Press release

Eastern German office markets continue to offer attractive yield potential

- Report "Property Market in Berlin and eastern Germany 2016" published

- Transaction volume of approx. EUR 8.3 bn breaks record for commercial property investments in Berlin

- Office: Berlin with substantial increase in office rents - strong investor demand in further eastern German cities

- Retail: Berlin leads the way with highest take-up and transaction volume in Germany

- Hotel: Overnight stays in eastern Germany's hotels have surged by 21 % since 2011

Berlin, 14 July 2016 - All signs point to continued office property market growth in eastern Germany's office centres: Dresden, Leipzig, Rostock, Erfurt and Potsdam. Buoyed by increased employment, the five cities have enjoyed sustained rises in demand for office space. At the same time the total volume of office space in these five cities has increased only moderately, leading to take-up concentrating on vacant space in existing office schemes. This development has been most pronounced in Leipzig, where the office vacancy rate has fallen by 6.1 percentage points since 2011. Only Potsdam has seen office vacancies remain unchanged over the past five years. Nevertheless, Brandenburg's state capital already boasts the lowest vacancy rate among the five eastern German cities, at 4.3 %. This is one of the key findings of the annual report "Property Market in Berlin and eastern Germany", which has just been published by TLG IMMOBILIEN AG.

"In eastern Germany's growing cities, demand for office space remains strong. However, hardly any new office space is being developed right now, and the market has focussed on absorbing excess capacity, which is in ready supply", said Niclas Karoff, Member of the Management Board of TLG IMMOBILIEN AG. These positive developments are clearly reflected in the office rental market: Peak rents of EUR 12.60/sqm in Leipzig and EUR 12.20/sqm in Dresden mean that eastern Germany's office landlords are already in a position to charge the same rents as their peers in Mainz, western Germany. In Potsdam and Rostock, where peak rents have risen to EUR 14.00/sqm, markets have now reached a level comparable with Wiesbaden or Mannheim. Erfurt's peak office rent of EUR 10.00/sqm offers significant growth potential, particularly given the city's position as a major university location. In terms of average rents, the EUR 11.50/sqm payable for office space in central Potsdam was the highest among the five eastern German centres. Dresden and Leipzig followed, each reporting average rents of around EUR 10.00/sqm. Rostock and Erfurt brought up the rear, with averages of EUR 9.00/sqm and EUR 8.00/sqm, respectively. Office space in city fringe locations in Rostock, Dresden and Erfurt are available for an average of EUR 6.00/sqm. While the achievable average rent in Leipzig is somewhat lower, at EUR 5.80/sqm, Potsdam once again distances itself from the pack, with rents in this segment averaging EUR 8.00/sqm.

Eastern Germany's office markets: Yields of 7 to 8 % are common

Despite the fact that prices have increased over the last few years, office property in eastern Germany's major cities remains attractive to potential investors. A net initial yield of 7.4 % was generated by office properties in city fringe locations in Leipzig last year, and in Dresden the yield stood at 7.6 %. In the remaining three cities analysed for this study, yields in excess of 8 % are commonplace. The pacesetter in the office segment is Erfurt. The net initial yield for offices with fair to average utility value in Erfurt's city fringe locations amounted to 8.8 %. Erfurt was closely followed by Rostock at 8.6 % and Potsdam at 8.5 %. In contrast, office space in central locations, or with good utility value, only offered yields of 5.2 % in Leipzig and 5.4 % in Dresden. In the other three major eastern German centres, investors can also expect attractive yields: 6.1 % in Erfurt, 6.0 % in Rostock and 5.6 % in Potsdam. "Net initial yields have declined across the board in all five eastern German cities over the last twelve months. This is a direct result of the surge in demand for office properties in these locations", said Karoff in relation to yield trends. The only locations where yields remained unchanged at the previous year's levels were on the city fringes of Erfurt and Rostock, with yields of 8.8 and 8.6 %, respectively.

Commercial property market: New investment volume record in Berlin

The market for commercial property in Berlin set a new record in 2015, with investment totalling EUR 8.3 bn - the highest twelve-month total ever in a single German city. This figure represents a year-on-year increase of 94 %, and lifted Berlin to top of the city rankings, pushing Frankfurt and Munich down to second and third spots. Germany's capital also occupied first place in the rankings for retail space take-up and retail property transaction volumes. "Berlin's office property market continues to exceed all expectations and confirms that the city has well and truly established itself in the top league of European investment locations", said Karoff.

