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Real Estate Research & Forecast Report - Slovakia Mid-Year 2011 (English Translation)

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Real Estate Research & Forecast Report - Slovakia Mid-Year 2011 (English Translation)

Real Estate Research & Forecast Report - Slovakia Mid-Year 2011 (English Translation)

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  • 1. SLOVAK REPUBLICRESEARCH & FORECAST REPORTMID-YEAR 2011Accelerating success.
  • 2. 2011 | RESEARCH & FORECAST MID-YEAR REVIEW | SLOVAK REPUBLICTABLE OF CONTENTS Executive Summary 3 Economic Overview 4 Investment Overview 5 Industrial Market 6 Office Market 7 Retail Market 8 Key Metric Definitions 9
  • 3. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC Executive Summary RECENT TRENDS • Economy: Gross domestic product rose by 3.5% at constant prices in Q1 2011. The unemployment rate in Q1 2011 decreased by 1.2% year-on-year and consumer prices increased in total by 3.6% year-on-year in the first half of 2011. • Investment: Investors are still focused on core assets, especially in countries such as Poland and Czech Republic. Nevertheless, high competition for quality assets in these countries are driving yields downwards and many investors are already looking for opportunities in the Slovak market, searching for higher returns. • Offices: By the end of Q2 2011, the total modern office stock in Bratislava has not changed compared to Q1. The majority of transactions were signed in the IT sector. The overall take up in the first half was 43,300 m2 . • Industrial: By the end of the first half of 2011 the total modern stock of industrial premises reached 1,009,500 m2. There are new developments currently under construction. Q2 recorded significant increases in transactions compared to the same period of 2010.MARKET INDICATORS • Retail: Parameters of market saturation in the capital city of Slovakia and in the 2010* 2011* regions is beginning to reach similar figures as more mature economies. Therefore, GDP GROWTH there is increasing pressure on the quality of the shopping centres. UNEMPLOYMENT MARKET PROGNOSIS WAGES • Economy: Long term prospects are bright, as Slovakia ranks among the EU s growth leaders. Even though growth in Slovakia will slow down slightly in 2011, before INFLATION accelerating again with stronger domestic demand during 2012. Unemployment is expected to further decrease. Inflation shows an upward trend in 2011. INVESTMENT VOLUMES • Investment: We expect to see the realisation of transactions that were postponed OFFICE RENTS during 2010, as well as more investors re-entering the Slovak market, based on the good macroeconomic figures achieved by the Slovak economy. Pressure on yields in INDUSTRIAL RENTS the Polish market will make Slovak yields more interesting for investors, from a regional point of view. RETAIL RENTS • Offices: As in the previous quarter the situation on the market remains stable with a more optimistic forecast for landlords of A Class premises. We expect greater YIELDS divergence in prices between A and B Class projects – caused by quality standards as well as by vacancy rate.* COMPARED TO THE PREVIOUS YEAR • Industrial: Low vacancy rates will stimulate realisation of new projects with new lease conditions and higher monthly rents. Developers will focus on the Senec area and new interest is expected in the Žilina, Prešov and Košice areas. • Retail: In 2011 the retail market should stabilise and lease conditions will mostly be dictated by tenants. Tenants of all kinds of premises will continue to exert great pressure to reduce lease rents, due to current market conditions.3 | COLLIERS INTERNATIONAL
  • 4. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC | ECONOMIC OVERVIEW Economic Overview Key Economic Figures SUMMARY GDP Growth 3.5% • In Q1 2011, the gross domestic product was €15.8 billion. It increased by 3.5% at Unemployment 13.9% constant prices. After seasonal adjustment it increased by 1% compared with Q4 2010. Inflation 3.6% • According to Labour Force Survey methodology from the Statistical Office of the Slovak Republic, the unemployment rate in Q1 2011 decreased by 1.2% year-on-year and reached 13.9%. • Recent employment growth has been concentrated in the western half of the country, with Trnava Region leading the way. • The average nominal monthly wage of an employee in the Slovak economy amounted to €746 in Q1 2011. Compared to Q1 2010, it increased by 2.9% in nominal statements. • According to data published by the Statistical Office of the Slovak Republic, consumer prices increased 3.6% year-on-year in the first half of 2011. Consumer