Real Estate Review POLAND M I D - Y E A R ECONOMY OFFICE RETAIL INDUSTRIAL INVESTMENT LAND

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1 Real Estate Review POLAND M I D - Y E A R ECONOMY OFFICE RETAIL INDUSTRIAL INVESTMENT LAND

2 Colliers International CEE Tallinn ESTONIA Riga LATVIA LITHUANIA Vilnius St. Petersburg RUSSIA Moscow POLAND Warsaw Wroclaw Krakow Prague CZECH REPUBLIC SLOVAKIA Bratislava Budapest Kyiv UKRAINE HUNGARY Zagreb CROATIA Belgrade SERBIA ROMANIA Bucharest Varna Sofia BULGARIA Istanbul GREECE TURKEY Athens Copyright Colliers International 2007 This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability.any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies. COLLIERS INTERNATIONAL

3 Poland in Warsaw since 1997 Dear Clients and Friends, Although the first half of 2008 saw continued turbulence on financial markets and the credit crunch that troubled the real estate market in Western Europe, Poland has not noticed the negative influences on its commercial leasing market. We have, however, noticed increased caution among companies making significant financial decisions, which has had the effect of prolonging the decision making process in terms of leasing, mainly in the office market. But, nevertheless we expect this year to end with high numbers of deals closed. The Warsaw office market was witness to another record transaction of almost 40,000 sqm leased by PKO SA at Lipowy Office Park. An Increasing number of transactions are now made outside Warsaw and the 160,000 sqm of new supply which appeared in regional markets in the past half a year is just a prelude to an expected investment boom in the coming two years. By the end of 2010 the total stock on regional markets should almost triple. We are proud that so many clients chose Colliers International Poland as their business partner and that at the same time we had the chance to work again with companies that had chosen us in the past, because it is the number of returning clients that builds the strength of the service provider and its brand. Also for the industrial market the first half of 2008 turned out to be successful. The level of activity was even better than the market predicted and exceeded the results reached in the same period of We expect high levels of demand, as well as increase of stock, in spite of the forecasted slow down of the economy. We also expect fast stock growth in the retail market. In the coming years developers will deliver a significant amount of new retail developments in smaller cities with popullations under , and high growth in consumer spending and rising incomes are encouraging retailers to expand. At Colliers International Poland we have answered all these trends dynamically, adjusting our operational activities to market demands. At the end of the first half of 2008 according to the previous plans made we opened our regional office in Krakow, and the grand opening of our other regional office in Wroclaw is scheduled for the autumn. Furthermore, as a result of active listening to our clients needs we created our new Land Department, which has successfully adviced clients on investment transactions regarding plots for industrial, office, retail, hotel and residential developments. The first 6 months of this year were also very fruitful and full of spectacular successes for our Property and Asset Management Department which gained the most important and prestigious buildings in the biggest cities of Poland. We are proud that so many clients chose Colliers International Poland as their business partner and that at the same time we had the chance to work again with companies that had chosen us in the past, because it is the number of returning clients that builds the strength of the service provider and its brand. I am sure that both our clients and partners, as well as ourselves, will find the second half of 2008 as full of prospects as the two quarters already passed. Colliers International (Poland) Sp. z o.o. The Metropolitan Building, Plac Pilsudskiego 3, Warsaw, Poland Phone: Fax: Hadley Dean MANAGING PARTNER POLAND

4 Poland Country Overview 3-4 Office Market 5-12 Retail Market Industrial Market Investment Market Land Market COLLIERS INTERNATIONAL

5 P O L A N D Country Overview After much-anticipated elections, in November 2007 a new government was formed by a coalition of centerright Citizens Platform (Platforma Obywatelska) and the Polish Peasants Party (Polskie Stronnictwo Ludowe, agrarian party). The new government is facing increasing problems in health services, pay demands from the public sector, the slow rate of privatization and the necessity of improving infrastructure, especially in the context of Euro Citizens Platform managed to fulfill some of its campaign promises, but mainly the ones which involved reversing the actions of the previous government. The Confederation of Polish Employers has signaled its approval of current reforms e.g. preparation of transition state pensions law, change of public procurement law, work on health system reform, the activity of the Friendly State commission. But critics point out that although Citizens Platform promised radical changes, it has not introduced the most important reform, of public finances. Also urgently required are: health system reform, simplifications in construction law, improvement of liberty of business activity and lowering work costs. A flat tax planned by Citizens Platform will be impossible to introduce, mainly because of its coalition partner s objection. The government has improved Poland s standing internationally, among others with Germany and Russia. Important international issues include the placing of an anti-missile shield in Poland, ratification of the Lisbon Treaty, especially after its rejection by Ireland, and organization of Euro increasing by 6.4% y-o-y in the period from January to March. The strength of export growth surprised analysts who had believed that the Polish currency had risen to unacceptable levels. In fact the zloty had gained about 25% against the euro from the beginning of 2004 through to mid-2008, and though this is unhelpful to exporters, the corollary of the strong zloty is that inflationary pressure on imported raw material prices and the domestic consumer sector has been lower. Economic growth is expected to slow down during the coming quarters in line with stagnating activity levels in Poland's main export markets. Yet GDP is likely to continue to rise at an annual rate of around 5% as high levels of investment in the corporate and public spheres, and strong consumer spending, buoy the economy. Indeed the retail sector, as well as the rather over-inflated housing market, are being supported by average nominal wage increases of over 10% and quarterly increases in employment of 3-4%. The strength of the domestic sector is also indicated by the widening current account deficit which is now heading towards 5% of GDP. Poland may actually be fortunate in that strong demand in the home market will permit the economy to continue to grow at a satisfactory rate, whilst elsewhere activity is sluggish at best. Should a cyclical slowdown occur locally in 2-3 years time, recovering export markets would prevent a 'hard landing' and also assist in balancing the Polish current account. Economic growth in the first quarter of 2008 continued to be brisk, with GDP M I D - Y E A R R E A L E S TAT E R E V I E W

