International property handbook H1 2015
Confidential – key clients only Introduction Contents
Welcome to the first edition of the International Property Handbook, our International economic III Germany 33 semi-annual review of real estate investment in 20 countries and over overview 50 cities. Drawing on expertise from across Deloitte’s global real estate Ireland 41 International investment V network, the Handbook tracks the flows of real estate capital and acts as a Italy 46 useful guide to investment trends and key deals in the most active markets. activity Japan 51 Cross-border investment VI And there is certainly no shortage of activity: 2014 investment levels Netherlands 57 exceed those recorded in 2013 in almost every country covered, and in Pricing and performance VII Norway 62 many cases the impact of this demand has pushed down yields, boosting Listed property performance X pricing of directly- and indirectly-held real estate alike. What’s more, the Poland 67 Private fundraising XI share of cross border transactions continues to rise. Nevertheless, just as Russia 72 economic prospects continue to vary markedly from country to country, Data summary XII Singapore 76 so too does the outlook for real estate investment and performance, with International tax rates XIII some locations slowing as others gain momentum. South Korea 80 Key contacts by market XV Spain 85 We hope you find this report useful, and would encourage you to get in Australia 1 touch with your local market contact with any questions. Sweden 91 Belgium 9 Taiwan 96 Robert O’Brien Canada 14 Global Real Estate Leader United Kingdom 100 China 22 United States 106 France 28 Recent global research 120
International property handbook H1 2015 II International economic overview
GDP growth: 2014 and short-term outlook • Global economic prospects remain decidedly mixed. 9.0 8.0 • Although the United States ended 2014 with a moderate rate of growth, the country is well positioned for a stronger 2015, even as it readies 7.0 CN 6.0 itself for higher interest rates. A major driver of growth will be positive 5.0 momentum from the labour market. 4.0 KR US SG TW 3.0 AU PL • In Europe, many economies have been developing better than expected SE UK Bubble size represents 2.0 DE CA IE in the first months of 2015. There are encouraging signs pointing to a JP BE ES NO the size of the economy FR NL 1.0 IT recovery that is broader-based than anticipated, while stock markets 0.0 GDP growth forecast 2014-17 (% p.a.) RU have been bullish. Deloitte’s recent European CFO Survey shows that -1.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 companies across the Eurozone are seeing a brighter future, with over a GDP growth 2014 (%) third more positive than six months ago. Source: Economist/Deloitte • In Asia, Japan has come out of recession, and it appears to be moving Stock market performance: 12 months to March 2015 away from deflation. The government reports that, after having declined 100% sharply in the second and third quarters of 2014, real GDP grew in the 80% fourth quarter, though not by much. As our latest M&A Index shows,
60% Chinese firms are countering a slowdown in their economy with a
40% remarkable international expansion programme: in 2014, Chinese
20% companies announced a record US$46.8bn of outbound investment,
0% more than 10 times the amount spent a decade ago. -20% • All of this is set against a backdrop which has seen the global economy -40% a n y s n e a rocked by a dramatic decline in oil prices and a significant increase in the US alia UK ance iwan Italy Chin Japa eland Spai anad Korea Russia Ir Fr Ta C Poland value of the US dollar. Sweden Belgium Austr Norway German Singapor Netherland South
Source: Datastream/Deloitte
International property handbook H1 2015 III International economic overview
Short and long term interest rates March 2015 (%) • There remains significant divergence between the monetary policies 12% being enacted by the major central banks. 10% • In the US, expectations of a gradual rise in interest rates are mounting, as 8% the economy looks set for another year of robust expansion. In contrast, 6% a number of Asian central banks have cut interest rates in recent months. 4% China remains the fastest growing large economy, although the pace 2% of expansion continues to decelerate. The government is taking action, 0% y s n e n a mainly by easing monetary policy, which has boosted credit expansion. UK US alia ance Italy iwan Japa eland anada Korea Spai Chin Russia Fr Ir C Ta Poland Sweden Belgium Norway Austr German Singapor • In Europe, although interest rates have been low for a long time, the Netherland South European Central Bank’s quantitative easing programme only started 10 year government bond rate 3-month money market rate in March. By purchasing securities every month worth €60bn, the Source: Datastream/Deloitte programme intends to reduce borrowing costs and bond yields in order to encourage corporate investments. The effect on bond yields is clear: Inflation forecasts (%) the yield on German 10-year bonds stood at a record low of 0.18 percent 10% in mid-March, while French bonds yielded 0.45 percent. This is a huge 8% difference between the corresponding US yields of 1.97 percent. Even 6% Spanish and Italian yields are substantially lower than those of the United
4% States, reflecting the effects of the ECB’s massive monetary easing.
2% • More broadly, the decline in global oil prices over the past year has
0% kept downward pressure on inflation in many markets. This, combined s e a UK US alia with an economic recovery that remains sluggish in some countries has eden Italy ance Spain eland anada Chin Japan Russia PolandIr Fr Taiwan C Sw Belgium Norway Austr GermanSingapory dampened the need for central banks to raise base rates. Netherland South Korea
2014-2017 pa 2014
Source: Economist/Deloitte
International property handbook H1 2015 IV International investment activity
Investment into commercial real estate (quarterly, rolling 12m average) (US$m) • Investment in real estate continues to recover in all major regions 800 globally, although volumes remain somewhat shy of pre-recession levels. 700 600 • 2014 was a strong year for activity and the first quarter of 2015 suggests 500 that the pace is being maintained. Both the European and North 400 American markets have seen a positive start to the year. Only the Asia- 300 200 Pacific region saw a slight decline during this period. 100 • There is also evidence that the weight of capital targeting real estate is 0 10 10 11 11 12 12 13 13 14 14 15 causing some investors to pursue portfolio deals as a means of deploying Mar-08 Sep-08 Mar-09 Sep-09 Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- funds more quickly – a trend clearly visible in the US, UK, and other parts of Europe. North America Europe Asia Pacific
Source: RCA/Deloitte
Investment volume growth: 2014 vs 2013 Investment by investor type 2014 (featured countries)
200% 10% 150% 4%
100% 35%
50%
0% 22%
-50%
-100%
n s y n a a e 29% alia UK US ance Italy iwan Spai eland Korea Japa Chin anad Russia Ir Fr Ta Poland C Belgium Austr Sweden Norway Equity / institutional funds REITs / listed companies German Singapor Private / unlisted companies South Netherland Unknown Occupier/other
Source: RCA/Deloitte Source: RCA/Deloitte
International property handbook H1 2015 V Cross-border investment
Cross-border capital flows six months to March 2015 (US$bn) • An important characteristic of the investment market over the past year Destination North Australia and has been the increasing share of cross-border activity, especially in the America Europe Middle East Asia New Zealand main European destinations. Indeed, over the six months to March 2015, North America cross-border purchases of European real estate were up by almost 70% Europe Middle East compared with the same period in the previous year. This has come in Asia Source part from cross-border trading within Europe, but has also been heavily Australia and New Zealand supported by an influx of North American investors. 0 to 2.5 2.5 to 5 • European countries have tended to see a greater share of foreign real 5 to 10 estate investment than North American (or Asian) countries, and that 10 to 20 remains the case today: cross-border investment between the US and 20 to 30 30+ Canada accounts for a reasonable proportion of all foreign investment
Source: RCA/Deloitte within North America. However, over the past year there has been real growth in capital inflows to North America. Much of this has come from % of 2014 investment from foreign sources Asia (up by more than 100%) and, to a lesser extent, from Europe 90 (up by 35%). 80 70 • A number of factors have driven the recent increase in cross-border 60 investment, including: 50 40 ––Cheaper and more easily available credit. 30 20 ––The attractive yield premium over government bonds. 10 ––The strength of the US$, in the case of US investors. 0 d a n e UK alia rea US Italy ance nada iwan olan eland Spain Russi Japa China P Ir Fr Ca Ta Austr Belgium Norway Sweden Germany Singapor Netherlands South Ko
Source: RCA/Deloitte
International property handbook H1 2015 VI Pricing and performance
Prime office yields by country • For the majority of countries covered in this research, the greatest 12.00% amount of investment activity takes place within the office market.
