EY Real Estate Asset Investment trend indicator 2014

Real Estate Assets Investment Trend Indicator Belgium 2014

Page 2

About the trend indicator 2014

Market outlook for Belgium 2014

Investment strategy for Belgium 2014

Real Estate Assets Investment Trend IndicatorBelgium 2014

European outlook for 2014

Agenda

Page 3

A high proportion of respondents (80%) see Belgium as an attractive or very attractive location to invest in real estate.

Basel III-effects on classic bank real estate loans will probably gain momentum.

Seller groups: international funds, corporates and opportunity/PE funds. Buyer groups: opportunity/PE funds and private/family offices.A price mismatch between buyers and sellers is viewed as the major barrier for deal flows.

Strongest investment focus on retail and residential properties.

The preferred cities for investment are Brussels (office and residential) and Namur (retail).

Prices in prime locations tend to increase for all types of use. Decreasing prices in peripheral areas.

Key findings 2014 for Belgium

Attractiveness

Capital markets

Transaction marketPrice trends

Sellers, buyers

Impediments

Use types

Preferred regions

Alternative debt providers as insurance companies, pension funds or debt funds will become more important in 2014.

Page 4

► The trend indicator is based on a survey of 20 companies that have been active in the Belgian property market in recent years.

► The survey focuses on two main areas:

► Assessment of the Belgian real estate investment market for the year to come.

► Outlook on the strategies that Belgian investors will pursue in the coming year.

► In addition to Belgium, this survey was conducted simultaneously in 14 other European countries.

Trend indicator: real estate investment market

► EY has conducted this survey in Belgium since 2012.

► 20 investors reported on their expectations for the coming year.

Background Objectives► The trend indicator is based on a survey

conducted by Valid Research in November and December 2013.

► The feedback from the interviews forms the results of the real estate trend indicator.

Method► Assessment of the Belgian real estate

investment market for the year to come.► Outlook on the strategies that Belgian

investors will pursue in the coming year.

The different types of investor groups surveyed:► Banks

► Closed-ended real estate funds

► Real estate stock corporations/REITs

► Institutional investors

► Opportunity/private equity funds

► Insurance companies

► Housing companies

► Other investment vehicles

Our trend indicator covers a broad range of investor groups in Belgium

Page 5

The survey was also conducted in other European countries

► Austria► Belgium► France► Germany► Italy

Participating countries ► Sweden

► Switzerland► Turkey► Ukraine ► United Kingdom

► Luxembourg► The Netherlands► Poland► Russia► Spain

European trend indicator: real estate investment market

► Participants from 15 European countries took part in the survey.

► All surveys took place in November and December 2013.

► Feedback was gathered from more than 500 companies operating in the real estate market in the surveyed countries.

► Those countries that have participated are listed below.

Page 6

Belgium’s attractiveness as a location for real estate investmentsKey messages► The majority of the respondents

(80%) view Belgium as an attractive or very attractive location to invest in real estate for 2014.

► Last year the confidence in the Belgian market was even stronger. 95% stated that Belgium was attractive or very attractive.

Original question – “How do you rate Belgium’s overall attractiveness as a location for real estate investments in 2014?“

A majority sees Belgium as an attractive investment location…

Very attractive Attractive Less attractive

25%

55%

20%

Page 7

… particularly compared with other European countries

Belgium’s attractiveness as a location for real estate investmentscompared with other European countriesKey messages

► Compared with other European countries, again the majority of respondents rate Belgium as an attractive or very attractive investment location (79%, 2013: 85%).

Original question – “How do you rate Belgium’s attractiveness as a location for real estate investments in 2014 compared with other European countries?”


21%

58%

21%

Page 8

Original question – “Which of the following statements about Belgium’s real estate financial/ capital market in 2014 do you agree with?”

Influence of the capital markets in 2014…

Key messages

► Alternative sources such as insurance companies, pension funds or debt funds acting as debt providers will become more important in Belgium in 2014 (90% agree, 2013: 50%).

► Interest rates for real estate loans will probably rise (89% agree).

► The capital markets seems to be ready for real estate IPOs and equity increases (85% agree, 2013: 60%).

► Fear of high inflation also drives demand for real estate (74% agree, 2013: 80%).

"Alternative debt providers (insurance companies, pension and debt funds, mezzanine providers) will

increasingly provide financing for real estate in-vestments"

"Interest rates for real estate loans will rise in 2014"

"The capital market in 2014 will be attractive for real estate IPOs and equity capital increases"

"Due to lower loan-to-value ratios, demand for mezzanine financing will increase in 2014"

"Fear of high inflation in the medium term will drive investors towards the real estate market"

60%

32%

30%

33%

11%

30%

57%

55%

45%

63%

10%

11%

15%

22%

21%0.0526315789

473684

Strongly agree Agree Disagree Strongly disagree

"Alternative debt providers (insurance companies, pension and debt funds, mezzanine providers) will increasingly

provide financing for real estate investments"

"Interest rates for real estate loans will rise in 2014"

"The capital market in 2014 will be attractive for real estate IPOs and equity capital increases"

"Due to lower loan-to-value ratios, demand for mezzanine financing will increase in 2014"

"Fear of high inflation in the medium term will drive investors towards the real estate market"

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… on real estate investment activity

Key messages

► Basel III will have consequences for the mortgage business but nevertheless the classic bank real estate loans are gaining momentum (72%, 2013: 55%).