6 P O L A N D Country Overview Economic Indicators f 2009 f Nominal GDP USD bn GDP growth (real) % yoy FDI (net) USD bn Unemployment rate %, eop * 10.0 Total public debt % GDP CPI % yoy eop * 4*** PPI % yoy eop * 1.9 Exports USD bn Imports USD bn Current account % GDP Exchange rate USD eop ** 2.29 Exchange rate EUR eop ** 3.20 Intern. reserves (excl. gold) USD bn eop Source: DB Research, GUS f=forecast, *May 2008, **June 2008, *** NBP Economic Indicators Unemployment Rate % f 2009 f 0 GDP Growth, Inflation % Unemployment Rate %(left) GDP Growth % (right) Inflation % (right) Source: DB Research, GUS 4 COLLIERS INTERNATIONAL

7 P O L A N D Office Market Executive summary The first half of 2008 saw a continuation of the high activity level from the previous year, although almost 16% of this demand was in one record deal the lease of 39,000 sqm in Lipowy Office Park by Pekao S.A. In general, the demand was concentrated outside the city centre. We also noticed a trend of prolonging the decision-making process among tenants, mainly foreign companies. The main factor of this is a slow down of economies in United States and Western Europe. The vacancy rate, although already very low at the end of 2007, decreased yet again and at the end of Q stood at around 2.11%, a fall of 1%. We expect the vacancy rate to stay at this low level in the coming months. After a record increase of rent rates in 2007, the rents remain at high but stable levels. They have risen by a few percentage points since the end of Demand Activity levels in the Warsaw office market in the first half of this year were a little lower in comparison to the first half of 2007 and came to 244,400 sqm. Most of the transactions (85%) were new lease agreements, of which the majority were pre-lease agreements (agreements signed before building completion). In the first half of the year 40% of all deals were pre-lease agreements, while in just the second quarter of the year this type of transactions came to nearly 60% of the total. In Warsaw city center a decline in activity levels took place. During six months lease agreements for only 43,000 sqm were signed here, while in the suburbs it was more than 200,000 sqm. The most popular districts were Upper South and South West, where a lot of new buildings are under construction. Those districts recorded 70% of total activity for the city. The biggest transaction on the market was a lease of almost 40,000 sqm by PKO SA in the complex Lipowy Office Park. As well as this transaction in the first half of the year only 3 deals over 5,000 sqm were concluded; Internet Group S.A. leased 10,000 sqm in the building which is being built exclusively for the company by SGI Baltis, NSN took 9,500 sqm in Horizon Plaza, and Link4 decided to lease 5,000 sqm in Adgar Warsaw office market Q Q Suburban stock (sqm) Class A and B 1,584,820 1,749,304 Suburban vacant space 4.75% 1.25% CBD stock (sqm) Class A and B 1,071,807 1,091,591* CBD vacant space 2.93% 3.49% Total stock (sqm) Class A and B 2,656,627 2,840,895 Total vacant space Class A and B 4.02% 2.11% * the stock has been revised M I D - Y E A R R E A L E S TAT E R E V I E W

8 P O L A N D Office Market Quarterly take-up in the Warsaw office market Quarterly take-up (000s sqm) CBD Suburbs Total Quarterly take-up: stake of pre-lease agreements in total demand 150 Quarterly take-up (000s sqm) Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Total demand Pre-lease agreements 6 COLLIERS INTERNATIONAL