10.00% In most cases yields are falling or have stabilised at low levels, yet the spread between different markets remains broad. Part of this is down 8.00% to local market nuances (in Taiwan, for example, domestic funds have 6.00% traditionally tolerated lower yields), while in other instances it is a
4.00% reflection of economic and demand conditions. Bubble size represents investment market size 2.00% • The gap between property initial yields and a measure of debt costs
0.00% represents a proxy for the arbitrage of owning property over holding risk- n e m y UK u ance US Ital nada free assets. Prior to the downturn, property yields were lower than risk China Japan apor eland Korea Spain Russia aiwa Fr g Ir PolandCa T Sweden Norwayth Belgi Australia Sin Germany free rates in some markets, but a combination of rising property yields Sou Netherlands Source: RCA/Deloitte and, in many cases, falling government bond rates meant that a large gap emerged between initial yields and government bond rates. Selected countries: gap between property initial yields and 10 year govt. bonds (bps) • This gap has largely been maintained at compelling levels, even as 600 500 property yields have started to decline, because at the same time, 400 monetary easing programmes in many countries have been extended, 300 200 providing a new leg to the downward movement of interest rates. 100 0 -100 -200 -300 10 11 12 13 14 Dec-06 Dec-07 Dec-08 Dec-09 Dec- Dec- Dec- Dec- Dec-
Australia Canada Ireland Japan Netherlands US UK
Source: IPD/Deloitte
International property handbook H1 2015 VII Pricing and performance
All property total return 2014 (%) • Broadly speaking, 2014 was a year in which the performance of directly 40 held property Improved across many markets, as capital value growth 35 returned or rose in magnitude. 30 25 • However, the range of returns recorded in 2014 was extremely wide. 20 IPD data shows that Ireland was far out ahead, with a very strong 15 recovery in capital values driving overall performance. 10 • A number of other markets also saw high returns, and just as in Ireland, 5 capital value growth was the major driver. 0 -5 n d • In many countries, capital values suffered significant declines during UK US alia ance Italy eland Korea Japa anada olan Fr Ir Norway C P Austr Sweden BelgiumGermany the downturn, particularly in 2008 and 2009. Some, such as the US South Netherlands and Canada, have since seen values recover this lost ground. Others, Income return Capital Growth Total return including Belgium, Switzerland and South Korea, never really saw any Source: IPD/Deloitte notable decline in values recorded during this time. Cumulative all-property capital value growth 2007-2014 (%) • Nevertheless, the IPD data shows that even though 2014 saw property 40 30 values rise in most markets, many still have quite some way to go before 20 they regain the levels reached prior to the downturn. 10 0 -10 -20 -30 -40 -50 -60 s US alia UK ance Italy anada Fr Japan Spain eland C Norway Poland Ir Belgium SwedenAustr Germany witzwerlandSouth Korea Netherland S
Source: IPD/Deloitte
International property handbook H1 2015 VIII Pricing and performance
All-property yield spread among the countries covered • Over the last two years, the range of yields available to global investors 12% searching for prime assets has begun to narrow, as the highest yields 10% have fallen. In the period before the downturn the range was much
8% wider, with some 650bps separating the highest and lowest yields
6% among the top 20 countries. Last year this spread was at its smallest
4% since 2001, suggesting that market cycles are becoming more closely
2% alligned. 0% • The range of IPD total return performances tracked over the last ten years 2005 2006 2007 2008 2009 2010 2012 2013 2014 across these same countries shows that 2013 was the first year since Source: IPD/Deloitte 2006 that produced positive returns across the board. 2014 saw a further improvement as Ireland dragged the top of the range sharply up. All-property total return spread among countries covered • This ten years of data clearly show that investors willing to consider 50% 40% purchases around the globe could have found markets producing positive 30% returns in all years, including 2008 and 2009. 20% 10% 0% -10% -20% -30% -40% 2005 2006 2007 2008 2009 2010 2012 2013 2014
Source: IPD/Deloitte
International property handbook H1 2015 IX Listed property performance
EPRA listed real estate performance, year to March 2015 • The listed real estate sector has seen strong performance in a number 35% of the countries covered, in many cases outperforming the stock market 30% overall. 25% 20% • The listed sector has been an active participant in the real estate 15% investment markets of the majority of countries covered. However, in 10% 5% some markets, such as the UK, REITs and other listed vehicles’ share of 0% net purchases has declined, because as yields have continued to decline, -5% some have taken the opportunity to sell down assets. -10% s a y UK e n n US alia • There has been a spate of corporate activity in the listed sector over ance wan Italy Chin Japa anada Spai Russia NorwaSwy eden Fr C Tai Austr Belgium German Singapor the past year, with significant transactions taking place within the US, Netherland Europe, and Asia. Source: EPRA/Deloitte
Share of investment by REITs/listed sector 70%
60%
50%
40%
30%
20%
10%
0% e n a a n s y alia US UK iwan ance Italy elandJapa Chin anad Kong Spai Russia Korea Ir C Ta Fr Poland Austr Sweden Belgium Norway Singapor German Hong Switzerland Netherland South
Source: RCA/Deloitte
International property handbook H1 2015 X Private fundraising
Aggregate capital raised (US$bn) • The volume of capital raised each quarter by private real estate funds has 40 been rising since mid-2014.
30 • 2014 was a very strong year for capital raised to target Europe, although funds raised in the first quarter of 2015 continue to show a greater focus
20 on North America, reflecting interest from institutional investors.
• Nevertheless, both the European and Asian markets have seen an uplift 10 in interest from institutions compared with a year ago.
0 • Although those with opportunistic strategies account for less than half of 10 10 10 10 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 r- r- r- r- the number of funds raised in Q1, in terms of capital, opportunistic funds Ma Jun- Sep- Dec10Ma Jun- Sep- Dec- Mar- Jun- Sep- Dec- Ma Jun- Sep- Dec- Mar- Jun- Sep- Dec- Ma still dominate. Source: Preqin/Deloitte
Primary focus of capital raised – Q1 2015 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% Debt 20% Rest 20%of World Core Europe Distressed 10% Asia 10% Value Added North America Opportunistic 0% 0% Geography Strategy Source: Preqin/Deloitte
International property handbook H1 2015 XI Data summary
GDP Ease of Ease of Direct growth doing Central 10 year Property registering property forecast business bank govt. Property investment Percentage property total Office Economic 2014-17 GDP rank Transparency base rate bond YTM Investment 2014 from foreign rank return Rental Yield prime Country outlook (% p.a.) (US$ bn) (1= best) * score ** Mar-15 31 Mar-15 trend (US$ bn) investors (1=best) * 2014 trend trend yield Australia 2.9 1,440 10 80 2.25% 2.32 38.7 43% 53 10.6% 6.25%
Belgium 1.6 537 42 76 0.05% 0.45 3.1 42% 171 7.1% 5.00%
Canada 2.2 1,770 16 81 0.75% 1.36 18 11% 55 7.3% 5.27%
China 6.8 10,300 90 36 5.35% 3.66 337 8% 37 – 3.00%
France 1.2 2,840 31 69 0.05% 0.48 32.7 48% 126 6.6% 3.75%
Germany 1.8 3,780 14 79 0.05% 0.18 63 40% 89 6.0% 4.45%
Ireland 2.7 242 13 74 0.05% 0.75 5.8 52% 50 40.1% 4.50%
Italy 0.8 2,150 56 43 0.05% 1.29 7.1 77% 41 3.6% 5.00%
Japan 1.5 4,600 29 76 0.00% 0.40 52.4 16% 73 7.4% 3.40%
Netherlands 1.3 868 27 83 0.05% 0.34 11.5 66% 58 4.0% 6.20%
Norway 1.5 500 6 86 1.25% 1.49 4.9 19% 5 8.2% 4.75%
Poland 3.5 546 32 61 1.50% 2.31 4.9 82% 39 5.0% 6.00%
Russia -0.2 1,906 62 27 14.00% 12.13 6.2 20% 12 – 11.00%
Singapore 3.3 303 1 84 0.34% 2.27 10.3 12% 24 – 4.25%
South Korea 3.7 1,420 5 55 1.75% 2.17 17.9 14% 79 9.0% 5.00%
Spain 1.7 1,401 33 60 0.05% 1.21 13.4 40% 66 0.3% 5.00%
Sweden 2.4 569 11 87 -0.25% 0.42 18.2 15% 18 8.1% 4.25%
Taiwan 3.2 529 19 61 1.88% 1.54 8.8 6% 40 – 1.85%
UK 2.5 2,900 8 78 0.50% 1.58 92.3 54% 68 17.9% 3.50%
US 2.8 17,400 7 74 0.25% 1.93 420 12% 29 11.2% 4.10% * World Bank Group www.doingbusiness.org/rankings Rankings from 1 to 189 ** A country’s transparency score indicates the perceived level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean). See country sections for more detail
International property handbook H1 2015 XII International tax rates
Corporate Income Withholding Taxes on Country Transfers Tax Rate Tax Rate Dividends Interest Exit Taxes – Capital Gains Australia Up to 7%. 30% Up to 30% – potentially reduced to Up to 10% – potentially reduced to Ordinary corporation tax rate. 0% under certain treaties. 0% under certain treaties. Belgium 0.2% – 12.5% 33.99% Up to 25% – potentially reduced to Up to 25% – potentially reduced to Ordinary corporation tax rate. 0% under certain treaties or if EU 0% under certain treaties. Parent-Subsidiary Directive applies. Canada Property registration taxes may apply. 25% – 31% Up to 25% – potentially reduced to Up to 25% – potentially reduced Only half of capital gains are taxable 0% under certain treaties. to 0% under certain treaties or if as income at ordinary rate. interest is paid to an arms length foreign lender. China* Land Appreciation Tax at 30–60%; 25% (exempt Up to 10% – potentially reduced to Up to 10% – potentially reduced Up to 10% Deed Tax to transferor at 3–5%; for dividend 0% under certain treaties. to 5% under certain treaties and Stamp Duty at up to 0.05% received from PRC conditions. corporation) France 5.08% on assets. Up to 5% on shares. 36.9% – 38% Up to 30% or 75% from a 0% – unless located in a non- Ordinary corporation tax rate. noncoopertaive country. Potentially coopertaive country. Participation exemptions may apply. reduced to 0% under certain treaties or if EU Parent-Subsidiary Directive applies. Germany 3.5% – 6.5% 30% – 33% (trade Up to 26.375% – potentially reduced 0% – except 25% for interests on 1.58–33% (depending on investment tax might be to 0% under certain treaties or if the deposits. structure) avoided) EU Parent-Subsidiary Directive applies. Ireland 1% – 2% 12.5% on trading Up to 20% – potentially reduced Up to 20% – potentially reduced 33% – potentially exempt if income; 25% on to 0% under certain treaties and to 0% under certain treaties and companies are resident in EU non-trading income. conditions. conditions. member states. Italy 0.2% stamp duty on shares. Other taxes 31.4% (IRES: 27.5% Up to 26% – potentially reduced to Up to 26% – potentially reduced to Ordinary corporation tax rate. depend on the property transferred. and IRAP: 3.9%) 0% under certain treaties. 0% under certain treaties and EU directives. Japan JPY 200 – JPY 600,000 stamp duty on 35.64% or 38% Up to 20.42% – potentially reduced Up to 20.42% – potentially reduced Ordinary corporation tax rate. documents. Stamp duty on transfer of depending on the to 0% under certain treaties and to 0% under certain treaties and certain assets. fiscal year. conditions. conditions. Netherlands 6% – reduced to 2% for residential 25% Up to 15% – potentially reduced to 0% Not taxed. Ordinary corporation tax rate. properties. under certain treaties or when the EU Participation exemptions may apply. Parent-Subsidiary Directive applies.
* Tax information for Hong Kong is provided within the country section
International property handbook H1 2015 XIII International tax rates
Corporate Income Withholding Taxes on Country Transfers Tax Rate Tax Rate Dividends Interest Exit Taxes – Capital Gains Norway 2.5% stamp duty on deeds of conveyance. 27% Up to 25% – potentially reduced to 0% Ordinary corporation tax rate. 1% – 2% on certain transactions. 0% under certain treaties or if resident Participation exemptions may apply. in the EEA. Poland 1% – 2% on certain transactions. 19% Up to 19% – potentially reduced to Up to 20% – potentially reduced to Ordinary corporation tax rate. 0% under certain treaties or if the EU 0% under certain treaties or if the Parent-Subsidiary Directive applies. EU Interest and Royalties Directive applies. Russia Minimal stamp duty on transactional 20% Up to 15% – potentially reduced to 0% Up to 20% – potentially reduced Ordinary corporation tax rate documents. under certain treaties. to 0% under certain treaties and – potentially exempt if selling conditions. unquoted shares or participations in Russia. Singapore 3% on assets. 17% Not taxed. Up to 15% – potentially reduced Not taxed. 5% – 15% on residential assets. to 0% under certain treaties or if 0.2% on shares. domestic conditions apply. South Korea 4.6% on assets. 22% + 2.2% Residents – 15.4% Residents – 15.4% Ordinary corporation tax rate – 0.5% on shares. provincial tax Non-residents – 22% Non-residents – 22% potentially reduced if Korean sourced Minimal stamp duty on documents. gains. Spain 7% on assets. 28% Up to 20% – potentially reduced to Up to 20% – potentially reduced to Ordinary corporation tax rate. 0.75% – 2.5% on notarised documents. 0% under certain treaties. 0% under certain treaties. Participation exemptions may apply. Sweden 4.25% stamp duty on assets. 22% Up to 30% – potentially reduced to Not taxed. Ordinary corporation tax rate – may 0% under certain treaties or if the EU be exempt if sale shares in a resident Parent-Subsidiary Directive applies. company Taiwan 2% – 6% deed tax on asset price. 17% Up to 20% – potentially reduced to Up to 10% – potentially reduced to Ordinary corporation tax rate. 5% under certain treaties. 0% under certain treaties. Sale of land subject to Land Value Incremental Tax. UK 0% – 4% stamp duty on non-residential 21% 0% – except 20% for REITS. Up to 20% – potentially reduced Part of a company’s taxable profits. assets. to 0% under certain treaties or if Potentially exempt for non-resident 7% – 12% stamp duty on residential EU Interest and Royalties Directive companies. assets. applies. 0.5% stamp duty on shares. US Transfer tax varies by state and in some 35% (state income Up to 30% – potentially reduced to Up to 30% – potentially reduced to Ordinary corporation tax rate – cases, city. tax may also apply) 0% under certain treaties. 0% under certain treaties. foreign corporations may be exempt. Mortgage recording tax may apply in some localities.
