Commercial Real Estate Financing in Germany Emerging From the Crisis

Helaba Presents a Study on the Frankfurt Office Market

FRANKFURT, September 27, 2010 - In advance of the ExpoReal in Munich, Helaba Landesbank
Hessen-Thueringen has presented its study "Frankfurt office market: Quality
counts". In focus are the prospects for the office market in Frankfurt and
the Rhine-Main economic region. Johann Berger, Vice Chairman of the Board of
Managing Directors and responsible for real estate, also took the opportunity
to comment on the outlook for commercial real estate financing in Germany.
Whilst he sees no danger of an imminent credit crunch, at the same time risks
for the supply of loans cannot be ruled out:

"Against the backdrop of a securitization and syndication
market still unable to function properly, as well as higher equity capital
requirements and increasing refinancing volumes, together with the withdrawal
of foreign real estate financiers from the German market and only a limited
number of German banks capable and willing to take on a limited part in a
financing themselves, there are still risks for the future supply of lending
in commercial real estate financing in Germany."

Whether the players in the property markets have learned from
the crisis can only be answered, Berger is convinced, in the further course
of the market's recovery. What is striking is that market participants
concentrate almost exclusively on first-class properties in prime sites. "The
run on core real estate has led once again to declines in initial yields,"
Berger observed.

Withdrawal from international markets is, for Berger, not a
sensible response to the crisis. The relative stability of the German market
during the crisis corresponds, he believes, to lower expectations of higher
property values in the recovery phase now starting. Berger: "Domestic
market-players who, in reaction to the crisis, concentrate exclusively on the
German market, could be missing out on better chances outside our national
borders."

Office market Frankfurt - Quality counts!

The Frankfurt office market proved to be relatively stable
during the financial crisis. This was chiefly because employment did not fall
significantly. In the mid-term, however, only a slight increase in jobs is
expected in Frankfurt as the economic growth trend is generally flatter and
financial service companies continue to reduce their personnel. "This leads
one to expect a rise of at least 2 percent in office employment for the next
five years," says Dr. Gertrud R. Traud, Chief Economist and Head of Research
at Helaba.

Frankfurt market is creating a stable base

The Helaba economists are assuming that top office rents in
Frankfurt will have found a stable base by the end of the year. In the
current year, weak demand for office space and higher building completion
rates are still a drag on the Frankfurt office market. In 201l, occupancy
turnover in the letting market should pick up further. Given a markedly lower
building completion rate, top rents could rise further but a depletion of the
high vacancy rates is not yet in sight.

A low new building activity and continuing caution on the part
of investors and financiers are preconditions for limiting a rise in the
already high vacancy base of more than 14 percent. In view of the high
proportion of older space in vacant office premises, refurbishment and
modernization activities, in contrast to new construction work, are likely to
take on more importance.

Moderate outlook for the Frankfurt office market

For the next few years, the authors of the study are reckoning
with only a moderate demand for office space in Frankfurt. On the basis of
their employment forecast, they expect a demand of 200,000 m2 in office
space. "This corresponds," according to Traud, "to just about two large
office towers." Bearing in mind the sustained trend towards greater space
efficiency, even this cautious forecast could prove to be too optimistic.

Quality of the location decisive - peripheral areas remain problematic

The high demands for quality in the Frankfurt market will also
in future be reflected in a differentiated development of the office
locations. The prospects of central inner-city sites are favourable, whereas
the often older office space in neighbouring areas is sharply affected by
high vacancy rates. As an office location, Frankfurt Airport is likely to
gain in importance. In the view of the study's authors, its position will be
strengthened by current expansion of its capacities and leads to the
expectation that employment will increase in Germany's largest centre of
commercial and financial operations.

Many simultaneous city development areas

In Frankfurt, a number of city development projects are being
planned that will call for a relatively large proportion of office premises.
Each of these projects offers the city important long-term development
opportunities. "Given that demand for office space is likely to be restrained
in the next few years, it is important to pay greater attention to quality
rather than quantity," emphasize the authors of the study.

Residential construction must not be neglected

Thanks to the clear rise in residential construction activity
in recent years (e.g. in the new city district Riedberg) the city of
Frankfurt could also share in the population growth of the Rhine-Main region.
The mobilization of sufficient space for housing construction is of enormous
importance for the city's development. As, in the next few years, the demand
for housing will exceed the demand for office space, project developments
should be flexibly planned and adjusted with regard to their possibilities
for use.

    Press and Communication

    MAIN TOWER - Neue Mainzer Strasse 52-58
    60311 Frankfurt am Main - www.helaba.de
    Tel.: +49(0)69-9132-2192

    Wolfgang Kuss
    E-Mail: wolfgang.kuss@helaba.de

    Ursula-Brita Krueck
    E-Mail: ursula-brita.krueck@helaba.de

Press and Communication: MAIN TOWER - Neue Mainzer Strasse 52-58, 60311 Frankfurt am Main - www.helaba.de, Tel.: +49(0)69-9132-2192, Wolfgang Kuss, E-Mail: wolfgang.kuss at helaba.de; Ursula-Brita Krueck, E-Mail: ursula-brita.krueck at helaba.de