outlook for european real estate in 2013 filesentiment amongst emea investors slowly improving note:...

Outlook for European Real Estate in 2013 Mark Charlton, Head of Research & Forecasting

Tuesday 20th November 2012

Europe - uncertainty continues to buffet

sentiment

2

60

70

80

90

100

110

120

130

140

Oct

06

Oct

07

Oct

08

Oct

09

Oct

10

Oct

11

Oct

12

UK

Germany

Eurozone

Eurostat Survey: Economic Sentiment

Source: Eurostat

• IMF and UNCTAD report that high

levels of economic uncertainty

are crippling investment and

economic recovery

• Boosts to confidence short-lived

• US companies hold over $1.7

trillion in cash

• Transnational companies hold $5

trillion in cash

• FDI and business expansion are

on hold

Eurozone & German GDP weakening

3

-6%

-4%

-2%

0%

2%

4%

-3%

-2%

-1%

0%

1%

2%

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Quarter-on-quarter (LHS)

Year-on-year (RHS)

Eurozone GDP % Growth

Source: ONS

-6%

-4%

-2%

0%

2%

4%

6%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Q4

09

Q1 1

0

Q2 1

0

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12


Year-on-year (RHS)

German GDP % Growth

Source: ONS

Europe – key economies; size and growth

4

• Germany remains the powerhouse, but it cannot avoid the slowdown

• France is weak and may tip into recession

• Poland relatively strong, but not immune

GDP (€ millions)

Europe – key economies; size and growth

5

• Spain sees two years of negative growth

• Sweden and Poland show respectable growth, but at reduced rates

• UK, France and Germany sluggish

• For property – expansionary demand to remain subdued

EMEA investment volumes down

6

€ 0

€ 50

€ 100

€ 150

€ 200

€ 250

€ 300

€ 350

€ 400

€ 450

07

Q4

08

Q1

08

Q2

08

Q3

08

Q4

09

Q1

09

Q2

09

Q3

09

Q4

10

Q1

10

Q2

10

Q3

10

Q4

11

Q1

11

Q2

11

Q3

11

Q4

12

Q1

12

Q2

12

Q3

Americas

Asia Pac

EMEA

Investment Volumes

(12-month running total)

Source: RCA

billions • EMEA suffering from weak

confidence

• Asia Pac volumes have almost

trebled since the 2009 trough

• EMEA and Americas volumes have

recovered, but remain at about

45% of their 2007 levels

• Marked improvement in EMEA

volumes unlikely in 2013

7

Sentiment amongst EMEA investors slowly improving

Note: Colliers International Property Investor Sentiment Index is based on a result of where above

100 means that more investors are positive about investment conditions. Below 100 means more

investors are negative about investment conditions

100.60

101.35 101.49

104.30

98.00

99.00

100.00

101.00

102.00

103.00

104.00

105.00

Last 6 months Next 6 months Next 12 months Next 5 years

8

Over one third of EMEA investors believe that

property investment conditions will improve over the

next 6 months?

14%

37%

49%

0%

10%

20%

30%

40%

50%

60%

Decline Improve Stay the Same

Source: Colliers International

9

56% - good time to invest in commercial property

59% - planning to expand over next 6 months

Good time to invest

56%

Neither a good or bad

time 38%

Bad time to invest

6%

59%

28%

12%

0%

10%

20%

30%

40%

50%

60%

70%

Expand / increase level ofinvestment

Maintain / consolidatecurrent investments

Reduce / sell currentinvestments

Which of the following best describes how your property portfolio will change over the next 6 months?


London and Paris dominate activity

– as in 2011

10 Source: RCA

Top 7 German City/Regions - €13,116

Occupier markets generally flat

Offices

11

0%

5%

10%

15%

20%

25%

30%

20

09

H1

20

09

H2

20

10

H1

20

10

H2

20

11

H1

20

11

H2

20

12

H1

Dusseldorf

London WestEnd

Copenhagen

Warsaw

Budapest

Vacancy Rates Rising

Colliers International

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

20

09

H1

20

09

H2

20

10 H

1

20

10

H2

20

11

H1

20

11

H2

20

12

H1

Berlin

Frankfurt

Hamburg

Munich

Stuttgart

London City

Stockholm

Helsinki

Prague

Moscow

Vacancy Rates Falling


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20

09

H1

20

09

H2

20

10

H1

20

10

H2

20

11

H1

20

11

H2

20

12

H1

Paris

Oslo

Vacancy Rates Steady


Office rental growth generally flat

12

0

10

20

30

40

50

60

70

80

90

100

20

09

H1

20

09

H2

20

10

H1

20

10

H2

20

11

H1

20

11

H2

20

12

H1

London West End

Paris

London City

Moscow

Stockholm

Oslo

Frankfurt

Munich

Dusseldorf

Warsaw

Hamburg

Helsinki

Stuttgart

Prague

Copenhagen

Budapest

Rental Movements to H1 12


Logistics - a couple of areas to think about…

• E-commerce

• Infrastructure

13

Will anything change in 2013?

