© Copyright 2015 by K&L Gates LLP. All rights reserved.

Sabina Kalyan, Global Chief Economist and Head of EMEA Strategy and Research, CBRE Global Investors Tom Sharman, Head of Strategy & Insight, Real Estate Finance, RBS Steven Cox, Of Counsel, K&L Gates LLP – London Matt Norton, Practice Area Leader – Real Estate, K&L Gates LLP – Charleston/New York Rainer Schmitt, Partner, K&L Gates LLP – Frankfurt

Global Real Estate Trends, Brexit and Opportunities for 2016/2017

Tuesday 20th September 2016

– –

CONFIDENTIAL AND PROPRIETARY

BREXIT & THE OUTLOOK FOR GLOBAL REAL

ESTATE MARKETS

Presented by:SABINA KALYAN, GLOBAL CHIEF ECONOMIST

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 1

The Base Case Outlook Is Pretty Boring & Benign

Source: Oxford Economic Forecasting.

-1

0

1

2

3

4

5

6

Major Market GDP Forecasts, 2016-2020, % PA.

Pre Brexit Post Brexit Diff

China is structurally slowing and rebalancing which is having an impact on the sustainable rate of growth in Singapore, Australia and Hong-Kong. Meanwhile Abenomics is fading in Japan.

The growth rates in the USA and the better performing markets in the USA Eurozone are fairly similar.

In all cases, growth is at or just below the trend rate of growth. No major market is forecast to experience a recession on the base case.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 2

But Confidence In The Base Case Is Unusually Low

WE LIVE IN A HIGHLY UNCERTAIN WORLD

• Powerful deflationary forces

• Elevated leverage

• Massive central bank distortion of asset prices

• Damaged banking system

• Poor demographics

• Heightened social division

FORECASTING UNCERTAINTY

• The OEF only assigns a 45% probability to the base case (historic average c60%)

PROBABILITY OF MAJOR MARKETS FALLING INTO RECESSION

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

JapanUKUSA

ChinaHK, Sing

Aus EZ

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 3

The Macro Demand Impact Of Brexit Is Marginal In Most Markets

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

GDP Forecast, % pa, 2016-2020.

Pre Brexit Post Brexit Diff

The UK’s major trading partners – Ireland and the Netherlands – are most affected. CEE markets are vulnerable to risk-sentiment changing due to their dependence on foreign funding of their current accounts. Also the CEE are recipients of EU FDI to which the UK is a large contributor.

Source: Oxford Economic Forecasting.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 4

The Major Impact Has Been On Monetary Policy Forecasts

Source: Oxford Economic Forecasting.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

16 17 18 19 20

Central Bank Policy Rates, % -Eurozone, UK, Japan.

UK - Apr

UK - Jul

EZ - Apr

EZ - Jul

Japan - Apr

Japan - Jul

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

16 17 18 19 20

Central Bank Policy Rates, % -USA, Hong Kong, Australia, Canada.

Aus - AprAus - JulHK - AprUSA - AprHK - JulUSA - JulCan - JulCan - Apr

Source: Oxford Economic Forecasting.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 5

Cheap Sterling Is A VERY Powerful Automatic Stabilizer

Source: Oxford Economic Forecasting.

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

15 16 17 18 19 20

Aussie Dollar, Euro & Sterling Exchange Rates, Quarterly Average.

AUD/USD - Apr AUD/USD - JulEUR/USD - Apr EUR/USD - JulGBP/USD - Apr GBP/USD - Jul

100

105

110

115

120

125

130

15 16 17 18 19

JPY/USD Exchange Rate,Quarterly Average.

JPY/USD - Apr JPY/USD - Jul

USD Stronger

Source: Oxford Economic Forecasting.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 6

Manipulated Bond Yields Continue To Force Capital Into Real Estate

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16

10 Year Government Bond Yields, %.

Spain Italy France Netherlands Germany UKSource: Reuters.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 7

The UK Economy Is Outperforming Admittedly Awful Expectations

Source: Citi

The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined asweighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positivereading of the Economic Surprise Index suggests that economic releases have on balance [been] beating consensus. Theindices are calculated daily in a rolling three-month window. The weights of economic indicators are derived fromrelative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decayfunction to replicate the limited memory of markets.

