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PwC Real Estate Investor Survey Cap rates and letting assumptions for selected German, Swiss and Polish submarkets

Spotlight 2030 – Brave New Real Estate 2

Germany, Switzerland and Poland

Volume 9March 2019

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 2019 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 Volume 9 Germany, Switzerland, and Poland

Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft

March 2019, 71 pages, 55 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.PwC Real Estate Investor Survey Germany, Switzerland, and Poland.

PwC Real Estate Investor Survey 3

Contents

PwC Real Estate Investor Survey 3

Introduction .................................4

Germany – Office ................ 13Germany – Retail ................. 17High Street Retail .............................17Non-High Street Retail .....................21

Germany – Logistics ............. 23Germany – NOI Analysis ...... 26

Poland – Office ....................46Poland – Logistics ................ 49Poland – NOI Analysis .......... 52

Switzerland – Residential ..............29Switzerland – Office ......................33Switzerland – Retail ......................37High Street Retail ......................................... 37Non-High Street Retail ................................. 41Switzerland – NOI Analysis ............43

Contents

Approach and Definitions ....... 62

Overview of the results ........ 53

Spotlight .............................................92030 – Brave New Real Estate

PwC Real Estate Investor Survey 4

Introduction

1In addition to presenting data covering the German and Swiss markets, in this issue of the PwC Real Estate Investor Survey we have also interviewed Polish investors and retrieved data on submarkets in Poland. The current market trends are reflected in the “all-risk-yields” (ARYs) which represent the relationship between the stabilised net operating income (NOI) and net purchase price.

In Germany, we note investors’ restated interest in the Top 7 Cities office properties and their positive outlook for logistic assets – the asset class that experienced the highest compression.

In Switzerland, residential yields for the peripheral regions compressed and moved closer to those in the Top 9 Cities. Retail yields increased across the board as investors become more pessimistic about this asset class.

In Poland, respondents in both office and logistics sectors (investors and developers), expect growth potential, both in terms of volume and the number of transactions, which will bring the market’s maturity closer to that of the Western-European markets.

In addition, we interviewed Ivan Nokhrin, founder of Exquance, and discussed with him how digitalisation and PropTechs solutions will change the real estate industry.

We gather out data by interviewing various types of market participants. For an overview of the participants and for our approach and definitions, please refer to section 6 and 7 respectively.

Introduction

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Introduction

Increasing Stable Decreasing

100%

Poland

Fig. 1 Interest rate expectation

Short term Medium term Long term

Increasing Stable Decreasing

Germany14%

64%

36%

86%

7%6%

87%

Increasing Stable Decreasing

Switzerland 12%

75% 88%

25%

4%4%

92%

93%▲▲

Will yields increase in line with interest rate development?

Fig. 2 Investors’ expectations regarding cap rates

86%▲▲

86%▲▲

▲▲ 67% 73%▲▲

9%▲▲

71%▲▲

86%▲▲

29%▲▲

Will rental growth compensate increasing cap rates?

Does this differ between primary and secondary markets?

Germany

Switzerland

Poland

Yes No

Yes No

Yes No

14%

86%

14%

86%

PwC Real Estate Investor Survey 6

Introduction

GermanyIn line with the survey results six months ago, investors still believe that the short-term interest rates will remain stable over the next 12 months, while the long-term interest rates are expected to increase. Also similar to the view six months ago, 64% of the survey respondents are of the opinion that the medium-term interest rates will increase over the next five years. However, respondents emphasised that the recent developments of the interest rates are contrary to their expectations; which makes future predictions difficult.

The majority of the survey respondents (93%) believe that yields will increase in line with the expected increase in the interest rates. Compared to the previous survey results, an increasing number of investors (67% vs. 47% six months ago) believe that rental growth will compensate for the increasing cap rates.

Switzerland Interest rate expectations remained relatively stable over the past six months. In the short-term, an overwhelming majority of investors expects the rates to stick to the current low level, while only few of the survey respondents expect the short-term interest rates to either increase or further decrease. In the medium-term, three quarters of the investors are convinced that the rates will increase while one quarter does not expect a change in the interest rate regime within the next 5 years. In the long-term, i.e. over a span of six to ten years, only 12% of respondents keep expecting no changes in the interest rates. The remaining 88% anticipate an increase.

PolandAll of the Polish survey respondents believe that the short-term interest rates willremain stable over the next 12 months. In contrary to Germany and Switzerland, majority (86%) of the Polish investors expect the medium-term interest rates to also remain stable. However, the long-term rates are expected to increase. The majority of the survey respondents (86%) believe that the real estate yieldswill increase in line with the expected increase in the interest rates.

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Introduction

Office

Retail

GermanyThe Top 7 Cities have reverted to experiencing a slight yield compression across all risk classes compared to the previous issue six month ago, where the minimum ARYs have reached a stable plateau. Berlin has taken Munich’s top rank position of the most expensive prime office properties by a slight margin.

The overall expectation of rental growth throughout the Top 7 Cities remains high; with Berlin still being in the lead with 3.7% p.a.

The negative sentiment continues to affect the retail market as the uncertainty about the market developments lingers. Thus, for the first time in 12 months, the yield compression in the core and core plus properties has stopped. Value add properties in the Top 7 Cities and Regional Cities show a yield compression of 12 bps and 22 bps respectively.

Logistics

The high demand for logistics assets is continuing to spread to risky properties and Small Locations (outside the Top 15 Locations). The compression levels in core and core plus properties were even sharper than the compression experienced six months ago. These high yield compressions do not come as a surprise given the fact that the logistics market has experienced the highest transaction volume in a decade.

PwC Real Estate Investor Survey 8

Introduction

Residential

Office

Switzerland

Retail

Yields in the Top 9 Cities remained relatively stable. Zurich and Geneva remain at the top with core assets priced at 2.2% and 2.3% ARY, respectively. Lugano is the only city that experienced a yield increase across all properties over the past six months, while in Lucerne and St. Gallen yields increased only for core plus and value add assets. In the Regions, we observed widespread yield compression, especially in Central, Eastern and Southern Switzerland and the Mittelland.

Office yields moved sideways for most of the Top 9 Cities. ARYs in Zurich increased slightly on the low and high end, bringing them to the same levels as Geneva. Berne, Winterthur, Zug and St. Gallen also experienced slight increases in yields. Peripheral office yields decreased in Eastern and Southern Switzerland, the Mittelland and the Lake Geneva Region, while increasing in Central Switzerland and the Alpine Region.

High-street retail yields increased slightly in the cities and rather strongly in the regions. Core properties in the cities of Basel, Berne and Lugano deviate from this norm with yield compressions of c. 15 bps. Southern Switzerland is the only region with stable yields compared to six months ago, while especially the Alpine Region, the Lake Geneva Region, the Mittelland and the canton of Zurich experienced notable increases in yields.

Office

PolandIn Warsaw, which has around 50% of the entire modern office buildings in Poland, the lowest ARY was 4.5%, and the highest was 7.6% On the other hand, in the two regional cities of Wrocław, and Kraków, each accounting for more than one million square meters of office space, yields ranged from 5.9% to 9.0% and from 5.7% to 8.5%, respectively.

Logistics

The major logistics regions are Warsaw, Katowice, Lodz, Poznań and Wroclaw. Additionally, the lower labour costs and the development of road infrastructure created opportunities for development of additional logistics regions such as Białystok, and Rzeszów. The ARYs in the logistics market ranged from 5.0%, to ca. 6.75%.

PwC Real Estate Investor Survey 9

2Spotlight2030 – Brave New Real Estate

Digitalisation has already created an immense impact in our everyday life and changed the way we interact, live, work and consume. So where will these changes lead our industry to in 2030? How will the acquisition process work in the future and what are the type of the properties that will be acquired? How will real estate be managed? These are some of the questions we discussed with Ivan Nokhrin (IN), Founder of Exquance.

Spotlight

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Spotlight

The most typical example of how these developments have affected the real estate industry can be observed in the retail market. As more and more consumers are shopping online, the typical retail tenants have to adopt new strategies to achieve sufficient turnover. This impacts the area they lease; in terms of quality and quantity.

Investors and asset managers are also changing their attitude towards digitalisation and are looking for ways to improve their daily operations with technology.

We believe that within the next three to five years, the focus will heavily be on digitalisation and structuring of data. Thousands of PropTech solutions existing currently will continue to develop and merge together.

PwC: So Ivan, when we talk about the letting space for different asset types, do you expect any change in its function? IN: Yes, the increase in the mixed-use asset class will become more prominent in the future. A typical example is department stores. Even at the best locations, the ground floor is the only performing space for retailers. The upper floors struggle to attract customers. In the future, these top floors will have to be utilised, be it by using these spaces for office, residential or logistics. Thus, in the future a pure retail property will be turned into a mixed-used retail and office, residential or logistics.

It is not only the blending of space but also the introduction of entertainment components and a common space that mark the current changes specially in retail but also in other asset classes. Shared living is a good example with common fitness and food areas. As for retail, entertainment will take up more than 50% of the letting space in the future.

Logistics will get a distinctive gap between the ones closer to a fabrication process and the ones closer to retail. Previously the trend was to have a production process where the production costs were low and then transport the goods to consumers. In the future, production of goods will move to the areas where these goods will be consumed. This is due to personification of goods and the increasing transportation costs1. The logistics properties linked to the production will be located close to the production centers. Logistics linked to retail will move closer to the end consumers taking up the space which is unattractive for retailers or other type of uses.

PwC: What about big data? What influence will this have on the letting space?IN: In my opinion the availability of big data will increase sharply and it will even become a commodity. For example in retail, information around visitors’ flow will become key as you then can precisely analyse the attractiveness and suitability of a certain space.

Office will also be influenced by big data. By analysing big data owners and asset managers will be able to determine how many employees spend time in the office, and for how long. It will also help them to understand the best type of space needed; common areas or own desks.

PwC: As different types of use will merge into mixed-use, will this create a need to adopt the investment strategies?IN: You have to look at this from a different angle. Historically, investors were looking for two types of strategies: stable long-term cash flows, or an initial investment which increases the value of the property and quick realisation of added value. These strategies will remain, however, the underwriting will be driven by big data. For instance, value add investors will have to account for the big data when determining the strategy of a property.

Ivan NokhrinFounder of Exquance

PwC Real Estate Investor Survey 101 transportation costs are estimated to increase by 40% in 2030 (C&W, 2018), PwC Analysis.

PwC Real Estate Investor Survey 11

PwC: Will the role of an asset manager change?IN: Just consider the big data example we just discussed. As retailers become able to analyse data, for example, on customer flow, they will prefer to have it in their own hands to improve attractiveness or entertainment rather than leaving this to asset managers.

PwC: Would you expect a “WeTrade” tenant to appear?IN: With no doubt, the retail sector will need a shared retail space in the future and we may call that “WeTrade”, similar to the WeWork concept in the office sector.

Another possible trend that is linked to this is the shrinking size of the retail space required. Nowadays the fixed costs of opening an online store is relatively low. Thus, every person with an attractive idea can easily become an entrepreneur. Nevertheless, I would expect that consumers would still demand personalised experiences offline. Therefore, demand for offline stores will not completely disappear. However, the size of retail space will shrink to a small and personalised pop-up store, or even pop-up shelves.

