EUROPEAN REAL
SnapShot!
Advisory / Real Estate / Spring 2013
Current developments in the key Real Estate
markets in Europe
• France | 4
A tale of two cities
• United Kingdom | 7
In the doldrums but it’s not all doom and gloom!
• Germany | 11
Sustainable economy supports demand
• Sweden, Norway and Finland | 14
Still in a strong position
• Denmark | 17
Driven by Copenhagen and Aarhus
• The Netherlands | 19
Property prices still falling?
• Luxembourg | 21
Resilient, but starting to slow down
• Switzerland | 24
At its peak?
• Italy | 28
Political stability is key
• Spain | 32
Still a long road to recovery
• CEE | 35
CEE affected by the Eurozone crisis
• Russia | 39
Stable market, outstanding deals
Special focus:
Sport related Real Estate
Spring 2013
Diverging Dynamics
Thank you for your interest in KPMG’s Real SnapShot!
This publication gives you an overview and insight into the
developments of the real estate markets across Europe.
While domestic dynamics have an impact on the fragmented
local markets, there are some common trends which can be
observed across Europe:
Macroeconomic developments have resulted in most
countries facing either a slowdown or contraction in growth
and GDP, with short term outlooks not looking positive. As
the European financial crisis continues, even the strongest
countries are feeling the effects.
Uncertainty regarding future economic development impacts
the real estate service markets and results in weaker
demand, predominantly in the office segments. Tenants
focus on cost reduction and identifying efficiency savings
rather than planning for expansion. As a result, relocation
plans are not top of the agenda for office tenants and
decisions are delayed. Those that are relocating are generally
attracted to more flexible, modern space while seeking
to streamline rental costs, often through consolidation.
Absorption of large formats has become difficult and rents
have come under pressure for older inventory. Some areas
see an increase of vacancy in the CBD as a consequence
of companies moving to more modern buildings in new
development zones.
The retail segment suffers from weak domestic demand in
many countries and, mainly in secondary locations, faces the
challenges of the ongoing shift of purchasing power towards
the online distribution. However, modern shopping centres
with a comprehensive tenant mix do surprisingly well and
prime locations with a high footfall are very much sought
after by large national retailers and especially by global brands
who strengthen their presence directly at their consumer
base. For central locations, rents have therefore remained at
record high levels and a continuing pressure on yields can be
observed due do the scarcity of investment opportunities in
the core segment. Landlords are tending to hold on to their
prime assets rather than consider a sale.
For residential property there is a mixed picture across the
continent. Economic challenges, high unemployment and
loan constraints in the southern countries are deterring
investments in residential space. However, prices in the
major cities have remained fairly stable due to limited stock
in these centres. France has started to feel the effects of a
weakening economy and has experienced a steep decline
in residential real estate transactions while prices have
stabilised. A clear sign of the market weakening given the
history of continuous price increases over the past decade.
2 / European Real SnapShot! / Spring 2013
Going east or further north, with the exception of the
Netherlands, residential markets are stable or even showing
signs of performing strongly. Developers and investors are
nevertheless well advised to act with caution in the selection
of their investments: the higher priced housing segments
seem to have reached the end of a positive cycle.
There are two sides to every coin. Although it is difficult to
summarize developments across a continent, there is one
statement that applies to all countries: the winners are the
major cities as they continue to attract demand from tenants
and investors. People and businesses continue to favour
cities as they provide an efficient mechanism for linking
employers and employees whilst also linking businesses
with clients. Nearly all sectors benefit and, as a result, cities
benefit from greater market liquidity and investor demand.
For the relative stability of these investments spots in the
long term, global sources of capital are ready to accept
relatively low yields that result from the investments’ risk
profile. With the exception of very few countries, secondary
investment locations continue to be overlooked, despite the
potential for interesting investment returns.
A broad and deep understanding of the complexity and
interaction of the regional markets requires a combination
of knowledge and expertise in the local real estate clusters
and the global financial markets. KPMG Real Estate has the
professional experience combined with an understanding
of real estate and its related financial factors which
enables us to actively engage with our clients and other
real estate market participants across all the regional
submarkets. Through both our pan-European and global
network of interdisciplinary experts we offer – as a
“One Stop Shop” – the full spectrum of real estate
related services to enable us to meet the needs
of our clients as we work with them on local and
international mandates. We offer our clients added
value in all areas related to real estate based on our
extensive and comprehensive advice.
Stefan Pfister
Partner, Head of Real Estate Europe / EMA
All-encompassing Real Estate
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and minimize your risks across the fragmented real estate
markets, you need to cut through the complexity. KPMG
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European Real SnapShot! / Spring 2013 / 3
France
A tale of two cities
Macroeconomic Overview
Despite faring better than other European countries that experienced GDP shrinkage over the course of the year, the
economic situation did indeed deteriorate in France over the
course of 2012. According to the National Institute for Statistical and Economic Studies (INSEE), GDP grew by 0.1% in
the third quarter and expectations are that the full year figure will also stand at 0.1%, compared to 1.7% for 2011. Unemployment has also continued to rise with 22,400 salaried
jobs being cut in Q2 2012, bringing the unemployment rate
to 10.3% at the end of September 2012. This trend is expected to continue through the coming months, with
70,000 jobs forecast to be lost in France in 2013.
tal investments increased 9% over the period. The Greater
Paris Region accounted for 82% of year-to-date real estate
transactions in the country and helped to counteract the extremely poor performance of the French regions, where investment levels fell 37% over the first nine months of the
year.
Office Market
With over €6bn invested in the first nine months of 2012,
the Greater Paris Region was the main driver of the office investment market in France (70% of total investment). Ten
out of the 15 largest office transactions were recorded in
the city, with two recent deals, Liberté 2 (Charenton-le-Pont)
and Citizen (Bois-Colombes) both worth over €200m.
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Q3 2006
Q1 2006
Q3 2005
Q1 2005
Q3 2004
Q1 2004
Q3 2003
1.5%
1.0%
0.5%
0.0%
0.5%
-1.0%
-1.5%
-2.0%
Q1 2003
Inflation
2.5%
2.0%
1.5%
1.0%
0.5%
Prime Office Rents
2012
11%
10%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
800
600
400
200
9%
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Q3 2006
Q1 2006
Q3 2005
Q1 2005
Q3 2004
Q1 2004
Q3 2003
Q1 2003
Source: INSEE
Prime rent
Compound (p.a)
% growth 5yr
Nantes
Nice
Toulouse
Lille
Strasbourg
5%
Bordeaux
6%
Marseille
Paris (CBD)
7%
Lyon
0
8%
CAGR %
Unemployment
Unemployment rate
1,000
€/sq.m/yr
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0.0%
Paris (La Défense)
Inflation rate
3.0%
However, take-up in the Greater Paris Region suffered a significant slowdown at the end of September, declining 26%
on a last twelve months basis. Over the first nine months of
2012 the region saw total take-up of 1,564,000 sq. m compared to 1,931,000 sq. m a year earlier, a drop of 19%. The
market for large transactions for areas greater than 5,000 sq. m
continued to significantly underperform while the market for
small and medium-sized units (<5,000 sq. m) did slightly better. In terms of locations, the traditional business districts
were the worst performers, with high rents and competition
from business campuses located in surrounding suburbs.
This caused the Paris Central Business District (CBD) and La
Défense to experience declines in take-up of 26% and 32%
respectively over one year. Despite this contraction, take-up
is still close to its ten year average and is forecasted to reach
over 2 million for the full year ended 2012.
Paris (Rive Gauche)
GDP growth
GDP
Compound (p.a)
% growth 1yr
Source: Cushman and Wakefield, BNP Paribas Real Estate
In line with the difficult financial and economic context, the
French commercial real estate market slowed down in Q3
2012 with total investments of €3.2bn over the quarter, a decline of 32% compared to Q3 2011 and 11% compared to
Q3 2010. The nine month decline was more modest at 3%
(€9.9bn invested) compared to the first nine months of 2011
due to the relative strength of the Parisian market where to-
4 / European Real SnapShot! / Spring 2013
The supply of available office stock in the Greater Paris region remains stable at approx. 4.5 million sq. m despite low
levels of new building starts (new and renovated buildings
currently represent only 25% of the supply of office stock).
As a result, vacancy rates are predicted to remain at around
7% throughout 2013.
Given the low levels of new and refurbished buildings in the
Paris CBD (just 19% of current office supply), rents for
these prime assets remain high, reaching €830/sq. m at the
end of September compared to €800/sq. m the end of H1
2012. The continued scarcity of high-quality office supply in
this area should ensure that rents stay high. Prime rents in
the La Défense business district continue to fall as the area
suffers from fierce competition from the campus model
which is luring big companies into surrounding suburban
areas. As a result, prime rents stand at €550/sq. m compared to €560/sq. m at the end of H1 2012.
attracted to the best locations where there is significant footfall from tourists. Record rents of up to €18,000/sq. m/yr
were recorded on the most sought-after and luxurious avenue in Paris, the Champs-Elysées, while vacancy rates in less
desirable secondary areas increased. The strength of the
prime high street retail market is illustrated by recently
signed deals including French Trotters taking on a lease in the
Marais area of Paris for €1,900/sq. m p.a. Also, the accessories boutique Claire’s opened a 124 sq. m retail unit on Lyon’s
main avenue at an estimated price of €2,650/sq. m p.a.
Provincial
3.8%
4.5%
4.5%
Lyon
Other
6.0%
6.3%
6.0%
6.3%
6.0%
6.3%
7.8%
9.0%
5.8%
6.3%
Source: Cushman and Wakefield
Retail Market
The continuing pressure on the GDP and consumer spending in France, as well as the competition from e-business
and online retailers, has reinforced competition for prime
high street locations across the country, at the expense of
secondary locations. Prime retail locations continue to benefit from strong demand from global luxury brands that are
Prime rent
Lille
Compound (p.a)
% growth 5yr
Retail parks
6.3%
6.8%
6.8%
Shopping centres
4.5%
5.3%
5.8%
Nice
4.5%
5.3%
6.0%
Toulouse
4.5%
5.3%
6.0%
Bordeaux
CBD
Rive Gauche
La Défense
-10%
Strasbourg
10
Year
Low
10%
0%
Marseille
10
Year
High
20%
Lyon
FY
2011
30%
Paris
Q2
2012
40%
Paris “Zone A”
Paris
Q3
2012
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
CAGR %
Office Yields
€/sq.m/yr
Prime Retail Rents
Yields across all Parisian districts remained stable over 2012
and the consensus is that they should continue to remain
stable or decline slightly over the coming months. Investors’
enthusiasm for core assets is likely to continue into the new
year, ensuring that demand outstrips supply in prime Parisian districts.
Compound (p.a)
% growth 1yr
Source: Cushman and Wakefield
In the shopping centre segment, landlords are undertaking
renovation and refurbishment programmes in order to increase the appeal of their assets and attract top retail
brands. Two prominent examples are the Saint-Lazare railway station refurbishment project (11,000 sq. m) in the centre of Paris and the So Ouest shopping centre expansion
and refurbishment project (53,000 sq. m) located in the
western suburb of Levallois-Perret. As of October 2012, approx. 800,000 sq. m of retail space is currently under development or refurbishment across France. Tenants have also
intensified their efforts to increase the attractiveness of
their shops and upgrade their concepts.
Retail Yields
Q3
2012
Q2
2012
FY
2011
10
Year
High
10
Year
Low
Paris
Lyon
Marseille
Bordeaux
Strasbourg
Lille
Toulouse
Nice
4.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.8%
5.8%
4.5%
5.3%
5.3%
5.3%
5.3%
5.3%
5.8%
5.8%
4.5%
5.3%
5.5%
5.5%
5.5%
5.5%
5.8%
5.8%
6.5%
6.8%
6.8%
7.0%
6.5%
7.3%
7.0%
6.5%
4.0%
4.8%
4.8%
4.8%
5.3%
4.8%
4.8%
4.8%
Shopping centres
Paris Region
5.0%
5.0%
4.8%
5.8%
4.0%
Retail parks
Paris Region
6.0%
6.0%
6.0%
8.0%
5.0%
High Street
Source: Cushman and Wakefield
European Real SnapShot! / Spring 2013 / 5
France
On the investment side, total retail real estate transaction
values reached €850m in Q3 2012, amounting to approx.
€2bn over the first nine months of 2012, representing an increase of over 55% y-o-y. Nevertheless, this strong performance was slightly hindered by the lack of prime real estate
on the market, which led landlords to hold onto their assets
in the face of an uncertain economy.
Residential Market
The residential property market in France experienced a dramatic decline in 2012, with property sales falling 25% y-o-y.
According to FNAIM, the association of estate agents in
France, prices actually increased by 0.8% in the country
over the past year; however, even this slight increase is an
indication of weakness in a market that witnessed soaring
prices over the past decade. From 2000 to 2011, prices had
risen by over 120% as both domestic and foreign investors
looked at France, particularly Paris, as a safe market haven
with trophy assets. This, coupled with the limited supply of
urban housing and low interest rates on mortgages, led to
what analysts largely believe was an overvalued residential
market with bubble-like characteristics.
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Annual change (%)
Change in second-hand Home Prices (y-o-y)
France Apartments and Houses
France
- Houses
France
- Apartments
Paris Apartments
Source: Cushman and Wakefield, BNP Paribas Real Estate
On a regional basis, the Parisian market remained the strongest market in 2012, with property prices increasing 1.5% over
the year. The regions of Provence, Cote d’Azur and Champagne-Ardennes also performed reasonably well, with prices
increasing by 0.7% in each market. The biggest losers in 2012
were Lower Normandy and Brittany, where prices fell 5.7%
and 5.3% respectively. Furthermore, the average number of
days a property stays on the market stood at 87, well above
the average of 64 before the economic crisis. This is driven by
the reluctance of sellers to reduce their asking prices to levels
that buyers are prepared to pay. The average spread between
the asking price and eventual sale price was up from 5.08% in
2011 to 5.46% in 2012. The mortgage market has also reached
new lows, with the number of new loans issued dropping
45.8% y-o-y at the end of October 2012.
6 / European Real SnapShot! / Spring 2013
Analyst consensus is that prices should continue to decline
in 2013, with estimates ranging from falls of 1% - 5%.
Standard and Poors predicts a further decline of 5% in 2014,
which would translate into a decline of 11% since the peak
in 2011.
Sport related Real Estate
The French sports facilities market is dominated by public
sector entities and funding. Most infrastructure is owned either through concessions or public-private partnerships
(PPPs), which are awarded to operators by governmentbacked entities who own the assets. Two key examples of
this ownership structure are the Parisian stadia, the “Stade
de France”, owned by the French government, and the “Parc
des Princes” owned by the City of Paris.
The “Stade de France”, whose construction began in 1995,
has been designed, built, financed and operated by a consortium composed of the French construction groups Vinci
(67%) and Bouygues (33%). This consortium was awarded
the stadium by the French state for a period of 30 years.
Meanwhile the “Parc des Princes” is directly operated by the
City of Paris along with the resident Ligue 1 football club
“Paris Saint-Germain” who are currently jointly financing and
carrying out a €70m renovation and extension of the stadium
ahead of the 2016 European Football Championship, which
will be held in France.
In addition to these two main Parisian stadia, the run-up to
Euro 2016 has created an abundance of stadium construction
and renovation projects in the eight regional cities that have
been selected to host the event. The total investment across
France is expected to reach €1.7bn by 2016, with new stadium construction being carried out in Lyon, Lille, Bordeaux and
Nice and renovation projects in Marseille, Lens, Toulouse and
Saint Etienne. Six of these new projects are set to be operated either through PPP schemes or directly by public entities;
two are being funded by private businesses: the “Velodrome” stadium in Marseille, whose €270m renovation
project involves capital from various banks and Bouygues
Construction and the €450m construction of the Lyon stadium, financed by its resident football club “Olympique Lyonnais”.
