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Investment Opportunity on Income-generating Commercial Real Estate in Europe Real Estate market in Europe comprises 40% of the world total. Currently, prices in certain areas are at a historic record low. For Investors, some countries represent a safe heaven while others mean a big opportunity, but for those specialized buyers with strong local knowledge.
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Pan European Real Estate
Investment Opportunity on Income-‐genera8ng Commercial Real Estate in Europe
Jamison Group Real Estate
Market Opportunity Real Estate market in Europe comprises 40% of the world total. Currently, prices in certain areas are at a historic record low. For Investors, some countries represent a safe heaven while others mean a big opportunity, but for those specialized buyers with strong local knowledge.
Why Real Estate? Real Estate financing is shi/ing, with the majority of European Real Estate investors predic<ng a shi/ from tradi<onal bank lending to other sources of capital. “There is a change in percep<on that is likely to boost sen<ment.
Why Europe? The Eurozone sovereign debt crisis, which was previously seen as undermining real estate investment, is now viewed as a poten<al s<mulus for ac<vity.”* The absence of an Euro breakup, a historically low prices and recent changes in regula<ons is making Europe a prime investment op8on in Real Estate.
Why now? The Real Estate yield gap between European Core markets and Peripherals is now at PRE-‐EURO levels. Core Markets are facing a steady price recovery, mainly in the Commercial Real Estate market. Interna<onal Investors are increasingly ac<ve in core ci<es but with an increasing appe<te for the peripherals, mainly due to the combina<on of high yield (currently at EM levels) and lower risk.
2013-‐2014 forecast. The European office market is seeing a recovery in confidence, with aLrac<ve yields during the laLer half of 2013. Also, there are incen<ves for the best space gradually being scaled back, an increase in demand during 2014 for primary markets, and a stabiliza<on in those markets most affected by the euro zone crisis. (Source: Cushman & Wakefield)
Few Facts. ü European countries are aLrac<ve investment des<na<ons. Offering investors surety of ownership,
transparency and enforceability of contracts.
ü UK, is one of the hoLest markets today as a safe heaven while Spain and Ireland are countries with records low prices and high yields.
ü Markets like London and Paris also offer good liquidity
ü PorZolios’ offering is increasing which means an opportunity to acquire assets at low rates.
ü The market has started to stabilizes, with significant growth poten<al in the near future.*
ü Foreign investors represent more than 40% of RE investments only in 2013
ü Main Interna<onal Investors has started Funds specifically for European Real Estate
* Source: Ernst & Young Real Estate
Rental Growth Slowing
Rents Falling
Rents BoQoming Out
Rental Growth
Accelera8ng
Amsterdam, Paris CBD, Warsaw
Helsinki, Lyon
Oslo, Stockholm, StuLgart
Berlin, Cologne, Düsseldorf
Copenhagen, Hamburg, Moscow
Munich
London City , London West End
Istanbul, Luxembourg, St.Petersburg
Manchester
Bucharest, Brussels, Edinburgh, Frankfurt, Kiev, Prague
Barcelona, Dublin Budapest, Madrid, Rome
Athens, Lisbon
Milan, Zürich Geneva
Key Markets In order to achieve a risk-‐return balanced porZolio,
investments will be spread between London, Dublin, Paris, Madrid, Barcelona, Brussels and Lisbon
European Real Estate Market
Current Situa8on The general business environment has changed posi<vely for Europe. For some of the Big Four advisors, Europe has started the path of recovery. Besides there is a way to go, Europe is “at the start of the second act”*.