International property handbook H1 2015 XIV Key contacts by market
Australia Belgium Canada China John Leotta Jean-Paul Loozen Sheila Botting Richard Ho Partner, Assurance & Advisory Partner, Real Estate Partner, Canadian Real Estate Managing Partner, +61 (2) 9322 7401 +32 2 639 49 40 Leader Real Estate Industry [email protected] [email protected] +1 416 601 4686 + 852 2852 1071 [email protected] [email protected]
France Germany Ireland Italy Christian Gillet Michael Mueller Padraic Whelan Elena Vistarini Principal, Real Estate Advisory Partner, Real Estate Industry Partner, Tax Partner, Financial Advisory, +33 (1) 4088 2944 Leader Head of Real Estate & National Real Estate & [email protected] +49 89290 368428 Infrastructure Group Construction Leader [email protected] +353 (1) 417 2848 +39 02 833 25122 [email protected] [email protected]
Japan Netherlands Norway Poland Hiroki Kitagata Paul Meulenberg Thorvald Nyquist Maciej Krason Partner, Tokyo Region Audit Partner, Financial Advisory Partner, Tax & Legal Partner, Audit Services +31 (0) 6533 19411 +47 95 75 31 41 +48 (22) 511 0360 +81 (0) 906 0415350 [email protected] [email protected] [email protected] [email protected]
Russia Singapore South Korea Spain Steve Openshaw Wong Siew Eng Hyung Lee Javier Parada Partner, Audit Partner, Assurance & Advisory Partner, Real Estate Group Partner, Audit Real Estate Leader Services Leader +34 6291 42071 +7 (495) 787 0600 +65 6216 3138 +82 (2) 6676 2251 [email protected] [email protected] [email protected] [email protected]
Sweden Taiwan United Kingdom United States Lars Franck Ching Cheng Yang Nigel Shilton Robert O’Brien Partner, Corporate Tax Partner, Audit Partner, Deloitte Real Estate Partner, Real Estate Services +46 75 246 2126 +886 (2) 2545 9988 +44 20 7007 7934 +1 312 486 2717 [email protected] [email protected] [email protected] [email protected]
International property handbook H1 2015 XV Australia
At 2.7% in 2014, economic growth was slightly below the long run Economy average but is expected to pick up in 2015.
Investment has seen significant growth since the downturn. Property In particular, foreign investors are taking a greater share of the BRISBANE investment investment market. PERTH SYDNEY Investment demand has seen yields in the major markets of Sydney Yields and Melbourne compress in 2014, but scope for further yield falls is MELBOURNE diminishing. Low vacancy rates and continued demand from tenants is supporting Rents rental levels in Sydney and Melbourne, but other markets such as Brisbane and Perth are seeing rents come under downward pressure.
Total property investment Economic & political background Prime yields US$ bn Population 2014 23.6 m Office 6.25% 50 Parliament – Liberal National Coalition Retail 5.50% 45 (90 out of 150 seats), Prime Minister – Industrial 6.90% 40 Tony Abbott (Liberal) 35 30 Election Nov 2016 Property market background 25 GDP 2014 US$1.44 tn 20 Investment market size 2014 US$38.7 bn GDP per capita 2014 US$61,130 15 Percentage from foreign 43.0% 10 GDP growth 2014 2.7% investors 5 0 All property total return 2014 10.6% 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end Q1 2015 Q1 Q2 Q3 Q4 CPI Inflation 2.5% Tax rates Source: RCA Unemployment 6.1% Transfer Up to 7% Base rate 2.25% Corporate income 30% Local market contact 10 year bond 2.32% Tax on dividends Up to 30% John Leotta Exchange rate 1US$ to 1.300 AU$ Tax on interest Up to 10% Partner, Assurance & Advisory Source: EIU, RCA, IPD, Deloitte +61 (2) 9322 7401 Capital gains Ordinary corporation tax rate [email protected]
International property handbook H1 2015 1 Australia – economic overview
Economic output and inflation • GDP grew by 2.7% in 2014, although activity dipped slightly in the second
5% half of the year. The outlook for 2015 sees a gradual improvement in growth as the benefits of rising business investment and falling unemployment start 4% to be seen. 3% • The unemployment rate has ticked up in recent years, and has kept 2% consumption growth below average.
1% • The central bank has noted that inflation, which remains at the lower end of the 2-3% target, offers scope for further monetary policy loosening. 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 However, no change was made to the base rate, which stands at 2.25%, in April. GDP growth CPI inflation Source: EIU • While the mining sector has continued to see output growth, investment in the industry has fallen, weighing on economic output. In contrast, low interest rates and rising house prices are boosting residential investment. Consumer spending and unemployment • Government spending has grown only marginally and the trend is expected 7% to continue owing to the high fiscal debt. Public debt rose from around 6% 12% of GDP in 2007 to about 35% in 2014. 5% 4% Forecasts 2014 2015F 2016F 3% Real GDP growth 2.7% 2.8% 2.9% 2% Industrial output (% real change pa) 4.1% 2.7% 3.2% 1% Consumer spending (% real change pa) 2.4% 2.2% 2.5% 0% CPI Inflation 2.5% 1.8% 2.8% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 6.1% 6.2% 6.0% Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 2 Australia – real estate performance
Total return by asset class and period • Australia has a well established REIT market, and in 2014 the listed sector 35% more broadly had, at 30%, by far the highest returns of the major asset 30% classes, and significantly above the 7.2% return seen in 2013. This performance was aided by the strength of the bond market, which saw 25% yields fall and borrowing costs for REITs reduce. 20% 15% • Direct property saw total returns of 10.6%, a slight increase on the 9.2% 10% return recorded in 2013. Returns have been remarkably stable since the downturn. 5% 0% • The industrial sector saw the highest capital growth at 4.4% in 2014, but for 2010-2014 Annualised 2014 the best centrally located industrial sites, capital growth was almost double Direct property Property equities Equities Bonds that. All the sectors experienced an increase in capital growth in 2014 over Source: IPD; Bloomberg 2013. • Within the sectors there were some significant disparities in performance, with capital values for poorer quality offices continue to fall in Perth and Canberra, for example.
All property total returns Capital growth by sector
25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Other Source: IPD Source: IPD
International property handbook H1 2015 3 Australia – investment market
• Investment in the Australian market has staged a strong recovery since Total property investment 2009 and is now back above pre-downturn levels. US$ bn • Since the downturn, foreign investors have accounted for around 25% of 50 45 investment in Australian commercial property, but that share rises notably 40 when looking at the main cities. 35 30 • Most of the foreign investors have shown interest in the office sector, 25 especially Sydney and Melbourne. Although a smaller part of the market, 20 15 Australian hotels continue to attract investments in 2014, and almost half of 10 the investment in Australian hotels is from overseas. 5 0 2007 2008 2009 2010 2011 2012 2013 2014 • Investors from Asia Pacific continued to dominate the foreign investor list Q1 Q2 Q3 Q4 but interest from North America and Europe, to a lesser extent, has also increased. Source: RCA
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 H2 2014
OFFICE 41% US 18% Others INDUSTRIAL Listed Funds 17% companies 31% 5% 55% Europe RETAIL 17% 3% Asia Occupier/ RESIDENTIAL Private Pacific 1% other 75% 10% companies 29% OTHER/MIXED 24%
Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 4 Sydney – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Sheraton on the Park Hotel Nov 14 407 Starwood Sunshine Insurance NA 557 rooms 161 Elizabeth St Group
175 Liverpool St Office Nov 14 345 GIC Shimao property Hyde Park Medical Centre; 514,971 sq ft Grain Corp; Telstra
Gold Fields House Office Mar 15 324 Blackstone Dalian Wanda Group Aquent; Comensura; 260,648 sq ft 1 Alfred St CVC; Energeia
Birkenhead Point Shopping Retail Oct 14 269 Abacus Property Mirvac Group French Connection; 342,510 sq ft Centre, Roseby St Group; Kirsh Group Gaz Man; Van Heusen
ANZ Tower Office Feb 15 186 LaSalle Investment Blackstone ANZ Bank; Herbert Smith 622,159 sq ft 163 Castlereagh St Boston Consulting Group
Source: RCA • Sydney is Australia’s largest investment market by some margin, and Market metrics accounted for around 43% of Australia’s total commercial property Total investment 2014 US$16,815 m Share of investment by property type investment in 2014 – and attracted more than half of the overseas H2 2014 Percentage from foreign 52.2% investments. investors • Strong demand for prime office space from both domestic and foreign All property total return 6.4% 2008-13 (p.a.) OFFICE investors has seen prime office yields compress. The market fundamentals 45% All property income return 7.1% are slowly improving with economic growth pointing to a stronger outlook 2008-13 (p.a.) INDUSTRIAL 17% for occupier demand. However, a significant amount of new space will be All property capital growth -0.6% delivered in this cycle, with the potential to raise the vacancy rate. 2008-13 (p.a.) RETAIL 9% Office prime yield Q4 2014 6.25% • The hotel sector is another part of the market seeing growth, boosted by the Source: RCA; IPD RESIDENTIAL signing of the free trade agreement with China, a more agreeable Australian 0% dollar for inbound visitors and current high occupancy levels. China’s OTHER/MIXED Sunshine Insurance Group’s purchase of the Sheraton at Elizabeth Street was 29% one of Australia’s largest single asset deals of 2014. Source: RCA • Retail is a smaller part of the investment market. Occupational demand is improving, in part due to foreign retail entrants.
