credit crunch 2008
DESCRIPTION
Credit Crunch data and analysisTRANSCRIPT
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