Mixed Use Feasibility Study TRB/TBP Tirana by Clean Earth Capital LLC

MARKET SURVEY ANALYSIS OF TIRANA BUSINESS & RESIDENTIAL PARK

Prepared by

Investment and Consulting Advisory Services (ICAS)

Prepared for

CAPITAL ACCESS SH.P.K. As Of

April 20, 2009

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK Please note that the information contained in this report is privileged and confidential and remains the intellectual property of COLLIERS. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by COLLIERS. Any dissemination, distribution or copying is strictly prohibited without the written consent of COLLIERS.

April 20, 2009 Mr. xxx xxxxxx Tirana, Albania Subject of the report: A feasibility study focused on a future business park development located in Fushe Preze (between the concession road area starting from the Tirana International Airport until the highway interchange exit road intersects with Tirana-Durres Highway), Tirana, Albania Dear Mr. xxxxxx The expected outcome of this report is to assess the feasibility study of the subject site, including a location description, market research, recommendations on project conceptualization and mix, as well as investment and management prospects. Having completed our analysis with regard to the current real estate market fundamentals affecting development opportunities for the subject location, our conclusions are as follows. We confirm that we do not have any conflict of interest in undertaking this instruction on your behalf and that our engagement in this assignment was not contingent upon developing or reporting predetermined results. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions. We trust that the presented market information is suitable for your needs and we would be pleased to discuss any matter raised herein at your convenience. Yours faithfully, Philip Bay Regional Director Colliers International, South East Europe

Eugene Tassopoulos Civil Engineer NTUA Colliers International, South East Europe

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MARKET SURVEY – TIRANA BUSINESS PARK

C O N T E N T S DISCLAIMER.................................................................................................................................4 EXECUTIVE SUMMARY ...........................................................................................................5 I. IDENTIFICATION OF THE SUBJECT PROPERTY ..........................................................5 1. ASSUMPTIONS AND LIMITING CONDITIONS ..............................................................................7 II. BRIEF LOCATION OVERVIEW .........................................................................................9 1. SITE’S LOCATION.........................................................................................................................9 2. ADJOINING TERRITORY ..............................................................................................................9 3. VISIBILITY ................................................................................................................................11 4. SITE ACCESSIBILITY..................................................................................................................11 5. URBAN REGULATIONS ...............................................................................................................12 III. PROFILE OF ALBANIA......................................................................................................13 1. DEMOGRAPHIC INFORMATION..................................................................................................13 2. ECONOMIC OVERVIEW ............................................................................................................14 3. TAX SYSTEM...............................................................................................................................18 4. INFORMAL ECONOMY IN ALBANIA ..........................................................................................18 IV. REAL ESTATE MARKET DEVELOPMENT...................................................................20 V. OFFICE MARKET OVERVIEW..........................................................................................21 1. OVERVIEW..................................................................................................................................21 2. SUPPLY........................................................................................................................................21 3. DEMAND......................................................................................................................................26 4. RENTAL AND SALES PRICES......................................................................................................28 5. PROJECTS IN THE PIPELINE.......................................................................................................30 6. CLASS A AND TIRANA BUSINESS PARK RENTAL VALUE FORECAST......................................35 6. REGIONAL BUSINESS PARKS OVERVIEW .................................................................................36 ........................................................................................................................................................36 VI. RETAIL MARKET SECTOR OVERVIEW ......................................................................38 1. OVERVIEW..................................................................................................................................38 2. SUPPLY .......................................................................................................................................38 3. DEMAND .....................................................................................................................................39 4. RENTAL AND SALES PRICES......................................................................................................40 5. REGIONAL MARKET RETAIL SECTOR OVERVIEW...................................................................41 VIII. TIRANA BUSINESS & RESIDENTIAL PARK RECOMMENDATIONS ................44 1. HIGHEST AND BEST USE ANALYSIS..........................................................................................44 2. RECOMMENDATIONS .................................................................................................................46

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MARKET SURVEY – TIRANA BUSINESS PARK

DISCLAIMER The information contained herein has been obtained from sources deemed reliable, all of which are indicated within the Report. While every reasonable effort has been made to ensure its accuracy, Colliers cannot guarantee it. No responsibility is assumed for any future changes in economic conditions, market values or circumstances. This analysis has been prepared for the sole purpose of providing Capital Access Sh.p.k. a preliminary project analysis for the Tirana Business Park development project. According to the agreement on Consultancy and Leasing Services signed between Southeast Capital (hereby representing business interest of Colliers International Southeast Europe) and project investor, the subject report contains the following information: •

Extensive Tirana office and retail market research including supply, demand and rental analysis • Transportation analysis • Checking the viability of proposed development – Recommendation on the project mix • Recommendations regarding the rate of the development in view of market flows and the competition This report does not in any way involve giving advice or recommendations to any prospective party as to whether or not to proceed with a future investment/lending transaction. Neither Colliers, nor any if its partners, directors, officers, employees and agents, make any representations, or warranties, whether express or implied, by operation of law or otherwise, with respect to this market survey or any materials, statements or information contained herein and relating hereto, or as to its accuracy or completeness of such materials, statements or information. The content hereof is strictly confidential and is not to be reproduced by any possible means, or distributed to any person or entity without prior written consent of the agent.

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MARKET SURVEY – TIRANA BUSINESS PARK

EXECUTIVE SUMMARY The company Capital Access Sh.p.k. from Albania, led by its director, is considering a development strategy for a business park project located in close proximity to the Tirana International Airport in Fushe Preze, Albania. Colliers International has been appointed by said investor to provide overall location analysis and market research analysis of Tirana’s office real estate market segment and to formulate development recommendations for the subject project (hereafter referred to as the Site). The future development would be built on a site of approximately 55,000 square meters, near Tirana City. Being located along the new road that connects the airport, the subject location features excellent transportation accessibility. The report is structured as follows. The introduction section includes identification of the subject property and detailed analysis of the surrounding location. Moreover, a transportation analysis investigates the site’s accessibility and also connection with neighboring cities and countries. The conclusions and recommendations within the report are those we deemed able to achieve the highest possible return on investment (i.e., the built-up area mix with the most favorable financial potential)..

I. IDENTIFICATION OF THE SUBJECT PROPERTY General Site Information and Property Rights Address: Location: Current Owner

Fushe Preze, Tirana, Albania The property is located along the new access road which connects Mother Teresa International Airport with the center of Tirana, Albania The subject site is a private freehold property of company Capital Access Sh.p.k., Tirana, Albania

Previous Sales History

No information has been provided.

Ownership Title Document:

Registered at land agency

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MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Physical Characteristics of the Site Frontage:

71.69 m (plus 44.32 m from the 10,525.11 m2 land).

Site Dimensions:

The site depth is above 400m on average 56, 163 m2 (plus 10,525.11 m2 to be acquired in the near future). Also 3,979.58 m2 at the opposite side of the road by the pond NONE

Total and Usable Site Area: Excess Land Area Shape of Tract:

Access:

Irregular shape No significant changes on the surface elevation occur. In the frontage of the highway the elevation of the land plot is about 1m below the road elevation. The subject has a direct access from the new traffic artery

Corner Influence:

Easements:

NONE NOTED

Encroachments:

NONE NOTED

Parking:

To be decided during the architectural/engineering phase. Public / New lighting poles have been installed to the new highway. Development and landscaping of the subject area is planned in the following years. Up-to-date, there is newly built access road. Public sidewalk and possible bicycle path to be constructed. The utilities to the site are as follows: Sewer Public Water Public Water Co. Electric: Public Natural Gas: No Phone: Public Police/Fire: Public

Topography:

Site Lighting: Walks and Landscaping:

Utilities to Site:

Curbs and Gutters:

Concrete with sewer drains

Sidewalks:

No side walks along the new highway A soil analysis for the site has been provided for the preparation of this appraisal. The geotechnical conditions are relatively good and support the highest and best use.

Soils: Economic Factors Affecting the Site

Supply of Vacant Tracts:

Tracts that are available for development in the property surrounding are not offered for sale as owners expect land prices to increase in the near term. In addition, the available land plots have lower size than the investigated or do not have direct access to the main road.

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MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Demand for Vacant Tracts:

Major Flaws in Site:

High Since that new road has been opened at time of writing this report, there are no traffic count studies available for the subject area. The new traffic artery is expected to absorb entire passenger flow from the Mother Teresa Airport to the city of Tirana, as well as some portion of the passengers coming from the north. Tirana International Airport, Tirana-Durres Highway, Tirana-Shkoder Highway Universities and a business park has been planned. More over a zone around the airport is under the interest of Tirana International Airport Company under the terms of the concession agreement. Creation of Urban Plan for the area is planned in the next stage of the project. Due to its proximity to the Airport and its strategic location, the subject zone is designated for the wide scope commercial purposes, which include construction of business/logistic parks, retail (big-box) developments etc. Any development project should be designed and constructed according to the terms and limitations from the relevant town planning authority. None

Overall Site Analysis:

Upper-tier product, above average for area

Traffic Pattern/Volume:

Nearby Attractions: Neighboring Property Uses:

Zoning:

Source: Colliers International Research

1. ASSUMPTIONS AND LIMITING CONDITIONS 1. The Subject Project is to be built on a 56,163 square meter site that is private property of Capital Access Sh.p.k. Additional 3,979.58 square meters land plot at the opposite side of the road is also considered for construction. The owner also plans to acquire 10,525.11 square meters of the neighboring land lot in the near future 2. The sites in the surrounding area are to be zoned for construction of office and retail. 3. The site can be equipped with infrastructure services at the development stage: existing water and drainage connections, electricity, telephone, street and walkway pavements.

