Money into PropertyGlobal 2013Liquidity becomes next differentiatorDTZ Research1 May 2013ContentsIntroduction 2Section 1 –...
Global 2013www.dtz.com Money into Property 2IntroductionIt is with great pleasure that we present the 39thedition ofMoney ...
Global 2013www.dtz.com Money into Property 3Section 1 – Stock and gap updateInvested stock trendsAsia Pacific drives globa...
Global 2013www.dtz.com Money into Property 4Sources of capitalEquity continues to recoverGrowth this year has again been d...
Global 2013www.dtz.com Money into Property 5Section 2 – Market sentimentOur lenders’ and investors’ surveys were undertake...
Global 2013www.dtz.com Money into Property 6Substantial progress in non-prime workoutProgress in working out problem loans...
Global 2013www.dtz.com Money into Property 7Investors’ surveyReal estate to underperform equitiesInvestors’ expectation fo...
Global 2013www.dtz.com Money into Property 8Non-bank lenders to pick up slackOne of the reasons why investors feel relaxed...
Global 2013www.dtz.com Money into Property 9Section 3 – Liquidity and valueEconomic OutlookMore balanced, as downside rece...
Global 2013www.dtz.com Money into Property 10Cross-border investment activity back to 2005 levelFurther evidence of a norm...
Global 2013www.dtz.com Money into Property 11Relative Market ValueUS currently ranks top across regionsBased on our latest...
Global 2013www.dtz.com Money into Property 12Map 1Market liquidity versus fair value scoresSource: DTZ Research
Global 2013www.dtz.com Money into Property 13
Global 2013www.dtz.com Money into Property 14DefinitionsInvested stock refers to the value of investment grade commercial ...
Global 2013www.dtz.com Money into Property 15Fair value methodologyThe DTZ Fair Value IndexTMwas launched in August 2010 a...
Global 2013www.dtz.com Money into Property 16Other DTZ Research ReportsOther research reports can be downloaded from www.d...
www.dtz.com Money into Property 17DTZ Research ContactsGlobal Head of ResearchHans VrensenPhone: +44 (0)20 3296 2159Email:...
Upcoming SlideShare
Loading in...5
×

Dtz money into_property_2013_global

718

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
718
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Dtz money into_property_2013_global

  1. 1. Money into PropertyGlobal 2013Liquidity becomes next differentiatorDTZ Research1 May 2013ContentsIntroduction 2Section 1 – Stock and gap update 3Section 2 – Market sentiment 5Section 3 – Liquidity and value 9AuthorsNigel AlmondHead of Strategy Research+ 44 (0) 20 3296 2328nigel.almond@dtz.comHans VrensenGlobal Head of Research+ 44 (0)20 3296 2159hans.vrensen@dtz.comFocus on further downside potential has receded over the last year. As a result,the macro outlook is more balanced and the recovery expected to continue. Forthe first time in a long while, we can see a surprise on the upside next year. Global invested stock set another new record in 2012, despite modestgrowth of only 1%. But, Asia Pacific was the only region to post stronggrowth of 8%, offsetting declines in both Europe and North America. Deleveraging continued across all three regions in 2012, with equity growthclose to 5% and debt unchanged. But, non-bank lending and corporate bondissuance continued their growth, while bank lending remained flat.Property market sentiment remains mixed, despite the improving macrooutlook. Lenders are more cautious than investors in our annual survey. Whilestill selective, more lenders expect growth. Investors feel buying opportunitiesremain have returned to normal and that debt availability has improved. In ourview, sentiment has been slow to improve due to the debt-related workout,especially in Europe. But, things are not as bad as they seem, considering: Global investment volumes were up 4% in 2012. Strong 15% growth inNorth America offset declines in both Asia Pacific and Europe. Cross-bordervolumes also improved and have now returned to their 2005 level. More than two thirds of markets are classified as very attractive, with lessthan 10% as unattractive. In fact, relative value is at its best level in eightyears, due to lower bond yields and a better growth outlook. Total liquidity has returned to near its 10-year average, with North Americaranking top. However, based on inter-regional liquidity Europe is mostattractive for new investors. With relative value now less of a differentiatingfactor, we think investors should consider liquidity and size more closely.Figure 1Stock size, long term liquidity and relative valueOverpricedUnderpricedLow liquidityUKUSSESGJPCNFRIRESITDEAUHigh liquidity$500 bn$250 bn$100 bn EuropeAsia PacificUSAStock RegionDTZ Research
