outlook for european real estate in 2013
TRANSCRIPT
Outlook for European Real Estate in 2013Mark Charlton, Head of Research & Forecasting
Tuesday 20th November 2012
Europe - uncertainty continues to buffetsentiment
2
Oct
06
Feb
07
Jun
07
Oct
07
Feb
08
Jun
08
Oct
08
Feb
09
Jun
09
Oct
09
Feb
10
Jun
10
Oct
10
Feb
11
Jun
11
Oct
11
Feb
12
Jun
12
Oct
12
60
70
80
90
100
110
120
130
140
UK
Germany
Eurozone
Eurostat Survey: Economic Sentiment
Source: Eurostat
• IMF and UNCTAD report that high levels of economic uncertainty are crippling investment and economic recovery
• Boosts to confidence short-lived
• US companies hold over $1.7 trillion in cash
• Transnational companies hold $5 trillion in cash
• FDI and business expansion are on hold
Eurozone & German GDP weakening
3
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
-3%
-2%
-1%
0%
1%
2%
-6%
-4%
-2%
0%
2%
4%
Quarter-on-quarter (LHS)
Year-on-year (RHS)
Eurozone GDP % Growth
Source: ONS
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-6%
-4%
-2%
0%
2%
4%
6%
Quarter-on-quarter (LHS)
Year-on-year (RHS)
German GDP % Growth
Source: ONS
Europe – key economies; size and growth
4
• Germany remains the powerhouse, but it cannot avoid the slowdown• France is weak and may tip into recession • Poland relatively strong, but not immune
GDP (€ millions)
Europe – key economies; size and growth
5
• Spain sees two years of negative growth• Sweden and Poland show respectable growth, but at reduced rates• UK, France and Germany sluggish• For property – expansionary demand to remain subdued
EMEA investment volumes down
6
07Q
408
Q1
08Q
208
Q3
08Q
409
Q1
09Q
209
Q3
09Q
410
Q1
10Q
210
Q3
10Q
411
Q1
11Q
211
Q3
11Q
412
Q1
12Q
212
Q3
€ 0
€ 50
€ 100
€ 150
€ 200
€ 250
€ 300
€ 350
€ 400
€ 450
Americas
Asia Pac
EMEA
Investment Volumes(12-month running total)
Source: RCA
billions • EMEA suffering from weak confidence
• Asia Pac volumes have almost trebled since the 2009 trough
• EMEA and Americas volumes have recovered, but remain at about 45% of their 2007 levels
• Marked improvement in EMEA volumes unlikely in 2013
7
Sentiment amongst EMEA investors slowly improving
Note: Colliers International Property Investor Sentiment Index is based on a result of where above 100 means that more investors are positive about investment conditions. Below 100 means more investors are negative about investment conditions
Last 6 months Next 6 months Next 12 months Next 5 years
98.00
99.00
100.00
101.00
102.00
103.00
104.00
105.00
100.60
101.35 101.49
104.30
8
Over one third of EMEA investors believe that property investment conditions will improve over the next 6 months?
Decline Improve Stay the Same0%
10%
20%
30%
40%
50%
60%
14%
37%
49%
Source: Colliers International
9
56% - good time to invest in commercial property59% - planning to expand over next 6 months
Good time to invest56%
Neither a good or bad time
37%
Bad time to invest6%
Expand / increase level of investment
Maintain / consolidate current investments
Reduce / sell current investments
0%
10%
20%
30%
40%
50%
60%
70%
59%
28%
12%
Which of the following best describes how your property portfolio will change over the next 6 months?
Source: Colliers International
London and Paris dominate activity – as in 2011
10Source: RCA
Top 7 German City/Regions - €13,116
Occupier markets generally flatOffices
11
2009
H1
2009
H2
2010
H1
2010
H2
2011
H1
2011
H2
2012
H1
0%
5%
10%
15%
20%
25%
30%
Dusseldorf
London West End
Copenhagen
Warsaw
Budapest
Vacancy Rates Rising
Colliers International
2009
H1
2009
H2
2010
H1
2010
H2
2011
H1
2011
H2
2012
H1
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20% Berlin
Frankfurt
Hamburg
Munich
Stuttgart
London City
Stockholm
Helsinki
Prague
Moscow
Vacancy Rates Falling
Colliers International
2009
H1
2009
H2
2010
H1
2010
H2
2011
H1
2011
H2
2012
H1
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Paris
Oslo
Vacancy Rates Steady
Colliers International
Office rental growth generally flat
12
2009
H1
2009
H2
2010
H1
2010
H2
2011
H1
2011
H2
2012
H1
0
10
20
30
40
50
60
70
80
90
100London West End
Paris
London City
Moscow
Stockholm
Oslo
Frankfurt
Munich
Dusseldorf
Warsaw
Hamburg
Helsinki
Stuttgart
Prague
Copenhagen
Budapest
Rental Movements to H1 12
Colliers International
Logistics - a couple of areas to think about…
• E-commerce
• Infrastructure
13
Will anything change in 2013?