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MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Photograph of the Site

Front side of the property

Direction towards Tirana Airport

Direction towards Tirana

Source: Colliers International

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MARKET SURVEY – TIRANA BUSINESS PARK

II. BRIEF LOCATION OVERVIEW 1. SITE’S LOCATION The proposed development – Tirana Business and Residential Park- is located approximately 2 kilometers from the “Mother Theresa” International Airport in Rinas, Tirana District, Albania. More precisely, it lies along newly constructed access road which leads directly from the Airport to the center of Tirana in length of 17 kilometers. Strategically, TBP lies on a transportation node of several major traffic arteries- TiranaDurres Highway (stretches to the west from the subject location) and Tirana-Shkoder Highway (part of a north-south transport corridor crossing Albania). Towards north, Tirana-Shkoder Highway extends in two directions – towards FYROM and Serbia. Very important to mention, is the existing plan for the construction of big outer city ring, linking Tirana-Durres Highway with the southern Tirana-Elbasan Highway, in order to reduce traffic within the city itself. Another highway, Corridor 8 – that should link the ports of Albania on the Adriatic Sea and Bulgaria on the Black Sea thorough Macedonia, has been planned for construction as well (additional maps could be find in the Appendix of this report). 2. ADJOINING TERRITORY The Site is situated on the north edge of the Tirana District, bordering with the Mother Teresa International Airport. In March 2007, a new 6.5 kilometer long new access road is opened, connecting Tirana-Durres highway via Qafe Kashar with the Airport. The road considerably eases the journey for passengers traveling between Tirana city center and the Airport at Rinas. The opening of a new road represents an important ground for development of new commercial zone in proximity to Tirana. This road is 17 kilometers long, which is 8 kilometers shorter distance from the earlier access that leaded via Vore. The area surrounding the road is presently undeveloped, where the functional application of the adjoining territory is mainly agricultural. On the mid term, this area is planed for the vast development of commercial projects which currently transpires a Tirana’s real estate market. According to Colliers market intelligence, a shopping mall on plot of 150,000 square meters is planned for construction in close proximity to the Site. The proximity of Tirana Airport is an enormous location advantage to the Site, thereby increasing the potential of the future commercial areas. Mother Theresa is the only civilian airport in Albania, operated by Tirana International Airport Sh.p.k. since 2005. In March 2007, a new terminal of 8,500 square meters was constructed, thus expanding the overall capacity of the Airport for almost one million passengers a year. 9 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

The strategic location

Map â&#x20AC;&#x201C; www.mapquest.com; modification by Colliers International

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MARKET SURVEY – TIRANA BUSINESS PARK Map – www.Googleearth.com; modification by Colliers International

Area/Neighborhood Summary: Population Trend: Public Transportation:

Overall stable with increase trend due to new development projects and increased number of the employees at the Airport Due to the operation of the new airport terminal and the increasing number of visitors transportation lines will be established.

Property Compatibility:

Good, typical conforms to the area

Appeal/Appearance:

Above Average / Above Average

Protection/ Adverse Influence:

None noted

Development Potential:

Excellent

Rental Demand: Neighborhood Access: Development Trend: Value Trend:

Stable - estimated at 11% vacancy for A class offices New access road, Tirana-Durres road and TiranaShkoder Highway Commercial developments – office, retail and logistics Increasing due to beginning of investment cycle expected for the subject area

Employment Stability:

To increase

Vacancy Trend:

n/a

Change in Land Use:

From agricultural to commercial

Source: Colliers International Research

3. VISIBILITY Visibility of the Site is high as it features a frontage of over 70 eters along the new access road. This characteristic is a significant factor that makes the project attractive to commercial and retail firms desiring visibility. Furthermore, the subject property is in close proximity to the international airport Mother Teresa and other main traffic corridors, which can be considered as the largest competitive advantage in terms of its strategic position. Finally, the supply of land spaces in the same area with similar characteristics is limited. 4. SITE ACCESSIBILITY 4.1 Car driving accessibility 11 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

The Site is characterized by excellent car driving accessibility. Located along new access road form Tirana towards the Airport, the site is only 2km away from the Airport or some 15 minutes drive from Tirana. As mentioned above, the major characteristic of the site is its location advantage – close proximity of wide transportation network which includes Tirana – Shkoder Highway, Tirana – Durres Highway, planned Highway towards FYROM and Bulgaria etc. Tirana is approximately 250 km from the Greek border crossing at Kakavija and Kapshtica, and 140 km from Hani and Hotit on the border with Montenegro. Kosov’s Morina border crossing is 230 km away, and the Thana and Tushemisht border crossings into Macedonia are 140 km from Tirana. 4.2 Public transport accessibility At present, the subject area is not covered with the public transportation connections towards the city of Tirana. The opening of new airport terminal will certainly contribute to the fast initiation of this issue due to the extended number of employees in the wider area in addition to increased passenger capacity of the Airport overall. 4.3 Airport The Tirana airport is located west of Tirana city center, approximately 2 km from the subject Site. According to the official web site of the airport, there was a registered increase in passengers from 785,000 in 2005 to 906,000 in 2006. According to Mrs. Elda Dushi, Director of commercial and property department of Tirana Airport Partners Sh.p.k., the projections of passengers for 2007 and 2008 are around 1 million on a yearly level. 5. URBAN REGULATIONS Below we will shortly present the necessary steps which should be accomplished in regard to the urban regulations for the subject location: 1. Urban design approval (defines Site boundaries and zoning regulations) – it is to be envisaged and approved by Technical District Council and District Urban Planning Council 2. Site permit (project elaboration within the property limits) – to be envisaged and approved by Technical Council of the Commune and Commune Urban Planning Council 3. Building permit (based on the architectural solution) – to be approved by Technical Council of the Commune and Commune Urban Planning Council There is no any standard about height of the buildings; it depends on the optimum of the territory use and the distances between the buildings. 12 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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III. PROFILE OF ALBANIA This part of the report includes background data on the country and neighborhood, a thorough description of the site, as well as other pertinent factors that influence real estate values. 1. DEMOGRAPHIC INFORMATION As shown in the following table, estimated total population in Albania is 3.12 million. Tirana has 585,756 inhabitants or about 18.7% of the total population of the country whereas within the district of Tirana there are 737,387 people. The table below shows some of the most important available demographic categories in Albania and Tirana in recent years.

Jurisdiction

SELECTED DEMOGRAPHICS AND ECONOMIC PARAMETERS Albania Tirana

Population 2004 2005

3,127,263 NA

552,016 585,756

200,546

Households 2005 Census

Employment 2004 2005

931,000 NA

NA 190,533

Income 2001 Average per Employee 2004 Average per Employee

EUR 137 EUR 187

NA NA

Source: Institute of Statistics of Albania *Source: U.S. Census Bureau

ALBANIA - AGE DEMOGRAPHICS BY YEAR Age 1990 1995 0-14 32,5% 32,9% 15-64 62,2% 60,9% 65+ 5,3% 6,2% Source: Institute of Statistics of Albania

2000 30,0% 63,1% 6,9%

2005 26,2% 66,0% 7,8%

2010 23,9% 67,4% 8,7%

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MARKET SURVEY – TIRANA BUSINESS PARK

2. ECONOMIC OVERVIEW Albania is going through the difficult transition necessary in order to achieve a modern, open-market economy and within recent years the Albanian economy has improved. Key elements of the economic reform program include: price and exchange system liberalization, fiscal consolidation, monetary restraint and a firm income policy. These were complemented by a comprehensive package of structural reforms, including privatization, enterprise and financial sector reform, and creation of the legal framework for a market economy and private sector activity. Major reforms in areas such as tax collection, property laws, banking and infrastructure development are proceeding slowly. Political instability caused several macroeconomic problems. GDP decreased by 40% and inflation reached 226% during 1991 – 1992 while unemployment reached 27.9%. From 1992 to 1996 the economy was stabilized through restrictive measures of the World Bank, the International Monetary Fund and other donors. GDP increased by 9% over the year, unemployment achieved a rate of 12.4% and inflation decreased to 12.7%. During 1997 Albania experienced social and economic crisis caused by the collapse of the pyramid banks. The crisis had an impact on inflation, which increased to more than 40%, while GDP level has dropped to 7%. Between 1998 and 2002, Albania experienced an average 6.2% annual growth in GDP. Fiscal and monetary disciplines have kept inflation relatively low, averaging roughly 4.2% per year between 2001 and 2003. Economic reform has also been hampered by Albania’s very large informal economy, which the IMF estimates equals 50% of GDP. Albania has a large trade imbalance. A key government task is trying to attract foreign investment and promote domestic investment. The Albanian government faces the daunting but essential task of rationalizing and uniformly applying business laws, improving transparency in business procedures, restructuring the banking and tax systems, reducing corruption in the bureaucracy, and resolving property ownership disputes. The economy is supported by annual remittances from abroad of $600-$800 million, mostly from Greece and Italy. The World Bank has approved four agreements that will provide $131 million of investments for the period 2003 – 2005. The Gross Domestic Product reached 18.05 billion $ in the year 2005, but the real GDP growth rate decreased in 2005 to 5.5%. Economic indicators forecasts for 2006 and 2007 are shown in next table. 2002