► The CMBS market could revive in 2014 (60% agree, 2013: 55%).

► Belgian real estate investors anticipate an increasing supply of real estate (55%, 2013: 50%).

► The Eurozone debt crisis will have considerably less impact on the Belgian real estate market compared to last year (2014: 50%, 2013: 80%).

► Only a minority (44%, 2013: 65%) believes that Belgium will face increasing consolidations (M&A activity) this year.

"Basel III regulation will make real estate loans less attractive for banks and lead to greater restraint in the mortgage business"

"The commercial mortgage backed securities market will revive in 2014"

"Supply in the real estate market will increase in 2014 (maturity of structured debt, disposal of non-performing loans, liquidation of open-ended funds)"

"The euro-zone sovereign debt crisis will increase investments by European investors in the XX real estate markets"

"There will be an increase in consolidation of real estate companies in 2014"

11%

7%

15%

5%

22%

61%

53%

40%

45%

22%

22%

33%

45%

50%

45%

6%

7%

11%


"Basel III regulation will make real estate loans less attractive for banks and lead to greater restraint in the

mortgage business"

"The commercial mortgage-backed securities market will revive in 2014"

"Supply in the real estate market will increase in 2014 (maturity of structured debt, disposal of nonperforming

loans, liquidation of open-ended funds)"

"The Eurozone sovereign debt crisis will increase investments by European investors in the Belgian real

estate markets"

"There will be an increase in consolidation of real estate companies in 2014"

Original question – “Which of the following statements about Belgium’s real estate financial/capital market in 2014 do you agree with?”

Page 10

The Belgian real estate transaction market (1/2)

Key messages

► Green building standards will (90%, 2013: 75%) even play an increasing role for existing properties.

► More portfolio deals are foreseen in the commercial real estate sector (85% agree, 2013: 55%).

► Transaction volume is expected to increase (83%, 2013: 65%).

► The average deal size is likely to increase in 2014 (65%, 2013: 55%).

► Increased investment activity by international real estate investors seems to be likely (63%, 2013: 55%).

"Green-building standards will play a more impor-tant role with respect to existing investment prop-

erties"

"There will be more commercial real estate portfolio deals in 2014 compared to 2013"

“Overall, transaction volume in 2014 will exceed the level seen in 2013"

"The average size of real estate deals will increase in 2014”

"Investment activity by foreign real estate investors in XX will increase compared to 2013"

60%

10%

22%

10%

16%

30%

75%

61%

55%

47%

10%

15%

11%

35%

32%

0.0555555555555556

0.0526315789473684


"Green building standards will play a more important role with regard to existing investment properties"

"There will be more commercial real estate portfolio deals in 2014 than in 2013"

“Overall, the transaction volume in 2014 will exceed the level seen in 2013"

"The average size of real estate deals will increase in 2014”

"Investment activity by foreign real estate investors in Belgium will increase compared with 2013"

Original question – “Which of the following statements about Belgium’s real estate transaction market in 2014 do you agree with?”

Page 11

The Belgian real estate transaction market (2/2)

Key messages

► The majority of respondents expects a revival of more risky investments (56% agree, 2013: 45%).

► Transparency of information on the Belgian market could obviously be improved since only about half of the respondents (52%) are satisfied with the current situation.

► It is uncertain whether AIFM will lead to an increasing consolidation in the real estate funds industry (50% agree, 2013: 55%)

► Speculative project developments are not widely anticipated (only 25% agree, 2013: 40%).

"The share of value-add and opportunistic investments will increase in 2014"

"The quantity and quality of information on the XX real estate transaction market is sufficient for investment appraisal purposes"

"The introduction of the AIFM Directive will lead to increasing consolidation in the real estate funds industry"

"Speculative project developments will return in 2014"

6%

21%

8%

5%

50%

31%

42%

20%

33%

16%

33%

60%

11%

32%

17%

15%


"The share of value-add and opportunistic investments will increase in 2014"

"The quantity and quality of information on the Belgian real estate transaction market is sufficient for investment

appraisal purposes"

"The introduction of the AIFM Directive will lead to increasing consolidation in the real estate funds industry"

"Speculative project developments will return in 2014"

Original question – “Which of the following statements about Belgium’s real estate transaction market in 2014 do you agree with?”

Page 12

Original question – “How do you expect purchase prices in Belgium to develop in 2014 based on the type of use and location?”

