivals in towns (>100 000 inhabitants) in million heating oil, price 2000 = 100 overnight stays in towns (>100 000 inhabitants) in million 240 120 petrol 95 octane, price 2000 = 100 220 100 200

80 180

60 160 140 40 120 20 100

0 80 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Destatis Source: Datastream, own calculations

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The low interest rates on investments, which are still above zero at best for long ma- Interest rates close to zero provide turities or higher-risk investments, should also have a favourable impact on con- no incentive to save sumption. Under these conditions, many people are asking whether it makes sense to save - and whether it would not be better to spend their money.

So much for the theory of favourable conditions for the retail sector. For in practice, 2014 was a comparatively good year households are spending much less than might be expected. True, in nominal terms, for the retail sector retail sales are showing a clear upward tendency. However, in real, price-adjusted terms, there is little growth. And retail sales have therefore ultimately remained flat since the new millennium. In contrast, price-adjusted GDP has grown by 20 per cent. At the moment, sales are also growing in real terms, although the pace is fairly sedate. Last year's trend must therefore be regarded as generally favourable. In real terms, retail sales excluding vehicles increased by 1 per cent, and nominally by not quite 2 per cent.

RETAIL SECTOR DERIVES LITTLE BENEFIT FROM POSITIVE ENVI- IN CONTRAST TO THE RETAIL SECTOR AS A WHOLE, E-COMMERCE IS RONMENT (RETAIL SALES EXCL. VEHICLES) BOOMING

4 116 500 50 real retail sales yoy in % (lhs) real retail sales 2000 = 100 (rhs) 450 45 3 nominal retail sales 2000 = 100 (rhs) 112 400 40 2 108 350 35 1 104 300 30 0 100 250 25 200 20 -1 96 150 15 -2 92 100 10 -3 88 50 retail sales in EUR bn 5 thereof e-commerce in EUR bn -4 84 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2000 2002 2004 2006 2008 2010 2012 2014

Source: Destatis, own calculations Source: HDE

However, there is no uniform trend in all segments of the retail sector. E-commerce Weak in-store retail sales growth has grown strongly in recent years. If these sales are deducted, conditions for in- combined with growth in sales store retail are even more difficult than would appear from the figures for the sector space as a whole. Sales space has also increased in virtually all locations, both in absolute terms and also on a per capita basis. While the relative expansion of sales space has at least flattened in the regional centres, it has been stagnating in the top locations for some years. The clear demographic growth in major cities has also had a positive impact on growth in per capita sales space.

The trend is also positive in relation to average sales space productivity - measured Downward trend in sales space in EUR per sqm - in the various locations. Up to the beginning of the current decade productivity has halted this figure had been falling continuously. Since then, it has remained stable in the regional centres. The situation is better in the top locations where sales per unit of sales space have even grown again slightly.

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PER CAPITA SALES SPACE HAS SHOWN VIRTUALLY NO GROWTH DOWNWARD TREND IN SPACE PRODUCTIVITY HAS HALTED RECENTLY IN TOP LOCATIONS

retail space in sqm per capita retail sales in EUR per sqm (at 2000 prices) 2,2 5.000

Regional-12 2,0 4.500 Top-7 1,8 4.000 1,6 3.500 1,4 3.000 1,2

1,0 2.500 Regional-12 Top-7 0,8 2.000 95 97 99 01 03 05 07 09 11 13 15e 95 97 99 01 03 05 07 09 11 13 15e

Source: Feri, own calculations Source: Feri, own calculations

However, there is little cause for disappointment with regard to the retail sector in Retailers in prime locations are prime locations and the inner city shopping centres reviewed here. Cities are "in". the winners And the city centres of many locations which have been revamped in recent years often help by providing a high quality shopping experience, which attracts an increasing number of customers. City centre retail should also benefit to a considerable extent from the strengthening of purchasing power as a result of the abovemen- tioned factors. In any case, households are not very likely to alter longstanding habits when buying daily goods because they have more cash. The additional scope for "extras" is more likely to have an impact on textiles and consumer electronics, i.e. products which retailers offer for sale in pedestrian zones, shopping centres and on the Internet.

This is precisely the objective of the hybrid concepts - aimed at linking attractive lo- Hybrid concepts make optimum use cal shops with online shops - on which many retailers are focusing. It does not ulti- of consumer habits mately matter whether customers spend their money at the till or by clicking a mouse.

This has two consequences for the rental of retail space. In prime locations and at- Prime locations "top", secondary tractive shopping centres, demand, particularly for large attractive shop space, fre- locations (often) "flop" quently exceeds supply. On the other hand, peripheral and secondary locations can only benefit if they can either be connected to prime locations by means of skilful project development, or if they can be converted into new prime locations. Con- versely, outside such locations, and in peripheral areas, the slice of the pie is smaller. This highlights the diverging trend in retail rents. While rents in secondary locations have been stagnating for years in both top locations and regional centres, rents in prime retail locations have been increasing rapidly for many years.

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PRIME RENTS IN PRIME LOCATIONS RISING AND RISING, … … WHILE SECONDARY LOCATIONS ARE LEFT BEHIND

prime rent in EUR per sqm rent secondary locations in EUR per sqm 300 30

275 Regional-12 Top-7 Regional-12 Top-7 25 250

225 20

200 15 175

150 10

125 5 100

75 0 95 97 99 01 03 05 07 09 11 13 15e 95 97 99 01 03 05 07 09 11 13 15e

Source: BulwienGesa, own calculations, DZ BANK Research forecasts Source: BulwienGesa, own calculations, DZ BANK Research forecasts

The trend in prime rents, particularly based on a comparison between regional cen- Peak office and retail rents tres and top locations, differs significantly from the trend for office properties. This is increasing at roughly the same mainly attributable to the continuing strong growth in rents in top locations. While pace in regional centres peak office and retail rents in the regional centres have increased by around 10 per cent respectively in the last five years, the growth in rents in the two market segments diverges widely at the top locations. The similar increase of around 10 per cent for offices contrasts with an average increase of more than 20 per cent in prime retail rents.

RETAIL: PRIME RENTS INCREASING IN ALL LOCATIONS - MORE SLOWLY IN REGIONAL CENTRES, AND FASTER IN TOP LOCATIONS

prime rent 2014 in EUR per sqm rent growth from 2009 to 2014 in % 35

21 22 22 23 18 17 16 12 11 10 9 9 9 8 7 5 4 2 3 4

100 110 110 110 113 114 125 125 132 140 145 170 195 235 240 250 275 280 290 290 320

Darm- Augs- Dres- Essen Karls- Mainz Bre- Leip- Reg- Nurem- Mann- Mun- Hann- Stutt- CologneDussel- Ham- Top- Ber- Frank- Munich stadt burg den ruhe men zig 12 berg heim ster over gart dorf burg 7 lin furt

Source: BulwienGesa, own calculations

The divergence between the cheapest and most expensive locations in the retail Range of retail rents in regional sector is exactly the opposite of what applies in the office sector. In the latter case, centres is large, but small in top the divergence between locations in the regional centres is small, but large for the locations top locations. In the retail sector, prime rents of EUR 320 per sqm in the most expensive top location - Munich - exceed those in Stuttgart (EUR 235) by a good 35 per cent. In the regional centres the range is much larger at almost 100 per cent. It extends from EUR 100 per sqm in Darmstadt to EUR 195 in Hannover.

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Conversely, the divergence between average prime rents in the regional centres and top locations is just as large, in relative terms, by a factor of two, in the retail sector as in the office sector. One sqm of sales space in a prime location in the regional centres costs, on average, EUR 132, compared to EUR 280 in the top locations.

PRIME RENTS RISING IN REGIONAL CENTRES, BUT FASTER PACE IN RENT GROWTH: RAPID AND VOLATILE IN TOP LOCATIONS, SLOWER TOP LOCATIONS AND MORE STABLE IN REGIONAL CENTRES

prime rent 1995 = 100 prime rent yoy in % 170 12 Regional-12 Top-7 160 10 150 8 140 6 130 4 120 2 110 0 100 -2 90 -4 80 -6 Regional-12 Top-7 70 -8 95 97 99 01 03 05 07 09 11 13 15e 93 95 97 99 01 03 05 07 09 11 13 15e

Source: BulwienGesa, own calculations, DZ BANK Research forecasts Source: BulwienGesa, own calculations, DZ BANK Research forecasts

Over a longer period the varying growth rates in prime rents become even more evi- International retailers need a dent. In the regional centres they have only increased by about 10 per cent over presence in top locations to raise 20 years. In contrast, growth has been many times higher in the top locations at their profile more than 60 per cent. The fact that the divergence between the two types of locations has become so wide is mainly attributable to the retailers' strategy, which will continue to benefit the top locations. For suppliers establishing a presence in Germany for the first time, or introducing new retail concepts, the main focus is on these seven cities with their large catchment areas and international customer base. The buoyant consumer climate and the economic importance of the largest Euro- pean economy are helping to ensure that expansion into Germany remains a priority for international retailers. Demand for space in the top locations will probably remain high on a continuous basis.

Although the regional centres are also attractive retail destinations, they neverthe- Regional centres well suited to less lack the additional advantage provided by the major cities. They are mainly in expansion strategies in the German demand as part of a strategy of expansion into the German market, after successful market market entry in the top locations. Demand for sales space in prime locations is also expected to remain high in the regional centres. However, they are interchangeable, purely because there are more of them: around 30 cities have a population of 200,000 to 600,000. Another 40 cities have more than 100,000 inhabitants.

On this basis, the trend in prime rents in prime locations in major cities and metro- Prime rents now unlikely to increase politan areas should continue to diverge in future. However, the already very high further in top locations level of rents in top locations will probably prevent a sharp increase, as was evident in recent years. Within ten years, average prime rents have risen by more than EUR 90 per sqm - around 50 per cent. Retailers' profitability is suffering increasingly as a result, and they are correspondingly becoming less willing to pay even higher

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rents. The growth rate in prime rents is therefore likely to converge between the regional centres and the top locations.

We expect a generally slower pace of growth in prime rents this year. The already Prime rents not expected to increase high levels in the top locations described above are a particular obstacle to further significantly in 2015 strong growth. There are various reasons for the weaker trend in the regional centres. Rents in two locations - Dresden and Hannover - have increased sharply this year. The figure of EUR 195 per sqm in Hannover is already well above average. Conversely, in other locations, construction work and new project developments in city centres are preventing rents from rising.

RETAIL - RENT FORECASTS

2013 2014 2015e 12 regional centres Prime rents in EUR/sqm (% yoy) 128.3 (+2.2) 131.6(+2.6) 133.1 (+1.1) Rents in secondary locations in EUR/sqm 10.8 10.9 10.9 7 top locations Prime rents in EUR/sqm (% yoy) 267.7 (+7.8) 280.3 (+4.7) 285.0 (+1.7) Rents in secondary locations in EUR/sqm 21.6 21.9 21.9

Figures in brackets in % yoy; all averages are weighted for space Source: BulwienGesa, DZ BANK Research forecasts

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AUGSBURG

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

12 11

9 10

6 9

3 8

0 7

-3 6

-6 5

-9 4 Augsburg Regional-12 Munich Augsburg Regional-12 Munich -12 3 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Augsburg, which was founded by the Romans, is still attractive today. The well pre- Augsburg founded by the Romans - served city centre, with its City Hall, Golden Room and the oldest social housing and thus one of the oldest German complex in the world, the "Fuggerei", is an attractive destination for visitors. Augs- cities burg is also applying for World Heritage status based on its historic waterways which date back more than 1,000 years. Today Augsburg is the third largest city in Bavaria with a population of almost 280,000, which represents growth of almost 20,000 since the beginning of the new millennium. The city is benefiting here from the upgrading in recent years of good transport links with Munich - which is almost 70 kilometres away - and from the very high rents and housing shortage in the Bavarian capital.

However, Augsburg does not play a major role as an office location. With around Smallest office market in the report 1.7 million sqm of office space, Augsburg is the smallest of the 19 office locations covered in this report. Prime rents of less than EUR 12 are also the lowest by comparison. The city's geographic proximity to Munich, one of the most expensive German office locations, does not therefore create any overly positive impetus. In fact, demand in the Augsburg office market is generated mainly by regional companies, often in the high tech sector, and also by the public sector. The latter also in- cludes the university with more than 19,000 students, and administrative bodies for the Bavaria-Swabia region.

The relatively small size and low rents of the office market are also a consequence Impact of structural change on of the major structural change which has been a feature of the city and the Augsburg economic development economy for some considerable time. This was a result of the decline in the formerly very important textile industry and the withdrawal of American armed forces in the 1990s. Conversely, the unemployment rate is currently at a fairly favourable level of 6.6 per cent for a large city which is still quite important in industrial terms; however, this is twice as high as the Bavarian average.

