European Quarterly. 2 February 2010

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1 European Quarterly 2 February 2010

2 Economic/Forecast Tony McGough Global Head of Forecasting, DTZ Research

3 Western European GDP growth forecast Real GDP growth (%) (f) 2010(f) 2011(f) 2012(f) 2013(f) France EU27 Germany UK Italy Spain Source: Oxford Economics Page 2

4 European Macroeconomic Forecast (%) GDP Employment Consumer Spending Source: Oxford Economics Page 3

5 Sentiment is improving but still below historical levels France Germany UK Spain Source: EcoWin, DTZ Research Page 4

6 LIBOR rates have come back markedly 3 month LIBOR spread over 3 month government bonds 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% UK US Euro Source: EcoWin, DTZ Research Page 5

7 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Credit conditions starting to improve Net balance of responses - positive indicates tightening Change in Credit Standards for Loan Approval Change in the Size of Loans Granted Change in Margin Charged on Average Loans Change in Collateral Requirements Source: ECB/DTZ Research Page 6

8 European Rental Growth Sector Performance rental growth 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Office Retail Industrial Page 7

9 Kyiv Moscow London (City) Istanbul Dublin Bristol Luxembourg The Hague Glasgow Copenhagen European Office Total Returns Best and Worst Performers total returns 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Top Five Bottom Five Office Total Returns % Page 8

10 Moscow Istanbul Bucharest Budapest Warsaw Lyon Copenhagen Munich Birmingham Frankfurt European Retail Total Returns- Best and Worst Performers total returns 25% 20% 15% 10% 5% 0% Top Five Bottom Five Retail Total Returns % Page 9

11 Bucharest Brussels Warsaw Barcelona Madrid Oslo Berlin Frankfurt Birmingham Copenhagen European Industrial Total Returns- Best and Worst Performers total returns 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Top Five Bottom Five Industrial Total Returns % Page 10

12 Components of Total Returns - Europe All property, weighted total return 40% 30% 20% 10% 0% -10% -20% -30% Initial Yields Capital growth (Rent impact) Capital growth (Yield impact) Total returns Page 11

13 Components of Total Returns UK Ahead of Europe? All property, weighted total return 40% 30% UK All property, weighted total return 40% 30% Europe 20% 20% 10% 10% 0% 0% -10% -10% -20% -30% Initial Yields Capital growth (Yield impact) Capital growth (Rent impact) Total returns -20% -30% Initial Yields Capital growth (Yield impact) Capital growth (Rent impact) Total returns Page 12

14 Investment

15 Investment volumes by country bn United Kingdom France Germany Rest of Europe Nordics Italy CEE Page 14

16 Broad based recovery across Europe Page 15

17 Investment volumes by investor type Q Q Public sector/ Corporate 9% Private property companies 17% Quoted property companies/ vehicles 3% Other/ Unknown 7% Institutions 12% Third party managed funds 52% Private property companies 12% Public sector/ Corporate 8% Quoted property companies/ vehicles 14% Other/ Unknown 6% Institutions 15% Third party managed funds 46% Page 16

18 Net investment by investor type bn bn bn - 0.6bn - 2.4bn - 0.4bn -6 Third party managed funds Institutions Quoted property companies/vehicles Private property companies Public sector/corporate Page 17

19 Investment volumes by sector 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 Q Q Q Q Q Q Q Q Q Q Q Q4 Office Retail Industrial Other/Unknown Mixed-use Page 18

20 Investment volumes by foreign investors 52% 42% 45% 45% 34% Page 19

21 Outlook for 2010 bn 250 Investment volumes Capital available Volumes Institutions SWFs Other/Unknown Third party managed funds GOEFs Quoted property companies/ vehicles Page 20

22 106bn easily within reach bn 160 Quarterly volumes annualised Q Q Q Q Q Q Q Q Page 21

23 Martin Davis Head of UK Markets, DTZ Research UK

24 UK vs. European transaction index 100 = Q Index UK Europe Page 23

25 UK investment market: total transactions Billion 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Central London UK excluding Central London Page 24

26 Proportion foreign purchasers: UK vs. Europe Per cent Foreign purchasers in UK Foreign purchasers in Europe Page 25

27 UK investment market: purchaser nationality in Q4 Central London UK (excluding Central London) Domestic 26% Foreign 25% Foreign 74% Domestic 75% Page 26

28 UK investment market: prime office yields % Central London UK aggregate excluding Central London Page 27

29 Transactions by purchaser type % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Third party managed funds Institution Quoted Property Vehicle Private Property Company Corporate/Public Sector Other/Unknown Page 28

30 UK investment market: net investments by purchaser type (2009) Billion 12,000 10, bn 8,000 6,000 4,000 2, bn - 4.6bn + 1.6bn + 0.4bn -2,000-4,000-6,000-8,000 Third party managed funds Institutions Quoted property companies/vehicles Private property companies Public sector/corporate Page 29

31 Change in lot size millions Page 30

32 Target region implications for transaction volume 100% 90% Oth. AM: 1% Oth. AP: 2% 80% Oth. CEME: 5% Multi-Country 70% Single-Country 30% 70% 60% 50% 40% Japan: 1% China: 2% Germany: 2% US: 7% 30% 20% UK: 9% 10% 0% Page 31

33 IPD prime v secondary yields Yield, % Spread, % All Property Prime Equivalent Yield (LHS) All Property Secondary Equivalent Yield (LHS) Spread (RHS) Page 32

34 Prime headline rental growth % change, per year City West End Mid Town Birmingham Bristol Edinburgh Glasgow Manchester Page 33

35 Can it continue? - total return v rental growth % Dec-08 Dec-05 Dec-02 Dec-99 Dec-96 Dec-93 Dec-90 Dec-87 Total return Rental growth Source: IPD Page 34

36 DTZ/IPD total return forecast % per year Capital Growth (Rent Impact) Capital Growth (Yield Impact) Income Return Total Return Page 35

37 DTZ Research Contacts Hans Vrensen Global Head of Research Tony McGough Global Head of Forecasting Martin Davis Head of UK Markets, DTZ Research

38 European Quarterly 2 February 2010

Fact sheet DTZ Fair Value Index TM methodology

Fact sheet DTZ Fair Value Index TM methodology DTZ Fair Value Index TM launched to measure investor opportunity in world s commercial property markets First ever forward-looking commercial property value