As a consequence of the current crisis, the market has changed. Nowadays, capital con<nues being global but returns required local specializa<on and exper<se. “…AccepAng more risk requires more rigour – and this is where those who are specialized, who have detailed local knowledge, and who can create networks in regional markets will prosper.”*
Core markets in Europe, such as London, Paris, Nordics and Germany, are in the spotlight this year. However, Southern Europe (Dublin, Madrid, Barcelona, Lisbon, and Milano) have also captured aLen<on. Investors are taking posi<ons and preparing their structures to be ready, expec<ng for a 2H 2013 & 2014 with an vigorous deal flow. “Banks were holding on to in the hope of a value recovery, but now assets are being more aMracAvely priced “*
Facts ü Banks and lenders have started to sell ü Business environment is at it best since 2008
ü New regula8ons to aLract foreign investment
ü Prices are at historical low ü Rents are steady ü Vacancy has started to cease
* Source: PwC RE
Best Targets
Prime Office Buildings
Luxury Shopping Centers
e-‐commerce stores
Recyclable Commercial Buildings
News & Press
The following press releases and news refer to the period of 2013
Savills: Cross-‐border investors dominate ac8vity in Europe’s peripheral markets. InternaAonal players have dominated Europe’s peripheral investment markets in H1 2013 accounAng for almost 60% of transacAonal acAvity in Italy, Spain and Ireland compared to 40% in 2012
UK Commercial Property Values Increase -‐ WORLD PROPERTY CHANNEL Global News Center. Capital values for commercial property increased by 0.2 percent, represenAng three consecuAve months of growth, according to the latest report from Investment Property Databank
Blackstone has targeted a $5 billion European real-‐estate investment fund. Blackstone, one of the biggest investors in Real Estate is selling its 50 percent stake in Broadgate office complex in London to GIC, Singapore's sovereign wealth fund, among other assets, to build its European Real Estate Fund.
€140 million Ulysses Por_olio up for sale in Dublin. Ulysses Poreolio is a high yielding mixed-‐use poreolio within Dublin city with the majority of income aMributable to Government / Semi-‐State tenants. The properAes comprise a mix of single and mulA-‐let offices, a variety of retail units and apartments (let on full repairing and insuring leases) and is being offered either as a single lot, or as three individual lots.
Kennedy Wilson and Varde purchase por_olio of eight UK shopping centers for £250 million (UK) Seven of the eight centers have transferred, with the final center due to close subject to customary closing condiAons. The total equity contribuAon was £110 million (approx. €130.75 million), including £34 million (approx. €40.41 million) from Kennedy Wilson, and £163 million (approx. €193.75 million) of financing was provided.
Forecasts for the commercial real estate market in Spain improve | Europe | News. Although Spain conAnues to be affected by the uncertainty that has impacted the country over the past five years, an economic recovery does now appear to be closer and forecasts for the real estate market have improved. According to the latest Spanish Commercial Property Market Review from real estate analysts Knight Frank covering the first half 2013 it is possible that some form of recovery in the sector will be seen by the end of 2013. GDP forecasts for 2014 indicate that growth will be close to 0.5%, boosted by an expected improvement in the global economy. The outlook will also be aided by the measures taken by the European Central Bank (ECB) to stabilize and ensure the survival of the Euro.
The Team
Mariano Marc More than 15 years in the Asset Management field. Specialized in Distressed Asset Management. Have co founded Asset Management Companies in Europe and La<n America. He has directly managed more than US$600M in RE backed loans and acquired +US$1,5bn in distressed assets. In 2010, he designed and structured the Consumer Finance arm for a leading Insurance Co in La<n America.
Bertrand François Guillot 25yrs investment banking in UK, US, France and Spain with Ci<group, AIG, ANZ Investment Bank. Bertrand was responsible for AIG-‐GE Capital, U$1bn private equity fund as well as AIG’s direct investments (U$150m) in La<n America. Bertrand was board member of several companies including Axtel, Mexico’s 2nd largest telecom operator and Cablemas, Mexico leading cable TV operator , genera<ng 3.4 and 1.6 cashflow mul<ple return and addi<onal U$46m in fees. As founder and head of Ci<bank’s CEMEA project finance team for media and telecom he structured over U$2bn in numerous transac<ons. He has been directly responsible for the origina<on and due diligence of distressed assets (including real estate) in Spain and Portugal for over €1bn in face value
Ali Fakhri Ali Fakhri has worked in London and the GCC including Saudi Arabia property market for more than 20 years. His experience has been gained from working at various large corporate establishments among them, CB Hillier Parker and Dubai Proper<es. 20 years real estate expert, 10 years presence in the Middle East. Ali has substan<al experience in asset acquisi<on ($480m) and disposal ($430m) together with asset management experience gained while working in a number of asset owner organisa<ons total assets under management ( Over $1b).
