real estate market germany 2010-1-23.02 druck

7/30/2019 Real Estate Market Germany 2010-1-23.02 Druck

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Recovery of retail and logistics in sight

Rents still under pressure in 2010

Real Estate Market

Germany 2010 | 1

March 2010A RESEARCH PUBLICATION BY DG HYP

Member of theCooperative FinancialServices Network


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Table of Contents

Preface ____________________________________________________________________ 2

Real Estate Market Germany _______________________________________________ 3

Office _____________________________________________________________________ 4

Situation and trends

Outlook

Retail ______________________________________________________________________ 9


Outlook

Residential ________________________________________________________________ 13


Outlook

Logistics __________________________________________________________________ 15


Outlook

Imprint ____________________________________________________________________ 18

Disclaimer

DG HYP Offices ____________________________________________________________ 19

1

Real Estate Market Germany 2010 | 1


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Preface

As a commercial real estate bank, we support our sales units and risk management

teams with their credit and lending decisions through regular analysis of the marketswhich we actively cover. We publish the results of our research in real estate market

reports which are openly available to all market participants.

The present report continues our series of studies on the German real estate market,

published in the spring and autumn of each year. In this study, we have assessed

market trends for office, retail and residential real estate, providing our outlook for the

year 2010. The report also includes a market analysis of logistics properties.

As with all our research studies, this market report is available in German and English.

The next report on the German real estate market will be published in autumn 2010.

An overview of DG HYPs real estate market reports is available on our website:

http://www.dghyp.de/en/unternehmen/markt-research/

Deutsche Genossenschafts-Hypothekenbank AG

March 2010


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REAL ESTATE MARKET GERMANY

Office

The DZ BANK rental index for the top 6 locations is likely to bottom out in thesecond half of this year, since the downward trend in prime rents should then

have come to a halt. However, this is dependent on a further recovery in

macroeconomic growth. We expect rents to decline by around 4 per cent

compared to the previous year. The vacancy rate is increasing again in major

office centres and could consequently reach just over 10 per cent by year-end.

We would expect office space which is outdated in terms of energy or other

facilities aspects to become increasingly unmarketable in future years.

Retail

In 2010, rents for retail space in Germany are initially likely to decline further,and we therefore anticipate an average decline of around one per cent over the

year in the top 6 locations. The DZ BANK index for retail rents in side locations

shows that rents in this market segment have already been under pressure for

around 10 years and are also therefore clearly below their 1997 level.

The shopping centre trend continues and the number of centres in Germanyhas more than quadrupled since 1990. Although Germany has a low volume of

retail space in centres on an international comparison, the demand for more

shopping centres should not be overestimated. The downward trend in retail

rents in side locations shows that the need of strong expansion of sales space

is fairly low and likely to be restricted to a small number of locations. Careful

consideration should always be given as to whether the revitalisation of existing

retail space at a location perceived to have development potential is not the

better option, or whether an opportunity exists to merge retail space into one

shopping centre.

Residential

Rents for new apartments in commercial centres are likely to have increased by2 to 3 per cent last year. This is a positive trend given the economic recession

and rising unemployment. Contributory factors are robust demand for housing in

metropolitans and continuing weak construction activity in the housebuilding

sector. We expect rents for new apartments to continue increasing slightly in

2010.

Logistics

Although the market for logistics properties should recover again slightly thisyear, we do not anticipate any scope for rent rises. We expect competition from

sites within Germany and in other European countries to intensify further, since,

despite a slight increase in demand for space, all companies are still seeking

cost-savings potential. New rental contracts are likely to extend into the medium

term for around 5 years. We estimate that space turnover is increasing in both

conurbations and non-conurbations, since the former are benefiting from their

proximity to airports and ports, while the latter provide more cost-saving

potential.


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REAL ESTATE MARKET GERMANY

Economic output in Germany declined by 5.0 per cent in 2009. The main factorresponsible for this negative trend was the sharp decline in GDP at the beginning of

last year. However, modest economic growth was reported again in the second and

third quarters thanks to state support measures, such as the car scrappage

premium. In contrast, initial estimates show that the German economy stagnated in

the final quarter. For the first time since 2005, construction investment is likely to

have fallen slightly by 0.7 per cent last year given the severity of the recession still

a very positive result. While investment in residential properties is likely to have

fallen slightly and investment in commercial construction sharply, public building

projects have been stepped up significantly in the construction sector.

ECONOMIC FORECAST GERMANY

as % compared to previous year 2008 2009 2010e

Real GDP growth 1.3 -5.0 1.2

Private consumption 0.4 0.4 -0.4

Public consumption 2.2 2.4 1.3

Investment 2.9 -8.4 1.5

Exports 2.9 -14.9 6.3

Imports 4.3 -9.1 5.2

inflation rate (HICP) 2.8 0.2 1.2

Unemployment rate (ILO) 7.3 7.5 8.1

Public budget balance (as % of GDP) 0.0 -3.2 -5.5

Source: DZ BANK Research

This year we anticipate only a sluggish recovery in economic growth in Germany.

