Trend indicator: real estate investment market Germany · PDF fileJanuary 2012 Page 5 Trend indicator: real estate investment market Germany 2012 and in each quarter of 2011 The share

Trend indicator: real estate investment market Germany 2012


Page 2January 2012 Trend indicator: real estate investment market Germany 2012

Agenda

Transaction market

Transaction highlights

Survey structure and methodology

Market outlook and strategy Germany 2012


European outlook 2012


Transaction highlights

and

Market outlook and strategy

German real estate transaction market


Transaction volumes in recent years ...

Transaction volumes (EUR b) in Germany*

► Transaction volume rose sharply compared with 2009.

► Interest in major transactions also picked up again.

2010 2011► The real estate investment market remained

largely unaffected by the euro ► Transaction volume continued to increase year

on year.► Interest in large-volume transactions grew

further.

* Published transactions only. Source: Ernst & Young Research

Residential (portfolios only) Commercial

9.014.0

9.5 12.04.8

12.0

21.7

43.7

53.3

21.1

21.0

35.7

53.2

65.3

25.9

2004 2005 2006 2007 2008


Transaction volumes in recent years ...

► Transaction volume is expected to match the 2011 level.

► A few major transactions are already in final negotiations.

► Pressure on banks could lead to increased sales.

Outlook for 2012The real estate investment market remained largely unaffected by the euro crisis.

continued to increase year

volume transactions grew

27.0–30.0

4.8 3.3 3.8 50

21.1

10.119.1

23.0

25.9

13.4

22.928.0

2008 2009 2010 2011 2012


… and in each quarter of 2011

► The share of portfolio transactions to total volume increased slightly year on year.

► Around 30% of commercial transactions were portfolio deals.

Portfolio transactions Types of use► As in 2010, retail was the most sought

property type.► Residential real estate investments grew

significantly against 2010.► Investment strategies focused on security

continue to dominate.

* Published transactions only. Source: Ernst & Young Research

Transaction volumes in 2011 (EUR b) in Germany*

Residential (portfolios only) Commercial

1.0 0.9

5.6 5.6

6.6 6.5

Q1 Q2


► Transaction volume rose almost continuously through 2011.

► A number of large deals lifted the volume considerably in the third and fourth quarters.

Developmentretail was the most sought-after

Residential real estate investments grew significantly against 2010.Investment strategies focused on security continue to dominate.

1.8 1.3

6.05.8

7.87.1

Q3 Q4


The largest German commercial real estate transactions* …

► As in prior years, the sellers were mainly financial investors.

► Banks were also more active again on the seller side.

► As in 2010, institutional investors were the strongest buyer group.

► Foreign investors again featured heavily.► Private investors focused on small volumes.

Date Seller Buyer

Q3/2011 Eurocastle Investment Ltd. Arminius Funds Management S.à r.l.

Q3/2011 Lorac Investment Management S.à r.l. Dundee International REIT

Q2/2011 Metro owner families Promontoria (Cerberus Capital Management)

Q2/2011 Stadium Group Canada Pension Plan Investment Board

Q2/2011 Deutsche Bank AG DWS Investment GmbH(for DWS Access Taunusanlage 12)

Q4/2011 RREEF Investment GmbH Teachers IAA CREF

Q4/2011 Commerzbank AG Group of investors (including IVG)

Q3/2011 CA Immobilien Anlagen AG, ECE Projektmanagement Allianz Real Estate GmbH

Q4/2011 WealthCap Real Estate Management mfi management für immobilien AG

Q2/2011 Highstreet consortium Signa Holding GmbH, Centrum Holding Deutschland GmbH

* Published transactions only

Seller groups Buyer groups


The largest German commercial real estate transactions* …

► The size of individual transactions increased further in 2011.

► Major commercial real estate portfolios changed hands again (frequently as share deals).

institutional investors were the strongest buyer group.Foreign investors again featured heavily.Private investors focused on small volumes.

Target Properties PriceControlling majority of 14 real estate special purpose entities (share deal 75%) 28 EUR 984m

292 post offices throughout Germany(part of the Caroline portfolio) 292 EUR 736m

Metro cash-and-carry stores throughout Germany 45 EUR 700m

Canada Pension Plan Investment Board “Centro” shopping center, Oberhausen (50% share) 1 EUR 650m

Greentowers (Deutsche Bank headquarters), Frankfurt am Main 1 EUR 584m

PEP shopping center, Munich 1 EUR 408m“Silberturm” office building, Frankfurt am Main 1 EUR 390m

“Skyline Plaza” shopping center project, Frankfurt am Main (80% share) 1 EUR 288m

project volume

“Gropius Passagen” shopping center, Berlin 1 EUR 341m

Two Munich department stores (Karstadt Oberpollinger, Karstadt Sport) 2 EUR 250m

Transaction volume


… and residential real estate transactions* in Germany in 2011

► Sellers include mainly publicly traded companies and public-sector entities.

► 2011 saw an increasing number of sales due to restructuring.

Seller groups Buyer groups► The buyer side was dominated by financial and

strategic investors.

* Published transactions only; top transactions comprise 2,500 residential units or more

Date Seller Buyer

Q1/2011 Colonia Real Estate AG TAG Immobilien AG

Q2/2011 Investors of GSW Immobilien AG

Institutional investors (99%), private investors (1%)

Q4/2011 Gagfah S.A. GSW Immobilien AG

Q4/2011 Corpus Sireo Investment Residential No. 31 GmbH Degewo AG/Gesobau AG

Q3/2011 Insolvency administrator of Level One The Blackstone Group

Q4/2011 Insolvency administrator of Level One Confidential

Q3/2011 Confidential Deutsche Wohnen AG

Q3/2011 Confidential TAG Immobilien AG

Q2/2011 Confidential Deutsche Wohnen AG

Q1/2011 Leipziger Wohnungsbaugesellschaft Brack Capital Real Estate Germany


… and residential real estate transactions* in Germany in 2011

► The average transaction size increased again year on year in 2011.

