German Leasing and Investment Update

1. Q2 2011 | OFFICE & INVESTMENT
GERMANY
MARKET REPORT
Positive developments in the German
office leasing and investment market
ANDREAS TRUMPP Head of Research | Germany
Second best half-year result since 2005. The German office leasing market showed its most positive
side in the first half of 2011 in terms of take-up of space. Just under 1.42 million m² of space was taken
up in the six most important centers of office activity, an increase of almost 19% from the previous
year. At the same time, this is the second best half-year result since 2005. The quarterly result alone is
also noteworthy. Overall, the cities analyzed by Colliers – Berlin, Düsseldorf, Frankfurt, Hamburg,
Munich, and Stuttgart – yielded a figure of about 814,000 m². The last time we saw higher quarterly
take-up was immediately before the economic and financial crisis, in the fourth quarter of 2007.
LEASING MARKET – TOP 6 The unchallenged leader in take-up of space through the middle of the year was the Munich office
Q2 11* Q4 11* market, where approximately 387,000 m² was taken up, over 50% more than during the first six
TAKE-UP OF SPACE
months of last year. The office market in Berlin, which topped its 2010 results by nearly 26%, came in
second, with 289,800 m² of newly leased office space, followed by Frankfurt, where the figure was
VACANCIES 243,000 m², almost exactly the same as the previous year, and then by Hamburg, with approximately
COMPLETIONS
220,000 m² of space taken up, for an increase of slightly less than 19%. The biggest percentage jump
came in Stuttgart, the smallest of the six major markets for office space, where this year’s take-up
PRIME RENT figure of about 128,000 m² is nearly double the figure for the same period of last year. The increase is
PROPERTY INDEX
attributable to several signings for large spaces of over 5,000 m², which made this quarter’s results by
far the best of any quarter since 2005. Düsseldorf was the only market to see a decline in take-up of
*COMP. *FORECAST
Q1 2011 2011 space year on year (-30%), a development that reflects the large Vodafone lease signed last year. The
total figure of 148,000 m² recorded for take-up of space in Düsseldorf during this half-year period is,
however, almost exactly in line with the five-year average for this market.
INVESTMENT MARKET – TOP 6
Q2 11* Q4 11*
3,500 Take-up of office space and
TRANSACTION average for the past five
VOLUME 3,000 years in thousands of m²
2,758
PRIME YIELD 2,500
OFFICE
2,000
PRIME YIELD
RETAIL 1,500
PRIME YIELD 801
1,000 679 814
INDUSTRIAL/ 542 624
LOGISTICS 524
500
*COMP. *FORECAST
Q1 2011 2011 0
2006 2007 2008 2009 2010 2011
www.colliers.com

2. MARKET REPORT | Q2 2011 | OFFICE LEASING AND INVESTMENT | GERMANY
Comparison of prime rents (€/m²) Vacancies declining on the whole. After three some parties on the demand side to increase
quarters of stagnation in terms of vacancies their leasing activities in central locations, and
40.00
across the cities analyzed, where absolute va- thus pay higher rental prices, which led to an
35.00
30.00 cancies hovered just over 8 million m² despite upward trend in prime rents. The leading market
25.00 increasing leasing activity, the positive market in this regard is still Frankfurt, where the prime
20.00 trends that had been noted previously began to rent at the end of the second quarter was
15.00 show on the supply side as well. The rising € 37.50/m², an increase of € 2.50/m² from one
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11
figures for take-up of space, combined with a year ago. By comparison to the previous quarter,
Berlin Düsseldorf Frankfurt
Hamburg Munich Stuttgart decline in new project completions, added up to however, no change was noted. At € 29.00/m²,
a vacancy figure that was some 261,000 m² Munich came in second, with an increase of
lower than in the previous quarter. With 7.75 € 1.00/m² year on year and 50 cents over the
million m² of office space vacant at the end of previous quarter. The largest increases by com-
Comparison of average rents (€/m²)
June 2011, there was also slightly less space parison to both the previous year and the last
25.00 vacant in absolute terms than one year ago. As a quarter were noted in Berlin, with prime rent of
20.00 result, the vacancy rate for all markets fell by ten € 22.00/m², and Stuttgart, where the figure rose
15.00 base points year on year, to 9.7%. All of the to € 18.50/m². Düsseldorf was the only market to
10.00 office markets posted declining vacancies com- see a decrease from last year, with prime rent
pared with the preceding quarter, except Düssel- declining from € 25.00 to € 23.00/m², but this
5.00
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 dorf, where nearly 900,000 m² of office space figure is in line with the value for the three pre-
Berlin Düsseldorf Frankfurt stood vacant at the end of June, an increase of ceding quarters. It is not, or not yet, possible to
Hamburg Munich Stuttgart
about 23,000 m² over the figure at the end of discern a uniform upward trend in terms of aver-
March. When viewed year on year, by contrast, age rents overall, however. In this area as well,
vacancies rose slightly in three markets (Düssel- Frankfurt has the top figure among the cities
Comparison of vacancy rates (%) dorf, Hamburg, and Munich) and fell in the other analyzed, at € 20.00/m², followed by Düsseldorf
20.0 three (Berlin, Frankfurt, and Stuttgart). Frankfurt (€ 14.10/m²), Munich (overall market,
continues to have the largest amount of vacant € 13.81/m²), Hamburg (€ 13.70/m²), Berlin
15.0
office space, but the figure at the end of the first (€ 12.30/m²), and Stuttgart (€ 11.03/m²).