  2. 2. Global 2013www.dtz.com Money into Property 2IntroductionIt is with great pleasure that we present the 39thedition ofMoney into Property. The focus of this report is Global. Wehave published similar reports for Asia Pacific, Europe,North America and the UK.This report is divided into three main sections. The firstsection provides a detailed update of invested stock, whichis defined as investment-grade commercial real estate heldby investors. Invested stock is different from owneroccupied real estate, both investment and non-investmentgrade (Box 1). The majority of stock globally (37%) iscurrently invested. A further 26% is considered investable,but is owner-occupied (Figure 2). The debt funding gap isdefined as the difference between the current debt securedby commercial property minus the new debt available toreplace it. Our analysis also accounts for regulation andalternative lending sources, which is particularly relevantfor Europe where the gap has hindered the recovery inmany markets (Figure 3).Market sentiment is the focus of the second section, wherewe share the findings of our investors’ and lenders’ surveyswhich were undertaken between February and March 2013.The surveys provide an insight into current sentiment.In the final section we provide an update on transactionvolumes and associated liquidity across markets. Finally, weconsider whether investment is focused on the relativelymost attractive markets, using the DTZ Fair Value IndexTM.The appendix provides an overview of definitions andmethodologies used.Figure 2Breakdown of total stock, 2012, USD tn37%26%36%10 10 13 33Europe North America Asia Pacific GlobalNon-investableInvestable(owner-occupied)InvestedSource: DTZ ResearchFigure 3Conceptual breakdown of debt funding gap0501001502001 2 3RegulationRefinancinggapNon-bankfinanceNet debtfunding gapSource: DTZ ResearchBox 1: Stock definitionTotal stock is all commercial real estate, measured by either monetary value or space. Total stock comprises non-investable owneroccupied stock, investable owner occupied stock and invested stock.Non-investable owner occupied stock is commercial real estate that is not available to investors due to use or quality of the property.Investable owner occupied stock is commercial real estate stock that is currently held by occupiers but is attractive to investors in terms ofuse and quality. This represents potential for investors as occupiers sell their properties or undertake sale and leasebacks.Invested stock is commercial real estate held by investors in the relevant country. As a consequence the invested stock should:-a) Rise as owner occupiers sell property to investorsb) Rise as new developments are unveiled and added to the invested stockc) Rise with the general rise in capital valuesd) Be negatively impacted by depreciation and retirement of stock.
  3. 3. Global 2013www.dtz.com Money into Property 3Section 1 – Stock and gap updateInvested stock trendsAsia Pacific drives global stock to new record levelFollowing growth of 7.6% in 2011, invested stock grew by amore modest 1.5% in 2012 to reach a new record level ofUSD12.4tn (Figure 4). This masks differences across theregions.Asia Pacific was the only region to post growth in 2012 as itsinvested stock grew 8% to USD4.2tn. The region is nowclose to surpassing Europe to become the region with thelargest stock. In North America stock fell by 0.5% driven bya fall in the US stock. Following growth in 2011 the stock inEurope fell 2.6% to USD4.4tn.Currency movements impact EuropeThe continued weakness in Europe’s economies led to anappreciation of the dollar relative to the Euro. As aconsequence Europe’s stock fell 3% in dollar terms, but inlocal currency terms it stock actually grew by 3% (Figure 5).Across North America the currency impacts were negligible,as they were too in Asia Pacific, although marginallystronger growth of 9% was recorded in local currencyterms.Debt hinders recovery in EuropeEurope’s recovery continues to be hindered by its sizabledebt funding gap (Figure 6). Our latest analysis estimates arefinancing gap across Europe of USD77bn, with regulatoryimpacts more than doubling this to a gross USD163bn.Efforts by some banks to delever their CRE loans has helpedto shrink this figure. A further gap of USD22bn remains inAsia Pacific, and mostly in Japan where we see the gapreducing. New non-bank lenders – insurers and debt fundsare helping to shrink this gap. So too is an increase inproperty company bond issuance.Globally there remains plentiful new equity capital(USD314bn) available for investment over the next twoyears, with over USD120bn available for investment acrossEurope. Combined with new non-bank lenders this shouldbe sufficient to plug the funding gap in the near term.Figure 4Global real estate invested stock, USD tn3.9 4.23.8 3.74.5 4.412.2 12.402468101214GlobalEuropeNorthAmericaAsiaPacific20121.5%-2.6%-0.6%8.0%Source: DTZ ResearchFigure 5Change in invested stock, 2012-1%-3%8%1%0%3%9%4%NorthAmericaEurope Asia Pacific GlobalUSD Local CurrencySource: DTZ ResearchFigure 6Net debt funding gap and available equity 2013-14, USDbn050100150200250300350Global Europe Asia Pacific North America Available equity  Netdebt funding gap  Projectednon-bank debtSource: DTZ Research