14 15 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM AUGSBURG: TREND IN OFFICE SPACE AND EMPLOYMENT

39 120

38 115 37

110 36

35 105

34 100 33 Augsburg Regional-12 Munich office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

However, as a result of the positive economic trend, office rents have recovered Despite "catching up", prime rents somewhat. Within ten years the divergence from the average for regional property in Augsburg are fairly low at EUR centres has narrowed from EUR 2 to EUR 1. On the other hand, the low and thus 12 per sqm less attractive rent level for investors is also likely to have contributed to the modest expansion of office space. Trends in the office market are based mainly on the initia- tive of owner-occupiers. These include the new development and technology centre for robotics producer Kuka, which is relocating from Hery Park in Gersthofen to the Augsburg technology centre. The 21,000 sqm site led to a surge in office space Kuka robots led to surge in office take-up to 36,000 sqm in 2014 on a long term comparison. Generally, the level is space take-up in 2014 just under 20,000 sqm in a year. In addition to the expansion of Augsburg as a science and technology location, the growing importance of the logistics sector is also likely to continue to boost the buoyant economic trend in this city with its good transport links. Augsburg is well placed for further growth as a result of the availabil- ity of extensive space formerly used for military purposes. Rents are likely to remain on the gradual upward trend evident in recent years as a result of the likely growth in the number of office jobs.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.9 1.9 1.9 1.9 GDP per capita in EUR '000 40.7 41.0 41.4 41.9 GDP per capita in % yoy 1.0 0.7 0.9 1.2 Office workers in % yoy 1.1 1.0 1.1 1.3 Supply Total office space in million sqm 1.7 1.7 1.7 1.7 Total office space in % yoy 0.1 1.0 0.4 0.6 Vacancy rate in % 5.1 5.1 5.0 4.9 Office rents Prime/secondary locations in EUR/sqm 11.5 / 5.0 11.8 / 5.1 12.0 / 5.1 12.2 / 5.1 Prime/secondary locations in % yoy 0.0 / 0.0 2.6 / 2.0 1.7 / 0.0 1.4 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

14 15 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

325 4,0 300 Augsburg Regional-12 Munich 275 3,5 250 3,0 225 200 2,5 175 150 2,0 125

100 1,5 75 Augsburg Regional-12 Munich 50 1,0 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, BulwienGesa, DZ BANK forecasts Source: Feri, DZ BANK Research forecasts

With more than 3 sqm per inhabitant, Augsburg has a large stock of retail space. Attractive retail location permanently However, the city also has a large catchment area. Attractive retail locations - undergoing construction Munich, Ingolstadt and Ulm - are also 70 to 90 kilometres away. The historic city of Fuggerstadt also attracts many tourists, who also support the retail sector in Augs- burg. Nevertheless, prime rents are stagnating at around EUR 110 per sqm, defying the widespread upward trend which lasted for several years. In particular, construction work for the huge "Augsburg City" local transport project which has been under way since 2011, and which will probably not be completed until 2020, is having a negative effect. However, this will upgrade the pedestrian zone in the long term. The large volume of sales space in the city centre is also having a dampening effect on prime rents. The top locations are situated in Annastraße and Bürgermeister- Fischer-Straße. Some changes are imminent in the retail sector in 2015. These are, on the one hand, the Peek & Cloppenburg new development in the former Wool- worth building. On the other hand, Galeria Kaufhof is to relocate. The future utilisation of the property, but also the impact on footfall in Bürgermeister-Fischer-Straße Prime rents likely to remain are unclear as yet. We expect prime rents to remain generally stable in 2015. stable in 2015

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,312 1,305 1,307 1,314 Per capita disp. income % yoy -0.6 -0.5 0.1 0.5 Unemployment rate % 6.4 6.4 6.6 6.5 Retail sales % yoy 0.1 0.9 1.0 1.1 Supply Total retail space m sqm 0.9 0.9 0.9 0.9 Total retail space % yoy 0.5 0.0 1.0 0.5 Retail rents Prime/secondary locations EUR/sqm 110 / 8.0 110 / 8.0 110 / 8.0 110 / 8.0 Prime/secondary locations % yoy 0.0 / 0.0 0.0 / 0.0 0.0 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

16 17 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

BERLIN Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 11 Berlin Top-7 Regional-12 6 10

9 3 8 0 7 -3 6

-6 5 Berlin Top-7 Regional-12 -9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

The Berlin office market is showing above-average growth. While rental volume in Office market positive in 2014 many office locations weakened last year, space take-up of 580,000 sqm in Berlin compared to most top locations increased by a good 10 per cent compared to the previous year, and also relative to the ten-year average. Office demand is being driven by the economic upturn in Ber- lin, as reflected in the sharp decline in unemployment. Although 11 per cent is comparatively high, it is considerably lower than the figure of almost 20 per cent reported ten years ago. Instead of small offices, many companies are now focusing on sales and development premises. The emerging Internet/E-commerce sector is also having a positive impact, for example the fashion mail order company Zalando. The ten largest rental agreements thus include five IT companies. Prime rents have remained on an upward trend. At EUR 23, they are fairly low for a European capital, but also for a top location. We expect levels to increase again this year. The vacancy rate fell to below 8 per cent again in 2014, where it is likely to remain in 2015. Prime rents continuing to rise

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.0 1.9 1.6 1.5 GDP per capita in EUR '000 25.1 25.2 25.4 25.7 GDP per capita in % yoy 0.5 0.5 0.8 1.1 Office workers in % yoy 2.7 1.4 1.4 1.5 Supply Total office space in million sqm 17.5 17.5 17.6 17.8 Total office space in % yoy -0.1 0.3 0.5 1.2 Vacancy rate in % 7.5 8.0 7.9 7.9 Office rents Prime/secondary locations in EUR/sqm 22.0 / 6.8 22.5 / 7.5 23.0 / 7.5 23.5 / 7.5 Prime/secondary locations in % yoy 2.3 / 4.6 2.3 / 10.3 2.2 / 0.0 2.2 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

16 17 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 Berlin 280 Top-7 260 Regional-12 2,2 240 2,0 220 200 1,8 180 160 1,6 140

120 1,4 100 Berlin Top-7 Regional-12 80 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Berlin has developed even more successfully as a shopping destination than as an Above-average growth in Berlin as office market. There is major interest from retailers, who are focusing even more a shopping destination strongly on the capital as a result of the solid economic growth in Germany. Other positive factors are the buoyant economy of Berlin and the large and growing volume of visitors, who contribute a quarter of retail sales. This helps to balance out the below-average purchasing power of Berliners. The size and importance of the mar- Test market for newcomers to ket within the context of the German retail landscape also plays a part, since Berlin German retail sector acts as a test market for newcomers in the retail sector. One recent example is the Japanese fashion chain Uniqlo, which has opened a large store of 2,700 sqm in Tauentzienstraße. The top shopping street in Berlin should also be referred to as Ku´damm in future according to the wish of retailers. As a result of buoyant demand, trendy locations in Berlin, such as Hackescher Markt, may also develop into prime After dynamic growth in rents, the locations. With the Mall of Berlin, which opened last September, Berlin now has the rate of increase is likely to slow largest inner city shopping centre in Europe. The above-average growth in prime rents for some years continued apace in 2014. However, given the levels now reached, we expect only modest growth of less than 2 per cent this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,216 1,227 1,244 1,259 Per capita disp. income % yoy 0.7 0.9 1.3 1.3 Unemployment rate % 12.3 11.7 11.2 11.4 Retail sales % yoy 1.9 2.9 2.7 1.9 Supply Total retail space m sqm 6.0 6.1 6.2 6.3 Total retail space % yoy 1.6 1.7 2.1 2.1 Retail rents Prime/secondary locations EUR/sqm 240 / 14.0 270 / 14.0 290 / 0.0 295 / 0.0 Prime/secondary locations % yoy 6.7 / 0.0 12.5 / 0.0 7.4 / 0.0 1.7 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

18 19 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

BREMEN

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

8 11

6 10

9 4 8 2 7 0 6 -2 5

-4 4 Bremen Regional-12 Hamburg Bremen Regional-12 Hamburg -6 3 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

The Hanseatic city of Bremen, together with Bremerhaven, which is 60 kilometres Central city in North West Germany away, is the smallest German Land in terms of size and population. Together with Oldenburg, which is part of Lower Saxony, this creates a metropolitan region of 1.2 million people. Some 550,000 people live in the city of Bremen itself, and it therefore ranks among the top ten major cities. It is also the undisputed centre of the North West. The major cities of Hamburg and Hannover are some 120 km away respectively. However, population growth is much slower than in many major cities. Since 2004 the population of Bremen has increased by a total of 1 per cent, a much lower rate than in the other regional centres covered in this report, which have grown, on average, five times as fast in the same period.

Bremen's economy suffered for many years as a result of radical structural change. After radical structural change, After 1970, around half of the jobs in the manufacturing industry of the flourishing Bremen's economy is now port and shipbuilding centre were lost. In 2005, the unemployment rate reached a successful again maximum of more than 15 per cent. As a result of a successful economic policy, the tide was turned. Many companies - particularly in the vehicle construction, aero- space, food and drink, biotechnology and logistics sectors - have set up operations in Bremen. Joint ventures with the University of Bremen have also been helpful here. Consequently, the employment situation has improved significantly. The unemployment rate has fallen sharply, but, at 10 per cent, remains relatively high.

The proportion of office jobs to the number of people employed is below-average at Office market relatively small for less than 40 per cent. A strong orientation towards industry is still evident here. size of population Accordingly, the proportion of people working in the manufacturing sector is above- average at around 20 per cent. However, the number of office workers has increased visibly in recent years. Office space has grown by roughly the same extent. In absolute terms, office space of 3.4 million sqm is average for the regional property centres, but relatively small based on the size of Bremen's population.

18 19 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM BREMEN: TREND IN OFFICE SPACE AND EMPLOYMENT 39 120

38 115

37 110 36

105 35

34 100 Bremen Regional-12 Hamburg office space office workers 33 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

Virtually no modern office space has been created in the centre of Bremen in recent Virtually no contemporary office years. A large proportion of the office stock is outdated and no longer meets the space available in centre of Bremen required standards, and is therefore more suited for use as housing. The office market has shifted increasingly towards the airport and the Überseestadt with its contemporary office space. The office projects which have been created there have also contributed to the above-average expansion of office space in the last ten years. Prime rents are also being paid currently in the Überseestadt. However, the strong expansion of space is having a negative impact on growth in rents. Last year prime rents even fell by almost 3 per cent to EUR 12.50 per sqm. The ESA 1 - a rare speculative project development - is currently under construction at the moment in the Überseestadt. However, the risk is manageable since the vacancy rate of around 5 per cent is remaining low on a sustained basis. However, while the pace of market growth slowed in 2014, with 69,000 sqm of sales space - which was 20 per cent lower than the long-term average - the volume of new construction has risen steadily since 2011 to around 55,000 sqm last year. This is the highest level since 2002 and Prime rents likely to remain is likely to prevent virtually any growth in rents this year. Prime rents could at best stable in 2015 recover slightly from last year's decline.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.2 2.3 2.2 2.2 GDP per capita in EUR '000 40.4 41.2 42.0 42.8 GDP per capita in % yoy 1.9 1.8 2.1 1.9 Office workers in % yoy 1.6 1.2 1.6 1.2 Supply Total office space in million sqm 3.4 3.4 3.4 3.4 Total office space in % yoy 2.0 0.9 0.8 0.8 Vacancy rate in % 5.1 5.0 5.0 5.0 Office rents Prime/secondary locations in EUR/sqm 12.8 / 5.8 12.9 / 5.8 12.5 / 5.8 12.7 / 5.8 Prime/secondary locations in % yoy 0.0 / 11.5 0.8 / 0.0 -2.7 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

20 21 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 3,5

275 Bremen Bremen Regional-12 Hamburg Regional-12 3,0 250 Hamburg 225 2,5 200

175 2,0 150

125 1,5 100

75 1,0 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Conditions in the Bremen retail sector are very good. The shopping destination in City centre retail suffering due to the North West has a large catchment area and, apart from the smaller city of peripheral shopping centres and a Oldenburg, no competition. It also benefits from popular tourist attractions such as shortage of sales space the City Hall. However, city centre retail is not fully exploiting the potential which the location offers. There are two reasons for this. Virtually no other major city has a comparable number of peripheral shopping centres. These include Waterfront, the Roland-Center and the Weserpark - which was extended in 2014 to provide 66,000 sqm of sales space. The second reason is the weak supply to date of first-class sales space in the city centre. Including the large department stores and fashion shops, there is only 135,000 sqm of sales space. There are virtually no large shops of the type sought by chain stores. The branch of Zara with sales space of 3,500 sqm and a successful storefront which has just opened is a rare exception, and could generally upgrade Obernstraße - the second prime location in addition to City Center will optimise supply Sögestraße. In 2013, the city acquired the Lloydhof with the aim of improving the of sales space location, and the 25,000 sqm "City Center" is to be built there. The revamping of the station forecourt due for completion by 2016 is also positive. Bremen as a shopping location still has potential despite the negative factors described, and a modest Still upward scope for prime rents increase in prime rents is certainly possible.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,525 1,535 1,551 1,569 Per capita disp. income % yoy 2.0 0.7 1.0 1.2 Unemployment rate % 10.5 10.5 10.1 10.1 Retail sales % yoy 2.3 1.9 1.8 2.3 Supply Total retail space m sqm 1.4 1.5 1.5 1.5 Total retail space % yoy 8.3 3.0 2.7 2.6 Retail rents Prime/secondary locations EUR/sqm 120 / 10.0 125 / 10.0 125 / 10.0 127 / 10.0 Prime/secondary locations % yoy 0.0 / 0.0 4.2 / 0.0 0.0 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

20 21 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

COLOGNE

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT 9 11

6 10

9 3 8 0 7 -3 6

-6 5 Cologne Top-7 Regional-12 Cologne Top-7 Regional-12 -9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Based on the size of its population, the office market is fairly small at 7 million sqm. City of 1 million with a small Cologne also brought up the rear among the top locations in 2014 with rental volume office market of 225,000 sqm. In 2013 the city was still some distance ahead of Stuttgart which was at the bottom of the league at that time. Although rental income has fallen there too, the decline has been nowhere near as steep as the downturn of almost 20 per cent recorded in Cologne. Only Dusseldorf has shown an even more marked decline. This is attributable to the lack of large rental agreements. Only one agreement for more than 10,0000 sqm has been concluded. As elsewhere, an increasing number of expiring rental agreements have been extended, because there is an insufficient supply of more attractive alternatives. The shortage of supply is likely to be the reason why, despite weak market conditions, prime rents have remained unchanged from the previous year. Last year, only one third of the average completion volume was achieved, at a level just short of 30,000 sqm. Volume is likely to be roughly twice as high in 2015, but that will also be at a fairly low level. Attractive office space Supply shortage could lead to mod- thus remains in very short supply. Consequently, prime rents could increase again in est increase in prime rents in 2015 2015.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.9 1.9 1.9 1.9 GDP per capita in EUR '000 40.3 40.7 41.3 41.9 GDP per capita in % yoy 0.7 1.0 1.4 1.4 Office workers in % yoy 1.6 1.2 1.7 1.5 Supply Total office space in million sqm 7.1 7.2 7.3 7.3 Total office space in % yoy 0.7 0.9 0.8 0.9 Vacancy rate in % 8.1 7.5 7.3 7.1 Office rents Prime/secondary locations in EUR/sqm 20.5 / 8.0 21.1 / 8.0 21.1 / 8.0 21.4 / 8.0 Prime/secondary locations in % yoy 2.5 / 0.0 2.9 / 0.0 0.0 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

22 23 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 Cologne 280 Cologne Top-7 Regional-12 Top-7 260 2,2 Regional-12 240 2,0 220 200 1,8 180 160 1,6 140

120 1,4 100 80 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Cologne, a city of one million people, makes up for its slightly weaker importance as Low-end shopping destination an office location in terms of retail. The second internationally important shopping in the West destination in the West differs here in terms of the type of products on offer. While in Dusseldorf, there is more of a focus on the luxury segment, Cologne is geared more to "mass consumption". This applies particularly to Schildergasse, where chain stores account for 91 per cent of retail activity. The luxury segment is focused on the Domkloster/Wallraffplatz area. There is insufficient supply in the prime locations to meet high demand. Interest from retailers is based on several advantages offered by the cathedral city. With its high quality experience of a visit and a shopping area which extends over three kilometres in prime locations, the city is attractive to customers in a conurbation of three million people. Cologne shows the greatest degree of centrality among the top locations. Purchasing power is boosted by a large volume of tourists. However, the pace of rent growth is slightly weaker than in the top locations as a whole. Clearly, the current prime rent of EUR 240 per sqm is already broadly at the upper limit of what retailers are prepared to pay. We do not expect Potential for prime rents seems any stronger upward movement here. No large projects are imminent after the revi- largely exhausted talisation of the Neumarkt-Galerie. Following the opening in 2014 of a flagship Primark store, the location is now benefiting from this major crowd puller.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,470 1,477 1,497 1,518 Per capita disp. income % yoy 1.8 0.5 1.3 1.4 Unemployment rate % 9.5 9.4 9.7 9.8 Retail sales % yoy 3.2 2.1 2.8 2.1 Supply Total retail space m sqm 1.4 1.4 1.4 1.4 Total retail space % yoy 0.0 0.2 0.3 0.3 Retail rents Prime/secondary locations EUR/sqm 235 / 12.0 240 / 12.5 240 / 13.5 245 / 13.5 Prime/secondary locations % yoy 4.4 / 0.0 2.1 / 4.2 0.0 / 8.0 2.1 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

22 23 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

DARMSTADT

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

15 16

12 14

9 12 6 10 3 8 0 6 -3

-6 4 Darmstadt Regional-12 Frankfurt Darmstadt Regional-12 Frankfurt -9 2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

The small landing robot "Philae", which has successfully landed on the tiny comet Darmstadt, the city of science "Tschuri" and analysed the surface after a ten-year space odyssey, has helped to in Hesse enhance Darmstadt's status as a "city of science" well beyond the boundaries of Hesse. The fourth largest city in this German Land - with a population of 150,000 - owes this success to the Technical University and other higher education colleges which have a total of around 40,000 students, and also to the many research institutions based there. These include the ESOC Space Operations Centre, which is responsible for the operation of ESA satellites, and the "FAIR" international particle acceleration facility which is currently under construction.

