credit crunch 2008

Simon Rawlinson

Head of Research

Credit Crunch

Credit Crunch• What impact is

the crunch

having?

Credit Crunch• It’s harder to get money

• The erosion of confidence

Credit Crunch• The erosion of confidence

Source: CBI/PWC March 08

Credit Crunch• Profitability and employment

Credit CrunchEmployment and demand for space

Credit Crunch

Prime City Rents and Yields

40

50

60

70

80

90

100

110

120

130

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Re

nts

an

d Y

ield

s (

1990 =

100)

Prime Rents (1990 = 100)

Prime Yields (1990 = 100)

Forecast

Source: DL, Knight Frank, IPD

Falling Rents and Rising Yields

Capital Values

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Cap

ital

Valu

es (

1989 =

100)

Forecast

Notional GDV

Tender Prices and Capital Values

0

50

100

150

200

250

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Re

nts

an

d T

en

de

r P

ric

es

(1

98

9 =

100

)

Forecast

Tender Prices

Notional GDV

Credit CrunchConsumer Lending

0

20

40

60

80

100

120

140

2004Jan 2005Jan 2006Jan 2007Jan 2008 Jan

Source: BoE

Mort

gage A

ppro

vals

(000s)

-60%

-40%

-20%

0%

20%

40%

60%

80%

3-m

onth

s c

hange o

n y

ear

Mortgage ApprovalsLoans for House Purchase

• Housing market failure

Credit Crunch• Declining Rates of

Growth

Source: Bank of England

Credit Crunch• Declining Rates of

Growth

Source: Bank of England

Credit Crunch• Declining Rates of

Growth

Source: Bank of England

Credit Crunch

• Inflation threatens

the basis of

recovery

Source: Bank of England

Credit Crunch

Input costs

Man

ufa

ctu

rers

' Inp

ut a

nd

Ou

tpu

t Co

sts

2000 - 2

00

8

80

90

100

110

120

130

140

150

160

170

2000 Jan

2000 Jul

2001 Jan

2001 Jul

2002 Jan

2002 Jul

2003 Jan

2003 Jul

2004 Jan

2004 Jul

2005 Jan

2005 Jul

2006 Jan

2006 Jul

2007 Jan

2007 Jul

2008 Jan

Index = January 2000 = 100

Input (J

an 2

000

= 1

00)

Outp

ut (J

an 2

000

= 1

00)

So

urc

e: O

NS

Credit Crunch

Copper

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: IMF

US

$/m

t

Aluminium

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: IMF

US

$/m

t

Steel Prices

60

80

100

120

140

160

180

200

220

240

260

Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08

Source: CRUspi

Index (

1994 =

100)

CRUspi Europe Steel Index

Credit CrunchCommodities

Credit CrunchBank Lending Rates

4.0%

4.4%

4.8%

5.2%

5.6%

6.0%

6.4%

6.8%

Jan'06 May Sep Jan'07 May Sep Jan'08

Source: Bank of England

Ba

se

Ra

te/ L

ibo

r %

mo

nth

ly a

vera

ge

Bank Rate

LIBOR

Finance costs

It could be worse…..Output forecasts

Construction Output - Forecast

2007 2008f 2009f 2010f 2011f 2012f

Total Construction 2.5% CPA 1% 1% 1% 1% 1%

Experian -0.4% 1.7% 1.3%

Commercial 12.8% CPA 4% 1% -4% -6% -1%

Experian 0% -2% -4%

Public non-residential -5.0% CPA 8% 12% 4% -2% -4%

Experian 6% 10% 3%

Infrastructure 1.1% CPA 8% 8% 2% 7% 4%

Experian 10% 12% 6%

It could be worse…..Output forecasts

Construction Activity

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2000

2001

2002

2003

2004

2005

2006

2007

2008f

2009f

2010f

Source: BERR, Experian

Annual change (

consta

nt

2000 p

rices)

Total Construction

Total New build

Commercial

It could be worse…..

