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PwC Real Estate Investor Survey Cap rates and letting assumptions for all relevant German and Swiss real estate submarkets
Spotlight PropTech – Buzz-word or Game Changer? 2
Germany and Switzerland
Volume 7, H2 2017March 2018
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft adheres to the PwC-Ethikgrundsätze/PwC Code of Conduct (available in German at www.pwc.de/de/ethikcode) and to the Ten Principles of the UN Global Compact (available in German and English at www.globalcompact.de).
© March 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.
PwC Real Estate Investor Survey Cap rates and letting assumptions for all relevant German and Swiss real estate submarkets
Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
March 2018, 62 pages, 46 figures
All rights reserved. This material may not be reproduced in any form, or saved and edited in any digital medium without the express permission of the editor.
This publication is intended to be a resource for our clients and the information therein was correct to the best of the authors’ knowledge at the time of publication. Before making any decision or taking any action, you should consult the sources or contacts listed here. The opinions reflected are those of the authors. The graphics may contain rounding differences.
Contents
PwC Real Estate Investor Survey Germany 3
Introduction .................................4
Germany – Office ................ 14Germany – Retail ................. 16High Street Retail .............................16Non-High Street Retail .....................22
Germany – Logistics ............. 24Germany – NOI Analysis ...... 28
Switzerland – Residential ..............32Switzerland – Office ......................36Switzerland – Retail ......................40High Street Retail ......................................... 40Non-High Street Retail ................................. 43Switzerland – NOI Analysis ............44
Contents
Approach and Definitions ....... 54
Overview of the results ........46
Spotlight .............................................8PropTech – Buzz-word or Game Changer?
4 PwC Real Estate Investor Survey
Introduction
Introduction
1This time we took a first step towards creating more transparency not only for the German but also for the European market. In this issue we teamed up with our Swiss colleagues and retrieved data on submarkets in Switzerland. For the Swiss part we also provide data on office and retail real estate. In addition, the Swiss part focuses on residential real estate.
As usual, we focus on the risk-return indicator “all-risk-yields” (ARYs), representing the relationship between stabilised net operating income (NOI) and net purchase price. Please see Chapter 6 for our approach and definitions. We gathered our data by interviewing market participants. For an overview of the participants see section 5.
In this volume’s spotlight we focused on PropTech and interviewed our participants, i.e. acquisition personnel and investor researchers, on their practical experience with PropTech applications and where they see the highest potential for them changing the industry. In our spotlight section 2 you can find out what role PropTechs are playing in the industry.
Fig. 2 Interest rate expectation for the Swiss market
Increasing Stable DecreasingShort term Medium term Long term
9%
73% 91%72%
27%
5%23% Switzerland
Increasing Stable DecreasingShort term Medium term Long term
5%
75% 80%60%
25% 15%5%
35%
Germany
Fig. 1 Interest rate expectation for the German market
Introduction
PwC Real Estate Investor Survey 5
Will yields increase corresponding to the interest rate development?
Will yields increase in line with interest rate development?
Will rental growth compensate increasing cap rates?
Will rental growth compensate increasing cap rates?
Does this differentiate between Top7 and B cities?
Does this differ between top 9 cities and regions?
80%▲▲
83%▲▲
Yes No
Yes No
35%▲▲
35%▲▲
70%▲▲
81%▲▲
Germany
Switzerland
For the German market investors are less aligned in which direction interest rates will be moving in the future. Still a majority with 60% (compared to 92% 6 months ago) believe that interest rates will remain stable within the next 12 months, while 35% (8% 6 months ago ) of respondents expecting interest rates to rise. In the medium term (up to 5 years) as well as in the long term, the vast majority of all respondents (75% and 80% respectively) expect interest rate to rise.
In terms of the hypothesis that real estate yields will follow potential interest rate growth the agreement ratio of investors did not change and is very close to the responses 6 months ago with 80% now compared to 77%. Those who do not see yields following the interest rate development argue that there is still too much liquidity in the markets that will continuously be allocated to real estate and thus prevent real estate yields to grow.
Among Swiss respondents, there is a widespread consensus concerning interest rate projections. 73% expect them to remain stable over the next 12 months, while 23% expect a short-term increase. For the medium term, about three quarters voice expectations of increasing rates, while the remaining respondents see them remaining stable over the 3-5 years. The latter fraction shrinks to only 9% for the long term, as there is widespread consensus (91%) on an interest rate increase over the coming decade.
Real estate yields will follow the upward course of interest rates – at least this is what four out of five Swiss respondents assume.
Even though rental growth is expected to be relatively flat, one third of Swiss respondents expect it to compensate for increasing cap rates. However, two thirds of Swiss respondents are concerned about the real estate values in a changing interest rate environment, because they do not believe that an increase of market rents will entirely compensate for the increase in yields.
6 PwC Real Estate Investor Survey
Introduction
Office
Retail Logistics
GermanyBerlin and Munich have both reached record low yield levels with a minimum ARY of only 3.0%. The strongest yield compression amongst Top 7 Cities was observed in Düsseldorf both for its core and average properties (defined in Chapter 7) with -20bps and -27 bps, respectively. Berlin remains leader in terms of an expected annual rental growth rate of 3.6%.
For high street retail real estate, Munich is again ahead of the other Top 7 Cities with a level of 2.8% for the prime properties (minimum ARY) being 10bps lower than 6 months ago. On average high street retail in the Top 7 Cities shows almost no yield compression in the prime sector (minimum ARY). Weaker properties don’t show any further yield compression as average and maximum ARYs almost entirely went up across all our observed 28 submarkets.
In the logistics sector, we observed a strong compression in Stuttgart (–40bps). With a yield of now 4.5%, Stuttgart and Munich jointly mark the most expensive logistics markets.
PwC Real Estate Investor Survey 7
Introduction
Residential
Office
Switzerland Zurich and Geneva have the lowest yields among the Top-9 Swiss cities. However, investors show sizeable disparity in their yield assessment. St. Gallen and Lugano show the highest yields, around 50 bps above Zurich and Geneva. Regional average ARYs find themselves between 20 to 50 bps above their urban centers.
As for residential, Zurich and Geneva top the list also for office spaces, with minimum ARYs of 2.5% and a 3.3% average. At the bottom, we see again Lugano and St. Gallen with 3.7% and 4.0% average ARY, respectively. Spreads between Regions and Top 9 Cities are significantly wider for the office category than residential, ranging between 80 and 120 bps on the average ARY.
RetailZurich again has the lowest yields in the retail category, with a minimum of 2.5% and a 3.0% average. This time, however, there's a greater gap separating Zurich from Geneva (+25bps) and Basel (+60bps). The Region of Zurich – exhibiting the lowest yields among Regions for residential and office – only ranks third behind the Lake Geneva Region and Central Switzerland in retail.
8 PwC Real Estate Investor Survey
Spotlight
2SpotlightPropTech – Buzz-word or Game Changer?
PropTech is currently a widely spread buzz-word in the real estate industry worldwide. There are numerous conferences, panel discussions, workshops and newsletters which focus on this topic. But have PropTechs hit the industry and settled their role as a game changer yet?
In this volume’s spotlight we asked our participants, i.e. acquisition personnel and investor researchers, on their practical experience with PropTech applications and where they see the highest potential for them changing the industry.
PwC Real Estate Investor Survey 9
Spotlight
So how about the status of implementation from an investor’s perspective?Almost unanimously, our survey participants agreed that PropTechs are a widely discussed topic but that it is still perceived as very difficult to assess which PropTech really is “the next big thing” able to change the industry. Investor strategies towards PropTechs range from striving to become market leader in terms of applying PropTech solutions to remain more conservative while waiting to see which solutions will become a standard. The latter group made up the majority of respondents by approx. 75%. As a result, most investors had little to no hands-on experience with new PropTechs but rather monitor them with the potential to engage at a later stage. Some Investors also consider themselves as rather slow when it comes to adapting to trends and implementing new technologies. With regards to the minority, some investors have made first positive experiences for instance with VR-solutions for marketing purposes or with smart building solutions for technical monitoring and tenant interaction. Some in the retail sector are also actively managing large scale data bases in order to monitor tenant performance and to proactively manage a tenant portfolio.
We consider “PropTechs” as relatively young companies focusing on innovative technology solutions that disrupt processes within the real estate lifecycle. Underlying technologies amongst others are artificial intelligence (AI), 3D augmented and virtual reality (3D, AR, VR), Big Data & Internet of Things (IOT), mobile as well as cloud solutions and geo and building information. An overview of PropTechs in the GSA region (Germany, Switzerland, Austria) classified by fields of application is provided in the following chart by Blackprintpartners.de. Looking at this map, the definition seems slightly wider as some PropTechs may not be considered as innovative given that they are already market standard. For example, switching to a new data room provider will not reinvent a transaction process as it is already today. However, a data room provider that enhances its service with artificial intelligence may reduce time and effort for transaction preparation and due diligence, which will in turn have a significant impact on the way the industry is handling transactions. With respect to our interviews, we also found a slight range in perceptions of what PropTechs are and what they do.
Fig. 3 The word “PropTech” was almost not googled until the end of 2015 and has spiked since then.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: trends.google.com (search interest relative to peak popularity)
100
80
60
40
20
0
10 PwC Real Estate Investor Survey
Spotlight: PropTech – Buzz-word or Game Changer?
In which areas do investors see the highest potential for PropTechs to add value?When looking at the areas where our participants see the highest potential for PropTechs to add value to the investor’s business operations, the following areas were mentioned frequently:• Intelligent data collection and analysis: Investors come across high
volumes of data, examples are data relating to investment opportunities (e.g. rental data, operating cost data) or data from already owned property. Investors desire to employ efficient databases that collect data in a smart fashion (for instance being able to read all kinds of rent rolls and map individual data points automatically) and being able to derive various analyses, identifying trends and managing portfolios.
• Smart building technology: A quality assured construction and an efficient and up-to-date operation is the objective of every developer, every asset and property manager, every tenant and every landlord. Therefore investors desire solutions providing efficiency gains. Examples are buildings, in which all hardware such as lighting or air conditioning and all kinds of sensors is combined with a smart software that ensures maximum comfort for occupants while keeping energy and also maintenance efforts at a minimum.
• Transparent markets: A lack of transparency of meaningful market data has also been identified as a major obstacle within the German and Swiss markets by participants. Tools which are able to provide further in-depth market analyses are therefore highly demanded.