2003

2004

2005

GDP real growth rate (%) Consumer prices (average - %) Current account (in % of GDP) Gross foreign debt (in % of GDP)

4.3 5.2 -9.9 26.4

5.7 2.4 -8.0 24.2

6.7 2.9 -5.7 21.9

5.5 2.4 -7.5 21.4

Budget balance (in% of GDP)

-6.5

-4.3

-5.0

-3.3

2006 5.0 2.7 -6.2 22.1 -4.0

2007 6.0 3.0 -5.3 21.9 -3.5

Source: Bank Austria Creditanstalt Economic Department, IMF, Instat

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The following graph represents the Percentage share of different sectors of the economy in total GDP.

% Share of Different Sectors in Total GDP 60 50 40 30 20 10 0 1984-85 1994-95 2003-04 2004-05

% share of Agriculture in Total GDP % share of Industries in Total GDP % share of Services in Total GDP

Source: CIA World Factbook

The contributions of different sectors to GDP structure has changed over the years. The share of “industry” in total GDP has experienced a substantial decrease. Comparing with industry, services recorded a significant increase, from 20% share in 1984-85 to more then 58% share in total GDP in 2005-06. The share of the services sector as a percentage of total GDP is the highest in the country. The inflation rate (consumer prices) continued to decline. Annual consumer price inflation reached 2.5% in 2005, compared to 3.2% in 2004. The relatively low and stable level of inflation is a reflection of continued Lek appreciation against the Euro and USdollar, and developments in agricultural production helped to keep foodstuff prices stable, which account for almost 43% of the consumer price index. Price stability contributed positively to the overall development of the Albanian economy and helps maintain macroeconomic equilibrium and financial system stability. Inflation rate changes are presented in the next table. According to forecasts, the inflation rate in 2006 could achieve 2.8%.

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MARKET SURVEY – TIRANA BUSINESS PARK

Inflation rate (Consumer prices -%) 7 6 5 4 3 2 1 0

2,4 0,5 1999

3,2

2,5

1 2000

2002

2003

2004

2005

Source: CIA World Factbook

The overall fiscal deficit in 2005 declined substantially as a result of new measures aimed at strengthening the revenue administration and rationalizing expenditures. It reached the lowest level in the last seven years as a percentage of GDP, easing the burden it presents to financial resources for the economy. The deficit declined to 3.4 percent of GDP (from revenues of 24.4 percent of GDP and expenditures of 27.8 percent of GDP), well below the projected level of 5 percent of GDP in 2005 and the recorded level of 5.1 percent of GDP in 2004. Fiscal revenues were 97 percent of forecasted revenues in 2005 compared to 93.1 percent and 92.7 in 2004 and 2003 respectively. Expenditures on the other hand, recorded a limited increase of 2.9 percent in 2005 representing 92 percent of planned expenditures for the year. ∗ In % of GDP 2001 Revenues 23.7 Expenditures 31.6 Overall balance -7.9 Source: Ministry of Finance, IMF

2002 24.7 31.4 -6.7

2003 24.5 29.0 -4.5

2004 24.1 29.2 -5.1

2005 24.4 27.8 -3.4

The external sector of the Albanian economy during 2005 presents a deep negative balance on current account, caused by a high trade deficit. Trade deficit is caused by slowdown in export and rapid import increase. Exports increased compared to previous years, but are still weak. The exports current level is deemed to have been due to the enhancement of competition in the textiles sector with the opening of European markets towards China and India. Export of goods is mostly represented by the export of textiles, footwear and base metal. Albania tries to attract foreign investment and promote domestic investment. The Albanian Government needs to provide conditions for applying business laws, improving transparency in business procedures, restructuring banking and tax systems, reducing 

Source: “Investment in Albania”- KPMG

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MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

corruption in the bureaucracy and resolving property ownership problems. The Albanian government foreign direct investment flow reached EUR 214 million in 2005, compared to EUR 275 million in the previous year. The privatization process is a key element for Albania's progress towards a developed market economy. According to the government, the privatization process aims to: stimulate economy through efficient use of resources, supporting private sector development, attract strategic and financial investors, and create conditions for the establishment of the capital market. The privatization process offers a wide range of options and potentially high profit sectors include mining and oil extraction which are export oriented industries. Also significant capital investments are needed in order to modernize the old and outdated production methods. Other areas for future investments include thermal and hydro power production, energy production, infrastructure, agriculture and light industry sectors such as textiles, leather and footwear confections. Economic growth during the last few years had a positive impact on the labour market. At the end of 2004, the official unemployment rate is estimated to have reached 14.4%, which is slightly better then a year before when is stood at 15.0%. A decrease in the unemployment rate is a main goal for 2006 and 2007. However, registered unemployment provides a very unreliable measure due to the significant informal sector and hidden unemployment.

Unemployment rate 15,0% 14,8% 14,6% 14,4% 14,2% 14,0%

14,8% 14,6% 14,4%

14,3% 14,3% 14,3% 14,2% ,

13,8% Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05 Q4/05 Quarter Source: Bank Austria Creditanstalt Economic Department, IMF, Instat

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3. TAX SYSTEM The tax system in Albania includes personal income tax, profit tax, tax on real estate, value added tax and excise tax. VAT in Albania was established in 1996 and the tax rate was 12.5%. In September 1997, the VAT rate increased to 20%. Corporate income tax in Albania is 25%. Taxable base is the profit shown in the profit and loss account. Tax on real estate consists of the tax on buildings and tax on agricultural land. This tax is paid for each square meter and only state owned buildings or local governmental units are exempted from this tax. Tax on buildings varies in relation to the district where the building is located. Agricultural land tax is paid for each hectare, and depends on category of land and district where the land is located. Transfer of real estate is also subject to taxation. Tax is calculated per square meter and is payable by the person who transfers the property right (seller). The provisions of Law on Value Added Tax introduced in December 2004 have established the application of VAT on the first sale of new residential buildings and exemption from VAT of a lease of such new residential buildings, staring from 2006. By new amendments to Law, these provisions were abrogated and the sales of building and land (including the land where the buildings are located) are not subject to VAT, whilst the lease on building is subject to VAT. An exception is made on leases of those buildings that are owned by central and/or local governmental entities, which are not subject to VAT. Lease of land is exempt from VAT, except when the land is used for parking or transport means. Tirana district has higher taxes then other districts in Albania. Only donors of real estate property to governmental entities, religious institutions or non-profit organizations are exempted from tax on transfer of real estate. 4. INFORMAL ECONOMY IN ALBANIA The informal economy in Albania is a major issue which is singled out as main obstacle to the development of a strong enterprise sector and well functioning market economy. Like in other transition economies, the informal economy in Albania has strong consequences in terms of tax evasion, labor market distortion and unfair competition. The base of the informal economy was established with the first signs of market economy, when the development of legal institutional, fiscal and regulatory framework lagged behind the development of the private enterprise sector. Afterwards, political situation in 1996-1997, that followed collapse of the pyramid schemes, further delayed the development of legal framework between institutions and real economy. In 1997 Albania introduced a modern tax regime structured on EU standards (VAT, corporate income and personal income tax) and implementing number of programs to 18 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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upgrade customs and tax administrations. In recent years Albania has built a stabile macro-economic framework, realized economic liberalization and stabile economic growth supported by a growing private enterprise sector. However, in spite of these changes, the share of the informal economy in GDP structure does not appear to be reduced. Indeed, some indicators show that the informal sector has been the most dynamic component of the economy in Albania in recent years. Even with highest VAT, corporate income tax and social contribution rates among the countries of South East Europe, Albania has almost the lowest ratio of tax and social contribution revenues to GDP. According to some indicators, informal production is dominant over formal and mainly comes from the small enterprise sector. There are some indications that the manufacturing, trade, transport, construction, retailing and business services sectors, which are typically dominated by private (small) enterprises, has informal production of about 40% larger then formal production. Another measure of informal production considers the share of value-added generated informally by all sectors of the economy that are subject of profit taxation. Some analysis shows that over half (51%) of valueadded generated in these sectors is informal, which is significant and has great tax and budget policy implications. Informal operations have positive implication on company profit (15-20% higher profit) and consequently on growth rate, because higher percentage of revenue is used for business development and further expansion. The pressure on profits arising from the full tax compliance is such, that in some cases it approaches the subsistence profit rate, forcing marginal enterprises to withdraw from the market. Also corporate income tax which is 25% is unsustainable for many enterprises and that is incentive for tax evasion also. The small entrepreneurs are evading taxes and social contribution more out of necessarily and to remain in business then for personal enrichment through distributed profits. The ultimate benefit is accomplished through consumer price reduction and higher enterprise competitiveness. Estimates produced by the Vienna Institute of International Economic Studies show that the gain from tax evasion by households amounted to around 12% of GDP in 2002/2003. These short term benefits lead toward problems in long term because the economic expansion will be constrained by the lack of investment in public infrastructure, training and education where short term gains remaining insignificant.

