PRINT COVER [EXAMPLE] CEE PROPERTY MARKET OUTLOOK London, 08 May 2014
AGENDA Economy Liquidity Returns Ukraine Crisis 2 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
PRINT COVER [EXAMPLE] Economy Growth Returning to Europe
EUROPEAN GDP GROWTH, 2014-16 Average annual GDP growth 2014-2016 3.5% and above 2.6% to 3.4% 1.5% to 2.5% 0.5% to 1.4% Iceland Ire Por Spain UK France NL Bel Norway Den Sweden Finland Est Latvia Lith Belarus Russia Poland Germany Ukraine Czech Slova Mol Austria Swz Hungary Romania Slve Cr Italy B&H Serbia FYRM Alb Gr Bulgaria Turkey Source: Oxford Economics 4 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
PRINT COVER [EXAMPLE] Liquidity Is the wave of capital easing?
EUROPEAN CRE INVESTMENT Growth to volumes strong, allocation pressure towards non-core billion 90 80 70 60 50 40 30 20 10 0 European Quarterly Investment Volume CEE Turnover as % of EMEA turnover 14% 12% 10% 8% 6% 4% 2% 0% Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Source: CBRE (April 2014) 6 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
CRE INVESTMENT IN CEE Liquidity growing across the board Slovakia 0% 2% Romania 2% Czech Republic 8% Hungary Other 4% Russia 49% 2012 Romania 3% Slovakia 3% Czech Republic 12% Hungary 2% Other 1% Russia 49% 2013 Poland 35% Poland 30% Euro 7.7 bn; excl Russia: Euro 3.9 bn Euro 10.8 bn; excl Russia: Euro 5.6 bn Source: CBRE (April 2014). Excluding the Baltics. 7 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
Million PL CRE INVESTMENT Keeps going strong! 6,000 5,000 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 OFFICE RETAIL INDUSTRIAL OTHER FORECAST 8 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
RUSSIAN INVESTMENT Talks about cross-border investment coming to a halt 6,000 5,000 Foreign Local Unknown Euro (million) 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Very limited commercial Russian property investment in CEE beyond Ukraine and hotels / spa resorts 9 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
RUSSIAN INVESTMENT but comparing Q1 trends 2014Q1 in line with historic trends! Euro (million) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Q1 - Foreign Q1 - Local 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
TO WHAT DEGREE AND HOW QUICKLY WILL THE DEBT SIDE OF THE EUROPEAN CRE MARKET RECOVER? Equity driving markets still key difference compared to 06 / 07 billion 300 250 200 150 100 50 Equity Debt - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: CBRE Research 11 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
WHICH GLOBAL REGION IS MOST PREFERRED FOR INVESTMENT? CEE high on the investment agenda % 80 70 60 50 40 30 20 10 0 Western Europe Source: CBRE Research Cen & Eastern Europe 2013 2014 North America Asia South America Pacific Africa / Middle East 12 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
PRINT COVER [EXAMPLE] Returns What to expect where.and why?
