Global vision q4 2012 final

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Real Estate

Published on May 18, 2013

Author: JorgeZanolettyLarrea



CBRE 31-12-12, global vision about property markets. A little late to share it, but an interesting document to keep up-to-date with the real estate investment world.

Q4 2012GLOBAL VISIONThe Investment Outlook For Major Property Markets

GLOBAL VISION | Q4 2012DISCLAIMERThe contents of this report or document (“Report”) are confidential. This Report is being furnished to the recipient onthe condition that it may be kept confidential and that it may not be shared with any third parties without theconsent of CBRE Global Investors. A breach of these confidentiality obligations could lead to liability if anydisclosure is made to third parties or unauthorized persons.Forecasts and projections regarding the likelihood of various sectoral, market and investment outcomes arehypothetical in nature, do not reflect actual investment results and are not guarantees of future results.CBRE Global Investors clients may have acquired properties in the sectors and regions described in this researchreport. In addition, CBRE Global Investors is continuously marketing to new clients that will invest in propertieswithin the sectors and regions covered.CBRE Global Investors Middle East Limited provides this material on behalf of CBRE Global Investors. CBRE GlobalInvestors Middle East Limited is regulated by the Dubai Financial Services Authority. This marketing material isintended only for Professional Clients (as defined by the DFSA) no other persons should act upon it. Past orprojected performance is not necessarily a reliable indicator of future results.

GLOBAL VISION | Q4 2012WELCOME TO GLOBAL VISIONAustralia is nicknamed the Lucky Country. And its “luck” has been clearly apparent in recent years,registering one of the best top line economic performances of any of the world’s developed countries.Visiting Australia recently, I found that real estate investors there are reluctant to move capital offshore. Andwhy should they? Property yields are high by global standards, fundamentals are in decent shape, andthere’s potential for cap rate compression. For them, the rest of the world is scary and richly priced.Why would Aussies risk doing anything different? In fact why would investors anywhere in the world riskdoing anything? Recessions throughout Europe, the looming “fiscal cliff” in the States, slowing growththroughout Asia – the world is scary. And in the “safe havens” like London and New York yields are headedfor pre-Global Financial Crisis (GFC) levels. The easy solution – stay put, stay at home, keep investing inbond-like real estate. Risk-off!Australia is a great country, and should have several years of solid real estate investment performance. Butluck never lasts forever, and Aussies should consider spreading some capital beyond their home front. In asimilar vein, bad times don’t last forever. And real estate investors around the world shouldn’t be frozen bytoday’s scary headlines. And they shouldn’t exclusively plough into the world’s safe havens.The Eurozone crisis is creating headwinds around the world. But the impact of the crisis varies substantially,as does the economic outlook. The U.S. and China have clearly decelerated. Manufacturing, which hasbeen a high point coming out of the GFC, has stalled. But domestic consumption, although cooling in bothcountries, remains resilient. The U.S. for-sale housing market is shifting from being a drag to a support ofeconomic growth, while the for-rent apartment market remains buoyant. In China, the residential slowdownwhich has spooked investors is exhibiting a nascent rebound. Nothing is guaranteed, but un-relinquishedgloom is unwarranted.Average core yields are down around the world. But the compression has been highly concentrated.Gateway office markets, fortress regional malls and state-of-the-art logistics facilities leased to credit tenantsare all trading at cap rates close to pre-GFC lows. Given the plunge in interest rates, real estate yields areextremely attractive relative to fixed income. Spreads are at historically wide levels, meaning as rates risewith economic strengthening, it will be some time before they exert upward pressure on cap rates. Plus, mostproperties haven’t yet felt the yield compression. Assets in secondary markets or those affected by leasingchallenges are trading at a huge gap to prime properties. That gap should close as economies mend,fundamentals improve, and capital expands its reach.And the fundamentals will improve. Construction levels are extremely low throughout the developed world.In the U.S. and Europe, new office supply barely compensates for demolitions and conversions. This meansthat even in an environment of moderate economic growth, any net demand cuts into existing vacancy,helping rents to heal. In this case, risk-off is helping investors.Yet there are new construction opportunities. The continued urbanization and growing incomes of manyAsian and Latin American countries provide the most obvious examples of the fundamental need for newhomes, shopping centers and distribution facilities. But more subtly, changing business and consumptionpatterns create development opportunities even in mature, slow growing economies. Think 100,000 squaremeter e-commerce fulfillment centers in core Europe. Or large-floor plate, seismically sound office buildingsin Tokyo. Or new apartment communities in undersupplied U.S. metros. There’s a need for all of them and,in a risk-off environment, debt for their development is in short supply. Capital is often rewarded by goingwhere it is scarce.In Global Vision we clearly identify the world’s risks. But we also identify sectors and geographies that canprovide investment opportunities today or in the near future. Australians are understandably inclined to stayrisk-off by remaining in their lucky country. Likewise global investors are tempted to stay with the tried andtrue. But the past few years have amply demonstrated that nothing stays stagnant. And it’s time to at leastinvestigate some risk-on opportunities.Doug HerzbrunGlobal Head of Research


GLOBAL VISION | Q4 2012GLOBAL VISIONQ4 2012TABLE OF CONTENTSGLOBAL ECONOMIC OUTLOOK .................................................................................. 1 GLOBAL DIRECT INVESTMENT MARKET ...................................................................... 3 GLOBAL INDIRECT INVESTMENT MARKET .................................................................. 5 RETURN FORECASTS ..................................................................................................... 7NORTH AMERICAUNITED STATES....................................................................................................... 9EUROPEUNITED KINGDOM ............................................................................................... 11 GERMANY............................................................................................................. 13 FRANCE ................................................................................................................ 15 NETHERLANDS...................................................................................................... 17 SPAIN.................................................................................................................... 19ASIA PACIFICJAPAN................................................................................................................... 21 CHINA .................................................................................................................. 23 AUSTRALIA............................................................................................................ 25 SOUTH KOREA...................................................................................................... 27 SINGAPORE .......................................................................................................... 29 