The export economy could continue to suffer from relatively weak demand from

abroad in the first half, while private consumption will still be depressed by the

difficult conditions in the labour market. Economic growth will pick up again slightly in

2011 to around 2 per cent.

OFFICE

The German property market is regarded as a beacon of stability internationally,

however German office rents are also being adversely affected by the impact of thefinancial market crisis and the global recession. The volume of transactions (sales

and rentals) in the commercial property markets declined drastically in the course of

last year and is likely to remain very low this year. As a consequence of what is only

a sluggish economic recovery, we expect a slight increase in the number of

transactions for office properties from mid-year.

In the 6 major German office centres, weak demand for space is likely to have led to

an average decline of almost 5 per cent in prime locations in 2009. The vacancy rate

could have almost reached double digits at 9.8 per cent. We also expect rents to fall

and vacancy rates to increase this year. Since the decline in rents should slow from

mid-year as a result of the economic recovery, we anticipate a decline of around 4

per cent in 2010 compared to the previous year.

Construction investment likely to

have fallen in 2009

Only sluggish recovery in economic

growth in 2010

Volume of transactions down

sharply in 2009

Office rents decline further and

vacancy rates increase


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FIGURES AND FORECASTS FOR TOP-6-LOCATIONS

Rent top location (as % yoy) Vacancy rate in %

2008 2009 2010e 2008 2009 2010e

Berlin 6.4 -8.1 -3.0 8.6 8.9 9.3

Hamburg 3.2 -1.7 -4.7 7.0 7.9 9.0

Frankfurt 6.2 -5.5 -4.4 12.4 15.5 15.8

Munich 4.2 -6.0 -3.0 9.0 10.1 11.2

Dsseldorf 4.1 -3.9 -6.4 9.7 10.5 11.6

Stuttgart 0.0 -3.0 -2.9 5.0 5.8 6.1

Source: DZ BANK Research


Under current conditions relationships with tenants have become even more

important. Good and intensive service for tenants long before contracts are due for

renewal should be a permanent feature from a number of aspects. This pays off

since the extension of a contractual relationship is generally a more favourable

option for owners than acquiring a new tenant. If, for example, the tenant is

unsatisfied with the floor layout or other factors and the issue is addressed at an

early stage, it may be possible to find a solution without incurring any major costs.

This can prevent a change in tenants which is often associated with high conversion

costs or the creation of a vacancy.

The level of additional costs of between EUR 1.50 and 4.50 per sqm depending onthe condition and age of the floor space - is becoming increasingly significant in the

office property segment. There is often substantial savings potential, particularly in

relation to energy costs; so-called energy management systems and light

management systems which, for example, ensure that artificial lighting is only

switched on when there is insufficient daylight can reduce the additional costs for

the tenant.

Of course the owner of an existing property has to consider the question of whether

SALES OF OFFICE SPACE REMAIN LOW AT THE MOMENT OFFICE RENTS FOLLOW THE ECONOMY

2100

2400

3000

2600

1900 1870 1800

2200

2500

3000

2600

15501650

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e2010e

-14

-12-10-8-6

-4-2024

68

1012

14

1998 1999 2000 20012002 2003 2004 2005 2006 2007 2008 20092010e

GDP grow th yoy in %

office rents Top-6-locations

Source: Feri, forecast DZ BANK Research, space turnover in 1,000 sqm Source: Feri, forecast DZ BANK Research

Intensive service for tenants

can prevent vacancies

Level of additional costs alsoinfluences tenant satisfaction


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it pays to carry out energy-saving measures. It also has to be considered whether

the associated higher construction costs for a new building will also generate higher

profits. A clear calculation of the cost savings cannot be made since no preciseinformation on the trend in energy costs over the next 10 to 20 years is available.

However, we assume that office space in a building with lower than average energy

consumption will be fundamentally easier to let and will also facilitate the signing of a

long-term rental contract (e.g. with a duration of 10 years). This advantage should

not be underestimated, although according to information from estate agents, in

recent years the average contract term has been reduced visibly from 7 to 5 years.

The cachet of occupying space in a green building and thus demonstrating

environmental awareness is also likely to become more important.

However, it is likely to be difficult, particularly under current market conditions, to

reflect the energy-saving measures or increased construction costs in a

correspondingly higher rent. In terms of the long-term life of a property, investment

should however pay off, since buildings with high levels of energy consumption are

likely to become unmarketable more quickly in future. Although no uniform

international standard exists for sustainable buildings, we expect the certification of a

building to be fundamentally useful in the long term. However, this must always be

reviewed in terms of the individual property.