Transaction volumeThe buyer side was dominated by financial and

Target Residential units Price

Majority interest in Colonia Real Estate n/a EUR 800m

IPO n/a EUR 468missue volume

Residential portfolio in Berlin and Potsdam 4,800 EUR 330m

Residential portfolio in Berlin 4,700 Confidential Residential portfolio in Berlin and eastern Germany (non-performing) 6,874 EUR 220mResidential portfolio in western Germany (non-performing) 8,000 EUR 205mResidential portfolio in Berlin, Düsseldorf and Rhine-Main 2,600 EUR 154mResidential portfolio in northern Germany and Saxony 3,100 EUR 150m

Residential portfolio in Berlin 2,500 Confidential

Residential portfolio in Leipzig 2,600 EUR 73m

Trend indicator: real estate investment market

Germany 2012


Our trend indicator covers a broad range of investor groups …

Trend indicator: real estate investment market

► Ernst & Young Real Estate GmbH has conducted this survey annually since 2006.

► More than 80 investors reported on their expectations for the coming year.

Background Objectives► Assessment of the German real estate

investment market in the year to ► Outlook on the strategies

investors will pursue in the coming

► The survey was distributed in November and December 2011 companies and investors (around 80 investors responded) that have recently active in the German real estate market.

► The survey focuses on two main areas:

► general assessment of the German real estate investment marketin 2012 by active market players, and

► analysis of the strategy pursued by real estate investors in Germany in view of the development of the real estate market.

► In addition to Germany, this survey was conducted simultaneously European countries.


Our trend indicator covers a broad range of investor groups …

► In addition to choosing from a range of answers provided, participants had the opportunity to submit personalized comments on each question.

► The following comments have been rendered anonymous and combined with similar assessments in some cases.

CommentsAssessment of the German real estate investment market in the year to come.

strategies which German investors will pursue in the coming year.

November and December 2011 to over 200 companies and investors (around 80 investors responded) that have recently been

assessment of the German real estate investment market

of the strategy pursued by real estate investors in Germany in view of

simultaneously in eleven other

Investor groups► Banks► Closed-end real estate funds► Real estate stock

corporations/REITs ► Institutional investors► Investment companies► Opportunity/private equity funds ► Insurance companies► Housing companies► Other


… who continue to view the German investment market positively

2010 2011

► Many investors continue to view Germany as much more attractive than other countries.

► The reasons for this are Germany’s stability and the growing uncertainty in other eurozone countries.

► Prices are again expected to remain stable overall with an upward trend in prime

► Location is seen as the key factor impacting on price.

1 “Germany is still attractive because of its low volatility.”

“Growth, political and social stability make Germany a safe haven for real estate investments.”

1

2 “Purchase prices in prime locations will continue to climb.” 2 “More money is being paid again

for real quality.”

3 “Although the crisis has bottomed out, recovery will be a slow process.”

3 “The crisis is over.”

Attractiveness1 Price development2


… who continue to view the German investment market positively

2012

► Since the financial crisis, investors have regarded Germany as an even more attractive location for real estate investment.

Prices are again expected to remain stable overall with an upward trend in prime locations.Location is seen as the key factor impacting on

“Growth, political and social stability make Germany a safe haven for real estate

“Germany is seen as the most stable market in the context of the euro crisis.”

1

2

“More money is being paid again for real quality.”

“While interest in investment is falling slightly in other European countries, demand in Germany is high.”

3is over.” “The uncertainty in most eurozone countries is making Germany more attractive.”

Price development Euro crisis3


Almost all participants see Germanyas an attractive location …

Germany’s attractiveness as a location for real estate investments

► “German real estate (exceptions: Munich, Berlin, Frankfurt, Hamburg) still appears slightly undervalued when measured in termGerman tenancy law in particular is still a byword for stable cash flows.” (housing company)

► “The uncertainty in most eurozone countries is making Germany more attractive, ► “As a “safe haven,” Germany will gain further appeal among investors by offering modest but reliable returns compared with ot

provider)

Original question – “How do you rate Germany’s overall attractiveness as a location for real estate investments in 2012?”

Comments

38%

61%

0%

Very attractive Attractive Less attractive


Germany’s attractiveness as a location for real estate investments

“German real estate (exceptions: Munich, Berlin, Frankfurt, Hamburg) still appears slightly undervalued when measured in terms of borrowing conditions. German tenancy law in particular is still a byword for stable cash flows.” (housing company)

attractive, despite lower returns.” (institutional investor)“As a “safe haven,” Germany will gain further appeal among investors by offering modest but reliable returns compared with other countries.” (service

Key messages► Almost all participants (99%)

continue to view Germany as an attractive or very attractive real estate investment location in 2012.

► This represents an even more positive assessment than in prior years (2011: 86%; 2010: 78%).

“How do you rate Germany’s overall attractiveness as a location for real estate investments in 2012?”

1%

No response


… and as a very attractive location in a European comparison

► “Germany is distinguished by its extremely stable economy and steady growth in consumer demand; these factors are also highly beneficial for the real estate sector. While interest in investment is falling slightly in other European countries, demand for good assets is high i

► “Germany currently stands out due to its stability and high growth potential for residential real estate in major cities,

Germany’s attractiveness as a location for real estate investmentsin a European comparison

Comments

Original question – “How do you rate Germany’s attractiveness as a location for real estate investments in 2012 compared with ot

Key messages

► As in the prior year, a clear majority of survey participants rate Germany as attractive or very attractive in a European comparison (99%).

► Indeed, compared to other European countries, Germany is seen as very attractive by more than half of those surveyed.