  4. 4. Global 2013www.dtz.com Money into Property 4Sources of capitalEquity continues to recoverGrowth this year has again been driven by increases in theequity quadrants, albeit the pace of growth has moderated(Figure 7). Private equity added USD273bn to investedstock, and was main driver of global growth. The increasereflects a general recovery in capital values during 2012.Growth in public equity was more modest at less than 2% aslisted companies continued to restructure in many marketswith some becoming net sellers.Rotation to non banks in deleveraging processOverall the value of debt outstanding fell marginally,although we did see some variations in growth across thedifferent debt components (Figure 8). Following growth of5% last year, debt outstanding to banks stood still in 2012as many banks, particularly in Europe actively engaged indeleveraging. Bad banks also actively engaged in sellingdown loans. In contrast non-bank lenders, predominantlyinsurers showed growth as they picked-up market sharefrom traditional banks.Corporate bond issuance continues to growIn the public markets property companies (listed and non-listed) continued to use bond markets as a means ofaccessing cheap debt. Globally, new bond issuance grew by30% to USD92bn triggered by attractive interest rates,leading to an aggregate growth in outstanding debt. Thisgrowth was not sufficient to offset the redemption ofexisting CMBS and covered bonds leading to an overall fallin public debt.Deleveraging driven by equity growthOverall gearing levels in the market continued to fall acrossall regions. The global average fell to 59% from 60% lastyear (Figure 9). Similar reductions in gearing were observedin all other regions. With the exception of Asia Pacific,gearing is now back to levels seen in 2007. With the amountof debt outstanding remaining broadly flat globally, it wasgrowth in equity that has again driven the reduction inaggregate gearing.Figure 7Global invested stock by capital source, USD tn5.8 5.81.5 1.50.9 0.94.0 4.212.2 12.42008 2009 2010 2011 2012Private equityPublic equityPublic debtPrivate debt5%-3%2%0%2012Global 1%Source: DTZ ResearchFigure 8Change in components of global debt-10%-5%0%5%10%15%20%Banks Bad Banks Non-banksCMBS CoveredBondsCorporateBonds2011 2012Private debt Public debtSource: DTZ ResearchFigure 9Total debt as a percentage of invested stock63%58%73%66%55%54%64%59%40%50%60%70%80%2000 2002 2004 2006 2008 2010 2012NorthAmericaGlobalEuropeAsia PacificSource: DTZ Research
  5. 5. Global 2013www.dtz.com Money into Property 5Section 2 – Market sentimentOur lenders’ and investors’ surveys were undertaken in Q12013 canvassing the opinions of over 200 individuals. Theresults illustrate the prevailing market sentiment, whichsets the stage for the future performance of commercialreal estate markets.Lenders’ surveyLoan originations growIn 2012 half of the respondents to our survey showed anincrease in the value of new loan originations (Figure 10).On balance the value of loan extensions increased, althoughclose to half of lenders reported no overall change in thevalue of extensions in 2012 compared to 2011. The positivebalance in new loan originations appears somewhatsurprising against the challenging markets conditions,especially in Europe, although with many banks havingseparated their non-core divisions, our analysis could reflecta more upbeat sentiment in new lending teams.Growth in loan bookOverall a positive balance of lenders in 2012 reported anincrease in their loan book. The change in loan book wasmostly driven by an increase in new lending reflectinglimited new growth. This was primarily driven by a rotationtowards non-bank lenders who showed the biggest netgrowth (Figure 11). This contrasted with a net 17% of banklenders reporting a reduction in loan book. Looking forwardto this year the expectation is for growth across the board.Whilst the non-banks continue to grow, the big change iswith the traditional banks. Here a net balance of 11%expect growth. This is positive news, and implies banks arewell underway in the workout of loans.Recovery in lending conditions delayed againHowever this improvement is tempered in the outlook forlending conditions. 70% of lenders do not expect asubstantial recovery in lending conditions until beyond 2014(Figure 12). Throughout each of our past three surveys,lenders have showed a recovery coming later, with theproportion increasing. This shows lenders remain wary ofthe recovery and growth will be minimal.Figure 10Change in loan originations and extensions, 20120%20%40%60%80%100%Originations ExtensionsDownSameUpSource: DTZ ResearchFigure 11Change in loan book size by lender type0%20%40%60%80%100%Banks Funds &InsurersOther Banks Funds &InsurersOtherDownSameUp2012 2013-17% 29% 62% Net 11% 43% 76%Source: DTZ ResearchFigure 12Expectations for a substantial recovery in lending markets0%20%40%60%80%20102011Later 20112012Later 20122013Later 20132014Later2010 Survey 2011 Survey 2012 Survey 2013 SurveySource: DTZ Research