10.0
half of this year dipped back below 2 million m² of
5.0
office space for the first time in four quarters, Commercial investment market still shows
0.0 making for a vacancy rate of 17.0%. This is strong momentum. This year’s strong start was
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11
followed by Munich (1.79 million m² of vacant followed by a similarly brisk second quarter, with
Berlin Düsseldorf Frankfurt
Hamburg Munich Stuttgart space, 8.0% vacancy rate), Berlin (1.45 transaction volume nearly the same as in the
million m², 8.1%), Hamburg (1.17 million m², three months before. In total, the volume in-
9.0%), Düsseldorf (899,900 m², 11.6%), and vested in commercial real estate during the first
Stuttgart (465,500 m², 6.3%). half of 2011 comes to some € 11 billion. This is a
Prime yields for office properties (%)
significant increase – 24% – by comparison to
6.5
Prime rents on an upward trend, average the same period of last year In the first quarter,
6.0
5.5 rents varied widely. The prosperous overall most of the investment volume went toward
5.0 economic situation increased the willingness of
4.5
4.0
3.5
35.00 Commercial transaction
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11
volume in the top six mar-
Berlin Düsseldorf Frankfurt 30.00 kets, in billions of euros
Hamburg Munich Stuttgart
25.00 (gray: average value in-
cluding 2006/2007
red: average value not
20.00
including 2006/2007)
15.00
10.82
10.00
7.36
5.00 4.51
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q2
2011
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3. MARKET REPORT | Q2 2011 | OFFICE LEASING AND INVESTMENT | GERMANY
COMPARISON OF GERMAN OFFICE AND INVESTMENT CENTERS
Q1-Q2 2011
BERLIN DÜSSELDORF FRANKFURT HAMBURG MUNICH STUTTGART
Existing office space (millions of m²) 17.9 7.8 11.6 13.1 22.3 7.4
Take-up of office space, 2011, in m² 289,800 148,000 243,000 220,000 387,000 128,000
Take-up of office space, 2010, in m² 230,100 210,000 243,300 185,000 255,900 66,000
Percentage change +25.9 -29.5 -0.1 +18.9 +51.2 +93.9
Prime rent, 2011, in €/m² 22.00 23.00 37.50 23.50 29.00 18.50
Prime rent, 2010, in €/m² 20.00 25.00 35.00 23.00 28.00 17.00
Percentage change +10.0 -8.0 +7.1 +2.2 +3.6 +8.8
Average rent, 2011, in €/m² 12.30 14.10 20.00 13.70 13.81 11.03
Average rent, 2010, in €/m² 11.90 14.50 18.00 13.20 14.19 11.56
Percentage change +3.4 -2.8 +11.1 +3.8 -2.7 -4.6
Vacant office space, 2011, in m² 1,450,000 899,900 1,977,500 1,174,000 1,787,000 465,500
Vacant office space, 2010, in m² 1,553,000 873,100 2,027,800 1,161,700 1,742,100 484,000
Vacancy rate in % 8.1 11.6 17.0 9.0 8.0 6.3
PropertyIndex 2.5 3.0 4.3 2.4 2.9 2.4
Transaction volume in millions of 882 190 1,309 1,250 751 128
euros, 2011
Transaction volume in millions of 2,091 458 344 505 869 245
euros, 2010
Percentage change -57.8 -58.4 +280.5 +147.5 -13.6 -47.8
Top yields, office, in % 5.00 5.25 5.20 4.70 4.50 5.40
Top yields, retail, in % 4.80 4.50 4.20 4.70 3.75 4.50
Top yields, industry/logistics, in % 7.40 7.50 6.50 7.20 7.00 7.10
Largest group of investors by per- Open- Project Closed- Open- Project Corporates /
centage ended real developers / ended real ended real developers / Owner-
estate funds building estate funds estate funds building occupants
contractors contractors
31 36 45 45 27 25
Largest group of sellers by percen- Project Open- Banks Project Opportunity / Corporates /
tage developers / ended real developers / Private Owner-
building estate funds building Equity occupants
contractors contractors Funds
75 38 52 49 41 49
Most important type of real estate Retail Office Office Office Retail Office
by percentage 69 67 76 48 36 35
Sources: Colliers Deutschland, Grossmann & Berger GmbH (Hamburg); Photo: Owner of metris
P. 3 | COLLIERS INTERNATIONAL

4. MARKET REPORT | Q2 2011 | OFFICE LEASING AND INVESTMENT | GERMANY
locations outside of the traditional real estate centers as a result of various factors, including large-
volume transactions such as the sale of the Metro portfolio and a 50% share in the CentrO shopping
512 offices in and leisure center in Oberhausen. Then, in the second quarter, investors resumed their activities in
61 countries on traditional locations, especially in Frankfurt and Hamburg, each of which saw about € 1 billion in capital
invested in the period from April to June alone. In all, investment in the cities of Berlin, Düsseldorf,
6 continents Frankfurt, Hamburg, Munich, and Stuttgart came to € 4.5 billion, slightly less than 41% of the total
USA: 125 transaction volume.
