Market Report 2011 GerMany - Europe Real Estate

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Market Report 2011 GerMany - Europe Real Estate

Market report

GerMany

2011


Contents

Foreword 2

Trends on the German office market

(executive summary) 3

Macroeconomic conditions in Germany 5

Office markets:

Most recent developments and projected trend 7

A-locations: Recovery in prime locations,

stabilisation in secondary locations 7

Regional markets: Robust development 15

IVG office market scoring:

Attractiveness of locations for

office investments 17

Investment market for office buildings 20

Notes:

Overview of the German office markets 2011 24

Office market scoring methodology 26

Glossar y 27

Imprint 28

1


2

Dear Readers,

In forming a valid opinion concerning the much talked about upturn, it is useful to examine it in detail. Firstly, in

geographical terms: The level of interest in what are described as B-locations is increasing significantly again – both

among domestic and foreign investors. This is an opportunity for us to present no fewer than 75 locations including

the TOP 7 as viewed from our investment perspective.

Next in line is construction activity: Walking around Germany’s office locations these days, one thing is immediately

apparent: The cranes are missing. A great many people still attribute this to “the recession”. And they are correct

insofar as current restraint in the area of development projects is still a cyclical reaction to the implosion of the

financial markets. However, this situation will change during the course of the year.

And finally, we turn our attention to the development of revenue and rents: In the interim, expectations of increasing

rents have returned to rental markets. The jubilant announcements of the fourth quarter of 2010, which saw a veritable

explosion in the number of leases agreed, are still ringing in the ears of many. Viewed superficially, this may

be interpreted as additional evidence of an upturn. However, closer inspection initially reveals that this still relates to

the decisions postponed during 2009 and 2010. Real increases in rents have thus far been confined to the top end

of the market. However, fears can also be dispelled in this area during the current year. The emerging price trends

are generally positive and although still rather sluggish, they are clearly visible in overall terms – and concentrated

disproportionately in the premium sector.

From the perspective of IVG, the scenarios outlined above do reflect a market reality that puts Germany as a realestate

location firmly back on a classic upturn trajectory. Or to quote our rather more exuberant American colleagues:

We’re at the centre of the “perfect storm”. Which brings us to the issue for investors: Where to invest in Germany

during this upturn outside the promising TOP 7? You’ll find answers to this question in our location scoring, which we

are publishing for the first time.

This Market Report Germany 2011 also aims to give you answers to other important questions: Where is the upside

in the German real-estate market? “Only” in terms of economic recovery? How long will the recovery that is currently

being talked up actually last? How do we deal with ever increasing vacancy levels? What role do the B-locations

have to play in national and international investment activities? To what extent will added value be the next investment

level for investors?

With this market report by IVG Research, our aim is not only to provide answers to the question outlined above. We

also wish to provide an overview of the market figures in the real estate location of Germany in 2011.

We hope you enjoy reading it

Oliver Voß Thomas Beyerle


Trends on the German office market

(executive summary)

The strong economic upturn has triggered an about-turn in the rental market for

office space in Germany: As a result, take-up is returning to above-average levels,

vacancy levels are stabilising while prime rents are starting to rise again.

Take-up in the seven major rental markets were characterised by higher rental

activities by providers of corporate, telecommunications and financial services

and by a high number of extensive single transactions.

There are good prospects of a further recovery of the markets in this area:

Rising numbers of office employees have induced additional demand for modern

premises, which will be difficult to meet during 2011 and 2012 due to the low

level of speculative construction activity. This is fuelling expectations of a noticeable

shortage of high-quality space and rising prime rents.

Whereas high-quality office buildings in attractive secondary locations are also

set to profit increasingly from improved economic conditions, the upturn will

bypass older buildings of average quality. So far, there is no prospect of a noticeable

reduction in the level of structural vacancy!

In some cases, the regional office centres are one step ahead of the major

markets: The lack of speculative building completions during years has not only

reduced take-up but also vacancy on average for the locations under review.

Prime rents are stable or even rising.

However, our office market scoring system indicates that the regional centres can

only match the appeal of the seven major markets from an investor’s perspective

if they can offset the disadvantage of a smaller market volume with better

economic and demographic future prospects and a lower market risk.

The scoring model identified Munich and Hamburg ahead of Stuttgart, Frankfurt

and Cologne as the most attractive locations for office building investments in the

long term. At the lower end of the list are those regional centres with a stronger

industrial base or with structural adjustment problems. The regional differences

in the attractiveness of investments are clearly reflected by the achievable initial

yields.

During the last year, 88% of office building investments were concentrated in

the seven office strongholds, in which purchases of core properties by financially

strong investors dominated.

Whereas the past few months saw prime initial yields for core properties

approach the lower end of the range, neither the secondary locations of the major

office markets nor the regional centres have yet seen any noticeable yield compression.

Active investors both inside and outside of Germany are therefore likely to focus

on offices in secondary locations/regional centres, all the more so as their tolerance

for risk increases in view of the positive outlook of the economy in general

and rental market. At the same time, the value-add strategies in investments are

becoming increasingly important.

The limited availability of credit, due not least to the new Basel III regulations, will

continue to pose an obstacle to speculative project developments and the realisation

of opportunistic strategies.

Despite the economic upturn, there are still persistent downside risks in general!

in million m 2

Office markets of the German TOP 7

8

6

4

2

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

TOP 7 vs. 20 regional centres

9

8

7

6

5

4

3

2

1

0

Vacancy Rent

'0 9 '10 '0 9 '10 '0 9 '10

105

100

95

90

85

80

Take-up Vacancies Ø Rent

TOP 7

20 regional centres

30

25

20

15

10

5

0

Rental index 2000 = 100

Comment: Graph refers to Berlin, Dusseldorf, Frankfurt a.M.,

Hamburg, Cologne, Munich and Stuttgart.

Total in million m 2

Source: IVG Research

Investment turnover in € billion

Investment market Germany

60

50

40

30

20

10

0

'05 '06 '07 '08 '09 '10 '11e '12e

Volume

Ø prime monthly rent in€/m²

Interest rate 10Y

German government bonds

Yield TOP 7

6%

5%

4%

3%

Source: BNP Paribas RE et al., forecast by IVG Research

Govt. bond yield vs. prime yield

3


4

Implications of IVG Research for the investment strategy

Leased core properties in the seven major markets: New investments constitute

a bet that rents will rise as yield compression in this segment is already largely

complete. For this reason, an exit strategy is worth mentioning.

Leased modern properties in attractive secondary locations in the major markets:

An interesting investment because entry prices are still relatively low and

because this area offers prospects for value appreciation through yield compression

and rent growth. Hold or invest!

Leased core properties in the regional centres: An attractive investment due

to relatively high initial yields and possible appreciation in value through yield

compression and rental growth. Small markets offer opportunities as well as

risks. Hold or invest!

Speculative new building projects in the seven major markets: An attractive

option but not without risks. Properties will be completed in 2013/2014, when

the rental market is likely to have reached its peak – or have just entered

another downturn. Restrictive financing continues to pose an obstacle to investment.

Speculative new builds in regional centres: Attractiveness and risk depend on

the respective market size. Assuming corresponding demand for space in the

relevant location, pre-letting should be possible.

Older and vacant properties in attractive locations: Value-add strategy in the

form of modernisation (if economically feasible) and new lettings will benefit

from the shortage in modern properties. Strategy can profit in the short term

from attractive entry prices.

Average number of vacant properties in poor locations: There is an on-going risk

of incurring losses due to the extremely high probability of structural vacancy in

this case. Properties are likely to be disposable only at a discount despite the

market recovery.

Properties in an over-rent situation: Interesting, as the over-rent is likely to

reduce over the next two years during the expected market recovery.

Attractiveness of office investments from yield/risk aspects

Building type Newly refurbished

property

Older property Future development

project

Percentage of properties let 100 % 0 % 100 % 0 % 100 % 0 %

Top 7: Central location

Top 7: Good secondary location

Top 7: Poor locations

Regional centre

from yield/risk perspectives

Attractive Average Avoid

Comment: Schematic, simplified presentation of alternative actions. The acquisition of vacant buildings

is based on a value-add strategy in the form of renting or modernisation.

Source: IVG Research

SWOT analysis of the German office market

Strengths

Europe’s largest market: Seven locations with between

7.5 and 20 million m² of office space

Economic fundamentals: High level of international

competitiveness, low public debt

In an international comparison, the market is

characterised by moderate volatility and a high level of

internal diversification

No exchange rate risk for investors from the Eurozone

Rental periods long: 5 years + optional additional

5 years

Market players on an increasingly international footing

Weaknesses

Transparency regarding individual transactions could

be improved (including rents, yields)

Lack of uniform general conditions, e.g. property

acquisition tax levied by Federal States, urban planning

legislation

Taxation of property yields is relatively high

In some cases, contracts make no provision for inflation

protection: Large number of possible adjustment

rules in Germany

Opportunities

High demand for floor space: upturn and structural

change

Lack of new building, shortage of office supply and

rental growth in the modern, efficient property segment

Increased activity by international investors

Yield compression outside the prime segment as

investors accept higher risks

Inflation is driving investors into real estate; rental

growth

Value-add, e.g. letting of high-quality vacant buildings

in good locations, modernisations

Threats

The risk of another international economic crisis, e.g.

Eurozone sovereign debt, Arabian upheaval, Japan

Interest rate increases: Upward pressure on initial

yields

Danger of overheating in the medium term: Pro-cyclical

new construction activity

High level of structural vacancy is only being reduced

slowly; long-term problems securing tenants in some

office locations

Demographic development is already leading to

overcrowding in some regional centres

Increase in the level of property acquisition tax (e.g. in

North Rhine-Westphalia)

Source: IVG Research


Macroeconomic conditions in Germany

Economic growth: upturn remains intact

During the past year, Germany recorded the highest economic growth since reunification.

