colliers international european study · this is the first pan-european study conducted by colliers...
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COLLIERS EMEA1
Contents
ECONOMIC & PROPERTY MARKET OVERVIEW | EUROPE | H1 2010
Economic Overview p. 2-4
Property Market Overview p. 5-7
Country reports :
Austria p. 8Belgium p. 13Czech Rep. p. 18Denmark p. 24Finland p. 31France p. 38Germany p. 45 Ireland p. 58Italy p. 62Netherlands p. 68Norway p. 75Poland p. 80Spain p. 85Sweden p. 92United Kingdom p. 98
Colliers International European StudySummer 2010
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COLLIERS EMEA2
ECONOMIC OVERVIEW | EUROPE | H1 2010
Almost all of the economies examined in this study experienced negative GDP growth during 2009, with Poland proving the only exception. Poland’s relative strength was based on strong consumption, driven by its large and growing domestic consumer base.
The other economies in our study suffered from sharp declines in business investment and exports as global business confidence plummeted. Consumer spending also fell in many economies, although there was a marked contrast across different markets.
Most European economies have displayed an improvement over the last few quarters, with all but the weakest leaving recession. Growth has been driven by improvements in business and consumer confidence, as well as support from Government spending.
2. Overview
GDP Growth
With fiscal austerity being the new ‘buzz phrase’, Governments around the world have been forced to cut back spending plans and introduce tax rises. The worst hit economies have seen huge unionised unrest as the public sector has been cut back significantly. Nevertheless, this is generally agreed to be a price that needs to be paid for years of overspending, in order to preserve bond ratings.
According to forecasts from Experian, we should expect to see a return to 1.0-2.0% average growth over the next two years. However, few economies will experience a return to the previous rate of trend growth until at least the second half of 2011 and the hardest hit will take longer to recover.
Despite weak short-term performance, Ireland will be the fourth strongest economy over the next five years. However, Poland and the Czech Republic are likely to represent less risky developing economies.
Source: Experian
1. Introduction
A few words…This is the first pan-European study conducted by Colliers International. It draws upon a vast set of information from our European offices and their data providers in order to analyse past and future trends in the European economy and property markets. The intention of this report is to succinctly present this data in a clear and understandable format.
In our view, although the last few years have been difficult, they have still provided a large number of opportunities to many investors and, while there may be further difficulties ahead, there will continue to be opportunities that can be exploited. The purpose of this report, therefore, is to draw out some of the variations that exist within the European economy as a whole and those that exist between each of the real estate markets.
Country scopeThe countries to be studied are as follows: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy,Netherlands, Norway, Poland, Spain, Sweden and the UK.
Figure 2: Forecast GDP Growth Across Europe
Figure 1: GDP Growth During 2009
Source: National Statistics Offices, IMF, Haver Analytics
-10
-8
-6
-4
-2
0
2
4
Poland
Norwa
y
France
Belgium Spain
Austria
Netherlands
Czech R
epublic
Germany UK
Denm
ark Italy
Sweden
Ireland
Finland
GD
P G
row
th (%
)
0 1 1 2 2 3 3 4 4
PolandNorway
SwedenCzech Republic
DenmarkNetherlands
BelgiumUK
AustriaFinland
GermanyIrelandFrance
Eurozone AverageItaly
Spain
Average Growth Rate 2010-11 % Average Growth Rate 2010-2014 %
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COLLIERS EMEA3
0 2 4 6 8 10 12 14 16 18 20
SpainIrelandFrance
SwedenFinlandPoland
BelgiumItalyUK
GermanyCzech Rep.
DenmarkAustria
NetherlandsNorway
Unemployment (%)
Consumption In many economies, low interest rates helped prevent
consumer spending from falling too significantly, although Poland aside, no economy experienced consumption growth of more than 1% in 2009. Ireland, Denmark, Spain and the UK suffered most heavily last year.
Ireland and the UK are the only countries studied that are forecast to experience further falls in consumer spending in 2010. These were two of the economies with the greatest reliance on the consumer sector and the largest house price booms in the mid-2000s. As a result they have witnessed large increases in savings rates as consumers have sought to reduce their outgoings.
By 2011, Poland, the Czech Republic, Norway and France are all forecast to see consumption grow by more than 2%. Over the medium term, the UK is set to perform in line with the Eurozone average, but these four countries will continue to outperform.
ECONOMIC OVERVIEW | EUROPE | H1 2010
Unemployment Unemployment is historically high in all economies,
although Norway, the Netherlands and Austria registered fairly low, stable unemployment rates at year-end 2009.
As expected, Spain and Ireland showed the worst unemployment rates, but almost all other countries have unemployment rates in excess of 6%.
As the labour market tends to be a lagging indicator of demand and business confidence, forecasts suggest that unemployment will rise further over the course of 2010, before falling back slightly in 2011 and beyond.
Although the rise in unemployment was moderated by a reduction in working hours and the redeployment of some workers, the rise of the past two years was still substantial enough to ensure that the Eurozone unemployment rate is likely to fall consistently for the next 10 years.
Figure 3: Unemployment Rates Across Europe at Year End 2009
Source: Experian
Figure 5: Forecast Consumer Spending Growth
Employment Figure 4: Employment Growth Across Europe During 2009
Employment growth was negative across all markets last year, falling by a massive 6.8% in Spain and 8.2% in Ireland over the course of the year. Sweden, France and Finland were three of the next four worst performers. The fourth of these was Denmark, despite it seeing relatively low unemployment of only 6.0%. This may be attributable to the low natural rate of unemployment in Denmark, as unemployment actually rose from 3.3% to 6.0% in 2009.
Forecasts expect unemployment to rise further before new expansionary employment takes place. Employment growth is likely to recover sluggishly as many governments encouraged a reduction in working hours and shorter working weeks at the height of the recession. These are likely to be reversed before new expansionary employment takes place.
Source: National Statistics Offices, Experian, Haver Analytics
Source: National Statistics Offices, Haver Analytics, IMF, EC
-9-8-7-6-5-4-3-2-10
Ger
man
y
Belg
ium
Nor
way
Net
herla
nds
Pola
nd
Aust
ria
Cze
ch
Italy UK
Swed
en
Fran
ce
Finl
and
Den
mar
k
Spai
n
Irela
nd
Empl
oym
ent G
row
th %
-8
-6
-4
-2
0
2
4
Irela
nd
Den
mar
k
Spai
n
UK
Finl
and
Italy
Swed
en
Net
herla
nds
Belg
ium
Euro
zone
Nor
way
Cze
ch R
ep.
Aust
ria
Ger
man
y
Fran
ce
Pola
nd
Con
sum
er S
pend
ing
Gro
wth
%
2009 2010 2011
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COLLIERS EMEA4
-12
-8
-4
0
4
8
12
Nor
way
Sw
eden
Den
mar
k
Ger
man
y
Aust
ria Italy
Finl
and
Net
herla
nds
Cze
ch R
ep.
Bel
gium
Pol
and
Fran
ce UK
Spa
in
Irela
nd
Cur
rent
Acc
ount
Sur
plus
/Def
icit
(% o
f G
DP
)
ECONOMIC OVERVIEW | EUROPE | H1 2010
Government Debt
In the wake of the global recession and with unemployment rising, Government budgets have been squeezed, with outgoings rising and income from tax revenues declining. As a result, budget deficits have risen sharply and are unlikely to improve during 2010. Many Governments have announced significant cutbacks in departmental budgets, public sector employment and pensions. Some have also reduced social security and incapacity benefit payments.
Debt to GDP ratios have risen across all economies and in fact, all of those studied, Finland aside, would now fail the 40% debt to GDP test specified for the Eurozone.
In fact, some of the worst positions are held by Europe’s largest and most significant economies, with France, Germany and the UK all holding net debt positions of more than 60% of their respective GDPs, as shown by Figure 7. The smaller economy of Belgium has a net debt level running at close to 100%. The chart also shows that Italian net debt well exceeds 100% of GDP. This is set to grow during each of the next six years according to the IMF’s most recent forecasts.
Almost all European Governments ran current account deficits in 2009. A number of these have risen sharply over the past 18-24 months as Governments have sought to stimulate their economies. The three worst hit economies – the UK, Spain and Ireland – were all responsible for strong property-sector booms in the mid 2000s, driven by cheap bank lending on both commercial and residential property.
The Nordic and Germanic countries hold the best current account positions. Sweden only moved into deficit over the past year and has maintained a very low deficit. However, Norway is most certainly the star performer in this aspect, although this anomaly is supported by the oil industry in Norway, which ensures a steady flow of public revenues.
Inflation Inflation and deflation have both been worries for
economists and investors for the past couple of years as inflation has been volatile, driven in part by fluctuating oil, food and raw materials prices. Inflation remains above target in many Nordic markets, along with Poland and the UK.
On the other hand, the weakest performing economies, such as Spain and Ireland, continue to see prices fall. Other economies with low inflation are a mix of economies with weak growth prospects (e.g. Italy and France) and those with weak domestic consumption (e.g. Belgium and Germany).
A large degree of spare capacity across Europe is likely to prevent inflation becoming a longer-term worry, particularly due to the weakness in labour markets, with wage-setters unable to demand large rises in wages against a backdrop of cost-cutting and high unemployment.
Figure 6: HICP Inflation Rates During 2009
Figure 7: Net Debt to GDP Ratios Across Europe at End-2009
Figure 8: Current Account Deficits Across Europe in 2009
Source: National Statistics Offices, IMF, Haver Analytics
Source: National Statistics Offices, IMF, Haver Analytics
-2
-1
0
1
2
3
4
Pola
nd
Nor
way U
K
Swed
en
Finl
and
Den
mar
k
Cze
ch R
ep.
Net
herla
nds
Italy
Aust
ria
Ger
man
y
Fran
ce
Belg
ium
Spai
n
Irela
nd
HIC
P In
flatio
n (%
)
0
20
40
60
80
100
120Ita
ly
Bel
gium
Fran
ce
Ger
man
y
UK
Aus
tria
Irela
nd
Net
herla
nds
Spa
in
Pol
and
Nor
way
Sw
eden
Den
mar
k
Cze
ch R
ep.
Finl
andN
et D
ebt t
o G
DP
Rat
io (%
)
Source: National Statistics Offices, IMF, Haver Analytics
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COLLIERS EMEA5
PROPERTY MARKET | EUROPE | H1 2010
The data collected show a vast range of peak to trough rental declines across key office markets. However, vacancy rates rose across the board in all major markets. Figure 9 shows the relationship between rising vacancy rates and falling rents over the last couple of years. Ireland proved to be the worst performer in both aspects.
In specific markets, such as Paris, Vienna, the City of London and the West End of London, rents will rise during 2010 as supply is likely to be limited for occupiers seeking high quality space. This initial phase of rental growth may last until a new swathe of development commences.
In many markets, availability rose on the back of the development booms of the mid-2000s, with completions only now peaking. This will ensure that there is a large overhang of space in these office markets, which will weigh on rental growth over the coming years.
Office space take-up fell across all major markets in 2009 as business confidence remained at exceedingly low levels. Some centres haveseen take-up fall on an annual basis for the last four or five years, although many actually experienced a peak in take-up volumes in 2007 as numerous large deals were concluded before the onset of the Credit Crunch.
Some of the worst hit markets, such as Madrid, Vienna, Dublin, Paris, Rome and Berlin, have seen take-up fall by up to 80% from peak years. Conversely, Warsaw and Oslo have held up remarkably well.In fact, take-up in Warsaw continued to rise through to 2008 and only really fell in H1 2009 before recovering in the second half of the year.
In many markets, demand focused on small lettings in 2009 as occupiers could not justify making large decisions, particularly where costs had to be closely watched.
Leasing activity continues to be driven by renegotiations and relocations. Many occupiers have sought to downsize as a result of having a reduced workforce, leading to an increase in sub-lettings over the past couple of years.
Demand has generally been stronger for smaller floorplates, although there are one or two exceptions such as in London, where demand for high quality space remains strong. It must be noted that this is a result of an extremely limited development pipeline over the next two to three years, rather than a particularly heightened level of confidence.
Looking ahead, the Brussels market in particular may be able to rely on EU-driven occupation and should begin to see a steady recovery over the next 6-12 months. Other markets will generally see recoveries from 2011 onwards, although the worst hit currently have large swathes of available space on the market which will need to be occupied before rents show any indication of rising.
Office Take-Up
Source: Colliers International
Ir eland
UK
Poland
Norway
Spain
France
Net her lands
Belgium
Czech Republic
Finland
Denmark
Aust r ia
It aly
Germany
Sweden
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
-35% -30% -25% -20% -15% -10% -5% 0%
Peak to Trough Fall in Prim e Rent (%)
Ris
e in
Vac
ancy
Rat
e fr
om M
arke
t Pe
ak (%
)
Rents Figure 9: Rental Performance vs Change in Vacancy During 2009
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COLLIERS EMEA6
PROPERTY MARKET | EUROPE | H1 2010
Market transaction volumes fell significantly over the past two years, with 14 out of 15 countries experiencing a fall from peak to trough of at least 45%. More than half of the countries studied showed a drop of over 70%.
Colliers International offices expect 2010 to produce a similar or higher level of transaction volumes this year than was witnessed during 2009. In some markets, such as the UK and France, any recovery in 2010 will be limited by the strong bounce witnessed in Q3 and Q4 2009.
The availability of debt is still restricted. The main buyers ofreal estate of late have been the institutional funds and private buyers, who are seeking capital protection.
German open ended and closed ended funds have been substantial investors, along with a number of sovereign wealth funds or sovereign wealth backed vehicles.
Private equity houses are reported to be waiting in the wings with substantial funds raised, but with the major banks currently preferring to extend loans and offer refinancing deals the anticipated distressed stock sought by these investors is simply not coming to market.
Figure 10 – Fall in Annual Transaction Volumes 2009 vs Peak Year
Supply & Vacancy
All major office markets studied saw a rise in vacancy during 2009. Many of these have now experienced rising vacancy rates for the past two or three years. Even the Warsaw market, which managed to hold up well up to 2008, saw a sharp increase in availability and vacancy during 2009.
In all cases this was driven in part by a lack of expansionary take-up. As previously mentioned, most letting activity was on the basis of relocating to newer, cheaper space or through sub-lettings to alleviate cost pressures where headcounts have been reduced.
In some markets, the rise in availability was brought about by araft of new construction completions over the past two years. For example, the volume of new completions in Copenhagen actually pushed vacancy in the CBD above that recorded for the wider Copenhagen region.
Paris, Barcelona, Brussels, Copenhagen, Helsinki and Warsaw allreported a large volume of completions in 2009. All of these expect more completions in 2010, as does Madrid, which saw a brief pause in new development completions towards the end of 2009.
Amsterdam and Dublin in particular have high reported vacancy rates, but much of this stock is virtually obsolete and requiresredevelopment. In Dublin, some of these buildings have never been occupied since being built.
Beyond 2010, most markets are set to see a significant reductionin new development completions as funding and occupier demand has dried up. While some will have vast swathes of empty office space, many markets will see declining vacancy rates from 2011 onwards. London has already witnessed a decline during H1 2010.
Source: Colliers International, Real Capital Analytics
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Aus
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Italy
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Investment Volumes
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COLLIERS EMEA7
PROPERTY MARKET | EUROPE | H1 2010
As perceived risks in the global economy have risen, risk-free rates have fallen, as investors have migrated to investments that offer save havens. At the same time, interest rates have fallen to all-time lows as Central Banks have sought to boost confidence and spending across Europe (and the world).
As a result, yields being paid for prime long-leased office properties have fallen considerably over the past 12 months. In some markets, there is likely to be more downward movement, although in many, much of the anticipated yield improvements have already been seen during H2 2009 and H1 2010.
Private investors and core funds have been the major buyers of the type of low risk, low-moderate return assets over the last 12 months. This has been motivated by the low interest rates on offer in bank saving accounts and uncertainty over the economic and stock market recoveries.
Prime initial yields – Office Properties
Real Estate Risk Premium Figure 11 – Real Estate Risk Premia Across Europe
Up to the end of 2009, listed property companies and REITs had not been hugely active across Europe. However, as these companies have begun to sell off some of their older assets and recycle cash, a number of new investments and developments have been reported in the stronger European markets such as the UK and France.
We do not expect to see a return to peak transaction levels until bank balance sheets are in a position where bank lending can return to normality and competition between banks brings borrowing rates back in. This is not something we foresee happening over the next 2-3 years.
In the immediate aftermath of the Credit Crunch, while some less developed and less transparent markets saw continued yield compression, or no yield shift at all, the most open, liquid markets saw a sharp re-pricing that occurred at a speed never previously experienced.
By the end of 2008, there were signs, in the UK at least, that the most secure prime stock was beginning to find a pricing floor. This broadened to other prime assets and spread to a growing number of European markets in 2009.
By the end of 2009, all markets, with the notable exception of Ireland were seeing some degree of either stability or declines in prime yields and this has continued into 2010 as investors have continued to focus on low risk assets in the most liquid and stable markets. It is no surpise that France, Germany and the UK offer the lowest yields to investors. In actuality, prime yields in the West End of London have recently fallen to 4.0%. Yields in the City of London remain higher, at 5.25%..
Yields on prime stock in Dublin are difficult to clarify at present as there have been no major deals over the last 24 months with which to gauge pricing.
Source: Colliers International
Figure 12 – Prime Office Market Yields in Q1 2010
Source: Colliers International, The Financial Times
0% 1% 2% 3% 4%
IrelandNetherlands
Czech RepublicSw edenBelgiumFinland
GermanySpain
Norw ayDenmark
AustriaFrance
ItalyUK
Poland
End-Q1 2010 Risk Prem ium End-Q4 2009 Risk Prem ium
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Fran
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Ger
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UK
Aust
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Italy
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COLLIERS EMEA8
Economic overview p. 9-10
Vienna Office market p. 11
Investment market p. 12
Contents
ECONOMIC & PROPERTY OVERVIEW | AUSTRIA | H1 2010
AUSTRIAN PROPERTY MARKETS
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COLLIERS EMEA9
ECONOMIC OVERVIEW | AUSTRIA | H1 2010
The Austrian economy has declined by 3.6% in 2009 compared to the previous year. Most affected areas were exports, real production of material goods and gross capital investment in technical equipment.
As a result of expansive global monetary and budget schemes material goods production and exports grew strongly in the second half of 2009 as the economy emerged from recession.
The economic recovery will continue in 2010 with a predicted rise of GDP by 1.4% on real terms and should continue to improve thereafter.
GDP growth & industrial output
Employment growth & unemployment rate
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
85
90
95
100
105
110
Annual GDP growth
Indexed industrial output incl. Construction (base 100: 2005)
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
-3%
-2%
-1%
0%
1%
2%
3%Unemployment rate Employment growth The unemployment rate has not been able to gain from
the soft landing so far and will continue to rise to 5.2% (5.0% in 2009) in 2010. It will even further increase to 5.4% in 2011 as an effect of the financial and economic crisis.
The ILO unemployment rate in Austria has been amongst the lowest in Europe. Even though it has been rising, unemployment remains at little more than half the eurozone average.
Source : Statistics Austria
Source : Statistics Austria
Population (mn)
Austria Main Figures (end of 2009)
8.4
GDP (€ million) 256,635
GDP per capita (€) 30,765
Market cap. (% of GDP)
Fecundity rate(children per woman) 1.4
Currency Euro
Trade balance (€ million) - 534
Saving rate (as % of GDP) 15.9%
Demography Economy Finance
Capital region Vienna
Capital region pop. (mn.) 1.7
Density (per km²) 99.5
Budget deficit (% of GDP) - 3.4%
Public debt (% of GDP) 66.5%
Unemployment (%) 5.0%
10-year Gvt Bond Yield3.0%
(07/10)GDP growth -3.6%
YoY inflation (CPI) 0.5%
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COLLIERS EMEA10
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
The annual average inflation rate of the Consumer Price Index was on a historical low 0.5% in 2009.
As a result of rising commodity and energy costs it will rise to 1.4% in 2010 and remain close to this higher level in 2011.
54%
56%
58%
60%
62%
64%
66%
68%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-5%
-4%
-3%
-2%
-1%
0%
% of GDP
General government debtPublic balance
Source : Statistics Austria
The fiscal deficit will further deteriorate to -4.7% in 2010 as automatic stabilizers on incomes and costs of the economic stimulus programmes become effective.
The government introduced a “stability programme” in January 2010 aimed at reducing the budget shortfall from the 4.7% expected in 2010 to the 3% Maastricht limit by 2013.
ECONOMIC OVERVIEW | AUSTRIA | H1 2010
Household consumption growth
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Private consumer spending has increased slightly, but consistently, up 0.3% for each of the final three quarters of 2009, due to governmental economic impulse programmes.