GLOBAL VISION | Q4 2012 | 1GLOBAL ECONOMIC OUTLOOK CBRE Global Investors believes that the macro-economic backdrop for real estate occupierdemand will remain challenging in themedium-term as growth is weighed down bythe protracted work-out of impaired balancesheets. That said, given continued financialrepression and a scarcity of “safe” assets, goodquality real estate is likely to remain in demand. In the U.S., the economy has fared relativelywell as banks have been aggressive in writingdown bad debts against a very supportivepolicy backdrop. The Federal Reserve has keptinterest rates low and fiscal policy has alsoremained loose without incurring higherborrowing costs, thanks to the safe haven statusof the U.S. Even then, activity has slowed overthe last quarter (Figure 1), reflecting weaknessin Europe, China and domestic housing andlabor markets. The key question is how far policymakersmanage to avert the U.S. falling off the “fiscalcliff” – a fiscal tightening worth 4% of GDP astax breaks and spending programsautomatically expire in January 2013. (Figure 2)Both the Economist Intelligence Unit (EIU) andMoody’s Analytics expect policymakers to delaysome of the tightening so that the “partial cliff”slows the recovery, but does not pull the U.S.back down to “stall speed” of c1.5%. They alsoforecast that any negative shock from theEurozone would be offset by further centralbank action. That said, the risks to the U.S. economy liefirmly on the downside given the uncertaintyover fiscal policy and continued weakness inthe labor market. Moreover, it is arguable howfar this risk has been priced into markets. Bycontrast, Europe is priced for Armageddon, andarguably the surprises will come on the upsideas the Euro currency area inches toward somekind of permanent fiscal and banking union. Indeed, we have seen a summer rally in Europepredicated on two signals that we are finally onthe path to resolution: the drafting of legislationto create a banking union; and the EuropeanCentral Bank’s commitment to eliminate“convertibility” risk premia from weakermember states’ bond yields. (Figure 3) Both ofthese measures should ease the “death loop”between weak bank balance sheets andunsustainably high public debt to GDP ratios. Itwould also go some way to unfreezing cross-border capital flows. However, the weakerstates will still have to enact painful supply-sidereforms, which will dampen near-term demand,and so hinder German export-led economicgrowth as well. Given the structural headwinds facing theEurozone, it is quite an achievement for the UKto be mired in a relatively worse recession.(Figure 4) But this should hardly be surprisinggiven that the UK is the most indebted majoreconomy in the world and that the threeengines of its prior growth – governmentspending, consumer spending, and financialservices – are all now retrenching. Indeed, onecould argue that the worst thing for the UKeconomy would be a successful resolution ofthe Eurozone crisis, after which UK bondholdersmight start to question the underlying fiscalposition of the UK as opposed to its non-Eurozone “safe haven” attractions. Growth has also decelerated in China aspolicymakers struggle to find a balancebetween increasing credit availability to thecorporate sector but not re-stoking theresidential property bubble. The monetarypolicy loosening that began in March showedup quickly in the real estate sentimentindicators, but the manufacturing sector is stillstalling. (Figure 5) Further ahead, the downsiderisk to the Chinese economy remains the poorstate of local government and bank balancesheets in a situation in a country where bankingsector losses are tacitly underwritten by thecentral government. Meanwhile, Japan is the only major economy tohave seen consensus forecasts for 2012 revisedup during the year, as the ¥10 trillion post-tsunami reconstruction budget injects theequivalent of 2.6% of GDP to the economy.However, growth is forecast to slow after 2013as the new consumption tax is introduced, andthe economy returns to its low growth norm. Overall, of the International Monetary Fund’s“S-5” systematically important economies, themedium-term outlook looks weakest for China(and Singapore and Hong Kong) as itrebalances growth away from exports. The UKlooks as weak as the Eurozone and both willsee growth suffer as fiscal austerity continues.Despite downward revisions to near-termforecasts and the uncertainty over the “fiscalcliff”, the U.S. remains the best relative macro-economic bet. After all, while Japanese growthhas returned to trend, that trend is low after two“lost decades”. (Figure 6)

GLOBAL VISION | Q4 2012 | 2GLOBAL ECONOMIC OUTLOOK – CHARTSFIGURE 1: U.S. CORPORATE SECTOR ACTIVITY,50=NEUTRAL LEVELFIGURE 2: AUTOMATIC U.S. FISCAL TIGHTENING INJANUARY 2013 AS A % OF GDPSource: Institute for Supply Management Source: US Office of Management and the BudgetFIGURE 3: 10 YEAR GOVERNMENT BOND YIELDS, % FIGURE 4: REAL GDP REBASED TO 100 AT CYCLICAL PEAKSource: Reuters Sources: Eurostat, UK National StatisticsFIGURE 5: CHINESE ENTREPRENEURS’ EXPECTATIONSSURVEY, 100=NEUTRAL LEVELFIGURE 6: GDP FORECASTS, % PA & LONG RUN TRENDSource: National Bureau of Statistics, China Source: Economist Intelligence Unit*LR Trend = 1980-2011303540455055606506 07 08 09 10 11 12Manufacturing Non-Manufacturing0%1%2%3%4%Complete"fiscal cliff"All Bush cutsand payrollcuts expireAll Bush cutsexpireHigh incomeBush cuts andpayroll cutsexpireHigh incomeBush cutsexpire0%1%2%3%4%5%6%7%8%08 09 10 11 12Spain Italy Germany929394959697989910010110207 08 09 10 11 12Germany Eurozone UK Spain70809010011012013014015016099 00 01 02 03 04 05 06 07 08 09 10 11 12Whole Economy Real Estate Sector-4%-2%0%2%4%6%8%10% 2 YR Forecast (2012-2013)5 YR Forecast (2012-2016)5 YR Forecast Relative to LR Trend*

GLOBAL VISION | Q4 2012 | 3GLOBAL DIRECT INVESTMENT MARKET With macro-economic caution increasing andcontinued constraints in the capital markets, H12012 saw weaker direct investment marketactivity than the corresponding period in 2011.Transaction volumes came in at $157bn in Q22012, up 5% on Q1 but down 23% on Q22011. (Figure 1) Activity in H1 2012 was alsodown 22% on the year before. Figure 2 shows that the only markets withannual increases were the commodityeconomies of Canada and Australia, the non-Euro diversifier, Sweden, and Hong Kong.Activity in Japan was broadly flat despite thebase effects of last year’s Tsunami, and the U.S.was also broadly flat. The big falls in dealvolumes were seen in Europe – particularlySpain and Italy who are on the verge of seekingbail-outs. Interestingly, despite their safe havenstatus, Germany and the UK also saw markedfalls in activity, perhaps reflecting lower non-European capital inflows. Continued elevated risk aversion has not onlyled to a marked divergence in pricing betweenperceived prime and secondary assets. Givenglobal macro-economic uncertainty, it remainsdifficult to underwrite acquisitions. As a result,the key factor defining prime has become the“visibility” of income streams – particularlytenant quality and lease length – and by howliquid the underlying market is, in case the assethas to be sold in an emergency. By contrast,assets with shorter, less certain income streamsin less liquid markets continue to be punishedby valuers and scorned by investors. Figure 3 illustrates the illiquidity premium byshowing that major metro area asset priceshave risen by 41% since the trough of the cycle,but asset prices in non-major metros have risenby just 19% over the same period. Similarly,Figure 4 shows that global CBD Office priceshave risen 96% since the trough of the cycle,compared to a mere 17% rise for OtherOffices. And worst of all, Other Office priceshave fallen 6% over the past three quarters. Despite falling yields and rising prices for thebest quality real estate, Figure 5 shows thatproperty still provides at least a 200 basis pointpremium over the local government bond yieldin all markets bar Hong Kong. Moreover, thispremium is higher than the historic average,partly reflecting historically low bond yields inthe U.S., UK, Germany and Japan. There is a sense in which the on-going macro-economic certainty has created a “contest ofuglies” between income-producing assets – acontest that prime real estate is winning. Bondyields in safe havens look expensive; bondyields in other countries look vulnerable toratings downgrades and default. By contrast,while prime property yields are low relative totheir own history, they look increasinglyattractive in a world of financial repression anda shrinking pool of safe assets. However, there is a limit to how far even primeyields can remain at historic lows withdeteriorating fundamentals. London is the mostobvious example of a market where primeyields could come under pressure as investorsreassess the occupier market outlook – as isreflected in our revised forecasts – and thelatest IPD data. UK total returns decelerated to 0.4% q/q in Q22012, the weakest performance since Q22009. The 1.4% q/q income return was offsetby a 1% q/q fall in capital values (Figure 6),reflecting rental values falling by 0.1% and the0.9% negative impact of rising yields. Notably,yields are now rising in every part of the marketexcept Central London shops and West Endoffices. Even City office yields are now rising. U.S. total returns are also decelerating,although with nothing like the speed of the UKmarket, reflecting better fundamentals. Totalreturns on all property came in at 2.6% q/q inQ2 2012, in line with the performance in Q1.This reflected an income return of 1.4% andcapital value growth of 1.1%, which in turnreflected rental value growth of 1.1% and flatyields. The performance across sectors wasfairly similar, although it should be noted thatthe office portfolio vacancy rate did rise from10.5% to 12.3%. Meanwhile, in Continental Europe, the CBREEuropean Valuations Monitor is showingrenewed weakness in Southern Europe andItaly. Capital values fell 4.9% in Q2 2012, thelargest fall since Q2 2009. Worryingly, thereare signs that this weakness is now spreading tothe European “Core”, with capital values fallingin Q2 in France for the first time since Q42009; and continuing to fall in the Nordics andthe Benelux. However, while valuationssoftened in Germany in 2011, partly reflectingsales from open-ended funds, they stabilized inQ2 2012.