Frankfurt

Rents for top locations in Frankfurt are likely to have declined by around 5 per cent

last year. The already very high vacancy level has increased further, probably to a

level of 15 per cent. As a result of the completion of a large number of new buildings,

the vacancy rate for high-value space has also increased further: according to estateagents, these first-class floor areas even account for more than half of the vacant

space in Frankfurt. Numerous incentives are being used in Frankfurt in particular to

prevent rents from declining further. However, given the continuing job losses in the

financial sector, we expect office rents for 1A locations to fall by around 4 per cent.

On account of the incentives, for example longer rent-free periods, the effective

decline in rents could however be higher.

Certification likely to be useful

in long term

Properties with low energy

consumption are easier to let

FRANKFURT OFFICE RENTS SHOW STRONG RATES OFCHANGE (IN % YOY)

MUNICH: VACANCY RATE INCREASING FURTHER

-20

-15

-10

-5

0

5

10

15

20

1998 2000 2002 2004 2006 2008 2010e

Frankfurt

Top-6-locations 0

2

4

6

8

10

12

1998 2000 2002 2004 2006 2008 2010e

Munich

Top-6-locations

Source: Feri, forecast DZ BANK Research Source: Feri, forecast DZ BANK Research

Frankfurt: first-class space accounts

for more than half of vacant

properties



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Munich

Demand for rented space in Munich also declined again sharply last year. Despite a

visible decline in office rents for prime locations, the vacancy rate is likely to haveexceeded 10 per cent. Similar to last year, in the course of this year a large number

of new office buildings will be completed, and rents will therefore remain under

pressure. Following the severe decline in rent levels in 2009, we expect a weaker

decline of 3 per cent this year. The vacancy rate is likely to continue to climb, more

or less reaching the Dsseldorf level of 11 per cent.

Berlin

According to Jones Lang LaSalle, a substantial proportion of empty office space in

the main German business centres is very out-of-date and therefore no longer

marketable. If we remove this space from the overall vacancy rate, this gives the

vacancy rates showed in the graph below. In Berlin, taking account of this aspect,

the vacancy rate would only have been around 7.8 per cent in 2009. However, rent

negotiations are generally influenced by the obvious vacant office buildings in a

market. After a sharp decline of 8 per cent last year, rents for prime locations could

fall by another 3 per cent in 2010.

Hamburg

This year the supply of excellent office space in Hamburg is increasing visibly due to

the completion of new building projects in the harbour city. The fairly subdued

economic outlook for the trading city and the expansion of office space are

strengthening the negotiating power of potential tenants, and we therefore anticipate

a steeper decline in office rents this year than in 2009 (see table). In 2010 we expect

a vacancy rate of 9 per cent the highest level since 1992.

Dsseldorf

With available space of just over 7m sqm, the Dsseldorf office market is only half

as large as Hamburg. As in the other top 6 locations, the number of office

employees declined last year in Dsseldorf and the process is likely to continue

this year. Since the Dsseldorf office market has the second highest vacancy rate

Vacancy rate in Munich now in

double digits

OBSOLETE BUILDINGS DEPRESS VACANCY RATE OFFICE RENTS FOR TOP LOCATIONS IN EURO PER SQM

7,8

10,7

7,2

99,7

8,9

15,5

7,9

10,1 10,5

B erlin F rank furt H am burg M nc hen D s seldo rf

vacanc y rate w ithout outdated

inventoriesvacancy rate

10

15

20

25

30

35

40

45

50

55

1997 1999 2001 2003 2005 2007 2009e

Berlin Frankfurt

Hamburg Munic h

Source: Jones Lang La Salle, DZ BANK Research, 2009 figures Source: Feri, DZ BANK Research forecast

Berlin: vacancy rate excluding

obsolete buildings is lower

Hamburg: office rents could fall

visibly in 2010

Dsseldorf: office market only half

as large as Hamburg



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after Frankfurt amongst the main office centres at 10.5 per cent, we anticipate a

further sharp decline of around 6 per cent in office rents in 2010.

Stuttgart

Despite a comparatively low vacancy rate of only 5.8 per cent, the Stuttgart office

market is continuing to show downward movement. After a 3 per cent decline in

rents last year, we expect a similarly steep downturn in 2010. The industrial

companies based in Stuttgart have been hit disproportionately hard by the recent

recession, and are likely to continue with their cost-cutting measures.

Outlook

The DZ BANK rental index for the top 6 locations is likely to bottom out in the second

half of this year, since the downward trend in prime rents should then have come to

a halt. However, this is dependent on a further recovery in macroeconomic growth.

