Capital Views 2015 Outlook (CW)

7/23/2019 Capital Views 2015 Outlook (CW)

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CAPITAL VIEWSTRENDS FOR THE MARKET IN 2015


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RIDING THE CREST OF A WAVE

Further strong growth in activity forecastInvestment volumes in EMEA are forecast to increase 20% next year to 247bn from an estimated206bn this year. Demand is already strong but with fund allocations still increasing, occupationalmarkets stirring in many cities and nance markets growing more competitive, markets will beeven more liquid in 2015. What is more, short-term concerns such as stock market volatility, fearsof deation and limited economic growth could all point to yet stronger demand for property dueto its relative yield and risk prole. Retail and logistics will win further market share but qualityproperty in all sectors will be in demand and a notable increase in the appetite for development isto be expected, focusing initially on core ofce markets in the region.

Cushman &Wakeeldsassessmentof the EMEA

Capital Marketfor 2015 Chart 1 Property Investment in EMEA

Upside potentialThe boost to liquidity to be provided by quantitative easing (QE) as well as the aftermath of theECB bank stress tests which both removes a constraint on the market from this year and pavesthe way for more sales as banks take action- could produce conditions for signicantly strongeractivity.

A growing market

Alongside loan and asset sales and deleveraging, prot taking and some new development shouldhelp to boost the range of investment opportunities available in the market. Interest in a broaderrange of markets and sectors should also continue and while some investors are being driven tothis by necessity just to nd opportunities, others are actively seeking to embrace more risk inpursuit of higher returns. Hence, while demand at the core end of the market will remain verysignicant, an increased focus on core-plus and value add opportunities is to be expected.

Demand will continue to spreadSouthern markets, notably Spain, led the upturn this year with volumes up an estimated 55%. Thiswill continue in 2015, with forecast growth of 45-50%. Other areas more over-looked in 2014should see better demand however, with the Nordics up a forecast 25% after a 7% increase thisyear thanks to their strong appeal as markets of low structural risk but also good relative growth

prospects. CEE markets are also expected to bounce back, rising 30-35% after a 15-20% fall thisyear. Russia and some non-EU eastern markets may be held back by events in the Ukraine aswell as commodity prices and general emerging market uncertainty. However, Central Europe isa different and more promising short-term prospect and other eastern markets within the EUmay see stronger interest where the right stock is available. In Western markets meanwhile, wecurrently forecast growth of 15%, modestly down on the 20% increase seen this year reecting thefact that these markets have already seen a fuller recovery.

Our estimates for themarket continue to be pushedhigher as both the supply andthe demand outlook improve.With volatile stock marketsand rising liquidity boosted byquantitative easing, the push

to demand is already evidentand the boost to supply willcome from deleveraging banksand businesses as well asprot taking and development.Our central forecast is a 20%increase to nearly 250bn- potentially making 2015the second best year ever forvolumes. However with the

scale of liquidity were nowseeing, that could easily bebeaten and the market will besetting a new all-time high by2016 at the latest.

Source: Cushman & Wakeeld, KTI, RCA, and Property Data


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Chart 2 Targets for Investment The global focus onEurope of the last 1-2 yearsis expected to slowly reduceas other areas demonstratestronger economic growth, ahigher level of investor risktolerance is sustained andan unwinding of quantitativeeasing reduces global

liquidity. Parts of Asia andthe USA in particular arelike to attract more EMEAinvestment. Short termhowever, increased QE in theeurozone as well as a greatersupply of opportunitiesin Europe as banks andcompanies restructure anddeleverage, will serve to

keep the eye of the worldon Europe for longer than

expected.

Yield compression still to comeWith strong competition to buy, prices are set to carry on rising, with prime yields forecast to fall25-50bp over the year to an average across the sectors of 5.6% in larger cities.

Changing needs drive the occupierOccupational trends in many markets are supply driven but needs are changing thanks to newtechnology and new living, working and shopping patterns and this will be a key driver of demand

across all European markets.

Rental Growth to make a slow reappearanceWhile low and volatile economic growth will keep businesses focused on affordability, demandfor efcient space will start to push rents up and lower commodity prices may make this processeasier if build costs ease. Led by Western markets, prime rents are expected to grow 2-3% in2015 with good growth for dominant high streets and shopping centres although ofces maylead over the cycle against a backdrop of limited new supply. Better than historic industrialperformance is forecast as ecommerce raises the role of logistics but a risk of secondary marketunderperformance will persist in all sectors.