GLOBAL VISION | Q4 2012 | 4GLOBAL DIRECT INVESTMENT MARKET – CHARTSFIGURE 1:TRANSACTION VOLUMES, $BN PER QUARTER FIGURE 2: TRANSACTION VOLUMES, %, H1 ‘12/H1 ‘11Source: Real Capital Analytics Source: Real Capital AnalyticsFIGURE 3: COMMERCIAL PROPERTY PRICE INDEX(2007=100)FIGURE 4: GLOBAL REPEAT SALES VALUES BY SECTOR,REBASED TO 100 AT PEAKSource: Real Capital Analytics, Moody’s Analytics Source: Real Capital AnalyticsFIGURE 5: PROPERTY YIELD PREMIA OVERGOVERNMENT BONDS, BPSFIGURE 6: AVERAGE PROPERTY CAPITAL VALUES, % Q/QSource: Real Capital Analytics Source: Investment Property Databank05010015020025030035007 08 09 10 11 12AsiaPac EMEA Americas-22%-100%-80%-60%-40%-20%0%20%40506070809010011001 02 03 04 05 06 07 08 09 10 11 12Major Markets Non-Major Markets40506070809010011001 02 03 04 05 06 07 08 09 10 11 12Residential CBD Office IndustrialRetail Other Office01002003004005006002007-2012 H1 2012 Spread-15%-10%-5%0%5%10%07 08 09 10 11 12USA Germany UK Southern Europe/Italy

GLOBAL VISION | Q4 2012 | 5GLOBAL INDIRECT INVESTMENT MARKET Global equity markets rallied in Q2 and Q32012 on the back of expectations and thenannouncements of central bank easing. TheFed announced an initial $40bn tranche ofQE3 focused on buying mortgage-backedsecurities. The ECB announced a new OutrightMonetary Transactions program allowingunlimited intervention in the secondary bondmarkets of countries where bond yields reflect aEurozone exit risk premium. The only fly in theointment is that the bond-buying is conditionalon the country asking for a bail-out from theEU/IMF, leading to financial market uncertaintyabout when Spanish Prime Minister Rajoy willask for such a bail-out. Figure 1 shows that this renewed optimism fedinto strong increases in the main indices forGermany, the Eurozone more widely, the U.S.and Singapore in the first seven months of2012. And with listed real estate securitiesparticularly sensitive to the interest rate cycle –both through relative pricing against bonds,and the price of credit – the gains were evengreater. Prices have risen between 15% and30% in the first seven months of the year, withparticularly strong performance in developedAsia and safe haven Europe. Despite the price increases, valuations remainattractive. Listed property securities were tradingat a discount to net asset value in all marketsbar Canada and the U.S. at end July 2012.(Figure 2.) And those discounts were largerthan the long-run average in all markets barthe UK. Japanese real estate operatingcompanies and shares in Hong Kong/Chinalook particularly good value considering thedeep discounts to already re-rated valuations. The UK result partly reflects the fact that theinfluence of the majors holding adisproportionate amount of high quality CentralLondon stock – the type of property that is inhigh demand. And what look like expensivevaluations in the U.S. are actually moreattractive when one looks at the discounts toNAV on a sectoral basis. Figure 3 shows thatthe “core” mainstream real estate sectors wereactually trading at a 0.4% discount to NAV atend July 2012, with even steeper discounts inthe hotel sector. By contrast, it is the healthcare,storage and net lease sectors with morechallenging pricing. Listed real estate securities also continue toprovide an attractive premium to localgovernment bond yields, in an analogoussituation to the underlying real estate. At endJuly, the global average dividend yield was3.6%, with the range running from Japan at2.7% to Australia at 5.6%. With bond yieldshistorically low, particularly in the UK and U.S.,this has resulted in attractive spreads ofbetween 200 and 400 basis points. Moreover,these yield spreads are well in excess of thelong-run averages in all markets bar Canada.The most attractively valued markets on thisbasis are Continental Europe, the UK and HongKong, all with spreads c460bps higher than thehistoric average. (Figure 4) In general, the performance of the listedsecurities market should reflect the underlyingfundamentals of each market as analyzed laterin this report. However, in a time of riskaversion, heightened investor appetite for highquality assets, and constrained access tocapital, listed real estate securities are wellplaced given their high quality portfolios andability to tap the public market for capital atmore attractive rates than the private debtmarket. In the unlisted real estate funds sector, totalreturns on U.S. funds were running at c3% y/yin Q1 2012 (the latest available data)regardless of style category. (Figure 5)Meanwhile, in Europe, the impact ofdeteriorating fundamentals, the high cost anddifficulty of refinancing, and the difficulty ofselling down closed-end funds in a fallingmarket are taking their toll on returns. INREVreported all fund total returns to investors fell by0.2% in Q2 2012, the first negative return since2009. This reflected an income return of 0.7%q/q but a capital value fall of 0.9% - the fifthsuccessive quarter of declining values. Figure 6 shows that, as one might expect, corefunds have seen more limited capital value fallsthan value added funds, given generally lowerleverage levels and lower vacancy rates.However, it is interesting to note that theperformance of the UK and ContinentalEuropean funds in Q2 were almost identical.This shows that while a small top layer of theUK market may be holding up well on safehaven buying, the majority of the UK market isafflicted by very weak fundamentals, regardlessof the country’s position outside of theEurozone.

GLOBAL VISION | Q4 2012 | 6GLOBAL INDIRECT INVESTMENT MARKET - CHARTSFIGURE 1: CHANGE IN EQUITY PRICES, END JULY2012/END DEC 2011, %FIGURE 2: LISTED PROPERTY SECURITIES NET ASSETVALUE PREMIUM/DISCOUNT BY REGION, %Source: Reuters Source: FactSet and Bloomberg, as at 7/31/2012 *Average since Dec 2004FIGURE 3: US LISTED PROPERTY SECURITIES NET ASSETVALUE PREMIUM/DISCOUNT, %FIGURE 4: LISTED PROPERTY SECURITIES DIVIDENDYIELD, % & SPREAD OVER GOVT. BOND YIELD,PPSource: Factset & Bloomberg, as at 7/31/2012 *Weighted average Source: Factset & Bloomberg, as at 7/31/2012FIGURE 5: US UNLISTED FUND TOTAL RETURNS, % Y/Y FIGURE 6: EUROPEAN UNLISTED FUND CAPITAL VALUES,% Q/QSource: NFI-Townsend (USA) Source: INREV-5%0%5%10%15%20%25%30%Listed Real Estate Main Index-40%-30%-20%-10%0%10%20% Current NAV P/D 10 Year Average*-20%-10%0%10%20%30%40%50%"Core" real estate sectors-0.4% discount to NAV-3%-2%-1%0%1%2%3%4%5%6%Dividend yield Current Spread LR Average Spread-30%-25%-20%-15%-10%-5%0%5%10%15%20%06 07 08 09 10 11 12CoreValue-AddOpportunistic-3%-2%-1%0%1%2%3%4%5%6%7%10 11 12UK - CoreCont Europe - CoreUK - Value AddCont Europe - Value Add

