Conceptos generales

supported by the economic recovery, the european property markets recorded generally posi- tive development during 2010/11 and into the following year. the earlier periods of rising vacancy rates, declining rental prices, weak demand for space and low investment activity were followed by a clear trend reversal. the demand for commercial properties improved significantly during the 2010/11 financial year. According to the international real estate services company CB Richard ellis (CBRe), the volume of transactions in europe increased 27% over the comparable prior year period to euR 35.78 billion in the fourth quarter of 2010. that represents the highest quarterly level since 2008. the core regions of IMMoFInAnZ Group were among the main drivers for this growth. For example: the demand for office space in prague during the first quarter of 2011 was 75% higher than the comparable period of 2009, and the German logistics market produced record results during and after the reporting year. In economically strong poland 770,000 sqm of space will be added to the retail market this year, and rental prices on Vienna’s housing market rose by up to 19% in 2010. the volume of investments by non-european market participants more than doubled over the first

half of 2010 to equal euR 9 billion in the second half-year. this represents the highest level since the beginning of 2008. the investment volume tended to increase during and after 2010/11, but inves- tors are proceeding selectively. A CBRe survey shows a clear shift in investor preferences among the european countries. Germany (32%) and Central and eastern europe (24%) are viewed as the most attractive markets for real estate investments in 2011, whereby the major targets include poland and Russia. A slight increase in the transaction volume is also expected for hungary, which was hit hard by the financial crisis.

the gap between europe’s property markets widened during the 2010/11 financial year. the study on “emerging trends in Real estate europe 2011“ by the auditing and consulting firm pwC and the urban land Institute shows that the property markets in the euro crisis countries – above all Greece and Ireland – are losing ground, while earnings opportunities in northern and Central europe increased during and after the reporting year.

the market indicators for the asset classes of IMMoFInAnZ Group are generally pointing upward. expectations for the further development of the economies and property markets in the Group’s core countries are basically positive. Real estate projects can be developed at favourable terms dur- ing periods of economic recovery, and the prospects for IMMoFInAnZ Group are excellent. Many investors withdrew from eastern europe during the economic crisis, but IMMoFInAnZ Group stayed on and now has a head start to utilise the opportunities created by the upturn.

Investors outside Europe react to the upward trend

Steady improvement in market situation allows for attractive and sus- tainable yields over the medium- and long-term

3. Property Markets

66 GRoup MAnAGeMent RepoRt – pRopeRtY MARKets

OFFICES

Capital city/core market Vacancy rate in Q1 2011 for office properties in %

Top yields in Q1 2011 for office properties in % Berlin, De 9% 5% Bratislava, sK 10.1% 7.25% Budapest, hu 18% 7.5–7.75% Bucharest, Ro 16% 8–8.25% Moscow, Ru 15.1% 9% prague, CZ 13% 6.75% Warsaw, pl 6.6% 6.5% Vienna, At 5.3% 5.25%

Sources: Jones Lang LaSalle and CB Richard ellis

the office market in Austria generally stabilised part during 2010/11. office rentals in Vienna fell by roughly 30,000 sqm to 220,000 sqm in 2010, above all due to weak results during the first quarter. In the second half-year, the market was notably more active. Forecasts for 2011 show a slight increase in rentals to 240,000 sqm. top rents are found primarily at prime inner city locations and were stable at euR 21/sqm towards the end of 2010/11. the production of new space is expected to fall by 5,000 sqm year-on-year to 180,000 sqm in 2011.

the office markets in Germany recovered steadily during the 2010/11 financial year. high-quality properties at top inner city locations are again in high demand according to a DIp analysis (Deutsche Immobilien-partner) of the office markets in the 15 largest German cities. the turnover of space reached 3.38 million sqm in 2010, which represents an increase of 16% and is higher than the aver- age of the past ten years. office rentals in Berlin amounted to 131,800 sqm in the first quarter of 2011 according to an analysis by CBRe. that reflects a quarter-on-quarter increase of 21% as well as the best start into a new year since 2002.