We expect rents to decline by around 4 per cent compared to the previous year. The

vacancy rate is increasing again in major office centres and could consequently

reach just over 10 per cent by year-end. We would expect office space which is

outdated in terms of energy consumption or other facilities to become increasingly

unmarketable in future years.

Stuttgart: despite low vacancy rate,

office rents falling here too

Downward trend in office rents could

peter out in second half

HIGHER THAN AVERAGE VACANCY RATE IN DSSELDORF DZ BANK RENTAL INDEX OF TOP OFFICE LOCATIONSBOTTOMING OUT

3

4

5

6

7

8

9

10

11

12

1998 2000 2002 2004 2006 2008 2010e

Dsseldorf

Top-6-locations

90

95

100

105

110

115

120

125

130

135

140

1998 2000 2002 2004 2006 2008 2010e

DZ BANK index of office rents1997=100

Source: Feri, forecast DZ BANK Research Source: Feri, forecast DZ BANK Research



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RETAIL

The retail property segment in Germany is also continuing to suffer the effects of therecent economic crisis. However, the negative consequences here are not quite as

severe as in the office sector. In the top 6 locations, rents for one sqm of sales

space in a prime site are likely to have declined by 2.4 per cent last year, after a

slight increase at the beginning of 2008.

On an international comparison, the top 6 locations in Germany which have

average top rents of EUR 166 per sqm - are broadly in line with the Italian and

French capitals, while significantly higher retail rents are being obtained in London.

In all the above-mentioned European locations, the downward trend of recent years

is likely to persist in 2010.


Despite the economic crisis, 15 new shopping centres were opened in Germany last

year, and the trend towards shopping centres has not apparently slowed compared

to previous years. The success story of shopping centres in Germany began as long

ago as 1965, however the trend received a major boost (see graph) from 1990 as a

result of reunification. In the Greater Berlin area in particular a large number of new

centres were set up, representing many different types of the shopping experience.

At the moment, at 428 there are more than four times as many shopping centres in

Germany than 20 years ago. The average size of the centres has remained virtually

constant since 2002 at just under 32,000 sqm. Although the proportion of retailspace in shopping centres to total retail space has increased in recent years, the

proportion of sales space in centres is currently only around 11 per cent. On a

European comparison, Germany lags well behind in terms of available retail space in

shopping centres. Amongst the large countries, it brings up the rear with only 154

sqm per 1,000 people, with otherwise mainly Eastern European countries at the

bottom of the pile. The frontrunner with 640 sqm is Norway, with, for example, the

Netherlands ranking in fourth position at 343 sqm. A quarter of total Dutch retail

Retail rents likely to have fallenby 2.4% in 2009

Rents showing downward trend

throughout Europe

Shopping centre trend continues

Number of shopping centres has

more than quadrupled

NO. OF SHOPPING CENTRES CLEARLY BENEFITED FROMREUNIFICATION

HOWEVER, PROPRTION OF SALES SPACE IN CENTRES STILLCOMPARATIVELY LOW

14

5065

81 93

179

279

363

428

1970 1975 1980 1985 1990 1995 2000 2005 2010e

number ofshopping-centers

4,0

8,7

9,9

10,7

7,2

1990 1995 2000 2005 2010e

share of shopping centerspace of retail space

Source: EHI Retail Institute Source: Feri, DZ BANK Research



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space is however in shopping centres, but in France too the proportion of around 21

per cent is significantly higher than in Germany.

Precisely because of the small proportion of sales space in centres internationally,

many experts believe that there is still considerable potential for more shopping

centres in Germany. This view generally ignores the weak sales growth at German

retailers in recent years, which is also depressing sales floor productivity in most

locations. However, the downward trend in rents for retail space in side locations

shows that need of strong expansion of available space (generally as a result of the

construction of a shopping centre) is fairly low and likely to be restricted to a small

number of locations. In our opinion, careful consideration should always be given as

to whether the revitalisation of existing sales space at a location perceived to have

development potential is not the better option, or whether an opportunity exists to

merge sales space into one shopping centre.

Frankfurt

The volume of retail sales space in the banking metropolis also showed above-

average growth of almost 5 per cent last year. This is depressing the Frankfurt

market all the more since available per capita space of around 2 sqm already

exceeds the country-wide average. With rents for retail space in prime locations

estimated to have declined by around 3 per cent in 2009, we expect a similar

downward trend this year. In addition to weak demand for retail space, this is

attributable to the ongoing expansion of inventories in the city on the Main. As in

other locations, there is a wide divergence in Frankfurt between rents for prime sites

and side locations, although the gap is fairly small here on account of the

comparatively high rents for non-central locations (see graphs).

Munich

As in the rest of Germany, we expect the disposable incomes of private households

in the catchment area of central Munich to decline in 2010, although by only a

modest extent. Another negative factor is that retailers are unlikely to achieve any

significant growth in sales, and not only because there are fewer foreign tourists.

