European Market Outlook
April 2012
PRIVATE & CONFIDENTIAL
www.dtz.com
Agenda
• European overview
• European property market – recent trends and forecasts
• Capital market trends
• European scenario analysis
1
Divergent economic outlook
GDP growth forecasts for 2012
5% Euro periphery
Core euro
Nordics
CEE
4%
3%
2%
1%
0%
-1%
-2%
Source: Various Statistics Agencies, DTZ Research
2
Bond markets calmer following LTRO, but Italian and Spanish yields
have risen once again
5 year government bond yields, selected countries
20%
LTRO announcement
LTRO II
16%
12%
8%
4%
0%
Jan-11
UK
Apr-11
Germany
Jul-11
France
Oct-11
Spain
Jan-12
Italy
Ireland
Apr-12
Portugal
Source: Bloomberg, DTZ Research
3
Agenda
European overview
European property market – recent trends and forecasts
Capital market trends
European scenario analysis
4
Little rental growth expected in near term
European rental growth
average annual
rental growth
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
2002-2006
Office
2007-2011
Retail
2012-2016
Industrial
Source: DTZ Research
5
Prime office and retail rents mostly flat in recent months
Prime rents
6 month % change, Q3-11 to Q1-12
Paris (CBD)
Oslo
Amsterdam
Warsaw
Brussels
Helsinki
London (WE)
Dusseldorf
Stockholm
Prague
Munich
Madrid
Hamburg
Frankfurt
Dublin
Copenhagen
Budapest
Berlin
Barcelona
Milan
8%
6%
5%
4%
4%
3%
3%
1%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-2%
-30% -20% -10%
0%
Europe
Source: DTZ Research
Brussels
Helsinki
Warsaw
Stockholm
Prague
Paris
Oslo
Munich
Milan
Madrid
London (WE)
Frankfurt
Dublin
Copenhagen
Budapest
Berlin
Barcelona
Amsterdam
10%
20%
30%
-30%
9%
2%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-20%
-10%
0%
10%
Europe
6
Vacancy rates stable in most markets
Office market vacancy rates
Q3-11 and Q1-12, %
25%
20%
15%
Average= 11.3%
10%
5%
0%
Q1-2012
Q1-2012
Source: DTZ Research
X Q3-2011
Q3-2011
Region Average
Average
7
Strongest growth seen in Eastern Europe
Office rental growth 2012
rental growth
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
Source: DTZ Research
Top Five
Bottom Five
8
Stable yields points to period of weak capital growth
European capital growth
average annual
capital growth
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2002-2006
Office
2007-2011
Retail
2012-2016
Industrial
Source: DTZ Research
9
Office and retail yields also little changed over past 6 months
Prime office yields
Q1-12 yields and 6 month bps change, Q3-11 to Q1-12
6.30%
Milan
6.25%
Brussels
6.10%
Amsterdam
7.75%
Budapest
6.25%
Warsaw
6.00%
Barcelona
5.75%
Madrid
5.25%
Oslo
5.25%
Dusseldorf
5.25% Copenhagen
5.05%
Frankfurt
5.00%
Hamburg
4.70%
Munich
4.50%
Paris (CBD)
4.50% London (WE)
5.00%
Berlin
4.70%
Stockholm
5.50%
Helsinki
7.25%
Dublin
6.25%
Prague
30
0
0
0
0
0
0
0
0
0
0
0
0
-5
-5
-15
-25
-25
-80
-40
Europe
Source: DTZ Research
7.50%
Budapest
6.25%
Prague
6.25%
Dublin
6.00%
Warsaw
5.75%
Madrid
5.75%
Barcelona
5.25%
Milan
5.00%
Brussels
5.00%
Oslo
5.00% Copenhagen
4.75%
Paris
4.25%
Munich
4.25% London (WE)
4.70%
Stockholm
5.40%
Helsinki
4.90%
Frankfurt
4.80%
Amsterdam
4.75%
Berlin
10
10
0
40
80
0
0
0
0
0
0
0
0
0
0
0
0
0
-5
-10
-10
-10
-15
-80
-40
0
40
80
Europe
10
Yields in core markets to edge upward as interest rates normalise....