GLOBAL VISION | Q4 2012 | 7RETURN FORECASTSMETHODOLOGY CBRE Global Investors is proud to release theresults of our global return forecasting project.Investment research team members in the U.S.,Asia Pacific and Europe collaborated on apioneer project to synchronize total returnforecasting methodologies. The forecasts reflect core unlevered portfolioreturns over a five year holding period (2012-2016). Total, income and appreciation returnswere calculated using a multi-year cash flowmodel that utilizes inputs such as rent growth,indexation, lease renewals, cap rates, vacancyand expense ratios. This section shows our return forecasts by majorgeography and property type. The returns arealso calculated at the metro/property level forover 400 metro/property combinations to helpguide investment decisions. The return forecasts are a starting point indeveloping and managing an investmentstrategy. Submarket conditions and, to agreater extent, property-specific characteristicsgreatly impact overall returns.SUMMARY OF RESULTS The U.S. and Asia Pacific are expected tooutperform. The U.S. results are driven byreasonable economic growth, low constructionpipelines and generally attractive, below-replacement cost pricing. Within the U.S., apartments and office have thestrongest outlook. Strong demographic trendsare boosting the apartment sector, while officewill benefit from a strong cyclical upswingtypically seen after a downturn. Within Europe, logistics and retail are expectedto outperform. In general, Europe’s forecastsare impacted by weak fundamentals and thehigh degree of uncertainty over the macro-economic outlook. However, the differenceswithin Europe are large: the South drags downthe returns for the whole of Europe. Within Asia Pacific, logistics and retail areexpected to outperform. The structural shortageof modern real estate stock, coupled with thelarge “catch-up” potential contribute positivelyto the Asia Pacific real estate return outlook.FIGURE 1: U.S. AND ASIA PACIFIC EXPECTED TO OUTPERFORMSource: CBRE Global Investors8.6%8.1%5.6%0%2%4%6%8%10%U.S. Asia Pacific Europe5YearForecastAnnualizedReturn(2012-2016)

GLOBAL VISION | Q4 2012 | 8FIGURE 2: U.S. RETURNS BY PROPERTY TYPESource: CBRE Global InvestorsFIGURE 3: EUROPEAN RETURNS BY PROPERTY TYPESource: CBRE Global InvestorsFIGURE 4: ASIA PACFIC RETURNS BY PROPERTY TYPESource: CBRE Global Investors9.0%8.2%8.6%7.6%9.1%0%2%4%6%8%10%Office Retail U.S. Industrial Apartment5YearForecastAnnualizedReturn2012-20165.4%5.9% 5.6%6.7%4.4%0%2%4%6%8%10%Office Retail Europe Logistics Residential5YearForecastAnnualizedReturn2012-20167.8%8.7%8.1%9.0%5.8%0%2%4%6%8%10%Office Retail Asia Pacific Logistics Residential5YearForecastAnnualizedReturn2012-2016

GLOBAL VISION | Q4 2012 | 9UNITED STATES The U.S. economic outlook darkened after agood start to 2012. Many indicators such asemployment, manufacturing and retail salesstarted to reflect a slowdown in the secondquarter. In addition, the “fiscal cliff” of taxincreases and spending cuts scheduled for2013 poses a serious challenge to the fragilerecovery. Looking ahead, the threat of anotherrecession remains as the economy deals with apresidential election-induced policy paralysis,the ongoing Eurozone crisis and emergingmarkets’ slowdown. At best, the U.S. economy is expected to grow ata moderate pace. Real GDP grew by 1.7%(second estimate) on an annualized basisduring Q2 2012, down from 2.0% during thefirst quarter of 2012. The U.S. economy isforecast to grow by 2.1% in 2012, according toboth Moody’s Analytics and the EIU. (Figure 1) After a solid start to the year, employmentcontinued to disappoint. Employment gainsaveraged 225,000 jobs per month in Q1 butslowed to 67,000 per month in Q2. Julysurprised on the upside and recorded 141,000new jobs, but the August employment reporttallied just 96,000 jobs. (Figure 2) The Augustunemployment rate fell to 8.1% from 8.3%. Thedrop was entirely driven by a lower labor forceparticipation rate; unemployed workers gave uplooking for work. The negative news is discouraging and wecontinue to remain extremely cautious. Giventhe presidential election policy paralysis, weexpect the U.S. economy to muddle along.Fortunately, the U.S. is well poised to improverobustly once its fiscal uncertainty is removed.For example, the banking system hasrecapitalized, corporate profits remain nearrecord highs, households are de-leveragingand the housing market is gaining sometraction. In addition, the Fed announced itsthird round of bond purchasing (QE3) andextended its zero interest rate policy until 2015. The U.S. real estate market continues to presentan attractive investment opportunity. Despitefears of continued economic weakness, avolatile stock market and generationally lowtreasury yields continue to make commercialreal estate an attractive investment. (Figure 3)Investors should be very cautious and avoidpricing anything to perfection. Although currentspreads provide a cushion as interest rates rise,investors should not anticipate further cap ratecompression. (Figure 4) Given the rocky economic climate, investors arechasing stability and income from core assets introphy markets. However, pricing has becomearguably overheated. For this reason, investorsshould consider expanding their horizons andlook to Next-Tier markets that have similarcharacteristics and demand drivers as trophymarkets, but without the trophy price tag.(Figure 5) Office absorption in the second quarterrebounded from a weak first quarter. Hi-techmarkets and low-cost metros experienced thebiggest declines in vacancy over the past year.However, the big question is whether theslackening in the pace of job growth in thesecond quarter will manifest itself in comingquarters as reduced net new demand for officespace. Our outlook for national office marketfundamentals is continued improvement at asubdued pace over the next few quarters withmuch of the demand coming from theprofessional/business services sector. The industrial sector’s availability rate fell in Q2for the eighth consecutive quarter. Of the top10 markets by size, the largest improvements inoccupancies in the past year have been inHouston, Dallas/Ft.Worth, Chicago, Detroit andGreater Los Angeles, thanks to their status asnational distribution/energy/auto hubs. Ourforecast for industrial market fundamentalsanticipates stable demand for industrial space,limited deliveries and continued declines inavailability rates. The apartment sector reported another solidquarter in Q2. Although supply almost doubledfrom Q1 levels, demand outpaced it by two-to-one and rents continued to rise. Strongdemographic trends are the tailwinds forcontinued robust apartment demand, but thesector is facing headwinds in the form of asupply surge in select markets, a slow-movinglabor market and a strengthening housingmarket. In light of new deliveries, the pace ofrent growth is expected to be muted asproperties vie for tenants. (Figure 6) The retail recovery inched along in the secondquarter, as the vacancy rate declined byanother 10 bps to 13.0%. It is only 20 bpslower than its peak a year ago, highlighting theextremely slow pace of improvement in theretail sector. The retail recovery is expected togradually move forward in 2013 and gainmomentum in the outer forecast years.