  6. 6. Global 2013www.dtz.com Money into Property 6Substantial progress in non-prime workoutProgress in working out problem loans is well underway,with lenders reporting some substantial progress in workingout non-prime assets. In 2011 42% of respondents werereporting that the non-prime workout was well underway(Figure 13). In our survey this year, this portion hasincreased to 69%. Only 31% are reporting that there hasbeen no start in the non-prime workout compared to overhalf two years ago.Progress on prime assets continues and over a fifth ofrespondents now report completion in the workout ofprime. Surprisingly, 12% of respondents still highlight thatthe workout of prime has yet to start.Lending activity in secondary assets and marketsOver half of lenders have indicated that they have lentagainst both secondary assets and assets in tier 2 and 3cities (Figure 14). Whilst banks remain more conservative inwhat could traditionally be called their traditional playingfield, it is alternative lenders who are more active in thesemarkets. This provides some positive news for investorswho are seeking to increase their activity in these markets.Lenders still selective in opportunitiesHowever, when we asked lenders about their expectationof lending by type of investment in Tier 1 and Tier 2&3 citiesthere remained a clear focus towards prime standinginvestments (Figure 15). Overall, a net balance of 74% areseeking to increase lending towards prime standinginvestments in Tier one cities. This balance shrank to a net29% in Tier 2&3 cities.Lenders are more cautious towards non-prime investments.A positive balance (26%) are willing to lend in Tier 1 cities.This balance turns negative in Tier 2&3 cities. A similarpicture emerges for pre-let development, whilst lendingtowards speculative development is mostly off bounds.Overall, this highlights that lenders still remain cautious insecond and third tier cities, with a clear focus towards coreassets.Figure 13Trends in work out of prime and non-prime loans0%20%40%60%80%100%2011 2012 2013 2011 2012 2013AlreadyfinishedWellunderwayNot yetstartedPrime Non-PrimeSource: DTZ ResearchFigure 14Lending to secondary assets and markets by lender type0%20%40%60%80%100%Banks Funds &InsurersOther Banks Funds &InsurersOtherNoYesSecondary assets Tier 2& 3 CitiesSource: DTZ ResearchFigure 15Willingness to lend in Tier 1 and Tier 2&3 cities0%20%40%60%80%100%Tier 1 Tier2&3Tier 1 Tier2&3Tier 1 Tier2&3Tier 1 Tier2&3Up Same DownPrime standinginvestmentsNon-prime standinginvestmentsPre-letdevelopmentSpeculativedevelopmentSource: DTZ Research
  7. 7. Global 2013www.dtz.com Money into Property 7Investors’ surveyReal estate to underperform equitiesInvestors’ expectation for the performance of commercialreal estate compared to other assets shows a rathersubdued view. Whilst a net majority (72%) expect realestate to outperform bonds, most on balance expect directreal estate to underperform relative to both equities andreal state equities in 2013. A majority only marginallyexpect direct real estate to outperform property debtinstruments (Figure 16).Markets returning to normalityWhereas last year many respondents highlighted difficultyin accessing prime products, in this year’s survey we haveseen some improvement. More investors have indicatednormal conditions in accessing prime, although just overhalf (51%) still report difficulty in accessing prime (Figure17). For non-prime the vast majority (75%) have reportednormal or easy conditions. Risk aversion amongst investorshas meant many are focussed on prime. Our survey resultssuggest prime is being crowded out and we would expect tosee more moving towards non-prime. With banksaccelerating their work-out we could expect to see moreinterest in secondary, easing some of the pressure onprime.Ease of access to debt financeWith markets returning to normal, it is encouraging thatover three quarters of investors find access to newacquisition finance not an issue compared to just 61% lastyear (Figure 18). Refinancing of existing debt is notconsidered a major issue with 70% of respondents havingno issue in accessing debt.Figure 16Performance of CRE compared other asset classes0%20%40%60%80%100%Bonds PropertyBondsReal EstateEquitiesGeneralEquitiesOutperformSameUnderperform72% -25%-3%4% NetSource: DTZ ResearchFigure 17Global buying opportunities by property grade0%20%40%60%80%100%2011 2012 2013 2011 2012 2013HardNormalEasyPrime Non-primeSource: DTZ ResearchFigure 18Difficulty in obtaining debt finance0%20%40%60%80%100%2011Survey2012Survey2013Survey2011Survey2012Survey2013SurveyNoYesNew acquisitionfinance Refinancing ofexisting debtSource: DTZ Research