-60

-40

-20

0

20

40

60

80

100

120

140

Jan13

Mar13

May13

Jul13

Sep13

Nov13

Jan14

Mar14

May14

Jul14

Sep14

Nov14

Jan15

Mar15

May15

Jul15

Sep15

Nov15

Jan16

Mar16

May16

Jul16

Sep16

Citi Economic Surprise Index - UK.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 8

European CRE Markets Are At Risk From Another Political Surprise

Source: National governments.

Country Date Risk

Spain June 26th 2016 Parliamentary elections could bring in a left-wing populist anti-austerity party promising Catalonia an independence referendum. This would severely undermine both the stability of the economy but the investment case of buying into a structurally reforming market.

Czech Republic October 2016 Two rounds of Senatorial elections in a country notorious for its opposition to joining the Euro but very close links to the Germany.

Italy TBD October 2016

A constitutional referendum mandating massive reform of the Senatorial system to enable the reformist Prime Minister Matteo Renzi to initiate badly needed structural reforms. A loss would be seen as bad for the economic outlook. If Renzi lost he would likely resign as PM.

Germany TBD February 2017

Presidential elections – ceremonial role but as Austria showed this could still provide a valve for a protest vote with the far right Alternative For Germany (AfD) polling well.

Netherlands By 15th March 2017

Parliamentary elections. Geert Wilders’ far right Freedom Party is vocally calling for a NEXIT referendum – immigration a key issue.

France 23rd April & 11th

June 2017Presidential election. Marine le Pen’s far right National Front almost guaranteed to go through to the second-round run-off – the question is whether she could actually win. She will likely campaign on the promise of a FREXIT referendum.

Hungary TBD April 2017 A further large majority for the far right President Victor Orban is expected. Orban has already said he is considering a referendum on leaving the Schengen Area rather than the EU as a whole, but free movement of labour is seen as a non-negotiable issue by the European Commission. Note Orban’s close ties to Putin.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 9

London Lost Its #2 Position To LA In H1 2016

0

5

10

15

20

25

30

35

Metro Areas With The Highest Deal Volume In H1 2016 – USD bn.

EMEAAmericasAsia-Pacific

Paris lost its top five spot after the GFC with investors continuing to doubt that structural reform is in sight. London has lost its #2 slot to LA for the first time since RCA started collecting data in 2006.

Source: Real Capital Analytics.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 10

The UK Was A Major, But Not The Only, Drag On Deals

Source: CBRE EMEA Research.

-17

-36

-75

-50

-25

0

25

50

75

Investment Volumes By Country, % H1 16/H1 15.

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 11

BREXIT Accelerates The UK Downturn We Were Already Expecting

Source: IPD Annual Index, CBRE Global Investors June 2016

Most vulnerable

Least vulnerable

13.1

-1.0

0.6

3.7

-10

-5

0

5

10

15

2015 2016 2017 2018

All Property Total Return Components, %.

Capital Growth

Income Return

Total Return #

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 12

Central London Offices Facing The Perfect Storm?

Peak pricing achieved

A slowdown in growth?

A 2018/19 supply glut

Uncertainty associated with the EU Referendum

Business rates revaluation

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 13

�The sensible choice [for businesses] is not to stay in a land that could leave Europe one day but to make a choice to invest long term in a land that will always stay in Europe�

City Winners And A More General Flight To Quality

Sources: PMA, FT.com

Valérie PécressePresident of Île-de-France region

�London is 10 times the size of Frankfurt, if just 1% of its business comes here [to Frankfurt], that would be a 10% increase for us�

Hubertus VathPresident of Frankfurt’s financial industry organization

CONFIDENTIAL AND PROPRIETARY BREXIT AND REAL ESTATE 14

Or Does Europe Lose Out In General?

0

10

20

30

40

50

60

70

80

90

'08 '09 '10 '11 '12 '13 '14 15 16

Investment Volumes, USD bn.

Americas EMEA

BREXIT may see some capital flows switch from London to major Eurozone capital cities. However, with the added problems of the Italian banking crisis and terrorist attacks, capital could move out of the region altogether.

Source: Real Capital Analytics. Source: Real Capital Analytics.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

'08 '09 '10 '11 '12 '13 '14 15 16

Percentage Of Total.

Americas EMEA

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