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The Polish Commercial Real Estate Market Overview

The Polish Commercial Real Estate Market Overview. 14 June 2012. Agenda. The Polish economy and investment market Retail market Office market Industrial and logistic market Summary DTZ in Poland. Economy.

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The Polish Commercial Real Estate Market Overview

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  1. The Polish Commercial Real Estate Market Overview 14 June 2012

  2. Agenda • The Polish economy and investment market • Retail market • Office market • Industrial and logistic market • Summary • DTZ in Poland

  3. Economy In recent years the Polish economy has proved to have a strong macroeconomic base as it was relatively immune to the negative situation and instability on many European markets. • Poland is considered as a target market among investors. • 6th largest economy in EU by population (38 million people) • EU entry in May 2004: fast development of ICT and BPO sectors • Diversified economy - manufacturing, light and heavy industry, automotive and increasing share of services • Boost for infrastructure - Poland is to receive nearly 20% of the EU’s €308 billion structural funds for the period 2007-2013 • Eight cities with more than 400,000 inhabitants, 17 cities with more than 200,000 inhabitants, 39 cities with more than 100,000 inhabitants • 4 Polish cities to host Euro 2012 championships – Warsaw, Poznań, Wrocław and Gdańsk

  4. Poland - Macroeconomic OverviewEconomy in good dynamic shape Annual GDP Growth and Inflation, 2003-2012f Consumer Prices Employment Gross Domestic Product Source: Central Statistical Office (GUS), Oxford Economics • Poland the only country within the European Union to avoid recession in 2009: Well-capitalised financial sector, low degree of openness of the economy and timely reactions from fiscal and monetary policies • Strong GDP growth compared with other EU countries (4.3% y-o-y in 2011), with inflation slightly above the target • Positive macroeconomic trends result mainly from growth of internal demand and large-scale infrastructure investments • The Warsaw stock exchange is the largest one in Central Eastern Europe and one of the fastest growing in the world • Acceptable level of public debt: 56.7% of Gross Domestic Product • Due to the global macroeconomic slowdown expected in 2012, the Polish economy may also experience a decrease in GDP growth to approximately 2.5% (-0.3% for the euro area).

  5. Economy indicators Industrial Output Annual GDP Growth Retail Sales FDI Inflows (€bln) Source: Central Statistical Office (GUS), National Bank of Poland, Oxford Economics

  6. Road infrastructure Legend: Motorways completed to 2008 Motorways completed to 2010 Motorways scheduled for 2012

  7. Central and Eastern Europevs Poland Investment volumes* Ø Economic growth 2007 - 2011 Source: IVG Research/EuropeanCommission * Czech Republic, Hungary, Ukraine, Slovakia • Poland far more dynamic than other CEE countries. The country has proven its position as the leading market in the CEE Region

  8. The Polish real estate investment market Investment TransactionVolume by sector,2011 Investment Volumes Poland,2000 – 2011 • €2.5bn of investment transactions was recorded in 2011 representing 37% increase year on year. €1,5bn transacted in the second half of 2011 contributing 60% to the total volume represents the strongest six months since the beginning of 2007. • Market activity in 2012 is expected to remain polarised between core players looking for security at better price in Poland and opportunistic players targetting 17 -25% IRR’s, the latter group being more volatile to financing restrictions. • Banks remain cautious but financing is available for best in class assets, including larger lot sizes via club deals.

  9. Prime Investment Yields – 2005 –2012(f) • After two years of upward revision, prime yields in all sectors compressed by 25 – 50 p.p. Therefore prime office and retail yields as at the end of 2011 were at the level of approximately 6.25 and 6.00% respectively. Prime yields in the logistics property sector stood at 7.75%. DTZ expects prime yields to remain relatively stable in the first quarters of 2012. • Yields for the secondary assets are traded on average 100 -125 bps higher.