9 P O L A N D Office Market The biggest transactions in the Warsaw office market - H Zone Building Company Space (sqm) Agreement South West Lipowy Office Park PKO SA 39,000 New (pre-lease) South East SGI Czerniakowska Internet Group S.A. 10,000 New (pre-lease) Upper South Horizon Plaza NSN 9,500 New (pre-lease) Upper South Adgar BC Link4 5,000 New South West Equator Alior 4,050 New (pre-lease) Upper South Nefryt Allianz 4,000 New (pre-lease) Business Center. Apart from these transactions, the market was dominated by middle and small size deals. supply At the end of June 2008 total stock of office space in Warsaw was 2,840,000 sqm. In the first six months of this year new office buildings totalling 141,000 sqm were delivered to the market. The biggest project completed in recent months was Marynarska Business Park (43,000 sqm) built by Ghelamco. The other building worth mentioning is Grzybowska Park (10,300 sqm) - the only significant project completed in the City Center Core this year. By the end of the year a further 163,000 sqm of office space is scheduled to be delivered in the city. The biggest project will be Lipowy Office Park. The majority of buildings, 6 of the total number, with a total space of sqm, will be delivered in the Upper South zone. Among these projects is the second phase of Marynarska Point (12,000 sqm) and Horizon Plaza (35,000 sqm). In 2009 about 300,000 sqm of new office space is planned to be delivered, and half of new supply will be located in the Upper South and South West. Vacancy rates In the first half of the year the level of vacancy decreased to 2.11%, a drop of almost 1 percentage point since the end of The highest vacancy rate of over 4% was observed in the City Centre and in the South East. Despite the delivery of three new projects of total space of 45,000 sqm, the vacancy rate in the Upper South has remained at a very low level 0.9%. We can expect that vacancy rates will remain low till the end of the year, because most of the space scheduled to be delivered in the second half of the year is already pre-leased or under letter of intent. Rent levels Asking rents in the city center are around EUR per sqm. In some buildings rents reach even EUR 40. Service charges are around EUR 5-7 per sqm. The difference between rent rates in the city centre and other districts remains significant. Rents in the suburbs are around EUR per sqm. In most of the new projects in Upper South developers offer rents at EUR 16, in some buildings asking rents reach even EUR 18. Service charges are around EUR per sqm. New supply - H (selected projects) Zone Building Total space (sqm) City Centre Core Grzybowska Park 10,300 South West Equator 16,900 Upper South Harmony Office Center 15,400 Upper South Marynarska Point, 1 faza 11,390 Upper South Marynarska Business Park 43,000 M I D - Y E A R R E A L E S TAT E R E V I E W

10 P O L A N D Office Market Warsaw office market in the first half of 2008 Share of zones in the demand 1% 10% Share of zones in the total stock 8% 16% 32% 8% 36% 2% 2% 3% 6% City Centre Core City Centre Fringe East Lower South North South East South West Upper South West 22% 15% 5% 3% 3% 23% Warsaw office market W N C SW US CC LS SE E City Centre Core City Centre Firnge North West South West Uppers South Lower South South East East 8 COLLIERS INTERNATIONAL

11 P O L A N D Office Market REGIONAL MARKETS Executive summary As in the whole 2007, first six months of 2008, was characterized by intensive development of office market outsider Warsaw. In total, 160,000 sqm of office space were delivered. The biggest share in the new supply was in Wrocław, where construction of 67,000 sqm was completed. In the second half of the year a further 160,000 sqm is supposed to be delivered to the market. For comparison, in the whole ,000 sqm of office space were completed in the regional markets. Also the volume of planned supply has increased in the last months developers announced plans of several new projects. If we take their promises for granted, by the end of 2009 the total stock of office space outside Warsaw will double. In the terms of demand these six months were quite intensive. Most of the new space is already leased, which has influenced the low level of Modern office stock in Poland Selected transactions in regional markets City Company Building Total space (sqm) Kraków State Street Galeria Kazimierz 11,600 Kraków Fortis Bank Polska Awatar 12,000 Wrocław Bank Santander Grunwaldzki Center 5,800 Trójmiasto GE Citibank Arkońska Business Park 5,500 vacancies. A couple of significant deals were signed outside Warsaw and the leaders of demand were Kraków and Wrocław. Asking rents in the largest cities are at similar level EUR per sqm on average. Lower rent rates are offered by owners of lower grade buildings or those located in the outskirts. In all regional cities the vacancy rate is low. Even in Wrocław, where several new projects were delivered, the vacancy level is below 8%. The lowest indicators were recorded in Szczecin and Kraków. In the first one there is no available space at all and in Kraków it remains below 1%. Wrocław At the end of June 2008 total office stock in Wrocław stood at 223,600 sqm, which means the city closed the gap in terms of supply with the largest regional office market Kraków. In the first half of the year almost 70,000 sqm of new office space was added and by the end of 2008 the total stock should increase to 260,000 sqm. The biggest building delivered his year is Bema Plaza (23,000 sqm). The first phase of Grunwaldzki Center (9,200 sqm) and Globis office building (13,600 sqm) were also completed. If all the projects planned for 2008 and 2009 will be completed on time, it will mean the total office stock in Wrocław will have doubled in just two years (at the end of 2007 the stock was 158,000 sqm). 4% 6% 2% 1% 2% 3% Warszawa Kraków The vacancy rate increased, which is a result of the delivery of new projects where part of the space remains yet unleased. It is around 7.7%. 3% 6% Poznań Tricity Wrocław Katowice Łódź Lublin Szczecin Other cities Rental rates rose since last year and are now around EUR per sqm. In some of the most prestigious buildings the rent rates are EUR per sqm. 72% Kraków In the first half of 2008 the Kraków office market added just two new office buildings. These were the second M I D - Y E A R R E A L E S TAT E R E V I E W