United Kingdom
In the doldrums but it’s not all doom and gloom!
Macroeconomic Overview
Early indications are that real GDP contracted by 0.3% in the
last quarter of 2012, leaving GDP broadly flat in 2012 (a marginal improvement on the outlook since our last update).
For the next five years the prevailing view is that the UK will
experience weak but positive growth (around 0.5% to 2%
p.a.). However, with weak demand from the EU, the UK’s
biggest export market, continuing to undermine growth,
fears are turning towards the possibility of a “triple dip”
recession in early 2013.
With modest falls in the unemployment rate (to 7.8% in QE
Dec 2012) the number of people in employment is the highest
since records began in 1971. However, consumers remain
constrained while the employment rate (71.5%) remains below the pre-recession high (73% in 2008) and wage increases
(1.4% including bonuses versus QE Dec 2011).
Economic Indicators
10%
Annual change (%)
8%
2.5%
8.0%
7.5%
2.0%
7.0%
6.5%
1.5%
6.0%
1.0%
5.5%
5.0%
0.5%
4.5%
4.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009
% difference (rhs)
2010
2011
London (lhs)
0.0%
2012
United Kingdom (lhs)
Source: Real Capital Analytics, KPMG analysis
Office Market
Offices continue to be the best performing sector in the UK.
It is the only sector to show positive rental growth in 2012
and recorded the smallest declines in capital values overall
(rental growth of c.1%, capital value falls of c.-1.5% to -2%
for the UK).1
A strong resurgence in activity in Q3 and Q4 led to 2012 delivering the highest annual transaction volumes since the
peaks of 2007 with total transactions of around £16bn recorded for 20122, 15% up on 2011.
4%
2%
0%
-2%
-4%
Source: Economist Intelligence Unit
Source: DTZ
Source: Real Capital Analytics
2017F
2016F
2015F
2014F
2013F
2012F
2011
2010
2009
2008
2007
2006
Real GDP growth
Inflation (CPI)
Unemployment rate
Real personal disposable income growth
F – forecast
2
UK Property Yields -London versus the UK
6%
-6%
1
Outside the prime London market, where only the largest
players can hope to compete, investors are facing tough
competition for good secondary assets and are having to
consider a shift up the risk curve, in terms of active asset
management, in order to deliver returns. This pattern shows
no sign of changing and as the availability of the prime stock
declines even those largest players are starting to consider
more innovative ways of utilising their real estate expertise,
demonstrated by the emergence of debt funds.
% difference
The UK Government continues to battle with increasing
budget deficits (£15.4bn in December) and public debt
levels (70.7% of GDP versus 66% a year earlier). With rising
speculation regarding the ability of the austerity measures
to deliver the required savings, the UK has recently lost its
AAA credit status. Will this deter foreign investors? Counter
intuitively, it may result in the opposite effect. Bond yields
remained unchanged in the immediate aftermath of the
downgrade, indicating little change in investors’ risk perception of the UK, but Sterling fell. If the fall in the value of the
pound is sustained, UK real estate may look like even better
value for money.
So what about the Real Estate?
Following a decline in real estate transaction volumes in the
first half of 2012, volumes rebounded significantly in the second half of the year, resulting in c.1% volume growth overall
for 2012. With overseas investors dominating activity (57% of
transactions in the UK, 66% in London) and con­tinuing to favour London, it appears that prime London assets are still
considered a “safe bet” while Eurozone issues bubble on.
Yield
While the macroeconomics may appear a little gloomy, aspects of the UK real estate market continue to buck the
trend and there is hope on the horizon for secondary markets.
London continues to dominate accounting for 90% of
2012’s transactions. The attraction to London continues to
stem from risk aversion, the weak UK economic outlook
contrasted with London’s international exposure, and the
weak lending position of UK banks. As a result we continue
to see significant variations in yields across the UK, even
within the prime market. In the secondary markets, the picture is more extreme.
European Real SnapShot! / Spring 2013 / 7
United Kingdom
Prime Office Yields – September 2012
UK Office Market Transaction Activity
8%
Volume (£m)
6%
5%
4%
180
16,000
160
14,000
140
12,000
120
10,000
100
8,000
80
6,000
60
4,000
40
2,000
20
0
3%
Newcastle
Cardiff
Leeds
Bristol
Glasgow
Edinburgh
Reading
Birmingham
Manchester
London (City)
2010
2011
Transaction volumes (£m)
2012
No. of properties
Source: Real Capital Analytics
Prime Rent – €/sq. m/yr
High Street Shops
Current Quarter
CAGR (5yr)
CAGR (1yr)
Source: Cushman and Wakefield
2013 may be the year when secondary markets stabilize,
driven by limited prime property stock. Transaction volumes
are likely to decline, as a result, and while we expect secondary properties to receive increasing interest, these assets can only deliver 2012’s transaction volumes if the pricing is right and the UK’s economic sentiment improves.
Source: DTZ
8 / European Real SnapShot! / Spring 2013
Park – Open consent
Glasgow
Edinburgh
Cardiff
Reading
Newcastle
Leeds
Bristol
Birmingham
Manchester
London (West End)
London (City)
-6%
Souls – Bulky goods
-4%
Birmingham
0%
-2%
CAGR %
2%
Edinburgh
4%
Leeds
6%
Manchester
1,600
1,400
1,200
1,000
800
600
400
200
0
7%
6%
5%
4%
3%
2%
Glasgow
Prime Office Rents and Growth – September 2012
Prime Retail Yields – September 2012
Cardiff
The rental market has remained broadly unchanged in 2012,
with limited rental growth in London and prime city centres
and falls elsewhere. Activity remains muted as occupiers
await positive economic news and, as a result, the outlook
is for little change in 2013.
Retail Market
The difficulties faced by the UK retail sector noted in our
previous editions persisted throughout 2012, with the continued exception of London’s West End. While yields in the
West End have now reached levels as low as 3%, elsewhere and particularly in the secondary markets, yields continue to rise.
London (City)
Last Year
London (West End)
London (West End)
2009
Source: Cushman and Wakefield
€/sq.m/yr
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Current Quarter
3
No. of properties
7%
18,000
Retail Parks
Last Year
Source: Cushman and Wakefield
Rents in the West End rose by between 10% and 30% in
2012 driven by a shortage of supply of large shop floors at
desirable addresses. Elsewhere, prime rents have remained
broadly flat, with secondary markets witnessing falls of 3%4%.3
High Street Shops
Edinburgh*
15%
10%
5%
0%
-5%
-10%
In London, property values rose by 8%-9% in 2012, although there were signs that the market was beginning to
flatten towards the end of 2012. Prime residential London
properties have now risen by 53% since March 2009, outperforming all major global cities apart from Hong Kong, Jakarta and Beijing.
Rents across the UK have risen by around 3%-4% in 2012
as people have been forced into the rented sector by the
lack of availability of mortgage finance. In contrast, rents in
London fell by a similar percentage, undermined by weak
employment in the financial sector.
Retail Parks
CAGR (5yr)
€sq. m/yr
London*
Glasgow
Edinburgh
Cardiff
Leeds
Birmingham
Manchester
London (West End)
London (City)
10,000
8,000
6,000
4,000
2,000
0
CAGR %
€/sq.m/yr
Prime Retail Rents – September 2012
CAGR (1yr)
Source: Cushman and Wakefield
* Bulky goods
2012 transaction volumes for UK retail property were 29%4
below those seen in 2011 despite a moderate recovery in
the second half of the year. Directly impacted by weak consumer sentiment, retail property in the UK (excluding London) is likely to remain the worst performing sector in the
medium term, with rents and capital values for secondary
properties continuing to fall.
The outlook for the UK housing market is for continued falls.
Availability of housing stock will be further impacted as the
lack of mortgage finance and weak consumer sentiment
continues to deter housebuilding starts. However, the
London market should continue to see growth, albeit at
more modest rates as the new taxes on property are
absorbed at the prime end of the market.
UK Housebuilding Starts and Completions
250,000
200,000
Units
550
Quarterly Vol.
Q4'12
Q3'12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
Q1 '11
Q4 '10
Q3 '10
Q2 '10
Q1 '10
Q4 '09
Q3 '09
Q2 '09
No. of properties
Starts
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
-50
2002-03
50
0
2001-02
150
50,000
2000-01
250
100,000
1999-00
350
150,000
1998-99
450
Q1 '09
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
No. of properties
Volume £ (mil)
UK Retail Property Activity
Completions
Source: Department for Communities and Local Government
Source: Real Capital Analytics
Residential Market
UK house prices fell in 2012 by around 1%, albeit the rate of
decline was slowing towards the end of 2012. While transaction volumes have remained around 50,000 homes a
month, there has been a noteworthy slowdown for homes
worth more than £2m in the run up to new tax legislation,
impacting homes in this bracket, being published in December.
The “Funding for Lending” scheme, on which we commented previously, has yet to have any impact on transaction or
mortgage approval rates but may begin to have a positive
impact on transactions in 2013.
4
Source: Real Capital Analytics
European Real SnapShot! / Spring 2013 / 9
United Kingdom
Sport related Real Estate
Despite Bradley Wiggins becoming the first British cyclist to
win the Tour de France and Andy Murray winning his first
Grand Slam in the US, 2012 will always be remembered in the
UK for the London 2012 Olympic Games.
What impact did the Olympic Games have on the various real
estate sectors in London?
The obvious benefactors were London hotels. Despite initial
press reports of un-booked rooms, London hotels posted
c.41% average daily rate (ADR) increases for August (60%
ADR increases in the Luxury segment), maintaining consistent occupancy rates (typically >80% in central London). As
such, London hotels are set to post record revenues for 2012.
Indications are that hotels have escaped a post Olympics
slump, as deferred holidays and meetings/events have taken
up the slack.
Retailers had more mixed experiences. Both Olympic visitors
and residents avoided central London following warnings of
transport disruption, particularly during the early stages of the
games. While there was some recovery, the overall impact on
retailers appears to have been negative. However, the longer
term reputational benefits will take time to be felt.
For local residents, Zoopla reported that the Olympics added
£60,000 to homes in areas close to event venues. Marsh &
Parsons reported increased buyer demand during the games.
Following the games, the area around the Olympic park
(Stratford) looks set to become one of London’s more desirable neighbourhoods, with excellent transport links, modern
housing and facilities and the Westfield Stratford City shopping centre. This was evidenced by M&G’s recent £125m investment in a 401 rented home development in Stratford,
one of the first significant investments by an institutional investor in the private rented sector in the UK.
10 / European Real SnapShot! / Spring 2013
Germany
Sustainable economy supports demand in
Real Estate market
On the other hand, agents are beginning to notice the typical first signs of weakening demand, particularly due to
longer decision-making processes in firms. Decisions to relocate or expand operations are subject to increasingly complex, internal approval processes, and leases are rigorously
negotiated. All of these developments may result in the deferral of high-volume leases.
Economic Indicators
Prime Office Yields
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
6.0%
120
115
110
105
100
95
90
85
2007
2008
GDP growth
2009
2010
Unemployment rate
2011
2012
Inflation (2005 =100)
GDP growth and unemployment rate
Macroeconomic Overview
The German economy has partially regained its confidence
after the second half of 2012, which was predominantly influenced by the fear that the European crisis could affect
Germany more than previously expected. This is evident in
economic data, which still suggests an above-average performance compared to other EU countries.
5.5%
5.0%
4.5%
4.0%
80
Inflation (2005 = 100)
2008
2009
2010
Berlin
Dusseldorf
Hamburg
Munich
2011
2012
Frankfurt
Source: Destatis
Source: CBRE
However, the European financial crisis affected the German
macroeconomic environment. GDP growth prospects were
lower than in 2011. As one of the last EU members to do so,
Germany’s economy started to slow in the last quarter. Experts even expected Germany’s economy to shrink as a
consequence of the Eurozone crisis and the resulting insecurity. A shrinking private sector, deteriorating sentiment indices and a 3.3% drop in industrial orders in September are
signs of economic slowdown. Yet, due to robust consumption and a sustainable job market, experts anticipate that a
recession will be avoided.
Despite the limited offer of attractive investment opportunities in the core segment, prime office yields remained largely stable, ranging from 4.8% (Munich) to 5.1% (Berlin and
Dusseldorf) in the top five locations (Q3 2012).
Office Market
Compared to 2011, prime rents increased slightly in the top
five office locations. The reason for this is the sustained focus on modern office space in central locations. In addition,
a lack of space and therefore decreasing vacancy rates in
these locations means that owners are able to withdraw incentives normally required to attract new tenants.
€/sq. m/month
40
35
30
25
20
2007
Berlin
Retail Market
During the second half of 2012, German economic growth
slowed down compared to 2011. The GfK Consumer Climate
Index stagnated, following a small rise in H1 2012.
Prime retail rents have risen steadily in the top five locations
since 2007. This upward trend is due to continuing solid demand and a limited supply of available retail space in prime
locations. Demand is also fuelled by a number of international fashion retailers (e.g. Primark, Abercrombie & Fitch,
Zara and Hollister etc.) expanding into the German market.
However, all top retail locations are still characterised by stable prime rents.
Prime Office Rents
15
In the first three quarters of 2012, office properties were the
most popular asset class for commercial real estate investments, accounting for 42% of the total investment volume.
The strong investor interest in conjunction with the overall
shortage of prime properties resulted in a further fall of office prime yields by 5 bps in Munich and 15 bps in Hamburg.
Thus, Hamburg and Munich are maintaining their position as
the most expensive cities in Germany.
2008
Dusseldorf
2009
2010
Frankfurt
2011
Hamburg
Q3 2012
Munich
Source: Thomas Daily Archive
European Real SnapShot! / Spring 2013 / 11
Germany
€/sq. m/month
Prime High Street Retail Rents
400
350
300
250
200
150
100
50
0
2007
Berlin
2008
2009
Dusseldorf
2010
Frankfurt
2011
Q3 2012
Hamburg
Munich
Source: Brockhoff
Almost half of the signed leases relate to space of less than
250 sq. m, as is traditionally the case. Take-up in the categories between 500 and 2,000 sq. m registered an increase of
approx. 3.0%.
Due to comparatively positive fundamental indicators, the
German retail investment market is still perceived as a safe
haven by national and international investors. Despite the
unbroken willingness to invest in German retail properties,
investment turnover reduced in Q3 2012. This is due to the
extremely limited supply of core retail products. Another
consequence of the general lack of available suitable real
estate in the top five locations is a general demand shift towards major provincial cities and smaller towns.
Prime Retail Yields by Type of Use
8%
7%
6%
Residential Market
For institutional property investors, residential properties remain one of the most popular asset classes, with the transaction volume rising continuously from 2010. For the first
three quarters of 2012, investments in residential properties
totalled €8.7bn, approximately twice the transaction volume
recorded in the same period in 2011. Several major deals explain this outstanding performance: 21,000 LBBW residential units were sold for €1.4bn, and 23,500 units were sold to
Deutsche Wohnen AG for over €1.2bn. Due to the higher
proportion of major deals, multi-location portfolios including
existing properties dominated residential market transactions, accounting for approx. 77% of total residential transaction volume.
Following significant price rises over the last 12 to 18
months, prices stabilized in Q3 2012. High price levels are
justified by the strength of demand over the entire risk-return spectrum. Core and core-plus properties exhibit an increasing shortage in supply, which is causing strong bidding
competitions focused on existing properties in major cities
and the main provincial centres with important economies.
Hence, purchase price rises result in lower net initial yields.