International property handbook H1 2015 5 Melbourne – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
CBW Complex Office Sep 14 568 Cbus Property GPT Group IAG; Deloitte; Ashurst 819,033 sq ft 181 William St
Bell City Hotel Hotel Dec 14 121 Asian Pacific Group Elanor Investors NA 828 rooms 205-215 Bell St
World Trade Centre (Towers Office Oct 14 104 Macquarie Group; Abacus Property Australian Taxation Office; 538,200 sq ft 2, 3,4), 18-38 Siddeley St, Asset1 Group; KKR Victoria Energy Networks Docklands Corporation
Kmart Distribution Centre Industrial Dec 14 80 Goodman Group Invesco RE Kmart 828,161 sq ft 2-12 Banfield Ct
2 Riverside Quay Office Dec 14 90 Mirvac Group ISPT PwC 225,781 sq ft
Source: RCA • Melbourne accounted for almost 29% of total investment in Australia in Market metrics 2014. It also attracted almost a quarter of purchases by foreign funds, making Share of investment by property type Total investment 2014 US$11,338 m H2 2014 it the most attractive destination after Sydney. The year finished on a strong Percentage from foreign 42.4% note with activity in Q4 up almost 20% over Q3 2014. investors All property total return 7.9% OFFICE • Office yields are seeing some compression as the prospect of further rental 55% 2008-13 (p.a.) growth remains in play. New space is being delivered, but a large share is All property income return 7.4% INDUSTRIAL 16% pre-let to tenants, limiting the impact on vacancy rates. The market is also 2008-13 (p.a.) seeing a loss of stock as some units are converted to residential usage. All property capital growth 0.4% RETAIL 2008-13 (p.a.) 8% • A significant number of industrial properties in the Melbourne area changed Office prime yield Q4 2014 6.75% ownership with Frasers Centrepoint Limited’s acquisition of Australand RESIDENTIAL 0% Property Group. Source: RCA; IPD OTHER/MIXED 21% • Retail was a smaller part of the investment market in H2 but 2014 did see CPPIB’s sale of 50% of Northland Shopping Centre for around US$443m, Source: RCA highlighting investor appetite for trophy assets.
International property handbook H1 2015 6 Brisbane – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Mt Ommaney Shopping Centre Retail Oct 14 361 AMP Capital Investors TIAA – CREF; Henderson Allphones; ANZ Bank, 407,231 sq ft 171 Dandenong Rd Global; Federation Centers Bookworld
53 Albert St Office Dec 14 177 Earl Larmar & William Challenger Life Queensland Government 198,488 sq ft Douglas
The Barracks Retail Jan 15 118 QM Properties Challenger Life Coles; Foliage; Flight 126,897 sq ft 61 Petrie Ter Centre; French Twist
Next Hotel Hotel Jan 15 119 Reddy Group Challenger Life NA 304 rooms 66 Queen St
Ausenco House Office Nov 14 82 Hines Global REIT Mapletree Ausenco 153,021 sq ft
Source: RCA
Market metrics Share of investment by property type • Total investment volume in Brisbane was essentially flat from 2013 to 2014, Total investment 2014 US$4,760 m H2 2014 in contrast to the growth seen in other major Australian markets. Investment Percentage from foreign investors 40.2% is also more evenly distributed between the main property types than in All property total return 6.6% Sydney or Melbourne. 2008-13 (pa) OFFICE 28% All property income return 7.4% • The office market has suffered from weaker tenant demand in recent years, 2008-13 (pa) INDUSTRIAL 27% in part due to government staff reductions. Capital values continue to edge All property capital growth -0.8% lower and total returns are tracking some way below Sydney and Melbourne. 2008-13 (pa) RETAIL 29% Office prime yield Q4 2014 7.25% • Retail property in wider Queensland is performing more in line with that Source: RCA; IPD RESIDENTIAL elsewhere in the country, and this is reflected in a number of reasonably large 1% recent transactions. OTHER/MIXED 15%
Source: RCA
International property handbook H1 2015 7 Perth – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Currambine Marketplace, Retail Dec 14 63 Ray White Invest Federation Centre Woolworths; Grand Cinema 102,526 sq ft Marmion Avenue
59 Albany Highway Office Mar 15 57 Finbar Group Sim Lian Group Monadelphous 137,919 sq ft
Forrestfield Forum & Retail Feb 15 32 Westpoint Hawaiian investor Coles; Woolworth; The Reject 141,676 sq ft Marketplace, 20 Strelitzia Ave Shop; RWS
220 St Georges Terrace Office Dec 14 30 Tina Bazzo Kay and Nicola Giorgetta ANZ Bank; Momentum Sports 98,404 sq ft Podiatry
54 Bracks St Dev site Mar 15 32 Caltex Australia Roxy-Pacific; HostPlus; NA 489,288 sq ft Pindan Capital
Source: RCA Market metrics Total investment 2014 US$1,217 m Share of investment by property type • Perth is a significantly smaller investment market than Sydney, Melbourne or Percentage from foreign 45.5% H2 2014 Brisbane, accounting for 3% of total investment in Australia. Nevertheless, investors almost half of demand in 2014 came from overseas. Retail sector and All property total return 9.1% 2008-13 (p.a.) OFFICE development sites have seen the strongest demand. 7% All property income return 7.6% • Among the foreign investors, those from Singapore contributed to almost 2008-13 (p.a.) INDUSTRIAL 26% 70% of purchases; more than 85% of foreign investment into Perth was from All property capital growth 1.5% Asia Pacific countries. 2008-13 (p.a.) RETAIL 31% Office prime yield Q4 2014 7.50% • New office stock is being delivered in Perth, although only around a third has Source: RCA; IPD RESIDENTIAL tenants committed, meaning that vacancy rates are likely to continue to drift 0% upwards, harming rental growth prospects. Total returns in 2014 were low at OTHER/MIXED 36% 3.7%, with capital value continuing to decline.
Source: RCA
International property handbook H1 2015 8 Belgium
Real GDP growth was limited to 1% in 2014. Despite an improving export picture thanks to the Eurozone recovery, growth in 2015 is not Economy expected to exceed 1.5%, as public spending austerity limits domestic demand.
Property Despite low economic activity, investment in the property sector in BRUSSELS investment 2014 was up 46% compared with 2013.
Prime yields have seen limited compression while those on secondary Yields assets have started to come down.
Prime rents have fallen more than 8% since 2011, giving tenants the Rents upper hand, but are now expected to stabilise as demand for CBD space increases.
Total property investment Economic & political background Prime yields US$ bn Population 2014 11.15 m Office 5.00 – 5.75% 7 Parliament – Coalition of N-VA, Open Retail 4.00 – 5.50% 6 VLD, CD&V and French MR party led by Industrial 7.00 – 8.00% Charles Michel 5 Election May 2019 4 Property market background GDP 2014 US$537 bn 3 Investment market size 2014 US$3.8 bn GDP per capita 2014 US$42,751 2 Percentage from foreign 42% GDP growth 2014 1.0% 1 investors 0 All property total return 2014 7.1% 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end of Q1 2015 Q1 Q2 Q3 Q4 CPI Inflation 0.7% Tax rates Source: RCA, Deloitte Unemployment 8.5% Transfer 0.2% – 12.5% Base rate 0.05% Corporate income 33.99% Local market contact 10 year bond 0.45% Tax on dividends Up to 25% Jean-Paul Loozen Exchange rate 1US$ to 0.9215 EUR Tax on interest Up to 25% Partner, Real Estate Capital gains Ordinary corporation +32 2 639 49 40 tax rate [email protected] Source: EIU, RCA, Deloitte
International property handbook H1 2015 9 Belgium – economic overview
Economic output and inflation • Economic growth has been muted in 2014 at 1%, due to the effect of the
5% sluggish Eurozone economy on Belgium’s exports. Exports are not expected 4% to rebound until early 2016. 3% • Low inflation rates may ensure higher consumption expenditure among 2% households, but government expenditure will remain low due to austerity 1% 0% measures designed to reduce the fiscal deficit. -1% • The unemployment rate is expected to remain stable until 2016, at around -2% 8.5%, significantly below the Eurozone average of 11.6%. -3% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Lower oil prices have not just helped to reduce the fiscal deficit but also GDP growth CPI inflation enabled Belgium to produce a current account surplus in 2014. Source: EIU • Belgium will remain a single state, at least until 2020, since proposals for the partition of Belgium are not expected to gain sufficient momentum over the next five years. Consumer spending and unemployment
10% 9% 8% Forecasts 2014 2015F 2016F 7% 6% Real GDP (growth) 1.0% 1.2% 1.8% 5% Industrial output (% real change pa) 2.1% 0.5% 0.5% 4% Consumer spending (% real change pa) 1.0% 0.9% 0.9% 3% 2% CPI Inflation 0.5% 0.1% 1.4% 1% Unemployment rate 8.5% 8.7% 8.5% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 10 Belgium – real estate performance
Total return by asset class and period • After six years of steady returns in the 3%-5% band, Belgian real estate’s 25% performance improved last year with a total return of 7.1%, as both capital and rental values picked up. The retail sector led performance with a total 20% return of 13.5%, while the office sector saw a more modest improvement,
15% to 3.9%. • However, returns on directly-held property remain well below those achieved 10% by other asset classes: the Belgian stock market produced a return of 19.4% 5% last year and an annualised return of more than 15% over the last five years. Bonds also comfortably out-performed real estate last year. 0% 2010-2014 Annualised 2014 • Capital growth was led by retail property, up 7.5% in 2014, as it has Direct property Property equities Equities Bonds consistently done since 2006. In contrast, the office sector saw values fall Source: IPD; Bloomberg for the seventh consecutive year, by a further 1.9% in 2014. In the industrial sector, capital growth turned positive, with values up 1.9%. All property rental values were up 2.3% last year.