GLOBAL VISION | Q4 2012 | 10UNITED STATES – CHARTSFIGURE 1: ANNUAL GDP GROWTH, %PA FIGURE 2: MONTHLY EMPLOYMENT GAINS/LOSSESNUMBER OF JOBS (000s) M/M CHANGESource: Moody’s Analytics Source: Bureau of Labor StatisticsFIGURE 3: ASSET CLASS YIELDS, % FIGURE 4: AVERAGE PROPERTY CAP RATES, %Source: NCREIF, Moody’s Analytics Source: Real Capital AnalyticsFIGURE 5: COMMERCIAL PROPERTY PRICE INDEXMOODY’S/RCA CPPI (100=OCTOBER 2007)FIGURE 6: FORECASTED ANNUAL RENT GROWTHFIVE YEAR AVERAGE (2013-2017)Source: Real Capital Analytics; Major Markets are: New York City, DC, Boston,Chicago, Los Angeles and San FranciscoSource: CBRE Global Investors, CBRE-EA-4%-3%-2%-1%0%1%2%3%4%5%00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-900-700-500-300-10010030050008 09 10 11 120%2%4%6%8%10%12%14%16%18%82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12NCREIF Transaction Cap RateBaa Corporate Bond10-Year Treasury Yield5%6%7%8%9%10%11%01 02 03 04 05 06 07 08 09 10 11 12IndustrialRetailOfficeApartment506070809010011007 08 09 10 11 12Major MarketsNon-Major Markets4.6%3.9%3.7% 3.6%0%1%2%3%4%5%6%Office Retail Apartment Industrial

GLOBAL VISION | Q4 2012 | 11UNITED KINGDOM As pointed out in the introduction to GlobalVision, the UK economy remains very fragile,having returned to recession in a morepronounced manner than was widelyanticipated. The UK is now in its third quarter ofnegative economic growth, contracting 0.5% inQ2 2012. If unrevised, this latest GDP estimatetranslates to a 1.1% contraction over the pastthree quarters. (Figure 1) Whilst an unresolved Eurozone crisis hasmaterially dampened sentiment, it is amisconception that if it weren’t for the currencyunion, the UK would be in full recovery mode.Far from it. Activity continues to be restrainedby fiscal retrenchment, private-sectordeleveraging and a precarious banking system.We also note that in the aftermath of the GFC atypical improvement in UK productivity has notoccurred, (Figure 2) this after unemploymentshot up, businesses became more profitableand Sterling was more competitive. The latestEIU forecasts call for GDP to contract by 0.5%in 2012 with average growth of 1.1% GDP the following four years. This is a morenegative prognosis than in our last report. One of the few positives in the UK economy hasbeen falling inflation. Since peaking lastSeptember, annual CPI has stayed below 3%for the previous three months mainly due toindirect tax and commodity price base effects.While this is surely welcome news for astruggling consumer a further implication hasbeen the issuance of additional quantitativeeasing (QE) from the Bank of England.Although the effectiveness of QE has beencalled into question, further implementation willundoubtedly keep gilt yields suppressed. Aconcerning development is that QE has hadlittle impact on lending to businesses in the UKsregions despite its promise of improvingliquidity in the broader banking system. This isexpected to further precipitate the “South Eastversus the rest” phenomenon which is alsoevident in property performance and investmentvolumes. The impact of a fragile economic outlook onoccupier fundamentals and investor sentimentcontinues to be reflected in UK direct propertymarket performance. On the IPD monthlyindex, capital values have been negative for tenconsecutive months, rental value growth is nowdeclining and so total returns are driven solelyby income. At the segment level, unsurprisingly,it is markets in London and the South Eastwhich are the relative outperformers. Referring to yield quartile analysis evinces areversal of long term trend with regard to realestate performance. (Figure 3) Low yieldingproperties (i.e. a prime proxy) have deliveredthe highest total returns over the previous threeyears, having generally benefited from bothconsistent capital value and rental valuegrowth. On the other hand, the highest yieldingquartile (i.e. secondary) was solely reliant on itsincome return and hence struggled to topinflation. A key reason for this recent performance hasbeen the widening prime secondary propertyyield gap. (Figure 4) This is occurring asinvestors continue to be cautious about thesecurity and lengths of income streams. Whilstprime yields should remain flat across sectorsthrough 2012, supported by loose monetarypolicy and sustained international demand,secondary yields are expected to continue theiroutward march. CBRE Global Investors’ Q3 IPD All Propertyforecasts suggest a capital value fall of 6.7%this year followed by a further 1.4% in 2013.This near-term view remains below consensus.(Figure 5) The reason for a protracted periodof capital value falls is that secondary property,in particular, has yet to experience thepronounced outward yield shift that we believeis inevitable. On the back of low transaction volumes, therehas been a lack of defensible market evidenceto crystallize further declines. Given that thesummer of 2012 has been particularly slow interms of transactional activity, market evidencemay prove slow in coming. It is, however,important to acknowledge that given thetendency of the IPD index to lag the market (byas much as six months), our investment teamsare already seeing the aforementioned capitalvalue falls in the market. An interesting development over the previousfew quarters has been the seeming demise ofthe once blossoming UK property derivativesmarket. (Figure 6) In Q2 2012 the totalnumber of trades executed was the lowest in theinstruments relatively short history.Correspondingly, the total outstandingnotational value of the market is a quarter of itsQ4 2008 peak. Such a decline correspondswith the general lack of enthusiasm for theproduct that we have been hearing from UKdomiciled institutional investors.

GLOBAL VISION | Q4 2012 | 12UNITED KINGDOM – CHARTSFIGURE 1: REAL GDP REBASED TO 100 AT Q1 2008 FIGURE 2: PRODUCTIVITY (OUTPUT PER HOUR) DURINGUK RECESSIONS, PRE-RECESSION PEAKOUTPUT=100Source: National Statistics Source: National StatisticsFIGURE 3: UK ALL PROPERTY TOTAL RETURNPERFORMANCE BY YIELD QUARTILEFIGURE 4: OFFICE VALUATION YIELDSSource: IPD 2011 Annual Index Source: CBRE Valuation Team. Latest=September 2012FIGURE 5: ALL PROPERTY CAPITAL VALUE GROWTH FIGURE 6: TOTAL OUTSTANDING DERIVATIVES, £MN &NUMBER OF TRADES EXECUTEDSource: IPD Annual Index to 2011, CBRE Global Investors forecasts, IPF Source: IPD9294969810006 07 08 09 10 11 12Down 4.3% from Q1 2008Down 1.1% from Q3 2011Down 0.5% from Q1 2012951001051101151200 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 161973198019902008quarters since peak024681012143 years to Dec-11 31 years to Dec-11Quartile 1(lowest) Quartile 2 Quartile 3 Quartile 4(highest)0%2%4%6%8%10%12%14%00 01 02 03 04 05 06 07 08 09 10 11 12Gap Prime <> SecondaryWest End Prime OfficeGood SecondarySecondary-8%-6%-4%-2%0%2%4%6%2011 2012 2013 2014 2015 2016CBREGI Q3 2012 IPF Consensus (August 2012)01,0002,0003,0004,00002,0004,0006,0008,00010,00012,00005 06 07 08 09 10 11 12Total Outstanding Derivatives (Notional)Total Trades Executed (RHS)

