international investment atlas summary A Cushman & Wakefield Research Publication

Transcription

1 international investment atlas summary A Cushman & Wakefield Research Publication 2012

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3 Introduction This report has been prepared by Cushman & Wakefield to provide an overview of activity in the global commercial real estate investment market in 2011 and an indication of activity in In addition the report contains summary global yield, investment volume and lease term tables. The information used is based on initial estimates made in February 2012 and hence may be subject to change. Investment volume estimates relate to commercial property only, excluding residential space and are based on recorded transactions in each market place. This summary forms part of a more detailed research report of global activity which includes market by market profiles for the main areas of activity showing the size and status of each and giving a flavour for the real estate sector and a brief view on where each is heading. Details of the full report are given on page 14 of this summary, together with a range of contact points for Cushman & Wakefield Research and Capital Markets globally. Ho Chi Minh City Vietnam London United Kingdom 01

4 GLOBAL INVESTMENT ACTIVITY Market Summary Global investment rose 14% in 2011 to US$727bn (US$808bn including multifamily) and volumes are now 83% up on their 2009 lows. North America was the star investment performer over the year as a whole, with commercial property volumes rising 52% versus a 17% increase in EMEA, 9% in Latin America and just 0.5% in Asia Pacific. However it was a year of two halves, with the second half slower and more cautious in most markets. All regions did see robust demand for core well-let assets and activity was also boosted by investors search for inflation-proofed incomes. However, as the year went by, higher inflation hit occupiers business margins while political uncertainty and global financial market turbulence grew. Amidst this uncertainty, investor risk aversion escalated and trading volumes slipped 7% between the first and second halves of the year. There was also a renewed flight to safety and liquidity. After opening the year strongly, emerging markets were the main victim of this, seeing just a 3% increase in activity versus 21% in mature markets. This however is likely to prove a temporary setback for emerging markets. Indeed, while global commercial trading volumes are still barely two thirds of pre-crisis levels, many emerging markets have already set new highs, with Asian volumes 39% up on 2007 and Latin American volumes just surpassing that mark (by 0.5%). Asia in fact remains the largest investment region overall, with a 50% share of global trading last year, again dominated by land sales which accounted for 74% of the total. China was the largest market for the third year running but its lead over the USA has fallen. Volumes in the top 25 cities grew by 28%, twice the global average, and gateway cities are clearly in strong demand. New York (US$28.2bn) overtook London (US$27.1bn) and Tokyo (US$18.6bn) to be the largest city target and including multifamily its lead is more notable (US$35.7bn versus London at US$29.2bn and Tokyo at US$22.6bn). Cross border investors were more active in all regions, increasing volumes by 28% versus a 10% increase for domestic buyers. The Americas saw the biggest rise with a 94% increase versus a 48% rise in domestic activity. Historically low interest rates have pushed discount rates well below pre-recession levels in most markets and prime yields fell further in most areas last year, as strong demand and limited supply impacted. The global average fell by 20bp to 7.35%, with the Americas seeing the greatest compression, followed by Asia and then EMEA. The global occupier market was in a mixed if generally improved mood for much of last year meanwhile and rents rose by 4.9%. However, not only is the recovery heavily polarised between prime and secondary products, it also stalled in many areas as business decision making slowed in the second half of the year. On a positive note however, pent-up demand is slowly building as a result, with many businesses being pushed to upgrade their property not by pure expansion needs, but by the need to react to issues such as sustainability and higher energy costs, new working and shopping practices and a general need to increase efficiency is set to be a challenging year in many areas. However, more positively, there are reasons to expect good activity during the year, both due to increased confidence as the year goes by but also due to an increased need to act specifically on real estate issues by banks, funds and occupiers. Many core investors will remain focused on low risk icon markets and on trophy assets within them. Such assets typically also provide medium term growth potential but as yields have fallen, some investors will inevitably turn towards other markets and risk tolerance is likely to increase as the year progresses. Quality supply shortages will continue to frustrate buyers but an increased flow of stock is likely as banks and businesses globally take action to deleverage and cut their real estate exposure. Please note, the data analysed in this report relates largely to the commercial market, excluding multifamily residential unless stated. Figure 1 Global Commercial Property Investment Volumes (all sectors excluding multifamily) Annual investment volumes (US$bn) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Investment Volume Source: Cushman & Wakefield, RCA, KTI and Property Data Rio de Janeiro Brazil Yield 8.2% 8.0% 7.8% 7.6% 7.4% 7.2% 7.0% All-sector average prime yield 02

5 FIGURE 2 TRENDS IN THE GLOBAL MARKET IN 2011 (all-sectors excluding multifamily) Change in Investment (%pa) Prime Yield Change (bp) Prime ERV Growth (%pa) 60% 50% 40% 30% 20% 10% 0% Americas EMEA APAC Source: Cushman & Wakefield, RCA, KTI and Property Data Capital Square Singapore 0-5 Americas Europe APAC 7% 6% 5% 4% 3% 2% 1% 0% Americas Europe APAC Regional Performance The Asian recovery was maintained in 2011 with good rental growth and further yield compression adding to capital performance. Investment volumes are at record high levels and 39% up on the last peak of the market in However total volumes, at US$364.4bn (US$373.8bn including multifamily), were barely changed on 2010 due to a range of factors including general global uncertainty at the year-end but also a mismatch between buyers and sellers on pricing, natural disasters, particularly those in Japan and Thailand, and measures in some countries to slow the market. The Americas gained ground in the global marketplace last year, with its market share rising from 19% to 25%. Volumes hit $182.1bn (US$235.7bn including multifamily), up 49% on 2010, driven by the USA, Mexico and Chile in particular. The region also out-performed in value terms, with yields compressing faster than other regions and higher prime rental growth, averaging 6.6% across the sectors, the fastest annual rate since 2008, with Latin America the key driver of this. EMEA investment rose 14% in 2011 to US$180.1bn (US$198.5bn including multifamily) with Central & Eastern Europe up 76% and the West up 8%. However while investors were less risk averse earlier in the year, a strong focus on core, stable markets returned by the year-end as the sovereign debt crisis escalated. The indebted fringe of the Eurozone (Greece, Ireland, Italy, Portugal and Spain) saw a 26% fall in investment over the year while the rest of the Eurozone saw volumes rise by 17% and it also suffered in pricing terms, with prime yields moving out by an average of 37bp. TABLE 1 THE GLOBAL MARKET IN RECOVERY Yields globally have firmed at a steady pace, with North America and Central & Eastern Europe seeing the greatest compression last year. Retail markets saw more compression than office or industrial segments, at 25bp versus 19bp and 9bp respectively, with the Americas and Europe leading on retail yield falls. Trends in the industrial sector meanwhile were the most diverse, with yields rising in parts of Latin America but falling significantly in some Asian markets. Globally, core yields in some markets are now back around 2007 levels but the average level of prime yields is still 29bp above the previous cyclical low. Trends do of course vary significantly by market with average prime yields in Emerging Asia significantly lower than the last market cycle but those in Western Europe, the Middle East and Latin America still at a premium. However, trends are far from homogenous within each market or market type grouping. In an emerging market like China for example, one now finds cities such as Shanghai and Beijing being labelled core due to their improved maturity and market scale. Rental growth hit nearly 5% last year, led by retail (6.7%), followed by industrial (4.7%) with offices the slowest growing segment (3.3%). Asia produced the best office market growth (6.8%) but retail was also high (5.1%). Offices underperformed in the Americas (1.1%), albeit in a bifurcated market which saw good growth in US gateway and tech markets. Industrial growth was strong (10.1%), led by Latin America, while retail was also strong in the north and south. Prime global rents on average are now only slightly below their last market peak but while markets in parts of Emerging Asia and Latin America are now producing fresh rental highs, Central & Eastern Europe and the Middle East are over 20% below previous peak levels. Investment Volumes (excluding multifamily) Change in Yields (bp) Change in Face Rents 2011 Change % of Relative Relative to change Relative to US$bN ON 2010 PeAK TO 2010 last peak on 2010 last peak Europe West % 46% % -2.9% Europe Central & East % 68% % -20.5% Middle East % 23% % -25.0% Latin America 9.9 9% 100.5% % +5.3% North America 172.2* 52% 41% % -5.8% Emerging Asia % 211% % +2.5% Mature Asia Pacific % 77% % -5.2% GLOBAL % 68% % -1.6% Source: Cushman & Wakefield, RCA Note: Middle East rental growth and yields for offices only. Other regions are all-sector excluding multifamily. Rental growth refers to change in face rents not effective rents *Note: The North American investment total in 2011 was US$225.5bn including multifamily property 03