prices increased by 1%, in Q2 2011 compared to Q1 2011. • Prices increased in the division of alcoholic beverages and tobacco by 2.8%, clothing and footwear by 2.7%, food and non-alcoholic beverages by 2.1% and transport by 1.6%. Prices of furnishings, household equipment and routine household maintenance decreased by 0.2 %.Source: Statistical Office of the Slovak Republic /Ministry of Finance of the Slovak Republic • During Q1 2011, the Industrial production index (IPI) increased by 11.3%, year-on- year. Manufacturing production grew by 13.4%. Electricity, gas, steam and air- conditioning supply grew by 3.4%. Production was lower in mining and quarrying by 10.8%. • The NBS (National Bank of Slovakia) expects the inflow of Foreign Direct Investments (FDI) into Slovakia to have reached € 0.3 billion in 2010. PROGNOSIS • According to experts, long term prospects are bright, as Slovakia ranks among the EU s growth leaders. The consensus of banks estimate that overall GDP growth will decrease slowly to 3.6% in 2011, driven by external demand and business investment. • Growth will slow slightly in 2011 before accelerating again with stronger domestic demand from 2012. The fiscal deficit is projected to fall to around 4% of GDP in 2012, owing to planned consolidation measures.Source: Statistical Office of the Slovak Republic / • Unemployment is expected to decrease further. It is expected that the overallMinistry of Finance of the Slovak Republic unemployment rate will decrease to under 13% in 2011. Inflation % • Inflation shows an upward trend in 2011. According to the NBS overall consumer prices should increase up to 4% in 2011. 15,0 • A further increase in FDI is expected in 2011, up to € 1.5 billion and in 2012 approximately € 1.8 billion. 12,0 9,0 6,0 3,0 0,0Source: Statistical Office of the Slovak Republic /Ministry of Finance of the Slovak Republic4 | COLLIERS INTERNATIONAL
  • 5. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC | INVESTMENT OVERVIEW Investment Overview Key Investment Figures SUMMARY H1 Investment Turnover € 3.6 mln. • During 2011, investors are still focused on core assets, especially in countries such as Asking Office Yields 7-8% Poland and Czech Rep. Nevertheless, the high competition for quality assets in these countries is driving yields downwards and many investors are already looking for good Asking Retail Yields 7.5-9% opportunities in the Slovak market, searching for higher returns. Asking Industrial Yields 9% • There is a willingness in the market to do business but prices may have to be again reassessed to facilitate transactions, coupled with favourable financing structures. • Retail is still the main target of investors and the pipeline for new projects, especially in regional centres is rapidly growing. • The Office sector continues with its trend of lowering vacancy rates which allows forecasting a lack of product for new tenants in 2012 - 2013. The confirmation of this trend will support projects at a standstill to move forward. • The Industrial sector is expanding from its traditional core centre Senec – DNV, and new projects are being developed in cities such as Kosice and Žilina. • In residential, land transactions are already being closed at market conditions and there is a growing demand from international developers who believe in the reactivation of the residential market, if projects are adapted to meet the existing demand. Recently, Colliers International successfully represented the owner of a land plot sale of 14,553 m2 in the Dúbravka district, for the construction of a residential development. PARAMETERS FOR OBTAINING FINANCING:Source: Colliers International Loan to costs: • 30% - 40% of equity • High ratio of presales/preleases • Interest rate: 3M euribor + margin (3% - 4%) Loan to value: • 30% of equity • DSCR: min. 1.2 • Interest rate: 3M euribor + margin (2.5% - 3.5%) • In comparison to previous years, there is no doubt that the market is moving forward but the pace of recovery is far from its maximum potential. In particular, financial turbulence in the market of sovereign debt keeps banks very cautious when considering providing financing for transactions. PROGNOSISSource: RCA • For 2011 we expect the realisation of transactions that were postponed during 2010, as well as more investors re-entering the Slovak market based on the good macroeconomic figures achieved by the Slovak economy, the stabilisation of the occupier market. Equally the pressure on yields in Polish market will make Slovak yields more interesting for investors, from a regional point of view. • Inflation may become an important issue during 2011 and many investors may see the investment on income producing properties, offering indexed rents, as effective protection against potential inflation risks.5 | COLLIERS INTERNATIONAL