  10. Poland – Investment highlights in Commercial Real Estate Poland - Investment highlights General Economy • Poland has not only a large domestic market but also has developed strong growth momentum as a result of its successful transition to a market economy. The prospects that the success story will continue are good, considering the moderate national public debt, essential improvements to the transportation infrastructure and the large pool of low-cost, dedicated and skilled workforce • The Warsaw office rental market has been experiencing a steep upswing since mid 2010, leading to a considerable reduction in the vacancy rate and a strong recovery in rent levels. The expected high demand for office space in 2012 and especially 2013 will be met by a number of potential completions • Poland has a liquid, relatively transparent investment market characterised by international players and, due to its relatively short history and growth dynamics, a large supply of modern and core properties. Real Estate Market Poland not part of CEE • The classification of Poland as CEE country appears out-of-date, as the individual countries of Central and Eastern Europe have developed very differently in the last two decades. But also a comparison of Poland with Western Europe is not adequate, because Poland is much worse off with regard to income per capita, but better positioned in terms of economic growth and public indebtedness In a number of international surveys, Poland is currently ranked as one of the most attractive countries in Europe for commercial real estate investments. Reasons for this are, in addition to the broad range of investment opportunities and relatively high achievable yields, the Polish economy’s good position as compared to other European economies and its growth prospects, which are relatively good in spite of the sovereign debt crisis in the Eurozone

  11. Złote Tarasy Warsaw The Polish retail market DEVELOPERS AND OWNERS Tesco, Metro Properties, Unibail-Rodamco, Axa, Apollo Rida, Blackstone, Rockspring, Union Investment RETAILERSAuchan, Carrefour, Leroy Merlin, Sephora, Promod, Decathlon, H&M, C&A, LPP, Tatuum, NG2

  12. 680 Modern retailstockin Poland TRICITY Total modern retail stock in Poland: 11 m sq m Shopping centres: 9 m sq m 390 schemes Average size of shopping centre: 23,000 sq m Density in Poland: 236 sq m per 1,000 inhabitants 671 546 POZNAŃ 570 716 WARSAW ŁÓDŹ 433 WROCŁAW 547 UPPER SILESIA KRAKÓW sq m per thousand inhabitants Source All Data: DTZ Research

  13. The Polish retail market Retail supply by formats, 2011 Supply split by city size, 2011 Source: DTZ • Comments • Large agglomerations dominate the retail market, however over the last four-five years secondary and tertiary cities have been gaining on importance, substantially increasing their market share in the overall volume of annual retail supply. • Around 59% of total modern retail supply is situated in 8 major Polish agglomerations with a population over 400,000. These are Warsaw, Krakow, Silesia, TriCity, Poznan, Wroclaw, Lodz and Szczecin.

  14. Evolution of the Polish retail market GDYNIA SŁUPSK ELBLĄG Stage I largest Polish cities and agglomerations StageII cities with populationof 100,000 to 400,000 StageIII cities with population of 50,000 to 100,000 KOSZALIN GDAŃSK SUWAŁKI SZCZECIN EŁK OLSZTYN GRUDZIĄDZ STARGARD SZ. PIŁA TORUŃ OSTROŁĘKA ŁOMŻA BIAŁYSTOK GNIEZNO BYDGOSZCZ LEGIONOWO GORZÓW WLKP. WARSZAWA INOWROCLAW PŁOCK WŁOCŁAWEK POZNAŃ SIEDLCE KONIN ZIELONA GÓRA LESZNO BIAŁA PODLASKA GŁOGÓW KALISZ TOMASZAÓW MAZ ŚWIDNICA ŁÓDŹ PABIANICE LUBIN OSTRÓW WLKP. CHEŁM PIOTRKÓW RADOM WROCŁAW LUBLIN LEGNICA CZĘSTOCHOWA KIELCE JELENIA GÓRA KATOWICE SOSNOWIEC OSTROWIEC ŚW. ZAMOŚĆ WAŁBRZYCH OPOLE DĄBROWA GÓRN. TARNOBRZEG GLIWICE BYTOM CHORZÓW STALOWA WOLA RYBNIK TYCHY MIELEC KRAKÓW TARNÓW RACIBÓRZ PRZEMYŚL OLKUSZ JASTRZĘBIE ZDRÓJ BIELSKO-BIAŁA RZESZÓW NOWY SĄCZ KĘDZIERZYN-KOŹLE

  15. The Polish retailmarket Vacancy rate in major cities, End of 2011 Annual supply split by city size Source: DTZ • Comments • 50% of supply delivered in 2010 was situated in eight major Polish agglomerations with a population over 400,000.In 2011 it oscillated around 25%. • New stock delivered in2011 amounted to ca. 740,000 sq m, what indicates around 35% increase in comparison to 2010. • DTZ notice growing interest of landlords in redevelopment and repositioning activities as large part of thestockisalreadyover 10-years old • Retailers are still picky when it comes to new projects, but more confident about expansion plans. Food and DIY chains, as well as established fashionbrands and new entrantsareveryactive.