Partners
Ci8es
London Paris Dublin Madrid
Barcelona
London, UK London Momentum. The Total Commercial Development Ac<vity Index – a net balance monitoring the overall performance of the UK commercial property sector – recorded +26.7% in August, up from July’s +20.1%. The latest reading pointed to the strongest growth rate since March 2007. Grade A office rents, rates and service charges showed the biggest increase in Swindon, Wiltshire, with a 12% rise to £23 per sq /, followed by WaZord, HerZordshire, which recorded a 9% increase to £37 per sq /. Dynamics of the supply side. Technology, media and telecoms sectors will con<nue to fill a propor<on of the demand gap created by the banking/financial services sector. Prime office rents for well located refurbished and new Grade A space in Central London will rise by an average of 5-‐10% by 2015. It is likely that during the second half of 2013 rent free periods throughout most of the prime and good secondary office loca<ons in Central London will narrow by 1 -‐ 2 months, based on 5 – 10 year leases.
Key Data Popula<on: 63,2 Million GDP*: €1.800bn (+0,6%) Debt to GDP: 90% Consumer Indicators Infla<on: +2.8% (Steady) CSI (2012-‐2013) -‐1,5% Unemployment: 7.8% (-‐0.1%yoy) CRE Market Yield: 5% Prime city rents: +22%** £ by sqm: £95-‐110 Improved demand: +25%** * 2013 yoy Source: Moodys’ **since 2009
Take-‐up reached 238,000 sq /, bringing the year-‐to-‐date total to 403,000 sq /, this is 63% down on average for the first two months of the year.
Paris, France The Commercial Real Estate Market in Paris. For several years Paris has been the most important real estate investment market in con<nental Europe, with overall investment volumes of € 8-‐10 Billion each year. Paris is the second most popular des<na<on in Europe for interna<onal real estate investment. One third of Fortune 500 companies have their headquarters in Paris, the second most popular loca<on for these companies a/er Tokyo.
The largest office market in Europe. The Paris Region is home to the largest office market in Europe with around 52 million square metres (sqm). It is the second largest in the world a/er New York. On average over the last 10 years, the Paris Region lezng market has seen 2.2 million sqm of take-‐up yearly. This places it at the top of all European markets in terms of demand.
Yields. In the golden triangle area (around the Champs Elysées), the best proper<es sell at yields of between 4.50-‐5.00 % (as at Q3 2012). Prime yields in La Défense are posi<oned around 6.00-‐6.50 % and around 5.75-‐6.25 % in the Western Crescent submarkets.
TOP Compe88ve advantages of Paris ● A stable poli<cal, economic and legal environment. ● Diversified and interna<onal occupier base. ● A large diversity in business sectors and in the size of occupiers. ● A wide offer of proper<es with varying architecture, technical characteris<cs, energy performance and occupa<onal costs. ● A stable stock of office space limi<ng any oversupply phenomenon and overall vacancy rates. ● 2nd largest investment market in Europe with the highest level of transparency. ● Liquid investment market with 50% interna<onal investors. ● Index-‐linked rental increases providing stable growth of income returns. ● Stable capital values with less vola<lity than its main compe<tor London.
Key Data Popula<on: 65 Million GDP: € 2.028.000 bn Debt to GDP: 90.2% Consumer Indicators Infla<on: 1% (Steady) Unemployment: 11% CRE Market Yield: 4.5% Prime Prime city rents: xxxx € by sqm: €795 Prime Vacancy rate: 6% Prime. Total supply: 52M sq m
Dublin, Ireland The crea<on of NAMA in Ireland three years ago has clearly helped the credibility of the government and property market with investors. Rental values in the Irish office market have grown by 0.2% for the first <me in five years, according to IPD/ICSI Ireland Quarterly Property Index. This e growth is the first sign of recovery in the occupier market, which has seen rental values wriLen down by over 48% since December 2008. A number of 'big name' interna<onal tenants have moved to Ireland over the last two years, aLracted by improved Irish compe<veness, low corpora<on tax, a well-‐educated young workforce and heavily discounted rents – and this has started to be reflected in the occupier market. 140 foreign Co. expanded or launched opera<on in 2012, mainly in Dublin. Investments in CRE. €436M office investment in 2012, of which over 50% in Q4 alone. Total investment volume transacted €640M against €180M in 2011. +51,000 sq m of space was transacted in the Dublin office market in the last quarter of 2012. 1Q 2013. The momentum experienced in the commercial property sector during the laLer half of 2012 has con<nued this year. More than €336 million of investment proper<es of more than €1 million in value traded in the Irish market during the 1Q 2013. In total, 21 investment transac<ons of more than €1 million were completed in the Irish market during Q1 2013. This quarterly spend compares with €545 million invested in Irish commercial real estate in the en<re year last year and is significantly higher than that invested in each of the previous three years. Notable investment transac8ons completed in the first quarter of 2013 the sale of the Bishop’s Square office building in Dublin 2 to US investor for €65 million, at a 9.8% yield; the sale of a porZolio of four office buildings in the Irish Airlines Pension Fund and the sale of two adjoining buildings on Gra/on Street.