19 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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IV. REAL ESTATE MARKET DEVELOPMENT In 1991, after years of state ownership of all land and buildings, Albania joined other Eastern European countries in a transition to a market-oriented economy. The construction industry became one of the most powerful and successful businesses during the transition period. The moves of population from rural areas toward main cities, their great housing needs and the creation of a rich stratum that prefers more than one house led to an unseen boom in the residential housing market, which makes up 60 percent of total construction. In the meantime, other structures such as factories, industrial workshops and commercial properties were built. During the 1990s, Tirana became known for not only its intense urbanization and architectural development but much more for its irregularity and the total absence of development plans and policies. The city of Tirana has developed in two main directions: 1) illegal construction for housing purposes, mainly in the outskirts of the city, 2) illegal constructions for business purposes, mainly around the center of the city. There are also a great number of buildings, which are considered legal from the point of view of official urban planning, though they do not respect even the most elementary rules of urban development. Demolition of the illegal construction, big or small, has stopped the trend of breaking urban rules, which cause destruction of public interest and damage the image of Tirana City. Since 2004, the Municipality of Tirana has started procedures for realization of the New General Regulatory Plan, financed by Dutch Government and with an executive agency of the World Bank. The new Regulation Plan aims to change Tirana from a city dispersed with inhabitant areas that have been created in a casual manner toward a compact city. Presently, Tirana is developing through segmented urban plans. Part of the master plan, which deals with the regulations of the city core, is already adopted. This plan is known as the "French Master Plan", as it was designed by French firm Architecture-Studio. It demarcates and punctuates two boulevards that run parallel to the park next to Skanderbeg Square, allowing construction of a total of 20 towers in the central city area, out of which 10 will be in the Skenderbeu Square. All of the towers are of equal height â&#x20AC;&#x201C; which is around 85 meters, while the rest of the developments are restricted to a maximum of nine levels above ground. The second part of the master plan will deal with the urbanization outside the core and the suburbs of Tirana. In the meantime and under the pressure of intensive urbanization, the municipal authorities are studying the particular city problems and issues with the process of planning and application. The overall impact of the emerging market on economic development is ambiguous and chaotic. On the one hand, there is a building boom in Tirana, rapid in-migration and an apparent upward trend in price, suggesting a shift in the structure of the economy toward a Tirana based office sector, away from secondary cities and villages that are reliant on dying heavy industry and low-profitability agriculture. This development appears positive in the sense that it apparently involves long-term investment, labor market restructuring and potential basis for future growth. 20 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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V. OFFICE MARKET OVERVIEW 1. OVERVIEW The current analysis is based on the market for rented properties, and thus owneroccupied buildings are not included. One reason for this is that the Albanian office market is still young. We should also note that the share of owner-occupied properties is not seen as a significant part of the stock and thus, total Class A office stock is close to the projected level. Tirana also has a significant portion of the office buildings which do not comply with the presently used international standards for building classification or with the office needs of contemporary office tenants in general, which is the reason we did not include them in the following analysis. Such office inventory is usually poorly maintained, has poor layout and communications, absence of parking facilities and lacks property management. The Albanian market for office space has undergone rapid development in the past few years. Back in 2000 total Class A stock was estimated at slightly over 26,000 square meters, while in 2008 it is expected to grow to almost 70,000 square meters of leasable office space. Still, the largest percent of new developments has been or is planned to be developed within the city center, which is the Central Business District of Tirana (CBD), while the suburban office market does not exist. 2. SUPPLY During the last few years, the situation in the Tirana market started to change and the office sector is undergoing strong development. The development of newly constructed Class A office space was most intense during 2005 and the market was significantly transformed. At March 2007, the total Class A leasable area in Tirana accounted for slightly over 40,000 square meters. Projects presently under construction will bring additional 48,000 square meters of Class A leasable space, while announced projects total additional 100,000 square meters. The largest percent of the projects is situated in the city centre, where the investment boom is taking place in the recent years, supported by the existing French master plan (the regulatory plan which only refers to the city centre). This plan supports construction of 10 multistoried buildings (towers) in close proximity to Skenderbeg Square, encouraged also by the existence of the infrastructure of the Tirana downtown area. However, the limited number of quality tenants and existing vacancy on the market will lead developers to move more cautiously in this segment of the real estate market. 21 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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Present office stock in Tirana, as well as the pipeline projects, are owned and developed by local developers, and we do not anticipate this ratio to be altered by international companies in the near future. In the last decade, the absence of a consolidated banking system in the country has led many domestic businesspeople and investors to invest in real estates and construction (it is estimated that over 3,000 development firms are operating throughout the country and their number is increasing). In addition, the lack of liquidity in the market is a significant factor that supports the vast implementation of concession agreements between the land owners and the developers. Under the terms of the concession agreement the developer has the responsibility to construct the project and then vest a proportion that has been pre-agreed to the land owner. So far, investment activities of foreign companies were primarily recorded in housing and apartment projects at the suburban fringes of Tirana. Class A The existing Class A stock in Tirana is concentrated in the central portion of the city, along the main boulevards (Shetitorja Deshmoret E Kombit, Boulevardi Zhane D'ark, etc.). In these terms, it is only the very center of the city which can be recognized as the CBD (Central Business District) of Tirana at this stage of development. A small percentage of quality commercial building was also noticed along secondary traffic arteries and suburban areas, however, these properties cannot be characterized as highend category developments. The most important Class A office buildings that have been developed in Tirana so far are European Trade Center, Twin Towers and Sky Tower. Design and construction quality are at typical levels reaching the European average, while the provided services are also high level and comply with the requirements for international and European tenants. There are also several buildings on the market which are drawing a significant portion of international tenants, but cannot be considered as Class A office buildings according to international standards. Because of the low level of quality stock on the market, we have included these buildings in our calculation, but with the stock enlargement in the following years they will fall under the Class B categorization. The most well-known of these buildings are certainly Torre Drini and Gjergji Business Center. Furthermore, since it is drawing a significant portion of commercial tenants, we have taken into consideration Samos Tower as a portion of the Class A stock. This building was originally designed for residential purposes and many of the apartments are converted for commercial use. Opening of Polychromic Tower, a multifunctional commercial center in Tiranaâ&#x20AC;&#x2122;s CBD is scheduled for 2007. Below, we will present some the most important Tirana office buildings in more details.

22 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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General stock characteristics •

Existing Class A buildings are high-rise with 16 to 25 floors, except for the high-end Class B buildings described above – they range from 11 to 13 floors. Each of the buildings includes retail area on the lower floors. Twin Towers and European Trade Center include 4 levels of retail space, where the later (in ETC) was recognized as a popular shopping destination. All named Class A buildings have good stand alone visibility located in the city centre We consider that 85% of the stock has curb appeal with great exterior finishes. The standard amenities offered in subject office buildings are: underground garages, neighborhood serving retail, cleaning service (condominium parts) and security service (24/7) Conference and meeting rooms, landscaped gardens, recreational areas, and professional on-site management are not included as amenities.

•

• • • •

It should be also taken into consideration that many towers in Tirana lack important elements such as emergency staircases and minimum distances for sunning or calamity emergencies. No one today can speak with certainty about the seismic strength of the new developments. The vacancy rate cannot be easily estimated as few rental agreements are publicly announced. However in high quality office buildings such as Sky Tower, Twin Tower and European Business Center, the vacancy rate equals around 11%. The future level of vacancy will primarily depend on the construction dynamic within numerous new projects as according to the current political, economic and financial situation in the country, office demand is expected to increase in the long run. In the table below, we have presented some of the most important Class A office buildings characteristics in Tirana as of March 2007. Year Built

2000 2005

Building Name/Location Sky Tower/ Shetitiorja Deshmoret E Kombit Twin Tower/ Shetitiorja Deshmoret E Kombit

Leasable Office Area (sqm)

Vacancy (sqm)

Vacancy Rate (%)

App. 5,000

165

3.3%

16,000

2,000

12.5%

Main Tenants KPMG, Wolf Thesis, UN, IFC International, Norsk Embassy, OTIS IMF, Banka Italiana, Emporiki Bank

23 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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European Trade Center/ Boulevardi Zhane D'ark

2006

7,000

1,000

14.3%

American Bank of Albania, Vodafone, Raiffeisen Bank

Source: Colliers International Research

As shown, top Class A office buildings in Tirana maintain very different vacancy rates (between 3% and 14.3%) at the date of writing this report. The main reason for this occurrence can be found in the existing rental price difference between these building which will be discussed further below. The graph below shows the change in Class A total stock in Tirana trough years. Tirana Class A Stock Development 50.000 45.000

Total Stock (sq.m.)