All property total returns Capital growth by sector
12% 15%
10% 10% 8% 5% 6% 4% 0% 2% -5% 0% -2% -10% -4% -15% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Source: IPD Source: IPD
International property handbook H1 2015 11 Belgium – investment market
• In line with most international markets, total investment activity in Belgium Total property investment in 2014, at US$3.8bn, was at its highest since 2008. But the increase over US$ bn 2013 was smaller than seen in many other markets, and the volume remained 7 below half the 2007 total. 6 • Foreign investment accounted for 42% of total investment last year. Traditionally 5 Germany is the best-represented country of origin, but in 2014 this was altered 4 by RTP RE Denmark’s joint venture purchase with AXA of the North Galaxy 3 office building in Brussels in May – the year’s largest transaction at US$577m. 2 • More than half of investment during 2014 was by equity and institutional funds 1 0 – of which the most significant share was by funds based elsewhere in Europe – 2007 2008 2009 2010 2011 2012 2013 2014 and these made nearly 90% of their purchases in the office sector. Q1 Q2 Q3 Q4 • The most notable retail activity was the purchase, in two parts, of the Ring Source: RCA, Deloitte Shopping Kortrijk Noord mall by Wereldhave NV for a total of US$162m. • The investment market is becoming more international: domestic purchasers’ 58% share of the market in 2014 was lower than the 68% average over the previous five years. Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – 2014 – 2014 – 2014
Others US OFFICE Listed 64% 8% 10% companies Occupier/ 17% INDUSTRIAL other 7% Asia 11% Pacific RETAIL 18% Funds 11% Private 55% Europe RESIDENTIAL companies 72% 0% 16% OTHER/MIXED 11%
Source: RCA, Deloitte Source: RCA, Deloitte Source: RCA, Deloitte
International property handbook H1 2015 12 Brussels – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
North Galaxy Office May 14 651 Cofinimmo ATP (90%) and AXA (10%) SPF Finance 1,615,000 sq ft
Covent Garden Office Nov 14 374 Evans Randall Hannover Leasing & Ginko European Commission 775,000 sq ft
Kievitplein Mixed Apr 14 277 KanAm Grund (DE) AG Real Estate Alcatel-Lucent Bell 1,399,000 sq ft
Platinum Office Jul 14 115 Aberdeen GLL ING; GBL 258,000 sq ft
Manhattan Office Oct 14 89 Catalyst Victory BNP Paribas; Vlerick Business School 592,000 sq ft
Source: RCA
Share of investment by property type • Brussels accounts for 64% of investment in the Belgium property market, the Market metrics – H2 2014 vast majority of which is in the office sector. Almost 80% of purchases in the Total investment 2014 US$2.0bn capital in 2014 were by foreign investors, above the five-year average of 71%, Percentage from foreign 79.7% OFFICE 92% with funds dominating activity. investors • Although prime yields have only seen limited compression, international All property total return 2.9% 2008-13 (p.a.) INDUSTRIAL investors’ focus has been mainly on AAA assets that meet their requirements 3% All property income return 5.7% for large volume, prime location, strong rental covenants and new buildings. 2008-13 (p.a.) RETAIL 1% For this stock there is strong competition. All property capital growth -2.7% 2008-13 (p.a.) • The final quarter of 2014 saw an increase in activity on Q3, with deals RESIDENTIAL Office prime yield – Q4 2014 5.25% 0% valued at US$640m completed. Initial estimates for Q1 2015 suggest a Source: RCA; IPD OTHER/MIXED slight slowdown in activity, with the total likely to be around US$410m. 4% Transactions over US$50m are no longer exceptional. Source: RCA • Occupier demand has remained healthy for central office space in Brussels, despite slow economic growth.
International property handbook H1 2015 13 Canada
The impact of lower oil prices is having a noticeable effect on the Economy Canadian economy and unemployment is edging up. Consumer CALGARY spending is expected to decline this year. Investment fell in 2014 as activity in the retail sector declined sharply. Property Domestic buyers account for almost 90% of the market, so the fall in oil investment prices is affecting confidence amongst investors. The market continues to be plagued by a limited supply of available quality product. Yields in all sectors, which had been falling consistently in recent years, Yields were broadly stable in 2014. Weaker investor demand could bring MONTREAL upward pressure in the near future. Prime office rents have risen in most of the major markets in 2014, Rents however the outlook is less positive as weaker occupier confidence VANCOUVER TORONTO affects demand.
Total property investment
Economic background Prime yields US$ bn Population 35.5 m Office 5.27% 30
Parliament – Coalition led by Retail 5.42% 25 Conservative Party (161 of 308 seats). Industrial 5.99% Prime minister – Stephen Harper. 20 Election Oct 2015 Property market background 15 GDP 2014 US$1.77 tn Investment market size 2014 US$18 bn 10 GDP per capita 2014 US$49,940 Percentage from foreign investors 11% 5 GDP growth 2014 2.4% All property total return 2014 7.3% 0 Tax rates 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end Q1 2015 Transfer Property registration Q1 Q2 Q3 Q4 CPI Inflation 1.9% taxes may apply Source: RCA Unemployment 6.9% Corporate income 25% – 31% Base rate 0.75% Tax on dividends Up to 25% Local market contact 1.36% Sheila Botting 10 year bond Tax on interest Up to 25% Partner, Canadian Real Estate Leader Exchange rate 1US$ to 1.252 CAD Capital gains Only half of capital +1 416 601 4686 Source: EIU, RCA, Altus InSite, Deloitte gains are taxable as income at ordinary [email protected] rate.
International property handbook H1 2015 14 Canada – economic overview
Economic output and inflation • While the annualised rate of GDP growth was stronger than expected at
4% 2.4% in Q4 2014, initial indications show that the slump in oil prices has 3% served to slow economic growth in the first quarter of 2015. 2% • Countering this is the expected boost from exports to the recovering US, 1% Canada’s main trading partner, which is set to benefit Ontario and Quebec, 0% -1% with their large export-oriented manufacturing and service sectors. -2% • Unemployment in Canada had been following a downward trend over recent -3% years, but has started to edge up in 2015. This, combined with the effects -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 of a weakening currency on import purchasing power, means that consumer spending is expected to see more subdued growth in 2015 and 2016. GDP growth CPI inflation Source: EIU • The weakening Canadian dollar also contributed to a slight rise in inflation during 2014, but the central bank expects this upward pressure to wane in 2015, and inflation not get back to 2% until 2016. Consumer spending and unemployment
10%
8% Forecasts 2014 2015F 2016F 6% Real GDP (growth) 2.4% 2.0% 2.3% Industrial output (% real change pa) 2.0% -1.0% 1.7% 4% Consumer spending (% real change pa) 2.9% 1.8% 1.8% 2% CPI Inflation 1.9% 0.7% 2.3% Unemployment rate 6.9% 6.8% 6.6 % 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 15 Canada – real estate performance
Total return by asset class and period • After the post-downturn recovery, growth in capital values has been slowing 40% as the scope for yields to fall further has gradually been eroded. Commercial property returns in 2014 as a whole were therefore weaker than in recent 32% years, and below the five-year average rate, but nevertheless not far from
24% the global average. Canadian indirect real estate, in contrast, produced an exceptional return over 2014, of just over 34%. 16% • Performance was strongest in the industrial sector, which saw total returns in 8% 2014 of 9.2%, boosted by a stronger income return. Offices saw the weakest outturn of the major sectors, largely due to notably weaker capital growth. 0% 2010-2014 Annualised 2014 • Significant differences in regional performance have emerged, with Direct property Property equities Equities Bonds Vancouver, Calgary and Toronto notably stronger than Ottawa and Montreal. Source: IPD; Bloomberg
All property total returns Capital growth by sector
20% 15%
15% 10%
10% 5%
5% 0%
0% -5%
-5% -10%
-10% -15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Source: IPD Source: IPD
International property handbook H1 2015 16 Canada – investment market
• After a steady recovery from the lows of 2009, investment volumes in Total property investment 2014 dropped back. The main cause was the decline in retail investment US$ bn in 2014 – 2013 saw both the Primaris buyout, which included 23 retail 30 properties, as well as a number of significant mall sales. Office volumes, in contrast, edged up slightly in 2014 25 20 • Nevertheless, an underlying uncertainty over the impact of lower oil prices 15 has been felt within the investment market since mid-2014. 10 • Foreign investment accounted for 11% of the total investment volume in 5 2014, the majority of it coming from the US. 0 2007 2008 2009 2010 2011 2012 2013 2014 • The investment market is very city-centric – around 90% of purchases in Q1 Q2 Q3 Q4 2014 took place within the four cities of Toronto, Montreal, Calgary and Vancouver. Source: RCA
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – 2014 – 2014 – 2014 OFFICE 33% Europe Funds INDUSTRIAL 20% 13% 23% RETAIL 33% Listed companies Occupier/ US Asia 45% other 62% Pacific RESIDENTIAL 6% 18% 11% Private companies OTHER/MIXED 10% 26%
Source: RCA
Source: RCA Source: RCA
International property handbook H1 2015 17 Toronto – key recent deals
Name Type Date Price ($m) Vendor Purchaser Key tenants Size
The One, 1 Bloor St W Retail Oct 14 267 NA Mizrahi Developments Stollerys NA
Renaissance Plaza, Office Sep 14 234 Kevric, PSP Investments, Ponte Gadea Louis Vuitton, Tiffany, 269,205 sq ft 150 Bloor St W Cadim Inc HSBC
55 University, Office Sep 14 102 Ivanhoe Cambridge Cominar REIT Concert Properties, Canadian 264,328 sq ft 55 University Ave Chamber of Commerce
180 Wellington Street West Office Nov 14 101 RBC Capital Manulife Financial RBC 208,000 sq ft
Herons Hill 2001-2005, Office Dec14 57 LaSalle Investment RedBourne Group Frost & Sullivan, Great West Life 290,000 sq ft Sheppard Ave E Assurance
Source: RCA
Share of investment by property type • Toronto saw the greatest volume of investment out of all the major Canadian Market metrics H2 2014 markets in 2014. The year ended positively, with volumes in Q4 up 28% on Total investment 2014 US$7,514 m Q3, and initial data for the first quarter of 2015 showing further growth. Percentage from foreign investors 17.1% OFFICE 31% • 2014 saw investment split fairly evenly between institutions, the listed sector, All property total return 10.0% and private investors. Foreign investment accounted for 17% of the total, 2008-13 (p.a.) INDUSTRIAL roughly half of which was from the US, and half from EMEA. All property income return 6.2% 10% 2008-13 (p.a.) All property capital growth 3.6% RETAIL 30% • In Toronto, 31% of the total volume invested has been in offices and 30% in retail sector. The industrial sector has been more subdued. 2008-13 (p.a.) Office prime yield – Q4 2014 5.1% RESIDENTIAL 21% • A significant volume of office space is currently under construction and due Source: RCA to be released to the market over the next two years. Vacancy rates are stable OTHER/MIXED 8% and rates yields have fallen.
