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PwC Real Estate Investor Survey Cap rates and letting assumptions for all relevant German and Germany and Swiss real estate submarkets Switzerland Volume 7, H2 2017 March 2018
Spotlight PropTech – Buzz-word or Game Changer? 2 PwC Real Estate Investor Survey Cap rates and letting assumptions for all relevant German and Swiss real estate submarkets
Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
March 2018, 62 pages, 46 figures
All rights reserved. This material may not be reproduced in any form, or saved and edited in any digital medium without the express permission of the editor.
This publication is intended to be a resource for our clients and the information therein was correct to the best of the authors’ knowledge at the time of publication. Before making any decision or taking any action, you should consult the sources or contacts listed here. The opinions reflected are those of the authors. The graphics may contain rounding differences.
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft adheres to the PwC-Ethikgrundsätze/PwC Code of Conduct (available in German at www.pwc.de/de/ethikcode) and to the Ten Principles of the UN Global Compact (available in German and English at www.globalcompact.de).
© March 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity. Contents
Contents
Introduction...... 4
Spotlight...... 8 PropTech – Buzz-word or Game Changer?
Germany – Office...... 14 Germany – Retail...... 16 High Street Retail...... 16 Non-High Street Retail...... 22 Germany – Logistics...... 24 Germany – NOI Analysis...... 28
Switzerland – Residential...... 32 Switzerland – Office...... 36 Switzerland – Retail...... 40 High Street Retail...... 40 Non-High Street Retail...... 43 Switzerland – NOI Analysis...... 44
Overview of the results...... 46
Approach and Definitions...... 54
PwC Real Estate Investor Survey Germany 3 Introduction
Introduction
This time we took a first step towards creating more transparency not only for the German but also for the European market. In this issue we teamed up with our Swiss colleagues and retrieved data on submarkets in Switzerland. For the Swiss part we also provide data on office and retail real estate. In addition, the Swiss part focuses on residential real estate.
As usual, we focus on the risk-return indicator “all-risk-yields” (ARYs), representing the relationship between stabilised net operating income (NOI) and net purchase price. Please see Chapter 6 for our approach and definitions. We gathered our data by interviewing market participants. For an overview of the participants see section 5.
In this volume’s spotlight we focused on PropTech and interviewed our participants, i.e. acquisition personnel and investor researchers, on their practical experience with PropTech applications and where they see the highest potential for them changing the 1industry. In our spotlight section 2 you can find out what role PropTechs are playing in the industry.
Fig. 1 Interest rate expectation for the German market
5% 5% Germany 25% 15% 35%
60% 75% 80% Increasing Stable Short term Medium term Long term Decreasing
Fig. 2 Interest rate expectation for the Swiss market
5% 9% 23% Switzerland 27%
72% 73% 91% Increasing Stable Short term Medium term Long term Decreasing
4 PwC Real Estate Investor Survey Introduction
Will yields increase Will rental growth Does this Germany corresponding to the interest compensate increasing differentiate between rate development? cap rates? Top7 and B cities?
▲ ▲ 80% ▲ ▲ 70% ▲ ▲ 35% Yes No
Will yields increase in Will rental growth Does this differ line with interest rate compensate increasing between top 9 cities Switzerland development? cap rates? and regions? ▲ ▲ ▲ 83% ▲ 81% ▲ ▲ 35% Yes No
For the German market investors are less aligned in which direction interest rates will be moving in the future. Still a majority with 60% (compared to 92% 6 months ago) believe that interest rates will remain stable within the next 12 months, while 35% (8% 6 months ago ) of respondents expecting interest rates to rise. In the medium term (up to 5 years) as well as in the long term, the vast majority of all respondents (75% and 80% respectively) expect interest rate to rise.
In terms of the hypothesis that real estate yields will follow potential interest rate growth the agreement ratio of investors did not change and is very close to the responses 6 months ago with 80% now compared to 77%. Those who do not see yields following the interest rate development argue that there is still too much liquidity in the markets that will continuously be allocated to real estate and thus prevent real estate yields to grow.
Among Swiss respondents, there is a widespread consensus concerning interest rate projections. 73% expect them to remain stable over the next 12 months, while 23% expect a short-term increase. For the medium term, about three quarters voice expectations of increasing rates, while the remaining respondents see them remaining stable over the 3-5 years. The latter fraction shrinks to only 9% for the long term, as there is widespread consensus (91%) on an interest rate increase over the coming decade.
Real estate yields will follow the upward course of interest rates – at least this is what four out of five Swiss respondents assume.
Even though rental growth is expected to be relatively flat, one third of Swiss respondents expect it to compensate for increasing cap rates. However, two thirds of Swiss respondents are concerned about the real estate values in a changing interest rate environment, because they do not believe that an increase of market rents will entirely compensate for the increase in yields.
PwC Real Estate Investor Survey 5 Introduction
Germany
Berlin and Munich have both reached record low yield levels with a minimum ARY of only 3.0%. The strongest yield compression amongst Top 7 Cities was observed in Düsseldorf both for its core and average properties (defined in Chapter 7) with -20bps and -27 bps, respectively. Berlin remains leader in terms of an expected annual rental growth rate of 3.6%.
For high street retail real estate, Munich is again ahead of the other Top 7 Cities with a level of 2.8% for the prime properties (minimum ARY) being 10bps lower than 6 months ago. On average high street retail in the Top 7 Cities shows almost no yield compression in the prime sector (minimum ARY). Weaker properties Office don’t show any further yield compression as average and maximum ARYs almost entirely went up across all our observed 28 submarkets.
In the logistics sector, we observed a strong compression in Stuttgart (–40bps). With a yield of now 4.5%, Stuttgart and Munich jointly mark the most expensive logistics markets. Retail Logistics
6 PwC Real Estate Investor Survey Introduction
Switzerland
Zurich and Geneva have the lowest yields among the Top-9 Swiss cities. However, investors show sizeable disparity in their yield assessment. St. Gallen and Lugano show the highest yields, around 50 bps above Zurich and Geneva. Regional average ARYs find themselves between 20 to 50 bps above their urban centers.
As for residential, Zurich and Geneva top the list also for office spaces, with minimum ARYs of 2.5% and a 3.3% average. At the bottom, we see again Lugano and St. Gallen with 3.7% and 4.0% Residential average ARY, respectively. Spreads between Regions and Top 9 Cities are significantly wider for the office category than residential, ranging between 80 and 120 bps on the average ARY.
Zurich again has the lowest yields in the retail category, with a minimum of 2.5% and a 3.0% average. This time, however, there's a greater gap separating Zurich from Geneva (+25bps) a nd Basel (+60bps). The Region of Office Zurich – exhibiting the lowest yields among Regions for residential and office – only ranks third behind the Lake Geneva Region and Central Switzerland in retail. Retail
PwC Real Estate Investor Survey 7 Spotlight
Spotlight PropTech – Buzz-word or Game Changer?
PropTech is currently a widely spread buzz-word in the real estate industry worldwide. There are numerous conferences, panel discussions, workshops and newsletters which focus on this topic. But have PropTechs hit the industry and settled their role as a game changer yet?
In this volume’s spotlight we asked our participants, i.e. acquisition personnel and investor researchers, on their practical experience with PropTech applications and where they see the highest potential for them changing the 2 industry.
8 PwC Real Estate Investor Survey Spotlight
We consider “PropTechs” as relatively young companies focusing on innovative technology solutions that disrupt processes within the real estate lifecycle. Underlying technologies amongst others are artificial intelligence (AI), 3D augmented and virtual reality (3D, AR, VR), Big Data & Internet of Things (IOT), mobile as well as cloud solutions and geo and building information. An overview of PropTechs in the GSA region (Germany, Switzerland, Austria) classified by fields of application is provided in the following chart by Blackprintpartners.de. Looking at this map, the definition seems slightly wider as some PropTechs may not be considered as innovative given that they are already market standard. For example, switching to a new data room provider will not reinvent a transaction process as it is already today. However, a data room provider that enhances its service with artificial intelligence may reduce time and effort for transaction preparation and due diligence, which will in turn have a significant impact on the way the industry is handling transactions. With respect to our interviews, we also found a slight range in perceptions of what PropTechs are and what they do.
Fig. 3 The word “PropTech” was almost not googled until the end of 2015 and has spiked since then.
100
80
60
40
20
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: trends.google.com (search interest relative to peak popularity)
So how about the status of implementation from an investor’s perspective? Almost unanimously, our survey participants agreed that PropTechs are a widely discussed topic but that it is still perceived as very difficult to assess which PropTech really is “the next big thing” able to change the industry. Investor strategies towards PropTechs range from striving to become market leader in terms of applying PropTech solutions to remain more conservative while waiting to see which solutions will become a standard. The latter group made up the majority of respondents by approx. 75%. As a result, most investors had little to no hands-on experience with new PropTechs but rather monitor them with the potential to engage at a later stage. Some Investors also consider themselves as rather slow when it comes to adapting to trends and implementing new technologies. With regards to the minority, some investors have made first positive experiences for instance with VR-solutions for marketing purposes or with smart building solutions for technical monitoring and tenant interaction. Some in the retail sector are also actively managing large scale data bases in order to monitor tenant performance and to proactively manage a tenant portfolio.
PwC Real Estate Investor Survey 9 Spotlight: PropTech – Buzz-word or Game Changer?
In which areas do investors see the highest potential for PropTechs to add value? When looking at the areas where our participants see the highest potential for PropTechs to add value to the investor’s business operations, the following areas were mentioned frequently: • Intelligent data collection and analysis: Investors come across high volumes of data, examples are data relating to investment opportunities (e.g. rental data, operating cost data) or data from already owned property. Investors desire to employ efficient databases that collect data in a smart fashion (for instance being able to read all kinds of rent rolls and map individual data points automatically) and being able to derive various analyses, identifying trends and managing portfolios. • Smart building technology: A quality assured construction and an efficient and up-to-date operation is the objective of every developer, every asset and property manager, every tenant and every landlord. Therefore investors desire solutions providing efficiency gains. Examples are buildings, in which all hardware such as lighting or air conditioning and all kinds of sensors is combined with a smart software that ensures maximum comfort for occupants while keeping energy and also maintenance efforts at a minimum. • T ransparent markets: A lack of transparency of meaningful market data has also been identified as a major obstacle within the German and Swiss markets by participants. Tools which are able to provide further in-depth market analyses are therefore highly demanded. • Drones and Robotics: Within our interviews, investors also said to be closely monitoring developments in the sector of drone solutions (such as inspections of less accessible building parts) or fully automated robots (for instance within large warehouses).