Plantation Place South, London, UK



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Economic conditions slow but

improvedOngoing uncertainty, geopolitical risks anddeation will hold back growth but a slow ifhesitant recovery is nonetheless continuing and2015 should in general be a better year than2014. For one thing, domestic demand in mostof Europe should be boosted by improving

purchasing power thanks to lower ination andrmer labour markets. At the same time, thefall in the euro and lower input prices shouldhelp production. The credit cycle also appearsto have bottomed, with increasing bank lendingand money supply pointing to a rming inconditions.

Deation risk still to be facedInation will fall further thanks to tumblingenergy prices and this will keep the spotlighton deation despite the short-term benets

it brings to households and producers. Thisshould slow the pace at which monetary policynormalises and indeed prompt further easingin the eurozone. With investment marketsalready some way ahead of occupier cyclesthis clearly brings the risk of a bubble but withliquidity so supportive, this will only be clearafter 2015.

While a bubble may form further out driven by bond

markets and excess liquidity, for 2015, bond yields look likely to

stay low, putting further pressure on property yields in the process.

Pricing will adjust anyway to the new reality of the market inwhich liquidity and income sustainability should be more highly

rewarded in their price than they have been in the past and it will

be those markets where income sustainability and security are

below average that will be most subject to the bubble risk.

The risks in todaysmarket are hard to judge some in fact are hardly visible atpresent and others will bubbleup, particularly perhaps in thepolitical sphere this year. As aresult, its all about the lease formany investors and they needto make sure their strategy is

as future-proofed as it can be and that means focussing onproperty that meets occupiersneeds and is exible to change.Only the best property can bewell placed to ride out a periodof ination or disination.

Gran Via, Madrid, Spain

Source: Cushman & Wakeeld, Consensus Economics, Oxford Economics

Chart 3 Economic Outlook

ITS ALL ABOUT THE LEASE


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Chart 4 Sources of Investment


Investors need to expandfurther their scope of investmentto take in new markets andnew sectors and 2015 shouldmark a further move into areassuch as multifamily residentialand healthcare as erstwhilealternative sectors start to gomainstream.

Skylight, Warsaw, Poland

Europe at the heart of global capital owsWith improving supply and demand and increased liquidity courtesy of QE, Europe will continueto attract more than its fair share of global investment, albeit this may grow at a somewhat slowerpace than in 2014 while domestic and regional spending will increase as fund allocations are raised.Overall, cross border investment is forecast to rise 30% versus 15% for domestic spending, withglobal investment up 30-35% and regional buying up by 20%.


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MARKET DATAPRIME YIELDSQ3 2014 INVESTMENT VOLUMES (mn)