As for opportunistic properties, the price levels considered
by buyers and sellers are beginning to diverge. The positive
dynamics in the residential market are expected to continue
over the next few quarters. Due to the shortage of core
properties, an increasing number of investors are focussing
on project developments, which are concentrated in excellent residential locations in strong economic regions. We expect very strong investment activity, particularly in Berlin
and Bavaria, in view of the major deal pipeline, including the
sale of GBW AG which should be completed this year.
5%
Shopping Center Premium
Retail Park
High Street (top 5)
Shopping Center Secondary
Retail Warehouse/Supermarket
Source: CBRE
Prime yields have remained stable throughout all asset
classes in the retail segment; however, prime high street
and shopping centre yields are anticipated to exhibit downward tendencies in the short term. Prime shopping centres
in top locations yield 5.0%, whereas comparable properties
in secondary locations yield 5.6% and thus have been stable for six consecutive quarters. Prime yields for high street
properties and retail warehouses remained at 4.5% and
7.0% respectively.
With a rise of nearly 13% compared to 2011, Berlin´s asking
rents increased most strongly compared to the other top
five locations, with the result that the gap between Berlin
and the other locations is beginning to narrow. Munich remains the most expensive city, with an average asking rent
of approx. €13.00/sq. m.
Asking Rent Level
€/sq. m/month
4%
2007 H2 2008 H2 2009 H2 2010 H2 2011 H2 2012 H2
14
13
12
11
10
9
8
7
6
5
4
2007
Berlin
Source:empirica
* calculated rents
12 / European Real SnapShot! / Spring 2013
2008*
Dusseldorf
2009*
Frankfurt
2010*
Hamburg
2011
Q3 2012
Munich
Sport related Real Estate
Sport in its various forms has become a major ingredient of
modern lifestyle and the related industry has developed into
an essential economic factor. Accordingly, sport and leisure
related real estate properties gradually gain in importance.
In 2012, the German Ministry of Economics and Technology
conducted a study about their macroeconomic importance.
According to 2008 data, cumulated investment volume
amounted to €22.6bn, thereof three quarters funded by
public authorities, 43% of total investments were spent for
operation and maintenance, 32% for construction of new
premises and new equipment and the remainder for labour
costs. Public swimming pools and gymnasiums account for
the lion share of investments (€13.3bn). As one consequence of the German “Golden Plan”, guideline for longterm sport complex development, and the subsequent construction boom from 1961–1992, almost half of
West-German and three quarters of East-German sports facilities are in need of redevelopment.
This stands in sharp contrast to German Bundes League
football clubs’ solid financial power resulting in several stadium modernisations and extensions for the FIFA World
Championship 2006. The ten biggest German football stadia
have all been rebuilt or extensively modernised in the last 15
years. More than 25% of all German Second division clubs
plan to rebuild their stadium and every ninth club has already laid modernisation projects. Redevelopments focus
on increasing spectator capacity and the installation of exclusive VIP- and business lounges accounting for approximately half of sponsorship revenues and a third of match
day earnings, a tendency emerging also in the Second and
Third Division.
Biggest Football Stadia in Germany
Stadium
City
Seats
Total investment (€m)
Description
Total
investment
per seat (€)
Signal Iduna Park
Olympiastadion Berlin
Dortmund
80,645
200
Redevelopment/extension 2005–2012
2,480
Berlin
74,244
242
Reconstruction 2000–2004
3,260
Allianz Arena
Munich
71,137
340
Construction 2002–2005
4,780
Olympiastadion Munich
Munich
69,267
81
Redevelopment 2005–2012
1,166
Veltins Arena
Gelsenkirchen
61,673
191
Construction 1998–2001
3,097
Mercedes-Benz Arena
Stuttgart
60,441
78
Extension 2009–2011
1,287
Imtech Arena
Hamburg
57,000
161
Construction and reconstruction 1998,
2009–2010
2,825
ESPRIT Arena
Düsseldorf
54,600
218
Construction 2002–2004
3,993
Stadion im Borussia-Park
Mönchengladbach
54,067
87
Construction 2002–2004
1,607
Commerzbank Arena
Frankfurt/Main
52,300
150
Construction 2002–2005
2,868
Source: KPMG analysis
European Real SnapShot! / Spring 2013 / 13
Sweden, Norway and Finland
Still in a strong position
Macroeconomic Overview
In general, the economic performance of the Nordic Region
is relatively strong compared to other European economies.
Foreign investors continue to show a great deal of interest
in the Nordic market, as they regard it as a safe haven. The
investment volume is normally dominated by intra-regional
transactions, but the majority of activity is being generated
by other European investors (outside the Nordic Region),
Germany and the UK in particular.
Norway
Economic Summary
Economic Indicators
GDP growth
Unemployment rate
Inflation (CPI)
2011 2012F 2013F 2014F 2015F
1.3% 2.9% 1.9% 2.5% 2.1%
3.3% 3.1% 3.1% 2.9% 2.8%
1.3% 0.6% 1.1% 1.9% 2.4%
Source: Economist Intelligence Unit
F - forecast
Finland
Norway and Sweden have not been as badly affected by the
economic crisis as many other European countries; however, growth in 2012 and expected GDP growth in 2013 could
be indications of a trend reversal, with more impact being
felt, particularly in Sweden. The crisis has had a greater impact on Denmark (see separate article about Denmark) and
Finland.
Economic growth in Sweden and Norway is likely to decrease in 2013. Sweden’s GDP is expected to contract from
1.0% in 2012 to 0.9% in 2013. Norway’s GDP is similarly
expected to reduce from 2.9% in 2012 to 1.9% in 2013.
Finland anticipates 0.0% growth in its GDP, up 0.2% on
2012. Finland is still recovering from the substantial decline
observed over the last few years.
The unemployment rate in Sweden and Finland is expected
to increase in 2013: Sweden expects to see a rise of 0.1%
to 7.8%, and Finland a 0.6% rise to 8.3%. The unemployment rate in Norway is expected to remain stable at 3.1%,
which is the lowest unemployment rate in Scandinavia. Norway also enjoys the lowest inflation rate in Scandinavia, of
-0.6% in 2012 and 1.1% in 2013. In Finland, the inflation rate
is expected to decrease by 0.4% to 2.8% in 2013; the inflation rate in Sweden is expected to remain stable at its 2012
level of 0.9%.
The Nordic countries are relatively dependent on growth in
Europe: approx. 70% to 80% of production are exported to
European countries. If the financial crisis intensifies in Europe during 2013, it is likely to have a negative impact on the
Nordic economy.
Economic Indicators
Sweden
Economic Summary
Economic Indicators
GDP growth
Unemployment rate
Inflation (CPI)
2011 2012F 2013F 2014F 2015F
3.8% 1.0% 0.9% 2.8% 2.0%
7.5% 7.7% 7.8% 7.3% 6.6%
3.0% 0.9% 0.9% 2.1% 2.0%
Source: Economist Intelligence Unit
F – forecast
14 / European Real SnapShot! / Spring 2013
Economic Summary
Economic Indicators
GDP growth
Unemployment rate
Inflation (CPI)
2011 2012F 2013F 2014F 2015F
2.7% -0.2% 0.0% 1.3% 2.0%
7.8% 7.7% 8.3% 8.1% 7.8%
3.3% 3.2% 2.8% 2.4% 2.3%
Source: Economist Intelligence Unit
F - forecast
Office Market
Office space was the most traded property type in Q3 2012
in Norway, Sweden and Finland.
Between June and September 2012 the average prime office rent in Sweden increased by 3.9% and the prime office
yield fell by an average of approx. 0.3%. In the Norwegian
capital Oslo, the average prime office rent increased by
2.5% between June and September 2012, but the prime
yield remained unchanged at 5.3%. In Finland, the average
yield was 7.1% in September 2012. The lowest prime yield
was registered in Helsinki City Centre, at 5.5%. The prime
rent in Helsinki City Centre is more than two times higher
than in other prime locations in Finland, but is approx. 45%
below the rents paid in prime locations in Oslo and Stockholm.
In Stockholm, demand for modern offices is increasing and
the current trend of many occupiers, particularly banks, is
the relocation of their offices from the city centre to new
and modern premises with easier access by car/train.
Tenants’ focus is shifting away from location in favour of the
quality of the building and contractual terms and conditions.
In Oslo, the supply pipeline of new office space was, at
349,000 sq.m, at a historic high in 2012 and it is expected to
remain strong in 2013. The result of this will be an increase
in vacancy in 2013. Modern buildings in prime locations and
close to public transport will be in high demand in 2013.
The vacancy rate for office space fell to 10.5% in the Helsinki
area. New headquarters premises for major companies are
under construction. There are also a number of business
parks under construction, especially in the Leppävaara and
Aviapolis office areas, and therefore the vacancy rate is expected to remain on the current level. Demand is focused
on modern premises in good locations and, as a result,
there is less interest in offices in secondary locations. This is
causing rents to fall and marketing periods to lengthen.
Prime Office Rents
600
500
400
300
200
100
0
NormalmstorgBirger Regerings- Decent- Gothenburg Malmö
Jarlsgatan gatan
ralised
Sep 12
Jun 12
6%
5%
4%
3%
2%
1%
0%
CAGR %
CAGR (1yr)
Consumer confidence in Finland weakened rapidly during
2011, but improved steadily during 2012. Retail sales also
grew steadily during 2012.
Source: Cushman and Wakefield
700
18%
600
16%
Demand for high street retail premises was strong in 2012.
There are many global brands entering the market and looking for prime locations such as Helsinki. The vacancy rate of
retail space in the Helsinki area has remained low, lying at
just 3%; the vacancy rate for high street premises is even
lower; however, there are many shopping centre development projects in planning and already under construction in
the Helsinki area and in other cities. The prime yield for retail
space decreased slightly in 2011, with an average yield of
5.0% registered in September 2012.
14%
500
12%
400
10%
300
8%
CAGR %
€/sq.m/yr
Norway
6%
200
4%
100
2%
0
0%
Oslo
Sep 12
Jun 12
CAGR (1yr)
Prime Retail Rents
Source: Cushman and Wakefield
Sweden
€/sq. m/yr
CAGR (5yr)
Turku
Tampere
2,000
1,600
1,200
800
400
0
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Stockholm
Gothenburg
Malmo
High Street Shops
CAGR (1yr)
€sq. m/yr
Source: Cushman and Wakefield
Stockholm
(Kungens
Kurva)
CAGR %
Helsinki
Helsinki
(City Centre) (Out-of-Town)
16%
14%
12%
10%
8%
6%
4%
2%
0%
CAGR %
€/sq.m/yr
Finland
450
400
350
300
250
200
150
100
50
0
The retail sector in Norway is currently experiencing accelerated growth, driven by high private spending. In Q1 2012,
Statistics Norway reported a 7.4% growth in turnover. The
Euro- crisis is forcing many retailers to look at new markets,
and Norway, particularly Oslo, is observing an influx of new
brands, most of which are already present in Denmark and
Sweden. Despite the growth in the retail sector and an increasing number of new brands, rents are expected to remain stable in 2013.
€/sq.m/yr
€/sq.m/yr
Sweden
uary 2012, work began on the “Mall of Scandinavia”, which
will offer more than 250 stores and 100,000 sq. m of retail
space. The grand opening is planned for 2015. The prime retail rent in Stockholm is €1,743/sq. m p.a.
Stockholm
(Barkarby)
Retail Parks
CAGR (5yr)
CAGR (1yr)
Source: Cushman and Wakefield
In the Stockholm area, there are currently 19 shopping centres >20,000 sq. m and more are under construction. In Jan-
3,000
2,500
2,000
1,500
1,000
500
0
20%
15%
10%
5%
Oslo (Karl Johan Gate)
Sep 12
Oslo (Bogstadveien Street)
Jun 12
CAGR %
Yields remained stable during the last year, with a slight decrease in Stockholm, Sweden and Turku, Finland. Oslo is the
most expensive city for prime retail rents.
Norway
€/sq.m/yr
Retail Market
The retail market accounted for 14.3% of the total investment value in the Nordic Region in Q3 2012.
0%
CAGR (1yr)
Source: Cushman and Wakefield
European Real SnapShot! / Spring 2013 / 15
Sweden, Norway and Finland
Finland
Price and Yield Housing Market
1,500
1,000
500
0
Helsinki
€/sq.m/yr
Turku
CAGR (5yr)
Tampere
Sweden
CAGR %
€/sq.m/yr
2,000
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
CAGR (1yr)
Buying price (€/sq.m)
2,500
Source: Cushman and Wakefield
70 sq. m
90 sq. m
120 sq. m 200 sq. m
Stockholm-Apartments
Price to buy (€/sq.m)
Source: Global Property Guide
Norway
Buying price (€/sq. m)
Prices in the residential market indicate that Scandinavians
are optimistic about the future. As a result of strong demand
for housing, a greater number of commercial buildings are
being converted into residential space, which is removing
older commercial property from the market and reducing
vacancy.
Stockholm 50 sq. m
(Barkarby)
6,800
6,600
6,400
6,200
6,000
5,800
5,600
5,400
5,200
6%
5%
4%
3%
2%
Yield (p.a)
Residential Market
Whilst house prices have plummeted in many European
countries, the situation is quite different in the Nordic countries. In Sweden, house prices decreased slightly but the
Swedish authorities responded by lowering interest rates
and prices are expected to stabilize during 2013 as a result.
Finland is enjoying steady growth in house prices and also
Norway is experiencing a rise in house prices. This is prompting authorities to consider incentives to slow the upward
trend.
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1%
40 sq. m
75 sq. m
120 sq. m
200 sq. m
0%
Helsinki-Apartments
Price to buy (€/sq. m)
Yield % (p.a.)
Source: Global Property Guide
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
6%
5%
4%
3%
2%
1%
30 sq. 50 sq. 80 sq. 100 sq. 150 sq. 40 sq. 70 sq. 150 sq.
m
m
m
m
m
m
m
m
Oslo
Price to buy (€/sq.m)
Source: Global Property Guide
16 / European Real SnapShot! / Spring 2013
Bergen & the
Fjords Areas
Yield % (p.a.)
0%
Yield (p.a)
Buying price (€/sq. m)
Finland
Denmark
Driven by Copenhagen and Aarhus
the prime market in Copenhagen is it divided into two segments, City Center and Harbour area. The expected average
rent in the Harbor area 2013 is approx. 10% higher than in
City Center.
€/sq.m/yr
Prime Office Rents – September 2012
-2%
-4%
-6%
2010
2011
GDP growth
2012F
2013F
Unemployment rate
2014F
2015F
Inflation (CPI)
Source: Economist Intelligence Unit
F - forecast
The total real estate transaction value was recorded at 20bn
DKK in 2012.The investment was primary driven by residential houses which accounted for almost 10bn DKK, an increase by almost 100% compared to 2011. The expected
transaction value in 2013 amounts to 23 - 25bn DKK, with
Copenhagen and Aarhus as the prime investment areas.
200
-2%
150
-3%
100
-4%
50
-5%
2010
Copenhagen Copenhagen Copenhagen
(Orestaden)
(Harbour
(City)
Area)
CAGR (5yr)
Aarhus
Odense
-6%
CAGR (1yr)
Source: Cushman and Wakefield
Retail Market
In January 2013 there were 786,300 sq. m. vacant which is
an increase by 0.1% to 6.4% since October 2012. The biggest increase by region was recorded in “other Zeeland”
with a growth by 0.8%. In total transactions amount to
2.5bn DKK in the retail market in 2012 – again in prime locations. The rents in prime locations in Copenhagen have increased by 20% since 2009/10, but are still approx. 10% below the level of 2006/07. The secondary market will propably
struggle even harder in 2013 with a decrease in rents and a
longer vacancy period.