Why do investors hesitate to implement PropTech solutions? Investors also gave insights on potential challenges of implementing PropTech solutions. The main arguments for not engaging with PropTechs were the following: • They fear the sustainability of considered solutions, due to a superior tool of another PropTech in the future and that the implemented PropTech solution would not survive a consolidation. • Investors are concerned about data protection issues as many PropTechs are working with data gathering and analyses that imply data transparency and data sharing. • Lack of trust in artificial intelligence, as an exemplary 97% certainty is often not enough. • Some applications, such as trading platforms, are aiming to increase market transparency, while many market participants are used to seeing real estate as a people’s business, in which opacity may be more advantageous. • At first sight many new tools and applications have a comparable angle or do not really differentiate themselves, which bears a selection effort.
10 PwC Real Estate Investor Survey Spotlight: PropTech – Buzz-word or Game Changer?
Fig. 4 PropTechs by type of application
Development Brokerage
Data Analysis Market Places and Immobilien.de Miet-Check.de Visualisation & VR Redline 3D Software Buliding Radar Platforms Immobilienanzeigen24. Mitula Visualisation & VR Reflekt Realforce.ch Online Retailers 1A-Immobilienmarkt.de com Ohne-makler.net 360 Magictour Revvis Services Fensterversand.com 21st Immobilienpool.de Optionspace Airtem Roomle RealPocket Homebell 9flats.com Immobilienscout24 Planethome Group AllVR Showit 360 WP Immomakler Kiveda Acheter-Lover.ch Immobilier.ch Reallabor Space ARCheck Spacesweets Digital Brokers ProTremo Acomodeo Immobilo Sharing Archilogic Viality.de Conrado.com Roomhero Allofficecenter Immobroke Salz & Brot Augmensys Vrnow Domiando Thermondo Amanet.ch Immodelfin ShareDnC Begehungen.de Vuframe Fidesso Vitraum Assetprofiler Immoexperten.de Spacebase Clipnow Tenant Qualification Flimmox Weissmaler Bellevue Immomig Store2be Enscape Immomio Immo Suchmaschine Project Management Bespaced Immonet.de Storeme uniplaces Eywalk Moovin Immobase Baudetail Bürosuche.de Immopool.de realbest.de Fairfleet Myrealid Liveabout Coplannery Capital Pioneers Immo-suche.net Studenten-WG.de Freeforma Rentondo Maklaro Defect Radar Coozzy Immosuchmaschine Südostschweizimmo.ch Holistic Imaging PopUp Stores McMakler Doozer Devopo Immovestore Tauschwohnung Immersive Brickspaces Metasearch Insite it Elocations Immoweb Tempoflat Immomento Go-PopUp Mietguru.at OLMeRO Faceyourbase Aktiengesellschaft Vermietfabrik Immoviewer Pop Up Shops Nestpick Parametric Support Findmyhome.at Immowelt.de Wunderflats Indoors Lead Generation Roomsquare Rise Flatfox Immowire Wgcast Innoactive 123makler Trovit Sablono Freie Lokale Wien ImmoZ Wg-suche.de Inreal Almondia Vermietbutler Thinkprojekt Garaiorem Immozentral Wimdu Insider Navigation Architekten.de Wohnschlüssel Geospin KeyTo Office WKO.at Lookaround Hausgold Wunderagent Hometogo Kurzzeitwohnen Wohnungjetzt.de Matterport Homeday Housy Lamudi Workspace2go Navvis Immoprofessional Houzz Lieblingsmieter Wunschimmo.de Nxtbase Immoverkauf24.de iCase Locaberlin Yoloco Panoramatec Maklermeile Immo4trans.de LocalEstate Planery Maklersuchen Immoantteil24.dh Makler-Empfehlung.de Q-Kie Neubau.de
Due Diligence Financing Management Operations
Data Analysis Crowd Financing Software Reamis Access Smart Home & IoT Architrave Bergfürst Allthings Smartcheckups Doorbird alphaEOS Checkmyplace.com Brickvest Casavi Smartexposé Kiwi Betterspace Data Science Crowdhouse Cunio Sykosch.de MyKeys24 Casenio Datengut Crowdli EDI-Real Timum Nello Comfy Drooms Engel&Völkers Capital Eigenheim Manager Wohnungshelden Tapkey Digitalstrom EVANA Exporo Etg24 Zenhomes Services Ecozy Geomap Fundernation Everreal Zenplace Enloc Enetronx IMABIS GroupEstate Exposify Tenant Platform Locatee Flatout Immoinvest Pro Grundag Facilityport Animus Service Partner One Green City Immounited Home Rocket Finserv Flatnut Simplifa Hint Lageprofi iFunded Flowfact Streamnow VairRes iExergy Leer Immofunding Halu Suitefox Wegatech Kundo Letter Scan Immorocks HomeFox The Smarter Place Westbridge Messhelden Leverton LeihDeinerUmweltGeld Immokiss Parking MeteoViva Netfiles Mezzany Immotermin Accessio Naon On-geo ReaCapital Immonavigator Evopark Nuimo Potential Spaces Renditefokus Interdialog Goparkgo Plants & Machines Propmatch.ch Rendity InterfaceMA Park Here Sensorberg Route 360 Reval Justimmo Parquery Slock.it Sprengnetter Today Capital Lifelife SharePa Smart TeamProQ WIWIN Lireco Coworking/Coliving Tado Teleport Zinsbaustein.de Maptopomatik Medici Living Viracube Wohnpreis.de Zinsland Moderan Rent24 Zuhauseplattform Software & Tools Comparison Platform onOffice Setting Immolyze Immobo Pixolus IWA Pro ProCSM Real Value Propertybase
Source: Adapted from Blackprintpartners.de 2017 (c)
In a nutshell, PropTechs are definitely more than a BuzzWord, influencing the real estate industry everyday by causing established players to rethink their own business models. However, for the majority of participants they have not yet become a Game Changer, which influence the way they operate. There are areas offering a large potential to add value to investor’s future operations, but reasons why investors hesitate to implement new solutions according to our participants should not be neglected. We would expect this picture to change along with an increasing number of successful use cases and first movers realising efficiency gains.
PwC Real Estate Investor Survey 11 Germany
Germany 3
12 PwC Real Estate Investor Survey Germany
3
PwC Real Estate Investor Survey 13 Germany – Office
3.1 Office
All-risk-yields
For the office markets, our data shows compression for all ARYs levels (minimum, average and maximum) and across all submarkets. The Top7 Cities are still under price pressure (–12bps and –41bps as compared to 6 months and 12 months results, respectively). However, Munich and Hamburg remained almost stable with a compression of less than 10 bps compared to 6 months ago. The strongest compression is observed for Düsseldorf and Cologne at all ARYs levels. Minimum ARYs in Berlin catched up with Munich and now both metropoles share the leading position (3.0%) among the Top7 Cities.
Notably average and high risk properties in the Top7 Cities (average and maximum ARY) showed stronger compression than core investments (minimum ARY) over the last half-year. Nevertheless, the compression for these categories has slowed down compared to 12 months ago.
Contrary to the previous issue, the strongest compression of minimum ARY was experienced on average in Regional Cities (–25bps) and Regions (–23 bps). Among the Regional Cities the leaders in terms of compression are Bonn (–37bps), Mainz-Wiesbaden (–35bps) and Rhine-Neckar (–45bps).
Core properties in the Regions South of Hesse, Baden-Wuerttemberg (4.6%) and Bavaria (4.5%) are priced at the same levels or lower than half of the core properties in most of the Regional Cities.
Rental growth expectations across all submarkets remained almost at the same level as compared to the results 6 months ago. Berlin (3.6% p.a.) is still in the leading position followed by Munich (2.4% p.a.). While the average annual rental growth assumption throughout the Top 7 Cities is 2.1%, the Regional Cities and Regions show lower levels of 1.1% and 1.0%, respectively.
14 PwC Real Estate Investor Survey Germany – Office
Fig. 5 ARYs for offices in German submarkets by region
S.-Holstein & Low. Saxony
Hamburg
Bremen MV. & Sax.-A. & Brandenburg
Berlin
Hanover
Magdeburg Essen Dortmund
Duisburg Leipzig Düsseldorf North Rhine- Dresden Erfurt Westphalia Cologne North of Hesse & Bonn Thu. & Sax.