  8. 8. Global 2013www.dtz.com Money into Property 8Non-bank lenders to pick up slackOne of the reasons why investors feel relaxed is that theydo not report any major issues in accessing debt. One of thereasons is the access to alterative sources (Figure 19).During 2012 a clear majority of investors felt that lendingwould be down from banks, with institutions picking up theslack. Move forward to this year and sentiment is clearlychanging. Banks are expected to be net lenders again with anet 19% expecting the availability of debt to be up. An evenhigher proportion expect an increase in debt frominstitutions along with other sources of finance.Exposure to loan and partial equity positions upThe number of investors who have invested in loan orpartial equity positions has increased marginally over theyear from 42% to 45% (Figure 20). This trend reflects thegrowing appetite for funds to invest in loan positions. Theportion investing in loan positions has shrunk, largely at theexpense of funds who are taking a broader view andinvesting in both loan and equity positions. Of those who donot invest, we see a reduction in the proportion ofrespondents who have no capability.Investors more positive than lendersInvestors are more positive in their macro economicoutlook. Outside of the base case of a slow recovery,investors are of the belief that the outlook will bemarginally more positive (Figure 21). This contrasts withlenders who are marginally more pessimistic, with far moreexpecting a slightly worse outlook. Given the scale of debtissues, particularly across Europe, this trend is to beexpected, although like investors we see a change insentiment to the upside.Figure 19Availability of debt finance by lender type0%20%40%60%80%100%2012Survey2013Survey2012Survey2013Survey2012Survey2013SurveyInstitutions Banks Other*UpSameDown*Other covers corporate bonds,covered bonds, CMBS and mezzanine financeSource: DTZ ResearchFigure 20Investors’ exposure to loan and partial equity positions0%20%40%60%80%100%2012Survey2013Survey2012Survey2013Survey2012Survey2013SurveyYesNoPropertyloansEquitypositionBothNocapabilityNointerestYes NoSource: DTZ ResearchFigure 21Most likely economic scenario outside base case0%20%40%60%80%100%Investors LendersSignificantly more positiveMarginally more positiveSlightly worseSignifcanlty worseSource: DTZ Research
  9. 9. Global 2013www.dtz.com Money into Property 9Section 3 – Liquidity and valueEconomic OutlookMore balanced, as downside recedesThe overall consensus outlook for economic growth hastransitioned over the last year into a more balancedsituation (Figure 22), similar to what our survey resultsshow. The probability of our base case is now at its highestlevel in over a year at 60%. This implies a slow but steadyrecovery. Despite recent trouble in Cyprus, we see areduced chance of the downside scenario coming through.A strong return for the upside scenario leaves us with amore balanced global economic outlook, compared to therecent past.Bond yields have come inIn response to this more balanced global economic outlookand the strong monetary liquidity support, we have seen astrong reduction in risk aversion with investors across assetclasses. As a result, government bond yields have tightenedacross the board, even in peripheral European markets. Ofcourse, these still remain elevated relative to core marketsglobally (Figure 23). Australia’s yields are more related tothe higher growth and inflationary concerns.Transaction volumesGlobal investment volumes up 4% in 2012Global investment transactions volumes of commercial realestate in 2012 were up 3.5% on 2011 levels at USD475bn(Figure 24). 2012 volumes exceeded levels recorded in 2005providing evidence of a normalisation in activity.Strong growth in North America offset declines in AsiaPacific and Europe. Also, the fourth quarter volumes werestrong and made up for weaker volumes in the earlierquarters. Given the more balanced economic outlook, there-balancing of the lending markets, we do expect furthergrowth for 2013 and beyond. We do not expect a quick rushback to 2006/07 levels as debt issue remain. Futuretransaction volumes will be further helped by improvingliquidity and good relative value.Figure 22Evolution of probabilities of various economic scenarios10%15%45%60%35%10%10%15%0% 20% 40% 60% 80% 100%Jan-12Jul-12Jan-13Apr-13Upside Base Case Other DownsideSource: Oxford EconomicsFigure 23Five year government bond yields in select countries0%5%10%15%0%1%2%3%4%Mar-13 Mar-12Source: BloombergFigure 24Global investment volumes, USD bn157 152145 143157 180459 47502004006008002005 2006 2007 2008 2009 2010 2011 2012Global2012NorthAmericaAsiaPacificEurope3.5%14.5%-3.0%-1.4%Source: DTZ Research, Propertydata, RCA, RealNet