52%

Very attractive


… and as a very attractive location in a European comparison

its extremely stable economy and steady growth in consumer demand; these factors are also highly beneficial for the real estate sector. While interest in investment is falling slightly in other European countries, demand for good assets is high in Germany.” (institutional investor)“Germany currently stands out due to its stability and high growth potential for residential real estate in major cities, especially Berlin.” (pension fund)

Germany’s attractiveness as a location for real estate investmentsin a European comparison

“How do you rate Germany’s attractiveness as a location for real estate investments in 2012 compared with other European countries?”

47%

0% 1%

Attractive Less attractive No response


Original question – “Which of the following statements about the real estate capital market do you agree with?”

Despite modest expectations for the capital markets in 2012 …

24%

31%

19%

26%

11%

14%

5%

60%

44%

46%

38%

24%

16% 60%

Strongly agree Agree Disagree Strongly disagree

“The securitization market will further gain in importance in 2012.”

“The current euro crisis will lead to a significant reduction in activity on the European real estate

markets.”

“There will be an increase in M&A activity or in consolidation of real estate companies.”

“Basel III will make real estate finance appear less lucrative for banks and will lead to more restrained

mortgage business.”

“The supply of real estate on the market will increase as a result of restructuring measures.”

“Solvency II could see insurers acting increasingly as lenders for real estate investments in the future.”

“Fear of high inflation in the medium term will attract more investors to the real estate market.”

“The capital market is attractive again for IPOs and capital increases.”


“Which of the following statements about the real estate capital market do you agree with?”

Despite modest expectations for the capital markets in 2012 …

► Fear of inflation will heighten interest in real estate (88%).

► Insurers will act increasingly as lenders due to Solvency II (85%).

► Supply of real estate will grow due to restructuring measures (79%).

► Bank lending will be more restrained as a result of Basel III (70%).

► Small majority sees growth in M&A activity (57%).

► Euro crisis will cause a decrease in real estate activity (52%).

► A return of the securitization market is unlikely – only 29% agree.

► A minority sees IPOs and capital increases as attractive (16%).

64%

54%

60%

12%

14%

18%

24%

43%

30%

54%

1%

3%

5%

18%

16%

24%

1%

1%

Strongly disagree No response


… the transaction market is seen as stable

Original question – “Which of the following statements about the real estate transaction market do you agree with?”

► Interest in residential properties is keen (98%).

► Green building standards are important (83%).

► Institutional investors continue to focus on retail properties (81%).

► Banks will reduce portfolios (78%).► International financial investors are

active again (73%).► Transaction volume will rise further

in 2012 (56%).► Deal sizes will grow further in 2012

(55%).► Portfolio deals will continue to

increase (53%).► Project developments will increase

further in 2012 (41%).

“Residential properties will continue to be met with great

“Green building standards will play a more important role in real estate investments in the future.”

“Overall, transaction volume will continue to recover in 2012 and exceed the level seen in 2011.”

“International financial investors have returned to the real estate market.”

“Banks will gradually reduce their portfolios.”

“Institutional investors will increasingly focus on retail

Strongly agree Agree

“There will be more real estate portfolio deals in 2012.”

“The size of property deals will increase again

“There will be more new project developments again in


… the transaction market is seen as stable

“Which of the following statements about the real estate transaction market do you agree with?”

“Residential properties will continue to be met with great interest by investors.” 64%

36%

23%

24%

16%

8%

5%

3%

3%

34%

47%

58%

54%

57%

48%

50%

50%

38%

15%

15%

19%

19%

39%

39%

38%

46%

1%

4%

4%

5%

5%

12%

1%

3%

3%

4%

4%

1%

“Green building standards will play a more important role in real estate investments in the future.”

volume will continue to recover in 2012 and exceed the level seen in 2011.”

“International financial investors have returned to the real estate market.”

“Banks will gradually reduce their portfolios.”

“Institutional investors will increasingly focus on retail properties.”

Agree Disagree Strongly disagree No response

1%

1 %

1%

1%

“There will be more real estate portfolio deals in 2012.”

“The size of property deals will increase again in 2012.”

“There will be more new project developments again in 2012.”

1%


Original question – “How do you expect purchase prices to develop in 2012 based on the type of use and location?”

Price trend expectations vary greatly depending on location …

OfficeKey messages ► Prices for office buildings in prime

locations will remain stable (64%) or even increase (27%).

► Almost half of respondents expect prices for retail properties in superior locations to increase.

► Falling property prices are expected in peripheral areas (office 80%, retail 56%; prior year 56% and 42%, respectively).

1a 1b Peripheral areas

27%

64%

5%

60%

19%

Increasing Stable

Prime Secondary


“How do you expect purchase prices to develop in 2012 based on the type of use and location?”

Price trend expectations vary greatly depending on location …

Retail

Peripheral areas

8%1%

34%

1%

80%

1%

Falling No response

Peripheral areas

46% 49%

4% 1%

12%

72%

15%

1%1%

42%

56%

1%

Increasing Stable Falling No response


… and type of use

Residential


Prime Secondary Peripheral areas

75%

24%

1%

45%50%

4% 1%7%

66%

27%

Increasing Stable Falling No response



Key messages ► Three quarters of those surveyed

expect an increase in the price of residential properties in superior locations (2011: 84% and 2010: 63%).

► As in prior years, the value of residential properties in secondary and, to a large extent, in peripheral locations is still largely seen as being stable.


Who will be the most active seller groups in Germany in 2012 …

Seller groups

Original question – “Which seller groups do you think will be active in Germany in 2012?”