Frankfurt am Main Wiesbaden & Mainz
Rhine-Neckar Nuremberg Rhineland-P. & MA/HD/LU
Saarland
Karlsruhe
Diff. prev. issue Stuttgart Bavaria
Top 7 Cities Min./Average/Max. % Munich Regional Cities South of Hesse & BaWue Min./Average/Max. %
Regions Min./Average/Max. %
Berlin Düsseldorf Frankfurt am Main Hamburg Cologne Munich Stuttgart 3.0%/4.2%/5.7% 3.6%/4.7%/6.2% 3.3%/4.3%/5.6% 3.3%/4.3%/5.7% 3.7%/4.7%/6.0% 3.0%/4.0%/5.1% 3.5%/4.4%/5.6%
Bonn Bremen Dortmund Dresden Duisburg Erfurt Essen 4.2%/5.2%/6.4% 4.7%/5.7%/6.9% 4.7%/5.6%/6.8% 4.6%/5.6%/6.8% 5.2%/6.2%/7.5% 5.1%/6.0%/7.3% 4.7%/6.0%/6.9%
Karlsruhe Hanover Leipzig Magdeburg Mainz-Wiesbaden Nuremberg Rhine Neckar 4.5%/5.3%/6.4% 4.4%/5.3%/6.6% 4.5%/5.4%/6.6% 5.5%/6.5%/7.9% 4.4%/5.3%/6.6% 4.3%/5.2%/6.3% 4.6%/5.4%/6.5%
Low. Saxony & MV. & Sax.-A. & North of Hesse & North Rhine- Rhineland-P. & South of Hesse & Bavaria S.-Holstein Brandenburg Thu. & Sax. Westphalia Saarland BaWue 4.5%/5.3%/6.6% 5.3%/6.0%/7.3% 5.3%/6.4%/7.7% 5.5%/6.3%/7.7% 5.0%/5.9%/7.3% 5.3%/6.1%/7.5% 4.6%/5.5%/6.7%
PwC Real Estate Investor Survey 15 Germany – Office
Expected 5-year yield development for office
Düsseldorf
Frankfurt a. M. Berlin
Cologne
Hamburg
Stuttgart
Munich
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 6 Letting parameters for the German office market( Volume 7 H2 2017) Extension Annual market rent Rent-free period (months) Marketing period (months) propability growth rate Top 7 Cities vs. 6m vs. 6m vs. 6m Min. Med. Max. ago Min. Med. Max. ago ago Berlin 1 3 5 2 4 6 75.0% 3.6% Düsseldorf 2 4 6 3 5 7 69.0% 1.7% Frankfurt am Main 2 4 6 3 5 8 71.0% 1.9% Hamburg 1 3 6 2 4 7 72.0% 1.5% Cologne 1 4 6 2 5 8 70.0% 1.5% Munich 1 3 4 2 4 6 77.0% 2.4% Stuttgart 1 3 5 2 4 7 73.0% 1.7%
16 PwC Real Estate Investor Survey Germany – Office
Fig. 7 Compression of minimum yields for the German office market
Top 7 Cities
Berlin –0.09% 3.0% 4.2% 5.7%
Düsseldorf – 0.19% 3.6% 4.7% 6.2%
Frankfurt am Main – 0.16% 3.3% 4.3% 5.6%
Hamburg –0.06% 3.3% 4.3% 5.7%
Cologne – 0.14% 3.7% 4.7% 6.0%
Munich –0.05% 3.0% 4.0% 5.1%
Stuttgart – 0.14% 3.5% 4.4% 5.6%
Regional Cities
Bonn –0.37% 4.2% 5.2% 6.4%
Bremen –0.22% 4.7% 5.7% 6.9%
Dortmund – 0.19% 4.7% 5.6% 6.8%
Dresden – 0.17% 4.6% 5.6% 6.8%
Duisburg – 0.16% 5.2% 6.2% 7.5%
Erfurt –0.25% 5.1% 6.0% 7.3%
Essen –0.25% 4.7% 6.0% 6.9%
Karlsruhe –0.32% 4.5% 5.3% 6.4%
Hanover – 0.15% 4.4% 5.3% 6.6%
Leipzig –0.23% 4.5% 5.4% 6.6%
Magdeburg – 0.19% 5.5% 6.5% 7.9%
Wiesbaden & Mainz –0.35% 4.4% 5.3% 6.6%
Nuremberg –0.23% 4.3% 5.2% 6.3%
Rhine-Neckar MA/HD/LU –0.45% 4.6% 5.4% 6.5%
Regions
Lower Saxony & Schleswig-Holstein – 0.16% 5.3% 6.0% 7.3% Mecklenburg-West Pomerania & 5.3% 6.4% 7.7% Saxony-Anhalt & Brandenburg –0.28%
Saxony & Thuringia & North of Hesse (zip code: 3xxxx) –0.22% 5.5% 6.3% 7.7%
North Rhine-Westphalia –0.22% 5.0% 5.9% 7.3%
Rhineland-Palatinate & Saarland –0.37% 5.3% 6.1% 7.5% South of Hesse (zip code: 6xxxx) & –0.20% 4.6% 5.5% 6.7% Baden-Wuerttemberg
Bavaria – 0.17% 4.5% 5.3% 6.6%
min ARY compression over 6 months Min. % Average % 6 months ago Max. %
PwC Real Estate Investor Survey 17 Germany – Retail
3.2 Retail High Street Retail
All-risk-yields
“Location, location, location!” – looking at this issue’s results, we see that only the best located high-street properties in the strongest markets remain stable in the current market situation. On average, Top 7 Cities had a slight compression of minimum ARYs of 2 bps, while Regional Cities on average remained on the exact same level as they were in summer 2017. Core+ and value-add properties (as measured with average and maximum ARY) showed increasing ARYs, thus a decline in value over the last six months. One investor quoted: “Now, you can only lose money with non-Top7 locations”.
In the prime space, Munich (2.8% minimum ARY) remains an indisputable leader among the Top7 cities followed by Berlin and Frankfurt (both 3.1% minimum ARY), while Stuttgart and Cologne already showed an increase in yields of approx. 10bps.
The leaders in terms of compression among Regional Cities are Rhine-Neckar (–22 bps), and Dortmund (–14bps). The absolute minimum ARY amongst Regional Cities was 3.9%, which was observed in Nuremberg, Dresden and Hannover.
Similar to the office space, the best high-street properties in the Regions South of Hesse, Baden-Wuerttemberg and Bavaria (e.g. in smaller cities such as Freiburg or Augsburg) reached 4.3% as minimum ARY. This is equivalent to or even lower than some of the larger Regional Cities, for instance Essen or Bremen. Even though Top7 Cities show some rental growth (e.g. Munich 1.4% p.a. and Berlin 1.3% p.a.), investors almost don’t see further rental growth in Regional Cities and Regions, with an average growth assumption of 0.2% p.a. and 0.0% p.a. respectively. Only Karlsruhe (1.0% p.a.) and Nuremberg (0.8% p.a.) followed by Rhine-Neckar, Leipzig, Hannover and Mainz-Wiesbaden are still characterised by rental growth.
18 PwC Real Estate Investor Survey Germany – Retail
Fig. 8 ARYs for high street retail in German submarkets by geography
S.-Holstein & Low. Saxony
Hamburg
Bremen MV. & Sax.-A. & Brandenburg
Berlin
Hanover
Magdeburg
Essen
Dortmund
Duisburg
Leipzig
Düsseldorf
Dresden
North Rhine- Erfurt Westphalia Cologne North of Hesse &
Bonn Thu. & Sax.
Frankfurt am Main Wiesbaden & Mainz
Rhine-Neckar Nuremberg Rhineland-P. & MA/HD/LU
Saarland
Karlsruhe
Diff. prev. issue
Stuttgart Bavaria
Top 7 Cities Min./Average/Max. % Munich Regional Cities South of Hesse & BaWue Min./Average/Max. %
Regions Min./Average/Max. %
Berlin Düsseldorf Frankfurt am Main Hamburg Cologne Munich Stuttgart 3.1%/3.9%/4.9% 3.3%/4.1%/5.0% 3.1%/3.8%/4.9% 3.2%/3.9%/5.1% 3.5%/4.1%/5.3% 2.8%/3.6%/4.6% 3.4%/4.0%/5.0%
Bonn Bremen Dortmund Dresden Duisburg Erfurt Essen 4.0%/4.7%/6.0% 4.3%/5.1%/6.2% 4.1%/4.9%/6.1% 3.9%/4.7%/6.1% 4.8%/5.7%/7.2% 4.4%/5.2%/6.7% 4.3%/5.3%/6.2%
Karlsruhe Hanover Leipzig Magdeburg Mainz-Wiesbaden Nuremberg Rhine Neckar 4.0%/4.8%/6.0% 3.9%/4.6%/5.9% 4.1%/5.0%/6.1% 4.9%/6.0%/7.0% 4.0%/4.9%/6.2% 3.9%/4.7%/6.0% 4.0%/4.9%/6.0%
Low. Saxony & MV. & Sax.-A. & North of Hesse & North Rhine- Rhineland-P. & South of Hesse & Bavaria S.-Holstein Brandenburg Thu. & Sax. Westphalia Saarland BaWue 4.3%/5.1%/6.2% 4.6%/5.2%/6.8% 5.1%/6.1%/8.2% 5.1%/6.0%/8.1% 4.8%/5.4%/6.9% 4.9%/5.8%/7.5% 4.3%/5.2%/6.8%
PwC Real Estate Investor Survey 19 Germany – Retail
Expected 5-year yield development for high-street retail
Düsseldorf
Frankfurt a. M.
Berlin
Cologne
Hamburg
Stuttgart
Munich
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 9 Letting parameters for the retail market Extension Annual market rent Rent-free period (months) Marketing period (months) propability growth rate Top 7 Cities vs. 6m vs. 6m vs. 6m Min. Med. Max. ago Min. Med. Max. ago ago Berlin 1 3 5 1 3 4 71.0% 1.3% Düsseldorf 2 4 7 4 7 9 70.0% 1.0% Frankfurt am Main 1 4 5 3 5 7 73.0% 0.8% Hamburg 2 4 6 2 4 6 71.0% 0.8% Cologne 3 6 8 2 4 7 71.0% 0.4% Munich 1 3 5 2 3 6 73.0% 1.4% Stuttgart 2 3 5 3 5 7 69.0% 0.6%
20 PwC Real Estate Investor Survey Germany – Retail
Fig. 10 Compression of minimum yields in high street retail
Top 7 Cities
Berlin –0.09% 3.1% 3.9% 4.9%
Düsseldorf – 0.11% 3.3% 4.1% 5.0%
Frankfurt am Main – 0.14% 3.1% 3.8% 4.9%
Hamburg –0.04% 3.2% 3.9% 5.1%
Cologne 0.10% 3.5% 4.1% 5.3%
Munich –0.04% 2.8% 3.6% 4.6%
Stuttgart 0.17% 3.4% 4.0% 5.0%
Regional Cities
Bonn –0.03% 4.0% 4.7% 6.0%
Bremen –0.03% 4.3% 5.1% 6.2%
Dortmund – 0.14% 4.1% 4.9% 6.1%
Dresden 0.06% 3.9% 4.7% 6.1%
Duisburg 0.10% 4.8% 5.7% 7.2%
Erfurt – 0.12% 4.4% 5.2% 6.7%
Essen 0.13% 4.3% 5.3% 6.2%
Karlsruhe 0.07% 4.0% 4.8% 6.0%
Hanover –0.02% 3.9% 4.6% 5.9%
Leipzig 0.11% 4.1% 5.0% 6.1%
Magdeburg –0.06% 4.9% 6.0% 7.0%
Wiesbaden & Mainz 0.11% 4.0% 4.9% 6.2%
Nuremberg 0.09% 3.9% 4.7% 6.0%
Rhine-Neckar MA/HD/LU –0.22% 4.0% 4.9% 6.0%
Regions
Lower Saxony & Schleswig-Holstein – 0.14% 4.6% 5.2% 6.8% Mecklenburg-West Pomerania & 5.1% 6.1% 8.2% Saxony-Anhalt & Brandenburg 0.10%
Saxony & Thuringia & North of Hesse (zip code: 3xxxx) 0.05% 5.1% 6.0% 8.1%
North Rhine-Westphalia – 0.13% 4.8% 5.4% 6.9%
Rhineland-Palatinate & Saarland –0.05% 4.9% 5.8% 7.5% South of Hesse (zip code: 6xxxx) & –0.03% 4.3% 5.2% 6.8% Baden-Wuerttemberg
Bavaria 0.03% 4.3% 5.1% 6.2%
min ARY compression over 6 months Min. % Average % 6 months ago Max. %
PwC Real Estate Investor Survey 21 Germany – Retail
Non-High Street Retail
All-risk-yield and letting parameters: non-high street retail
Out-of-Town Shopping Centers, Retail Parks and Supermarkets show small yield increases and have hence slightly deteriorated in value over the last six months, The only category of non-high street retail that experienced compression in minimum ARY are DIY-Stores. This asset class gained more attractiveness as rental contracts have mainly reached market level rents, as opposed to being overrented in the past. Also, due to their locations close to cities and due to the large land plots they occupy they advance from rising ground values and the possibility to develop or use these land plots alternatively, for instance city- logistics.
