BATO NEWSLETTER MAY 2020

PAGE 1 of 3VOLUME 12/ISSUE 5Impressum I Legal Notice: BATO Group Real Estate Investments GmbH I Mauerstr. 76 .10117 Berlin . Germany

Tel: +49 (0) 30 33 93 59 40 I Fax: +49 (0) 30 33 93 59 51 I Email: info@batogroup.comGeschäftsführer: Andrea Barbato I HRB 106951B Amtsgericht Charlottenburg I UST-Id.-Nr. DE 255687686

As a measure to aid households facing financial consequences from the Covid-19 pandemic, the German government has banned landlords from terminating tenancies with rent arrears resulting from the pandemic in the period from April to June 2020. The tenants are given time to settle the arrears by the end of June 2022.

In Berlin, the Senate decided to extend the "Berlin protection package" to six months. The state-owned residential and commercial landlords are instructed not to increase rents for the duration of the crisis, but at least for six months. Private landlords have also been appealed to accordingly.

A representative Civey-survey commissioned by the Haus & Grund owners´ association has just revealed that 6.9 % of tenants could not meet their payment obligations in April due to the Corona crisis. Nationwide, this would correspond to around 1.6 million households, according to Haus & Grund. Experts fear a further increase as 17.6 % of the surveyed tenants did not know whether they would be able to pay their rent in the future.

Meanwhile, rents in Germany are stagnating. In the first quarter 2020, rent development in the Big-7 German cities (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, Stuttgart) was recorded at between only 1% and 1.6%.*

According to the market place ImmoScout24, the offer for rental apartments had recorded an initial slump of 9.7% in March; however, the supply has recovered

with the subsequent increase of 18.8% and even surpassed the pre-crisis level by the end of April.

The offer for apartments for sale has also exceeded the pre-crisis level, according to ImmoScout24. This could be partly due to the fact that ImmoScout has provided private sellers with a free of charge offer to list their property on the platform from end of March. Additionally, the tourism ban has led to a trend of holiday apartments temporarily been converted into regular housing.

On the other hand, different sources suggest that demand for both rental and owner-occupied property has weakened. This comes at no surprise not just in times of general uncertainty, but especially because inspections and notarisations were put on hold during the lockdown period. It can be assumed that demand will recover fairly quickly since there has been a demand overhang for several years.

According to the current IMX residential property index of ImmoScout24, prices for existing properties continue to grow while they stagnated for new builds during the first three months of the year: +2.5% compared to the previous quarter for existing, and +0.7% for newly build property.

Office and Investment

The Covid-19 pandemic has not left the office market unscathed. According to JLL office market review, all Big-7 cities have seen an overall decline of 30% in office take-up volume in the first quarter 2020 compared to the same period last year. This represents the weakest quarter since 2014.

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Germany´s Property Markets in the Wake of the Corona CrisisThe Covid-19 pandemic has brought social and business life to a standstill. Despite the easing of the weeklong lockdown and the partial restoration of business activity, many industries will have to bear permanent losses and long-term difficulties. The German economy has dropped by 2.4% and the second quarter could even face a double-digit decline, as IfW Institute for World Economy communicated on their website on 30 April. The German real estate markets face their own challenges in the wake of the pandemic as our brief insights show.

Housing Market

City average rent growthBerlin 10,63 €/m² 1,4%Munich 17,15 €/m² 1,3%Frankfurt 13,15 €/m² 1,6%Hamburg 11,24 €/m² 1,4%Dusseldorf10,98 €/m² 1%Stuttgart 13,59 €/m² 1,1%Cologne 10,88 € /m² 1,3%

source: reaseach on the patform ImmoScout24

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BATO NEWSLETTER MAY 2020

PAGE 2 of 3VOLUME 12/ISSUE 5Impressum I Legal Notice: BATO Group Real Estate Investments GmbH I Mauerstr. 76 .10117 Berlin . Germany

Tel: +49 (0) 30 33 93 59 40 I Fax: +49 (0) 30 33 93 59 51 I Email: info@batogroup.comGeschäftsführer: Andrea Barbato I HRB 106951B Amtsgericht Charlottenburg I UST-Id.-Nr. DE 255687686

In the German capital, the take-up in the first three months of this yeas declined by 25.5% compared to the previous quarter and 25.5% compared to the same period last year, according to JLL.

Top rents across Germany continue to grow, up by nearly 7% in the first quarter of this year, according to BNP PARIBAS office market report. Berlin had the strongest growth with +11% (40€/m2).

Vacancy across the country has not suffered yet, but a dip in demand can be expected. Experts in the Colliers paper "The impact of the Corona pandemic on office markets" forecast a moderate vacancy rate increase for the Big-7 cities. Depending on how fast or slow the economic situation recovers, it could range from 3.9 and 5.5% on average. In Berlin, for example, it could range from 2.5% in the case of a fast recovery and 4.5% in the case of a slow pace of improvements (currently ca. 1,2%).

While the investment market did not get affected in the first quarter – mainly due to the fact that most of the transactions were initiated ahead of the crisis – the signs of Covid-19 started to show in April.

The ban on travel and inspections during the lockdown and general uncertainty about the future situation led to declining numbers of new contracts, transaction cancellations, delays and buyers trying to renegotiate prices.

According to Savills´ publication Market in Minutes, April 2020 was the worst performing month in terms of turnover since August 2012.

On the other hand, the April market survey Covid-19 Survey by Colliers can be seen as a hint of strong interest in German real estate: 92% of surveyed participants indicated that they wanted to buy in Germany´s Top-7 locations. This number stood at 68% in the equivalent March survey. And, almost 90% of respondents believe that more favourable conditions could be achieved in new negotiations, 72% believe it can be done for current transactions.