PwC: Will we observe any change in transactions? IN: Transactions will become more international. German open funds are the best example of how individual investors’ money will be pulled together to finance commercial real estate. Increase of transparency, crowdfunding and block chain would support the development of this trend and make commercial real estate more liquid.

Institutional money will find it more difficult to compete for standard mid-term projects. It will find less competition in projects which have an investment lifetime longer than the expected lifetime of an individual.

PwC: What will be the advisors role then in 2030?IN: With increase in data transparency and technology driven economy, the need for data crunching and benchmark gathering will disappear. Advisors should take a coaching role; develop the vision for the future and lead the market players closer to achieving this goal. Also they will create and support platforms on which buyers, sellers, tenants, and technology providers will communicate and exchange data and technology.

Spotlight

PwC Real Estate Investor Survey 11

PwC’s Digital Real Estate Cockpitthe future of the Real Estate Management

If you want to learn more, visit out page www.pwc.de/digital-real-estate

PwC Real Estate Investor Survey 12

3

Germany

PwC Real Estate Investor Survey 12

Germany

PwC Real Estate Investor Survey 13

3.1 OfficeThe Top 7 Cities have reverted to experience yield compression compared to the previous issue six month ago, where the minimum ARYs have reached a stable plateau. The yield compression (– 30 bps) was the highest for value add properties followed by core plus (–26 bps) and core (–15 bps).

Berlin, which has also experienced the strongest minimum ARYs compression of 21 bps, has taken Munich’s top rank position of the most expensive prime office properties, with a minimum ARY of 2.8%. Munich followed in the second place with a minimum ARY of 2.9% and yield compression of 6 bps. Frankfurt was the third most expensive city with a minimum ARY of 3.1% and yield compression of 18 bps.

Similar to the survey results six months ago, investors reported an average annual rent growth in the Top 7 Cities of 2.2%; with Berlin still being in the lead (3.7%), followed by Munich (2.4%). However, compared to the previous survey results, the annual rental growth has decreased for Munich (–38 bps), Frankfurt (–17 bps), Stuttgart (–6 bps), and Hamburg (–5 bps).

The average rent free period declined by more than 1 month in Berlin, Munich and Stuttgart, and between 0.25 and 1 month in the rest of the Top 7 Cities. The marking period remained the same only in Düsseldorf and Cologne, but decreased slightly in the rest of the Top 7 Cities. For all the Top 7 Cities, investors expect the five years yield to increase by 25 bps to 100 bps.

Regional Cities experienced a slight yield compression (–4 bps) for core properties and reached a stable plateau for core plus properties. Investors’ continuous search for suitable assets in Regional Cities have pushed down the minimum ARYs resulting in strong yield compression in Erfurt (–21 bps) and Mainz-Wiesbaden (–15 bps).

On the other hand, the ARY increased slightly (8 bps) for value add properties. The largest increase in ARYs were observed in Bonn (22 bps), Hanover (20 bps), and Dortmund (19 bps).

The Regions also experienced a slight increase in ARYs for core (3 bps) and core plus (8 bps) properties. The Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg region recorded the highest increase in ARYs across all risk classes; core (28 bps), core plus (12 bps), and value add (52 bps).

Also similar to the survey results six months ago, investors reported an average annual rental growth of 1.1% in the Regional Cities and 0.9% in Regions.

Germany – Office

PwC Real Estate Investor Survey 14

Fig. 3 ARYs for office in German submarkets

Stuttgart3.3%/4.3%/5.5%

Munich2.9%/3.6%/4.7%

Hamburg3.1%/4.0%/5.4%

Dusseldorf3.4%/4.1%/5.6%

Cologne3.6%/4.7%/5.9%

Frankfurt am Main3.1%/4.2%/5.5%

Berlin2.8%/3.6%/5.1%

Essen4.8%/5.8%/7.0%

Erfurt 5.0%/5.9%/7.2%

Dresden4.7%/5.8%/7.0%

Bremen4.6%/5.6%/6.9%

Duisburg 5.2%/6.1%/7.6%

Dortmund4.9%/5.8%/7.1%

Bonn4.2%/5.1%/6.5%

Rhine Neckar4.5%/5.4%/6.7%

Nuremberg 4.3%/5.2%/6.5%

Magdeburg5.7%/6.5%/7.8%

Hanover4.3%/5.4%/6.7%

Mainz-Wiesbaden4.4%/5.2%/6.7%

Leipzig4.5%/5.6%/6.9%

Karlsruhe4.5%/5.3%/6.5%

S.-Holstein & Low. Saxony

Bremen

Essen

Duisburg

Bonn

Karlsruhe

Rhine-NeckarMA/HD/LU

Nuremberg

Wiesbaden & Mainz

Dortmund

Hanover

Magdeburg

Leipzig

ErfurtDresden

Hamburg

Berlin

Dusseldorf

Cologne

Stuttgart

Munich

MV. & Sax.-A. & Brandenburg

North of Hesse & Thu. & Sax.

Bavaria

South of Hesse & BaWue

Rhineland-P. &Saarland

North Rhine- Westphalia

North of Hesse & Thu. & Sax.

5.5%/6.5%/7.9%

Rhineland-P. &Saarland

5.5%/6.1%/7.6%

South of Hesse & BaWue

4.6%/5.5%/6.6%

Bavaria4.7%/5.4%/6.6%

MV. & Sax.-A. & Brandenburg

5.6%/6.7%/7.9%

Low. Saxony & S.-Holstein

5.4%/6.1%/7.1%

North Rhine- Westphalia

4.8%/5.9%/7.7%

Germany – Office

Frankfurt am Main

Minimum AYRs movement compared

to last six months

Top 7 CitiesMin./Average/Max. %

Regional CitiesMin./Average/Max. %

RegionsMin./Average/Max. %

Top 7 CitiesMin./Average/Max. %

Regional CitiesMin./Average/Max. %

RegionsMin./Average/Max. %

PwC Real Estate Investor Survey 15

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Cologne

Munich

Dusseldorf

Stuttgart

BerlinFrankfurt a. M.

Hamburg

Germany – Office

Fig. 4 Letting parameters for German office market

Rent-free period (months) Marketing period (months) Extension propability Rent growth p.a.

Top 7 Cities Med. Dev. Med. Dev. Dev.

Berlin 2 3 75% 3.7%

Dusseldorf 4 5 67% 1.7%

Frankfurt am Main 4 5 69% 1.9%

Hamburg 3 4 70% 2.0%

Cologne 4 5 68% 1.7%

Munich 2 3 77% 2.4%

Stuttgart 2 4 73% 2.0%

PwC Real Estate Investor Survey 16

–0.17%

0.01%

0.01%

Germany – Office

5.6%

6.5%

5.2%

5.2%

5.4%

6.1%

6.7%

6.5%

5.9%

6.1%

5.5%

5.4%

4.0%

3.6%

4.1%

4.2%

4.7%

3.6%

4.3%

5.8%

5.8%

6.1%

5.9%

5.8%

5.3%

5.4%

5.1%

5.6%

Top 7 Cities

Berlin

Dusseldorf

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. 5 ARYs ranges and compression of minimum yields for German office market

2.8%

3.4% 5.6%

3.1% 5.5%

3.1% 5.4%

3.6% 5.9%

2.9% 4.7%

3.3% 5.5%

4.6% 6.9%

4.9% 7.1%

4.7% 7.0%

5.2% 7.6%

5.0% 7.2%

4.8% 7.0%

4.5% 6.5%

4.3% 6.7%

4.5% 6.9%

4.4% 6.7%

4.3% 6.5%

4.5% 6.7%

5.4% 7.1%

5.6% 7.9%

5.5% 7.9%

4.8% 7.7%

5.5% 7.6%

4.6% 6.6%

4.7% 6.6%

5.7%

–0.04%

0.06%

0.03%

0.00%

–0.21%

0.06%

–0.09%

–0.09%

–0.15%

–0.03%

–0.08%

0.00% 7.8%

5.1%

Average % six months agoMin. % Max. %

4.2% 6.5%

min ARY compression over six months

–0.11%

0.01%

0.28%

–0.03%

0.08%

–0.04%

0.01%

–0.17%

–0.18%

–0.10%

–0.06%

–0.16%

–0.21%

PwC Real Estate Investor Survey 17

3.2 Retail High Street Retail

The negative sentiment continues to effect the retail market as the uncertainty about the market developments lingers. Sellers continue to have high price expectations for the assets along with the general market conditions. However, investors are not prepared to buy these assets at such high prices. Thus, for the first time in 12 months, the yield compression for core and core plus properties has stopped. On average, ARYs have increased marginally by 8 bps for core and 7 bps for core plus properties in the Top 7 Cities. Berlin showed the strongest increase in the minimum ARY (15 bps) followed by Munich (11 bps) and Frankfurt (10 bps).

However, value add investments in the Top 7 Cities gained attractiveness. On average the yield compression was 12 bps; the highest being in Düsseldorf (–27 bps), followed by Stuttgart (–15 bps) and Berlin (-14 bps).

Compared to the survey results six months ago, the market rent growth rate has dropped slightly from 1% to 0.8% for the Top 7 Cities. Berlin had the largest drop of 27 bps, followed by Stuttgart (–25 bps), and Hamburg (–19 bps).

The average rent-free period across all the Top 7 Cities, except Cologne (four months), was three months. This remained the same as the results six months ago, except for Frankfurt, Düsseldorf and Hamburg, which decreased from four to three months. The marketing period also remained the same as the results six months ago, except for Frankfurt, which decreased from six to 5 months. Düsseldorf and Cologne take the longest to market with an average of six months marketing period, followed by Frankfurt and Hamburg with five months. The extension probabilities increased in all of the Top 7 Cities.

Investors expect the five years yield to remain at the same level in Düsseldorf, Cologne and Munich but to increase in Berlin, Frankfurt, Hamburg and Stuttgart.

The minimum ARYs at the Regional Cities remained at a similar level to the results six months ago. The largest increase in the minimum ARYs were observed in Magdeburg (24 bps), followed by Duisburg (21 bps) and Bremen (14 bps). On the other hand, yield compression continued for value add properties (–22 bps) also at Regional Cities as investors are expecting returns because of the low asset prices compared to the Top 7 Cities.

Apart from Dresden, Leipzig, Karlsruhe, and Rhine Neckar, where a slight rental growth (0.2%) has been observed, investors expect negative rental growths at all other Regional Cities.

The Regions showed yield compression across all risk classes; with the highest yield compression being 61 bps for value add properties. Across all Regions, rental growths are expected to be negative.

Germany – Retail

PwC Real Estate Investor Survey 18

Germany – Retail

Fig. 6 ARYs for high street retail in German submarkets

Essen4.4%/5.4%/5.9%

Erfurt 4.4%/5.1%/5.9%

Dresden4.0%/4.7%/5.5%

Bremen4.2%/5.1%/5.6%

Duisburg 5.0%/5.5%/6.7%

Dortmund4.2%/4.9%/5.8%

Bonn3.9%/4.7%/5.3%

Rhine Neckar4.0%/4.7%/5.5%

Nuremberg 3.9%/4.7%/5.5%

Magdeburg5.1%/5.7%/6.8%

Hanover3.9%/4.7%/5.3%

Mainz-Wiesbaden4.1%/4.9%/5.6%

Leipzig4.0%/4.8%/5.5%

Karlsruhe4.0%/4.8%/5.5%

Minimum AYRs movement compared

to last six months

Top 7 CitiesMin./Average/Max. %

Regional CitiesMin./Average/Max. %

RegionsMin./Average/Max. %

Top 7 CitiesMin./Average/Max. %

Regional CitiesMin./Average/Max. %

RegionsMin./Average/Max. %

Bremen

Essen

Duisburg

Karlsruhe

Nuremberg

Wiesbaden & Mainz

Dortmund

Hanover

Magdeburg

Leipzig

ErfurtDresden

Hamburg

Berlin

Dusseldorf

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.