Office RetailKey messages

► Opinions concerning prices of office buildings in prime locations vary: one third of the respondents expects either increasing (33%), stable (34%) or decreasing prices (33%).

► Offices in secondary locations (72%) and peripheral areas (80%) are expected to decrease in price.

► The majority expects retail properties to decrease in price in prime locations (60%) as well as in secondary locations (69%) and peripheral areas (86%).

► At the same time, there is a significant share of respondents anticipating increasing prices for retail properties in prime locations (40%).

Price trend expectations vary greatly depending on location and type of use (1/3)

Increase No change Decrease

33% 34% 33%

7%

21%

72%

0%

20%

80%

Secondary locationsPrime locations Peripheral areas


40%

0%

60%

0%

31%

69%

0%

14%

86%

Page 13

ResidentialKey messages

► Residential properties are expected to decrease to a significant extent in prime locations (50%), secondary locations (73%) and peripheral areas (100%).

► At the same time, half of the respondents anticipate at least stable (25%) or increasing prices (25%) for residential properties in prime locations.

► Regarding hotel buildings, decreasing prices in all locations seem almost sure (100%).



25% 25%

50%

0%

27%

73%

0% 0%

100%

Hotel



0% 0%

100%

0% 0%

100%

0% 0%

100%


Page 14

Page 15


IndustrialKey messages

► The vast majority of respondents anticipate a decreasing price level for industrial buildings in all locations.

► Secondary locations are expected to suffer least with one third of the respondents anticipating stable (27%) or increasing prices (7%) here.


0% 0%

100%

7%

27%

66%

0%

17%

83%



Page 16

Other international funds

Corporates (non-property)

Opportunity/PE funds

Open-ended funds (real estate)

Residential real estate companies

Public sector

Insurance companies

REOC/REITs

Closed-ended funds (real estate)

Banks

25%

15%

32%

11%

33%

15%

45%

11%

60%

70%

52%

68%

45%

60%

25%

67%

52%

40%

15%

15%

16%

21%

22%

25%

30%

33%

37%

60%

Which seller groups will be the most active in 2014?

Seller groups

Original question – “How active do you think the following seller groups will be in the Belgian real estate market in 2014?”

Key messages

► International funds (85%, 2013: 75%), corporates (85%, 2013: 75%) and opportunity/PE funds (85%, 2013: 80%) are expected to be the most active seller groups in 2014.

► In contrast to last year, banks form the only group that will be cautious according to the respondents (only 40% expect banks to play an active role, 2013: 75%).

Seller groups

Very active Moderately active Cautios

Page 17

Opportunity/PE funds

Private/ family office

Insurance companies



Sovereign wealth funds

Open-ended funds (real estate)

Closed-ended funds (real estate)

REOC/REITs

Banks

11%

33%

40%

20%

15%

22%

15%

15%

13%

5%

73%

50%

40%

60%

65%

56%

60%

55%

49%

20%

16%

17%

20%

20%

20%

22%

25%

30%

38%

75%

Buyer groups

Original question – ”How active do you think the following buyer groups will be in the Belgian real estate market in 2014?”

Key messages

► Opportunity/PE funds (84%, 2013: 65%) and family offices (83%, 2013: 65%) are expected to be among the most active buyer groups in 2014.

► Again, in clear contrast to last year, banks are seen as cautious players in 2014 (only 25% see an active role, 2013: 80%).

Which buyer groups will be the most active in 2014?

Very active Moderately active Cautios

Page 18

Which will be the greatest impediments to deal flows in 2014?

Original question – “Do you agree or disagree that the following will be impediments to Belgium's deal flow in 2014?”

Key messages

► A price mismatch between buyers and sellers is viewed as the major barrier for deal flows in 2014 (75%, 2013: 75%), no change to last year.

► The level of equity required by debt providers is another big hurdle (65%, 2013: 70%).

► The limited availability of debt funding remains an impediment, though not as much as last year:

► senior debt funding (60%, 2013: 80%)

► junior debt funding (58%, 2013: 70%)

Transaction impediments

Price mismatch between buyers and sellers

Level of equity required

Limited availability of senior debt funding

Limited availability of junior debt funding

20%

25%

30%

21%

55%

40%

30%

37%

20%

30%

35%

37%

5%

5%

5%

5%


Page 19

Bank actions to deal with distressed loans

Original question – “Which actions do you expect banks to take regarding distressed loans in Belgium?“

Key messages

► Selling distressed loans seems to be the most common way to deal with them (88%).

► An increase in debt-for-equity-swaps is expected (72%, 2013: 55%).

► Enforcements will continue to play a certain role with regard to distressed loans, too (57%, 2013: 65%).

► The extension of the repayment period has become less popular compared to last year (42%, 2013: 65%).