Consumer spending will remain stable in 2010 due to moderate wage agreements and a decline in the savings rate.
Spending is expected to pick up slightly in 2011 as the economy builds strength.
Source : Statistics Austria
Source : Statistics Austria
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COLLIERS EMEA11
OFFICE MARKET | VIENNA | H1 2010
Office supply & vacancy rate
Rents
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
0
2 000
4 000
6 000
8 000
10 000
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
1%
2%
3%
4%
5%
6%
7%
8%Immediate supply Vacancy rate
0
200
400
2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent CBD
Average rents CBD
Office take-up
In 2009, take-up of office space in Vienna fell to 250,000 sqm, down 17% compared to 2008.
Demand for high quality space in top locations has also been slightly decreasing in the last few years.
In 2010, the downward trend is expected to continue with an estimated take-up of 230,000 sqm.
2010 forecast
2010 forecast In 2009, new construction was substantially reduced due to the global economic crisis (new construction in 2008: approx. 250,000 sqm and in 2009: approx. 180,000 sqm).
In 2010, the decline of new construction will continue and a completion of approx. 170,000 sqm is expected.
The vacancy rate of approx. 5% is predicted to stay stable in 2010 due to the modest development pipeline.
The vacant space in older office buildings is very difficult to let and vacancy rates are rising considerably. If this “obsolete” space is added, the vacancy rate would amount to about 8-10%.
2010 forecast Top rents for high class properties in the CBD rose from € 24/sqm to € 25/sqm in 2009. The number of companies that complete contracts at this level is very low, however, due to the very limited supply of high class office space in the CBD the lease prices are expected to remain stable or rise slightly.
Projects located in strong office development regions such as St. Marx, Wienerberg or Handelskai can expect stable average rents of € 13/sqm to € 16/sqm for 2010. Rents are falling sharply for buildings with outdated equipment, without infrastructure or without subway connections ( € 7/sqm to € 10/sqm).
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COLLIERS EMEA12
INVESTMENT MARKET | AUSTRIA | H1 2010
0
500
1000
1500
2000
2500
3000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€mn
Investment volumes and ventilation
Since 2008, the investment environment has been significantly damaged by the financial crisis. However, more than €2.3 bn were invested on the Austrian property market compared to €1.7 bn in 2008.
In 2009, the investment landscape was marked by the partial withdrawal of foreign investors, except for German investors funds, which account for approximately 30% of transactions.
In Q1 2010, only €280 million were invested on the Austrian Market, a quite low level that suggests limited recovery in 2010. Austrian investors still accounted for two thirds of activity, German institutions were still active with 27% of investments
An investment volume similar to 2009 is expected in 2010 – about €2.3 bn.
2010 forecast
Prime initial yields – Office Properties
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Prime Office yield
Prime retail yield
2010 forecast Since the H209, office yields have started to compress, with prime yields standing at 5.40% in Q1 2010.
For the retail segment, prime yields are also falling: prime retail locations in Vienna now trade around 6.25%.
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate Premium
Austrian 10-years
After a long period a yield compression, which culminated in 2007 when the real estate risk premium was almost nil,, prime yields have moved out significantly by approximately 100 bps.
The real estate risk premium now stands at approximately at 150 bps and is expected to compress with the return of investors on the market in 2010 / 11.
2010 forecast
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COLLIERS EMEA13
Economic overview p. 14-15
Brussels Office market p. 16
Investment market p. 17
Contents
ECONOMIC & PROPERTY OVERVIEW | BELGIUM | H1 2010
BELGIAN PROPERTY MARKETS
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COLLIERS EMEA14
ECONOMIC OVERVIEW | BELGIUM | H1 2010
During the second half of 2008, following 4 years of strong growth, the economy was hit in earnest by the international crisis. By the end of the year, the economy was suffering a severe contraction under the impact of the financial crisis and the retrenchment in world trade.
The economy’s contraction continued through most of 2009.
Belgian banks have been severely affected by the international financial crisis, with three major banks receiving capital injections from the government. As a result, bank lending to non-financial firms and to households slowed down.
A slow recovery started in mid 2009, supported by fiscal and monetary easing, and also the rebound in world trade growth as since exports equate to over 2/3 of GDP. A gradual pick-up in activity is expected in 2010 and 2011.
GDP growth & industrial output
Employment growth & unemployment rate
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011F
-1%
0%
1%
2%
3%
Unemployment rate Employment growth Despite the slow recovery, unemployment will continue
to increase until early 2011, pushing up the already high level of structural unemployment.
At the same time, labour market reforms, particularly to make wage formation more flexible and to strengthen job search incentives, are proving to be necessary to increase the employment contribution to the recovery.
Source : Eurostat / OECD
Source : Eurostat / OECD
Population (mn)
Belgium Main Figures (end of 2009)
10.6
GDP (€bn) 350
GDP per capita (€) 33 000
Market cap. (% of GDP)
Fecundity rate(children per woman)
Currency Euro
Trade balance (€bn)N/A
Saving rate (as % of GDP) 17%
Demography Economy Finance
Capital region Brussels
Capital region pop. (mn.)
Density (per km²)
Budget deficit (% of GDP) -6%
Public debt (% of GDP) 97%
Unemployment (%) 7.9%
10-year Gvt Bond Yield3.3 % 05/10
GDP growth -3%
YoY inflation (HICP) 0.0%
-3.4
1.6
349
1.1
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COLLIERS EMEA15
Public balance & general Government debt
Inflation (HICP)
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
In 2009, the annual inflation rate was close to zero (-0.05%), with six months of price decreases.
In 2010, consumer prices are expected to rise from 1,6% to 1.8%, higher than previously expected, before stabilising in 2011.
0%
20%
40%
60%
80%
100%
120%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
% of GDP
Gross Government Debt (% of GDP) (LHS)
Budget Deficit (% of GDP) (RHS)
Source : Eurostat
Belgium has been traditionally characterized by persistent budget deficits and a high debt on GDP ratio, which has been close to 100% for several years now.
The country's uncertainty over political reforms that could transfer more power from the federal government to the regions constitutes another problem to take necessary measures to the high stock of debt.
ECONOMIC OVERVIEW | BELGIUM | H1 2010
Household consumption growth
-2%
-1%
0%
1%
2%
3%
2006 2007 2008 2009 2010F 2011F
Household consumption remains under a double constraint :
– High unemployment, which is supported by a generous welfare state;
– A traditionally high and still rising saving rate by households.
After a sharp decline in 2009, household consumption is expected to slightly recover in 2010, before accelerating in 2011.
Source : Consensus Economics Inc
Source : Eurostat
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COLLIERS EMEA16
OFFICE MARKET | BRUSSELS | H1 2010
Office supply & vacancy rate
Rents
0
200
400
600
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
0
200
400
600
800
1 000
1 200
1 400
1 600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%Immediate supply Vacancy rate
0
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Brussels prime rents
Office take-up
In 2009, take-up activity was at historically low levels across the Brussels market.
However, despite the poor economic climate and the weak occupier sentiment, take-up has rebounded in H1 2010, compared to the same period in 2009.
The recovery was due in particular to the completion of a number of large transactions in Brussels CBD, that had been frozen in 2009. For instance, BNP Fortis took 36 000 sqm in the Boreal building.,
In 2010 and 2011, annual activity is expected to remain at low levels, but the market could be stimulated by new demand from public users, such as local authorities and the European Commission, which account for 45% of take-up in the Brussels market.
2010 forecast
2010 forecast Throughout 2009 and into the first half of 2010, office supply and the vacancy rate in Brussels have been increasing significantly. The overall vacancy rate is about 11%.
However, the map of vacancies across Brussels remains very unequal: while vacancy is under control (below 6%) in the centre, it stands well above 20% in the Brussels periphery.
The supply of space will increase in the short term, because of a considerable pipeline (more than 300 000 sqm). The freezing of construction activity since 2008 will result in limited new completions post 2010.
2010 forecast In 2009, prime rents held up well in the core central submarkets of Brussels, although were down in the outskirts.
However, imbalance between supply and demand is expected to lead to a further decline in rents.
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COLLIERS EMEA17
INVESTMENT MARKET | BELGIUM | H1 2010
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
While overall investment activity was down quarter on quarter, the volume of office transactions increased slightly and offices was the preferred asset class.
However, overall market activity remains historically low as investors are waiting for the market to bottom out.
In terms of sector breakdown :
– The volume of office transactions increased slightly in H1 2010 and offices was the preferred asset class ;
– Investment activity in retail was slow with a small number of high street and retail warehouse transactions recorded in the first quarter ;
– The semi-industrial and logistics investment market has been subdued over the first quarter, with the number of transactions declining.
2010 forecast
Prime initial yields – Office & retail
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Prime Office yieldPrime yield shopping centerPrime retail yield
The yield rise for offices was dramatic (100 bps) between 2007 and 2009, with prime office yields reaching 6.5%. However, investor demand drove yield compression in Q1 2010 with a fall of about 40 bps. Subsequently, prime yields have softened slightly to 6.25%. Interest from investors seems to be picking up again.
In the near future, some further yield correction could be seen on secondary assets, but not for prime assets where yields are expected to stabilize.
The retail sector in Belgium has been very resilient. So far the economic slowdown has had very little effect on prime rents across the major cities. Yields have proven to be more resilient than many other Western European markets, with prime yields up around 90-100 bps from their record lows in 2007.
2010 forecast
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
8%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate Premium Belgian 10-years After a long period a yield compression, which culminated
in 2007 when the real estate risk premium reached a minimum of 100bps, prime yields have moved out significantly by approximately 100 bps.
The real estate risk premium now stands at approximately at 300 bps under the effect of the government bond yield and is likely to compress further.
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COLLIERS EMEA18
Economic overview p. 19-20
Prague office market p. 21
Investment market p. 22-23
Contents
ECONOMIC & PROPERTY OVERVIEW | CZECH REPUBLIC | H1 2010
CZECH PROPERTY MARKETS
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COLLIERS EMEA19
ECONOMIC OVERVIEW | CZECH REPUBLIC | H1 2010
2009 was the first year since 2000 where GDP declined; it fell 3.7%. 2009 saw a record increase in corporate (42%) and personal (147%) bankruptcies. This trend will continue up until mid-2010 as a result of continuing company defaults.
However, the Czech economy remains in better shape than most other CEE countries. The combination of low external debt, strong foreign direct investment volumes and optimistic export forecasts make for a more positive scenario for 2010 : the latest forecasts show GDP growth of 1.6% in 2010 and 2.4% in 2011.
Future economic growth will mostly depend upon the following factors :
– an upturn in consumption in Western European economies (60% of exports);
– the investment strategy of banks in both corporate and retail fields.
GDP growth & industrial output
Employment growth & unemployment rate
-6%
-4%
-2%
0%
2%
4%
6%
8%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Annual GDP growth Industry output (growth in %)
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
As a direct result of recent bankruptcies, unemployment reached its highest level since 2003 at 9.0%.
It is expected to increase to 9.5%-10% in 2010 before stabilising toward the end of the year.
The end of Europe’s care scrappage scheme and excess capacity outside of the car sector has exacerbated this.
Source : Eurostat & Focus Economics
Source : Focus economics
Population (mn)
Czech Republic Main Figures (end of 2009)
10.6
GDP (€bn) 149
GDP per capita (€) 14 300
Market cap. (%of GDP)
Fecundity rate(children per woman) 1.2
Currency Czech Crown
Trade balance (€bn) +3.3 bn36.8%
Saving rate (as of GDP) N/A
Demography Economy Finance
Capital region Prague
Capital region pop. (mn.) 1.6
Density (per km²) 130
Budget deficit (% of GDP) -5.9%
Public debt (% of GDP) 40%
Unemployment (%) 6.7%
10-year Gvt Bond Yield3.8%
(07/10)GDP growth -4.2%
YoY inflation (CPI) 0.6%
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COLLIERS EMEA20
Public balance & general Government debt
Inflation (CPI)
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
The Czech inflation rate continued to decrease over the course of 2009 to reach 0.6 % compared to 2008 levels (a record low since 2003).
Analysts, however, are now forecasting more “reasonable” levels of inflation for 2010. On average, a 2.0% increase compared to 2009 seems likely.
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
% of GDP
Public debt
Public balance
Whilst the Government responded to the downturn with two stimulus packages, cyclical factors will further increase the general government deficit. However, there is little room for further discretionary fiscal easing and Parliament has already approved a fiscal consolidation plan to reduce the government deficit. Sustaining the consolidation effort over the longer term will require addressing large unresolved spending issues, particularly in health care, welfare and pensions as part of the necessary exit strategy.
Czech public debt increased to a record 35% of GDP in 2009 and is expected to reach 40% in 2010.
However, the Czech Republic shows a healthier financial situation compared to other CEE countries.
ECONOMIC OVERVIEW | CZECH REPUBLIC | H1 2010
Household consumption growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2007 2008 2009 2010F 2011F
Household consumption is expected to remain weak and may even turn even negative in 2010.
Rising unemployment and low wage inflation is limiting disposable income growth.
Higher sales taxes and volatile asset prices will discourage consumers.
Source : Eurostat, OECD
Source : Eurostat & Forum Economics
Source : OECD
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COLLIERS EMEA21
OFFICE MARKET | PRAGUE | H1 2010
Office supply & vacancy rate
Rents
0
100
200
300
400
2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 Total
0
50
100
150
200
250
300
350
2006 2007 2008 2009 2010F 2011F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%
16%Immediate supply
Vacancy rate in Prague
0
5
10
15
20
25
30
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010F
€/sqm/month
Prime net rent
Office take-up
As a result of negative GDP growth, take-up declined in 2009 in Prague, reaching only 245,000 sq m (+6%y-o-y).
Take-up was mostly driven by renegotiations and relocations. Net take-up actually weakened, reaching only around 115,000 sq m. The largest transaction in 2009 was a 25,700 sq m pre-let in Main Point Karlin.
Leases signed in 2005 and 2006 are coming to an end in 2010/2011. Assuming that the majority of current tenants will stay in their leased premises and adjust the lease terms to prevailing market conditions, renegotiations should keep a significant share of the take-up in 2010.
Sub-leases will also take an important role in 2010 as companies continue to optimise their leased space. Relocations will provide another opportunity for tenants to reduce costs.
2010 forecast
2010 forecast After the record breaking year of 2008 when new office supply exceeded 322,000 sq m, only 162,000 sq m was brought to the market in 2009, ie a 50% y-o-y decline. The total office stock now stands at 2.7mn sq m. Many projects planned for delivery in 2010/2011 have been postponed, leaving about 70,000 sq m under construction and only 34,000 sq m to be delivered in 2010
Due to the changed market conditions coupled with a large delivery of space, the overall vacancy rate grew continuously over the year reaching 11.8% at the end of 2009, compared to 9% at end 2008. In prime locations with low availability, vacancy is likely to return to its natural rate. Prague 8 recorded the most significant increase, from 4.7% to 18.5%.
The overall vacancy is expected to grow continuously over the next 12-18 months. In the worst case it could climb up to 14% by the end 2010 before reducing to 10%.
2010 forecast Office prime headline rents decreased slightly in 2009. Monthly rents in the city centre dropped to €20-21per sq m,and to €12–14 per sq m in the outer city. Rents in the inner city remained at €15 - €17.5 per sq m.
To keep existing tenants or gain new ones, landlords continued to provide discounts and incentives. With a five year lease tenants were able to secure a 3-5month rent free period and fit-out contribution of €30-€50 per sq m, on average.
Prime rents are expected to remain at current levels, while net effective rents should continue to decrease in the next 6-12 months.
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COLLIERS EMEA22
INVESTMENT MARKET | CZECH REPUBLIC | H1 2010
0
500
1000
1500
2000
2500
3000
2003 2004 2005 2006 2007 2008 2009
€bn
Investment volumes
A total of €396mn was invested in real estate in 2009. Most of it was spent on office properties in the prime locations: Prague1and 4 - Pankrac.
Q4 2009 was the most active period of the year with €276mn invested.
DEKA drove this trend with two benchmark acquisitions: Gemini for €110mn and Tesco's distribution centre for €36mn. December also saw the largest deal of 2009: the sale of City Tower to an unnamed private investor for €130mn (equivalent net initial yield of 7%).
The investment volumes are expected to rebound in 2010.
Investment ventilation
Other than the three acquisitions from DEKA (Jungmannova Plaza, Gemini, Tesco), activity in 2009 was mostly driven by local investors who had remained passive in previous years, unable to compete with large foreign institutional funds. Local buyers look typically at lower volume transactions (€10–40mn) with higher profits thanks to active management and costs savings.
To date there have been no distressed sales on the Czech market. We do, however, expect banks to put more pressure on developers struggling to sell their most attractive assets
In 2009, most investment transactions were financed through equity. We do expect this trend to slowly change and banks to start financing again (for prime properties) at a reasonable level: a 65-70% LTV ratio, with funding at a 200–250bps margin.
Although investment activity over the first three quarters of 2009 was mostly driven by private investors, we saw renewed interest from foreign funds, especially German open-ended funds, which we believe will drive activity in 2010. The main target location will remain Prague with a focus on prime office properties providing a steady income stream and value growth prospects.
2010 forecast
Light industrial
& logistics
1,3%
Retail
1,4%
Offices
95,7%
Other
1,6%
Offices Retail Light industrial & logistics Other
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COLLIERS EMEA23
INVESTMENT MARKET | CZECH REPUBLIC | H1 2010
Prime initial yields – All Properties
Real Estate risk premium
The gap between the 10-yr German government bond yield and prime yields over the past five years stands between 140bps in 2007 and 380bps in 2009.
Considering the current rally on German government bonds, this spread may enlarge whilst prime yields stabilise or even decrease, becoming irrelevant.
Compared to Czech 10-years sovereign bonds, the Real Estate risk premium, which stands at 100bps in 2007, has been enlarging to reach 300bps in 2009. It is now expected to remain stable.
Prime office yields remained at around 6-75%-7.25%, which is a correction of only 125bps compared to 2008
Some prime transactions are good examples of this resistance in selling yields :
– In Q1 2009, a 10,300 sq m office building in Jungmannova Plaza (Prague 1) was sold to Deka at a price of €41mn, ie a 6.75% yield;
– In Q4 2009, City Tower, a 40,000 sq m office building in Prague 4 was sold to private Slovak Investors at a price of €130mn, i.e. a 7% yield.
Industrial and shopping centre yields remained stable over 2009 at 9.50-10% and 7.25-7.50% respectively.
These yields are expected to remain stable in 2010.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumCzech 10-years yieldGerman 10-years
2010 forecast
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Prime Office Yield
Prime Industrial Yield
Prime Retail Yield
2010 forecast
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COLLIERS EMEA24
Economic overview p. 25-26
Copenhagen Office market p. 27
Regional Office markets p. 28
Investment market p. 29-30
Contents
ECONOMIC & PROPERTY OVERVIEW | DENMARK | H1 2010
DANISH PROPERTY MARKETS
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COLLIERS EMEA25
ECONOMIC OVERVIEW | DENMARK | H1 2010
Since Q3 2009, the Danish economy rebounded from a deep recession, showing positive GDP growth in Q3 and Q4. Although all indications are that the economy has stabilised, the rates of growth are weak compared to historical trends. While private consumption spending saw some increase, exports and investment continued to shrink. Key components of demand remain under pressure.
Despite having shrunk by 5.1% in 2009, the Danish economy is forecast to see positive GDP of about 1.3% in 2010. Housing and construction have remained subdued and a massive overcapacity in Danish companies will reduce business investment.
Danish competitiveness has suffered due to weak productivity performance and higher wage increases than abroad. The pace of GDP growth is likely to remain low for the next 2-3 years.
GDP growth & industrial output
Employment
Since Q4 2008, the Danish job market has been badly hit by the economic crisis, More than 50,000 jobs were lost in 2009, especially the industrial and construction sectors.
The overall unemployment rate is expected to be at 5.7% in 2010, a lower level than the rest of the Eurozone, but high by historical comparisons for Denmark.
The Danish employment market is predicted to continue to lag behind the rest of the economy until early 2011 with a top level around 155,000 unemployed. 20,000 new jobs are expected to be created in 2011. The economy’s potential growth remains constrained by the very tight labour market and a weak demographic profile. Reforms to boost labour supply by increasing the employment rate and the total number of hours worked remain a priority.