40.000 35.000 30.000 25.000 20.000 15.000 10.000 5.000 0 2000

2005

2006

2007

Class A Stock

Source: Colliers International Research

Class B Tirana has a lower number of Class B office spaces according to international standards. In fact, we can clearly state that this market segment remains undersupplied at the moment of this report. As Class B we have considered solid office buildings that are placed in the Central Business District or close to the main traffic arteries of the city with average to good maintenance, management and services. Class B office buildings in Tirana offer the following services: a reception service, guarding, Internet, emergency generators, and rarely parking areas.

24 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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Some of the Class B office buildings are places along Rruga E. Kavajes Ave., with the most important being the Tirana Business Center, the first business center in Tirana. Among others are: Zayed Business Centre, Eurocol Business Centre, InoSoft Business Centre (owner occupied) etc. At this point we have to clarify that there is no official source of information about the total office stock since information about usage permits is not publicly available and is not systematized in order to be used. Therefore this report discusses only speculative office stock, as there are no reliable statistics about the total contemporary office stock. The numbers on supply of office space are taken from Colliers International in cooperation with local real estate agents and financial institutions.

Europe Trade Center

Twin Tower

Samos Tower

Sky Tower 25

Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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3. DEMAND Albanian macroeconomic picture is very fragile as its deregulation and development according to market principles commenced some 10 years ago. It still did not take advantage of extensive coastline that is the largest undeveloped area in the Adriatic Sea, nor did it raise manufacture companies that can successfully compete on regional level. The development of the Albanian economy is heavily attributed to the dynamic development of the private sector, particularly to the growth of sectors such as construction, trade, services and transport. These sectors together with informal economy and directs cross-border transfers from local labour force are the main macroeconomic factors underpinning average purchasing power. Noticeable prosperity and rising of economic base have already attracted numerous international companies. They are concentrated mainly in service sector and the next phase is expected to come on the wave of coastline property developments. Due to absence of contemporary Grade A and Grade B office space, these companies have occupied properties that are characterized with features that do not correspond with international standards. Even brand new developments do not include emergency exits, sufficient parking space, raised floors, power generators, and ones new developments erect on the market they can account to attract blue-chip tenants from existing buildings. Colliers International has not recorded sales transaction so that accurate information on yields could be extracted. However, based on available asking prices it is our understanding that yields for high quality office space and retail units do not overshoot 6% to 7% which is quite low compared to Bulgaria, Serbia, Montenegro, FYROM, Romania, Croatia and other regional markets. Reasoning for this unexpected outcome could be found in equity funding from informal economy where among local population property is perceived as excellent and risk free investment. If correct, this means that property demand drivers come strongly from investment submarket that can support capital values growth on medium to long run, thus relatively independent to the user submarket fundamentals, and indicating yields that are under constant pressure. Demand of office space is derived from the profitability of trading. Existing firms are encouraged to expand and take on larger premises while high profit levels encourage other firms to become new entrants to the sector. The use of proxies for demand is a common approach because the demand for office space cannot be measured directly. The Tirana property market is in the initial development phase. There is neither history of property market nor property market indices developed. It is not possible to build any credible demand forecast model. Our future demand expectation is therefore supported by analyzing macroeconomic variables that are identified as the main driving forces behind office space demand in more saturated property markets. Among the most important are: 26 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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Gross Development Product (GDP) trend, service sector employment, unemployment rate, interest rates. Available statistic evidence focused on the abovementioned factors is given in following table: Description 2000 2001 2002 2003 2004 GDP growth (%) 6.5 7.1 4.3 5.8 6.2 GDP per capita (USD) 1,212 1,338 1,450 1,830 2,341 Core Interest Rate (%) 7.00 8.50 6.50 5.25 Fiscal deficit (% of GDP) -7.9 -6.6 -4.5 -5.1 Unemployment rate (%) 16.4 15.8 15.0 14.4 Total Employment (000) 920 920 926 931 Source: Ministry of Finance, Institute of Statistics (INSTAT) compiled by Colliers International Annual ALL Interest Rates Deposits Loans (weighted avg.) T-bills Core Interest Rate (%) Source: Ministry of Finance LABOUR FORCE ITEM

2001 7.76 11.90 10.50 7.00

Unit

2002 9.25 15.98 12.62 8.50

2003 7.62 10.52 9.49 6.50

2004 5.99 13.73 8.10 5.25

2005 5.57 12.16 6.91 5.00

2005 5.6 2,622 5.00 -3.4 14.3 932

Q/3/2005

Q/4/2005

Q/1/2006

Q/2/2006

Q/3/2006

1,086,00 0 931,200 176,000 213,600 542,000

1,086,00 0 932,000 175,000 215,000 542,000

1,082,80 0 931,000 174,000 215,000 542,000

1,081,32 8 931,253 172,126 217,127 542,000

1,084,072 934,405 170,500 221,905 542,000

154,800 11,500

154,000 11,200

151,800 11,500

150,075 11,249

149,967 11,360

14.3

14.2

14.02

13.9

13.8

27,197 11,800 4,360

27,333 11,800 4,360

27,606 11,800 5,240

28,950 14,000 5,240

2,750 1,988

2,691 1,960

2,442 1,836

2,455 1,800

2,477 1,995

EMPLOYMENT Labour Force Number - Total employment " a) in public sector " b) in non-agricultural private sector " c) in agricultural private sector " UNEMPLOYMENT Total unemployment Number Receiving unemployment benefit " UNEMPLOYMENT RATE Unemployment rate % INCOME Average wage in public sector leks Approved minimum wage " Unemployment benefit " Family protection, average per family - full leks - partial " Source: Institute of Statistics (INSTAT)

27 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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Breakdown of the Albanian economy per different sectors and trend of newly established foreign companies are additional indicators of economic activity. Economic activity growth 2000 Agriculture, hunting, forestry 6.6 Industry 1.3 Construction 46.5 Services -0.3 Source: Institute of Statistics (INSTAT)

2001 2.7 6.1 32.7 5.3

2002 2.1 -5.1 21.5 4.0

2003 3.2 29.0 23.6 0.4

2004 6.2 14.1 7.7 3.9

2005 0.9 1.3 15.1 6.1

Foreign and jointly owner companies by activity - new established (not cumulative) Economic activity 2001 2002 2003 2004 2005 Agriculture, hunting, forestry 0 1 1 0 0 Industry 24 22 17 28 29 Construction 9 10 3 4 6 Transport 2 6 3 3 3 Commerce 23 20 22 37 39 Other services 11 10 14 23 21 Source: Institute of Statistics (INSTAT)

Average 3.6 7.8 24.5 3.2

Total 3 228 52 24 139 84

Practically all extracted variables record positive trends as far as the office space demand is concern. GDP has stable growth rate, interest rates and unemployment rate are declining, while foreign companies market entries in service sector and industry are climbing. Based on these grounds it is our expectation that steadily growing demand trend will continue in foreseeable future. 4. RENTAL AND SALES PRICES Movement of price levels with regard to the office market is expected to be minimal throughout 2007 until new projects start to be pre-leased. After this period, the construction and pre-lease of several large-scale projects could reasonably cause a constant decrease in office rents up to the 2010. It is our expectation that once prices begin to normalize around regional averages, a large number of businesses currently occupying converted and or poor quality space will relocate to more sophisticated developments. Class A Rents During 2006 and the first half of 2007, brand new Class A properties situated in the most attractive locations of Tirana and built according to high quality standards have recorded ranges from EUR 15 to EUR 20 per square meter per month, based on the floor number and the position of the premises. Other high quality developments (which can be 28 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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considered Class B+), with lower levels of amenities (available parking) or finishing works have been rented for EUR 10 to EUR 15 per square meter per month. Based on the expected inventory enlargement, rental levels of Class A office properties are certainly expected to show a decreasing trend in the following years. The pace and intensity of this trend will directly depend on the degree of realization of new developments. Below we present selected office rent comparables in some of the most prestigious Tirana office properties. Due to the absence of publicly announced information, data regarding sale prices is very difficult to collect and is not presented in this table. Office Building/Location European Trade Center/ Boulevardi Zhane D'ark Twin Tower/ Shetitiorja Deshmoret E Kombit Sky Tower/ Shetitiorja Deshmoret E Kombit

