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GREECE

COUNTRY SNAPSHOTS

MARKETBEAT

A Cushman & Wakefield Research Publication

Q2 2012

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ECONOMY

OFFICE SECTOR

RETAIL SECTOR

INDUSTRIAL SECTOR

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This report has been produced by Cushman & Wakefield LLP or use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. The report also refers to these economic sources: Consensus Economics Inc.; The Economist; Reuters; Capital Economics; Oxford Economics Ltd; Centre for Business & Economic Research. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman & Wakefield LLP or any related company, please email [email protected] with your details in the body of your email as they appear on this communication and head it “Unsubscribe”. ©2012 Cushman & Wakefield LLP. All rights reserved.

FURTHER DECLINE GDP fell by another 6.5% y/y in Q1, with pronounced declines especially in fixed investment. Numerous weaknesses within the Greek economy and continuous austerity are likely to bring a contraction in

GDP this year on a par with the one seen in 2011.

ANOTHER TRANCHE OF FUNDING APPROVED At the start of July, the troika agreed on awarding Greece the remaining portion of the second bailout deal worth €130bn. This followed a repeated parliamentary election in mid-June, following an inconclusive vote in May, and formation of a pro-bailout three-party coalition led by Antonis Samaris. Funds were disbursed from the European Financial Stability Facility (EFSF), the euro zone's new temporary bailout fund. The third bailout is expected by the end of August, although growing discontent with harsh austerity measures, which are conditions attached to the troika deals, as well as a lack of successes in meeting fiscal targets, maintain the possibility of rejecting international financial assistance and leaving the euro zone by Greece.

GOVERNMENT TO RENEGOTIATE THE DEAL Public discontent with the bailout deal as well as its destructive effect on growth may be tackled by amending its terms. The new coalition seeks open negotiations with the troika on introducing a freeze in public sector employment cuts, tax reductions, new benefits for the poor and unemployed, as well as an extension in budget deficit targets. Greece’s creditors are expected to be reluctant to endorsing these concessions, although disappointing progress in meeting fiscal targets, as well as growing recognition across Europe that austerity needs to be balanced with pro-growth measures, suggest that tweaks in the bailout deal are plausible. Meeting the budget deficit target of 7.3% for this year is highly unlikely given that the central government deficit has reportedly increased this year. Lags in fiscal consolidation will make it more difficult to achieve surpluses of around 4.5% from 2014, estimated to be necessary to bring public debt down from the current 160% of GDP to 120% in 2020.

OUTLOOK A free fall is expected to continue in the Greek economy throughout the rest of 2012 and in 2013. Weak confidence and subdued domestic and external demand will continue to weigh on investment, exports and consumption, with the latter additionally affected by unemployment continuing to rise in both private and public sectors. The decline is not likely to be accompanied by successful fiscal consolidation in the short term, which will further erode trust in the economy and increase the risk of an exit from the euro zone.

MARKET OUTLOOK

GDP: Contraction of a similar magnitude as in 2011 expected this year.

Inflation: To fall substantially throughout 2012 and 2013.

Interest rate: To remain unchanged this year after a cut to 0.75% in July.

Employment: Unemployment will continue rising.

ECONOMIC SUMMARY ECONOMIC INDICATORS* 2009 2010 2011E 2012F 2013F

GDP growth -3.3 -3.4 -6.9 -6.8 -2.6

Consumer spending -1.2 -3.7 -7.1 -8.3 -3.0

Industrial production -9.4 -5.9 -8.3 -3.8 -2.0

Investment -15.2 -15.0 -20.6 -24.8 -3.3

Unemployment rate (%) 9.4 12.5 17.3 23.3 24.9

Inflation 1.2 4.7 3.3 0.6 1.9

US$/€ (average) 1.39 1.33 1.39 1.27 1.28

US$/€ (end-period) 1.44 1.34 1.29 1.26 1.29

Interest rates: 3-month (%) 1.2 0.8 1.4 0.7 0.5

Interest rates 10-year (%) 5.2 9.2 19.0 28.7 26.6 NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Oxford Economics Ltd. and Consensus Economics Inc

ECONOMIC & POLITICAL BREAKDOWN

Population 11.3 million (2010)

GDP US$ 303.1 billion (2011)

Public sector balance -9.04% of GDP (2011)

Parliament New Democracy with the support of PASOK and DIMAR

President Karolos Papoulias

Prime Minister Antonis Samaris

Election dates 2015 (Presidential) 2016 (Parliamentary)

ECONOMIC ACTIVITY

Source: Cushman & Wakefield

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2001 2003 2005 2007 2009 2011F 2013 F

GDP GROWTH (annual %) - leftINFLATION (annual %) - right

GREECE

ECONOMIC SNAPSHOT

MARKETBEAT


Q2 2012

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This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman & Wakefield LLP or any related company, please email [email protected] with your details in the body of your email as they appear on this communication and head it “Unsubscribe”. ©2012 Cushman & Wakefield LLP. All rights reserved.