Source : Eurostat + Danish Statistics
Source : Danish Statistics
Population (mn)
Denmark Main Figures (end of 2009)
5.53
GDP (DKKbn) 1,659
GDP per capita (DKK) 300,584
Market cap. (%of GDP)
Fecundity rate(children per woman) 1.8
Currency DKK
Trade balance (DKKbn) 8,999%
Saving rate (as of GDP) 14%
Demography Economy Finance
Capital region Copenhagen
Capital region pop. (mn.) 1.7
Density (per km²) 127
Budget deficit (% of GDP) - 2.7%
Public debt (% of GDP) 41.6%
Unemployment (%) 6.0%
10-year Gvt Bond Yield3.4%
(03/10)GDP growth -5.1%
YoY inflation (CPI) 1.1%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
85
90
95
100
105
110
Annual GDP growth
Indexed industrial output incl. Construction (base 100 : 2005)
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%Unemployment rate Employment growth
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COLLIERS EMEA26
Public balance & general government debt
Inflation (CPI)
In 2009, the sharp fall in prices was due to weak demand and the rise in unemployment.
The relatively high level of unemployment should restrict wage price inflation well as locally manufactured goods' prices.
However, rising energy prices and tax increases will contribute towards a rise in inflation in 2010 and 2011, although it is likely to remain slightly below 2%.
Source : Danish Statistics
Due to the sharp recession, total government debt increased sharply to 37.8% of GDP in 2009.
In 2010, public investments will rise significantly due to an agreement in advancing the municipal capital investments and a transport settlement.
Public finances have been greatly weakened as a result of the cyclical downturn. The deterioration is mainly due to the automatic effects on revenue and expenditure, but also to significant reductions in tax and public sector investment. With the prospect of subdued growth and a continued weakening of the labour market, the deficit is expected to remain large and overall government debt will rise accordingly.
ECONOMIC OVERVIEW | DENMARK | H1 2010
Household consumption growth
Given the sharp economic slowdown, household consumption was significantly reduced in 2009. In addition, the housing market is still fragile.
Spending has been sustained by government stimulus measures, mainly by targeting car purchases by households (car scrappage type scheme).
Household consumption is expected to rise in 2010 and 2011, but will remain subdued as households repair balance sheets.
Consumer confidence has improved steadily since early 2009, but slower GDP growth going forward will impact on consumer spending.
Source : Danish Statistics
Source : Eurostat
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F
-6%
-4%
-2%
0%
2%
4%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-8%
-6%
-4%
-2%
0%
2%
4%
6%
% of GDP
General government debt Public balance
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COLLIERS EMEA27
2010 forecast
OFFICE MARKET | COPENHAGEN | H1 2010
Office supply & vacancy rate
Rents
Vacant office space
NB : the Danish market does not refer to take-up indicators
In 2009, available office space in Copenhagen rose by 218,000 sq m. The average quarterly level was 208,000 sq m in 2008 and 370,000 sq m in 2009.
Availability is expected to increase further in 2010.
The office market in 2010 is experiencing a lot of relocations due to downsizing or expansion requirements. Given the weak prospects for economic growth and employment, we expect vacancy rates to peak at the end of 2010.
The office market is expected to recover from 2011 onwards.
After several years of good economic growth (2004 –2007), the resulting development pipeline delivered 312,000 sq m of new office supply in 2009.
In 2009, office stock was 5.47 m sqm.
Due to the economic downturn and the fact that much of the new office space completed in Copenhagen CBD, fro the first time, the vacancy rate in 2009 was higher in Copenhagen CBD than in the Copenhagen region.
From 2011, the supply pipeline is expected to gradually slow down. Excess new supply should be absorbed thanks to the growing preference of end-users for “green” buildings.
The combination of an upsurge in availability and flagging demand has fuelled a correction in rental values. Some landlords responded rapidly to the situation, either by cutting headline rents or proposing tenant inducements.
Average rents for office space in Copenhagen CBD fell with 20% from 2008 to 2009. Rents are expected to remain stable during 2010.
NB: Different methodology/breakdown in areas before and after 2009Q2
NB: Preliminary 2010 data
2010 forecast
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 2010 forecast
4 500
4 600
4 700
4 800
4 900
5 000
5 100
5 200
5 300
5 400
5 500
5 600
2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0
2
4
6
8
10
12
%Immediate supply
Vacancy rate in Copenhagen region
Vacancy rate in Copenhagen CBD
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
2003 2004 2005 2006 2007 2008 2009 H1 2010
DKK/sqm/year
Prime netrents Copenhagen
Average rents Copenhagen CBD
Average rents Copenhagen surroundings
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COLLIERS EMEA28
OFFICE MARKET | DANISH REGIONS | H1 2010
Available office space
All regional office markets suffered an increase in availability over the last couple of years, especially East Jutland, where Århus is situated.
In the near future, the local letting activity will be closely linked to the economic environment. On the back of an improving economy the regional office markets cannot be expected to improve before 2011, but as with Copenhagen, we do anticipate a stagnation in the vacancy level by the end of 2010.
Total Office Stock
The office supply outside of Copenhagen has been fairly stable. Most of the increases (as seen in the graph) are due to a different methodology and breakdown of the Danish regions.
In the future, supply will continue to increase a little, but while newly developed areas will gradually be absorbed by occupiers, second-hand stock will become more exposed to higher void rates.
Rents
In the office locations surrounding Copenhagen prime rents are fairly stable. In Århus (East Jutland), the prime rent has fallen markedly (-27.5%) since 2008. Rents have also decreased in other big provincial cities in Denmark.
Landlords are now ready to offer longer rent-free periods to attract or retain tenants without reducing face (headline) rents.
In 2010, we expect regional office prime rents to remain stable. For 2011 rents for newly developed areas should will remain stable, while best quality space in prime areas may see some rental uplift.
NB: Different methodology/breakdown in areas before and after 2009Q2
DKK/sqm/year preliminary
2008 2009 2010
Roskilde 1100 1100 1100
Odense 1200 1000 950
Århus 2000 1700 1450
Aalborg 1200 1150 1100
Vejle 1100 950 900
Esbjerg 1000 950 900
0
50
100
150
200
250
300
350
400
450
500
2 003 2 004 2 005 2 006 2 007 2 008 2 009 2 010
Sqm
Funen Jutland Sealand
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
2 003 2 004 2 005 2 006 2 007 2 008 2 009 2 010
Sqm
Funen Jutland Sealand
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COLLIERS EMEA29
INVESTMENT MARKET | DENMARK | H1 2010
Investment volumes
With only DKK2.8 bn invested (Colliers DK internal statistics), the Danish commercial property investment market touched a preliminary bottom of the investment cycle in 2009. However, after a slow start to 2010, expectations for the investment market in 2010 seem to be at an even lower level.
Nevertheless, the investment market recovered slightly in Q4 2009. Market liquidity has been eased by the adjustment in appraisal values and further aided by a gradual unblocking of credit channels.
The return to market of value add investors will not happen before 2011. The market is expected to be dominated by long-term investors targeting real and secure income streams, diversification and protection against inflation.
Investment ventilation
In 2009, office properties, housing and retail properties were responsible for the majority of the investment activity, with the emphasis being on location and the security of income streams. We also had a lot of “other”investments which cover land, hotels etc.
Offices are the largest investment sector in Copenhagen. In Jutland, the investment market is dominated by industrial property.
In the main, Copenhagen is the only city with the type of investment stock attractive to major international investors.
Investment in shopping centres has fallen over the last 12 months, but investment in food stores has become increasingly popular due to strong tenants and high returns.
0
1000
2000
3000
4000
5000
6000
7000
2008 2009 2010F
DK mn
2010 forecast
Industrial &
logistics
12%
Retail
20%
Office
16%Housing
20%
Other
32% Industrial & logistics
Retail
Office
Housing
Other
0%
20%
40%
60%
80%
100%
Office Retail Industrial & logistics
Jutland Sealand Funen Copenhagen
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COLLIERS EMEA30
INVESTMENT MARKET | DENMARK | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
Real Estate risk premium
After a period (2005-2007) of surging values where property yields were driven down towards the risk free rate, they went in opposite directions from 2008.
This re-pricing phase allowed the risk premium to come back to a long term balance level of about 200-250 basis points between the income return and the risk-free yield.
Given the shortage of prime assets on the market, the risk premium is likely to shrink again in the coming years as prime yields fall, while it should stabilise for secondary assets.
Investor appetite for prime, secure income office properties has brought downward pressure on prime yields – down 100 bps for Copenhagen CBD and Copenhagen region prime offices.
Due to the competition between buyers, prime yields in Copenhagen CBD now stand at 5.0% and this is expected to remain stable during the rest of 2010. In the Copenhagen suburbs, new prime office buildings are sold at about 5.5%.
Yields in Odense and Århus have risen 75 bps since 2008.
These yields exclusively concern prime assets: other assets in secondary locations have a higher initial yield.
Yields for prime industrial buildings experienced a steady increase from 2008 and stabilized around mid 2009. Yields for warehouse space and food stores have also increased from 2009 to 2010.
Retail yields have only increased a little (50 bps) since 2008 and since Q2 2009 they have been constant at 5.0%.
Food stores have become more popular as an investment segment in the last year, although prime yields have still moved out 50 bps.
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield
3
4
5
6
7
8
9
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010
Retail Industrial space Warehouse space
3
4
5
6
7
2008 2008 2009 2010
%
Copenhagen CBD Copenhagen region
Århus Odense
Ålborg
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COLLIERS EMEA31
Economic overview p. 32-33
Helsinki Office market p. 34
Regional Office markets p. 35
Investment market p. 36-37
Contents
ECONOMIC & PROPERTY OVERVIEW | FINLAND | H1 2010
FINNISH PROPERTY MARKETS
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COLLIERS EMEA32
ECONOMIC OVERVIEW | FINLAND | H1 2010
Finland’s real GDP declined by 8.1% in 2009. Real output declined dramatically in the first half of the year and then remained essentially unchanged for the rest of the year.
The main reason for this exceptional deterioration is the structure of Finnish exports, which is not conducive to growth. The decline in exports has been extremely steep and the economy’s recovery from recession will be slow as export competitiveness has also declined.
According to the Bank of Finland forecast, economic growth will remain sluggish until the first half of 2011 and will gather pace more noticeably towards the end of the forecast period 2012.
The pace of growth will be particularly hampered by Finnish exports lagging behind developments in the export markets. Private consumption growth will also remain sluggish on account of continued high unemployment.
GDP growth & industrial output
Employment growth & unemployment rate
The collapse in output reduced demand for labour in Finland in 2009, but not nearly as much as the level of output would have given cause to expect. The number of employed declined by an average of 2.9%, or 73,000 persons.
The labour market will continue in recession throughout 2010. Thereafter, the situation will begin to improve.
The number of employed is forecast to decline in 2010, remain almost unchanged in 2011 and then increase in 2012. The unemployment rate will remain around 9% and 240,000 unemployed throughout the forecast period.
Source : Eurostat, Statistics Finland
Source : Statistics Finland
Population (mn)
Finland Main Figures (end of 2009)
5.4
GDP (€bn) 171
GDP per capita (€) 32,025
Market cap. ((%of GDP)
Fecundity rate(children per woman) 1.86
Currency Euro
Trade balance (€bn) 66 mn.
Saving rate (as of GDP) 10.4%
Demography Economy Finance
Capital region Helsinki
Capital region pop. (mn.) 1.0
Density (per km²) 17
Budget deficit (% of GDP) -4.6%
Public debt (% of GDP) 38.0%
Unemployment (%) 8.2%
10-year Gvt Bond Yield2.8%
(07/10)GDP growth -8.1%
YoY inflation (CPI) 1.64%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
0
20
40
60
80
100
120
140
Annual GDP growth
Indexed industrial output excl. Construction (base 100 : 2005)
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%Unemployment rate Employment growth
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COLLIERS EMEA33
Public balance & general Government debt
Inflation (CPI)
Inflation, as measured by the national consumer price index (CPI), was 0% in 2009. National CPI inflation turned negative in the second half of the year due to the fall in house prices and sizeable cuts in interest rates on housing loans and consumer credit.
It is estimated that CPI inflation will accelerate to 0.5% in 2010. In 2011 and 2012, higher interest rates will push CPI inflation up to 1.7% and 2.0%, respectively.
As the world market price of energy and other commodities is expected to rise at a relatively slow pace, the pace of rise in import prices will not accelerate significantly. Food prices are expected to rise at a slower pace than in recent years, but the trend in service prices will continue to boost overall inflation substantially.
Source : Eurostat
ECONOMIC OVERVIEW | FINLAND | H1 2010
Household consumption growth
When the financial crisis came to a head in October 2008, the bad news started consumers and triggered a downward spiral in the real economy. Although households’ real purchasing power continued to increase, private consumption fell as households began to prepare for the worst and increased their savings.
Real purchasing power was supported by higher incomes and lower taxes as well as lower inflation. The level of interest rates also declined rapidly. Private consumption continued to decline in the first half of 2009.
Although private consumption will continue to increase in 2010, the recovery will be sluggish, with annual growth in the range of 1–2% until 2012.
Source : Statistics Finland
Source : Statistics Finland
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-6%
-4%
-2%
0%
2%
4%
6%
8%
% of GDP
General government debt Public balance
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Prior to the great recession of 2009, Finland had benefited from a strong economic upswing and built up a significant public sector surplus, reaching 4.2% of GDP in 2008 (3% of which was generated by the accumulation of pension fund assets). This positive balance gave the government a comfortable margin for a substantial fiscal stimulus of over 1.5 % of GDP in 2009 and about 1% in 2010.
Given the automatic impact of the recession on fiscal revenues and welfare expenditure, the current fiscal surplus has turned into a deficit of over 4.5% of GDP in 2010. At the same time, general government debt is expected to increase from around 30% of GDP in 2008 to about 46% of GDP by 2010.
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COLLIERS EMEA34
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rentAverage rents Helsinki CBDAverage rent Helsinki
0
200
400
600
800
1 000
1 200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
OFFICE MARKET | HELSINKI REGION | H1 2010
Office supply
Rents
Demand and vacancy
NB : the Finnish market does not refer to take-up indicators
Since 2008, as a result of the global economic crisis, many companies have been reducing employee headcount. Consequently, demand for office space has been decreasing. Subletting has become more common as companies seek to reduce their costs and minimise the total amount of leased office space.
The fall in demand has been especially sharp in business parks, where the vacancy rate has increased rapidly.
In the Helsinki Metropolitan area, the average vacancy rate is currently c. 12% and in the CBD c. 8%. One year ago the CBD vacancy level was around 5%, so the increase is substantial.
2010 forecast The construction of new office assets was very high in the period 2006 to 2009 in the Helsinki metropolitan area and in other major cities.
New supply is expected to remain high at about 1 million sq m in 2010.
Due to increasing vacancy rates and the lack of occupier and investment demand several development projects have been put on hold.
2010 forecast
The significant completions in the area of Helsinki, along with rising vacancy levels have resulted in downward pressure on rents. Due to the increasing supply of available floor space, tenants have realized that they are in a strong position to negotiate attractive rental terms.
Rental levels are decreasing, especially in secondary locations and in business parks in the Helsinki area.
The prime office gross rent in the Helsinki CBD area is approx. €300-325 per sqm/year. In the other major cities, rental levels vary between €145 and €205 per sqm/year. Increased subletting and high vacancy rates are increasing the pressure on landlords to reduce rents and increase incentives.
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
%
Vacancy rate in Helsinki Region
Vacancy rate in Helsinki CBD
2010 forecast
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COLLIERS EMEA35
0%
2%
4%
6%
8%
10%
12%
14%
2004 2005 2006 2007 2008 2009
%
Tampere
Turku
Kuopio
Oulu
OFFICE MARKET | FINLAND REGIONS | H1 2010
2007 2008 2009
Tampere
Kuopio
Turku
Oulu
€120
€145
€130
€145
€120€120
€130€125
€145€145
€130€120
Office vacancy rate
2010 forecast
In the main regional market, immediate availability continued to increase as a result of new development completions.
Vacancy rates have increased steadily in all the main regional markets except Turku.
Further new developments are in hold until occupier demand increase. All developers and construction companies are waiting for a positive change to the markets.
Rents
2010 forecast
Regional prime rents remained broadly unchanged in 2009, but this stability hides a decline in economic values since landlords are now ready to offer longer rent-free periods to attract or retain tenants without reducing headline rents.
In the immediate future, downward pressure will be evident in all regional office markets, although headline rents are expected to reamina stable in Tampere and Turku.
In the coming years, rents should stabilise for newly developed areas and should show some growth for the best properties in prime areas.
(In €/sqm/year)
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COLLIERS EMEA36
0
1
2
3
4
5
6
7
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
2010 forecast
INVESTMENT MARKET | FINLAND | H1 2010
Investment volumes
The investment volume in 2009 was € 1.8 bn. The fall was dramatic compared with previous years and was only half the volume compared with 2008. The focus moved back to domestic investors, with foreign buyers representing only 16% of total investments. The share of foreign investors was 59% in peak year 2007.
There are some signs of market recovery. Transactions are mainly for individual properties and there are not many portfolio transactions that were more typical of previous years.
Investor demand is mainly concentrated on prime properties, but the current owners are not interested in selling prime assets at reduced prices. The repayment of bank loans will become evident in next few years. This may result in stock coming to the market and boost investment volumes.
Investment ventilation
Due to more stable residential markets, the share of residential investments has increased notably during the investment market fall. The share of residential portfolios increased to 16 % of total transaction volumes compared with the share being less than 3 % in recent years.
Investments in logistics and industrial properties rose 130% in 2009 compared to 2008. Retail accounted for 31% of the total investment volume compared with 37% in 2008.
Half of the investments were made in the Helsinki Metropolitan Area (HMA), down from 75% of total volumes in 2008-2009.
Some large transactions in 2009 :
– Varma Mutual Pension Insurance company acquired a retail portfolio of 13 properties (111,000 sqm) from Kesko at a price of €156 mn
– NV Property Fund I Ky acquired the R&D and office campus Rusko at Oulu from Nokia Siemens Networks. The Rusko campus area is 70,000 sqm
– Finnair Facilities Management Oy sold a 60,000 sqm industrial and office portfolio of four properties located in the Helsinki-Vantaa airport to NV Property Fund I Ky. The vendor leased back the properties on long-term lease agreements. The total investment value was €77 mn
2010 forecast
Residential portfolios
16%Offices
23%
Retail
34%
Light industrial &
logistics
27%
Offices
Retail
Light industrial & logistics
Residential portfolios
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COLLIERS EMEA37
INVESTMENT MARKET | FINLAND | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
Real Estate risk premium
After a period (2005-2007) of surging values where property yields dropped to near risk free rates, office property asset values declined significantly as the global financial crisis took hold. The period 2008 - 2009 saw a rapid rise in yields of 100 to 150 basis points.
This re-pricing phase allowed the risk premium to come back to a long term balance level of 260 basis points between the prime property yields and the risk-free yield.
Prime yields have stabilised after rapid increases in 2008-2009. The prime office yield in the Helsinki CBD is currently between 6.0% and 6.5%. In other major cities the prime yield is between 7.0% and 8.0 %, depending on lease terms and local future prospects.
Prime yields are expected to be stable in 2010 and slowly decrease in 2011 as the economy begins to recover.
Shopping center yields in prime locations dropped to 5.0% in 2007. At the same time, number of good logistics properties were sold to foreign investors at yields of 7.0% to 7.5%. Currently the prime yields are 100 to 150 basic points higher.
Investors in light industrial premises were particularly selective in 2009 and a significant number of deals are still being concluded at double-digit yields.
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield 2010 forecast
2%
3%
4%
5%
6%
7%
8%
9%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Helsinki CBD Helsinki
Espoo Vantaa
Major regional cities
2010 forecast
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Warehouse space Shopping centres
Ground-floor retail premises Light industrial space
2010 forecast
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COLLIERS EMEA38
Economic overview p. 39-40
Paris Office market p. 41
Regional Office markets p. 42
Investment market p. 43-44
Contents
ECONOMIC & PROPERTY OVERVIEW | FRANCE | H1 2010
FRENCH PROPERTY MARKETS
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COLLIERS EMEA39
ECONOMIC OVERVIEW | FRANCE | H1 2010
Since Q3 2009, the French economy has appeared to be rebounding.
Despite having shrunk by 2.3% in 2009, French economy was clearly one of the most resilient country amongst developed countries.
According to statistical agency INSEE, GDP should grow by 1.4% as from early 2010. Thee withdrawal of stimulus measures, reduced capital spending by weakened companies and the low competitiveness of industrial exports will be dragging on economic growth.
The pace of growth should remain low, i.e. below 2.5%, in the coming 2-3 years.
GDP growth & industrial output
Employment growth & unemployment rate
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
80
85
90
95
100
105
Annual GDP growth
Indexed industrial output excl. Construction (base 100 : 2005)
Since Q4 2008, France’s job market has been badly hit by the economic crisis : more than 350,000 jobs have been lost in the private sector in 2009, especially in the industrial sector.