A number of important companies are also based in Darmstadt. These include Important location for companies Merck, Telekom/T-Online, Software AG and Kao/Goldwell, and Carl Schenck. More than 100 companies are located in the Technology and Innovation Centre. The core sectors of Darmstadt's economy are IT, chemicals/pharmaceuticals, mechanical engineering and cosmetics. The unemployment rate of just over 6 per cent is comparatively low for a large city.

Based on the size of its population, Darmstadt is by far the smallest location covered Relatively small location with large in this report. However, its importance as a property location is greater than would number of workers appear from its demographics. This reflects the disproportionately large number of people employed there, and also the above-average proportion of office workers. Added to this are its favourable position in terms of transport routes and its links with the economic engine of the Rhine-Main region. At a distance of around 30 kilometres from Frankfurt, Darmstadt is however an economic and office location in its own right. With its 50,000 office workers, Darmstadt is roughly on a par with the cities of Augsburg and Mainz which have much larger populations. The office markets of these two cities are also smaller than that of Darmstadt, which has some 1.9 million sqm of office space.

24 25 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM DARMSTADT: TREND IN OFFICE SPACE AND EMPLOYMENT

48 120

46 115 44

110 42

40 105

38 100 36 Darmstadt Regional-12 Frankfurt office space office workers 34 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

The strong growth in the number of office employees has been offset in the last ten Stable office location with future years by a comparable expansion of office space. After slightly stronger growth in of- potential fice space between 2007 and 2009, new office construction subsequently slackened. In 2014, the volume of completions reached a relatively high level of 40,000 sqm again. The largest proportion of office projects is owner-occupier driven, however speculative development also plays a part. Office space take-up has shown very stable growth in the past, averaging almost 40,000 sqm per year. In 2014, space take-up was below average at 33,000 sqm - as in almost all office locations - down on both the previous year and the ten-year average. After strong growth in prime rents in 2011, they are now increasing slowly, to currently EUR 13 per sqm. There could be modest growth this year too. The vacancy rate is very low at just over 4 per cent. The prospects for the location are good. Extensive areas which can be converted from their former military use provide scope for more office space. Office space, as well as commercial space and apartments are to be built in the Wella- Areal, when Procter & Gamble moves out of Darmstadt in 2015.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.3 2.0 2.0 2.0 GDP per capita in EUR '000 49.7 50.0 50.6 51.4 GDP per capita in % yoy 0.5 0.7 1.2 1.5 Office workers in % yoy 1.7 1.1 1.3 1.4 Supply Total office space in million sqm 1.8 1.8 1.9 1.9 Total office space in % yoy 1.7 -0.2 1.6 1.2 Vacancy rate in % 4.4 4.3 4.3 4.2 Office rents Prime/secondary locations in EUR/sqm 12.8 / 7.5 13.0 / 7.5 13.0 / 7.5 13.2 / 7.5 Prime/secondary locations in % yoy 2.4 / 0.0 1.6 / 0.0 0.0 / 0.0 1.4 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

24 25 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,8 275 2,6 250 225 2,4 200 2,2 175 2,0 150

125 1,8 100 1,6 75 Darmstadt Regional-12 Frankfurt Darmstadt Regional-12 Frankfurt 50 1,4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source : BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

With a large catchment area - mainly south of Darmstadt - containing a total popula- Darmstadt can successfully hold tion of around 600,000, and high purchasing power, the conditions for the retail sec- its own tor are good. The city centre offers a relatively large supply of sales space of 120,000 sqm for the size of the city. Darmstadt can therefore hold its own fairly well as a shopping destination in competition with the much larger Frankfurt, and shopping centres in neighbouring areas. City centre shopping opportunities in prime locations Schuchardstraße and Ernst-Ludwig-Straße enhance the attractions of Darm- stadt, as do the CITY CARREE and Luisen-Center shopping centres. Turnover in the city centre is low. The nearby Loop 5 which opened in 2009 with 175 shops and 50,000 sqm of sales space has not had a seriously negative impact on the flow of customers to the city centre. However, the tough competition, but also the fairly high volume of per capita sales space is also striking: for some years, prime rents have However, competition is also been stagnating at approximately EUR 100 per sqm, around 30 per cent below av- squeezing prime rents erage for the regional centres. This is likely to remain the case this year. The planned opening of the new market hall in autumn 2015 is likely to help to ensure that Darmstadt remains attractive as a shopping destination.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,523 1,534 1,552 1,573 Per capita disp. income % yoy 0.7 0.7 1.2 1.3 Unemployment rate % 6.0 6.3 6.6 6.9 Retail sales % yoy 1.7 1.5 1.2 1.7 Supply Total retail space m sqm 0.4 0.4 0.4 0.4 Total retail space % yoy 0.6 -0.2 0.4 0.4 Retail rents Prime/secondary locations EUR/sqm 100 / 12.0 100 / 11.0 100 / 11.0 100 / 11.0 Prime/secondary locations % yoy 0.0 / 4.3 0.0 / -8.3 0.0 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

26 27 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

DRESDEN

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 13 Dresden Regional-12 Berlin 12 6 11

3 10

9 0 8

-3 7

6 -6 5 Dresden Regional-12 Berlin -9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

There has been a very positive trend in Dresden since reunification. This is related Boom town Dresden to the role of the capital of Saxony as an economic and administrative centre, a science location and a "hotspot" for city breaks in Germany. The latter is mainly attributable to the impressive historical cityscape with the reconstructed Frauenkirche. Within ten years the number of overnight stays has increased from 2.5 million to more than 4 million. The positive economic trend is reflected, for example, in an unemployment rate of 8.5 per cent, which is well below the levels in many large west German cities such as Bremen, Essen and Hannover.

The generally positive trend in the city has led to a reversal of the decline in the Strong demographic growth population after reunification; in the last ten years, only Munich has shown higher percentage population growth. Since 2004, the population has grown by 12 per cent - twice the average rate for the regional centres.

As the capital city of the Free State of Saxony, the headquarters of the regional ad- Important administrative and ministration and the Higher Regional Court, the public sector is an important research location: high-tech the employer in Dresden. The university, as well as a large number of research institu- engine of growth tions, such as Max-Planck, Fraunhofer, Leibniz and Helmholtz also provide a large number of jobs in R&D. Dresden is the German leader for nano and microelectron- ics. More than 300 companies and research bodies from the high tech sector therefore constitute what is known colloquially as "Silicon Saxony". The IT and communi- cations technology sector provides a total of 40,000 jobs. Many companies from the automotive, aviation and pharmaceutical sectors also contribute to the dynamic growth in the local economy.

26 27 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM DRESDEN: TREND IN OFFICE SPACE AND EMPLOYMENT

46 120

44 115 42

110 40

38 105

36 100 34 Dresden Regional-12 Berlin office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

Dresden is the third largest office market in east Germany after Berlin and Leipzig. Excess supply in office market As a result of the construction boom triggered by reunification euphoria, significant reduced as a result of economic overcapacity was created in the office market, with vacancy rates reaching a peak of upturn 15 per cent. Because virtually no large office projects have been realised since the new millennium, the supply of space has largely stagnated since then. Speculative office space no longer plays a role in current market activity. Thanks to the sharp rise in the number of office jobs, the vacancy rate has been reduced to 10 per cent, but is still fairly high. However, the low volume of space being completed also means that attractive, contemporary office space has been in increasingly short supply over time. Prime rents have thus increased gradually to around EUR 12 per sqm. However, this is still a good EUR 1 below average for the regional centres reviewed. Office space take-up of 80,000 sqm in 2014 has been at the lower end of the range in the recent past. Since 2009, annual rental volume has ranged from around 80,000 to 90,000 sqm. Prime rents are likely to remain on a moderate uptrend in 2015.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.1 2.1 2.2 2.3 GDP per capita in EUR '000 28.4 28.7 29.1 29.7 GDP per capita in % yoy 0.8 0.8 1.5 1.9 Office workers in % yoy 1.0 1.1 1.1 1.1 Supply Total office space in million sqm 3.8 3.8 3.8 3.8 Total office space in % yoy -0.1 0.0 0.0 0.3 Vacancy rate in % 10.4 10.2 10.0 9.9 Office rents Prime/secondary locations in EUR/sqm 11.5 / 4.6 11.9 / 4.9 12.1 / 4.9 12.3 / 5.0 Prime/secondary locations in % yoy 4.5 / 2.2 3.5 / 6.5 1.7 / 0.0 1.4 / 2.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

28 29 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 275 2,2 250 225 2,0 200 175 1,8 150 1,6 125 100 1,4 75 Dresden Regional-12 Berlin Dresden Regional-12 Berlin 50 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Dresden and Leipzig are the top shopping locations in east Germany after Berlin. Top shopping location with relatively However, at a distance of almost 200 kilometres, the German capital does not pose low prime rents any competition. There is nevertheless a certain amount of competition between the two cities since they are separated by only half this distance. This is one of the reasons for the relatively low prime rent of EUR 110 per sqm - for what is an attractive and economically successful city. Another reason is weak purchasing power in east Germany, although this can be partly offset by the large number of tourists. There is also a large volume of sales space in shopping centres. In the city centre these are the Altmarkt-Galerie with around 200 shops and the Centrum Galerie which has just been updated. Outside the city, the ELBE PARK provides almost 100,000 sqm of shop space. Prager Straße is the "popular" prime location. In contrast, the Neumarkt around the Frauenkirche is developing into a luxury location. This site is likely to be upgraded in 2016 with the planned completion of the VII/2 Quartier. One positive as- pect is that the "Wiener Loch" - the longstanding construction work at the main railway station - is also to be completed by 2016 with the plan to create the "PRAGER After rising last year, prime rents CARREE", consisting of shops and apartments. Following the increase of almost likely to remain stable in 2015 5 per cent in prime rents last year, we expect a stable trend in 2015.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,230 1,245 1,257 1,270 Per capita disp. income % yoy 1.7 1.2 1.0 1.0 Unemployment rate % 9.0 8.9 8.5 8.5 Retail sales % yoy 2.6 2.4 1.6 1.5 Supply Total retail space m sqm 1.0 1.0 1.1 1.1 Total retail space % yoy 2.1 2.1 2.6 1.8 Retail rents Prime/secondary locations EUR/sqm 105 / 9.0 105 / 9.0 110 / 9.0 110 / 9.0 Prime/secondary locations % yoy 0.0 / 0.0 0.0 / 0.0 4.8 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

28 29 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

DUSSELDORF

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT 9 12

6 11 10 3 9 0 8 -3 7 -6 6

-9 5 Dusseldorf Top-7 Regional-12 Dusseldorf Top-7 Regional-12 -12 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

The Dusseldorf office market has shown weakness in the last year. Demand has Dusseldorf office market weak in been generally fairly subdued. Given the absence of large completions in particular, 2014, prime rents fell by two per cent space take-up fell sharply, down by a quarter on 2013, to 260,000 sqm. The expensive properties of the previous year, for example Kö-Bogen, also no longer featured in the rental statistics. Below the line, prime rents fell by 2 per cent to EUR 24.50. Added to this was the relatively large supply in the market, reflected in the high vacancy rate of 11 per cent. In contrast to other top locations, the vacancy rate did not fall either in 2014. The volume of new office space is likely to correspond roughly to the 2014 level this year at around 90,000 sqm. Growth in office space is thus down slightly on the ten-year average. If - as is certainly likely - space take-up benefits again from large completions, last year's weak level could be exceeded. However, Prime rents could offset part of we do not generally expect demand to pick up significantly, and no overtly positive decline this year trend is therefore expected either in prime rents or in the vacancy rate. Prime rents could offset some of the decline.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.4 2.5 2.1 2.0 GDP per capita in EUR '000 67.3 68.4 69.6 70.8 GDP per capita in % yoy 1.7 1.6 1.7 1.8 Office workers in % yoy 1.7 1.3 1.5 1.4 Supply Total office space in million sqm 7.5 7.5 7.6 7.7 Total office space in % yoy 1.4 0.4 1.3 1.2 Vacancy rate in % 11.3 10.8 10.9 11.0 Office rents Prime/secondary locations in EUR/sqm 23.5 / 9.2 25.0 / 9.3 24.5 / 9.3 24.8 / 9.3 Prime/secondary locations in % yoy 6.8 / -1.1 6.4 / 1.1 -2.0 / 0.0 1.2 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

30 31 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 280 260 2,2 240 220 2,0 200 180 1,8 160 140 1,6 120 100 1,4 80 Dusseldorf Top-7 Regional-12 Dusseldorf Top-7 Regional-12 60 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Thanks to high purchasing power and the large population of the Rhine-Ruhr region, Urban development measures, Dusseldorf is a popular retail location. The "Kö" luxury mile is also well-known to revitalisation of centres and new many people outside the region. Sales space in prime sites in Dusseldorf, which build projects enhance the include Schadowstraße and Flingerstraße, have been enhanced with the architec- location's attractions turally successful Kö-Bogen which has just been completed. The city's attractions as a shopping location have also been enhanced by the revitalisation and linking of SEVENS and the Kö Galerie. Progress on the western site of the Königsallee, for example with the rebuilding of the Trinkaus-Passage, is also positive. Other positive moves are urban development measures such as the demolition of the "Tausend- füßler" flyover, the new Autotunnel and the U-Bahn link with Schadowstraße - the Wehrhahn line is set to start operating at the beginning of 2016. Although city centre retail is still being adversely affected by the construction sites, this is already easing. In the light of the positive trend, prime rents increased by EUR 10 to EUR 250 per sqm last year, although they had already risen by EUR 20 in 2013. Given the generally positive retail environment and the sharp rise in rents, we expect only moderate After a sharp rise in rents, only growth in 2015. moderate growth expected in 2015

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,660 1,684 1,708 1,732 Per capita disp. income % yoy 1.7 1.4 1.5 1.4 Unemployment rate % 8.9 8.8 8.8 9.0 Retail sales % yoy 3.1 3.8 3.2 2.2 Supply Total retail space m sqm 1.2 1.2 1.2 1.3 Total retail space % yoy 0.3 2.4 1.2 1.3 Retail rents Prime/secondary locations EUR/sqm 220 / 13.5 240 / 14.0 250 / 0.0 255 / 0.0 Prime/secondary locations % yoy 1.4 / 0.0 9.1 / 3.7 4.2 / 0.0 2.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

30 31 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

ESSEN

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 14 Essen Regional-12 Dusseldorf 6 12

3 10

0 8

-3 6

-6 4 Essen Regional-12 Dusseldorf -9 2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Essen is the fourth largest city in North Rhine-Westphalia. Within 20 years the city's Population decline in Essen seems population has contracted by more than 50,000 to just under 570,000. This steep to have halted decline, which is also evident in many other cities in the Ruhr region, nevertheless seems to have come to a halt in Essen. This trend is also a consequence of the ac- celerated decline in heavy industry since the 1970s, of which industrial monuments such as the "Zollverein" coal mining complex closed in 1986 are reminiscent.