Developments on the office markets in Eastern Europe vary widely. For example, Warsaw and prague are on a clear upward trend. the demand for space in prague rose by 73.7% to 85,020 sqm in the first quarter of 2011. office rentals in Warsaw totalled 549,000 sqm in 2010, for an increase of 96% over the previous year. supply and demand are largely balanced, and top rents in Warsaw rose to euR 24–26.5/sqm in the first quarter of 2011. In addition to Warsaw and prague, the boom markets in the office sector also include Moscow. top rents in this city rose by 25% over the previous year to euR 59/sqm in the first quarter of 2011 according to Jones lang lasalle (Jll). budapest presents a different picture with a high level of vacancies (25.7%), but the first signs of an easing in the situation have been noted. Rentals exceeded the production of new space by a substantial amount during and after the 2010/11 financial year, and vacancy rates should fall below 20% in 2011. Vacancies are also high on the bucharest office market (17%). the slovakian office market improved significantly in 2010/11. the production of new space in bratislava fell by 32% to 71,500 sqm in 2010. however, a parallel increase in demand pushed the vacancy rate back to 11.5%, and a further decline down to the single-digit range is expected in 2011. As indicated by King sturge Research, rents are stable at euR 14–17/sqm.

German office market: highest revenues at the start of the year since 2002

Warsaw: 96% year- on- year increase in office rentals during 2010

GRoup MAnAGeMent RepoRt – pRopeRtY MARKets 67

RETAIl

Capital city/core market Vacancy rate in Q1 2011 for retail properties in %

Top yields in Q1 2011 for retail properties in % Berlin, De n.a. 5.2% Bratislava, sK 9.6% 7% Budapest, hu 19% 7–7.25% Bucharest, Ro 17.5*_{% 8.25–8.5%} Moscow, Ru approx. 7% 9.5–10% prague, CZ 5.75% 6.5% Warsaw, pl 1% 6.25% Vienna, At n.a. 4.5%

Sources: Jones Lang LaSalle and CB Richard ellis, * _{Q4 2010}

the ongoing economic recovery, declining unemployment and corporate expansion provided major impulses for the retail property market in 2010/11. In spring 2011 the Cee shopping climate index published by RegioData Research was significantly higher than earlier periods, with top values recorded by the IMMoFInAnZ Group core countries of Austria, poland, Czech Republic and Rus- sia. A CBRe report shows an increase in the transaction volume for retail properties in europe to euR 12.2 billion during the first quarter of 2011. this level is not only 4% above the fourth quarter of 2010, but also represents the strongest growth since the fourth quarter of 2008. the investment market for retail properties is outpacing the overall market and reached a share of 46% in the first quarter of 2011.

In Austria, selling space in the shopping centers is increasing slowly but steadily. the total selling space in the 100 largest shopping centers amounted to approx. 1.6 million sqm in 2005 but, accord- ing to an analysis by Regioplan Consulting, had grown to approx. 1.9 million sqm by the end of the 2010/11 financial year. the vacancy rate in the top 100 shopping centers equalled 3%, in contrast to 6% one year ago. Average square metre turnover in Austria‘s 100 largest shopping centers equalled nearly euR 4,500.– per year in 2010/11.

the retail market in poland benefited from the strong growth of the national economy during 2010/11. A CBRe analysis indicates that this country was not only as one of the most liquid markets, but also the focal point of interest by foreign investors in 2010. In the coming quarters poland should main- tain its position as the leading Cee destination for retailers, followed by the Czech Republic, Russia and hungary. According to a Cushman & Wakefield analysis, 560,000 sqm of retail space opened in poland during 2010. the ehl Real estate Market Report estimates that 770,000 sqm of new retail space will be added in 2011. the steady rise in demand should lead to a decline in vacancy rates, which equalled 3.5% at the beginning of 2011. top rents range from euR 75 to 85/sqm and a further increase is expected in 2011. As indicated by the CBRe report “how Global is the Business of Retail“, the presence of international retailers in poland rose by more than 1.5% in 2010.