Source: RCA
International property handbook H1 2015 18 Montreal – key recent deals
Name Type Date Price ($m) Vendor Purchaser Key tenants Size
Ivanhoe Cambridge Canada Portfolio Sep 14 1,191 Ivanhoe Cambridge Cominar REIT Various 5,158,215 sq ft Mixed Porfolio
Bell Canada Campus, 1350 Blvd Office Oct 14 306 Kanam Grund IGIS Hanwha Life; Bell Canada 899,687 sq ft Rene Levesque Ouest Kyobo Life
Centre Rockland, 2305 Chemin Retail Oct 14 242 Ivanhoe Cambridge Cominar REIT Hudson's Bay; H&M; Sports 649,174 sq ft Rockland Experts; BCBG Max Azria Group; GNC
3400 Ch Du Souvenir Office Sep 14 15 Sophia Tsonis Petropoulos Tour Chomeday Inc Cima Plus 76,111 sq ft
Source: RCA
Share of investment by property type • The second half of 2014 saw strong investment activity in Montreal. Around Market metrics H2 2014 half of this demand came from equity funds and institutions, and just under Total investment 2014 US$4,553 m a third from REITs. Percentage from foreign investors 10.1% OFFICE 56% • Office transaction volumes were boosted in Q4 2014 by KanAm’s sale of the All property total return 10.2% 900,000 sq ft Bell Canada Campus to a JV. 2008-13 (p.a.) INDUSTRIAL All property income return 6.3% 10% • 2014 was a strong year for retail investment in Montreal, in part due to 2008-13 (p.a.) Cominar’s acquisition of a three-asset portfolio from Ivanhoe Cambridge. All property capital growth 3.7% RETAIL 26% 2008-13 (p.a.) Office prime yield – Q4 2014 5.3% RESIDENTIAL 8% Source: RCA, IPD, Altus insite OTHER/MIXED 0%
Source: RCA
International property handbook H1 2015 19 Calgary – key recent deals
Name Type Date Price ($m) Vendor Purchaser Key tenants Size
Brookfield Place Calgary, Office Oct 14 914 Brookfield Property Brookfield Canada Office Cenovus 1,400,000 sq ft East 225 6th Ave SW Partners Properties
Brentwood Village, Retail Mar 15 109 Kimco RioCan REIT Safeway; 294,000 sq ft Brentwood Road London Drugs; Sears
Grid 5 Apartments Residential Dec 14 88 Kingsett Capital Killam Properties Inc NA 307 units 618 5th Ave SW AIMCo
Beverly Centre Lake, Residential Dec 14 63 HealthLease REIT Health Care REIT NA 270 units 500 Midpark Way SE
1 Executive Place, Office Oct 14 41 GWL Realty Industrial Alliance Insurance & Alberta Human Services 118,644 sq ft 1816 Crowchild Trail NW Financial Services Inc
Source: RCA Share of investment by property type • Investment saw significant growth in the last quarter of 2014, particularly Market metrics H2 2014 within the office sector, although a major part of this was due to Brookfield Total investment 2014 US$2,228 m Canada Office Properties’ purchase of the Brookfield Place development Percentage from foreign investors 8.9% site from its parent company. A 1.4m sq ft office tower is now under All property total return 10.4% OFFICE 2008-13 (p.a.) 64% construction. All property income return 6.6% INDUSTRIAL 9% • The fluctuations in oil prices have raised concerns over the stability of the 2008-13 (p.a.) tenant base, given that a sizeable share of Calgary’s businesses operate All property capital growth 3.6% 2008-13 (p.a.) RETAIL 5% within the energy sector. Office prime yield – Q4 2014 4.9% RESIDENTIAL • Retail investment slowed during the second half of 2014 but picked up Source: RCA, IPD, Altus inSite 16% in Q1 2015 with RioCan REIT’s purchase of Brentwood Village, a grocery- OTHER/MIXED 7% anchored shopping centre. • Foreign investment was modest in 2014, and focused on the industial sector. Source: RCA
International property handbook H1 2015 20 Vancouver – key recent deals
Name Type Date Price ($m) Vendor Purchaser Key tenants Size
Langara Gardens, Apartment Sep 14 188 Peterson Investment Concert Properties NA 621 units 501 W 57th Ave Group Inc
Hyatt Regency Vancouver, Hotel Nov 14 124 Hyatt Hotels Innvest REIT Hyatt Hotels 644 rooms 655 Burrard St
Neelu Bachra Centre 550 W Office Dec 14 40 NA Orca West Developments Ltd NA 52,036 sq ft Broadway
Real Canadian Super Store, Retail Oct 14 35 Loblaw Cos Choice Properties Real Canadian Super Store 141,487 sq ft 2855 Gladwin Rd
411 Dunsmuir St Office Sep 14 32 CRS Group; Omincron 411 Dunsmuir Inc; MJD Holdings Inc NA 55,414 sq ft
Source: RCA Share of investment by property type • The Vancouver market is almost entirely driven by domestic demand. In 2014, Market metrics H2 2014 private funds accounted for over half of all transactions by volume, with Total investment 2014 US$2.20 bn institutions and listed investors combined taking just one third. Percentage from foreign investors 4.6% All property total return 10.0% OFFICE 29% • In H2 2014, the office sector attracted the highest share of investment, 2008-13 (p.a.) although the deals during this period were all of relatively small value at less All property income return 5.9% INDUSTRIAL 15% than US$50m. 2008-13 (p.a.) All property capital growth 3.9% RETAIL 9% • Leasing activity has increased steadily in recent years and although a number 2008-13 (p.a.) of new office developments will be completed in 2015 and 2016, Office prime yield Q4 2014 % RESIDENTIAL 19% a sizeable proportion of this space has already been let. Source: RCA, IPD, Altus insite • The industrial sector remains a relatively small share of the investment market, OTHER/MIXED 28% but with strong competition from owner-occupiers prices are being pushed up. In addition, recent changes to zoning in the Mount Pleasant industrial Source: RCA district have offered the possibility of adding residential usage to some sites, further increasing their value.
International property handbook H1 2015 21 China
The pace of economic growth is forecast to decline further in the Economy coming years. However, it will remain comfortably ahead of most other large economies.
Transaction volumes slowed in 2014, but over the longer term there Property remains significant scope for stronger activity from both domestic and BEIJING investment foreign investors. SHANGHAI Yields remain very low and broadly stable in Hong Kong but upward Yields pressure is being felt in Beijing and Shanghai.
HONG KONG Parts of the office market are now seeing a combination of rising Rents vacancy rates and additional new stock coming to the market, slowing rental growth
Total property investment
Economic background Prime yields US$ bn Population 2014 1,356 m Office 3.00% 600
Parliament – Led by Communist Party of Retail – 500 China – 2157 of 2987 seats Industrial – Election Oct 2017 400 GDP 2014 US$10.3 tn Property market background 300 GDP per capita 2014 US$7,630 Investment market size 2014 US$377 bn 200 GDP growth 2014 7.4% Percentage from foreign investors 7.5% 100
Tax rates for People’s Republic of China 0 Economic indicators, end Q1 2015 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 2.1% Transfer Land Appreciation Tax at 30-60%; Deed Tax to transferor at 3-5%; Q1 Q2 Q3 Q4 Unemployment 6.4% Stamp Duty at up to 0.05% Source: RCA Base rate 5.35% Corporate 25% (exempt for dividend 10 year bond 3.66% income received from PRC corporation) Local market contact Exchange rate 1US$ to 6.135 CNY Non-PRC residents: Richard Ho Managing Partner, Real Estate Industry Source: EIU, RCA, Deloitte WHT on dividends and interest Up to 10% +852 2852 1071 Capital gains Up to 10% [email protected] Separate tax information for Hong Kong provided on the Hong Kong market page
International property handbook H1 2015 22 China – economic overview
Economic output and inflation • At 7.4% in 2014, China’s economic growth rate remains comfortably above
16% that of most large economies, yet this pace is in fact the slowest in the last 14% 24 years. 12% 10% • Current forecasts suggest that growth will decline further in 2015 and 2016, 8% but the slowdown could have been sharper: as a major importer of oil, China 6% has benefitted from lower oil prices. 4% 2% • This has helped cut inflation, with CPI for the whole of 2014 declining to 0% 2.1% from 2.6% in 2013. This, in turn, should give the central bank greater -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 scope to use interest rate cuts to stimulate growth, if it wishes. GDP growth CPI inflation • China has been grappling with a decelerating residential property market Source: EIU in recent years, but the government is stepping up its support. It recently announced a reduction in the deposits required when purchasing first or second homes. Consumer spending and unemployment
12% Forecasts 2014 2015F 2016F 10% Real GDP growth 7.4% 6.8% 6.6% 8% Industrial output (% real change pa) 7.3% 6.6% 6.2% Consumer spending (% real change pa) 7.5% 7.4% 7.4% 6% CPI Inflation 2.1% 1.2% 2.2% 4% Unemployment rate 6.4% 6.2% 5.9% 2% Source: EIU 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 23 China – investment market
• After a relatively strong start to 2014 activity slowed in Q3 and Q4. A very Total property investment large share of investment in the Chinese market is focused on development US$ bn sites. 600
• There has been a remarkable surge in Chinese outward investment in 500
overseas real estate market in recent years from various Chinese institutional 400 investors, banks and developers. 300
• Chinese investors are currently diversifying their investment by moving from 200 core office and residential developments into leisure and residential assets. 100
• Moreover, these investors are also looking to diversify their investment 0 2007 2008 2009 2010 2011 2012 2013 2014 geographically by investing into higher-yielding provincial cities. Q1 Q2 Q3 Q4
• Foreign investment remains a relatively small share of the market outside Source: RCA Hong Kong, and is dominated by inflows from the wider Asia Pacific region.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 H2 2014 US OFFICE 3.3% 31% Listed companies Private INDUSTRIAL 0.5% 20% companies 35% Europe 2% Asia RETAIL Pacific 4% Other 94% Occupy/ 3% RESIDENTIAL other 0.2% 43% US Funds 2% 2% OTHER/MIXED 92% Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 24 Hong Kong – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Wu Chung House (7-16F) Office Sep 14 1,003 Financial Secretary Inc. HKMA Social Welfare Department; NA 213 Queens Rd E, portfolio Education Bureau; Fairmont House Communications Authority 8 Cotton Tree Dr
41 Heung Yip Rd Office Dec 14 423 Cheung Kong Holdings Leong On-Kei NA 323,984 sq ft
633 King Road Office Mar 15 260 Magnificent Estates Shun Ho Technology P&T Architect and Engineers 258,384 sq ft Limited; LG Electronics
Laguna Plaza Retail Dec 14 247 CLSA Capital Fortune REIT McDonald’s; KFC; Ajisen 163,600 sq ft 88 Cha Kwo Ling Rd Ramen; Pacific Coffee; 7-11
Grand Central Plaza Tower (01) Office Dec 14 83 JP Morgan Hang Seng Bank Bought for occupancy 88,325 sq ft