  16. The Polish retailmarket: opportunities Prime Retail Rents Modern Retail Space mix • Comments • Wrocław, Warsaw, Poznań and TriCity are the most developed markets in terms of operating formats. • 51% out of over 6,5 million sqm located in eight major agglomerations is occupied eitherby large scale big boxes (food operators, DIY, electronic appliances etc.) located as stand aloneprojects or in shopping centres. • Prime rents remain stable, while secondary properties are under strong retailers’ pressure.

  17. The Polish retail market: forecasts Prime yields Prime retail rents month Source: DTZ • Saturation in large cities calculated per pure population, yet niches still available • Strong development pipeline 2012-14 but slowdown foreseen beyond 2014 • Rents stable for properly positioned urban malls, others facing rental decline, especially in effective rents (large fit out contributions, etc) • Decreasing space of hypers (lease surrenders) • Extensions of established schemes – PiasecznoAuchan, BielanyWrocławskie, Janki • Letting in mid and small sized cities difficult • Small formats on the move (small retail parks, convenience centres) • Vacancy differentiation: large agglomerations – low at around 2-3%, followed by secondary – 5-7%, and tertiary – 5-10% • Repositioning gaining on importance • Luxury niche still not popular – failure of Likus • Ecommerce as a threat to traditional shopping

  18. Rondo I Warsaw The Polish office market INVESTORS Deka Immobilien, CA Immo, Immofinanz, Heitman, SEB, Arka, RREEF, ING REIM, Polonia Property Fund, PZU AM DEVELOPERSGTC, Ghelamco, Echo Investment, Skanska Property Poland, Liebrecht&wooD, Karimpol, Swedeprop, Dantex, Hochtief Project, Development, AIG/Lincoln, ECI

  19. ThePolishoffice market 3,600,000(64%) Stock End 2011 TRICITY 355,000(6%) 256,000(5%) WARSAW POZNAŃ 244,000(4%) ŁÓDŹ 375,000(7%) WROCŁAW 271,000(5%) 516,900(9%) Overall stock – 5,6mln sq m KATOWICE KRAKÓW Source All Data: DTZ

  20. The Warsaw office market Stock, End 2011 (34%) (27%) (16%) (7%) (5%) (4%) (4%) (3%) Overall stock – 3,6mln sq m Vacancy rate – 6.7% Source: DTZ

  21. The Warsaw office market New Supply, 2011 Annual new Supply and Take-up, 2000-2012f Take-up, 2011 Source: DTZ • Comments • 120,100 sq m of modern office space was completedin 2011, whichis the lowest value recorded so far on the Warsaw market. • Demand isstrongwith several significant transactions in progress. • Buildings located in the Upper South, City Centre and South West arestill the most attractive for occupiers leasing new office space.

  22. The Warsaw office market Vacancy levels, End 2011 Annual Vacancy Levels, 2000-2012f Source: DTZ Source: DTZ • Comments • Availability oscilating around 6-7%. It is likely to remain relatively stable till the end of 2012. • After 2012 – possible growth of the vacancy ratio.

  23. The Warsaw office market Prime Headline Rents, End 2011 Prime Headline Rents, 1998-2012f Source: DTZ Source: DTZ • Comments • Prime asking rents in the city centre stabilized at €25-27 per sq m per month (300-325 €/sq m/year). • In non central locations they are at a level of €14-16 per sq m per month (168-192 €/sq m/year). • Till the end of 2012 rents are likely to remain stable.

  24. The regional office market Office stock, End of 2011 Existing and pipeline supply Annual supply Source: DTZ • Comments • Office market in Poland is dominated by Warsaw with 64% share in a total stock. • Among regional markets, the largest office supply is located in Kraków (516,900 sq m) and Wrocław (375,000 sq m). • In 2011 significant drop in annual supply levels. Strong pipeline for 2012-2013. Source: DTZ

  25. The regional office market Annual vacancy levels, 2006-2011 Vacancy rates, End 2011 Prime headline rents, End 2011 Source: DTZ • Comments • Apart from Łódź and Wrocław, the vacancy rate in all analysed regional cities dropped throughout 2011 • Prime asking rental levels vary from €12-16.5 per sq m per month. Source: DTZ

