DIRECT MARKET REPORT GERMAN RETAIL - Europe Real Estate

Rental levels
Not only prime assets in major cities are faced with rising rents as these are
occupied by financially healthy high turnover global franchise companies, but also
in medium sized cities and conurbations. The major difference is the level of
rents. Munich is still the most expensive place to lease retail space (EUR 260/m 2 ).
Cologne (EUR 200/m 2 ), Düsseldorf (EUR 185/m 2 ) and not to forget Leipzig
(+9.5% y.o.y.) due to the improved quality of shops and reversed migration of
spending power. The Peterstrasse for instance has shown EUR 115/m 2 in some
prime units, which is way above the eastern German average. A further increase
is expected. In Berlin a pick-up is visible as well due to revitalisation and
restructuring around the Alexander Platz. The Kurfürstendamm does EUR 200/m 2
today. In other prime areas –in for instance Hamburg- rents remained flat. For
the whole of retail Germany it is expected that rents in prime locations increase
by 3.6%, although clear regional differences must be taken into account.
The study performed by the Hahn Group showed that only 30% of all surveyed
retailers think rents will increase upon renewal. But 56.7% of retailers believe that
rents in newly developed assets will rise, 73.3% expect rent rates of existing
properties to remain unchanged or to rise. 33% think that they are still to reap
the rewards of Germany’s economic growth.
However, the situation in B-grade locations and urban district centres remains
strained. Demand remains reserved and marketing of retail meters is still difficult
considering the constant pressure on rents. In the most positive scenario rental
levels stop declining. In fact, a focused retail trade compatible and urban
development upgrade is recommended for these locations. Investments in newly
custom built multi-functional retail centres with a first class yield oriented
management structure are nevertheless attractive from an investment and tenant
perspective. “We all need to shop”.
Exhibit 28 Rent levels for prime assets in Germany
300
250
200
150
100
50
0
Essen Dresden Leipzig Hamburg Berlin Düsseldorf Cologne Stuttgart Frankfurt Munich
Source: Cushman & Wakefield
Prime retail rents/month Jun-06 Prime retail rents/month Jun-07
Another asset class is distressed retail on promising locations. These properties
are mainly sought by Anglo-Saxon investors, who trust that they can achieve a
speedy turnaround of the objects. This is essentially fuelled by the expectation
that a change of tenant will go hand-in-hand with a mid-term increase of rent,
either by raising the rent or through better exploitation of the rental area. Added
to this is the view that the current economic climate will enable filling the existing
vacancies in the objects with relevant usages and thus to improve rental income
substantially. However, one needs to understand the needs of the indigenous
tenant and market at best.
German retail update - 28/11/2007 31