Overall unemployment rates will come in at 9.8% for first-half 2010, a level lower than the rest of the euro zone.
France’s employment market should continue to lag behind the rest of the economy, with around 57,000 job losses expected for 2010 and 75,000 new jobs expected in 2011.
Source : Eurostat
Source : INSEE
Population (mn)
France Main Figures (end of 2009)
65.4
GDP (€bn) 1,921
GDP per capita (€) 29,650
Market cap. ((%of GDP)
Fecundity rate(children per woman) 2.0
Currency Euro
Trade balance (€bn) - 43 bn97%
Saving rate (as of GDP) 15.6%
Demography Economy Finance
Capital region Paris
Capital region pop. (mn.) 11.7
Density (per km²) 112
Budget deficit (% of GDP) - 8.2%
Public debt (% of GDP) 76%
Unemployment (%) 9.4%
10-year Gvt Bond Yield2.9%
(07/10)GDP growth -2.25%
YoY inflation (CPI) 0.1%
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
Unemployment rate Employment growth
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COLLIERS EMEA40
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
In 2009, the sharp fall in prices was due to the weak demand, the rise in unemployment and the fall of the commodity prices.
The high level of unemployment should keep a pressure on wages as well as locally manufactured goods' prices. However, the fall of the Euro exchange rate will impact the cost of imported goods, commodities and energy and should sustain a rise in inflation until its 10-year average levels (2%).
In the medium and long term, uncertainty remains about a significant come-back of a inflation above the level of 2% tolerated by the ECB.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
% of GDP
General gouvernment debt Public balance
Source : INSEE
Due to the sharp recession and the massive Government stimulus programmes (eq. to 4% of GDP), total Government debt has increased sharply to rise 76% in 2009.
In 2010, the French Government chose to sustain the week rebound of the economy with a renewed fiscal deficit of 8.5%.
In early 2010, the French Government optimistically committed to the EU to cut budget deficit to 3% by 2013. However, the presidential election will take place in 2012.
ECONOMIC OVERVIEW | FRANCE | H1 2010
Household consumption growth
-1%
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
Given the violence of the economic crisis, household consumption has been remarkably resilient in 2009.
It was sustained by government stimulus measures, mainly targeting car purchases by households.
Household spending could slow in the second half due to the impact of gradual reflation following from a period of stagnant prices in 2009. The programmed ending of stimulus measures should also depress the global level of consumption.
Source : INSEE
Source : INSEE
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COLLIERS EMEA41
OFFICE MARKET | PARIS REGION | H1 2010
Office supply & vacancy rate
Rents
0
500
1 000
1 500
2 000
2 500
3 000
3 500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
Thds of sqm
Q1 Q2 Q3 Q4 Total
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
1%
2%
3%
4%
5%
6%
7%
8%Immediate supply
Vacancy rate in Paris Region
Vacancy rate in Paris CBD
0
200
400
600
800
1 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rentAverage rents Paris CBDAverage rent La Défense
Office take-up
In 2009, take-up of office space in Greater Paris fell to 1.8 millions sqm, down 24%. Although higher than expected, the transacted volume was 15% below the 10-year average. Economic uncertainty, workforce downsizing (4% fall in office-based employment in Greater Paris) and tenants renegotiating rents were the main factors limiting take-up of office space.
In the 1st half of 2010, take-up in the Paris region rebounded and reached 1 mn sqm. Activity was especially very dynamic in Paris CBD.
Given the poor prospects for economic growth and employment, and in light of current levels of active demand, the overall volume of letting activity in 2010 should be slightly superior to 2009. The office market is expected to frankly recover from 2011 onward.
In 2009, immediate supply rose by 900,000 sqm to 3.6 mnsqm, a level unseen since 1995. Greater Paris office markets are now clearly imbalanced. In Paris CBD, supply jumped by 57% in 2009, due to the volume of second hand areas released by banks.
Supply of very large premises grew at the fastest rate in 2009 and now accounts for 50% of total availability. This is explained by the record levels of new office completions in the 2006-2009 period. In 2010, available office space currently under construction will reach 820,000 sqm.However, given the uprise in take-up in H1 2010, office supply and vacancy rate remain under control.
As from 2011, the supply pipeline will gradually slow and should be absorbed rapidly thanks to the growing preference of end-users for “green” new buildings. The situation for second hand areas is much less certain.
2010 forecast The combination of an upsurge in availability and flagging demand has fuelled a correction in rental values. Some landlords responded rapidly to the situation, either by cutting headline rents by as much as 20% or proposing tenant inducements. On average, landlords are offering two rent-free months per year of lease.
Average rents for new office space fell by between 10% and 25% in Greater Paris in 2009. Submarkets with ample supply of new office space (e.g. Boulogne, Issy-les-Moulineaux, Saint-Denis, etc.) experienced the sharpest falls.
2010 forecast
2010 forecast
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COLLIERS EMEA42
OFFICE MARKET | FRENCH REGIONS | H1 2010
2007 2008 2009
Lyon
Lille
Toulouse
Marseille
€190
€190
€240
€285
€180€175
€300€215
€260€250
€190€190
50 000
100 000
150 000
200 000
250 000
300 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sqm
Lyon
Toulouse
Lille
Marseille
Office take-up
2010 forecast
Except Toulouse, all regional office markets suffered a sharp decline in letting activity.
Given its industry-exposed economic structure of small and medium companies, Lyon region was especially hit by the downturn.
Given the low level of activity, take-up was weak in robust in Lille and Marseille, while Toulouse market performed well and was driven by large transactions on new buildings.
In the near future, the local letting activity will be closely linked to the economic environment : recovery cannot be expected before 2011.
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
2004 2005 2006 2007 2008 2009
Sqm
Lyon
Toulouse
Lille
Marseille
Office supply
2010 forecast
In the main regional market, immediate availability continued to expand as a result of the arrival on the market of new developments.
The stock of available areas now reach approximately 2.5 years of take-up in Lyon, Lille and Marseille, and 1.5 year in Toulouse.
In the near future, supply will continue to increase, but while newly developed areas will gradually be absorbed by end-users, second hand areas will suffer a high level of vacancy.
Rents
2010 forecast
Prime rents remained broadly unchanged in 2009 but this stability hides a decline in economic values since landlords are now ready to offer longer rent-free periods to attract or retain tenants without reducing facial rents.
In the coming years, rents should stabilise for newly developed areas and even increase for prime buildings in prime areas.
On the other hand, the downward pressure shall increase on second hand office rents in all regions.
(In €/sqm/year)
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COLLIERS EMEA43
INVESTMENT MARKET | FRANCE | H1 2010
0
5
10
15
20
25
30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
With only €7.7 bn invested, the French commercial property investment market touched the bottom of the investment cycle in 2009.
Nevertheless, the investment market picked up steam in Q4/09. Market liquidity has been eased by the adjustment in appraisal values and further aided by a gradual unblocking of credit channels.
This trend is expected to last and to be fuelled by a structural revival in the appetite of institutional investors for real estate. In 2010, the market should be dominated by long-term investors targeting real and secure income streams, diversification and protection against inflation.
The come-back of value add investors shall not happen before 2011.
Investment ventilation
In 2009, office properties and retail properties were the focal point for investment activity, with the emphasis being on location and the security of income streams.
In the office property segment, the bulk of investments were made in established business districts: Greater Paris — especially Paris CBD and West CBD — attracted 87% of all capital invested in office properties, thereby gradually restoring liquidity to a level in accordance with the region's status of one of Europe's principal office markets. In other parts of France, only Lyon stood out by attracting several major international investors.
Investment in retail property rose 35% in 2009. Retail accounted for 25% of the total investment volume compared with 11% in 2008, thus showing itself to be the most resilient of the commercial property sector. Casino Group's sale-and-leaseback deals drove the market, as did sales of shopping centers.
The segment of warehouse and light industrial buildings, which was hit especially hard by the decline in international trade, shrank by nearly 70% and in general is no longer in the strategy of generalist investors.
2010 forecast
Offices
67%
Retail
25%
Light industrial &
logistics
8%
Offices
Retail
Light industrial & logistics
2010 forecast
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Retail Light industrial and logistics
Paris West CBD 1st ring 2nd ring Regions
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COLLIERS EMEA44
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Wharehouse space Shopping centres
Ground-floor retail premises Light industrial space
2%
3%
4%
5%
6%
7%
8%
9%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Paris CBD West CBD Major regional cities
INVESTMENT MARKET | FRANCE | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield
After a period (2005-2007) of surging values where property yields were driven below risk free rates, office property asset values declined significantly, with a rapid rise in yields of 200 to 250 basis points (2007-2009).
This re-pricing phase allowed the risk premium to come back to a long term balance level of 150-200 basis points between the prime property yields and the risk-free yield.
Given the shortage of prime assets on the market, the risk premium is likely to shrink again in the coming years, while it should stabilise for second hand assets.
2010 forecast Investor appetite for prime secured office properties has brought downward pressure on prime yields.
Due to the competition between buyers, prime yields in the Paris CBD now stand at 5.25% and could fall further. In the Paris suburbs, new office buildings are sold between 6.5% and 7%.
In French regions, yields for recent office premises now trade below 7%, and below 6.5% in Lyon.
This pressure on yields exclusively concern prime assets : other assets, hampered by tenant risks or second-tier locations, are struggling to return to a normal level of liquidity.
2010 forecast
After experiencing a steady increase in 2008, yields for prime retail property (city centre and shopping centre retail outlets) stabilised in 2009. The relative robustness of consumer spending in France spurred investors to take an increasingly positive view of retail properties offering secure income streams.
Transactions involving class A warehouse premises were closed at yields of between 8.25% and 8.75% (vs 6.25% to 7% in 2007). Very recently, yields for top-quality warehouse buildings have come under downward pressure (below 8%).
Investors in light industrial premises were particularly selective in 2009 and a significant number of deals are still concluded at double-digit yields.
2010 forecast
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COLLIERS EMEA45
Economic overview p. 46-47
Berlin Office market p. 48
Düsseldorf Office market p. 49
Frankfurt Office market p. 50
Hamburg Office market p. 51
Munich Office market p. 52
Stuttgart Office market p. 53
Investment market p. 54-55
Contents
ECONOMIC & PROPERTY OVERVIEW | GERMANY | H1 2010
GERMAN PROPERTY MARKETS
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COLLIERS EMEA46
ECONOMIC OVERVIEW | GERMANY | H1 2010
The recovery of the German economy lost momentum at the end of 2009. GDP in the fourth quarter of 2009 stagnated at the previous quarter’s level.
The German economy shrank in 2009 for the first time in six years. The decline in real gross domestic product (GDP) was the largest since the end of World War II (-4.9%).
According to Experian forecasts, real GDP should increase over the course of this year by 1.2%. In the coming year, domestic demand will grow moderately.
Although the real GDP will probably increase in 2011 by 1.7%, it will be perceptibly lower in the coming years than assumed before the crisis.
GDP growth & industrial output
Employment growth & unemployment rate
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
0
20
40
60
80
100
120
Annual GDP growth (LHS)
Indexed industrial output excl. Construction (base 100 : 2005) (RHS)
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-2%
-1%
-1%
0%
1%
1%
2%
2%
3%
3%
Unemployment rate (LHS) Employment growth (RHS) The German labour market has appeared remarkably
robust thus far.
Companies have been hoarding considerable numbers of workers, with help from government support for reduced-hours working schemes and the more flexible provisions of collective wage contracts.
Additionally the labour market is still profiting from the mostly moderate wage agreements of recent years.
The unemployment rate is expected to rise from 7.5% in 2009 to 8.5% in 2010 and 2011, before falling back to 8.0% in 2012.
Source : Eurostat / Haver Analytics / Experian
Source : destatis / Haver Analytics / Experian
Population (mn)
German Main Figures (end of 2009)
82.0
GDP (€bn) 2,407
GDP per capita (€) 29,410
Market cap. (%of GDP)
Fecundity rate(children per woman) 1.4
Currency Euro
Trade balance (€bn) +134 bn42%
Saving rate (as % disp. Y) 11.3%
Demography Economy Finance
Capital region Berlin
Capital region pop. (mn.) 3.43
Density (per km²) 236
Budget deficit (% of GDP) - 3.3%
Public debt (% of GDP) 72.5%
Unemployment (%) 7.5%
10-year Gvt Bond Yield2.60% (07/10)
GDP growth -4.9%
YoY inflation (HICP) 0.2%
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COLLIERS EMEA47
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
As reported by the Federal Statistical Office, the Harmonised Index of Consumer Prices (HICP) for Germany rose by 0.4% on an annual average in 2009 compared with 2008.
The low year-on-year rate of price increase in 2009 was characterised mainly by price decreases for mineral oil products and food.
According to Experian forecasts, consumer prices will increase only moderately – the inflation rate in 2010 will be 1.0% and in 2011 1.3%.
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
% of GDP
General gouvernment debt (LHS) Public balance (RHS)
According to the results of the Federal Statistical Office, general government net borrowing amounted to €79.3 billion in 2009. Measured as a percentage of gross domestic product at current prices (€2,407.2 billion), a general government ratio of –3.3% was calculated for 2009.
The situation of the public budgets will continue to deteriorate. The deficit rate in 2010 is expected to rise to 4.9%. In 2011, a decline to 4.2% is expected, especially since the economic stimulus programs are running out and initial measures for budget consolidation will be undertaken.
ECONOMIC OVERVIEW | GERMANY | H1 2010
Household consumption growth
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
There was an increase in household final consumption expenditure due to green rebate for cars in 2009: As reported by the Federal Statistical Office, households in Germany spent approx. € 73 billion on purchasing new or used motor vehicles.
The total final consumption expenditure of households rose slightly by 0.4% in 2009 compared to 2008. Without the purchases of motor vehicles, household final consumption expenditure would have been down by 0.5%. Forecasts suggest a fall of 0.5% in 2010.
Source : destatis, Joint Economic Forecast project group
Source : Statistics Office Haver Analytics / Experian
Source : destatis, Joint Economic Forecast project group
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COLLIERS EMEA48
OFFICE MARKET | BERLIN | H1 2010
Office supply & vacancy rate
Rents
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
sqm
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2 000 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
sqm
0%
2%
4%
6%
8%
10%
12%
Immediate supply Vacancy rate
0
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Average rents Berlin
Office take-up
In 2009, Berlin’s office letting market had to withstand a decline, in comparison to the previous year, of 16.7%, but still developed positively in relation to other German economic centres. The total-take-up was 460,700 sq m.
By far the largest number of leases (413 of a total of 615) were signed in the size segment below 500 sq m, while larger spaces of 2,000 sq m and more showed a considerable decline during 2009.
Taking the currently known demand and the overall economic conditions into consideration, we expect a take-up of 430,000 to 470,000 sq m for 2010.
Office take-up in H1 2010 was superior to 200 000 sqmand should reach approximately 440 000 sqm in 2010.
2010 forecast
2010 forecast The volume of vacancies in Germany’s second largest market for office space, with approx. 17.9 million sq m, increased by approx. 50,000 sq m, which is comparatively moderate.
Approx. 1.5 million sq m of office space was available at the end of 2009 at short notice, i.e. within three months, and 27,000 sq m of this was available as a sublet.
The vacancy rate increased at the end of 2009 to 8.4% (2008: 8.1%). It is already known that approx. 255,300 sq m of office space will be completed during 2010 and 2011, approximately 51% of which is currently under preliminary lease.
Despite this comparatively high level of letting, it is not expected that all of the new space will be absorbed, and therefore an increase in the vacancy rate is likely.
2010 forecast While the average rent declined by approx. 11.1% to a current level of €129 psm, the drop in prime rents was more pronounced.
Due to the low number of new leases and the low level of turnover for high-priced, large-volume offices in 2009, rents fell by approximately 12.6% to €253 psm.
The rents that were highest in 2008, reaching levels of up to €480 psm, which were still seen in 2008 in the most exclusive properties on Pariser Platz, were considerably lower in 2009 at prices of as little as €300 psm.
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COLLIERS EMEA49
OFFICE MARKET | DÜSSELDORF | H1 2010
Office supply & vacancy rate
Rents
0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
500 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0%
2%
4%
6%
8%
10%
12%
14%Immediate supply Vacancy rate
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
€/sqm/year
Prime net rent
Average rents Düsseldorf
Office take-up
Only 177,000 sq m of space found new users in 2009, 52% less than in the previous year (2008: 371,000 sq m). Take-up has not been this low since 1996 (153,000 sq m) and 1997 (188,000 sq m). Hence, companies in Düsseldorf remained cautious throughout 2009.
The trend towards smaller offices, which became evident during the course of the year, also continued into the fourth quarter: 56,500 sq m or 32% of the total take-up volume was related to offices of up to 500 sq m.
On the whole, an average take-up level for the Düsseldorf market area of roughly 250,000 sq m seems to be a realistic forecast for the new year.
Office take-up was very dynamic in the beginning of 2010 and should reach 280 000 sqm by the end of the year.
2010 forecast
2010 forecast A drop in new lettings and project development caused the vacancy rate to further increase in 2009. There was 753,500 sq m of office space not being used by the end of the year, this equals a rate of 10.0% (2008: 635,000 sq m/8.8%).
The reasons for this are complex. Many companies continue to feel uncertain and avoid making decisions about personnel, which often lead to changes in the demand for space. Many decision makers do not want to make a commitment. Hence, companies often choose interim solutions and temporarily sublet units that they no longer need to other tenants.
2010 forecast The premium rent fell by €18 over the course of the year to a current level of €282 psm.
The average rent, on the other hand, rose by €10.80 to €171.6 psm.
Roughly half of all leases were signed in the price range between €120–€180 psm.
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COLLIERS EMEA50
OFFICE MARKET | FRANKFURT | H1 2010
Office supply & vacancy rate
Rents
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0
500 000
1 000 000
1 500 000
2 000 000
2 500 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Immediate supply Vacancy rate
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Average rents Frankfurt
Office take-up
In 2009, the take-up of space reached roughly 358,300 sqm in Frankfurt, with 321 signed leases – including those in Offenbach Kaiserlei and Eschborn. It represented a decline of 28% in relation to the previous year. Under the unfavourable conditions of the 2009, higher take-up could hardly be expected.
In the 1st half of 2010, office take-up reached 230 000 sqm, with a clear rebound in Q2.
A marked recovery of the market for office properties is not expected in 2010. The mood of the market has improved slightly, whereby the hesitant behavior displayed by many companies persists and we do not expect many leases to be extended in 2010. The take-up of office space for 2010 is expected to attain the same level as 2009 and again reach approx. 350,000 sq m.
2010 forecast
2010 forecast Between 2004 and 2008 Frankfurt witnessed a decline in vacancies. As everywhere else, this has changed with the onset of the economic crisis. During the course of 2009, the rate rose by 1.5 percentage points and is now at 16.5%. The increase is partially a result of construction completed in 2009 and now coming onto the market.
There is much less pressure from the supply side in Frankfurt, in comparison to other cities. Of the approximately 350,000 sq m of office space expected to be completed, the preliminary letting rate is nearly 75%.
The vacancy rate will increase again slightly and then stagnate. High quality space in premium locations will also be in demand in 2010. Approximately 100,000 sq m of new high quality office space will be coming onto the market.
2010 forecast Despite the economic slowdown, prime rents have not fallen. There is a continued interest in very good properties.
The average rent has even risen somewhat and is now at €240 psm, the premium rent remains stable at €420 psmand the highest rent even reached €540 psm, which was agreed in a very high priced lease in the Banking District.
By contrast, average rents have declined slightly in some submarkets, for example in Frankfurt West, East, and the Offenbach Kaiserlei.
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COLLIERS EMEA51
OFFICE MARKET | HAMBURG | H1 2010
Office supply & vacancy rate
Rents
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%Immediate supply Vacancy rate
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Average rents Hamburg
Office take-up
The take-up of office space in Hamburg led to a solid 395,000 sq m of leases signed in 2009, In comparison to the previous year this represents a decline of approx. 28%. Other major German office centres showed greater declines in take-up.
In addition to simply letting space, many leases are being renegotiated or extended. As a result of the declining demand for office space, conditions are exceptionally favourable for tenants conducting negotiations.
Office take-up in Q1 2010: 91,000 sq m (+13.8% on Q1 2009).
2010 forecast
2010 forecast The supply of available space in the Hamburg office market reached the one million sq m threshold during the course of the year. At the end of 2009, the supply of office space was approximately 1,063,000 sq m, which represents a vacancy rate of approximately 8.3%.
During this phase in the market there is virtually no new building activity on speculation. The volume of new floorspace to come onto the market in 2010 is estimated to be 330,000 sq m, of which 135,000 sq m is already under preliminary lease or being built for use by the owner.