  • 6. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC | OFFICE MARKET Office Market Key Economic Figures SUPPLY Total Stock 1.382 mln m2 • By the end of Q2 2011, the total modern office stock in Bratislava had not changed Take-up 43,300 m2 compared to the previous quarter and stayed at 1,382 million m2. Class A office space accounts for 58% of the stock, and the remaining (42%) are Class B office Vacancy 9.1% premises. This ratio has changed in comparison to the previous quarter, due to changes in the classification of some premises. Prime Headline Rent €15 m2/pcm • In H1 2011 there was 11,000 m2 of new office space (Supply) added to the market. In H2 there is approximately 35,000 m2 expected to be added to the Bratislava market. DEMAND • Transactions that were concluded in Q2 2011 represent a total amount of 31,600 m2, of which 9,600 m2 was Grade A and 22,000 m2 Grade B. It should also be noted that 48% of all transactions consisted of renegotiations, 15% represented preleases and 37 % were lease contracts. • The overall take up in H1 2011 recorded 43,300 m2. This is 27,200 m2 less compared to H1 2010 and approximately 3,000 m2 more compared to H1 2009. • In this quarter the majority of transactions were signed in the IT sector (19,900 m2), followed by the manufacturing and construction sectors (7,900 m2) and professional services companies (6,400 m2). • Similarly as in the previous quarters the majority of transactions closed in Q2 2011 were within the units of less than 500 sq m, which represented 63% of all theSource: BRF / Colliers International transactions closed. Units in the range of 501–1,000 sq m accounted for 22% of signed deals in this quarter and a further 15% comprised the leases signed for units of 1,001+ sq m. VACANCY/AVAILABILITY • The overall vacancy rate for Bratislava has decreased from 9.5% in the previous quarter to 9.1% in the second quarter of 2011. In comparison to Q1 2011, the A Class office space vacancy rate (7.5%) decreased by 0.4 % and the Class B vacancy rate (11.1%) decreased by 0.7 %. RENTS • Prime headline office rents remained stable in Q2 2011. Monthly rents for A Class premises are as follows: • City Centre – from € 14 to 18/ m2 /pcm • Inner City – from € 11 to 14 / m2/pcm • Outer City - from € 9 to 12 / m2 /pcmSource: BRF / Colliers International • B Class office premises are reacting to the higher vacancy by improving business conditions for leasing of office space. We recorded rents of B Class premises 10- 15% lower than premises of A Class. • The Prime headline rent currently stands at € 15/ m2/pcm, while average headline rents stand at € 11 /m2 /pcm. Landlords and developers continue to provide discounts and incentives to keep their existing clients and to attract potential tenants. PROGNOSIS • Over H1 2011 the market remained stable with more optimistic forecasts for landlords of A Class premises. We are expecting greater divergence in prices between A and B Class projects, caused by quality standards as well as by vacancy rate. • We expect the overall vacancy of A Class premises to decrease continuously during the next 6 - 12 months, in the best case scenario it may decrease up to 7 - 8% by the end of 2011. Vacancy of B Class premises should slightly increase.Source: BRF / Colliers International6 | COLLIERS INTERNATIONAL
  • 7. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC | INDUSTRIAL MARKET Industrial MarketKey Economic Figures SUPPLYTotal Stock 1.01 mlm. m2 • By the end of H1 2011 the total modern stock of industrial premises reachedTake-up 49,000 m2 1,009,500 m2. In this period 4,000 m2 in Bratislava was added to the market.Vacancy 1.54% • Approximately 69% of total stock is located in the Bratislava region, 21% in Trnava region, 6% in the Trenčín region and the rest is split between the Prešov and ŽilinaHeadline Rent €3.6 – 4.14/m2/pcm regions. The modern stock of industrial A Class space is missing in other parts of Slovakia. • The biggest developers share of the total stock (as a ratio between total stock of a developer and the total market stock) is held by ProLogis (38%), providing 384,000 m2 of leasable Class A premises, followed by HB Reavis with 12% and AIG Lincoln with 11%. Other developers share of the total stock is below 10%. • There are two new developments under construction, ProLogis project in Galanta – an 18,000 m2 tailor-made development for Samsung and a speculative 14,500 m2 development in VGP Malacky. DEMAND • In H1 2011 demand in the Slovak market increased, as overall take-up reached 69,000 