However, the very high rents for prime retail space in Munich are only coming under

However, low level of sales space in

centres in international comparison

Need of more shopping centres in

Germany might be overestimated

Frankfurt: continuing strong

expansion of sales space

Munich still the most expensive

location in Germany

MAJOR DIVERGENCE BETWEEN PRIME SIDE LOCATIONS BIGGEST RENT SPREAD IN MUNICH

213,3

176,4

172,7

170,9

147,9

140

22,3

47,8

22,9

24,6

18,9

22,3

M unich

Frankfurt

Hamburg

Dsseldorf

Stuttgart

Berlin

rent side location in Euro per sqmprime rent in Euro per sqm

27,1

15,9

14,4

13,3

12,8

10,5

FRANKFURT

BERLIN

DSSELDORF

HAMBURG

STUTTGART

M unich

rent side locationin % of prime rent

Source: Feri, data for 2008 Source: DZ BANK Research



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slight pressure: at around 2 per cent, the decline last year is likely to have been

below average. We expect an even weaker decline of only 1 per cent this year. The

main contributory factor in the below-average decline is that retail space is incomparatively short supply Munich remains by far the most expensive location for

retail space in Germany.

Berlin

The German capital has by far the largest supply of retail space in Germany of

around 5.8m sqm. Since reunification, not only has available space increased

significantly (in 1995 the figure was only around 3.0m sqm), but the diversity of

shopping streets and shopping options available has altered very impressively.

Despite the large number of international tourists travelling to the city for short

breaks every year, of the top 6 locations examined here, Berlin still has the lowest

retail rents. Nevertheless, because of the continuing expansion of sales space,

which has however now slowed significantly, rents for prime and non-central

locations in Berlin are likely to have fallen by around 3 per cent last year. Although

the downward trend is likely to continue initially this year, we expect a decline of only

around 1 per cent, mainly because the level is still low.

Hamburg

Despite numerous shopping centres, available per capita space in Hamburg

corresponds only to the country-wide average, while it is significantly higher in many

other major cities. As in the other top 6 locations in Germany, retail rents in the city

on the Elbe showed a strong upward surge in 2008. Rents are now declining again,

and in 2009 rents for prime locations are likely to have fallen by 2 per cent. On

account of the above-average availability of per capita sales space compared toother large German cities, we also expect rents to show only a very weak decline in

2010.

Dsseldorf

In terms of rents for retail space in prime locations, the city on the Rhine, which also

likes to be described as the fashion city with quality of life, lags slightly behind

Hamburg and Frankfurt (see the graph above). On the other hand, in relation to rent

Berlin: rents declining only

slightly this year

Hamburg: retail rents down

only slightly in 2010

Dsseldorf: despite a decline,

year-end rents should still be

much higher than in 2007

RENTS FOR TOP-LOCATIONS SLIGHTLY DECLINING MUNICH STILL MOST EXPENSIVE RETAIL LOCATION

50

70

90

110

130

150

170

190

210

230

1998 2000 2002 2004 2006 2008 2010e

Berlin Frankfurt

Hamburg Munic h50

70

90

110

130

150

170

190

210

230

1998 2000 2002 2004 2006 2008 2010e

Dsseldorf

Stuttgart

Munich

Source: Feri, Forecast DZ BANK Research, rents in Euro per sqm Source: Feri, Forecast DZ BANK Research, rents in euro per sqm



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levels for non-central locations, Dsseldorf ranks only second after the significantly

more expensive Frankfurt at around EUR 24 per sqm. However, rents for non-

central locations account for only around 14 per cent of top rents here, which isroughly in line with the average rate for the top 6 markets examined here (see graph

in Frankfurt section). The Dsseldorf market cannot escape the slight downward

trend in retail rents country-wide, and we therefore anticipate a slight decline of

around 2 per cent in rents in 2010. As a result of the sharp increase in rents in 2008,

the rent level at the end of this year should however still be well above the 2007

level.

Stuttgart

In the period from 1998 to 2003, retail rents in Stuttgart surged, with substantial

growth of around 70 per cent. Since then, rents in the regional capital of Baden-

Wrttemberg have been easing back slightly. At 1.6 sqm per inhabitant, available

space corresponds to the average for the top 6 locations, and no major expansion of

retail space is planned this year. However, given weak demand for space and the

subdued prospects for Stuttgart as a business centre, retail rents in the regional

capital are likely to fall slightly in 2010. This could also have an impact on the

already very cheap sales space in side locations.