As a result of what was certainly a successful structural shift, the economic focus Radical structural shift from mining has shifted towards services and administration. Today, the former Krupp city is site to services centre home to various headquarters of important companies such as Aldi, E.ON-Ruhrgas, Evonik, HOCHTIEF, ThyssenKrupp and RWE. The Essen trade fair has become an important factor in the city's economic life, although plans to extend the site have recently been narrowly rejected in a referendum. The University of Duisburg-Essen, which is now ten years old, is one of the largest in the country with 41,000 students.

While the number of jobs in the manufacturing sector has more than halved since Despite the economic successes, the beginning of the 1990s, office employment has benefited strongly from the unemployment remains distinctly strengthening of the services sector. The number of office employees has thus risen high by around 11 per cent to almost 100,000 within ten years. However, the shift in the economic structure away from mining to services is still reflected today in the above- average unemployment rate. At more than 12 per cent, Essen shows the highest level among the locations covered in this report. The capital of the Ruhr has not been as successful as other unemployment hotspots such as Bremen, Dresden, Hannover and Leipzig in reducing these levels.

32 33 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM ESSEN: TREND IN OFFICE SPACE AND EMPLOYMENT

44 120 Essen Regional-12 Dusseldorf 42 115 40

110 38

36 105

34 100 32 office space office workers 30 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

Office space of 3 million sqm is relatively low for a city the size of Essen. This is the Essen's office market characterised equivalent of a per capita figure of just over 5 sqm, compared to the average of al- by above-average prime rents most 8 sqm for the regional centres. However, the smaller size of the Essen office market is not reflected in office space take-up which is similar to cities of a similar size. The weaker growth in the office markets has also nevertheless been evident in Essen. Space take-up of 95,000 sqm was more than 10 per cent lower than in the previous year and the ten-year average. This decline was essentially in line with the trend in the regional centres. Without the completion of almost 30,000 sqm for the new headquarters of the Funke media group in the fourth quarter, the result would have been even worse. Prime rents have remained stable under weak market conditions. However, at EUR 14 per sqm, they are comparatively high for a regional centre. Only Hannover and Mannheim show even higher rents. The vacancy rate is low at just over 4 per cent. No available space is coming onto the market at the moment. Office space under construction, for example the new Schenker headquarters at the main railway station, is already let. Prime rents could therefore increase slightly this year.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.4 1.5 1.6 1.5 GDP per capita in EUR '000 36.6 37.1 37.7 38.2 GDP per capita in % yoy 1.5 1.3 1.6 1.5 Office workers in % yoy 0.8 0.9 1.0 0.9 Supply Total office space in million sqm 3.0 3.0 3.0 3.1 Total office space in % yoy 0.3 0.8 0.9 0.8 Vacancy rate in % 4.7 4.6 4.4 4.3 Office rents Prime/secondary locations in EUR/sqm 13.2 / 6.0 14.0 / 6.0 14.0 / 6.0 14.2 / 6.0 Prime/secondary locations in % yoy 2.3 / 0.0 6.1 / 0.0 0.0 / 0.0 1.4 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

32 33 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

275 2,4 Essen Essen Regional-12 Dusseldorf 250 Regional-12 2,2 Dusseldorf 225 2,0 200 1,8 175 1,6 150 1,4 125

100 1,2

75 1,0 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

The retail sector in Essen is being negatively affected by the city's weak economic Essen recovering gradually as a position, but also by huge competition from surrounding cities and shopping centres retail destination - thanks to the such as CentrO. Essen has long since lost its role as the leading shopping destina- opening of Limbecker Platz tion in the Ruhr area. However, in recent years the city has gained ground again. The large-scale Limbecker Platz shopping centre, which opened in the city centre in 2009, has been a major contributory factor here. The growth of 70,000 sqm in sales space in the city did initially have a detrimental effect on prime rents. However, increasing numbers of shoppers are being attracted into the city centre of Essen. Other factors have been the upgrading of the RATHAUS GALERIE in 2010 and the reconstruction of the Haus am Kettwiger Tor in 2013. In addition to the two shopping streets Limbecker Straße and Kettwiger Straße, the city therefore has three other modern shopping centres. The correspondingly heightened interest from customers has also made the location more attractive for retailers again. Prime rents thus increased to above the levels seen before the opening of Limbecker Platz again in 2013. After prime rents remained unchanged in 2014, they could increase again slightly this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,406 1,415 1,428 1,449 Per capita disp. income % yoy 1.1 0.6 0.9 1.5 Unemployment rate % 12.5 12.4 12.3 12.4 Retail sales % yoy 0.2 0.8 0.9 1.5 Supply Total retail space m sqm 0.8 0.8 0.9 0.9 Total retail space % yoy 1.9 3.5 1.3 1.3 Retail rents Prime/secondary locations EUR/sqm 105 / 12.0 110 / 12.0 110 / 12.0 112 / 12.0 Prime/secondary locations % yoy 5.0 / 0.0 4.8 / 0.0 0.0 / 0.0 1.8 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

34 35 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

FRANKFURT

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

12 16

9 14 6 12 3

0 10

-3 8 -6 6 -9 Frankfurt Top-7 Regional-12 Frankfurt Top-7 Regional-12 -12 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

The Frankfurt office market did not match the positive levels of previous years in 2014 was a weak year for the 2014. At 360,000 sqm, take-up was down by 15 per cent on the previous year and Frankfurt office market below the ten-year average. Prime rents stagnated at their high level of EUR 35 per sqm, while the top locations showed average growth of more than 2 per cent. There are various reasons for the weak results over the year. These include the lack of attractive office space, causing expiring rental agreements to be extended more fre- quently. Existing space is also increasingly being used more efficiently as an alterna- tive to renting new premises. Given the high rent levels, this is a more attractive option in Frankfurt than in other locations. There have also been virtually no major completions; only the Bundesbank, Deutsche Post and Union Investment have signed contracts for more than 10,000 sqm. The vacancy rate has fallen slightly as a result of the conversion of offices into housing. However, it remains very high at Prime rents could increase again 12 per cent. After no increase in 2014, prime rents could pick up again this year. in 2015

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.6 2.4 2.1 2.1 GDP per capita in EUR '000 73.0 73.6 74.6 75.9 GDP per capita in % yoy 0.6 0.8 1.4 1.7 Office workers in % yoy 1.2 1.1 1.3 1.3 Supply Total office space in million sqm 12.0 12.1 12.4 12.5 Total office space in % yoy 0.3 1.0 2.0 0.6 Vacancy rate in % 13.7 12.5 12.2 12.2 Office rents Prime/secondary locations in EUR/sqm 33.0 / 9.5 35.0 / 9.4 35.0 / 9.4 35.7 / 9.4 Prime/secondary locations in % yoy 0.0 / 0.0 6.1 / -1.1 0.0 / 0.0 2.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

34 35 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail PER CAPITA RETAIL SPACE IN SQM PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,6 280 2,4 260 240 2,2 220 2,0 200 180 1,8 160 1,6 140 120 1,4 100 1,2 80 Frankfurt Top-7 Regional-12 Frankfurt Top-7 Regional-12 60 1,0 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

The continuing growth in prime rents reflects Frankfurt's strengths as a shopping Frankfurt growing and attracting destination. There are many reasons for this: for some years, there has been growth retailers and investors in the population, the number of people in work and visitors from within Germany and abroad. The city is attractive to retailers and investors alike. Buoyant demand has enabled the expansion of sales space to be easily absorbed. In 2013, the Sky- line Plaza opened - a large, inner city shopping centre with 170 shops. In 2014, One GoethePlaza was added, thus increasing the volume of sales space in the luxury location of Goethestraße. This shortage of prime space is also now benefiting secondary locations such as Alte Rothofstraße, which branches off Goethestraße. The range of goods on offer is also becoming more diverse, for example with the smaller MA*, whose trendy shops enhance the city where chain stores have a strong presence. Things are also changing on the Zeil shopping street. A new building has replaced the former "Hako-Haus" near the Hauptwache. However, despite refurbishment, the Zeilgalerie opposite is not achieving success. The new owner RFR is working on a new design concept. MyZeil, which has just been sold, is also likely to Growth in space and high rents be refurbished by the new operator and co-owner ECE. Following the expansion of likely to dampen growth in prime sales space and given the high rent level, prime rents are likely to increase slightly rents more slowly this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,443 1,465 1,492 1,518 Per capita disp. income % yoy 1.4 1.5 1.8 1.7 Unemployment rate % 7.4 7.5 7.4 7.4 Retail sales % yoy 2.9 2.2 1.9 2.2 Supply Total retail space m sqm 1.4 1.5 1.5 1.5 Total retail space % yoy 0.7 4.1 2.3 1.1 Retail rents Prime/secondary locations EUR/sqm 265 / 18.0 280 / 18.0 290 / 0.2 295 / 0.2 Prime/secondary locations % yoy 3.9 / 0.0 5.7 / 0.0 3.6 / 0.0 1.7 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

36 37 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

HAMBURG

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 12

11 6 10 3 9

0 8

7 -3 6 -6 5 Hamburg Top-7 Regional-12 Hamburg Top-7 Regional-12 -9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Hamburg was relatively unaffected by the weaker growth in the German office mar- 2014 was a successful year for the ket in 2014. Together with Berlin, it was the only top location to show strong growth Hamburg office market in rentals. Space take-up increased by 15 per cent to just over 500,000 sqm compared to 2013, slightly exceeding the average of the last ten years. The positive result was main attributable to several major completions, a factor which was often missing in other locations. The seven completions of more than 10,000 sqm jointly contributed a quarter of rental income. Prime rents grew by 4 per cent to EUR 25 per sqm. The vacancy rate fell slightly. Because there was insufficient office space in the city to meet demand, some tenants moved to non-central locations. Supply is likely to remain strained this year, because, as in 2014, the volume of completions will be below-average at 130,000 sqm. If the lively demand continues, prime rents could in- Prime rents still have upward crease again slightly. There is a prospect of more space coming onto the market potential again in future years. The crisis-related standstill in the Übersee quarter in the HafenCity seems to be over.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.5 2.3 2.4 2.2 GDP per capita in EUR '000 47.3 47.8 48.6 49.5 GDP per capita in % yoy 0.6 1.2 1.7 1.7 Office workers in % yoy 1.8 2.0 1.7 1.5 Supply Total office space in million sqm 13.6 13.7 13.8 14.0 Total office space in % yoy 1.2 0.8 0.7 1.5 Vacancy rate in % 7.8 7.6 7.5 7.5 Office rents Prime/secondary locations in EUR/sqm 24.0 / 9.0 24.0 / 9.5 25.0 / 9.5 25.5 / 9.5 Prime/secondary locations in % yoy 2.1 / 9.8 0.0 / 5.6 4.2 / 0.0 2.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

36 37 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 Hamburg 280 Top-7 260 2,2 Regional-12 240 2,0 220 200 1,8 180 160 1,6 140

120 1,4 100 Hamburg Top-7 Regional-12 80 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

The customer potential for retail in Germany's second largest city of almost 1.8 mil- Excellent shopping destination with lion people is almost doubled by its large catchment area. As a top tourism location, more than 3m potential customers Hamburg also attracts a large number of visitors, and thanks to its cruise terminals, these include many wealthy foreigners. Its high customer potential makes Hamburg a sought-after location. Its broad supply structure ranging from classic shopping destinations such as Spitalerstraße to distinct luxury locations such as Neuer Wall is favourable. The city on the Elbe is thus of interest in terms of the expansion strategies of national and international chains. Prime rents are increasing from year to Very interesting for national and year. Due to the comparatively small proportion of city centre sales space, the vol- international chains ume of prime retail space is nowhere near sufficient to meet demand. The necessary expansion of sales space, including the city centre concept which has only just been agreed, will however be achieved in the near future, not via individual large projects, but via various smaller developments. These jointly encompass some 50,000 sqm and thus extend the prime areas to include secondary locations. Given that prime Prime rents likely to rise more rents have already risen sharply, we do not expect any major surge in 2015. slowly in 2015

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. Income EUR/month 1,541 1,565 1,593 1,618 Per capita disp. Income % yoy 1.4 1.6 1.8 1.6 Unemployment rate % 7.5 7.3 7.6 7.7 Retail sales % yoy 2.1 2.9 2.9 2.6 Supply Total retail space m sqm 2.9 2.9 3.0 3.0 Total retail space % yoy 0.7 0.4 1.1 1.2 Retail rents Prime/secondary locations EUR/sqm 245 / 40.0 260 / 40.0 275 / 40.0 280 / 40.0 Prime/secondary locations % yoy 4.3 / 0.0 6.1 / 0.0 5.8 / 0.0 1.8 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

38 39 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

HANNOVER

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

8 11 Hannover Regional-12 Hamburg 6 10

9 4 8 2 7 0 6 -2 5

-4 4 Hannover Regional-12 Hamburg -6 3 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

With a population of almost 520,000, Hannover is the largest city in Lower Saxony. It Economic and administrative is also the regional capital, administrative centre and the most important economic centre in Lower Saxony centre in the state. Hannover also enjoys the image of one of the most important German trade fair cities with one of the largest exhibition grounds in the world. Its good reputation is mainly based on the CeBIT computer trade fair, the technology industry Hannover Messe and the EXPO world fair in 2000. In economic terms, the vehicle construction and supply industries, and the mechanical engineering, insurance and logistics sectors are very important. Important companies are Continental, TUI and Volkswagen Nutzfahrzeuge. Hannover is also an important scientific location with the Leibniz University and the Hannover Medical School. As in other attractive major cities, the population is growing, however not quite as strongly as the average rate in the regional centres. While the population has grown by an average of almost 6 per cent here within ten years, the population of Hannover has increased at a slightly more sedate pace of just over 3 per cent.