Sale of loans

Increase in debt-for-equity swaps

Increased enforcement

Increase in consensual restructuring deals

Increase in replacement of real estate asset managers

Extend repayment period

0.166666666666667

0.142857142857143

0.15

0.0526315789473684

0.210526315789474

71%

72%

43%

40%

42%

21%

6%

28%

36%

35%

42%

37%

0.0555555555555556

0.0714285714285714

0.1

0.105263157894737

0.210526315789474


Approaches to dealing with distressed loans

Page 20

The following types of use will be popular with investors in 2014

Strong or moderate investment focus

Original question – “Compared to 2013, what kind of focus do you intend to give to the following real estate use types in your investment strategy for 2014?“

Key messages

► Retail properties will have the highest focus for investors (22% strong, 2013: 25%) or at least a moderate one (22%, 2013: 30%).

► Office real estate has lost even more significance compared to last year (34% strong and moderate, 2013: 50%).

► Interest in residential properties has not changed significantly (45% strong and moderate, 2013: 40%).

Office Retail Residential Other

Strong Moderate

17% 17%22% 22%

17%

28%

6% 6%

Page 21

The following types of use will not be as popular with investors in 2014

Low or no investment focus

Original question – “Compared to 2013, what kind of focus do you intend to give to the following real estate use types in your investment strategy for 2014?“

Key messages

► It seems that many Belgian investors do not have a clear focus on a special type of use.

Office Retail Residential Other

Low No focus

38%

28%

17%

39%

11%

44%

0%

88%

Page 22

Brussels preferred place for offices, small retail focus on Namur

Office and retail focus

Original question – “Which primary locations in Belgium will you be focusing your investments on in 2014?“

Key messages

► Brussels apparently is the most attractive city for office investments (30%, 2013:35%). Other Belgian cities attract a lower demand for offices. Among those, Ghent is in the lead with 10% (2013: 10%).

► Altogether, the differences in retail location demand is not spread apart very much. Namur has the highest retail focus with 15%, 2013: 25%).

Brussels

Ghent

Namur

Mons

Liège

Other

Leuven Antwerp

Office Retail

30%

0%0%

15%

0%5%

0%5%5% 5%

10%5%5%

10%

0% 0%

Page 23

Brussels, Liege, Ghent, Antwerp most sought after for residential real estate

Residential and no focusKey messages

► For residential investments, several cities are attractive: Brussels (35%, 2013:5%), Liege (20%, 2013: 25%), Ghent (20%, 2013: 30%) and Antwerp (15%, 2013: 20%).

Original question – “Which primary locations in Belgium will you be focusing your investments on in 2014?“

Brussels

Ghent

Namur

Mons

Liège

Other

Leuven Antwerp

Residential No focus

35% 35%

5%

80%

20%

75%

5%

90%

15%

75%

20%

65%

5%

80%

0%

100%

Page 24

Page 25

Most attractive exit options for real estate investments in 2014

Original question – “What will be the most attractive exit options for your real estate investments in 2014? (Multiple answers possible)”

Key messages

► The direct sale of single assets is anticipated to be the most favourable exit option in 2014 (39%).

► In the year before, trade sales had already gained significant importance as an exit channel.

Planned exit options

39%

11% 11%

39%

11%

6%

0%

Page 26

Impact of the digital world on real estate

Original question – “What impact will the digital world have on space demand for the following property types?”

Key messages

► According to the respondents, different impacts for the individual types of use will occur due to the ongoing digitalization of the world.

► The office sector will face a decreasing impact concerning space demand (61%), residential real estate will face no changes (63%) and retail real estate shows a mixed trend.


11%

28%

61%

33% 34% 33%

21%

63%

16%

29%

47%

24%

Impact of the digital world on demand for space

Office Retail Residential Industrial

Page 27

Impact of the digital world on real estate

Original question – “What impact will the digital world have on space demand?”

Key messages

► The most obvious impact is expected with regard to online suppliers replacing local stores in weak locations (83%).

► On the other hand, e-commerce-suppliers could emerge as additional tenants for retail space (67%).

Impact of the digital world on demand for space

"Online suppliers will replace over-the-counter retail stores in weak locations"

"E-Commerce suppliers will appear as tenants for retail space"

"Brokers will lose market share for renting/ selling residential real estate due to Internet listing services"

"Home office working is out-dated and staff will move back to the workplace"

0.277777777777778

0.222222222222222

55%

67%

44%

18%

17%

33%

28%

47%

0.0555555555555556

0.352941176470588


"Online suppliers will replace over-the-counter retail stores in weak locations"

"E-Commerce suppliers will emerge as tenants for retail space"

"Brokers will lose market share for renting/selling residential real estate due to Internet listing services"

"Home office working is out-dated and staff will move back to the workplace"

Page 28

Attractiveness

► The majority of the respondents (80%) view Belgium as an attractive or very attractive location to invest in real estate for 2014.

► Compared with other European countries, again the majority of respondents rate Belgium as an attractive or very attractive investment location (79%, 2013: 85%).