5.2%/6.0%/6.7%

Rhineland-P. &Saarland

4.9%/5.5%/6.4%

South of Hesse & BaWue

4.4%/5.2%/5.8%

Bavaria4.4%/4.9%/5.8%

MV. & Sax.-A. & Brandenburg

5.0%/5.9%/6.6%

Low. Saxony & S.-Holstein

4.8%/5.6%/6.1%

North Rhine- Westphalia

4.5%/5.6%/6.7%

Stuttgart3.3%/3.9%/4.9%

Munich2.8%/3.5%/4.6%

Hamburg3.2%/3.9%/4.9%

Dusseldorf3.3%/4.1%/5.0%

Cologne3.4%/4.1%/5.2%

Frankfurt am Main3.2%/3.9%/4.9%

Berlin3.1%/3.9%/4.8%

S.-Holstein & Low. Saxony

Bonn

Rhine-NeckarMA/HD/LU

PwC Real Estate Investor Survey 19

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Cologne

Munich

Dusseldorf

Stuttgart

Berlin

Frankfurt a. M.

Hamburg

Fig. 7 Letting parameters for German high street retail

Rent-free period (months) Marketing period (months) Extension propability Rent growth p.a.

Top 7 Cities Med. Dev. Med. Dev. Dev.

Berlin 3 3 67% 1.1%

Dusseldorf 3 6 59% 0.8%

Frankfurt am Main 3 5 63% 0.8%

Hamburg 3 5 64% 0.6%

Cologne 4 6 59% 0.7%

Munich 3 4 68% 1.0%

Stuttgart 3 4 65% 0.7%

Germany – Retail

PwC Real Estate Investor Survey 20

0.04%

3.1%

3.3%

3.2%

3.2%

3.4%

2.8%

3.3%

4.2%

4.2%

4.0%

5.0%

4.4%

4.4%

4.0%

3.9%

4.0%

4.1%

3.9%

4.0%

4.8%

5.0%

5.2%

4.5%

4.9%

4.4%

4.4%

5.1%

3.9%

3.9%

3.9%

4.1%

3.9%

4.1%

3.5%

3.9%

4.9%

4.7%

5.5%

5.1%

5.4%

4.8%

4.7%

4.8%

5.7%

4.9%

4.7%

4.7%

4.7%

5.6%

5.9%

6.0%

5.6%

5.5%

5.2%

4.9%

5.1%

Germany – Retail

Fig. 8 ARYs ranges and compression of minimum yields for German high street retail

5.0%

4.9%

4.9%

5.2%

4.6%

4.9%

5.6%

5.8%

5.5%

6.7%

5.9%

5.9%

5.5%

5.3%

5.5%

5.6%

5.5%

5.5%

6.1%

6.6%

6.7%

6.7%

6.4%

5.8%

5.8%

6.8%

4.8%

5.3%

Average % six months agoMin. % Max. % min ARY compression over six months

Top 7 Cities

Berlin

Dusseldorf

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

0.14%

0.03%

0.06%

0.05%

0.21%

–0.02%

0.10%

0.16%

0.00%

0.02%

0.06%

0.00%

0.03%

–0.28%

–0.38%

0.09%

0.10%

–0.05%

0.24%

0.04%

0.10%

0.07%

0.01%

0.11%

0.05%

0.15%

–0.05%

PwC Real Estate Investor Survey 21

Non-High Street Retail

Out of the four non-high street retail asset classes, supermarkets are the most attractive asset class for investors, as they are the most e-commerce resilient asset class. This is evident by the high ARYs compression across all risk classes that supermarkets experienced. On the other hand, the ARYs for all risk classes of the out-of-town shopping centers increased.

While core and core plus retail parks and DIY stores have reached a stable plateau, value add retail parks experienced the strongest compression (–62 bps).

The rent-free period decreased for out-of-town shopping centers and retail parks, but it has increased for supermarkets and DIY stores. The marketing period increased for all asset classes while the extension probabilities decreased. Annual rent growth is expected to decrease for out-of-town shopping centers to –1.2% and to –0.1% for DIY stores but increase slightly for retail parks and supermarkets.

Germany – Retail

PwC Real Estate Investor Survey 22

Germany – Retail

Expected 5-year yield development

< –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

Fig. 9 ARYs and letting parameters for German retail market (excluding high street)

All-risk-yieldRent-free period

(months)Marketing period

(months) Extension probability Rent growth p.a.

Min. Med. Max. Med. Dev. Med. Dev. Dev. Med.

Out-of-town shopping center 4.6% 5.7% 7.3% 5 8 44% –1.2%

Retail park 4.3% 5.1% 6.7% 2 5 74% 0.5%

Super market 4.8% 5.8% 6.9% 2 5 73% 0.6%

DIY store 5.4% 6.4% 8.3% 5 5 63% –0.1%

PwC Real Estate Investor Survey 23

3.3 Logistics

ARYs have shown strong compression at the Top 15 Locations across all risk classes; core (–21 bps), core plus (–46 bps), and value add (–39 bps). The compression levels in core and core plus properties were even sharper than the compression six months ago.

The strongest ARY compression was observed in core plus properties, with the most significant being in Bremen/Bremerhaven/Wilhelmshaven (–82 bps) followed by Regensburg/Passau (–82 bps) and Hanover/Braunschweig (–60 bps). The strongest ARY compression for core properties was the highest in Regensburg/Passau (–32 bps), followed by Düsseldorf/Köln (–31 bps) and Rhein-Ruhr (–27 bps).

Among the core logistics properties, Munich ranked as the most expensive, with a minimum ARY of 4.2%, closely followed by Rhein-Main/Frankfurt (4.3%) and Berlin (4.3%).

The minimum ARY at Small Locations was higher than the minimum ARY of the Top 15 Locations. The highest ARY at Small Locations was for value add properties (7.2%), which is a –22 bps decline compared to the results six months ago. Core properties on the other hand had an ARY of 5%, which is – 34 bps less than the results six months ago.

The Rest of Germany is also experiencing strong yield compression, with the strongest ARY compression being in core plus properties (–77 bps).

These high levels of yield compression do not come as a surprise given the fact that the logistics market has recorded its second-best result of all time with a transaction volume of € 7.5 billion (JLL, 2019). Combined with investors’ continuous search for assets in an undersupplied market, more and more investors are moving towards Small Locations and Rest of Germany.

Investors experienced slightly higher rent growth compared to the results six months ago. The annual rental growth in the Top 15 Locations is expected to be 2.3% (compared to 2% six months ago). The rent growth is expected to be 1.3% in Small Locations and 0.3% in Rest of Germany (compared to 1% and 0% six months ago).

However, when it comes to letting parameters, Small Locations and Rest of Germany are gradually converging with those of the Top 15 Locations. The marketing period for the Top 15 Locations is five months, which is only one month shorter than the marketing period required for logistics properties at the Small Locations and Rest of Germany.

Investors expect the five years yield to decrease by 25 bps at the Top Locations and Rest of Germany, but stay at the same level for Small Locations.

Germany – Logistics

PwC Real Estate Investor Survey 24

Germany – Logistics

Top 15 Locations (Min./Average/Max. %) Motorways

Fig. 10 ARYs for logistics in German submarkets

Hamburg4.3%/5.3%/6.4%

Bremen/Bremerhaven/Wilhelmshaven4.9%/5.7%/6.7%

Berlin4.3%/5.3%/6.4%

Hanover/Braunschweig

4.8%/5.7%/6.9%

Kassel/Göttingen4.9%/5.8%/6.9%

Halle/Leipzig4.9%/5.7%/6.8%

Dortmund 4.7%/5.6%/6.5%

Dusseldorf/Cologne4.3%/5.3%/6.3%

Rhine-Ruhr 4.6%/5.6%/6.6%

Rhine-Main/Frankfurt

4.3%/5.2%/6.1%

Munich4.2%/5.1%/6.0%

Lower Bavaria4.8%/5.7%/6.8%

Stuttgart4.3%/5.3%/6.4%

Nuremberg4.7%/5.5%/6.5%

Ulm 4.9%/5.8%/7.0%

Small Locations (such as: Aachen, Saarbrücken, Karlsruhe/Freiburg, Osnabrück/

Münster, Rhein-Neckar, Bad Hersfeld, Erfurt, Augsburg,

Magdeburg, Dresden)5.0%/5.7%/7.2%

PwC Real Estate Investor Survey 25

Germany – Logistics

Fig. 11 ARYs ranges for logistics in German submarkets

Top 15 Locations

Berlin

Dusseldorf/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

4.3%

4.9%

6.4%

6.7%

4.3%

4.7%

6.3%

6.5%

4.3%

4.9%

6.1%

6.8%

4.3%

4.8%

6.4%

6.9%

4.2%

4.9%

4.7%

6.0%

6.9%

6.5%

4.3%

4.8%

4.6%

6.4%

6.8%

6.6%

4.9% 7.0%

5.0% 7.2%

Average % six months agoMin. % Max. %

Fig. 12 Letting parameters for German logistics market

Rent-free period (months) Marketing period (months) Extension probability Rent growth p.a.

Med. Med. Med. Med.

Top 15 Locations 3 5 77% 2.3%

Small Locations 5 6 75% 1.3%

5.7%

5.3%

5.6%

5.2%

5.7%

5.3%

5.7%

5.1%

5.8%

5.5%

5.3%

5.7%

5.6%

5.8%

5.7%

5.3%

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Small Locations

Top 15 Locations

PwC Real Estate Investor Survey 26

Logistics3.4 NOI Analysis

Office

Our participants generally include non-recoverable operating expenses, non-recoverable service charges, maintenance expenses, property management and rent loss into their calculation of Net Operating Income (NOI). Less than 30% of respondents include improvements, leasing commissions, and capital expenditure. These items are therefore largely treated as one-off items, which are considered below NOI.

Retail As with the results for office properties, our participants generally include non-recoverable operating expenses, non-recoverable service charges, maintenance expenses, property management and rent loss into their calculation of Net Operating Income (NOI). Less than 30% of respondents include improvements, leasing commissions, and capital expenditure. These items are therefore largely treated as one-off items, which are considered below NOI.

Germany – NOI Analysis

PwC Real Estate Investor Survey 27

Germany – NOI Analysis

0% 10% 20% 30% 40% 50%

13.0%1.0% 8.0%

50.0%3.0%

25.0%2.0% 3.0%

1.0% 6.5%3.25%

2.7% 18.8%9.3%

50.0%1.0% 13.0%

1.7% 8.0%

17.0%1.0% 3.0%

2.5%

Fig. 13 NOI calculation method for the office market

Fig. 14 NOI calculation method for the retail market

Max.Med.Min.

Assumption non-recoverable OpEx

Assumption tenant improvements

Assumption leasing commisions

Assumption Capex

Max.Med.Min.