12 P O L A N D Office Market phase of Rondo Business Park (8,050 sqm) and a small office building on ul. Zawiła 65d (2,300 sqm). Therefore the total office stock at the close of the second quarter reached 221,800 sqm. However in the last year completion of 60,000 sqm of new office space was planned for Realization of most of the projects has been delayed and in total only 25,000 sqm will be delivered to the market his year. Taking into consideration the high demand level in the city, this is insufficient supply and it will contribute to a continuation of the very low vacancy level and high rental rates. The largest lease transactions outside Warsaw were signed in Kraków; that is a lease of 12,000 sqm by State Street in Galeria Kazimierz and 11,600 sqm by Fortis Bank in the Avatar building. During last 12 months rental rates in good quality buildings have risen by EUR 1-2 per sqm on average and are now around EUR per sqm. The current situation is favourable for developers, that is to say low vacancy level and high rents, but will change significantly in 2009, when over 200,000 sqm planned for delivery will have been completed. Poznań Total office stock in Poznań stood at 114,700 sqm in June In the first half of this year in the capital of Wielkopolska region only 2,000 sqm of office space were delivered, a space in City Park a recently completed mixuse complex of modernized buildings. In the terms of both supply and demand, Poznań is far behind Kraków and Wrocław. There is also much lower number of under construction and planned buildings than in Łódź or Katowice, where the existing office market is now much smaller than in Poznań. Although, as mentioned before, demand is definitely smaller than in Kraków or Wrocław, it is high enough to observe a situation of insufficient supply in the market. It contributes to low vacancy level and high rent rates. The vacancy level remains low and in the half of the year stood at 3.6%. Office stock in the largest cities - Q and the end of Stock (sqm) Kraków Poznań Tricity Wrocław Katowice Łódź Lublin Szczecin Q End of COLLIERS INTERNATIONAL

13 P O L A N D Office Market Despite the fact that 90% of space designed for delivery by the end of the year is leased, in 2008 no significant lease agreements were signed. Most of the companies lease space below 2,000 sqm. Current asking rents are oscillating between EUR 14 and 18 per sqm (lower rent rates are offered in projects located in the city outskirts). Łódź Łódź has only 78,900 sqm of modern office space. During first six months of 2008 almost 30,000 sqm of new space were delivered to the market, including Aviator (8,250 sqm) and modernized buildings of Business House (6,700 sqm). The vacancy rate has definitely increased in comparison with the end of 2007 and is now around 9.7%, but it is a result of the completion of new buildings, where some space still remain unleased. Until the end of the year completion of further 30,000 sqm is planned, of which half is already leased. Developers promise delivery of over 120,000 sqm in Despite growing interest in Łódź, demand remains quite low, so we can expect an increase in the vacancy rate next year. Asking rents in most of new projects are between EUR per sqm. In older or lower grade buildings rents are around EUR per sqm. Tricity The stock of modern office space in the Tricity region is around 160,000 sqm. The largest share of the stock is held by Gdańsk (86,000 sqm) and the smallest Sopot (just 6,000 sqm). In the first half of the year 26,500 sqm of new office space were completed. The highest amount in Gdańsk; it was almost 20,000 sqm made by 3 projects: Arkońska Business Park, Centrum Biurowe Grunwaldzka and KA5 office building. The most important office project of the first months of 2008 in Gdynia is the first phase of Łużycka Office Park. By the end of 2008 an additional 20,000 sqm is scheduled for delivery in the Tricity area. As in Poznań, demand in the Tricity area is low and the market is developing slowly. But the growing interest of investors and developers is evident. Currently not a lot of projects are in the pipeline, but if such large investment as Herbal Park, Young City and the new TPS project on ul. Grunwaldzka will be realized, the Tricity market will leave Poznań office market far behind. In the Tricity area, as in other Polish cities, the market is in favour of developers there is not a lot of available space for lease now. The vacancy rate at the close of the second quarter was 3.5%. The small amount of available space has resulted in a rise in rental rates, which are now around EUR 14 per sqm or less in older buildings and around EUR per sqm in newly constructed projects. Katowice Total office space in Katowice is now around 101,000 sqm. In recent years there have been few office buildings completed, but also demand was at a rather low level. For a long time the city was perceived as unattractive. However, it is hard not to notice the current interest in the capital of Upper Silesia. As in Wrocław, Kraków and Łódź, it is on the verge of a real investment boom. In the next 2 years over 160,000 sqm of offices is planned to be delivered. Helping increase interest are: good transport infrastructure, connections with other European cities from Pyrzowice airport and the potential of the work force of the Katowice. agglomeration. The vacancy rate is also low here; in June 2008 it stood at around 6.8%. Tenants looking for good quality office space above 2,000 sqm have to wait till the completion of new projects. At the beginning of the year only two projects were completed: Rezydencja Parkowa M I D - Y E A R R E A L E S TAT E R E V I E W