6 GLOBAL INVESTMENT ACTIVITY In mature markets globally, rents tend to be less than 5% below their last peak, although the gap is larger for office and industrial property (averaging 11.1% and 7.3% respectively), while retail rents are back at premium levels across mature markets in all regions. Cross-border buyers were a strong feature in all areas of the commercial market last year and actually raised their market share for the first time in 4 years, accounting for 18.2% of all deals done, up from 16.5% in This is a reassuring sign of the faith investors have in property given that in the past cross border activity was often seen as higher risk and hence would reduce at times of heightened risk aversion such as we saw in the latter part of last year. Indeed it now seems clear that while some investors are crossing borders seeking higher returns, others are deliberately targeting diversification and risk reduction through spreading their investment into large, liquid global markets. The USA has been the biggest source of cross border investment in the past year albeit with US players often using global rather than US capital and look set to remain dominant in the short term, with private equity and opportunity funds gearing up to be more active as more opportunities are delivered by deleveraging banks and businesses. However the range of players active in the market is continuing to broaden with more global pension and sovereign wealth funds from North America, the Far East, Middle East and Central Asia amongst others. Cross border buyers increased their global activity by 27.5% versus a 10.9% increase for domestic players and all regions saw a similar relative pattern. The strongest growth overall was in North America, where cross border buyers increased trading activity by 93.6% (domestic trading rose 47.8%), lifting their market share to its highest since However at just over 11%, non-domestic players remain a smaller part of the US and Canadian market than in other regions. Activity by Sector The industrial sector saw the biggest gain in activity last year with volumes ahead by 42% due to strong growth in all regions, but in the Americas most notably. Retail was next in line, with 26% growth, fuelled again mainly by the Americas, while other sectors including offices, hotels and multifamily, all rose by a similar amount circa 19%. Interestingly however, trends were not uniform across the year, with industrial and retail both slowing between the first and second halves of the year while multifamily saw strong growth and hotels and offices a modest increase. 04 Issues such as deleveraging and austerity will clearly weigh on some retail markets but the sector is increasing in popularity as investors view it to be a lower long-term risk asset. Some emerging markets are growing strongly of course but even in markets with more subdued spending growth, demand for dominant or secure defensive retail assets is strong. Logistics meanwhile is favoured as a recovery sector due to the changing requirements of users reacting to trade growth, new markets, the growth of internet trading and the need for new logistics platforms to accommodate this. The usually high and stable income yield offered by the sector as well as potential for supply shortages are adding to its appeal. Better office investment demand came in response to greater confidence in the underlying market but also as a reflection of the stock that was actually available to buy. The most significant sector in the other category meanwhile related to development land, and with the brakes now being applied to the stimulus measures which caused land and development activity to rise so strongly in recent years, particularly in China, land sales have started to cool but remain a very significant part of the global total. Indeed, while a further slowing is likely this year, the fact that many Chinese local authorities will be keen to use their land resources to raise capital to reduce debt, may give the market an offsetting boost in some areas. Looking further out, the increase in development that will flow will make China in particular and Asia more generally, a key area of opportunity for occupiers and investors over the coming years. Whilst excluded from most of the volume data in this report, multifamily residential property forms a key part of the investment universe in some areas and a rapidly growing one again in 2011, with sales hitting US$81.3bn, 18.7% up on The USA remains the most significant multifamily investment market by some margin, with activity of $50.7bn accounting for 62% of the global total, up from 48% in The market generally has seen growing interest, with investors attracted by increased demand from tenants, many of whom cannot afford home ownership and with apartment sales hitting 11.3% of the total for commercial property, up from 10.8% in 2010; the sector is clearly becoming more significant. However, increases have been far from uniform and whilst the USA, Germany, the UAE and the UK saw significant increases, major markets such as Japan, Sweden, France and Hong Kong all went backwards. FIGURE 3 CROSS BORDER INVESTMENT (excluding multifamily) BY REGION (2011) North America APAC Latin America EMEA 0% 20% 40% 60% 80% 100% Investment share in 2011 Domestic Cross border Source: Cushman & Wakefield, RCA, KTI and Property Data Figure 4 Sector Share of Global Trading % of total new investment 60% 50% 40% 30% 20% 10% 0% Offices Retail Industrial Other Source: Cushman & Wakefield, RCA, KTI and Property Data

7 Figure 5 The Multifamily residential investment market Annual investment $bn Americas EMEA APAC Source: Cushman & Wakefield and RCA Investment Targets China was again the most active global commercial property investment market in 2011 but the acceleration in activity in the US has seen it close the gap significantly and if development land is excluded, the US would be the largest global market. However, while the contribution of land sales may slow further in 2012, China rose from 9th to 6th in the league table of markets excluding land and growing foreign and domestic investment is sure to elevate it further in the future. The importance of Asia Pacific is underlined by the fact that eight of the world s top 20 markets are in that region. The relative distribution of top markets globally has however been little changed on 2010, with two new entrants in the list Russia and Denmark, and two countries falling out, Spain and Malaysia. Spain was not alone among peripheral indebted Eurozone countries in losing ground of course the so-called PIIGS fell an average of six places with only Italy holding its relative position. At the same time, Central & Eastern European markets increased their average rank by three places in a further sign of a possible changing of the guard between old and new Europe. Other winners included France moving up four places to number 6 and South Africa and Switzerland, both outside the top 20 but seeing strong growth in City Targets Excluding land sales, New York took over from London as the largest city for investment last year with the turnover of commercial real estate rising 76% to US$28.2bn. London saw a 14% increase to US$27.1bn while Tokyo dropped to third with US$18.6bn invested, 15% down on Paris was stable in 4th place but with a 12% increase to US$16.1bn, while Hong Kong was 5th, with volumes dropping 3.8% to US$13.4bn. Including multifamily the same ranking holds for the top 3, with New York s lead more notable (US$35.7bn) over London (US$29.2bn) and Tokyo (US$22.6bn), while Los Angeles (US$17.5bn) and Washington (US$17.1bn) standing at 4th and 5th places respectively. Asian cities saw something of a switch around, with Melbourne and Beijing dropping out of the top 20 but Shanghai rising 4 places. Similarly in Europe, Stockholm and Amsterdam dropped out of the top 20 but Frankfurt came in and the rise of German cities was a feature of the ranking, with Munich and Hamburg rising strongly, albeit still outside the top 20. In fact Europe is down to having just four cities in the top 20 and the main story of the city ranking was clearly the rise of US cities, with nine of the top 20 metro investment targets and three new entrants into the list: Houston, Miami and Dallas. Figure 6 Top 20 Investment Targets (excluding multifamily) Figure 7 Top 20 City Investment Targets (excluding multifamily and development) US$bn pa US$bn pa China USA UK Germany Japan France Hong Kong Singapore Australia Canada Sweden South Korea New York London Tokyo Paris Hong Kong LA Washington San Fransisco Singapore Chicago Shanghai Seoul Sydney Boston Toronto Moscow Dallas Houston Miami Frankfurt Taiwan Brazil Russia Italy Norway Denmark India Netherlands Source: Cushman & Wakefield, RCA and Property Data Source: Cushman & Wakefield and RCA 05