Assumption non-recoverable OpEx

Assumption tenant improvements

Assumption leasing commisions

Assumption Capex

0% 10% 20% 30% 40% 50%

10.0%

PwC Real Estate Investor Survey 28

4

Switzerland

Switzerland

PwC Real Estate Investor Survey 28

PwC Real Estate Investor Survey 29

4.1 ResidentialResidential yields have remained relatively stable for most of the Swiss Top 9 Cities. ARYs for Zurich, Geneva, Basel, Berne, Lausanne and Winterthur have all compressed by less than 10 bps over the past six months. The only cities that saw an increase in yields are Lucerne, St. Gallen and Lugano. While Lucerne only saw an increase on the higher end (maximum ARY), St. Gallen also experienced increases in the average range and Lugano in all three categories. Interestingly, both St. Gallen and Lugano have already undergone significant increases in yields between the March 2018 and October 2018 issues of this survey. Nowadays, particularly average and maximum ARYs for these two cities are almost back at similar levels observed 12 months ago.

Outside the Top 9 Cities, ARYs either stagnated or fell, leading to an overall decrease in the spread over the urban centers. While yields in Zurich and Northwestern Switzerland remained stable, Central, Eastern and Southern Switzerland as well as the Mittelland experienced sizeable yield compression in the average and maximum range. ARYs for core properties did not change on average for all but two regions: Central Switzerland (–10 bps) and the Alpine Region (–20 bps).

The lack of changes, especially in low-yielding properties seems to indicate that the times of falling yields has come to a halt – at least over the past six months. These findings constitute a stark contrast to the October 2018 issue, which presented sizeable changes across the board compared to the March 2018 numbers. Also, investors are notably more aligned in their views than in previous issues as indicated by the relatively small dispersions among the answers.

Rental growth expectations remained stable at zero over the past six months. The exceptions are Basel, which is the only city with positive growth projections (+0.5%) and Lugano, where market rents are still expected to decrease by 0.5%. In the regions Zurich, Northwestern and Central Switzerland and the Lake Geneva Region, the interviewees do not anticipate any changes in rental growth. Meanwhile, investors are more pessimistic for Eastern Switzerland, the Alpine Region and the Mittelland compared to October 2018.

Switzerland – Residential

PwC Real Estate Investor Survey 30

Switzerland – Residential

Fig. 15 ARYs for residential in Swiss submarkets

Berne2.6%/3.0%/3.5%

Geneva2.3%/2.8%/3.3%

Lausanne2.5%/3.0%/3.5%

Basel2.5%/3.0%/3.5%

Zurich2.2%/2.8%/3.3%

Lucerne2.6%/3.2%/3.9%

Winterthur2.5%/3.0%/3.6%

Lugano3.0%/3.5%/3.8%

St.Gallen3.0%/3.3%/3.9%

Central Switzerland

2.9%/3.4%/4.0%

Southern Switzerland

3.4%/3.7%/4.2%

Alpine Region3.6%/4.1%/4.7%

Lake Geneva Region

3.0%/3.4%/4.0%

Northwestern Switzerland

3.0%/3.5%/4.3%

Zurich 2.9%/3.2%/4.0%

Eastern Switzerland

3.3%/3.6%/4.5%

Minimum AYRs movement compared

to last six months

Top 9 CitiesMin./Average/Max. %

Regions Min./Average/Max. %

Mittelland und Jura

3.3%/3.7%/4.5%

Eastern Switzerland

Mittelland und Jura

Central Switzerland

Northwestern Switzerland

Southern Switzerland

ZurichZurich

Geneva

Basel

Berne

Lausanne

Winterthur

St.Gallen

Lugano

Lucerne

Alpine RegionLake Geneva Region

PwC Real Estate Investor Survey 31

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Geneva

Lausanne

Lucerne

Zurich

Berne

St.Gallen

Winterthur

Lugano

Basel

Fig. 16 Letting parameters for Swiss residential market

Rent-free period (months) Marketing period (months) Rent growth p.a.

Top 9 Cities Med. Dev. Med. Dev. Med. Dev.

Zurich 0 1 0.0%

Geneva 0 1 0.0%

Basel 0 3 0.5%

Berne 0 3 0.0%

Lausanne 0 2 0.0%

Winterthur 0 4 0.0%

Lucerne 0 3 0.0%

St.Gallen 0 3 0.0%

Lugano 1 4 –0.5%

Switzerland – Residential

PwC Real Estate Investor Survey 32

Switzerland – Residential

Fig. 17 ARYs ranges and compression of minimum yields for Swiss residential market

Top 9 Cities

Zurich

Geneva

Basel

Berne

Lausanne

Winterthur

Lucerne

St.Gallen

Lugano

Regions

Zurich

Northwestern Switzerland

Central Switzerland

Eastern Switzerland

Southern Switzerland

Alpine Region

Lake Geneva

Mittelland und Jura

3.3%

3.9%

3.3%

3.9%

3.5%

3.8%

3.5%

3.5%

3.6%

4.3%

4.0%

4.0%

4.2%

4.5%

4.5%

4.0%

4.7%

2.2%

2.6%

2.3%

3.0%

2.5%

3.0%

2.6%

2.5%

2.5%

2.9%

3.0%

2.9%

3.4%

3.3%

3.3%

3.0%

3.6%

3.2%

2.8%

3.3%

3.0%

3.5%

3.0%

3.0%

3.0%

3.4%

3.5%

3.2%

2.8%

3.7%

3.6%

3.7%

3.4%

4.1%

Average % six months agoMin. % Max. %

–0.03%

–0.03%

–0.10%

0.00%

–0.10%

–0.10%

–0.20%

0.00%

0.40%

0.00%

0.00%

–0.10%

0.00%

0.05%

–0.20%

0.00%

0.00%

PwC Real Estate Investor Survey 33

All-risk-yields retail

4.2 OfficeOffice yields show a similar stability over the past six months as those in the residential markets. Average yields moved sideways in seven out of the Top 9 Cities, while only Zug and St. Gallen saw increases (+15 bps and +10 bps, respectively). Minimum and maximum yields in Zurich increased slightly, meaning that these properties are now priced at the same level as comparable ones in Geneva. Maximum ARYs further increased in Berne, Winterthur and especially in St. Gallen. This presents a contrast to the findings of the October 2018 issue of this study, when maximum ARYs fell significantly across all cities. The only high-risk properties that experienced continued yield compression are the ones in Lugano (–20 bps).

Outside the cities, core property yields only changed significantly in the Alpine Region (+45 bps) and remained virtually unchanged for the rest of the country. Investors also expect higher yields for average properties in the peripheral cantons that constitute that region (+25 bps), while keeping ARYs for high-risk properties unchanged. Compression for average properties could be observed in Eastern and Southern Switzerland with movements of –30 bps and –20 bps respectively over the past six months. Southern Switzerland along with the Lake Geneva Region and the Mittelland also experienced sizeable compression in high-risk properties.

Rent growth expectations indicate a stabilisation of rents over the upcoming 12 months. For Berne, St. Gallen and Lugano, investors have revised their negative expectations upwards. Geneva remains stable at –1% and Zurich is the only city where investors see some potential for increasing market rents (+0.3%).

Switzerland – Office

PwC Real Estate Investor Survey 34

Switzerland – Office

Berne2.8%/3.5%/4.2%

Geneva2.5%/3.1%/4.0%

Lausanne2.6%/3.3%/4.0%

Basel2.8%/3.4%/4.0%

Zurich2.5%/3.0%/4.0%

Zug2.6%/3.5%/4.1%

Winterthur2.8%/3.5%/4.2%

Lugano3.2%/3.6%/4.1%

St.Gallen3.0%/3.8%/4.5%

Central Switzerland

3.5%/4.4%/5.1%

Southern Switzerland

4.0%/4.5%/5.3%

Alpine Region4.0%/4.7%/5.5%

Lake Geneva Region

3.6%/4.5%/5.0%

Northwestern Switzerland

3.7%/4.4%/5.2%

Zurich 3.4%/4.0%/5.0%

Eastern Switzerland

3.8%/4.5%/5.5%

Mittellandund Jura

4.0%/4.6%/5.4%

Fig. 18 ARYs for office in Swiss submarkets

Minimum AYRs movement compared

to last six months

Top 9 CitiesMin./Average/Max. %

Regions Min./Average/Max. %

Eastern Switzerland

Mittelland und Jura

Central Switzerland

Northwestern Switzerland

Southern Switzerland

ZurichZurich

Geneva

Basel

Berne

Lausanne

Winterthur

St.Gallen

Lugano

Alpine Region

Zug

Lake Geneva Region

PwC Real Estate Investor Survey 35

Expected 5-year yield development

< –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

Winterthur

Lugano

Basel

Geneva

Lausanne

Zug

Switzerland – Office

Fig. 19 Letting parameters for Swiss office market

Rent-free period (months) Marketing period (months) Ex tension proba bility Rent growth p.a.

Top 9 Cities Med. Dev. Med. Dev. Med. Dev. Med. Dev.

Zurich 3 6 70% 0.3%

Geneva 4 7 63% –1.0%

Basel 3 7 70% 0.0%

Berne 4 7 68% 0.0%

Lausanne 3 6 70% 0.0%

Winterthur 4 7 70% 0.0%

Zug 3 6 70% 0.0%

St.Gallen 6 9 60% –1.0%

Lugano 5 9 60% –0.5%

PwC Real Estate Investor Survey 36

Switzerland – Office

Fig. 20 ARYs ranges and compression of minimum yields for Swiss office market

Top 9 Cities

Zurich

Geneva

Basel

Berne

Lausanne

Winterthur

Zug

St.Gallen

Lugano

Regions

Zurich

Northwestern Switzerland

Central Switzerland

Eastern Switzerland

Southern Switzerland

Alpine Region

Lake Geneva

Mittelland und Jura

4.0%

4.1%

4.0%

4.5%

4.0%

4.1%

4.2%

4.0%

4.2%

5.2%

5.0%

5.1%

5.3%

5.5%

5.4%

5.0%

5.5%

2.5%

2.6%

2.5%

3.0%

2.8%

3.2%

2.8%

2.6%

2.8%

3.5%

3.7%

3.4%

4.0%

3.8%

4.0%

3.6%

4.0%

3.5%

3.1%

3.8%

3.4%

3.6%

3.5%

3.3%

3.5%

4.4%

4.4%

4.0%

3.0%

4.5%

4.5%

4.6%

4.5%

4.7%

Average % six months agoMin. % Max. %

0.10%

0.05%

0.00%

–0.10%

–0.10%

–0.15%

0.00%

–0.20%

0.00%

0.03%

–0.03%

0.00%

0.03%

0.00%

0.45%

–0.10%

0.00%

PwC Real Estate Investor Survey 37

4.3 RetailHigh Street Retail

High-street retail yields show overall a slight compression for core assets and small upward movements in yields for average and high-risk properties. One exception to this is Zurich where both minimum and maximum ARYs increased. In Basel, Berne and Lugano, investors expect further decreasing yields for core high-street assets. Average properties in Geneva, Berne and St. Gallen as well as high-risk properties in Geneva and Lucerne are priced at higher yields than six months ago.