Type of Unit, Floor

Transaction

Average Net Rent, EUR/sqm/month

Condition

Office/All floors

Rent

16.0 – 20.0

A Class /New

Office/All floors

Rent

20.0

A Class /New

Office/All floors

Rent

12.0 – 15.0*

A- Class /New

A- Class / Under completion

Asking Mixed Use Polychromic Tower Rents Source: Colliers International Research *For the vacant space, parking space is included in the net rent

The price additionally includes cost of service which varies between 1 and 3 EUR/m2/month depending of the level of services included. Class B Rents Rental levels of Class B offices are usually in the range from EUR 8 to EUR 10 per square meter per month. Prices depend on the location, visibility, quality of finishing works and other services. Newly constructed Eurocol center is offered at EUR 15 per square meter per month having no parking space to offer, which clearly indicates early stage of market development. Similar to rental levels in Class A buildings, rates for Class B office space slightly decreased in the past and are currently stable. This is mainly a consequence of the limited number of new Class B development as new investments are mainly focused on Class A office tenants. Transaction

Average Net Rent, EUR/sqm/month

Office/All floors

Rent

10.0 - 12.0

Office/All floors

Rent

15.0

Office Building

Type of Unit, Floor

Torre Drini/ Rruga Abdi Toptani Eurocol center

Condition B+ Class /New B+ Class /New

29 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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Gjergji Business Office/All floors Centre Tirana Business Office/All floors Center Source: Colliers International Research

Rent

10.0 – 14.0

B+ Class /New

Rent

8.0 – 10.0

B Class /New

Sales Prices Sale prices of the commercial properties maintain high levels as the quality of construction in Tirana is rapidly increasing. Class A office premises within the new, recently-constructed towers were reaching ranges of approximately 2,000 EUR/m2. This price refers to the premises located on the higher floors, while commercial (retail) premises on the lower levels are reaching much higher ranges. The abrogation of VAT law provisions introduced in 2004 (as described above in Tax section) has stopped the certainty of the sales price increase in 2006 and we believe that the price will remain stable for the next couple of years. Parking/Garage Limited parking spaces in the Central Business District of Tirana are causing traffic problems. Few buildings have designated parking lots or garages; others have only a possibility for acquiring parking on the street, in which case the fee is paid directly to the municipality. The most usual range charged for the underground parking spaces in the Class A office buildings of Tirana is between 100 and 120 EUR/space/month, while open parking in front of the building (rented from the municipality) is around 80 EUR/space/month. As a result of scarcity of parking spaces in the city centre, some developers/investors have settled parking prices in the amount of 250 EUR/per underground space/per month for prime locations which has proved to be extremely high level for the market (e.g., Twin Tower Building). 5. PROJECTS IN THE PIPELINE By the end of 2007, Class A office stock in Tirana is expected to increase by 15,000 square meters and for additional 30,000 by the end of 2008. In the mid-term (by 2010), if all of the approved Class A projects go to their realization, the current stock would amazingly increase by almost four times its current size. Such scenario, at present development stage of the country and the probable demand drivers, threats to create strong oversupply in the city. So far two of the ten towers predicted by the above-mentioned French master plan are approved – Tirana International Development and Archea Tower. Due to their significant sizes, they will take some time to implement. This situation, which includes construction of ten towers in the city centre, is part of an ambitious plan for redevelopment of the Albanian city, led by the municipality of Tirana. 30 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

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We have recognized the following Class A office projects presently under construction within the Central Business District (CBD) of Tirana and its near environs –Polychromic Tower, Millennium and Vaso Pasha Business centre and Toptani Square Complex. Almost all of the projects are of similar concept, combining commercial (office and retail) activities with residential/hotel and entertainment. Class A Stock (sq.m.) Development 2000-2010 160.000 Total Stock (sq.m.)

140.000 120.000 100.000 80.000 60.000 40.000 20.000 0 2000

2005

2006

2007

2008

2009

2010

Class A Stock (sq.m.)

Source: Colliers International Research

The following are the largest projects coming on-line in the CBD market area, subject to this report: Project Name / Investor

Area

Type of Project

Vaso Pasha str.

Office Leasable Area (sqm) 3,800

Vaso Pasha / Noka Sh.p.k. Polychromic Tower / GENER 2

Rruga Lek Dukagjini

11,500

Mixed-use

Millenium / Beta Sh.p.k.

Rruga e Kavajës

6,000

Business centre

Toptani Square Complex / Classic Construction TID / Tirana International Development Archea Tower / Archea Associati

Rruga Abdi Toptani

15,000

Mixed-use

30,000

Mixed-use

30,000

Mixed-use

City center Deshmoret e 4 Shkurtit Street Source: Colliers International Research

Mixed use

31 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Milennium Beta Ltd and Gleeds have started construction of a mixed-use project situated in the very center of the city. Gross area of the projects is 18,000 square meters and additionally includes 110 parking spaces. This amount of parking spaces adds significant value to the project, concerning its central city location. Beside the planned office area, the project will also include a cinema complex, a retail area on three levels and a bar/restaurant area. The finishing date of the project is expected for August 2008. Polychromic Tower The local construction company GENER 2 is constructing a 23-storey office tower in close proximity to the Palace of Congress, which is expected to meet Class A international standards. The commercialization of this project is expected for this year, while the pre-leasing process is about to start. This project is not in accordance with the French master plan, but its construction started far before the planâ&#x20AC;&#x2122;s adoption. The three objects of the project will connect with the big square and will be connected with each other via an underground level as well as several bridges. The main tower will features 18,500 square meters of commercial space, 11,500 square meters of office and approximately 16,000 of residential apartments. A small percentage of the space will be for service uses. Vaso Pasha Other project of company Beta Ltd, run by Gleeds, the international construction management company, is office and retail project located in Vaso Pasha Street. Gross area of the project is 5500 square meters while available for leasing office area equals around 2900 square meters. The opening date is expected for May 2009. TID One of the first towers to be developed in accordance with the French master plan in the city centre is named by its local development company - TID (Tirana International Development). The project features a modern 25-storey tower with mixed-use concept (office and retail) and estimated gross size of around 30,000 square meters. The construction company to be involved in the TID project is M.T. Construction sh.p.k. The same investor was involved in the recently opened Class A office project named Twin Towers.

32 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

“4 ever green” Project The Italian company Archea Associati has designed an 85-meter tower which creates an integrated part of the ambitious plan for the redevelopment of the city centre (based on guidelines contained in “French master plan”). This ambitious project features a six level underground parking lot, four levels of commercial space, seven levels of offices, and apartments on the top eight floors as well as a luxury hotel in a panoramic position at the very top of the tower. Every activity has a separate elevator and the swimming pool at the top of the towers will have an exceptional view of the city. The subject tower complex will be located in Deshmoret e 4 Shkurtit Street, in front of the future Orthodox Cathedral. Toptani Complex The urban complex named Toptani Complex (designed by MVRDV studio from Holland) is presently under construction at the crossroads of Elbasani Street and the boulevard (Ring), at Toptani Square. The fashionable project encompasses three buildings of 5 to 7 floors, with commercial, office and residential uses. The total gross building area is 19,000 sqm, which does not include 3 underground levels. The project is conceptualized as follows: • ground floor (h = 6 m), first and second floor (h= 4.2 m) – commercial area • part of the second floor, whole third and fourth floor (h = 3.3 m) – offices • fifth and sixth floor (h = 3.5 m) – residential apartments Red Tower Developers of Sky Tower, local construction company Lani Sh.p.k., is planning another mixed-use project in the city center, some 200-300 meters to the east from Europe Business Center, along the River. The gross size of the project is 13,800 sqm and should include 7000 sqm of office space, 3500 sqm of retail space and 3000 sqm of underground parking. This project is still not approved by the city authorities as it is not in accordance with the existing master plan.

Project of Toptani Square Complex, MVRDV Studio

33 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Polychromic Tower

Vaso Pasha

Milennium Building

Tirana International Development

34 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

6. CLASS A AND TIRANA BUSINESS PARK RENTAL VALUE FORECAST A final step in the analysis is to present an outlook for the Class A market along with a projection for rental levels in the following 5-year period.