In the Czech Republic, top rents remained stable at euR 65–100/sqm and the vacancy rate was constant at 5%. A further decline in vacancies rate is expected because the forecasted production of new space will fall from 150,000 sqm in 2010 to 60,000 sqm in 2011. Additionally, a number of international retail chains have announced further expansion plans for the Czech market during the second half of 2011 and in 2012.

68 GRoup MAnAGeMent RepoRt – pRopeRtY MARKets

the retail market in Hungary was characterised by weak demand at the beginning of the 2010/11 financial year. An upturn is expected in 2011, with an increase in demand to 95,000 sqm (2010: 70.000 sqm). however, consumers remain very price-sensitive. the retail market in Slovakia was dis- tinguished by subdued consumer spending and an oversupply of new retail space in 2010/11. A total of 210,000 sqm of new space were opened in 2010, with the majority – 155,000 sqm – representing state-of-the-art shopping areas. the oversupply is substantial, above all in and around Bratislava. Retail rents are more stable outside the capital city.

Rental prices on the retail market in Romania declined throughout 2010, but the first signs of a trend reversal were noted towards the end of the 2010/11 financial year. International chains like Zara, Mango, and C&A as well as supermarket operators plan to increase their investments in the Roma- nian market. the demand for space is expected to rise from 150,000 sqm in 2010 to 200,000 sqm in 2011. Demand has already started to improve for centers in top locations.

the shopping centers in Russia registered a steady increase in tenants during 2010/11. Construction activity is low, and the supply of new rentable space is growing more slowly than the demand. Con- sequently, vacancy rates in Moscow – a key retail market for IMMoFInAnZ Group – are declining and rents rose by 6% in 2010 according to CBRe.

lOGISTICS

Capital city/core market Vacancy rate in Q1 2011 for logistics properties in %

Top yields in Q1 2011 for logistics properties in % Berlin, De n.a. 7.4% Bratislava, sK 9*_{% 8.25–8.5%} Budapest, hu approx. 22% 9–9.25% Bucharest, Ro 13% 9.75–10% Moscow, Ru 3.7% 11% prague, CZ approx. 10.3% 8–8.25% Warsaw, pl 18*_{% 8%} Vienna, At n.a. 4.5%

Sources: Jones Lang LaSalle and CB Richard ellis

* _{Q4 2010}

strong performance by the export sector was a decisive factor for the upturn in the German economy during the 2010/11 financial year. the high demand for German goods and products, and the related increased demand for warehouse and logistics space, led to record results in Germany. the logistics branch indicator published by the Kiel Institute for the World economy reached 160.8 index points in the fourth quarter of 2010, which is the highest level since 2006. As indicated by a CBRe analysis, revenues from logistics property transactions nearly doubled to euR 880 million in 2010. the dynamic momentum in foreign trade has also supported an increase in rentals and investment activity on the German logistics market since the end of 2010/11.

the logistics market in poland benefited significantly from the economic upturn in 2010/11. In comparison with 2009, the transaction volume rose by 86% to 1,419,000 sqm in 2010 according to Cushman & Wakefield. Investments in logistics facilities totalled euR 215 million for 2010, which is the highest volume since 2006. Rents were constant at euR 4.5–5.3/sqm towards the end of the 2010/11 financial year, despite the growing supply of new space. however, prices are expected to 6% increase in rents on

Moscow retail market in 2010

Transaction volume on Polish logistics market rises by 86% in 2010

GRoup MAnAGeMent RepoRt – pRopeRtY MARKets 69

increase somewhat in the future, above all due to the strong demand. More than 1.4 million sqm of warehouse space were let in poland during 2010 (+29% versus 2009).

