Simon Rawlinson
Head of Research
Credit
Crunch
Credit Crunch
• What impact is
the crunch
having?
Credit Crunch
• It’s harder to get money
• The erosion of confidence
Credit Crunch
• The erosion of confidence
Source: CBI/PWC March 08
Credit Crunch
• Profitability and employment
Credit Crunch
Employment and demand for space
Credit Crunch
Prime City Rents and Yields
40
50
60
70
80
90
100
110
120
130
1990
1991
1992
1993
1994
1995
1996
1997
1998
1...
Credit Crunch
Consumer Lending
0
20
40
60
80
100
120
140
2004Jan 2005Jan 2006Jan 2007Jan 2008 Jan
Source: BoE
MortgageAppr...
Credit Crunch
• Declining Rates of
Growth
Source: Bank of England
Credit Crunch
• Declining Rates of
Growth
Source: Bank of England
Credit Crunch
• Declining Rates of
Growth
Source: Bank of England
Credit Crunch
• Inflation threatens
the basis of
recovery
Source: Bank of England
Credit Crunch
Inputcosts
Manufacturers'InputandOutputCosts2000-2008
80
90
100
110
120
130
140
150
160
170
2000 Jan
2000 Jul
2001 Jan
200...
Copper
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF
US$/mt
Alum...
Credit Crunch
Bank Lending Rates
4.0%
4.4%
4.8%
5.2%
5.6%
6.0%
6.4%
6.8%
Jan'06 May Sep Jan'07 May Sep Jan'08
Source: Bank...
It could be worse…..
Output forecasts
Construction Output - Forecast
2007 2008f 2009f 2010f 2011f 2012f
Total Construction...
It could be worse…..
Output forecasts
Construction Activity
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2000
2001
2002
2003
200...
It could be worse…..
Source: Knight Frank
0
2
4
6
8
10
12
14
84
86
88
90
92
94
96
98
'00
'02
'04
'06
'08
'10
millionssqft
...
It could be worse…..
Inflationary trends
Boom Profiles
100
110
120
130
140
150
160
170
180
Year1
Year2
Year3
Year4
Year5
Y...
The rest of the World….
• Globalised Supply Chains
Credit Crunch
• The wider world – GDP rates in 2007
4.7%
8.0%
12%
7.2%
2.0%
3.0%
Source: OECD
Credit Crunch
• The wider world – GDP rates in 2008
4.8%
7.8%
10%
7.5%
1.2%
1.8%
Source: OECD
Credit Crunch
• The wider world – CPI rates in 2007
3.6%
6.2%
4.5%
8.6%
2.8%
2.2%
Source: Economist
Credit Crunch
• The wider world – CPI rates in 2008
5.2%
6.0%
5.9%
13%
3.8%
3.0%
Source: OECD
Asia
32%
Africa
2%
Europe
30%
Latin America
7%
North America
26%
Middle East
3%
Credit Crunch
Construction market size - 2...
Where the work was – spend in 2007
0 200 400 600 800 1000 1200
USA
Japan
China
Germany
Italy
France
UK
Brazil
Spain
Korea
...
Where Growth occurred - 2007
Credit Crunch
USA
Japan
China
Germany
Italy
France
UK
Brazil
Spain
Korea
Mexico
Australia
Ind...
Where growth should happen - 2007 - 2010
Credit Crunch
USA
Japan
China
Germany
Italy
France
UK
Brazil
Spain
Korea
Mexico
A...
Credit Crunch
• Assessing the risks of emerging markets
???? ????
????
PRICE = Low
PRODUCT RANGE= Low
QUALITY = Low
PRICE = Medium
PRODUCT RANGE = Medium
QUALITY = Medium
PRICE = High
PRODUCT R...
2.9
ASIA
3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0
MIDDLE EAST
S.AMERICA
E.EUROPE
S.AFRICA
Australasia/...
2.9
ASIA
3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0
MIDDLE EAST
S.AMERICA
E.EUROPE
S.AFRICA
Australasia/...
Credit Crunch
ItalyItalyItalyItalyChinaChinaChinaChina
DenmarkDenmarkDenmarkDenmarkIndiaIndiaIndiaIndia
FranceFranceFrance...
Credit Crunch
• Who Dares Wins?
– Size of the market
– Prospects for
growth
– Level of risk
UAE
Thailand
India
Mexico
Swit...
Issues in overseas markets
• Project Opportunities
– Scale
– Emerging vs. Advanced Markets
– Retreat from residential
– Gr...
Issues in overseas markets
• Inflation
– A threat to sustained growth in many
markets
– 15% + in most emerging markets
– N...
