Alony Hetz Properties & Investments : Presentation, March 2024

Office Market

Outlook

Prepared for Alony Hetz Properties & Investments Ltd

2024 Capital Markets Annual Meeting

March 2024

Disclaimer: This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.

Macroeconomic Outlook for 2024

Uncertainty remains, but momentum should build as the year progresses

Growth	Inflation/Prices	Interest rates	Risks & uncertainty
Growth to be slower, but still	Inflation is falling, but prices	Policy rates have peaked, but	Another year of elevated
mostly positive in 2024-with	remain elevated, and risks	central banks may hold higher	geopolitical tensions, policy
momentum building in H2	remain	for longer than markets	risks, and election uncertainty
		expect

Source: JLL Research

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Uncertainty around the growth outlook is wide - many forecasts incorporate positive and negative views

U.S. 10 Year Treasury Yield (%)

2024 GDP growth forecast (% YoY)

(%)

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Jan-20Sep-20May-21Jan-22Sep-22May-23Jan-24

7
6		GDP projections have
	generally been revised

5	up, but in most cases
	set to decline slightly
4	from 2023
3
2
1
0
-1
-2

	Forecast range		Median forecast

Source: JLL Research

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Future office demand considerations: Balancing cyclical and long-term factors

Cyclical Factors

Long Term Factors

Economic growth

Growth outlook is expected to be weak, but mostly positive, for major economies in 2024, with momentum expected to build in the latter half of the year

Rising cost

Inflation is falling, but price levels are expected to remain elevated

Job growth

Firms continue to recruit more than they are laying off, leaving job vacancy rates elevated compared to historic norms

Return-to-workmetrics Office re-entry rates have improved and reached a post- pandemic high in 2023, surpassing and plateauing around 50% overall

Hybrid-working

Employers are finalizing hybrid work policies, with a wave of major employers recently reversing remote-first work

Office utilization

Ratio of unassigned seating to dedicated desks is increasing as some employees trade assigned spaces for locational flexibility

Sustainable buildings

Sustainable buildings are likely to drive greater interest from occupiers on account of the reduced operating and energy costs

Flight-to-quality

Tenants are upgrading their offices with premium amenities and hospitality services to help lure remote workers back to the office

Source: JLL Research

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U.S. re-entry rates reflect growing dominance of three-day

workweek; further gains in office attendance will likely be incremental

Placer.AI weekly average attendance rate

70%

65%

63.5%

60%

55%

50%

45%

40%

35%

30%

Jan-22

Feb-22

Mar-22

Apr-22

May-22

Jun-22

Jul-22

Aug-22

Sep-22

Oct-22

Nov-22

Dec-22

Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Nov-23

Dec-23

Source: JLL Research,Placer.ai, KPMG

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KPMG 2023 CEO Outlook

	of CEOs believe hybrid
64%	schedules will transition
back to pre-pandemic
	attendance frequency by
	2026
Company	Initial Policy	Current/Announced Policy
Fidelity Investments	1/4 weeks	2/4 weeks
Deutsche Bank	3 days/week	4 days/week
Deere	2 days/week	4 days/week
L'Oreal	3 days/week	3 days/week + 2 Fri./month
UPS	3 days/week	5 days/week
JPMorgan	3 days/week	5 days/week
Disney	3 days/week	4 days/week
USAA	3 days/week	4 days/week
Boeing	3 days/week	4-5 days/week
Geico	2 days/week	4 days/week
BlackRock	3 days/week	4 days/week
Verizon	1 day/week	3-4 days/week
Nike	3 days/week	4 days/week
Nationwide Insurance	1 day/week	2 days/week
Daimler Trucks	2 days/week	4 days/week

Office utilization is increasing as the ratio of unassigned seating to dedicated desks increases

1950s 1960s

• Traditional closed office layouts comprised the dominant design, with open office plans a more niche emerging concept.
• Large private offices; not uncommon for executives to have private offices in excess of 500 s.f.
• Introduction of new technologies including copy machines and computers.
• Design trends focused on improved employee experience: air conditioning became widespread in offices in the 1950s, designs incorporated more vibrant color and patterns to create vibrant work environments.

1970s 1980s

• Departure from traditional closed office layouts and increased adoption of open office plans featuring low or no partitions and a central working area, designed to promote collaboration.
• Introduction of first computer workstations, technology featured in offices more prominently which necessitated new infrastructure to manage cables.
• Growing focus on employee comfort: improved furniture, natural light, improved aesthetics.