There were several reasons for the increase in economic output of 3.6%. The

rapid and powerful recovery of the global economy led to a significant increase in

exports. In addition, inventory investments made a significant contribution to growth.

Since last year’s feared collapse in the labour market did not occur, even private consumption

increased slightly.

However, the growth momentum in Germany weakened in the fourth quarter of 2010.

This was due primarily to the unusually cold weather conditions which affected the

construction sector in particular. Aside from this, the upturn remains stable – the Ifo

business climate is at a level similar to the high recorded during the reunification

phase. The Purchasing Managers’ Index (PMI) and incoming order levels indicate that

the German economy has picked up speed again during the first quarter of 2011.

Most recent economic forecasts point to high economic growth of roughly 2.8%

in Germany for the current year. A slowing global economy could see this figure

drop to around 2% next year (due to the dampening effect of rising prices for raw

materials and the consolidation of public budgets). In this context, domestic demand

due to capital spending and private consumption is likely to play an increasingly

important role.

It is important to emphasise once again that the economy remains exposed to significant

downside risks – it is not yet possible to estimate the consequences of the

catastrophe in Japan for the global and the German economy given the uncertainty

regarding developments at the Fukushima nuclear power plant. Political upheaval in

the Middle East and not least the Libyan conflict could have serious consequences

for the economic environment. And finally, there are persistent concerns regarding the

unresolved sovereign debt crisis in the Eurozone, the UK and in the US.

Labour market: expansion in the office-related sectors

of the economy

The economic upturn has also had a noticeable impact on the labour market over the

last few months – the number of people in gainful employment in February was 40.29

million, which is an increase of 494,000 over the previous year. Seasonally adjusted,

employment reached its highest level since reunification, totalling 40.717 million people.

The growth in service sector employment was particularly strong: In the fourth

quarter of 2010, a total of 388,000 new jobs were created in this sector representing

a year-on-year increase of 1.3%.

The vast majority, or 226,000, of these new jobs were created in the office-related

sectors of finance, letting and corporate services. However, even the manufacturing

industries successfully halted the job cuts of the previous year. Against this background,

the unemployment rate fell within a year from 8.5% to 7.6% in March 2011.

in %

GDP growth

4

3

2

1

0

-1

-2

-3

-4

-5

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Source: Federal Statistics Office, forecast by IVG Research

Index 2000 = 100

Ifo business climate Germany

120

110

100

90

80

70

'0 0 '02 '0 4 '06 '0 8 '10

Climate Location evaluation Expectation

Source: Ifo economic survey

in %

Employment

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Source: IMF, forecast by IVG Research

5


6

Leading economic indicators such as the BA-X labour market index issued by the Federal

Employment Agency and the Ifo Institute’s Employment Barometer suggest that

the upturn in the labour market in Germany is likely to continue this year. This is due

not least to the increasing number of service companies seeking to employ new staff.

The most recent forecasts by various economic research institutes – e.g. the Kiel

Institute for the World Economy the RWI – indicate that employment will increase

by over 1% during the current year. As a result, the labour market offers favourable

conditions for an expansion in office employment. This will lead to additional demand

for office space and a recovery in the rental markets in Germany.

Inflation rate currently above the target level of the ECB

The past few months have seen a noticeable acceleration in prices during the course

of the economic recovery. The general cost of living index in Germany in March 2011

was up 2.1% on the previous year’s figure. A central reason for this development are

higher prices for energy and foodstuffs.

Second-round effects of high wage demands or the passing on of higher costs to consumers

cannot be excluded. This applies all the more in Germany given that capacity

utilisation during the course of the vigorous economic recovery has once again

exceeded the long-term average value. Based on the most recent forecasts, Germany

can therefore expect an inflation rate of around 2.5% for the current year.

The European Central Bank’s price target of “close to, but just under 2%” was also

exceeded most recently in the Eurozone. Compared with the previous year, inflation

reached 2.4% in February. The European Central Bank has expressed its alarm over

the past few months at the higher expected inflation and has already announced an

initial increase of its key interest rate for April.

Most analysts assume that the key interest rate will be increased in a series of steps

from the current rate of 1.0% to 1.75% by the end of the year – even if the downside

risks to the global economy have increased again recently as a result of recent events

in Japan.

First increase of key interest rates by the ECB on the horizon

Against this background and given the favourable economic trends, interest rates on

European money and capital markets have increased significantly since September

2010. Most recently, the 3-month Euribor hovered around the 1.2% level, while the

rate for ten-year, fixed-interest German government bonds was roughly 3.3%. In this

context, interest rates trends remain extremely volatile due to the greater sensitivity

of investors, as reflected most recently by the impact of the serious natural catastrophe

in Japan.

Looking ahead to the end of 2011, a moderate rise of interest rates to 2.0% in the

case of the 3-month Euribor and around 3.5% for ten-year German government bonds

appears plausible against the backdrop of higher inflation expectations and the most

likely economic scenario.

The opportunity and financing costs of property investments are therefore likely

to increase during the coming months.

in %

Inflation rate

3

2

1

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Source: Bundesbank, forecast by IVG Research

Interest in %

in %

Interest structure curve

4

3

2

1

10-year bonds

6

5

4

3

2

1 2 3 4 5 6 7 8 9 10

Duration in years

Mar 10 Sep 10 Mar 11

Source: Daily press, average interest rate swap

'01 '03 '05 '07 '09 '11

Eurozone UK USA

Source: Oppenheim Research


Office markets: Most recent developments

and projected trend

A-locations: Recovery in prime locations, stabilisation

in secondary locations

Significant rise in office take-up …

The strong economic recovery has resulted in significantly higher rental activities

over the past year in the seven largest German office markets of Berlin, Dusseldorf,

Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Take-up in the seven cities during

2010 as a whole increased by a fifth to around 2.8 million m² compared to the weak

previous year.

In particular, providers of corporate services, players from the information and communication

technology sector as well as financial service providers but also companies

from the industrial and construction sectors were more active in the office rental

market than in 2009. In contrast, there was no major change in the take-up by the

public sector and by companies from the retail and transport sectors compared with

the previous year.

… especially in office locations in city suburbs and in the periphery

The increase in take-up was supported not least by a range of spectacular single

transactions, such as the pre-letting of 90,000 m² to Vodafone in the western part of

Dusseldorf, the start of construction of an office block with over 104,000 m² of floor

space in Frankfurt’s Ostend borough for the European Central Bank as owner-occupier

as well as the leasing of 40,000 m² to the City of Hamburg in HafenCity. Many of

these major transactions took place on city centre perimeters. For this reason, the

highest increases in take-up compared to the previous year were in city suburban

areas, where they rose almost a third. New and efficient office space is most likely

to be located on sites outside city centres. Against this background, even peripheral

office locations experienced stronger take-up (+17%) compared with 2009 than the

central inner city locations (+12.5%).

So far no heavy demand for additional office space

However, it must be mentioned critically that the increase in take-up across the seven

major markets was just 3% when compared with the average during the period 2001-

2010. If one considers that rentals in an expanding economy should increase over

the long term, then the take-up achieved thus far only reflects the economic upturn

to a limited extent. In reality, rental activities only improved in any dynamic fashion

during the second half of the year. During the first half of 2010, take-up remained

significantly below the long-term average.

In addition, cost savings from office rationalisation and relocation during the last year

remained the primary motivation for those people seeking office space. Demand by

companies for additional office space was relatively moderate up to the first quarter

of 2011. Nevertheless, net absorption crossed over into the positive range during the

second half year and helped stabilise the trend in vacancies.

in million m 2

TOP 7: Take-up by sector

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

'0 3 '04 '0 5 '06 '0 7 '08 '0 9 '10

Public sector

Information/comm.

Business service

Retail/transport

Financial sector

Industry/construction

Source: Calculation by IVG Research based on data

from BNP Paribas RE

in million m 2

TOP 7: Take-up by location

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

'0 3 '04 '0 5 '06 '0 7 '08 '0 9 '10

Centre City limit Periphery

Source: Calculation by IVG Research based on data

from BNP Paribas RE

in million m 2

TOP 7: Quarterly take-up

1.4

1.2

1

0.8

0.6

0.4

0.2

0

'0 0 '02 '0 4 '06 '0 8 '10

Take-up Long-term average

Source: IVG Research

7


8

Modern office buildings in short supply

The vacancy rate, which rose from 9.8% to 10.2% based on the average for the seven

major office centres between January and September, had already declined during

the final quarter of 2010. This trend highlighted a structural shift within vacancy

levels: Whereas the supply of modern office space available in the short term has

fallen, vacancy levels in the average and non-renovated office segment have further

increased.

According to BNP Paribas Real Estate, modern office stock accounted for an average

of around 32% of the vacancy in the seven major locations at the end of the previous

year.

Compared to the previous year, the overall geographical vacancy structure has shifted

slightly in favour of the peripheral office locations: Around 30% of all vacancies are in

city-centre locations, roughly 27% in city suburbs with 43% on the periphery of the

markets (comment: Significant differences exist between individual markets in this

respect due to geographical structure. Whereas the office market in Berlin is largely

concentrated in the centre of the city, non-central or peripheral locations in Munich

and Stuttgart play a relatively important role.).

To date, only prime rents for core-properties are trending upwards

Since core office space is in short supply again in some city centre areas, the fourth

quarter saw improvements in nominal rents for prime properties in some markets,

for example, in Dusseldorf’s financial district and in prime locations in Berlin’s inner

city. Viewed across all seven locations, prime rents were therefore 0.7% higher on

average compared with the previous year. However, over the whole year, markets did

not develop in a uniform manner. This meant that prime rents in both Munich and

Hamburg suffered to a degree in the year-on-year comparison (down 3.3% and 2.2%

respectively), although increases or at least stabilisation have recently been recorded.

