European property market outlook

Transcription

1 For professional use only Not for public distribution European property market outlook 25 th March 2011 Alessandro Bronda, Head of Global Property Investor Solutions Aberdeen Asset Management

2 Southern Europe to lag economic recovery Real GDP growth (average % p.a.) Source: Aberdeen Asset Management, February 2011 Turkey Luxembourg Russia Poland Romania Slovakia Australia Sweden USA Norway Hungary Finland Germany Belgium Switzerland Croatia Austria Denmark France UK Netherlands Eurozone Ireland Spain Japan Italy Portugal Greece

3 Spain s macroeconomic background The Spanish economy is expected lag behind core eurozone economies in the next 2-3 years due to an ongoing fiscal squeeze, high levels of household debt, and low competitiveness The spread between Spanish 10-year yields and German Bunds hit 225 bps, as yields rose to 5.53% after Moody s cut Spain s rating to Aa2 in March Collective wage bargaining agreements, many of them indexed to inflation, locked Spanish companies into salary increases even during crisis, hurting competitiveness Should the ECB raise interest rates it would have a stronger negative consequence for Spain, due to a high percentage of floating rate mortgages The fiscal crisis is more a consequence of a banking crisis than of excessive government spending Due to huge loans to the property/construction and the bursting of the price bubble many banks are undercapitalized by EUR billion. This could overwhelm the governments rescue fund which is laid out for EUR 20 billion 2

4 Advanced economy debt rising above key 60% ratio Gross government debt, % of GDP Japan Greece Italy Singapore Belgium Ireland USA France Portugal Canada UK Germany Netherlands Spain Norway Finland Denmark Sweden Czech Republic Switzerland Korea Australia Hong Kong Change from 2010 to 2015 Source: Aberdeen Asset Management, IMF: November 2010 Worries over high budget deficits and normalisation of interest rates will put pressure on high debt economies 3

5 In Europe, Nordics and Germany rank highly Economic growth prospects scores Source: Aberdeen Asset Management, IMF, Reuters Ecowin, World Economic Forum : October

6 World population growth will be strong, but not in Europe Total population change (%) 25% 1.4bn 20% 15% 10% 5% 0% -5% -10% -9m World Asia North America Europe USA Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Czech Republic Poland Russia Turkey United Kingdom Source: United Nations Population Projections, medium variant, Mar 09 Europe s working population has already peaked Government policies in Europe might change in future: increasing retirement age, incentives for larger families and immigration 5

7 Total employment growth Annual average growth (in %) Source: Oxford Economics, December 10 Inner London Budapest Hamburg Munich Rome Helsinki Vienna Brussels Stockholm Amsterdam Lyon Madrid Oslo Warsaw Barcelona European City average Frankfurt Athens Copenhagen Prague Paris Milan Berlin Lille Lisbon Dublin

8 Real GDP Growth - Europe GDP growth between 2011 and 2020 set to average 1.9% p.a across the NUTS 3 regions GDP growth forecasts strongest in CEE and in the Baltics The UK, Norway and Benelux also anticipated to outperform The best performing areas can be found in Bulgaria and Romania The worst performing areas are largely found in southern Italy and eastern Germany Sources: Oxford Economics and Aberdeen Asset Management, June 10 7

9 Capital value cycle, global prime all property Slowing Deteriorating Accelerating Stabilising UK Australia Singapor e Malaysia Greece Spain Italy Hong Kong Sweden Norway France USA China Japan Canada Germany Finland Benelux Poland India Denmark Korea CV growth rate falling Note: Schematic representation not to scale Source: Aberdeen Asset Management, March 2011 CV contraction rate rising CV contraction rate slowing CV growth rate rising Expected movement of capital values in the next 6 months: Fall Stable Rise 8

10 Two downturns compared Global real prime capital values Global prime real rental values Previous peak in values: 1990 Q1 Previous peak in values: 1991 Q3 100 Peak in values for this cycle: 2007 Q4 100 Peak in values for this cycle: 2008 Q1 Capital value index (market peak = 100) Renttal value index (market peak = 100) Quarters Quarters Source: Aberdeen Asset Management, Reuters Ecowin : February 2011 Global real estate values were hit harder than in the last big cycle of the early 1990s, but bottomed out earlier, and are rebounding Rents seem close to stabilising with a relatively small fall despite a huge peak to trough decline in GDP during the recession 9

