COMMERCIAL MARKET

RESEARCH

POLANDH1 2016

2

OFFICE MARKET IN WARSAW

OFFICE MARKET IN REGIONAL CITIES

NICOLAS BUSINESS CENTER, Global Center, Wrocław

Total stock:

4.9m sq m

New supply:

350,000 sq m in 16 schemes

Offices under construction:

576,000 sq m

Vacancy rate:

15.4% of total stock

Total office stock in 6 major regional markets

3.37m sq mHigh new supply in H1 2016:

212,000 sq m in 31 schemes Office space under construction:

770,000 sq m

Record-breaking volume of lease agreements:

245,000 sq m

RESEARCHCOMMERCIAL MARKET IN POLAND

3

RETAIL MARKET

INVESTMENT MARKET

ZGORZELEC PLAZA, Zgorzelec

HORIZON PLAZA, Union Investment, Warszawa

Total retail stock :

11m sq m

Exceptionally low volume of new supply in H1 2016:

83,000 sq m

New supply dominated by extensions of retail schemes :

53%90% of supply under construction developed as shopping centres :

570,000 sq m

EUR 2.05 bninvested in Poland in H1 2016

EUR 891m volume of the largest transaction in the history of Polish market

Share of retail sector in total transaction volume:

49%

4

OFFICE MARKET IN WARSAW

Przemysłowy area. The new lease agreements in existing buildings accounted for 43% of the take-up volume, pre-lease transactions represented 17% of all agreements. The remaining take-up volume represented renewals – 31% and expansions - 9%. Additionally, positive sentiment was confirmed by the significant net absorbtion.. The result, which reached 145,000 sq m in the first half of 2016, was almost twice as high as the same period in 2015.

Since the beginning of the year an increase in the rate of vacancies has been observed. At the end of second quarter 2016, the vacancy rate accounted for 15.4% while the vacant space amounted to 767,000 sq m. The vacancy rate increased mainly in the Central Business District (17.3%) and was higher by 3.1 pp. than in the first quarter of 2016. Consequently, the majority of vacant space was offered in the Central Business District – 36% and in Służewiec

At the end of first half of 2016, the total stock in the Warsaw office market was estimated at 4.9m sq m and increased by over 500,000 sq m in the last 12 months. This is the result of growing activity among developers which completed large-scale projects over last monthns.

The new supply in the Warsaw office market reached 350,000 sq m in the first half of 2016 being over 40% higher than the half-year average in the last 5 years. It should be indicated that the new supply in Warsaw has never been so high. From January to June 2016, 16 office buildings have been completed, including i.a. Warsaw Spire A (59,100 sq m), Q22 (46,400 sq m), Atrium 2 (20,200 sq m), Prime Corporate Center (20,100 sq m) and Grzybowska 43 (10,600 sq m). The office stock increased not only in the Central Business District but also in the Żoliborz area after the completion of second phase of Gdański Business Center (49,000 sq m) or alongside Aleje Jerozolimskie Ave. where Eurocentrum Office Complex Delta (25,000 sq m) and Astrum Business Park (22,600 sq m) were completed.

Strong demand in the Warsaw office market noticed in the second half of last year encouraged developers to commence next projects. Since the beginning of 2016 a few large-scale projects have been started, including i.a. Sienna Towers (74,000 sq m) developed by Ghelamco Poland, the second phase of West Station II (37,000 sq m) belonging to HB Reavis or EC Powiśle (26,000 sq m) by White Star and Tristan Capital Park. Consequently, at the end of the second quarter of 2016, approximately 576,000 sq m was under construction, of which the significant volume was located in the Central Business District and alongside Jerozolimskie Ave.