Canada: 38
Latin America: 18 Investors focusing on retail properties. The biggest transaction involving any office property so far
Asia / Pacific: 214
this year took place in the second quarter, when a closed-ended DWS fund invested nearly € 584
EMEA: 117
million in the Greentowers development, in Frankfurt, which is occupied by Deutsche Bank. The two
• $1.5 billion in annual revenue office buildings underwent extensive renovations that were completed recently. All in all, though, retail
• 978.6 million square feet under properties continued to lead all other use categories by a wide margin at the close of the first half of the
management
• Over 12,500 professionals year. Investors put some € 5.9 billion into retail real estate, nearly twice as much as they invested in
office properties, at just under € 2.9 billion. These categories are trailed at a significant distance by a
near tie between hotel properties, at about € 582 million, and warehouse, logistics, and industrial
properties, at about € 573 million, indicating that the latter groups are still more in line with the invest-
COLLIERS DEUTSCHLAND
ment profile of specialized investors. The biggest transactions in the hotel segment include the sale of
HOLDING GMBH
the Grand SPA Resort A-ROSA Sylt for nearly € 63 million. The warehouse, logistics, and industry
Dachauer Straße 65 segment is represented among the top ten biggest transactions so far this year by the sale of the ING
D-80335 Munich Industrial Fund portfolio for about € 160 million.
At the close of the first half of the year, open-ended and special real estate funds accounted for trans-
TEL +49 89 540411-050
FAX +49 89 540411-199 action volume of about € 2.3 billion, just ahead of investors with an opportunistic or added value-
oriented investment profile, who also accounted for about € 2.3 billion in transaction volume. Closed-
ended real estate funds accounted for about € 1.9 billion, and project developers for approximately
€ 1.3 billion, which meant that both groups also made up noteworthy portions of the transaction vo-
lume. Nearly 38% of the investors were based outside Germany.
Transaction volume in the major real estate centers has increased – prime yield values re-
mained more or less unchanged. Transaction volume in the major real estate centers has increased
significantly in the past three months, reaching some € 4.5 billion at the end of June, slightly over the
previous year’s level. Only two cities are responsible for these gains, however. Transactions including
the sale of the Greentowers pushed investment volume in Frankfurt to about € 1.31 billion, an increase
of 281% over the previous year; in Hamburg, investments totaled about € 1.25 billion, about 148%
more than in 2010. All other cities suffered significant declines to one degree or another. The lack of
major transactions such as those finalized in the first six months of 2010 resulted in lower transaction
FOR FURTHER INFORMATION
volumes this year, although the number of deals, and thus market activity levels, increased year on
Andreas Trumpp
Head of Research | Germany year in all of the cities analyzed by Colliers, in some cases by a considerable margin.
Prime yield values remained unchanged in all of the cities analyzed except Hamburg and Frankfurt, the
TEL +49 89 540411-040 two cities with the strongest sales figures: The prime yield for an ideal office property fell by ten base
E-MAIL a.trumpp@colliers.de
points from the previous quarter in both markets, to 4.70% in Hamburg and 5.20% in Frankfurt. At
The information contained herein has been obtained from
4.50%, Munich remains the most expensive location. First-rate office properties are more favorably
sources deemed reliable. While every reasonable effort priced in top locations in Berlin (5.00%), Düsseldorf (5.25%), and Stuttgart (5.40%).
has been made to ensure its accuracy, we cannot
guarantee it. No responsibility is assumed for any
inaccuracies. Readers are encouraged to consult their Outlook. On the whole, the investment market is being buoyed by excellent overall economic trends,
professional advisors prior to acting on any of the material
contained in this report.
positive development on the office leasing market in particular, and a lack of investment alternatives.
© 2011 Colliers Deutschland Holding GmbH The focus on core products is gradually subsiding somewhat in favor of riskier investment options,
although high levels of interest have not yet yielded a large number of finalized transactions. In light of
the sales currently in negotiations, we stand by our annual forecast of over € 20 billion in transaction
volume on the commercial investment market.
For the next few months, we believe that continuing above-average demand in the office leasing mar-
ket will run up against widespread declines in supply in the new construction segment. On the whole,
we expect this to continue to push vacancies downward as growth in rental prices slowly assumes a
Accelerating success.
steady curve.
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