22 PwC Real Estate Investor Survey Germany – Retail
Expected 5-year yield development for non-high street retail
Out-of-town shopping center
Retail park
DIY store Supermarket
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 12 ARYs for retail (excluding high street) in German submarkets by category Annual market rent Rent-free period Marketing period Extension growth All-risk-yield (months) (months) probability rate vs. 6m vs. 6m vs. 6m Min. Avg. Max. Min. Med. Max. ago Min. Med. Max. ago ago Out-of-town shopping center 4.5% 5.7% 7.1% 1 4 6 3 5 11 58.3% (0.1%) Retail park 4.8% 5.6% 7.2% 1 3 4 2 5 8 76.3% 1.2% Supermarket 5.3% 6.1% 7.8% 1 2 4 2 5 8 81.0% 1.1% DIY store 5.7% 6.4% 8.3% 2 2 5 1 5 9 71.7% 0.4%
PwC Real Estate Investor Survey 23 Germany – Logistics
Logistics3.3 Logistics
All-risk-yields
Logistics yields remain at an all-time low with further momentum over the last six months.
In the last survey, yield compression was on average –12bps for prime properties in the top 15 markets; in this volume, yield compression tripled to –36bps. Average properties show an unidirectional movement of yield development like prime properties. However, the ARYs for risky properties have remained the same compared to the last edition.
Among the Top 15 markets, the 6 logistics hubs around the Top 7 cities (Cologne and Düsseldorf are considered as one) remain the most expensive ones. Stuttgart has shown the strongest growth among the Top 6 regions boosted by the scarcity of space in that market. Together with Munich, Stuttgart is now the most expensive logistics market in Germany. The ARY for prime properties in these two locations is at 4.5%.
24 PwC Real Estate Investor Survey Germany – Logistics
Fig. 12 ARYs for logistics properties in German submarkets by location
Hamburg Bremen/ 4.6%/5.8%/7.1% Bremerhaven/ Wilhelmshaven 5.2%/6.4%/7.6% Berlin Hanover/ 4.7%/5.8%/7.2% Braunschweig 5.1%/6.4%/7.7%
Rhine-Ruhr 4.8%/5.9%/7.0% Halle/Leipzig 5.2%/6.4%/7.8%
Dortmund Kassel/Göttingen Düsseldorf/Cologne 4.9%/5.9%/7.2% 5.2%/6.3%/7.6% 4.7%/5.8%/7.2%
Rhine-Main/ Frankfurt 4.6%/5.7%/6.9%
Nuremberg 5.0%/6.1%/7.2%
Stuttgart 4.5%/5.6%/6.9% Regensburg/Passau 5.1%/6.3%/7.6%
Ulm 5.0%/6.2%/7.6% Munich 4.5%/5.6%/6.7%
Small Locations (such as: Aachen, Saarbrücken, Karlsruhe/Freiburg, Osnabrück/Münster, Rhein-Neckar, Bad Hersfeld, Erfurt, Augsburg, Magdeburg, Dresden) 5.6%/6.4%/7.9%
Top 15 Locations (Min./Average/Max. %) Motorways
PwC Real Estate Investor Survey 25 Germany – Logistics
Top 15 Locations
Expected 5-year yield development for logistics
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% Small Locations (majority of responses)
1.9% Annual logistics market rent growth rate
26 PwC Real Estate Investor Survey Germany – Logistics
Fig. 13 ARYs for logistics properties in German submarkets by category
Top 15 Locations
Berlin 4.7% 5.8% 7.2%
Düsseldorf/Cologne 4.7% 5.8% 7.2%
Rhine-Main/Frankfurt 4.6% 5.7% 6.9%
Hamburg 4.6% 5.8% 7.1%
Munich 4.5% 5.6% 6.7%
Stuttgart 4.5% 5.6% 6.9%
Bremen/North Sea ports 5.2% 6.4% 7.6%
Dortmund 4.9% 5.9% 7.2%
Halle/Leipzig 5.2% 6.4% 7.8% Expected 5-year yield Hanover/Braunschweig 5.1% 6.4% 7.7% Kassel/Göttingen 5.2% 6.3% 7.6% development for logistics Lower Bavaria 5.1% 6.3% 7.6% Nuremberg 5.0% 6.1% 7.2%
Rhine-Ruhr 4.8% 5.9% 7.0%
Ulm 5.0% 6.2% 7.6%
Small locations 5.6% 6.4% 7.9%
Min. % Average % 6 months ago Max. %
Fig. 14 Letting parameters for the logistics market (Volume 7 H2 2017) Rent-free period (months) Marketing period (months) Extension probability Annual market rent growth rate Min. Med. Max. Min. Med. Max. Top 15 Locations 1 3 4 2 5 8 70.7% 1.9% Small Locations – 2 5 – 5 7 72.5% 1.9%
For the Top 15 Locations, rent-free periods now range from 1 to 4 months, significantly lower than 6 months ago (three to seven months). This development shows a genuinely stronger letting market and the slightly increased probability of rental prolongation of 70.7% (up from 68.0%) supports this hypothesis.
PwC Real Estate Investor Survey 27 Germany – NOI Analysis
Logistics3.4 NOI Analysis
Office
Our participants generally included non-recoverable service charges, maintenance expenses, property management and rent loss into the calculation of their net operating income (NOI). With some variance depending on the individual investor’s business model, 80% of respondents consider tenant improvements and leasing commissions to be one-off items, which are considered below NOI. Almost unanimously respondents exclude CapEx from NOI calculation.
Retail
As with the results for office properties, only 20% of investors included tenant improvements and leasing commissions in the NOI calculation.
The value ranges for single NOI items as well as for tenant improvements and leasing commissions were in line with office properties.
28 PwC Real Estate Investor Survey Germany – NOI Analysis
Fig. 15 NOI calculation method for the office market
Min. Med. Max.
Assumption sum of non-recoverable OpEx 1.0% 10.0% 13.0%
Assumption non-recoverable service charges 1.0% 1.8% 5.0%
Assumption maintenance expenses 1.0% 4.0% 6.0%
Assumption property management 0.0% 2.0% 4.0%
Assumption rent loss 0.0% 1.0% 3.0%
Assumption tenant improvements 3.0% 10.0% 25.0%
Assumption leasing commisions 2.0% 3.0% 25.0%
Assumption Capex 1.0% 2.3% 6.0%
0% 5% 10% 15% 20% 25%
Fig. 16 NOI calculation method for the retail market
Min. Med. Max.
Assumption sum of non-recoverable OpEx 2.7% 8.0% 12.0%
Assumption non-recoverable service charges 1.0% 1.7% 4.0%
Assumption maintenance expenses 1.7% 2.5% 5.0%
Assumption property management 1.0% 2.0% 7.5%
Assumption rent loss 0.5% 1.0% 4.0%
Assumption tenant improvements 0.8% 10.0% 21.0%
Assumption leasing commisions 0.8% 2.5% 17.0%
Assumption Capex 1.7% 1.9% 8.0%
0% 5% 10% 15% 20% 25%
PwC Real Estate Investor Survey 29 Switzerland
Switzerland 4
30 PwC Real Estate Investor Survey Switzerland
4
PwC Real Estate Investor Survey 31 Switzerland – Residential
4.1 Residential
All-risk-yields
No surprises at the top of the list, as Swiss respondents see the lowest yields in Zurich, followed by Geneva with only a minor surcharge.
Zurich is the city for which we received the highest number of answers – all but three respondents gave their estimate. Even though most participants have a view on Switzerland’s largest city, they are far from homogeneous. The range between the highest and the lowest answers is above 200 bps for all min, max and the average. While some investors see minimum yields as low as 1 to 1.5%, others go beyond 3%, leading to a median of 2.5%. Strikingly, the highest estimates were generally given by the respondents located outside of Zurich, most notably western Switzerland. However, associating this to a lack of proximity might not cover the entire truth. Looking at the answers for Geneva and Lausanne shows that local investors were the ones giving the highest estimates.
Berne and Basel rank third and fourth with yields 20 to 30 bps above Zurich and Geneva. Views on yields in the cities on the Aare and Rhine further exhibited the greatest degree of agreement with less than 50 bps separating the first and third quartile.
St. Gallen and Lugano have the highest ARYs as allocated by our respondents, in minimum at 3.2% and 3.1%, respectively. In addition, the disagreement among investors is greatest for these two cities.
32 PwC Real Estate Investor Survey Switzerland – Residential
Fig. 17 ARYs for residential in Swiss submarkets
Basel Winterthur Northwestern Switzerland St.Gallen Zurich Zurich
Jura
Lucerne Berne Central Switzerland
Mittelland Eastern Switzerland Lausanne
Southern Switzerland Geneva Lake Geneva Region
Lugano
Zurich Geneva Basel Top 9 Cities 2.5%/2.9%/3.5% 2.5%/3.0%/3.5% 2.8%/3.2%/3.7% Min./Average/Max. %
Berne Lausanne Winterthur Regions 2.7%/3.2%/3.7% 3.0%/3.3%/3.6% 3.0%/3.3%/3.7% Min./Average/Max. %
Lucerne St.Gallen Lugano 2.8%/3.3%/3.9% 3.2%/3.4%/4.0% 3.1%/3.5%/3.9%
Northwestern Central Eastern Southern Lake Geneva Zurich Jura Mittelland Switzerland Switzerland Switzerland Switzerland Region 3.0%/3.3%/4.1% 3.5%/4.1%/4.7% 3.3%/3.7%/4.5% 3.3%/3.5%/4.3% 3.0%/3.6%/4.3% 3.4%/3.7%/4.5% 3.3%/3.7%/4.1% 3.1%/3.4%/4.5%
The Region of Zurich (excl. Zurich city) again has the lowest ARYs of the bunch. The 3.0% minimum and 3.3% average ARYs are comparable to most Top 9 Cities. The Jura Region ranks at the opposite end of the spectrum with an average ARY of 4.1%. The highest maximum ARYs were stated for Jura, Eastern Switzerland, the Lake Geneva Region and the Mittelland (comprising cantons Berne, Fribourg and Solothurn).