The big difference in rents seen in Copenhagen and those
seen in Aarhus/Odense is largely driven by Copenhagen’s
popular pedestrianised street “Stroget”, home to renowned
brands such as Gucci, Yves Saint Laurent, Hermés and Louis
Vuitton.
2011 2012F 2013F 2014F 2015F
1.6%
6.1%
1.1% -0.4%
6.1% 6.2%
0.7%
6.5%
1.4%
5.8%
1.7%
5.6%
2.2%
2.7%
2.1%
2.2%
2.1%
2.3%
Source: Economist Intelligence Unit
F - forecast
Office Market
From Q4 2012 until 1st January 2013 the letting volume for
the whole country increased by 0.2% to 2,173,800 sq. m.
The prime markets are the centre of Copenhagen and
Aarhus. The letting volume in the centre of Copenhagen remains unchanged, if we look at the greater Copenhagen
area there has been a slight decrease by 0.3%. The transaction value exceeded 5bn DKK in 2012 – mainly in prime office. The demand was even bigger but restricted due to limited supply for prime office investment objects. If we look at
Prime Retail Rents – September 2012
2,500
2,000
1,500
1,000
500
0
Copenhagen
€/sq.m/yr
Aarhus
CAGR (5yr)
Odense
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
CAGR %
Economic Summary
Economic
2009
Indicators
GDP growth -5.7%
Unemploy4.7%
ment rate
Inflation
1.1%
(CPI)
-1%
€/sq. m/yr
€/sq.m/yr
GDP growth
0%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Unemployment and inflation
2%
2009
0%
250
0
Economic Indicators
-8%
300
CAGR %
Macroeconomic Overview
Denmark’s economic growth is likely to be vaguely improved in 2013. GDP is expected to increase 0.7% compared with a fall by 0.4% in 2012. Consumer spending and
confidence are also expected to increase in 2013, mainly
driven by a rise in disposable income (the first time since
2010) due to tax cuts. The unemployment rate is expected
to increase by 0.3% to 6.5% because of the low growth in
GDP. Denmark is quite dependent on the growth in Europe:
76% of the exports go to European countries. If the financial
crisis intensifies in Europe during 2013, it will have a negative impact on Denmark’s economy.
CAGR (1yr)
Source: Cushman and Wakefield
European Real SnapShot! / Spring 2013 / 17
Denmark
Residential Market
The housing market is expected to stabilize during 2013
with a “zero-change” in prices according to the forecast of
the Danish government. The supply for single family dwellings has decreased by 10% and apartments have decreased
by 27% since January 2012. The low supply and interest
rate are stabilizing the market.
In the larger cities – mainly in Copenhagen and Aarhus – the
prices for apartments and houses are expected to increase.
That said, there is still a gap in the sales prices of approx.
20% between the current price level and the sales prices at
their peak in 2007. More people are moving to the city and
the fact that new construction has been at a very low level
over the recent years gives hope for a rising market. The
population in Copenhagen is expected to increase by
100.000 people towards 2020 and investors continue to
seek prime locations with a safe return on investment.
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
7%
6%
5%
4%
3%
2%
1%
50 sq. m
70 sq. m
90 sq. m 120 sq. m 200 sq. m
Copenhagen-Apartments
Price to buy (€/sq. m)
Source: Global Property Guide
18 / European Real SnapShot! / Spring 2013
Yield % (p.a.)
0%
Yield (p.a.)
Buying price (€/sq. m)
Price and Yield Housing Market – April 2012
Netherlands
Property prices still falling?
-2%
2010
2011
GDP growth
2012E
2013F
Unemployment rate
2014F
Inflation (CPI)
Prime Rent €/sq.m/yr
CAGR (5yr)
Eindhoven
-1%
Utrecht
0%
The Hague
GDP growth
1%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
-0.6%
-0.8%
-1.0%
CAGR %
2%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
Unemployment and inflation
3%
400
350
300
250
200
150
100
50
0
Rotterdam
Economic Indicators (annual% change)
Prime Office Rents – December 2012
Amsterdam
(South East)
Low consumer confidence has been the main concern for
the Dutch economy and this is expected to continue to
weigh on economic growth in 2013. Due to rising unemployment and an increase in prices following the October VAT
hike, households are spending less. House prices are expected to continue to decline until at least mid 2013.
Supply remained relatively stable over the year, largely due
to several municipal authority landlords, who started projects to transform older office space into other formats such
as student housing and hotels. Market rents remain under
pressure, but prime rents for prime locations in the Netherlands did not change throughout the year.
Amsterdam
(Central)
Exports have been faltering and declined in the third quarter
of 2012 due to persistent uncertainty in the Eurozone. More
recent data for Q4 suggests a modest pickup in foreign trade
thanks to higher demand from non-eurozone destinations.
The nationwide vacancy amounted to a total of 7.2 million
sq. m. Vacancy in the G4 cities is relatively stable, with an
average rate of 15.2% in Q4. In the Central Business Districts (CBD’s) and prime inner city locations vacancy has stabilized or fallen. Besides the G4 CBDs there are several submarkets, which are showing favorable market dynamics.
Amsterdam
(South Axis)
While the second half of 2013 is expected to show signs of
recovery, according to both the CPB and DNB, an economic
contraction is expected for the full year. In addition, unemployment is expected to continue to rise while purchasing
power decreases.
Office Market
In Q4 of 2012 the market remained subdued with recovery
limited over the previous quarters. Occupiers focused mainly on consolidation, lease extensions, lease renewals and
subleases.
€/sq. m/yr
Macroeconomic Overview
The Dutch economy has been shrinking for eighteen months
and, as expected, in the second half of 2012 the market returned to recession with quarterly growth in Q3 at -0.9%.
CAGR (1yr)
Source: DTZ Zadelhoff, CBRE, JLL, Colliers
Source: DTZ Zadelhoff, CBRE, JLL, Colliers
E - estimation
F - forecast
Consumption is expected to remain particularly depressed.
Exports may surprise on the upside as demand from emer­
ging economies and the US is recovering again. Support will
also come from low bond yields as the country is favored by
international investors.
Economic Summary
Economic Indicators
GDP growth
Unemployment rate
Inflation (CPI)
2010
1.6%
5.5%
1.3%
Q4 saw much lower levels of investment, although the office
sector attracted the largest investment volumes in 2012. Due
to a lack of large lot sizes, only €50 million in office investment transactions were recorded. Prime yields were under
pressure over the entire year and in Q4 2012 have softened
somewhat to 6.25% for the Southaxis in Amsterdam.
2011 2012E 2013F 2014F
1.1% -0.9% -0.4% 0.9%
5.4% 6.4% 7.4% 7.7%
2.3% 2.5% 2.4% 2.9%
Source: Central Bureau of Statistics
E - estimation
F - forecast
European Real SnapShot! / Spring 2013 / 19
Netherlands
During 2012 retail proved to be the most popular asset in investment activity although compared to previous years it
was still moderate. Approximately €288 million retail assets
were traded. Prime yields remained unchanged across the
country.
Prime Office Yields – December 2012
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Eindhoven
Utrecht
The Hague
Rotterdam
Amsterdam (South East)
8%
7%
6%
Current Quarter
Occupier demand for retail space was relatively stable in Q4
of 2012. While prime locations in major cities remained the
main focus for retailers over the year, secondary cities and
retail warehousing locations have gradually lost their appeal.
Supply of retail space in prime locations within major cities
remains low, although the conditions to enter such locations
have eased. On the other hand, the availability in secondary
areas and smaller cities has increased.
Prime Retail Rents – December 2012
2,500
2,000
1,500
1,000
High Street
CAGR (5yr)
Amsterdam
Eindhoven
Maatricht
Utrecht
The Hague
Rotterdam
Amsterdam
500
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
CAGR %
€/sq.m/yr
3,000
Source: DTZ Zadelhoff, CBRE, JLL, Colliers
20 / European Real SnapShot! / Spring 2013
Amsterdam
In 2013 retail market activity is expected to remain at similar
levels to 2012. Fiscal consolidation, higher unemployment
and weak consumer sentiment continue to add to retailers’
concerns.
Residential Market
Q4 of 2012 was, in terms of transaction figures, very good
due to the introduction of stricter mortgage regulations that
commenced on 1st January 2013. Buyers, including many
first time buyers, have benefited from the recent introduction of the favourable regulations.
Compared to both previous quarters, transaction numbers
increased greatly. In total around 115,000 homes were sold.
The average transaction price for properties sold in the
fourth quarter of 2012 dropped by 1.0% compared to Q3 and
by 6.7% compared to 2011. Since the beginning of the crisis,
house prices have dropped by 15.9%. The average sale price
of a house is currently €207,000.
Residental Sales
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Retail
parks
CAGR (1yr)
Retail Parks
Last Year
Source: NVM
units
Retail Market
Consumer uncertainty and moderate spending tempered
the retail sector in 2012. Sales fell by 4.0% in November, the
largest fall since July 2012, confirming an uninterrupted negative trend, which began in April. The November figures further underlined the difference in performance between food
and non-food sales, with the latter segment lagging behind
as sales for electronics and household items declined by
7.8% and 11.6% respectively.
€/sq.m/yr
Utrecht
High Street Shops
Source: DTZ Zadelhoff, CBRE, JLL, Colliers
0
Eindhoven
Last Year
Maatricht
Current Quarter
The Hague
4%
Rotterdam
5%
Amsterdam
Amsterdam (Central)
Amsterdam (South Axis)
Prime Retail Yields – December 2012
Q2 2008
Q4 2010
Q4 2011
Q3 2012
Q4 2012
Source: NVM
The average duration for a house to be sold is about 171
days. The number of houses for sale has stabilized in the
past quarter due to a lower intake and a relatively large
amount of transactions.
Luxembourg
Resilient, but starting to slow down
Macroeconomic Overview
According to the Luxembourg national statistics office
(Statec), the economy performed better than expected du­
ring the first half of 2012, despite the deterioration in diffe­
rent economic sectors detected in early 2012. During Q2
2012, GDP grew by 0.4% in real terms q-o-q and by 0.8%
y-o-y.
Nonetheless, and given the stabilization of the financial
sector, Statec revised its GDP forecast for Luxembourg
upwards in 2012, from 0.1% to 0.5%. For 2013, Statec
revised its GDP forecast downwards, from 1.7% to 1.0%,
which was a reflection of the worsening of the Eurozone
outlook in terms of budget consolidation measures announced in November 2012 (approx. 2% of GDP).
Economic Indicators (annual% change)
Due to the announced budget consolidation measures for
2013, the public deficit is estimated to improve in 2013
(1.4% over GDP) compared to 2012 (2% over GDP).
8%
6%
Unemployment in Luxembourg, although well below the average for the Eurozone (11.6%), has been at a record high
since Q2 2012 and is expected to close 2012 at 6.1%. As the
economic slowdown affects net job creation, thereby reducing job duration, unemployment is expected to grow further
(6.5% in 2013).
4%
2%
0%
-2%
-4%
-6%
2009
GDP growth
2010
2011
2012F
Unemployment rate
2013F
Inflation (CPI)
Source: STATEC (October 2012)
F - forecast
The financial sector, which accounts for a quarter of Luxembourg’s economy and contributes towards growth in other
sectors, recovered from its previous problems and registered growth of 0.8% in Q1 2012 and 2.8% in Q2 2012;
however, other sectors of Luxembourg’s economy are fa­
cing downturns and the outlook remains negative, especially in terms of manufacturing (continuing the negative trend,
which started in Q2 2011). The construction sector also underperformed in Q2 2012, repeating the downward trend
that started in 2011. Other sectors such as commerce, food
services and transport performed negatively in Q1 2012 and
Q2 2012. With the exception of the financial sector, this situation has caused a decrease in the value added in Luxembourg’s economy for the first time since Q4 2009.
Looking at inflation, although a softening was registered at
the end of H1 2012 (CPI of 2.5%), tension remains (CPI of
3% in September and October) mainly caused by energy
prices as a result of oil price rises during the summer and by
the effects of regulated prices and certain food items. However, it is expected that the CPI will stabilize at 1.9% during
2013.
Economic Summary
Economic Indicators
GDP growth
Unemployment rate
Inflation (CPI)
2009
-4.1%
5.4%
0.4%
2010
3.0%
5.8%
2.3%
2011 2012F 2013F
1.7% -0.5% 1.0%
5.6% 6.1% 6.5%
3.4% 2.7% 1.9%
Source: STATEC (October 2012)
F - forecast
In conclusion, the European economic situation is starting to affect Luxembourg’s economy, its public finances and labour
market, and is impacting on activities that, until recently, were
European Real SnapShot! / Spring 2013 / 21
Luxembourg
Office Market
Luxembourg has a total supply of 3,491,000 sq. m of office
space, 31% of which is less than five years old. Luxembourg City accounts for over 74% of the total supply, with
11% being located in neighbouring towns.
Contrary to the general downward trend in Western Euro­
pean markets, transactions in Luxembourg remained resilient during H1 2012. However, during Q3 2012 the market
started to slow down, with a registered total take-up for the
period of 27,000 sq. m, which brought the total take-up for
the first nine months of 2012 to 100,400 sq. m (approx. 20%
less than the same period in 2011).
The CBD (Central Business District) remained the most dynamic area (36% of take-up in Q3 2012), closely followed by
the Decentralized West sub district (exceptional 32%, mainly due to three transactions in the Atrium Business Park in
Bertrange totalling 5,285 sq. m).
Office market in Luxembourg City by district
Stock
Take-up Vacancy
(sq. m)
H1 12
(sq. m.)
Kirchberg
820,000
16,038
3.9%
CBD
712,000
11,820
3.1%
Station
324,000
13,572
3.2%
Gasperich
269,000
816
16.5%
Airport
191,000
1,613
12.7%
Luxembourg-West
166,000
7,695
4.3%
Strassen
136,000
1,063
3.4%
Howald
84,000
4,417
2.3%
Bertrange
82,000
366
31.0%
Esch/Belval
78,000
1,785
0.0%
Limperstberg
74,000
1,146
7.4%
Capellen-Mamer
69,000
6,652
10.3%
Leudelange
64,000
3,322
22.0%
Hamm
49,000
3,000
24.0%
Munsbach
44,000
214
4.1%
Contern
24,000
345
13.2%
Office Rents
€/sq. m/month
relatively safe. According to Statec, this spreading of the crisis
and its consequences may probably extend beyond 2013.
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Prime
CBD Average
Source: BNP Paribas Real Estate
Looking at the investment market, activity during H1 2012
remained weak as ongoing tensions in the financial markets
again intensified in Q2 2012. Yields remained at historic low
levels (5.25% in Q2 2012), making Luxembourg slightly
cheaper in terms of average prime yield compared to other
major Western European cities (5.03%).
Prime Office Yield
8.0%
Prime rent
€/sq. m/
month
33.0
40.0
32.5
28.5
25.0
31.0
26.0
25.5
24.0
20.0
31.4
22.0
21.0
20.5
21.5
18.5
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
2004
After the highs of 2010, vacancy rates continued to fall in H1
2012, reaching 5.7% and approaching the 10-year historic average of 5% due to limited new supply and resilient demand.
This maintained upward pressure on office rents: the average
rent in the CBD increased to €34/sq. m/month in H1 2012
(+6% compared to H1 2011) and the office prime rent has remained stable at €40/sq. m/month for the past four quarters.
2006
2007
2008
2009
2010
2011
H1
2012
Retail Market
During H1 2012, take-up activity (18,154 sq. m) increased,
accounting for 70% of the total take-up of 2011. The split between shopping centres and high street vs. retail warehousing was 70 / 30.