The vacancy rate will rise to roughly 9% due to the high volume of completed space, totalling approximately 330,000 sq m, and the low level of demand.
2010 forecast The prime rent fell from €288 psm to €279.60 within the course of the year. The average rent also fell by €1.20 to €160.8 psm.
Due to the low demand for space, incentives to make leases more attractive, such as rent-free periods or financial support for reconstruction measures, have increased.
With the increase in available space during the course of the year, rents in the Hamburg office market will decline. Office space in the best locations with a higher fit-out standard will, however, continue to achieve high rents.
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COLLIERS EMEA52
OFFICE MARKET | MUNICH REGION | H1 2010
Office supply & vacancy rate
Rents
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2 000 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0%
2%
4%
6%
8%
10%
12%Immediate supply Vacancy rate
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent Munich region
Average rents Munich region
Office take-up
The overall take-up of space declined during 2009, in comparison to 2008, by 32.2% to 528,700 sq m.
In 2009, city centre locations were once again the areas with the highest demand. About 42.7% of total leasing was accounted for by the sub-segments located within the Mittlerer Ring.
So far, 2010 appears to be as challenging for the office market as 2009 was. The delayed effects of the downturn in the real economy will most likely continue to be felt.
In H1 2010 office take-up reached approximately 250 000 sqm. The 2010 take-up forecast ranges between 480,000 and 530,000 sq m (plus the owner-occupiers) ; a very few large volume, high-priced leases are expected.
2010 forecast
2010 forecast Newly vacated space was somewhat higher than in 2008 at approx. 45,400 sq m and availability is currently 1,599 million sq m.
The vacancy rate rose within a year by 0.3 percentage points to 7.4 %. The rise in the vacancy rate is based on the low level of letting and the additional supply of office space in many new buildings completed in 2009, a third of which has still not been let.
As things stand today, however, further office space amounting to 557,000 sq m is scheduled for completion in the next two years, with barely half of that amount already leased or slated for owner occupancy.
2010 forecast At the end of the year, the long-term prime rent was €354 psm, owing to a lack of high-priced new leases for large spaces, putting that figure approx. 7.5% below the year-end value for 2008.
The highest rents were achieved in exclusive office spaces in the most central locations within the city centre. The absolute top value was a rent of €462 psm, and a total of 12 contracts involving rents of €360 psm or more were finalized.
Prime rents will, at best, be maintained and average rents will continue to decline slightly.
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COLLIERS EMEA53
OFFICE MARKET | STUTTGART | H1 2010
Office supply & vacancy rate
Rents
0
50 000
100 000
150 000
200 000
250 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
500 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
sqm
0%
1%
2%
3%
4%
5%
6%
7%Immediate supply Vacancy rate
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Average rents Stuttgart
Office take-up
The take-up of space in the capital of the Land of Baden-Württemberg, including Leinfelden-Echterdingen, was 170,500 sq m. In contrast to the previous year this represents a decline of 4.7%.
Roughly 64% of the 214 signed leases on record in 2009 were signed in the City and Centre submarkets and some 72.5% of the take-up of space was registered in these two submarkets. Thus, the preference for the central city submarkets can be clearly recognized.
Office take-up was weak in H1 2010 and should be stable or slightly decreasing in 2010.
2010 forecast
2010 forecast The office space supply in Stuttgart, including Leinfelden-Echterdingen, increased in the last twelve months by c.40,000 sq m. Hence, the supply of office space is currently 7.4 million sq m. Roughly 33,000 sq m of the completed building volume in 2009 were found in the City and Centre submarkets.
In 2010 and 2011 we expect a higher rate of completion. In 2010, approximately 60,900 sq m of office space will be completed and in 2011 approximately 88,000 sq m.
Due to the relatively low volume of completion in 2009 and relatively decent take-up, vacancy has fallen for the third year in a row. The vacancy rate is currently 6.1% (2008: 6.2%).
2010 forecast The sustainably achieved prime rent for office space in Stuttgart remained constant in 2009 at €216 psm, but was only achieved on a very few leases.
This is related, on the one hand, to the fact that there are currently only very few premium properties ready for occupancy on the market and, on the other, to the decline in the willingness on the part of tenants to sign leases under these conditions in the current economic situation.
If the demand for new office space continues to drop, the prime rent cited will come under pressure in the near future.
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INVESTMENT MARKET | GERMANY | H1 2010
Investment volumes
The value of commercial real estate traded in Germany during 2009 amounted to approx. €10.5 billion, a drop of approximately 48.1% compared to the previous year.
About 56.9% of the total volume generated throughout Germany during 2009 came from the top six performers examined by Colliers International, a total of approximately €6.0 billion. This figure puts transaction volumes in the top six approximately 31.3% below 2008 levels.
Open-ended real estate funds invested just over €1.4 billion in these locations. Private investors also came in slightly above the €1 billion threshold.
Investment ventilation
During 2009, office properties were the most popular investment properties throughout Germany. Overall, approximately €4.3 billion was invested in this asset class. In 2009, retail properties followed in second place, with an investment volume of €2.4 billion. Purchases of unimproved land and land for development totalled about €790 million.
In the Top 6 cities, office properties were far and away the most popular investment properties, accounting for investment volume of approximately €3.1 billion.
Mixed-use and other properties followed in second place with approximately €1.3 billion. Factors contributing to this uncharacteristically high proportion included the sale of the “Lenbach Gärten” property (office/hotel) in Munich, at a price of over €200 million, a parking structure in Frankfurt that sold for nearly €100 million, and a BMW showroom in Stuttgart that sold for €51 million.
Third place went to retail properties, which accounted for a market share of 13.5%, reaching a sales volume of approximately €805 million.
Other
28%
Offices
42%
Retail
23%
Land for
development
7%
Offices
Retail
Land for development
Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Berlin Düsseldorf Frankfurt Hamburg Munich Stuttgart
Office Retail Sites Others
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Top 6 cities Germany
2010 forecast
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COLLIERS EMEA55
3%
4%
5%
6%
7%
2006 2007 2008 2009 H1 2010
Berlin Düsseldorf Frankfurt
Hamburg Munich Stuttgart
INVESTMENT MARKET | GERMANY | H1 2010
Buyer Groups
Seller Groups
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Germany Top 6
Open property funds Closed property funds Private investor
Property developer Others
Prime initial yields – Office Properties
Compared to the previous quarter, the prime yield for office property was markedly lower, especially in Munich and Düsseldorf, 25 bps down on the end of 2009 to the current 4.50% and 5.50% respectively. In Hamburg it also declined by 20 bps to 4.80%. In Berlin (5.50%) and Frankfurt am Main (5.30%) the figures remained stable compared to the previous quarter, just as they did in Stuttgart. There, as well as in Berlin, the best yields being achieved at present are 5.50% for office property.
Despite renewed demand for core products, non-central locations are yet to see such an improvement. The yield gap between prime and secondary remains historically large.
Equity-rich investors are leading the list of buyers by some distance, which is natural given the large average transaction size. A good two-thirds of the investment volume in the first quarter (about €3.1 billion) was put into open-ended and closed-ended property funds and special funds. Private investors and project developers were a long way behind with €280 million and €235 million respectively.
The situations in the six cities studied are comparable with the national result. Just under two-thirds of the investment volume, some €1.5 billion, flowed into open-ended and closed-ended property funds and special funds, followed by private investors with about €229 million and property companies with about €210 million.
Some 64% (about €2.9 billion) of the transaction volume was achieved by sales of project developers and builders, likewise substantially influenced by the large retail trade portfolio Corio N.V. took over from Multi Development. Pension funds (approx. €366 million) and non-property companies and owner-occupiers (€327 million) accounted for market shares of 8.0% and 7.1% respectively on the vendor side.
On the vendor side, project developers and builders were likewise the largest group of vendors in the Top 6 with some 61% (€1.6 billion). Benefit funds and pension funds sold commercial property worth about €347 million, open-ended and closed-ended property funds sold about €195 million worth.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Germany Top 6
Property developer Pension fund Non properties
Open property funds other
2010 forecast
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COLLIERS EMEA56
Economic overview p. 57-58
Dublin Office market p. 59
Investment market p. 60-61
Contents
ECONOMIC & PROPERTY OVERVIEW | IRELAND | H1 2010
IRISH PROPERTY MARKETS
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COLLIERS EMEA57
ECONOMIC OVERVIEW | IRELAND | H1 2010
The Irish economy experienced many years of strong growth, driven by Government investment and a booming construction and property sector.
Ireland was the first economy to officially enter recession and has been one of the hardest hit in terms of falls in output. The forecast for 2010 is still only for a marginal increase year on year.
Following a re-balancing of the economy over the next year or so, GDP growth is set to average out at around 2.5% per year.
GDP growth & industrial output
Employment growth & unemployment rate
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F0
20
40
60
80
100
120
Annual GDP growth (LHS)
Indexed Industrial Output excl. construction (RHS)
0%
2%
4%
6%
8%
10%
12%
14%
16%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%Unemployment rate (LHS)
Employment growth (RHS)
The booming Irish economy helped support strong employment growth during the early 2000s of around 5% per annum, although this turned sharply negative in 2008 and 2009 as the recession began to bite.
Unemployment, which had formerly been steady at close to 4%, rose to 11.9% by the end of 2009 and is set to rise further in 2010, to a level of 14.0% by December.
Employment growth is forecast to be flat in 2010 as signs of recovery begin to emerge in the second half of the year.
Over the longer term, unemployment will begin to drop back towards 9-10% by the mid-2010s.
Source : Experian / Haver Analytics
Source : Experian / Haver Analytics
Population (mn)
Ireland Main Figures (end of 2009)
4.5
GDP (€bn) 164
GDP per capita (€) 36,422
Market cap. (% of GDP)
Fecundity rate(children per woman) 2.1
Currency Euro
Trade balance (€bn) - 4.8 bn27.3%
Saving rate (as of GDP) 4.2%
Demography Economy Finance
Capital region Dublin
Capital region pop. (mn.) 0.5
Density (per km²) 64.0
Budget deficit (% of GDP) - 11.4%
Public debt (% of GDP) 64.5%
Unemployment (%) 11.9%
10-year Gvt Bond Yield5.03% (07/10)
GDP growth -6.67%
YoY inflation (HICP) -1.71%
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COLLIERS EMEA58
Public balance & general Government debt
Inflation (HICP)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
As the Irish economy grew at a fast rate over the past few years, prices were driven upwards and by 2007, the country was seen as one of the most expensive in Europe.
This was fuelled in part by the single interest rate across the Eurozone, which was kept low to support the dominant economies, which were performing less well during this time.
HICP inflation was negative in 2009 with retail prices coming under downward pressure as retailers fought to attract customers.
This year, inflation has flattened out and is likely to turn positive as demand across the economy improves.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
% of GDP
General Government debt (LHS) Public balance (RHS)
Source : ONS / Haver Analytics
Strong growth through much of the past decade enabled the Irish Government to consistently reduce Government debt levels through to 2007 and to run a balanced annual fiscal budget.
The financial crisis and ensuing recession caused benefit payments to rise and tax income to fall. Alongside huge fiscal spending to support the Irish banks and prevent a deep prolonged recession, this drove the budget deficit to almost 12% in 2009.
Gross Government debt as a percentage of GDP has risen sharply and will continue to rise this year as the Government provides much-needed support to the wider economy.
ECONOMIC OVERVIEW | IRELAND | H1 2010
Household consumption growth
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Strong household consumption growth in the mid-2000s gave way to a small decline in 2008, followed by a steep drop of -7.2% in 2009.
Consumers have been hit hard by rising unemployment, falling real incomes and average house prices falling by 35% from peak.
Experian forecasts predict another fall in consumption in 2010, before a small rise of 0.2% in 2011. Household spending growth will not rise above 2% until 2013.
Source : ONS / Haver Analytics
Source : IMF / Haver Analytics
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COLLIERS EMEA59
OFFICE MARKET | DUBLIN | H1 2010
Office supply & vacancy rate
Rents
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
5%
10%
15%
20%
25%Immediate supply
Vacancy rate in Dublin CBD
0
200
400
600
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Office take-up
In 2009 the Dublin office market take-up totalled 78,000 sq m down from a high of 260,000 sq m in 2007. Economic conditions in 2009 were extremely tough with many companies down-sizing or effecting recruitment freezes. The market is characterised by a large number of smaller deals and letting activity during Q1 2010 equated to 21,000 sq m of take-up, which is encouraging and up from 10,000 sq m for the same period in 2009.
We expect similar levels of take-up to that of 2009 during 2010.
There is 110,000 sq m of new office development due for completion during 2010. Development pipeline will then case during 2011 and 2012 and we expect a shortage of HQ space in the city centre and the Docklands.
2010 forecast
2010 forecast Over the course of the past five years, availaibility has risen from a low of 108,000 sq m to a current level of 693,000 sq m; more than a sixfold increase.
This has been driven by a large increase in new development completions corresponding with a sharp fall in occupier demand since 2007.
The vacancy rate is above 22% and is likely to peak during H1 2010 before finishing the year at the same level at which it finished 2009.
There is limited new prime stock under construction, which should help the take-up of existing available space over the next 24 months.
2010 forecast Prime office rents in the CBD are holding steady now at €376 per sq m with secondary space widely quoting €270 per sq m. Tenants are on the move where possible during the first half of the year with break options being exercised in favour of newer buildings. A large proportion of the 22% vacant stock is now obsolete and waiting for redevelopment. Rents for older accommodation in need of refurbishment will continue to come under pressure.
There is some activity in the south suburbs with almost half of recorded take-up in Q1. North and west suburbs remain saturated with most of the stock being new high specification buildings which have never been occupied. City centre value is a factor.
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INVESTMENT MARKET | IRELAND | H1 2010
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
Following its peak in 2007, Irish commercial property transactions fell significantly in 2008. In 2009, this trend continued, with only €92m of deals larger than $10m (c. €7.5m) transacting last year.
Activity in 2010 has also been restrained so far, with worries over the Irish fiscal deficit and further economic retrenchment preventing potential investors from showing much interest. Meanwhile, Irish banks have not yet begun to force much distressed stock to market.
Into 2011 and 2012, transaction volumes will improve, but with weak economic growth forecast over the next few years, we do not expect to see a return to the 2006 and 2007 levels of activity.
Investment ventilation
Transaction volumes were very low in 2009. The majority of the reduced investment activity was focused on the retail sector primarily the result of a number of sale and leasebacks of bank branches by two of the leading domestic banks.
There were no office transactions larger than $10m in the whole of Ireland in 2009 and there is no immediate sign of this changing in 2010. Activity is being constrained by the poor lending environment and investor’s nerves regarding the Irish economy as a whole.
The retail investment transactions occurring in 2009 were all for prime assets in Central Dublin.
Only one transaction was registered for the industrial and logistics sector in 2009. Investor caution is likely to remain the key issue during 2010.
2009 witnessed historically low levels of transactional activity in the domestic property investment market with yields across all sectors well above their 20 year averages.
2010 activity is being severely hampered by liquidity constraints and the prevailing uncertainty about NAMA.
On the positive side Ireland continues to benefit from a low interest rate and low inflation environment. Increased prime yields are attracting international attention and investor sentiment is improving.
2010 forecast
Offices
0%
Retail
85%
Light industrial &
logistics
15%
Offices
Retail
Light industrial & logistics
2010 forecast
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Retail Light industrial and logistics
Central Dublin Dublin Suburbs Regions
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0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield
INVESTMENT MARKET | IRELAND | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
2%
3%
4%
5%
6%
7%
8%
9%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Dublin CBD
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2007 2008 2009 H1 2010
Industrial/logistics Retail
Real Estate risk premium
During the middle years of the decade, Irish property yields offered a premium of more than 2% over 10-year Government bond yields. In 2006 and 2007, competition for limited product saw the risk premium on property turn negative, with the assumption of continued strong economic growth.
With the onset of the financial crisis, yields quickly began to climb and as the economy entered recession, property yields began to offer a large margin over Government bonds.
Despite the large risk premium on offer, investors have not rushed to buy Irish assets with perceived risks over Government debt and a weak economy weighing on potential growth.
2010 forecast In 2010 Q2 a portfolio of CBD prime office properties on long leases transacted with a gross initial yield of 8.25%.
Conventional lease lengths and structures have changed with the banning of Upwards Only rent reviews by legislation in February 2010. As a result we will see fewer buildings let on traditional long term FRI leases.
Prime yields are currently at 8-8.5% with potential for compression due to a lack of assets offering security. In recent months there has been increased interest in Ireland.
Secondary assets continue to be hampered by second-tier locations and tenant risks.
2010 forecast
Lack of liquidity, a fall in rental levels and the new upward/downward rent review legislation have all contributed to prime investment retail yields running out to nearly double peak levels. In the absence of substantial market evidence, we can suggest these current levels:
– Prime High Street 6.25% - 6.50%
– Prime Shopping Centre 7.50% - 8.25%
– Prime Retail Parks 8.00% - 9.00%
Industrial investments will not be a significant feature of the market in 2010. A prime building let to a top tier covenant has recently completed however at a yield of 8.5%. We expect yields in the region of 8.5% - 9% during 2010.
2010 forecast
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COLLIERS EMEA62
Economic overview p. 63-64
Rome office market p. 65
Milan office market p. 66
Investment market p. 67
Contents
ECONOMIC & PROPERTY OVERVIEW | ITALY | H1 2010
ITALIAN PROPERTY MARKETS
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ECONOMIC OVERVIEW | ITALY | H1 2010
Over the past decade, Italian GDP growth has displayed a fair amount of volatility, culminating in a sharp downturn during 2008 and 2009 following the banking crisis of 2007.
GDP growth turned positive in Q3 2009 before falling slightly again in Q4. However, the recovery continued with 0.5% growth in Q1 2010.
Industrial production plummeted in 2009, falling by over 18% year-on-year. However, aside from during 2006 and 2007, this indicator had been falling throughout the decade as the Italian economy was unable to compete with cheaper foreign exports.
GDP growth & industrial output
Employment growth & unemployment rate
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F75
80
85
90
95
100
105
110
Annual GDP growth (LHS)
Indexed Indus trial Production excl. construction (RHS)
0%
2%
4%
6%
8%
10%
12%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-2%
-1%
0%
1%
2%
3%Unemployment rate (LHS)
Employment growth (RHS)
The unemployment rate fell consistently between 1999 and 2007, but has since risen as jobs wee lost across all sectors during the downturn.
Having reached 7.7% in 2009, unemployment is forecast to reach as high as 8.7% in 2010.
Employment growth was steady throughout much of the decade, averaging close to 1.0% between 2000 and 2008.
Over the past 12-18 months, job opportunities have diminished sharply, with employment growth turning negative in 2009 and set to remain so in 2010.
Population (mn)
Italy Main Figures (end of 2009)
59.8
GDP (€bn) 1,207
GDP per capita (€) 20,183
Market cap. (% of GDP)
Fecundity rate(children per woman)
Currency Euro
Trade balance (€bn)N/A
Saving rate (as % of GDP) 14.3%
Demography Economy Finance
Capital region Rome
Capital region pop. (mn.)
Density (per km²)
Budget deficit (% of GDP) -4.1%
Public debt (% of GDP) 115.8%
Unemployment (%) 7.7%
10-year Gvt Bond Yield4.02% 07/10
GDP growth -5.1%
YoY inflation (HICP) 0.8%
-50.3
1.3
199.8
2.7
Source : Eurostat
Source : Eurostat
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COLLIERS EMEA64
Public balance & general Government debt
Inflation (HICP)
0%
1%
2%
3%
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Throughout most of the decade, CPI inflation was running at between 2% and 3%.
While this was above the Eurozone target, this was counter-balanced for the region as a whole by Germany and France maintaining low inflationary environments.
Excess capacity in the economy and weak or negative wage growth kept CPI inflation below 1% during 2009.
The forecast for 2010 suggests that inflation will recover to just over 1.5%. This will be above the general Eurozone level, but still below the region’s stated target for price growth.
95%
100%
105%
110%
115%
120%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
% of GDP
Gross Government Debt (% of GDP) (LHS)
Budget Deficit (% of GDP) (RHS)
Italy has consistently been running a budget deficit for the past decade, but is not currently in a situation such as that experienced by countries such as Spain, Ireland and the UK.
Italian gross Government debt did rise sharply however during 2009. It now sits above 115% of GDP and is forecast to rise to almost 120% by year-end.
The Italian Government is introducing a number of measures targeted at reducing this debt level over the next few years and is likely to be a hindrance to economic growth over the short to medium term.
ECONOMIC OVERVIEW | ITALY | H1 2010
Household consumption growth
-2,0%
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
One key reason for the Italian economy’s anaemic GDP growth over the past ten years has been consistently weak consumer spending growth.
