Real estate investment Office Market Bucharest

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Real estate investmentOffice MarketBucharest
from Dipl. Ing. Arch. Georg Hellwig, MBA
HSGGeneral Manager HOCHTIEF DEVELOPMENT ROMANIA
Srl
Presentation in the context of
Bucharest, 11. Octobre 2007
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Contents

• HOCHTIEF Development
• Premises for a good sustainable Yield
• Site
• Planning
• Quality of the real estate
• Existing surface and future requirements
• How much surface tolerates the market
• Real estate market investments office buildings
• Rent Retrospection and forecasts
• Yield Retrospection and forecasts
• Short overview Hotel market
• Summary

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Pavel Vecan HOCHTIEF Development Russia, St.
Petersburg

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Facts Figures HOCHTIEF Development

• Founding year 1991
• Staff 183
• Project types / HTD competences - corporate
  headquarters
• - office developments
• - hotel developments
• - mixed-used facilities - special
  purpose developments
• Sold projects 90
• Realized sales volume approx. EUR 4,0 Billion
• Realized net floor space 1.500.000 m²
• Projects in realization 14
• Sales volume EUR 468 Million
• Gross floor space approx. 184.000 m²
• Thereof sold 96
• Thereof let 54

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Project development Businessmodell

• Trader Developer Project development for
  institutional investors, no own real estate
  portfolio
• Specializing in commercial real estate (mainly
  office buildings, hotels and logistics)
• Focussing on lucrative office areas in Europe /
  CEE
• Concentration on downtown locations
• Temporary investor No commencement of
  construction without pre-letting of parts of the
  building, reduction of equity employed by using
  debt or early selling to investors
• Use of synergy potential and integration of other
  group affiliates in all phases of project
  development (best practice and knowledge
  transfer)
• Sophisticated risk management

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Premises for a good sustainable Yield

• ? Sites of the office building (Examples)
• Center up to Báneasa Top Site 1A
• Báneasa up to Otopeni Very good location 2A
• Pipera South (Back-office location) Good
  location 2B
• Pipera Nord average location 1B
• Bucharest South difficult location 2C
• The quality of the locations depends on the
  infrastructure and of the public opening.
• In principle the center and the north of
  Bucharest is a very good location for the office
  building market. The west and the east belongs
  also to the good locations of Bucharest.
• The south of Bucharest developes itself very
  slowly.

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Premises for a good sustainable Yield

• Planning
• To observe are
• Efficiency (Achsial raster 1,35m, building depth
  ca. 13-15m, floor level min. 2,80-3,00m,
  occupancy rate of the rental areas to the brutto
  floor space of 82-86)
• Parking spaces (Provision for sufficient
  parking spaces)
• Planning mix (Configuration of the office
  location as a habitat with Break Out Areas,
• Coffees, Restaurants and
  local amenities)
• Architecture ( A modern and trendsetting
  Architecture with well-known Architects from
  abroad, respectively with countries comprehensive
  fame.)

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Premises for a good sustainable Yield

• Quality of the real estate
• Class A International Standard
• What does this mean?
• High construction standard
• slender constructions, which facilitates a lot of
  light incursion
• High standard for the building technic thru new
  and innovative heating and cooling systems
• High upgrading standard in quality and products (
  for ex. Glas partition wall)
• Good quality Facade in configuration and
  implementation in modernest structure

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Existing stock and future requirements

• Existing surface ca. 1.500.000 m², of which ca.
• Class A ? national and international Standard
  550.000 m²
• Class B ? 500.000 m²
• Rest old stock 450.000 m²
• In generally as from 2004 the office standard was
  high-graded realized.
• New production, in structure and planning until
  2010 (estimation) ca.
• Class A ? 700.000 m²
• Class B ? 300.000 m²
• - End of 2006 the stock for class A-office was of
  ca. 400.000 m2 and Class B-office 300.000 m2 in
  Bucharest (Total 700.000 m2 office space),
  without old stock.
• - End of 2008 awaits a stock for Class A-office
  of ca. 800.000 m2 .

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How much surface can the market tolerate?

• min. 3.000.000 m² Class A office space can be
  realized in our opinion without any risks.
• Further another growth can take place for
  long term only if in Bucharest the premises for a
  general economic expansion will be created.
• These are especially for the real estate branch
• Better city center infrastructure in the traffic
  and in the public transportation
• Creation of enough parking spaces
• Wider qualification package for junior employees
• Co-ordinated urban planning in the area of the
  industry areas, residential and infrastructure as
  a city planning master plan on a basis of the
  present developments.

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Investment real estate market office buildings

• Rents retrospection and forecast
• At the beginning of the 90 the rents were about
  25 30 /m² (30 40 USD/m²), today at ca. 16
  21 /m²
• The rent level will level in the next years to 14
  - 20 /m².
• Developments over 100.000 m² will flow between 14
  18 /m².
• In general the rent level will stagnate.

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Investment real estate market office building
? Yield Retrospection and forecasts
Average earnings performance of offices 2003-2010
In the following years the earnings tendency will
be stable, the rent level for good location Class
A real estate will stagnate.
Up until now ca. 800 Mio EURO were invested in
the office market, proportional to the surface
expansion the investment market will also develop.
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Short overview Hotel market

• Stock ca. 7.500 rooms in 2-5 Stars Segment,
  thereof six 5 Stars Hotels with ca. 1.500 rooms
• In construction and planning there are 2.500
  rooms until 2012
• A further demand of ca. 3.000 rooms exists.
• The expected rent/room lies above the european
  average
• The yields circulates arround 6 for the 4-5
  Stars Segment and until 2010 will be estimative
  arround 5-6 situated.

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Summary

• After the location the quality is relevant for
  the sustainable yield
• Furthermore it exists a solid demand for Class
  A-Products
• The rent level will be long-term stabilised (
  depends on the location) between 14-20 /m² ,
  whereby on average 15 /m² is to be expected.
• A first saturation of the surface demand on the
  market will be reached first in 2012 , whereby
  the investment market will already capitalise
  these new surfaces until 2010.
• Thus is to be expected the yields depending on
  the location and quality to be leveled between
  5,5-6,5.