Take-up by Segment
40,000
30,000
sq. m
The financial sector continued to be one of the main drivers in
the market, accounting for 22 transactions (30% of take-up);
business services also accounted for 30% during Q3 2012.
2005
Source: DTZ
Source: STATEC (October 2012)
22 / European Real SnapShot! / Spring 2013
50
45
40
35
30
25
20
15
20,000
10,000
0
2008
2009
Shopping Centres
Source: JLL
2010
High Street
2011
H1 12
Retail Warehousing
Residential Market
During Q3 2012, activity in Luxembourg’s residential investment market decreased on a quarterly as well as on an annual basis (sales of apartments were down 13.9% compared to Q2 2012 and down 2.0% compared to Q3 2011).
Apartment sq. m prices increased y-o-y: 5.05% up to
€4,009/sq. m for existing apartments and 1.37% up to
€4,771/sq. m for new apartments.
Price Evolution of the Residential Market (Base 100 Q1 2005)
130
125
120
115
110
105
100
95
9
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
During H1 2012, the prime yield for high street retail remained below 4.5%, while prime yields for shopping centres and retail warehouses were 5.25% and 6.25% respectively.
City was €3,097/month (€14.75/sq. m) and €1,295/month
(€19.00/sq. m) for an apartment.
Price evolution (Q1 2005 = 100)
The prime high street retail rent in Luxembourg was
€120/sq. m/month during H1 2012 (+9.1% compared to H1
2011). In terms of shopping centres, the prime rent was
€100/sq. m/month. In this segment, location and the quality
of the tenant determine the prime rent. The prime rent for
retail warehousing has remained stable since 2010 at
€31/sq. m/month.
2005
2006
2007
2008
2009
2010
2011
2012
House sales
Appartment sales
House rental
Appartment rental
Source: L’Observatoire de l’Habitat
In addition, the average area of the properties sold increased, causing an overall rise in general prices.
Looking at the apartments sold by area, average selling pri­
ces rose strongly for apartments with an area of between
50 and 70 sq. m and for apartments of >100 sq. m.
In terms of published prices, as at Q3 2012 the average
price for a house with an average area of 173 sq. m was
€3,394/sq. m and for an apartment with an average area of
88 sq. m was €4,178/sq. m.
During Q3 2012, the average published rental price for a
house in Luxembourg was €2,247/month (€11.90/sq. m) and
for an apartment was €1,147/month (€16.40/sq. m).
Luxembourg’s residential rental market is largely concentrated in the Centre-South region, which accounted for
more than 60% of offers in 2011. Luxembourg City is the
main focus in the rental market.
Sport related Real Estate
The largest sports venue in Luxembourg is d’Coque, an indoor arena in Kirchberg (northeast of Luxembourg City),
which has a capacity of 8,300. d’Coque is used for basketball,
handball, gymnastics and volleyball.
The largest national stadium is the Stade Josy Barthel, in the
west of Luxembourg City, which has a capacity of 8,054.
The Stade du Thillenberg in Differdange is the third largest
sport venue in the country. It is currently the home stadium
of FC Differdange 03. The stadium has a capacity of 7,150.
During Q3 2012, Luxembourg City accounted for 16% of
house rental offers and 40% of apartment rental offers. The
average published rental price for a house in Luxembourg
European Real SnapShot! / Spring 2013 / 23
Switzerland
At its peak?
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
F 2013
2011
F 2012
2010
2009
2008
2007
2006
2005
2004
2003
5%
4%
3%
2%
1%
0%
- 1%
- 2%
- 3%
Net migration
GDP growth, GDP difference,
unemployment and CPI
Net migration
GDP growth
Unemployment rate
Consumer Price Index (CPI)
Difference between Swiss and Eurozone GDP growth
F – forecast
Source: BAKBasel, BFS, Credit Suisse, KOF, Seco, UBS, Eurostat
The Swiss labour market performed well over most of the
year. There was only a minimum rise in average unemployment to 2.9% compared to the 2011 figure (2.8%). According to investigations undertaken by the State Secretariat for
Economic Affairs (SECO), 142,309 people were unemployed at the end of December 2012. The unemployment
rate increased from 3.1% to 3.3% between November and
December 2012; however this rise is primarily due to seasonal effects. The forecast institutes estimate annual average unemployment rates of 3.2% and 3.3% for 2013 and
2014 respectively. Average annual inflation in 2012 was
-0.7%. On average, prices of domestic products remained
unchanged, whereas prices of imported products fell by
2.7%.
Most recently, the Euro increased its value against the
Swiss Franc, lying significantly above the Euro exchange
rate lower limit set by the Swiss National Bank (SNB) of CHF
1.20 : €1.00. The strong appreciation within a few days was
not the result of changes in fundamental conditions, but
was driven mainly by the liquidation of currency positions by
market players with short-term outlooks. The recovery in the
share markets driven by the so-called Draghi Put and credible defence of the Euro exchange rate lower limit by the
SNB are encouraging these market players to give up their
1
Exchange Rates and Foreign Currency Reserves SNB
Currency rate
Macroeconomic Indicators and Immigration
wagers against the Euro. Assuming an end to the European
crisis, it must be anticipated that the Franc will lie above the
Euro exchange rate lower limit, which could provide positive
impetus to the export economy.
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
01 07 01 07 01 07 01 07 01 07
Foreign currency reserves SNB
CHF/GBP
CHF/EUR
CHF/USD
Minimum exchange rate CHF/EUR
SNB intervenes with CHF 145bn
SNB intervenes with CHF 115bn
SNB intervenes with CHF 180bn
Source: SNB
Office Market
The Swiss office market has arrived at the end of a positive
cycle. The trend reversal will be induced less by a reduction
in demand and more by selective surplus supply in specific
regions of Switzerland.
The most important driver of demand for office space, the
growth of employment in the typical office branches, has
developed positively despite the tense economic environment since the 2008/2009 recession. This is due to the resilient Swiss domestic economy and growth of jobs in the tertiary sector; however, the insecure economic environment
coupled with stricter regulation of the financial industry suggests that there will be no significant demand impetus in
the near future.
At the same time, a high level of construction activity continues to be observed in the major German-speaking Swiss
office markets, which is being driven by the strong demand
for direct investments, low interest rates and the trend towards a consolidation of workplaces. A high volume of modern office space is under construction outside the traditional
CBDs in Basel, Bern and Zurich. This new rental space offers
high-quality fitouts, flexible floor plan designs, good energy
efficiency and good accessibility, and is therefore a direct
competitor to traditional CBD space.
Tenants are enjoying a comfortable position in the current
market environment and are able to negotiate wide-ranging
Forecasts by the following economic research institutes have been analysed: BAKBasel, Credit Suisse, KOF, Seco and UBS
24 / European Real SnapShot! / Spring 2013
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Foreign currency reserves SNB
Macroeconomic Overview
In 2012 the Swiss economy was drawn into the economic
problems affecting its neighbouring countries, but was not
thrown off course. In view of the volatility of the quarterly
performance, with a negative Q2 and a strong Q3, the forecast institutes1 anticipate an average of 1% GDP growth for
2012. This is lower than the preceding two years, but far removed from the difficult situation faced by many countries
in Eurozone. The consensus forecast for 2013 is a GDP
growth of 1.2%.
concessions in the form of rent-free periods, stepped rents
and break options, or the financing of fitout and alteration
costs. Marketing periods are lengthening in the case of older rental space with inflexible floor plan designs and suboptimum accessibility.
Retail Market
In 2012, retail recovered from a weak 2011, reporting nominal growth in turnover of +0.8%, however, growth was too
weak to enable turnovers to reach the 2010 level.
Retail Turnovers and Consumer Sentiment
Basle
Berne
Geneva
Zurich
F – forecast
800
700
600
500
400
300
200
100
0
2012 01
-20
-30
90
-40
85
-50
80
-60
Retail turnover seasonally adjusted
Old Consumer Confidence Index
New Consumer Confidence Index (EU-compatible)
Source: BFS, Seco
Swiss consumers had more money at their disposal in real
terms in 2012 compared to 2011. The national Consumer
Price Index decreased by 0.7%, whilst nominal wages increased by an average of just over 1%, which corresponds
to wage growth of 1.7% in real terms. In contrast to 2011,
only a slight rise in health insurance premiums was registered in 2012. Overall, the economists at Credit Suisse anticipate growth in turnover for retail in 2013, which should
reach on average roughly the level of previous years (1.5%
nominal, 2.5% real).
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
CHF/sq.m/yr
Office Prices in the Major Centres
-10
95
Source: KPMG analysis
The current situation in the office markets is slightly better
in Western Switzerland. Geneva and Lausanne are reporting
high supply indices of 8.6% and 5.2%. Despite low vacancy
rates, absorption has started to become more challenging,
especially in the peripheral development areas. In view of
the weak demand impetus, we expect that rents in the two
major Western Switzerland office markets will level out and
start to decline as a result of increasing competition caused
by supply.
2011 01
100
2010 01
105
2009 01
0
2008 01
10
110
2007 01
115
2006 01
20
2005 01
30
120
2004 01
125
2003 01
Retail turnover indexed
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
400
350
300
250
200
150
100
50
0
Consumer Confidence Index
in 1,000 sq. m/yr
Vacant Office Space in the Major Centres
Basle
Berne
Geneva
Zurich
F – forecast
Source: KPMG analysis
In the investment market, the higher vacancy risk and regressive rental trends are already being considered by investors in their market assessments and this is driving
down their willingness to purchase commercial properties
outside the core segment. This situation contrasts with the
sustained high purchase prices for investment properties in
the residential segment, which are rated as secure.
European Real SnapShot! / Spring 2013 / 25
Switzerland
Looking at the situation more in detail, it is clear that there is
contrasting development within the regions and retail segments. In high street locations in the major centres, we anticipate a consolidation of prices at a high level. The increasing expansion of chain retailers and sustained trend towards
internationalization and verticalization (mono-label stores) is
supporting demand for busy city centre locations. Losers
are small formats and locations close to the country’s borders, as well as shopping centres with suboptimum tenant
mixes and smaller catchment areas. Here, we expect the
pressure on prices to strengthen.
Apartments with Planning Consent, Apartments
under Construction and recently completed
80,000
18,000
70,000
16,000
60,000
14,000
12,000
50,000
10,000
40,000
8,000
30,000
6,000
20,000
4,000
10,000
2,000
0
0
Completed apartments
and projects with planning permission
The expected deceleration in the supply of space, coupled
with much less dynamic demand in retail, is leading to a
sideways movement in rents and vacancies in the retail segments throughout Switzerland.
1 Q 1995
4 Q 1995
3 Q 1996
2 Q 1997
1 Q 1998
4 Q 1998
3 Q 1999
2 Q 2000
1 Q 2001
4 Q 2001
3 Q 2002
2 Q 2003
1 Q 2004
4 Q 2004
3 Q 2005
2 Q 2006
1 Q 2007
4 Q 2007
3 Q 2008
2 Q 2009
1 Q 2010
4 Q 2010
3 Q 2011
2 Q 2012
On the supply side, the sales space expansion of the last
few years appears to have stagnated. The current planning
volume for new sales space lies below the long-term average. This is due to the growing caution exercised by investors, who are postponing their projects in view of the uncertain economic outlook.
Residential Market
According to the Federal Statistical Office, 12,040 new
apartments were constructed in Switzerland in Q3 2012;
y-o-y, this equates to a rise of 4%. By the end of September
2012 there were 75,320 apartments under construction,
which corresponds to an increase of 6% y-o-y. The number
of apartments that received planning consent from July to
September 2012 increased y-o-y by an impressive 23% to
15,690 units. Quarterly apartment production would be
higher if the Swiss construction industry had not already
been operating at maximum capacity for some time.
Apartments under construction
Despite this welcome outlook for retail, a rise in demand for
sales space is not expected. The majority of the growth in
turnover will be absorbed by on-line retailers, which have
been on a path of growth for the past few years and are assuming market share from stationary retail.
Apartments under construction
Completed apartments
Projects with planning permission
Source: BFS
12,000
10,000
8,000
6,000
4,000
2,000
2006
2007
2008
2009
2010
2011
2012
F 2013
2006
2007
2008
2009
2010
2011
2012
F 2013
2006
2007
2008
2009
2010
2011
2012
F 2013
2006
2007
2008
2009
2010
2011
2012
F 2013
450
400
350
300
250
200
150
100
50
0
Basle
Berne
Geneva
Prime rents in CHF/sq. m/year
Median of asking rents in CHF/sq. m/year
F – forecast
Source: KPMG analysis
26 / European Real SnapShot! / Spring 2013
Zurich
0
Prime rents in CHF/sq. m/year
Median of asking rents in CHF/sq. m/year
Median of Asking Rents and Prime Rents High Street
In view of the high population growth, robust real growth in
wages and record low interest rates, demand for residential
space remains strong. Interest rates in Switzerland are expected to remain low for the time being, as the SNB has
delegated an important part of its currency autonomy to the
ECB by introducing a Euro exchange rate lower limit and has
also not signalled an end to its expansive monetary policies.
The introduction of the new counter cyclical capital buffer
(CCB, limited to residential properties) of 1% as of September 30 2013 is expected to have a relatively small impact on
re-financing rates. However, lenders may adjust their lending policies, which may impact the availability of financing.
According to the most recent vacancy statistics, the Swiss
residential market remains stable. At 1st June 2012, the vacancy rate remained unchanged at 0.94% y-o-y. The vacancy
rate in Switzerland as a whole is also expected to remain
largely stable at 2012 figures in the current year. In Zurich
and Geneva, vacancy rates of 0.1% and 0.3% are expected,
as the situation in the rental market remains tense.
Vacant Apartment Index in the Major Centres
Sport related Real Estate
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
1.8%
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Basle
Berne
Geneva
Zurich
F – forecast
Source: KPMG analysis
Whilst existing rents have slightly declined in view of the
low interest rates, median asking rents continue to rise
throughout Switzerland. The highest price rises are observed in the cities of Zurich, Geneva and Lausanne, as well
as in up-and-coming agglomerations; however, there is a relative offsetting of these price rises as prices in the upper
segments fall slightly.
Residential Prices in the Major Centres
600
CHF/sq. m/yr
500
400
300
200
0
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
2007
2008
2009
2010
2011
2012
F 2013
100
Basle
Berne
Geneva
Zurich
F – forecast
Source: KPMG analysis
Prices are tending to stabilise in the other regions. Reductions in rents are being observed sporadically in regions affected by excessive construction activity or structural challenges such as falling population figures.
The combination of additional mixed use and stadium construction has become an established business model for the
construction of sports facilities in Switzerland. A prime example of this integrated model is the St. Jakob Park in Basel,
which conceptually and economically introduced a new era in
stadium financing.
The total project costs for the seven largest Swiss football
stadia with additional mixed use is almost CHF 2bn, whereby
the construction of the additional mixed use is much more
cost intensive than the costs of constructing the stadia per se
(including infrastructure works). There are three other major
projects with additional mixed use in planning: the FCS Park
in Schaffhausen (total project volume CHF 105m), the Torfeld
Süd in Aarau (CHF 125m) and the Stades de Bienne, comprising an ice stadium, a football stadium, and a curling rink (CHF
200m).
To date the mixed use areas introduced range from shopping
centres and restaurants, offices and apartments to apartments for the elderly, hotels and schools. From an economic
perspective, there are three principal advantages of a stadium with additional mixed use: the building costs can be reduced, e.g. by the shared use of technical and infrastructural
installations and the selection of a complementary use mix
can improve the capacity of the facilities. Furthermore, a
combined project is much more attractive from an investor’s
perspective; this also applies to the public sector, as part of
the actual stadium costs can be financed by the additional
mixed use.