8 GLOBAL INVESTMENT ACTIVITY Asia Pacific Asia saw strong performance for 2011 overall but a slowing in the property market as the year went by, starting with investment activity earlier in the year as government measures to deflate overheating residential markets began to impact, notably in China, Singapore and Hong Kong. Later in the year of course, global uncertainties hit occupier and investor sentiment and decision making slowed in most areas. Nonetheless, while 2012 has started on a sluggish note, the economy is expected to pick up, fuelled by domestic spending but also aided by government measures, lower inflation, US demand and hopefully reduced uncertainty in Europe. New challenges will of course emerge with a change in leadership in China for example but growth should be maintained and the property market will continue to benefit from good demand and a banking sector which is typically more robust with less real estate bad debt than most other regions. A mismatch in buyer and seller expectations on pricing is holding back activity in some areas and while yields are expected to be largely stable for prime property, a mild upward shift may be seen in some markets, particularly in the opening half of the year and for larger lot sizes. Banks are the main source of real estate lending in the region and low borrowing costs have helped to fuel investment, particularly in Japan, Hong Kong and Singapore. However, in general, lending patterns are likely to remain conservative and while typically less aggressive, regional banks are well capitalised and have added some stability to the market. Occupational markets meanwhile are likely to see somewhat less demand and rental growth than had been expected as hiring and expansion are reduced or delayed but fundamentally most markets are solid. Office market activity was particularly buoyant last year, helped by increased corporate activity in China and India but with other regional cities such as Jakarta and Manila also having a strong year. The market will clearly be cooler in 2012 and some markets may even see short term rental falls as owners compete to fill their properties. Many cities are supply driven and increased availability could be a risk in a range of markets in India and China as well as others such as Ho Chi Minh City, Seoul, Kuala Lumpur and Singapore. More modest levels of development and availability are however seen in others such as Beijing, Jakarta, Shenzhen, Sydney and Melbourne. Singapore and Hong Kong have slowed due to their reliance on foreign financial sector demand but they are highly cyclical and will be watched closely for opportunities. Retail markets have been less impacted by global volatility and are viewed as being more defensive, driven by medium term growth in affluence, tourism and confidence. Prime rents are expected to rise further in favoured areas, with declining vacancy in tier 1 cities, coupled with strong turnovers fuelling high tenant demand. China is particularly strong among luxury and fashion retailers in Shanghai, Beijing and Chengdu while other cities such as Jakarta, Bangkok and Kuala Lumpur are set for further growth. Hong Kong and Singapore will be targeted for more defensive investment. Logistics markets meanwhile are increasingly attractive as demand for modern space grows at major transport hubs. Singapore, Hong Kong, Shanghai, Osaka and Tokyo in particular will remain in high demand from operators and investors. When it comes to investment trends, 2012 will bring a new set of dynamics to the region. In the first half trading volumes will continue to stagnate as cooling measures in the residential market in China dampen land sales. However this should be balanced by increasing transactions in the commercial sectors in gateway cities. What is more, land sales may pick up in the second half in China if provincial governments accelerate land disposal programmes to reduce debt on construction projects. Any investor undertaking a global review to compare risk at an individual country level should see favourable results for Asia meanwhile as a result of the changes seen over recent years in governance and transparency as well as the health of government finances in the region. Demand is currently increasing from a range of international institutional investors looking to buy in Asia whilst some other European funds are taking advantage of strong Asian currencies and are taking profits. These factors combined with the strong long-term fundamentals of much of Asia will fuel increasing transactional activity from Quarter 2 onwards. Intra regional and domestic buying is also increasing, particularly with the growth of the institutional market on the back of past high economic growth and high savings levels and changing regulations to allow and encourage these funds to invest more in real estate. Figure 8 APAC Commercial Property Investment Volumes (excluding multifamily) Annual investment volumes (US$bn) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Investment Volume Source: Cushman & Wakefield and RCA Marunouchi and Otemachi areas, Tokyo Japan Yield 7.7% 7.5% 7.3% 7.1% 6.9% 6.7% 6.5% 6.3% All-sector average prime yield 06

9 Figure 9 EMEA Commercial Property Investment Volumes (excluding multifamily) Annual investment volumes (US$bn) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Source: Cushman & Wakefield, RCA, KTI and Property Data Moscow Russia Investment Volume Yield 8.0% 7.5% 7.0% 6.5% 6.0% All-sector average prime yield In terms of specific markets, increasingly positive sentiment for investment in India is expected following an easing in government regulations on FDI and overall strong macro fundamentals. Global outsourcing and technology growth meanwhile have been positive for some Indian markets, with strong growth likely in Bangalore in particular. China meanwhile will continue to benefit from investment in areas such as infrastructure even if short term funding issues slow local authority investment in some areas. The roll out of its high speed rail network alongside the growth of retailing and manufacturing will focus more demand on the industrial and warehousing sector although high land supply urges a focus on key hub areas. Japan is also set to see increased activity, with quantitative easing helping to boost the REIT sector, leading to more investment power and corporate activity. Tokyo office markets are thought to be close to bottoming and some areas of retail are also of interest. However short term risks continue, with reinvestment following last year s devastating earthquake and tsunami possibly delayed and ongoing seismic risks for investors to assess. EMEA Commercial property investment volumes in EMEA rose by more than expected in the final quarter of 2011 and by 17% over the year as a whole. Foreign investors were the main driver of growth and core markets the top target for all players. The UK, Germany and France were again most in demand, while Europe s indebted peripheral countries (Greece, Ireland, Italy, Portugal and Spain) saw investment fall. The best growth in activity was in emerging markets but risk appetites changed as the year went by and buyers grew more cautious. The main sellers have been banks and distressed or forced vendors including a number of German open-ended funds. Institutional demand was down in some areas, partly through uncertainty on what new regulations such as Solvency II would mean. As a result, a number of other global institutional purchasers have dominated, with North America the main source followed by Asia and the Middle East. With little debt around, these players have been vital, undertaking a number of joint ventures with local players on big ticket schemes or assets and hence providing a key source of new funding. Looking forward, the Eurozone crisis is clearly not going to fade quickly and alongside this we have more austerity, a risk of social and labour unrest, a squeeze on liquidity and the start, hopefully, of more serious reforms. This is clearly not a recipe for great certainty but amidst all that, a full-scale breakup of the Eurozone in 2012 still looks unlikely given the cost to those leaving as well as those left behind. In truth of course no one yet knows how the sovereign debt crisis will play out and what s more, if 2011 taught us anything it is that some of the biggest challenges of the year may not yet even be known. As a result, investors should recognise that risk management requires diversification and not just core holdings in low risk markets. The lending market in Europe has typically been reliant on bank financing but that of course is changing as the banking sector deleverages under the influence of bad debts and new legislation (which is sensible in intent but perhaps unfortunate in timing given the growing debt funding gap). At the same time, this pressure on banking and the need to deleverage is creating opportunities, both as stock and debt is sold and in providing new finance. Lending on quality property looks attractive and providing mezzanine debt offers good risk adjusted returns in core liquid markets for example. Some new providers recognise this and are stepping in. Aside from debt funds, some new banks are entering the market, e.g. from the Middle East and Asia, and insurance companies should emerge as key players over time. As yet however they are insufficient to fill the gap, particularly away from prime, and supply is in fact worsening as further major lenders withdraw. Typical LTV ratios have stabilised at 55%-65% for core assets but margins have edged out to 250bp-300bp over swap rates. Uncertainty may hold back investment volumes this year but at the same time the volatility in other asset classes as well as the relative level of property yields is serving to stoke up demand for the best assets in defensive markets. All players will need to look closely at which markets and sectors they are targeting however and an adjustment to pricing and/or risk tolerance is likely to be made by some in order to meet their buying objectives. The best high return opportunities in 2012 may be in what are currently less favoured segments of the market but strong interest in core areas will continue and the best should deliver stable and possibly improved values. Indeed yields still look relatively attractive and could fall for prime, although secondary yields will have to increase further to attract investors and finance. Good prospects meanwhile will be seen 07