In Czech Republic, recovery is being driven by both the import and export sectors. the logistics mar- ket successfully completed the turnaround in 2010. Demand of 650,000 sqm was contrasted by new production of only 190,000 sqm, which led to a decline in the vacancy rate from over 17% to roughly 10% according to an ehl analysis. For 2011 ehl has forecasted demand of 450,000 sqm as well as the production of 300,000 sqm in new space, i.e. good conditions for a further drop in vacancy rates and stable prices. Jones lang lasalle reported top rents of euR 4.25/sqm in prague and up to euR 4.5/ sqm in modern distribution centers outside the capital city at the end of the 2010/11 financial year. the logistics market in Hungary profited from the recovery in industrial production to only a limited extent in 2010, with an increase of 5% in the transaction volume according to Jll. Rents remain sta- ble, but are under growing pressure because many tenants are looking for opportunities to cut costs. the vacancy rate rose to nearly 20% at the end of 2010/11. new rentals amounted to 210,000 sqm in 2010, for the best results since 2007. this modest upward trend is also reflected in rising demand, which should grow to 220,000 sqm in 2011.

prices on the logistics market in Romania are stable at euR 4.15/sqm. Demand should rise from 70,000 sqm to 80,000 sqm in 2011 due to recovery in the retail sector, while the production of new space should decline from 120,000 sqm auf 100,000 sqm.

the logistics branch in Russia mastered the most severe crisis since the end of the soviet union during the post-2009 period. Market conditions generally normalised in 2010/11. strong economic growth and dynamic bilateral trade – Rosstat reports show an increase in exports from usD 304 bil- lion (2009) to usD 396 billion (2010), and in imports from usD 191.9 billion auf usD 229 billion – are driving the Russian export sector and fuelling the demand for logistics space. According to CBRe, rents on the Moscow logistics market have increased to euR 6.75–7.25/sqm. A Jones lang lasalle analysis shows that Moscow logistics market recorded the second highest revenue growth in europe, after Great Britain, with a plus of 102% in newly rented or leased logistics space. Russia was followed in this ranking by the Czech Republic (+ 46%), poland (+ 34%) and Germany (+ 32%), further core regions of IMMoFInAnZ Group.

RESIDENTIAl

the housing market in Austria and Germany was characterised by rising demand and higher rental prices during and after the 2010/11 financial year. the Association of Real estate and Asset trustees of the Austrian Federal economic Chamber reported a nationwide rise of 4.4% in the prices for build- ing sites during 2010 (2009: 3.8%) as well as an increase of 4.3% (2009: 2.3%) in the prices for used condominiums. the prices for single-family houses were 3.3% higher (2009: 2.2%). Rental prices on the Vienna housing market increased by up to 19% in 2010.

In Germany, the residential index published by the consultancy firm F+B showed an increase of almost 3% in prices and rents for residential properties in 2010. prices declined slightly during the fourth quarter (-0.4% in comparison to the third quarter), while the first three months of 2011 brought a further rise in purchase prices (+3.3%) and rents (+2%).

70 GRoup MAnAGeMent RepoRt – DeVelopMents on the FInAnCIAl MARKets

the residential market in poland stabilised during 2010. Favourable loans and government subsidies led to an increase in demand. An analysis by Cushman & Wakefield indicates that 136,000 residential units were completed in 2010, or 15% less than 2009. however, it is expected that a growing number of projects postponed by developers during the crisis will be reactivated in 2011.

the demand for residential properties in Slovakia improved during the 2010/11 financial year, with a 75% year-on-year increase during the first quarter of 2011. selling prices on the condominium market in Bratislava also increased during the fourth quarter of 2010 and now amount to over euR 1,900 per sqm, as reported by the real estate company lexxus.

new production is low on the housing market in Romania, with a steady decline in prices since the start of the economic crisis. Jones lang lasalle places the decline in Bucharest at roughly 20% since 2009. In spite of this development, prices are still too high for most Romanian households. Many families are realising their housing dreams primarily on the secondary market, which benefits from the “prima Casa“ (“first house“) government subsidy programme. According to data published by the national Romanian statistical Institute, residential construction rose by 12% year-on-year in February 2011. the moderate upward trend in the Romanian economy also leads to expectations of an improvement on the primary market.

4. Developments on the Financial Markets