1990s 2000s

• Continued emphasis on collaboration drives increased adoption of open office plans - private offices become rarer and smaller.
• Technology becomes deeply integrated to offices - computer workstations become ubiquitous, increased infrastructure for hardware and wireless networks, first instances of remote work.
• Decreased reliance on paper begins to eliminate space dedicated to file storage.
• Design begins to focus on sustainability and wellness, introducing fitness centers, standing desks and other amenities.

2010s 2020s

• Open offices transition to activity- based working, providing different spaces for employees to self-select based on work preferences.
• Continued gradual shift away from private offices, plateauing of downsizing of private offices.
• Continued shift towards paperless offices eliminates space needs for file storage, increased adoption of technology leads to greater space dedicated to technology infrastructure.
• Design focuses on wellness and engagement: amenitized offices with curated events and activities for social engagement.

250-350		225-300		175-250		150-175
s.f. per employee		s.f. per employee		s.f. per employee		s.f. per employee

Source: JLL Research

6 | © 2024 Jones Lang LaSalle IP, Inc. All rights reserved.

Office flight-to-quality trend becoming structural

		Structural shift in demand for highest quality assets
	6%
	4%			New / Differentiated assets
	2%	Historical
		performance
index	0%	spread
				Wider
Demand	-2%				Future
			performance
					spread
	-4%	Commodity/
	Functional
	-6%	Undifferentiated assets
	obsolescence
	-8%

-10%

-12%

Pre-2020 2020

2021

2022

2023

2024

2025

Source: JLL Research

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• A highly bifurcated market
• Focus on high-quality and differentiated space
• Construction pipeline peaking
• Accelerating obsolescence in Grade B and C space

Quality will be a major determinant of future performance

Tier 1:	2015+ vintage assets
Lifestyle
11% of total U.S. market by SF

Tier 2:	2000-2014 build assets
Differentiated	Pre-2000, substantially renovated after
33% of total U.S. market by SF
	2010

Tier 3:	1990-1999 build assets
Repositionable	Pre-1990, renovated 1990-2009
24% of total U.S. market by SF
	Repositionable at right cost basis

Tier 4:
Transitional /	Pre-1990 build, not substantially
Functionally	renovated since completion
Challenged
32% of total U.S. market by SF

	One Vanderbilt		Salesforce Tower		1222 Demonbreun
	New York City		San Francisco		Nashville

	One Post Office Square		Old Main Post Office		Trammell Crow Center
	Boston		Chicago		Dallas

	Ponce Circle Tower		311 S Wacker		Charlotte Plaza
	Miami		Chicago		Charlotte

	Bank of America Plaza		One Park Plaza		135 S Lasalle
	Dallas		Los Angeles		Chicago

Source: JLL Research, *Sizable share of assets will be converted to alternative uses, demolished or remain functionally challenged. Analysis reflects top 20 U.S. MSAs, office assets 100k+ s.f.

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Rent growth in high-end product counterbalanced by persistent pressure from elevated concession packages and financing costs

Executed rental rates

Change since

Q4 2019:

Rent per s.f.

$100

+14%

$90

$80

+5%

$70

$60

-1%

$50

-6%

$40

$30

$20

$10					Base Rate	Effective Rent		Trophy Base	Trophy Effective
$0
2019	2020	2021			2022	2023
"Before COVID"

Source: JLL Research. Note: Executed rents are weighted by lease size and term

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Behind the U.S. flight to quality: Positive absorption, positive rent growth, lower cap rates and greater investor conviction

							Net absorption by vintage
															Last 12 months absorption
	2015-present															as a % of inventory
														121.6	+6.4%
	2010-2014				-8.0							-2.6%
	2000s			-67.3												-3.0%
deliveryof	1990s				-52.3											-2.4%
Year	1980s	-118.8														-1.9%
1970s				-41.0										-1.6%
	1960s															-1.8%
				-21.4
	Pre-1960				-45.5										-1.3%
	-150.0	-100.0	-50.0		0.0	50.0	100.0	150.0
					Net absorption since COVID-19 onset (m.s.f.)

Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million)

10 | © 2024 Jones Lang LaSalle IP, Inc. All rights reserved.

Demand bifurcation for higher-quality assets has expanded rent premium for newer-vintage product

	$70
	$65					Average asking rent ($ p.s.f.)
p.s.f.)	$60							Delivered since 2015
	$55								$59.31
($	$50
rent	$45								58.5%
$40
asking
$35								$37.41
Average	$30
2016	2017	2018	2019	2020	2021	2022	2023
	2015
									Delivered before 2015
	$25
		New construction office assets continue to be valued at
(%)	7.8%	substantially lower cap rates than the broader market
7.4%
rate	7.0%
6.6%
cap
6.2%
Average
5.4%
	5.8%
	5.0%
		2015	2016	2017	2018	2019	2020	2021	2022	2023
				Overall office	New construction