Class A Stock and Rental Levels 150.000

20 15

100.000

10 50.000

0 2000

2005

2006

2007

Stock (GLA in sq m)

2008

2009

2010

Rent (EUR/sq m/month)

Source: Colliers International Research

Average rental rates are projected to show a slight but steady decrease over the next couple of years due to the large number of upcoming projects in the pipeline. The future trend of rents is dependent on how much new construction actually comes on-line. As shown above, a significant potential for speculative development exists in the Tirana market. This is a direct response to the favorable rate on returns and market yields. Because of this fact, it is conservatively estimated that rents in the market area will show a steady fall annually because of overbuilding. It is, however, possible that lender discipline and pre-leasing requirements may act to keep construction under/above what is conservatively projected. In the short term, the supply increase is not expected to result in significantly lower rental levels and higher vacancy rates. This is due to the slowed pace of construction combined with the high percent of pre-leased space within new projects. In the medium term, however, rents are likely to significantly decrease to the average level of EUR 13 per square meter per month or even lower. This is due to the expected overbuild in office supply, which will be the result of increased foreign investment and further economic growth of the country. If rents appear to record a more significant decline during the observed period, larger demand volume will expectedly be generated and vacancy rates will fall. It is fair to expect that many foreign companies in Albania will grow substantially, and thus have increased needs in terms of space. In addition, when these foreign companies 35 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

are looking for office rental space, many of them would like to have the possibility of future expansion within the buildings they choose. The speed and volume of their growth will be dependent on the growth of the economy in general. Performance projections such as rent levels, timing of absorption and occupancy change as planning and designing decisions are made, new information is gathered and changes occur in the market, such as the possibility of a new competitor. Pursuant to anticipatory economic circumstances in the market, we do not expect major tenants in the market to downsize or vacate. 6. REGIONAL BUSINESS PARKS OVERVIEW In order to better understand the present stage of the business park’s development in Albanian regional surrounding, we will present several projects that are considered to be of relevancy. Business parks on the regional level have started to develop about five years ago which indicates early stage of development. Capitals such as Athens or Zagreb are still waiting for their first projects, which is shown in the table below. The first projects that were commercialized successfully are located in Sofia and Belgrade. Table below presents some of the most important project’s characteristics. City

Name of Business Park Business Park Sofia

Location

Belgrad e

Airport City Belgrade

Wider center

Athens

n/a

Sofia

Zagreb

Total Buildup 194,50 0

No of Buildings

Building’s Size

Floor Plate

600030000

Various sizes

Phase 1 2005-2006 Phase 2 2006-2007

Phase 1 18,950 Phase 2 18,950

Southern 19,000 2008-2011 suburban, Athens Zagreb 5km west n/a 2005-2007 Business of Park Zagreb, Highway Source: Colliers International Research

5000060000

Phase 1 2 buildings Phase 2 2 buildings 5

Phase 1 App. 9,500 Phase 2 App. 9,500 App. 10000

Phase 1 App. 1,500 Phase 2 App. 1,500 2000 gross

5000 as minimum leasable

n/a

Mladost area, Sofia

Land Size (sqm) 90,904

Year of Construction

126,00 0

2001-2008

96000

Parkin g Ratio n/a

1:50

1: 50 of office space n/a

Based on the above presented data we can make the following conclusion: 36 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

Net Rent EUR/sqm /month 11.5 office; 3.5 storage; 12 retail 18.5 office

n/a 7 logistic

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

a. Business parks in Sofia and Belgrade have been built in several phases which is strategically recommendable option for large-scale projects on the emerging markets. It has been developed for 6 years and this process is continuing while Airport City Belgrade is developing for 4 years now. b. Buildings sizes within Business Park Sofia (which is the largest business park in region) vary according to the future tenants needs and demand predictions c. Except for the Airport City Belgrade, most of the projects are situated on the outskirts of the capital cities, thus commanding lower-than-average office rents and consequently attracting significant portion of demand d. During the designing and feasibility study process of the Business Park in Athens the projected office rents were around 20% lower than the rents appear in office buildings located at business districts. Also projected rents for the retail space inside the business park is around 30% higher than the office rents. e. General rule, in terms of the parking spaces is 1 parking space per 50 sqm of office leasable area.

37 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

VI. RETAIL MARKET SECTOR OVERVIEW 1. OVERVIEW Albania has probably the smallest retail market in Europe. The local retail market is largely dominated by domestically-owned enterprise chains (consisting of small to medium sized stores) and small private retail outlets. This type of market was common across the majority of Southeast European countries before they started their transition processes into market economies. After the political changes, the improved perceptions of the Albanian political and business climate began to translate into initial investment flows into the retail segment of the market. The face of Albanian retailing has slowly started to change not only in Tirana but also in the other Albanian cities. 2. SUPPLY The retail market in Tirana City is characterized by many small shops along major road axes. The only large-scale shopping centre in Tirana (a “big-box” facility), named QTU – Qendra Tregtare Univers, was opened in September 2005 and placed along the TiranaDurree Highway, 15 minutes or some 8 kilometers from the city center. Net leasing area of the project is around 19,000 square meters, featuring only ground level. The anchor tenant is a Euromax supermarket, with 4,000 square meters, while other international and large tenants are Mango, Terranova, Vodafone, Raiffeisen bank, Sport 2000, Interalbanian, etc.

QTU, Source: Colliers International, Serbia and Montenegro

Because of the significant space allocated to retail in the new office developments, the opening of the above mentioned Class A office buildings has brought to the Tirana 38 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

market a large amount of retail space. As an example, the three retail levels within the European Trade Centre have turned out to be a successful retail area with numerous exclusive stores, a high number of visitors and low vacancy. On the other hand, the large retail area within the Twin Towers project cannot be categorized as successful due to the extremely high vacancy rate even after a year since its opening. Sky Tower is also known as Vodafone tower due to the significant retail area occupied in the ground floor by this company. Another retail category present in Tirana is car dealership business - such as Mercedes, BMW, Ford, Porche, KIA, Peugeot, and VW. They have opened luxurious exhibitions/showrooms in Tirana along the old road towards the Airport (Tirnana-Durres Highway). In general, the market lacks good retail concepts both within the city center and in the suburban, which would include supermarket/hypermarket area with quality service and wide range of internationally and locally recognized brands and products. More precisely, the market lacks (both domestic and international) supermarket or hypermarket chains at all as well as other formats of big-box concepts (cash and carries, do-it-yourself, home appliances etc.). 3. DEMAND The success of the above mentioned QTU shopping centre indicates the desire of consumers for these kinds of projects. Further market expansion is expected to be fueled by the entrance of international companies from Greek, Italian and central Europe. The potential of Albaniaâ&#x20AC;&#x2122;s economy will attract international and global retailers and franchisers in the mid-term, while the allocation of some of these firms in the Albanian market is already under consideration. Many foreign banks have already established offices in the local market, especially from Greece, Austria and Bulgaria, along with telecommunication companies such as Vodafone and Cosmote. The entrance of international players is expected to shift traditional retailing from diverse small stores on street locations to wholesale retail stores and shopping centers. In order to succeed, developers must recognize the more sophisticated customersâ&#x20AC;&#x2122; needs and offer a more interactive and attractive environment. However, the general macroeconomic constraint facing the retail property market (as well as other retail segments) is limited opportunities for stable, paid employment. Wages remain low compared to prices, while levels of unemployment and underemployment remain high. The current boom within Tirana is fueled by commercial activities, remittances from relatives working abroad, and other informal and illegal activities. This cannot be considered as long term economic development or stable movement towards the higher incomes and standard of living which would drive the retail segment of the market. A limitation and shortage of present sources of income, without stable 39 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

alternatives in place, will certainly be reflected in the amount of modern retail projects that the market will be able to absorb in the mid-term. Projects in the Pipeline Most of the above-mentioned office projects in the pipeline will feature retail (commercial) contents on the lower levels: Vaso Pasha (1,820 square meters), Eyes of Tirana (18,500 square meters), Toptani Square Complex (between 5,000 and 8,000 square meters), TID, Archea Tower etc. 4. RENTAL AND SALES PRICES Rents last year increased in primary locations, reaching high enough prices for retail areas in buildings such as Twin Towers, European Trade Center and Sky Tower. Ground level rents in these buildings range from EUR 30 to 45 per square meter per month (the higher end of this range is charged in Twin Towers), EUR 30 to 35 per square meter per month for the first floor and EUR 15 to 27 per square meter per month for the second floor. As mentioned above, retail space in Twin Towers is charged at significantly higher prices than the space of the same quality within the European Business Centre, which is one of the main reasons for the lower occupancy of the subject project. The average rental price for retail stores along the City’s road axis and new projects located in the suburbs is around EUR 15 per square meter per month. Good retail units on Kavaja Street have asking prices up to EUR 40 per square meter per month. Retail units in lower-end neighborhoods of Tirana are rented at prices below EUR 10 per square meter per month. The table below presents today’s rental prices. Information and data collected from building owners, local real estate agents and professionals from financial institutions. Description Twin Tower European Trade Center Shops along Rruga E. Kavajes road Bank Branches