Likely due to the greater heterogeneity of Regions as compared to Top 9 Cities, the gaps between minimum and maximum yields increased. Most notably, Jura and Central Switzerland exhibit the highest gaps, as low-yielding centers such as the cities of Zug and Neuchâtel stand in stark contrast to rural markets. When comparing the regional yields with the corresponding regional cities, the Mittelland exhibits the greatest spread in average ARYs over Berne (50 bps), while Southern Switzerland is evaluated the closest to Lugano, with a spread of only 20 bps.
PwC Real Estate Investor Survey 33 Switzerland – Residential
Expected 5-year yield development for residential
Geneva
Zurich
Basel
Lausanne
Berne
Winterthur
Lucerne
St.Gallen
Lugano
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
34 PwC Real Estate Investor Survey Switzerland – Residential
For Zurich and Geneva, slightly more than half of the respondents project stagnating yields, while the rest projects a small increase. For the remaining cities, the clear majority of respondents expect yield increases between 0.25% and 1.0% – the exception being Lausanne, where the respondents seem ambivalent between stable and slightly increasing yields.
Fig. 18 Letting parameters for Swiss residential market Annual market rent Rent-free period (months) Marketing period (months) growth rate Top 9 Cities Min. Med. Max. Min. Med. Max. Zürich 0.0 0.0 0.0 0.0 1.0 2.0 0.0% Genf 0.0 0.0 0.0 0.0 1.0 2.5 0.0% Basel 0.0 0.0 0.0 0.0 1.5 3.0 0.0% Bern 0.0 0.3 0.5 0.0 2.0 4.0 0.0% Lausanne 0.0 0.0 0.0 0.0 1.5 3.0 0.0% Winterthur 0.0 0.3 0.5 0.5 3.8 7.5 0.0% Luzern 0.0 0.0 0.0 0.8 1.5 2.5 0.0% St.Gallen 0.0 0.3 0.5 0.0 1.5 3.0 0.0% Lugano 0.0 0.0 0.0 0.0 1.5 3.0 0.0%
PwC Real Estate Investor Survey 35 All-risk-yieldsSwitzerland – Officeretail
4.2 Office
All-risk-yields
Office spaces in Zurich and Geneva top the list with a minimum ARY of 2.5% and an average of 3.3% for both. At the bottom, we again see St. Gallen and Lugano with the highest yields. The mid-range with near-identical average values for ARYs is made up of Basel, Berne, Lausanne, Winterthur and Lucerne, ranging about 20 bps above the average for Zurich and Geneva.
The Zurich office market is apparently at the center of investors’ attention as it is the segment for which we received the highest amount of answers. As compared to residential, ARY views for offices in Zurich are among the most homogeneous (as indicated by the lowest interquartile range) along with Geneva, Basel and Berne, while more dissent exists for the remaining cities – most notably St. Gallen.
Switching to the Regions, the number of answers remains high, indicating a broad market knowledge among participants. The exception is Southern Switzerland, for which only a small number of investors were able to provide their views on ARYs.
36 PwC Real Estate Investor Survey Switzerland – Office
Fig. 19 ARYs for office in Swiss submarkets by region
Basel Winterthur Northwestern Switzerland St.Gallen Zurich Zurich
Jura
Lucerne Berne Central Switzerland
Mittelland Eastern Switzerland Lausanne
Southern Switzerland Geneva Lake Geneva Region
Lugano
Zurich Geneva Basel Top 9 Cities 2.5%/3.3%/4.3% 2.5%/3.3%/4.5% 3.0%/3.5%/4.5% Min./Average/Max. %
Berne Lausanne Winterthur Regions 3.0%/3.5%/4.5% 3.0%/3.5%/4.4% 3.0%/3.5%/4.5% Min./Average/Max. %
Lucerne St.Gallen Lugano 3.0%/3.5%/4.5% 3.2%/4.0%/4.5% 3.2%/3.7%/4.3%
Northwestern Central Eastern Southern Lake Geneva Zurich Jura Mittelland Switzerland Switzerland Switzerland Switzerland Region 3.7%/4.2%/5.2% 4.5%/5.0%/7.0% 4.0%/4.5%/5.5% 4.0%/4.5%/5.2% 3.8%/4.4%/5.1% 4.2%/4.8%/5.3% 4.5%/4.9%/6.4% 4.0%/4.5%/5.0%
Again, Zurich Region tops the list, followed by Central Switzerland. Jura, Southern and Eastern Switzerland rank at the bottom with average ARYs of between 4.8% and 5.0%.
When comparing the Regions’ ARYs with those of the cities they surround, spreads are significantly wider compared to the residential category. At the lower end in this regard are Eastern and Central Switzerland as well as Zurich with a spread of less than 100 bps above the cities of St. Gallen, Lucerne and Zurich, respectively. The widest spread was observed for Southern Switzerland and the Lake Geneva Region, when compared to the cities of Lugano and Geneva.
PwC Real Estate Investor Survey 37 Switzerland – Office
Expected 5-year yield development for office
Geneva
Zurich
Basel
Lausanne
Berne
Winterthur
Lucerne
St.Gallen
Lugano
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
38 PwC Real Estate Investor Survey Switzerland – Office
Fig. 20 Letting parameters for the Swiss office market Extension Annual market rent Rent-free period (months) Marketing period (months) probability growth rate Top 9 Cities Min. Med. Max. Min. Med. Max. Zürich 0 2 7 3 6 12 70.0% –1% Genf 0 4 8 3 8 12 60.0% –2% Basel 0 3 6 3 7 12 70.0% 0% Bern 0 3 6 2 7 12 70.0% 0% Lausanne 0 2 6 3 6 12 70.0% 0% Winterthur 0 3 6 3 6 12 70.0% 0% Luzern 0 4 6 3 8 12 68.0% 0% St.Gallen 2 4 6 3 9 12 68.0% –2% Lugano 1 6 8 3 8 12 70.0% –2%
PwC Real Estate Investor Survey 39 Switzerland – Retail
4.3 Retail High Street Retail
All-risk-yields
Zurich tops the list with the lowest ARYs in the retail sector (minimum of 2.5%, average of 3.05%). This time, however, Switzerland’s largest city distances its peers: 25 bps separate Zurich’s average retail yields from those in Geneva, another 35 bps (i.e. 60 bps in total) from those in Basel. At the bottom of the bunch is Lugano with a 3.9% average ARY, followed by Lucerne and Winterthur with 3.8%.
For the Regions, the Lake Geneva Region (4.25% average ARY) and Central Switzerland (4.28%) move ahead of Zurich (4.40%). Notably, the Region of Zurich is the one exhibiting the largest spread above the city values with +135 bps for the average ARY, while it is lowest for Central Switzerland with 48 bps over Lucerne.
40 PwC Real Estate Investor Survey Switzerland – Retail
Fig. 21 ARYs for retail in Swiss submarkets
Basel Winterthur Northwestern Switzerland St.Gallen Zurich Zurich
Jura
Lucerne Berne Central Switzerland
Mittelland Eastern Switzerland Lausanne
Southern Switzerland Geneva Lake Geneva Region
Lugano
Zurich Geneva Basel Top 9 Cities 2.5%/3.1%/3.8% 2.5%/3.3%/4.0% 3.1%/3.7%/4.4% Min./Average/Max. %
Berne Lausanne Winterthur Regions 3.2%/3.7%/4.2% 3.2%/3.7%/4.3% 3.4%/3.8%/4.4% Min./Average/Max. %
Lucerne St.Gallen Lugano 3.3%/3.8%/4.1% 3.5%/3.7%/4.4% 3.5%/3.9%/4.6%
Northwestern Central Eastern Southern Lake Geneva Zurich Jura Mittelland Switzerland Switzerland Switzerland Switzerland Region 3.8%/4.4%/5.0% 4.3%/5.0%/5.6% 4.3%/4.9%/5.5% 4.0%/4.9%/5.3% 3.9%/4.3%/4.5% 4.3%/4.4%/4.7% 4.4%/4.7%/5.0% 4.0%/4.3%/4.8%
PwC Real Estate Investor Survey 41 Switzerland – Retail
Expected 5-year yield development for high street retail
Geneva
Zurich Basel
Lausanne
Berne Winterthur
Lucerne
St.Gallen Lugano
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 22 Letting parameters for the Swiss retail market Extension Annual market rent Rent-free period (months) Marketing period (months) probability growth rate Top 9 Cities Min. Med. Max. Min. Med. Max. Zürich 2 4 6 3 7 12 62.5% –2% Genf 2 4 6 3 7 12 60.0% –3% Basel 2 4 6 3 7 12 60.0% –4% Bern 2 4 6 3 7 12 60.0% –1% Lausanne 2 4 6 3 8 12 60.0% –2% Winterthur 2 4 6 3 8 12 60.0% –3% Luzern 2 4 6 3 8 12 60.0% 0% St.Gallen 3 5 8 5 9 12 60.0% –3% Lugano 3 5 5 5 9 12 57.5% –3%
42 PwC Real Estate Investor Survey Switzerland – Retail
Non-High Street Retail
Fig. 23 ARYs for Swiss non-high street retail Annual market rent All-risk-yield growth rate Min. Avg. Max. Out-of-town shopping center 4.0% 4.7% 5.2% –1.0% Retail park 4.0% 4.9% 5.4% 0.0% Supermarket 3.7% 4.8% 5.2% 0.0% DIY store 4.0% 5.0% 5.2% 0.0%
Exspected 5-year yield development for non-high street retail
Out-of-town shopping center
Retail park
DIY store Supermarket
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 24 Letting parameters for Swiss non-high street retail Rent-free period Marketing period Extension (months) (months) probability Min. Med. Max. Min. Med. Max. Out-of-town shopping center 3 6 12 6 11 15 55.0% Retail park 3 6 11 6 9 12 60.0% Supermarket 3 6 9 6 9 12 70.0% DIY store 3 6 12 6 11 18 60.0%
PwC Real Estate Investor Survey 43 Switzerland – NOI Analysis
Logistics4.4 NOI Analysis
As for the calculation of net operating income (NOI) for residential real estate, Swiss participants generally deducted non-recoverable operating expenses – comprised of service charges, maintenance expenses, property management and rent loss. About two thirds further deducted leasing commissions and Capex. While most participants agreed on the deductions per se, the dispersion of the answers (measured by the interquartile range) is above 500 bps for all three of the above cost groups.