Real estate financial/capital market

► Alternative sources such as insurance companies, pension funds or debt funds acting as debt providers will become more important in Belgium in 2014 (90% agree, 2013: 50%).

► Interest rates for real estate loans will probably rise (89% agree).

Real estate transaction market

► More portfolio deals are foreseen in the commercial real estate sector (85% agree, 2013: 55%).

► Transaction volume is expected to increase (83%, 2013: 65%).

Purchase price expectations

► Opinions concerning prices of office buildings in prime locations vary: one third of the respondents expects either increasing (33%), stable (34%) or decreasing prices (33%).

► The majority expects retail properties to decrease in price in prime locations (60%) as well as in secondary locations (69%) and peripheral areas (86%).

► Residential properties are expected to decrease to a significant extent in prime locations (50%), secondary locations (73%) and peripheral areas (100%).

Seller/buyer groups► International funds (85%, 2013: 75%), corporates

(85%, 2013: 75%) and opportunity/PE funds (85%, 2013: 80%) are expected to be the most active seller groups in 2014.

► Opportunity/PE funds (84%, 2013: 65%) and family offices (83%, 2013: 65%) are expected to be among the most active buyer groups in 2014.

Outlook for Belgium (1/2)

Page 29

Greatest deal impediments► A price mismatch between buyers and sellers is

viewed as the major barrier for deal flows in 2014 (75%, 2013: 75%), no change to last year.

Bank actions to handle distressed loans

► Selling distressed loans seems to be the most common way to deal with them (88%).

Real estate use types

► Retail properties will have the highest focus for investors (22% strong, 2013: 25%) or at least a moderate one (22%, 2013: 30%).

► Office real estate has lost even more significance compared to last year (34% strong and moderate, 2013: 50%).

► Interest in residential properties has not changed significantly (45% strong and moderate, 2013: 40%).

Preferred regions

► Brussels apparently is the most attractive city for office investments (30%, 2013:35%). Other Belgian cities attract a lower demand for offices. Among those, Ghent is in the lead with 10% (2013: 10%).

► Altogether, the differences in retail location demand is not spread apart very much. Namur has the highest retail focus with 15%, 2013: 25%).

► For residential investments, several cities are attractive: Brussels (35%, 2013:5%), Liege (20%, 2013: 25%), Ghent (20%, 2013: 30%) and Antwerp (15%, 2013: 20%).

Planned exit options► The direct sale of single assets is anticipated to be

the most favourable exit option in 2014 (39%).Impact of the digital world

► The most obvious impact is expected with regard to online suppliers replacing local stores in weak locations (83%).

► On the other hand, e-commerce-suppliers could emerge as additional tenants for retail space (67%).

Outlook for Belgium (2/2)

Page 30

Real Estate Assets Investment Trend Indicator – Europe 2014

Page 31

A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014.

More investors are set to target riskier assets as the market improves but the supply of core assets remains low.

As banks limit their exposure to real estate, investors are set to turn to alternative sources of finance.

Retail prices set to strengthen, especially in markets hit hardest by the downturn.

PE funds set to be among the most active investors across Europe in 2014.

Brokers and stores alike are braced for renewed pressure from e-commerce.

Eurozone crisis not main driver for real estate investments anymore.

Key findings for Europe

Attractiveness

Transaction volumeTransaction marketCapital markets

Capital markets

Prices and focus

Sellers, buyers

E-commerce trends

Cross-border investments are set to drive an increase in transaction volume.

Page 32

Attractiveness of your market

Market attractiveness continues to improve across Europe

Original question: “How do you rate the countries’ overall attractiveness as a location for real estate investments in 2014? / How do you rate the country’s overall attractiveness as a location for real estate investments in 2014, compared with other locations in Europe?"

Key messages

► A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014.

► The positive change in sentiment compared with last year is particularly striking in the countries hit hardest by the Eurozone crisis – Spain and Italy.

► In comparison with other European countries, Germany and the UK are seen as most attractive by respondents.

► In 14 out of the 15 countries surveyed, more than two-thirds rate their real estate markets as attractive compared with other European markets.

In comparison with other countries


Poland

Germany

UK

Sweden

Austria

Russia

Spain

Luxembourg

Turkey

Switzerland

Belgium

Netherlands

Ukraine

Italy

France

67%

67%

60%

65%

60%

58%

35%

47%

35%

45%

55%

54%

57%

44%

45%

33%

32%

36%

30%

34%

30%

49%

35%

45%

35%

25%

13%

9%

17%

15%

1%

4%

5%

6%

12%

16%

18%

20%

20%

20%

33%

34%

39%

40%

35%

59%

35%

29%

41%

16%

47%

47%

55%

35%

21%

10%

16%

27%

13%

50%

39%

63%

61%

56%

74%

40%

35%

35%

35%

58%

57%

40%

41%

69%

15%

2%

2%

10%

3%

10%

13%

18%

10%

30%

21%

33%

44%

32%

18%

Page 33

Transaction volume expected to exceed 2013 level

Transaction volume

Original question – “Do you agree with the following statement: Overall, transaction volume in 2014 will exceed the level seen in 2013. / Investment activity by international real estate investors will increase compared with 2013.”