14 P O L A N D Office Market with approximately 3,000 sqm of office space and the modernized building on ul. Sokolska 65 (3,600 sqm). In the second half of the year there is planned, among others, the completion of the third phase of Green Park and the first phase of Reinhold Center. Asking rents in Katowice oscillate between EUR per sqm. Developers of most of the new projects offer space for more than EUR 15. Other cities Among other cities the biggest modern office stock is held by Szczecin, Lublin and Kielce. In smaller cities, such as Rzeszów or Gliwice, there are occasional office developments. However there is a noticeable level of interest from companies in smaller markets, where modern office space is only slowly appearing on the market. At the end of June 2008 the total office stock in Szczecin stood at 29,000 sqm. Since 2004 no new office building has been delivered. The lack of new office space during this period of rapid economic growth means that Szczecin has almost certainly has lost potential investments to other destinations. Despite growing interest in this city from potential tenants, they cannot move into Szczecin because there is no available office space here now, and among planned big projects the earliest one is scheduled for Q (Oxygen by Echo Investment). The situation will improve only in 2010, when 80,000 sqm of new office space is supposed to appear on the market. In Lublin the total office stock is around 35,000 sqm. The vacancy rate here remains at a low level below 2%. The five biggest buildings, which are the base of the city s stock, were built by local developer Centrum Zana and are located on Wallenroda and Tomasza Zana streets. In the first half of 2008 two projects were completed with a total space of 3,600 sqm: Zana House and Witosa I. In the second half of the year an additional 2,000 sqm is going to be delivered and in 2009 three projects of total space of 10,000 sqm are planned. The interest in Kielce is definitely smaller than in Szczecin or Lublin, but the city is competitive in terms of office investment, including among others Office Park Kielce, which was built last year by Echo Investment. The total stock of modern office space in the city is around 20,000 sqm. As in Lublin projects planned for the nearest future are small. In the second part of the year there will be approximately 6,000 sqm of new space delivered. Projects planned for 2009 and 2010 also do not exceed a couple of thousands of sqm. 12 COLLIERS INTERNATIONAL

15 P O L A N D Retail Market Executive summary The total stock of modern, large-scale retail developments in Poland currently reaches 5.6 mln sqm, equivalent to 9% growth to the 2007 end. It is still expected that this level will grow quickly as Poland and CEE region is still one of the most promising locations for retail investors in Europe. Within the cominig few years the amount of new retail developments to be delivered in smaller cities (i.e. those that have less than 400 thousand inhabitants) will exceed the number of sqm delivered in the largest. This is a result of current Polish retail market maturity cycle and developers having to look beyond the obvious locations to maximize returns. In the biggest cities where markets are becoming saturated, investors are now forced to make extra effort to distinguish their projects from the competition which usually yields improved quality of the developments. Although the coming months may bring a bit of a slow down in the economic situation, currently recorded double-digit growth in consumer spending and rising disposable incomes are encouraging retailers to expand vigourously, though they have to located their businesses more carefully than it used to be during previous years. With this increased demand the most successful developments have been able to raise rent levels. Principle cities The first half of 2008 continues the latest trend by which the main interest of developers is directed towards smaller cities. Since the prospect of market saturation in large cities within the next few years seems to looming even closer, the majority of projects are currently planned in cities with between 50 and 400 thousand inhabitants. The share of the country s biggest cities in the total national retail stock currently stands at 74%, (a drop by 2% in comparision to Q1 2008) though it should fall to the level of 62% by the end of This is because the average growth rate of retail space in smaller cities will be much faster than in the eight biggest conurbations. At the end of the first half of the year Warsaw maintained its position as the city with the biggest stock of retail space in Poland with 1,316,000 sqm (no new developments in H1 2008) The runner up was the Upper Silesia region (700,700 sqm in the main area and 980,000 in the region), the Tricity (462,000 sqm) and following closely behind Wrocław (457,000 sqm). From the perspective of market saturation the situation is slightly different. In this case Warsaw is also in the lead (758 sqm/1000 inhabitants) but it is followed by Wrocław (720 sqm), Tricity (614 Selected projects opened in H Project Developer GLA City / Region Pestka PBW Polska 40,000 Poznań Focus Park Parkridge CE Retail 38,500 Bydgoszcz Ferio Raiffeisen Evolution Project 23,000 Konin Development Eden Rank Progress SA 8,150 Zgorzelec Galeria Kalisz Carrefour Polska 10,000 (ext.) Kalisz M I D - Y E A R R E A L E S TAT E R E V I E W

16 P O L A N D Retail Market Selected projects scheduled for delivery in H Project Developer GLA City / Region Galeria Częstochowa Polimeni International 20,000 Częstochowa Pogoria Mayland Real Estate 30,000 Dąbrowa Górnicza Forum Koszalin (CH) Multi Development 45,000 Koszalin Forum Koszalin (RP) Multi Development 10,000 Koszalin CH Oliwa WKKS Sp. z o.o. 16,000 Gdańsk Arena Echo Investment 45,000 Słupsk Jantar Mayland Real Estate 35,000 Słupsk Galeria Wisła Caelum Development 17,000 Płock Alfa Centrum Invest JWK Management 35,000 Białystok Focus Park Parkridge CE Retail 30,000 Zielona Góra CH Karolinka Mayland Real Estate 60,000 Opole sqm) and Poznań (597 sqm). Through until the end of 2010, the greatest number of sqm will be delivered in Wrocław and Poznań, and as a result these cities will lead the pack in terms of saturation, with 1,180 sqm and 1,130 sqm, respectively. As we previously pointed out Warsaw marked seems to have reached the current maximum saturation point. This year has not brought any new developments in the Capital. Warsaw region share of retail space in Poland dropped to mere 25% and will continue to diminish even further over the coming years. Marino RE Investment / Gant Development 27,000 Wrocław There were couple of new developments completed in Q which alltogether totalled at almost 80,000 sqm. The biggest mark was made by the opening of the Focus Park, new Parkridge Retail space development in Poland sqm sqm H H2 2008* 2009* New supply Total stock * forecast, 14 COLLIERS INTERNATIONAL