Hannover benefits as an economic centre from its excellent transport links. The city Economic centre with excellent is the central transport hub in Lower Saxony and the A2 and A7 motorways as well transport links as various ICE rail routes provide excellent connections with Hamburg and Berlin as well as the major economic centres of Rhine-Main and Rhine-Ruhr. Hannover also has an international airport. With its four inland ports, it also has very good links via waterways, particularly to the large sea ports of the North Sea. The strength of its economy is evident from the fact that almost 110,000 people commute there daily. However, despite the generally positive economic conditions, unemployment in this major city in Lower Saxony is relatively high. The current rate is around 10 per cent.

38 39 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM HANNOVER: TREND IN OFFICE SPACE AND EMPLOYMENT

39 120

38 115 37

110 36

35 105

34 100 33 Hannover Regional-12 Hamburg office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

With 4 million sqm of office space, Hannover is one of the largest office locations Regional centre with large office among the regional centres. Prime rents of just over EUR 14 per sqm are only ex- market and high prime rents ceeded slightly in Mannheim. However, the pace of growth in rents is slightly below average, although this can be explained by the already relatively high level of rents. The vacancy rate is low at 5 per cent. Space take-up of 100,000 sqm in 2014 was similar to the previous year, and no decline was evident, as was the case in many other office locations. However, rental income was well below the ten-year average of around 115,000 sqm in both years. Prime rents nevertheless increased slightly. One reason for the slightly lower space turnover is the lack of attractive large office space in central locations, and demand could not therefore be fully met here. The public sector played a major role in completions last year, accounting for five of the top ten rental agreements by size. The supply of attractive space is likely to remain tight this year, since the volume of space to be completed will not be overly high at around 20,000 sqm. The slight upward trend in prime rents could thus continue in 2015.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.1 2.1 2.1 2.1 GDP per capita in EUR '000 50.6 51.3 52.2 53.1 GDP per capita in % yoy 1.2 1.3 1.7 1.8 Office workers in % yoy 0.8 0.9 1.4 1.0 Supply Total office space in million sqm 4.1 4.2 4.2 4.3 Total office space in % yoy 1.7 0.6 1.6 0.9 Vacancy rate in % 4.4 5.1 5.0 5.0 Office rents Prime/secondary locations in EUR/sqm 14.0 / 7.2 14.0 / 7.2 14.2 / 7.2 14.4 / 7.2 Prime/secondary locations in % yoy 3.7 / 1.4 0.0 / 0.0 1.4 / 0.0 1.4 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

40 41 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,6 Hannover 275 Hannover Regional-12 Hamburg Regional-12 2,4 250 Hamburg 2,2 225

200 2,0

175 1,8 150 1,6 125 1,4 100

75 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Hannover is one of the top German shopping destinations. With above-average cen- Hannover one of the top German trality and purchasing power and a relatively large number of visitors, the city is of retail destinations major interest to the retail sector. The catchment area is very large with 1.8 million people. There is no competition from neighbouring major cities. However, various centres are under development in the surrounding area, although these are unlikely to have a sustained negative impact on this strong location. The city has four easily accessible prime locations - Bahnhofstraße with Niki-de-Saint-Phalle-Promenade, Georgstraße, Große Packhofstraße and Karmarschstraße. Its attractive retail offering is further enhanced by the Ernst-August-Galerie which opened in 2008. The very attractive location ensures high demand for sales space from retailers and a decidedly high level of prime rents for a regional centre. After an increase to EUR 195 per sqm last year, levels are almost 50 per cent higher than average for a regional centre. The city centre was recently upgraded with the completed refurbishment of the formerly fairly unattractive centre on Kröpcke - the main square in the heart of Han- nover. It remains to be seen whether the location will be strong enough to raise Will EUR 200 be reached this year? prime rents to EUR 200 this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. Income EUR/month 1,407 1,413 1,428 1,450 Per capita disp. Income % yoy 1.8 0.4 1.1 1.5 Unemployment rate % 10.3 10.1 10.2 10.3 Retail sales % yoy 2.0 1.0 1.3 1.9 Supply Total retail space m sqm 0.9 0.9 1.0 1.0 Total retail space % yoy 2.0 1.1 4.2 0.7 Retail rents Prime/secondary locations EUR/sqm 185 / 13.0 185 / 13.5 195 / 13.5 195 / 13.5 Prime/secondary locations % yoy 0.0 / 1.6 0.0 / 3.8 5.4 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

40 41 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

KARLSRUHE

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 9 Karlsruhe Regional-12 Suttgart 8 6 7 3 6

0 5

4 -3 3 -6 2 Karlsruhe Regional-12 Suttgart -9 1 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Like Mannheim, the population of Karlsruhe is close to 300,000. However, the popu- Rapidly growing science and ser- lation of Karlsruhe - as a centre for administration, science and services - is growing vices centre more rapidly than that of the more industrially-oriented Mannheim. Karlsruhe is therefore likely to maintain its second position among the largest cities in Baden- Württemberg. Some important institutions are also based in the city on the Upper Rhine, for example the Federal Constitutional Court, the regional government administration and the Federal and State Government Employees Retirement Fund. Karlsruhe is also host to many research facilities and nine higher education colleges with 40,000 students. The most prominent institution is the worldwide renowned Karlsruhe Institute of Technology (KIT), which was formed in 2009 from the Karlsruhe Research Centre and the university. Employment levels in Karlsruhe are slightly above average. A special feature of the urban development of the former royal residence city is the planned layout of the baroque city with its streets arranged in a fan shape and the castle in the centre. Transport links are good, with the A5, A6 and A65 motorways and an ICE rail route.

Karlsruhe's attractions as a research and university location in particular are ensur- Vacancy rate of only 2 per cent ing above-average population growth. As these facilities expand, the number of office jobs is also increasing and has grown by 16 per cent in the last ten years. How- ever, office space has increased by only 7 per cent in the same period. The vacancy rate of around 2 per cent is the lowest level in absolute terms of all the cities reviewed. Most project development is for owner-occupier utilisation. Essentially, demand for office space comes from the public sector, which could also explain the slightly below-average prime rents despite the supply shortage. In recent years demand has however shifted considerably towards research and services companies.

42 43 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM KARLSRUHE: TREND IN OFFICE SPACE AND EMPLOYMENT

44 120 Karlsruhe Regional-12 Suttgart 42 115

40 110 38 105 36

100 34

office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

The Karlsruhe office market consists of 2.7 million sqm. Based on the size of its Prime rents increased in 2014 population, this is relatively high. Of the regional centres covered in this report, only despite relatively low space take-up Darmstadt has more per capita office space of 9 sqm. The above-average demand for space is attributable to Karlsruhe's focus on administration and research. Office space take-up is 37,000 sqm on a ten-year average. On this basis, the combined figure of 45,000 sqm in the last two years is fairly weak. However, unlike other locations, the decline is not due to a lack of large completions. The below-average take- up is in fact connected with a lack of supply of suitable space. This is evidenced by the fact that prime rents rose to EUR 12.70 per sqm last year. We regard another slight increase to almost EUR 13 per sqm as realistic given the continuing shortage of available space.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.1 2.0 1.9 1.9 GDP per capita in EUR '000 45.3 45.6 46.0 46.5 GDP per capita in % yoy 0.8 0.6 0.9 1.1 Office workers in % yoy 1.3 1.0 1.1 1.2 Supply Total office space in million sqm 2.7 2.7 2.7 2.7 Total office space in % yoy 0.4 0.8 0.9 0.8 Vacancy rate in % 2.1 2.1 2.1 2.1 Office rents Prime/secondary locations in EUR/sqm 12.5 / 6.2 12.5 / 6.2 12.7 / 6.2 12.9 / 6.2 Prime/secondary locations in % yoy 4.2 / 0.0 0.0 / 0.0 1.6 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

42 43 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM 275 2,4 Karlsruhe Karlsruhe Regional-12 Suttgart 250 Regional-12 2,2 Suttgart 225 2,0 200

175 1,8

150 1,6 125 1,4 100

75 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Karlsruhe is attractive for the retail sector. The population is growing, employment is Strong retail location increasing and unemployment is low. The spillover effect of the shopping destination also extends well into the surrounding area, and purchasing power is higher than average. Demand for sales space is correspondingly good. However, prime rents have shown only below-average growth. The opening in 2005 of the Ettlinger Tor shopping centre revived the retail sector, but also had a negative impact on the trend in rents. Prime rents declined by more than 10 per cent to EUR 105 per sqm up to Building works in the city dent 2010. The fact that prime rents have not recovered more strongly to date is not due prime rents to problems connected with the location, but to the extensive construction work under way in the city. The main building project is the relocation underground of the tram line at the prime Kaiserstraße location. This will make the extended shopping street up to Ettlinger Tor more attractive. However, the building work will not be completed until 2019 and the negative effects will therefore persist. The fact that prime rents nevertheless increased in 2013 and 2014 is also likely to be connected with the completion of rebuilding work in the stylish POSTGALERIE in 2012. With good long-term prospects, the medium-term potential for rent rises in Karlsruhe is limited.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,478 1,484 1,493 1,504 Per capita disp. income % yoy 0.3 0.4 0.5 0.8 Unemployment rate % 5.6 5.6 5.6 5.8 Retail sales % yoy 1.3 2.0 1.6 1.5 Supply Total retail space m sqm 0.5 0.5 0.5 0.5 Total retail space % yoy 1.8 2.0 1.0 0.8 Retail rents Prime/secondary locations EUR/sqm 105 / 8.5 110 / 8.5 113 / 8.5 115 / 8.5 Prime/secondary locations % yoy 0.0 / 0.0 4.8 / 0.0 2.7 / 0.0 1.8 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

44 45 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

LEIPZIG

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT 9 22 Leipzig Regional-12 Berlin Leipzig 20 6 Regional-12 18 Berlin 3 16

14 0 12

-3 10

8 -6 6

-9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

In addition to Dresden, Leipzig is the second major "climber" in east Germany. The Leipzig has developed into a city is also well placed compared to Germany as a whole. Unlike Dresden, Leipzig dynamic "climber" does not have the added advantage of being a regional capital. However, its economy is showing major successes. The unemployment rate has halved from more than 20 per cent to currently 10 per cent. The number of people in work has increased by 15 per cent within ten years, almost twice the average rate for the regional centres we have reviewed. The same applies to the population, which has grown by almost 11 per cent within a decade; the average figure for the regional centres is just under 6 per cent, and almost 8 per cent in the top locations. Like Dresden, which is growing slightly more rapidly, Leipzig currently has a population of just under 530,000. The two large cities in Saxony thus lag slightly behind the top 10 major cities in Germany.

Leipzig has always been an important trade fair, retail and industrial location and Auto industry, energy and logistics maintained this role after reunification. Major successes were achieved in particular with the establishment of production sites for companies from the "Champions League" of the German economy such as BMW, Porsche and Siemens. The "Euro- pean city of energy" has good future prospects in the areas of energy and environ- mental technology. However, the city's economic development is also benefiting from the Leipzig/Halle international airport, around which an important logistics location has developed. For example, DHL uses the airport as a European hub for cargo handling. Another example is the mail order company Amazon, which operates a large logistics centre in Leipzig. The expansion of transport infrastructure is, accordingly, a high priority. The city's seven higher education institutions have also contributed to the economic success story and steady demographic growth.

Of course, Leipzig as an office location is also benefiting from the positive trend. Post-reunification construction However, the excessive expansion of office space in the post-reunification euphoria boom led to massive volume of has been a very negative factor. The vacancy rate increased to more than 25 per empty offices

44 45 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM LEIPZIG: TREND IN OFFICE SPACE AND EMPLOYMENT 54 120 52

50 115 48 46 110 44 42 105 40 38 36 100

34 Leipzig Regional-12 Berlin office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

cent by the end of the 1990s, partly because employment was still falling during this Office market has recovered thanks period. However, conditions stabilised as new construction slackened and the upturn to economic upturn, but vacancy started, and vacancy rates have fallen sharply. The level of 12 per cent nevertheless rate remains very high remains well above average for a regional centre based on the large stock of office space. In addition to Leipzig, only Hannover still has office space in excess of 4 million sqm.