With the exception of Munich, rents for high-quality properties in non-central suburban

city and peripheral locations have not yet moved upwards.

It should be borne in mind in this context that the nominal rents continue to be supported

by generous incentives for tenants. Consequently, the extent of the rent-free

periods in new five-year leases at the end of 2010 was roughly ten months.

Upturn in the office market expands in 2011

The prospects for an increasingly dynamic recovery in rental markets for office space

during the coming months are good: The economic upturn will gradually impact on

the labour market, in the number of office employees and therefore in demand for

additional office space. In addition, a large number of five and ten-year leases that

were concluded during the boom years of 2001 and 2006 are due to expire this year.

As a result, we can expect a large take-up in floor space and locations, which will

also mean high levels of letting activity in the seven major markets in 2011.

in million m 2

TOP 7: Vacant office space

9

8

7

6

5

4

3

2

1

0

'03 '0 4 '05 '0 6 '07 '0 8 '09Q3'1 0'10

Modern vacancy Other

Source: Calculation by IVG Research based on data

from BNP Paribas RE

Index of prime rents

150

140

130

120

110

100

90

'0 0 '02 '0 4 '06 '0 8 '10 12e

Berlin

Frankfurt

Munich

Source: IVG Research

Basis 2005 = 100

Dusseldorf

Hamburg

Stuttgart


Nevertheless, it is debatable whether take-up will be even higher than in 2010 given

the large number of unusually high single transactions that year.

Demand for office space will focus primarily on modern buildings due to their greater

space and energy efficiency. However, this specific demand will have to contend to

an increasing degree with a restricted supply of office space. The past few months

have seen construction of new buildings in the German development project market

further decrease as a consequence of restrictive lending conditions and as a delayed

consequence of the recession in 2009. The volume of completions planned for 2011

in the seven major German markets equates to just 1.2% of the available office stock

(2009: 1,6%; 2010: 1.4%), although it is important to mention that a significant portion

of new properties has already been pre-let or is being developed for the exclusive

use of owner-occupiers.

Shortage of modern office space drives up rents

The supply of modern, well situated buildings is therefore likely to run short noticeably

this year and next year. The upward dynamic of prime rents, which are at favourable

levels compared to the climax of 2001, will therefore gain new momentum during

the current year. Various forecasts indicate that the end of 2011 will see prime rents

return to the levels achieved before the onset of the international financial crisis in

autumn 2008. Rents for office buildings in city suburban and peripheral locations will

follow the trend in prime rents with an estimated time lag of six to twelve months.

First developers demonstrate a greater appetite for risk

Following the situation last year whereby new construction projects were initiated

on the condition of suitably high levels of pre-letting, individual developers are once

again demonstrating a greater willingness to take risks. A prominent example is the

170 metre high TaunusTurm, which Tishman Speyer will construct in cooperation with

Commerz Real as a speculative venture in Frankfurt’s city centre by the end of 2013.

Both players are taking advantage of the fact that no new major projects with available

space are coming onto the market in Frankfurt following the completion this year

of THE SQUAIRE at the airport and of Tower 185 and that they can finance part of the

project via Commerzbank’s Eurohypo.

However, securing the necessary financing remains the stumbling block for the majority

of new construction projects, particularly those of a speculative nature. This will not

change significantly during the current year as the banks will continue their restrictive

lending policies in view of the strict equity requirements of Basel III. Therefore, there

is a high risk that many new projects will only be started at a late stage, in other

words, when the markets are about to overheat.

in 1,000 m 2

TOP 7: Office completions

1400

1200

1000

800

600

400

200

0

Berlin

Frankfurt

Cologne

Source: gif e. V.

in million m 2

2008 2009 2010 2011e

Hamburg

Stuttgart

Office markets of the German TOP 7

8

6

4

2

0

Take-up

Dusseldorf

Munich

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Vacancy Rent

105

100

95

90

85

80

Rental index 2000 = 100

Comment: Graph refers to Berlin, Dusseldorf, Frankfurt a.M.,

Hamburg, Cologne, Munich and Stuttgart.

Source: IVG Research

9


10

Problem of structural vacancy not solved by the upturn

Older buildings carry a different risk: Based on current assessments, the economic

upturn in the seven major markets will not be strong enough to make any significant

inroads into the high level of structural vacancy. Given the right geographical location

within the office market and provided that it is economically feasible, modernisation of

these kinds of spaces is certainly worth considering, particularly in view of the sluggish

supply of new buildings.

The illustration below shows that the growth of economic output, prime rents and

capital value is largely synchronous over time. However, it is also clear that the cycles

are tending to become shorter.

There follows a brief analysis of the development in each of the seven largest office

markets in Germany:

Economic growth

Economic and office market cycle

8 %

6 %

4 %

2 %

0 %

-2 %

-4 %

-6 %

Supply-side policies

and reunification

Domestic

recession

GDP growth prime rental growth Growth of capital value

(defined as prime rent/prime initial yield)

Source: IVG Research. Analysis for Dusseldorf, Frankfurt, Hamburg, Munich

Globalisation and

new economy boom

„Sick man of

Europe

Vacancy rates

Credit bubble/

financial crisis

Current

upturn

85 87 89 91 93 95 97 99 '0 1 '03'05 '07'0 '0 9

'11e '13e 16 %

12 %

8%

4%

0%

Source: IVG Research

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Berlin

Frankfurt

Munich

24 %

18 %

12 %

6%

0%

-6 %

Dusseldorf

Hamburg

Stuttgart

-1 2%

-1 8%

Rental and value growth


Berlin: strong annual take-up

thanks to major transactions at the end of 2010

Thanks to a very dynamic fourth quarter (with a take-up of 218,000 m²), total lettings

of 512,000 m² in the Berlin office market last year represented the second highest

take-up in its history. The fourth quarter saw several spectacular major transactions

come to fruition, including the letting of 40,300 m² by the Federal Ministry of the Interior,

29,500 m² by the Federal Office for Building and Regional Planning and 17,500

m² by the “evangelische Diakonie”. Major transactions above 5,000 m² accounted for

over half of take-up last year, with 31% alone made up of transactions greater than

10,000 m². Those entities that were most active in seeking space in 2010 included

public administration institutions (25% of take-up), providers of miscellaneous services

(17%) and industrial companies (16%). In geographical terms, almost 70% of the

take-up was concentrated in the central city locations of Berlin East and Berlin West.

Low speculative new construction activity coupled with rising demand for space

resulted in a stable trend in vacancies during the last year. The vacancy rate during

the year remained at 8.9%. The major transactions during the second half of the year

resulted in a shortage of supply particularly in the large modern building segment in

Berlin’s inner city. Against this background, the prime rent last year not only stabilised,

but actually increased during the fourth quarter by as much as 5% to €21/m² per

month. The prospects of a further recovery in the market are good, not least due to

the fact that speculative completion volumes will also be low in 2011.

Düsseldorf:

prime rents in the financial district on the up

Last year’s take-up of 386,000 m² in Dusseldorf was a good 18% above the average

of the past ten years. In contrast to Germany’s other six real estate strongholds,

Dusseldorf experienced a surge in demand for lettings not at the end but at the start

of 2010, when Vodafone signed a pre-letting agreement for 90,000 m² in a building

complex yet to be constructed in the immediate vicinity of the Seestern district. A total

of eight major transactions above 5,000 m² were completed during 2010 with a total

volume of 145,000 m². The Vodafone deal meant that the IT and telecommunication

sector (38% share of take-up) still ranked ahead of the consultancy firms (24%) last

year as the most active seeker of office space in Dusseldorf. Decisions by Vodafone,

AXA and Ericsson to locate in the Seestern area proved significant in making the left

bank of the Rhine in Dusseldorf the most successful submarket of the past year in

terms of take-up volume. Lettings in the north of Dusseldorf, in Medienhafen and in

the city centre also performed well, while virtually no transactions took place in the

south or on Grafenberger Allee.

Since take-up was significantly characterised by pre-lettings, the vacancy rate rose in

the interim from 11.3% to 12.1% before falling back to 11.5% in the fourth quarter of

2010. Modern office space is in short supply particularly in central locations such as

the financial district. For this reason, prime monthly rents here had already risen 2.2%

to €23/m² by the middle of the year. By contrast, rents in some peripheral office locations

such as Grafenberger Allee came under further downward pressure. In view of

moderate volume of construction completions of just 80,000 m² anticipated for 2011,

the prospects of further reductions in vacancies and a renewed increase in rents are

good.

in 1,000 m 2

Office market Berlin

1750

1500

1250

1000

750

500

250

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

Vacancy Rent

Source: CW/JLL et. al., forecast by IVG Research

in 1,000 m 2

Office market Dusseldorf

1250

1000

750

500

250

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

Vacancy Rent

Source: BNP Paribas RE et. al., forecast by IVG Research

30

28

26

24

22

20

18

25

24

23

22

21

20

in €/m² monthly

in €/m² monthly

11


12

Frankfurt:

steady increase in vacancies throughout 2011

The Frankfurt office market in 2010 was also marked by a recovery in demand in

the large building segment. Major transactions in excess of 5,000 m² during the past

year amounted to 47% of the total take-up of 472,000 m² (including ECB 104,000 m²,

ING-Diba 38,700 m², Allianz Global Investors 28,800 m²). Take-up therefore equalled

the mean value of the previous ten years. Comparatively scarce letting activity both in

the first and fourth quarters prevented a more positive annual take-up. Nevertheless,

the players remain optimistic regarding the performance of the market in the immediate

future. This is reflected in the joint decision by Tishman Speyer and Commerz

Real to commence construction of the TaunusTurm in Frankfurt’s financial district,

a speculative office project with 170,000 m² of floor space.