Owners of the additional mixed use, which are interesting
from an investment perspective, are often highly liquid institutional investors due to the high investment volume. As
such, the real estate funds UBS Sima and UBS Swissreal
and the UBS investment foundation for pension funds acquired the Wankdorf Center in Bern, the commercial area of
Berne’s Wankdorf Stadium, with a total area of 65,000 sq. m
(market value 2011: CHF 292m) in 2011. Another example is
Swiss Prime Site who is owner of the Einkaufsarena in St.
Gallen (market value 2012: CHF 285m) and of the shopping
centre La Praille in Lancy (market value 2012: CHF 248m).
A contrast to the current observed trend towards stadia with
additional mixed use is the new-build project Hardturm in
Zurich presented in autumn 2012. At CHF 230m, this prestigious project specifically avoids additional mixed use and the
involvement of private or institutional investors. This raises
the question of whether the specific avoidance of cross-subsidization by additional uses could become expensive to Zurich’s taxpayers.
European Real SnapShot! / Spring 2013 / 27
Italy
Political stability is key
Macroeconomic Overview
Italy is currently in the midst of the double-dip recession,
which started in 2008.
Spread Italian Government Bond / German Bond Yields
600
500
Basis points
The unemployment figure rose by 3.3% to 2.87m in October 2012; although the unemployment rate remained broadly stable at 11.1%. The youth unemployment rate continued
to rise, reaching 36.5%.
GDP is expected to contract by 2.3% in 2012, following
growth of just 0.4% in 2011. Another contraction is expected
in 2013, albeit a more modest one (-0.7%). Analysts are confident that the economy will return to growth of about 1%
per year from 2014.
Economic Indicators (annual% change)
GDP growth
2%
1%
0%
-1%
-2%
-3%
2010
2011
2012F 2013F 2014F 2015F 2016F
GDP growth
Unemployment rate
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Unemployment and inflation
3%
Inflation (CPI)
Source: International Monetary Fund, October 2012
F - forecast
300
200
100
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Apr-10
Aug-10
Dec-09
Aug-09
Apr-09
Dec-08
Aug-08
Jan-08
0
Source: Bloomberg
The ultimate test will be whether Italy will continue to convince the bond markets after the February 2013 elections,
as investors may adopt a wait-and-see attitude towards the
Italian political situation.
Office Market
Transaction volumes in the office sector registered a sharp
decline in the first nine months of 2012. During the period
January to September the number of office transactions totalled 7,430. Volumes registered in the third quarter of 2012
have fallen by approx. 28% compared to the same period in
2011.
Number of Office Transactions
25,000
No. of transactions
Annual inflation slowed to 2.8% in October 2012 and is expected to be around 3.0% by the end of the year. For the period 2013 - 2016, analysts are forecasting an average inflation rate of around 1.3%, reflecting weak aggregate demand
growth and modest wage increases.
400
May-08
Domestic demand in the third quarter was 0.9% lower in
real terms than in the previous three months and household
spending on consumer durables fell by 2% q-o-q between
July and September.
20,000
15,000
10,000
5,000
0
2006
2007
2008
2009
2010
2011
9M2012
Source: Agenzia del Territorio
While the technocratic government has pursued the implementation of structural fiscal and labour reforms to reduce
government debt (estimated to be about 126% of GDP by
the end of 2012), it is struggling to enforce the much-needed
reforms to boost the country’s potential growth rate.
Actions taken by the Italian government so far have had a
positive effect and have been well received by international
institutions and investors alike: in December, the demand
for government bonds was generally strong and yields were
lower than those recorded at auctions in previous months,
with the spread between the yields achieved by Italian and
German government bonds dropping below 300 basis
points.
28 / European Real SnapShot! / Spring 2013
In Rome, during the first nine months of 2012, activity in the
office sector decreased significantly. The public sector is still
the only occupier in a position to lease large premises and
make a significant contribution to take-up volumes: with the
exception of the pre-let of 22,000 sq. m signed by Atac (Roman local transportation company) in the Europarco Business Park, the public sector did not close any significant
deals and take-up during the third quarter of the year is expected to total 7,300 sq. m (down 77% over the previous
quarter).
Office supply continues to grow: companies are releasing
space no longer needed and in some cases are even considering closing premises in Rome and relocating their offices
to Milan. This trend has only caused a slight downturn of
rents in the CBD (€410 sq. m p.a. compared to €420 sq. m
p.a. in Q2 2012); rents remain steady in other parts of the
city. The south of Rome has experienced a more significant
reduction in rents (3-4% change q-o-q).
In Q3 2012, the vacancy rate increased slightly to 6.8%
(+0.4% compared to Q2 2012). Yields showed a 10 bps rise
in prime locations, whereas they remained steady in the
other market districts.
Highlights – Rome
Investment (€m)
Take-up (sq. m)
Prime Rents
(€/sq. m/yr)
Highlights – Milan
Q3 2012
Investment (€m)
Take-up (sq. m)
Prime Rents
(€/sq. m/yr)
Prime Yield (%)
Vacancy rate (%)
430
810
7,300
32,400
16,700
181,900
10,000
410
420
420
420
0
5.9%
5.9%
6.2%
6.2%
1,547
337,000
510
520
520
520
5.6%
5.5%
5.25%
5.4%
11.0%
11.0%
10.0%
10.5%
30,000
230
6.4%
310
44,000
40,000
130
5.9%
110
59,000
50,000
2011
6.8%
87
67,000
60,000
Q3 2011
6.0%
2011
Number of Retail Transactions
Q2 2012
Vacancy rate (%)
Q3 2011
Retail Market
The retail sector has been affected by the disappointing
growth and overall economic uncertainty during 2012: transactions in Q3 2012 numbered 18,525, which is a reduction
of approx. 30% compared to Q3 2011.
Q3 2012
Prime Yield (%)
Q2 2012
Source: Bloomberg
No. of transactions
The future supply pipeline is dominated by a project by the
Municipality of Rome to rationalize space and relocate staff
to new offices (a complex of approx. 135,000 sq. m of new
buildings named “Campidoglio 2”). The tender was awarded
during the quarter to Astaldi: the estimated value of the investment is around €193m.
20,000
2006
2007
2008
2009
2010
2011
9M2012
Source: Agenzia del Territorio
Source: BNP Paribas Real Estate
During Q3 2012, the Milanese office market also registered
a downturn, which resulted from the negative market
phase: €87m were invested, a -21% decline compared to
the previous quarter. Development activity also registered a
slowdown: only the new Unicredit headquarters was completed in the Porta Nuova area (developed by Hines); the remainder of the projects were postponed or put on hold.
There was no office supply growth in Milan but the high level of space availability continues to put pressure on landlords who are currently willing to accept a reduction in the
asking rent as opposed to having empty premises. As a consequence, the prime rent has registered a slight decrease
(€510/sq. m p.a. compared to €520/sq. m p.a. in Q2 2012).
Vacancy rates remained stable during the quarter (11%).
Unicredit Group is expected to release over 20 premises
onto the market in the near future as a result of its move to
its new Porta Nuova headquarters. This will contribute to a
strong rise in available office space in Milan.
European Real SnapShot! / Spring 2013 / 29
Italy
Number of Residential Transactions
No. of transactions
The most notable deals were recorded in the high street
sector: in Milan, a 150 sq. m retail unit located in Piazza Duomo was acquired by the real estate group Statuto for a total
consideration of €38m. In Rome, the Thai group Central Retail Corporation purchased a building in Via del Tritone (set to
become the future flagship store of La Rinascente) for
€130m.
Demand continues to focus on prime space in consolidated
markets, and on both shopping centres and high street retail
premises in the major cities.
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2006
2007
2008
2009
2010
2011
9M2012
Source: Agenzia del Territorio
High Street Shops
Prime rents
Retail Parks
Prime yields
(Q3 2012)
Rome
Milan
Rome
Milan
Turin
Naples
Bologna
Rome
Milan
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8%
7%
6%
5%
4%
3%
2%
1%
0%
Yield (p.a.)
€/sq. m/yr
Prime Retail Rents and Yields – September 2012
Shopping
Centres
Prime yields
(Q2 2012)
Source: Cushman and Wakefield
Residential Market
The third quarter of 2012 saw a decline in the residential
market, mainly due to more severe property taxation (i.e.
IMU) in conjunction with a reduction in loans due to constraints on banks: at the end of last year, approx. 45% of
residential transactions were backed by a bank loan. The total number of transactions was 95,951 in Q3 2012, which
was approx. 20% less than the previous quarter and 27%
less than Q3 2011. The total number of transactions during
the first nine months of 2012 was 325,645 (-19% compared
to the same period in 2011).
30 / European Real SnapShot! / Spring 2013
The market continues to be affected by an overall slowdown
and this is proven by a rise in the number of unsuccessful
sales mandates (56% in Q2 compared to 50% in Q1 2012)
and the prolongation of the average marketing period (8.2
months in Q3 2012). The market also continues to suffer
from a mismatch in demand and supply. The wish-lists of
sellers rarely match the scarce resources of potential buyers
and this is putting constant downward pressure on prices: in
Q3 2012 the average reduction in the initial price proposed
by the seller was 15.4% (compared to 12.5% in 2011).
Average Discount to Initial Price proposed by Sellers
16%
15%
14%
Discount
Overall, prime rents have remained stable compared to
2011; high street retail prime yields did not fluctuate during
the last quarter, whereas those paid in retail parks and shopping centres increased by 0.5% on average.
13%
12%
11%
10%
9%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012
Source: Bank of Italy, Tecnoborsa, Agenzia del Territorio
Italian major football stadiums (seats > 25,000)
Stadium
Football teams
Ownership
Seats
Opening
Olympic Stadium
AS Roma
SS Lazio
CONI
80,176
1937
Giuseppe Meazza
AC Milan
FC Internazionale
Municipality of Milan
80,018
1925
San Paolo
SSC Napoli
Municipality of Naples
60,240
1959
San Nicola
AS Bari
Municipality of Bari
58,270
1990
Artemio Franchi
ACF Fiorentina
Municipality of Florence
46,389
1931
Juventus Stadium
Juventus FC
Juventus FC
41,000
2011
Marco Antonio Bentegodi
AC Chievo Verona
Hella Verona
Municipality of Verona
38,402
1963
Renato Dall’Ara
Bologna FC
Municipality of Bologna
38,279
1926
Renzo Barbera
US Città Palermo
Municipality of Palermo
36,822
1932
Luigi Ferraris
Genova CFC
UC Sampdoria
Municipality of Genoa
36,743
1911
Friuli
Udinese Calcio
Municipality of Udine
30,667
1976
Olympic Stadion
Torino FC
Municipality of Turin
27,994
2004
Mario Rigamonti
Brescia Calcio 1911
Municipality of Brescia
27,547
1959
Oreste Granillo
Reggina Calcio
Municipality of Reggio Calabria
27,543
1932
Atleti Azzurri d’Italia
Atalanta Bergamasca Calcio
Municipality of Bergamo
25,000
1928
Source: Major league teams websites
Sport related Real Estate
Italy is currently experiencing underdevelopment in terms
of sports facilities.
On average, Italian stadia are visited only 70 hours p.a. and
mainly during sports events. They do not have any multifunctional areas (e.g. shopping centres, merchandising stores,
concert halls, fitness clubs, etc.) that would improve the commercial use of the infrastructure. Most Italian stadia are outdated (67 years old on average) and are owned by municipalities. Moreover, approx. 55% of facilities used by professional
football teams have less than 10,000 seats (compared to a
European average of 40-50,000 seats for stadia used by major football clubs and 25-30,000 seats for the rest).
During the last legislative period, the Italian government
tried to encourage the adoption of a strategic approach to
simplify and accelerate administrative procedures for the
construction and refurbishment of sports facilities, but the
legislative measures (i.e. the Butti – Lolli bill) have still not
been approved by the Parliament.
It is generally agreed that the situation in Italy in terms of
sports facilities will depend on the future choices of football
clubs, which could directly own and manage multifunctional
stadia, in line with the strategies already followed by a number of major European football clubs.
The only example of this trend within the Italian “Serie A”
has been Juventus FC. The new Juventus Stadium opened
in 2011. It comprises two tiers and has a capacity of 41,000
seats, and includes 8 restaurants, 21 bars, convention and
events halls, and corporate premium areas, together with
merchandising stores and the new Juventus Museum. The
final investment was approx. €150m, some of which was
covered by €60m of bank loans.
Recent news shows that Juventus FC will probably not be
the only club to follow this business model: AS Roma has
recently identified an area in the southern outskirts of the
city to build a new 55-60,000 seat stadium which will be directly owned and managed by the club.
European Real SnapShot! / Spring 2013 / 31
Spain
Still a long road to recovery
The €100bn bank bailout awarded to Spain by the EU in
June coupled with additional financial and tax measures, including the creation of a “bad” public bank and the introduction of significant VAT increases, have relaxed pressure on
the Spanish public debt, reducing the December risk premium compared to German debt to Summer 2011 levels
(around 350 bps). Despite this, prospects on growth and unemployment indicators remain extremely negative, with a
forecast of a long period of recession.
On a more positive note, the OECD indicates that Spain is
heading for recovery; however, this is tempered with the
need to continue with reforms. The Spanish economy is expected to contract by 1.6% in 2013, before returning to positive growth of 0.5% in 2014. Recent labour reforms are expected to reap dividends over the long-term, by increasing
the flexibility and competitiveness of the country. Improved
production capacity could drive growth to +2.3% in 2015
and +2.6% in 2016.
Economic Summary
Economic 2009
2010
Indicators
GDP
-3.7% -0.3%
growth
Unem18.0% 20.1%
ployment
rate
Inflation
-0.2% 2.0%
(CPI)
to reduce rents in order to attract tenants. The weakest position will obviously be for those offering large offices in peripheral areas and in smaller cities.
€/sq.m/yr
Prime Office Rents – September 2012
350
300
250
200
150
100
50
0
Madrid (CBD) Madrid
Barcelona
Barcelona
(Decentralised) (CBD)
(Decentralised)
€/sq. m/yr
CAGR (5yr)
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
-10%
CAGR %
Macroeconomic Overview
Spain is immersed in a recession which has been exacerba­
ted by the ongoing Eurozone crisis. Although the foundations for recovery have been laid, the reforms (consolidation
of public finances, strengthening of fiscal rules, and extensive restructuring in the labour market and banking sector)
must be fully implemented and further steps taken to restore confidence in the banking sector, and consolidate public finances and to combat high unemployment.
CAGR (1yr)
Source: Cushman and Wakefield
Issues affecting commercial properties are similar to those
affecting housing (lack of financing, low demand, oversupply). In the absence of evidence of any short-term economic
improvement, demand for new-build office properties will
continue to decrease; this will in turn affect construction activity in 2013 (-20%) and 2014 (-11%).
Prime Office Yields – September 2012
8.0%
7.5%
7.0%
6.5%
2011
2012F
2013F
2014F
2015F
0.4%
-1.5%
-1.6%
0.5%
1.1%
6.0%
5.5%
21.7% 23.7% 24.2% 24.3% 23.4%
5.0%
Madrid (CBD)
Madrid
Barcelona (CBD)
Barcelona
(Decentralised)
(Decentralised)
Current Quarter
3.1%
2.5%
2.9%
1.6%
1.7%
Source: Economist Intelligence Unit
F - forecast
Office Market
Demand remains weak and continues to deteriorate in the
major Spanish cities, especially Madrid and Barcelona. However, the tendency in the market of occupiers seeking to exploit current market conditions by relocating to prime areas
at affordable rents is still being observed. These occupiers
are not only looking to improve their locations, but are also
reconsidering their space requirements and are therefore
focusing on smaller premises. As a result, most demand is
currently concentrated on offices in the small to mediumsize categories in prime locations of Madrid and Barcelona.