Leipzig defied the general slowing of the trend in office space rentals in 2014, Office market positive in defiance of achieving year-on-year growth of 25 per cent. Space take-up of 95,000 sqm was trend in 2014 also some 8 per cent above the long-term average. The high volume was not based on large completions, but on lively market activity for smaller transactions. Prime rents increased by 2 per cent to EUR 12.50 per sqm. The prospects for this year are certainly good, although it is unlikely to be easy to top last year's positive result. Be- cause virtually no newly built office space is coming onto the market, almost all demand will have to be met from the existing property stock. Although this is likely to reduce the vacancy rate further, prime rents will at most increase only slightly.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 2.4 2.4 2.4 2.4 GDP per capita in EUR '000 25.8 25.9 26.4 26.9 GDP per capita in % yoy 0.5 0.4 1.8 1.9 Office workers in % yoy 0.9 0.7 0.7 1.0 Supply Total office space in million sqm 4.1 4.1 4.1 4.2 Total office space in % yoy 0.3 0.7 0.1 0.4 Vacancy rate in % 13.9 12.6 12.0 11.9 Office rents Prime/secondary locations in EUR/sqm 12.0 / 5.3 12.3 / 5.5 12.5 / 5.5 12.6 / 5.5 Prime/secondary locations in % yoy 4.3 / 1.9 2.1 / 3.8 2.0 / 0.0 1.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

46 47 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4

275 2,2

250 2,0

225 1,8

200 1,6

175 1,4

150 1,2

125 1,0

100 0,8 Leipzig Regional-12 Berlin Leipzig Regional-12 Berlin 75 0,6 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Together with Dresden, Leipzig is one of the top shopping locations in east Ger- Leipzig city centre now much more many. Contributory factors here are the upturn experienced by the city, its large attractive as a shopping location catchment area of 1.2 million people, and a high volume of visitors. Nevertheless, as in many east German cities, city centre retail has suffered as a result of shopping centres on the periphery which were built at the beginning of the 1990s. However, the city of Leipzig has risen to the challenge. Today the peripheral locations are tending to suffer due to the pulling power of the attractive city centre with its wide range of shopping opportunities in all price range. The growth of recent years has been supported by the opening of Höfe am Brühl in 2012 with 44,000 sqm of sales space and the Citytunnel which was completed at the end of 2013, which has considerably improved rail links with the surrounding area. The shopping district of Pe- terstraße can now be reached directly via suburban trains. The Hainspitze development, which is due for completion in 2016, should also enhance the potential of the shopping location. The fact that prime rents did not increase in 2014, despite interest Prime rents could increase again from retailers, is likely to be mainly attributable to the expansion of space as a result this year after stagnating for three of Höfe am Brühl. However, peak rates, which have been stagnating at EUR 125 per years sqm for three years, could increase again this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,147 1,159 1,174 1,190 Per capita disp. income % yoy 1.0 1.0 1.3 1.4 Unemployment rate % 11.6 10.8 10.3 10.5 Retail sales % yoy 3.4 4.7 3.8 2.2 Supply Total retail space m sqm 0.7 0.7 0.7 0.7 Total retail space % yoy 4.2 6.6 2.8 3.2 Retail rents Prime/secondary locations EUR/sqm 125 / 9.0 125 / 9.0 125 / 9.0 130 / 9.0 Prime/secondary locations % yoy 4.2 / 5.9 0.0 / 0.0 0.0 / 0.0 4.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

46 47 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

MAINZ

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

12 16 Mainz Regional-12 Frankfurt 9 14

12 6 10 3 8 0 6

-3 4 Mainz Regional-12 Frankfurt -6 2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Mainz, the capital of the Land of Rhineland-Palatinate, dates back to the Roman era. Linked to the economically strong Its location at the confluence of the rivers Rhine and Main was as attractive then as Rhine-Main area it is now. It also benefits from its links with the economically strong Rhine-Main region. There are good transport connections with Frankfurt and its airport. The twin city of Wiesbaden is situated on the opposite side of the Rhine, and Rüsselsheim, where Opel is based, is also nearby. As the capital of Rhineland-Palatinate, Mainz is also an important centre of administration and a university location. The population has grown by a substantial 25,000 since 1990 is now close to 205,000. The unemployment rate is relatively low at just over 6 per cent.

In addition to administration and academic institutions, other important elements of Important public broadcasting the economy are the large media organisations ZDF and SWR, and the 3sat broad- centre casting centre. Health and social welfare services also play a major role. Almost 70 per cent of all local jobs are in this sector. At just under 50 per cent, the proportion of office jobs is therefore comparatively high. Conversely, the proportion of manufacturing jobs is decidedly low at less than 9 per cent.

Compared to the other regional centres - most of which also have much larger popu- Relatively small, mainly local lations - Mainz is a fairly small office location with 1.7 million sqm of office space. office market Demand is mainly local, and the surrounding cities have little impact. The public sector is an important element of demand. The dominance of public institutions financed by taxes has advantages and disadvantages. Demand which is largely independent of economic trends is a positive factor. However, the growth prospects are limited, and the public sector is therefore likely to become less important for the office market. This view is supported by the scarcity of public funding and the intensified savings measures being implemented by public broadcasting institutions.

48 49 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM MAINZ: TREND IN OFFICE SPACE AND EMPLOYMENT

46 120

44 115 42

110 40

38 105

36 100 34 Mainz Regional-12 Frankfurt office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

Speculative project development plays virtually no role. The volume of office space Will the Zollhafen project provide has generally increased much more slowly in recent years than the number of office impetus for the Mainz office market? jobs. Since the middle of the last decade the vacancy rate has thus fallen from 6.5 per cent to currently just over 5 per cent. Prime rents have shown slightly more volatile upward movement of, on average, 2 per cent per year since that time. At the moment a figure of EUR 12.60 per sqm is being achieved. The major Zollhafen project will create a new quarter close to the city centre on the Rhine in the years ahead, with space for 2,500 people and 4,000 jobs. However, it will take another 10 to 15 years for the project to be completed. The favourable local conditions could make it easier for companies to become established there. If successful, this should also lead to a welcome revival in the office market. Space take-up has fallen in recent years. In 2014, only two thirds of the ten-year average was achieved, with 20,000 sqm. However, this is probably also attributable to the low volume of new space coming onto the market. A larger new construction project is going ahead this year - the new headquarters of "Deutsche Anlagen-Leasing" which is combining staff from Mainz and Wiesbaden in Mainz-Hechtsheim. Prime rents will increase only slightly - if at all.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.7 1.7 1.7 1.7 GDP per capita in EUR '000 37.9 38.2 38.7 39.1 GDP per capita in % yoy 0.9 1.0 1.1 1.2 Office workers in % yoy 1.4 1.1 1.2 1.3 Supply Total office space in million sqm 1.7 1.7 1.7 1.8 Total office space in % yoy 0.1 0.7 1.3 0.7 Vacancy rate in % 5.3 5.3 5.2 5.2 Office rents Prime/secondary locations in EUR/sqm 12.5 / 7.3 12.5 / 7.5 12.6 / 7.5 12.7 / 7.5 Prime/secondary locations in % yoy 2.5 / 0.0 0.0 / 2.7 0.8 / 0.0 1.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

48 49 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,8 275 2,6 250 225 2,4 200 2,2 175 2,0 150

125 1,8 100 1,6 75 Mainz Regional-12 Frankfurt Mainz Regional-12 Frankfurt 50 1,4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Mainz is an attractive shopping destination with a large catchment area. It faces Attractive location suffers from tough competition from Wiesbaden on the opposite side of the river Rhine. The tough competition from Wiesbaden situation intensified further after the opening of the two shopping centres "Lilien- Carré" and "LuisenForum" in 2007 and 2008. Prime rents only increased to EUR 114 per sqm last year, having previously languished at around EUR 110 since 2008. Conversely, sales space in Mainz city centre has undergone virtually no expansion. The increase in total retail space in 2012 is in fact attributable to the opening of a furniture store by Möbel Martin. Strong footfall in the prime central locations of Am Brand, Schusterstraße and Stadthausstraße is particularly attractive to retailers. However, Mainz does not yet have an attractive shopping centre which draws customers in. This is set to change in future years; however, the ECE project on the When will Mainz get a shopping Karstadt site in Ludwigstraße, which has long been a source of controversy in centre? ECE centre still raises Mainz, is not yet "home and dry". This is mainly because ECE does not yet own all questions of the land it needs. It is also unclear whether Karstadt will become a tenant of the new centre or will give up its Mainz site. Irrespective of the outcome, we certainly see potential for further modest growth in prime rents after a long period of stagnation.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,435 1,439 1,445 1,455 Per capita disp. income % yoy 0.1 0.3 0.5 0.7 Unemployment rate % 5.9 6.2 6.4 6.5 Retail sales % yoy 2.6 2.7 2.4 2.6 Supply Total retail space m sqm 0.5 0.5 0.5 0.5 Total retail space % yoy 9.9 1.5 1.2 1.4 Retail rents Prime/secondary locations EUR/sqm 110 / 10.0 110 / 10.0 114 / 10.0 116 / 10.0 Prime/secondary locations % yoy 0.0 / 0.0 0.0 / 0.0 3.6 / 0.0 1.8 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

50 51 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

MANNHEIM

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 9 Mannheim Regional-12 Suttgart 6 8

3 7

0 6

-3 5

-6 4 Mannheim Regional-12 Suttgart -9 3 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Mannheim, with its image of an industrial city laid out in quadrants, tends to be Important economic and scientific slightly underestimated. With a population of 300,000, the centre of the metropolitan location with excellent transport region of Rhine-Neckar ranks joint second with Karlsruhe among the cities of Baden- links Württemberg. The former residence of the Prince-electors is today an important economic and scientific centre. The university enjoys an excellent reputation for business studies. There are also a number of colleges of higher education. As a location for companies, Mannheim benefits from the favourable transport links provided by its position on the rivers Rhine and Neckar. The A5 and A6 motorways facilitate connections to Frankfurt, Stuttgart and Paris. There is also a link to the ICE express rail network, an important inland port and the second largest German mar- shalling yard.

Since the 1970s the economy has undergone a successful shift towards services. Successful structural change with However, the manufacturing sector - particularly the chemical and metal processing two areas of activity: manufacturing industries - still plays an important role. The birthplace of the automobile remains an and services important production site for Daimler today. Overall, the proportion of jobs in the manufacturing sector is higher, at a quarter, than in any of the other regional centres reviewed; the average figure is 15 per cent. However, Mannheim has also developed into an important location for the insurance and financial industries, and the high tech sector. Based on its excellent access to good freight routes, logistics is also a growing sector of Mannheim's economy. The unemployment rate has more than halved within ten years from almost 13 per cent to 6 per cent, which is low for a major city.

Another important factor which may provide further impetus for the city's develop- Redevelopment of military sites ment, is the likely completion of the withdrawal of American troops in 2015, leaving provides opportunities behind large sites ripe for redevelopment. In the long term, some of these areas will be converted into parkland for the Bundesgartenschau (Federal horticulture show) in 2023. This will make the city more attractive, but the freed-up space will also provide scope for the future development of housing and commercial sites.

50 51 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM MANNHEIM: TREND IN OFFICE SPACE AND EMPLOYMENT

44 120 Mannheim Regional-12 Suttgart 42 115

40 110 38 105 36

100 34 office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

Office space of 2.3 million sqm has been expanded slowly recently, while the num- Mannheim office market: Highest ber of office jobs has increased strongly. Consequently, the vacancy rate has fallen prime rents among regional centres to below 5 per cent and prime rents have risen to more than EUR 14 per sqm. reviewed Mannheim is thus slightly ahead of Hannover as the most expensive office market among the regional centres we have reviewed. The positive trend has also been evident in recent years from the visible increase in office space take-up. In 2013, a record level of 81,000 sqm was reached. A weaker result was expected in 2014 since this figure included 23,000 sqm for the new Südzucker headquarters. Given the general lack of large-scale transactions, take-up fell sharply to 25,000 sqm - less than half of the ten-year average. However, the decline did not have any negative impact on prime rents, which in fact rose slightly. Insufficient supply is thus likely to have played a part here, too. This year, supply is expected to remain strained, with no new space likely to be completed. We regard the potential for rent increases as largely exhausted at the current level. However, there is certainly scope for new office projects, for example by converting former industrial wastelands such as the Glückstein-Quartier or redeveloping former military facilities.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP in % yoy 1.6 1.6 1.6 1.6 GDP per capita in EUR '000 48.6 48.9 49.3 49.9 GDP per capita in % yoy 0.8 0.7 0.9 1.1 Office workers in % yoy 0.8 0.7 0.9 1.1 Supply Total office space in million sqm 2.2 2.3 2.3 2.3 Total office space in % yoy 0.6 0.9 1.3 0.7 Vacancy rate in % 4.6 4.6 4.6 4.5 Office rents Prime/secondary locations in EUR/sqm 14.1 / 7.4 14.2 / 7.4 14.3 / 7.4 14.3 / 7.4 Prime/secondary locations in % yoy 0.7 / 1.4 0.7 / 0.0 0.7 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

52 53 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

275 3,0 Mannheim Mannheim Regional-12 Suttgart 250 Regional-12 2,8 Suttgart 2,6 225 2,4 200 2,2 175 2,0 150 1,8 125 1,6

100 1,4

75 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri

Mannheim is the outstanding shopping destination in the Rhine-Neckar region. This Outstanding shopping destination in is reflected in a high centrality rating of 140 and a high prime rent of EUR 145 per the Rhine-Neckar region sqm relative to the regional centres in general. Apart from Stuttgart, in Baden- Württemberg prime rents are higher only in Freiburg. The Rhein-Galerie which opened on the other side of the Rhine in 2010 has not had any significantly negative impact. Prime rents have increased further. With a large number of projects in the city around the Planken shopping district, Mannheim's attractions as a retail location are likely to increase further, after the completion in recent years of attractive space as a result of redevelopment. Other retail space is currently under construction or is at the planning stage. The large Q6/Q7 project will probably be completed in 2016, creating 27,000 sqm of sales space. After some delays, Planken itself is also likely to be revamped from 2017, with funding of EUR 20 million. However, the various building sites in the city centre are likely to dampen the upward potential for rents this year, causing prime rents to remain stable.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,311 1,309 1,316 1,326 Per capita disp. income % yoy -0.5 -0.2 0.5 0.8 Unemployment rate % 6.1 6.0 6.0 5.9 Retail sales % yoy 1.1 1.1 1.2 1.8 Supply Total retail space m sqm 0.8 0.8 0.8 0.8 Total retail space % yoy -0.1 -0.2 1.2 1.4 Retail rents Prime/secondary locations EUR/sqm 135 / 12.0 140 / 12.0 145 / 12.0 145 / 12.0 Prime/secondary locations % yoy 3.8 / 0.0 3.7 / 0.0 3.6 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecast

52 53 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

MUNICH

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 11

6 10

3 9

0 8

-3 7

-6 6

-9 5 Munich Top-7 Regional-12 Munich Top-7 Regional-12 -12 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Last year, space take-up fell, as it did in most top locations, although at 6 per cent to Mixed picture for 2015: take-up 440,000 sqm, the decline was not all that pronounced. However, the figure is well down, but prime rent up down on the ten-year average of 500,000 sqm. The main reason is a lower number of large transactions. There were five transactions over the 10,000 sqm mark last year, but they only accounted for 15 per cent of take-up. The year before, large transactions still accounted for almost a quarter of take-up. In addition, rental agreements which came up for renewal were more often prolonged, not least because the shortage of space in the city means that there are virtually no alternatives. However, the fact that the prime rent increased to EUR 33.50 per sqm, and hence very close to the level in Frankfurt, shows that 2014 was not a weak year. In addition, there was another slight decline in the vacancy rate. At under 7 per cent, it is now well below the top location average. We expect supply to remain tight this year since hardly any new space is expected to come onto the market. Ultimately, how- In spite of tight supply: high rent ever, the fact that the prime rent is already quite high suggests that a further sharp suggests further rise unlikely rise is unlikely.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP % yoy 1.3 1.9 2.1 1.9 Per capita GDP EUR '000 52.4 52.7 53.3 53.9 Per capita GDP % yoy -0.5 0.4 1.1 1.3 No. of office workers % yoy 1.0 1.0 1.2 1.1 Supply Total office space m sqm 13.0 13.1 13.3 13.5 Total office space % yoy 0.6 0.9 1.6 1.2 Vacancy rate % 7.9 6.8 6.7 6.7 Office rents Prime/secondary locations EUR/sqm 30.0 / 11.3 31.5 / 12.0 33.5 / 12.0 33.8 / 12.0 Prime/secondary locations % yoy 1.7 / 2.7 5.0 / 6.2 6.3 / 0.0 1.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