OVERVIEW The recent election has seemingly moved the country away from immediate possibility of leaving the Eurozone. Therefore, as the government is committed to the Euro it is also required to

renegotiate its bailout deal. This continuing economic uncertainty has seen the office market slow considerably, and this pattern continued in the second quarter of the year. Not surprisingly, prime rents have moved down further and now stand at €22/sq.m/year in Syntagma Square.

OCCUPIER FOCUS Cost cutting and space rationalisation continues to the primary driver of corporate activity. However, overall take up levels remain subdued. Kifisias Avenue is the principal submarket for activity, and is where the majority of deals are taking place. The CBD is struggling in comparison and the level of availability continues to increase and the vacancy rate is estimated to be well into double digits.

With bank financing and most other methods of funding extremely difficult to obtain, this has resulted in speculative development coming to a complete halt. Furthermore, most development activity has more or less stopped and schemes with planning permission have been postponed until a more positive outlook is evident

INVESTMENT FOCUS Investment volumes improved over the quarter, with highly opportunistic investors taking advantage of distressed properties that currently at the forefront of any activity. However, the prevailing attitude among investors has resulted in the sector stagnating as investors cannot see a return on any acquisitions given the turmoil in the economy and austerity measures hitting both business and the population hard. Given the lack of transactional evidence it is difficult to ascertain where pricing is but prime office yields in Athens are now estimated to be around the 9% mark.

OUTLOOK Despite the recent election, the domestic economy remains in a parlous condition. With no exit from recession on the horizon in 2012 this will continue to hold back the economy and business sentiment. Consequently, prime rents will stay under pressure as demand eases with rents in peripheral areas expected to decline further. The overhang of space, some of which is structural, will take time to work through as the weaknesses in the occupational market persist.

MARKET OUTLOOK

Prime Rents: Across the board rents come under downward pressure as demand falls.

Prime Yields: Yields move further out due to economic uncertainty and a weak occupational market.

Supply: Weak demand and release of excess space sees supply continue to rise.

Demand: No new requirements with take-up driven by cost-cutting of existing occupiers.

PRIME OFFICE RENTS – JUNE 2012

MARKET (SUBMARKET) € € US$ GROWTH % CAGR SQ.M/MTH SQ.M/YR SQ.FT/YR 5YR 1YR

Athens (Syntagma Square) 22.00 264 31.1 -2.5 -18.5

Athens (Kifissias Avenue) 17.20 206 24.3 -4.8 -9.5

Athens (Piraeus) 11.00 132 15.6 -7.2 -21.4

PRIME OFFICE YIELDS – JUNE 2012

MARKET (SUBMARKET) (FIGURES ARE GROSS)

CURRENT LAST LAST 10 YEAR QUARTER QUARTER YEAR HIGH LOW

Athens (Syntagma Square) 9.00 8.80 8.20 9.00 6.20

Athens (Kifissias Avenue) 9.00 8.80 8.20 9.00 6.20

Athens (Piraeus) 9.20 9.00 8.50 9.20 7.00 With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

RECENT PERFORMANCE


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Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

AVERAGE PRIME YIELDS (left) RENTAL GROWTH (right)

GREECE

OFFICE SNAPSHOT

MARKETBEAT


Q2 2012



OVERVIEW According to provisional data from the Greek statistical service, the economy contracted by 6.5% year-on-year in the first quarter, with household consumption declining by 8.5%. Unemployment climbed

to 22.5% in April, up from 16.2% a year earlier. Retail sales volume (excluding automotive fuel) decreased by 14.0% year-on-year in April, 14.2% in March and 11.9% in February. A particularly sharp contraction was recorded in the clothing and footwear segment; sales declined by 27.2% year-on-year in April, while food, beverages and tobacco recorded a fall of 20.5%.

OCCUPIER FOCUS Occupier activity has continued to slow, with very few retailers looking to expand. Numerous store closures have been reported in recent months, and vacancy is increasing even in the most traditionally sought-after areas. However, there is still some demand from value and discount retailers; indeed, two major international players recently emphasized their commitment to Greece. Development activity has come to a standstill: no new shopping centres are currently under construction.

Rents came under further downward pressure over the quarter across all sub-sectors. Falls of 4-5% were recorded on the high streets of Athens and Thessaloniki, with a 13% drop on Kifissias Avenue in Athens. Shopping centre rents, which were supported by limited availability in 2011, have also started to decline, falling for the second consecutive quarter. Values declined by around 5% in Athens and 6% in Thessaloniki in Q2. On an annual basis, rents have decreased by around 11%.

INVESTMENT FOCUS The uncertain economic climate, limited availability of financing and an ever-changing tax environment continue to deter investors, and activity remains subdued. Retail transaction volumes totalled approximately €5 mn in the second quarter. Prime high street yields edged up 5-10 bps, while shopping centre yields moved out by 15 bps, and retail warehouse yields moved out by 25-30 bps.