Outlook

Rents for retail space in Germany are likely to initially fall in 2010, and we therefore

expect an average annual decline of slightly more than one per cent in the top 6

locations. With rents for non-central locations likely to have fallen slightly more

sharply than for prime sites in 2009, we expect only weak downward movement inboth market segments this year. The DZ BANK Index for retail rents in side location

(top 6 locations) shows that rents in this market segment have already been under

pressure for the last 10 years or so and have also therefore clearly fallen below their

1997 levels. Given the comparatively low supply of per capita retail space, retail

rents in Munich are showing only a below-average decline, while in Frankfurt the

visible expansion of space is depressing rent levels. Munich remains by far the most

expensive location in Germany.

RENT INDEX FOR RETAIL SPACE IN PRIME LOCATIONS RENT INDEX FOR RETAIL SPACE IN SIDE LOCATIONS

90

95

100

105

110

115

120

125

130

135

1998 2000 2002 2004 2006 2008 2010e

DZ BANK index of retailrents top-locations

90

95

100

105

110

115

120

125

130

135

1998 2000 2002 2004 2006 2008 2010e

DZ BANK index of retailrents s ide locations

Source: DZ BANK Research 1997=100 Source: DZ BANK Research 1997=100

Stuttgart: rents down only

slightly here too

Rents for retail space in prime

and non-central locations in the

top 6 locations likely to decline

only slightly in 2010



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RESIDENTIAL

In some cases there is a major divergence in the size of the markets for residentialproperties in the top 6 locations. In Berlin alone, the number of private households is

even greater than in Munich, Frankfurt, Dsseldorf and Stuttgart combined at around

1.9 million. The numbers of households in the cities of Frankfurt, Dsseldorf, and

Stuttgart are very similar at 300,000 to 400,000. Munich represents the median with

around 770,000 units, while Hamburg is the second largest market after Berlin for

rented apartments with almost one million.


In the market for rented residential property, rents for new apartments in the

commercial centres should also have increased by 2 to 3 per cent last year. Given

the economic recession and growing unemployment, this is a positive trend.

However, ultimately this is a result, on the one hand, of continuing growth in demand

for residential property in the conurbations, and on the other hand of weak

construction activity in the apartment complex segment which also declined in 2009.

Rents are likely to have shown above-average increases in Frankfurt, Dsseldorf

and Hamburg, and monthly rents in Dsseldorf are also now around EUR 10 per

sqm. In contrast, the city of Berlin is still at the lower end of the range for the top 6

locations at just over EUR 7 per sqm. Rents for existing apartments in Berlin are

also comparatively low, since, as in the other locations, these are approximately

EUR 2 below rents for new build apartments. With the exception of Berlin, residential

rents in the top locations in Germany are virtually the same as in other Europeancountries (apart from Paris and London), as can be seen from the graph below. In

the southern cities of Madrid, Rome and Vienna, private households can however

rent an apartment in a good location at slightly more favourable terms than in the

German metropolitans. In contrast, the Scandinavian capitals Stockholm and

Copenhagen are roughly in line with the German level at EUR 11.80 per sqm.

Major divergence in size of markets

Rents for new build apartments

also increased in 2009

Rent levels in Berlin still

comparatively low

RENTS FOR NEW APARTMENTS ALSO INCREASED IN 2009 RESIDENTIAL RENTS IN BERLIN CLEARLY BELOW AVERAGE

6

7

8

9

10

11

12

13

1998 2000 2002 2004 2006 2008 2010e

Top-6- locations Munich

Frankfurt

6

7

8

9

10

11

12

13

1998 2000 2002 2004 2006 2008 2010e

Top-6- locations Berlin

Hamburg

Source: Feri, DZ BANK Research, rents in Euro per sqm Source: Feri, DZ BANK Research, rents in Euro per sqm



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14

From 1998 to 2008, growth in rents for new build apartments in Germany averaged

only around 0.9 per cent annually, while consumer prices in this period increased by

1.6 per cent. In the previous year, rent increases in the major commercial centres

had already exceeded the inflation rate, which was however distorted downwards

significantly by a basis effect relating to energy prices. However, we expect the

increase in rents to remain slightly above the average rise in the cost of living in

2010.

Outlook

Construction activity declined again in Germany 2009, resulting in a new historical

low of only 160,000 housing units. Although the number of completed dwellings

should increase again slightly this year, we nevertheless expect rents for new builds

in the commercial centres to increase by around 2 per cent.

MAJOR DIVERGENCE IN SIZE OF MARKETS HIGHEST RENTS FOR EXISTING APARTMENTS IN MUNICHAND FRANKFURT

1900

1000

770

380320 314

Berl in Hamburg Munich Frankfurt Dsseldorf Stuttgart

number of private households in 1.000

10,10

9,00

7,50

8,50

7,50

5,70

12,00

11,50

10,60

10,60

9,50

7,00

M nchen

Frankfurt a. M .