10 GLOBAL INVESTMENT ACTIVITY in areas such as the Nordics where economic growth is above average and market risks low, or in parts of CEE where economic growth is expected to hold up, notably Poland and Russia and possibly Turkey. More merger activity is likely as finance remains hard to find and public sector deleveraging also offers opportunities, on long term infrastructure projects for example. Above all, investors need to be ready to take advantage of any increased flow of property arising from deleveraging banks and companies whilst also paying attention to occupiers if they want to sustain and grow their income. A lack of Grade A office space will remain an issue for occupiers and supply constrained markets, such as London, Paris, Oslo, Stockholm, Munich and Hamburg, will be targeted alongside areas of transport change, such as Crossrail in London, and refurbishment opportunities in core and near-core areas, e.g. in Stockholm, Munich and Paris. Retail will be under pressure in much of Europe due to low growth and profitability as well as e-tailing and m-commerce. However, the sector will remain in demand as a defensive play, favouring either the dominant or convenience ends of the market. In between these two, retail areas may offer opportunities for reworking and improvement, albeit often with new formats such as click and collect or pop-up shops which may offer different return characteristics to mature retail areas. A range of factors are driving the industrial market including growth in areas of manufacturing such as automotive and technology as well as e-commerce and a search for increased efficiency fuelling logistics requirements. Distribution opportunities in mature, liquid markets appear interesting and with a number of warehousing markets lacking in supply of Grade A space, occupiers will continue to have to rely on pre-lets. Away from Europe, much of the MENA region is struggling with volatile commodity prices, reduced tourism and of course heightened political risk. Medium term prospects may be improving as the region opens up but short term, inward investment will be limited. Saudi Arabia is not an easy market to enter but does have a robust banking system and strong investment in infrastructure to create opportunities. In the UAE, deleveraging has further to go but Dubai is seeing increased demand as a safe haven, particularly benefitting retail and hospitality markets. In South Africa meanwhile, recovery has been hit by the global slowdown but banks are in a reasonably good shape and there are areas of opportunity as portfolios are restructured and as supply shortages emerge. 08 Latin America 2011 was another strong year for Latin America with volumes rising 9.3% to US$9.9bn (US$10.2bn including multifamily), narrowly ahead of the previous peak in Brazil was again the key driver behind this overall volume, accounting for over 70% of regional investment, with activity up in secondary cities in particular, not just in Rio and Sao Paulo. However growth in Brazil over the year was limited volumes actually fell back compared to 2010 due to a drop in the office sector and it was an increase in the region s second and third largest markets, Chile and Mexico, which delivered an overall increase for Latin America. While the region continues to become a more significant target for foreign investment, caution was higher in the second half of Commercial investment activity in fact slowed at a faster rate (-36.4%) than the global average as risk aversion increased and as the specific threat of a slowing in China, a key market for Latin American exports, was absorbed. Slower world trade and weaker commodity demand may continue to subdue growth in the months to come but domestic demand, intra-regional trade and growing trade with Asia will offset this and this should keep corporates and retailers in an expansive mood. Whilst economic growth slowed in Brazil last year, action by the authorities to stabilise the economy has helped to underline the country s newfound reputation for stability and prudence. With measures already taken to boost domestic demand bearing fruit, there is scope for the economy to grow at a faster rate this year and the upgrade given to its sovereign debt status in December was a very rare vote of confidence for any national government these days. The Mexican economy has performed ahead of expectations and inflation has come down, although the weak peso may mean this doesn t last for long. Mexico's US linkages have of course helped and it will continue to benefit from the near-shoring and off-shoring of production and services, with Central Mexico growing faster than the north as new investment from manufacturing companies boosts the area. If the US recovery continues it will be positive for the market and with reforms last year aimed at boosting the residential sector, all sectors may see increased activity. Figure 10 Latin America Commercial Property Investment Volumes (excluding multifamily) Annual investment volumes (US$bn) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Investment Volume Source: Cushman & Wakefield and RCA Rio de Janeiro Brazil Yield 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% All-sector average prime yield

11 Figure 11 North America Commercial Property Investment Volumes (excluding multifamily) Annual investment volumes (US$bn) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Investment Volume Source: Cushman & Wakefield and RCA British Columbia Canada Yield 8.0% 7.5% 7.0% 6.5% 6.0% All-sector average prime yield 2011 was also a strong year for Chile on the back of a good economic performance caused by high domestic demand and low unemployment as well as the high price of copper. The property market was active for investors and occupiers, supported by more foreign interest in the market as well as an active development and lending market and reconstruction after the 2010 earthquake. As in other markets, interest and activity was not just limited to Santiago, with secondary cities also benefiting. Similarly Argentina performed well economically, with a combination of good external demand from Brazil and China as well as rising consumer demand and business investment. The property market is also strong although debt is limited and prime supply short, leading to more investor interest in some secondary areas over the past year. Investment demand across the region is expected to remain good in 2012 but with volumes perhaps a little down on 2011, due to a slow start to the year and to increased risk aversion reducing activity in Brazil in particular. Mexico by contrast may see volumes increase as it benefits from the US recovery as well as the weakness of the peso. Office markets had a relatively weak year in terms of investor activity in 2011 taking just 11% of all investment versus 48% in 2010 and a global average of 28%. Unlike other emerging markets however, investment in development land did not dominate, with strong interest in the retail and industrial segments, more so than hospitality and residential. Affordable housing is an obvious area of under supply in much of the region and hence will attract increasing interest. Similarly with little available standing supply, investors will look more towards development and land as they gain in confidence in the market. Major cities such as Buenos Aires, Sao Paolo, Mexico City and Santiago are seeing high levels of new office supply but also high levels of demand for quality space and an acceptance of the higher rents that come with this. Vacancy rates are generally still falling as a result other than in Mexico where demand is high but recent supply has been higher still. In the industrial sector, manufacturing growth may have slowed last year but it remains at a high level overall and sentiment is positive. In Mexico this has translated into rising demand and falling vacancy. Class A vacancy rates are also down in Brazil, with demand from international firms but also increased demand for modern space from local players. For retail, tight labour markets will keep consumer confidence high but retail sales growth has moderated in some areas. Nonetheless, with modern supply limited in most major cities, the growing buying power of the region s middle class should continue to generate demand for retail property, with investment volumes rising 87% last year and secondary cities a growing target, particularly for local developers. North America North America had a strong investment year in 2011, with Canada and the US both enjoying increased debt availability and a thirst for yield among buyers. They also saw something of a relaxation in risk controls and there was a broadening in the range of locations and stock quality being sought. However most buyers were still focussed on core, centrally located prime stock and what is more, risk tolerances hardened as the year progressed. Cross border investors have been of increasing importance and while their market share is still low in both markets, it is expected to increase in 2012 due to the region s good relative performance and higher liquidity, although any change will be marginal, particularly in Canada, due to the weight of domestic demand. Offices and multifamily were dominant investment sectors last year, while retail fell back in Canada but had a good year in the USA thanks to some notable portfolio sales. Gateway cities accounted for most demand as investors focussed on stabilised and secure assets. However the pricing differential between prime and secondary is generating more interest if not yet activity. Canada saw strong domestic demand last year, particularly in Toronto, although activity was largely stable over the year, and total investment dropped by 0.9%, with industrial and retail down but offices and hotels seeing a strong increase. The banking sector is among the most stable globally and debt is available for well-leased assets, with margins averaging 165bp-195bp and LTV ratios of 50%-60% typical. Office markets have seen tightening vacancy in key markets like Montreal and Vancouver as well as Toronto, while Calgary has seen vacancy fall below 4% on the back of an oil inspired boom. The retail market has been more dynamic with increased competition for the best space as domestic retailers react to the arrival of more foreign players, including an influx of US traders. Industrial meanwhile is generally more stable, but there have been some areas of growth in western provinces and more to follow in the east. 09