• Drones and Robotics: Within our interviews, investors also said to be closely monitoring developments in the sector of drone solutions (such as inspections of less accessible building parts) or fully automated robots (for instance within large warehouses).
Why do investors hesitate to implement PropTech solutions?Investors also gave insights on potential challenges of implementing PropTech solutions. The main arguments for not engaging with PropTechs were the following:• They fear the sustainability of considered solutions, due to a superior tool of
another PropTech in the future and that the implemented PropTech solution would not survive a consolidation.
• Investors are concerned about data protection issues as many PropTechs are working with data gathering and analyses that imply data transparency and data sharing.
• Lack of trust in artificial intelligence, as an exemplary 97% certainty is often not enough.
• Some applications, such as trading platforms, are aiming to increase market transparency, while many market participants are used to seeing real estate as a people’s business, in which opacity may be more advantageous.
• At first sight many new tools and applications have a comparable angle or do not really differentiate themselves, which bears a selection effort.
PwC Real Estate Investor Survey 11
Spotlight: PropTech – Buzz-word or Game Changer?
Fig. 4 PropTechs by type of application
Source: Adapted from Blackprintpartners.de 2017 (c)
Brokerage
FinancingDue Diligence Management Operations
Development
Data AnalysisBuliding RadarOnline RetailersFensterversand.comHomebellKivedaProTremoRoomheroThermondoVitraumWeissmalerProject ManagementBaudetailCoplanneryDefect RadarDoozerInsite itOLMeROParametric SupportRise SablonoThinkprojekt
Data AnalysisArchitraveCheckmyplace.comData ScienceDatengutDroomsEVANAGeomapIMABISImmoinvest ProImmounitedLageprofiLeerLetter ScanLevertonNetfiles On-geo Potential SpacesPropmatch.chRoute 360SprengnetterTeamProQTeleportWohnpreis.deSoftware & ToolsImmolyzeIWA ProReal Value
Market Places and Platforms1A-Immobilienmarkt.de21st9flats.comAcheter-Lover.chAcomodeoAllofficecenterAmanet.chAssetprofilerBellevueBespacedBürosuche.deCapital PioneersCoozzyDevopoElocationsFaceyourbaseFindmyhome.atFlatfoxFreie Lokale Wien GaraioremGeospinHometogoHousyHouzziCaseImmo4trans.deImmoantteil24.dh
Immobilien.deImmobilienanzeigen24.comImmobilienpool.deImmobilienscout24Immobilier.chImmobiloImmobrokeImmodelfinImmoexperten.deImmomigImmonet.deImmopool.deImmo-suche.netImmosuchmaschineImmovestoreImmoweb AktiengesellschaftImmowelt.deImmowireImmoZImmozentralKeyTo OfficeKurzzeitwohnenLamudiLieblingsmieterLocaberlinLocalEstateMakler-Empfehlung.de
Miet-Check.deMitulaOhne-makler.netOptionspace Planethome GroupReallabor Space SharingSalz & BrotShareDnCSpacebaseStore2beStoreme uniplaces realbest.deStudenten-WG.deSüdostschweizimmo.chTauschwohnungTempoflatVermietfabrik WunderflatsWgcastWg-suche.deWimdu WKO.atWohnungjetzt.deWorkspace2goWunschimmo.deYoloco
Crowd FinancingBergfürstBrickvestCrowdhouseCrowdliEngel&Völkers CapitalExporoFundernationGroupEstateGrundagHome RocketiFundedImmofundingImmorocksLeihDeinerUmweltGeldMezzanyReaCapitalRenditefokusRendityRevalToday CapitalWIWINZinsbaustein.deZinsland Comparison PlatformImmobo
Visualisation & VRVisualisation & VR360 MagictourAirtem AllVRARCheckArchilogicAugmensysBegehungen.deClipnowEnscapeEywalkFairfleetFreeforma Holistic ImagingImmersiveImmomentoImmoviewerIndoorsInnoactiveInrealInsider NavigationLookaroundMatterportNavvisNxtbasePanoramatecPlanery Q-Kie
Redline 3DReflektRevvis RoomleShowit 360SpacesweetsViality.deVrnowVuframeTenant QualificationImmomioMoovinMyrealidRentondoPopUp StoresBrickspacesGo-PopUpPop Up ShopsLead Generation123maklerAlmondiaArchitekten.de HausgoldHomedayImmoprofessional Immoverkauf24.deMaklermeile MaklersuchenNeubau.de
SoftwareRealforce.chServicesRealPocketWP ImmomaklerDigital BrokersConrado.comDomiandoFidessoFlimmoxImmo SuchmaschineImmobaseLiveaboutMaklaroMcMaklerMetasearchMietguru.atNestpickRoomsquareTrovitVermietbutlerWohnschlüsselWunderagent
SoftwareAllthingsCasaviCunioEDI-RealEigenheim ManagerEtg24EverrealExposifyFacilityportFinservFlowfact HaluHomeFoxImmokissImmoterminImmonavigatorInterdialogInterfaceMAJustimmoLifelifeLirecoMaptopomatikModeranonOfficePixolusProCSMPropertybase
ReamisSmartcheckupsSmartexposéSykosch.deTimumWohnungsheldenZenhomesZenplaceTenant PlatformAnimusFlatnutStreamnowSuitefoxThe Smarter Place
AccessDoorbirdKiwiMyKeys24NelloTapkeyServicesEnlocLocateeService Partner One SimplifaVairResWegatechWestbridgeParkingAccessioEvoparkGoparkgoPark HereParquery SharePaCoworking/ColivingMedici LivingRent24Setting
Smart Home & IoTalphaEOSBetterspaceCasenioComfyDigitalstromEcozyEnetronxFlatoutGreen CityHintiExergyKundoMessheldenMeteoVivaNaonNuimo Plants & MachinesSensorbergSlock.itSmartTadoViracubeZuhauseplattform
In a nutshell, PropTechs are definitely more than a BuzzWord, influencing the real estate industry everyday by causing established players to rethink their own business models. However, for the majority of participants they have not yet become a Game Changer, which influence the way they operate. There are areas offering a large potential to add value to investor’s future operations, but reasons why investors hesitate to implement new solutions according to our participants should not be neglected. We would expect this picture to change along with an increasing number of successful use cases and first movers realising efficiency gains.
12 PwC Real Estate Investor Survey
3
Germany
Germany
PwC Real Estate Investor Survey 13
3
Germany
14 PwC Real Estate Investor Survey
3.1 OfficeAll-risk-yields For the office markets, our data shows compression for all ARYs levels (minimum, average and maximum) and across all submarkets. The Top7 Cities are still under price pressure (–12bps and –41bps as compared to 6 months and 12 months results, respectively). However, Munich and Hamburg remained almost stable with a compression of less than 10 bps compared to 6 months ago. The strongest compression is observed for Düsseldorf and Cologne at all ARYs levels. Minimum ARYs in Berlin catched up with Munich and now both metropoles share the leading position (3.0%) among the Top7 Cities.
Notably average and high risk properties in the Top7 Cities (average and maximum ARY) showed stronger compression than core investments (minimum ARY) over the last half-year. Nevertheless, the compression for these categories has slowed down compared to 12 months ago.
Contrary to the previous issue, the strongest compression of minimum ARY was experienced on average in Regional Cities (–25bps) and Regions (–23 bps). Among the Regional Cities the leaders in terms of compression are Bonn (–37bps), Mainz-Wiesbaden (–35bps) and Rhine-Neckar (–45bps).
Core properties in the Regions South of Hesse, Baden-Wuerttemberg (4.6%) and Bavaria (4.5%) are priced at the same levels or lower than half of the core properties in most of the Regional Cities.
Rental growth expectations across all submarkets remained almost at the same level as compared to the results 6 months ago. Berlin (3.6% p.a.) is still in the leading position followed by Munich (2.4% p.a.). While the average annual rental growth assumption throughout the Top 7 Cities is 2.1%, the Regional Cities and Regions show lower levels of 1.1% and 1.0%, respectively.
Germany – Office
PwC Real Estate Investor Survey 15
Fig. 5 ARYs for offices in German submarkets by region
Stuttgart3.5%/4.4%/5.6%
Munich3.0%/4.0%/5.1%
Hamburg3.3%/4.3%/5.7%
Düsseldorf3.6%/4.7%/6.2%
Cologne3.7%/4.7%/6.0%
Frankfurt am Main3.3%/4.3%/5.6%
Berlin3.0%/4.2%/5.7%
Essen4.7%/6.0%/6.9%
Erfurt 5.1%/6.0%/7.3%
Dresden4.6%/5.6%/6.8%
Bremen4.7%/5.7%/6.9%
Duisburg 5.2%/6.2%/7.5%
Dortmund4.7%/5.6%/6.8%
Bonn4.2%/5.2%/6.4%
Rhine Neckar4.6%/5.4%/6.5%
Nuremberg 4.3%/5.2%/6.3%
Magdeburg5.5%/6.5%/7.9%
Hanover4.4%/5.3%/6.6%
Mainz-Wiesbaden4.4%/5.3%/6.6%
Leipzig4.5%/5.4%/6.6%
Karlsruhe4.5%/5.3%/6.4%
Top 7 CitiesMin./Average/Max. %
Regional CitiesMin./Average/Max. %
RegionsMin./Average/Max. %
Diff. prev. issue
S.-Holstein & Low. Saxony
Bremen
Essen
Duisburg
Bonn
Karlsruhe
Rhine-NeckarMA/HD/LU
Nuremberg
Wiesbaden & Mainz
Dortmund
Hanover
Magdeburg
Leipzig
ErfurtDresden
Hamburg
Berlin
Düsseldorf
Cologne
Stuttgart
Munich
MV. & Sax.-A. & Brandenburg
North of Hesse & Thu. & Sax.
South of Hesse & BaWue
Rhineland-P. &Saarland
North Rhine- Westphalia
Bavaria
North of Hesse & Thu. & Sax.
5.5%/6.3%/7.7%
Rhineland-P. &Saarland
5.3%/6.1%/7.5%
South of Hesse & BaWue
4.6%/5.5%/6.7%
Bavaria4.5%/5.3%/6.6%
MV. & Sax.-A. & Brandenburg
5.3%/6.4%/7.7%
Low. Saxony & S.-Holstein
5.3%/6.0%/7.3%
North Rhine- Westphalia
5.0%/5.9%/7.3%
Germany – Office
Frankfurt am Main
16 PwC Real Estate Investor Survey
Germany – Office
Expected 5-year yield development for office
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Cologne
Munich
Düsseldorf
Stuttgart
BerlinFrankfurt a. M.
