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Joe Valente Director of Research and Development

"Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital."

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“Indexing” ABCN

May 2005

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…He who lives by the crystal ball soon learns to eat glass…

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The Role of Property

• Unit of production

• Source of cost

• Potential value

• Real Estate in the 21st Century

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• 24/7

• 200+ TV channels

• Shopping trips to New York

• The internet

• £5 flights

• Banks without branches

• SAC

• Offshoring

• Brand literacy at 2.5 yrs

• Virgin pensions

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• Big is beautiful

• Size, mass and brawn

• Commanding presence

• Standardisation

• Office cost & productivity

• Hierarchical management

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Routes to Profit:• More of the same

• Be more efficient

• Cut costs

• Innovate

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• Human capital rather than real estate lies at the centre of the value chain

• Speed to market attracts a premium

• Real estate as a service

• How much space… …where…for how long…

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• A question of definition

• Asset value of £3.75 bn

• Rapid growth

• Regional disparities

•…Apparently not all publicity is good publicity !!

• The nature of competition

The UK Market

10

BusinessCentres

8

Workspace

2

MainstreamOffice

The UK Market

10

Real Net Effective Rents

0

20

40

60

80

100

120

140

160

180

200

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

£/Sqft

City Real Effective Rent W/E Real Effective RentSource: DTZ Research

0

2

4

6

8

10

12

14

16

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002/3

Source: BPF IPD Annual Lease Review

Year

s

Lease Lengths

Mainstream Office Market

Eroding value of cost and flexibility proposition

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Key Trends:

• Corporate change favours flexible space provision

• …But its not a universal panacea

• Increased M&A activity

• Clear market proposition

• Emergence of brands

• Structural change… …investment asset class

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Property Brands:• Where’s brand value in

property?

Trust

Consistency

Quality

Risk management

Market premium

Emergence of strong covenants

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Investment Stock

0

5

10

15

20

25

30

35

40

45

50

1999 2000 2001 2002 2003 2004 2005*

Source: DTZ Research

£ billion (current prices)

* DTZ Forecast

• Strong appetite for real estate

• Wide range of investors active in the market

• Location, location, location?

• Legislative change

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US REITs by Real Estate Sector

Mortgage6%

Self Storage3%

Industrial/Office27%

Diversified8%

Residential16%

Retail26%

Lodging/Resorts4%

Health Care5%

Specialty5%

• UK is the only G8 economy that does not have a “Reit” type vehicle

• Consultation period

• Announcement expected in Finance Act, April 2006

• Allowed to invest in all property types

• Source of capital or investment product?

• Definition of investment grade stock is/will change

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Liquidity: • Improved liquidity across whole range of specialist sectors

• Income generation is the key

• Diversification

• Exit route

Self storageNursing homes

Student accommodationHotels

Lodges

LeisureHealth care

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Exit Strategy:• Institutional holdings

• LPs

• Bank debt

• Corporate portfolios

• Public sector

• Business centres?

Publ

ic s

ecto

r

LPs

Buy

to le

t

Inst

itutio

ns£10bn

£17bn

£38bn

£90bn£110bn

£135bn

Corp

orat

es

Priv

ate

debt

Busi

ness

Cen

tres

£4bn

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Transparency:

• Benchmarking

• Value of data

• Credibility/trust

• Robustness

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Towards an Index:• UK survey

• KISS

• Going global

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Summary:

1. Investor attitudes are changing …definition of investment stock has and will continue to change

2. “why invest?” … the business case needs to be made

3. Clear market proposition and greater transparency…It is not an optional extra !

4. Brand value…premium

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Questions?