Baltics Part of the CBRE affiliate Network Riga Offices, Q1 2018 Rent levels stable despite low vacancy, A class developers showing more confidence. Total Stock Take-up Vacancy Rate Completions Prime Yield 618,800 sq m 9,400 sq m 3.4% 3,700 sq m 6.75% (-0.25 p.p) Arrows indicate change from the corresponding quarter in the previous year Figure 1: Total Modern Office stock Overview Q1 2016-Q1 2018 30 000 5.0% 4.5% 25 000 4.0% 3.5% 20 000 3.0% 15 000 2.5% 2.0% 10 000 R² = 0.2569 Modern office sq m office stock, Modern 1.5% 1.0% 5 000 0.5% 0 0.0% Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Vacant Space, sq m Completions, sq m Absorption, q-o-q, sq m Take-up, sq m Vacancy Rate, % (the right axes) Linear (Take-up, sq m) Source: CPB Real Estate Services, part of the CBRE Affiliate Network, April, 2018 Q1 2018 SUMMARY • Overall vacancy for existing modern offices during Q1 • Latvia's economic growth surpassed expectations with a has declined from 3.5% to 3.1% since Q4 2017. strong and broad-based upswing in 2017 and GDP grew by 4.5% y/y. In 2017, Latvian exports of goods • The prime rent level has increased to 17 EUR/sq and services increased by 4.8% while imports increased m/month, whilst the prime yield has remained stable at by 9.5%. Turnover and volume of sales in the wholesale 6.75%, a compression amounting to 0.25 p.p y/y. and retail trade , excluding automotive and fuel, grew by 6.6% in 2017 y/y. • Modern stock take-up in Q1 2018 amounted to ca. 9,400 sq m, a decline of 13% y/y. • The latest data from the ECB shows that in March 2018 the average level of consumer prices rose by 2.3 % y/y. • Modern stock absorption was ca. 6,200 sq m, a 32% increase sequentially when compared to Q4 2017 and • The unemployment rate in Latvia decreased from 8.3% close to 26,600 sq m y/y. in Q4 2017 to 7.8 % in Q1 2018. • Signed leases during Q1 2018 indicate that the IT and • Modern office stock in Riga has increased from ca. telecommunications segments were the most active in 615,000 sq m to ca. 618,800 sq m, an increase of the market. Overall, take-up this quarter was driven by 0.62% sequentially with the completion of «Imperial relocations and expansions of established enterprises. Palace» at Brivibas Boulevard 21, Riga. Q1 2018 CBRE Research © 2018 CPB Real Estate Services, Affiliate of CBRE 2018 | 1 RIGA OFFICES Baltics SUP P LY ( M ODER N OFFICE STOCK) Figure 2: Riga Office Market Take-Up, Q1 2017-Q1 2018 Part of the CBRE affiliate Network During Q1 2018, the stock of class A and class B modern office buildings in Riga increased by ca. 3,700 sq m, 20 000 amounting to 618,800 sq m of GLA in total, out of which ca. 15 000 408,800 sq m (66%) was speculative (including BTS) and ca. 210,000 sq m (34%) was owner-occupied space. m Sq 10 000 Currently there is ca. 131,700 sq m of GLA (~21% of current 5 000 supply) under construction or in the latter stages of planning (12 developments), of which 26% or ca. 34,700 sq 0 m is represented by renovations/reconstructions. 55,600 sq Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 m is scheduled to be delivered by the end of 2018. The largest office projects scheduled for delivery this year Source: CPB Real Estate Services, part of the CBRE Affiliate Network; Q1 2018 are Z-Towers (ca. 24,000 sq m) and Jauna Teika, Teodors (ca. 16,300 sq m). Jeruzalemes 1, a ca. 7,700 sq m renovation Figure 3: Riga Offices average rent, EUR / sq m / month, 2016-Q1 2018 project is expected to be delivered later this year. The only addition to Riga modern office stock during Q1 2018 was 21 Brīvības Boulevard, the «Imperial Palace» B1 class office 16.5 16.5 17 15.5 project of circa 3,700 sq m (comprehensive renovation) by 14 13 13.5 13.5 Baltic RE Group. The China Culture Center has pre-leased 14 14 close to 1,000 sq m in the building. 