m2. Q2 2011 recorded a significant increase compared to Q2 2010, as the total amount of transactions in this quarter reached 49,000 m2. • Key Transactions in Q2 2011:Source: Colliers International • Faurecia lease – DaK Kuester, Bratislava (4,000 m2) • Lidl lease – GoAsset, Nové Mesto nad Váhom (3,000 m2) • DHL lease – Goodman International, Senec (9,400 m2) and Falcon, Senec (4,100 m2) • DSN lease – Karimpol, Senec (3,500 m2) • Ihle (6,000 m2) and Dachster (1,500 m2 ) lease – PointPark, Lozorno • Samsung lease extension – ProLogis, Galanta (17,500 m2) VACANCY/AVAILABILITY • The vacancy rate fell to a minimal 1.54% by the end of H1 2011, with total vacant space amounting to 15,500 m2. This space is located in the Bratislava region, with no vacancies recorded in the remaining regions.Source: Colliers International RENTS • Monthly headline rents for logistic premises currently range between € 3.6 - 4.14/ m2. This can be decreased by developers contributions. Monthly headline rent of office space in industrial halls range between € 8.0 – 8.5 / m2. PROGNOSIS • The low vacancy rate will stimulate the realization of new projects with new lease conditions and higher monthly rents. • Developers will focus on the Senec area with new interest expected in the Žilina, Prešov and Košice areas, at rents higher than current levels. Development of new projects, however, will only start after the signing of pre-lease contracts. Developers are focused on „Permit-ready“ locations with the possibility to quickly launch pre- lease development. So far they are securing land plots with options-to-buy.Source: Colliers International7 | COLLIERS INTERNATIONAL
  • 8. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC | RETAIL MARKET Retail MarketKey Economic Figures (% Change) OVERVIEWTotal SC Stock 467 thou. m2 • The parameters of market saturation in the capital city of Slovakia and in the regions are beginning to reach figures similar to more mature economies. Therefore, there isAverage SC Rent €38 m2/pcm increasing pressure on the quality of the shopping centres. • Market saturation velocity in many cities and regions outpaced real income growth ofAverage High Street Rent €40 m2/pcm the population. Increasing competition of new shopping centres is forcing landlords to react flexibly to the requirements of tenants, but also in increasing the requirements of attractiveness in existing shopping centers. SUPPLY • Total shopping centre stock in Bratislava reached 467,000 m2. In Q2 2011 project Retro with 15,000 m2 was added to the market. There is also approximately 115,000 m2 of shopping centres under construction. • The majority of total stock is located in the Bratislava II district, where there is now a total of 215,900 m2 (46%) and Bratislava V (21%). The least amount of stock is located in Bratislava IV, with only 8% of total stock in Bratislava. RENTSSource: Colliers International • Average prime rents in traditional shopping centres decreased compared to previous quarters, due to market saturation. For the past few months rental rates in shopping centres and high street locations have remained at the same level. • Average high street rents are around €40 /m2/pcm. Average rents in quality shopping centres, with a good location, high traffic, well-considered concept and a good mix of tenants are around € 38/ m2/pcm . • Average rents in traditional shopping centres in Bratislava are as follows: • Fashion units: €11 – 35 /m2 /pcm • Sport units: € 10 – 31 /m2 /pcm • Shoes units: € 13 – 34 /m2 /pcm • Lingerie units: € 30 – 38 /m2 /pcm • Fast food units: € 18 – 37/m2 /pcm • Café units: € 27 – 39 /m2 /pcmSource: Colliers International PROGNOSIS • In 2011, the retail market should stabilise and lease conditions will be mostly dictatedSELECTED PROJECTS PLANNED by tenants. Tenants of all kinds of premises will continue to exert great pressure toFOR 2011-2013 reduce lease rents, due to the current market situation.Project Size (m2) Year Developer • We expect that rents will stagnate. Rents of retail premises in less attractive locations and premises requiring significant investment shall further decrease.P13 14 000 2011 Alfa Group • A new launch on the Bratislava market will be Centrál, a prepared project, which hasCentral 30 000 2013 Immocap the ambition to canibalise the customers of Polus SC and Eurovea SC. The new shopping area Bory in North-East of Bratislava is also expected to extend, addingAvion more competition into the markeplace. 6 000 2012 Inter Ikea(IV. Phase) • Retail space in the regions will consist of smaller shopping centres or supermarketsBory Mall 65 000 2012 Penta with a shopping mall.3nity 10 000 2011 VARA GroupSource: Colliers International8 | COLLIERS INTERNATIONAL