For office properties, all respondents deducted non-recoverable operating expenses, comprised of service charges, maintenance expenses, property management and rent loss in their NOI calculations. Further, similar to residential investments, 62% of respondents included Capex for offices. As for leasing commissions and especially tenant improvements, the fraction of respondents deducting these items in their NOI calculation has increased significantly compared to residential investments: from 30% for tenant improvements and 62% for leasing commissions to 71% and 76%, respectively.
The dispersion in the size of the deduction is generally lower for office than for the residential category. The exception being leasing commissions, where the gap between the first and third quartile of all answers is above 700 bps.
Comparing the NOI calculation models for office spaces to those in the residential sector, deductions for NROE (+180 bps), tenant improvements and leasing commissions (+100 bps) are higher for offices, while the Capex deduction is estimated to be 175 bps lower.
In the retail space, NOI calculation models resemble those of office spaces. Virtually all respondents deducted non-recoverable operating expenses, comprised of service charges, maintenance expenses, property management and rent loss. Tenant improvements were deducted by 70%, leasing commissions by 85 % and Capex by 60% of respondents.
As for the size of the deduction, numbers largely correspond to those for office spaces, the only difference being a lower deduction for leasing commissions in the retail space.
44 PwC Real Estate Investor Survey Switzerland – NOI Analysis
Fig. 25 NOI calculation method Swiss residential
Min. Med. Max.
Assumption sum of non-recoverable OpEx 4.5% 14.2% 20.3%
Assumption non-recoverable service charges 1.0% 2.5% 6.0%
Assumption maintenance expenses 3.0% 6.0% 12,5%
Assumption property management 3.0% 3.5% 5.0%
Assumption rent loss 0.0% 1.5% 4.0%
Assumption tenant improvements 0.0% 1.0% 3.0%
Assumption leasing commisions 0.5% 1.0% 10.0%
Assumption Capex 2.0% 6.0% 9.4%
0% 5% 10% 15% 20% 25%
Fig. 26 NOI calculation method Swiss office
Min. Med. Max.
Assumption sum of non-recoverable OpEx 10.5% 16.0% 23.0%
Assumption non-recoverable service charges 0.5% 2.0% 5.0%
Assumption maintenance expenses 2.5% 5.5% 12.0%
Assumption property management 3.0% 3.5% 5.0%
Assumption rent loss 0.3% 5.0% 8.5%
Assumption tenant improvements 0.3% 2.0% 5.0%
Assumption leasing commisions 0.5% 2.0% 12.0%
Assumption Capex 0.0% 4.3% 9.0%
0% 5% 10% 15% 20% 25%
Fig. 27 NOI calculation method Swiss retail
Min. Med. Max.
Assumption sum of non-recoverable OpEx 10.2% 16.0% 20.5%
Assumption non-recoverable service charges 0.5% 2.0% 5.0%
Assumption maintenance expenses 1.0% 5.8% 10.0%
Assumption property management 3.0% 3.5% 4.2%
Assumption rent loss 0.3% 5.0% 10.0%
Assumption tenant improvements 1.0% 2.0% 3.0%
Assumption leasing commisions 0.5% 1.5% 12.0%
Assumption Capex 0.0% 4.3% 9.0%
0% 5% 10% 15% 20% 25%
PwC Real Estate Investor Survey 45 Overview of the results
Overview of the results 5
46 PwC Real Estate Investor Survey Overview of the results
Fig. 28 Yield comparison Germany
6% 5%
4%
3%
2%
1%
0%
–1% 31/12/2014 30/06/2015 31/12/2015 30/06/2016 31/12/2016 30/06/2017 31.12.2017
PwC AVG ARY Office1 CPI Index3 PwC AVG ARY Retail1 10-y Germany government bonds4 PwC AVG ARY Logistics2 3-M-Euribor5
1 Source: AVG ARY includes only min ARY for Top7 Cities and Regional Cities 2 Source: AVG ARY includes only min ARY for Top15 locations 3 Source: Statistisches Bundesamt (Germany) 4 Source: Bloomberg 5 Source: ECB: Historical close, average of observations through period
Fig. 29 Yield comparison Switzerland 31.12.2017 PwC AVG ARY Residential (AVG ARY includes only min ARY for Top 9 Cities) 2.8% PwC AVG ARY Office (AVG ARY includes only min 2.9% ARY for Top 9 Cities) PwC AVG ARY Retail (AVG ARY includes only min 3.1% ARY for Top 9 Cities) CPI Inflation1 0.8% 10-y Swiss government bond yield2 – 0.1% 3-M Libor CHF3 –0.7%
1 Bundesamt für Statistik (Switzerland), 12 February 2018 2 Bloomberg 3 Swiss National Bank
PwC Real Estate Investor Survey 47 Overview of the results
Result overview for Germany
Fig. 30 Results overview for office Current 6 months ago 12 months ago Min. Med. Max. Annual market rent Min. Med. Max. Min. Med. Max. growth rate Top 7 Cities Berlin 3.0% 4.2% 5.7% 3.6% 3.1% 4.3% 5.8% 3.5% 4.7% 6.1% Düsseldorf 3.6% 4.7% 6.2% 1.7% 3.8% 5.0% 6.4% 4.0% 5.1% 6.3% Frankfurt am Main 3.3% 4.3% 5.6% 1.9% 3.5% 4.5% 6.0% 3.8% 4.8% 6.2% Hamburg 3.3% 4.3% 5.7% 1.5% 3.4% 4.5% 6.1% 3.6% 4.7% 6.1% Cologne 3.7% 4.7% 6.0% 1.5% 3.8% 5.0% 6.6% 4.1% 5.2% 6.4% Munich 3.0% 4.0% 5.1% 2.4% 3.0% 4.0% 5.3% 3.3% 4.2% 5.5% Stuttgart 3.5% 4.4% 5.6% 1.7% 3.6% 4.6% 6.0% 3.8% 4.8% 6.0% Regional Cities Bonn 4.2% 5.2% 6.4% 1.5% 4.6% 5.5% 6.9% 4.7% 5.5% 6.9% Bremen 4.7% 5.7% 6.9% 1.0% 4.9% 5.9% 7.2% 5.2% 5.9% 7.7% Dortmund 4.7% 5.6% 6.8% 1.0% 4.9% 5.9% 7.2% 5.0% 5.8% 7.2% Dresden 4.6% 5.6% 6.8% 1.3% 4.8% 5.8% 7.0% 5.1% 5.7% 7.4% Duisburg 5.2% 6.2% 7.5% 0.6% 5.3% 6.3% 7.7% 5.6% 6.2% 8.0% Erfurt 5.1% 6.0% 7.3% 0.9% 5.4% 6.3% 7.6% 5.7% 5.9% 8.0% Essen 4.7% 6.0% 6.9% 1.0% 5.0% 5.9% 7.1% 5.3% 5.8% 7.5% Karlsruhe 4.5% 5.3% 6.4% 1.3% 4.8% 5.7% 6.9% 5.0% 5.4% 7.4% Hanover 4.4% 5.3% 6.6% 1.4% 4.6% 5.7% 7.0% 4.8% 5.5% 7.1% Leipzig 4.5% 5.4% 6.6% 1.4% 4.7% 5.8% 7.3% 5.0% 5.7% 7.3% Magdeburg 5.5% 6.5% 7.9% 0.6% 5.7% 6.6% 7.9% 6.2% 6.4% 8.7% Wiesbaden & Mainz 4.4% 5.3% 6.6% 1.2% 4.7% 5.6% 7.1% 5.0% 5.6% 7.4% Nuremberg 4.3% 5.2% 6.3% 1.3% 4.5% 5.5% 6.9% 4.9% 5.3% 7.2% Rhine-Neckar MA/HD/LU 4.6% 5.4% 6.5% 1.4% 5.0% 5.7% 7.3% 5.2% 5.8% 7.5% Regions Lower Saxony & 5.3% 6.0% 7.3% 0.9% 5.5% 6.2% 7.6% 5.4% 6.0% 7.5% Schleswig-Holstein Mecklenburg-West 5.3% 6.4% 7.7% 0.6% 5.6% 6.6% 7.9% 5.2% 6.1% 7.7% Pomerania & Saxony- Anhalt & Brandenburg Saxony & Thuringia & 5.5% 6.3% 7.7% 0.5% 5.8% 6.5% 7.9% 5.5% 6.2% 7.7% North of Hesse (zip code: 3xxxx) North Rhine-Westphalia 5.0% 5.9% 7.3% 1.0% 5.2% 6.2% 7.5% 4.9% 5.8% 7.4% Rhineland-Palatinate & 5.3% 6.1% 7.5% 0.8% 5.7% 6.3% 7.7% 5.5% 5.9% 7.6% Saarland South of Hesse (zip code: 4.6% 5.5% 6.7% 1.4% 4.8% 5.6% 7.1% 4.8% 5.5% 6.9% 6xxxx) & Baden- Wuerttemberg Bavaria 4.5% 5.3% 6.6% 2.0% 4.7% 5.5% 6.9% 4.9% 5.1% 6.9%
48 PwC Real Estate Investor Survey Overview of the results