Hamburg

Stuttgart

Dsseldorf

Berlin

rent existing apartment rent new apartment

Source: Feri, estimated for 2009 Source: Feri, rents in Euro per sqm

RENTS NEW APARTMENTS IN INTERNATIONAL COMPARISON 2009

32,5

20,9

12,2 12,2 11,9 11,210,1 9,4

8,3

OuterLondon

Paris Amsterdam Munich Frankfurt Hamburg Madrid Rome Vienna

2009

Source: Feri, in Euro per sqm

Growth in residential rents

should remain above the inflation

rate in 2010

Residential rents set to increase

by around 2% in 2010 due to weak

construction activity



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15

LOGISTICS

As expected, the logistics sector has been severely affected by the recent recessionthroughout Europe: the volume of goods transported in Germany in 2009 was

probably about 14 per cent lower than in the previous year, after a slight decline had

already been recorded in 2008. The main factors responsible for the negative trend

were the sharp fall in industrial production but also declining retail sales (see graph).

Another major contributory factor was that neighbouring countries were also in the

grip of recession up to mid-year.

According to estimates by experts, Germany has the largest stock of logistics

properties in Europe ahead of the UK and France and thus also the largest

market for these specialist properties. Given the central geographic location of

Germany and its size, this is not surprising. In this report we define logistics

properties as warehouses and transhipment halls, special warehouses, goods

distribution centres, industrial estates with a small proportion of offices and

warehouses which provide simple assembly functions.


The main function of a logistics property is the distribution of goods. Generally a

location is therefore selected where a break in the transport chain already occurs,

i.e. where the method of transportation is changed. In some cases this simply means

a switch from the full loading to the part loading of trucks. Regional or central

warehouses containing goods required for retail purposes are usually situated close

to a conurbation. For goods required for use in production by industrial companies,the warehouse is generally close to the production site. In this segment in particular,

loading capacity has increased significantly in recent years as on-demand

production has become increasingly widespread. According to a study by the

logistics working group of the Fraunhofer-Institute, in terms of infrastructure, a

quarter of logistics properties still need access to at least two means of transport,

and a direct link or close proximity to a motorway is now an absolutely basic

requirement for a logistics property.

Volume of goods transporteddown by 14% in 2009

Germany the largest European

market for logistics properties

On-demand production has

boosted loading capacity

Motorway link now an absolute

pre-requisite

ECONOMY INFLUENCES TRANSPORT VOLUME AND TURNOVER OF LOGISTICS SPACE

-15

-10

-5

0

5

10

15

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010e

industrial production in % yoy

transport of goods in % yoy

-20

-15

-10

-5

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009e 2010e

logistic area turnover in %yoytransport of goods in % yoy

Source: destatis, DZ BANK Research forecast Source: DZ BANK Research



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According to estate agents, sales of space in logistics properties were down byabout 10 per cent on the previous year in 2009, after a visible decline of 7 per cent

had already been reported in 2008. Despite this steep downward trend, a similarly

large volume of space was bought and sold as in 2006.

Properties in one of the five major metropolitan areas (Rhine/Main region, the Ruhr,

Hamburg, Greater Berlin, Greater Munich) have been less affected by the recent

recession and the associated slowdown in the logistics sector than properties

outside these regions. However, in recent years, sales in these conurbations have

also fluctuated very sharply, as can be seen from the graph below. The reasons for

this diverged in individual years, with, for example, the opening of a huge industrial

estate in one region having a major fundamental impact on sales of floor space

within one year.

The comparatively weak growth in floor space in the metropolitans in the years 2005

and 2007 is likely to have been the consequence of migration to logistics regions

outside the major urban areas, since these areas have provided the incentive of very

favourable rents. This effect is likely to continue to have a negative impact on growth

in the major urban areas in future years, since, for example, modern logistics centres

have been set up in North Hessen and in the Leipzig area which are benefiting

strongly from their central location within Europe.

However, proximity to an airport and/or a sea port will remain a crucial advantage for

floor space in major urban areas, which we expect to become more important infuture years given the growing significance of the Asian market for German exports.

In terms of competition for tenants or investors for which these location-related

factors are important whether in relation to exports to distant countries, or the

supply of pre-products for manufacturing logistics space with no links to the

corresponding method of transport may not be able to remain viable.

Space turnover was downin 2008 and in 2009

Robust growth in metropolitan

areas in 2009

, but migration to less expensive

regions having a negative impact

SHARP FLUCTUATIONS IN METROPOLITAN AREAS AND ROBUST TURNOVER

-20

-10

0

10

20

30

40

50

2004 2005 2006 2007 2008 2009e 2010e

thereof: metropolitan area yoy

space turnover yoy

3231

38833610

3250 3350

15311275 1409 1300 1350

2006 2007 2008 2009e 2010e

space turnover in 1.000 sqm

turnover metropolitan area in 1.000 sqm

Source: Jones Lang LaSalle, forecast DZ BANK Research Source: Jones Lang LaSalle, forecast DZ BANK Research

However, growing importanceof the Asian market is supporting

conurbations



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17

However, after two weak years, we already expect a slight recovery in the market for

logistics properties in 2010. The main factor here is likely to be weak growth in

industrial production in Germany and the Eurozone. Virtually no positive impetus is

likely to come from the retail sector, since we expect turnover to stagnate or at best

increase very modestly there. We therefore expect turnover per space in the

logistics sector to increase by around 3 per cent this year compared to last year.