OUTLOOK The economy is expected to contract in the coming months and austerity measures will continue to impact on consumer spending. Occupier and investor demand will be subdued for the foreseeable future and rents will come under further downward pressure. With disposable incomes in decline, occupier demand will continue to be driven by value and discount retailers.

MARKET OUTLOOK

Prime Rents: Further falls expected as supply continues to outstrip demand.

Prime Yields: Coming under further upward pressure over the coming months.

Supply: No new projects in the pipeline, but vacancy increasing even in prime locations.

Demand: Retailers extremely cautious, with very few planning to expand.

PRIME RETAIL RENTS – JUNE 2012

HIGH STREET SHOPS € € US$ GROWTH % CAGR SQ.M/MTH SQ.M/YR SQ.FT/YR 5YR 1YR

Athens (Kolonaki-Tsakalof) 100 1,200 141 -12.9 -13.0

Athens (Ermou) 170 2,040 241 -10.7 -12.8

Athens (Glyfada-Metaxa) 105 1,260 149 -12.1 -12.5

Athens (Kifisia-Kolokotroni) 110 1,320 156 -9.4 -8.3

Athens (Piraeus-Sotiros) 62 744 88 -12.4 -11.4

Thessaloniki (Tsimiski) 110 1,320 156 -4.7 -15.4

PRIME RETAIL YIELDS – JUNE 2012

HIGH STREET SHOPS (FIGURES ARE GROSS)


Athens (Kolonaki-Tsakalof) 7.95 7.85 7.35 7.95 5.50

Athens (Ermou) 7.85 7.75 7.45 7.85 5.00

Athens (Glyfada-Metaxa)* 8.20 8.15 7.40 8.20 5.50

Athens (Kifisia-Kolokotroni)* 8.20 8.15 7.40 8.20 5.50

Athens (Piraeus-Sotiros)* 8.30 8.25 7.80 8.30 6.00

Thessaloniki (Tsimiski) 8.30 8.25 7.40 8.30 5.75

SHOPPING CENTRES (FIGURES ARE GROSS)


Greece 8.00 7.85 7.60 8.00 6.00 NOTE: * 7 year record With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

RECENT PERFORMANCE


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GREECE

RETAIL SNAPSHOT

MARKETBEAT


Q2 2012



OVERVIEW Despite the recent election and the immediate movement away from leaving the Euro, the domestic economy remains in a difficult condition. Consequently, indicators such as industrial production

have continued to move down which has led to a decline of activity in the industrial sector. Despite occupier demand easing further over the quarter and rents for prime space in Athens have held up although those in Thessaloniki have seen some further falls.

OCCUPIER FOCUS Occupier demand remains subdued and consists largely of lease renegotiation and consolidation, with expansion plans virtually nonexistent. Furthermore, with production levels declining and order books substantially reduced, demand in the occupational sector is muted. Therefore, occupiers are continuing to release excess space as they rationalise their operations.

The overall level of available space continues to rise across all markets in Greece. Most available space is secondary and of poor quality, although the amount of prime space has increased over the quarter as more is released back on to the market. However, development activity has ground to a halt with banks very reluctant to lend to real estate due to the associated risk levels.

INVESTMENT FOCUS Investors have largely withdrawn from the market until more stable economic and market fundamentals are apparent, although this is still some way off with significant negative growth expected over the rest of the year. Any product that is coming to the market are those that are distressed and where owners have defaulted on their loans, or are in urgent need of raising capital. Given the lack of transactional evidence it is difficult to ascertain the true level of yields but is believed to be around 12% for logistics space in Athens and around 100 bps higher in Thessaloniki.

OUTLOOK The recent election has initially becalmed fears regarding the possibility of leaving the Eurozone. However, with growth forecast at -5.6% for 2012 there are tough times ahead for Greece. Positive growth and industrial production is not expected to return until around 2015, and until then the industrial market will struggle to achieve anything more than stabilisation of the occupier market. Yields are expected to soften further as little confidence remains in the investment market.

MARKET OUTLOOK

Prime Rents: Rents are likely to continue to slide as demand wanes and availability rises.

Prime Yields: Yields move out further as level of risk increases.

Supply: Availability rises as occupiers shed excess space and companies close.

Demand: Activity is by companies is only consolidating and/or downsizing.

PRIME INDUSTRIAL RENTS – JUNE 2012

LOGISTICS LOCATIONS € € US$ GROWTH % CAGR SQ.M/MTH SQ.M/YR SQ.FT/YR 5YR 1YR

Athens 4.30 51.6 6.08 -6.4 -4.4

PRIME INDUSTRIAL YIELDS – JUNE 2012

LOGISTICS LOCATIONS (FIGURES ARE GROSS)


Athens 12.00 11.00 10.50 12.00 7.30 With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

RECENT PERFORMANCE


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GREECE

INDUSTRIAL SNAPSHOT

MARKETBEAT


Q2 2012

Q2 2012 A Cushman & Wakefield Research Publication

COUNTRY SNAPSHOTS

GREECE

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For further information about research or the report, please contact:

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