  10. 10. Global 2013www.dtz.com Money into Property 10Cross-border investment activity back to 2005 levelFurther evidence of a normalisation of the investmentmarkets is provided, when we consider volumes by sourceregion (Figure 25). Cross-border activity has returned to its2005 level of 21%. Inter-regional activity (sourced fromoutside home country and region) has in fact now exceededits 11% level from 2005. We do expect this trend tocontinue over the next few years, as sovereign wealth fundsand investment fund managers start with or return to astrategy of more international portfolio diversification. Thisis a big positive for many property markets, as more activeoverseas buyers provide greater liquidity to local owners.Market liquidityBack to 10-year average, North America most liquid nowLiquidity1has returned to its long run 10-year average on aglobal level. But, in both Asia Pacific and North America it iswell above and marginally higher than the historicalaverage. As in most things, Europe lags behind. Ashighlighted above, there is still some remaining blockagefrom the workout of legacy debt (Figure 26). Since not allinvestors buy and sell in a single year, we do think thatvolatility in liquidity is relevant. As highlighted by thehistorical maximum and minimum levels, North Americashows the greatest range over the period. Europe is alsomore volatile relative to Asia Pacific. We believe thatliquidity is more relevant than market transparency. As longas an investor can buy into and sell out of a market,transparency is not material.But, Europe is more attractive for cross-border buyersIf we finally consider not just total liquidity but also themore limited inter-regional liquidity2, we can see someinteresting regional trends over time. All three regions showa sort of boomerang effect – improving liquidity from 2003to 2007 at peak of the cycle, but dropping back in 2012(Figure 27). Overall, Asia Pacific shows less of a shift postpeak, as volumes were support by robust growth in China.At year-end 2012, Europe shows the highest inter-regionalliquidity of all regions at 0.8%. Within Europe, the UK is byfar the most liquid market at 2.2% for overseas investors.This is well above the 0.2% in Asia Pacific and 0.4% in NorthAmerica. This has been a consistent trend over the period.1 Liquidity is defined as investment turnover as a percentage of invested stock2 Inter-regional liquidity is investment from capital sources outside of the region as apercentage of invested stockFigure 25Global investment volumes by source of capital10% 10% 9%11% 9% 12%50%60%70%80%90%100%2005 2006 2007 2008 2009 2010 2011 2012Domestic Intra-Regional Inter-RegionalSource: DTZ Research, Propertydata, RCA, RealNetFigure 26Trends in regional and global liquidity ratios 2003-20120%2%4%6%8%10%Asia Pacific Europe NorthAmericaGlobal10-y Max10-y Average201210-y MinSource: DTZ ResearchFigure 27Regional total and inter-regional liquidity & stock sizeAM 2012APAC 2003EU 2003AM 2003APAC 2012APAC 2007EU 2007AM 2007EU 2012-0.1%0.3%0.7%1.1%1.5%0.0% 2.5% 5.0% 7.5% 10.0%Inter-regionalliquidityTotal liquiditySource: DTZ Research
  11. 11. Global 2013www.dtz.com Money into Property 11Relative Market ValueUS currently ranks top across regionsBased on our latest Fair Value IndexTM(FVI), more than twothirds of our 201 covered markets are classified as veryattractive (hot) (Figure 28). This is not really surprising,given that our classification is based on the differencebetween expected and required returns for each market. Ashighlighted above, lower bond yields and reduced investors’risk aversion have brought down the required “hurdle” ratewell below our forecasted market returns. In many Westernmarkets, the prolonged lack of new development activityand a return to positive economic growth and spacedemand has also increased our expected returns. The neteffect of these two trends is that all regions show manyattractive. But, the US markets are most attractive acrossthe three main regions.Best relative value across global property in eight yearsWhen we look back at relative value historically, we notethat the FVI score is highest since Q1 2005 (Figure 29). Infact, the global FVI score is currently at a new record high. Itis not only up from 58 a