Trends in German Real Estate Market... in search of a new balance 12. April 2005-1-
Housing Market: Development Of New Rental Payments 1) 130 120 Western Germany Eastern Germany 110 Index, 2000 = 100 100 90 80 70 60 50 1975 1980 1985 1990 1995 2000 2004 1) In Western Germany, the figures relate to 62 cities, in Eastern Germany to 13 cities. Source: HVB Expertise -4-
Housing Market: Development Of Prices For 1) Condominiums 120 110 Western Germany Eastern Germany 100 Index, 2000 = 100 90 80 70 60 50 1975 1980 1985 1990 1995 2000 2004 1) In Western Germany, the figures relate to 62 cities, in Eastern Germany to 13 cities. Source: HVB Expertise -5-
Housing Market: Construction Activity in Western Germany 500 450 400 Completed condominiums in new apartment buildings one- and tw o f amiliy homes Number of condominiums (in '000s) 350 300 250 200 150 100 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: Statistisches Bundesamt -6-
Housing Market: Construction Activity in Eastern Germany 160 Completed condominiums in new 140 apartment buildings one- and tw o-family homes Number of condominiums (in '000s) 120 100 80 60 40 20 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Statistisches Bundesamt -7-
Housing Market: Increased Investment Activity Some Examples 2004 Gagfah real estate stock (owner BfA) with 82,000 apartment units bought by Fortress; GSW real estate stock (owner state of Berlin) with 65,000 apartment units bought by Cerberus/Goldman Sachs... 2005 Viterra real estate stock with over 150,000 apartment units; currently being sold -9-
Office Market... Overshadowed by the Weak Overall Economic Development - 10 -
Office Market: Office Rents in Germany 1) 130 125 120 115 Index, 2000 = 100 110 105 100 95 90 85 80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year 1) Rental payments for new office space with good fitout in 78 cities Source: HVB Expertise - 11 -
Office Market: Letting Take-up in Selected Cities 1.000 m² 1000 900 800 700 600 500 400 300 200 100 0 Berlin Düsseldorf Frankfurt Hamburg München Stuttgart 2001 2002 2003 2004 Source: HVB Expertise - 12 -
Office Market: Vacancy Rate in Selected Cities 20 18 16 14 12 10 8 6 4 2 0 Vacancy in % of stock Berlin Düsseldorf Frankfurt Hamburg München Stuttgart 2001 2002 2003 2004 Source: HVB Expertise - 13 -
Office Market: Rental Development and Vacancy in Selected Cities 15 2000 average vacancy-rate over the past 13 years 10 Rental change against previous year in % 5 0-5 2001 1992 1997 1999 1998 1994 1996 1995 2002 average rental increase over the past 13 years 2003 2004-10 19 93-15 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Vacancy in % of stock Source: HVB Expertise - 14 -
Perspectives - 15 -
Housing Market In 2005, housing prices as well as new rental agreements will remain largely unchanged. Currently, there are no sings of a trend reversal. There are regional discrepancies regarding changes to rents and price changes. In economically stronger regions, new rental agreements will increase slightly; house prices might rise as well. Due to an unfavourable demographic development in Germany in the long run, expectations regarding the future of the housing market are rather pessimistic. Sometimes such a pessimistic view is self-enforcing. Making everything sound worse, even given the apparent problems, is therefore not appropriate. Construction activity is at a very low level and consequently already takes account of the demographic outlook. In view of the future housing demand, construction activity is rather low than too high. - 16 -
Office Market Confronted with a very weak economic development, negative forces have dominated the German office markets. As a rapid economic upturn cannot be expected for the next few years, the current constellation will change only marginally. The oversupply of office space which is marketable without delay should therefore continue to increase in 2005; vacancies will decrease gradually not before 2006. The high level of office vacancies - for Germany - keeps up pressure on new rental payments. Since the unfavourable supply-demand situation is already largely reflected in the present rents and prices, future rent and price changes will be minimal compared with previous years. However, rents will continue to differentiate further according to location and quality. Moreover, incentives granted by the owners play a significant role in the negotiation of lease agreements. - 17 -
Structural Market Changes Against the background of the internationalisation of markets and global overheating trends, international investors are increasingly focusing on the German property market. The consequences are: Efficiency gains through more competition (e.g. in the framework of the purchase of entire housing societies) Transparency gains in connection with large corporate and portfolio transactions. Institutional changes in the financial market place Germany It can be expected that closed-end and open-end real estate funds as investment vehicles will be supplemented by Real Estate Investment Trusts (REITs). This will equally lead to more transparency and professionalism. Basel II: Over the next few years, financial institutions will more and more turn to Mark-To-Market valuations. Also the application of market and property rating systems will increase. - 18 -