Hamburg
Fig. 6 Letting parameters for the German office market (Volume 7 H2 2017)
Rent-free period (months) Marketing period (months)Extension propability
Annual market rent growth rate
Top 7 CitiesMin. Med. Max.
vs. 6m ago Min. Med. Max.
vs. 6m ago
vs. 6m ago
Berlin 1 3 5 2 4 6 75.0% 3.6%
Düsseldorf 2 4 6 3 5 7 69.0% 1.7%
Frankfurt am Main 2 4 6 3 5 8 71.0% 1.9%
Hamburg 1 3 6 2 4 7 72.0% 1.5%
Cologne 1 4 6 2 5 8 70.0% 1.5%
Munich 1 3 4 2 4 6 77.0% 2.4%
Stuttgart 1 3 5 2 4 7 73.0% 1.7%
PwC Real Estate Investor Survey 17
Germany – Office
Top 7 Cities
Berlin
Düsseldorf
Frankfurt am Main
Hamburg
Cologne
Munich
Stuttgart
Regional Cities
Bonn
Bremen
Dortmund
Dresden
Duisburg
Erfurt
Essen
Karlsruhe
Hanover
Leipzig
Magdeburg
Wiesbaden & Mainz
Nuremberg
Rhine-Neckar MA/HD/LU
Regions
Lower Saxony & Schleswig-Holstein
Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg
Saxony & Thuringia & North of Hesse (zip code: 3xxxx)
North Rhine-Westphalia
Rhineland-Palatinate & Saarland
South of Hesse (zip code: 6xxxx) & Baden-Wuerttemberg
Bavaria
Fig. 7 Compression of minimum yields for the German office market
3.0%
3.6% 6.2%
3.3% 5.6%
3.3% 5.7%
3.7% 6.0%
3.0% 5.1%
3.5% 5.6%
4.7% 6.9%
4.7% 6.8%
4.6% 6.8%
5.2% 7.5%
5.1% 7.3%
4.7% 6.9%
4.5% 6.4%
4.4% 6.6%
4.5% 6.6%
4.4% 6.6%
4.3% 6.3%
4.6% 6.5%
5.3% 7.3%
5.3% 7.7%
5.5% 7.7%
5.0% 7.3%
5.3% 7.5%
4.6% 6.7%
4.5% 6.6%
5.5%
–0.19%
–0.16%
–0.06%
–0.14%
–0.05%
–0.14%
–0.22%
–0.20%
–0.37%
–0.19%
–0.17%
–0.16%
–0.25%
–0.25%
–0.32%
–0.15%
–0.23%
–0.35%
–0.16%
–0.23%
–0.28%
–0.22%
–0.45%
–0.17%
–0.22%
–0.37%
–0.19% 7.9%
5.7%
Average % 6 months agoMin. % Max. %
4.2% 6.4%
min ARY compression over 6 months
4.3%
4.2%
4.7%
4.3%
4.7%
4.0%
4.4%
5.6%
5.6%
6.2%
6.0%
6.0%
5.3%
5.3%
5.4%
6.5%
5.3%
5.2%
5.4%
5.2%
6.0%
6.4%
6.3%
5.9%
6.1%
5.5%
5.3%
5.7%
–0.09%
18 PwC Real Estate Investor Survey
3.2 Retail High Street Retail
All-risk-yields “Location, location, location!” – looking at this issue’s results, we see that only the best located high-street properties in the strongest markets remain stable in the current market situation. On average, Top 7 Cities had a slight compression of minimum ARYs of 2 bps, while Regional Cities on average remained on the exact same level as they were in summer 2017. Core+ and value-add properties (as measured with average and maximum ARY) showed increasing ARYs, thus a decline in value over the last six months. One investor quoted: “Now, you can only lose money with non-Top7 locations”.
In the prime space, Munich (2.8% minimum ARY) remains an indisputable leader among the Top7 cities followed by Berlin and Frankfurt (both 3.1% minimum ARY), while Stuttgart and Cologne already showed an increase in yields of approx. 10bps.
The leaders in terms of compression among Regional Cities are Rhine-Neckar (–22 bps), and Dortmund (–14bps). The absolute minimum ARY amongst Regional Cities was 3.9%, which was observed in Nuremberg, Dresden and Hannover.
Similar to the office space, the best high-street properties in the Regions South of Hesse, Baden-Wuerttemberg and Bavaria (e.g. in smaller cities such as Freiburg or Augsburg) reached 4.3% as minimum ARY. This is equivalent to or even lower than some of the larger Regional Cities, for instance Essen or Bremen. Even though Top7 Cities show some rental growth (e.g. Munich 1.4% p.a. and Berlin 1.3% p.a.), investors almost don’t see further rental growth in Regional Cities and Regions, with an average growth assumption of 0.2% p.a. and 0.0% p.a. respectively. Only Karlsruhe (1.0% p.a.) and Nuremberg (0.8% p.a.) followed by Rhine-Neckar, Leipzig, Hannover and Mainz-Wiesbaden are still characterised by rental growth.
Germany – Retail
Top 7 CitiesMin./Average/Max. %
Regional CitiesMin./Average/Max. %
RegionsMin./Average/Max. %
Diff. prev. issue
PwC Real Estate Investor Survey 19
Germany – Retail
Fig. 8 ARYs for high street retail in German submarkets by geography
Essen4.3%/5.3%/6.2%
Erfurt 4.4%/5.2%/6.7%
Dresden3.9%/4.7%/6.1%
Bremen4.3%/5.1%/6.2%
Duisburg 4.8%/5.7%/7.2%
Dortmund4.1%/4.9%/6.1%
Bonn4.0%/4.7%/6.0%
Rhine Neckar4.0%/4.9%/6.0%
Nuremberg 3.9%/4.7%/6.0%
Magdeburg4.9%/6.0%/7.0%
Hanover3.9%/4.6%/5.9%
Mainz-Wiesbaden4.0%/4.9%/6.2%
Leipzig4.1%/5.0%/6.1%
Karlsruhe4.0%/4.8%/6.0%
Top 7 CitiesMin./Average/Max. %
Regional CitiesMin./Average/Max. %
RegionsMin./Average/Max. %
Diff. prev. issue
Bremen
Essen
Duisburg
Karlsruhe
Nuremberg
Wiesbaden & Mainz
Dortmund
Hanover
Magdeburg
Leipzig
ErfurtDresden
Hamburg
Berlin
Düsseldorf
Cologne
Frankfurt am Main
Stuttgart
Munich
MV. & Sax.-A. & Brandenburg
North of Hesse & Thu. & Sax.
South of Hesse & BaWue
Rhineland-P. &Saarland
North Rhine- Westphalia
Bavaria
North of Hesse & Thu. & Sax.
5.1%/6.0%/8.1%
Rhineland-P. &Saarland
4.9%/5.8%/7.5%
South of Hesse & BaWue
4.3%/5.2%/6.8%
Bavaria4.3%/5.1%/6.2%
MV. & Sax.-A. & Brandenburg
5.1%/6.1%/8.2%
Low. Saxony & S.-Holstein
4.6%/5.2%/6.8%
North Rhine- Westphalia
4.8%/5.4%/6.9%
Stuttgart3.4%/4.0%/5.0%
Munich2.8%/3.6%/4.6%
Hamburg3.2%/3.9%/5.1%
Düsseldorf3.3%/4.1%/5.0%
Cologne3.5%/4.1%/5.3%
Frankfurt am Main3.1%/3.8%/4.9%
Berlin3.1%/3.9%/4.9%
S.-Holstein & Low. Saxony
Bonn
Rhine-NeckarMA/HD/LU
20 PwC Real Estate Investor Survey
Expected 5-year yield development for high-street retail
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Cologne
Munich
Düsseldorf
Stuttgart
Berlin
Frankfurt a. M.
Hamburg
Fig. 9 Letting parameters for the retail market
Rent-free period (months) Marketing period (months)Extension propability
Annual market rent growth rate
Top 7 CitiesMin. Med. Max.
vs. 6m ago Min. Med. Max.
vs. 6m ago
vs. 6m ago
Berlin 1 3 5 1 3 4 71.0% 1.3%
Düsseldorf 2 4 7 4 7 9 70.0% 1.0%
Frankfurt am Main 1 4 5 3 5 7 73.0% 0.8%
Hamburg 2 4 6 2 4 6 71.0% 0.8%
Cologne 3 6 8 2 4 7 71.0% 0.4%
Munich 1 3 5 2 3 6 73.0% 1.4%
Stuttgart 2 3 5 3 5 7 69.0% 0.6%
Germany – Retail
PwC Real Estate Investor Survey 21
Top 7 Cities
Berlin
Düsseldorf
Frankfurt am Main
Hamburg
Cologne
Munich
Stuttgart
Regional Cities
Bonn
Bremen
Dortmund
Dresden
Duisburg
Erfurt
Essen
Karlsruhe
Hanover
Leipzig
Magdeburg
Wiesbaden & Mainz
Nuremberg
Rhine-Neckar MA/HD/LU
Regions
Lower Saxony & Schleswig-Holstein
Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg
Saxony & Thuringia & North of Hesse (zip code: 3xxxx)
North Rhine-Westphalia
Rhineland-Palatinate & Saarland
South of Hesse (zip code: 6xxxx) & Baden-Wuerttemberg
Bavaria
Fig. 10 Compression of minimum yields in high street retail
3.1%
3.3% 5.0%
3.1% 4.9%
3.2% 5.1%
3.5% 5.3%
2.8% 4.6%
3.4% 5.0%
4.3% 6.2%
4.1% 6.1%
3.9% 6.1%
4.8% 7.2%
4.4% 6.7%
4.3% 6.2%
4.0% 6.0%
3.9% 5.9%
4.1% 6.1%
4.0% 6.2%
3.9% 6.0%
4.0% 6.0%
4.6% 6.8%
5.1% 8.2%
5.1% 8.1%
4.8% 6.9%
4.9% 7.5%
4.3% 6.8%
4.3% 6.2%
4.9% 7.0%
4.9%
Average % 6 months agoMin. % Max. %
4.0% 6.0%
min ARY compression over 6 months
3.9%
3.9%
4.1%
3.8%
4.1%
3.6%
4.0%
4.9%
4.7%
5.7%
5.2%
5.3%
4.8%
4.6%
5.0%
6.0%
4.9%
4.7%
4.9%
4.7%
5.2%
6.1%
6.0%
5.4%
5.8%
5.2%
5.1%
5.1%
Germany – Retail
–0.11%
–0.14%
–0.04%
0.10%
–0.04%
0.17%
–0.03%
–0.03%
–0.03%
–0.14%
0.06%
0.10%
–0.12%
0.13%
0.07%
–0.02%
0.11%
0.11%
–0.14%
–0.13%
–0.22%
–0.05%
–0.06%
0.09%
0.10%
0.05%
0.03%
–0.09%
22 PwC Real Estate Investor Survey
Non-High Street Retail
All-risk-yield and letting parameters: non-high street retail Out-of-Town Shopping Centers, Retail Parks and Supermarkets show small yield increases and have hence slightly deteriorated in value over the last six months, The only category of non-high street retail that experienced compression in minimum ARY are DIY-Stores. This asset class gained more attractiveness as rental contracts have mainly reached market level rents, as opposed to being overrented in the past. Also, due to their locations close to cities and due to the large land plots they occupy they advance from rising ground values and the possibility to develop or use these land plots alternatively, for instance city-logistics.