17 P O L A N D Retail Market Retail market saturation in the 8 biggest Polish conurbations 1200 sqm / 1000 inhabitants Warszawa Kraków Łódź Poznań Silesia Tricity Szczecin Wrocław H end of 2010 project in Bydgoszcz. This is a modern, third generation shopping center with the mix of tenants that provide not only opportunites for shoppers but also cinema goers and those who want a bit more entertainment have also a music club available. The only shopping centre delivered in the first quarter was the 40,000 sqm Galeria Pestka in Poznań which was developed by the German investor Moebel Walther, but sold via a forward agreement to the PBW II Polska fund. The key tenants in the centre are the hypermarket operator Carrefour; the Greek fashion retailer Sprider; Dziecko (kids apparel); the media retailer Kolporter; plus other large stores like Saturn and C&A. Seceond part of the year should witness the opening of much more projects that are expected to bring over 800,000 sqm of new retail space to the Polish market. There are also some signs that in approximately two years time Warsaw should start to pick up again Headland presented its 91,000 sqm mixeduse project in Piaseczno and Multi Development will continue with Forum Wilanow (56,000 sqm). As a result of imminent market saturation, the difficulty in finding Evolution of retail space in Poland sqm primary cities good land plots, and the evolution of consumer habits, the three main market trends in the biggest Polish cities are: a focus on building smaller projects with local catchment areas (e.g. Centrum Skorosze in Warsaw), H end 2008 end 2009 end 2010 secondary cities total M I D - Y E A R R E A L E S TAT E R E V I E W

18 P O L A N D Retail Market Retail market saturation in selected small cities in Poland 2500 sqm/1000 population Legnica Wałbrzych Płock Białystok Opole Piła Rzeszów Koszalin H end of 2010 Rental rates growth in according to unit size (EUR / sqm) (EUR / sqm) (EUR / sqm) >1500 (L) (L) (L) (L) (L) Average (R) 16 COLLIERS INTERNATIONAL

19 P O L A N D Retail Market the development of multi-functional projects (e.g. Idylla and Sky Tower in Wrocław), revitalisation of post-industrial areas (e.g. Bonarka in Kraków, Galeria Stocznia in Gdańsk), creation of better quality projects, offering somethnig more than just the shopping center opportunities, still unsatisfied demand as many more concepts and retailers are trying to expand on the Polish market which leads to further growth of rents. Secondary cities As we did mentioned in our previous market summaries, small cities are currently under the watchful eye of developers and investors. Until 2010 it will be here where there will be the biggest growth of modern retail space. This trend is a result of the steady growth of worker salaries in these cities, the drive by retailers to target a wider group of consumers, and to enable them to do their shopping closer to where they live. Outside of the biggest eight conurbations in Poland the total modern retail stock totals 1.3 mln sqm, though this will almost triple through to the end of 2010, and reach a level of 3.5 mln sqm. By this date their share of the whole country s stock will have increased by up to 38%. Further new developments have recently been announced by some of the more active developers in the market, such as: Mayland Real Estate, Librecht and Wood and IGI. We see more and more examples of huge interest in smaller cities. Mayland has announce its project of CH Aquarella in Piła (30,000 sqm), IGI publicised its plans for 56,000 sqm development in Łomża and Spirit International will proceed with the shopping center in Elbląg (50,000 sqm). Small cities will also overtake the biggest in terms of market saturation. Currently the ratio in such smaller cities is normally is below 500 sqm retail space per 1,000 inhabitants, however in many cases (e.g. Wałbrzych, Płock, Białystok, Opole, Rzeszów, Słupsk) it will exceed 1,000 sqm or even 1,500 sqm by 2010, a level which will not even be attained by Wrocław amongst the largest conurbations. Rents Rental rates for retail space in Poland depend on such factors as the potential of the city, the catchment area, the project and the developer s competitive position in the market, the location of the unit within the centre, and the strength of the tenant s brand. As a result, rents for similar locations can vary significantly. Rents in the most attractive projects, which are typically the best located, have recently been seeing 10% - 15% growth per year. Developers in smaller cities have also been able to achieve high rents, albeit a bit lower than thoes in the biggest conurbations. By entering non-saturated markets they receive considerable interest from brands, including the biggest international names. However, those who time their investments poorly can be forced to push down rents to attract tenants. Some older shopping centres, and those that are badly located or have ineffective tenant-mixes, are becoming targets for investors looking for returns from active management of assets, i.e. through renovations, recommercialisation or re-building. Rents in shopping centres (EUR) Largest cities Small boutiques (0-100 sqm) Medium boutiques ( sqm) Large boutiques ( sqm) Medium shops (500-1,500 sqm) Large shops (>1,500 sqm) Smaller cities M I D - Y E A R R E A L E S TAT E R E V I E W