For properties outside of the Top 9 Cities, we observed an overall correction of the strong compressions shown in the October 2018 issue. Investors revised their views upwards again after taking a more bullish stance last summer. The Alpine Region experienced the strongest increase in yields across all categories. Zurich and Lake Geneva retained their top position despite sizeable increases of over 20 bps on average ARYs. Southern Switzerland is the only region on which the investors’ views have not changed over the past six months. As the changes for the cities and the regions came in similar sizes, spreads in the pricing of peripheral high-street properties over those in the urban centers remained roughly stable.

The views on expected rent growth offer one possible explanation for the correction in pricing. Investors are notably more pessimistic about market rents than six months ago. This is especially the case for Basel, Winterthur, Lucerne and St. Gallen, where growth projections worsened by one percentage point or more. In the regions, this development is even more pronounced. Most notably rent developments in Northwestern, Central, Eastern and Southern Switzerland and the Alpine Region are viewed significantly more negative by the investors than in summer 2018.

Switzerland – Retail

PwC Real Estate Investor Survey 38

Switzerland – Retail

Berne2.9%/3.5%/4.1%

Geneva2.5%/3.1%/3.7%

Lausanne2.8%/3.3%/3.6%

Basel2.7%/3.4%/4.1%

Zurich2.5%/3.0%/3.6%

Lucerne2.8%/3.4%/4.1%

Winterthur3.0%/3.5%/4.1%

Lugano3.3%/3.9%/4.3%

St.Gallen3.1%/3.8%/4.2%

Central Switzerland

3.9%/4.2%/4.7%

Southern Switzerland

4.2%/4.5%/5.0%

Alpine Region4.0%/4.5%/5.8%

Lake Geneva Region

3.5%/4.0%/4.6%

Northwestern Switzerland

4.0%/4.4%/4.9%

Zurich 3.5%/3.9%/4.7%

Eastern Switzerland

4.0%/4.3%/4.9%

Mittellandund Jura

4.0%/4.4%/5.3%

Fig. 21 ARYs for high street retail in Swiss submarkets

Minimum AYRs movement compared

to last six months

Top 9 CitiesMin./Average/Max. %

Regions Min./Average/Max. %

Eastern Switzerland

Lake Geneva Region

Mittelland und Jura

Central Switzerland

Northwestern Switzerland

Southern Switzerland

ZurichZurich

Geneva

Basel

Berne

Lausanne

Winterthur

St.Gallen

Lugano

Lucerne

Alpine Region

PwC Real Estate Investor Survey 39

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Winterthur

Lugano

BaselZurich

Berne

St.Gallen

Geneva

Lausanne

Lucerne

Switzerland – Retail

Fig. 22 Letting parameters for Swiss retail market

Rent-free period (months) Marketing period (months) Ex tension proba bility Rent growth p.a.

Top 9 Cities Med. Dev. Med. Dev. Med. Dev. Med. Dev.

Zurich 3 8 50% –1.0%

Geneva 3 8 50% –1.0%

Basel 4 8 50% –1.8%

Berne 3 8 60% –1.0%

Lausanne 3 8 60% –1.0%

Winterthur 4 8 60% –2.0%

Lucerne 3 8 60% –1.3%

St.Gallen 6 9 50% –4.0%

Lugano 6 6 50% –1.0%

PwC Real Estate Investor Survey 40

Switzerland – Retail

Fig. 23 ARYs ranges and compression of minimum yields for Swiss retail market

Top 9 Cities

Zurich

Geneva

Basel

Berne

Lausanne

Winterthur

Lucerne

St.Gallen

Lugano

Regions

Zurich

Northwestern Switzerland

Central Switzerland

Eastern Switzerland

Southern Switzerland

Alpine Region

Lake Geneva

Mittelland und Jura

3.6%

4.1%

3.7%

4.2%

4.1%

4.3%

4.1%

3.6%

4.1%

4.9%

4.7%

4.7%

5.0%

4.9%

5.3%

4.6%

5.8%

Average % six months agoMin. % Max. %

2.5%

2.8%

2.5%

3.1%

2.7%

3.3%

2.9%

2.8%

3.0%

3.9%

4.0%

3.5%

4.2%

4.0%

4.0%

3.5%

4.0%

3.4%

3.1%

3.4%

3.9%

3.5%

3.3%

3.5%

4.2%

4.4%

3.9%

3.0%

4.5%

4.3%

4.4%

4.0%

4.5%

3.8%

0.10%

0.05%

–0.15%

–0.13%

–0.03%

0.00%

0.05%

0.00%

–0.15%

0.15%

0.25%

0.20%

0.05%

0.00%

0.30%

0.20%

0.10%

PwC Real Estate Investor Survey 41

Non-High Street Retail

As in the high-street category, yields for non-high street retail properties were corrected upwards in the latest interview rounds. Retail parks and supermarkets saw large increases in yields across all categories and are now priced above the levels observed in the previous two issues of this survey. Yields for DIY stores only increased in the average and maximum categories. Meanwhile, ARYs for out-of-town shopping centers saw no changes over the past six months.

Switzerland – Retail

PwC Real Estate Investor Survey 42

Switzerland – Retail

Expected 5-year yield development

< –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

Fig. 24 Letting parameters for Swiss non-high street retail

All-risk-yieldRent-free period

(months)Marketing period

(months)Ex tension proba bility Rent growth p.a.

Min. Med. Max. Med. Dev. Med. Dev. Dev. Dev.

Out-of-town shopping center 4.0% 4.5% 5.2% 6 9 50.0% –2.0%

Retail park 4.2% 5.0% 5.8% 6 9 60.0% –1.0%

Super market 3.9% 4.8% 5.4% 5 9 70.0% –0.3%

DIY store 3.9% 5.0% 5.5% 6 9 67.5% –0.5%

PwC Real Estate Investor Survey 4343 PwC Real Estate Investor Survey

Logistics4.4 NOI AnalysisResidential

The majority of respondents deduct non-recoverable operating expenses at an average of 14% of Net Rental Income (NRI). Tenant improvements are only deducted by about 20% of participants and even then by only up to 2% of NRI. Half of the investors make deductions for leasing commissions of 1% on average and up to 8% or NRI. Capex is deducted by just over half of the participants at 3.5% of NRI.

Office

Two out of three respondents deduct non-recoverable operating expenses for office properties at an average 14% of net rental income. Deductions for tenant improvements and leasing commissions are made by roughly 50% of respondents at a size equal to c. 1% of NRI. Meanwhile, only a third of our participants deduct capital expenses.

Retail

For retail properties, the proportion of investors to make deductions is the lowest across all asset classes. Just over half of our survey participants deduct non-recoverable operating expenses and only about a third deduct tenant improvements, leasing commissions and Capex when calculating their net operating income.

Switzerland – NOI Analysis

PwC Real Estate Investor Survey 44

Switzerland – NOI Analysis

Fig. 25 NOI calculation method Swiss residential

Fig. 26 NOI calculation method Swiss office

Fig. 27 NOI calculation method Swiss retail

3.0%

10.0%

0% 5% 10% 15% 20%

0% 5% 10% 15% 20%

0% 5% 10% 15% 20%

2.0%0.0%

20.0%

Max.Med.Min.

8.0%0.0%

0.0%

Assumption non-recoverable OpEx

Assumption tenant improvements

Assumption leasing commisions

Assumption Capex

14.0%

0.0%

1.0%

3.5%

0.5%

8.0%

20.0%0.0%

19.0%

Max.Med.Min.

12.0%0.0%

0.0%

0.0%

Assumption non-recoverable OpEx

Assumption tenant improvements

Assumption leasing commisions

Assumption Capex

14.0%

1.0%

1.0%

3.8%

8.0%

6.0%

3.5%0.0%

19.0%

Max.Med.Min.

3.0%0.0%

Assumption non-recoverable OpEx

Assumption tenant improvements

Assumption leasing commisions

Assumption Capex

14.5%

0.7%

1.0%

3.0%

PwC Real Estate Investor Survey 45

5

Poland

Poland

PwC Real Estate Investor Survey 45

PwC Real Estate Investor Survey 46

5.1 OfficeThere was a visible need for a new and modern office space in Warsaw in the second half of 2018. Currently, there are barely any office spaces available for rent. This situation is expected to change in the second half of 2019 and even more so in 2020, when big projects like Varso, The Warsaw Hub, and Warsaw Unit are expected to start. On the other hand, due to a low supply of investment land plots in CBD Warsaw, there is a growing pressure on the price of the land plots in that area. Moreover, the limited supply of land plots combined with the growing number of projects will further complicate the situation; demolition in order to build more attractive properties is not only restricted to the CBD area but also in other areas; such as Służewiec which historically has been the first office district in Warsaw.

With the continuous development of office districts, Warsaw has been facing a transportation challenge. As more and more people continue to commute to the center of Warsaw, without any improvement in the means of transport, traffic issues will increase in the near future.

A significant part of demand in Warsaw comes from co-work and serviced office operators, which are willing to sign longer contracts (minimum 7 years). Corporations and companies that need more than 10 workplaces are increasingly becoming their clients. The survey respondents believe that the question regarding the future development of the operations and how this will affect the market remains a relevant topic.

In terms of letting parameters, our respondents noted that the current rent-free periods range from two to eight months, depending on the location and quality of the buildings. Prime buildings in CBD Warsaw usually grant just two to three rent-free months, while less attractive assets outside of the city center can offer up to eight months. Moreover, the most attractive office buildings in the CBD are usually commercialised in 70–80% by the time they receive occupancy permit. A large majority of our respondents (75%) believe that tenants usually prolong their lease in their current location.

The main tenants in the regional cities of Wrocław and Kraków are Business Process Outsourcing and Shared Service Center companies. There is also a significant number of IT companies located in Wrocław.

One of the other regional cities that deserves attention is Łódź. Its proximity to Warsaw and the development of high-speed rail connection might encourage many people to relocate to Łódź. The lower cost of living compared to Warsaw and the good standard of living might also add to the factors making Łódź one of the most attractive cities in Poland by 2030.

New technological standards (Nearly-Zero Emission Building) will be a condition to obtain building permit starting from January 1st 2021 for all office buildings, which means that the construction costs will rise but at the same time the service charges are expected to decrease. This situation, plus improving technological

Poland – Office

PwC Real Estate Investor Survey 47

Fig. 28 ARYs for office in Polish submarkets

Top 3 CitiesMin./Average/Max. %

Kraków5.7%/6.5%/8.5%

Warsaw4.5%/6.0%/7.6%

Wrocław5.9%/7.0%/9.0%

standards in the buildings, might encourage the developers to increase the rent levels.

In terms of the investors, joint ventures between international investors who are looking for office assets in Poland and local partners are increasingly becoming more common. In such set up, the international investors provide the financing, while the local partners share their know-how, and manage the project locally. Smaller and not yet developed regional markets like Olsztyn, and Białystok are more likely to attract Polish investors, rather than international investors, who look at bigger scale investments.

One trend that all of the respondents agree on, is that new offices will have to be designed in line with tenants’ expectations. Moreover, the tenants’ demands are increasing as they expect the working spaces to be more worker-friendly and modern. Office spaces that do not meet these requirements will find it hard to keep the existing tenants.

Kraków

Wrocław

Warsaw

PwC Real Estate Investor Survey 48

Wrocław

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Kraków

Warsaw

Fig. 29 Letting parameters for Polish office market

Rent-free period (months)

Marketing period (months)

Ex tension proba bility Rent growth p.a.

Top 3 Cities Med. Med.