Against the background of a completion volume of around 285,000 m² during the

year, the vacancy rate in Frankfurt has steadily increased from 14.1% to 14.7% (1.77

million m² of vacant stock). The proportion of modern buildings of the total vacancy is

around 43%. In view of the completion of some 210,000 m² of floor space during the

current year – including 95,000 m² in THE SQUAIRE at the airport as well as 97,000

m² in Tower 185 in the west of Frankfurt – we do not expect to see any significant

reduction in vacancies. Consequently, any upside potential is confined to the rents in

the prime segment in central locations such as the financial district. The top monthly

rent here rose 2.9% during the fourth quarter to reach €35/m² and is set to rise further.

Hamburg:

rental market has recently gathered momentum

With a take-up of around 500,000 m² during 2010, the Hamburg rental market rapidly

gained momentum and almost closed the gap to the record years of 2007/2008. Following

restrained growth in letting activities during the first three months, the office

market recorded the strongest half-year take-up of the decade during the second half

of the year with 313,400 m². This was attributed to six major transactions above the

10,000 m² mark (City of Hamburg 40,000 m², Allianz 29,000 m², DB 19,000 m², E.ON

12,500 m², Bigpoint 11,000 m², Evotec 11,000 m²) as well as various transactions

ranging between 5,000 and 10,000 m². Among the beneficiaries of the most recent

market developments was City Nord following the relocation of the Allianz Group from

the city centre to the former Esso building (30,000 m²).

Brisk new construction activity resulted in vacancies rising by 14.3% to 1.24 million

m² notwithstanding the dynamic increase in demand during 2010. Nevertheless, the

Hanseatic city’s vacancy rate of 8.8% is moderate when compared with the other real

estate strongholds. A total of around 245,000 m² of office space was completed in

Hamburg last year, 56% of which was of a speculative nature. This will be followed by

up to 316,000 m² in 2011, over half of which is located in Hamburg city centre and

HafenCity. In view of the extensive stock of modern office space available, it was not

possible to achieve any increase in prime rents on the rental market during the past

year. Quite the contrary, the second quarter saw prime monthly rents fall by as much

as 2.2% to €22.5/m². Given that the fresh stock of new office space on the Hamburg

office will not diminish this year, we are only likely to see significant rental increases

from 2012 onwards.

in 1,000 m 2

in 1,000 m 2

Office market Frankfurt

2000

1750

1500

1250

1000

750

500

250

0

Office market Hamburg

1250

1000

750

500

250

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

Vacancy Rent

Source: CW/JLL et. al., forecast by IVG Research

Vacancy Rent

27

26

25

24

23

22

21

20

19

in €/m² monthly

in €/m² monthly

Source: BNP Paribas RE/JLL et. al., forecast by IVG Research

50

45

40

35

30


Cologne: the city has coped well

with the economic crisis and the wave of new construction

Cologne’s take-up of 234,000 m² last year was broadly in line with the previous year’s

result (+3%). However, the demand dynamic increased noticeably during the second

half of the year. Accordingly, the first transaction since 2007 to exceed the 10,000

m² mark was recorded during the fourth quarter (Philip Morris occupied 14,500 m²

as owner-occupier in the Airport business park). 77% of all transactions in excess

of 5,000 m² were realised during the second half of the year. However, the most indemand

segment was small offices of less than 1,000 m², which accounted for 47%

of the take-up volume during the past year. The location with the highest turnover in

2010 was the city centre with a share of 38%. The sectors “other services” (27%),

consultancy (18%) as well as media and advertising (10%) were involved in over half

of all take-up.

Following the record completions during 2009 (260,000 m²), including the completion

of the “Kranhäuser” (crane houses) on the Rheinauhafen, additions of new office

space plummeted by three quarters to around 60,000 m² last year. As a result, the

vacancy rate fell from 8.9% to 8.3% during the year.

During 2010, only a small number of rental agreements were concluded at prices per

month in excess of €20/m². However, in view of the favourable macroeconomic conditions

for 2011, leading brokers expect to see stable or rising prime rents in the prime

segment (currently €21.5/m² per month).

Munich:

available office stock in the city centre becoming increasingly scarce

Although take-up in 2010 increased by nearly 10% to 592,000 m² compared to the

previous year, it was significantly below the average value of the last ten years for

Munich (628,500 m²). One cause of this was restrained demand in the large building

segment above 5,000 m², which accounted for just 18% of take-up (12 contracts)

during 2010. By contrast, the dominant transactions were for offices of up to 2,000 m²,

which accounted for two thirds of total annual take-up last year. The highest shares of

take-up were realised by the consultancy sector (25%), the IT sector (21.5%) as well

as the manufacturing industry (10.2%). In geographical terms, almost half of take-up

was concentrated in Munich’s city centre and suburban locations, which experienced

increased growth on the back of favourable rent conditions compared to previous

years.

The trend for central locations is reflected by a low vacancy rate of less than 4% in

the city centre. Across the market as a whole, 9.8% of available office space was

vacant at the end of 2010 as compared with 9.1% one year previously. This expansion

in vacancies was due not least to the completion of numerous speculative office

projects. Consequently, modern office stock accounts for as much as 41% of the

overall vacancy. In this context, prime rents in Munich had in the interim fallen 5%

relative to the end of 2009 before increasing by almost 2% towards the end of the

year to €29/m² per month. This upward trend is set to continue.

This is because new construction activity is set to fall significantly this year and next

year. An average delivery of 396,000 m² over the last decade compares with a mere

190,000 m² this year, of which just 32% was speculative. Consequently, the conditions

for bringing about a fall in vacancies and a shortage of high-quality floor space

in 2011 can be regarded as good.

in 1,000 m 2

in 1,000 m 2

Office market Cologne

700

600

500

400

300

200

100

0

Office market Munich

2000

1750

1500

1250

1000

750

500

250

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

Source: BNP Paribas Real Estate

Take-up

Vacancy Rent

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Vacancy Rent

24

23

22

21

20

19

33

32

31

30

29

28

27

Office market Cologne

in €/m² monthly

Source: BNP Paribas RE/JLL et. al., forecast by IVG Research

13


14

Stuttgart:

extremely stable trend

Following initial difficulties at the beginning of the year, the Stuttgart office market

gathered increasing momentum during the course of 2010. A dynamic second halfyear

performance yielded the third highest take-up in the Stuttgart office market’s

history (194,000 m²). Contributory factors included three major lettings in the fourth

quarter (Bosch 22,000 m², Staples 7,100 m², IST Care 5,300 m²). Almost half the lettings

concluded during the last year were located in the city centre including the City

district, with a further 30% in the submarkets of Vaihingen and Zuffenhausen. Active

tenants in 2010 were companies from the IT and telecommunication sectors (18%

share of take-up), consultancy (13%) and financial services (8.4%). Despite higher

demand for office space during the second half-year of 2010, take-up for the current

year – except in the case of additional exceptional transactions – is likely to be more

moderate than in 2010.

The vacancy rate during the first three quarters rose from 6.1% to 6.9% before falling

to 6.5% under the influence of the major lettings. As a result, Stuttgart has the

lowest vacancy rate of the seven real estate strongholds under review. Particularly

in good and prime locations, there is a scarcity of modern large office buildings. The

majority of vacant properties is concentrated on the periphery. Older properties that

are no longer in line with market requirements are becoming particularly problematic.

A trend towards structural vacancy is gradually emerging among the stock of old

buildings and this trend is likely to increase further in the absence of renovation or

targeted marketing measures. 80% of the completions expected for 2011 are located

in Stuttgart’s city centre. Based on the high level of pre-letting of current construction

projects and the economic upturn, we expect to see a sustained reduction in

vacancies during 2011. Prime rents for high-quality office buildings, which fell 2.8%

to €17.5/m² per month during the first six months of 2010, are therefore likely to rise

again during the current year.

in 1,000 m 2

Office market Stuttgart

500

400

300

200

100

0

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

Take-up

Source: Colliers/DIP et. al.

Vacancy Rent

19

18

17

16

in €/m² monthly


Regional markets: robust development

In addition to the preceding analyses, it is worth examining the most recent trends

across Germany’s regional centres. The following argument relates to a representative

selection of 15 cities in the west and 5 markets in the east of the Federal Republic

for which longer time series for evaluating market trends are available (for the city

selection, see the *-marking on pages 24/25).

The 20 selected regional markets, which recorded the second highest take-up result

of the decade in 2009 of 1.25 million m² thanks to a range of major transactions (e.g.

the City of Leipzig 42,000 m²), reported a reduction in take-up of 11.3% to 1.1 million

m² in 2010 – in contrast to the seven office strongholds. The east of the country

recorded an even steeper fall in take-up of 14.3%. However, when interpreting these

figures, it is important to bear in mind that letting activities in the regional centres are

frequently “supply-driven”. Since new construction projects in the regional centres are

generally only undertaken subject to high levels of pre-letting (greater than 50%), in

other words, rarely on a speculative basis, high take-up is often generated during the

years immediately prior to or coinciding with the completion of new office buildings.

For this reason, the majority of regional markets frequently develop at a certain time

lag compared with the seven major office strongholds – especially if market activity in

the major locations is already overheated.

From a geographical perspective, there were significant differences regarding sales

trends – while Ratingen, Mannheim, Mönchengladbach and Potsdam recorded growth

in take-up during 2010 of 14% to 78% over the previous year, lettings in Leipzig and

Mainz collapsed by 37% and 76% respectively – not least because the previous year’s

results in these markets had been distorted upwards by major transactions.

Although letting activities in the regional centres appear at first glance to have fallen

compared with the previous year, aggregated vacancy levels fell slightly from 3.0

to 2.9 million m². In this respect, differences between east and west were evident.