11 Overheated markets have seen the steepest declines Source: Aberdeen Asset Management, NCREIF/MIT, Jones Lang LaSalle, IPD: February 2011 Capital value movements to Q Peak to trough -100% -80% -60% -40% -20% 0% 20% Ireland Russia Japan Spain India Greece Poland Czech Rep. UK USA Norway France Italy Sweden Finland Netherlands Turkey Singapore Australia Germany China % Q4 relative to peak Capital values have stabilised ahead of letting markets Lack of development will limit oversupply Pricing has overcorrected in some markets like the UK Extreme markets generate attractive mispricing opportunities Property looking cheap in a long term context, and against other assets 10

12 Office vacancy rates Vacancy rates, Q Q (in %) 2007 Q1 Change to 2010 Q4 Sources: PMA, PPR, JLL : February 2011 Dublin Budapest Frankfurt: City Amsterdam Prague Barcelona Milan Stockholm Brussels Madrid Helsinki Munich: City Warsaw London: Central Oslo Paris: CBD

13 Prime office rental growth forecasts Prime rental growth, rolling from Q Q (average % pa) Moscow London: West End Oslo CBD London: City Warsaw Istanbul Paris: CBD Brussels Helsinki Luxembourg Munich: City Madrid Global prime offices Stockholm Amsterdam Prague Berlin Budapest Frankfurt: City Copenhagen Dublin Milan Athens Manchester 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Source: Aberdeen Asset Management,: December

14 European returns likely to stay firm European IPD all property returns (local currencies % per annum) Forecast Income returns Capital growth Total return Source: Aberdeen Asset Management : February 2011 Real estate market recovery to continue into 2011 Eurozone predicted to deliver 7.6% total returns over the next five years Sustainable rental recovery only envisaged from 2012 Rising interest rates though likely to cap returns from next year 13

15 Total returns by sector, Europe, Q Q Unleveraged IPD total returns in local currency (average % pa) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% Source: Aberdeen Asset Management, February % Ireland Office Ireland Industrial Portugal Industrial Ireland Retail Portugal Office Italy Office Portugal Retail Germany Office Austria Office Austria Retail Denmark Retail Italy Industrial Spain Office Hungary Retail Spain Industrial Czech R Industrial Austria Industrial Germany Retail Italy Retail Denmark Office Denmark Industrial Finland Office Hungary Industrial Eurozone All Hungary Office Czech Rep. Retail France Industrial Netherlands Office Poland Industrial Sweden Industrial Europe all Finland Industrial Belgium Office Spain Retail UK Retail Norway Industrial Germany Industrial Netherlands Retail Belgium Industrial UK industrial Norway Retail UK Office Sweden Office Netherlands Czech Rep. Office Finland Retail Belgium Retail France Office Norway Office Sweden Retail Poland Office France Retail Poland Retail 14

16 Investment activity continues to gain momentum European direct real estate investment* volumes (EUR bn) 250 Domestic International % +30% ** * Only commercial, excluding residential ** 2011 is a forecast Sources: Jones Lang LaSalle, CBRE and Aberdeen Asset Management Deal sizes remain small, as banks are not that keen about financing larger deals Equity players in a good position More distressed sales could occur later on Institutions are expected to increase their property allocations (direct and indirect) 15