Consumer spending fell by 1.8% in 2009 and although it is likely to turn positive this year, fiscal austerity measures and low consumer confidence will not drive a strong recovery in growth.
Source : Eurostat
Source : Eurostat
Source : Eurostat
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COLLIERS EMEA65
OFFICE MARKET | ROME | H1 2010
Office supply & vacancy rate
Rents
0
100
200
300
2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Office take-up
0
100
200
300
400
500
600
700
800
2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
1%
2%
3%
4%
5%
6%
7%
8%Immediate supply Vacancy rate
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Rome prime rents
Office take-up
In 2009, take-up of office space in Rome fell by 55 % year-on-year, with approximately 60,000 s qm taken in 2009, i.e. the lowest figures for the last six years.
Given the economic environment, corporations and public users have been very cautious : many projects have been postponed and replaced by lease renegotiation.
The figure at the beginning of 2010, however, has been pretty positive, compared to 2009. The market was the most active in the City Centre and in the EUR area.
Given the good H1 figure, a rebound can be expected in take-up for 2010.
2010 forecast
2010 forecast The immediate office supply has only increased by 5%, at 650,000 sq m (on a total office stock of 9.8mn sq m), keeping the official vacancy rate under control (6.7% in Q1 2010 vs 6.5% in 2009).
However, the immediate supply of office areas accounts for five to ten years of take-up, depending on the figure taken (2008 or 2009). Unless the take-up activity sharply rebounds, a continuous rise in vacancy can be expected.
Fortunately, the new delivery pipeline in Rome has stayed very low during the last few years (only 35,000 sq m completed in 2009) and should remain under control in the coming years as many projects without tenants are likely to be frozen.
The main increase in new supply is expected in the EUR Colombo area and in the southern outskirts.
2010 forecast In 2008 and 2009, the average prime rent in the historic center declined by approximately 9% to €385 per sq m from its highest levels.
Asking top rents may reach €370 per sq m in the EUR and €500 per sq m in the city centre with rents ranging between €170 and €250 per sq m in the city outskirts.
Rents are expected to stabilise in the City Centre as well as in EUR ; they are expected to decline in the outskirts only.
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COLLIERS EMEA66
OFFICE MARKET | MILAN | H1 2010
Office supply & vacancy rate
Rents
0
100
200
300
400
2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Office take-up
0
200
400
600
800
1 000
1 200
2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%Immediate supply Vacancy rate
350
400
450
500
550
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Milan prime rents
Office take-up
Since 2007, demand for office areas has been weakening in the Milan market. In 2009, because of slow economic growth as well as an extreme cautiousness by companies, take-up was 24% lower than in 2008.
The take-up volume in the beginning of 2010 did not show any recovery as it was only driven by small transactions
Demand was dynamic in the Fashion District and in Outer City Centre area but it declined in the Inner City Centre and the Historic Centre, as well as in the outskirts and in the hinterland
Given the low level of demand, a decrease in the total take-up volume is expected in 2010.
2010 forecast
2010 forecast Immediate supply has increased by 25% since 2008 whilst the vacancy rate shifted from 7% at the end of 2008 to 8.4% in H1 2010.
The pipeline of new office developments has not slowed down, since Grade A buildings are supposed to replace Grade C obsolete buildings.
In this context, even if the new supply is more concentrated in the outskirts than in the city centre, all business districts are expected to see their vacancy rate rise in the coming quarters.
2010 forecast Average prime rents have been decreased by approximately 10% from their peak in 2007.
Asking top rents reached €600 per sq m in the Fashion District and €550 per sq m in the Historic Centre ; rents range between €240 and €375 per sq m in the city outskirts.
Rents are expected to stabilise only in the Fashion District and in the Outer City Centre ; they are expected to decline in the City Center, the Historic Centre and the outskirts.
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COLLIERS EMEA67
INVESTMENT MARKET | ITALY | H1 2010
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
The Italian investment market has been on a declining path since the end of 2007. In 2009, invested volume reached only €5bn, compared to €7.7bn in 2008 and €9.1bn in 2007.
Whilst Q4 2009 saw a rebound in invested volumes and an increase in investor confidence, the beginning of 2010 figure was disappointing.
The end of 2010 should be a bit more dynamic, especially thanks to the sale of the €400mn Porta di Roma Shopping Center to Corio and Allianz, then expected investment volumes should remain stable in 2010 compared to 2009.
Investment ventilation
In 2009, the office segment accounted for 50% of investment, with a remarkable preference for core assets below € 20mn.
Given the traditional core profile of retail properties and relatively low stock of shopping centers in the South of the country, the Italian retail sector has also received much interest from international investors and accounted for almost 30% of investments in 2009. Several major transactions should be realised in this sector in 2010.
With more almost 70% of commitments, domestic buyers were the leading players of the market. Core equity players were the most active players, with more than 60% of investments realised without any leverage.
2010 forecast
Offices
50%
Retail
29%
Hotel
11%
Other
7%
Light industrial &
logistics
3%
Offices
Retail
Light industrial & logistics
Hotel
Other
Prime initial yields – office & retail
4%
5%
6%
7%
2002 2003 2004 2005 2006 2007 2008 2009 2010E
Prime Office yield (Milan)Prime yield shopping centerPrime retail yield
Since the top of the previous investment cycle in 2007, yields have been moved out by approximately 75 bps.
However, the come back from investors at the end of 2009 has put a new downward pressure on yields. In the first half of 2010, prime office yields have compressed to reach approximately 5.50% while prime shopping center yields are now trading at around 6.25%.
Given the expected stability of investment volumes, yields are expected to remain stable in 2010.
2010 forecast
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COLLIERS EMEA68
Economic overview p. 69-70
Dutch Office market p. 71
Regional Office markets p. 72
Investment market p. 73-74
Contents
ECONOMIC & PROPERTY OVERVIEW | THE NETHERLANDS | H1 2010
DUTCH PROPERTY MARKETS
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COLLIERS EMEA69
ECONOMIC OVERVIEW | THE NETHERLANDS | H1 2010
The Netherlands economy shrunk by 4.0% y-o-y in 2009. In the second half of 2009 the economy came out of recession. For 2010, economic growth of 1.5% is expected, and 2% in 2011.
The shape of the economic recovery is likely to be closely aligned with global economic performance: Economic recovery in 2010 and 2011 will be strongly dependent of the global economy.
Private consumption in 2010 will be the largest contributor to economic growth, along with the financial support of the Dutch government.
GDP growth & industrial output
Employment growth & unemployment rate
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
90
95
100
105
110
115
120
125
Annual GDP growth (LHS)
Indexed industrial output (base 100 : 2000) (RHS)
Since Autumn 2008, when it bottomed at 2.7%, unemployment rose continuously to 4.2% in February an March 2010, before declining to 4.1% in April.
In the next two years labour markets shall slowly return to normality, although low job creation and wage growth will persist, especially given the impact of labour hoarding. Employment growth should resume in 2011.
Facing a fall in their sales and output, many companies have reduced weekly working hours for employees as well as overtime work instead of massive downsizing.
Population (mn)
The Netherlands Main Figures (start of 2010)
16.5
GDP (€bn) 585.4
GDP per capita (€) 39,621
Market cap. ((%of GDP)
Fertility rate(children per woman)
1.77
Currency Euro
Trade balance (€bn) 6.7N/A
Saving rate (as of GDP) 13.4%
Demography Economy Finance
Capital region Amsterdam
Capital region pop. (mn.) 1.36
Density (per km²) 397
Budget deficit (% of GDP) -5.3%
Public debt (% of GDP) 60.9%
Unemployment (%) 3.4%
10-year Gvt Bond Yield3.0%
(07/10)GDP growth -4.0%
YoY inflation (HICP) 1.0%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
4,5%
5,0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-2%
-1%
0%
1%
2%
3%Unemployment rate (LHS) Employment growth (RHS)
Source : Eurostat
Source : Eurostat
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COLLIERS EMEA70
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Inflation in the first half of 2010 is less than 1% as a result of the high oil and gas price fall in 2009. In the second half of 2010 this effect will expire so that inflation will rise above 1%.
In 2010 average inflation should reach between 1.25% and 1.5% in 2011.
Labour costs increased strongly last year but will decrease in 2010, mainly because of the reduction in employment growth.
0%
10%
20%
30%
40%
50%
60%
70%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
% of GDP
General gouvernment debt Public balance
Due to the economic recession and Government stimulus programmes, total Government debt has increased to over 60% of GDP in 2010.
Dutch Government debt increased by €87 billion to reach €346 billion in 2009.
The Dutch Government deficit is 5.3% of GDP in 2009 up from 0.7% in 2008. Both Government debt and the Public Deficit are now above the European deficit norms of 60% and 3% respectively.
ECONOMIC OVERVIEW | THE NETHERLANDS | H1 2010
Household consumption growth
-3%
-2%
-1%
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Two economic depressions, one in 2002-2003 and the recession in 2008-2009, had a dampening effect on incomes. The prime reason is the increase of pension premiums as a result of a fall in prices.
Real household income is expected to rise above the 2009 level this year. Nevertheless, as an effect of the increasing unemployment and stable incomes, real income will decrease in 2010.
Primary fixed costs are the cause of increasing household consumption in 2010. Other household spending is expected to remain stable in 2010.
Source : Eurostat
Source : Eurostat
Source : Eurostat
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COLLIERS EMEA71
OFFICE MARKET | AMSTERDAM REGION | H1 2010
Office supply & vacancy rate
Rents
0
50
100
150
200
250
300
350
400
450
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4
0
200
400
600
800
1 000
1 200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Immediate supply
Vacancy rate in Amsterdam
250
300
350
400
450
500
550
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime rent Amsterdam
Prime rent Netherlands outside Randstad area
Office take-up
Between 2006 and 2008, office take-up in the Netherlands peaked, particularly in Amsterdam, where take-up almost reached 500,000 sq m in 2007.
In 2009 more than 90 office transactions above 500 sq m were realized, including lease extensions. The fourth quarter was the strongest quarter with 38 transactions, while the third quarter, with 19 transactions, was the weakest. As a result the final take-up in 2009 was just over 250,000 sq m, i.e a y-o-y decrease of 44%.
>500 sq m take-up in the first quarter of 2010 was about 55,000 sq m, including lease extensions. In the second quarter, take-up of offices has reached approximately 25,000 sq m.
2010 forecast
2010 forecast In Amsterdam there was about 1.1 sq m of available office space in 2009, from a total stock of 7 million sq m (the largest market in the country).
In early 2010, the total vacancy rate in Amsterdam reached 18.5%.
Amsterdam West and Amsterdam Southeast have the highest vacancy in the Amsterdam region, with 25% and 23% respectively.
At the Amsterdam South-Axis, the vacancy rate was 12.5%, which is the lowest level in the Amsterdam region. Without the structural vacancy (>2 years available), the vacancy rate at the South-Axis is about 5%.
2010 forecast Prime office rents in the Netherlands are being realised in the Amsterdam Area. Office rents at the Amsterdam South Axis represent the top of the market at a maximum of €360 per sq m per annum in 2009.
In 2010 it will be very difficult to find tenants for tertiary offices. For secondary offices, rents are expected to decline and incentives will increase. Rents for prime offices are expected to remain stable.
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COLLIERS EMEA72
OFFICE MARKET | NETHERLANDS REGIONS | H1 2010
2007 2008 2009
The Hague
Rotterdam
Utrecht
€247
€245
€294
€233€224
€265€241
€243€255
0
100
200
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sqm thsdsRotterdam The Hague
Utrecht Eindhoven
Office take-up
The take-up of office space (>500 sq m) in the Netherlands amounted to 1 million sq m in 2009, which represents a 15% drop (about 200,000 sq m) compared to 2008. The drop in take-up is partly the result of the downsizing of companies which, consequently, require less space. This trend is expected to continue in 2010.
Given the dim prospects for economic growth and employment, and in light of current levels of active demand, we expect that the overall volume of letting activity in 2010 will be on a par with 2009.
0
100
200
300
400
500
600
700
2005 2006 2007 2008 2009
Sqm thsds
Rotterdam The Hague
Utrecht Eindhoven
Office supply
The office stock in the Netherlands has a total space of approximately 47 million sq m, where the vacancy rate is about 17%. This means that at any time the absolute space of 8 million sq m is available on the market. Almost a quarter of the available offices show structural vacancy. A vacancy superior to 14 million sq m is expected in the Netherlands by 2020.
Besides Amsterdam, the other four major cities show a smaller immediate supply, but within smaller markets.
Despite the financial crisis, the average office availability inthe four major cities is under the peak level of 2006: New developments have been postponed or even skipped.
Rents
2010 forecast
Given the poor economic sentiment that dominated 2009, headline rents underwent increasing downward pressure. Rents at secondary and tertiary locations have been experiencing the greatest pressure.
In parallel, rent-free periods vary from 3 months to 12 months per year of lease in some transactions.
With the outlook for economic growth still subdued, rent levels in 2010 are expected to further decrease.
(In €/sqm/year)
2010 forecast
2010 forecast
Eindhoven €175 €175 €175
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COLLIERS EMEA73
INVESTMENT MARKET | THE NETHERLANDS | H1 2010
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
Investment volumes dropped by 34% in 2009 to €5 billion, compared to €12.8 billion in 2007 and €7.5 billion in 2008.
On the smaller perimeter of the four main cities of Amsterdam, Rotterdam, The Hague and Utrecht, investment volumes have fallen by 77% between 2007 and 2009.
The low point of the investment cycle seems to have been reached in Q2 2009, while the second half of the year saw increasing transaction volumes (+14%).
As for 2010, main banking lenders ING, SNS and Rabobankare open for new loans (up to €3 billion), paving the way to an increase in investment volumes, which are expected to be between €4 to €6 billion in 2010 (on the basis of an LTV ratio of 50-60%).
Investment ventilation
In 2009, office and retail properties were the major investment categories, with the emphasis being put by investors on the location as well as on the length of lease contracts in order to secure income streams.
The proportion of investment in retail property rose by six percentage points in 2009 to reach 27% of the total investment volume, to be compared with 21% in 2008: As in other European countries, retail proved to be the most resilient and secure asset class of the commercial real estate universe.
The segment of warehouse and light industrial buildings, which was hit especially hard by the decline in international trade, shrank by 7% in 2009, relative to 2008. Industrial properties accounted for 23% of the total investment volume compared with 30% in 2008.
In the office property segment (50%), the bulk of investments was realised by foreign investors (80%) while domestic institutional investors withdrew from the office market in 2009. Investment in office properties remained at the same level in 2009 as in 2008. In 2007, offices accounted for 55% of total investment. Property funds were more present in retail and industrial categories, accounting for more than 40% in each sector in 2009.
2010 forecast
Offices
50%
Retail
27%
Light industrial &
logistics
23% Offices
Retail
Light industrial & logistics
2010 forecast
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Retail Industrial
Institutional investors Property funds Foreign investors
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COLLIERS EMEA74
INVESTMENT MARKET | THE NETHERLANDS | H1 2010
Prime gross yields – Office Properties
Prime gross yields – Other properties
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Randstad Area Prime Randstad Area Secondary Other
4%
5%
6%
7%
8%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Industrial Warehouse space Retail High Street
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate Premium
Risk free 10-years yield
After a period (2005 – 2007) of surging values where prime yields and risk free rates became closer, office property asset values declined significantly, with a rapid rise in yieldsof 100 to 150 base points (2007-2009).
The re-pricing phase allowed the risk premium to come back to a long term balance level of 200 basis points between the office prime property yields and the risk-free yield.
Given the shortage of prime assets on the market, the risk premium is likely to shrink again in the coming years, while it should stabilise for second hand assets.
2010 forecast Yields for high quality office properties in the Netherlands, with lease contracts for 10 years or more, are in a bandwidth between 6.5 and 7.5%.
Yields for prime premises at good locations have remained relatively steady since the fourth quarter of 2008. For premises at secondary locations or locations outside the Randstad area, yields have increased with 100 to 150 base points relatively to 2007.
Average gross yields increased by 60 base points (Q3 2009 relative to Q3 2008) according to ROZ/IPD. The strongest increase was for offices with a rise of 0.9% to 7.6%.
2010 forecast
Gross yields for industrial have an average of 8.2%. Retail yields changed to least, increasing by only 40 basis points, to an average of 6.5%.
Prime gross yields for industrial properties at prime locations with lease contracts for 10 years or more vary between 7.0% and 8.0%.
Between Q1 2009 and Q1 2010 prime yields remain unchanged for industrial and retail properties at established districts. Some industrial districts are the MainportRotterdam and Schiphol Airport. Prime retail districts where yields remained stable are the inner city of Amsterdam, Rotterdam, The Hague, Utrecht and Eindhoven.
2010 forecast
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COLLIERS EMEA75
Economic overview p. 76-77
Oslo Office market p. 78
Investment market p. 79
Contents
ECONOMIC & PROPERTY OVERVIEW | NORWAY | H1 2010
NORWEGIAN PROPERTY MARKETS
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COLLIERS EMEA76
ECONOMIC OVERVIEW | NORWAY | H1 2010
Blessed with enormous hydroelectric and petroleum energy resources for a small population, Norway has ridden out the financial crisis better than most OECD countries, with a shallower recession in 2009 (-1.5%) and unemployment likely to peak below 4%.
In early 2010, growth remains slow (0.1% in Q1 2010) in the mainland economy (which excludes the country's oil and gas sectors and the shipping industry), as a result of the drop in production of goods, while production of services is on an increasing path. There was moderate growth in many service producing industries, but wholesale, retail trade and business services pulled up the sector. Public budget stimulus has also been contributing to the increase in GDP, while reduced activity in the transport industries dampened the overall growth.
GDP should increase about 1.6% in 2010 and accelerate to 2.1% in 2011.
GDP growth
Employment
Since 2008, Norway has been suffering from an increasing unemployment that reached 3.5% of the labour force in February 2010, up 0.2 % from November.
Unemployment remains below the levels reached between 2003 and 2005, and below European levels.
During winter 2009-2010, employment has been remaining stable.
Source : Eurostat, SSB
Source : SSB
Population (mn)
Norway Main Figures (end of 2009)
4.9
GDP (€bn) 306
GDP per capita (€) 63 374
Market cap. (%of GDP)
Fertility rate(children per woman) 1.8
Currency NorvegianKrone
Trade balance (€bn) +41.6
63%
Saving rate (as of GDP) 24%
Demography Economy Finance
Capital region Oslo
Capital region pop. (mn.) 1.2
Density (per km²) 13
Budget surplus (% of GDP) +9.7%
Public debt (% of GDP) 44%
Unemployment (%) 3.1%
10-year Gvt Bond Yield3.3%
(07/10)
GDP growth -1.5%
YoY inflation (CPI) 2.3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
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COLLIERS EMEA77
Public balance & general government debt
Inflation (CPI)
The depreciation of the Norwegian Krone in autumn 2008 led to a appreciably higher underlying consumer price inflation.
Since summer 2009 however, inflation has been very low : the strengthening of the krone through 2009 and into 2010 has implied lower import prices while wage growth has been slowing as a result of the weaker economic situation.
In early 2010, an new price heating was noticed, the CPI having been rising by 3.3% from April 2009 to April 2010, mainly because of the rise in energy prices.
As a consequence, the Bank of Norway again increased the key policy rate from 1,75% to 2,00% in May 2010. Further increase in key policy rate is expected - though in a moderate tempo. Source : SSB
In 2009, Norway’s advantageous fiscal position made room for a massive budgetary stimulus complementing steep cuts in interest rates and substantial liquidity measures. Hence fiscal policy stimulus was supplied generously in 2009 and somewhat more is built into the 2010 budget.
In the 2010 budget, the structural, non-oil deficit is projected at 7.8 % of mainland GDP, which is higher than the projected real return on the Government Pension Fund – Global.
With the recovery well in train, the stimulus should be gradually withdrawn.
ECONOMIC OVERVIEW | NORWAY | H1 2010
Household consumption growth
After one year of low and steady steady household consumption in 2008-2009, increased home equity, low interest rates and higher income all contributed to a sharp reversal
Growth in consumer spending is expected to reach 5.5 per cent in 2010. Lower growth in income and higher interest rates are however expected to make growth in consumer spending fall off subsequently.
Household consumption is expected to further increase in 2010, but at slower rate, as interest rates are expected to increase.
Source : SSB
Source : SSB
-1%
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011F
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
0%
5%
10%
15%
20%
25%
% of GDP
General gouvernment debt Public balance
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COLLIERS EMEA78
OFFICE MARKET | OSLO | H1 2010
Office supply & vacancy rate
Rents
Office take-up (Oslo, Asker and Baerum)
NB : the Norwegian market refers to net take-up
After a peak in 2007, office take-up decreased by 14% in 2008, and by another 16% in 2009, under the impact of the economic slowing
However, the Olso market office was higher than expected in 2009 and clearly rebounded in the 4th quarter of 2009.