Average rents* (EUR/square meters/month) 15 to 45 20 to 35 15-30 13 – 15

Average sales prices (EUR/square meters) 3,000 – 5,000 2,500 – 4,500 n/a n/a

Source: Colliers International Research * Plus VAT

Sales prices of the retail units in Tirana are especially strong, like in other Eastern European cities. The strongest prices are recorded in the above-mentioned business centers, on the main boulevards and the streets in the most popular retail area called “Blocku”. 40 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Prices for the retail units along main boulevards such as Bajram Curi and Gjergj Fishta usually range from EUR 1,500 to 3,000/square meter, while retail units along Deshmoret e Kombit can achieve prices up to EUR 4,000 per square meter. Prices within the Blocku main streets (including Sulejman Delvina and Abdyl Frasheri) for good/renovated retail units range from EUR 2,000 to 4,000/square meter, while retail units in less popular streets or in need of renovation range from EUR 1,500 to 2,000/per square meter. Prices for Komuna e Parasit Boulevard most usually range between EUR 1,500 and 2,500 per square meter. 5. REGIONAL MARKET RETAIL SECTOR OVERVIEW In order to better understand the present state of the retail sub-market in Albania and especially its potential for future development, monitoring of regional markets is considered the most relevant and a standard procedure. Demand for high street locations continues to exceed supply in the region. Retail expansion and the desire of chains for economies of scale have been proved equally auspicious for the commercial areas of the major cities in South East Europe. Demand comes mainly from local and international retailers such as fashion boutiques, accessory stores, fast food restaurants and financial institutions. Vacancy rates remain at low levels on average especially in capital cities for locations along high streets. Table below presents rental levels for SEE countries for the year 2005. High Streets in Sofia Athens Bucharest Belgrade Source: Colliers International Research

Average rents (EUR/square meters/month) 50 to 120 60 to 250 35 to 100 40 to 120

Big-box evolution for the period since 2000 and announced expansion plans are presented in the second table. Following are rental ranges for wide range of retail categories as well as supermarkets. Demand for available space appears mainly from food retailers, consumer electronics and DIY stores. Further analytical breakdown, showing the retail chains present in these markets is given in Appendix.

41 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

BIG-BOX 2000 2001 SUBCATEGORY Hungary Cash & Carry 27 31 Hypermarket -Supermarket 24 30 DIY 32 35 Romania Cash & Carry 7 12 Hypermarket -Supermarket 5 7 DIY 0 0 Bulgaria Cash & Carry 2 4 Hypermarket -Supermarket 1 15 DIY 1 3 Serbia Cash & Carry 0 0 Hypermarket -Supermarket 1 3 DIY 0 0 Source: Colliers International Research

2002

2003

2004

2005

38 39

52 45

67 51

69 51

9 4

14 9

21 13

24 13

24 5

31 6

40 6

52 6

4 1

5 2

7 4

9 5

200 6

Announced expansion

35 94

N/A N/A

55 36 49 26 8 66 13 14 11 5

15 42 14 N/A N/A N/A 28 9 2

Big-box Supermarkets* EUR/sqm/month EUR/sqm/month Budapest 5.0-7.0 7.0-8.0 Bucharest 8.0-10.0 9.0-12.0 Sofia 7.0-9.0 10.0-12.0 Belgrade n/a 7.0-12.0 Source: Colliers International Research Country

Furthermore, in the following table we present a summary of basic macroeconomic indicators for the countries used as comparable markets for 2003: Country Population in 000’s Hungary 10,117 Romania 21,698 Bulgaria 7,081 Croatia 4,437 Serbia 7,498 Albania 3,087 Source: Colliers International Research

Capital city in 000’s 1,705 1,922 1,044 694 1,576 1,000

GDP per capita 8,185 2,780 2,545 6,383 2,850 1,600

Based on the above presented data we can make the following conclusion: a. Regarding the population, especially number of inhabitants in the capital, Albania is an excellent opportunity for retailers who want to expand their cross-border operations in this market. 42 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

b. Although Albania is the least developed market in the region, the growth of the economy indicates potential development. GDP per Capita is the lowest compared to other countries; however, the annual real GDP growth for the year 2004 was 6.7%.

43 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

VIII. TIRANA BUSINESS & RESIDENTIAL PARK RECOMMENDATIONS 1. HIGHEST AND BEST USE ANALYSIS The principal of highest and best use is defined: That reasonably probable use and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value.1 The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability." o Permissible Use (Legal) - what uses are permitted by zoning and deed restrictions on the site in question? o Possible Use- to what uses is it physically possible to put the site in question? o Feasible Use-, which possible and permissible uses will produce any net return to the owner of the site? o Highest and best Use- among the feasible uses, which use will produce the highest net return or the highest present worth? The highest and best use may be determined to be different from the existing use. The existing use will continue, however, unless and until land value in its highest and best use exceeds the total value of the property in its existing use. Implied within these definitions is recognition of the contribution of that specific use to community environment or to community development goals in addition to wealth maximization of individual property owners. Also implied is that the determination of highest and best use results from the appraiser's judgment and analytical skill, i.e., that the use determined from analysis represents an opinion, not a fact, to be found. In appraisal practice, the concept of highest and best use represents the premise upon which value is based. In the context of most probable selling price (market value), another appropriate term to reflect highest and best use would be most probable use. In the context of investment value, an alternative term would be most profitable use. The highest and best use for the unimproved property may be different from the highest and best use of the improved property. This will be true when the improvement is not an appropriate use and yet contributes to total property value in excess of the value of the site.

The Appraisal of Real Estate, 12th edition, The Appraisal Institute, Chicago, Illinois, (U.S. 2001), page 305.

44 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

Highest and Best Use as Vacant:

Legally Permissible:

Physically Possible:

Financially Feasible:

Maximally Productive:

With the subject site being vacant and available for use, the current zoning would be the legal restraint on what improvements could be placed on the site. The subject site has a commercial office, retail and residential zoning. The proposed development of the Business & Residential Park conforms to the current zoning guidelines. Also despite the fact that the subject site is outside the airport concession zone, the proposed development is viewed positively and supported by airport authorities. The project will contribute to development of the entire area. The size, shape, and terrain of the appraised site are conducive for many types of development. The utilities serving the subject site are adequate for many uses. The property is clearly visible from the new road servicing the Tirana International Airport and accessibility to and from the surrounding region is good. According to the planning department, the site width is sufficient to allow development and most allowed uses could be physically placed on the site without any unreasonable hindrance. Financially feasible refers to legal uses, which are physically possible and have a sufficient demand to produce a positive return. Once the physically possible and legally permissible potential land uses have been determined, the next step in estimating the highest and best use is to determine which uses are economically feasible. The strategic location of the site but also for the country of Albania as a transportation node, are primary factors that favor the development of a Business Park. The feasibility of Aâ&#x20AC;&#x2122; class Office building development is evidenced by numerous established building developments in Tirana with low vacancy rate. Based upon these observations, the use as Business Park development with all the relevant facilities to the tenants reflects the highest and best uses of the site. With consideration to the highest legal use as allowed by the zoning regulations, the consideration must be given to the financial consequences of building other uses on the site. The returns to the investor can be tested to establish which would return the most to the site. The financial return is tested and an analysis is made of a cash-on-cash return of the legal uses. The cost of operations of the possible property types is approximately the same on a percentage basis.

45 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY – TIRANA BUSINESS PARK

2. RECOMMENDATIONS The Albanian retail and office market, as in many Balkan Countries, is in the process of a revolutionary change where new forms of office and retailing should replace the old ones. Class A office buildings provide high quality offices to international and local tenants, however at higher rental rates than in the region. Large-scale retail establishments in the form of big-boxes and shopping centers are yet to enter the market and become key players on the retail scene. The Tirana Business & Residential Park site has excellent potential due to its primary location in a high amenity environment with good transportation links and visibility for this type of developments and therefore in the next part of this report we will suggest its development into a multifunctional residential park with business amenities. According to the information gathered from local engineers the allowable terms and conditions for development are as follows: Coverage Maximum height Minimum distance between buildings Minimum distance from the site’s boundaries

50% No standard rule exists and depends on the optimum of the territory use. However 4 storey buildings will be permitted. The total number of floors of the two buildings in meters plus 2 meters. The number of building’s floors plus 1 meter.

Under the above restrictions the maximum permissible coverage area is 28,000 sq. meter (based on CURRENT land assembly under single ownership).. With the assumption of four floor buildings, this leads to a maximum permitted development of approximately 112,000 sq. meters. Colliers International suggests the development of a cost-effective and user-friendly residential park that is constructed according to Europeans Union standards, and with related auxiliary facilities, in accordance with all the legal terms and conditions provided by building permit and city’s zoning. The main components of the development scenario, which will strongly influence the developer’s decision process and feasibility of the project itself, are the following: Good architectural design has never been more important than it is today for a successful market acceptance for large scale projects, even in developing and not mature markets as it is the Albanian. The application of some fundamental technical parameters and specifications during the designing stage is very significant. 46 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.

MARKET SURVEY â&#x20AC;&#x201C; TIRANA BUSINESS PARK

We will consider and analyze the proposed development scenario in order to conclude to the mix that maximizes the potential investment. The analysis is based on the consideration of the potential income of development as well as the capital cost for the investment.

47 Please note that the information contained in this report is privileged and confidential and remains the intellectual property of Colliers International. It is intended only for the use of the individuals and company named in this report and others who have been specifically authorized by Colliers International. Any dissemination, distribution or copying is strictly prohibited without the written consent of Colliers International.