Key messages

► Transaction volume is set to increase in 2014 for the second straight year, driven largely by cross-border investments.

► In almost half of the countries, more than three-quarters of interviewees believe that volume will rise in their country.

► Spain and Italy are predicted to show the biggest improvements compared with last year.

► Majorities in all countries agree that cross-border activity will increase in 2014,

Cross-border activity

Agree Rather agree Rather disagree Disagree

Luxembourg

UK

Netherlands

Spain

Belgium

Sweden

Ukraine

Russia

Germany

Italy

Turkey

Poland

France

Austria

Switzerland

In some cases no answers were provided by the respondents. This is not shown in the graph. Thus, the total might deviate from 100%.

13%

11%

13%

16%

11%

19%

23%

27%

28%

27%

30%

33%

35%

41%

50%

74%

63%

64%

58%

61%

71%

77%

70%

50%

70%

55%

26%

55%

47%

45%

13%

24%

23%

26%

22%

10%

3%

22%

15%

41%

10%

9%

5%

2%

6%

3%

3%

20%

10%

4%

42%

16%

16%

31%

3%

10%

15%

15%

6%

10%

60%

57%

81%

48%

47%

63%

52%

75%

47%

59%

60%

43%

56%

50%

50%

13%

33%

4%

10%

32%

21%

48%

25%

22%

38%

25%

42%

28%

41%

30%

7%

11%

5%

5%

3%

10%

Page 34

Riskier investment targets on the rise

Opportunistic investments

Original question – “Do you agree with the following statement: The share of value-add and opportunistic investments will increase in 2014. / Speculative project developments will return in 2014.”

Key messages

► As markets improve and the supply of core assets remains low, investors are expected to take more risks.

► Investors also anticipate a rise in speculative project developments in selected markets, especially where core products are often unable to deliver sufficient returns.

Speculative project developments

Agree Rather agree Rather disagree Disagree

Spain

Sweden

Netherlands

France

UK

Germany

Russia

Turkey

Ukraine

Poland

Switzerland

Italy

Belgium

Luxembourg

Austria


10%

10%

11%

13%

15%

18%

21%

25%

29%

29%

15%

30%

33%

46%

56%

64%

70%

78%

66%

63%

56%

79%

70%

71%

50%

60%

57%

50%

31%

41%

26%

20%

11%

18%

22%

25%

5%

21%

10%

8%

6%

15%

3%

3%

1%

15%

5%

11%

8%

37%

38%

13%

40%

56%

48%

63%

42%

45%

40%

25%

41%

20%

56%

22%

56%

52%

67%

56%

39%

38%

37%

48%

55%

48%

45%

48%

60%

25%

75%

7%

5%

20%

3%

4%

5%

4%

20%

3%

15%

13%

3%

5%

5%

10%

5%

8%

10%

8%

5%

6%

Page 35

Perceptions of the Eurozone crisis

Inflation overtakes the Eurozone crisis as the main investment driver

Original question: “Do you agree with the following statement: The Eurozone sovereign debt crisis will drive investments by European investors in the real estate markets. / Fear of high inflation in the medium term will drive investors towards the real estate market."

Key messages

► Most European countries no longer view the Eurozone sovereign debt crisis as the main driver for real estate investments.

► In just four countries – Germany, Austria, Sweden and the UK – more than two-thirds of respondents expect the debt crisis to push real estate investments in 2014.

► Concerns about the impact of inflation have decreased compared with last year’s survey.

► However, majorities in most European countries believe that fear about future inflation will drive investors toward real estate investments.

Fear of inflation

Strongly Agree Agree Disagree Strongly Disagree

Germany

Austria

Sweden

UK

Luxembourg

Turkey

France

Spain

Belgium

Italy

Poland

Switzerland

Netherlands

Russia

Ukraine

7%

16%

29%

27%

29%

40%

38%

39%

50%

48%

48%

40%

68%

65%

68%

33%

62%

71%

57%

59%

45%

49%

45%

45%

41%

36%

30%

32%

29%

29%

60%

19%

14%

6%

15%

8%

10%

5%

8%

12%

15%

3%

2%

6%

5%

6%

3%

4%

15%

6%

3%

37%

22%

5%

7%

13%

15%

15%

23%

11%

11%

4%

20%

3%

52%

65%

45%

73%

62%

60%

35%

40%

63%

43%

39%

40%

63%

57%

47%

11%

13%

40%

20%

19%

20%

47%

37%

21%

43%

57%

40%

27%

43%

50%

10%

6%

5%

3%

5%

3%

7%

3%

Page 36

Fund liquidation, disposal of NPLs and refinancing requirements set to drive real estate supply

Importance of green-building standards

Original question – “Do you agree with the following statement: Supply in the real estate market will increase in 2014 (maturity of structured debt, disposal of non-performing loans, liquidation of open-ended funds)."