67%

36%

45%

22%

31%

11%

14%

7%

16%

5%

53%

43%

62%

45%

53%

49%

55%

42%

45%

Active Moderately active Cautious No response

67%

36%

45%

22%

31%

11%

14%

7%

16%

5%

53%

43%

62%

45%

53%

49%

55%

42%

45%

Open-ended funds

Opportunity/PE funds

Banks

Other international funds

Closed-end funds

Corporates (non -property)

Public sector

Real estate stock corporations/REITs

Housing companies

Insurance companies



Who will be the most active seller groups in Germany in 2012 …

Key messages ► In addition to open-ended funds

and banks, opportunity/PE funds will be among the most active seller groups in 2012.

► As in the prior year, sales by housing companies and insurers are expected to be relatively moderate.

23%

43%

7%

8%

11%

9%

23%

32%

34%

35%

38%

49%

7%

No response

3%

3%

1%

1%

4%

3%

3%

4%

1%

23%

43%

7%

8%

11%

9%

23%

32%

34%

35%

38%

49%

3%

3%

1%

7%

1%

4%

3%

3%

4%

1%

No response


… and who will be the buyers in Germany?

Buyer groups

Original question – “Which buyer groups do you think will be active in Germany in 2012?”

Key messages ► High-equity investors such as

family offices and institutional investors will remain among the most active buyer groups in 2012.

► As in the prior year, open-ended funds and especially banks are expected to be less active in 2012.

Private/family offices

Insurance companies



Housing companies

Sovereign wealth funds


Closed-end funds

Open-ended funds

Banks

Active


… and who will be the buyers in Germany?


3%

1%

4%

4%

1%

3%

3%

3%

3%

1%

79%

48%

30%

38%

18%

39%

18%

12%

11%

15%

43%

59%

50%

62%

38%

55%

51%

39%

9%

3%

8%

7%

9%

16%

22%

26%

34%

47%

88%

Private/family offices

Insurance companies



Housing companies

Sovereign wealth funds


end funds

ended funds

Banks



The following types of use will be popular …

Strong or moderate investment focus

Original question – “Which types of use are you particularly focusing your investments on in 2012 compared with last year?“

14%

51%51%

24%

69%

10%14%

Strong Moderate

Office Retail Residential Other


The following types of use will be popular …

“Which types of use are you particularly focusing your investments on in 2012 compared with last year?“

Key messages ► There will be an even greater

focus on residential properties in 2012 (69%; 2011: 44%; 2010: 60%).

► Three quarters of those surveyed have a strong or moderate interest in retail properties (2011: 58%; 2010: 54 %).

► Demand for office properties will be less pronounced (14%) than in prior years (2011: 20%; 2010: 27%).

* The addition of the investment focus for each type of use does not always total 100%, as no response was given in some cases.

19%


… and not so popular with investors in 2012

Low or no investment focus

Original question – “Which types of use are you particularly focusing your investments on in 2012 compared with last year?”

Key messages ► Other types of use will remain

more suited to specialists.

* The sum of responses for each type of property does not always total 100%, as no response was given in some cases.

21%

8%

Low


… and not so popular with investors in 2012

Low or no investment focus

“Which types of use are you particularly focusing your investments on in 2012 compared with last year?”

14%17%

6%

15%

24%

29%

Low No focus

Office Retail Residential Other


Frankfurt and Munich will be highly sought after by office investors in 2012; demand for retail will be strongest in Cologne and Düsseldorf …

“Office” and “Retail”

Original question – “Which locations are you particularly focusing your investments on in 2012 compared with last year? “

20%

14%

18%

24%

30%

16%

22%

18%

14%

27%29%

14%11%

Office Retail

Berlin Düsseldorf Frankfurt Hamburg Cologne Munich Stuttgart


Frankfurt and Munich will be highly sought after by office investors in 2012; demand for retail will be strongest in Cologne and Düsseldorf …

“Which locations are you particularly focusing your investments on in 2012 compared with last year? “

Key messages► Frankfurt and Munich will be

most popular with office property investors in 2012 (30% and 29%, respectively).

► Düsseldorf and Cologne will be the preferred locations for retail property investment in the coming year (24% and 27%, respectively).

* The addition of the investment focus for each location does not always total 100%, as no response was given in some cases.

27%

15% 16%

11%

Stuttgart Other


… and Berlin will again be preferred by many residential investors in 2012

“Residential” and “No focus”

Original question – “Which locations are you particularly focusing your investments on in 2012 compared with last year?”

Key messages► Berlin is seen as the clear favorite

for residential property investment in 2012 (42%).

► Significant investments in the residential segment will also be made outside the major real estate centers.

* The addition of the investment focus for each location does not always total 100%, as no response was given in some cases.

42%

22% 23% 24%

Residential

42%

22% 23% 24%

Residential

Berlin Düsseldorf


… and Berlin will again be preferred by many residential investors in

“Residential” and “No focus”

“Which locations are you particularly focusing your investments on in 2012 compared with last year?”

24%29% 27% 28%

16%

34%

20%

29%

15%

41%

24%

32%

Residential No focus

24%29% 27% 28%

16%

34%

20%

29%

15%

41%

24%

32%

Residential No focus

Düsseldorf Frankfurt Hamburg Cologne Munich Stuttgart Other


The biggest obstacles to successful transactions in 2012 …

Original question – “What is the biggest obstacle to successful transactions in 2012?”


Buyers and sellers have differing purchase price expectations 41%

31%

28%

35%

45%

33%

23%

Level of required equity

Availability of junior credit finance

Availability of senior credit finance

Biggest obstacles to transactions


The biggest obstacles to successful transactions in 2012 …

Key messages ► Differing purchase price

expectations (77%) and the level of equity required for the financing (76%) are most likely to prevent a successful transaction.

► The sufficient availability of junior and senior credit finance is also viewed critically by the majority.

Strongly disagree No response

36%

45%

16%

15%

28%

28%

7%

9%

11%

14%


… and the measures expected from banks to tackle problem loans

Original question – “What measures will banks most frequently use to tackle problem loans in 2012?”