SHOPS SHOPPING

CENTRES

OFFICES WAREHOUSE YEAR TO

SEP 14

GROWTH

OVER YR TO

Q3 14

RECOVERY

VERSUS PRIOR

PEAK

CORE EUROPE Germany 3.50% 4.40% 4.00% 6.30% 37.2 27% 61%

UK 2.50% 4.50% 3.50% 5.00% 75.5 46% 77%

France 3.50% 4.50% 4.00% 7.00% 20.2 26% 67%

Switzerland 3.70% 4.10% 3.80% 5.60% 3.7 -36% 247%

Austria 3.10% 6.00% 4.75% 7.25% 2.4 299% 86%

Denmark 4.10% 6.00% 5.00% 7.50% 3.3 -24% 87%

Finland 5.00% 5.00% 5.25% 7.50% 4.0 133% 61%

Norway 4.75% 5.25% 4.75% 6.25% 5.8 -11% 70%

Sweden 4.50% 5.00% 4.50% 6.50% 12.7 7% 69%

RECOVERINGFRINGEEUROPE

Italy 5.00% 7.00% 5.75% 8.25% 4.0 54% 35%

Spain 4.50% 5.50% 5.50% 8.00% 4.5 141% 38%

Portugal 6.00% 6.75% 6.25% 8.25% 0.3 4% 25%

Ireland 4.50% 6.00% 4.90% 6.75% 3.8 181% 140%

Greece 7.00% 8.30% 8.60% 11.00% 0.9 149% 136%

BENELUX Belgium 4.25% 5.35% 6.25% 7.00% 2.7 6% 45%

Netherlands 4.10% 6.10% 6.20% 7.60% 7.1 78% 62%

Luxembourg 5.00% 5.50% 5.20% 8.50% 0.9 27% 32%

CENTRALEUROPE

Poland 7.50% 5.50% 6.00% 7.50% 2.9 -25% 66%

Czech Republic 5.00% 5.50% 6.25% 7.25% 1.0 -1% 44%

Hungary 6.75% 7.25% 7.25% 9.00% 0.5 36% 26%

Slovakia 7.50% 7.25%7.25%

8.50%0.4 87% 91%

EASTERNEUROPE

Bulgaria 9.25% 9.25% 9.00% 11.75% 0.2 15% 16%

Romania 9.25% 8.50% 8.50% 9.75% 0.9 350% 46%

Russia 13.00% 9.50% 9.25% 11.50% 4.0 -26% 83%

Turkey 5.80% 7.00% 7.00% 9.00% 0.9 -28 27%

NOTE:Yields:THE FIGURES INCLUDED IN THE TABLE INDICATE THE VIEWS OF CUSHMAN & WAKEFIELDS CAPITAL MARKETS TEAM AND RELATE TO THE VERY BEST PRIME PROPERTY IN EACHMARKET CATEGORY. ALL RATES ARE FOR ILLUSTRATIVE PURPOSES ONLY. THOSE SHOWN IN RED ARE ON A NET BASIS.Investment Volumes: Source Cushman & Wakefield, Property Data, RCA and KTI


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The ReportThis report has been prepared by David Hutchings, head of the Investment Strategy team inCushman & Wakeelds EMEA Capital Markets group, based on desk research together with inputfrom Cushman & Wakeeld professionals in the Capital markets teams across Europe.

This report has been produced by Cushman & Wakeeld LLP for use by those with an interestin commercial property solely for information purposes. It is not intended to be a completedescription of the markets or developments to which it refers. The report uses informationobtained from public sources which Cushman & Wakeeld LLP believe to be reliable, but we havenot veried such information and cannot guarantee that it is accurate and complete. No warrantyor representation, express or implied, is made as to the accuracy or completeness of any of theinformation contained herein and Cushman & Wakeeld LLP shall not be liable to any reader ofthis report or any third party in any way whatsoever. All expressions of opinion are subject tochange. Our prior written consent is required before this report can be reproduced in whole or

in part. Should you not wish to receive information from Cushman & Wakeeld LLP or any relatedcompany, please email [email protected] with your details in the body of your emailas they appear on this communication and head it Unsubscribe. 2014 Cushman & WakeeldLLP All rights reserved.

Cushman & WakeeldCushman & Wakeeld is the worlds largest privately-held commercial real estate services rm.The company advises and represents clients on all aspects of property occupancy and investment,and has established a preeminent position in the worlds major markets, as evidenced by itsfrequent involvement in many of the most signicant property leases, sales and managementassignments.

Founded in 1917, it has approximately 250 ofces in 60 countries, employing more than 16,000professionals. It offers a complete range of services for all property types, including leasing, salesand acquisitions, equity, debt and structured nance, corporate nance and investment banking,corporate services, property management, facilities management, project management, consultingand appraisal.

The Capital Markets team provides trusted commercial advice and execution services to thoseengaged in buying, selling, investing in, nancing or building real estate. We work closely withour clients in order to accurately advise them on maximising the value of their real estate. Ourservices include investment sales and acquisitions, sale and leasebacks, arranging senior debt andmezzanine nance, private placements, loan sales and indirect investment.

The European Investment Strategy team provides our clients with detailed analysis and insighton trends, the outlook and strategies to aid in their successful investment in global real estate

markets. Cushman & Wakeeld is known the world-over as an industry knowledge leader and byharnessing the ow of timely, accurate, high-quality research, the Investment Strategy team aimto assist our clients in making decisions that best meet their objectives and enhance investmentperformance. In addition to producing bespoke client studies to aid portfolio analysis and givereal market insight, the strategy team also produce regular publications and media commentary onglobal and local markets and issues.

A recognized leader in real estate research, the rm publishes its market information and studiesonline at www.cushmanwakeeld.com/knowledge

TO DISCUSS YOUR IMMEDIATENEEDS PLEASE CONTACT:

David HutchingsHead of EMEAInvestment Strategy

+44 20 7152 [email protected]

Jan-WillemBastijnCEO, EMEA CapitalMarkets

+31 20 800 2081

janwillem.bastijn@

eur.cushwake.com

Michael RoddaHead of EuropeanRetail Investment

+44 20 7152 [email protected]


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Capital Views 2015 Outlook (CW)