While the regional markets reviewed in the old Federal States recorded an increase

in vacancy levels overall of 2.3% to 1.92 million m², vacancy levels in the five eastern

German cities declined. By the turn of the year, there was just 1.15 million m² of

vacant space there, a reduction of one tenth on the figure for the previous year. In

Dresden, Leipzig and Rostock, the vacancy rate declined by 11.6% to 14.3% (vacancy

rates range from 11.8% in Dresden to 23% in Schwerin). Nevertheless, the adjusted

vacancy rate in the regional centres in the western half of the country of 5.5% is

significantly below the average level in the east (12.6%) and in the seven main office

strongholds (10.1%).

Since the take-up in the regional markets was also largely derived from relocation

activities rather than from office expansions, in particular older office buildings or

those no longer in line with market requirements were vacated in preference for

higher quality offices, frequently in better locations. Consequently, vacancy levels

in modern buildings fell significantly in 2010 while the share of structural vacancy

increased. Against this background, prime rents remained generally stable or even

increased during the second half of the year. Year-on-year, however, only the prime

rents in the western German regional centres increased, while the downward corrections

of the first half-year in the east were not yet fully recompensated.

in million m 2

Office market 20 regional centres

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0

Take-up

Vacancy

Source: IVG Research

in 1,000 m 2

'0 0 '02 '0 4 '06 '0 8 '10

Ø-Take-up Regional Centres

80

60

40

20

0

Ø-Take-up West

Ø-Take-up East

Source: IVG Research

Vacancy rates

16 %

12 %

8%

4%

0%

Source: IVG Research

106

104

102

100

98

96

94

Rental index east

Rental index west

'0 0 '02 '0 4 '06 '0 8 '10

'0 0 '02 '0 4 '06 '0 8 '10

Regional Centres West

Regional Centres East

TOP 7 cities

Index of prime rents (2000 = 100)

15


16

Constance

Freiburg

Augsburg

Munich

Ingolstadt

Regensburg

Nuremberg

Erlangen

Fürth

Bamberg

Würzburg

Darmstadt

Offenbach/M.

Aschaffenburg

Frankfurt/M.

Mainz

Wiesbaden

Koblenz

Bonn

Cologne

Erfurt

Jena

Weimar

Magdeburg

Braunschweig

Salzgitter

Kassel

Gera Chemnitz

Dresden

Cottbus

Potsdam

Hannover

Bielefeld

Gütersloh

Paderborn

Bremen

Hamburg

Lübeck

Kiel

Rostock

Schwerin

Osnabrück

Münster

Dortmund

Hamm

Hagen

Bochum

Wuppertal

Solingen

Siegen

Marburg

Duisburg

Essen

Krefeld

Aachen

Mönchen-

Gladbach

Dusseldorf

Neuss Leverkusen

Ratingen

Berlin

Leipzig

Halle/Saale

Trier

Heilbronn

Stuttgart

Karlsruhe

Saarbrücken

Kaiserslautern

Heidelberg

Mannheim

Ludwigshafen

Ulm

8.50

6.75

10.00

7.25

22.50

4.95

12.50

6.25

12.00

8.00

12.00

6.80

11.00

7.30

9.00

7.25

8.30

7.25

12.50

6.50

13.20

6.35

9.00

8.00

11.00

6.75

13.50

6.00

12.00

7.50

9.80

7.50

10.00

9.00

10.00

8.00

11.50

7.75

13.00

7.50

21.50

5.25

16.00

6.30

10.50

6.90

12.00

6.50

11.60

6.70

11.00

7.40

13.30

6.30

11.50

7.00

10.00

7.00

10.30

7.25

10.00

7.50

10.50

7.50

9.50

6.50

14.80

6.50

11.20

8.10

29.00

4.85

10.40

7.00

12.00

7.20

13.00

6.00

10.00

7.50

13.00

7.40

10.70

7.00

12.50

7.00

7.00

8.20

9.50

7.90

8.50

8.30

10.00

9.00

11,00

6,50

12.00

6.70

11,00

7,50

9.00

7.40

12.80

6.90

13.00

7.50

17.50

5.30

11.60

6.50

35.00

4.90

13.00

6.00

12.00

6.80

11.50

7.00

13.50

6.40

10.00

7.60

Dusseldorf

23.00

5.15

13.80

6.75

Ratingen

10.50

6.75

Neuss

10.00

7.10

10.50

7.86

7.00

9.00

12.50

6.25

7.40

12.50

12.50

7.00

21.00

5.10

11.00

6,40

10.00

7.50

13.00

6.70

10.90

7.00

Wilhelmshaven

Prime rents and initial yields

Prime rent in €/m²

Prime initial yield in %

6-month trend

Office market Germany 2011


IVG office market scoring: attractiveness of

locations for office investments

In the following section, IVG Research compares 70 selected major cities on the basis

of a scoring model to determine their attractiveness for office investments. The cities

are evaluated according to a variety of characteristics that fall under the three

categories of market size, market risk and future prospects (refer to the Notes containing

explanations of the methodology used). You can see how the locations performed

in the comparison from the table on the right, which presents the overall results and

from the map of Germany provided further below, which highlights the results in the

individual categories. In this context, a score of 1 represents a very poor result and

a score of 5 a very good result.

Category Weighting Indicators Period

Market size

33,3 %

Market risk

33,4 %

Future

prospects

33,3 %

Overall score 100.0

11.1 Office stock (in million m²) 2010

11.1 SID employees (in million) 2010

11.1 Gross value added (in € million) 2008

11.1 Market transparency (index) 2010

5.6 Volatility of gross value added (in %) 2000-2010

5.6 Volatility of rental trends (in %) 2000-2010

11.1 Vacancy rate (in %) 2010/2011

11.1 Growth of gross value added (in %) 2001-2010

11.1 Population growth 2025 (in %) 2009

11.1 Prognos future opportunities (index) 2010

Source: IVG Research, SID = subject to social insurance deductions

Market size: guarantees a good score, but …

Since market size is generally a reflection of a city‘s economic importance, the first

10 places in the ranking consist entirely of major conurbations with high populations,

established labour markets, large numbers of commuters and their own universities.

It therefore comes as no surprise to see Munich and Hamburg take first and second

place respectively – a result that is not solely attributable to the market size. In reality,

both cities score highly due to their solid economic development and their high

level of transparency regarding market risk. Added to this are numerous soft factors

that enable Munich and Hamburg to exert a strong attraction to people, coupled with

a modern, diversified and dynamic economic structure. This contributes to the significant

lead enjoyed by both cities with regard to future prospects.

Good rankings were also secured by the smallest two of Germany‘s seven major office

capitals, Stuttgart (3rd place) and Cologne (5th place). Virtually ignored by investors

for many years, both cities have succeeded in making up for lost ground over the

past few years. Although smaller than Cologne, Stuttgart has proved to be significantly

more dynamic than its counterpart on the Rhine thanks to a flexible and innovative

medium-sized entrepreneurial base. For this reason, Stuttgart comes in at eleventh

place nationwide with regard to its future prospects (Cologne ranks 18th). The Stuttgart

office market has also established a reliable reputation over the past decade with

low rent volatility, low vacancies, stable economic growth and a high level of market

transparency. Accordingly, Stuttgart tops the table in Germany in terms of market risk.

Office Market Scoring – overall score

Munich

Hamburg

Stuttgart

Frankfurt/Main

Cologne

Berlin

Dusseldorf

Hanover

Nuremberg

Bonn

Dresden

Ingolstadt

Wiesbaden

Münster

Erlangen

Karlsruhe

Essen

Bremen

Potsdam

Mainz

Mannheim

Ulm

Dortmund

Regensburg

Freiburg

Aschaffenburg

Duisburg

Leipzig

Augsburg

Heidelberg

Ludwigshafen

Neuss

Bochum

Gütersloh

Constance

Kiel

Darmstadt

Aachen

Paderborn

Bielefeld

Wuppertal

Braunschweig

Mönchengladbach

Leverkusen

Saarbrücken

Ratingen

Worms

Lübeck

Offenbach/Main

Osnabrück

Marburg

Bamberg

Kassel

Kaiserslautern

Hagen

Koblenz

Hamm

Jena

Trier

Fürth

Heilbronn

Würzburg

Solingen

Rostock

Erfurt

Salzgitter

Magdeburg

Weimar

Schwerin

Krefeld

Chemnitz

Siegen

Cottbus

Gera

Halle (Saale)

Source: IVG Research

4. 4 27

4 . 18

3 . 86

3 . 84

3 . 83

3 . 83

3 . 66

3 . 45

3 . 25

3 . 19

3 . 13

3 . 05

2 . 98

2 . 98

2 . 93

2 . 91

2 . 90

2 . 89

2 . 89

2 . 84

2 . 82

2 . 82

2 . 80

2 . 74

2 . 74 74

2 . 74

2 . 71

2 . 70

2 . 63

2 . 62

2 . 60

2 . 55

2 . 53

2 . 53

2 . 52

2 . 51

2 . 51

2 . 50

2 . 46

2 . 44

2 . 44

2 . 36

2 . 33

2 . 32

2 . 30

2 . 30

2 . 30

2 . 29

2 . 29

2 . 29

2 . 27

2 . 27

2 . 26

2 . 23

2 . 22

2 . 22

2 . 22

2 . 20

2 . 19

2 . 15

2 . 15

2 . 14

2 . 07

2 . 07

2 . 05

2 . 04

2 . 03

2 . 02

1 . 97

1 . 96

6

1 . 87

1 . 79

1 . 65

1 . 57

1 . 56

Score 1 2 3 4 5

17


18

… only if rents are less volatile and vacancies are low

Frankfurt achieves “only” 4th position in the scoring. This is largely because the success

of an investment in Frankfurt is exposed to relatively high market risks due to

high rent volatility and the recent high level of structural vacancy. It is also dependent

to a significant degree on the entry point during the real estate cycle. The growth

prospects for Frankfurt are rated as not quite as dynamic as in many smaller cities

such as Ingolstadt, Erlangen and Freiburg. Nevertheless, Frankfurt claims 4th position

with regard to market size and is within the top third of the office market scoring in

terms of market risk (24th place) and future prospects (19th place). Frankfurt is therefore

one of the most attractive markets for office building investments in Germany.

