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 Advisory from one source In order to realize your opportunities, optimize your results and minimize your risks across the fragmented real estate markets, you need to cut through the complexity. KPMG Real Estate supports you by providing an all-encompassing, interdisciplinary approach helping you to maintain control as you face the challenges arising from your day-to-day real estate business activities. Please contact us on a non-binding basis with any real estate related questions you may have. KPMG can provide you with local, national and international knowledge and expertise. We will pull together a team that offers you the best solution as we support you in meeting your goals. Please don’t hesitate to ask us for our list of references! Our services include: M&A/Capital market • Structuring and execution of transactions (Lead Advisory) – Asset deals: Acquisition and disposal of properties and portfolios – Share deals: Mergers, spin-offs, IPOs, private placements • Arrangement of indirect investments, such as funds or trusts • Fund raising for specific projects • Debt advisory Investment Advisory • Investment advisory for national or international indirect real estate investments • Structuring of real estate investments within portfolios • Qualitative and quantitative analysis of investment products • Monitoring and investment controlling, portfolio performance measurement Strategy/Organization • Strategy development and implementation – Business planning / business modeling – Corporate / public real estate management – Asset and portfolio management • Analysis of organization and processes; organizational development, internal control system (ICS) • Performance management / MIS / investment monitoring • Risk management and financial modelling Valuation/Due Diligence • DCF-valuations of properties and real estate portfolios or companies • Independent valuation reports for financial statements • Valuations for acquisitions or disposals • Feasibility studies and valuation of real estate developments • Transaction-focused due diligence and process management 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 Please contact us KPMG Europe KPMG in Sweden KPMG in Switzerland Stefan Pfister Partner, Head of Real Estate Europe/EMA T: +41 58 249 54 16 E: stefanpfister@kpmg.com Björn Flink Partner, Head of Real Estate T: +46 8 7239482 E: bjorn.flink@kpmg.se Ulrich Prien Partner, Head of Real Estate T: +41 58 249 62 72 E: uprien@kpmg.com KPMG in Finland KPMG in France Mark Wyatt Partner, Country Head Corporate Finance T: +33 15568 9300 E: markwyatt@kpmg.fr Teemu Haataja Manager, Audit T: +358 40 747 8773 E: teemu.haataja@kpmg.fi KPMG in Denmark Regis Chemouny Partner T: +33 15568 6818 E: rchemouny@kpmg.fr Kenneth Hofman Partner, Building, Construction and Real Estate T: +45 73 23 30 22 E: kennethhofman@kpmg.dk KPMG in UK Richard White Partner, Head of Real Estate T: +44 20 7311 4010 E: richard.white@kpmg.co.uk John Taylor Associate Partner, Real Estate T: +44 20 7311 1672 E: john.taylor@kpmg.co.uk Stephen Barter Director, Corporate Finance Real Estate T: +44 20 7694 1906 E: stephen.barter@kpmg.co.uk Sven Andersen Partner, Real Estate M&A T: +49 69 9587 4973 E: sandersen@kpmg.com Gunther Liermann Partner, Corporate Finance Real Estate T: +49 69 9587 4023 E: gliermann@kpmg.com KPMG in Italy Maurizio Nitrati Partner, Head of Building, Construction & Real Estate T: +39 06 8097 1480 E: mnitrati@kpmg.it Andrea Giuliani Associate Director, Advisory T: +39 06 8097 1483 E: agiuliani@kpmg.it KPMG in The Netherlands Hans Grönloh Partner, Head of Real Estate the Netherlands T: +31 20 6567792 E: gronloh.hans@kpmg.nl Marcel Groenendijk Partner, Corporate Finance T: +31 20 6567822 E: groenendijk.marcel@kpmg.nl KPMG in Luxembourg KPMG in Germany Beat Seger Director, Real Estate M&A T: +41 58 249 29 46 E: bseger@kpmg.com Stephane Haot Partner, Head of Real Estate and Infrastructure T: +352 22 51 51 7270 E: stephane.haot@kpmg.lu Yves Courtois Partner, Corporate Finance T: +352 22 51 51 7503 E: yves.courtois@kpmg.lu KPMG in Spain Fernando Vizoso Estrades Senior Manager, Infrastructure Industry – Markets T: +34 91 456 34 00 E: fvizoso@kpmg.es Pedro Montoya Senior Manager, Restructuring Real Estate T: +34914568267 E: pmontoya@kpmg.es KPMG in Central and Eastern Europe Andrea Sartori Partner, Head of Real Estate in CEE T: +36 1 887 72 15 E: andreasartori@kpmg.com KPMG in Russia Sven Osmers Director, Head of Real Estate Russia & CIS T: +7 495 663 8497 E: svenosmers@kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. 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