GLOBAL VISION | Q4 2012 | 13GERMANY The economic outlook for Germany is still soliddespite recession in many European countries.Real GDP expanded by 0.3% q/q in Q2 2012,driven by ongoing demand from economiesoutside the Eurozone and solid domesticconsumer demand. Following weaker growth in2013, stronger economic growth is expectedfrom 2014 onwards. (Figure 1) The unemployment rate declined to 6.8% in Q22012. (Figure 2) This low rate, in addition toexpected wage increases and solid externaldemand, should help restrain recessionarydevelopments. However, the still unsolvedEurozone sovereign debt crisis remains the keydownside risk for our outlook on Germany. Demand for German office space slowedduring the first quarters of 2012. In the Big-5German markets (Berlin, Frankfurt, Munich,Hamburg and Düsseldorf), take up decreasedby 10% y/y during H1 2012. Given lowconstruction activity, vacancy rates remainedstable or even came down in a few markets,which then led to moderate nominal prime rentgrowth. Office demand is expected to moderate in 2012given the weaker growth scenario. However, thelow development pipeline, limited speculativeconstruction activity and sustained demand forprime space will limit downward pressure onprime rents. (Figure 3) Rents are actuallyforecast to increase moderately in 2012/2013in some core markets, and more notablythereafter, which is in line with increasingeconomic growth. Consumer demand was somewhat weaker inQ2 2012 as retail sales declined by -0.7% y/y.Overall H1 2012 real retail sales growth wasstill positive by 0.9% y/y. Despite low economicgrowth in Europe, German consumerconfidence figures have not suffered thus far.Strong retailer demand and tight availability forprime retail space put upward pressure on retailrents in Q2 2012. (Figure 4) High street rentsgrew by 2.5% y/y on average across the Big 5German markets. The weaker growth expectation and plannedausterity measures in 2012/2013 will likelyconstrain growth in consumer demand. But, thiscould be partially mitigated by the sound labormarket, wage increases and moderate short-term inflation. Prime shopping center rents areforecast to rise moderately in 2012. High streetrents in core markets are expected to continueto increase significantly next year. Retailersfocus on prime retail areas in Germany withintheir multi-channel expansion strategies therebycreating a solid base for demand. Logistics demand has slowed down, afterhistorically high take up over the past two years.Leasing volumes came down in key markets by35% y/y during H1 2012. However, the overallvolume is still solid and above the 5-yearaverage. Vacancy rates remained at low levelsof around 4% in Q2 2012. As a result, primelogistics rents remained unchanged over thepast quarter. Logistics demand is expected to continue toweaken in 2012, in line with moderateeconomic growth expectations. Very lowspeculative construction activity is likely in theshort to medium-term, so no downwardpressure on rents is expected from supply. Rentsare forecast to remain stable in 2012/2013 andmight increase again in 2014, given the positiveoutlook for key logistics drivers in Germanypost-2012. (Figures 5) German commercial investment turnoverreached EUR 4.3bn in Q2 2012 and 9.4bnduring H1 2012, which is 16% lower than theprevious year. Core acquisitions remaineddominant and office was the most desired assetclass (45% of total transaction activity) followedby retail (35%). Retail remains the investordarling, but the availability of core assets istight. Logistics investment turnover improvedduring the past quarter, which led to a stake ofalmost 9% of total investments during the firsthalf of 2012. Overall, prime property yieldsdeclined again slightly in major office marketsand by 15 bps on average in key logistics hubsin Q2 2012. We expect demand for German real estate tohold up well in 2012, although occupiermarkets may moderate and debt availabilitycould tighten. Overall, prime yields areexpected to decline moderately in 2012 as riskaverse investors continue to focus on primeproducts in core European markets. Primeyields are forecast to remain at low levels in2013/2014, as investor demand is notexpected to weaken and economic growthstrengthens. (Figure 6) Core real estate is stillprojected to offer favorable yields compared tocompetitive asset classes. The attractive risk-spread between property yields and bonds(government and corporate) is not expected tochange soon.

GLOBAL VISION | Q4 2012 | 14GERMANY – CHARTSFIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: UNEMPLOYMENT RATE, %Source: Economist Intelligence Unit Source: Economist Intelligence UnitFIGURE 3: OFFICE NET ADDITIONS TO STOCK*, % FIGURE 4: PRIME MARKET RENTAL GROWTH, % Y/YINDEX 2007 = 100Source: Property Market Analysis*Average German Big 5 marketsSource: Property Market Analysis, Investment Property Databank (history),CBRE Global Investors (forecast). Logistics/Office: Average German Big 5marketsFIGURE 5: DEVELOPMENT OF KEY LOGISTICSDRIVERS (2007 = 100)FIGURE 6: PRIME NET INITIAL YIELDSSource: Economist Intelligence UnitSource: Property Market Analysis, Investment Property Databank (history);CBRE Global Investors (forecast). Logistics/Office: Average German Big 5markets-6%-4%-2%0%2%4%6%92 94 96 98 00 02 04 06 08 10 12 14 160%2%4%6%8%10%12%14%92 94 96 98 00 02 04 06 08 10 12 14 16Long-Term Average0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%92 94 96 98 00 02 04 06 08 10 12 14 16Long-Term Average-20-15-10-505101598 00 02 04 06 08 10 12 14SCOfficeLogistics70809010011012013014015007 08 09 10 11 12 13 14 15 16Industrial productionImport volume of goodsExport volume of goodsReal private consumption3%4%5%6%7%8%9%98 00 02 04 06 08 10 12 14OfficeSCLogistics

GLOBAL VISION | Q4 2012 | 15FRANCE French economic growth forecasts have beenrevised downwards for 2012 and 2013. Theeconomic recovery is expected to be slow andreal improvement is not expected before 2014.(Figure 1) The new government of President Hollandemust deal with the delicate issue of reducingdeficits without destabilizing the economy. Ittook a while before the French governmentfinally announced its first measures in mid-September. Taxes will be increased forcompanies and for the wealthy. Unemployment is expected to rise as aconsequence of weak economic activity andausterity measures. For example, major Frenchcompanies such as Peugeot and SFR (telecom)recently announced large redundancy plans.Unemployment is expected to remain around10% until 2016, which is above the long-termaverage. (Figure 2) High unemployment isnegatively impacting consumer confidence. Andas a result, private consumption and retail saleswill slow in 2012 and 2013, thus impactingretailers’ turnover and performance. (Figure 3) So far this year the office occupier market hasbeen slowing down but is not yet at distressedlevels. On average, vacancy in the Paris regionseems low at 6.6% although there are strongdifferences between the submarkets. Lowvacancy will prevent a sharp fall of rents in2012 and 2013 despite decreasing take up.From 2014 onwards, rental growth shouldaccelerate for prime product as the economyimproves. In addition, a lack of new andrenovated supply will lead to a shortage ofquality product especially in the Paris CBD. Retailers are likely to face a decrease of theirturnover due to expected low consumerspending in 2012 and 2013. Consequently,they prefer prime high street and shoppingcenter locations that benefit from more secureturnover. This is why in 2012 we still expectsome rental growth for prime Parisian highstreet retail, as it remains a competitive marketwith short supply and high demand. Rents inprime shopping centers are expected to remainflat as the number of visitors is on a decreasingtrend at the national level. (Figure 4) The logistics market showed relatively healthytake up so far in 2012 with almost 1 million m²leased in the first half of the year. Demand wasbiased towards Paris and Lyon, both exceedinglong term average demand and making upalmost 90% of total take up. The second half ofthe year is expected to see reduced activity asforward looking indicators like the OECDComposite Leading Indicator and thePurchasing Managers index (PMI) pointdownwards. Especially the sharp fall in neworders for the PMI in July was disappointing.Construction activity is at very low levels,currently only 18,000 m² in Lyon, while nocompletions were reported so far in 2012.Availability in Paris declined further to 7.2%indicating further scarcity. Therefore, primerental values are not likely to suffer dramaticallybut may feel the impact from reduced demandgoing forward to some extent, before picking upin the forecasted economic recovery later in2014. Investor interest in the French real estate marketis still strong, but scarcity of good product isexpected to keep investment volumes low. Threemajor transactions over EUR 500mn occurredduring Q2. Investors remain focused on thesame type of products: core, well-located andfully leased properties. Competition to acquirethis type of product is strong, thereby preventinga sharp prime yield increase. Current yields are4.75% for offices in Paris CBD and primeshopping centers. Office remains the dominantinvestment product (76%) followed by retailinvestments (19%) which remains particularlyresilient in downturn periods, but availability islimited. As investors become more cautious,yields are expected to slightly increase. In all sectors, the dichotomy will remainbetween prime and secondary products and thespread between the two is expected to wideneven further. For logistics, pricing is reflectingincreasing risk aversion and prime yields forParis increased 20 bps to 7.2% per Q2, in linewith the level in Lyon. Going forward, primeyields are likely to range between 7.0% and7.5% depending on location, asset quality andlease length whereas secondary product couldrequire yields above 8%. (Figure 5) Residential pricing has been on an upwardtrend for years due to the structural lack ofsupply on the French residential market. (Figure6) In 2012, prices are expected to decreaseslightly even in Paris due to lower economicactivity and lower growth of income levels. Thismoderation in the owner-occupier market willbe favorable for the rental market.