Fig. 31 Results overview for high street retail Current 6 months ago 12 months ago Min. Med. Max. Annual market rent Min. Med. Max. Min. Med. Max. growth rate Top 7 Cities Berlin 3.1% 3.9% 4.9% 1.3% 3.2% 3.7% 4.5% 3.3% 4.1% 5.0% Düsseldorf 3.3% 4.1% 5.0% 1.0% 3.4% 4.0% 4.9% 3.5% 4.2% 5.1% Frankfurt am Main 3.1% 3.8% 4.9% 0.8% 3.2% 3.8% 4.6% 3.5% 4.3% 5.1% Hamburg 3.2% 3.9% 5.1% 0.8% 3.2% 3.8% 4.6% 3.5% 4.2% 5.1% Cologne 3.5% 4.1% 5.3% 0.4% 3.4% 3.9% 4.8% 3.6% 4.3% 5.2% Munich 2.8% 3.6% 4.6% 1.4% 2.9% 3.5% 4.3% 3.0% 3.8% 4.5% Stuttgart 3.4% 4.0% 5.0% 0.6% 3.3% 3.8% 4.4% 3.5% 4.1% 4.9% Regional Cities Bonn 4.0% 4.7% 6.0% (0.3%) 4.0% 4.7% 5.6% 4.3% 4.9% 6.0% Bremen 4.3% 5.1% 6.2% 0.0% 4.4% 5.1% 6.0% 4.5% 5.4% 6.5% Dortmund 4.1% 4.9% 6.1% (0.2%) 4.2% 4.9% 6.2% 4.5% 5.3% 6.5% Dresden 3.9% 4.7% 6.1% 0.4% 3.9% 4.7% 5.8% 4.2% 5.1% 6.5% Duisburg 4.8% 5.7% 7.2% (0.6%) 4.7% 5.6% 6.7% 5.1% 5.8% 7.4% Erfurt 4.4% 5.2% 6.7% 0.0% 4.5% 5.2% 6.5% 4.9% 5.6% 6.8% Essen 4.3% 5.3% 6.2% 0.0% 4.2% 5.0% 6.0% 4.6% 5.5% 6.6% Karlsruhe 4.0% 4.8% 6.0% 1.0% 3.9% 4.7% 5.7% 4.4% 5.1% 6.4% Hanover 3.9% 4.6% 5.9% 0.4% 4.0% 4.7% 5.9% 4.3% 5.1% 6.3% Leipzig 4.1% 5.0% 6.1% 0.6% 4.0% 4.9% 5.8% 4.2% 5.1% 6.5% Magdeburg 4.9% 6.0% 7.0% (0.4%) 4.9% 5.8% 6.9% 5.4% 6.0% 7.4% Wiesbaden & Mainz 4.0% 4.9% 6.2% 0.4% 3.9% 4.7% 5.7% 4.5% 5.2% 6.6% Nuremberg 3.9% 4.7% 6.0% 0.8% 3.8% 4.5% 5.5% 4.2% 5.0% 6.3% Rhine-Neckar MA/HD/LU 4.0% 4.9% 6.0% 0.6% 4.2% 5.0% 6.0% 4.5% 5.4% 7.0% Regions Lower Saxony & 4.6% 5.2% 6.8% (0.1%) 4.7% 5.7% 7.2% 5.1% 5.4% 7.6% Schleswig-Holstein Mecklenburg-West 5.1% 6.1% 8.2% (0.3%) 5.0% 6.1% 7.8% 5.2% 6.0% 8.3% Pomerania & Saxony- Anhalt & Brandenburg Saxony & Thuringia & 5.1% 6.0% 8.1% (0.3%) 5.1% 5.9% 7.6% 5.5% 5.9% 8.1% North of Hesse (zip code: 3xxxx) North Rhine-Westphalia 4.8% 5.4% 6.9% (0.2%) 4.9% 5.7% 7.3% 5.1% 5.5% 7.8% Rhineland-Palatinate & 4.9% 5.8% 7.5% 0.3% 4.9% 5.8% 7.2% 5.2% 5.7% 7.6% Saarland South of Hesse (zip code: 4.3% 5.2% 6.8% 0.6% 4.3% 5.3% 6.7% 4.6% 5.3% 7.0% 6xxxx) & Baden- Wuerttemberg Bavaria 4.3% 5.1% 6.2% 0.2% 4.2% 5.1% 6.4% 4.4% 5.1% 6.5%
PwC Real Estate Investor Survey 49 Overview of the results
Fig. 32 Results overview for non-high street retail Current 6 months ago 12 months ago Min. Med. Max. Annual market rent Min. Med. Max. Min. Med. Max. growth rate Out-of-town shopping center 4.5% 5.7% 7.1% (0.1%) 4.3% 5.4% 7.0% 4.6% 6.3% 8.0% Retail park 4.8% 5.6% 7.2% 1.2% 4.7% 5.7% 7.8% 5.1% 6.8% 8.2% Supermarket 5.3% 6.1% 7.8% 1.1% 5.2% 6.2% 8.9% 5.4% 6.8% 8.4% DIY store 5.7% 6.4% 8.3% 0.4% 5.7% 6.6% 9.0% 6.2% 7.5% 9.0%
Fig. 33 Results overview for logistics Current 6 months ago 12 months ago Min. Med. Max. Min. Med. Max. Min. Med. Max. Top 15 Locations Berlin 4.7% 5.8% 7.2% 4.9% 6.2% 7.2% 5.1% 5.9% 7.4% Düsseldorf/Cologne 4.7% 5.8% 7.2% 4.9% 6.1% 7.2% 5.1% 6.1% 7.5% Rhine-Main/Frankfurt 4.6% 5.7% 6.9% 4.9% 6.1% 7.1% 5.0% 5.7% 7.2% Hamburg 4.6% 5.8% 7.1% 4.8% 6.1% 7.1% 5.1% 6.0% 7.3% Munich 4.5% 5.6% 6.7% 4.7% 5.9% 6.9% 5.0% 5.7% 7.1% Stuttgart 4.5% 5.6% 6.9% 4.9% 6.0% 7.1% 5.1% 6.1% 7.3% Bremen/North Sea ports 5.2% 6.4% 7.6% 5.5% 6.7% 7.5% 5.5% 6.5% 7.3% Dortmund 4.9% 5.9% 7.2% 5.4% 6.6% 7.6% 5.5% 6.4% 7.6% Halle/Leipzig 5.2% 6.4% 7.8% 5.5% 6.8% 7.7% 5.5% 6.4% 7.7% Hanover/Braunschweig 5.1% 6.4% 7.7% 5.6% 6.8% 7.7% 5.5% 6.4% 7.6% Kassel/Göttingen 5.2% 6.3% 7.6% 5.4% 6.6% 7.6% 5.5% 6.5% 7.6% Lower Bavaria 5.1% 6.3% 7.6% 5.5% 6.7% 7.5% 5.3% 6.5% 7.5% Nuremberg 5.0% 6.1% 7.2% 5.5% 6.6% 7.5% 5.5% 6.4% 7.4% Rhine-Ruhr 4.8% 5.9% 7.0% 5.3% 6.5% 7.5% 5.5% 6.4% 7.7% Ulm 5.0% 6.2% 7.6% 5.7% 6.8% 7.7% 5.7% 6.5% 7.7% Small Locations Small Locations 5.6% 6.4% 7.9% 6.1% 6.8% 8.0% 6.1% 6.6% 8.0%
Fig. 34 Overview participants Germany
13% 21% 13% 13% 9%
74% 57%
Participant Participant type investment focus
Investment Manager Developer Private Equity Retail Mix Logistics Office
50 PwC Real Estate Investor Survey Overview of the results
Result overview for Switzerland
Fig. 35 Results overview for residential Annual market rent All-risk-yield (current) growth rate Top 9 Cities Min. Med. Max. Zürich 2.5% 2.9% 3.5% 0.0% Genf 2.5% 3.0% 3.5% 0.0% Basel 2.8% 3.2% 3.7% 0.0% Bern 2.7% 3.2% 3.7% 0.0% Lausanne 3.0% 3.3% 3.6% 0.0% Winterthur 3.0% 3.3% 3.7% 0.0% Luzern 2.8% 3.3% 3.9% 0.0% St.Gallen 3.2% 3.4% 4.0% 0.0% Lugano 3.1% 3.5% 3.9% 0.0% Regions Zurich 3.0% 3.3% 4.1% 0.0% Northwestern Switzerland 3.3% 3.5% 4.3% 0.0% Central Switzerland 3.0% 3.6% 4.3% 0.0% Eastern Switzerland 3.4% 3.7% 4.5% –0.8% Southern Switzerland 3.3% 3.7% 4.1% –0.5% Jura 3.5% 4.1% 4.7% –1.0% Lake Geneva Region 3.1% 3.4% 4.5% 0.0% Mittelland 3.3% 3.7% 4.5% –0.3%
Fig. 36 Results overview for office Annual market rent All-risk-yield (current) growth rate Top 9 Cities Min. Med. Max. Zürich 2.5% 3.3% 4.3% –1.0% Genf 2.5% 3.3% 4.5% –2.0% Basel 3.0% 3.5% 4.5% 0.0% Bern 3.0% 3.5% 4.5% 0.0% Lausanne 3.0% 3.5% 4.4% 0.0% Winterthur 3.0% 3.5% 4.5% 0.0% Luzern 3.0% 3.5% 4.5% 0.0% St.Gallen 3.2% 4.0% 4.5% –1.5% Lugano 3.2% 3.7% 4.3% –2.0% Regions Zurich 3.7% 4.2% 5.2% –1.5% Northwestern Switzerland 4.0% 4.5% 5.2% –1.5% Central Switzerland 3.8% 4.4% 5.1% –1.0% Eastern Switzerland 4.2% 4.8% 5.3% –1.5% Southern Switzerland 4.5% 4.9% 6.4% –0.5% Jura 4.5% 5.0% 7.0% –1.0% Lake Geneva Region 4.0% 4.5% 5.0% –2.5% Mittelland 4.0% 4.5% 5.5% –2.0%
PwC Real Estate Investor Survey 51 Overview of the results
Fig. 37 Results overview for high street retail Annual market rent All-risk-yield (current) growth rate Top 9 Cities Min. Med. Max. Zürich 2.5% 3.1% 3.8% –2.0% Genf 2.5% 3.3% 4.0% –3.0% Basel 3.1% 3.7% 4.4% –4.0% Bern 3.2% 3.7% 4.2% –1.0% Lausanne 3.2% 3.7% 4.3% –2.0% Winterthur 3.4% 3.8% 4.4% –3.0% Luzern 3.3% 3.8% 4.1% 0.0% St.Gallen 3.5% 3.7% 4.4% –3.0% Lugano 3.5% 3.9% 4.6% –3.0% Regions Zurich 3.8% 4.4% 5.0% –2.5% Northwestern Switzerland 4.0% 4.9% 5.3% –3.5% Central Switzerland 3.9% 4.3% 4.5% –3.0% Eastern Switzerland 4.3% 4.4% 4.7% –3.0% Southern Switzerland 4.4% 4.7% 5.0% –4.5% Jura 4.3% 5.0% 5.6% –3.0% Lake Geneva Region 4.0% 4.3% 4.8% –4.0% Mittelland 4.3% 4.9% 5.5% –2.8%
Fig. 38 Results overview for non-high street retail Annual market rent ARY (current) growth rate Min. Med. Max. Out-of-town shopping center 4.0% 4.7% 5.2% –1.0% Retail park 4.0% 4.9% 5.4% 0.0% Supermarket 3.7% 4.8% 5.2% 0.0% DIY store 4.0% 5.0% 5.2% 0.0%
Fig. 39 Overview participants Switzerland 4% 4% 26%
61% 13%
92% Participant Participant type investment focus
Investment Manager Developer Pension Fund Residential Office Mix
52 PwC Real Estate Investor Survey Overview of the results
PwC Real Estate Investor Survey 53 Approach and Definitions
Approach and Definitions
In our survey, we concentrated on all-risk-yields or ARYs, as these reflect the relationship (capitalisation rate) between stabilised net operating income (NOI) and an expected purchase price. It thus takes into account the individual risk-return relationship and provides an insight into future market trends and developments in rent levels. The ARY is the capitalisation rate that is used in the direct capitalisation method. The ARYs presented in our results are a simple average of the single data points received for the respective submarkets.