17 Total returns by segment, global, Q Q Unleveraged IPD total returns in local currency, % pa 12% Singapore Office 10% 8% 6% 4% Spain Office Spain Industrial Spain Retail 2% Ireland Office 0% Ireland Office Ireland Industrial Portugal Industrial Ireland Retail Portugal Office Italy Office Portugal Retail Germany Office Austria Office Austria Retail Denmark Retail Italy Industrial Spain Office New Zealand Retail Hungary Retail New Zealand Spain Industrial New Zealand All New Zealand Office Hong Kong Office Czech Rep. Industrial Austria Industrial Germany Retail Italy Retail Denmark Office Denmark Industrial Finland Office Hungary Industrial Hungary Office Czech Rep. Retail France Industrial Netherlands Office Poland Industrial Korea Office Korea All Sweden Industrial Taiwan Office Taiwan All Finland Industrial Belgium Office Spain Retail UK Retail Norway Industrial Germany Industrial Netherlands Retail Singapore Industrial Belgium Industrial Singapore Retail UK industrial Norway Retail UK Office Sweden Office Netherlands Industrial Hong Kong All Czech Rep. Office Finland Retail Japan Office Japan All Australia Retail Belgium Retail France Office Norway Office Australia All Australia Office Sweden Retail Hong Kong Industrial Poland Office Singapore All Hong Kong Retail France Retail Poland Retail Australia Industrial Singapore Office Source: Aberdeen Asset Management, February

18 Global property total return forecasts All property total return Q to Q (% pa) Income Return Capital Return Canada APAC CEE Nordics Global UK USA Eurozone Source: Aberdeen Asset Management Canada and CEE stand out with high income returns Asia-Pacific and Nordics should benefit from above average capital returns 17

19 Wide spectrum of risk from European real estate Office risk premium, % 10 Volatility Component Liquidity/Transparency Component Country Risk Source: Aberdeen Asset Management USA Germany Netherlands United Kingdom France Belgium Luxembourg Austria Finland Sweden Norway Spain Ireland Italy Japan Poland Czech Republic Hungary Russia Greece Turkey 18

20 Investors style preferences have changed Preferred fund style Core Value added Opportunity 0% 20% 40% 60% 80% 100% Investors 2011 Investors 2010 Investors 2009 FoF managers 2011 FoF managers 2010 FoF managers 2009 Source: INREV, Aberdeen Asset Management 19

21 Investor trends Less appetite for risk - Core funds are in ; opportunity funds are out Temporary - More restricted use of debt Permanent - Greater home country bias Temporary - More interest in diversified funds Temporary Search for greater control - JVs; segregated direct property mandates Temporary - Investor participation in UACs / IC s Permanent - Increased regulation (e.g. EU AIFM Directive) Permanent Search for greater alignment of interest - Fee and remuneration structures Permanent 20

22 Disclaimer Important Information FOR PROFESSIONAL INVESTORS ONLY - NOT FOR USE BY PRIVATE INDIVIDUALS Issued by Aberdeen Asset Managers Limited, Bow Bells House, 1 Bread Street, London, EC4M 9HH. Authorised and regulated by the Financial Services Authority. This document is strictly for information purposes only and should not be considered as an offer, or solicitation, to deal in any of the investments mentioned herein. Aberdeen reserves the right to make changes and corrections to any information in this document at any time, without notice. This document does not constitute investment research as defined under EU Directive 2003/125/EC. Any research or analysis used in the preparation of this document has been procured by Aberdeen for its own use and may have been acted on for its own purpose. Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make their own assessment of the relevance, accuracy and adequacy of the information contained in this document and make such independent investigations, as they may consider necessary or appropriate for the purpose of such assessment. Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither Aberdeen nor any of its employees, associated group companies or agents has given any consideration to nor have they or any of them made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document. 21

23 Property Markets / Spain Office prime yields Q4 2010, Barcelona: 6.0% and Madrid at 5.75%. Retail prime yields Q4 2010, Barcelona: 5.25% and Madrid at 5.25% We expect prime yields to come under some downward pressure in 2011 due to a search for yield from pan-european investors, and the perception that Spain is better placed for a recovery than the rest of southern Europe. Yields are more likely to rise next year, as interest rates begin to rise, with the ECB recently indicating that it is close to raising interest rates Prices of residential property in Spain are 20% down from their peak, but the overall decline has been modest relative to other markets with similar large overhangs of housing, such as the USA and Ireland The correction in the housing market has been less severe than in the commercial real estate sector, with the latter representing the best opportunity for medium to long term investors Our analysis, based upon our long term views on risk and potential return, indicate that Spain is broadly priced at fair value The retail sector offers the best opportunity on a long term basis to capture excess returns, whereas the office market is less attractive as yields for the overall market are relatively low 22