Warsaw 6 6 75.0% 0.0%

Kraków 6 6 75.0% 0.0%

Wrocław 6 6 75.0% 0.0%

Poland – Office

PwC Real Estate Investor Survey 49

5.2 LogisticsLogistic yields remain at low levels as they range from 5.0% to 8.5%. Build-To-Suit assets with a long-term single tenant have the lowest yields, while the yields for older warehouses are in the top end of the range. For the purpose of the survey, the five major industrial regions were examined: Warsaw, Katowice, Lodz, Poznań and Wroclaw. The lower labour costs and the development of road infrastructure created opportunities for development of additional logistics regions such as Białystok, and Rzeszów.

The vacancy periods remain at a stable and low level, with an average of three to four months before finding a new tenant for the space. Due to the limited supply of the warehouses, the investors offer limited incentives for tenants, with an average rent-free period of only two months.

There is a consensus that logistics tenants are less likely to extend their lease contracts compared to office tenant, this is mainly due to the fact that logistic tenant require larger spaces as they grow faster. Thus, more often they end up moving to a larger property that offer more space; often located in a close vicinity to the old one, sometimes even across the street.

In Poland’s logistics sector, technology starts playing an important role. Robots and automation of processes (eg. access control) reduce the need for human workforce. More and more innovations, such as data centers, and, such as access control.

Currently, there is a pressure on rents, as the respondents expect a potential increase in rent of ca. 1%–15% in the next six months. The pressure on rents is also caused by rising prices of investment plots, materials and labour costs which make construction more, and more expensive.

Moreover, a rapid development of road infrastructure and the vision of CPK (New Central Polish Airport), which is positively seen by the respondents, will definitely help smaller cities, like Białystok, and Rzeszów, to grow their industrial stock. Moreover, cities like Białystok (which is situated in north-eastern Poland) could further grow as the gates to the Baltic countries.

Poland – Logistics

Regions Min./Average/Max. %

PwC Real Estate Investor Survey 50

Fig. 30 ARYs for logistics in Polish submarkets

Poland – Logistics

Katowice 3.8%/6.5%/8.5%

Wrocław5.0%/6.5%/8.5%

Warsaw5.0%/6.5%/8.5%

Poznaǹ5.0%/6.5%/8.5%

Lodz 3.4%/6.5%/8.5%

Katowice

Wrocław

Warsaw

Poznaǹ

Lodz

PwC Real Estate Investor Survey 51

Expected 5-year yield development

< –1% –1.0% to –0.25% –0.25% to 0.25% 0.25% to 1.0% > 1.0% (majority of responses)

Fig. 31 Letting parameters for Polish logistics market

Rent-free period (months)

Marketing period (months)

Ex tension proba bility Rent growth p.a.

5 Regions Med. Med.

Warsaw 6 6 80.0% 10.0%

Wrocław 6 6 80.0% 10.0%

Poznaǹ 6 6 80.0% 10.0%

Lodz 6 6 80.0% 10.0%

Katowice 6 6 80.0% 10.0%

Poland – Logistics

Wrocław

PoznańWarsaw

Lodz

Katowice

PwC Real Estate Investor Survey 5252 PwC Real Estate Investor Survey

Logistics5.3 NOI AnalysisSome of our respondents indicate that they subtract tenant improvements, leasing commissions, and capex from their NRI, while calculating the Net Operating Income (NOI). Per our respondents in the office sector, the tenant improvements account for around 4% of NRI, leasing commissions are 1% of NRI, while capex amounts to about 3% of NRI.

Poland – NOI Analysis

PwC Real Estate Investor Survey 53

6Overview of the results

Overview of the results

PwC Real Estate Investor Survey 54

Overview of the results

31/12/2014 30/06/2015 31/12/2015 30/06/2016 31/12/2016 30/06/2017 31.12.2017 30.06.2018 31.12.2018

Fig. 32 Yield comparison Germany

6%

5%

4%

3%

2%

1%

0%

–1%

PwC AVG ARY Office1

PwC AVG ARY Retail1 PwC AVG ARY Logistics2

CPI Index3 10-y Germany government bonds4

3-M-Euribor5

1 AVG ARY includes only min ARY for Top 7 Cities and Regional Cities2 AVG ARY includes only min ARY for Top 15 Locations3 Statistisches Bundesamt (Germany)4 Bloomberg5 ECB: Historical close, average of observations through period

Fig. 33 Yield comparison Switzerland

Fig. 34 Yield comparison Poland

31 Dec 2018

PwC AVG ARY Office1 5.4%

PwC AVG ARY Industrial2 4.4%

CPI inflation3 1.1%

10 yr gov bond4 2.81%

3M WIBOR5 1.72%1 AVG ARY includes only min ARY for Top 3 Cities 2 AVG ARY includes only min ARY for Top 5 Clusters3 Trading Economics4 World Government Bonds5 Reuters

4%

3%

2%

1%

0%

–1%

PwC AVG ARY Residential1 PwC AVG ARY Office2

PwC AVG ARY Retail3 CPI Inflation (Year on year)4

10-y Swiss government bond yield5

3-M Libor CHF6

1 AVG ARY includes only min ARY for Top 9 Cities 2 AVG ARY includes only min ARY for Top 9 Cities 3 AVG ARY includes only min ARY for Top 9 Cities 4 Bundesamt für Statistik, 12 February 2018 5 Bloomberg 6 Swiss National Bank

28.02.2018 31.12.2018 28.02.2019

PwC Real Estate Investor Survey 55

Result overview for Germany

Fig. 35 Results overview for office

Current 6 months ago 12 months ago

Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Top 7 Cities

Berlin 2.8% 3.6% 5.1% 3.7% 3.0% 4.2% 5.6% 3.0% 4.2% 5.7%

Dusseldorf 3.4% 4.1% 5.6% 1.7% 3.6% 4.6% 6.2% 3.6% 4.7% 6.2%

Frankfurt am Main 3.1% 4.2% 5.5% 1.9% 3.3% 4.3% 5.7% 3.3% 4.3% 5.6%

Hamburg 3.1% 4.0% 5.4% 2.0% 3.2% 4.3% 5.4% 3.3% 4.3% 5.7%

Cologne 3.6% 4.7% 5.9% 1.7% 3.7% 4.7% 6.1% 3.7% 4.7% 6.0%

Munich 2.9% 3.6% 4.7% 2.4% 2.9% 3.9% 5.2% 3.0% 4.0% 5.1%

Stuttgart 3.3% 4.3% 5.5% 2.0% 3.5% 4.4% 5.8% 3.5% 4.4% 5.6%

Regional Cities

Bonn 4.2% 5.1% 6.5% 1.3% 4.2% 5.0% 6.2% 4.2% 5.2% 6.4%

Bremen 4.6% 5.6% 6.9% 1.1% 4.6% 5.6% 6.9% 4.7% 5.7% 6.9%

Dortmund 4.9% 5.8% 7.1% 0.8% 4.8% 5.8% 6.9% 4.7% 5.6% 6.8%

Dresden 4.7% 5.8% 7.0% 1.1% 4.7% 5.6% 7.0% 4.6% 5.6% 6.8%

Duisburg 5.2% 6.1% 7.6% 0.8% 5.2% 6.2% 7.4% 5.2% 6.2% 7.5%

Erfurt 5.0% 5.9% 7.2% 1.0% 5.2% 6.0% 7.2% 5.1% 6.0% 7.3%

Essen 4.8% 5.8% 7.0% 0.8% 4.7% 5.5% 6.8% 4.7% 6.0% 6.9%

Karlsruhe 4.5% 5.3% 6.5% 1.2% 4.6% 5.5% 6.5% 4.5% 5.3% 6.4%

Hanover 4.3% 5.4% 6.7% 1.2% 4.3% 5.2% 6.5% 4.4% 5.3% 6.6%

Leipzig 4.5% 5.6% 6.9% 1.2% 4.6% 5.3% 6.8% 4.5% 5.4% 6.6%

Magdeburg 5.7% 6.5% 7.8% 0.8% 5.7% 6.5% 8.0% 5.5% 6.5% 7.9%

Wiesbaden & Mainz 4.4% 5.2% 6.7% 1.2% 4.5% 5.4% 6.8% 4.4% 5.3% 6.6%

Nuremberg 4.3% 5.2% 6.5% 1.4% 4.3% 5.1% 6.4% 4.3% 5.2% 6.3%

Rhine-Neckar MA/HD/LU 4.5% 5.4% 6.7% 1.3% 4.6% 5.7% 6.6% 4.6% 5.4% 6.5%

Regions

Lower Saxony & Schleswig-Holstein

5.4% 6.1% 7.1% 0.6% 5.4% 6.0% 7.2% 5.3% 6.0% 7.3%

Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg

5.6% 6.7% 7.9% 0.8% 5.3% 6.6% 7.4% 5.3% 6.4% 7.7%

Saxony & Thuringia & North of Hesse (zip code: 3xxxx)