Our view is supported by the trend in the ZEW transport market barometer a

survey of 300 experts from the transport sector and the cargo industry. At the end of

2009, 40 per cent of those surveyed still took the view that the volume of goods

transported by road would increase this year and another 50 per cent expected it to

stagnate. The survey of combined transport and the prospects for mail, express and

package services showed a similarly positive picture. An additional survey on the

importance of individual transport carriers has highlighted three important trends,

with which the operators of logistics properties will have to grapple in future: the

trend away from transportation via inland waterways to road haulage, from rail to

road haulage, and from local trucks to trucks from outside the region.

Outlook

Although the market for logistics properties should recover again slightly this year,we do not expect any scope for rent increases. We expect competition between

locations within Germany but also from other European countries to intensify

further, since, despite a slight increase in demand for space from all companies

following the recession, cost-saving potential is still being sought. New rental

contracts are likely to have a medium-term duration of around 5 years. In our view,

turnover will increase both in conurbations and non-conurbations, since the former

will benefit from their proximity to airports and ports, while less populated areas offer

greater cost-saving potential.

WIDE RANGE OF RENTS FOR LOGISTICS SPACE

2,00

3,00

4,50

2,50

3,00

5,50

6,00

6,50

5,70

5,60

Berlin

Frankfurt

M unich

Hamburg

Dsseldorf

Source: Feri, monthly rents in Euro per sqm Q4 2009

ZEW transport market barometer

shows positive outlook for roadhaulage

Road haulage likely to become

more important

Sales per floor space could

increase slightly in 2010

No scope for rent increases as

competition for logistics sites

intensifies



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18


ImprintPublished by: DG HYP Deutsche Genossenschafts-Hypothekenbank AG,

Rosenstrasse 2, 20095 Hamburg

ManagementBoard: Dr. Georg Reutter (Spokesman of the Management Board), Manfred Salber

Authors:

Responsible: Klaus Holschuh, Head of Research and Volkswirtschaft

Dr. Hans Jckel, Head of Volkswirtschaft and Content Management

Author: Dr. Christine Schfer, Senior Economist

All DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main 2010

Reprinting and reproduction requires the approval of DG HYP

Disclaimer

This document has been published by DG HYP Deutsche Genossenschafts-Hypothekenbank AG, Hamburg.

This document has been prepared by DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK) and is intended for distribution within the Federal Republic of Germany. This document isnot intended for persons having their domicile and/or registered offi ce and/or branches outside Germany, particularly

in the United States of America, Canada, the United Kingdom or Japan. This brochure may only be distributed outside Germany in compliance with the laws and regulationsapplicable in the relevantcountry. Anyone gaining possession of this information or material must inform themselves of theapplicable laws and regulations and observe said laws and regulations.

Nothing contained herein constitutes a public offer to buy securities or fi nancial instruments.

This document constitutes an independent assessment of the relevant issuer and/or securities by DZ BANK. All assessments, expressions of opinion and statements contained herein are those of the

writer and are not necessarily shared by the issuer or third parties. DZ BANK has obtained the information on which this document is based from sources that are considered reliable, but has not,however, verifi ed all of these documents. Accordingly, no representation or warranty as to the accuracy or completeness of the information or expressions of opinion contained herein is made byDZ BANK. DZ BANK shall not be liable for losses caused by the distribution and/or use of this document or any losses in connection with the distribution and/or use of this document.

Investors are urged not to base their investment decision regarding securities or other fi nancial instruments on this document, but rather on personal discussions with an adviser and the relevantsales prospectus or information memorandum.

Depending on the specifi c investment objectives, investment horizon, and fi nancial situation, any such recommendations may not suitable, in whole or in part, for individual investors. As tradingrecommendations are largely based on short-term market conditions, they may also confl ict with other recommendations made by DZ BANK.

The recommendations and expressions of opinion contained herein are as at the date of this document. They may becomeobsolete as a result of future developments, without this document beingamended accordingly.

Competent supervisory authority

Bundesanstalt fr Finanzdienstleistungsaufsicht(German Federal Financial Supervisory Authority),

Lurgiallee 12, 60439 Frankfurt am Main, Germany


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real estate market germany 2010-1-23.02 druck

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