54 55 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

350 2,4 Munich Top-7 Regional-12 300 2,2

250 2,0

200 1,8

150 1,6

100 1,4 Munich Top-7 Regional-12 50 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

The Bavarian capital is the most expensive shopping location in Germany. The Munich remains the leading shop- prime rent is 15 per cent above the top-seven average. However, there are good ping destination in Germany reasons for this: purchasing power and shop-floor productivity are also top of the chart. With the city's inhabitants and the catchment area around Munich, the retail sector has access to 3 million people, many of whom have a high income thanks to an outstanding situation in the labour market in the economically strong Greater Mu- nich area. In addition, Munich attracts many visitors from home and abroad, who also offer substantial purchasing potential. However, Munich's attraction as a shopping destination also benefits from the wide variety on offer. Munich has many shops run by their owners which makes the city stand out from so many other high streets which all offer the same chain-store branches. On balance, Munich is top of the location list for practically all retailers. High demand for space means that new retail projects – more recent examples are the Hofstatt Passage or Palais an der Oper – are absorbed by the market quickly and without any difficulty. However, there are limits to even Munich's retail sector, which ultimately are based on its own success. The prime rent has already reached EUR 320 per sqm, and this has led to a slower Rent momentum eases off since it is growth momentum. This has led to a reduction in the gap in relation to the average already very high of other top locations. However, Munich is unlikely to lose its top spot in this respect.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,849 1,869 1,893 1,918 Per capita disp. income % yoy 1.3 1.1 1.3 1.3 Unemployment rate % 5.0 5.2 5.2 5.3 Retail sales % yoy 2.4 2.2 2.0 2.5 Supply Total retail space m sqm 2.0 2.0 2.1 2.1 Total retail space % yoy 2.5 2.9 1.8 2.0 Retail rents Prime/secondary locations EUR/sqm 305 / 35.0 315 / 35.0 320 / 37.0 325 / 37.0 Prime/secondary locations % yoy 3.4 / 0.0 3.3 / 0.0 1.6 / 5.7 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

54 55 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

MUNSTER

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 14 Munster Regional-12 Dusseldorf 6 12

3 10

0 8

-3 6

-6 4 Munster Regional-12 Dusseldorf -9 2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Munster is the economic, administrative and scientific centre of Westphalia. North Centre of Westphalia and home to Rhine-Westphalia (NRW) has a population of over 8 million, which is more than most 8 million people other German Laender. This underlines the city's strong fundamental position but also its importance as a property location. Unlike many other cities in NRW, Munster hardly has any competition from surrounding towns. Potential competitors such as Bielefeld, Dortmund or Osnabrück are at least 60 kilometres away.

The university, which has over 42,500 students who make up almost 15 per cent of Strong population growth the 300,000 population, plays an important role for the city's positive performance. A strong increase in the population began around the turn of the century. Since then, the city has gained around 35,000 new inhabitants. However, the influx has picked up momentum even more lately. In the last five years, Munster has been the fastest growing city among the locations analysed in our study, ahead of Munich. Munster offers a high quality of life as a city, a fact which is reflected in regularly high rank- ings in city comparisons. In 2004, Munster won the LivCom award for the city with the highest quality of life in the world.

Munster's corporate structure is dominated by SMEs. This seems to be a plus point. Positive effect of SME-dominated SMEs are regarded as the mainstay and engine of the German economy, and in economic structure Munster, they are true to their reputation. Nowhere else of the regional centres stud- ied in this report has the number of employees grown faster in the last ten years. Whereas the average increase in employment in the regional centres analysed was 9 per cent, growth in Munster has been much stronger at over 15 per cent. Hardly surprisingly, the unemployment rate is very low for a large city at six per cent. In this respect, manufacturing only plays a secondary role in an economy dominated by the service sector, accounting for 8 per cent of the workforce. This benefits the office market since the number of office workers has risen even faster in the last decade at 18 per cent.

56 57 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM MUNSTER: TREND IN OFFICE SPACE AND EMPLOYMENT

44 120 Munster Regional-12 Dusseldorf 42 115

40 110 38 105 36

100 34 office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

However, in relation to the other regional centres in our study, the Munster office Office space increasing slower than market is rather small at only around 2.3 million sqm. Overall, it is characterised by number of office workers office buildings which were developed for the occupier. The low extent of speculative office space development is likely to be the reason behind a much slower increase in the amount of office space in the last few years than in office employment. The vacancy rate is correspondingly low and tending to decline slightly. In addition, the prime rent is rising steadily. It is currently slightly above the regional centre average at EUR 13.50 per sqm.

Last year, however, the office market in Munster showed its weak side. Uptake Better performance ahead in 2015 almost halved year-on-year to 42,000 sqm after three years of well above-average after a weak 2014? market activity, reflecting the virtual absence of any large transactions unlike in the previous year. The prime rent fell slightly. However, there are fairly good chances that it will return to the level of 2013 this year.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP % yoy 2.0 2.0 2.1 2.1 Per capita GDP EUR '000 39.3 39.7 40.3 40.9 Per capita GDP % yoy 0.5 1.2 1.4 1.6 No. of office workers % yoy 1.7 1.4 1.4 1.5 Supply Total office space m sqm 2.3 2.3 2.3 2.4 Total office space % yoy 0.9 1.0 1.6 0.7 Vacancy rate in % 5.0 5.1 5.0 5.0 Office rents Prime/secondary locations EUR/sqm 13.0 / 5.5 13.7 / 6.0 13.5 / 6.0 13.7 / 6.0 Prime/secondary locations % yoy 4.0 / 4.8 5.4 / 9.1 -1.5 / 0.0 1.5 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecast

56 57 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

275 2,4 Munster Munster Regional-12 Dusseldorf 250 Regional-12 Dusseldorf 2,2 225

200 2,0

175 1,8 150

125 1,6 100

75 1,4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Conditions for the retail sector in Munster are outstanding. The affluent population is Munster among Germany's top experiencing strong growth; there is a very wide catchment area of 1.5 million shopping locations inhabitants and moreover, a large number of visitors are attracted to this university city and its medieval charm. In addition, the city also has an attractive range of shops, including both mass-market top locations with the usual high-street names such as the Ludgeristraße along with more exclusive, owner-run shops on the Prin- zipalmarkt. Munster is now among the top shopping locations, leading to a prime rent of EUR 170 per sqm, which is well above the average for regional centres and Prime rent well below regional in many much larger cities. Another positive factor is that the Munster Arkaden, the centre average only shopping centre, is well integrated in the city. Although retail space in the inner city has increased fairly sharply over the years, it still fails to meet a high level of demand from retailers. Above all, there is insufficient supply in the old town with its small shops to meet the demand which is overwhelmingly for larger floor space. This mismatch between supply and demand also has a positive effect on secondary locations such as the Roggenmarkt. The main argument against a further increase in the prime rent is that the level is already very high. We do not expect any major surge this year.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,493 1,498 1,509 1,524 Per capita disp. income % yoy 0.2 0.4 0.7 0.9 Unemployment rate % 6.1 6.0 6.0 6.1 Retail sales % yoy 1.6 1.7 1.7 2.1 Supply Total retail space in m sqm 0.6 0.6 0.6 0.6 Total retail space % yoy 1.9 2.4 1.2 1.7 Retail rents Prime/secondary locations EUR/sqm 160 / 10.0 165 / 10.0 170 / 10.0 172 / 10.0 Prime/secondary locations % yoy 0.0 / 0.0 3.1 / 0.0 3.0 / 0.0 1.2 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

58 59 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

NUREMBERG

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 11

10 6 9 3 8

0 7

6 -3 Nuremberg Regional-12 5 -6 Munich 4 Nuremberg Regional-12 Munich -9 3 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Nuremberg's fame for its Christmas market, its Kaiserburg and toy trade fair reaches Nuremberg economy doing very well far beyond Bavaria. What is perhaps less well-known is that Bavaria's second big- in spite of many setbacks in the past gest city of slightly over 500,000 inhabitants is also very successful economically. This is all the more remarkable since Nuremberg's economy has suffered repeated setbacks in the last few decades through major bankruptcies and plant closures. These include the insolvency of Arcandor/Quelle in 2010; in 2007, the labour market was hit by the closure of the AEG factory. Slightly further back still, a large number of jobs were lost after MAN cut back in presence in the city, and by Grundig's bank- ruptcy and the decline of Triumph-Adler.

Unemployment has fallen sharply on the back of a positive economic trend. It stands From industry to high-tech location at under 8 per cent, well below the 13 per cent figure of ten years ago. In spite of the negative effects on the labour market mentioned earlier, at 9 per cent, employment has increased just as much as the average of the 12 regional centres in our analysis. The successful structural change has meant a decline in the importance of mechanical engineering, electrical engineering and printing, whereas IT, high-tech, energy and medical technology have become the driving force behind the economy. Nuremberg is also a successful logistical hub in view of outstanding transport links. Apart from motorway connections via the A3, A6, A9 and A73 and the ICE connection, the city also has an airport with connections to various European capitals and an inland port on the Main-Danube canal.

The importance as a science location of the Friedrich-Alexander-University in Erlan- Other success factors: the univer- gen-Nuremberg has also had a positive impact. Other factors in favour of Nurem- sity, trade fair, tourism and a high berg are its importance as a trade fair location and tourism, along with the quality of quality of life life, Which is offerd by the old town and many open spaces. Nuremberg has therefore developed into a desirable place to live at the heart of a metropolitan area of 3.5 million inhabitants with rapid population growth.

58 59 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

OFFICE SPACE PER OFFICE EMPLOYEE IN SQM NUREMBERG: TREND IN OFFICE SPACE AND EMPLOYMENT

39 120

38 115 37

110 36

35 105

34 100 33 Nuremberg Regional-12 Munich office space office workers 32 95 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: Feri, DZ BANK Research forecasts Source: Feri Index 2005 = 100

A strong local economy has had a correspondingly positive impact on the office Office market: positive development, market. The number of office workers has grown faster than office space, especially but shortage of attractive space since available space often fails to meet the requirements of potential tenants. Office rents have therefore increased by 36 per cent in the space of ten years, i.e. almost twice as fast as the average for regional centres. In view of a lower starting point in the past, the prime rent in Nuremberg is currently roughly in line with the average of prime rents in regional centres at EUR 13.20. The vacancy rate has fallen slightly in the last few years. At present, 5.7 per cent out of a total of just under 3.9 million sqm of office space is unoccupied. Space take-up last year was relatively low at a quarter below the 2013 figure and one third below the ten-year average. This mainly reflects the absence of large transactions of the kind seen in 2013 with Datev and in 2012 with TeamBank. The shortage of attractive space has encouraged developers and office space is currently under construction, some of which is speculative. However, the total volume under construction is modest, so there are no signs of any supply surplus on the horizon. The prime rent could therefore increase slightly again this year. The city has big reserves of space with the Südbahnhof site, where project development could be realised in future.

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP % yoy 1.5 1.5 1.6 1.6 Per capita GDP EUR '000 45.1 45.4 46.0 46.5 Per capita GDP % yoy 0.4 0.7 1.1 1.3 No. of office workers % yoy 0.9 0.9 1.1 1.3 Supply Total office space m sqm 3.8 3.8 3.9 3.9 Total office space % yoy 1.2 0.5 0.7 0.6 Vacancy rate % 6.2 5.8 5.7 5.7 Office rents Prime/secondary locations EUR/sqm 12.0 / 6.3 13.0 / 6.8 13.2 / 6.8 13.4 / 6.8 Prime/secondary locations % yoy 0.0 / 0.0 8.3 / 7.9 1.5 / 0.0 1.4 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

60 61 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

325 3,0 300 2,8 Nuremberg Regional-12 Munich 275 2,6 250 2,4 225 2,2 200 2,0 175 1,8 150 1,6 125 100 1,4 1,2 75 Nuremberg Regional-12 Munich 50 1,0 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Nuremberg is the leading shopping location in Northern Bavaria. A high centrality Top shopping location in Northern mark of 130 reflects the city's huge attraction. One reason for this is customer poten- Bavaria: large catchment area, major tial from a large catchment area of around 2 million inhabitants, boosted further by a purchasing power and tourism large number of visitors. Purchasing power in Nuremberg moreover is above- average. The old town is a lovely place to spend some time, offering an attractive stroll which also takes in the top shopping locations. Karolinenstraße has the highest footfall, the largest number of chains and also the prime rent. The latter has risen sharply to EUR 140 per sqm meter, reflecting the fact that there is a huge shortage of available space, especially since fluctuation in the city is low. Nuremberg only has one small inner-city shopping centre, the City-Point. Outside the city, there are the older Franken-Center and the Mercado which has just undergone a modernisation programme. Nuremberg is the object of great interest on the part of project developers in view of its strength as a location. The Südstadt Carré stands a very good chance of being realised – replacing the former Galeria Kaufhof – along with a further shopping centre on the former Quelle site. In the short term, however, there is no major increase in sales space in the pipeline in top locations, which means that Prime rent could rise again in 2015 the shortage of space should continue to drive up rents.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,473 1,486 1,500 1,515 Per capita disp. income % yoy 1.3 0.9 0.9 1.0 Unemployment rate % 7.7 7.9 7.6 7.3 Retail sales % yoy 2.3 2.1 1.7 1.5 Supply Total retail space in m sqm 1.3 1.3 1.3 1.3 Total retail space % yoy 8.1 0.4 0.7 0.6 Retail rents Prime/secondary locations EUR/sqm 130 / 14.0 135 / 14.0 140 / 15.0 143 / 15.0 Prime/secondary locations % yoy 4.0 / 0.0 3.8 / 0.0 3.7 / 7.1 2.1 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

60 61 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

STUTTGART

Office

PRIME RENTS IN PER CENT YOY VACANCY RATE IN PER CENT

9 11

6 10

9 3 8 0 7 -3 6

-6 5 Stuttgart Top-7 Regional-12 Stuttgart Top-7 Regional-12 -9 4 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts

Once again, the smallest office market among the top-seven has showed its strong Pleasing performance in the side. Although take-up fell 10 per cent short of a very good previous-year figure, at first half of 2014 230,000 sqm, lettings were nevertheless the fourth best result scored so far. The ten-year average was beaten by over 20 per cent. A number of large transactions contributed to this good result, including Daimler at 40,000 sqm and the Land of Ba- den-Württemberg at 20,000. The already low vacancy level fell slightly further and is now only a fraction above 5 per cent. The relatively low prime rent rose slightly, although this only makes up for the decline in 2013. There is no sign of any sharp increase in supply on the horizon. This year, 65,000 sqm of office space is due for completion, which is roughly average. The prime rent could increase again slightly Prime rent likely to top EUR 19 per over the next year, which would put it above the EUR 19 per sqm mark. sqm market in 2015

OFFICE FORECASTS

2012 2013 2014 2015e Demand GDP % yoy 2.0 2.0 1.9 1.8 Per capita GDP EUR '000 54.2 54.7 55.3 56.1 Per capita GDP % yoy 0.7 0.9 1.2 1.4 No. of office workers % yoy 1.3 1.0 1.6 1.4 Supply Total office space m sqm 7.1 7.1 7.2 7.2 Total office space % yoy 0.4 0.6 0.7 0.7 Vacancy rate in % 5.5 5.2 5.1 5.1 Office rents Prime/secondary locations EUR/sqm 18.9 / 8.8 18.7 / 8.7 18.9 / 8.7 19.2 / 8.7 Prime/secondary locations % yoy 8.0 / 1.1 -1.1 / -1.1 1.1 / 0.0 1.6 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

62 63 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Retail

PRIME RENTS IN EUR PER SQM PER CAPITA RETAIL SPACE IN SQM

300 2,4 Stuttgart 280 Top-7 260 2,2 Regional-12 240 2,0 220 200 1,8 180

160 1,6 140 120 1,4 100 Stuttgart Top-7 Regional-12 80 1,2 2005 2007 2009 2011 2013 2015e 2005 2007 2009 2011 2013 2015e

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

Retail in Germany's sixth largest city benefits from a catchment area of 2.5 million Attractive shopping location in inhabitants and a strong local economy which is home to many successful compa- economically strong region nies. Purchasing power is above average. Similarly to Munich and Cologne, the concentration of chain stores is slightly lower, which means a better range of shops. The fact that Stuttgart is highly attractive as a shopping location leads to a good level of demand for prime sites which cannot be met from the available space. How- ever, this excess demand has not led to a sharp rise in prime rents – as is the case in top locations as a whole. At 7 per cent, the increase over five years is only just over a third of the top-seven average. Disputes surrounding the Stuttgart 21 development project may have had a dampening effect in this respect. In addition, any further scope for rent rises this year and in the next few years is likely to be limited since three major retail projects are set to increase sales space in the city consid- Three big retail projects set to limit erably in a relatively short space of time. Firstly there is the "Gerber", which opened rise in rents in coming years its doors in September. This is the smallest of the three projects at 25,000 sqm. In October, it was followed by the much bigger "Milaneo" shopping mall at 43,000 sqm. Still to come is the "DorotheenQuartier" which is due to be completed in 2016 and which will be directly connected to the pedestrian area, and cover a total of 40,000 sqm of shops, restaurants, offices and flats.

RETAIL FORECASTS

2012 2013 2014 2015e Demand Per capita disp. income EUR/month 1,677 1,693 1,713 1,732 Per capita disp. income % yoy 1.4 1.0 1.1 1.1 Unemployment rate % 5.6 6.2 5.7 5.8 Retail sales % yoy 2.1 2.0 1.8 1.7 Supply Total retail space m sqm 1.0 1.0 1.0 1.1 Total retail space % yoy -0.1 1.7 2.8 4.2 Retail rent Prime/secondary locations EUR/sqm 225 / 14.0 235 / 14.0 235 / 14.0 235 / 14.0 Prime/secondary locations % yoy 0.0 / 0.0 4.4 / 0.0 0.0 / 0.0 0.0 / 0.0

Source: Feri, BulwienGesa, DZ BANK Research forecasts

62 63 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

LOCATIONS AT A GLANCE

OFFICE SPACE

Total Office Space Rent in Top location Change in Rent Vacancy Rate

2014 Data EUR/sqm (% yoy) (%)

2004 in Per Office vs. 1,000 Worker 2013 2014 2015e 2013 2014 2015e 2013 2014 2015e 2014 sqm (sqm) (%)

Augsburg 1,713 5.0 34.1 11.8 12.0 12.2 2.6 1.7 1.4 5.1 5.0 4.9 Bremen 3,416 13.2 34.6 12.9 12.5 12.7 0.8 -2.7 1.6 5.0 5.0 5.0 Darmstadt 1,872 16.9 38.3 13.0 13.0 13.2 1.6 0.0 1.4 4.3 4.3 4.2 Dresden 3,831 1.6 38.9 11.9 12.1 12.3 3.5 1.7 1.4 10.2 10.0 9.9 Essen 3,049 7.8 31.4 14.0 14.0 14.2 6.1 0.0 1.4 4.6 4.4 4.3 Hannover 4,232 6.2 33.5 14.0 14.2 14.4 0.0 1.4 1.4 5.1 5.0 5.0 Karlsruhe 2,727 7.4 35.0 12.5 12.7 12.9 0.0 1.6 1.6 2.1 2.1 2.1 Leipzig 4,139 19.3 49.3 12.3 12.5 12.6 2.1 2.0 1.0 12.6 12.0 11.9 Mainz 1,739 5.2 33.7 12.5 12.6 12.7 0.0 0.8 1.0 5.3 5.2 5.2 Mannheim 2,285 5.3 33.1 14.2 14.3 14.3 0.7 0.7 0.0 4.6 4.6 4.5 Munster 2,350 10.0 34.6 13.7 13.5 13.7 5.4 -1.5 1.5 5.1 5.0 5.0 Nuremberg 3,869 5.4 34.1 13.0 13.2 13.4 8.3 1.5 1.4 5.8 5.7 5.7

Regional centre mean 35,221 8.5 35.8 13.0 13.1 13.2 2.7 0.7 1.3 6.3 6.1 6.1

Berlin 17,610 2.0 34.7 22.5 23.0 23.5 2.3 2.2 2.2 8.0 7.9 7.9 Cologne 7,250 10.9 32.9 21.1 21.1 21.4 2.9 0.0 1.6 7.5 7.3 7.1 Dusseldorf 7,593 11.7 38.7 25.0 24.5 24.8 6.4 -2.0 1.2 10.8 10.9 11.0 Frankfurt 12,379 13.2 44.9 35.0 35.0 35.7 6.1 0.0 2.0 12.5 12.2 12.2 Hamburg 13,841 7.7 34.1 24.0 25.0 25.5 0.0 4.2 2.0 7.6 7.5 7.5 Cologne 7,250 10.9 32.9 21.1 21.1 21.4 2.9 0.0 1.6 7.5 7.3 7.1 Munich 13,313 9.5 36.2 31.5 33.5 33.8 5.0 6.3 1.0 6.8 6.7 6.7 Stuttgart 7,153 5.4 39.6 18.7 18.9 19.2 -1.1 1.1 1.6 5.2 5.1 5.1

Prime location mean 79,139 7.9 36.7 26.0 26.6 27.0 3.4 2.4 1.7 8.4 8.3 8.3

Source: BulwienGesa, Feri, own calculations, DZ BANK Research forecasts Means are space-weighted

64 65 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

RETAIL SPACE

Total Retail Space Rent in Top location Change in Rent Retail Sales

2014 Data in EUR/sqm (% yoy) (% yoy)

2004 in vs. Per capita 1,000 2013 2014 2015e 2013 2014 2015e 2013 2014 2015e 2014 (sqm) sqm (%)

Augsburg 915 15.1 3.3 110 110 110 0.0 0.0 0.0 0.9 1.0 1.1 Bremen 1,508 27.1 2.8 125 125 127 4.2 0.0 1.6 1.9 1.8 2.3 Darmstadt 374 10.3 2.5 100 100 100 0.0 0.0 0.0 1.5 1.2 1.7 Dresden 1,058 38.0 2.0 105 110 110 0.0 4.8 0.0 2.4 1.6 1.5 Essen 859 20.6 1.5 110 110 112 4.8 0.0 1.8 0.8 0.9 1.5 Hannover 980 22.8 1.9 185 195 195 0.0 5.4 0.0 1.0 1.3 1.9 Karlsruhe 527 12.4 1.8 110 113 115 4.8 2.7 1.8 2.0 1.6 1.5 Leipzig 714 74.4 1.4 125 125 130 0.0 0.0 4.0 4.7 3.8 2.2 Mainz 502 25.0 2.5 110 114 116 0.0 3.6 1.8 2.7 2.4 2.6 Mannheim 770 18.7 2.6 140 145 145 3.7 3.6 0.0 1.1 1.2 1.8 Munster 607 39.9 2.0 165 170 172 3.1 3.0 1.2 1.7 1.7 2.1 Nuremberg 1,269 34.8 2.5 135 140 143 3.8 3.7 2.1 2.1 1.7 1.5

Regional centre mean 10,081 27.6 2.1 128 132 133 2.2 2.6 1.1 1.8 1.6 1.8

Berlin 6,190 29.0 1.8 270 290 295 12.5 7.4 1.7 2.9 2.7 1.9 Cologne 1,403 4.9 1.4 240 240 245 2.1 0.0 2.1 2.1 2.8 2.1 Dusseldorf 1,242 43.5 2.1 240 250 255 9.1 4.2 2.0 3.8 3.2 2.2 Frankfurt 1,524 36.2 2.2 280 290 295 5.7 3.6 1.7 2.2 1.9 2.2 Hamburg 2,961 26.9 1.7 260 275 280 6.1 5.8 1.8 2.9 2.9 2.6 Cologne 1,403 4.9 1.4 240 240 245 2.1 0.0 2.1 2.1 2.8 2.1 Munich 2,053 28.6 1.5 315 320 325 3.3 1.6 1.6 2.2 2.0 2.5 Stuttgart 1,017 26.2 1.7 235 235 235 4.4 0.0 0.0 2.0 1.8 1.7

Prime location mean 16,389 27.5 1.7 268 280 285 7.8 4.7 1.7 2.6 2.6 2.2

Source: BulwienGesa, Feri, own calculations, DZ BANK Research forecasts Means are space-weighted.

64 65 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

STRUCTURAL DATA 2014

Inhabitants Per Capita Dis- Unemployment Inhabitants 2004 vs. 2014 GDP Per Capita GDP posable Income Rate in 1,000 (%) (EUR m) (EUR) (EUR/Month) (%)

Augsburg 276 5.6 11,440 41,376 1,307 6.6 Bremen 547 1.1 22,972 42,001 1,551 10.1 Darmstadt 150 9.7 7,578 50,649 1,552 6.6 Dresden 529 11.8 15,417 29,116 1,257 8.5 Essen 567 -2.4 21,359 37,690 1,428 12.3 Hannover 517 3.4 26,966 52,155 1,428 10.2 Karlsruhe 300 8.1 13,815 46,004 1,493 5.6 Leipzig 527 10.6 13,891 26,367 1,174 10.3 Mainz 204 10.0 7,892 38,656 1,445 6.4 Mannheim 297 4.4 14,663 49,332 1,316 6.0 Munster 299 10.2 12,032 40,269 1,509 6.0 Nuremberg 498 5.2 22,911 45,965 1,500 7.6

Regional centre mean 4,712 5.6 190,935 40,521 1,402 8.4

Berlin 3,421 6.2 86,945 25,415 1,244 11.2 Cologne 1,033 7.2 42,616 41,266 1,497 9.7 Dusseldorf 598 5.2 41,590 69,559 1,708 8.8 Frankfurt 698 10.6 52,123 74,643 1,492 7.4 Hamburg 1,754 5.7 85,315 48,629 1,593 7.6 Cologne 1,033 7.2 42,616 41,266 1,497 9.7 Munich 1,408 14.4 75,008 53,264 1,893 5.2 Stuttgart 604 6.4 33,432 55,310 1,713 5.7

Prime location mean 9,517 7.6 417,029 43,819 1,509 8.8

Source: Feri, BA, own calculations Means are space-weighted

66 67 Main regional real estate markets in Germany | 2015 Main regional real estate markets in Germany | 2015

Imprint Published by: DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Rosenstrasse 2, 20095 Hamburg Management Board: Dr. Georg Reutter (Chairman of the Management Board), Manfred Salber

Authors: Responsible: Stefan Bielmeier, Head of Research and Volkswirtschaft Dr. Michael Holstein, Head of Volkswirtschaft Author: Thorsten Lange, Analyst Real Estate Markets All DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main 2015

Reprinting and reproduction requires the approval of DG HYP

Disclaimer This document has been published by DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Hamburg. This document has been prepared by DZ BANK AG Deutsche Zentral-Genossenschaftsbank („DZ BANK“) and is intended for distribution within the Federal Republic of Germany. This document is not intended for persons having their domicile and/or registered offi ce and/or branches outside Germany, particularly in the United States of America, Canada, the United Kingdom or Japan. This brochure may only be distributed outside Germany in compliance with the laws and regulationsapplicable in the relevant country. Anyone gaining possession of this information or material must inform themselves of theapplicable laws and regulations and observe said laws and regulations. Nothing contained herein constitutes a public offer to buy securities or fi nancial instruments. This document constitutes an independent assessment of the relevant issuer and/or securities by DZ BANK. All assessments, expressions of opinion and statements contained herein are those of the writer and are not necessarily shared by the issuer or third parties. DZ BANK has obtained the information on which this document is based from sources that are considered reliable, but has not, however, verifi ed all of these documents. Accordingly, no representation or warranty as to the accuracy or completeness of the information or expressions of opinion contained herein is made by DZ BANK. DZ BANK shall not be liable for losses caused by the distribution and/or use of this document or any losses in connection with the distribution and/or use of this document. Investors are urged not to base their investment decision regarding securities or other fi nancial instruments on this document, but rather on personal discussions with an adviser and the relevant sales prospectus or information memorandum. Depending on the specifi c investment objectives, investment horizon, and fi nancial situation, any such recommendations may not suitable, in whole or in part, for individual investors. As trading recommendations are largely based on short-term market conditions, they may also confl ict with other recommendations made by DZ BANK. The recommendations and expressions of opinion contained herein are as at the date of this document. They may becomeobsolete as a result of future developments, without this document being amended accordingly.

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66 67 Main regional real estate markets in Germany | 2015

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68 Main regional real estate markets in Germany | 2015

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