Key messages ► Respondents see mutually agreed

restructuring and the extension of repayment periods as the most likely approaches to tackling problem loans (95% and 91%, respectively).

► The enforcement of claims is the least expected measure (13%).


Mutually agreed restructuring

Extension of repayment periods

Replacement of asset managers

Measures by banks


… and the measures expected from banks to tackle problem loans

“What measures will banks most frequently use to tackle problem loans in 2012?”

27%

49%

7%

8%

1%

68%

42%

49%

44%

12%

4%

5%

36%

39%

62%

5%

8%

22%

Agree Disagree Strongly disagree No response

Mutually agreed restructuring

1%

1%

3%

3%

1%

3%

Extension of repayment periods

Replacement of asset managers

Debt-for-equity swap

Enforcement

Measures by banks


The main exit channels in 2012

Original question – “What exit strategies do you have planned (more than one answer possible)?“

Planned exit strategies

Real estate stock corporations/REITs Mutual funds Special funds Closed-end funds

5%

13%16%

13% 11%

5%

20% 19%

25%

13% 12% 14%

49%45%

40%

2009 2010 2011


“What exit strategies do you have planned (more than one answer possible)?“

end funds Direct sale

16%

8%

25%

4%

47%

2012

Key messages► The assessments have only

changed slightly against the prior year.

► As in the prior year, a direct sale remains the preferred exit strategy.

► Special funds will continue to be a key exit option in 2012.

► The capital markets also remain a potential exit route.

Trend indicator: real estate investment market Europe 2012


In addition to Germany, this survey was conducted simultaneously in other European countries ...

European trend indicator: real estate investment market

► For the first time, the survey was also conducted in other European countries.

► Companies and investors in twelve European countries (including Germany) that have recently been active in their respective national real estate surveyed in November and December 2011. A total of around 540 participants responded.

► The content of the European survey matched that of the German trend indicator.

► Belgium► Germany► France► UK

Participating countries► Luxembourg► Netherlands► Austria► Poland


In addition to Germany, this survey was conducted simultaneously in

European trend indicator: real estate investment market

For the first time, the survey was also conducted in other European countries.

Companies and investors in twelve European countries (including Germany) that real estate markets were

surveyed in November and December 2011. A total of around 540 participants

The content of the European survey matched that of the German trend indicator.

► Russia► Spain► Sweden► Switzerland


… with varying assessments of the respective investment locations

Attractiveness in absolute terms

Original question – “How do you rate your country’s attractiveness as a location for real estate investments in 2012, both in abcountries?”

Key messages► All countries are rated positively

overall.► Germany, Sweden and Switzerland

are rated very highly by locally active market players, in particular due to their economic stability as investment locations.

► Other European investment locations are assessed more cautiously by comparison; possible reasons are the lack of opportunities for transactions at attractive prices, as well as uncertainty about economic stability.

Very attractive Attractive

1%

6%

4%

4%

4%

4%

11%

6%

2%

15%

4%

4%

7%

8%

9%

15%

12%

6%

14%

21%

11%

61%

64%

71%

82%

53%

44%

60%

69%

53%

68%

65%

57%


… with varying assessments of the respective investment locations

Attractiveness in absolute

“How do you rate your country’s attractiveness as a location for real estate investments in 2012, both in absolute terms and compared with other European

Attractive Not very attractive Neither agree nor disagree No response

… and in a European comparisonGermany

Sweden

Luxembourg

Austria

Russia

Poland

Belgium

France

Netherlands

UK

82%

68%

65%

57%

38%

32%

21%

7%

35%

41%

25%

15%

30%

12%

12%

17%

52%

21%

14%

18%

15%

50%

28%

15%

19%

22%

12%

31%

47%

57%

51%

54%

59%

38%

36%

43%

64%

48%

57%

30%

11%

14%

7%

13%

9%

9%

15%

13%

8%

10%

26%

7%

21%

21%

13%

25%

27%

4%

22%

21%

13%

1%

4%

3%

2%

Switzerland

Spain


Fear of high inflation in the medium term will attract more investors to the real estate market, ...

“Potential high inflation will attract more investors to the real estate market”

Original question – “Do you agree with the following statement? Fear of high inflation in the medium term will attract more inve

35%

24%

25%

8%

9%

20%

21%

15%

8%

7%

4%

9%

53%

64%

44%

61%

59%

46%

43%

48%

53%

50%

50%

43%

Switzerland

Germany

France

Belgium

UK

Russia

Luxembourg

Poland

Netherlands

Austria

Sweden

Spain



Fear of high inflation in the medium term will attract more investors to

“Potential high inflation will attract more investors to the real estate

Key messages► In all the countries surveyed, a

majority believe that fear of inflation will heighten interest in real estate investments.

► This majority is especially pronounced in Switzerland and Germany (88% in each case).

“Do you agree with the following statement? Fear of high inflation in the medium term will attract more investors to the real estate market.”

53%

64%

9%

12%

15%

19%

15%

22%

18%

17%

27%

25%

32%

26%

4%

2%

4%

7%

7%

4%

4%

7%

11%

12%

12%

15%

8%

11%

13%

8%

14%

7%

11%

3%

No responseNeutral


… while the euro crisis is linked to a slowdown in real estate activity

“Reduction in real estate activity due to euro crisis”

Original question – “Do you agree with the following statement? The current euro crisis will lead to a significant reduction in

Key messages ► A majority in all the countries

surveyed link the euro crisis to a slowdown in real estate activity.

► In Switzerland, Germany and Belgium, fear of inflation (and the expected positive effect on the real estate market) appears to offset at least some of the euro skepticism.

AgreeStrongly agree Agree


… while the euro crisis is linked to a slowdown in real estate activity

“Reduction in real estate activity due to euro crisis”

“Do you agree with the following statement? The current euro crisis will lead to a significant reduction in activity on the European real estate markets.”