• Eurozone uncertainty will continue to impact on business confidence
• Recession is a reality in a number of European countries at start of 2013
• Unlikely to see even modest growth until H2 2013
• Limited bank lending will continue to act as a drag on the market…
• …and will only be available to those meeting stringent conditions and at a price
• Further growth of new lenders and mezzanine funds
• Investors will continue to focus on prime product; transparent, deep and liquid markets
• Opportunities for those prepared to take on more risk, but…
• …only if finance is in place
14
UK recovery at last? One step forward…
15
Q3-08
Q4-08
Q1-09
Q2-09
Q3-09
Q4-09
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
-4%
-3%
-2%
-1%
0%
1%
2%
3%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Quarter-on-quarter (LHS)
Year-on-year (RHS)
UK GDP % Growth
Source: ONS
• Chancellor under less pressure to follow through with July’s promises
• PMI data suggests that Q4 12
GDP could decline marginally
• Autumn financial statement 6th December should bring greater certainty with respect to economic policy
• Bank of England to remain accommodative
UK investment market challenging
16
• UK will struggle to reach 2011 totals, but Central London seeing safe haven flows
• London City and West End YTD 38% of value vs 27% in 2011
• 2012 currently c. £25.7 bn; forecast £29 bn at year end
• Modest improvement in 2013 to £35 bnSource: Property Data, Colliers International
UK property performance flat . . .S
ep-0
2
Sep
-03
Sep
-04
Sep
-05
Sep
-06
Sep
-07
Sep
-08
Sep
-09
Sep
-10
Sep
-11
Sep
-12
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
AP Capital Growth %m/m
AP Rental Growth %m/m
Source: IPD 2012
UK IPD Rental Growth %m/m
% m/m
Polarisation to continue in 2013
• Prime vs non-prime– Investors to remain risk averse
– Non-prime pricing beginning to attract some interest, but obtaining finance remains challenging
• London vs Rest of UK– Occupier markets across sectors generally flat outside of London
– 2013 rental growth limited outside London…
– …but steady net absorption and limited new development in regional office markets will generate some rental pressure for Grade A space
– Lack of spec and D&B logistics is also limiting options for occupiers
18
London vs Rest of UK retail rents
19
London vs rest of UK retail rents
20
TMT*26%
Banking & Fi-
nancial Services
20%
Business Services
20%
In-suran
ce12%
Legal7%
Property6%
Other5%
Retail / Leisure4%
City Office take-up by business sector
City – 2011 City-2012 to date
*Technology, Media & Telecommunications
TMT*36%
Banking & Fi-
nancial Services
16%
Busi-ness
Services14%
In-suran
ce11%
Legal8%
Property7%
Other4%
Education3%
Public Sector2%
Source: Colliers International
Banking & Fi-
nancial Services
28%
In-suran
ce18%
Business Services
18%
TMT*17%
Legal9%
Property8%
Other2%
Retail / Leisure1%
City Core vs Mid Town take-up by business sector
City Core – 2012 to date Midtown and Fringe-2012 to date
*Technology, Media & Telecommunications
TMT*63%
Busi-ness
Services9%
Legal7%
Property7%
Edu-cation
5%
Public Sector
4%
Other3%
Banking & Fi-nancial Services
2%Retail / Leisure
2%
Source: Colliers International
TMT driving absorption in City fringe
23
City Core absorption remains positive, but becoming marginal
TMT has been driving stronger absorption in CityFringe / Mid-Town
Source: Colliers International
Net Stock Absorption – West End
-1 500 000
-1 000 000
-500 000
0
500 000
1 000 000
1 500 000
H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 H1 2012
sq f
t
Source: Colliers International
Net Stock Absorption – Core vs Non-Core
H1 2007
H2 2007
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
H1 2012
-400,000
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
Mayfair Victoria
sq f
t
Source: Colliers International
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
£0.00
£25.00
£50.00
£75.00
£100.00
£125.00
£150.00
£175.00City West End Midtown
£ pe
r sq
ft
3 Day Week
80s recession
90s recession
Recovery
Headline rents & forecast 1971-2015
ERM Crisis
Dotcom Collapse
Credit Crunch
Source: Colliers International
UK rental forecasts
27
UK total return forecasts
28
Conclusion
• A deteriorating situation in most European economies will not help the real estate markets
• Eurozone uncertainty will continue to impact business confidence in Europe and the UK
• Assuming no further external shocks, the UK is approaching the end of a long tunnel, but economic recovery will be slow
• Expansionary demand will remain subdued…
• EMEA investors are becoming more positive and most wish to invest and expand portfolios – 77% with debt – which will be a challenge
• Growth in new lenders and mezzanine funds
• Investors will remain relatively risk averse – we see more of the same
• Opportunities do exist as secondary pricing continues to adjust – but finance will need to be in place
29
Our Global Strength
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• 522 offices in 62 countries
• 12,000+ employees
• $1.8 billion in revenue
• Over 90% “owned” revenues
• $68bn transaction value
• Over 2.1 bn square feet under management *
* Includes FirstService Residential Management