Germany – Retail
PwC Real Estate Investor Survey 23
Germany – Retail
Fig. 12 ARYs for retail (excluding high street) in German submarkets by category
All-risk-yieldRent-free period
(months)Marketing period
(months)Extension probability
Annual market
rent growth
rate
Min. Avg. Max. Min. Med. Max.vs. 6m
ago Min. Med. Max.vs. 6m
agovs. 6m
ago
Out-of-town shopping center 4.5% 5.7% 7.1% 1 4 6 3 5 11 58.3% (0.1%)
Retail park 4.8% 5.6% 7.2% 1 3 4 2 5 8 76.3% 1.2%
Super market 5.3% 6.1% 7.8% 1 2 4 2 5 8 81.0% 1.1%
DIY store 5.7% 6.4% 8.3% 2 2 5 1 5 9 71.7% 0.4%
Expected 5-year yield development for non-high street retail
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Out-of-town shopping center
Retail park
Supermarket
DIY store
24 PwC Real Estate Investor Survey
Logistics
Germany – Logistics
3.3 Logistics
All-risk-yields Logistics yields remain at an all-time low with further momentum over the last six months.
In the last survey, yield compression was on average –12bps for prime properties in the top 15 markets; in this volume, yield compression tripled to –36bps. Average properties show an unidirectional movement of yield development like prime properties. However, the ARYs for risky properties have remained the same compared to the last edition.
Among the Top 15 markets, the 6 logistics hubs around the Top 7 cities (Cologne and Düsseldorf are considered as one) remain the most expensive ones. Stuttgart has shown the strongest growth among the Top 6 regions boosted by the scarcity of space in that market. Together with Munich, Stuttgart is now the most expensive logistics market in Germany. The ARY for prime properties in these two locations is at 4.5%.
PwC Real Estate Investor Survey 25
Germany – Logistics
Top 15 Locations (Min./Average/Max. %) Motorways
Fig. 12 ARYs for logistics properties in German submarkets by location
Small Locations (such as: Aachen,
Saarbrücken, Karlsruhe/Freiburg,
Osnabrück/Münster, Rhein-Neckar,
Bad Hersfeld, Erfurt, Augsburg,
Magdeburg, Dresden)5.6%/6.4%/7.9%
Hamburg4.6%/5.8%/7.1%
Bremen/Bremerhaven/Wilhelmshaven5.2%/6.4%/7.6%
Berlin4.7%/5.8%/7.2%
Hanover/Braunschweig 5.1%/6.4%/7.7%
Kassel/Göttingen5.2%/6.3%/7.6%
Halle/Leipzig5.2%/6.4%/7.8%
Dortmund 4.9%/5.9%/7.2%
Düsseldorf/Cologne4.7%/5.8%/7.2%
Rhine-Ruhr 4.8%/5.9%/7.0%
Rhine-Main/Frankfurt
4.6%/5.7%/6.9%
Munich4.5%/5.6%/6.7%
Regensburg/Passau5.1%/6.3%/7.6%
Stuttgart4.5%/5.6%/6.9%
Nuremberg5.0%/6.1%/7.2%
Ulm 5.0%/6.2%/7.6%
26 PwC Real Estate Investor Survey
Expected 5-year yield development for logistics
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Top 15 Locations
Small Locations
1.9%
Germany – Logistics
Annual logistics market rent growth rate
PwC Real Estate Investor Survey 27
6.4%
5.8%
5.9%
5.7%
6.4%
5.8%
6.4%
5.6%
6.3%
6.1%
5.6%
6.3%
5.9%
6.2%
6.4%
Fig. 13 ARYs for logistics properties in German submarkets by category
Top 15 Locations
Berlin
Düsseldorf/Cologne
Rhine-Main/Frankfurt
Hamburg
Munich
Stuttgart
Bremen/North Sea ports
Dortmund
Halle/Leipzig
Hanover/Braunschweig
Kassel/Göttingen
Lower Bavaria
Nuremberg
Rhine-Ruhr
Ulm
Small locations
4.7%
5.2%
7.2%
7.6%
4.7%
4.9%
7.2%
7.2%
4.6%
5.2%
6.9%
7.8%
4.6%
5.1%
7.1%
7.7%
4.5%
5.2%
5.0%
6.7%
7.6%
7.2%
4.5%
5.1%
4.8%
6.9%
7.6%
7.0%
5.0% 7.6%
5.6% 7.9%
5.8%
Average % 6 months agoMin. % Max. %
Fig. 14 Letting parameters for the logistics market (Volume 7 H2 2017)
Rent-free period (months) Marketing period (months) Extension probability Annual market rent growth rate
Min. Med. Max. Min. Med. Max.
Top 15 Locations 1 3 4 2 5 8 70.7% 1.9%
Small Locations – 2 5 – 5 7 72.5% 1.9%
Expected 5-year yield development for logistics
Germany – Logistics
For the Top 15 Locations, rent-free periods now range from 1 to 4 months, significantly lower than 6 months ago (three to seven months). This development shows a genuinely stronger letting market and the slightly increased probability of rental prolongation of 70.7% (up from 68.0%) supports this hypothesis.
28 PwC Real Estate Investor Survey
Logistics
Germany – NOI Analysis
3.4 NOI Analysis
Office
Our participants generally included non-recoverable service charges, maintenance expenses, property management and rent loss into the calculation of their net operating income (NOI). With some variance depending on the individual investor’s business model, 80% of respondents consider tenant improvements and leasing commissions to be one-off items, which are considered below NOI. Almost unanimously respondents exclude CapEx from NOI calculation.
Retail As with the results for office properties, only 20% of investors included tenant improvements and leasing commissions in the NOI calculation.
The value ranges for single NOI items as well as for tenant improvements and leasing commissions were in line with office properties.
PwC Real Estate Investor Survey 29
2.7%
Max.Med.Min.
Max.Med.Min.
Germany – NOI Analysis
Fig. 15 NOI calculation method for the office market
Fig. 16 NOI calculation method for the retail market
4.0%
7.5%
0% 5% 10% 15% 20% 25%
0% 5% 10% 15% 20% 25%
3.0%
4.0%
0.0%
0.5%
25.0%
21.0%
3.0%
0.8%
25.0%
17.0%
2.0%
0.8%
1.0%
1.7%
5.0%
4.0%
1.0%
1.0%
13.0%
12.0%
1.0%
6.0%
5.0%
1.0%
1.7%
6.0%
8.0%
0.0%
1.0%
Assumption sum of non-recoverable OpEx
Assumption non-recoverable service charges
Assumption maintenance expenses
Assumption property management
Assumption rent loss
Assumption tenant improvements
Assumption leasing commisions
Assumption Capex
Assumption sum of non-recoverable OpEx
Assumption non-recoverable service charges
Assumption maintenance expenses
Assumption property management
Assumption rent loss
Assumption tenant improvements
Assumption leasing commisions
Assumption Capex
10.0%
1.8%
4.0%
10.0%
2.0%
3.0%
1.0%
2.3%
8.0%
1.7%
2.5%
10.0%
2.0%
2.5%
1.0%
1.9%
30 PwC Real Estate Investor Survey30 PwC Real Estate Investor Survey
4
Switzerland
Switzerland
PwC Real Estate Investor Survey 31PwC Real Estate Investor Survey 31
4
Switzerland
32 PwC Real Estate Investor Survey
4.1 ResidentialAll-risk-yields No surprises at the top of the list, as Swiss respondents see the lowest yields in Zurich, followed by Geneva with only a minor surcharge.
Zurich is the city for which we received the highest number of answers – all but three respondents gave their estimate. Even though most participants have a view on Switzerland’s largest city, they are far from homogeneous. The range between the highest and the lowest answers is above 200 bps for all min, max and the average. While some investors see minimum yields as low as 1 to 1.5%, others go beyond 3%, leading to a median of 2.5%. Strikingly, the highest estimates were generally given by the respondents located outside of Zurich, most notably western Switzerland. However, associating this to a lack of proximity might not cover the entire truth. Looking at the answers for Geneva and Lausanne shows that local investors were the ones giving the highest estimates.
Berne and Basel rank third and fourth with yields 20 to 30 bps above Zurich and Geneva. Views on yields in the cities on the Aare and Rhine further exhibited the greatest degree of agreement with less than 50 bps separating the first and third quartile.
St. Gallen and Lugano have the highest ARYs as allocated by our respondents, in minimum at 3.2% and 3.1%, respectively. In addition, the disagreement among investors is greatest for these two cities.
Switzerland – Residential
PwC Real Estate Investor Survey 33
Switzerland – Residential
Fig. 17 ARYs for residential in Swiss submarkets
Berne2.7%/3.2%/3.7%
Geneva2.5%/3.0%/3.5%
Lausanne3.0%/3.3%/3.6%
Basel2.8%/3.2%/3.7%
Zurich2.5%/2.9%/3.5%
Lucerne2.8%/3.3%/3.9%
Winterthur3.0%/3.3%/3.7%
Lugano3.1%/3.5%/3.9%
St.Gallen3.2%/3.4%/4.0%
Central Switzerland
3.0%/3.6%/4.3%
Southern Switzerland
3.3%/3.7%/4.1%
Jura3.5%/4.1%/4.7%
Lake Geneva Region
3.1%/3.4%/4.5%
Northwestern Switzerland
3.3%/3.5%/4.3%
Zurich 3.0%/3.3%/4.1%
Eastern Switzerland
3.4%/3.7%/4.5%
Top 9 CitiesMin./Average/Max. %
Regions Min./Average/Max. %
Mittelland3.3%/3.7%/4.5%
The Region of Zurich (excl. Zurich city) again has the lowest ARYs of the bunch. The 3.0% minimum and 3.3% average ARYs are comparable to most Top 9 Cities. The Jura Region ranks at the opposite end of the spectrum with an average ARY of 4.1%. The highest maximum ARYs were stated for Jura, Eastern Switzerland, the Lake Geneva Region and the Mittelland (comprising cantons Berne, Fribourg and Solothurn).
