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Property Market Trendsand Prospects:Global and European PerspectivesMichael J. StrongChairman CBRE EMEAJanuary 2013
Topics Global market context European real estate markets in 2012 Polarisation: key trends and drivers Resilience v weakness Outlook and opportunities for 2013
Europe showing weakest growth at global levelAsia outstrips the West; US recovery slow but steady GDP, % change year on year Asia Pacific European Union USA10%8%6%4%2%0%-2%-4%-6% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: IHS Global Insight Europe is the weak spot in the global economy US recovery expected to strengthen China to regain momentum
Divergent European economiesMost economies below pre-crisis output Index : GDP Q1 2008 = 100106 Sweden104102 Germany100 France 98 Eurozone 96 UK Spain 94 92 Italy Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 Source : Oxford Economics; Eurostat European economies show widely divergent performance since the crisis Germany and Sweden have surpassed pre-crisis level of GDP Other economies still below pre-crisis output – true of Eurozone overall Spain and Italy contracting in 2012
Western European Office Take-UpTake-up weaker across European markets in 2012 000’s Sq M Western Europe 4Q average4 5004 0003 5003 0002 5002 0001 5001 000 500 0 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CBRE Total take-up in 28 Western European office markets Weak economic trends and uncertainty hit office demand in 2012 Take-up in 2012 down by 6.4% on 2011 2012 total was 33% below peak take-up in 2007
Real Estate Investment Transaction VolumesRegional volume, USD, Billions Americas EMEA Asia Pacific $140 2012 relative to 2011 $120 Americas +15% $100 Asia-Pacific +6% $80 EMEA +0% $60 $40 $20 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 Source: CBRE Research (EMEA and Asia Pacific), RCA (Americas); Data excludes Development sites. * Measured in euros EMEA led upturn in transactions in 2009-10 EMEA lost momentum 2011-12; total volume flat last year. US investment market saw much higher activity in 2012 than 2011 – helped by revival in debt market
CBRE Prime Office Capital Value IndexGlobal Office Capital Value Index,Q1 2001 = 100 Americas EMEA Asia Pacific Current values relative to peak Asia Pacific: +4% USA: -14% EMEA: -15% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CBRE Research, 4T 2012 European prime office capital values stalled in 2012: still 15% below peak US capital values rising – but below peak Asia Pacific – more volatile values have surpassed peak – vulnerable?
Most Active Office Investment Markets, 2012London and Paris in the Top 4 cities globally Transactions, € billion London Metro New York Tokyo Paris San Francisco Hong Kong Berlin Munich Los Angeles Frankfurt €6.1 Bn Washington DC Hamburg Seoul Seattle 0 5 10 15 20 Source: RCA London and Paris among top 4 global office investment markets in 2012 London and Paris are the two main European destinations for global capital flows from elsewhere in the world German investment market – no single dominant centre
European Office Yields: Prime v Second Tier *Yields (%) Spread9 4 Prime Secondary Spread (RHS)8 37 26 154 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 *European Index covering : Denmark, France, Germany, Italy, Netherlands, Spain, Source: CBRE Sweden, UK, Belgium, Finland, Ireland Gap between prime and secondary yields widened in 2012 Investors concentrating on prime assets in core markets Continued lack of debt finance for secondary assets
Some positive trends in 2012 Prestige retail in top-ranking city centres London office investment market Global capital inflows Narrowing of prime-secondary yield spread Technology and media sector expansion Buoyant demand benefiting some markets, eg London, Munich, Berlin, Dublin New sources of real estate debt Insurance companies, new debt funds REITs – raising finance through bond market
Economic Growth Forecasts for 2013Southern Europe contracting; elsewhere mainly sub-1% growth GDP Growth % Contraction Close to zero Weak growth Stronger growth 4 3 2 1 0-1-2-3-4-5 Source: Oxford Economics, Décembre 2012 Another challenging year for most European economies Southern Europe in recession Most other economies expected to grow by less than 1% in 2013 – some close to zero increase on 2012 Look east for stronger economic growth – Poland, Russia, Turkey
Prime Office Rental Growth, 2012-14IPF Consensus Forecasts, November 2012 % annualised, 2012-14 5 4 3 2 1 0-1-2 Best growth predicted for-3 London and some German-4 and Nordic cities-5 Source: IPF (Investment Property Forum) Consensus forecasts complied by Investment Property Forum Rental prospects largely mirror differences in economic outlook – north vs south in Europe Best growth expected in London and certain German and Nordic cities CEE markets – higher supply constrains rental growth
Finding opportunities: what type of risk and where ? The search for value Development in under-supplied prime locations Lease Location SafeGood quality assets with secure income havens- public sector asset sales / leasebacks Shorter leases / good secondary in strong, well-diversified markets- strategic logistics centres Asset Quality Prime/core Core+ Secondary