20 P O L A N D Industrial Market Executive Summary The first half of 2008 turned out to be more bright than expected. On the one hand everyone expected that the market would continue to grow. On the other hand, deals that added up to 940,000 sqm were even more then the market predicted. Warsaw market took 28% share of the market but gained some ground in new completions. This may herald that it is still the primary locations for the industrial space developers. As for the future prospects, the commercial real estate market will undoubtedly see some impact from the current economic situation but it is unlikely that the so called credit crunch is about to have any significant effect on either new developments or demand for modern industrial space in Poland. Supply Warsaw The first half of 2008 brought 300,000 sqm of new space to the main market in Poland and it was the busiest 6 months since its inception. This is a substantial amount when compared to only 143,000 sqm delivered in the entire Currently there are another 226,500 sqm under construction in total by the end of the 2008 the Warsaw stock should be bigger by 35% in comparison to the end of the previous year. It will also break the 2 million sqm level of total modern industrial space. Currently it totals 1,813,000 sqm. The first half of the year confirmed the tendency of growing importance of Warsaw Zone II. Its available stock grew by 33% since the end of the 2007 and should increase that number up to 45% by the end of the current year. This represents a significant development unmatched by any other of the capital market zones. As of today, Błonie area offers the biggest collection of modern warehouse buildings not only in Warsaw but also in Poland (almost 400,000 sqm in close proximity). Regions The first six months of the current year gave close to 390,000 sqm of additional space to the total regional modern warehouse stock (over 90% of the above amount was completed in Q1 2008), bringing the total floor area up close to 2,252,000 sqm. This amount equals the total growth of 15% in comparison to the end of The discrepancy in quarterly activity does not however stem from the market slowdown or worsened conditions. Currently there are 890,000 sqm being erected in Polish regional centers. When completed by the year end, it will elevate the total stock level to almost 3,140,000 sqm and the year growth to over 60%. This time, owing to many completions, Warsaw market did not give a lot of ground to the regional markets in terms of supply. It now accounts for 45% of the Polish market in total. Out of the main locations outside Warsaw it was Wrocław based construction sites that were the busiest over the last period 130,000 sqm of new space. Lower Silesia was the most dynamically growing region with 50% increase when contrasted with 2007 end almost all of the new developments took place in the first quarter. The rapid industrial boom is about to slow down as there are only 73,000 sqm under construction in the area. M I D - Y E A R R E A L E S TAT E R E V I E W

21 P O L A N D Industrial Market Zone Stock and vacancy rates Warsaw end H Stock (sqm) Vacancy H (sqm) Stock and vacancy rates Regional cities H Vacancy Rate H City/Region Stock Vacant Space 2008 Vacancy Rate 2008 Average Effective Rent (EUR) Central Poland 501,000 15, % Poznań 587,300 84, % Silesia 674,700 55, % Wrocław 387,100 46, % 3.10 Kraków 19, % 3.50 Gdańsk 82,600 10, % Total 2,251, , % Space under construction H Average Effective Rent (EUR) Zone 1 (to 10 km from center) 394,000 32, % 56, Zone 2 (10 25 km from center) 1,066,000 85, % 94, Zone 3 (>25 km from center) 353,000 39, % 76, Total 1,813, , % 226,500 Evolution of modern industrial space in Warsaw Space delivered-(000s sqm) H u/c* Total Stock ( 000s sqm) Space Delivery Total stock 20 COLLIERS INTERNATIONAL

22 P O L A N D Industrial Market Silesia region took the second place with 115,000 sqm of new space completed there, meaning the growth of 18% to the 2007 end. Poznań, that was previously leading the way in terms of new completions, this time came third with 108,000 sqm completed. Central Poland and Łódź locations did not significantly add new space in H ,500 sqm signifies the growth of only 10% to the 2007 year end. However, there are 320,000 sqm being developed in the area and as of today it is the biggest warehouse project pipeline concentration in Poland (36%). H Take up by region 2% 20% 34% 23% 21% Gdańsk Central Poland Poznań Silesia Wrocław Demand The number gathered during the first half of 2008 revealed surprisingly good shape of the Polish industrial market. The total space leased in that time totalled 940,000 sqm meaning that the second quarter of the year slightly outperformed the first three months and the marked is poised to growth 40% year-to-year if the coming six month match the pace set by the first two quarters. This is taking place in the times when the all the prognosis regarding the performance economy tend to trim the growth indicators down. This time Warsaw performed better then in the first quarter, local take up equalled over 30% of the entire market (19% in Q and 34% in 2007). The Zone II took back its position as the main industrial location in the Warsaw area with its over 70% share. space being allocated there. This signifies that our prediction from the last year market summary turned out to be true the geographical location of the area plays crucial role in its attractiveness to tenants. However, one should remember that 56,000 sqm for (000s sqm) Leroy Merlin in Panattoni Park Strykow plays a huge role here. Silesia came second with 23% share of the pie, followed by Poznań (21%) and Wrocław (20%). Take up of modern industrial space in Poland The main warehouse locations outside the capital were able to attract tenants that took up 680,000 sqm. The Central Poland area around Łódź stands out from the crowd with 34% of the total Warsaw Regions H forecast M I D - Y E A R R E A L E S TAT E R E V I E W