Likely due to the greater heterogeneity of Regions as compared to Top 9 Cities, the gaps between minimum and maximum yields increased. Most notably, Jura and Central Switzerland exhibit the highest gaps, as low-yielding centers such as the cities of Zug and Neuchâtel stand in stark contrast to rural markets. When comparing the regional yields with the corresponding regional cities, the Mittelland exhibits the greatest spread in average ARYs over Berne (50 bps), while Southern Switzerland is evaluated the closest to Lugano, with a spread of only 20 bps.
Eastern Switzerland
Lake Geneva Region
Mittelland
Central Switzerland
Northwestern Switzerland
Southern Switzerland
Jura
ZurichZurich
Geneva
Basel
Berne
Lausanne
Winterthur
Lucerne
St.Gallen
Lugano
34 PwC Real Estate Investor Survey
Expected 5-year yield development for residential
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Switzerland – Residential
Geneva
Lausanne
Lucerne
Zurich
Berne
St.Gallen
Winterthur
Lugano
Basel
PwC Real Estate Investor Survey 35
Switzerland – Residential
For Zurich and Geneva, slightly more than half of the respondents project stagnating yields, while the rest projects a small increase. For the remaining cities, the clear majority of respondents expect yield increases between 0.25% and 1.0% – the exception being Lausanne, where the respondents seem ambivalent between stable and slightly increasing yields.
Fig. 18 Letting parameters for Swiss residential market
Rent-free period (months) Marketing period (months)Annual market rent
growth rate
Top 9 Cities Min. Med. Max. Min. Med. Max.
Zürich 0.0 0.0 0.0 0.0 1.0 2.0 0.0%
Genf 0.0 0.0 0.0 0.0 1.0 2.5 0.0%
Basel 0.0 0.0 0.0 0.0 1.5 3.0 0.0%
Bern 0.0 0.3 0.5 0.0 2.0 4.0 0.0%
Lausanne 0.0 0.0 0.0 0.0 1.5 3.0 0.0%
Winterthur 0.0 0.3 0.5 0.5 3.8 7.5 0.0%
Luzern 0.0 0.0 0.0 0.8 1.5 2.5 0.0%
St.Gallen 0.0 0.3 0.5 0.0 1.5 3.0 0.0%
Lugano 0.0 0.0 0.0 0.0 1.5 3.0 0.0%
36 PwC Real Estate Investor Survey
All-risk-yields retail
4.2 OfficeAll-risk-yields Office spaces in Zurich and Geneva top the list with a minimum ARY of 2.5% and an average of 3.3% for both. At the bottom, we again see St. Gallen and Lugano with the highest yields. The mid-range with near-identical average values for ARYs is made up of Basel, Berne, Lausanne, Winterthur and Lucerne, ranging about 20 bps above the average for Zurich and Geneva.
The Zurich office market is apparently at the center of investors’ attention as it is the segment for which we received the highest amount of answers. As compared to residential, ARY views for offices in Zurich are among the most homogeneous (as indicated by the lowest interquartile range) along with Geneva, Basel and Berne, while more dissent exists for the remaining cities – most notably St. Gallen.
Switching to the Regions, the number of answers remains high, indicating a broad market knowledge among participants. The exception is Southern Switzerland, for which only a small number of investors were able to provide their views on ARYs.
Switzerland – Office
PwC Real Estate Investor Survey 37
Switzerland – Office
Again, Zurich Region tops the list, followed by Central Switzerland. Jura, Southern and Eastern Switzerland rank at the bottom with average ARYs of between 4.8% and 5.0%.
When comparing the Regions’ ARYs with those of the cities they surround, spreads are significantly wider compared to the residential category. At the lower end in this regard are Eastern and Central Switzerland as well as Zurich with a spread of less than 100 bps above the cities of St. Gallen, Lucerne and Zurich, respectively. The widest spread was observed for Southern Switzerland and the Lake Geneva Region, when compared to the cities of Lugano and Geneva.
Berne3.0%/3.5%/4.5%
Geneva2.5%/3.3%/4.5%
Lausanne3.0%/3.5%/4.4%
Basel3.0%/3.5%/4.5%
Zurich2.5%/3.3%/4.3%
Lucerne3.0%/3.5%/4.5%
Winterthur3.0%/3.5%/4.5%
Lugano3.2%/3.7%/4.3%
St.Gallen3.2%/4.0%/4.5%
Central Switzerland
3.8%/4.4%/5.1%
Southern Switzerland
4.5%/4.9%/6.4%
Jura4.5%/5.0%/7.0%
Lake Geneva Region
4.0%/4.5%/5.0%
Northwestern Switzerland
4.0%/4.5%/5.2%
Zurich 3.7%/4.2%/5.2%
Eastern Switzerland
4.2%/4.8%/5.3%
Top 9 CitiesMin./Average/Max. %
Regions Min./Average/Max. %
Mittelland4.0%/4.5%/5.5%
Fig. 19 ARYs for office in Swiss submarkets by region
Eastern Switzerland
Lake Geneva Region
Mittelland
Central Switzerland
Northwestern Switzerland
Southern Switzerland
Jura
ZurichZurich
Geneva
Basel
Berne
Lausanne
Winterthur
Lucerne
St.Gallen
Lugano
38 PwC Real Estate Investor Survey
Expected 5-year yield development for office
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Zurich
Berne
St.Gallen
Switzerland – Office
Winterthur
Lugano
Basel
Geneva
Lausanne
Lucerne
PwC Real Estate Investor Survey 39
Fig. 20 Letting parameters for the Swiss office market
Rent-free period (months) Marketing period (months)Extension
probabilityAnnual market rent
growth rate
Top 9 Cities Min. Med. Max. Min. Med. Max.
Zürich 0 2 7 3 6 12 70.0% –1%
Genf 0 4 8 3 8 12 60.0% –2%
Basel 0 3 6 3 7 12 70.0% 0%
Bern 0 3 6 2 7 12 70.0% 0%
Lausanne 0 2 6 3 6 12 70.0% 0%
Winterthur 0 3 6 3 6 12 70.0% 0%
Luzern 0 4 6 3 8 12 68.0% 0%
St.Gallen 2 4 6 3 9 12 68.0% –2%
Lugano 1 6 8 3 8 12 70.0% –2%
Switzerland – Office
40 PwC Real Estate Investor Survey
Switzerland – Retail
4.3 RetailHigh Street Retail
All-risk-yields Zurich tops the list with the lowest ARYs in the retail sector (minimum of 2.5%, average of 3.05%). This time, however, Switzerland’s largest city distances its peers: 25 bps separate Zurich’s average retail yields from those in Geneva, another 35 bps (i.e. 60 bps in total) from those in Basel. At the bottom of the bunch is Lugano with a 3.9% average ARY, followed by Lucerne and Winterthur with 3.8%.
For the Regions, the Lake Geneva Region (4.25% average ARY) and Central Switzerland (4.28%) move ahead of Zurich (4.40%). Notably, the Region of Zurich is the one exhibiting the largest spread above the city values with +135 bps for the average ARY, while it is lowest for Central Switzerland with 48 bps over Lucerne.
PwC Real Estate Investor Survey 41
Switzerland – Retail
Berne3.2%/3.7%/4.2%
Geneva2.5%/3.3%/4.0%
Lausanne3.2%/3.7%/4.3%
Basel3.1%/3.7%/4.4%
Zurich2.5%/3.1%/3.8%
Lucerne3.3%/3.8%/4.1%
Winterthur3.4%/3.8%/4.4%
Lugano3.5%/3.9%/4.6%
St.Gallen3.5%/3.7%/4.4%
Central Switzerland
3.9%/4.3%/4.5%
Southern Switzerland
4.4%/4.7%/5.0%
Jura4.3%/5.0%/5.6%
Lake Geneva Region
4.0%/4.3%/4.8%
Northwestern Switzerland
4.0%/4.9%/5.3%
Zurich 3.8%/4.4%/5.0%
Eastern Switzerland
4.3%/4.4%/4.7%
Top 9 CitiesMin./Average/Max. %
Regions Min./Average/Max. %
Mittelland4.3%/4.9%/5.5%
Fig. 21 ARYs for retail in Swiss submarkets
Eastern Switzerland
Lake Geneva Region
Mittelland
Central Switzerland
Northwestern Switzerland
Southern Switzerland
Jura
ZurichZurich
Geneva
Basel
Berne
Lausanne
Winterthur
Lucerne
St.Gallen
Lugano
42 PwC Real Estate Investor Survey
Expected 5-year yield development for high street retail
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Fig. 22 Letting parameters for the Swiss retail market
Rent-free period (months) Marketing period (months)Extension
probabilityAnnual market rent
growth rate
Top 9 Cities Min. Med. Max. Min. Med. Max.
Zürich 2 4 6 3 7 12 62.5% –2%
Genf 2 4 6 3 7 12 60.0% –3%
Basel 2 4 6 3 7 12 60.0% –4%
Bern 2 4 6 3 7 12 60.0% –1%
Lausanne 2 4 6 3 8 12 60.0% –2%
Winterthur 2 4 6 3 8 12 60.0% –3%
Luzern 2 4 6 3 8 12 60.0% 0%
St.Gallen 3 5 8 5 9 12 60.0% –3%
Lugano 3 5 5 5 9 12 57.5% –3%
Switzerland – Retail
Winterthur
Lugano
BaselZurich
Berne
St.Gallen
Geneva
Lausanne
Lucerne
PwC Real Estate Investor Survey 43
Non-High Street Retail
Switzerland – Retail
Exspected 5-year yield development for non-high street retail
< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)
Retail park
Supermarket
DIY store
Out-of-town shopping center
Fig. 24 Letting parameters for Swiss non-high street retail
Rent-free period (months)
Marketing period (months)
Extension probability
Min. Med. Max. Min. Med. Max.