The take-up in the first half of 2016 reached around 360,000 sq m and was slightly lower than in the corresponding period of 2015 (386,000 sq m) but still higher than the half-year average in the last 5 years (324,000 sq m). The majority of office space has been leased in the Central Business District and Służewiec

Source: Knight Frank, PORF

CHART 1

Vacant space by location (sq m) Q2 2016 vs. Q2 2015

0

50 0

00

100

000

150

000

200

000

250

000

300

000

CBD

Służewiec Przemysłowy

Aleje Jerozolimskie

Żoliborz

Other

Q2 2016 Q2 2015

NORTH GATE, Deka Immobillien

The first half of 2016 brought: a record-breaking new supply, an increase of vacancy rate and a take-up volume slightly higher than the half-year average in recent years.

Total stock:

4.9m sq m

New supply:

350,000 sq m in 16 schemes

Offices under construction:

576,000 sq m

Vacancy rate:

15.4% of total stock

RESEARCH

5

Przemysłowy – 28%. However, the distribution of the vacant space is different in both locations. In the Central Business District, approximately one third of vacant space is available in new buildings, completed in the period of 2015-2016. While in Służewiec Przemysłowy over half of the vacant space is offered in buildings from 2005-2009.

RIVERSIDE, Savills Investment Management

Source: Knight Frank, PORF

CHART 2

Net absorption, annual supply and vacancy rate 2008 - H1 2016

— 18%

— 16%

— 14%

— 12%

— 10%

— 8%

— 6%

— 4%

— 2%

— 0%

500 000

450 000

400 000

350 000

300 000

250 000

200 000

150 000

100 000

50 000

- sq m

2008

2009

2010

2011

2012

2013

2014

2015

H1

2016

/f

The asking rents have remained stable for most office buildings. A slight decrease has been noted in Służewiec Przemysłowy due to the increase of vacant space. The CBD rates ranged between EUR 14 and 24/sq m/month, while asking rents in buildings outside the city centre were quoted at EUR 10.5-18/sq m/month. Effective rents remained lower than the asking rents by 15-25%.

COMMERCIAL MARKET IN POLAND

Net absorption Annual supply Vacancy rate Annual supply - forecast

360,000 sq m leased in H1 2016, still higher than the half-year average in the last 5 years

6

OFFICE MARKET IN REGIONAL CITIES

Although a significant volume of new supply was recorded since the beginning of the year, over 770,000 sq m of office space has been identified at the construction stage in major regional markets, of which over 90% is offered for rent. Based on the developers’ schedules, it is expected that as much as 330,000 sq m may be delivered to the market by the end of 2016. Kraków remains an undisputed leader in terms of supply under construction with over 290,000 sq m of new offices being developed and next place is occupied by Wrocław (158,000 sq m of space under construction).

H1 2016 was also a period of record-breaking tenants’ activity. Over the course of January to June 2016, lease agreements amounting to 260,000 sq m were signed in six major regional markets, which was 54% more than an

At the end of June 2016, the total office stock in six major regional markets approached 3.37 million sq m. In the first half of current year, approximately 212,000 sq m of office space in 31 schemes was completed. The result is exceptionally high, when compared with an average annual supply in the last few years. Most of the space was delivered to the market in Kraków (66,400 sq m), Tricity (52,700 sq m) and Wrocław (48,300 sq m). The largest completed buildings include two schemes by Echo Investment – Tryton Business House (21,300 sq m) in Gdańsk and the 1st stage of O3 Business Campus (19,200 sq m) in Kraków, University Business Park B (18,700 sq m) in Łódź owned by GTC and Pegaz (18,500 sq m) developed by UBM Polska in Wrocław.

Figures for office market in H1 2016 confirm further dynamic development of this sector in regional cities. High developers’ activity is reflected in systematic growth of modern office stock. Increasing supply is accompanied by record high demand.