To account for a broader market – comprising Core, Core+, and Value-Add properties – we put the ARYs into three categories: minimum (Core), maximum (Value-Add) and average (Core+). Using office properties in 6 Frankfurt as one example, we have defined these categories as follows:
54 PwC Real Estate Investor Survey Approach and Definitions
Fig. 40 Classification of the range of ARYs for the office market Location WAULT Vacancy Age Office Min. CBD (eg, Frankfurt Financial District) > 5 ~5%–10% < 5 years Average Immediate vicinity to CBD ~5 ~10%–15% ~5–20 years (eg, Frankfurt trade fair) Max. Peripheral office locations < 4 >15%– 40% < 25 years (eg, Frankfurt-Niederrad)
Regarding the retail sector, we separated in-town high street retail from location- independent retail. Out-of-town shopping centres, retail parks, single grocery stores and DIY stores represent typical subclasses of the location-independent retail market. Within location-independent retail, we view macro-locations to be of less importance, given that individual competition, performance and accessibility are the factors driving the value of such retail properties. As a result, we have divided the definition of retail as follows:
Fig. 41 Classification of the range of ARYs for high street retail Location/retail class WAULT Vacancy Age High street retail Min. City centre high street or 1a shopping > 5 < 5% < 5 years centre (Frankfurt Goethestrasse) Average Lesser frequented sections of the ~5 ~5% ~5–15 years high street Max. Close proximity to the high street, < 4 ~20% > 15 years within 100m distance
Fig. 42 Classification of the range of ARYs for location-independent retail Competition WAULT Vacancy Age Location-independent retail Min. Dominant situation > 5 < 5% < 5 years Average In competition with equal competitors ~5 ~5% ~5–15 years Max. Inferior to competitors < 4 ~25% > 15 years
For logistics properties we have defined three categories (minimum, maximum and average) as follows:
Fig. 43 Classification of the range of ARYs for the logistics market Motorway access Third party usability WAULT Age Logistics Min. < 5 minutes excellent ~10 < 5 years Average ~5–15 minutes good ~5 ~5–20 years Max. > 15 minutes limited < 4 > 25 years
The maximum yield does not cover assets that cannot be valued with a direct capitalisation method – that is to say, where there is no sustainable cash flow or opportunistic development assets.
PwC Real Estate Investor Survey 55 Approach and Definitions
German submarkets Based on Germany’s geographical structure, we have identified three categories of markets for office and retail properties: i) Top 7 Cities, ii) Regional Cities and iii) Regions. The Top 7 Cities reflect the ARYs of the seven most populated cities in Germany. Regional Cities represent a selection of 13 cities with a population ranging from 200,000 to 600,000. The Regions provide the yields in the respective areas, excluding all Top 7 Cities and Regional Cities.
Fig. 44 Identified German submarkets for office and retail
Top 7 Cities 14 Regional Cities 7 Regions
rt
We identified two additional markets for logistics properties which result from varying location requirements: i) Top 15 Locations and ii) Small Locations. The Top 15 Locations reflect the ARYs of the 15 most successful logistics locations in Germany in respect of the investment volume of the last five years and prime yields of the last two years. Small Locations represent the remaining established logistics regions in Germany.
Fig. 45 Identified German submarkets for logistics
56 PwC Real Estate Investor Survey Approach and Definitions
Switzerland submarkets We introduce two categories for the Swiss market – Top9 Cities and eight Regions. The map below reflects our definition.
Fig. 46 Identified Swiss submarkets
Top 9 Cities 8 Regions
In addition to ARYs, we have been covering market-specific letting assumptions since the third issue of the PwC Real Estate Investor Survey Germany. In the course of our research, we asked for typical Market Rent Growth Rates, Rent-Free Periods, Reletting Periods and Prolongation Probabilities for the market in question.
The rental growth rate is defined as the expected average annual rental growth rate over the next five years. Respondents provided a range and median for Rent-Free Periods and Reletting Periods (both in months) that are typically observed in the respective markets. The given underlying lease length is set at 7.5 years.
It is worth noting that we do not use a textbook definition of NOI. Our survey takes investment strategies into account and thus varies significantly among participants. We tried to identify which parameters are included in the NOI and which are accounted for below NOI. The results for the office and retail NOI calculation methods are provided in the respective sections.
We do not aim to obtain a uniform average ARY and so we have not adjusted single ARYs for a respective NOI calculation method. The resulting average office, retail or logistics ARYs are to be read as an average of single data points.
PwC Real Estate Investor Survey 57 Authors
Authors
58 PwC Real Estate Investor Survey Authors
PwC Germany
Thomas Veith Olga Dentzel Jan Cornelius Real Estate Deals Real Estate Deals Real Estate Deals Tel: +49 69 9585-5905 Tel: +49 69 9585-2460 Tel: +49 69 9585-3435 Mobile: +49 175 4340515 Mobile: +49 151 62427945 Mobile: +49 160 7434663 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]
Maximilian Helm Irina Lindner Adam Olek Real Estate Deals Real Estate Deals Real Estate Deals Tel: +49 69 9585-2453 Tel: +49 69 9585-1344 Tel: +49 69 9585-6092 Mobile: +49 171 7582018 Mobile: +4915158416790 Mobile: +4915125401562 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]
PwC Switzerland
Marie Seiler Samuel Berner Kevin Schmoker Real Estate Advisory Real Estate Advisory Real Estate Advisory Tel: +41 58 792-5669 Tel: +41 58 792-1739 Tel: +41 58 792-1548 Mobile: +41 79 8289635 Mobile: +41 79 4820598 Mobile: +41 79 2990431 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]
Acknowledgment We would like to thank our German colleagues Vi-Phong Ly, Robert Rauch, Sarah Schraub, Stephanie Angioletti as well as our Swiss colleagues Miriam Becker, Matthias Bernold, Laura Blaufuss, Marco Böhi, Arnaud Egéa, Dennis Geyik, Imelda Hecht, Rubina Insam for their helpful contributions to this survey.
PwC Real Estate Investor Survey 59 PwC Real Estate Practice
PwC Real Estate Practice
60 PwC Real Estate Investor Survey PwC Real Estate Practice
Germany Switzerland
Advisory Advisory Susanne Eickermann-Riepe Uwe Rittmann Kurt Ritz Friedrich-Ebert-Anlage 35–37 Moskauer Straße 19 Birchstrasse 160 60327 Frankfurt am Main 40227 Düsseldorf 8050 Zürich Tel: +49 69 9585-5909 Tel: +49 211 981-1998 Tel: +41 58 792-1449 E-mail: susanne.eickermann-riepe@ E-mail: [email protected] E-mail: [email protected] pwc.com Tax & Legal Tax Thomas Veith Uwe Stoschek Victor Meyer Friedrich-Ebert-Anlage 35–37 Kapelle-Ufer 4 Birchstrasse 160 60327 Frankfurt am Main 10117 Berlin 8050 Zürich Tel: +49 69 9585-5905 Tel: +49 30 2636-5286 Tel: +41 58 792-4340 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]
Dirk Hennig Dr. Michael A. Müller Assurance Kapelle-Ufer 4 Kapelle-Ufer 4 Adrian Keller 10117 Berlin 10117 Berlin Birchstrasse 160 Tel: +49 30 2636-1166 Tel: +49 30 2636-5572 8050 Zürich E-mail: [email protected] E-mail: [email protected] Tel: +41 58 792-2309 E-mail: [email protected] Dirk Kadel Helge Dammann Friedrich-Ebert-Anlage 35–37 Kapelle-Ufer 4 60327 Frankfurt am Main 10117 Berlin Tel: +49 69 9585-5583 Tel: +49 30 2636-5222 E-mail: [email protected] E-mail: [email protected]
Dr. Harald Heim Marcel Mies Kapelle-Ufer 4 Moskauer Straße 19 10117 Berlin 40227 Düsseldorf Tel: +49 30 2636-1354 Tel: +49 211 981-2294 E-mail: [email protected] E-mail: [email protected]
Thorsten Schnieders Sven Behrends Bernhard-Wicki-Straße 8 Bernhard-Wicki-Straße 8 80636 Munich 80636 Munich Tel: +49 89 5790-6448 Tel: +49 89 5790-5887 E-mail: thorsten.schnieders@ E-mail: [email protected] pwc.com Josip Oreskovic-Rips Dr. Andreas Schillhofer Friedrich-Ebert-Anlage 35–37 Friedrich-Ebert-Anlage 35–37 60327 Frankfurt am Main 60327 Frankfurt am Main Tel: +49 69 9585-6255 Tel: +49 69 9585-5533 E-mail: josip.oreskovic-rips@ E-mail: andreas.schillhofer@ pwc.com pwc.com Nathan Gelbart Assurance Kapelle-Ufer 4 Eva Handrick 10117 Berlin Friedrich-Ebert-Anlage 35–37 Tel: +49 30 2636-3360 60327 Frankfurt am Main Mobile: +49 151 54345764 Tel: +49 69 9585-2217 E-mail: [email protected] E-mail: [email protected]
Gregory Hartman Kapelle-Ufer 4 10117 Berlin Tel: +49 30 2636-4214 E-mail: [email protected]
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