  26. The Polish office market: forecasts Office prime yield • Comments • Regional cities • Wrocław and Krakow still dominate, but TriCity is catching up specialising in ITC (information, technology and communication), Łódź lagging behind • Rents remaining flat with stable vacancy • Comments • Warsaw • Further concentration of business clusters (Core, area bordered by Prosta/Towarowa, SłużewPrzemysłowy – Mokotów and along ŻwirkiiWigury) • Strengthening of metrolines importance for the development of office areas – rental differentiation • Many office towers planned in the centre – large pipeline but only 1-2 could succeed over the next 3-5 years (planning constraints and lack of financing • Substantial levels of new deliveries planned for 2012-2014 – downward impact on rents both in CBD and non central locations • Vacancy should not exceed 8-10% as demand is still sustainable and large occupiers are on the move • Going “green” is on the radar screens more often Source: DTZ

  27. Panattoni Park Poznań The Polish industrial and logistic market INVESTORS Valad, CA Immo, NBGI, Hines DEVELOPERSPrologis, Panattoni, SEGRO, MLG Group, Point Park Properties, Goodman

  28. The Polish industrial and logistic market Stock split by regions, Q4 2011 Major industrial and logistic hubs in Poland 140 Tricity Region Poznań Region Greater Warsaw 840 2,700 920 Central Poland 680 Lower Silesia Kraków Region 1,300 150 Upper Silesia Source: DTZ Research *numbers on the map show total stock (‘000 sq m) at the end of 2011 Source: DTZ Research • Total industrial and logistic stock in Poland at the end of Q4 2011 was estimated at 6.9 mn sq m. Approx. 40% of the stock is located within Greater Warsaw area including three zones – Warsaw Zone 1 (within the city limits), Warsaw Zone 2 (approx. 15-30 km from Warsaw centre) and Warsaw Zone 3 (approx. 30-50 km from Warsaw centre). • Among the largest regionals market there are: Upper Silesia, Central Poland, Poznań Region and Lower Silesia

  29. The Polish industrial and logistic market • Developers focused on pre-let and BTS projects which resulted in a substantially low level of new supply (approx. 350,000 sq m in 2011). Taking into consideration level of space under construction we expect higher level of deliveries in 2012. • Record level of take-up, including new agreeements as well as renegotiations, in 2011 (1.8 million sq m) which is a 20% increase y-o-y. • Constant decrease of vacancy rates – from 18.0% at the end of 2009 to 11.7% at the end of 2011 resulting from strong take-up and very low level of speculative developments • Prime headline rents oscillating from €5.20 per sm per month (62 €/sq m/year) in Warsaw Zone 1 to € 3.8 – 4.0 per sq m per month (45.6-48 €/sq m/year) in Warsaw Zone 2, Upper Silesia, Tricity Region and Krakow Region to €3.10 – 3.30 (37-40 €/sq m/year) in other major regions.

  30. The Polish industrial and logistic market: forecasts Prime yields, Greater Warsaw Prime headline rents (€ per sq m per month), Greater Warsaw • Comments • Supply correlated with demand – continuation of BTS model • Few spec with stable headline levels. Source: DTZ

  31. Warsaw Summary

  32. Poland is an attractive market for property investors Continuation of Polish economic success story: Moderate public debt, infrastructure improvements etc. Classification as CEE country out-of-date: Poland much more dynamic and larger than other countries Warsaw office market extremely dynamic both on demand and supply side: More balanced in 2012/2013 Regional office markets maturing thanks to BPO, but relatively volatile due to their limited market size High investment volume in spite of limited stock: High share of modern commercial properties

  33. Warsaw DTZ in Poland

  34. DTZ in Poland Investment, land and hospitality advisory Office Established in 1994 in Warsaw Over 280professionals 326,000 GLA sq m under current leasing [office, retail, industrial] 2,500 leasecontracts under management in42 properties 3,200,000GLA sq m in valuation within the last 12 months Valuation Industrial and logistics Consulting & Research Retail Project and Building Consultancy Property and Asset Management 33

  35. Thank you for your attention Patrick Delcol Country Head Poland • DTZ Polska Sp. z o.o. • Lumen / Złote Tarasy • ul. Złota 59 • 00-120 Warszawatel. +48 22 222 3000 • fax +48 22 222 3001 • info@dtz.com www.dtz.com

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