CHART 1

Total office stock, vacancy rate and prime rents in major regional markets H1 2016

average annual take-up within the last 5 years. Kraków once more proved its leading position with lease transaction volume at the level of 109,000 sq m, while further 53,000 sq m and 36,000 sq m was leased in Wrocław and Tricity respectively. The demand for office space is driven mainly by companies representing business services sector, which is dynamically growing in Poland. According to our estimates, BPO/SSC, IT and R&D centres occupy from 20% of office space in Tricity to nearly 50% of local stock in Kraków, while in Warsaw it is barely 6%. Positive market sentiment is also confirmed by net absorption level. In H1 2016, it amounted to 138,000 sq m, which is comparable to the analogical period of previous years.

As a consequence of a dynamically growing supply, space availability slightly increased. At the end of June, approximately 356,000 sq m has remained vacant in major regional markets, which accounted for 10.6% of total stock and 11.9% of rentable space. Vacancy rate varied between 6% of total stock in Kraków and 14.3% in Katowice. Due to the significant volume of new supply predicted by

18% —

16% —

14% —

12% —

10% —

8% —

6% —

4% —

2% —

0% —

Source: Knight Frank, PORF

Łódź347,000

12 13 14 15 16EUR/sq m/month

Katowice405,000

Tricity629,000

Kraków833,000

Poznań396,000

Wrocław757,000

Total office stock in 6 major regional markets:

3.37m sq mHigh new supply in H1 2016:

212,000 sq m in 31 schemes Office space under construction:

770,000 sq m

Record-breaking volume of lease agreements:

245,000 sq m

7

RESEARCH

WROCŁAW 101, Crownway Investments, WrocławSource: Knight Frank, PORF

CHART 2

Demand for office space in major regional markets 2011 - H1 2016

2011

2012

2013

2014

2015

H1

201

6

Kraków Wrocław

CHART 3

Office space occupied by business services sector H1 2016

Source: Knight Frank

— 0

%

— 2

0%

— 4

0%

— 6

0%

— 8

0%

— 1

00%

Warsaw

Tricity

Poznań

Katowice

Wrocław

Łódź

Kraków

600,000 —

500,000 —

400,000 —

300,000 —

200,000 —

100,000 —

sq m —

Remaining 4 markets

PORTO OFFICE, Detemo Investments, Kraków

the end of this year, further growth of availability of office space is expected in most of the markets.

Despite dynamic changes in office supply and demand, asking rents and lease conditions have remained unchanged. At the end of June 2016, the lowest asking rates were offered in Łódź – from EUR 8.5 to 13 per sq m per month and the highest level was noted in Wrocław: EUR 10-15.5 per sq per month. According to our estimates, effective rents remain approximately 10-15% lower than asking rents.

6%

21%

23%

33%

36%

36%

48%

Office space occupied by BPO/SSC, IT and R&D centres

COMMERCIAL MARKET IN POLAND

8

RETAIL MARKET

In H1 2016, extensions of existing retail projects prevailed in new supply and amounted to 44,000 sq m in total. This volume was represented by small extensions of the schemes as a part of modernisation, but also by adding retail parks to traditional shopping centres. The remaining space was delivered in three new shopping centres located in the small-sized cities (below 100,000 citizens): Galeria Glogovia in Głogów (21,000 sq m), Karuzela Września in Września (12,000 sq m) and Galeria Awangarda in Bartoszyce (6,000 sq m).

At the end of H1 2016, the total retail stock in Poland exceeded 11m sq m while the retail density amounted to 286 sq m/1,000 inhabitants. The retail supply can be divided into three formats: shopping centres, totalling 9.5m sq m, retail parks – 1.3m sq m and outlet centres – 200,000 sq m.

Despite the noted decrease of developers activity, the volume of space under construction was relatively high and amounted to 620,000 sq m. Over 90% of the space was developed as traditional shopping centres, located usually in the major agglomerations. These are i.a.: Posnania in Poznań (100,000 sq m), Galeria Północna in Warsaw and Wroclavia in Wrocław (64,000 sq m each).

The first half of 2016 distinguished limited developers activity. In this period they delivered barely 83,000 sq m of retail space, of which 70% was completed in Q2 2016. Even though almost 290,000 sq m of retail space will be completed in H2 2016, the annual supply will not reach the level recorded in previous years.