Office property is the fastest growing category in Berlin's investment market

Office property was the dominant asset class in Berlin's commercial property investment market in 2015, accounting for 54 % of all property transactions. This represents an increase of 14 percentage points over the previous year. Retail was the second most popular property category, increasing its share of the German capital's investment market by 4 percentage points and climbing to 25 %. The hotel property segment attracted around 8 % of overall investment. "Start-ups are one of the major drivers of Berlin's office property market. No other German city is attracting as many company founders as Berlin", explained Karoff.

Retail property: Berlin is number one for take-up and transaction volumes

Berlin's retail property sector was the clear winner in Germany last year. With 42,000 sqm of retail space take-up and a transaction volume of EUR 2.1 bn (+135 % in comparison with 2014), Berlin left the other German cities in its wake. Demand for large retail spaces in the Spree metropolis also surged. The top rent for retail spaces over 150 sqm rose by 19 % to EUR 250/sqm.

The most positive developments among eastern Germany's five biggest cities were reported in Leipzig and Rostock. Rostock's market for retail property made year-on-year gains across all size and location categories. Rents for smaller retail spaces in Rostock climbed to EUR 90/sqm: an increase of 6 % in comparison with 2014's figure. Although the net initial yield in Rostock is also trending down, the 8 % achievable in peripheral locations and the 6.7 % in central locations are still the best yields in this segment in eastern Germany. Leipzig reported the highest peak rents, averaging EUR 140/sqm for retail spaces up to 100 sqm, followed by Dresden at EUR 110/sqm. Leipzig's average rent of EUR 90/sqm for retail space in central locations was enough to secure first place in eastern Germany. The net initial yield in Leipzig's retail property sector ranged from around 5 % in central locations to 7.3 % in central fringe locations. The retail property transaction volume in Leipzig registered a threefold year-on-year increase in 2015, rising to EUR 565 m.

Eastern Germany registers another significant jump in tourist numbers

Eastern Germany's regional centres, Dresden, Leipzig, Rostock, Erfurt and Potsdam, have become tourism magnets. Taken together, the five cities analysed with Berlin for this year's study, have registered a 21 % jump in overnight stays in the last five years. Around 2.2 m foreign tourists spent their holidays in eastern Germany in 2015 (excluding Berlin). An increasing number of domestic tourists also chose to enjoy their holidays in Germany's eastern regions in 2015 compared with 2014. The number of domestic tourists rose by 2.1 % to approx. 24.1 m. Berlin enjoyed yet another record-setting year. The city reported 30 m overnight stays, an increase of 5.5 % over the previous year. "In addition to Berlin, eastern Germany's tourist magnets include Dresden, Leipzig, Erfurt and Potsdam. Their unique historical landmarks and strong cultural offerings are major factors, as is the Baltic Sea coastline for cities such as Rostock", explained Niclas Karoff. Hoteliers in Potsdam and Erfurt saw the volume of overnight stays shoot up the most in 2015. The figure for Potsdam rose by 6.7 % in comparison with 2014, and was up by 4.8 % in Erfurt.

Since 1993, TLG IMMOBILIEN AG has employed some 2,000 internal and external datasets to track property market developments in eastern Germany's major cities: Dresden, Leipzig, Rostock, Erfurt, Potsdam and Berlin. This market report provides insights into economic and demographic trends, office and retail rents, investment volumes and key performance indicators for the region's office, retail and hotel property markets, along with details of rates within the hotel sector.

The full report "Property Market in Berlin and Eastern Germany 2016" is available for download at: www.tlg.eu > News & Publications > Publications.

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About TLG IMMOBILIEN AG
TLG IMMOBILIEN AG is a stock exchange-listed leading commercial real estate company focusing on Berlin and growth regions in Eastern Germany. For 25 years, TLG IMMOBILIEN AG is synonymous with real estate expertise in Germany's East. TLG IMMOBILIEN AG generates stable rental income and exhibits low vacancy rates, very good building stock and profits from its local employees' excellent market knowledge. As an active portfolio manager, TLG IMMOBILIEN AG is specialised in commercial properties for office and retail use. TLG IMMOBILIEN AG focuses on managing a high-quality portfolio of office properties in Berlin and other regional economic centres, as well as a regionally diversified portfolio of retail properties in highly frequented micro locations. The portfolio also includes seven hotels in Berlin, Dresden and Rostock. TLG IMMOBILIEN AG's properties stand out not only due to their excellent locations but also because of their very long-term rental or lease agreements.

As at 31 March 2016, the value of the properties under IFRS totalled EUR 1,865 bn. As at the same reporting date, the EPRA Net Asset Value per share amounted to EUR 17.64.