Retail

The temporary lockdown of a vast array of shops, retail centres, restaurants and cafes, hotels and other took a heavy toll on the retail and hospitality industry.

The IfW Institute for Worl Economy has presented numbers showing the slump in pedestrian frequency in central locations of 21 German cities. During the lockdown, pedestrian frequency was estimated at between 8% (Munich) and 29% (Frankfurt) compared to their usual levels; Berlin at 18%.

With the started reopening, visitor numbers began to recover, at a slow pace and are far from optimistic and also greatly differ in a regional comparison:

Frankfurt, for instance, could reach over 50% of its normal level (as of 23 April) while Berlin has seen only 27%. Other cities are way below such as Munich with only 13%, as the publication reveals.

In terms of turnover, the stationary (non-food) retail sector lost around 30 billion euros, which could not be recovered anymore, according to the German Retail Association (HDE), as the Manager-Magazin reported.

The HDE expects up to 50,000 insolvencies (which is equivalent to one in nine businesses in the industry due to the Corona crisis.

Leasing activity in the retail market in the first quarter 2020 has gone down by 13% compared to the same period last year, whereby the top 10 locations have suffered the most from the stagnation, according to the JLL retail market overview. And apparently, many tenants are trying to negotiate deferrals or suspensions of rent payments.

According to the analysis company Bulwiengesa, landlords of retail spaces would face permanent rent losses since the stationary retail sector would not be able to recover to pre-crises level. Additionally, a part of the business that was lost online trade during the lockdown would be permanent; consequently, long-term rent reductions are to be expected.

Logistics and Industrial Facilities

The logistics sector was characterised by a significant decrease in trading volumes for the last weeks, mainly due to stand-stills in production and notwithstanding the surged online orders from consumers. Focus Money Online reported that orders of DHL and Deutsche Post have risen by 40%, up to nine million shipments per day, compared to the activity last year.)

In a recent report by Savills and IndustrialPort, the experts predict that higher vacancy rates in the logistics sector would be unavoidable in the following months due to the ongoing pandemic - despite the additional demand from the pharmaceutical, health and food sectors, which would likely not be able to compensate for the expected decline in other sectors, the report stated.

As a result, experts expect higher vacancy rates should be expected as well as a decline in investment activity in the coming months. Nonetheless, logistics is considered as relatively stable real estate compared to other types of use.

On the other hand, the industrial sector could benefit from the crisis in the long-run as different market participants expect a stronger regionalisation of the trade fueled by worries of not having enough stocks for a next crisis. Hence, there is likely to be more local production and storage enhancing the demand for industrial facilities and warehouses.

BATO NEWSLETTER MAY 2020

PAGE 3 of 3VOLUME 12/ISSUE 5Impressum I Legal Notice: BATO Group Real Estate Investments GmbH I Mauerstr. 76 .10117 Berlin . Germany

Tel: +49 (0) 30 33 93 59 40 I Fax: +49 (0) 30 33 93 59 51 I Email: info@batogroup.comGeschäftsführer: Andrea Barbato I HRB 106951B Amtsgericht Charlottenburg I UST-Id.-Nr. DE 255687686

The contents of this newsletter are for informational purposes only and not for the purpose of providing any legal or investment advice.Sources

• IfW Kiel. News, Corona: Deutsches BIP sinkt in Q1 um 2,4 Prozent. 30.04.2020• Haus&Grund. Umfrage: Mietausfälle steigen in der Corona-Krise spürbar. Haus & Grund fordert Unterstützung für

private Vermieter. 24.04.2020• ImmoScout24. Der deutsche Immobilienmarkt zeigt sich krisenresistent. 28.14.2020• Immobilienindex IMX ® Preisentwicklung 1. Quartal 2020 Eigentumswohnungen, Mietwohnungen und Häuser• JLL. BüromarktüberblickBig 7 | 1. Quartal 2020. April 2020• BNP PARISBAS. At a Glance Q1 2020 Office market Germany• Colliers International. Auswirkungen der Corona-Pandemie auf die Büromärkte – Büroflächenleerstand TOP 7 wird nur

moderat zulegen. 06.05.2020• Savills. Market in Minutes: Investmentmarkt Deutschland. 06.05.2020• Colliers International. COVID-19 SURVEYAuswirkungen Immobilienmärkte I Ausgabe 2• IfW Kiel. News, Corona: Lockerungen zeigen Wirkung, deutsche Innenstädte beleben sich wieder. 23.04.2020• Manager Magazin. Einzelhandel erwartet bis zu 50.000 Insolvenzen trotz beginnender Öffnung• Jll Research. Research. Einzelhandelsmarktüberblick - 1. Quartal 2020• Bulwiengesa. Corona-Effekt beschleunigt Strukturwandel im Einzelhandel• Focus Money Online. Paketdienste überfordert: "Die Leute sollten sich besser überlegen, was sie bestellen"• Savills. Savills und IndustrialPort untersuchen deutschen Logistik- und Industrieinvestmentmarkt Q1 2020

Conclusion/Outlook

Despite the easing of the lockdown, most German industries will still have to struggle with the consequences of the pandemic for a longer period and a majority of the market participants won´t be able to compensate for the lossess suffered. Much depends on how long the crisis would persist. It remains to be hoped that a second wave of infection, which would incur much more far-reaching consequences, can be avoided.

The real estate industry, while not left unscathed by the crisis, seems to prove itself as stable market, once again. Experts are still confident.