GLOBAL VISION | Q4 2012 | 16FRANCE – CHARTSFIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: UNEMPLOYMENT RATE, %Source: Economist Intelligence Unit Source: INSEE, Economist Intelligence Unit (forecast)FIGURE 3: PRIVATE CONSUMPTION ANDRETAIL SALES, % Y/YFIGURE 4: PRIME MARKET RENTAL GROWTH, % Y/YSource: Economist Intelligence Unit Source: CBRE; CBRE Global InvestorsFIGURE 5: PRIME NET INITIAL YIELDS, % FIGURE 6: RESIDENTIAL PRICES REBASED TO 100 IN2000Source: CBRE, CBRE Global Investors Source: INSEE – Notaires-4%-3%-2%-1%0%1%2%3%4%5%97 99 01 03 05 07 09 11 13 15GDP10yr average6%7%8%9%10%11%90 92 94 96 98 00 02 04 06 08 10 12 14 16Unemployment rateLong-run average-1%0%1%2%3%05 06 07 08 09 10 11 12 13 14ConsumptionRetail sales-10%-5%0%5%10%15%20%25%05 06 07 08 09 10 11 12 13 14 15 16Offices - Paris CBD Retail HS - FranceRetail SC - Paris Logistics - Paris3%4%5%6%7%8%9%10%05 06 07 08 09 10 11 12 13 14 15 16Offices - Paris CBD Retail HS - FranceRetail SC - Paris Logistics - Paris40608010012000 01 02 03 04 05 06 07 08 09 10 11 12All residentialApartments only

GLOBAL VISION | Q4 2012 | 17NETHERLANDS GDP forecasts for The Netherlands were againlowered over the past months. 2012 is likely tobe a year of recession, and for the yearsthereafter economic growth is expected to besubdued. (Figure 1) After the slowing Dutch economy led the 2013deficit estimates to exceed the EU-imposed limitof 3%, the coalition government was forced tonegotiate new budget cuts. As thesenegotiations failed, the Dutch governingcoalition collapsed. The elections of mid-September were a victory for the liberals andalso social democrats. This has given hope fora much more stable two party coalition.Nevertheless, austerity measures appearunavoidable. This causes much uncertainty andlow consumer confidence. Demand/supply ratios for office continued tobe out-of-balance, as supply levels arehistorically high and take-up is historically low.As a result, vacancy remains at relatively highlevels. Headline rents appear to be largelyunaffected, as negative changes in rental levelare more likely to be incorporated throughincreased incentives and/or rent free periods. Appetite for investments in the office marketdeclined considerably since the onset of thecrisis, which resulted in investment volumesbeing at relatively low levels. (Figure 2) Currenttransactions concern either the prime end of theoffice market (i.e. purchase of The Rock byWestInvest) on the one hand or distressedportfolios (i.e. Uni-Invest portfolio) on the otherhand. Given the bleak economic outlook andweak investor demand, yields are more likely torise than to compress in the next few years. Total retail turnover showed overall mild growthin May and June, after strong declines in April.Retail turnover is fully driven by price growth,whereas volumes continue to decline. (Figure 3)Supermarkets and fashion are two of the fewretail categories that continue to show positivegrowth, whereas turnover of all other majorcategories remains particularly feeble. Demandfor prime retail locations from international anddomestic retailers remains strong as theseassure dense pedestrian flows and solidturnover. Retail in secondary locations continues to sufferfrom lower spending levels. This is most clearlydemonstrated by the relatively high levels ofvacancy at these secondary locations. As aresult of favorable tenant and investor demand,the market outlook for prime retail areas ispositive. However, as yields are already atrelatively low levels, a strong inward yield shiftseems unlikely. Contrary to expectations, the industrial/logisticsmarket showed strong performance in thesecond quarter with take up of 450,000 sqm.Vacancy levels edged up to 7.2% indicating themarket is well balanced which supportedmarket rents and even led to some rentalgrowth. Given the scarcity of modern supply,some speculative development could becomeattractive for both developers and someinvestors depending on their risk appetite.However, most institutional investors are likelyto remain risk averse pending the wider Eurozone situation and thus focus on pre-letschemes to ensure security of income. Drivers for the logistic sector look less healthywith Schiphol Cargo volumes down (Figure 4),the PMI Manufacturing index in negativeterritory, unemployment expected to rise andpurchasing power under pressure. Still, somepositive impact from the weaker Euro for tradeoutside the Eurozone may underpin tradegrowth going forward. Investors remain cautious as well with belowaverage investment volumes reported since thefirst quarter of 2011. Demand continues tofocus on secure investments. Prime yields aretherefore expected to remain stable in the near-term. (Figure 5) The Dutch housing market is characterized by adichotomy. As expected, the for-sale market inthe Netherlands deteriorated further. In the firstseven months of the year, house prices declinedby 5%. (Figure 6) Since the start of the financialcrisis (Q3 2008), prices have now correctedmore than 15%. Further price declines areexpected before the market stabilizes. Contrary to the for-sale market, the residentialrental market is doing well. Residential rents inthe Dutch housing market increased on averageby 2.8% in 2012, significantly stronger than in2011 when rents increased by 1.8%. Demandfor commercial rental housing is expected toincrease as a result of ageing, reluctance orinability to buy a house and a further restrictionof access to social housing. Particularly the mid-priced segment of the market (monthly rentsbetween EUR 650 and EUR 1,000) is expectedto benefit from the increase in demand. Supplyis in this segment of the market is very low.

GLOBAL VISION | Q4 2012 | 18NETHERLANDS – CHARTSFIGURE 1: GDP GROWTH, %Y/Y FIGURE 2: INVESTMENT VOLUMES PER SECTOR, € BNSource: Economist Intelligence Unit Source: CBRE ResearchFIGURE 3: DEVELOPMENT OF RETAIL TURNOVER FIGURE 4: SCHIPHOL CARGO HANDLINGSource: CBS Source: Schiphol Amsterdam AirportFIGURE 5: PRIME MARKET NET YIELDS FIGURE 6: RESIDENTIAL TRANSACTIONS ANDY/Y HOUSE PRICE GROWTHSource: CBRE Research (historic data); CBRE Global Investors (forecasts) Source: CBS-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%02 03 04 05 06 07 08 09 10 11 12 13 14 15Change in stocks Private consumptionGovernment consumption Corporate investmentNet exports GDP growth01234506 07 08 09 10 11 12Office Retail Residential Warehousing Mixed Other-6%-4%-2%0%2%4%08 09 10 11 12Price (% change y/y)Volume (% change y/y)Value (% change y/y)-30%-20%-10%0%10%20%30%-30%-20%-10%0%10%20%30%09 10 11 12Cargo % growth y/y12m moving averageLT average % growth y/y3%4%5%6%7%8%08 09 10 11 12 13 14 15 16Offices - Amsterdam South-AxisRetail SC - AmsterdamRetail HS - AmsterdamLogistics - West North-Brabant-10%-8%-6%-4%-2%0%2%4%6%010202009 2010 2011 2012Total monthly transaction volume (000s) (LHS)% nominal house price growth (y/y) (RHS)