Key messages

► Most European countries expect supply to increase in 2014, due to the maturity of structured debt, the disposal of non-performing loans (NPLs) and the liquidation of open-ended funds.

► Switzerland and Austria are the only countries in which fewer than half of investors expect an increase in real estate supply.


Real estate supply outlook

Russia

UK

Luxembourg

Sweden

Netherlands

Turkey

Italy

Germany

Poland

Ukraine

France

Spain

Belgium

Switzerland

Austria

90%

63%

76%

62%

69%

60%

49%

53%

46%

58%

52%

46%

40%

30%

28%

10%

17%

24%

24%

24%

30%

31%

34%

35%

39%

38%

37%

45%

55%

63%

20%

14%

7%

10%

14%

11%

15%

5%

10%

15%

5%

6%

6%

2%

4%

3%

5%

7%

10%

3%

Page 37

Commercial mortgage-backed securities market well-positioned for revival


Original question – “Do you agree with the following statement: The commercial mortgage-backed securities market will revive in 2014."


Key messages

► The commercial mortgage-backed securities (CMBS) market is expected to rebound, particularly in the most liquid property markets of the core Eurozone.

► More than half of the countries surveyed expect levels of CMBS issuance to increase in 2014.

► Some southern and eastern European countries, such as Italy, Russia and Ukraine, are more pessimistic about the CMBS market.


Commercial mortgage-backed securities market (CMBS)

France

Luxembourg

UK

Germany

Belgium

Sweden

Netherlands

Poland

Spain

Turkey

Switzerland

Russia

Austria

Italy

Ukraine

5%

13%

5%

13%

7%

8%

13%

5%

64%

56%

61%

52%

53%

60%

57%

46%

35%

42%

47%

44%

43%

27%

23%

28%

31%

34%

33%

33%

35%

43%

46%

49%

48%

41%

56%

57%

68%

77%

3%

2%

7%

5%

3%

5%

12%

5%

Page 38

Rising demand for alternative lenders


Original question – “Do you agree with the following statement: Alternative debt providers (insurance companies, pension and debt funds, mezzanine providers) will increasingly provide financing for real estate investments."


Key messages

► As many banks reduce their exposure to real estate, the majority of respondents predict that offer for mezzanine financing and other alternative lenders will rise.

► Ukraine and Poland are the only countries in which fewer than half of investors do not expect the share of alternative financing to increase.

► New debt sources are likely to help reduce the funding gap in the most liquid European markets.


Alternative debt providers

Belgium

UK

Netherlands

Sweden

Germany

Luxembourg

France

Turkey

Russia

Spain

Switzerland

Austria

Italy

Ukraine

Poland

60%

20%

7%

14%

39%

41%

28%

15%

28%

40%

9%

15%

30%

69%

79%

72%

45%

41%

54%

65%

77%

48%

35%

57%

58%

48%

31%

10%

9%

14%

14%

16%

12%

18%

20%

23%

24%

25%

34%

42%

52%

54%

2%

6%

Page 39

Office and retail prices stable or rising; residential property leveling off

Original question – “How do you expect purchase prices to develop in 2014, based on the type of use and location?”

Price trends (prime locations)

CH

UK

SP

F

RUS

SWE

PL

GER

AT

NL

BEL

I

UA

TR

LUX

Key messages► Most countries surveyed expect

prices for office space in prime locations to remain stable or increase. However, some countries anticipate prices falling from peak levels.

► In countries such as the Netherlands and Spain, which have been hit particularly hard by the market downturn, prices are expected to strengthen over the next year.

► Respondents in most countries anticipate stable or increasing prices for prime retail investments.

► Sentiment about residential prices for the year ahead is more bearish, with respondents in nearly half of the countries surveyed predicting price falls in prime locations.Office Retail Residential

Rising Constant Falling

Page 40

Seller groups

Real estate investment trusts, international funds and private equity set to become more active

Original question: “How active do you think the following seller and buyer groups will be in 2014?"

Key messages

► Real estate operating companies (REOCs), real estate investment trusts (REITs), international funds and private equity (PE) funds are expected to be among the most active investors in real estate throughout Europe in 2014, on both the buy and sell side.

► In addition, private or family office , residential real estate companies and institutional investors are set to be among the most likely buyers of property in 2014.