Out-of-town shopping center 3 6 12 6 11 15 55.0%
Retail park 3 6 11 6 9 12 60.0%
Super market 3 6 9 6 9 12 70.0%
DIY store 3 6 12 6 11 18 60.0%
Fig. 23 ARYs for Swiss non-high street retail
All-risk-yield
Annual market rent growth rate
Min. Avg. Max.
Out-of-town shopping center 4.0% 4.7% 5.2% –1.0%
Retail park 4.0% 4.9% 5.4% 0.0%
Super market 3.7% 4.8% 5.2% 0.0%
DIY store 4.0% 5.0% 5.2% 0.0%
44 PwC Real Estate Investor Survey
Logistics
Switzerland – NOI Analysis
4.4 NOI AnalysisAs for the calculation of net operating income (NOI) for residential real estate, Swiss participants generally deducted non-recoverable operating expenses – comprised of service charges, maintenance expenses, property management and rent loss. About two thirds further deducted leasing commissions and Capex. While most participants agreed on the deductions per se, the dispersion of the answers (measured by the interquartile range) is above 500 bps for all three of the above cost groups.
For office properties, all respondents deducted non-recoverable operating expenses, comprised of service charges, maintenance expenses, property management and rent loss in their NOI calculations. Further, similar to residential investments, 62% of respondents included Capex for offices. As for leasing commissions and especially tenant improvements, the fraction of respondents deducting these items in their NOI calculation has increased significantly compared to residential investments: from 30% for tenant improvements and 62% for leasing commissions to 71% and 76%, respectively.
The dispersion in the size of the deduction is generally lower for office than for the residential category. The exception being leasing commissions, where the gap between the first and third quartile of all answers is above 700 bps.
Comparing the NOI calculation models for office spaces to those in the residential sector, deductions for NROE (+180 bps), tenant improvements and leasing commissions (+100 bps) are higher for offices, while the Capex deduction is estimated to be 175 bps lower.
In the retail space, NOI calculation models resemble those of office spaces. Virtually all respondents deducted non-recoverable operating expenses, comprised of service charges, maintenance expenses, property management and rent loss. Tenant improvements were deducted by 70%, leasing commissions by 85 % and Capex by 60% of respondents.
As for the size of the deduction, numbers largely correspond to those for office spaces, the only difference being a lower deduction for leasing commissions in the retail space.
PwC Real Estate Investor Survey 45
10.2%
10.5%
4.5%
Switzerland – NOI Analysis
Fig. 25 NOI calculation method Swiss residential
Fig. 26 NOI calculation method Swiss office
Fig. 27 NOI calculation method Swiss retail
5.0%
0% 5% 10% 15% 20% 25%
4.0%0.0%
3.0%0.0%
10.0%0.5%
2.0%
6.0%1.0%
20.3%
Max.Med.Min.
12,5%3.0%
9.4%
3.0%
Assumption sum of non-recoverable OpEx
Assumption non-recoverable service charges
Assumption maintenance expenses
Assumption property management
Assumption rent loss
Assumption tenant improvements
Assumption leasing commisions
Assumption Capex
5.0%
0% 5% 10% 15% 20% 25%
8.5%0.3%
5.0%0.3%
12.0%0.5%
0.0%
5.0%0.5%
23.0%
Max.Med.Min.
12.0%2.5%
9.0%
3.0%
Assumption sum of non-recoverable OpEx
Assumption non-recoverable service charges
Assumption maintenance expenses
Assumption property management
Assumption rent loss
Assumption tenant improvements
Assumption leasing commisions
Assumption Capex
4.2%
0% 5% 10% 15% 20% 25%
10.0%0.3%
3.0%1.0%
12.0%0.5%
0.0%
5.0%0.5%
20.5%
Max.Min.
10.0%1.0%
9.0%
3.0%
Assumption sum of non-recoverable OpEx
Assumption non-recoverable service charges
Assumption maintenance expenses
Assumption property management
Assumption rent loss
Assumption tenant improvements
Assumption leasing commisions
Assumption Capex
14.2%
2.5%
6.0%
1.0%
3.5%
1.0%
1.5%
6.0%
16.0%
2.0%
5.5%
2.0%
3.5%
2.0%
5.0%
4.3%
1.5%
Med.
16.0%
2.0%
5.8%
2.0%
3.5%
5.0%
4.3%
46 PwC Real Estate Investor Survey
5Overview of the results
Overview of the results
PwC Real Estate Investor Survey 47
Overview of the results
Fig. 28 Yield comparison Germany
6%
5%
4%
3%
2%
1%
0%
–1%
31/12/2014 30/06/2015 31/12/2015 30/06/2016 31/12/2016 30/06/2017 31.12.2017
PwC AVG ARY Office1
PwC AVG ARY Retail1
PwC AVG ARY Logistics2
CPI Index3
10-y Germany government bonds4
3-M-Euribor5
1 Source: AVG ARY includes only min ARY for Top7 Cities and Regional Cities2 Source: AVG ARY includes only min ARY for Top15 locations3 Source: Statistisches Bundesamt (Germany)4 Source: Bloomberg5 Source: ECB: Historical close, average of observations through period
1 Bundesamt für Statistik (Switzerland), 12 February 2018 2 Bloomberg 3 Swiss National Bank
Fig. 29 Yield comparison Switzerland
31.12.2017
PwC AVG ARY Residential (AVG ARY includes only min ARY for Top 9 Cities) 2.8%
PwC AVG ARY Office (AVG ARY includes only min ARY for Top 9 Cities)
2.9%
PwC AVG ARY Retail (AVG ARY includes only min ARY for Top 9 Cities)
3.1%
CPI Inflation1 0.8%
10-y Swiss government bond yield2 –0.1%
3-M Libor CHF3 –0.7%
48 PwC Real Estate Investor Survey
Overview of the results
Result overview for Germany
Fig. 30 Results overview for office
Current 6 months ago 12 months ago
Min. Med. Max. Annual market rent growth rate
Min. Med. Max. Min. Med. Max.
Top 7 Cities
Berlin 3.0% 4.2% 5.7% 3.6% 3.1% 4.3% 5.8% 3.5% 4.7% 6.1%
Düsseldorf 3.6% 4.7% 6.2% 1.7% 3.8% 5.0% 6.4% 4.0% 5.1% 6.3%
Frankfurt am Main 3.3% 4.3% 5.6% 1.9% 3.5% 4.5% 6.0% 3.8% 4.8% 6.2%
Hamburg 3.3% 4.3% 5.7% 1.5% 3.4% 4.5% 6.1% 3.6% 4.7% 6.1%
Cologne 3.7% 4.7% 6.0% 1.5% 3.8% 5.0% 6.6% 4.1% 5.2% 6.4%
Munich 3.0% 4.0% 5.1% 2.4% 3.0% 4.0% 5.3% 3.3% 4.2% 5.5%
Stuttgart 3.5% 4.4% 5.6% 1.7% 3.6% 4.6% 6.0% 3.8% 4.8% 6.0%
Regional Cities
Bonn 4.2% 5.2% 6.4% 1.5% 4.6% 5.5% 6.9% 4.7% 5.5% 6.9%
Bremen 4.7% 5.7% 6.9% 1.0% 4.9% 5.9% 7.2% 5.2% 5.9% 7.7%
Dortmund 4.7% 5.6% 6.8% 1.0% 4.9% 5.9% 7.2% 5.0% 5.8% 7.2%
Dresden 4.6% 5.6% 6.8% 1.3% 4.8% 5.8% 7.0% 5.1% 5.7% 7.4%
Duisburg 5.2% 6.2% 7.5% 0.6% 5.3% 6.3% 7.7% 5.6% 6.2% 8.0%
Erfurt 5.1% 6.0% 7.3% 0.9% 5.4% 6.3% 7.6% 5.7% 5.9% 8.0%
Essen 4.7% 6.0% 6.9% 1.0% 5.0% 5.9% 7.1% 5.3% 5.8% 7.5%
Karlsruhe 4.5% 5.3% 6.4% 1.3% 4.8% 5.7% 6.9% 5.0% 5.4% 7.4%
Hanover 4.4% 5.3% 6.6% 1.4% 4.6% 5.7% 7.0% 4.8% 5.5% 7.1%
Leipzig 4.5% 5.4% 6.6% 1.4% 4.7% 5.8% 7.3% 5.0% 5.7% 7.3%
Magdeburg 5.5% 6.5% 7.9% 0.6% 5.7% 6.6% 7.9% 6.2% 6.4% 8.7%
Wiesbaden & Mainz 4.4% 5.3% 6.6% 1.2% 4.7% 5.6% 7.1% 5.0% 5.6% 7.4%
Nuremberg 4.3% 5.2% 6.3% 1.3% 4.5% 5.5% 6.9% 4.9% 5.3% 7.2%
Rhine-Neckar MA/HD/LU 4.6% 5.4% 6.5% 1.4% 5.0% 5.7% 7.3% 5.2% 5.8% 7.5%
Regions
Lower Saxony & Schleswig-Holstein
5.3% 6.0% 7.3% 0.9% 5.5% 6.2% 7.6% 5.4% 6.0% 7.5%
Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg
5.3% 6.4% 7.7% 0.6% 5.6% 6.6% 7.9% 5.2% 6.1% 7.7%
Saxony & Thuringia & North of Hesse (zip code: 3xxxx)
5.5% 6.3% 7.7% 0.5% 5.8% 6.5% 7.9% 5.5% 6.2% 7.7%
North Rhine-Westphalia 5.0% 5.9% 7.3% 1.0% 5.2% 6.2% 7.5% 4.9% 5.8% 7.4%
Rhineland-Palatinate & Saarland
5.3% 6.1% 7.5% 0.8% 5.7% 6.3% 7.7% 5.5% 5.9% 7.6%
South of Hesse (zip code: 6xxxx) & Baden- Wuerttemberg
4.6% 5.5% 6.7% 1.4% 4.8% 5.6% 7.1% 4.8% 5.5% 6.9%
Bavaria 4.5% 5.3% 6.6% 2.0% 4.7% 5.5% 6.9% 4.9% 5.1% 6.9%
PwC Real Estate Investor Survey 49
Overview of the results
Fig. 31 Results overview for high street retail
Current 6 months ago 12 months ago
Min. Med. Max. Annual market rent growth rate
Min. Med. Max. Min. Med. Max.