5.5% 6.5% 7.9% 0.5% 5.5% 6.3% 7.4% 5.5% 6.3% 7.7%

North Rhine-Westphalia 4.8% 5.9% 7.7% 0.8% 4.8% 5.8% 8.1% 5.0% 5.9% 7.3%

Rhineland-Palatinate & Saarland

5.5% 6.1% 7.6% 0.9% 5.5% 6.0% 7.9% 5.3% 6.1% 7.5%

South of Hesse (zip code: 6xxxx) & Baden- Wuerttemberg

4.6% 5.5% 6.6% 1.4% 4.7% 5.4% 7.0% 4.6% 5.5% 6.7%

Bavaria 4.7% 5.4% 6.6% 1.3% 4.6% 5.5% 7.2% 4.5% 5.3% 6.6%

Overview of the results

PwC Real Estate Investor Survey 56

Overview of the results

Result overview for Germany

Fig. 36 Results overview for high street retail

Current 6 months ago 12 months ago

Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Top 7 Cities

Berlin 3.1% 3.9% 4.8% 1.1% 3.0% 3.7% 5.0% 3.1% 3.9% 4.9%

Dusseldorf 3.3% 4.1% 5.0% 0.8% 3.3% 4.0% 5.3% 3.3% 4.1% 5.0%

Frankfurt am Main 3.2% 3.9% 4.9% 0.8% 3.1% 3.8% 4.9% 3.1% 3.8% 4.9%

Hamburg 3.2% 3.9% 4.9% 0.6% 3.1% 3.8% 5.0% 3.2% 3.9% 5.1%

Cologne 3.4% 4.1% 5.2% 0.7% 3.4% 4.1% 5.3% 3.5% 4.1% 5.3%

Munich 2.8% 3.5% 4.6% 1.0% 2.7% 3.5% 4.7% 2.8% 3.6% 4.6%

Stuttgart 3.3% 3.9% 4.9% 0.7% 3.2% 3.9% 5.1% 3.4% 4.0% 5.0%

Regional Cities

Bonn 3.9% 4.7% 5.3% (0.0%) 3.9% 4.7% 5.6% 4.0% 4.7% 6.0%

Bremen 4.2% 5.1% 5.6% (0.2%) 4.1% 5.0% 5.8% 4.3% 5.1% 6.2%

Dortmund 4.2% 4.9% 5.8% (0.4%) 4.1% 4.9% 5.9% 4.1% 4.9% 6.1%

Dresden 4.0% 4.7% 5.5% 0.2% 3.9% 4.7% 5.7% 3.9% 4.7% 6.1%

Duisburg 5.0% 5.5% 6.7% (0.9%) 4.7% 5.5% 6.7% 4.8% 5.7% 7.2%

Erfurt 4.4% 5.1% 5.9% (0.2%) 4.4% 5.2% 6.3% 4.4% 5.2% 6.7%

Essen 4.4% 5.4% 5.9% (0.4%) 4.3% 5.1% 6.0% 4.3% 5.3% 6.2%

Karlsruhe 4.0% 4.8% 5.5% 0.2% 3.9% 4.6% 5.7% 4.0% 4.8% 6.0%

Hanover 3.9% 4.7% 5.3% 0.0% 3.9% 4.7% 5.6% 3.9% 4.6% 5.9%

Leipzig 4.0% 4.8% 5.5% 0.2% 4.0% 4.8% 5.9% 4.1% 5.0% 6.1%

Magdeburg 5.1% 5.7% 6.8% (0.4%) 4.9% 5.7% 6.8% 4.9% 6.0% 7.0%

Wiesbaden & Mainz 4.1% 4.9% 5.6% 0.0% 4.1% 4.8% 5.8% 4.0% 4.9% 6.2%

Nuremberg 3.9% 4.7% 5.5% 0.0% 3.9% 4.7% 5.6% 3.9% 4.7% 6.0%

Rhine-Neckar MA/HD/LU 4.0% 4.7% 5.5% 0.2% 3.9% 4.7% 5.8% 4.0% 4.9% 6.0%

Regions

Lower Saxony & Schleswig-Holstein

4.8% 5.6% 6.1% (1.0%) 4.8% 5.5% 6.7% 4.6% 5.2% 6.8%

Mecklenburg-West Pomerania & Saxony-Anhalt & Brandenburg

5.0% 5.9% 6.6% (1.0%) 5.2% 6.0% 7.6% 5.1% 6.1% 8.2%

Saxony & Thuringia & North of Hesse (zip code: 3xxxx)

5.2% 6.0% 6.7% (1.0%) 5.2% 6.0% 7.5% 5.1% 6.0% 8.1%

North Rhine-Westphalia 4.5% 5.6% 6.7% (1.0%) 4.9% 5.7% 7.1% 4.8% 5.4% 6.9%

Rhineland-Palatinate & Saarland

4.9% 5.5% 6.4% (1.0%) 4.9% 5.7% 6.9% 4.9% 5.8% 7.5%

South of Hesse (zip code: 6xxxx) & Baden- Wuerttemberg

4.4% 5.2% 5.8% (0.1%) 4.3% 5.1% 6.4% 4.3% 5.2% 6.8%

Bavaria 4.4% 4.9% 5.8% (0.6%) 4.3% 5.1% 6.3% 4.3% 5.1% 6.2%

PwC Real Estate Investor Survey 57

Fig. 38 Results overview for logistics

Current 6 months ago 12 months ago

Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Top 15 Locations

Berlin 4.3% 5.3% 6.4% 2.3% 4.4% 5.7% 6.8% 4.7% 5.8% 7.2%

Dusseldorf/Cologne

4.3% 5.3% 6.3% 2.3% 4.6% 5.9% 6.7% 4.7% 5.8% 7.2%

Rhine-Main/Frankfurt

4.3% 5.2% 6.1% 2.3% 4.5% 5.6% 6.6% 4.6% 5.7% 6.9%

Hamburg 4.3% 5.3% 6.4% 2.3% 4.5% 5.6% 6.5% 4.6% 5.8% 7.1%

Munich 4.2% 5.1% 6.0% 2.3% 4.4% 5.5% 6.4% 4.5% 5.6% 6.7%

Stuttgart 4.3% 5.3% 6.4% 2.3% 4.6% 5.7% 6.6% 4.5% 5.6% 6.9%

Bremen/North Sea ports

4.9% 5.7% 6.7% 2.3% 5.1% 6.5% 7.4% 5.2% 6.4% 7.6%

Dortmund 4.7% 5.6% 6.5% 2.3% 4.8% 5.9% 7.0% 4.9% 5.9% 7.2%

Halle/Leipzig 4.9% 5.7% 6.8% 2.3% 5.1% 6.1% 7.2% 5.2% 6.4% 7.8%

Hanover/ Braunschweig

4.8% 5.7% 6.9% 2.3% 5.0% 6.3% 7.1% 5.1% 6.4% 7.7%

Kassel/Göttingen 4.9% 5.8% 6.9% 2.3% 5.1% 6.3% 7.1% 5.2% 6.3% 7.6%

Lower Bavaria 4.8% 5.7% 6.8% 2.3% 5.1% 6.5% 7.3% 5.1% 6.3% 7.6%

Nuremberg 4.7% 5.5% 6.5% 2.3% 4.9% 6.0% 7.0% 5.0% 6.1% 7.2%

Rhine-Ruhr 4.6% 5.6% 6.6% 2.3% 4.8% 5.9% 7.0% 4.8% 5.9% 7.0%

Ulm 4.9% 5.8% 7.0% 2.3% 5.2% 6.2% 7.3% 5.0% 6.2% 7.6%

Small Locations

Small Locations 5.0% 5.7% 7.2% 1.3% 5.4% 6.3% 7.4% 5.6% 6.4% 7.9%

Fig. 37 Results overview for non-high street retail

Current 6 months ago 12 months ago

Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Out-of-town shopping center 4.6% 5.7% 7.3% (1.2%) 4.3% 5.3% 7.0% 4.6% 6.3% 8.0%

Retail park 4.3% 5.1% 6.7% 0.5% 4.3% 5.2% 7.1% 5.1% 6.8% 8.2%

Super market 4.8% 5.8% 6.9% 0.6% 5.0% 6.0% 7.5% 5.4% 6.8% 8.4%

DIY store 5.4% 6.4% 8.3% (0.1%) 5.6% 6.4% 8.0% 6.2% 7.5% 9.0%

Result overview for Germany

Overview of the results

PwC Real Estate Investor Survey 58

Overview of the results

Fig. 39 Overview participants Germany

Retail Mix Logistics Office Investment Manager Developer Private Equity Asset Manager

Result overview for Germany

Participant type Participant investment focus

13%

88%

19%6%

13%

63%

PwC Real Estate Investor Survey 59

Overview of the results

Result overview for Switzerland

Fig. 40 Results overview for residential

Current 6 months ago 12 months ago

Top 9 Cities Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Zurich 2.2% 2.8% 3.3% 0.0% 2.2% 2.8% 3.3% 2.5% 2.9% 3.5%

Geneva 2.3% 2.8% 3.3% 0.0% 2.3% 2.8% 3.3% 2.5% 3.0% 3.5%

Basel 2.5% 3.0% 3.5% 0.5% 2.6% 3.1% 3.5% 2.8% 3.2% 3.7%

Berne 2.6% 3.0% 3.5% 0.0% 2.6% 3.1% 3.6% 2.7% 3.2% 3.7%

Lausanne 2.5% 3.0% 3.5% 0.0% 2.6% 3.1% 3.6% 3.0% 3.3% 3.6%

Winterthur 2.5% 3.0% 3.6% 0.0% 2.6% 3.1% 3.6% 3.0% 3.3% 3.7%

Lucerne 2.6% 3.2% 3.9% 0.0% 2.8% 3.2% 3.6% 2.8% 3.3% 3.9%

St.Gallen 3.0% 3.3% 3.9% 0.0% 3.0% 3.2% 3.8% 3.2% 3.4% 4.0%

Lugano 3.0% 3.5% 3.8% –0.5% 2.6% 3.2% 3.6% 3.1% 3.5% 3.9%

Regions

Zurich 2.9% 3.2% 4.0% 0.0% 2.9% 3.2% 4.0% 3.0% 3.3% 4.1%

Northwestern Switzerland 3.0% 3.5% 4.3% 0.0% 3.0% 3.5% 4.4% 3.3% 3.5% 4.3%

Central Switzerland 2.9% 3.4% 4.0% 0.0% 3.0% 3.5% 4.2% 3.0% 3.6% 4.3%

Eastern Switzerland 3.3% 3.6% 4.5% –1.0% 3.3% 3.8% 4.7% 3.4% 3.7% 4.5%

Southern Switzerland 3.4% 3.7% 4.2% –0.5% 3.3% 3.8% 4.5% 3.3% 3.7% 4.1%

Alpine Region 3.6% 4.1% 4.7% –1.0% 3.8% 4.2% 4.8% – – –

Lake Geneva Region 3.0% 3.4% 4.0% 0.0% 3.0% 3.4% 4.1% 3.1% 3.4% 4.5%

Mittelland 3.3% 3.7% 4.5% –0.4% 3.3% 4.0% 4.8% 3.3% 3.7% 4.5%

Fig. 41 Results overview for office

Current 6 months ago 12 months ago

Top 9 Cities Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Zurich 2.5% 3.0% 4.0% 0.3% 2.4% 3.0% 3.8% 2.5% 3.3% 4.3%

Geneva 2.5% 3.1% 4.0% –1.0% 2.5% 3.1% 4.0% 2.5% 3.3% 4.5%

Basel 2.8% 3.4% 4.0% 0.0% 2.8% 3.4% 4.0% 3.0% 3.5% 4.5%

Berne 2.8% 3.5% 4.2% 0.0% 2.9% 3.5% 4.0% 3.0% 3.5% 4.5%

Lausanne 2.6% 3.3% 4.0% 0.0% 2.7% 3.4% 4.0% 3.0% 3.5% 4.4%

Winterthur 2.8% 3.5% 4.2% 0.0% 2.9% 3.5% 4.0% 3.0% 3.5% 4.5%

Zug 2.6% 3.5% 4.1% 0.0% 2.6% 3.4% 4.1% – – –

St.Gallen 3.0% 3.8% 4.5% –1.0% 3.2% 3.7% 4.2% 3.2% 4.0% 4.5%

Lugano 3.2% 3.6% 4.1% –0.5% 3.2% 3.7% 4.3% 3.2% 3.7% 4.3%

Regions

Zurich 3.4% 4.0% 5.0% –0.8% 3.4% 4.0% 5.0% 3.7% 4.2% 5.2%

Northwestern Switzerland 3.7% 4.4% 5.2% –1.5% 3.8% 4.5% 5.2% 4.0% 4.5% 5.2%

Central Switzerland 3.5% 4.4% 5.1% 0.0% 3.5% 4.4% 5.0% 3.8% 4.4% 5.1%

Eastern Switzerland 3.8% 4.5% 5.5% –1.0% 3.7% 4.8% 5.5% 4.2% 4.8% 5.3%

Southern Switzerland 4.0% 4.5% 5.3% –0.5% 4.0% 4.7% 5.8% 4.5% 4.9% 6.4%

Alpine Region 4.0% 4.7% 5.5% –1.0% 3.6% 4.5% 5.6% 4.5% 5.0% 7.0%

Lake Geneva Region 3.6% 4.5% 5.0% –1.0% 3.7% 4.5% 5.2% 4.0% 4.5% 5.0%

Mittelland 4.0% 4.6% 5.4% –1.5% 4.0% 4.7% 5.8% 4.0% 4.5% 5.5%

PwC Real Estate Investor Survey 60

Overview of the results

Result overview for Switzerland

Fig. 44 Overview participants Switzerland

Residential Office Mix Investment Manager Developer Pension Fund

Participant type Participant investment focus

23%

62%15%

8%4%

88%

Fig. 42 Results overview for high street retail

Current 6 months ago 12 months ago

Top 9 Cities Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Zurich 2.5% 3.0% 3.6% –1.0% 2.4% 3.0% 3.4% 2.5% 3.1% 3.8%