13 13.5 On account of the liquidation of ABLV bank, there was 8 8 8 uncertainty surrounding Phase 1 of New Hanza featuring ca. 7 20,200 GLA, however it has been announced that 2015 2016 2017 2018 Q1 development will continue, albeit with an expected delivery Class A Class B delay until 2021. Judging from the market dynamics of the past few years, Source: CPB Real Estate Services, part of the CBRE Affiliate Network; Q1 2018 market absorption has generally risen to accomodate new completions and 2017 marked a strong y/y uptrend in terms Figure 4: Distribution of Riga modern office stock, % of total GLA of take-up, however it remains to be seen how the market handles such a sharp influx of office space over the course Skanstes/Modern Center of 2018/2019. It is clear that confidence shown by 16% CBD developers is increasing and the general market sentiment 32% is positive. However, some of the development pipeline Purvciems may be delayed on account of absorption uncertainty, 7% particularly pertaining to the necessary new international Other tenant entries to the market. On the other hand, the 7% improving economic environment coupled with the increasing pace of obsolescence among older stock Mukusalas district Ciekurkalns 11% properties continues to drive positive sentiment in the Riga Kipsala Duntes district 14% office segment. 5% 8% RELOCATIONS PLAY THE LEADING R OLE Source: CPB Real Estate Services, part of the CBRE Affiliate Network; Q1 2018 Q1 2018 was characterized by average occupier demand, Figure 5: Riga modern office stock vacancy rates, Q3 2017-Q1 2018 with total take-up at ca. 9,400 sq m, down 46% sequentially, but in-line y/y when compared to Q1 2017. Absorption was Vacancy Q1 2018 Q4 2017 Q3 2017 ca. 6,200 sq m, an increase of 32% compared to Q4 2017 Rate and 26,600 sq m y/y. Overall 3.1% 3.5% 3.4% In Q1 2018, demand was driven by relocations and expansion of existing enterprises. Although total leasing Class A 0.5% 0.0% 0.6% activity has dropped compared to Q4 2017, it remains in- line y/y with a slight decrease. Signed leases during the Class B1 3.1% 3.7% 3.0% quarter indicate that the IT and telecommunications Class B2 4.5% 4.5% 4.7% segments were the most active in the market. Source: CPB Real Estate Services, part of the CBRE Affiliate Network; Q1 2018 Q1 2018 CBRE Research © 2018 CPB Real Estate Services, Affiliate of CBRE 2018 | 2 RIGA OFFICES Baltics Figure 6: Total Modern Office Stock by Locations and Vacancy in Q1 2018 Part of the CBRE affiliate Network 175 000 10% 150 000 8.7% 8% 6.8% 7% 125 000 6.7% 6% 100 000 5% 75 000 4.5% Sq m Sq GLA 4% 50 000 2.8% 2% 1.8% 2.0% 25 000 1% 0.7% 1.1% 1.0% - 0.3% 0% Occupied, sqm GLA Vacant space, sq m Overall vacancy, % Source: CPB Real Estate Services, part of the CBRE Affiliate Network, April 2018 Figure 6: Planned completions, Q1 2018-2021 Project Address District Developer Office GLA, sq m Year SALMO Biroji * Skandu St.7, Riga Imanta Salmo Invest 4 000 2018 Jauna Teika, Teodors Gustava Zemgala Ave.78, Riga Teika Hanner 16 300 2018 Z-Towers Ranka dambis 30, Riga Kipsala district SPI Group 24 000 2018 InDI BC expansion* Uriekstes St.2a, Riga Ganibu dambis Ganibu Dambja BC 4 000 2018 Jeruzalemes 1* Jeruzalemes 1, Riga CBD Dyninno Group 7 700 2018 Business Garden Riga, 1st stage Liela St. 3, Marupe Ulmana district VASTINT 14 200 2019 Akropole Riga Salaspils St.4, Riga South district Akropolis Group 9 000 2019 Origo ONE Stacijas Sq.2, Riga CBD Linstow 11 500 2019 SWH Office Centre* Skanstes St.50/52, Riga Skanste/Modern center SWH Grupa 12 000 2019 Jauna Teika, Henrihs Gustava Zemgala Ave.78, Riga Teika Hanner 22 000 2019 TELEGRAPH Offices* Audeju St.15, Riga CBD NBP Group 3 040 2019 RedLine offices* Ganibu dambis 24a, Riga Ganibu dambis Dambis biroji 4 400 2019 Valdemara biroji* K. Valdemāra St. 118, Riga Skanste/Modern center LNK Properties 7 000 2019 ELEMENTAL Skanste, 1st stage Skanstes St., Riga Skanste/Modern center Kapitel 22 700 2020 Capital City Krasta St. 99, Riga South district Capital Mill 32 000 2020 Salas Offices Mukusalas St. Mukusalas district Bauplan Nord 4 650 2020 New Hanza, 1st stage Pulkveza Brieza St., Riga Skanste/New CBD Pillar/AB LV 14 300 2021 * Renovations / reconstructions Source: CPB Real Estate Services, part of the CBRE Affiliate Network; Q1 2018 space on average, while class B premises were available VACANCY for EUR 8-14. Rents have remained at a similar level The overall vacancy rate of the modern office stock in since 2016. In select A class projects rents can reach EUR Riga was 3.1% at the end of Q1 2018, a change of -0.4% 18 / sq m/ month.