23 P O L A N D Industrial Market In total the regional locations accounted for 75% of the marked activity recorded in the first half of Vacant space The prospects for Warsaw based logistics centers still remain strong. The global vacancy level has grown from 5.2% to 8.6% but one should remember that the new completions lifted the total stock available by another 300,000 sqm. For that reason it would be premature to announce any shift in market trend yet. The overall vacancy level for the regional markets has dropped from 12.2% to 9.4% in comparison to Q and gone up from 7.6% when compared to 2007 end. The Q2 drop is mainly due to the warehouse demand in Central Poland and Wrocław areas. Little new space and unsatisfied demand around Łódź brought the vacancy rate to as low as 3%. Wrocław, even given the rapid deliveries, has managed to attract enough tenants to bring the vacancy level down by over 7 percentage points in comparison the first quarter. Rent Rates The cost of renting industrial space has not changed significantly over the last six months, although there are some signs that they are slightly down in some locations. However, in the future we are certain to see some increases in rents due to the inevitable rises in construction and land costs. There is also an additional pressure from the strengthening of the Polish currency against EUR which ultimately means bigger financial costs for developers and property managers. As a result of the large amount of new projects and new big players coming to the market at the same time these increases will be relatively restrained though. Effective rent levels for large space requirements in standard A-class properties across Poland are generally around EUR 3 per square metre. This is equally true in Zones 2 and 3 of Warsaw. The only exception to this is in Warsaw s Zone 1, where effective rents can reach up to even EUR 6 per square metre. Wroclaw is an example of the market where a lot of new completed developments challenged the rents that went down from average EUR 3.1 to EUR 2.9 EUR in recent months. Existing and planned space in Poland s regional markets 1000 (000s sqm) Poznań Silesia Wroclaw Central Poland Gdańsk Kraków Szczecin Existing u/c Planed- land bank 22 COLLIERS INTERNATIONAL

24 P O L A N D Industrial Market Major lease deals H Company Building Sqm Zone Warsaw Stalgast ProLogis Park Warsaw II 12,700 1E DHL ProLogis Park Sochaczew and Teresin 22,400 3 Ceva Logistics Panattoni Park Pruszków 17,500 2 Trans Poludnie Europolis Park Błonie 21,900 2 Regional cities Leroy Merlin Panattoni Park Stryków 56,000 Central Poland Recticel Panattoni Park Łódź 19,300 Central Poland Zabka Tulipan Park Poznań 15,700 Poznań Recaro IIG 16,000 Silesia Jysk Poland Central 24,000 Central Poland Sauer Danfoss Panattoni Park Wrocław 30,000 Wrocław M I D - Y E A R R E A L E S TAT E R E V I E W

25 P O L A N D Investment Market ExECUTIVE SUMMARY In comparison to previous years investor activity has weakened. The value of commercial real estate transactions in Poland in the first half of 2008 was around 800 million Euro. The majority of transactions were concluded in the first quarter of the year, and many of them were completions of transactions that began in the previous year. When compared to the busy first half of 2007, the total value of transactions carried out declined by half. The main reason for this were the difficulties on the financial market. Moreover the value of investments in the office sector surpassed retail market transactions, which has dominated the market in previous years. SECTORS In the first half of the year the office sector s share accounted for almost 60% of total transaction values, mainly as a result of three big transactions: the sale of a 50 % stake in Rondo 1 in Warsaw for 160 million Euro; sale of Renaissance Tower in Warsaw (EUR 60 mln) and Andersia Tower in Poznań (EUR 80 mln). The sale of a share in Rondo I by London & Regional Properties to the Australian investor Macquarie Global was the biggest transaction in the market, with Rondo I being the subject of a major transaction once again. Activity in the retail segment in the first half of the year was much lower than in the corresponding period in 2007, however the significant slowdown began in the second half of the last year. In the first quarter of 2008 two portfolio transactions took place on the market: Heitman sold their stake in shopping centers to the GE Real Estate fund, and Balmain Asset Management increased its portfolio by acquiring 14 shopping centers across the country (seller: Europa Capital). The largest industrial transactions to take place in the first half of 2008 included the sale of a logistic park (40,000 sqm) by Raben Group to TMW Pramerica and the purchase of a logistic centre by Luxembourgian fund PBW II, managed by AEW Europe group. INVESTORS The composition of investors active in the market has evolved considerably during the last 2 years. After the dominance of German and Austrian funds, Brits took over, and some investors from the USA and Australia showed up. During the last six months the most active players were investors from Luxembourg and, again, Germany. Funds from Luxembourg purchased retail, office and industrial properties. One of the most active players was also GE Real Estate fund, which, as already mentioned added shopping centers to its portfolio as well the Silver Forum office building in Wrocław. YIELDS Since 2006 yields have continued to be at lower levels than before. The numbers for prime office buildings in Warsaw are between 5.9% and 6.25%. Outside of Warsaw, better properties could be expected to sell with yields between 6.3% and 7.0%. Because of the limited amount of transactions currently taking place in the retail and industrial sector, establishing clear projections of expected yields is difficult. In the case of retail properties which were involved in transactions this year, yields were between %. In the industrial sector around 7%. M I D - Y E A R R E A L E S TAT E R E V I E W