Geneva 2.5% 3.1% 3.7% –1.0% 2.5% 3.0% 3.5% 2.5% 3.3% 4.0%

Basel 2.7% 3.4% 4.1% –1.8% 2.9% 3.3% 4.1% 3.1% 3.7% 4.4%

Berne 2.9% 3.5% 4.1% –1.0% 3.0% 3.3% 4.0% 3.2% 3.7% 4.2%

Lausanne 2.8% 3.3% 3.6% –1.0% 2.8% 3.2% 3.5% 3.2% 3.7% 4.3%

Winterthur 3.0% 3.5% 4.1% –2.0% 3.0% 3.5% 4.1% 3.4% 3.8% 4.4%

Lucerne 2.8% 3.4% 4.1% –1.3% 2.8% 3.4% 3.9% 3.3% 3.8% 4.1%

St.Gallen 3.1% 3.8% 4.2% –4.0% 3.1% 3.7% 4.2% 3.5% 3.7% 4.4%

Lugano 3.3% 3.9% 4.3% –1.0% 3.5% 3.9% 4.4% 3.5% 3.9% 4.6%

Regions

Zurich 3.5% 3.9% 4.7% –3.0% 3.4% 3.7% 4.4% 3.8% 4.4% 5.0%

Northwestern Switzerland 4.0% 4.4% 4.9% –5.0% 3.8% 4.2% 4.9% 4.0% 4.9% 5.3%

Central Switzerland 3.9% 4.2% 4.7% –6.3% 3.7% 4.0% 4.5% 3.9% 4.3% 4.5%

Eastern Switzerland 4.0% 4.3% 4.9% –6.3% 3.9% 4.3% 4.6% 4.3% 4.4% 4.7%

Southern Switzerland 4.2% 4.5% 5.0% –2.5% 4.2% 4.5% 5.0% 4.4% 4.7% 5.0%

Alpine Region 4.0% 4.5% 5.8% –4.0% 3.7% 4.1% 4.4% – – –

Lake Geneva Region 3.5% 4.0% 4.6% –2.5% 3.3% 3.7% 4.5% 4.0% 4.3% 4.8%

Mittelland 4.0% 4.4% 5.3% –3.0% 3.9% 4.3% 4.8% 4.3% 4.9% 5.5%

Fig. 43 Results overview for non–high street retail

Current 6 months ago 12 months ago

Min. Med. Max. Rent growth p.a. Min. Med. Max. Min. Med. Max.

Out–of–town shopping center 4.0% 4.5% 5.2% –2.0% 4.0% 4.5% 5.2% 4.0% 4.7% 5.2%

Retail park 4.2% 5.0% 5.8% –1.0% 4.0% 4.8% 5.5% 4.0% 4.9% 5.4%

Super market 3.9% 4.8% 5.4% –0.3% 3.6% 4.6% 5.2% 3.7% 4.8% 5.2%

DIY store 3.9% 5.0% 5.5% –0.5% 3.9% 4.8% 5.3% 4.0% 5.0% 5.2%

PwC Real Estate Investor Survey 61

Overview of the results

Result overview for Poland

Participant type Participant investment focus

Fig. 47 Overview participants Poland

Industrial Office Mix Investment Manager Developer

43% 43%29%

29%

57%

Fig. 45 Results overview for office

Current

Top 3 Cities Min. Med. Max. Rent growth p.a.

Warsaw 4.5% 6.0% 7.6% 0.0%

Kraków 5.7% 6.5% 8.5% 0.0%

Wrocław 5.9% 7.0% 9.0% 0.0%

Fig. 46 Results overview for logistics

Current

5 Regions Min. Med. Max. Rent growth p.a.

Warsaw 5.0% 6.5% 8.5% 0.0%

Wrocław 5.0% 6.5% 8.5% 0.0%

Poznań 5.0% 6.5% 8.5% 0.0%

Lodz 3.4% 6.5% 8.5% 0.0%

Katowice 3.8% 6.5% 8.5% 0.0%

PwC Real Estate Investor Survey 62

7Approach 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:

Approach and Definitions

PwC Real Estate Investor Survey 63

Approach and Definitions

Regarding the retail sector, we separated in-town high street retail from location-independent retail. Out-of-town shopping centers, 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. 48 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. 49 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. 50 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. 51 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.

PwC Real Estate Investor Survey 64

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. 52 Identified German submarkets for office and retail

Fig. 53 Identified German submarkets for logistics

Approach and Definitions

PwC Real Estate Investor Survey 65

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. 54 Identified Swiss submarkets

PwC Real Estate Investor Survey 66

Approach and Definitions

Polish submarketsWe have identified two categories of submarkets - Top 3 Cities and 5 Regions. The Top 3 Cities, Warsaw, Wroclaw, and Krakow, reflect data gathered for the Polish office market. The 5 Regions being; Warsaw, Katowice, Lodz, Poznań and Wroclaw, which reflect data gathered for Poland's industrial clusters.

In addition to ARYs, we have been covering market-specific letting assumptions In the course of our research, we asked for typical Market Rent Growth Rates, Rent-Free Periods, Reletting Periods and Prolongation Probabilities for the submarket 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.

Top 3 Cities 5 Regions

Fig. 55 Identified Polish submarkets for office

PwC Real Estate Investor Survey 67

Authors

Authors

PwC Real Estate Investor Survey 67

PwC Real Estate Investor Survey 68

Authors

Adam OlekReal Estate DealsTel: +49 69 9585-6092Mobile: +49 151 25401562adam.olek@pwc.com

Mona Hamzah Real Estate DealsTel: +49 69 9585-7827Mobile: +49 151 58446474mona.x.hamzah@pwc.com

Thomas Veith Real Estate DealsTel: +49 69 9585-5905Mobile: +49 175 4340515thomas.veith@pwc.com

Olga DentzelReal Estate DealsTel: +49 69 9585-2460Mobile: +49 151 62427945olga.dentzel@pwc.com

Maximilian HelmReal Estate DealsTel: +49 69 9585-2453Mobile: +49 171 7582018maximilian.helm@pwc.com

PwC Germany

Grzegorz KmiecińskiReal Estate AdvisoryMobile: +48 519 504486grzegorz.kmiecinski@pwc.com

Krzysztof StempienReal Estate AdvisoryMobile: +48 519 504819krzysztof.stempien@pwc.com

PwC Poland

Marie SeilerReal Estate AdvisoryTel: +41 58 792-5669Mobile: +41 79 8289635marie.seiler@ch.pwc.com

Kevin SchmokerReal Estate AdvisoryTel: +41 58 792-1548Mobile: +41 79 2990431kevin.schmoker@ch.pwc.com

Samuel BernerReal Estate AdvisoryTel: +41 58 792-1739Mobile: +41 79 4820598samuel.berner@ch.pwc.com

PwC Switzerland

AcknowledgmentWe would like to thank our colleagues Sarah Schraub, Lukas Bialas, Manuel Weil, Florian Stautz, Samuel Berner, Matthias Bernold, Laura Blaufuss, Marco Dietz, Dennis Geyik, Imelda Hecht, Rubina Insam, Nicole Strässle for their helpful contribution to this survey.

PwC Real Estate Investor Survey 69

PwC Real Estate Practice

PwC Real Estate Investor Survey 69

PwC Real Estate Practice

PwC Real Estate Investor Survey 70

PwC Real Estate Practice

Germany AdvisorySusanne Eickermann-RiepeFriedrich-Ebert-Anlage 35–3760327 Frankfurt am Main Tel: +49 69 9585-5909 susanne.eickermann-riepe@pwc.com

Thomas VeithFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5905thomas.veith@pwc.com

Jan-Ludwig BrügelmannFriedrich-Ebert-Anlage 35–37Tel: +49 69 9585-3671Mobile: +49 175 2935600jan.bruegelmann@pwc.com

Dirk HennigKapelle-Ufer 410117 BerlinTel: +49 30 2636-1166dirk.hennig@pwc.com

Dirk KadelFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5583dirk.kadel@pwc.com

Dr Harald HeimKapelle-Ufer 410117 BerlinTel: +49 30 2636-1354harald.heim@pwc.com

Thorsten SchniedersBernhard-Wicki-Straße 880636 MunichTel: +49 89 5790-6448thorsten.schnieders@pwc.com

Dr Andreas SchillhoferFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-5533andreas.schillhofer@pwc.com

AssuranceEva HandrickFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-2217eva.handrick@pwc.com

Gregory HartmanKapelle-Ufer 410117 BerlinTel: +49 30 2636-4214gregory.hartman@pwc.com

Uwe RittmannMoskauer Straße 1940227 DüsseldorfTel: +49 211 981-1998uwe.rittmann@pwc.com

Tax & LegalUwe StoschekKapelle-Ufer 410117 BerlinTel: +49 30 2636-5286uwe.stoschek@pwc.com

Dr Michael A. MüllerKapelle-Ufer 410117 BerlinTel: +49 30 2636-5572mueller.michael@de.pwc.com

Helge DammannKapelle-Ufer 410117 BerlinTel: +49 30 2636-5222helge.dammann@pwc.com

Marcel MiesMoskauer Straße 1940227 DüsseldorfTel: +49 211 981-2294marcel.mies@pwc.com

Sven BehrendsBernhard-Wicki-Straße 880636 MunichTel: +49 89 5790-5887sven.behrends@pwc.com

Josip Oreskovic-RipsFriedrich-Ebert-Anlage 35–3760327 Frankfurt am MainTel: +49 69 9585-6255josip.oreskovic-rips@pwc.com

Nathan GelbartKapelle-Ufer 410117 BerlinTel: +49 30 2636-3360Mobile: +4915154345764nathan.gelbart@pwc.com

Switzerland AdvisoryKurt RitzBirchstrasse 1608050 ZürichTel: +41 58 792-1449kurt.ritz@ch.pwc.com

TaxVictor MeyerBirchstrasse 1608050 ZürichTel: +41 58 792-4340victor.meyer@ch.pwc.com

AssuranceAdrian KellerBirchstrasse 1608050 ZürichTel: +41 58 792-2309adrian.keller@ch.pwc.com

Poland AdvisoryKinga Barchoń Polna 11 05-077 WarsawTel: +48 502 18-4178kinga.barchon@pwc.com Tax Sławomir Krempa Polna 11 05-077 Warsaw Tel: +48 519 50-6874 slawomir.krempa@pwc.com Legal Jacek Pawłowski Polna 11 05-077 Warsaw Tel: +48 519 50-7077 jacek.pawlowski@pwc.com

About usOur clients face diverse challenges, strive to put new ideas into practice and seek expert advice. They turn to us for comprehensive support and practical solutions that deliver maximum value. Whether for a global player, a family business or a public institution, we leverage all of our assets: experience, industry knowledge, high standards of quality, commitment to innovation and the resources of our expert network in 158 countries. Building a trusting and cooperative relationship with our clients is particularly important to us – the better we know and understand our clients’ needs, the more effectively we can support them.

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