  • 9. RESEARCH & FORECAST REPORT | MID-YEAR 2011 | SLOVAK REPUBLIC COLLIERS RESEARCH 512 offices in Colliers Research Services Group is recognised as a knowledge leader in the 61 countries on commercial real estate industry, providing clients with valuable market intelligence to support business decisions. Colliers research analysts provide multi-level support across 6 continents all property types, ranging from data collection to comprehensive market analysis. United States: 125 Across the CEE-SEE-Russia region of EMEA, Colliers researchers regularly collect and Canada: 38 update data on key real estate metrics, set to consistent definitions. This information is Latin America: 18 constantly managed using databases, enabling staff to readily produce analysis on key Asia Pacific: 214 regional markets including supply, demand, absorption, pricing and transaction data on capital markets and the office, industrial and retail sector. In most CEE-SEE-Russian EMEA: 117 markets, the office definitions used are consistent with those set out by the CEE Research Forum – an umbrella group, of which Colliers is a founding member - • $1.5 billion in annual revenue established to ensure consistent research methodologies are used, bringing greater • 978.6 million square feet under transparency and reliability to the analysis of real estate markets in the region. management Definitions of the key metrics used in our regular reports are highlighted below. • Over 12,500 professionals KEY METRIC DEFINITIONS SLOVAKIA: • Prime Headline Capital Value (derived): This is a calculation of market value derived Colliers International from the annual prime headline rent divided by the prime (net initial) yield. Europeum Business Center Suché Mýto 1 • Prime Net Initial Yield: The yield an investor is prepared to pay to buy a Grade A Bratislava 811 03 building, fully-let to high quality tenants at an open market rental value in a prime Slovakia location. Lease terms should be commensurate with the market. As a calculation Net initial yield = First years’ net income/purchase price (prior to deducting fees and taxes) TEL +421 259 980 980 FAX +421 259 980 981 • Prime Headline Rent: Represents the top open-market tier of rent that could be EMAIL research@colliers.sk expected for a unit of standard size commensurate with demand, of the highest quality and specification in the best location in the market at the survey date. This should reflect the level at which relevant transactions are being completed at the time but The information contained herein has been obtained from sources deemed reliable. While every reasonable effort need not be exactly identical to any of them, particularly if deal flow is very limited or has been made to ensure its accuracy, we cannot made up of unusual one-off deals. If there are no relevant transactions during the guarantee it. No responsibility is assumed for any survey period, the quoted figure will be more hypothetical, based on expert opinion of inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the market conditions, but the same criteria on building size and specification will apply. material contained in this report. • Prime Net Effective Rent: Prime Net Effective Rent is the lowest rent payable, based on a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of either the rent-free period or fit-out contribution available at the time of the survey date. • Average Headline Rent: Average Headline Rent represents the average open-market tier of rent that could be expected for a unit of standard size commensurate with demand, based on a blend of Grade A & B space across a range of locations in the market at the survey date. • Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings. • Space Under Active Construction: Represents the total amount of gross leasable floor space of properties where construction has commenced on a new development or in existing properties where a major refurbishment/renovation is ongoing at the survey date. • Space Under Construction – Inactive: Represents the total amount of gross leasable floor space of properties where construction had started/where a major refurbishment/renovation was ongoing, but activity has since stopped for a period of 3 months or longer. • Vacant Space: The total gross leasable floor space in existing properties that meet the Competitive Stock definition, which is physically vacant and being actively marketed at the survey date. Space should be available for immediate occupation.www.colliers.com/Markets/Bratislava
  • 10. www.colliers.com Accelerating success.

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