Disagree Strongly disagree No responseNeutral

25%

17%

26%

22%

29%

14%

25%

15%

14%

12%

14%

12%

61%

66%

57%

57%

49%

61%

47%

56%

57%

53%

38%

38%

14%

11%

13%

13%

12%

18%

14%

23%

27%

23%

30%

38%

2%

2%

8%

7%

7%

2%

2%

18%

12%

6%

2%

6%

2%

7%

4%

12%

Sweden

Poland

Spain

UK

France

Austria

Luxembourg

Russia

Netherlands

Belgium

Germany

Switzerland



Disagree Strongly disagree

Around half of countries surveyed expect heavier investment by insurers in the future due to Solvency II

“Insurers will act increasingly as lenders due to Solvency II”

Original question – “Do you agree with the following statement? Solvency II could see insurers acting increasingly as lenders f

31%

14%

13%

11%

9%

21%

10%

18%

18%

13%

11%

54%

58%

41%

41%

43%

44%

30%

39%

29%

29%

29%

25%

18%

19%

17%

18%

25%

12%

25%

19%

Germany

Belgium

Netherlands

UK

Poland

Switzerland

Spain

Russia

Sweden

Luxembourg

France

Austria



No responseNeutral

Around half of countries surveyed expect heavier investment by insurers

“Insurers will act increasingly as lenders due to Solvency II”

“Do you agree with the following statement? Solvency II could see insurers acting increasingly as lenders for real estate investments in the future.”

Key messages ► Around half of the countries

surveyed agree that Solvency II will see insurers acting increasingly as lenders for real estate investments in the future.

► German respondents agree most strongly (85%), while only just over a third of Austrian respondents share this view.

14%

23%

18%

19%

25%

38%

17%

37%

25%

1%

2%

6%

4%

4%

4%

7%

19%

19%

25%

21%

17%

32%

10%

31%

21%

27%

39%

9%

No responseNeutral


Expectations of an increase in the transaction volume in 2012 are moderate

“2012 transaction volume will exceed the prior year”

Original question – “Do you agree with this statement on the real estate capital market? Overall, the transaction volume will co2011.”

Key message► Only in Germany (56%), France (54%)

and Luxembourg (53%) does a majority believe that the transaction volume in 2012 will exceed the prior year.



Expectations of an increase in the transaction volume in 2012 are

“2012 transaction volume will exceed the prior year”

“Do you agree with this statement on the real estate capital market? Overall, the transaction volume will continue to recover in 2012 and exceed the level seen in


8%

33%

11%

13%

3%

7%

8%

6%

12%

7%

4%

48%

21%

42%

33%

38%

34%

30%

27%

21%

18%

21%

15%

39%

17%

29%

30%

47%

22%

25%

24%

42%

25%

40%

54%

4%

6%

4%

15%

12%

11%

11%

16%

12%

11%

7%

4%

23%

14%

9%

26%

26%

27%

13%

39%

32%

23%

1%Germany

France

Luxembourg

Poland

Switzerland

UK

Spain

Netherlands

Russia

Austria

Sweden

Belgium



In 2012, upside potential will return in particular to countries that have seen pressure on office real estate prices, ...

Price trend – office

GB

SP

F

RUS

SWE

PL

D

AT

CH

NL

BEL

LUX

3950

11 19

3744

19

3843

35

42

23

8

4646602515

573211

36

32

32

6416

20 22

4830

4728

25 26

44

30

7117

1232

38

30

3947

14 14

4739

592615 18

4339

27

65

8 19

81

18

58

24 15

85



Key messages► In almost all the countries surveyed,

the majority expects prices for office real estate in prime locations to remain stable or increase.

► Upside potential is now returning in particular to countries that had seen pressure on office real estate prices.

► The value of properties in peripheral areas is largely regarded as being at least stable; however, investors in Germany and Switzerland take a more critical view of these locations.

Increasing Stable Falling

Key:Prime locations

Peripheral areas

(in percent)39

1150

19

4437

In 2012, upside potential will return in particular to countries that have seen pressure on office real estate prices, ...

RUS 61318

5428

18


… Retail real estate will profit from prime locations according to the price trend


Key messages► In most countries, retail real estate

prices in prime locations are considered by a majority to be stable or increasing.

► Survey participants in Germany and Luxembourg most frequently forecast price rises in superior locations.

► Market players in Spain are more critical of the price trend – even in prime locations; in Spain, the trend appears to be toward greenfieldshopping centers.


Key:Prime locations

Peripheral areas

(in percent) 39

1150

19

4437

GB

SP

F

NL

BEL

LUX

3843

19 35

34

31

4739

14 22

56

22

20

56

24 27

2944

8

73

19 25

46

29

Price trend – retail


… Retail real estate will profit from prime locations according to the


GB

F

RUS

SWE

PL

D

AT

CH

4749

4 14257

6

82

12 18

82

3256

12 30

44

2638

45

17 3352

15

4228

30 3544

21

18

64

18 21

66

13

4353

432

36

32

33

50

17 30

2842

retail


Even in peripheral areas, the value of residential real estate is generally seen as stable


Price trend – residential

UK

SP

F

SWE

PL

AT

CH

NL

BEL

LUX

75

241 7

66

27

6

70

2465

323

GER

36

46

18 30

37

33

32

48

20 28

48

24

4145

14 25

37

38

3947

14 25

54

21

4335

22 20

4634

3735

28 22

3543

4530

25 4023

37

54397 25

5421

642115 14

4046


Even in peripheral areas, the value of residential real estate is generally


Key messages► Residential real estate throughout

Europe is expected to profit from good locations.

► This forecast applies in particular to Germany, Switzerland and the UK.