Employment trends are increasing and prognoses for office take up are showing a growth in the coming years
2010 forecast
The general vacancy in the office market is currently superior to 7.0% and has been increasing since 2008
This is partly due to the completion of more than 300 000 sqm of new and refurbished projects in 2009. Actually, an additional CBD area in Bjørvika, Oslo, is in the casting ladle with many new and large buildings
In 2010, if the subletting situation has eased considerably new developments, last years layoffs and reduced unemployment will add to the vacancy
The vacancy rate is expected to decrease in 2011.
Rental prices have decreased the last years but have now been stabilized.
A decrease of 15-20% on the whole since its peak in 2008
Rental prices bottomed out during the first quarter of 2010 and are expected to increase during the second half of 2010 - though in a moderate tempo
More lease contracts are being signed and businesses are locking for more space
Source: Eiendomsspar
-100
0
100
200
300
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Thds of sqm
Net Office take up (1.000 sq.m)
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%Office stock Vacancy rate in Oslo
Source: Eiendomsspar
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
NOK/sqm/year
Prime rent
High std CBD
High street west
2010 forecast
2010 forecast
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COLLIERS EMEA79
INVESTMENT MARKET | NORWAY | H1 2010
Investment volumes
Transaction volumes have decreased rapidly from its peak in 2006, as a result of the international financial crisis
Investors chose other and more secure investments and banks were restrictive to finance property investments
At the end of 2009 investors and banks were more willing and more optimistic to invest in real estate but are now selective and prefer real estate with long and secure cash flows.
The demand for retail properties is higher than the supply - hence low yields.
So far in 2010 the transaction volume is approx € 1.6bn ; the forecast is around 3.8 bn at year end
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009 2010F
€bn
2010 forecast
Investment ventilation
The office sector, represents the largest part of investment, the assets with long and secure cash flows being the most is sought after,
There is a big demand for retail properties.
Surprisingly, especially in comparison with other European countries, the logistics segment account for more than one quarter of the investment total.
Other
6%
Logistics
27%
Office
43%
Hotel
5%
Retail
19%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H12010
Prime yield office Norway
10 year government bond (risk free rate)
Real Estate risk premium and prime initial yields
Prime yield have experienced a 140 bps increase between 2007 and 2009, the Real Estate risk premium now standing above 200 bps
However, the come-back of investors on the market at the end of 2009 has been driving down office prime yield for office .
Office prime yields are expected to be around 6% at the end of 2010.
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COLLIERS EMEA80
Economic overview p. 81-82
Warsaw Office market p. 83
Investment market p. 84
Contents
ECONOMIC & PROPERTY OVERVIEW | POLAND | H1 2010
POLISH PROPERTY MARKETS
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COLLIERS EMEA81
ECONOMIC OVERVIEW | POLAND | H1 2010
Poland experienced a serious economic slow-down in 2009, yet it still recorded an economic growth of 1.2% and was the only European country that did not enter recession. Preliminary results from the Polish Central Statistical Office (GUS) suggests that the growth was higher than previously thought, at 1.7%.
Whilst domestic demand plateaued and global FDI suffered decreased marginally, a positive driver of GDP growth was foreign trade, which was sustained by the depreciation of the Zloty.
As 2010 progresses, the Polish economy will continue to benefit from a combination of limited dependency on exports, a stable banking sector, a lowering of taxes, low debt in the private sector, positive domestic consumption and investment in infrastructure from EU funds.
GDP growth forecasts for 2010 oscillate between 1.8% (EU) and 2.3% (EBRD).
GDP growth & industrial output
Employment growth & unemployment
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
Annual GDP growth
Industry outpût growth
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
As the economy stagnated, unemployment increased throughout 2009 and reached 11.9% at the end of 2009, up from 9.5% in Dec 2008.
Jobs in financial services and manufacturing have been hit hard, with more jobs likely to be lost in consumer-led sectors.
A further increase in unemployment is expected, although not to the extent forecast at the beginning of 2009. Both the Gdańsk Institute for Market Economics (IBnGR) and the Ministry of Finance expect the unemployment rate to rise to 12.8% by the end of 2010.
Source : GUS, IBNGR, Focus Economics, Experian
Population (mn)
Poland Main Figures (end of 2009)
38.16
GDP (€bn) 330
GDP per capita (€) 17.900
Market cap. (%of GDP)
Fecundity rate(children per woman) 1.28
Currency Zloty
Trade balance (€bn) - 8.7 bnN/A
Saving rate (as of GDP) N/A
Demography Economy Finance
Capital region Warsaw
Capital region pop. (mn.) 1.7
Density (per km²) 123.5
Budget deficit (% of GDP) - 7.1%
Public debt (% of GDP) 47.5%
Unemployment (%) 8.2%
10-year Gvt Bond Yield5.88% (07/10)
GDP growth +1.8%
YoY inflation (HICP) 4.0%
Source : Eurostat, GUS, IBNGR / Experian
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COLLIERS EMEA82
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
Inflation in Poland is expected to decelerate and remain stable in the coming years, as effects of previous Zloty depreciation starts to fade.
The desire to join the Euro means further interest rate cuts are unlikely.
The key risk remains the global recovery strongly pushing up commodities prices.
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
% of GDP
General gouvernment debt Public balance As is the case in other countries, the growing public
deficit level is a serious threat. Economists are appealing to the Government to carry out necessary reforms particularly in public finance and pensions law.
If the reforms do not take place, then public debt may surpass the constitutional threshold of 60% of GDP, which could force the Government to make drastic cuts in expenditure and raise taxes.
ECONOMIC OVERVIEW | POLAND | H1 2010
Household consumption growth
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
During 2009, a decline of household consumption was recorded only in February and March. In the remaining months retail sales growth remained positive; in December it grew by 7.2% on an annual basis, which is the best result of 2009.
However, consumers are being hit by continuing inflation and worsening job prospects. Thus a slower 2010 is expected, followed by healthy growth of 4% per annum in 2011-2020.
The key risk remains a wave of job cuts spreading beyond export sector
Source : Experian
Source : Eurostat
Source : Eurostat, Focus Economics
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COLLIERS EMEA83
OFFICE MARKET | WARSAW | H1 2010
Office supply & vacancy rate
Rents
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%Immediate supply Vacancy rate
0
10
20
30
40
50
2000 2001 2002 2003 2004 2005 Q4
2006
Q4
2007
Q4
2008
Q4
2009
H1
2010
€/sqm/mth
CBD
Non-central locations
Office take-up
281,860 sq m of office space was leased in 2009, meaning take-up activity dropped to 2004 levels. The highest take-up was recorded in Q409 (+30% q/o/q). 70% of the annual take-up occurred in non-central locations.
Renegotiations amounted to 22% of market activity (12% in 2008) and pre-leases to only 22% (46% in 2008). Public sector tenants amounted to 16% of take-up.
Market activity in the beginning of 2010 was higher than expected. Renegotiations amounted to 35% of total activity, whilst pre-lease dropped to 7.5%. The largest transaction was Orange’s renegotiation in Renaissance Tower (17,450 s qm).
2010 forecast
2010 forecast A total of 266,200 s qm of new office space was delivered in 2009, mainly in the Upper South zone. In the CBD only one significant project was completed, i.e. the Deloitte House (18,500 s qm).
In the beginning of 2010, a total space of 62,600 sqmwere delivered, increasing the stock to 3,311,000 sqm. A further 130,000 s qm is in the pipeline for 2010, including 32 000 sqm in the CBD and a 40 000 sqm development in the Lower South zone.
At the end of 2009, the vacancy rate stood at 7.3%, meaning a significant increase from 2008 (2.9%). In Q12010, the vacancy rate increased slightly to 7.6%, with the highest rate in the Lower South zone (20.7%), in the West (10%) and in Upper South (9.7%) zones.
2010 forecast By Q408, some landlords had begun to lower rents. This
process has continued until Q209, with rental rates now on average 15-20% lower than in 2008.
The most significant drop was recorded in the CBD where, in some buildings, rents fell by 30%. At €18-25 per s qm per month. Outside the Centre, asking rates are much lower and are in the range of €12-16.5 per sq m. After this sharp decrease rents stabilized in the second half of the year ; in the 1st half of 2010 rental rates were at a similar level as in Q409.
Rents should remain stable until the end of 2010 when we believe they may start to increase, due to an expected shortage of space in 2011.
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 Total
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COLLIERS EMEA84
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumPoland 10-years yieldGerman 10-years
INVESTMENT MARKET | POLAND | H1 2010
0
1
2
3
4
5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes and ventilation
The Polish investment market recorded a total volume of approximately € 700mn in 2009, with half a billion closing in the second half of the year. This represents a sharp 70% y/o/y slump in comparison to 2008 levels.
The prevailing theme for the year was core product, well located with a reputable covenant and long remaining cash flow in place. Non-core assets were illiquid in the investment marketplace. This was due to a combination of a shortage of available debt options for such product and the return expectations of prospective purchasers.
The most prominent transaction was realized by Dekawith the acquisition of the Deloitte House in Warsaw (the largest office deal in the CEE) for €117mn. This illustrates the domination of the market by German purchasers
2010 forecast
Prime initial yields – Office Properties
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
OFFICE
INDUSTRIAL
RETAIL
2010 forecast According to Colliers International research, core office
yields moved out by ca. 150-200 basis points from sub-6% levels, and for non-prime assets by 200-350 basis points from mid-6% levels.
Office and retail yields converged at 7.50% in 2009, with industrial yields 100bps further out at 8.50%.
2010 forecast
Real Estate risk premium
The gap between the 10-yr German Government bond yields and prime yields over the past five years stands between 160 bps in 2007 and 325 bps in 2009.
Considering the current rally on German Government bonds, this spread may enlarge whilst prime yields stabilise or even decrease, thus becoming irrelevant.
Compared to Polish 10-year sovereign bonds, the Real Estate risk premium, which was nil in 2007, has been enlarging under the impact of the financial crisis, to reach 125 bps in 2009 and early 2010. It is now expected to remain stable.
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COLLIERS EMEA85
Economic overview p. 86-87
Madrid Office market p. 88
Barcelona Office market p. 89
Investment market p. 90-91
Contents
ECONOMIC & PROPERTY OVERVIEW | SPAIN | H1 2010
SPANISH PROPERTY MARKETS
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COLLIERS EMEA86
ECONOMIC OVERVIEW | SPAIN | H1 2010
Q309 saw the fifth consecutive quarter of decline; one of the minority in the eurozone to sustain such downward pressure.
OCDE and European Commission forecasts indicate that the recovery of the Spanish economy will not take place before 2011. This delay is due to high debt rates, both public and private (families and companies), and the strong dependence on the construction sector.
Further to this delay in the economic recovery, Spain will be affected by the strong uncertainty concerning the country’s economy.
GDP growth & industrial output
Employment growth & unemployment rate
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
70
75
80
85
90
95
100
105
110
Annual GDP growth
Indexed industrial output excl. Construction(base 100 : 2005)
0%
5%
10%
15%
20%
25%
30%
2002 2003 2004 2005 2006 2007 2008 2009 2010F
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Unemployment rate Employment growth Unemployment is still the principal concern for the Spanish
economy.
The decrease in employment has been particularly sharp in the construction sector as the decline was particularly steep as the bloated sector adjusted to the end of the boom.
After the intensive unemployment growth experienced in 2008 and 2009, the unemployment rate in Spain has reached 20% and it is not expected to decrease during 2010. However, although the employment destruction trend might soften in the coming months due to the extraordinary measures taken by the Spanish Government.
Source: Eurostat
Source: INE
Population (mn)
Spain Main Figures (end of 2009)
47.0
GDP (€bn) 1.051
GDP per capita (€) 22,365
Market cap. (%of GDP)
Fecundity rate(children per woman) 1.5
Currency Euro
Trade balance (€bn) - 45 bnN.a.
Saving rate (as of GDP) 18.8%
Demography Economy Finance
Capital region Madrid
Capital region pop. (mn.) 6.4
Density (per km²) 93
Budget deficit (% of GDP) - 11.2%
Public debt (% of GDP) 53.2%
Unemployment (%) 20.1%
10-year Gvt Bond Yield4.16% (07/10)
GDP growth -3.1%
YoY inflation (CPI) 0.8%
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COLLIERS EMEA87
Public balance & general Government debt
Inflation (CPI)
0%
1%
2%
3%
4%
5%
2002 2003 2004 2005 2006 2007 2008 2009 2010F
In 2009, the sharp fall in prices was due to weak demand, the rise in unemployment and the fall of the commodity prices.
The high level of unemployment should put downward pressure on wages, as well as locally manufactured goods' prices. However, the fall of the Euro exchange rate will impact on the cost of imported goods, commodities and energy and should sustain a rise in inflation until its 10-year average levels (2%).
The annual CPI increase of 0.8% registered in 2009 suggests a change of trend and shows that after a period of deflation, Spain could register sustained positive CPI growth in the short/medium term.
0%
10%
20%
30%
40%
50%
60%
70%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
% of GDP
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
% of GDP
General gouvernment debt Public balance
Source: INE
Due to the sharp recession and the massive Government stimulus programmes, total Government debt has increased sharply from 38% to 53% in 2009.
The European Union has forced the Spanish Government to significantly reduce budget deficit across all public institutions in the next two years.
An additional reduction of 0.5% (from the estimated 9.8% to 9.3%) will be carried out in 2010. The new estimation of 2011 budget deficit is 6.5% (the previous estimate was 7.5%).
ECONOMIC OVERVIEW | SPAIN | H1 2010
Household consumption growth
0%
2%
4%
6%
8%
10%
12%
2002 2003 2004 2005 2006 2007 2008 2009
Given the severity of the economic crisis, household consumption has been remarkably resilient in 2008 and 2009.
Household spending could slow in the second half of 2010 due to the impact of gradual reflation following a period of stagnant prices in 2009.
The programmed ending of stimulus measures and the increase in VAT due in July 2010 should also depress the global level of consumption.
Source: INE
Source: Eurostat
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COLLIERS EMEA88
OFFICE MARKET | MADRID REGION | H1 2010
Office supply & vacancy rate
Rents
0
500
1 000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 Total
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%Immediate supply
Vacancy rate in Madrid Region
0
100
200
300
400
500
600
700
2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rentAverage rents Madrid CBDAverage rent Madrid City AreaAverage rent Madrid Decentralized AreaAverage rent Madrid Periphery Area
Office take-up
The take-up figure registered in Madrid during the last quarter of 2009 shows a change of trend in the demand for office space.
The figure of 140,000 sq m closed between October and December is three times that of the previous quarters. However, we must highlight that the increase is mainly due to the closing of the five largest transactions of the year, which represent more than 45% of the total take-up figure for the last quarter (including 15,000 sq m in Almagro 9 let by Cuatrecasas and 10,000 sq m in Las Rozas let by DÍA).
Despite this recovery, the annual take-up figure for 2009 is 315,000 sq m, significantly below the figures registered in previous years.
2010 forecast
2010 forecast A significant increase in availability rates was registered in all areas across Madrid during 2009.
However, the upturn in take-up and the scarce new office supply launched onto the market during the last quarter of Q409 has helped to mitigate this.
Nevertheless, a significant increase in supply is expected for 2010 and thus a rise in availability seems inevitable due to the weakness of the demand.
2010 forecast The fall in rental levels experienced during 2009 is above 25% for certain areas.
In the CBD, the decrease with respect to the levels at the end of 2008 is in the region of 22%.
A fall in rents has been noted in the last quarter for all office areas. Nevertheless, a softening of this trend is expected over coming months.
Prime rents in the Madrid office market are currently €29/sqm/month.
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COLLIERS EMEA89
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Prime net rent
Average rents Barcelona CBD
Average rent Barcelona New Areas
Average rent Barcelona Perophery Area
OFFICE MARKET | BARCELONA REGION | H1 2010
Office supply & vacancy rate
Rents
0
100
200
300
400
500
600
700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 Total
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%Immediate supply
Vacancy rate in Barcelona Region
Office take-up
With a take-up of 195,900 s qm, office take-up dropped 40% in 2009 compared with the previous year.
During the second half of the year, the number of rental transactions registered increased by more than 10% compared with the first half of 2009.
An improvement in the take-up figures during 2010 is expected.
2010 forecast
2010 forecast Barcelona has experienced in recent years a significant impact of new development in terms of town planning and office supply.
These new developments can be considered as office micro-markets: 22@ in the north of the city with highly representative buildings, and the Fira II area, closer to the airport.
As a result of this increase in supply and the weakening of demand, vacancy rates have experienced dramaticalincreases in 2009.
2010 forecast Downward pressure on rental levels has continued over the last quarter of 2009 and is expected to continue throughout 2010, especially in secondary areas.
Rental value growth has decreased in all areas in Barcelona. The CBD area has been the most affected during 2009 with a decrease of 30%.
Retained demand from companies waiting for further drops has been noticed.
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COLLIERS EMEA90
INVESTMENT MARKET | SPAIN | H1 2010
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
With only €2.7bn invested, the Spanish commercial property investment market touched the bottom of the investment cycle in 2009.
The largest transaction in Spain was the acquisition by REEFF of a large portfolio of office buildings and bank branches occupied by BBVA under a sale & leaseback scheme.
Investment activity is expected to increase slightly in 2010. Private investors and institutional foreign funds will be actively seeking for opportunities.
Investment ventilation
In 2009, office properties and retail properties were the focal point for investment activity, with the emphasis being on location and the security of income streams.
Private investors are the most active in the market, demanding lot sizes below €50mn. These investors are prepared to be aggressive with regard to certain assets in prime locations with stable long term income streams.
International funds keep showing interest for sale & leaseback transactions in prime locations, however, it is not possible for them to compete with the yields offered by private investors. Therefore, they are considering the acquisition of buildings with medium term leases in consolidated secondary areas; these assets provide more attractive yields and the size of the transactions eliminate the competition from private investors.
Sale & leaseback transactions are in line with demand and will continue representing a large part of investment activity.
2010 forecast
Offices
65%
Retail
31%
Light industrial &
logistics
4%
Offices
Retail
Light industrial & logistics
2010 forecast
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Retail Light industrial and logistics
Madrid Barcelona Other regions
Excluding BBVA – REEFF transaction
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COLLIERS EMEA91
INVESTMENT MARKET | SPAIN | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
2%
3%
4%
5%
6%
7%
8%
9%
2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Madrid CBD Barcelona CBD
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Logistics/Industrial Shopping centres
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield
After the period between 2005 and 2007 of surging values where property yields were driven virtually below risk free rates, office property asset values declined significantly, with a rapid rise in yields of 150 to 200bps between 2007-2009.
This re-pricing phase allowed the risk premium to come back to a long term balance level of 200 basis points between the prime property yields and the risk-free yield.
Given the shortage of prime assets on the market, the risk premium is likely to remain stable in the next future, whilst assets located in secondary areas should experience further increases.
2010 forecast Investor appetite for prime secured office properties has stabilised prime yields. Therefore, the adjustments in prime yields in Spanish office markets are far below those registered in more mature European markets.
Due to the competition between buyers, prime yields in the Madrid and Barcelona CBD now stand at 6%, provided that the assets offers secure income with long term leases and grade A tenants.
The assets located in secondary areas or those hampered by tenant risks, are struggling to return to a normal level of liquidity.
2010 forecast
Very few transactions took place in 2009 due to the imbalance between supply and demand.
Product on the market does not respond to investors’expectations in terms of yield and security of rental income.
Investors demand good quality assets located in prime areas, with long term lease contracts and realistic yields.
2010 forecast
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COLLIERS EMEA92
Economic overview p. 93-94
Stockhom Office market p. 95
Investment market p. 96-97
Contents
ECONOMIC & PROPERTY OVERVIEW | SWEDEN | H1 2010
SWEDISH PROPERTY MARKETS
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COLLIERS EMEA93
ECONOMIC OVERVIEW | SWEDEN | H1 2010
Signs of stabilization in the Swedish economy have resulted in improved prospects for the upcoming years. Sweden is a very export oriented nation and has as a result suffered heavily from the international financial crisis. Since autumn 2009, sentiment indicators have continued to climb, showing high levels of consumer and business confidence. Higher levels of exports and rising consumption are believed to be the main factors driving and strengthening the economy during 2010.
GDP has slowly begun to increase, largely because of expansionary fiscal and monetary policies and it is expected to be further stimulated by improving international demand. GDP growth for 2009 was -5.1% with a growth outlook of 1.6% for 2010 and 2.1% for 2011.