GLOBAL VISION | Q4 2012 | 19SPAIN The Spanish economic outlook worsened overthe last quarter. Stress over financial marketshas impacted economic policy as funding costsheightened and access to external finance hasbecome extremely difficult. Specifically, afinancial aid package provided to restructurethe Spanish banking system (max. of EUR100bn) and mainly focuses on savings banks(Bankia bail-out). In addition, the SpanishGovernment passed new fiscal measuresrequired by the new austerity programagreement with the European Union. (Figure 1and 2). Recently the ECB announced an “unlimited”bond buying program for Governmentsapplying for financial assistance. This programmight finally accelerate the expected Spanishformal request. The forthcoming austerity measures willcontinue to drag down private consumptionresulting in a weak medium-term outlook unlessfinancial tensions and imbalances are resolved.(Figure 3) The Spanish employment market continued tocontract during the first half of 2012 withunemployment rates reaching new record levelsof approximately 25%. In the short-term, furtherdeterioration of the employment market is to beexpected, as structural measures are likely tocause an economic contraction before anyimprovements start to arise. (Figure 4) Spanish prime shopping center rental growthreacted swiftly during 2011 to the negativeresults seen in the previous year. However,prime rents are still expected to suffer during2012 and a move into positive territory is notexpected before domestic demand recovers.(Figure 5) A lack of debt availability hinders theshopping center investment market, restrainingthe ability to complete prime asset transactionsdespite existing investor appetite. Spanish prime shopping center net initial yieldshave still not reacted, maintaining a flat trendover the last quarter. However, outward yieldmovements are expected in the short-term as areaction to further rental drops and increasingilliquidity. The gap between prime andsecondary yields is expected to increase as aresult of the recent economic instability andweak prospects for secondary schemes. (Figure6) Vacancy rates in the main Spanish officemarkets still follow an increasing trend derivedfrom the scarcity of demand, especially inMadrid office markets where take up levels wereparticularly weak. Accordingly, vacancy levelsremain at historic highs (11.2% in Madrid and13.6% in Barcelona by the end of Q2 2012). Due to the above, prime office rents in Madridand Barcelona continue to experience adownward correction. The combination of highvacancy levels and weak office demand is likelyto lead to further rental declines during the nextquarters. (Figure 5) During the first half of 2012, the investmentmarket has been dominated by national players.Despite the low investment volume, interest forprime continues to be intense, although unableto avoid further yield increases (25 bps duringthe first half). During 2012, prime office netinitial yields are expected to remain stable,although they will be tested by the uncleareconomic situation. (Figure 6) During the first quarter of 2012 the Spanishlogistics market experienced the samedifficulties suffered in the previous quarters. Thediminishing demand for logistics services forcedlogistics operators to increase cost-cutting, thusexerting downward pressure on rentsaccompanied by a reduction in the demand forlogistics premises. Completions and the pipeline for new logisticspremises continue at minimal or non-existentlevels. Despite the lack of new supply, vacancyrates maintain an upward trend, currentlystanding at 14.3% and 11.1% in Madrid andBarcelona, respectively. Accordingly, rental values in the main Spanishlogistics markets, Madrid and Barcelona,continued to decrease during the first half of2012. Property owners are reducing askingrents and the gap between asking and closingrents continues to exist, as property owners usedifferent incentives. (Figure 5) Investment volumes are far below pre-crisislevels as investors concentrate on secure assetswith long-term leases and prestigious tenantsfrom stable sectors which are hard to find inSpain at this moment. (Figure 6)

GLOBAL VISION | Q4 2012 | 20SPAIN – CHARTSFIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: PUBLIC DEBT AS % OF GDPSource: Economist Intelligence Unit Source: Spanish Tesoro PublicoFIGURE 3: PRIVATE CONSUMPTION GROWTH, % Y/Y FIGURE 4: UNEMPLOYMENT RATE, %Source: Economist Intelligence Unit Source: Economist Intelligence UnitFIGURE 5: PRIME MARKET RENTAL GROWTH, % Y/Y FIGURE 6: PRIME NET INITIAL YIELDSSource: CBRE Research, PMA, CBRE Global Investors (forecast) Source: CBRE Research, PMA, CBRE Global Investors (forecast)-5%-4%-3%-2%-1%0%1%2%3%4%5%06 07 08 09 10 11 12 13 14 15 16Euro AreaSpain-9.3% -8.9%-5.3%-3.0%-2.1%-12%-9%-6%-3%0%10 11 12 13 14-5%-4%-3%-2%-1%0%1%2%3%4%5%06 07 08 09 10 11 12 13 14 15 16Euro AreaSpain0%5%10%15%20%25%Prev10yr09 10 11 12 13 14 15 16SpainEuro Area-30%-20%-10%0%10%20%30%06 07 08 09 10 11 12 13 14OfficesShopping CentersLogistics3%4%5%6%7%8%9%06 07 08 09 10 11 12 13 14OfficesShopping CentersLogistics

GLOBAL VISION | Q4 2012 | 21JAPAN According to the second preliminary estimates,the Japanese economy expanded by 3.3% y/yin Q2 2012, led by a 5.5% y/y increase inbusiness investment. A revival in industrialproduction (up 5.1% y/y in Q2 2012) was alsoobserved. On a less positive note, domesticdemand remained subdued with privateconsumption slowing to 3.3% growth y/y.Private consumption is expected to fall furtheras domestic car sales will most likely plummetupon the expiration of government subsidies. Inaddition, Tohoku reconstruction demand isthought to have peaked during the first half of2012, so we may expect a fall in demandattributed to those activities. Nevertheless, thelatest findings of the BOJ Tankan June 2012Survey indicate a moderate recovery in theeconomy. (Figure 1) Consensus Economics (asof September 2012), mean forecast is for GDPgrowth of 2.4% in 2012 and of 1.3% in 2013. Japan’s core property markets are at the initialstages of a cyclical recovery and the latest totalreturns from IPD suggest that all major propertytypes are now performing in positive territory:the annualized total return for all property was3.5%, with a 5.3% income return and -1.6%capital return. (Figure 2) Positive capital returnshave been witnessed for both the residentialand logistics sectors. The office sector is the lastof the major property types to recover. Office rents in the Tokyo central five wards areat their lowest point in a decade and theycontinued to fall throughout Q2 2012, albeit ata slower pace (down just 1.0% from year-end2011). The large amount of new office supplywhich entered the market in H1 2012 pushedthe vacancy rate higher to just over 10% foroffice buildings with floor plates over 500tsubo*, exceeding the overall vacancy rate of7.9% for all buildings for the first time in 10quarters. Despite the temporary rise in vacancyrates, asking rents have increased by 2.9%compared to year-end 2011 for those officebuildings located in inner Tokyo, which webelieve indicates the start of the marketrecovery as new supply has peaked. Accordingto Sanko Estate, the vacancy rate for large-sized buildings with floor plates over 200 tsubowas 6.3%. As a premium has been placed on modernfacilities with strong seismic-resistant structures,market polarization has been evident.Relocation trends have been characterized bymoves from older buildings to betterlocations/grades; this is leading to vacancies inlower grade buildings and those in secondarylocations. We forecast office rents to bottom in2012 and to pick up over the five year outlook:particularly for large-sized Grade S/A buildings.(Figure 3) Rents for residential units in Tokyo are expectedto pick up in the five year outlook, althoughgrowth prospects may be limited. High quality,strong specification-assets in high-amenitylocations within the inner wards have beenoutperforming. More investors are seeking investments insecondary cities such as Osaka, Nagoya andFukuoka in order to take advantage of thepotential for cap rate compression. We expectyields to compress by roughly 20 - 40 bps overthe next five year period for quality assetslocated in regional cities, as yield spreadsbetween Tokyo and regional cities havewidened to a range of 100 -120 bps, wellabove the historical spread of 70 - 80 bps.(Figure 4) Multi-tenant logistics facilities in Greater Tokyowitnessed vacancy rates fall to just 3.6% by Q22012. (Figure 5) Although average industrialrents may have already reached bottom, mostrelocations are cen

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