CHART 1

New retail supply 2014 - H1 2016

Source: Knight Frank

ALBATROS, Albatros Kołobrzeg, Kołobrzeg

100% —

90% —

80% —

70% —

60% —

50% —

40% —

30% —

20% —

10% —

0% —

New schemes

Extensions

2014

2015

H1

2016

Total retail stock :

11m sq m

Exceptionally low volume of new supply in H1 2016:

83,000 sq m

New supply dominated by extensions of retail schemes :

53%90% of supply under construction developed as shopping centres

570,000 sq m

RESEARCH

9

Almost 50% of the retail space under construction is to be completed in H2 2016. The high development pace recorded in the last years in the small- and medium-sized cities makes them more and more saturated. Consequently, there was limited activity from developers in these markets.

More and more saturated retail market force developers to look for an alternatives to traditional shopping centres. An example of the new approach in Warsaw are mixed-use

schemes i.a: Hala Koszyki and Centrum Praskie Koneser under construction or ArtN at the advanced planning stage. These citygenic areas will combine working, shopping and entertainment function in one place.

In H1 2016, several new brands entered to the Polish retail market. These are i.a. Tallinder – the premium brand of LPP Group in Galeria Bałtycka in Gdańsk, Sketchers in Galeria Mokotów in Warsaw and U.S. Polo Assn had its debut in Manufaktura in Łódź.

CHART 3

New retail supply by location (sq m) 2007 - 2016f

Source: Knight Frank

2007

2008

2009

2010

2011

2012

2013

2014

2015

H1

2016

\f

800,000 —

700,000 —

600,000 —

500,000 —

400,000 —

300,000 —

200,000 —

100,000 —

sq m —

small-sized markets (< 100.000 inh)

medium markets (100.000 - 400.000 inh)

8 major agglomerations

Source: Knight Frank

Grzybowska 43, Wisher Enterprise

CHART 2

Retail space under construction by location H1 2015 vs. H1 2016

Simultaneously, brands such as Celio and Mothercare, withdrew from the Polish market.

Headline rents for prime retail units (below 100 sq m) in prime shopping centres recorded an upward trend. Warsaw has maintained its leading position in terms of prime rents – up to EUR 150/sq m/month. Lower rates were noted in regional markets and depend on a number of factors, e.g. tenant brand, the size of the unit and its location within a project.

SUPERSAM, Griffin Real Estate, Katowice

small-sized markets (< 100.000 inh)

medium-sized markets (100.000 - 400.000 inh)

8 major agglomerations

21%

66%

13%

16%

83%

2%

H1 2015 H1 2016

8 major agglomerations - forecast

small-sized markets - forecast (< 100.000 inh)

COMMERCIAL MARKET IN POLAND

10

CHART 1

Investment transaction volume 2004 - H1 2016

INVESTMENT MARKET

In H1 2016, the largest investors’ activity was observed in the retail sector where acquisitions constituted 49% of total volume of finalised deals, while the acquisition of office properties made up 38% and the share of industrial sector accounted for 13%.

In the office sector in the first six months of the year, nearly 60% of signed transactions were concluded in the regional markets. Beside the largest Redefine Properties transaction, the most significant acquisitions with the highest value were the purchase of Aleja Pokoju 5 office building in Krakow by German fund Warburg-HIH Invest Real Estate, the acquisition of Alchemia II in

Gdańsk by PHN and the purchase of three office projects Forum 76 in Łódź, Opera in Gdańsk and Okrąglak&Kwadraciak in Poznań by Benson Elliot Sharow Capital. Currently, yields for office assets located outside the Warsaw market fluctuate between 6.25-6.50% and their fall is expected in the coming quarters.

