Outlook for European Real Estate in 2013

Outlook for European Real Estate in 2013Mark Charlton, Head of Research & Forecasting

Tuesday 20th November 2012

Europe - uncertainty continues to buffetsentiment

2

Oct

06

Feb

07

Jun

07

Oct

07

Feb

08

Jun

08

Oct

08

Feb

09

Jun

09

Oct

09

Feb

10

Jun

10

Oct

10

Feb

11

Jun

11

Oct

11

Feb

12

Jun

12

Oct

12

60

70

80

90

100

110

120

130

140

UK

Germany

Eurozone

Eurostat Survey: Economic Sentiment

Source: Eurostat

• IMF and UNCTAD report that high levels of economic uncertainty are crippling investment and economic recovery

• Boosts to confidence short-lived

• US companies hold over $1.7 trillion in cash

• Transnational companies hold $5 trillion in cash

• FDI and business expansion are on hold

Eurozone & German GDP weakening

3

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

-3%

-2%

-1%

0%

1%

2%

-6%

-4%

-2%

0%

2%

4%

Quarter-on-quarter (LHS)

Year-on-year (RHS)

Eurozone GDP % Growth

Source: ONS

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-6%

-4%

-2%

0%

2%

4%

6%


Year-on-year (RHS)

German GDP % Growth

Source: ONS

Europe – key economies; size and growth

4

• Germany remains the powerhouse, but it cannot avoid the slowdown• France is weak and may tip into recession • Poland relatively strong, but not immune

GDP (€ millions)

Europe – key economies; size and growth

5

• Spain sees two years of negative growth• Sweden and Poland show respectable growth, but at reduced rates• UK, France and Germany sluggish• For property – expansionary demand to remain subdued

EMEA investment volumes down

6

07Q

408

Q1

08Q

208

Q3

08Q

409

Q1

09Q

209

Q3

09Q

410

Q1

10Q

210

Q3

10Q

411

Q1

11Q

211

Q3

11Q

412

Q1

12Q

212

Q3

€ 0

€ 50

€ 100

€ 150

€ 200

€ 250

€ 300

€ 350

€ 400

€ 450

Americas

Asia Pac

EMEA

Investment Volumes(12-month running total)

Source: RCA

billions • EMEA suffering from weak confidence

• Asia Pac volumes have almost trebled since the 2009 trough

• EMEA and Americas volumes have recovered, but remain at about 45% of their 2007 levels

• Marked improvement in EMEA volumes unlikely in 2013

7

Sentiment amongst EMEA investors slowly improving

Note: Colliers International Property Investor Sentiment Index is based on a result of where above 100 means that more investors are positive about investment conditions. Below 100 means more investors are negative about investment conditions

Last 6 months Next 6 months Next 12 months Next 5 years

98.00

99.00

100.00

101.00

102.00

103.00

104.00

105.00

100.60

101.35 101.49

104.30

8

Over one third of EMEA investors believe that property investment conditions will improve over the next 6 months?

Decline Improve Stay the Same0%

10%

20%

30%

40%

50%

60%

14%

37%

49%

Source: Colliers International

9

56% - good time to invest in commercial property59% - planning to expand over next 6 months

Good time to invest56%

Neither a good or bad time

37%

Bad time to invest6%

Expand / increase level of investment

Maintain / consolidate current investments

Reduce / sell current investments

0%

10%

20%

30%

40%

50%

60%

70%

59%

28%

12%

Which of the following best describes how your property portfolio will change over the next 6 months?


London and Paris dominate activity – as in 2011

10Source: RCA

Top 7 German City/Regions - €13,116

Occupier markets generally flatOffices

11

2009

H1

2009

H2

2010

H1

2010

H2

2011

H1

2011

H2

2012

H1

0%

5%

10%

15%

20%

25%

30%

Dusseldorf

London West End

Copenhagen

Warsaw

Budapest

Vacancy Rates Rising

Colliers International

2009

H1

2009

H2

2010

H1

2010

H2

2011

H1

2011

H2

2012

H1

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20% Berlin

Frankfurt

Hamburg

Munich

Stuttgart

London City

Stockholm

Helsinki

Prague

Moscow

Vacancy Rates Falling


2009

H1

2009

H2

2010

H1

2010

H2

2011

H1

2011

H2

2012

H1

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Paris

Oslo

Vacancy Rates Steady


Office rental growth generally flat

12

2009

H1

2009

H2

2010

H1

2010

H2

2011

H1

2011

H2

2012

H1

0

10

20

30

40

50

60

70

80

90

100London West End

Paris

London City

Moscow

Stockholm

Oslo

Frankfurt

Munich

Dusseldorf

Warsaw

Hamburg

Helsinki

Stuttgart

Prague

Copenhagen

Budapest

Rental Movements to H1 12


Logistics - a couple of areas to think about…

• E-commerce

• Infrastructure

13

Will anything change in 2013?