► Even in peripheral areas, the value of residential real estate is seen as at least stable; exceptions are Luxembourg and Sweden.


Key:Prime locations

Peripheral areas

(in percent) 39

1150

19

4437

RUS 5231

17 3349

18


Expectations differ as to the top seller and buyer groups in the countries surveyed

Original question – “Which seller and buyer groups do you think will be active in 2012?”

Key messages ► Banks and real estate stock

corporations/REITs will be among the most active seller groups in Europe in 2012.

► Housing companies will also increase their presence on the seller side in a large proportion of the countries surveyed.

► Housing companies are also the most frequently mentioned players on the buyer side.

► Participants believe that open-ended real estate funds will be more active as a buyer group in 2012, despite liquidity problems in some cases.

Top three seller and buyer groups (percentages denote total responses given as “active” and “moderately active”)

Top seller group

Housing companies (87%), real estate stock corporations/REITs(86%), banks (81%)

Open-ended real estate funds (91%), opportunity/PE funds (89%), banks (88%)

Real estate stock corporations/REITs (92%), banks (92%), housing companies (85%)

Banks (89%), opportunity/PE funds (83%), housing companies (79%)

Real estate stock corporations/REITs (88%), housing companies(86%), banks (79%)

Real estate stock corporations/REITs (88%), banks (84%), housing companies (76%)

Real estate stock corporations/REITs (79%), openestate funds (75%), banks (75%)

Banks (80%), housing companies (79%), real estate stock corporations/REITs (78%)

Real estate stock corporations/REITs (87%), openestate funds (86%), opportunity/PE funds (84%)

Open-ended real estate funds (89%), real estate stockcorporations/REITs (86%), housing companies (82%)

Opportunity/PE funds (75%), corporates (nonbanks (73%)

Banks (91%), real estate stock corporations/REITs (81%), opportunity/PE funds (77%)


Expectations differ as to the top seller and buyer groups in the countries

Top three seller and buyer groups (percentages denote total responses given as “active” and “moderately active”)

Top seller group Top buyer group

Housing companies (87%), real estate stock corporations/REITsBelgium

Real estate stock corporations/REITs (81%), insurancecompanies (73 %), other international funds (73%)

ended real estate funds (91%), opportunity/PE funds (89%), Germany

Private/family offices (94%), insurance companies (92%), other international funds (89%)

Real estate stock corporations/REITs (92%), banks (92%), France

Housing companies (85%), open-ended real estate funds (85%), banks (85%)

Banks (89%), opportunity/PE funds (83%), UK

Housing companies (80%), opportunity/PE funds (79%), open-ended real estate funds (78%)

Real estate stock corporations/REITs (88%), housing companiesLuxembourg

Housing companies (89%), open-ended real estate funds (82%), other international funds (80%)

Real estate stock corporations/REITs (88%), banks (84%), Netherlands

Housing companies (80%), banks (75%), real estate stock corporations/REITs (74%)

Real estate stock corporations/REITs (79%), open-ended realAustria

Sovereign wealth funds (75%), open-ended real estatefunds (75%), banks (64 %)

Banks (80%), housing companies (79%), real estate stock corporations/REITs (78%) Poland

Banks (79%), housing companies (77%), open-ended real estate funds (74%)

Real estate stock corporations/REITs (87%), open-ended realestate funds (86%), opportunity/PE funds (84%)

RussiaBanks (85%), housing companies (83%), Real estate stock corporations/REITs (83%)

ended real estate funds (89%), real estate stockcorporations/REITs (86%), housing companies (82%)

SwedenHousing companies (89 %), open-ended real estate funds (82%), other international funds (80%)

Opportunity/PE funds (75%), corporates (non-property) (74%), Switzerland

Real estate funds (100%), private/family offices (97%), insurance companies (91%)

Banks (91%), real estate stock corporations/REITs (81%), Spain

Housing companies (83 %), banks (83%), open-ended real estate funds (76%)


The investment focus on offices is forecast as follows in 2012 …


Investment focus – office 2012

GB

SP

F

RUS

SWE

PLD

AT

CH

NL

BEL

LUX

21

4421

14

27

53

128

573112

36

39

1114

5129

12 8

28

4017

15

38

42

911

32

47

147

4040

911

14

5121

14

17

61

22


The investment focus on offices is forecast as follows in 2012 …


Key messages ► Office properties are high on the

shopping lists of investors in countries where prices in the office segment are expected to rise.

► Investors in France and Russia will focus most strongly on office properties in 2012.

Strong Average Low

Key:

(in percent)

21

4421

14No focus

RUS 56384 2


Most investors have retail properties on their shopping lists in 2012


Investment focus –

GB

SP

NL

BEL

LUX

19

4212

27

4332

1411

2018

33

29

31

2628

15

Key messages► The majority of investors are also

focusing on retail properties (exception: Switzerland).

► The retail segment is most favored by investors in Germany, France, Luxembourg and Poland.

Strong Average Low

Key:

(in percent)

21

4421

14No focus


Most investors have retail properties on their shopping lists in 2012


– retail 2012

GB

F

RUS

SWE

PLD

AT

CH

29

2514

3246

2519

10

3626

2117

33

35

2210

25

2136

18

17

3826

19

5124817

336

58

3


Focus on residential properties in most countries


Investment focus – residential 2012

GB

SP

F

RUS

SWE

PLD

AT

CH

NL

BEL

LUX

18

3518

29

19

431523

21

5313

13

4332

1114

33

2518

24

24

3024

22

27

3720

16

14

4021

25

25

281730

6910615

14

80

6


Focus on residential properties in most countries


Key messages ► Residential properties are another

sought-after investment class in most countries surveyed (with Switzerland again the exception).

► In Germany, the strong demand for residential properties looks set to continue in 2012.