12 GLOBAL INVESTMENT ACTIVITY The outlook may be somewhat cooler for Canada in 2012 than last year but nonetheless it is still positive, with low interest rates supportive of the market and rents low and relatively stable but set to rise as and when economic conditions allow. Prime retail and convenience retail centres are favoured targets alongside CBD core offices and modern industrial in areas such as Vancouver, Calgary and Toronto. In the USA meanwhile, an improvement in the lending market was a material support to property in the first half of 2011 but this stalled in the second half and remains weaker in early The pullback was most marked among CMBS and commercial bank lenders however, with life insurance and agency lenders still active and in fact setting fresh highs. What is more, while commercial banks are still subdued, an improvement in CMBS issuance is forecast for 2012, albeit with conservative underwriting and wider spreads. With a high level of refinancing due, there will be plenty of competition for these funds even though deleveraging has accelerated. The volume of assets coming to the market driven by loan maturities and recapitalizations is in fact likely to pick up, with banks now in a stronger position to liquidate troubled assets. These trends may auger well for those poised to participate in the recapitalization of well located better quality assets. Looking forward, politics will remain a key risk in the US in this election year. Last year s recovery was to a degree undermined by political bickering and this gives an indication of its potential impact this year. Nevertheless, the US is attractive on a global basis, rated as the top target according to AFIRE s 2012 survey. With the market starting the year in a defensive frame of mind, investors will follow suit, with most focus on leased assets, however, risk taking is likely to increasingly feature as the year goes by, with more non-performing loans and asset sales likely for example. Current caution could lead to a softening in yields in the coming 1 2 quarters but the market is expected to be back in gear reasonably quickly and yield compression may be seen in secondary and even tertiary markets once the CMBS market starts to move again. Multifamily residential property is viewed as being the most attractive US sector, despite increasing completions later this year. These are much below current absorption levels however and with vacancy set to drop, good rental growth is forecast. The office market has seen solid demand for safe haven investments, such as New York and San Francisco. Limited development is a key factor supporting the market, with speculative development at a cyclical low as developers have been unable to access funding without substantial pre-lets but rental growth has been selective to date, focused on prime markets and trophy tower buildings in gateway cities as well as tech markets. Indeed, aside from Washington where the market is on hold ahead of the election, all gateway CBD markets are performing well. Nonetheless, with low levels of supply and increasing employment a number of markets are poised for stronger growth at some point. The timing of that growth will remain uncertain while sentiment is fragile and the recovery so diverse. In some areas, office employment is back above peak levels, e.g. Fairfax and Arlington counties, while areas such as New York, Boston, Washington and San Francisco are expected to follow suit during 2013/14. However others including Detroit, Baltimore and Cleveland are not forecast to recover their peak until after 2025 according to Moody s. An uneven performance within each city is also likely and hence a focus on the best submarkets is vital. The US retail sector is generally bottoming out although areas of pressure continue, with consolidation and down or right sizing still a dominant theme for many players. Indeed, while more stable and in some cases improving, shopping centre performance will be held back by high vacancy and by the ongoing risk to some key anchor operators. At the same time however new trends are emerging and high-end retailing is being supported by job and income gains among higher paid workers. What is more, investors will also find opportunities in grocery anchored schemes and in redevelopment or repositioning plays for well-located B malls in the right areas. Some other sub markets are growing strongly meanwhile, such as self storage and also hotels with luxury brands leading the recovery and opportunities will emerge as hotel debts are recapitalized. The industrial market is more cautious but while vacancies are high in some areas, demand in the logistics and R&D markets is improving and with little new construction, the fundamentals are set to become more interesting. New York USA 10