However, this also means that large units are often remaining vacant, which in turn is putting landlords under pressure
32 / European Real SnapShot! / Spring 2013
Last Year
Source: Cushman and Wakefield
Retail Market
The initial yield in prime retail locations has reduced since
2008 due to the limited availability of investment opportunities. Yields in secondary locations have also decreased, albeit to a lesser extent due to the increased supply and
higher risk. Investors are currently focusing their attention
on prime shopping centres or where there is a combination
with potential to add value.
The Consumer Confidence Index published by the European
Commission in December 2012 remained low, at a similar
level to that reported since August. This, coupled with high
unemployment, is affecting retail activity and forcing rents
downwards; however, prime locations in major cities are
less severely affected than smaller regional centres. As a result, prime rents are remaining relatively stable or are falling
only very slightly, in response mainly to the strong level of
interest shown by major retail chains (local and internatio­
nal), which are expanding their presence in the market.
High Street Shops
€/sq.m/yr
CAGR (5yr)
Barcelona
Madrid
Zaragoza
Palma
Malaga
Valencia
Bilbao
Seville
Barcelona
Madrid
3,500
3,000
2,500
2,000
1,500
1,000
500
0
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
House Price % Change (Spain)
CAGR %
€/sq.m/yr
Prime Retail Rents – September 2012
coastal areas in the south and east of the country. Available
housing stock in prime locations in major cities is very low.
The total available stock, coupled with limited access to
mortgages, has been putting downward pressure on prices
since 2008.
5%
4%
3%
2%
1%
0%
-1%
Retail
Parks
-2%
-3%
CAGR (1yr)
-4%
2005
2006
Source: Cushman and Wakefield
2007
2008
Q1
With no short-term recovery of the retail sector expected,
occupiers will become more selective, opting for prime locations instead of secondary ones. Consequently, we see
an increasing trend towards the establishment of a two-tier
model with significant rent and yield divergences.
2009
Q2
Q3
2010
2011
2012
Q4
Source: ECB
A reanimation of the residential market requires macroeconomic recovery (and an improvement in the unemployment
rate in particular) and the release of real estate loan capital
for both developers and buyers.
Prime Retail Yields – September 2012
In the meantime, the government is attempting to improve
the rental market by introducing specific tax savings and
granting landlords greater contractual and legal flexibility. A
new law in this regard was introduced in August 2012.
8%
7%
6%
5%
Spain
Barcelona
Retail Shopping
Parks Centres
Last Year
Source: Cushman and Wakefield
Residential Market
Residential construction remains paralyzed due to the continuing fall in house prices, lack of transactions and loan constraints. Even measures introduced in H2 2012 (the creation
of the “bad” public bank and new social housing policies)
have not improved this situation. This has resulted in a reduction in construction activity, which is also expected to
decrease by 17% in 2013 for the 6th consecutive year.
Buying price (€/sq. m)
Current Quarter
Madrid
Zaragoza
Palma
Malaga
Valencia
Bilbao
Seville
High Street Shops
6,000
5,000
4,000
3,000
2,000
1,000
0
70 120 200 75 120 160 275 70 120 160 275
sq. sq. sq. sq. sq. sq. sq. sq. sq. sq. sq.
m m m m m m m m m m m
BarcelonaApartments
MadridApartments
Price to buy (€/sq. m)
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Yield (p.a)
Barcelona
Price and Yield – June 2012
Madrid
4%
Madrid Suburbs
Apartments
Yield % (p.a.)
Source: Global Property
The residential market continues to suffer from oversupply;
with around 700,000 unsold new-build residential properties (this figure may vary between researchers). The location
of these assets is of importance, as most lie in specific
European Real SnapShot! / Spring 2013 / 33
Spain
Sport related Real Estate
As a major residential and tourist destination, Spain has a
long tradition in the development of sports and leisure facilities; particularly along the Mediterranean and southern
coast of the peninsula.
Golf is the undisputed prime sporting product, mainly due to
the good climate and its appeal to northern Europeans and
visitors. Property associated with marinas is also popular
and is proving resilient in the current crisis, with a number of
major development projects currently in progress.
34 / European Real SnapShot! / Spring 2013
Nonetheless, a number of developers specializing in this asset class are in severe financial difficulty due to the excessive land prices paid in the years immediately before the
bubble burst in 2007-08. As a result, some developments
have been left unfinished or have not been fully sold. This
presents interesting opportunities to opportunistic investors
focused in this asset class. A steady influx of northern and
central Europeans (mainly retirees) will maintain the appeal
of this type of asset as a stable long-term investment pro­
duct.
CEE
CEE affected by the Eurozone crisis
Most of the CEE Region is still experiencing difficulty in
achieving GDP growth and this situation is expected to continue in 2013; however, there are some bright spots and the
general consensus is that 2014 could see the tide turning in
the region.
According to the Economist Intelligence Unit, growth in the
region is forecast to pick up by an average of 2% - 3% p.a.
from 2014.
Real GDP Growth Rate in%
Country
2009
2010
2011
2012E
2013F
2014F
CRO
-6.9%
-1.4%
0.0%
-1.9%
-0.4%
1.3%
CZE
-4.5%
2.5%
1.9%
-1.2%
0.2%
1.8%
HUN
-6.8%
1.3%
1.6%
-1.4%
-0.4%
2.4%
POL
1.7%
3.9%
4.3%
2.1%
1.7%
2.5%
ROM
-6.6%
-1.6%
2.5%
0.5%
1.3%
4.2%
SRB
-3.5%
1.0%
1.6%
-2.0%
1.0%
3.5%
SVK
-4.9%
4.4%
3.2%
2.2%
1.7%
3.1%
SVN
-7.8%
1.2%
0.6%
-2.4%
-1.4%
1.1%
BGR
-5.7%
0.5%
1.8%
0.7%
1.5%
2.8%
E – estimation
F – forecast
Source: Economist Intelligence Unit
The region shows big differences in terms of economic
growth: Poland and Slovakia are amongst the strongest on
the continent, achieving growth of 2.1% and 2.2% respectively, whilst the worst performers include Slovenia (-2.4%),
followed by Serbia (-2.0%) and Croatia (-1.9%).
Investment
Direct foreign investment and external bank loans, both of
which were the drivers of growth in the real estate market
during the pre-crisis years, are not expected to regain their
influence this year, as local lending will be restricted further
by the Western European owned banks.
Total Real Estate Investment Transactions in CEE 2007-2012
16
14
12
10
€bn
Macroeconomic Overview
The economic difficulties in the Eurozone, which is the Central and Eastern European (CEE) Region’s key export market,
have stalled immediate growth prospects and raised concern for the medium-term outlook. The compound effect of
faltering external demand, weak lending and high unemployment caused a slowdown in economic activity in 2012;
however, the downturn in global growth in 2012 is expected
to have a more modest impact on the CEE Region than in
2009, as most have reduced or closed their external imbalances.
8
6
4
2
0
2007
2008
2009
2010
2011
2012
Source: CBRE
In spite of the fact that the second half of 2012 saw an increase in investment activity, according to CBRE the overall
annual commercial property investment volume in the CEE
region reached only €7.4bn, which is around 35% lower than
in 2011. Despite the decrease in each market compared to
2011, investor interest in the Polish and Czech capitals remains strong, whilst other CEE markets continue to struggle.
From an investor’s perspective, key locations such as Warsaw and Prague are still considered to be attractive, whereas the real estate markets in the rest of the CEE continue to
struggle to attract the attention of potential investors.
In 2012, a total of €3.71bn was invested in the core CEE
markets (Poland, Czech Republic, Slovakia, Hungary and Romania), which is a significant drop compared to the 2011 figure of €6.29bn; however this is 25% higher than the equivalent investment in 2010.
The market situation looks slightly more optimistic if we
only consider Q4 2012. This saw an investment volume of
€1.8bn, almost matching the 2007 result and over three
times higher than the Q3 2012 figure. Further improvements
in the investment market will rely heavily on the cost and
availability of bank financing and alternative sources of financing.
Almost half of the transaction volume focused on the office
market; however, investors also showed increasing interest
in the retail and industrial sectors, and in a number of hotel
assets. Budapest was once again the focus of attention following the sale of the Four Seasons Budapest in 2011. The
city saw another prime hotel asset transaction in the second
half of 2012, that of the Le Meridien hotel, which was also
purchased by a Middle Eastern investor for an estimated
€60m.
European Real SnapShot! / Spring 2013 / 35
CEE
2%
0
0%
Prime rent
Zagreb
Warsaw
-6%
Prague
-30
Budapest
-4%
Bucharest
-20
Bratislava
-2%
y-o-y change
Source: CBRE
Vacancy rate increases are still common across the region
and mainly occur in non-prime locations in the CEE capitals,
whilst in other cases the increase is due to the volume of
completions e.g. in Warsaw. On the other hand, some markets are experiencing a reduction in the volume of vacancies; this includes Belgrade, which has a different dynamic
compared to other capitals due to the relatively small size of
its market.
Although there are relatively few transactions, the following
table illustrates the prime office yields, which remained stable throughout the quarter. The highest yields were achieved
in Belgrade (9.5%), followed by Zagreb (8.3%) and Bucha-
36 / European Real SnapShot! / Spring 2013
6.5%
6.25%
Prague
Warsaw
6%
4%
2%
Zagreb
Budapest
Bucharest
Belgrade
Bratislava
0%
Source: CBRE
Retail Market
The retail market is still relatively unattractive for developers, due to the poor performance of the sector, and thus remained subdued over the last two quarters.
The retail market is heavily reliant on consumer demand
and, with consumer spending remaining to the most part restrained across the region, retailer demand for new retail
space is limited, which means that there is almost no fluctuation in retail stock. However, Poland again stands out as development remains strong, especially in Warsaw, with several projects under construction and new retail brands set to
enter the market.
Retail Stock in selected CEE Cities -Q32012
1,200
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,000
800
600
400
200
0
Stock
GLA per 1,000 inhabitants
-10
8.3%
Zagreb
10
7.5%
Warsaw
4%
8.25%
Prague
20
7.25%
8%
Budapest
6%
9.5%
Bucharest
30
Belgrade
€/sq.m/month
Prime Office Rents and y-o-y Change, Q3 2012
10%
Bratislava
As illustrated by the following graph, prime office rents in
Q3 2012 were highest in Warsaw and Prague, reaching
€27.00/sq. m/month and €21.00/sq. m/month respectively;
whereas rents were lowest in Belgrade and Zagreb, both
averaging €15.00/sq. m/month.
Prime Office Yields, Q3 2012
Belgrade
On the other hand, the shortage of prime office space in
some markets is likely to become the driver for an upturn in
the rental market once occupier confidence returns.
Rents remained stable or only marginally decreased and it
therefore appears that rents are bottoming out. It is expec­
ted that they will remain stable, at least over the short term,
whilst recovery is only expected from the second half of
2013 at best. Owners are also more willing to offer incentives in an effort to prevent a further reduction in rents. Notable increases are only expected once economic activity
improves and, then, only in the major capitals such as Warsaw and Prague.
rest (8.25%), whilst prime office yields in Warsaw and
Prague reached 6.25% and 6.5% respectively.
Thousand sq. m
Office Market
The economic uncertainty affecting Europe continues to
prevent any notable recovery in office rents and is expected
to continue in 2013.
Gross letting area per 1,000 habitants
Source: JLL
Although there were some significant investment transactions in the CEE Region during 2011 and in the first half of
2012, Q3 saw a major drop in activity.
Despite the unfavourable economic environment, there are
a number of projects in the pipeline to be completed in the
coming two years.
The field is led by Belgrade having 259,000 sq. m in the
pipeline, followed by Prague (220,000 sq. m) and Zagreb
(205,000 sq. m); even though there is a considerable risk of
delay in delivering these planned projects.
Modern Retail Projects Pipeline -Q3 2012
300
Thousand sq. m
250
200
150
100
50
Source: JLL
Zagreb
Warsaw
Prague
Budapest
Bucharest
Bratislava
Belgrade
0
Residential Market
The past four years have certainly been among the most
troublesome in the history of the commercial housing market since the regime changes in the CEE Region in the early
90s. The recovery of demand varies greatly in the region.
Overall the volume of new-build units and sales prices are
depressed throughout the region, with the exception of the
major Polish and Czech cities.
Due to the stricter financing conditions for home mortgages, demand is lower for newly built residential units in most
of the CEE markets. The large volume of indebtedness in
foreign currency is still having a significant effect on the residential market; however, a number of governments have introduced a variety of policies to support first home buyers,
some of which have impacted positively on sales.
Generally, residential project developers are focussing on
smaller and more affordable units in order to better serve
the market needs. This in turn is leading to a reduction in average prices.
On the other hand, despite the current challenging financial
environment, essential demand drivers (low supply of highquality housing) suggest good long-term prospects for the
residential markets in the CEE Region.
European Real SnapShot! / Spring 2013 / 37
CEE
Comparison of construction costs of recent Stadium Developments in the CEE Region with Developments in Western Europe
Stadium
Country
City
Capacity
Year of
inauguration
Development
cost (€ m)
Development
cost per seat
(€)
National Stadium 2
Poland
Lviv Stadium 2
Ukraine
Warsaw
56,000
Lviv
33,788
2012
377
6,732
2011
200
Olympic Stadium 1/2
Ukraine
Kiev
5,919
69,004
2011
404
5,855
Donbass Arena 2
Ukraine
Municipal Stadium (Wroclaw) 2
Poland
Donetsk
51,504
2009
294
5,708
Wroclaw
40,610
2011
180
4,432
National Stadium
American Express Community Stadium
Romania
Bucharest
55,634
2011
234
4,206
UK
Brighton
27,500
2011
114
Municipal Stadium (Poznan)
4,160
Poland
Poznan
42,004
2010
163
3,881
PGE Arena 2
Poland
Gdansk
40,818
2011
155
3,797
Juventus Arena
Italy
Turin
41,000
2011
120
2,927
Metalist Stadium1/2
Ukraine
Kharkiv
38,633
2011
85
2,200
DVSC Stadium
Hungary
Debrecen
20,020
under constr.
43
2,141
Coface Arena
Germany
Mainz
34,000
2011
60
1,765
1/2
Source: KPMG analysis
Note: 1 Major renovation, 2 Built for the Euro 2012
Sport related Real Estate
There has been a recent boom in the development of sports
facilities in the region. The largest development projects
were new football stadia, mainly for the 2012 European
Football Championship, hosted by Poland and Ukraine. New
stadia were built for example in Warsaw, Gdansk, Donetsk,
and Lviv, with a notable tendency regarding the size of the
related investments (see table). The facilities were built to
meet the requirements of UEFA for hosting the tournament,
with little attention paid to local market requirements. This
has resulted in serious legacy issues both in Poland and
Ukraine, where some of these state-of-the-art stadia are
now being under-utilized after the event.
Another driver for major stadium developments was the poor
state of most of the major sports facilities in the region, with
national football associations and major clubs promoting the
redevelopment of their stadia (e.g. Bucharest, Debrecen).
These projects signal the ambitions of local football clubs to
participate in international competitions, which require the offer of better quality facilities and more high-quality and complex services. National and local governments often provided
financial support to these developments.
The construction costs of most of the new stadia in the region appear to correspond to costs for comparable facilities
in Western Europe, with no clear tendency of cost difference; however, some of the new stadia are ranked as the
38 / European Real SnapShot! / Spring 2013
most expensively built stadia in Europe in terms of construction costs per seat; an example of this is the Warsaw
National Stadium, where construction costs were close to
€ 7,000/seat.