Transaction investment volume in the office sector in Warsaw exceeded EUR 316 m in the first half of 2016. Yields for the Warsaw prime assets are expected to shrink while in H1 2016 reached a level of 5.50% in locations within CBD and yields for assets located outside the CBD varied between 6.75%

Positive sentiment and better perception of Polish market by international entities resulted in the record-breaking transaction volume of EUR 2.05 bn in the first six months of 2016 in Poland and twice exceeded the result from the same period of 2015. The largest deal in the history of Polish and the CEE region market was finalised in Q2 2016. South African fund Redefine Properties took over 75% of the Echo Prime Properties portfolio consisted of 18 retail and office assets with a total value of EUR 891 m.

Source: Knight Frank, IRF

Office Retail Industrial Hotels Other

bn EUR

H1 2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

0 1 2 34 5

EUR 2.05 bninvested in Poland in H1 2016

EUR 891m volume of the largest transaction in the history of Polish market

Share of retail sector in total transaction volume:

49%

RESEARCH

11

CHART 2

Investment transaction structure by sectors H1 2016

-7.25%. The largest acquisitions in the office market in Warsaw in the first six months of 2016 included the purchase of Warsaw Corporate Center and Wiśniowy Business Park by Valad, Warburg-HIH Invest Real Estate purchase of Prime Corporate Center, acquisition of Zaułek Piękna by GLL and Oxygen Park by Golden Star Group.

Unabated high investors activity was observed in the retail sector. The total volume of signed contracts in H1 2016 amounted to EUR 1bn, out of which a significant part was included in the Redefine Properties portfolio transaction. Moreover, there were a few smaller deals of a value less than EUR 10m that were finalised. The largest retail investment transactions in the first half of

EUROCENTRUM OFFICE COMPLEX, Capital Park, Warszawa

RETAIL EUR 1bn

2% retail park3% DYI

1% supermarkets & discount stores

94% shopping center

OFFICE EUR 789m

40% Warsaw

60% regional cities

INDUSTRIAL EUR 255m

48% portfolio

52% single asset transactions

Source: Knight Frank, IRF

2016 are acquire of Corso by First Property Group, the purchase of Jantar Shopping Centre in Słupsk by CBRE Global Investors and purchase of Ferio Konin by German fund Union Investment. Prime yields in the retail sector have remained at the level of 5.50% with tendency to compress.

The most sought-after projects in the industrial sector remain portfolio assets. Due to the good warehouse market condition investors are more willing to allocate their funds in that segment. In the first six months of 2016 the investment volume of industrial transactions accounted for EUR 255 m. Prime yields for warehouse assets remained at the stable level of 7.00%. The largest deals concluded in H1 2016 are purchase of NBGI

portfolio, including 5 warehouse assets and industrial park Annopol Business Park by American fund Hines and the acquisition of Metropol Park Błonie by Hillwood and acquiring the Amazon scheme in Poznań by German fund GLL.

COMMERCIAL MARKET IN POLAND

12

© Knight Frank Sp. z o.o. 2016This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.

As one of the largest and most experienced research teams operating across Polish commercial real estate markets, Knight Frank Poland provides strategic advice, forecasting and consultancy services to a wide range of commercial clients including developers, investment funds, financial and corporate institutions as well as private individuals.

We offer:

strategic consulting, independent forecasts and analysis adapted to clients’ specific requirements,

market reports and analysis available to the public,

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Reports are produced on a quarterly basis and cover all sectors of commercial market (office, retail, industrial, hotel) in major Polish cities and regions (Warsaw, Kraków, Łódź, Poznań, Silesia, Tricity, Wrocław). Long-term presence in local markets has allowed our research team to build in-depth expertise of socio-economic factors affecting commercial and residential real estate in Poland.

Knight Frank Research Reports are available at KnightFrank.com.pl/en/research/

Office Market in Kraków: Q1 2016

Office Market in Warsaw: H1 2016

Office market in Wrocław: Q1 2016

Commercial market in Poland: Q1 2016

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