Source: RCA Market metrics Share of investment by property type • Investment picked up in the second half of 2014, with two strong quarters of Total investment 2014 US $20.0 bn H2 2014 activity recorded. Private investors accounted for around a third of purchases Percentage from foreign investors 20.9% over this time, followed by listed vehicles and REITs, which were responsible Office prime yield Q4 2014 3.0% for a further 31% of purchases. OFFICE 35% Source: RCA • The office sector has seen particular interest, with the sale of the Financial Tax rates for Hong Kong INDUSTRIAL 11% Secretary Office portfolio and 41 Heung Yip Road in September followed by Transfer Ad-valorem Stamp Duty at up further significant purchases in December. to 8.5%; RETAIL 22% Special Stamp Duty at up to 20% • Physical/land constraints have served to keep office development relatively (short-term holding of residential RESIDENTIAL low in recent years. Vacancy remains tight and Hong Kong is regularly ranked property only); 3% as one of the most expensive office markets in the world. Buyer's Stamp Duty at 15% (residential property only) OTHER/MIXED 29% • February’s budget included the announcement that the government will Corporate 16.5% (exempt for dividend release four development sites for commercial use, and one for hotel use. income income and capital gains) Source: RCA Development land accounts for a large share of investment activity in Hong Non-Hong Kong residents: Tax on dividends, interest Kong, but less so than in the mainland markets. Nil and capital gains
International property handbook H1 2015 25 Shanghai – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Shanghai Mart Office Sep 14 579 Huntington Development Shanghai Indust Invts Hldgs; Haigang Restaurant; 3,013,920 sq ft 2299 Yan'an Rd W Ltd Nan Fung Group Japanese Embassy; Indonesian Embassy
Suntown Plaza, Mengzi Rd Office Dec 14 509 Sunac China Noah Private Wealth Management NA 452,088 sq ft
Sky SOHO, Xiehe Rd Office Sep 14 496 Soho China Ctrip NA 1,078,198 sq ft
Shengbang International Office Sep 14 251 ARA Asset Management Alpha Investment Partners Shanghai Seabase; 605,776 sq ft Building, 1318 Sichuan N Rd Group Shanghai Taide Int'l Wujing Rd Shipping
Hongqiao Sincere Centre Office Sep 14 216 Chongqing Sincere Hldgs Ping An Insurance NA 487,609 sq ft
Source: RCA
Share of investment by property type • During the last quarter of 2014, property investment from occupier/others Market metrics H2 2014 accounted for almost 44% of overall investment, followed by the listed sector Total investment 2014 US $38,875 m with 31%. Percentage from foreign investors 6.2% OFFICE 15% • The nature of the market is such that a large share of transactions involve Office prime yield Q4 2014 – development sites. In H2 2014 the greatest demand for sites was from Source: RCA INDUSTRIAL 1% owner-occupiers, followed by the listed sector and private investment funds. RETAIL 2% • Of the transactions not involving development sites, almost 90% were of offices. RESIDENTIAL 1% • A significant amount of new office space was completed in 2014, with further new space set to be released in 2015 and 2016. This is likely to put OTHER/MIXED 81% upward pressure on vacancy rates and reduce prospects for rental growth. Source: RCA • A number of retail, industrial and hotel transactions have taken place in recent quarters but they have been for much smaller lot sizes than those in the office sector.
International property handbook H1 2015 26 Beijing – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Beijing 2014-084, Baipanyao Dev site Jan 15 1,390 Beijing Capital Dev Hldgs China Resources NA NA Village Huaxiang Town
Beijing 2014-092 Confluence Of Dev site Jan 15 812 NA Beijing Cost Engineering Grp NA NA Five Rivers, Yunhe Core Area
ECMall 1 Danling St Retail Mar 15 399 Nan Fung Group; Metro Holdings The Link REIT Etude House; H&M; Uniqlo; 570,492 sq ft Zhongguancun Calvin Klein; Sephora
Fraser Residence Hotel Dec 14 155 NA Ruicheng Capital NA 228 units 58 East 4th Ring Rd Middle
Ark Building Office Dec 14 68 NA Mapletree NA 211,997 sq ft
Source: RCA
Share of investment by property type • As in Shanghai, development site sales account for a significant share of Market metrics H2 2014 overall investment. Offices make up around 70% of the rest of investment, Total investment 2014 US $36.6 bn with retail and hotels taking a slightly larger share of the total than in Percentage from foreign investors 7.3% Shanghai. OFFICE 13% Office prime yield Q4 2014 – • Strata-title office sales are a feature of the Beijing market and both new and Source: RCA INDUSTRIAL 0% secondhand office space is sold in this way – indeed, 2014 saw a notable rise in sales of this type. When it comes to foreign investment, whole asset sales RETAIL 4% are more common.
RESIDENTIAL • Institutional investors have been acquisitive of commercial stock in recent 0% years, as have foreign investors, but listed vehicles and REITs have been net OTHER/MIXED 83% sellers. • The retail market is benefitting from a strong economic backdrop, with Source: RCA disposable income and retail sales seeing healthy growth in 2014. There is a significant amount of retail space currently under construction but much of it is due to complete this year, potentially limiting the downward pressure on rents from new supply.
International property handbook H1 2015 27 France
High unemployment and a high level of spending on public services Economy have contributed to a weak economic performance – just 0.4% growth in 2014. Investment volumes picked up strongly last year, finishing a third higher PARIS Property than in 2013, with Paris notably increasing its share of transactions. The investment market is expected to remain active as interest from foreign investors widens. Yields have dropped below 4% for prime Paris office space, and there Yields would appear to be limited room for further falls. Prime shopping centre yields stand at around 4.25%. Paris rents have seen little upward movement reflecting an uncertain Rents occupier market. Outside the capital office rents remained stable across most of the country. Parts of the retail market have seen strong growth.
Total property investment Economic background Prime yields US$ bn Population 64.6 m Office 3.75% 50 Parliament – National Assembly and Retail 4.00% 40 Senate. President – Francois Hollande Industrial 6.75% Election April 2017 30 GDP 2014 US$2.84 tn Property market background GDP per capita US$43,970 Investment market size 2014 US$32.7bn 20 GDP growth 2014 0.4% Percentage from foreign 48.4% 10 investors Economic indicators, end Q1 2015 All property total return 2014 6.6% 0 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 0.6% Q1 Q2 Q3 Q4 Unemployment 9.7% Tax rates Base rate 0.05% Transfer 5.08% on assets, up to Source: RCA 5% on shares 10 year bond 0.48% Corporate income 36.9% – 38% Local market contact Exchange rate 1US$ to 0.9215 EUR Tax on dividends Up to 30% Christian Gillet Source: EIU, RCA, IPD, Deloitte Tax on interest 0% Principal, Real Estate Advisory +33 (1) 4088 2944 Capital gains Ordinary corporation tax rate. Participation [email protected] exemptions may apply
International property handbook H1 2015 28 France – economic overview
Economic output and inflation • The French economy, the second largest in Europe after Germany, performed
4% poorly in 2014, expanding by 0.4%, compared with the Eurozone average 3% of 0.8%. Output is expected to pick up this year and next, however, and to 2% expand by an average of 1.6% over the period 2016-19. 1% • Growth will be supported by lower energy prices, a more beneficial 0% -1% exchange rate and the scaling back of the programme to reduce the budget -2% deficit. -3% • Government spending on public services is still well above average and -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 unemployment remains a weakness in France. The rate has risen in recent years and forecasts suggest it will come down only marginally over the next GDP growth CPI inflation couple of years. However, the latest unemployment data has shown the rate Source: EIU rising again. • Consumer spending is expected to pick up this year but the level of consumer Consumer spending and unemployment credit has also begun to rise, after a couple of years when debt was reduced.
12% 10% Forecasts 2014 2015F 2016F 8% Real GDP growth 0.4% 0.9% 1.2% 6% Industrial output (% real change pa) -2.0% 1.0% 1.2% 4% Consumer spending (% real change pa) 0.3% 1.0% 1.1% 2% CPI inflation 0.6% 0.2% 0.8% 0% Unemployment rate 9.7% 9.5% 9.3% -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 29 France – real estate performance
Total return by asset class and period • French real estate produced a total return of 6.3% in 2014, a modest
20% improvement on the previous year but still below the average over the last five years. This performance was completely overshadowed by the total
15% returns achieved by both property equities (17.1%) and ten year government bonds (15.1%). Over the five-year period, the total return on property equities
10% has been significantly superior. • Performance has been broadly similar across the main sectors, with both 5% retail and industrial property producing an annual total return of 7.4% and offices close behind with 6.6%. 0% 2010-14 annualised 2014 • In terms of capital growth, the retail sector was the best performer in Direct property Property equities Equities Bonds 2014 among the commercial sectors. Other property and residential have also shown strong performance in recent years. In contrast, values on French Source: IPD industrial property, which had fallen over each of the previous six years, finally saw growth last year, at 0.1%.
All property total returns Capital growth by sector 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Other Source: IPD Source: IPD
International property handbook H1 2015 30 France – investment market
• Close to US$33bn of French investment property was transacted in 2014, Total property investment a rise of around 33% from 2013 and the highest annual total since 2007. US$ bn Investors’ interest shifted notably towards the office sector – particularly in 50 Paris – in which the volume of deals almost doubled over this period. 40 • Foreign investors accounted for exactly half of the investment market, and in H2 just under half of this share was taken by purchasers based elsewhere in 30 Europe, with the US the next most important. 20
• Compared with most other countries, occupiers and ‘other’ buyers took a 10 larger share of activity. Outside Paris where offices dominate, retail property 0 is a strong draw for investors. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 • The retail sector saw three major portfolio deals around the US$1 bn mark, by French companies Carrefour and Klepierre and Dutch real estate Source: RCA investment company Wereldhave NV.