New Federal States: innovation and high-tech are trumps

Positive messages are also emanating from the east of the Federal Republic. Dresden

(11th place) and Potsdam (19th place) are two cities from the new Federal States

that find themselves in the upper third of the overall scoring. Dresden scored highly

particularly with regard to its future prospects (4th place). Previous decisions to locate

here such as the VW plant in Dresden are indicators of the city’s positive image. Of

much greater significance is the fact that the city with its microelectronics, information

and communication fields of expertise offers excellent future prospects and that it

supports these core competencies with relevant courses of study.

The same applies to Potsdam, which is continuously expanding its position as a centre

of science and which also profits from the influx of wealthy Berliners. With the

Alfred Wegener Institute, the Institute for Climate Impact Research, the Fraunhofer

Institute for Biomedical Engineering (IBMT), the Max Planck Institute of Molecular

Plant Physiology as well as the Fraunhofer Institute for Applied Polymer Research IAP,

Potsdam holds a leading position in Germany regarding the future industries of geo-

and environ mental sciences, life science as well as physics and therefore moves up to

5th place in the future prospects category.

By contrast, the Zeiss city of Jena lies far behind in 58th place. This is despite aboveaverage

economic growth, low rent volatility and extremely promising future prospects

as reported by Prognos. The primary factors influencing this score include the small

market size (ranked 66th), a very high vacancy rate of 19.2% and the low level of

transparency in the office market to date.

Leipzig, which ranked 28th, is in the middle group of the locations under review – the

primary reason why the trade fair city did not score even higher despite excellent

future prospects is its relatively high vacancy rate of 17%.

Transparency is a prerequisite for good market positioning

The future also appears rosy for Bavaria’s Audi and Siemens locations of Ingolstadt

and Erlangen. They are characterised not only by above-average economic growth,

but in particular by a high capacity for innovation, which earn them 1st and 8th place

respectively for future prospects. Only their small market size and insufficient transparency

concerning the office building market prevent the two cities from ranking

higher in the overall scoring.

The lower third of the office market scoring is made up

mainly of small markets, and among them, the university

towns and tourist attractions of Trier (ranked 59th) and

Wurzburg (ranked 62nd). Despite average future prospects,

their score is surprisingly weak and this is primarily due to

a lack of transparency and high vacancies.

And finally: industrial cities, locations

in rural areas

The bottom of the office market scoring is made up of cities

in the economically underdeveloped parts of eastern and

western Germany and cities with a greater emphasis on the

commercial and industrial sector such as Krefeld, Siegen,

Solingen and Salzgitter with poorly developed service sectors.

These generally have only very small, non-transparent

office markets that are dominated by owner-occupiers.

Some of these cities are also in the midst of structural

change and have yet to develop a functioning office market.

New Federal States: Scoring results

Berlin (6)

Dresden (11)

Potsdam (19)

Leipzig (28)

Jena (58)

Rostock (64)

Erfurt (65)

Magdeburg (67)

Weimar (68)

Schwerin (69)

Chemnitz (71)

Cottbus (73)

Gera (74)

Halle (75)

Score

Rank in brackets

Source: IVG Research

1 2 3 4


Office Market Scoring Germany 2011

Overall result and individual results

in the tree main categories

Overall

score

1.

Dusseldorf

7

Ratingen

46

Neuss

32

70

Market

size

score

Cologne

5

Bonn

10

Münster

34

33

Hamm

57

27

Duisburg

Krefeld

Bochum

Essen

Ratingen

Dortmund

23

Hagen 55

Mönchen-

Gladbach

43

Wuppertal

Solingen

Dusseldorf

Neuss

Leverkusen

41

63

44

Aachen

38

Market

risk

score

1. Ranking of overall score

Excellent characteristics (3.5-5.0)

Average characteristics (2.5-2.5)

Weak characteristics (1.0-2.5)

59

Trier

Saarbrücken

45

17

Future

prospects

score

14

50

Freiburg

25

Osnabrück

Bremen

18

Bielefeld

Gütersloh

Paderborn

39

Siegen Marburg

72

51

Karlsruhe

16

Kassel

53

56

Koblenz

13

4

Frankfurt/M.

Wiesbaden

Offenbach/M.

Mainz 49

Aschaffenburg

20

Darmstadt

37

26

Worms

47

21

Mannheim

Kaiserslautern

54

Ludwigshafen

31

Heidelberg

30

40

Heilbronn

61

3

35

Stuttgart

Constance

Hamburg

2

8

Kiel

36

Hannover

Salzgitter

66

Würzburg

62

Ulm

22

Lübeck

48

Braunschweig

42

65

60

Erfurt

Fürth

52

29

68

Schwerin

69

Weimar

Bamberg

15

Erlangen

Nuremberg

9

Augsburg

Magdeburg

67

Halle/Saale

75

58

12

Jena

Ingolstadt

Munich

1

Rostock

64

Leipzig

28

Gera Chemnitz

74

71

Regensburg

24

Potsdam

19

Berlin

6

Cottbus

73

Dresden

11

19


20

Investment market for office buildings

Transaction activities return to an average level

The German investment market for commercial property gained noticeable momentum

during the previous year. The overall transaction volume in 2010 amounted to just

under €20 billion, due not least to the rally at the end of the year and therefore 85%

higher than in the recession year of 2009. As a consequence, the total investment

volume therefore approached the level of 2005 (€23 billion), the last year before the

credit-driven boom of 2006/2007.

This trend was supported by the fact that investors are now optimistic again about the

prospects of the commercial rental markets, that lending criteria have relaxed slightly

compared to the previous year, that fears of currency depreciation as a consequence

of inflation persist and that German government bonds lost their appeal as alternative

investments for long periods during the previous year due to their low interest rate.

Investors backed by equity continue to dominate

Against this background, the most active investors over the past year were domestic

investors with very good equity, providers of closed-end funds (with a share in the

transaction volume of roughly a fifth) and institutional investment funds (16%), but

also insurance companies/pension funds (12%) along with private investors (10%).

However, the encouraging strength of the economy in 2010 also attracted increasing

numbers of foreign investors to Germany again. As a consequence, their share of

the transaction volume rose from 14% to 37% compared to 2009, according to BNP

Paribas.

International investors competed for three quarters of the portfolio transactions,

which increased dramatically in 2010 compared to the previous year, from €1.3 billion

to €4.2 billion. At the same time, they completed the largest single transactions

in the office sector, the purchase of Frankfurt’s OpernTurm for around €580 million

(Singapore-based GIC together with JP Morgan) as well the investment during the first

half of the year in the Berlin Sony Center for €572 million (National Pension Service of

South Korea). The importance of major single transactions increased significantly last

year overall, from €1.8 billion in 2009 to €4.6 billion in 2010.

Office investments almost exclusively in the seven major markets

Retail properties were slightly more popular among investors during the past year

than office properties: Whereas retail properties valued at around €7.8 billion (share

of transaction volume 40%) changed hands, transactions involving office buildings

amounted to €7.2 billion (a share of 37%). The office sector profited from the lightened

sentiment of the rental markets, which led to a sharp increase in the number of

transactions particularly at the end of the year. Consequently, almost 45% of all office

investments only took place during the fourth quarter of 2010.

Also noticeable was the fact that office transactions were once again concentrated on

the seven locations with the largest office stock. These totalled 88% (previous year

81%) and €6.4 billion (2009: €3 billion) of all office property acquisitions realised in

Germany. Thanks to the two major single transactions mentioned above, Frankfurt and

Berlin with sales of €1.6 billion and €1.5 billion respectively were significantly ahead

Transaction volume in Germany

Investment volume in € billion

20

15

10

5

0

2006 2007 2 008 2009 2010

Office

Source: BNP Paribas RE

Investment volume in € billion

Investors in Germany 2010

7%

7%

10%

12%

12%

Open-ended and

closed-end

Private investor funds

Insurance/pension funds

TOP 7: Transaction volume

3

2

1

0

Office Other

Other sectors

10%

42%

Immobilien AG

Equity Funds

Equity Funds

Other

Source: Calculation by IVG Research based

on BNP Paribas RE data. Total transaction volume €19.6 billion.

B D F HH K M S

Source: BNP Paribas RE and Colliers


of Munich, Dusseldorf and Hamburg (each with €1 billion office investments). They

also outperformed the two smaller locations of Cologne and Stuttgart, both of which

recorded office building transactions valued at around €265 million.

However, based on overall volume of commercial investment, Berlin and Hamburg

were the leaders due to additional extensive transactions involving retail properties.

In the seven major locations, office properties accounted for 56% of overall investment

in commercial property on average, with the latter amounting to a total of €11.5

billion.

Slight shift in ownership structure in major locations

Ignoring for the moment the fact that foreign players made up a relatively small share

of 32% of the overall investment volume in the seven major markets (Germany 37%),

the purchaser profile was broadly identical to that at national level. Investors backed

by equity also dominated the demand side and tended to increase their property portfolios.

In contrast, the builders, project developers as well as equity and real estate funds

that were the dominant net investors during the high-price boom years of 2005

to 2008 were particularly active as sellers. Calculations based on data supplied by

BNP Paribas RE put the proportion of foreign investors involved in sales in the major

locations during the past year at 39% (2009: 35%).