13 The Macro Picture for was a year of some surprises, with geo-political upheavals and natural disasters dominating events for the worse. They contributed to uncertainty, disrupted global trade and above all they fed into the inflation spike which brought many consumer markets down and hit poorer consumers disproportionately. Whilst most observers are glad to get 2011 behind them, there is a fear that 2012 could prove to be little better and we are clearly set for a difficult year. However, most areas are forecasting better growth in the second half of the year. Indeed, leading indicators now suggest the global industrial picture is stabilising and while Europe is still hesitant, the Americas are growing and Asia never stopped. Additionally, while 2012 will again be volatile, we are likely to see inflation as a hero rather than a villain, with lower price growth raising spending power and allowing monetary policy to stay loose. Politics will be a dominant theme in 2012 of course which is unfortunate given the low regard in which politicians are held in much of the world after some seemingly poor, weak or just late decision-making in the recent past. Nonetheless, political risk needs to be assessed and balanced in investment strategies wherever possible, whether that is from: the general and widespread risk of deficit reductions, tensions caused by higher inflation and unemployment, social and labour unrest in Europe as austerity and reform are pushed forward, unrest or conflict accompanying moves towards democracy in some parts of the world, risks seen during periods of political change whether as a result of elections, in the US and France for example, or leadership changes, as in China. possible conflict hotspots ranging from the regional to the smaller scale. Above all of course, we have the problem of the Eurozone sovereign debt crisis. Despite speculation to the contrary, the Eurozone is hanging together, for now at least, and has made some progress over the past few months. The volatility of the situation and the scale of the problems faced by individual governments is such that nothing can be taken for granted of course, but there is every reason to think that with or without Greece, the first pieces of a jigsaw that will lead to a solution, are now coming together. If so, progress will be slow and volatile in all probability no one wants to think they may have left something on the negotiating table and will be accompanied by an uneven return of confidence to businesses and financial markets. All things considered, we expect to see an increase in decision making and investment risk taking in the latter part of the year. Elsewhere, emerging markets look likely to remain the engine of growth for the world economy and many emerging economies have the potential to boost public spending or ease monetary policy if the need is there to support economic activity. Pro-growth policies are certainly expected to deliver a soft landing in China and even though bad debts need to be tackled in some areas, the Chinese balance sheet remains healthy overall. Corporate balance sheets are also in good health in most markets at least among larger businesses and profit margins have surprised on the upside in recent reporting. While downside risks remain, strong cash flows and a changing business environment in areas such as regulation, sustainability, technology and world trade, clearly point to both a need and an ability for businesses to act and as they do real estate markets will be impacted globally. Above all of course, the market will be shaped by the ongoing theme of deleveraging, with low growth in the short term accompanied by volatile inflationary cycles. What does it mean for property? In the short term, the global market will clearly be challenged and generally will remain somewhat subdued in terms of occupier and investor activity, with a resulting risk of yields edging higher, particularly for second tier property or for larger assets in some markets. More positively however, there is some rationale to expect activity to improve later in the year, both due to increased confidence generally and an increased need to act specifically on real estate issues by banks, funds and occupiers. What is more, the supply-side fundamentals of the property market remain generally good at least for Grade A property in most of the prime and larger secondary markets of the world, with the availability of new space remaining in check and new development generally limited outside a few Asian cities. As a result, we expect the market to react quickly once confidence in the broader economy firms, with the recovery in performance being delayed rather than cancelled. Buyers should in fact see their window of opportunity remaining open for longer due to the stalling in economic growth and investors should also benefit from a global increase in opportunities to provide debt or equity as recapitalizations pick-up. On the demand side, there is plenty of capital reported to be available for property in most jurisdictions and more is in fact emerging as the performance, risk characteristics and yield offered by property attracts interest and also as regulations are changed to allow or encourage investment, particularly in Asia. An increasing number of capital raisings are taking place and the competition is significant, with more supply than demand as some investors look towards direct or club investments rather than indirect fund participation. According to the Institutional Real Estate (IRE) Fundtracker, there are currently 794 funds seeking to raise a total of $246bn globally, 2.5 times the level of capital raised in the past two years, with 40% focussed on core or core plus returns versus 26% in 2011 fund raisings. The proportion focussed on Asia is little changed on last year, at around 11%-13% of the total, but interestingly the US total has fallen (from 54% to 41%) while more funds are to focus on Europe (up from 17% to 27%) and on global markets (up from 10% to 17%). The IRE s 2012 Investor Survey points to increased demand in Asia and Latin America rather than Europe however albeit Europe remains the largest target for US funds overall, attracting 48% of funds versus 54% in Asia meanwhile is up from 25% to 36% and Latin America from 8% to 13%. Overall investment by the funds in the survey is forecast to increase by 17%, with a higher allocation overall to foreign property and property seen to offer the most attractive risk adjusted return outlook of any asset class. 11

14 GLOBAL INVESTMENT ACTIVITY Finding the right property has however been a major problem over the last year. As the weight of capital has pushed yields down, some people are questioning whether core assets can sustain current yields or whether investors are paying too high a price to access the low risk they crave. Other investors meanwhile have stayed on the sidelines, not finding the higher risk opportunities they expected and still questioning when the distress will come. On a macro basis in Europe and the US, the need for banks to deleverage will continue to weigh on the market, reducing further the support of the banks for non-prime property in particular. As these loans will need re-financing at higher LTVs and lower property values, opportunities for debt and equity funding will materialise. Indeed, while the promised flow of distress is not yet with us in Europe, we do now see more opportunities emerging but despite high hopes that this will accelerate quickly, lessons learned in the US may suggest that the opportunity will occur over a more protracted time frame. Supply will nonetheless steadily increase and subject to the pricing, buyers could face one of the biggest opportunities for some years. While well-let and quality property will easily find funding, most of the existing sources of debt and equity will not consider lower quality space. That however could change as confidence seeps back into the market and investors look to move back up the risk curve starting presumably in the USA where the more sophisticated debt market should restart quickest to support secondary property. Elsewhere, property which has a weak or unsustainable income will be shunned unless it can be worked, repositioned or somehow improved. Overall therefore, we expect investment volumes to remain somewhat subdued in early 2012 but to pick up later in the year. Volumes for the year overall may be little changed in 2012 from last year, with expected strong growth in the Americas, continued activity in Asia and a mild contraction in Europe. Property yield trends are likely to be mixed, with secondary yields generally moving higher other than perhaps in the USA if CMBS lending strengthens as some expect. Prime yields may fall in core markets, particularly those where quantitative easing is holding down bond yields, but may drift higher elsewhere as debt shortages continue to impact. Whilst the rental market will remain polarised and the prospects country by country will grow even more diverse with new development limited in many areas, prime rents will see a return of growth as soon as confidence firms. What is more, low availability will encourage more pre-letting as well as some interest in better quality second tier space as the cost differential with prime opens up. Healthy balance sheets will be a driving force for companies to look for new areas of opportunity, including mergers and acquisitions and renewed targeting of emerging markets. Cost is of course still important and with profit margins under pressure, there will be a focus on the most effective markets in all sectors and some occupiers will turn towards segments of the secondary market. Overall leasing volumes are nonetheless likely to be slightly down on 2011 as improvement rather than expansion dominates the agenda, at least in a cautious opening half to Figure 12 Global Commercial Property Investment by Region (excluding multifamily) Annual investment volumes (US$bn) APAC EMEA North America Latin America Source: Cushman & Wakefield, RCA, KTI and Property Data Olympic site, London United Kingdom TABLE 2 The Global Market by Region in 2012 Investment Volumes (ex multifamily) change in Values in Change Prime Prime US$bN ON 2011 yields Rents Europe West % +15 to -10 bp 0 to +5% Europe Central & East 16-18% +5 to -20 bp +2.5 to +7.5% Middle East % +35 to 10 bp -7.5 to -2.5% Latin America 10 +1% +10 to -15 bp +2.5 to +7.5% North America % +5 to -20bp +2.5 to +7.5% Emerging Asia % +25 to 0bp 0 to +5% Mature Asia Pacific 107-3% +15 to -10 bp -2.5 to +2.5% GLOBAL 717-1% +15 to -10 bp 0 to +5% Source: Cushman & Wakefield, RCA Note: Middle East rental growth and yields for offices only. Other regions are all-sector excluding multifamily 12