Key Data Popula<on: 4.7 Million GDP: €163bn Debt: €192bn (117% vs GDP) Consumer Indicators Infla<on: +0.5% (Steady) CSI (2012-‐2013) 0.5% Unemployment: 0% yoy 14.1% overall CRE Market Yield: +9% € by sq.m: €32.3 Vacancy/occupa<on: 20.2%
Madrid, Spain The market has started to move forward. The first quarter of 2013 closed with the highest quarterly Madrid office take-‐up recorded since 2008 at approximately 160,000 sq m, represen<ng a 179% year-‐on-‐year rise, from 58,000 sq m in Q1 2012. European players, par<cularly German investors, are showing renewed interest in the Madrid office market whilst La<n American, US and Asian buyers returned to the market at the close of 2012. Country’s posi<ve results are coming from the trade balance, which has dropped by 70% since the top of the market in 2007, which helps boos<ng the compe<<veness of the Spanish economy. The falling inter annual deficit figure, which was at 6.98% in 2012, coupled with the aliena<on of the need for a bailout, mean that the forecast for the upcoming quarters could poten<ally suggest tenta<ve and yet sustained economic improvement. This is then expected to stabilize in 2014 and show clear signs of growth from 2015 onwards.
Key Data Popula<on: 47 Million (2012) GDP: €260bn (-‐1.8%) Consumer Indicators Infla<on: +2.4% (Steady) CSI (2012-‐2013) +1.5% Unemployment: -‐1.9% Q42012 26% overall CRE Market Yield: 6% Prime 7,5% Key Hubs Prime city rents: Stable € by sqm: €14avge-‐ €24Prime Vacancy rate: 13%global, 6,3% Prime. Total supply: 1,7M sq m
Strong 1Q 2013
sq m
Nº o
f dea
ls
Q1
00
Q1
01
Q1
02
Q1
03
Q1
04
Q1
05
Q1
06
Q1
07
Q1
08
Q1
09
Q1
10
Q1
12
Q1
13
Q1
11
Historic CRE trend in demand 350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
Take-up Nº of deals 300
250
200
150
100
50
0
Barcelona, Spain The average vacancy rate in Barcelona remained almost stable at 13.8%. There are already very few built op<ons in the market for the substan<al exis<ng demand. Developers are not currently planning specula<ve construc<on, so this situa<on could intensify in the coming years. In 2012, a total of 199,000m² of office space was taken up, down 26% on the figure for 2011. In fact, 2012 saw the lowest take-‐up figure for the last 15 years (since 1997).
Key Data CRE Market Yield: 6.75% Prime Prime city rents: €18 p sq. m Vacancy rate: 13.8%global
Source: JJL
2011
2002
2003
2004
2005
2006
2007
2008
2009
2010
2012
10yr Average Supply and Vacancy Rates
VacancyRate % 16 14 12 10 8 6 4 2 0 Vacancy Rate
000s sqm 1,000 800 600 400 200 0 Vacancy Total
Market Areas
Q4 2012 was the most ac<ve quarter of the year, with 4 deals for €143 million. This takes the total volume for the Barcelona office investment market in 2012 to €265 million. This represents a 38% increase on the €192 million registered in 2011
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