4.5% 2.5% 2.3% Inflation. Purchasing power per capita 2016 Prague

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1 City Report Q4 2017

2 4.5% 2.5% 2.3% GDP Growth F2017 Inflation December 2017 Unemployment rate December 2017 Prague 1,444 10, % Average Monthly Salary Q Prague Purchasing power per capita 2016 Prague Industrial production December 2017 y-o-y Economy Source: Oxford Economics The release of Q3 national accounts confirmed growth at a robust 5% y/y. Q3 growth was mainly driven mainly by restocking, which added 1pp to quarterly growth, and consumption (0.4pp), while net exports subtracted 0.9pp. Aggressive restocking goes hand-in-hand with surging manufacturing PMIs (58.7 in November, up from 58.5 in October), in which manufacturers cite strong external and domestic demand, but also the strongest pressure on their supply chains in nearly seven years. Growth momentum remains strong and is supported by several factors. Private consumption grew by 4.4% in both Q2 and Q3, the strongest since precrisis Consumer spending will remain resilient despite inflation accelerating to 2.5% this year due to rising core inflation and waning oil price base effects. Private consumption is expected to expand by 4.2% this year and by 3.1% in Supportive fiscal policies and stronger growth are leading to higher budget revenues, resulting in another year of general government surplus, which is estimated at around CZK13bn. Fixed investment growth rose sharply in Q2 and Q3, to 7.3% and 7.5% y/y respectively, and is driven both by a pickup in EU-funded investment and by the private sector compensating for labour shortages and other capacity constraints with higher productivity-enhancing fixed investment. Overall investment is forecast to grow by 5.8% this year. Stronger domestic demand, including recovery in investment, has resulted in higher imports and surging external demand will continue to boost exports, which grew 8% y/y in October, largely offsetting the 9.5% growth in imports. As both headline and core inflation have been above the 2% target since January, the CNB hiked the key policy rate by 20bp in August and again by 25bp in November, taking the rate to 0.5%. CPI inflation came in at 2.6% in November, in line with the central bank s forecast. The moderation in inflation and the below-forecast growth in wages saw the CZK weaken to 25.7/. As such, the CZK is one of the best-performing major currencies, having gained 5.2% against the euro and 19.1% against the US$ year-to-date. According Oxford Economics estimation, the CZK appreciation will have reduced the headline CPI by about 0.6pp by the end of 2017, suggesting that underlying price pressures are well above the upper bound of inflation target (2% +/- 1%). Inflation is still set to be above 2.5% by mid-2018.

3 Prime Yields 4.85% 4.85% 5.75% Shopping Centre Office Industrial Investment volumes remained robust with a total investment volume of 3.54 billion in 2017, compared to 3.62 billion in Despite reflecting a marginal decrease in volume, this was primarily due to the shortage of available product and not the lack of investor appetite, both domestically or internationally. Significant deals in the fourth quarter have included the sale of the Škodův Palác in Prague 1, acquired by GLL, the Stage Capital Portfolio, located in Pilsen, sold by Stage Capital to CBRE GI and Metropole Zličín, a 50% stake was sold by Commerz Real to Unibail Rodamco. Total Investment Volumes (EUR millions) 4,000 3,500 3,000 2,500 2,000 1,500 1, Office Retail Industrial Mixed Residential Hotels

4 Office Demand and New Supply sq m 600, , , , , , Net Take-up Renewals New Supply 250, , , ,000 50,000 0 Q Demand (sq m) At the end of Q4, the total modern office stock in the capital city of Prague reached 3,342,100 sq m. In Q4 2017, five new office buildings, with a total size of 70,400 sq m, were completed in Prague. New office supply for the entire 2017 reached 136,000 sq m. 38,800 Net Take-up 131,000 Renewals Development activity remains strong. Currently, there is approximately 308,600 sq m of office space under construction. For 2018, approximately 209,000 sq m of office space is planned for completion. Total leasing activity reached ca. 169,800 sq m in Q4 2017, registering a significant increase both quarterly (60%) and annually (72%). For the entire 2017, gross take-up totalled 536,000 sq m which is a new record level on the Prague market. Prague 4 recorded the highest activity of all Prague districts, accounting for 28% of gross demand during the year. The vacancy rate has further declined during Q to the current level of 7.5%. The lowest vacancy rate was recorded in Prague 8 (5.2%). On the other hand, the largest share of available space was recorded in Prague 10 (13.3%). In Q4 2017, prime headline rents in the city centre increased to their current level of sq m/month.

5 Office Space Under Construction Q4 Key Leasing Transactions Core Office Locations Prime Headline Rents Property District Size (sq m) Location Headline Rent (EUR/sq m/month) Churchill I Prague 3 13,100 Beethoven Prague 9 12,400 Beethoven Prague 9 11,500 The Park Prague 4 6,900 City Centre Anděl Pankrác Karlín

6 Prague Retail Stock by Type Department Store 7% Factory Outlet 2% Retail Park 6% Shopping Centre 84% H New Market Entries Retailer Location Category Celine Pařížská Fashion HUGO by Hugo Boss Palladium Fashion Brunello Cucinelli Pařížská Fashion Hogan Pařížská Accessories Vapiano Quadrio F&B Oysho Centrum Chodov IIFashion In October, Prague witnessed the opening of the second phase of Centrum Chodov shopping centre. With the new extension of more than 38,000 sq m, Centrum Chodov now ranks amongst the largest shopping centres in the country. Retail demand remains strong for the best performing shopping centres and high streets. It is driven by the strong economy with low unemployment, rising salaries and increasing purchasing power. On the high street, Prague is benefiting from strong inflows of tourists. Limited supply and strong demand are reflected in an increased pressure on prime rents which has increased recently to 125 EUR per sq m per month for a notional unit of 100 sq m in the best shopping centres and 200 EUR per sq m / per month on the high street.

7 Shopping Centre Stock Distribution by Region (sq m) 1,000, , , ,000 7% 5% 600, ,000 2% 400, , , ,000 6% 6% 2% 0 4% Major Retail Projects Under Construction with Scheduled Completion in Prime rents in Prague ( /sq m/month) Project City GLA (sqm) Galerie Butovice (extension) Prague 10,000 Prague The Style Outlet Prague 20,000 Shopping centres Retail Parks High street OC Letná Prague 14,500 Retail Stock Under Construction (sq m) to be completed in Géčko Ostrava (extension) Ostrava 10, ,000 14,500

8 Vacancy Rates in the Czech Republic at Q4 2017: 4.1% 0.0% 6.6% 2.8% 0.0% 0% 6.5% 3.5% 0% 15.4% 10.7% 7.6% 2.0% 0% 2.2% Stock & New Supply (000 s sq m) Gross Demand (sq m) in Q ,000 7,000 6,000 5,000 4, ,900 3,000 2, ,700 1, Existing Stock ( 000s sq m) New Supply ( 000s sq m) Renewals (sq m) Net take-up (sq m)

9 Net Take-up by Sector in Q Other 12% Production 18% Retail, e- commerce and distribution 27% 3PL 43% Major Completions in Q Industrial Space Under Construction Property Region Size (sq m) VGP Park Jeneč Greater Prague 66,200 VGP Park Chomutov Ústí nad Labem 32,700 Panattoni Park Stříbro Pilsen 26,500 P3 Prague D11 Greater Prague 23,900 67% 33% Non-speculative Speculative

10 Contacts Blanka Vačkova Head of Research Miroslav Barnáš Managing Director Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.