15 Investor Strategies Property s appeal to investors has if anything increased in the light of sustained low interest rates, a weaker growth outlook and a volatile inflation picture. However, faced with a broadening array of sectors and means to access the market but also a shortage of core product and debt, a rethink on strategy is underway for many. This includes increased interest in debt for example and in looking at property for the absolute income return it can deliver on a risk adjusted basis not just at matching a benchmark for the asset class. Experiences and performance are of course different by region but some of the key issues include: The historically low levels of interest rates in most countries has held down the cost of capital for property and reduced target return expectations, elevating an income-led strategy ahead of a growth strategy for many. A conservative approach is obviously warranted in light of obvious downside risks. Diversification requires investment not just in a small number of large core markets, but exposure to segments of the market which react differently or have differing drivers and hence can complement and smooth overall performance. This may lead to an increase in investment in new markets as time goes by and increased exposure to riskier markets in some cases. The search for the ideal building blocks of a portfolio may also lead investors in a different direction to past portfolio builders as they address a more up-to-date hierarchy of markets by growth and risk potential and as they look beyond geographical boundaries to divisions of an economic, resource or demographic nature. Technology will continue to make a difference in 2012 with property users and hence property impacted by the Cloud, mobile computing and social media for example. Debt will obviously be an ongoing theme for the market for the next few years and 2012 should see an uptick in recapitalisations and asset sales. The emergence of alternative lending sources will be a major change in the landscape over the next few years, with greater involvement from long term mortgage banks and insurance companies, fund and investor involvement in riskier areas of lending and new structures of securitised debt with a clearer look-through to the assets below. Office markets face an obvious supply led cycle in many markets but structural drivers of change are also impacting on demand and in gateway cities and areas of skill clusters for technology, healthcare, energy, advanced manufacturing or media, good prospects will be seen for providing modern effective space. Industrial markets face over capacity in some areas but particularly for modern logistics, new demand patterns by specification and geography are set to create more interest for investors in a sector with an attractive historic record for stable performance. Retail will continue to generate interest from investors seeking stability and low risk. Areas of retailer expansion should be tracked, with luxury brands growing globally and Chinese and US retailers for instance increasingly looking abroad and including new markets in their search areas. Distressed markets are also seeing more activity in some cases, with a tenant friendly market in areas like Spain for example. Opportunities in hospitality and multifamily property are being more keenly pursed as are other sub sectors where income is secure and growing, such as healthcare. Investors pursuing a growth strategy must access emerging markets where they can potentially enjoy a double benefit of rising incomes and falling yields as local investment markets mature. Over the medium term, emerging markets are likely to continue to perform well due to factors such as urbanisation and population growth, the increasing size and affluence of the middle class, increased industrialisation and resource exploitation, increased raw material pricing and financial market maturity and development. Asia and Latin America are the top selection for many but Emerging Europe should also be a target, led by Turkey for long term gain. Macro risk factors in all markets should be higher up the agenda. Not only should investors be acutely aware of geopolitical risks, they should also be looking at other areas of risk which have impacted in the recent past, be that from fire or floods or other natural forces. The nature and degree of pressure under which possible vendors are operating may be key to what opportunities are most attractive but looking from a geographic and sector perspective, a few obvious highlights include: In the Americas, the US is well-placed to provide good growth and risk adjusted returns. Multifamily residential property is the top pick of many but several office markets such as New York and San Francisco may provide good value for the medium term. Industrial and retail, while struggling with excess capacity in some areas, are starting to look interesting in select markets. For low risk buyers, Canada also has some secure growth potential, with offices in Toronto, Vancouver, Montreal and Calgary favoured although buying competition is strong. In Latin America, Brazil remains the hottest market at present, with Sao Paulo offices in demand albeit with a growing pipeline and retail in top cities interesting international players but clear opportunities also in hospitality and residential markets. Mexico is also offering more opportunity as its recovery benefits from stronger US growth and logistics in Mexico and Brazil may be an opportunity given the mismatch between limited new supply and rising local and international demand. In Europe, low risk investors will continue to look towards Germany and the Nordics, with retail attractive in both areas. UK and French opportunities are somewhat higher risk economically but offer strong liquidity and also have good potential medium term growth focussed on London and Paris plus stronger regional cities. Elsewhere, Poland will remain strongly in favour as will Russia for more risk tolerant buyers despite this year s election. Emerging markets generally will gain in favour and be seen to offer more growth potential as occupiers increase their interest and as investors pick apart the wheat from the chaff in terms of recognising the differing risk and growth that should be expected in different markets. In Asia, China will of course remain the main area of interest for many incoming investors, focussing on retail and offices in tier 1 cities and with more opportunities now coming available, for example working with distressed developers. Opportunities are however very broad and diverse in the region as a whole from low risk opportunities such as Japanese offices, dominant retail in Singapore and Hong Kong, and office and retail in Australia, to medium levels of risk in logistics markets across coastal cities in China as well as Japan, Hong Kong and Singapore, to higher risk in India as FDI regulations are loosened and current growth areas such as Jakarta offices and future potential in Malaysia. 13

16 THE FULL REPORT The full report from which this summary is taken provides an introduction to the world s key investment markets for real estate. A total of 51 locations are reviewed with market by market profiles as outlined below. Sample Country Profiles Markets covered Argentina Australia Austria Bahrain Belgium Brazil Bulgaria Canada Channel Islands Chile China Colombia Croatia Czech Republic Denmark Finland France Germany Greece Hong Kong Hungary India Ireland Israel Italy Japan Luxembourg Mexico Netherlands New Zealand Norway Peru Poland Portugal Republic of Korea Romania Russia Serbia Singapore Slovakia Slovenia South Africa Spain Sweden Switzerland Turkey Ukraine United Arab Emirates United Kingdom USA Vietnam To purchase the full report priced at 850 you can request a printed copy from michelle.mejia@eur.cushwake.com 14

17 GLOBAL YIELDS Global Yields Country Offices Shops Industrial Trend Argentina 10.00% 9.00% 12.00%, Australia 6.50% 5.50% 8.15%, Austria 5.35% 4.25% 7.50%, Bahrain 11.00% 11.00% 12.00% m Belgium 6.20% 5.00% 7.50%, Brazil 9.00% 8.00% 13.00%. Bulgaria 9.50% 9.00% 12.00%, Canada 6.50% 6.25% 7.00%, Channel Islands 6.00% 6.25% 7.50%, Chile 8.50% 8.50% 9.50%, China 4.60% 5.00% 7.00%, Colombia 11.00% 9.00% 10.50% m Croatia 8.00% 7.75% 9.50%, Czech Republic 6.25% 5.75%* 8.00%, Denmark 5.00% 5.00% 7.50% m Ecuador 11.50% 15.45% 12.30% m Estonia 8.00% 8.25% 9.50%, Finland 5.50% 5.00% 7.25% m France 4.50% 4.50% 7.00%. Germany 4.85% 4.10% 6.50%. Greece 8.50% 7.50% 10.75% m Hong Kong 3.30% 3.00% 3.80%, Hungary 7.25% 7.25%* 9.00%, India 10.50% 13.50% 12.50%, Indonesia 10.00% 10.00% 11.00%. Ireland 7.75% 6.85% 8.85%, Israel 7.50% 7.25% 8.00% m Italy 5.25% 6.25%* 7.75% m Japan 4.50% 4.80% 6.20%, Latvia 8.50% 8.50% 9.50%, Global Yields Country Offices Shops Industrial Trend Lithuania 7.75% 8.25% 9.00%, Luxembourg 6.00% 5.75% 8.50%, Malaysia 6.00% 5.50%* 7.75%, Mexico 11.45% 10.00% 11.75%, Netherlands 6.05% 4.70% 7.60%, New Zealand 8.20% 7.25%* 7.50%, Norway 5.25% 5.25% 6.25%, Peru 15.00% 16.00% 18.00%, Philippines 9.50% 3.20% 3.50% m Poland 6.25% 6.00%* 7.75%, Portugal 7.75% 7.00% 9.50% m Republic of Korea 6.00% 7.00%*, Romania 6.00% 9.00% 9.50%, Russia 8.50% 9.25%* 10.50% m Serbia 10.50% 10.50% 13.00%, Singapore 3.60% 5.40% 6.80% m Slovakia 7.25% 7.25%* 8.75%, Slovenia 7.75% 6.75% 9.00%, South Africa 9.00% 7.25%* 10.00%, Spain 6.00% 4.85% 8.25%, Sweden 5.00% 5.00% 6.75%. Switzerland** 4.40% 4.50% 6.75%. Taiwan 2.00% 1.75% 2.25%, Thailand 7.00% 9.00% 8.50%, Turkey 7.75% 7.25% 9.00%, Ukraine 15.00% 16.00% 16.00%, United Arab Emirates 10.00% 11.00% 12.00%, United Kingdom 4.00% 3.00% 5.75%, USA 7.20% 7.40% 7.70%, Vietnam 12.00% 11.50% 12.00% m * Shopping Centres ** Switzerland: Gross yields quoted in Zurich, Basle and Berne. Net in Geneva Note: Yields marked in red are calculated on a net basis to include transfer costs, tax and legal fees. Source: Cushman & Wakefield 15