Top 7 Cities
Berlin 3.1% 3.9% 4.9% 1.3% 3.2% 3.7% 4.5% 3.3% 4.1% 5.0%
Düsseldorf 3.3% 4.1% 5.0% 1.0% 3.4% 4.0% 4.9% 3.5% 4.2% 5.1%
Frankfurt am Main 3.1% 3.8% 4.9% 0.8% 3.2% 3.8% 4.6% 3.5% 4.3% 5.1%
Hamburg 3.2% 3.9% 5.1% 0.8% 3.2% 3.8% 4.6% 3.5% 4.2% 5.1%
Cologne 3.5% 4.1% 5.3% 0.4% 3.4% 3.9% 4.8% 3.6% 4.3% 5.2%
Munich 2.8% 3.6% 4.6% 1.4% 2.9% 3.5% 4.3% 3.0% 3.8% 4.5%
Stuttgart 3.4% 4.0% 5.0% 0.6% 3.3% 3.8% 4.4% 3.5% 4.1% 4.9%
Regional Cities
Bonn 4.0% 4.7% 6.0% (0.3%) 4.0% 4.7% 5.6% 4.3% 4.9% 6.0%
Bremen 4.3% 5.1% 6.2% 0.0% 4.4% 5.1% 6.0% 4.5% 5.4% 6.5%
Dortmund 4.1% 4.9% 6.1% (0.2%) 4.2% 4.9% 6.2% 4.5% 5.3% 6.5%
Dresden 3.9% 4.7% 6.1% 0.4% 3.9% 4.7% 5.8% 4.2% 5.1% 6.5%
Duisburg 4.8% 5.7% 7.2% (0.6%) 4.7% 5.6% 6.7% 5.1% 5.8% 7.4%
Erfurt 4.4% 5.2% 6.7% 0.0% 4.5% 5.2% 6.5% 4.9% 5.6% 6.8%
Essen 4.3% 5.3% 6.2% 0.0% 4.2% 5.0% 6.0% 4.6% 5.5% 6.6%
Karlsruhe 4.0% 4.8% 6.0% 1.0% 3.9% 4.7% 5.7% 4.4% 5.1% 6.4%
Hanover 3.9% 4.6% 5.9% 0.4% 4.0% 4.7% 5.9% 4.3% 5.1% 6.3%
Leipzig 4.1% 5.0% 6.1% 0.6% 4.0% 4.9% 5.8% 4.2% 5.1% 6.5%
Magdeburg 4.9% 6.0% 7.0% (0.4%) 4.9% 5.8% 6.9% 5.4% 6.0% 7.4%
Wiesbaden & Mainz 4.0% 4.9% 6.2% 0.4% 3.9% 4.7% 5.7% 4.5% 5.2% 6.6%
Nuremberg 3.9% 4.7% 6.0% 0.8% 3.8% 4.5% 5.5% 4.2% 5.0% 6.3%
Rhine-Neckar MA/HD/LU 4.0% 4.9% 6.0% 0.6% 4.2% 5.0% 6.0% 4.5% 5.4% 7.0%
Regions
Lower Saxony & Schleswig-Holstein
4.6% 5.2% 6.8% (0.1%) 4.7% 5.7% 7.2% 5.1% 5.4% 7.6%
Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg
5.1% 6.1% 8.2% (0.3%) 5.0% 6.1% 7.8% 5.2% 6.0% 8.3%
Saxony & Thuringia & North of Hesse (zip code: 3xxxx)
5.1% 6.0% 8.1% (0.3%) 5.1% 5.9% 7.6% 5.5% 5.9% 8.1%
North Rhine-Westphalia 4.8% 5.4% 6.9% (0.2%) 4.9% 5.7% 7.3% 5.1% 5.5% 7.8%
Rhineland-Palatinate & Saarland
4.9% 5.8% 7.5% 0.3% 4.9% 5.8% 7.2% 5.2% 5.7% 7.6%
South of Hesse (zip code: 6xxxx) & Baden- Wuerttemberg
4.3% 5.2% 6.8% 0.6% 4.3% 5.3% 6.7% 4.6% 5.3% 7.0%
Bavaria 4.3% 5.1% 6.2% 0.2% 4.2% 5.1% 6.4% 4.4% 5.1% 6.5%
50 PwC Real Estate Investor Survey
Overview of the results
Fig. 33 Results overview for logistics
Current 6 months ago 12 months ago
Min. Med. Max. Min. Med. Max. Min. Med. Max.
Top 15 Locations
Berlin 4.7% 5.8% 7.2% 4.9% 6.2% 7.2% 5.1% 5.9% 7.4%
Düsseldorf/Cologne 4.7% 5.8% 7.2% 4.9% 6.1% 7.2% 5.1% 6.1% 7.5%
Rhine-Main/Frankfurt 4.6% 5.7% 6.9% 4.9% 6.1% 7.1% 5.0% 5.7% 7.2%
Hamburg 4.6% 5.8% 7.1% 4.8% 6.1% 7.1% 5.1% 6.0% 7.3%
Munich 4.5% 5.6% 6.7% 4.7% 5.9% 6.9% 5.0% 5.7% 7.1%
Stuttgart 4.5% 5.6% 6.9% 4.9% 6.0% 7.1% 5.1% 6.1% 7.3%
Bremen/North Sea ports 5.2% 6.4% 7.6% 5.5% 6.7% 7.5% 5.5% 6.5% 7.3%
Dortmund 4.9% 5.9% 7.2% 5.4% 6.6% 7.6% 5.5% 6.4% 7.6%
Halle/Leipzig 5.2% 6.4% 7.8% 5.5% 6.8% 7.7% 5.5% 6.4% 7.7%
Hanover/Braunschweig 5.1% 6.4% 7.7% 5.6% 6.8% 7.7% 5.5% 6.4% 7.6%
Kassel/Göttingen 5.2% 6.3% 7.6% 5.4% 6.6% 7.6% 5.5% 6.5% 7.6%
Lower Bavaria 5.1% 6.3% 7.6% 5.5% 6.7% 7.5% 5.3% 6.5% 7.5%
Nuremberg 5.0% 6.1% 7.2% 5.5% 6.6% 7.5% 5.5% 6.4% 7.4%
Rhine-Ruhr 4.8% 5.9% 7.0% 5.3% 6.5% 7.5% 5.5% 6.4% 7.7%
Ulm 5.0% 6.2% 7.6% 5.7% 6.8% 7.7% 5.7% 6.5% 7.7%
Small Locations
Small Locations 5.6% 6.4% 7.9% 6.1% 6.8% 8.0% 6.1% 6.6% 8.0%
Fig. 34 Overview participants Germany
Retail Mix Logistics Office
Participant investment focus
57%
21%
9%
13%
Investment Manager Developer Private Equity
Participant type
13%
13%
74%
Fig. 32 Results overview for non-high street retail
Current 6 months ago 12 months ago
Min. Med. Max. Annual market rent growth rate
Min. Med. Max. Min. Med. Max.
Out-of-town shopping center 4.5% 5.7% 7.1% (0.1%) 4.3% 5.4% 7.0% 4.6% 6.3% 8.0%
Retail park 4.8% 5.6% 7.2% 1.2% 4.7% 5.7% 7.8% 5.1% 6.8% 8.2%
Super market 5.3% 6.1% 7.8% 1.1% 5.2% 6.2% 8.9% 5.4% 6.8% 8.4%
DIY store 5.7% 6.4% 8.3% 0.4% 5.7% 6.6% 9.0% 6.2% 7.5% 9.0%
PwC Real Estate Investor Survey 51
Overview of the results
Result overview for Switzerland
Fig. 35 Results overview for residential
All-risk-yield (current)Annual market rent
growth rate
Top 9 Cities Min. Med. Max.
Zürich 2.5% 2.9% 3.5% 0.0%
Genf 2.5% 3.0% 3.5% 0.0%
Basel 2.8% 3.2% 3.7% 0.0%
Bern 2.7% 3.2% 3.7% 0.0%
Lausanne 3.0% 3.3% 3.6% 0.0%
Winterthur 3.0% 3.3% 3.7% 0.0%
Luzern 2.8% 3.3% 3.9% 0.0%
St.Gallen 3.2% 3.4% 4.0% 0.0%
Lugano 3.1% 3.5% 3.9% 0.0%
Regions
Zurich 3.0% 3.3% 4.1% 0.0%
Northwestern Switzerland 3.3% 3.5% 4.3% 0.0%
Central Switzerland 3.0% 3.6% 4.3% 0.0%
Eastern Switzerland 3.4% 3.7% 4.5% –0.8%
Southern Switzerland 3.3% 3.7% 4.1% –0.5%
Jura 3.5% 4.1% 4.7% –1.0%
Lake Geneva Region 3.1% 3.4% 4.5% 0.0%
Mittelland 3.3% 3.7% 4.5% –0.3%
Fig. 36 Results overview for office
All-risk-yield (current)Annual market rent
growth rate
Top 9 Cities Min. Med. Max.
Zürich 2.5% 3.3% 4.3% –1.0%
Genf 2.5% 3.3% 4.5% –2.0%
Basel 3.0% 3.5% 4.5% 0.0%
Bern 3.0% 3.5% 4.5% 0.0%
Lausanne 3.0% 3.5% 4.4% 0.0%
Winterthur 3.0% 3.5% 4.5% 0.0%
Luzern 3.0% 3.5% 4.5% 0.0%
St.Gallen 3.2% 4.0% 4.5% –1.5%
Lugano 3.2% 3.7% 4.3% –2.0%
Regions
Zurich 3.7% 4.2% 5.2% –1.5%
Northwestern Switzerland 4.0% 4.5% 5.2% –1.5%
Central Switzerland 3.8% 4.4% 5.1% –1.0%
Eastern Switzerland 4.2% 4.8% 5.3% –1.5%
Southern Switzerland 4.5% 4.9% 6.4% –0.5%
Jura 4.5% 5.0% 7.0% –1.0%
Lake Geneva Region 4.0% 4.5% 5.0% –2.5%
Mittelland 4.0% 4.5% 5.5% –2.0%
52 PwC Real Estate Investor Survey
Overview of the results
Residential Office Mix Investment Manager Developer Pension Fund
Participant investment focus
92%
4% 4%
Participant type
13%
26%
61%
Fig. 39 Overview participants Switzerland
Fig. 37 Results overview for high street retail
All-risk-yield (current)Annual market rent
growth rate
Top 9 Cities Min. Med. Max.