The most important driver of construction costs is the size
of the stadium, both in absolute and relative terms. The larger the stadium the more it costs on a per seat basis. Costs
are expected to be more moderate if local sports organisations plan their new facilities in line with local market requirements. FIFA and UEFA support programmes and lay
down financial criteria for club and stadium operations, fundamentally shaped by decisions made at the development
stage.
The sustainable operation of the newly built high capacity
stadia available now in the CEE Region is likely to be the key
challenge over the next few years. Whilst there may be further development of new stadia, it is expected that there
will be more focus on the upgrading of current facilities. This
would not necessarily mean major renovations, but smaller
scale and functionally critical upgrades, which are required
by UEFA and are supported by local market demand (e.g.
heated playing surface, a good proportion of covered seats
etc.). If most of the top-tier leagues manage to equip stadia
with such amenities, sustainability may also become less of
a challenge.
Russia
Stable market, outstanding deals
Macroeconomic Overview
Economic growth in Russia is slowing down: EIU estimates
GDP growth of 3.7% in real terms in 2012, and GDP growth
which will remain below the pre-2009 level for the next 5
years. This is due to decreased agricultural production (poor
harvest), coupled with a slowdown in consumer demand
and business expansion; however, Russia remains one of
the most rapidly developing countries on the continent, as
the recession continues in Europe.
The Consumer Price Index for 2013 is estimated at 6.7% by
the Ministry of Economic Development (MED) and at 6.5%
by EIU. Both MED and EIU forecast slower GDP growth of
3.6% for 2013.
Concerns about increased inflation led the Russian Central
Bank to raise all of its main interest rates by 25 bps in September 2012, despite worries about slowing economic growth.
Russian Economic Overview
GDP, US$ bn
Population, million
GDP per capita, US$
Unemployment rate,%
2012A
2013F
1,970
2,113
142.8
142.5
13,790
14,830
6.2%
6.1%
A – actual, F – forecast
Source: Economist Intelligence Unit
The budget deficit will remain small due to high oil prices; however, additional expenditure on public sector workers’ salaries
and pensions, as promised by Vladimir Putin before the elections, means that Russia would require oil prices of around
US$ 120/barrel to balance its budget. On 23 January 2013, the
price of Urals oil remained at US$ 111/barrel. The average price
for Brent crude oil is estimated at US$ 111.9/barrel in 2012 and
is forecast to fall only slightly in 2013, to US$ 103.8/barrel.
According to RCB, banks expected some deterioration in financing conditions in H2 2012, which materialized as interest rates for corporate segment borrowers increased. Financing activity was low for both CIP and operational
properties. On the other hand, large governmental and private banks could afford to provide finance to professional
developers with high-quality liquid assets.
Office Market
The office property market in 2012 was characterized by relatively high demand, diverse and predictable supply, stable
rents and high investment activity. Investments in this segment reached a record high of US$ 3.5bn, accounting for
40.9% of all transactions over the year. Some major transactions have been announced for the start of 2013. These include the acquisitions of the White Square business centre
by O1 Properties for US$ 1bn, the Four Winds business centre by Capricornus Investments for US$ 371m and the Olympia Park business centre by its main tenant, Kaspersky Laboratory, for US$ 350m from O1 Properties.
By the end of 2012, the total volume of high-quality office
space in Moscow had increased by 19% compared with
2011, reaching approx. 13.5 million sq. m which included approx. 600,000 sq. m of new space. A number of major projects planned for delivery in 2012 were postponed until 2013
due to a lack of financing. 40% of the office premises declared for commissioning in 2013 are located in the Moscow
City business district.
According to brokers, gross take-up in Moscow in 2012 exceeded the 1 million sq. m mark, which is almost twice the volume
of office space commissioned in the same period. As a result,
the average vacancy rate has reduced compared to year-end
2011.
Economic Indicators
GDP growth, unemployment rate and CPI
The total volume of investments in commercial real estate
in Russia in 2012 was estimated at between US$ 7.5bn and
US$ 8bn. Most investments concerned office and retail
properties by domestic investors. As usual, Moscow and
St. Petersburg attracted about 95% - 99% of the total investment volume.
20%
15%
Broker’s consensus for office properties in Moscow
Yield
Average rent
Vacancy rate
8.5%-9.0%
1,200
8.5%-9.0%
A Class
9.5%-10.0%
800
14.0%
B Class
10.5%-11.0%
450
10.0%-13.0%
10%
Prime
5%
0%
Source: KPMG analysis
-5%
-10%
2008
GDP growth
2009
2010
2011
Unemployment rate
2012 E
2013 F
Inflation (CPI)
According to brokers, since Autumn 2012, the average rent
for Grade-A space increased slightly by 5% to US$ 800/sq.
m p.a., with the rent for Grade-B premises remaining stable
at US$ 450/sq. m p.a. (triple net). The capitalization rate for
prime properties remained at 8.5% - 9.0%.
Source: EIU
European Real SnapShot! / Spring 2013 / 39
Russia
Major Deals in the Office Segment in 2012
Seller
Purchaser
Hines Russia
O1 Properties
360
BC Ducat Place III
33,250
Evans Randall
O1 Properties
333
BC Silver City
60,000
Unikor (beneficiary B. Ivanishvili)
Gruppa BIN
303
BC Summit
60,000
Zhilrekonstruktsiya
Confidential
230
BC Arbat Square
31,000
Super Passion Ltd
AFI Development
230
Ozerkovskaya complex
51,100
Moscow Business Incubator, OJSC
Raiffeisen Bank
100
BC Menger
24,925
Moscow Business Incubator, OJSC
Alfa Bank
92
BC Paskal
23,000
Mercury Development Group
Japan Tobacco International
80
premises in the Mixed-use Complex Mercury City
10,000
Total
Price (US$m)
Property
GBA (sq. m)
over US$ 1.7bn
Source: KPMG analysis
Moscow Office Market Dynamics
14%
2,000
12%
1,600
1,400
10%
1,200
8%
1,000
800
6%
600
4%
400
Capitalization rate
Rental price, US$/sq. m/yr
1,800
2%
200
0%
0
2007
2008
2009
2010
2011
2012 F
Prime A
Class A
Class B
Capitalization rate
F – forecast
Source: KPMG analysis
The regional office market in Russia continues to stagnate,
as this segment is currently considered the least attractive
for investment. Most transactions in 2012 were concentrated in Moscow and St. Petersburg, whilst other parts of Russia accounted for around 5% of deals in the office segment.
It should be noted that the volume of office stock in the
country’s second largest office market, St. Petersburg, is
only 10% - 15% of Moscow’s stock. Prime rents in St. Petersburg range from US$ 550/sq. m to US$ 710/sq. m p.a.
There are relatively attractive office markets in Samara, Kazan, Ufa, Yekaterinburg, Perm, Krasnodar, and Chelyabinsk,
although prime rents here rarely exceed US$ 700/sq. m p.a.
Some positive change is expected in regional markets
where the upcoming major sporting events are to be held,
such as the Sochi 2014 Winter Olympics, which is attracting
new investor interest.
40 / European Real SnapShot! / Spring 2013
Retail Market
For the Moscow retail market, 2012 was characterized by an
extremely low supply pipeline. Nine shopping centres with
a total area of 337,500 sq. m were opened, which is only
5.2% more than in 2011. By the end of the year, the total
stock of high-quality retail space in Moscow reached 6.33
million sq. m, 5.3% higher than in 2011. The first outlet village was opened in Russia and three more centres of this
format are in the pipeline.
Main Retail Market Indicators
Indicator
Value
Maximum rent,US$/sq. m/yr
Change
2,700 - 4,000
Average rent,US$/sq. m/yr
500 - 1,800
Capitalization rate
9.5% - 11.0%
Vacancy rate
3.0%
Source: JLL
Retail Space Provision in Russia per 1,000 Inhabitants, Q3 2012
The retail market is expected to change in 2013, due to the
development of many new projects. More than 2.5 million
sq. m of high-quality retail space was announced for construction in 2013-2014 in Russia. Two new large shopping
centres with a total area of 377,000 sq. m were announced
in Moscow.
St. Petersburg
420
New supply will consist mainly of retail centres in regional
and super-regional formats.
Kazan
490
Nizhniy Novgorod
Retail Space Breakdown in Russia
Other cities
32%
MOSCOW
298
282
Samara
Moscow
22%
517
Rostov
- - on Don
258
Ufa
Yekaterinburg
401
Omsk
Chelyabinsk
203 207
218
Novosibirsk
305
Volgograd
236
Moscow region
7%
Note: Only high-quality shopping centres were taken into account
St. Petersburg
12%
Cities with
more than 1
million inh.
27%
Source: Knight Frank
Moscow and cities with more than 1 million inhabitants are
the main development focus of international operators.
Many retail operators are launching new format stores; food
operators being the most active in 2012. Examples of this include Metro C&C, which has developed the new retail formats Beans (50 – 150 sq. m) and Metro Punkt (2,000 sq. m).
2013 also saw the opening of the first discounters “Faithful”,
while O’key has started to develop their new discount format “Yes”. New international brands including Debenhams,
Mamas & Papas and Hamleys penetrated the Russian market.
At the same time, more Russian retailers plan to enter international markets, including Carlo Pazolini with new concept
stores, and Vassa&Co.
Source: KPMG analysis, Knight Frank
However, despite strong demand from international and domestic operators, projected vacancy rates are stable, ranging between 3% and 6%.
Resolutions by the Moscow government in 2012 had a significant effect on retail market infrastructure. A project was
announced to redevelop industrial zones covering a total
area of 150 ksq. m, and identifying potential areas for infrastructure developments, which will satisfy demand in the
retail real estate market.
The Russian retail investment market saw significant improvement in 2012, with the total volume of investments in
the retail sector reaching US$ 1.7bn by year-end 2012, which
is 18% higher than in 2011. It is expected that Morgan Stanley will invest over US$ 1bn in the prime shopping centre
Metropolis in Moscow in 2013.
Based on information from the leading real estate consultants, capitalization rates for high-quality shopping centres in
Moscow at the end of 2012 are stable compared to 2011,
fluctuating at between 9% and 11%.
European Real SnapShot! / Spring 2013 / 41
Russia
Residential Market
Last year was a special year for the Russian and Moscow regional residential markets. The main trends in 2012 were:
price increases in both the primary and secondary residential
markets, and a 12% decline in business activity compared to
2011. The share of mortgage transactions in the residential
market increased from 10.5% in 2011 to 18.3% in 2012.
Average Moscow House Prices, US$/sq. m
Residential sales prices showed an increase in almost all
Russian regions of 6% - 10% in 2012. According to the irn.ru
analytical centre, prices for residential properties in Moscow and the Moscow region grew by approx. 6% in 2012. In
27 regional capitals, the average price per sq. m increased
by more than 10%, for example Nizhny Novgorod (25.4%),
Irkutsk (22.3%) and Khabarovsk (21.9%).
Average House Price, US$/sq. m in Russia
6,000
US$/sq. m
5,000
4,000
3,000
2,000
1,000
0
Moscow
St. Petersburg
Russia (average)
Source: rosrealt.ru
Residential premises with the lowest prices remained the
most liquid across all regions of the country. The reduction
in initial asking prices agreed by buyers in all Russian regions in 2012 ranged between 3% and 12%.
Due to the expansion of Moscow in July 2012, the primary
residential market has grown by 62%. In Q3 2012, 249 new
residential properties were located outside Moscow’s third
ring road, including 95 properties located in “New Moscow”.
Market experts assume that Russian developers will construct around 64 – 65 million sq. m of residential real estate
in 2013. It is important to note that the majority (over 50%)
of buyers of residential premises are investors. The average
cost of construction in Russia was US$ 1,116/sq. m at yearend 2012. The highest costs of construction were registered
in the following regions: the Far Eastern Federal District (average US$ 1,423/sq. m), Moscow (US$ 1,768/sq. m) and
St. Petersburg (US$ 1,470/sq. m).
The government needs to change its development strategy
to prioritize the development of residential investment properties in order to support the further recovery of the residential market.
42 / European Real SnapShot! / Spring 2013
Source: RWay
Sport related Real Estate
World Cup 2018 Preparation
Major sports events, such as the Universiade 2013 in Kazan,
Winter Olympics 2014 in Sochi and FIFA World Cup 2018,
are helping to increase interest in sport and attract new
spectators. By hosting the World Cup in 2018, Russia has an
excellent opportunity to modernize its football infrastructure
throughout the country. Sixteen stadium sites have been
announced for potential construction and reconstruction,
twelve of which have been selected for the World Cup.
The main stadium for the 2018 World Cup, the 60 year old
Luzhniki in Moscow, will undergo major renovation or may
even be demolished and replaced with a new stadium. Initially, at the invitation of the Moscow government, a consortium of international consultants submitted a proposal for
the redevelopment of the whole complex (total cost
€1.6bn); however, a final decision on the concept has not yet
been made and the total volume of investment is
expected to be revised.
Construction of the new Spartak stadium is underway in
Moscow (estimated cost € 300m). As a result, the oldest
football stadium in Russia – Dynamo, which was built in
1928, has been excluded from the list of World Cup stadia;
however, the VTB Group (the second largest bank in Russia
and owner of the project) has plans to build a mixed-use
complex of sports facilities, as well as residential and commercial properties on the site. Total investments of over
€1bn have been projected, of which approx. € 220m will be
spent on the football stadium.
A new football arena is being built in Kazan for F.C. Rubin,
which has recently become a regular participant in European
football championships. The pace of construction is truly impressive: work only started in May 2010 and the commissioning of the facility is scheduled for early 2013, primarily
because the stadium is included in a bid to host the Universiade Kazan 2013. Total investment in the construction of the
football stadium amounted to € 225m.
When designing all these football stadia, the architects tried
to take into account all of the standard conveniences, such
as restaurants, retail and leisure facilities, hotels and VIP
boxes, aiming to make stadia an effective source of income
for football clubs; however, a closer study of the construction plans for the remaining stadia in Russia reveals that
they are all designed in line with the minimum requirements
imposed by FIFA on facilities for countries hosting World
Cup games.
The construction of large stadia will not in itself guarantee
the continuing successful growth and development of the
Russian football business: general economic conditions also
need to be stabilized.
Investments, € per Seat
Stadia in Russia, FIFA World Cup 2018
Stadium
considerable criticism from experts due to its high cost,
which is expected to reach EUR1.1bn (or over EUR15,700
per seat) as a result of modifications required to comply
with FIFA requirements; however, there has been a significant delay in financing and construction of the stadium due
to technical issues.
Capacity
Invest, € m
Moscow - Luzhniki
87,000
1,000
Moscow - Spartak
44,000
300
St. Petersburg
63,000
1,095
Yekaterinburg
41,000
125
Nizhny Novgorod
7,778
Kaliningrad
42,000
300
Samara
7,500
Kazan
41,000
225
Nizhny Novgorod
42,000
350
Rostov-on-Don
40,000
250
Samara
41,000
338
Volgograd
5,556
Saransk
42,000
225
Rostov-on-Don
5,556
Sochi
40,000
375
Saransk
5,000
Volgograd
42,000
250
565,000
4,833
Kazan
5,000
Total
Source: KPMG analysis
In 2007, construction started on one of the most comprehensive sports facilities in Europe, the Gazprom Arena in St.
Petersburg (the new F.C. Zenit stadium). The project evoked
St. Petersburg
15,755
Moscow - Luzhniki
11,236
Sochi
8,213
Kaliningrad
6,667
Moscow - Spartak
6,818
Yekaterinburg
2,778
0
5,000
10,000
15,000
20,000
€/seat
Source: KPMG analysis
European Real SnapShot! / Spring 2013 / 43
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