Buyer groups

Very active Moderately active Cautious

REOC/REITs

Opportunity/PE-funds


Private/family Office


Insurance companies

Sovereign wealth funds

Open-ended funds

Closed-ended funds

Banks

26%

38%

33%

39%

33%

33%

27%

26%

23%

13%

55%

43%

47%

41%

44%

43%

49%

48%

43%

26%

19%

19%

20%

20%

23%

24%

24%

26%

34%

61%

REOC/REITs


Opportunity/PE-funds

Open-ended funds

Closed-ended funds

Corporates (non-property)


Banks

Insurance companies

Public Sector

20%

26%

37%

30%

27%

15%

31%

24%

19%

18%

60%

52%

41%

47%

49%

57%

40%

44%

44%

42%

20%

22%

22%

23%

24%

28%

29%

32%

37%

40%

Page 41

Investment to focus on residential property

Original question – “Compared with 2013, what level of focus do you intend to give to the following real estate use types in your investment strategy for 2014?”

Investment focus: residential properties

CH

UK

SP

F

RUS

SWE

PLGER

AT

NL

BEL

I

UA

TR

LUX

Key messages► European respondents will focus

their investment strategies most strongly on residential property.

► Investors in the UK, Spain, France, Germany, Sweden and Italy show the strongest interest in office properties.

► Despite being the least favored use type, there will still be a significant number of investors focusing on retail in each of the countries surveyed.

Office Retail Residential

LegendStrong & Moderately Active (values in %)

Page 42

Page 43

E-commerce a major threat to retail outlets in non-prime areas

Original question – “Do you agree with the following statement: Brokers will lose market share for renting or selling residential real estate due to Internet listing services. / Online suppliers will replace over-the-counter retail stores in weak locations. / E-Commerce suppliers will appear as tenants for retail space. / Home office working is out-dated and staff will move back to the workplace.”

Key messages

► Respondents in most countries believe brokers will lose market share for renting or selling residential real estate to internet listing services.

► The majority of investors in each of the countries surveyed sees e-commerce as a major threat to retail stores in less popular locations.

► Most of the respondents also expect e-commerce suppliers to rent retail locations in order to increase brand awareness.

Replacement of over-the-counter retail stores

Strongly agree AgreeBrokers lose market share

Aust

ria

Spai

nIta

ly

Nethe

rland

s

Switz

erla

nd

Belg

ium

Turk

ey

Fran

ce

Russ

ia

Ukrai

ne

Germ

any

Luxe

mbo

urg UK

Pola

nd

Swed

en

78%74% 71% 70% 67% 67% 63% 62% 61%

57% 53% 53% 52%44%

32%

Aust

ria

Germ

any

Belg

ium

Nethe

rland

s

Swed

en

Switz

erla

nd

Turk

ey UK

Luxe

mbo

urg

Pola

nd

Fran

ce

Spai

n

Russ

iaIta

ly

Ukrai

ne

84% 84% 82% 80% 80% 76% 74%68% 67% 67% 64% 63%

58% 54%50%

Page 44

Attractiveness

► A clear majority in each of the countries surveyed think that their market will be attractive to real estate investors in 2014.

► The positive change in sentiment compared with last year is particularly striking in the countries hit hardest by the Eurozone crisis – Spain and Italy.

Real estate financial/transaction market

► Transaction volume is set to increase in 2014 for the second straight year, driven largely by cross-border investments.

► Spain and Italy are predicted to show the biggest improvements compared with last year.

► As markets improve and the supply of core assets remains low, investors are expected to take more risks.

► Investors also anticipate a rise in speculative project developments in selected markets, especially where core products are often unable to deliver sufficient returns.

Real estate capital market

► Most European countries no longer view the Eurozone sovereign debt crisis as the main driver for real estate investments.

► Concerns about the impact of inflation have decreased compared with last year’s survey.

► Most European countries expect supply to increase in 2014, due to the maturity of structured debt, the disposal of non-performing loans (NPLs) and the liquidation of open-ended funds.

► The commercial mortgage-backed securities (CMBS) market is expected to rebound, particularly in the most liquid property markets of the core Eurozone.

► New debt sources are likely to help reduce the funding gap in the most liquid European markets.

Outlook Europe (1/2)

Page 45

Price trends

► Most countries surveyed expect prices for office space in prime locations to remain stable or increase. However, some countries anticipate prices falling from peak levels.

► Respondents in most countries anticipate stable or increasing prices for prime retail investments.

► Sentiment about residential prices for the year ahead is more bearish, with respondents in nearly half of the countries surveyed predicting price falls in prime locations.

Seller/buyer groups

► Real estate operating companies (REOCs), real estate investment trusts (REITs), international funds and private equity (PE) funds are expected to be among the most active investors in real estate throughout Europe in 2014, on both the buy and sell side.

Outlook Europe (2/2)

Investment focus

► European respondents will focus their investment strategies most strongly on residential property.

► Investors in the UK, Spain, France, Germany, Sweden and Italy show the strongest interest in office properties.

E-commerce trends

► Respondents in most countries believe brokers will lose market share for renting or selling residential real estate to internet listing services.

► The majority of investors in each of the countries surveyed sees e-commerce as a major threat to retail stores in less popular locations.

Page 46

Page 47

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EY Real Estate Asset Investment trend indicator 2014