Issues in overseas markets
• Instability and risk
– Domestic inflation
– Political instability
• Commercial exposure
– Per...
Summary
Credit
Crunch
• Viability in the UK is
challenged
• Price inflation is deeply
embedded
• Many markets which
promis...
Credit
Crunch
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Credit Crunch 2008

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Credit Crunch data and analysis

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Credit Crunch 2008

  1. 1. Simon Rawlinson Head of Research Credit Crunch
  2. 2. Credit Crunch • What impact is the crunch having?
  3. 3. Credit Crunch • It’s harder to get money
  4. 4. • The erosion of confidence
  5. 5. Credit Crunch • The erosion of confidence Source: CBI/PWC March 08
  6. 6. Credit Crunch • Profitability and employment
  7. 7. Credit Crunch Employment and demand for space
  8. 8. Credit Crunch Prime City Rents and Yields 40 50 60 70 80 90 100 110 120 130 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RentsandYields(1990=100) Prime Rents (1990 = 100) Prime Yields (1990 = 100) Forecast Source: DL, Knight Frank, IPD Falling Rents and Rising Yields Capital Values 0 20 40 60 80 100 120 140 160 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 CapitalValues(1989=100) Forecast Notional GDV Tender Prices and Capital Values 0 50 100 150 200 250 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RentsandTenderPrices(1989=100) Forecast Tender Prices Notional GDV
  9. 9. Credit Crunch Consumer Lending 0 20 40 60 80 100 120 140 2004Jan 2005Jan 2006Jan 2007Jan 2008 Jan Source: BoE MortgageApprovals(000s) -60% -40% -20% 0% 20% 40% 60% 80% 3-monthschangeonyear Mortgage Approvals Loans for House Purchase • Housing market failure
  10. 10. Credit Crunch • Declining Rates of Growth Source: Bank of England
  11. 11. Credit Crunch • Declining Rates of Growth Source: Bank of England
  12. 12. Credit Crunch • Declining Rates of Growth Source: Bank of England
  13. 13. Credit Crunch
  14. 14. • Inflation threatens the basis of recovery Source: Bank of England Credit Crunch
  15. 15. Inputcosts Manufacturers'InputandOutputCosts2000-2008 80 90 100 110 120 130 140 150 160 170 2000 Jan 2000 Jul 2001 Jan 2001 Jul 2002 Jan 2002 Jul 2003 Jan 2003 Jul 2004 Jan 2004 Jul 2005 Jan 2005 Jul 2006 Jan 2006 Jul 2007 Jan 2007 Jul 2008 Jan Index = January 2000 = 100 Input(Jan2000=100) Output(Jan2000=100) Source:ONS CreditCrunch
  16. 16. Copper 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: IMF US$/mt Aluminium 0 500 1000 1500 2000 2500 3000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: IMF US$/mt Steel Prices 60 80 100 120 140 160 180 200 220 240 260 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Source: CRUspi Index(1994=100) CRUspi Europe Steel Index Credit Crunch Commodities
  17. 17. Credit Crunch Bank Lending Rates 4.0% 4.4% 4.8% 5.2% 5.6% 6.0% 6.4% 6.8% Jan'06 May Sep Jan'07 May Sep Jan'08 Source: Bank of England BaseRate/Libor%monthlyaverage Bank Rate LIBOR Finance costs
  18. 18. It could be worse….. Output forecasts Construction Output - Forecast 2007 2008f 2009f 2010f 2011f 2012f Total Construction 2.5% CPA 1% 1% 1% 1% 1% Experian -0.4% 1.7% 1.3% Commercial 12.8% CPA 4% 1% -4% -6% -1% Experian 0% -2% -4% Public non-residential -5.0% CPA 8% 12% 4% -2% -4% Experian 6% 10% 3% Infrastructure 1.1% CPA 8% 8% 2% 7% 4% Experian 10% 12% 6%
  19. 19. It could be worse….. Output forecasts Construction Activity -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 2000 2001 2002 2003 2004 2005 2006 2007 2008f 2009f 2010f Source: BERR, Experian Annualchange(constant2000prices) Total Construction Total New build Commercial
  20. 20. It could be worse….. Source: Knight Frank 0 2 4 6 8 10 12 14 84 86 88 90 92 94 96 98 '00 '02 '04 '06 '08 '10 millionssqft Pipeline-Speculative U/C-Speculative Pipeline-Committted U/C-Committed Completed Forecast Central London Office Development Pipeline