Source: Knight Frank

0

2

4

6

8

10

12

14

84

86

88

90

92

94

96

98

'00

'02

'04

'06

'08

'10

mill

ion

s s

q f

t

Pipeline-Speculative

U/C-Speculative

Pipeline-Committted

U/C-Committed

Completed

Forecast

Central London Office Development Pipeline

It could be worse…..Inflationary trends

Boom Profiles

100

110

120

130

140

150

160

170

180

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 1

0

Year

Ind

ex =

100

1980s

2000s

The rest of the World….• Globalised Supply Chains

Credit Crunch• The wider world – GDP rates in 2007

4.7%

8.0%

12%

7.2%2.0%

3.0%

Source: OECD

Credit Crunch• The wider world – GDP rates in 2008

4.8%

7.8%

10%

7.5%1.2%

1.8%

Source: OECD

Credit Crunch• The wider world – CPI rates in 2007

3.6%

6.2%

4.5%

8.6%2.8%

2.2%

Source: Economist

Credit Crunch• The wider world – CPI rates in 2008

5.2%

6.0%

5.9%

13%3.8%

3.0%

Source: OECD

Asia

32%

Africa

2%

Europe

30%

Latin America

7%

North America

26%

Middle East

3%

Credit CrunchConstruction market size - 2007

Where the work was – spend in 2007

0 200 400 600 800 1000 1200

USA

Japan

China

Germany

Italy

France

UK

Brazil

Spain

Korea

Mexico

Australia

India

Other countries

US $ billion

Credit Crunch

Where Growth occurred - 2007

Credit Crunch

USA

Japan

China

Germany

Italy

France

UK

Brazil

Spain

Korea

Mexico

Australia

India

Other countries

-4 -2 0 2 4 6 8 10 12

% change

Where growth should happen - 2007 - 2010

Credit Crunch

USA

Japan

China

Germany

Italy

France

UK

Brazil

Spain

Korea

Mexico

Australia

India

Other countries

0 1 2 3 4 5 6 7 8 9

Percent

Credit Crunch• Assessing the risks of emerging markets

???? ????

????

PRICE = Low

PRODUCT RANGE= Low

QUALITY = Low

PRICE = Medium

PRODUCT RANGE = Medium

QUALITY = Medium

PRICE = High

PRODUCT RANGE = High

QUALITY = High

Global Competitiveness

2.9

ASIA

3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0

MIDDLE EAST

S.AMERICA

E.EUROPE

S.A

FR

ICA

Austr

ala

sia

/ W

.Euro

pe /

N.A

merica

Economic Development Stage

Region Economic Development Stage

Poland&

RussiaCzech Rep

UAEQatarMalaysia

China

Japan

Oman

India

Argentina

Venezuela

Emergence Growth Maturity

Credit Crunch

2.9

ASIA

3.02.82.72.62.52.42.32.22.12.01.91.81.71.61.51.41.31.21.11.0

MIDDLE EAST

S.AMERICA

E.EUROPE

S.A

FR

ICA

Austr

ala

sia

/ W

.Euro

pe /

N.A

merica

Economic Development Stage

Max

Min

Region Economic Development Stage

PESTLE Risk Price Quality

Emergence Growth Maturity

Credit Crunch

Credit Crunch

ItalyItalyItalyItalyChinaChinaChinaChina

DenmarkDenmarkDenmarkDenmarkIndiaIndiaIndiaIndia

FranceFranceFranceFrancePakistanPakistanPakistanPakistan

GermanyGermanyGermanyGermanyIranIranIranIran

SwedenSwedenSwedenSwedenAlbaniaAlbaniaAlbaniaAlbania

UKUKUKUKIndonesiaIndonesiaIndonesiaIndonesia

FinlandFinlandFinlandFinlandAlgeriaAlgeriaAlgeriaAlgeria

NetherlandsNetherlandsNetherlandsNetherlandsUkraineUkraineUkraineUkraine

SwitzerlandSwitzerlandSwitzerlandSwitzerlandRussiaRussiaRussiaRussia

AustriaAustriaAustriaAustriaAfghanistanAfghanistanAfghanistanAfghanistan

USAUSAUSAUSAIraqIraqIraqIraq

Lowest risk marketsHighest risk markets

Credit Crunch

• Who Dares Wins?

– Size of the market

– Prospects for

growth

– Level of risk

UAE

Thailand

India

Mexico

Switzerland

Indonesia

China

Italy

Sweden

Korea

Market opportunity

Issues in overseas markets

• Project Opportunities

– Scale

– Emerging vs. Advanced Markets

– Retreat from residential

– Growth in infrastructure

Issues in overseas markets

• Inflation

– A threat to sustained growth in many

markets

– 15% + in most emerging markets

– Negative inflation in USA only

– Threat to dollar pegged currencies

Issues in overseas markets

• Instability and risk

– Domestic inflation

– Political instability

• Commercial exposure

– Performance in a high pressure

environment

– Ability to secure local resources

– Repatriation of profit

Summary

CreditCrunch

• Viability in the UK is challenged

• Price inflation is deeply embedded

• Many markets which promise growth carry significant risk

• Diversification strategies need careful planning

Credit Crunch