year ago, but has recovered fromthe low point of 16 in 2008. Therefore, it has never been abetter time to invest in commercial property. Investors have136 attractive markets to choose from and only 15unattractive markets to avoid.Good liquidity and stock size essential for new investorsNew generations of Asian investors continue to emergeonto the global investment market. But, as risk aversionrecedes further, many European and American investors arealso expected to return to a more active internationaldiversification strategy in the coming years. For both newand returning investors in markets, we think that apart fromthe currently abundant relative value, good liquidity andstock size is essential. If you cannot buy (and later sell) intoa market, relative value is immaterial.Based on this, the US, UK, Germany, China and Japan areespecially attractive for international investors based onpricing and liquidity (Figure 30 and Map 1). Singapore andSweden also look attractive from a liquidity perspective, butoffer less attractive pricing.Figure 28Global and regional fair value index scores for Q1 20130%20%40%60%80%100%Europe Asia Pacific US GlobalCold Warm Hot77 81 87 80Source: DTZ ResearchFigure 29Evolution of Global fair value index scores Q10%20%40%60%80%100%2005 2006 2007 2008 2009 2010 2011 2012 2013Cold Warm Hot58 16 80Source: DTZ ResearchFigure 30Stock size, long term liquidity and relative valueOverpricedUnderpricedLow liquidityUKUSSESGJPCNFRIRESITDEAUHigh liquidity$500 bn$250 bn$100 bn EuropeAsia PacificUSAStock RegionSource: DTZ Research
  12. 12. Global 2013www.dtz.com Money into Property 12Map 1Market liquidity versus fair value scoresSource: DTZ Research
  13. 13. Global 2013www.dtz.com Money into Property 13
  14. 14. Global 2013www.dtz.com Money into Property 14DefinitionsInvested stock refers to the value of investment grade commercial real estate held by different investor groups.The total value of the real estate capital market is defined as the total volume of commercialreal estate debt outstanding plus the total value of equity in commercial real estate holdings.Private debt refers to the total outstanding loan value to the real estate sector that is not held in the form oflisted financial securities. Loans granted and subsequently securitised prior to maturity are notincluded in this data. Private debt relates to the activity of all participants involved in theprovision of commercial real estate loans including institutional lenders, commercial banklending and insurance companies.Public debt refers to the total outstanding loan value to the real estate sector held in the form of listedfinancial securities, i.e. property company corporate bonds, covered bonds with commercialproperty as collateral and commercial mortgage backed securities (CMBS).Private equity refers to the equity proportion of the commercial real estate holdings of insurance companies,pension funds, private property companies, high net worth individuals and unlisted propertyvehicles. The debt proportion has been stripped out by applying a different gearing ratio foreach investor group.Public equity refers to the equity proportion of the commercial real estate holdings of listed propertycompanies, REITs and other listed property vehicles. The debt proportion has been stripped outby applying a different gearing ratio for each investor group.Gearing (or LTV) ratio is defined as debt/(debt+equity). The various investor groups have different gearing levels basedon their risk profile, investment strategy, as well as their capital sources.Money into Property methodologyPrivate debt allocation In order to capture the value of commercial real estate loans issued by domestic banks to fundcross-border investment and likewise by foreign banks to fund domestic property investment,private debt is allocated based on the pattern of cross-border investment transactions.Cross-border allocationin invested stockThe value of the commercial real estate held by different investor groups is allocated based onthe location of the property rather than the origin of investor.Currency conversions Invested stock and its components are converted by using the average quarterly exchange ratefor each year under review.Transaction volumesTransaction volumes represent the buying and selling of property and are independent of stock. For example therecan be a lot of transactions, but if price does not change and the property is already in theinvested stock figures then there will be no change in invested stock. The only change is theowner of the property, which could trigger a change in quadrant (say public to private). Highertransaction volumes do indicate interest in the market, they tend to imply more developmentactivity or capital values are rising.