18 global investment volumes millions Above US$5 million equivalent, excludes multifamily Country Annual change 2012 Trend Argentina %, Australia 12,463 14, % m Austria 1,111 1, % m Bahrain 0 0 n/a n/a Belgium 1,587 1, %, Brazil 5,448 5, %. Bulgaria %, Canada 12,384 11, %, Channel Islands %, Chile %. China 185, , %. Colombia %, Croatia %, Czech Republic 480 2, %. Denmark 2,578 4, %, Ecuador 0 0 n/a n/a Egypt n/a n/a Estonia %. Finland 2,102 1, % m France 11,085 16, %. Germany 19,510 23, % m Greece %, Hong Kong 17,018 15, %, Hungary %. India 3,741 3, % m Indonesia n/a m Ireland % m Israel 1, %. Italy 4,130 4, %. Japan 23,547 19, % m Latvia 0 19 n/a, millions Above US$5 million equivalent, excludes multifamily Country Annual change 2012 Trend Lithuania 0 24 n/a, Luxembourg % m Malaysia 3,444 1, % m Mexico % m Netherlands 5,151 3, %. New Zealand 2,300 2, % m Norway 4,125 4, % m Peru %, Philippines % m Poland 1,957 2, % m Portugal % m Republic of Korea 5,993 7, %. Romania % m Russia 2,780 5, %, Saudia Arabia %, Serbia %, Singapore 12,430 14, %. Slovakia %. Slovenia 0 0 n/a n/a South Africa 815 3, %. Spain 3,614 1, % m Sweden 9,230 9, % m Switzerland 570 1, % m Taiwan 5,977 5, %. Thailand %, Turkey 1, %, Ukraine %. United Arab Emirates 1, %, United Kingdom 41,925 38, %. USA 74, , % m Vietnam % m Source: Cushman & Wakefield, Property Data, KTI and RCA 16

19 US$ millions Above US$5 million, excludes multifamily Country Annual change 2012 Trend Argentina %, Australia 16,719 19, % m Austria 1,491 1, % m Bahrain 0 0 n/a n/a Belgium 2,129 2, %, Brazil 7,219 7, %. Bulgaria %, Canada 16,016 15, %, Channel Islands %, Chile 713 1, %. China 246, , %. Colombia %, Croatia %, Czech Republic 643 2, %. Denmark 3,458 5, %, Ecuador 0 0 n/a n/a Egypt n/a n/a Estonia %. Finland 2,820 1, % m France 14,871 21, %. Germany 26,174 30, % m Greece %, Hong Kong 22,233 21, %, Hungary %. India 4,934 4, % m Indonesia n/a m Ireland % m Israel 1, %. Italy 5,540 5, %. Japan 31,302 28, % m Latvia 0 24 n/a, US$ millions Above US$5 million, excludes multifamily Country Annual change 2012 Trend Lithuania 0 31 n/a, Luxembourg % m Malaysia 4,405 2, % m Mexico % m Netherlands 6,910 4, %. New Zealand 3,086 3, % m Norway 5,534 5, % m Peru %, Philippines % m Poland 2,626 3, % m Portugal % m Republic of Korea 7,866 10, %. Romania % m Russia 3,730 6, %, Saudia Arabia %, Serbia %, Singapore 16,538 19, %. Slovakia %. Slovenia 0 0 n/a n/a South Africa 1,094 3, %. Spain 4,848 2, % m Sweden 12,383 12, % m Switzerland 764 2, % m Taiwan 7,844 8, %. Thailand %, Turkey 1,962 1, %, Ukraine %. United Arab Emirates 1,510 1, %, United Kingdom 56,245 49, %. USA 97, , % m Vietnam % m Source: Cushman & Wakefield, Property Data, KTI and RCA 17

20 STANDARD GLOBAL LEASE TERMS The following is a summary of typical lease structures for commercial property. It should be noted that in many instances, certain aspects of lease terms will be open to negotiation and these therefore represent only the standard terms currently being seen across different sectors of the market. Summary of Standard Global Lease Terms Length years COUNTRY Off/Ind Retail Tenant Breaks Security of Tenure/Right to renew Indexation or Review Argentina Yes, after 6 months None By negotiation, no standard Australia Only by negotiation None other than by negotiation Annual increment to open market value or agreed fixed increase Austria 5 10/ None other than by negotiation No automatic right to renew. However, many old office leases still exist where the tenant has a perpetual right to renew Indexed to a government-issued monthly index. Sometimes a 3.0% 5.0% step before an increase comes into effect Bahrain 3 3 & 5 Break possible if included in the lease Not automatic No fixed indexation. Rents are reviewed by negotiation to a market rent when either a notice to terminate has been served or a new lease signed Belgium yearly, with 6 months notice period Retail only normally the right to renew Annual indexation to Health Index (an adjusted consumer price index) for a further three terms of 9 years Brazil 3 5/ By negotiation Yes on leases over 5 years Annual inflation adjustment plus 3 yearly review Bulgaria 3/3 5 Break options after the third year with 6 months notice Canada Negotiable. Typically at end of year 5 or 7 with a financial penalty Channel Islands None except in the case of 21 or 24 year leases with a tenant break at 15 Chile Only by negotiation. Normally the tenant pays for any unexpired portion of the lease None other than by negotiation Usually the right to renew for an additional 5 years. Retail usually has two 5 year options No security of tenure in Jersey or Guernsey and renewal is by negotiation Tenant and Landlord have the option to automatically renew the lease term for up to the same period as the original lease term with days notice Rents are indexed to EU HCPI or the Eurozone HCPI index. Indexation to Bulgarian CPI is rare Right to renew typically at market rates. Sometimes a renewal may specify at a rate not to exceed set dollar amount Index linked 3 yearly rent reviews. Prime stock linked to market rental value and secondary stock to the cost of living Indexation to CPI China Rare but negotiable None other than by negotiation Not typical. New lease usually negotiated prior to lease end Colombia % of the contract value with 6 months Yes on leases over 1 year Annual Indexation to IPC + 3% (office) 5% (retail) notice period. 22% for unilateral break Croatia Offices: 5 years, or recently more common years for HS & SC, although some SC continue to insist on 10 year leases Offices: break after year 3 is possible Right to renew after the first 5 years Annual indexation to Eurozone CPI Czech Rep 3 5/ Negotiable, but clearly stated in the lease Not automatic but may be included in the lease by negotiation Denmark Negotiable Yes. As a general rule, leases are constantly rolling until notice is served Ecuador If the tenant breaks the lease, the landlord retains the 2 month guarantee Defined as a clause in every contract, usually tenant uses this right to renew Egypt None other than by negotiation No security of tenure and renewal only be negotiation Estonia 3 5/ None, only for leases of an unspecified term, where at least 3 months notice is required Not automatic by law, but a common practice on the market Annual indexation to the relevant inflation index: Eurozone or EU 27 HICP for Euro-denominated leases or Czech Statistical Office CPI for CZK leases Annual CPI indexation or to a fixed percentage Contracts indexed to local consumer price index (INEC) Annually at a percentage normally defined in the lease but typically between 3.0% 8.0% Rents in local currency (Euro) but indexed to local inflation Finland 3 10/ None Negotiable, options to renew increasing Indexed annually or biannually to the cost of living (FIN elinkustannusindeksi) 18