GDP growth & industrial output
Employment growth & unemployment rate
-20%
-15%
-10%
-5%
0%
5%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011F
-3%
-2%
-1%
0%
1%
2%
3% After a sharp degradation in 2009, some signals have indicated that the deterioration in the labour market has slowed, but it will continue well into 2010. The labourmarket will be affected by the tough year in the Swedish automobile industry. The downturn in employment has been almost entirely concentrated to the manufacturing sector.
Unemployment is expected to peak at around 9.5% in 2010. Hence, it is lower than previously predicted, mainly due to the sharp decline in the number of lay-offs towards the end of 2009. Western Sweden was particularly affected by redundancies as it relies heavily on the automobile and manufacturing industries.
The unemployment rate is not expected to show positive signs until 2011.
Source : Eurostat / National Institute for Economic Research
Source : Eurostat / OECD
Population (mn)
Sweden’s Main Figures (end of 2009)
9.33
GDP (€bn) 293
GDP per capita (€) 31 400
Market cap. (% of GDP)
Fecundity rate(children per woman)
CurrencyCrown
(1€=:9.5 SEK)
Trade balance (€bn)
N/A
Saving rate (as % of GDP) 14.7%
Demography Economy Finance
Capital region Stockholm
Capital region pop. (mn.)
Density (per km²)
Budget deficit (% of GDP) -0.5%
Public debt (% of GDP) 42%
Unemployment (%) 8.4%
10-year Gvt Bond Yield2.7 % 07/10
GDP growth -5.2%
YoY inflation (HICP) 0.0%
-3.4
1.7
20.6
2.0
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COLLIERS EMEA94
Public balance & general Government debt
Inflation (HICP)
0%
1%
2%
3%
4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011F
CPI inflation weakened during 2009 as a result of lower interest rates for private housing loans and decreasing energy costs.
The inflation rates are expected to slowly increase in conjunction with increasing interest rates and higher energy costs. The Swedish Riksbank does not however anticipate increasing the repo rate until September 2010.
0%
10%
20%
30%
40%
50%
60%
70%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-8%
-6%
-4%
-2%
0%
2%
4%
6%
% of GDPGross Government Debt (% of GDP) (LHS)
Budget Deficit (% of GDP) (RHS)
Thanks to economic growth and conservative fiscal policy, Sweden had a budget surplus heading into the global crisis. This stability allowed the government to run only moderate deficits for its ambitious stimulus plans that included cutting personal and corporate tax rates, and additional spending to boost domestic demand. Sweden went from a fiscal surplus of 4.2% of GDP in 2008 to a deficit of -5.66% in 2009. Public Debt remains under control, at 38% of GDP.
The public deficit is still expected to increase in 2010, the improved state of the Swedish economy will lead to a stronger outlook for general government finances: central government net borrowing is expected to turn into net lending in 2012.
ECONOMIC OVERVIEW | SWEDEN | H1 2010
Household consumption growth
-1%
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
One of the main factors likely to drive the Swedish economy during 2010 is private consumption.
There are a few factors that will affect people’s ability to consume. Firstly, the strong fiscal policies that in 2010 will take the form of income tax reliefs and secondly, the low interest rates, giving people more surplus to spend. Another indicator pointing to an increase in consumption is the saving ratio that rose to its highest level since the 1950s, implying potential for consumers to resume spending.
Source : Eurostat
Source : Eurostat / National Institute for Economic Research
Source : Eurostat / National Institute for Economic Research
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COLLIERS EMEA95
OFFICE MARKET | STOCKHOLM | H1 2010
Rents
200
250
300
350
400
450
500
550
600
650
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/year
Stockholm prime rents
NB : the Swedish market does not refer to take-up indicators
The economic downturn has definitely taken its toll on the office market. Vacancy levels are increasing in all of Sweden’s three major cities; Stockholm, Gothenburg and Malmö.
The vacancy level has risen slightly and is now approximately 11% in the greater Stockholm area.
Even though the vacancy levels are expected to increase further during 2010, the pace of this increase is slowing down : the outlook for 2010 is somewhat more positive much due to the sharp decline in the number of lay-offs during the end of 2009. The overall market recovery will play an important role for the leasing market during 2010.
2010 forecast There are some projects recently or soon to be completed, many of which are located near Stockholm’s Central Station. The demand in this area has risen significantly over the past few years; many refer to the Western parts of City as the new prime location. From the total of approx. 56,000 sq m office space projects that will be completed in the CBD area during 2010, some 43,000 sq m are located in the Western part of the City.
There are also ongoing plans between the city of Stockholm and real estate owner Jernhusen to build another 500,000 sq m of office and residential units covering the former railway depot of the Central Station.
Other strongly expanding areas are Värtan in the east and the Western parts of Kungsholmen in the west.
2010 forecast The combined effect of vacancy in existing stock and new
supply entering the market is putting pressure on rental levels.
CBD prime rents in Stockholm have fallen by 10-15% during the last 6 months.
This is largely due to rental discounts and sub-letting of office space, with rent levels far below the ordinary market levels.
The “flight to quality” still holds with several examples of companies leaving older buildings for new or completely refurbished buildings, often with environmental advantages as one of the main reasons.
Office supply
Demand and vacancy
0
200
400
600
800
1 000
1 200
1 400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
%
2010 forecast
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COLLIERS EMEA96
INVESTMENT MARKET | SWEDEN | H1 2010
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
The transaction market was much suppressed in 2009 reaching a total volume of approx. SEK 50 bn (€5 bn), a decrease of 60% compared to 2008 figures. However the last quarter of 2009 showed a positive trend for the third quarter in a row (+ 103% q/q): the investment market is now considered to be past the worst of the downturn.
Sentiment indicators have shown positive numbers for the investment market for 2010. Financing is slowly recovering, but is still restrained when it comes to secondary products. The investment market should mainly focus on less risky objects such as residential portfolios and objects with strong fundamentals e.g. long lease contracts and low vacancy levels. All investments will be carefully weighed. Larger corporate deals and swapping of asset deals will continue to be attractive options for investors.
2010 forecast
Investment ventilation
Due to the suppressed financing situation in 2009, a notable trend was the amount of smaller transactions (< SEK 100 mn) which represented 25% of the total transaction volume in 2009, compared to 5% in 2008. The volume of medium-sized transactions also increased by 35% compared to 2008.
Office and residential were the two sectors that attracted most capital in 2009, equivalent to 60% of the total transaction volume.
Cross-border transactions accounted for only 25% of the total transaction volume, compared to 35% in 2008 and 45% in 2007. The total decrease was as much as 70% compared to 2008, which clearly demonstrates the withdrawal by international investors.
In the short term, institutional investors and local property investors should still dominate: international investors will concentrate on major cities while local property owners should mostly be active in smaller and mid-sized Swedish cities.
Offices
18%
Retail
7%
Other
14%
Hotel
7%
Residential
portfolios
48%
Light industrial &
logistics
6%
Offices
Retail
Light industrial & logistics
Residential portfolios
Other
Hotel
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COLLIERS EMEA97
Prime initial yields – Retail
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Prime retail yield
While the economic crisis had a substantial negative impact on the retail sector, the outlook started to be clearer in the 2nd half of 2009.
Due to the resilience and the forthcoming rebound of household consumption, the letting activity and the rents are now expected to recover, but only in established retail areas. Secondary locations are expected to suffer further in terms of vacancy and rental values.
As a result, investors have regained interest in prime retail assets and, after a sharp rise between 2007 and 2009, yields decreased by 25 bp to 5.50% in the first few months of 2010.
2010 forecast
Prime initial yields – Office
Real Estate risk premium
After a period (2005-2007) of surging values where property yields dropped to near risk free rates, office property asset values declined significantly, with a rapid rise in yields of 100 to 150 basis points (2008-2009).
This re-pricing phase allowed the risk premium to come back to a long term balance level of 250 bps between the prime property yields and the risk-free yield.
Since mid-year 2009, and the start of the European sovereign debt crisis, the Swedish Government bonds have benefited from a “flight to quality” wave from investors. As a result, the risk free rate substantially declined to reach 2.7% in H1 2010.
In consequence, there is still theoretical room for a compression of the real estate premium in Sweden.
0%
1%
2%
3%
4%
5%
6%
7%
8%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Prime Office yield
10 years Government Bond yield
2010 forecast
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Prime Office yield
During the year 2009, prime office yields remained relatively stable, between 5.75% and 6%. However, yields have been increasing significantly on secondary assets.
Office yields are expected to remain fairly stable during 2010: however, some downward pressure may be observed on prime properties.
2010 forecast
INVESTMENT MARKET | SWEDEN | H1 2010
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COLLIERS EMEA98
Economic overview p. 99-100
Central London Office market p. 101
Regional Office markets p. 102
Investment market p. 103-104
Contents
ECONOMIC & PROPERTY OVERVIEW | UK | H1 2010
UK PROPERTY MARKETS
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COLLIERS EMEA99
ECONOMIC OVERVIEW | UK | H1 2010
After experiencing a sharp drop in output in late 2008 and early 2009, the UK returned to positive GDP growth in Q3 2009.
The recovery has been aided by an unprecedented level of support for UK banks, households and companies, but National Debt has risen significantly as a result.
With a debt reduction programme likely to be embarked upon in the near future, forecasters expect taxes to rise and Government spending to decline, although spending on the National Health Service and education is likely to be protected.
GDP is forecast to grow slowly over the next 18 months, before returning to trend or above in late 2011/early 2012.
GDP growth & industrial output
Employment growth & unemployment rate
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F75
80
85
90
95
100
105
110
Annual GDP growth (LHS)
Indexed Industrial Production excl. construction (RHS)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
-2%
-1%
0%
1%
2%Unemployment rate (LHS)
Employment growth (RHS)
Employment growth was slow but steady during most of the 2000s. However, the sharp slowdown in the UK economy caused employment growth to turn negative in 2009.
Unemployment, which had been below 6.0%, rose to 7.6% last year and is set to climb further in 2010, reaching close to 9.0% by year-end.
Employment growth will remain negative through much of 2010, but this will begin to improve later in the year and into 2011.
The public sector is forecast to experience significant job losses over the next 12-18 months and this will ensure there is no quick turnaround in the labour market.
Source : ONS / Haver Analytics
Source : Experian / Haver Analytics
Population (mn)
UK Main Figures (end of 2009)
61.9
GDP (€bn) 1,396
GDP per capita (€) 25,313
Market cap. (% of GDP)
Fecundity rate(children per woman) 1.94
Currency Pound sterling
Trade balance (€bn) - 21 bn124%
Saving rate (as of GDP) 6.9%
Demography Economy Finance
Capital region London
Capital region pop. (mn.) 7.7
Density (per km²) 254.1
Budget deficit (% of GDP) - 10.9%
Public debt (% of GDP) 68.1%
Unemployment (%) 7.6%
10-year Gvt Bond Yield3.3%
(07/10)GDP growth -4.90%
YoY inflation (HICP) 2.2%
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COLLIERS EMEA100
Public balance & general Government debt
Inflation (HICP)
0%
1%
2%
3%
4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
CPI inflation has remained fairly sticky over the past two years. Price growth has been kept high by strong energy and food prices and in recent months, by the return of VAT to its previous level of 17.5%.
There is currently significant spare capacity in the economy and this is likely to prevent ‘core’ prices rising in the short term. The Monetary Policy Committee appears to be fairly relaxed about inflation at present.
Over the medium term, CPI inflation should stay close to target, although shocks to energy and any further rise in VAT would put upward pressure on prices.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
% of GDP
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
% of GDP
Gross Government Debt (% of GDP) (LHS)
Budget Deficit (% of GDP) (RHS)
Source : ONS / Haver Analytics
UK public debt rose steadily between 2001 and 2007 from 38% to 45%. Due to the economic slowdown and actual recession, Government debt as a proportion of GDP rose significantly in 2008 and 2009.
Gross debt will rise further in 2010, although in the aftermath of the General Election, it is likely that tougher fiscal measures will be implemented.
Nevertheless, the budget deficit is set to reach 11% again in 2010 and any ruling Government will have to act quickly to raise taxes and cut spending in order to restore confidence in the UK’s financial management.
ECONOMIC OVERVIEW | UK | H1 2010
Household consumption growth
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Despite unprecedented Government support, rising unemployment, falling house prices and reduced consumer confidence caused household expenditure to drop by 3.x% in 2009.
Consumer expenditure has shown signs of improvement in early 2010 as house prices have recovered and interest rates have remained low. However, large fiscal cutbacks are expected and consumers will continue to be squeezed.
Retailer discounting has also supported consumer spending to a certain extent and this is a trend that is likely to continue.
Source : ONS / Haver Analytics
Source : IMF / Haver Analytics
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COLLIERS EMEA101
OFFICE MARKET | CENTRAL LONDON | H1 2010
Office supply & vacancy rate
Rents
0
500
1 000
1 500
2 000
2 500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds of sqm
Q1 Q2 Q3 Q4 Total
0
500
1 000
1 500
2 000
2 500
3 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
Thds sqm
0%
2%
4%
6%
8%
10%
12%
14%
16%
Immediate supply
Vacancy rate in City
Vacancy rate in West End
0
200
400
600
800
1 000
1 200
1 400
1 600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€/sqm/yearCity Prime net rent
West End Prime net rent
Average Prime net rent Central London
Office take-up
In 2009, take-up of office space in Central London fell by 17% year on year. Although 2009 take-up was the lowest annual figure for six years, demand for office space in H1 2010 is sharply up on the equivalent period in 2009.
Demand for quality product remains strong with a healthy range of 10,000 sq m plus requirements across the Central London market.
Competition for Grade A space will continue throughout the second half of 2010 driving up headline rents across all core submarkets. However, occupiers are clearly not prepared to accept higher occupation costs without reasonable incentive packages.
2010 forecast
2010 forecast The overall office vacancy rate for Central London dipped back below 10% for the first time in 12 months. The balance of current supply between new/refurbished vs second-hand space continues to shift.
Strong demand and modest completion of speculative space are combining to force down the vacancy rate for quality space.
Occupiers with more flexible agendas may look at schemes currently on the drawing board. Speculative Central London completions for the remainder of 2010 total just under 2 million sq ft. This is 19% down on the equivalent period in 2009 and a further 32% down on the 2008 total.
2010 forecast Competition for Grade A space will continue, driving up headline rents across all core submarkets. However, occupiers are clearly not prepared to accept higher occupation costs without reasonable incentive packages.
There has been 10% growth in headline rents in the City Core in Q1 2010. Based on strong Grade A space absorption coupled with a shortfall in speculative completions during 2010, we anticipate headline rents of €669-€693 psm by the end of 2010.
West End locations will see rental rises during 2010 and remain the most expensive office location globally. Headline rents should be at €1,003 psm by the year end.
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COLLIERS EMEA102
OFFICE MARKET | UK REGIONS | H1 2010
2007 2008 2009
Birmingham
Leeds
Glasgow
Manchester
€328
€328
€328
€334
€340€347
€334€347
€347€365
€328€328
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sqm
Birmingham
Glasgow
Leeds
Manchester
Office take-up
2010 forecast
Except Glasgow, all regional office markets suffered a sharp decline in letting activity.
Despite significant falls in demand in Birmingham and Manchester both cities achieved take-up at or above ten year average annual levels.
As in Central London, competition for Grade A space is likely to increase as shortage of delivery of speculative space begins to feed into availability.
The UK Government has been a major contributor to office take-up over the past decade in all four centres. Given the likely cut backs in public sector spending, all locations are expected to lean more heavily on the private sector for inward investment.
50 000
100 000
150 000
200 000
250 000
300 000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sqm
Birmingham
Glasgow
Leeds
Manchester
Office supply
2010 forecast
Vacancy rates have risen sharply across all centres during 2009. Large amounts of speculative development space has been delivered in all four markets between 2008-2009.
We expect vacancy rates to peak during 2010 as occupiers begin to absorb Grade A space. The development pipelines across all locations will provide minimal new product up to 2012, suggesting possible supply shortages as early as 2011.
Pre-letting activity is likely to become a feature of all major regional UK markets from mid 2011 onwards as availability of Grade A product dimishes.
Rents
2010 forecast
Prime rents have fallen across all centres over the past three years, with the exception of Leeds. Increased vacancy for all grades of space coupled with slowing demand has led to a reduction in net prime rents.
Longer rent-free periods have been utilised both to tempt new occupiers and seek to maintain headline rental levels, as has been the case in Leeds, where rents have been static over the entire period from 2007-2009.
We would not anticipate any significant rental growth until absorption of space increases. Birmingham is best placed as vacancy rates at the start of 2010 have already begun to decline.
(In €/sqm/year)
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COLLIERS EMEA103
INVESTMENT MARKET | UK | H1 2010
0
10
20
30
40
50
60
70
80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F
€bn
Investment volumes
Since mid-2007, when the sub-prime crisis first hit,, investment volumes have consistently failed to reach the levels witnessed during the mid-years of the decade.
Last year, the market slowed further in the first half of the year, before a large number of deals were completed in the second half of the year as demand improved.
Since mid-2009, demand for investment purchases has been dominated by cash-rich overseas buyers looking for a home for equity. However, in the last few months, UK institutions have become more active as large inflows of capital have effectively forced them into becoming buyers.
The REITs and other prop-cos are likely to become more active towards the end of 2010 and into 2011, but for now, secondary stock with value-add potential is not really transacting.
Investment ventilation
In 2009, the UK investment market was dominated by demand for secure income streams with long leases. The ‘flight to prime’ ensured that the office sector saw more than 50% of all investment activity in the UK.
The London markets dominated office transactions in 2009, accounting for 68% of the total. The City and West End markets were the major locations for investment in offices. International investors like Central London for its liquidity, transparency and have recently sought to take advantage of the re-pricing of 2007/08.
Investment in the retail sector was particularly weak in H1 2009, with the large lot size of shopping centre assets and high void rates in retail parks and shopping centres reducing investor confidence in the sector. While demand for food stores, prime high street units and the best retail warehouses recovered in early summer, there was effectively a two-speed market at this point. However, as demand for prime stock returned in H2 2009 and the institutions re-entered the market, demand for prime shopping centres in particular grew, with the sale of the Silverburn Shopping Centre an excellent example of the demand for this type of product.
Multi-let industrial parks and single-let distribution units saw a further reduction in demand in H1 2009, but by H2, any warehousing unit let to a food store operator was met with strong competition from a broad group of equity-rich domestic and international investors.
2010 forecast
Offices
52%
Retail
36%
Light industrial &
logistics
12%
Offices
Retail
Light industrial & logistics
2010 forecast
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Office Retail Light industrial and logistics
London West End London City Rest of London
South East Regions
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COLLIERS EMEA104
INVESTMENT MARKET | UK | H1 2010
Prime initial yields – Office Properties
Prime initial yields – Other properties
2%
3%
4%
5%
6%
7%
8%
9%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
London West End London City Major regional cities
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1
2010
Warehouse space Shopping centres
Ground-floor retail premises Light industrial space
Real Estate risk premium
0%
1%
2%
3%
4%
5%
6%
7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010
Real Estate PremiumRisk free 10-years yield
UK commercial property values grew strongly between 2002 and 2006, with initial yields on the best assets falling below the 10-year Gilt rate. Whilst not necessarily an indication of the market becoming over-priced, this effectively suggested annualised rental growth of 3-4% over the next five years.
A sharp turnaround in investor sentiment during 2007 and 2008 drove yields upwards again, re-establishing a large risk premium for real estate vs Government bonds.
Since peaking in early 2009, prime initial yields have again fallen in the UK, although some assets still offer good long-term value where investors can be confident in the income streams the properties are producing.
2010 forecast Following the sharp uptick in yields witnessed during 2007 and 2008, demand for prime, secure, income-producing assets has driven yields back down to their 2005 levels.
The West End of London, with its trophy buildings and others let to Government agencies, initially witnessed the strongest activity, with yields falling to 4.75% in early 2010.
The City of London also experienced strong declines in yields, but these have been surpassed by demand for secure stock in the key regional markets.
Strong competition for prime product has pushed some investors further up the risk curve, with good secondary product now being considered by many.
2010 forecast
The investment market story over the past eight years has been one of a steady fall in yields on the most part, followed by a sharp re-pricing. Since the end of 2008 though, yields have returned close to 2005/06 levels.
Demand has been driven by occupier covenant strength and as such, it is no surprise to see the high street retail and warehousing assets outperforming the other sectors as these tend to benefit from the largest, most profitable occupiers at present, particularly food and budget retailers.
Multi-let assets such as shopping centres and many industrial parks have experienced the weakest demand from investors, with higher vacancy rates and smaller occupiers increasing the riskiness of these assets.
2010 forecast