Zürich 2.5% 3.1% 3.8% –2.0%
Genf 2.5% 3.3% 4.0% –3.0%
Basel 3.1% 3.7% 4.4% –4.0%
Bern 3.2% 3.7% 4.2% –1.0%
Lausanne 3.2% 3.7% 4.3% –2.0%
Winterthur 3.4% 3.8% 4.4% –3.0%
Luzern 3.3% 3.8% 4.1% 0.0%
St.Gallen 3.5% 3.7% 4.4% –3.0%
Lugano 3.5% 3.9% 4.6% –3.0%
Regions
Zurich 3.8% 4.4% 5.0% –2.5%
Northwestern Switzerland 4.0% 4.9% 5.3% –3.5%
Central Switzerland 3.9% 4.3% 4.5% –3.0%
Eastern Switzerland 4.3% 4.4% 4.7% –3.0%
Southern Switzerland 4.4% 4.7% 5.0% –4.5%
Jura 4.3% 5.0% 5.6% –3.0%
Lake Geneva Region 4.0% 4.3% 4.8% –4.0%
Mittelland 4.3% 4.9% 5.5% –2.8%
Fig. 38 Results overview for non-high street retail
ARY (current) Annual market rent
growth rate
Min. Med. Max.
Out-of-town shopping center 4.0% 4.7% 5.2% –1.0%
Retail park 4.0% 4.9% 5.4% 0.0%
Super market 3.7% 4.8% 5.2% 0.0%
DIY store 4.0% 5.0% 5.2% 0.0%
PwC Real Estate Investor Survey 53
Overview of the results
54 PwC Real Estate Investor Survey
Approach and Definitions
6Approach and Definitions
In our survey, we concentrated on all-risk-yields or ARYs, as these reflect the relationship (capitalisation rate) between stabilised net operating income (NOI) and an expected purchase price. It thus takes into account the individual risk-return relationship and provides an insight into future market trends and developments in rent levels. The ARY is the capitalisation rate that is used in the direct capitalisation method. The ARYs presented in our results are a simple average of the single data points received for the respective submarkets.
To account for a broader market – comprising Core, Core+, and Value-Add properties – we put the ARYs into three categories: minimum (Core), maximum (Value-Add) and average (Core+). Using office properties in Frankfurt as one example, we have defined these categories as follows:
PwC Real Estate Investor Survey 55
Approach and Definitions
Regarding the retail sector, we separated in-town high street retail from location-independent retail. Out-of-town shopping centres, retail parks, single grocery stores and DIY stores represent typical subclasses of the location-independent retail market. Within location-independent retail, we view macro-locations to be of less importance, given that individual competition, performance and accessibility are the factors driving the value of such retail properties. As a result, we have divided the definition of retail as follows:
Fig. 40 Classification of the range of ARYs for the office market
Location WAULT Vacancy Age
Office
Min. CBD (eg, Frankfurt Financial District) > 5 ~5%–10% < 5 years
Average Immediate vicinity to CBD (eg, Frankfurt trade fair)
~5 ~10%–15% ~5–20 years
Max. Peripheral office locations (eg, Frankfurt-Niederrad)
< 4 >15%–40% < 25 years
Fig. 41 Classification of the range of ARYs for high street retail
Location/retail class WAULT Vacancy Age
High street retail
Min. City centre high street or 1a shopping centre (Frankfurt Goethestrasse)
> 5 < 5% < 5 years
Average Lesser frequented sections of the high street
~5 ~5% ~5–15 years
Max. Close proximity to the high street, within 100m distance
< 4 ~20% > 15 years
Fig. 42 Classification of the range of ARYs for location-independent retail
Competition WAULT Vacancy Age
Location-independent retail
Min. Dominant situation > 5 < 5% < 5 years
Average In competition with equal competitors ~5 ~5% ~5–15 years
Max. Inferior to competitors < 4 ~25% > 15 years
For logistics properties we have defined three categories (minimum, maximum and average) as follows:
Fig. 43 Classification of the range of ARYs for the logistics market
Motorway access Third party usability WAULT Age
Logistics
Min. < 5 minutes excellent ~10 < 5 years
Average ~5–15 minutes good ~5 ~5–20 years
Max. > 15 minutes limited < 4 > 25 years
The maximum yield does not cover assets that cannot be valued with a direct capitalisation method – that is to say, where there is no sustainable cash flow or opportunistic development assets.
56 PwC Real Estate Investor Survey
Approach and Definitions
German submarketsBased on Germany’s geographical structure, we have identified three categories of markets for office and retail properties: i) Top 7 Cities, ii) Regional Cities and iii) Regions. The Top 7 Cities reflect the ARYs of the seven most populated cities in Germany. Regional Cities represent a selection of 13 cities with a population ranging from 200,000 to 600,000. The Regions provide the yields in the respective areas, excluding all Top 7 Cities and Regional Cities.
We identified two additional markets for logistics properties which result from varying location requirements: i) Top 15 Locations and ii) Small Locations. The Top 15 Locations reflect the ARYs of the 15 most successful logistics locations in Germany in respect of the investment volume of the last five years and prime yields of the last two years. Small Locations represent the remaining established logistics regions in Germany.
Top 7 Cities 14 Regional Cities 7 Regions
rt
Fig. 44 Identified German submarkets for office and retail
Fig. 45 Identified German submarkets for logistics
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Approach and Definitions
Switzerland submarketsWe introduce two categories for the Swiss market – Top9 Cities and eight Regions. The map below reflects our definition.
Top 9 Cities 8 Regions
Fig. 46 Identified Swiss submarkets
In addition to ARYs, we have been covering market-specific letting assumptions since the third issue of the PwC Real Estate Investor Survey Germany. In the course of our research, we asked for typical Market Rent Growth Rates, Rent-Free Periods, Reletting Periods and Prolongation Probabilities for the market in question.
The rental growth rate is defined as the expected average annual rental growth rate over the next five years. Respondents provided a range and median for Rent-Free Periods and Reletting Periods (both in months) that are typically observed in the respective markets. The given underlying lease length is set at 7.5 years.
It is worth noting that we do not use a textbook definition of NOI. Our survey takes investment strategies into account and thus varies significantly among participants. We tried to identify which parameters are included in the NOI and which are accounted for below NOI. The results for the office and retail NOI calculation methods are provided in the respective sections.
We do not aim to obtain a uniform average ARY and so we have not adjusted single ARYs for a respective NOI calculation method. The resulting average office, retail or logistics ARYs are to be read as an average of single data points.
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Authors
Authors
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PwC Real Estate Investor Survey 59
Maximilian HelmReal Estate DealsTel: +49 69 9585-2453Mobile: +49 171 7582018E-mail: [email protected]
Irina LindnerReal Estate DealsTel: +49 69 9585-1344Mobile: +4915158416790E-mail: [email protected]
Adam OlekReal Estate DealsTel: +49 69 9585-6092Mobile: +4915125401562E-mail: [email protected]
Authors
AcknowledgmentWe would like to thank our German colleagues Vi-Phong Ly, Robert Rauch, Sarah Schraub, Stephanie Angioletti as well as our Swiss colleagues Miriam Becker, Matthias Bernold, Laura Blaufuss, Marco Böhi, Arnaud Egéa, Dennis Geyik, Imelda Hecht, Rubina Insam for their helpful contributions to this survey.
Thomas Veith Real Estate DealsTel: +49 69 9585-5905Mobile: +49 175 4340515E-mail: [email protected]
Olga DentzelReal Estate DealsTel: +49 69 9585-2460Mobile: +49 151 62427945E-mail: [email protected]
Jan CorneliusReal Estate DealsTel: +49 69 9585-3435Mobile: +49 160 7434663E-mail: [email protected]
Marie SeilerReal Estate AdvisoryTel: +41 58 792-5669Mobile: +41 79 8289635E-mail: [email protected]
Samuel BernerReal Estate AdvisoryTel: +41 58 792-1739Mobile: +41 79 4820598E-mail: [email protected]
Kevin SchmokerReal Estate AdvisoryTel: +41 58 792-1548Mobile: +41 79 2990431E-mail: [email protected]
PwC Germany
PwC Switzerland
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PwC Real Estate Practice
60 PwC Real Estate Investor Survey
PwC Real Estate Practice
PwC Real Estate Investor Survey 61
PwC Real Estate Practice
Germany
AdvisorySusanne Eickermann-RiepeFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5909E-mail: [email protected]
Thomas VeithFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5905E-mail: [email protected]
Dirk HennigKapelle-Ufer 410117 BerlinTel: +49 30 2636-1166E-mail: [email protected]
Dirk KadelFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5583E-mail: [email protected]
Dr. Harald HeimKapelle-Ufer 410117 BerlinTel: +49 30 2636-1354E-mail: [email protected]
Thorsten SchniedersBernhard-Wicki-Straße 880636 MunichTel: +49 89 5790-6448E-mail: thorsten.schnieders@ pwc.com
Dr. Andreas SchillhoferFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5533E-mail: andreas.schillhofer@ pwc.com
AssuranceEva HandrickFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-2217E-mail: [email protected]
Gregory HartmanKapelle-Ufer 410117 BerlinTel: +49 30 2636-4214E-mail: [email protected]
Uwe RittmannMoskauer Straße 1940227 DüsseldorfTel: +49 211 981-1998E-mail: [email protected]
Tax & LegalUwe StoschekKapelle-Ufer 410117 BerlinTel: +49 30 2636-5286E-mail: [email protected]
Dr. Michael A. MüllerKapelle-Ufer 410117 BerlinTel: +49 30 2636-5572E-mail: [email protected]
Helge DammannKapelle-Ufer 410117 BerlinTel: +49 30 2636-5222E-mail: [email protected]
Marcel MiesMoskauer Straße 1940227 DüsseldorfTel: +49 211 981-2294E-mail: [email protected]
Sven BehrendsBernhard-Wicki-Straße 880636 MunichTel: +49 89 5790-5887E-mail: [email protected]
Josip Oreskovic-RipsFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-6255E-mail: josip.oreskovic-rips@ pwc.com
Nathan GelbartKapelle-Ufer 410117 BerlinTel: +49 30 2636-3360Mobile: +49 151 54345764E-mail: [email protected]
Switzerland
AdvisoryKurt RitzBirchstrasse 1608050 ZürichTel: +41 58 792-1449E-mail: [email protected]
TaxVictor MeyerBirchstrasse 1608050 ZürichTel: +41 58 792-4340E-mail: [email protected]
AssuranceAdrian KellerBirchstrasse 1608050 ZürichTel: +41 58 792-2309E-mail: [email protected]
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