Strong Average Low

Key:

(in percent)

21

4421

14No focus

RUS 29

44

234

Summary


This is how the survey participants in Germany see the real estate investment market …

Outlook for Germany (I)

Attractiveness►Almost all respondents continue to view Germany as an

attractive or very attractive real estate investment locationin 2012.

Real estate capital market►Insurers will act as lenders due to Solvency II (85%).►Bank lending will be restrained by Basel III (70%).►Return of the securitization market is unlikely.Real estate transaction market►Interest in residential properties is keen (98%).►Fear of inflation will heighten interest in real estate (88►Transaction volume will increase further in 2012 (56%).Purchase price expectations►Prices for office buildings in prime locations will remain

stable (64%) or even increase (27%).►Almost half of those surveyed expect prices for retail

properties in superior locations to increase.►Three quarters expect prices of residential

properties in superior locations to rise.


This is how the survey participants in Germany see the real estate

to view Germany as anattractive or very attractive real estate investment location

Fear of inflation will heighten interest in real estate (88%).%).

Prices for office buildings in prime locations will remain

Seller and buyer groups► In addition to open-ended funds and banks,

opportunity/PE funds will be among the most active seller groups in 2012.

► High-equity investors such as family offices and institutional investors will remain among the most active buyer groups in 2012.

Focus on types of use► There will be an even greater focus on residential

properties in 2012.► Three quarters of those surveyed have a strong or

moderate interest in retail properties.► Demand for office properties will be less strong.Regional focus► Frankfurt and Munich will be highly sought after by

office investors in 2012.► Demand for retail will be strongest in Cologne and

Düsseldorf.► Berlin will be the number 1 location for residential

investors in 2012.


... with the following strategies:

Outlook for Germany (II)

Biggest obstacles to transactions►Differing purchase price expectations (77%) and the level

of equity required for financing (76%) are most likelyto prevent successful transactions in 2012.

Banks’ approaches to tackling problem loans►Mutually agreed restructuring and the extension of

repayment periods are the most likely approaches (95%and 91%, respectively).

►Only a handful expect an enforcement of claims (13%).

Exit strategies►As in the prior year, a direct sale remains the preferred

exit strategy.►Special funds will continue to be a key exit option in

2012.►The capital markets also remain a potential exit route.



… while respondents across Europe expressed the following views

Outlook for Europe

Attractiveness►Germany is rated very highly due to economic stability.►Other countries are assessed more cautiously.►Possible reasons are the lack of opportunities for

transactions at attractive prices, as well as uncertaintyabout economic stability.

Real estate capital and transaction markets►In all the countries surveyed, a majority believes that

fears of inflation will heighten interest in real estateinvestments.

►A majority in all the countries surveyed links the eurocrisis to a slowdown in real estate activity.

►Around half expect heavier investment by insurers due toSolvency II.

►Only in Germany (56%), France (54%) and Luxembourg(53%) does a majority believe that the transaction

volume in 2012 will exceed that of 2011.


… while respondents across Europe expressed the following views

Purchase price expectations► Office and retail property prices in prime locations will

remain stable or increase in almost all the countries surveyed; peripheral areas will also remain stable.

► Prime locations will also profit in the residential segment throughout Europe; prices in peripheral areas will be stable or decrease.

Seller and buyer groups► Banks and real estate stock corporations/REITs will be

among the most active seller groups in Europe in 2012.► Housing companies are expected to be the most active

buyers in 2012.Types of use► There will be an even greater focus on residential

properties in 2012.► Three quarters of those surveyed have a strong or

moderate interest in retail properties.► Demand for office properties will be less strong.Regional focus► Respondents from countries with rising price expectations

believe the investment focus on office properties will increase.

► Germany has the strongest retail focus.► The vast majority expect an average investment focus on

residential properties.

Hartmut Fründ

Tel. +49 6196 996 26351Mobile +49 160 939 26351 Email [email protected]

Ernst & Young

Assurance | Tax | Transactions | Advisory

© 2012 Ernst & Young Real Estate GmbH - all rights reserved.

About Ernst & Young The global Ernst & Young organization is a leader in assurance, tax, transaction and advisory services. It makes a difference by helping its people, its clients and its wider communities achieve their potential. Worldwide, 152,000 people are united by shared values and an unwavering commitment to quality.

The global Ernst & Young organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information, please visit www.de.ey.com

In Germany, Ernst & Young comprises some 7,000 people at 22 locations. In this publication, “Ernst & Young” and “we” refer to all German member firms of Ernst & Young Global Limited.

Paul von Drygalski


This publication contains information in summary form and is therefore intended for general guidance only. Although prepared with utmost care this publication is not intended to be a substitute for detailed research or the exercise of professional judgment. Therefore no liability for correctness, completeness and/or currentnessbe assumed. It is solely the responsibility of the readers to decide whether and in what form the information made available is relevant for their purposes. Neither Ernst & Young Real Estate GmbH nor any other member of the global Ernst & Young organization can accept any responsibility. On any specific matter, reference should be made to the appropriate advisor.

+49 6196 996 26351+49 160 939 26351 [email protected]

Christian Schulz-Wulkow


+49 30 25431 21327+49 160 939 21327 [email protected]

This publication contains information in summary form and is therefore intended for general guidance only. Although prepared with utmost care this publication is not intended to be a substitute for detailed research or the exercise of professional judgment. Therefore no liability for

currentness will be assumed. It is solely the responsibility of the readers to decide whether and in what form the information made available is relevant for their purposes. Neither Ernst & Young Real Estate GmbH nor any other member of the global Ernst & Young organization can accept any responsibility. On any specific matter, reference should be made

mailto:[email protected]

http://www.de.ey.com





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Trend indicator: real estate investment market Germany · PDF fileJanuary 2012 Page 5 Trend indicator: real estate investment market Germany 2012 and in each quarter of 2011 The share