  21. 21. It could be worse….. Inflationary trends Boom Profiles 100 110 120 130 140 150 160 170 180 Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year Index=100 1980s 2000s
  22. 22. The rest of the World…. • Globalised Supply Chains
  23. 23. Credit Crunch • The wider world – GDP rates in 2007 4.7% 8.0% 12% 7.2% 2.0% 3.0% Source: OECD
  24. 24. Credit Crunch • The wider world – GDP rates in 2008 4.8% 7.8% 10% 7.5% 1.2% 1.8% Source: OECD
  25. 25. Credit Crunch • The wider world – CPI rates in 2007 3.6% 6.2% 4.5% 8.6% 2.8% 2.2% Source: Economist
  26. 26. Credit Crunch • The wider world – CPI rates in 2008 5.2% 6.0% 5.9% 13% 3.8% 3.0% Source: OECD
  27. 27. Asia 32% Africa 2% Europe 30% Latin America 7% North America 26% Middle East 3% Credit Crunch Construction market size - 2007
  28. 28. Where the work was – spend in 2007 0 200 400 600 800 1000 1200 USA Japan China Germany Italy France UK Brazil Spain Korea Mexico Australia India Other countries US $ billion Credit Crunch
  29. 29. Where Growth occurred - 2007 Credit Crunch USA Japan China Germany Italy France UK Brazil Spain Korea Mexico Australia India Other countries -4 -2 0 2 4 6 8 10 12 % change
  30. 30. Where growth should happen - 2007 - 2010 Credit Crunch USA Japan China Germany Italy France UK Brazil Spain Korea Mexico Australia India Other countries 0 1 2 3 4 5 6 7 8 9 Percent
  31. 31. Credit Crunch • Assessing the risks of emerging markets ???? ???? ????
  32. 32. PRICE = Low PRODUCT RANGE= Low QUALITY = Low PRICE = Medium PRODUCT RANGE = Medium QUALITY = Medium PRICE = High PRODUCT RANGE = High QUALITY = High Global Competitiveness
  33. 33. 2.9 ASIA 3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0 MIDDLE EAST S.AMERICA E.EUROPE S.AFRICA Australasia/W.Europe/N.America Economic Development Stage Region Economic Development Stage Poland & Russia Czech Rep UAEQatarMalaysia China Japan Oman India Argentina Venezuela Emergence Growth Maturity Credit Crunch
  34. 34. 2.9 ASIA 3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0 MIDDLE EAST S.AMERICA E.EUROPE S.AFRICA Australasia/W.Europe/N.America Economic Development Stage MaxMin Region Economic Development Stage PESTLE Risk Price Quality Emergence Growth Maturity Credit Crunch
  35. 35. Credit Crunch ItalyItalyItalyItalyChinaChinaChinaChina DenmarkDenmarkDenmarkDenmarkIndiaIndiaIndiaIndia FranceFranceFranceFrancePakistanPakistanPakistanPakistan GermanyGermanyGermanyGermanyIranIranIranIran SwedenSwedenSwedenSwedenAlbaniaAlbaniaAlbaniaAlbania UKUKUKUKIndonesiaIndonesiaIndonesiaIndonesia FinlandFinlandFinlandFinlandAlgeriaAlgeriaAlgeriaAlgeria NetherlandsNetherlandsNetherlandsNetherlandsUkraineUkraineUkraineUkraine SwitzerlandSwitzerlandSwitzerlandSwitzerlandRussiaRussiaRussiaRussia AustriaAustriaAustriaAustriaAfghanistanAfghanistanAfghanistanAfghanistan USAUSAUSAUSAIraqIraqIraqIraq Lowest risk marketsHighest risk markets
  36. 36. Credit Crunch • Who Dares Wins? – Size of the market – Prospects for growth – Level of risk UAE Thailand India Mexico Switzerland Indonesia China Italy Sweden Korea Market opportunity
  37. 37. Issues in overseas markets • Project Opportunities – Scale – Emerging vs. Advanced Markets – Retreat from residential – Growth in infrastructure
  38. 38. Issues in overseas markets • Inflation – A threat to sustained growth in many markets – 15% + in most emerging markets – Negative inflation in USA only – Threat to dollar pegged currencies
  39. 39. Issues in overseas markets • Instability and risk – Domestic inflation – Political instability • Commercial exposure – Performance in a high pressure environment – Ability to secure local resources – Repatriation of profit
  40. 40. Summary Credit Crunch • Viability in the UK is challenged • Price inflation is deeply embedded • Many markets which promise growth carry significant risk • Diversification strategies need careful planning
  41. 41. Credit Crunch
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