IMPROVING SENTIMENT BODES WELL FOR CAPITAL GROWTH Strong relation current difference driven by low interest rates EMEA capital growth and economic sentiment Annual % change/% difference from the longterm average Eurostat Economic Sentiment Indicator CBRE EMEA Prime Offices Capital Values 30 20 10 0-10 -20-30 -40 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: CBRE (Q4 2014), Eurostat 14 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
EMERGING PRESSURE ON RENTS % change 2012Q4 2013Q4; in Euro Dublin London Oslo Istanbul German Cities Amsterdam Brussels Budapest Dubai Moscow Swiss Cities Tel Aviv Stockholm Spanish Cities Bucharest Paris Warsaw Prague Source: CBRE (Q4 2014) -10-5 0 5 10 15 20 25 30 15 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
EMPLOYMENT GROWTH RESUMES IN KEY CENTRES IN 2014 Office Based Employment (% per annum) Warsaw London Istanbul Dublin Swiss Cities Oslo German Cities Moscow Spanish Cities Stockholm Milan Paris Amsterdam Brussels 2015-18 2014 2013-3 -2-1 0 1 2 3 4 5 6 7 Source: Oxford Economics, CBRE (February 2014) 16 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
OFFICE VACANCY & DEVELOPMENT % Vacancy Rate (%) 20 18 16 Budapest Amsterdam Madrid Dublin Barcelona Frankfurt 14 Prague Milan 12 Brussels Copenhagen Dusseldorf 10 Berlin Warsaw Hamburg 8 Marseille Paris St Petersburg Munich Vienna London City 6 Lille Lyon 4 London Central London WE 2 0 0 5 10 15 20 25 Development Pipeline to 2015 as % of Total Stock Source: CBRE Research 17 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
FASTEST RENTAL GROWTH IN CYCLICAL RECOVERY MARKETS Mid 2014 to mid 2019 Dublin Madrid West End Barcelona City Budapest Frankfurt Berlin Milan Helsinki Lyon Stockholm Oslo Munich Brussels Paris Prague Amsterdam Warsaw 0 1 2 3 4 5 6 7 8 9 Per cent per annum 18 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
INTEREST RATES ARE ON THE WAY UP Sooner or later! 10-year Government Bond Yields 7 6 USA Germany 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Macrobond, CBRE 19 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
12-24 month opportunity Prague Bucharest Budapest Warsaw 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 20 CBRE PROPERTY EU CEE INVESTMENT BRIEFING CEE PRIME OFFICE YIELDS Some yield compression anticipated still 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
TOTAL RETURNS Mid 2014 to mid 2019; CEE well placed to attract substantial capital Dublin Madrid Barcelona Budapest Prague Milan Brussels Warsaw Lyon Frankfurt Berlin West End Amsterdam City Helsinki Munich Oslo Paris Stockholm Stabilising rents, higher income, prospects for yield compression Limited yield compression expected as markets are generally ahead of the rest. Cyclical Recovery 0 2 4 6 8 10 12 14 16 per cent per annum (local currency) 21 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
OUTLOOK Reason to be cautiously optimistic Economic recovery even though it may be stuttering and polarized Highest rental growth in cyclical recovery markets But this depends totally on an economic turnaround Core markets are less dependent on improving economic condition No reason for yields to increase in the short-run but Best prospects for yield compression is outside the core markets especially over 5 years Central Europe will face competition from Paris, Southern Europe in attracting capital Means that the best total returns are on offer in cyclical recovery markets and some of the 2nd tier cities Survey points to concern over pricing and a growing appetite for risk 22 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
Ukraine Crisis How it is affecting CEEs property market
SCENARIOS Baseline scenario somewhat under pressure now! Resolution of crisis short- to mid-term We assume that Ukraine Russia EU USA tensions will be resolved in Q2 early Q3. The recipe for this resolution seems to be a re-thinking of power distribution between the Ukrainian Central and Local governments, making budget spending more transparent and lessening ambitions of the other 3 involved parties (Russia, EU, US) Presidential elections 25 May! Russia risking economic sanctions in case of influencing elections US considering Bandwidth of options reaching up to cutting USD trade effectively cutting international trade with Russia 24 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
SCENARIOS In case things turn for the worse 1. Geopolitical risk Risk of similar territorial conflicts in bordering countries, such as Moldova, Baltics where demographic structure is similar to East Ukraine 2. Economic risk Renewed slowdown of European economy Increasing (energy) inflation FX volatility 3. Property market risk Slowdown occupational markets prolonged Rents to remain rock-bottom / under downward pressure Limited new development Yields in non-core CEE under upward pressure 25 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
DISCLAIMER Global Research and Consulting This presentation was prepared by the CBRE CEE Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE GmbH confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 26 CBRE PROPERTY EU CEE INVESTMENT BRIEFING
FOR MORE INFORMATION REGARDING THIS PRESENTATION PLEASE CONTACT: Jos Tromp Head of CEE Research & Consulting T: +49 (0)89 24 20 60 18 E: jos.tromp@cbre.com