  15. 15. Global 2013www.dtz.com Money into Property 15Fair value methodologyThe DTZ Fair Value IndexTMwas launched in August 2010 and has now been rolled out for all 201 markets covered by DTZforecasts.Fair value is the value at which an investor is indifferent between a risk free return and the expected return from holdingproperty, taking into account the extra risk of investing in the property asset class.When the property price is at fair value, an investor is being adequately compensated for the risk taken in choosing topurchase real estate; similarly, when the property price is below the fair value price, an investor is being more thancompensated for the risk taken in choosing to purchase real estate.When buying at or below fair value, an investor does not necessarily buy at the bottom of the market.Our fair value analysis focuses on prime assets and a five-year investment horizon, and hold for the market overall;individual transactions may provide opportunities and risks beyond the average market view.For more information see the note DTZ Fair Value Estimates – Methodology and Examples at www.dtz.com
  16. 16. Global 2013www.dtz.com Money into Property 16Other DTZ Research ReportsOther research reports can be downloaded from www.dtz.com/research. These include:Occupier PerspectiveUpdates on occupational markets from an occupierperspective, with commentary, analysis, charts and data.Global Occupancy Costs OfficesObligations of Occupation AmericasObligations of Occupation Asia PacificObligations of Occupation EMEAOffice Occupier Review Asia PacificOffice Occupier Review EuropeThe TMT Sector - October 2012The European Insurance Sector - June 2012Property TimesRegular updates on occupational markets from a landlordperspective, with commentary, charts, data and forecasts.Coverage includes Asia Pacific, Bangkok, Beijing, Berlin,Brisbane, Bristol, Brussels, Budapest, Central London,Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt,Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, HongKong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg,Madrid, Manchester, Melbourne, Milan, Nanjing,Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul,Shanghai, Shenyang, Shenzhen, Singapore, Stockholm,Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian.Investment Market UpdateRegular updates on investment market activity, withcommentary, significant deals, charts, data and forecasts.Coverage includes Asia Pacific, Australia, Belgium, CzechRepublic, Europe, France, Germany, Italy, Japan, MainlandChina, South East Asia, Spain, Sweden and the UK.Money into PropertyFor nearly 40 years, this has been DTZs flagship researchreport, analysing invested stock and capital flows into realestate markets across the world. It measures thedevelopment and structure of the global investmentmarket. Available for Global, Asia Pacific, Europe, NorthAmerica and UK.Foresight & OutlookQuarterly commentary, analysis and insight into our in-house data forecasts, including the DTZ Fair Value Index™.Available for the following regions: Global, Asia Pacific,Europe and in the UK. In addition, we have been publishingour Annual Global Outlook report for the last three years.This report provides a concise market outlook for the yearahead and is presented to key client audiences around theglobe.InsightThematic, ad hoc, topical and thought leading reports onareas and issues of specific interest and relevance to realestate markets.China Healthcare – April 2013European Sustainability Guide – April 2013Great Wall of Money – March 2013European Retail Guide - Shopping Centres – March 2013China Property Market Sentiment Survey - January 2013India Special Economic Zones - December 2012Singapore Executive Condominiums - December 2012UK Secondary market pricing - December 2012Singapore office demand - December 2012China Ecommerce & Logistics - November 2012Net Debt Funding Gap - November 2012German Open Ended Funds - October 2012DTZ Research Data ServicesThe following data is available for subscription.Please contact graham.bruty@dtz.com formore information. Property Market IndicatorsTime series of commercial property marketdata in Asia Pacific and Europe. Real Estate Forecasts, including the DTZFair Value IndexTMFive-year rolling forecasts of over 200commercial property markets in Asia Pacific,Europe and the USA. Investment Transaction DatabaseAggregated overview of investment activityin Asia Pacific and Europe. Money into PropertyData covering capital flows, size, structure,ownership, developments and findings ofannual investor and lender surveys.
  17. 17. www.dtz.com Money into Property 17DTZ Research ContactsGlobal Head of ResearchHans VrensenPhone: +44 (0)20 3296 2159Email: hans.vrensen@dtz.comHead of Strategy ResearchNigel AlmondPhone: +44 (0)20 3296 2328Email: nigel.almond@dtz.comHead of Global ForecastingFergus HicksPhone: +44 (0)20 3296 2307Email: fergus.hicks@dtz.comHead of Asia Pacific ForecastingKate BarrowPhone: +852 2250 8864Email: kate.barrow@dtz.comHead of Research Information ManagementGraham BrutyPhone: +44 (0)20 3296 2297Email: graham.bruty@dtz.comHead of CEMEA ResearchMagali MartonPhone: +33 1 49 64 49 54Email: magali.marton@dtz.comHead of UK ResearchBen BurstonPhone: +44 (0)20 3296 2296Email: ben.burston@dtz.comHead of SEA & ANZ ResearchDominic BrownPhone: +61 (0)2 8243 9999Email: dominic.brown@dtz.comHead of Americas ResearchJohn WickesPhone: +1 312 424 8087Email: john.wickes@dtz.comDISCLAIMERThis report should not be relied upon as a basis for entering into transactions without seeking specific,qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take noresponsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within thisreport. Information contained herein should not, in whole or part, be published, reproduced orreferred to without prior approval. Any such reproduction should be credited to DTZ.© DTZ May 2013

×