The global economy and real estate capital flows

Miles GibsonHead of UK Research

End of cycle fears are growing

U.S. U-3 Unemployment (%, Monthly, SA)

0

2

4

6

8

10

12

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

3y 8m 7y 7m 9y 6m 11y 6y 4m 10y+

Source: U.S. Bureau of Labor Statistics & CBRE Research, Q2 2018.

There will be a deal (eventually) on ‘divorce’ and

‘transition’

‘Canada plus’or ‘EEA minus’

trade agreement

Financial services access will be tough

to secure

Migration policy low-skill workers

most affected

Brexit: CBRE’S House View

FORECAST

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

USA Euro Area UK China USA 10 year bond

An economic soft patch ahead

GDP growth, selected countries, 2012 - 2023, %

Source: CBRE Research, October 2018

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FORECASTUK interest rates up… eventually, and slightly

UK base rate

Source: CBRE Research

Global savings increasing since 2000

Gross savings as % of global GDP

Source: Oxford Economics/Haver Analytics, Macrobond, CBRE Econometric Advisors, April 2018.

21

22

23

24

25

26

27

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

26%

24%23%23%

Investment holding up

UK real estate investment volumes, 2004 - 2018, £bn

Source: CBRE Research, October 2018

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

Globalisation works for real estate too

Overseas and domestic real estate investment volumes, £bn and % overseas share, 2004 - 2017

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

70

80

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Inv

est

me

nt

Vo

lum

es

(£b

n)

Overseas Investors UK Investors Overseas share (RHS)

Source: PropertyData

And residential property has been a beneficiary

UK residential real estate investment volumes, £bn, 2004 - 2018 Q3 0

0.5

1

1.5

2

2.5

3

3.5

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

Inv

est

me

nt

Vo

lum

es

(£b

n)

Source: PropertyData, CBRE

Source: CBRE Research, April 2018

The rise of alternatives

UK property investment volumes, by sector, 2008 - 2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Other Industrial Retail Office

Source: CBRE Investor Intentions Survey, March 2018

Most investors have alternatives…and want more

UK property investment volumes, by sector, 2008 - 2017, %

0% 10% 20% 30% 40% 50% 60% 70% 80%

Student Living

Retirement Living

Multi-Family Residential

Healthcare

Leisure/Entertainment

Data Centre

Automotive/Car Parks

Already invested and actively pursuing further exposure Not invested, but actively looking for exposure

Already invested, but not looking for further exposure

Alternatives: More traditional than ‘traditional sectors’?

Most leases

signed for 20+ years

Indexed returns

RPI more

common in such

leases

Lower vacancy rates

Due to demand

and supply

mismatch

Granular underlying demand

Individuals, not

companies

Tenant default rate

Can be lower

than main-stream

sectors

Conclusions

Interest rates have a fair way to rise

Led by

the US

Globaleconomicdownturn

Likely, but should

be moderate

Brexit drag

Retarding UK’s

position in the

economic cycle

Elevated capital flows are

substantial and structural

With real estate

benefiting

Alternativeslooking attractive

But not immune

from the cycle

What does this mean for UK BTR?

Helen GrayHead of Build To Rent Consultancy

Economic backdrop will continue to support the housing market

Source: RICS, Land Registry

Investordemand

Supply and demand

Occupational demand

Strong economic fundamentals

Rentalforecasts

2018 - 2022

Source:

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

2019 2020 2021 2022 2023

UK

LONDON

BTR supply

Source: BPF

67,100London

64,700Rest of UK

Total UK BTR:

131,900 units

125

248

332

0

50

100

150

200

250

300

350

Complete Construction Planning

No

. o

f u

nits

Average scheme size

Product

Source: RICS, Land Registry

Suburban BTR

Price point

FlexibilityGreater differentiation

£0

£500

£1,000

£1,500

£2,000

£2,500

£3,000

2015 2016 2017 2018 ytd

Inv

est

me

nt

Vo

lum

es

(£m

)Residential investment volumes

Source: CBRE* Excl. Wembley Park in 2008 ‘On the Market’. Rumoured asking price >£3bn.

£2.4bnTotal 2017

investment volumes

£700m2018 under offer

£2.1bn2018 yr-to-date

£3bn

-plus

MarketCapacity

£103bn(US$145bn)

US multi-family£91bn(US$128bn)

US offices

£67.9bnAll UK property

£27.2bn

All UK offices £4.6bnPurpose -builtstudent accommodation

£2.4bnTotal residential investmentvolume

£32bn

UK

46%

US

32%

Canada

13%

Middle East

9%UK

25%

US

31%

Canada

14%

Middle East

6%

Europe

8%

Asia/Pacific

16%

Interested capital Transactions

Transaction type

Source: CBRE

Standing investment

Forward funding

Forward commitment

Land

2015 2016 2017 2018 YTD

£0.0

£0.5

£1.0

£1.5

£2.0

£2.5

£3.0

£3.5

£4.0

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

s

Portfolios Single Assets

Portfolio - Long Term Average Portfolio - Single Assets

The student sector

Investment volumes

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