Yield compression in the prime segment in the major cities

Interest among potential investors and real estate financiers over the past year

focused in particular on the core segment, in other words, on high-quality properties

leased on a long-term basis in prime locations in the major cities. Initial yields for

prime office buildings in the seven leading office markets therefore fell significantly

during the last year from an average of 5.4% to 5.06%. Prime initial yields are now

in the range from 4.85% in Munich to 5.3% in Stuttgart.

In contrast, there were still no signs of significant downward yield compression in

equivalent properties in city suburban locations (average value 5.75%) and in and

peripheral locations (average value 6.85%) in the major office markets, not to mention

yields for properties with problematic lettings, quality or locations, which were not yet

on the radar of potential investors.

Likewise, the regional office market centres have so far not experienced any

significant fall in initial yields. Prime initial yields here range between 6% (e.g. in

Essen) and 9% despite the significantly lower yields achieved in individual cases such

as Hanover.

Net investors in 6 major markets

in € billion

12

10

8

6

4

2

0

-2

-4

-6

-8

-10

-12

'0 5 '06 '0 7 '08 '0 9 '10

Equity investors *

Promoter

Prime office initial yields

5.75%

5.25%

4.75%

4.25%

Berlin

Frankfurt

Cologne

Equity Funds

Other

* Equity investors include: Open-ended and closed-end funds,

insurance companies, pension funds, private investors.

Source: IVG Research based on data from BNP Paribas RE.

Source: IVG Research

'0 0 '02 '0 4 '06 '0 8 '10 '1 2e

TOP 7: Ø Prime initial yields

7,0%

6.5%

6.0%

5.5%

5.0%

4.5%

Dusseldorf

Hamburg

Munich

'0 9 '10'11e Centre

Periphery

City suburban location

Comment: Forecast 2011 as range

Source: IVG Research

21


22

Office Market Scoring and prime initial yield 2011

10%

9%

8%

7%

6%

5%

4%

Prime initial yield

“poor dogs”

14.2% of the office stock

of the random sample

Ø = 6.95%

Halle (Saale)

Chemnitz

Salzgitter

The figure above compares prime initial yields of the 75 office locations under review

(average yield 6.95%) with the values derived from the IVG office market scoring for

the individual cities regarding their attractiveness for office investments. High scores

indicate a high level of attractiveness while low scores indicate cities with a low level

of investment attractiveness (average score 2.58).

The figure shows that initial yields for offices in the individual German locations accurately

reflect the prevailing general conditions in the individual office markets that

were also taken into account in the office market scoring: The prime locations, which

scored highest in terms of market volume, investment risk and future prospects, are

concentrated in the lower right-hand quadrant. The high value estimation for the TOP

7 locations in particular is reflected in high prices and low initial yields. The locations

rated as “poor dogs” due to their low scores are punished by investors in the form of

significant price discounts.

The lower left-hand quadrant contains the (few) locations rated as overpriced based

on the score values and initial yields. By contrast, the markets in the top right-hand

quadrant offer the potential for increased value based on their score/initial yield combination.

Solingen

Gera Weimar Heilbronn

Siegen

Hamm

Cottbus

Krefeld

Magdeburg

Schwerin

Rostock

Ludwigshafen

Ø = 2.58

“Hidden Champions”

4.1% of the office stock

of the random sample

“B-cities”

23.8 % of the office stock

of the random sample

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Overall score 5.0

Source: IVG Research

Saarbrücken

Kassel

Ratingen

Braunschweig

Bielefeld

Constance

Leipzig

Regensburg

Heidelberg

Aschaffenburg

Ulm

Mainz

Essen

Karlsruhe

Erlangen

Münster

Wiesbaden

Ingolstadt

Bonn

Dresden

Nuremberg

H annover

Dusseldorf

Cologne

Berlin

Frankfurt

Stuttgart

Hamburg

“Top locations”

50.7% of the office stock

of the random sample

Munich

Continued high demand in the investment

market expected

Demand for commercial and hence also for office property

is likely to remain high. This view is supported by various

economic arguments such as the prospect of rent increases

and reductions in vacancies in the rental market, the anticipation

of higher inflation rates and price adjustments to sovereign

bonds as a result of interest rate hikes. The fact that

Germany scored extremely highly as a real estate location

in various recent investor surveys – such as those by INREV

and ULI/ PWC – confirms the high level of interest among

domestic and foreign investors in the German market.

However, it is foreseeable that this high level of interest in

the core segment will not be matched by a corresponding

supply. While some property owners will use the next few

months to complete sales given the advanced stage of yield

compression, this coincides with an almost total absence of

supply impulses emanating from modern projects yet to be

constructed due to the shortened pipeline for new constructions.


Broad market recovery: secondary locations, centres and value-add

In addition, the core segment offers new investors only limited potential to increase

value through yield compression. Most market forecasts – including those of IVG –

point to limited reductions in initial yields of prime office buildings in top locations

during the current year, particularly given that interest rates on sovereign bonds (the

opportunity costs of real estate investment) and financing costs are likely to increase

over the coming months as a consequence of the economic recovery and higher

expected inflation.

Therefore, the willingness of investors to invest in office properties in secondary locations

of the major markets as well as in the regional office centres will in all likelihood

increase during the current year. As a result, yields in secondary locations and regional

centres are also likely to shift in the short term, not least because the difference in

yields compared to prime properties has increased significantly over the past year.

However, investment demand will continue to focus on high-quality, modern properties

because the rental market for properties of average quality in many locations

is facing into a prolonged period of high structural vacancy.

Some investors may seek opportunities to a greater extent in the value-add area: Given

that the decline in new construction activity is leading to a shortage of efficient and

high-quality available office stock and assuming the economic recovery continues,

investments in modern well-situated properties with vacancy problems and in properties

with refurbishment potential offer the prospect of exceptionally high increases

in value.

Aside from the limited supply of core objects, real estate financing continues to restrict

a continued market recovery: In the light of new regulations under Basel III regarding

equity requirements for banks, new lending business in the real estate sector remains

limited. Any further relaxation of credit financing for real estate in the form of higher

lending quotas or lower credit margins is therefore unlikely.

By way of conclusion, it is important to note that recovery in the investment market

will continue during the current year. A significant increase in the transaction volume

above the €20 billion mark will be curtailed by the shortage of fully leased prime

properties and the moderate willingness to lend on the part of the banks. The German

investment market in 2011 will also be dominated by German and foreign investors

supported by equity. Assuming that the economic upturn in Germany continues, they

will to some extent be willing to accept higher risks again – either by expanding their

geographical investment spectrum to include secondary locations and regional locations

with moderate vacancy risks or by investing in the value-add segment.

Major office transactions in 2010 (selected)

Location Property Value €

million

Frankfurt Opernturm 580

Berlin Sony Center 572

Munich Siemens Neuperlach 330

Dusseldorf Vodafone Campus 300

Frankfurt Deutsche Börse 232

Frankfurt Fürstenhof 126

Hamburg Brahms Quartier 124

Berlin Nordbahnhof Carrée 116

Berlin Friedrich Carrée 105

Dusseldorf Spherion 102

Dusseldorf Moskauer Straße 19 97

Hamburg Metropolis Haus 93

Regensburg E. ON Bayern 90

Frankfurt Deutsche Bahn 73

Hamburg Centurion CC 71

Cologne Südliches Kranhaus 65

Stuttgart City Plaza 65

Dusseldorf Hofgarten Palais 60

Frankfurt Imtech am Flughafen 57

Frankfurt Mainpark Kaiserlei 53

Munich Renaissance Haus 53

Hamburg Zweier-Portfolio 52

Berlin Berlin Airport Center 52

Dusseldorf Living Office 52

Darmstadt Auge 51

Source: IVG Research

Ø Prime office initial yields

8%

6%

4%

2%

0%

7 major

office centres

Source: IVG Research

Regional

Centres

West

Regional

Centres

East

23


24

Notes: German office markets 2011

City Office stock

in million m²

Vacancy rate

in %

Prime monthly rent

in €/m²

Prime initial yield (net)

in %

2011 2011 Trend 2011 Trend 2011 Trend

Aachen 1.95 10.0 12.0 6.8

Aschaffenburg 0.32 6.0 10.0 7.0

Augsburg 1.70 5.1 10.9 7.0

Bamberg 0.37 10.0 10.7 7.0

Berlin 17.07 8.3 21.0 5.1

Bielefeld 1.09 10.0 11.0 7.3

Bochum * 1.45 6.0 11.0 6.8

Bonn * 3.70 3.8 16.0 6.3

Braunschweig 1.20 6.4 10.5 7.9

Bremen * 3.36 3.5 12.5 6.3

Chemnitz 1.30 13.0 10.0 9.0

Cottbus 0.50 18.0 11.0 7.5

Darmstadt 1.83 5.4 11.6 6.7

Dortmund * 2.50 5.7 13.2 6.4

Dresden * 2.50 11.8 11.0 6.5

Duisburg * 1.50 3.5 13.5 6.4

Dusseldorf 8.90 11.5 23.0 5.2

Erfurt 0.78 18.6 12.5 7.0

Erlangen 1.00 0.9 13.0 7.4

Essen * 3.57 4.2 13.5 6.0

Frankfurt 12.01 14.7 35.0 4.9

Freiburg 1.11 4.0 13.0 7.5

Fürth 0.43 7.7 10.0 7.5

Gera 0.30 16.8 8.5 8.3

Gütersloh 1.06 5.5 9.0 7.3

Hagen 0.61 3.6 9.8 7.5

Halle 1.04 15.3 9.0 7.4

Hamburg 14.40 8.8 22.5 5.0

Hamm 0.38 6.0 9.0 8.0

Hanover * 3.72 5.0 12.5 6.25

Heidelberg 0.90 4.8 14.8 6.5

Heilbronn 0.47 10.1 11.2 8.1

Ingolstadt 0.70 6.0 10.4 7.0

Jena 0.47 19.2 9.5 7.9

Kaiserslautern 0.39 4.7 10.5 7.5

Karlsruhe 2.91 2.8 11.6 6.5

Kassel 1.03 11.3 10.0 7.1

Kiel 1.40 3.6 12.5 7.0

Koblenz 0.61 6.6 10.5 6.9

Cologne 7.53 8.3 21.5 5.3


City Office stock

in million m²

Vacancy rate

in %

Prime monthly rent

in €/m²

Prime initial yield (net)