Prime yield forecasts for selected markets – 2012-16
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
2011
2012
2013
2014
2015
2016
Paris (CBD)
Stockholm
Frankfurt
Berlin
Copenhagen
Amsterdam
Source: DTZ Research
11
.....yields in CEE to edge inward as the European economy recovers
Prime yield forecasts for selected markets – 2012-16
2012-2016 (%pa)
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
2011
Budapest
2012
Moscow
2013
Prague
2014
Tallinn
2015
Vilnius
2016
Warsaw
Source: DTZ Research
12
Agenda
• European overview
• European property market – recent trends and forecasts
• Capital market trends
• European scenario analysis
13
Full year volumes up 6% year on year despite increased caution
European investment activity
€bn
230
203
147
124
111
104
110
2010
2011
87
62
2003
2004
Q1
2005
2006
2007
Q2
2008
2009
Q3
Q4
Source: DTZ Research; Propertydata
14
Contrasting fortunes across Europe
European investment activity by geography
€bn
39
31
30
28
23
2010.4
UK
2011.1
Germany
2011.2
France
Benelux
2011.3
Nordics
2011.4
CEE
Other
Source: DTZ Research; Propertydata
15
2011 growth mostly driven by capital value increases
Drivers of European investment activity
€bn
103.9
2.2
3.8
109.9
35.1
62.5
6.4
2009
2010
Volume
CV impact
2011
Trading impact
Source: DTZ Research
16
Rise in lot size over the quarter, but down for the year as a whole
Investment activity by lot size
100%
€m
40
90%
35
80%
30
70%
60%
25
50%
20
40%
15
30%
10
20%
10%
5
0%
0
Under 20m
20-100m
100-500m
Above 500m
Average Lot size
Source: DTZ Research
17
Growth in domestic investment …
European investment activity by source of capital
€bn
39
31
24
23
23
2010.3
29
2010.2
28
30
27
23
19
16
17
12
Domestic
Intra-regional
2011.4
2011.3
2011.2
2011.1
2010.4
2010.1
2009.4
2009.3
2009.2
2009.1
2008.4
2008.3
2008.2
10
Inter-regional
Source: DTZ Research
18
But non-European investors remain net-buyers
Net investment by source of capital
€bn
2.0
2.2
1.5
0.5
-0.4
0.8
0.3
-2.5
0.3
-1.1
-1.0
3.2
-1.2
-2.5
-2.0
2010.4
2011.1
Domestic
2011.2
Intra-regional
2011.3
2011.4
Inter-regional
Source: DTZ Research
19
Listed property companies less active on the buy-side
Investment activity by investor type
2010.2
2010.3
2010.4
2011.1
2011.2
2011.3
Private Property Vehicle
Private Property Company
Institution
Private Investor
Listed Property Companies
Corporate
2011.4
Other
Source: DTZ Research
20
and become net sellers in Q4
Net investment by investor type
€bn
5.5
2.5
1.2
3.6
3.3 3.2
3.1
2.2
2.0
1.3
1.3 1.3
-0.3
-0.7
-1.2
-1.8
-2.3
-2.7
-3.6
-5.7
Listed Property
Companies
2010.4
Private Property
Company
2011.1
Private Property
Vehicle
2011.2
2011.3
Institutions
2011.4
Source: DTZ Research
21
Growth in office investment and retail holds steady over the year
European investment activity by sector
Supermarket
8%
Leisure/ Other
2%
€bn
Retail Park/
Warehouse
13%
1
3
5
2
3
2
12
1
3
2
2
2
2
3
Office
Source: DTZ Research
2011.1
Retail
2
9
9
17
2010.4
Shopping Centre
61%
10
9
8
3
High Street
16%
15
11
9
2011.2
2011.3
Mixed Use
Industrial
2011.4
Other/Unknown
22
Uncertainty could push volumes lower in 2012
European investment volume forecast
€bn
250
200
150
100
50
0
Source: DTZ Research
23
Agenda
• European overview
• European property market – recent trends and forecasts
• Capital market trends
• European scenario analysis
24
Why do scenario analysis?
• This is NOT our base case forecast, which shows continued recovery
• But, many market participants focused on managing downside risks
• Scenario analysis helps quantify the downside for office markets
• Using a four-step approach in our scenario analysis:
– Define the downside economic scenario
– Measure impact across 45 European office occupier markets
– Take into account yield impact and quantify total return change
– Use DTZ Fair Value Index methodology to assess attractiveness
25
European scenario analysis assumptions
• Base case probability = 45%, break-up scenario probability = 10%.
Supplied by Oxford Economics, Jan 2012;
• Disorderly defaults in Greece, Portugal and Ireland which hit banks
hard, particularly in France and Germany;
• Business and consumer confidence fall, firms cut back on investment,
labour markets weaken and economies across Europe are plunged
back into recession;
• Authorities hold interest rates at record lows for an extended period;
• Impact of crisis reaches well beyond the borders of the Single Currency
bloc, tipping the UK back into recession as well.
26
Euro-zone break-up scenario prompts deep recession in Europe
EU27 GDP
%y/y
2012-16
7.5%
Forecast
5.0%
Average
%pa
Base case
1.8
2.5%
Scenario
1.0
0.0%
• Euro-zone to
break up
-2.5%
•Greece, Ireland,
Italy, Portugal and
Spain leave single
currency
-5.0%
-7.5%
•Banks suffer heavy
losses
Base Case
Euro-zone Break-up
Source: DTZ Research, Oxford Economics
27
Nordics/UK/Emerging Europe hold up better than Eurozone
GDP, 2012-2016
%pa
2012
6%
Spain
-4.6%
5%
Italy
-4.2%
4%
Ireland
Belgium
-4.0%
-3.9%
3%
EU 27
-2.0%
2%
France
-1.6%
1%
Netherlands
-1.5%
0%
Finland
Eurozone
-1.5%
-1.3%
Sweden
Germany
UK
-1.1%
-0.7%
-0.7%
Poland
-0.3%
Turkey
-0.2%
Russia
0.1%
-1%
-2%
Base Case
Source: DTZ Research, Oxford Economics
Euro-zone Break-up Scenario
%pa
Eurozone markets in grey
28
Euro break-up scenario sees rental declines in many markets
Prime rents pa 2012-2016
6.0%
5.0%
OFFICE
RETAIL
INDUSTRIAL
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
Base Case
Euro-zone Break-up Scenario
Source: DTZ Research
29
Risk aversion and recession push yields higher under euro break-up
European prime yields by sector
9.0%
8.5%
Solid = Base Case
Dashed = Euro Break-up Scenario
Forecast
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Retail
Office
Industrial
Source: DTZ Research
30
Euro break-up results in capital value declines in some markets
Prime capital values 2012-2016
Cumulative % change
60%
50%
OFFICE
RETAIL
INDUSTRIAL
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Base Case
Eurozone Break-up scenario
Source: DTZ Research
31
Property Times
Europe Offices
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Europe Logistics
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European Retail Guide
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Thank you for your attention
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