• Eurozone uncertainty will continue to impact on business confidence

• Recession is a reality in a number of European countries at start of 2013

• Unlikely to see even modest growth until H2 2013

• Limited bank lending will continue to act as a drag on the market…

• …and will only be available to those meeting stringent conditions and at a price

• Further growth of new lenders and mezzanine funds

• Investors will continue to focus on prime product; transparent, deep and liquid markets

• Opportunities for those prepared to take on more risk, but…

• …only if finance is in place

14

UK recovery at last? One step forward…

15

Q3-08

Q4-08

Q1-09

Q2-09

Q3-09

Q4-09

Q1-10

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

-4%

-3%

-2%

-1%

0%

1%

2%

3%

-8%

-6%

-4%

-2%

0%

2%

4%

6%


Year-on-year (RHS)

UK GDP % Growth

Source: ONS

• Chancellor under less pressure to follow through with July’s promises

• PMI data suggests that Q4 12

GDP could decline marginally

• Autumn financial statement 6th December should bring greater certainty with respect to economic policy

• Bank of England to remain accommodative

UK investment market challenging

16

• UK will struggle to reach 2011 totals, but Central London seeing safe haven flows

• London City and West End YTD 38% of value vs 27% in 2011

• 2012 currently c. £25.7 bn; forecast £29 bn at year end

• Modest improvement in 2013 to £35 bnSource: Property Data, Colliers International

UK property performance flat . . .S

ep-0

2

Sep

-03

Sep

-04

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

Sep

-12

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

AP Capital Growth %m/m

AP Rental Growth %m/m

Source: IPD 2012

UK IPD Rental Growth %m/m

% m/m

Polarisation to continue in 2013

• Prime vs non-prime– Investors to remain risk averse

– Non-prime pricing beginning to attract some interest, but obtaining finance remains challenging

• London vs Rest of UK– Occupier markets across sectors generally flat outside of London

– 2013 rental growth limited outside London…

– …but steady net absorption and limited new development in regional office markets will generate some rental pressure for Grade A space

– Lack of spec and D&B logistics is also limiting options for occupiers

18

London vs Rest of UK retail rents

19

London vs rest of UK retail rents

20

TMT*26%

Banking & Fi-

nancial Services

20%

Business Services

20%

In-suran

ce12%

Legal7%

Property6%

Other5%

Retail / Leisure4%

City Office take-up by business sector

City – 2011 City-2012 to date

*Technology, Media & Telecommunications

TMT*36%

Banking & Fi-

nancial Services

16%

Busi-ness

Services14%

In-suran

ce11%

Legal8%

Property7%

Other4%

Education3%

Public Sector2%


Banking & Fi-

nancial Services

28%

In-suran

ce18%

Business Services

18%

TMT*17%

Legal9%

Property8%

Other2%

Retail / Leisure1%

City Core vs Mid Town take-up by business sector

City Core – 2012 to date Midtown and Fringe-2012 to date

*Technology, Media & Telecommunications

TMT*63%

Busi-ness

Services9%

Legal7%

Property7%

Edu-cation

5%

Public Sector

4%

Other3%

Banking & Fi-nancial Services

2%Retail / Leisure

2%


TMT driving absorption in City fringe

23

City Core absorption remains positive, but becoming marginal

TMT has been driving stronger absorption in CityFringe / Mid-Town


Net Stock Absorption – West End

-1 500 000

-1 000 000

-500 000

0

500 000

1 000 000

1 500 000

H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 H1 2012

sq f

t


Net Stock Absorption – Core vs Non-Core

H1 2007

H2 2007

H1 2008

H2 2008

H1 2009

H2 2009

H1 2010

H2 2010

H1 2011

H2 2011

H1 2012

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

Mayfair Victoria

sq f

t


19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

£0.00

£25.00

£50.00

£75.00

£100.00

£125.00

£150.00

£175.00City West End Midtown

£ pe

r sq

ft

3 Day Week

80s recession

90s recession

Recovery

Headline rents & forecast 1971-2015

ERM Crisis

Dotcom Collapse

Credit Crunch


UK rental forecasts

27

UK total return forecasts

28

Conclusion

• A deteriorating situation in most European economies will not help the real estate markets

• Eurozone uncertainty will continue to impact business confidence in Europe and the UK

• Assuming no further external shocks, the UK is approaching the end of a long tunnel, but economic recovery will be slow

• Expansionary demand will remain subdued…

• EMEA investors are becoming more positive and most wish to invest and expand portfolios – 77% with debt – which will be a challenge

• Growth in new lenders and mezzanine funds

• Investors will remain relatively risk averse – we see more of the same

• Opportunities do exist as secondary pricing continues to adjust – but finance will need to be in place

29

Our Global Strength

Top 3 global real estate services brand

• 522 offices in 62 countries

• 12,000+ employees

• $1.8 billion in revenue

• Over 90% “owned” revenues

• $68bn transaction value

• Over 2.1 bn square feet under management *

* Includes FirstService Residential Management

Documents

Outlook for European Real Estate in 2013