in %

2011 2011 Trend 2011 Trend 2011 Trend

Constance 0.40 6.25 12.8 6.9

Krefeld 0.65 11.5 10.0 7.6

Leipzig * 3.76 17.0 12.0 6.7

Leverkusen 0.64 6.0 13.0 7.5

Lübeck 0.80 2.9 12.5 7.4

Ludwigshafen 0.84 4.7 9.5 6.5

Magdeburg * 0.88 14.5 10.0 7.5

Mainz * 1.68 5.4 12.0 6.5

Mannheim * 2.27 5.7 13.3 6.3

Marburg 0.56 6.0 11.5 7.8

Mönchengladbach * 0.78 3.3 11.5 7.0

Munich 19.76 9.9 29.0 4.9

Münster * 2.45 6.0 12.5 6.5

Neuss * 0.50 16.5 10.5 6.8

Nuremberg * 3.80 7.4 13.0 6.0

Offenbach 1.18 7.6 11.5 7.0

Osnabrück 0.85 4.0 12.0 6.8

Paderborn 0.79 10.5 8.3 7.3

Potsdam * 1.20 4.4 11.0 6.4

Ratingen * 0.61 13.8 13.8 6.8

Regensburg 1.30 10.0 12.0 7.2

Rostock * 0.84 8.1 10.0 7.3

Saarbrücken 1.49 6.0 10.0 7.5

Salzgitter 0.26 k.A. 7.0 9.0

Schwerin 0.47 22.9 8.5 6.8

Siegen 0.77 15.0 10.0 8.0

Solingen 0.34 12.0 10.0 9.0

Stuttgart 8.20 6.5 17.5 5.3

Trier 0.47 18.3 10.3 7.3

Ulm 0.87 4.1 13.0 6.7

Weimar 0.22 6.0 7.0 8.2

Wiesbaden * 2.33 7.3 13.0 6.0

Wuppertal 2.00 5.5 12.0 7.5

Würzburg 0.62 15.0 11.0 7.4

Six-month trend: = stable, = falling, = rising

* See the selection of regional centres on page 15

Source: IVG Research

25


26

Office market scoring methodology

Category Weighting Indicators Calculation Period Overall weighting

11.1 Office stock absolute, in million m² 2010

Market size 11.1 SID employees absolute 2010

Market risk

11.1 Gross value-added absolute 2008

11.1 Market transparency Index 2010

5.6 Volatility of gross value-added Volatility in % 2000-2010

5.6 Volatility of rental trend Volatility in % 2000-2010

11.1 Vacancy rate 2010/2011

11.1 Growth of gross value-added in % 2001-2010

Future prospects 11.1 Population growth 2025 in % 2009

11.1 Prognos future prospects Index 2010

100.0

The aim of this scoring model is to provide a long-term foundation on which to base

decisions to invest in the German office market. The choice of locations examined

involved selecting cities from all the main economic areas and conurbations, even

if their office markets were economically insignificant in overall terms. This decision

was influenced by the assessment arrived at by various studies, which show that

the seven major markets of Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich

and Stuttgart together do not even account for a quarter of all German office stock.

Furthermore, real estate portfolios frequently include office buildings outside of these

seven strongholds. Therefore, it seems logical to maximise the spatial coverage in the

city scoring. In order to restrict the selection, only cities with more than 50,000 inhabitants

were examined. Another criterion is the excess regional significance of the cities

investigated both in economic and political terms. Consequently, the random sample

includes the capital cities of all 16 Federal States along with representative cities from

the 12 major metropolitan regions of Germany. The macroeconomic analysis of data

is conducted at area level. In addition to official population, economic and unemployment

statistics, key figures provided by leading German market research institutes

such as Prognos and GfK Regionalmarktforschung as well as our own research conducted

at IVG branch offices, estate agents and business development entities in the

cities under review are included in the data basis. There are several possible reasons

why a city may not appear in the scoring: Many of the potential locations for investigation

– such as in the Ruhr region – may exhibit a high degree of similarity in terms

of the indicators to be analysed, which means that the cities actually included in the

scoring serve as a reference parameter; alternatively, the available data basis may be

insufficient or incomplete.

33.3

33.4

33.3

A total of ten indicators to describe the office market were

chosen and then summarised into three categories. In this

case, the individual indicators are included with the same

weighting in the scoring. The only exception made is

regarding the volatility of the gross value-added and rental

trend due to their high positive correlation with one another.

On aggregate, both factors have the same weighting as the

other factors. Depending on the values recorded, the various

cities are allocated a score of between 1 (low) and 5 (very

high), with the rankings created in a linear fashion based on

the underlying data.

The market size category, which is quantified using the

indicators of office stock, number of employees subject to

statutory social insurance and gross added value, describes

the status quo of the locations. A large office stock, high

employment figures and a high level of gross added value

are generally indicative of well-established and successful

office markets. As a result, these locations are then allocated

a higher score.


Since the size of a market alone is not a determinant of good investments, the

market risk in the individual locations is analysed. When making their decisions,

investors look for security. For this reason, the market transparency factor takes

into account the availability of office market data and information about the cities.

Frequent publications issued by as many different institutions and market participants

as possible indicate a high level of transparency (score 5). The lack of publications

or a lack of knowledge among the majority of market participants regarding the size,

take-up and vacancies in a particular market point to a lack of transparency (score

1). An overview of the dynamic of the markets based on the volatility and vacancy

rate is provided. Since the majority of investors tend to have a low tolerance for risk

and a preference for stable cash flows, pronounced volatility and high vacancies are

penalised with low scores.

Ultimately, it is important to many investors to make investments in markets that offer

good future opportunities. The opportunities presented by the various markets are

therefore examined in the future prospects category. In this context, it is assumed

that the growth of gross added value over the previous ten years provides some indication

of the future economic success. The population projections by the Bertelsmann

Foundation are further indications as to which regions will develop in a positive direction

in the future. On the other hand, the “Zukunftsatlas” (atlas of the future) published

by Prognos AG delivers a differentiated analysis of the causes (innovation, attractiveness,

education, prosperity) for this evaluation. The higher the anticipated growth or

the better the assessment of future opportunities, the higher the score allocated to

the locations.

Glossary

Net absorption

The change in occupancy, approximated as net absorption =

change in occupancy minus the change in vacancy levels

Prime rent

The rent payable for a building unit of the highest quality in the best location

Net initial yields for prime properties

rental income – non-recoverable operating costs

Prime yield =

acquisition costs incl. acquisition taxes

Take-up

Gross take-up generated from letting or occupation of a property by an owneroccupier

Vacancies

The supply of office space available immediately (= generally within three months)

Vacancy rate

The level of vacancy with reference to the total stock of (office) space


28

Imprint

IVG Immobilien AG

Zanderstr. 5-7, 53177 Bonn, Germany

Tel. +49 (0) 228 844-0

Fax +49 (0) 228 844-107

www.ivg.de

research@ivg.de

Authors

Dr. Thomas Beyerle

Stefan Fiebig

Dr. Oliver Voß

Holger Weber

Additional research products from IVG such as the Market Tracker are

available on our website at www.ivg.de.

Important information

This document is provided solely for information purposes and should

not be interpreted as an offer or recommendation in respect of particular

investments or investment strategies. In particular, it does not constitute

an offer relating to the acquisition of investment units.

The information contained in this document, including the statements

and projections provided, were taken from sources that we believe to be

reliable. However, no guarantee is made nor any other liability accepted

for its correctness, adequacy or completeness.

Some of the information contained in this document may include

projections or other forward-looking statements regarding future events

or future financial performance of Federal States, markets or companies

and actual events or results may differ significantly from these.

Accordingly, no liability is accepted for any losses or damage incurred

– either directly or indirectly – as a result of using the information,

statements or assessments contained in this document.

The primary sources used are as follows: Bertelsmann Foundation,

BfA Federal Employment Agency, BNP Paribas Real Estate GmbH, Brockhoff

& Partner Immobilien GmbH, BulwienGesa AG, Cambridge Econometrics

Limited, CB Richard Ellis GmbH, Colliers Deutschland Holding GmbH,

Cubion Immobilien AG, Cushman & Wakefield, Deutsche Bundesbank, DIP

Deutsche Immobilien-Partner, Eurostat, GfK Gesellschaft für Konsumforschung

AG, gif Gesellschaft für Immobilienwirtschaftliche Forschung e.V,

ifo Institut für Wirtschaftsforschung e.V., Immobilienverband Deutschland

IVD, Internationaler Währungsfonds, Jones Lang LaSalle GmbH, Prognos

AG, Sal. Oppenheim jr. & Cie. AG & Co. KGaA, Federal Statistical Office

of Germany, Thomas Daily GmbH as well as local market participants and

offices of business development entities.

No part of this document may be copied, reproduced or distributed in

any form or by any means without the written permission of IVG Immobilien

AG.

Published and approved by IVG Immobilien AG, Zanderstraße 5,

53177 Bonn.

© 2011 IVG Immobilien AG. All rights reserved.


IVG Immobilien AG

Zanderstraße 5-7, 53177 Bonn, Germany

www.ivg.de

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