• Eurozone uncertainty will continue to impact on business confidence

• Recession is a reality in a number of European countries at start of 2013

• Unlikely to see even modest growth until H2 2013

• Limited bank lending will continue to act as a drag on the market…

• …and will only be available to those meeting stringent conditions and at

a price

• Further growth of new lenders and mezzanine funds

• Investors will continue to focus on prime product; transparent, deep and

liquid markets

• Opportunities for those prepared to take on more risk, but…

• …only if finance is in place

14

UK recovery at last? One step forward…

15

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Q3

-08

Q4

-08

Q1

-09

Q2

-09

Q3

-09

Q4

-09

Q1

-10

Q2

-10

Q3

-10

Q4

-10

Q1

-11

Q2

-11

Q3

-11

Q4

-11

Q1

-12

Q2

-12

Q3

-12


Year-on-year (RHS)

UK GDP % Growth

Source: ONS

• Chancellor under less pressure to

follow through with July’s

promises

• PMI data suggests that Q4 12

GDP could decline marginally

• Autumn financial statement 6th

December should bring greater

certainty with respect to

economic policy

• Bank of England to remain

accommodative

UK investment market challenging

16

• UK will struggle to reach 2011

totals, but Central London seeing

safe haven flows

• London City and West End YTD

38% of value vs 27% in 2011

• 2012 currently c. £25.7 bn;

forecast £29 bn at year end

• Modest improvement in 2013 to

£35 bn Source: Property Data, Colliers International

UK property performance flat . . .

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Se

p-0

2

Se

p-0

3

Se

p-0

4

Se

p-0

5

Se

p-0

6

Se

p-0

7

Se

p-0

8

Se

p-0

9

Se

p-1

0

Se

p-1

1

Se

p-1

2

AP Capital Growth %m/m

AP Rental Growth %m/m

Source: IPD 2012

UK IPD Rental Growth %m/m

% m/m

Polarisation to continue in 2013

• Prime vs non-prime

– Investors to remain risk averse

– Non-prime pricing beginning to attract some interest, but obtaining finance

remains challenging

• London vs Rest of UK

– Occupier markets across sectors generally flat outside of London

– 2013 rental growth limited outside London…

– …but steady net absorption and limited new development in regional office

markets will generate some rental pressure for Grade A space

– Lack of spec and D&B logistics is also limiting options for occupiers

18

London vs Rest of UK retail rents

19

London vs rest of UK retail rents

20

TMT* 26%

Banking & Financial Services

20%

Business Services

20%

Insurance 12%

Legal 7%

Property 6%

Other 5%

Retail / Leisure

4%

City Office take-up by business sector

City – 2011 City-2012 to date

*Technology, Media & Telecommunications

TMT* 36%


16%

Business Services

13%

Insurance 11%

Legal 8%

Property 7%

Other 4%

Education 3%

Public Sector

2%



28%

Insurance 18% Business

Services 18%

TMT* 16%

Legal 9%

Property 8%

Other 2%

Retail / Leisure

1%

City Core vs Mid Town take-up by business

sector

City Core – 2012 to date Midtown and Fringe-2012 to date

*Technology, Media & Telecommunications

TMT* 63%

Business Services

9%

Legal 7%

Property 6%

Education 5%

Public Sector

4%

Other 3%


2%

Retail / Leisure

2%


TMT driving absorption in City fringe

23

City Core absorption

remains positive, but

becoming marginal

TMT has been driving

stronger absorption in City

Fringe / Mid-Town


Net Stock Absorption – West End

-1 500 000

-1 000 000

-500 000

0

500 000

1 000 000

1 500 000

H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 H1 2012

sq

ft


Net Stock Absorption – Core vs Non-Core

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 H1 2012

Mayfair Victoria

sq f

t


£0.00

£25.00

£50.00

£75.00

£100.00

£125.00

£150.00

£175.001

97

1

197

5

197

9

198

3

198

7

199

1

199

5

199

9

200

3

200

7

201

1

201

5

£ p

er

sq f

t

City West End Midtown

3 Day Week

80s recession

90s recession

Recovery

Headline rents & forecast 1971-2015

ERM Crisis

Dotcom Collapse

Credit Crunch


UK rental forecasts

27

UK total return forecasts

28

Conclusion

• A deteriorating situation in most European economies will not help the

real estate markets

• Eurozone uncertainty will continue to impact business confidence in

Europe and the UK

• Assuming no further external shocks, the UK is approaching the end

of a long tunnel, but economic recovery will be slow

• Expansionary demand will remain subdued…

• EMEA investors are becoming more positive and most wish to invest

and expand portfolios – 77% with debt – which will be a challenge

• Growth in new lenders and mezzanine funds

• Investors will remain relatively risk averse – we see more of the same

• Opportunities do exist as secondary pricing continues to adjust – but

finance will need to be in place

29

Our Global Strength

Top 3 global real estate services brand

• 522 offices in 62 countries

• 12,000+ employees

• $1.8 billion in revenue

• Over 90% “owned” revenues

• $68bn transaction value

• Over 2.1 bn square feet under management *

* Includes FirstService Residential Management

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