Share of investment by property type SharShare ofe of investment investment by by SharShare ofe of for foreigneign investment investment by by – H2 2014 investorinvestor type type – H2– H2 2014 2014 investorinvestor origin origin – H2– H2 2014 2014
OFFICE 67% Occupier/Occupier/ otherother USUS 14%14% INDUSTRIAL 7% 26%26% ListedListed FundsFunds EurEuropeope RETAIL 19% companiescompanies 53%53% MiddleMiddle 47%47% 21%21% EastEast 7%7% RESIDENTIAL AsiaAsia 1% PaPacificcific PrivatePrivate 15%15% OTHER/MIXED companiescompanies 6% 12% 12% OtherOther 5% 5% Source: RCA SourSource:ce: RC RCA A SourSource:ce: RC RCA A
International property handbook H1 2015 31 Paris – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Ecowest, Office Jan 15 577 BNP Paribas Abu Dhabi Investment L’Oreal 624,312 sq ft 80-82 Quai Michelet REIM Authority
Paris Marriott Hotel Champs Hotel Sep 14 452 Tamweelview Kai Yuan Marriott Hotels 192 rooms Elysees, 70 ave des Champs Elysees
InterContinental Paris Le Grand, Hotel Feb 15 372 InterContinental Qatar Investment InterContinental Hotels 470 rooms 2 rue Scribe Hotels Group Authority
Le 32 Blanche, Office Sep 14 347 Carlyle Group Oxford Properties Criteo; Comuto 197,153 sq ft 32-38 rue Blanche
Gaz de France hq, Office Dec 14 286 Blackstone Societe Fonciere Gaz de France (lease to 270,572 sq ft rue Condorcet 4-8 Lyonnaise Dec 2024)
Source: RCA Market metrics Share of investment by • Paris dominates the French investment market, attracting almost three Total investment 2014 US$24,727 m property type – H2 2014 quarters of activity last year. The total US$24bn spent in the capital over the Percentage from foreign investors 47.5% course of 2014 was more than 50% higher than the 2013 figure, driven by All property total return 6.4% OFFICE 81% foreign investment which was up by 60%. 2008-13 (p.a.) • The office sector was by far the most popular, accounting for 81% of All property income return 4.8% 2008-13 (p.a.) INDUSTRIAL purchases during the second half of 2014. Among the foreign purchasers 3% All property capital growth 1.5% who made almost half of the total investment in this period, the US was the 2008-13 (p.a.) RETAIL 9% best-represented country with activity doubling year-on-year, as elsewhere Office prime yield Q4 2014 3.75% in Europe. Source: RCA; IPD RESIDENTIAL 1% • The Winter 2014 edition of Deloitte’s Paris Office Crane Survey revealed a OTHER/MIXED diminishing supply of available space currently under construction, while at 7% the same time take-up volumes fell. Source: RCA
International property handbook H1 2015 32 Germany
The German economy rebounded in 2014, posting 1.6% GDP growth BERLIN Economy compared with 0.1% in 2013. A substantial current account surplus HAMBURG will encourage further investment. Total property investment grew by 5% in the last year. Investment has Property risen now for five consecutive years, fuelled by low interest rates and investment the widening search for returns.
Average yields for all asset classes in major cities fell more than 20 bps MUNICH Yields in 2014, due to the weight of demand caused by favourable financing FRANKFURT conditions. Highest yield compression was seen in the logistics sector.
Rental growth for prime property was flat or subdued across most Rents sectors and cities last year, with retail seeing the best performance.
Total property investment Economic & political background Prime yields Population 2014 81.04 m Office 4.45% US$ bn Parliament – Coalition led by CDU Retail 3.75% 100 chancellor, Angela Merkel (504 of Industrial 6.40% 80 631 seats) Property market background Election Sept 2017 60 GDP 2014 US$3.78 tn Investment market size 2014 US$63 bn 40 GDP per capita 2014 US$46,720 Percentage from foreign 39.8% investors GDP growth 2014 1.6% 20 All property total return 2014 6.0% Economic indicators, end Q1 2015 0 Tax rates 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 0.8% Transfer 3.5% – 6.5% Q1 Q2 Q3 Q4 Unemployment 5.0% Corporate income 30% – 33% (trade tax Source: RCA Base rate 0.05% might be avoided) 10 year bond 0.18% Tax on dividends Up to 26.375% Local market contact Exchange rate 1US$ to 0.9215 EUR Tax on interest 0% – except 25% Michael Mueller Source: EIU, RCA, IPD, Deloitte withholding tax on Partner, Real Estate Industry Leader deposit interest +49 89290 368428 Capital gains 1.58 – 33% (depending [email protected] on investment structure)
International property handbook H1 2015 33 Germany – economic overview
Economic output and inflation • The German economy recovered strongly in 2014, expanding by 1.6%.
6% The outlook is positive over the next two years. 5% 4% • Exports reached an unprecedented US$1.28tn, 4% higher than 2013, despite 3% 2% the effects of international sanctions against Russia and sluggish global 1% growth. 0% -1% -2% • Current growth performance is mainly driven by private consumption. Low -3% -4% unemployment rates and real wage growth as well as falling oil prices, low -5% interest rates and very low inflation are driving growth. -6% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Germany’s policies on national and regional growth have also seen the GDP growth CPI inflation country reduce its investment elsewhere in the Eurozone, and build a Source: EIU substantial trade surplus. • German corporates have been quite reluctant to invest since the financial crisis. Corporate investment remains the weak spot of the recovery. Consumer spending and unemployment
12% Forecasts 2014 2015F 2016F 10% Real GDP growth 1.6% 1.8% 1.8% 8% Industrial output (% real change pa) 1.3% 1.5% 1.2% 6% Consumer spending (% real change pa) 1.0% 1.7% 1.1% 4% CPI inflation 0.8% -0.2% 1.0% 2% Unemployment rate 5.0% 4.9% 5.0%
0% Source: EIU -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 34 Germany – real estate performance
Total return by asset class and period • German property achieved a total return of 6.0% over 2014, according to
15% IPD, its best performance in over 12 years. Of the major asset classes, only bonds produced a higher return, at 12.8%. • Among the property sectors, industrial was the stand-out winner with a total 10% return of 12.2% and capital growth of 4.6%. Residential continued its strong performance over the last few years producing a total return of 7.9% in 2014, 5% benefitting from sustained capital value growth in recent years. • Capital growth for All Property finally turned positive in 2014, with values
0% rising 0.7% overall. However in the office and ‘other’ sectors, values 2010-14 annualised 2014 continued to decline, by 0.6% and 1.0% respectively. Annual rental growth in Direct property Property equities Equities Bonds each of the commercial sectors, though positive, was below 1%. Source: IPD; Bloomberg
All property total returns Capital growth by sector 8% 6% 6% 4% 2% 4% 0% 2% -2% 0% -4% -6% -2% -8% -4% -10% -6% -12% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Other Source: IPD Source: IPD
International property handbook H1 2015 35 Germany – investment market
• The total volume of investment deals transacted during 2014, at just over Total property investment US$60bn, was up around 5% on 2013 and represented the strongest year US$ bn since 2007. 100
• Overall, foreign purchasers accounted for 40% of the total investment 80 volume. Of these, 44% were from elsewhere in Europe while US investors were also heavily active. The largest increase in share was among investors 60 from the Asia Pacific region. 40
• Low property yields and a generally low level of new development have 20 increased investors’ interest in other cities in Germany. 0 2007 2008 2009 2010 2011 2012 2013 2014 • Investment in the residential sector – mainly multi-unit apartment buildings – Q1 Q2 Q3 Q4 was around US$3bn lower than in 2013, but remains a significant proportion of the market at 26% over the second half of 2014. Source: RCA
Share of investment by property type SharShare of einvestment of investment by investor by investor type type SharShare of efor ofeign foreign investment investment by investor by investor origin origin H2 2014 H2 2014H2 2014 H2 2014H2 2014
OFFICE ListedListed 40% companiescompanies 17%17% US US INDUSTRIAL 9% Occupier/Occupier/ 34%34% otherother FundsFunds EuropeEurope 5% 5% 45%45% 44%44% RETAIL 13% PrivatePrivate companiescompanies RESIDENTIAL 33%33% OtherOther 26% 10%10%
OTHER/MIXED 11% MiddleMiddle East East 4% 4% AsiaA Psiaacific Pacific 8% 8% SourSource: RCce:A RCA SourSource: RCce:A RCA Source: RCA
International property handbook H1 2015 36 Frankfurt – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
PalaisQuartier DEU Mixed Mixed Dec 14 996 Rabo RE Deutsche Bank; Deutsche Bahn AG; 902,992 sq ft Portfolio Group ECE Union Investment RE 218 units
Silberturm Frankfurt Office Oct 14 568 IVG Samsung Group Deutsche Bahn AG 771,865 sq ft Jurgen Ponto Platz, 1 Deutschland (Lease runs to 2027)
ECB Building Office Apr 15 526 RFR Holding IVG IF GmbH European Central Bank 645,834 sq ft GmbH
WINX – The riverside tower Office Nov 14 438 DIC Asset AG Susanne Klatten Union Investment RE 452,088 sq ft Neue Mainzer Strasse, 6-12
IBC complex Office Nov 14 376 Caisse de RFR Realty KFW Bank Group; Universal 810,234 sq ft Depot Investment GmbH Source: RCA
Share of investment by property type • In 2014, Frankfurt underlined its position as the primary German target for Market metrics H2 2014 investors, as the volume of transactions rose sharply from 2013’s total. Total investment 2014 US$8,372 m Percentage from foreign 39.0% • Q4 was particularly active, with around US$4bn of transactions completed. investors OFFICE 65% Domestic investors accounted for 54% of acquisitions over this period, while All property total return 1.7% just over 20% were made by US purchasers. South Korea and the UK were 2008-13 (p.a.) INDUSTRIAL 4% the next most significant countries represented. Income return 2008-13 (p.a.) 4.6% Capital growth 2008-13 (p.a.) -2.9% • Office property was the main attraction for investors towards the end of last RETAIL 11% Office prime yield Q4 2014 4.7% year: while this sector took a 65% share of the market over the whole of H2, Source: RCA; IPD RESIDENTIAL 5% in the final quarter this rose to over 70%. • As a result of this weight of demand, backed by an improving occupancy OTHER/MIXED 15% picture, yields on prime offices continued to fall, reaching around 4.7%, close to their long-term low. Source: RCA
International property handbook H1 2015 37 Berlin – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Berlin apartment portfolio Apartment Mar 15 420 Deutsche Wohnen ADo Properties NA 5,750 units AG
Berlin Marzahn apartments Apartment Nov 14 213 TAG Immobilien HOWOGE NA 2,600 units TAG DE portfolio AG
Deutsche Bank-Hochhaus Office Mar 15 168 Art Invest Deutsche Bank Deutsche Bank 418,720 sq ft Otto Suhr Allee 6-16
Grand Hotel Esplanade Hotel Sep 14 106 Blackstone Host Hotels & Resorts; NA 394 rooms Bellevuestrasse, 1 APG; Govt of Singapore
Office Campus an der O2 Office Mar 15 97 Strauss & Partner Amundi Real Estate; EDF Zalando; Anschutz 282,017 sq ft World; Muhlenstrasse Dev Entertainment
Source: RCA
Share of investment by property type • Among the main German cities, the highest proportion of investment into Market metrics H2 2014 residential property is in Berlin, headed in recent months by the purchase of Total investment 2014 US$8,053 m 2,600 apartments by HOWOGE. Percentage from foreign 43.0% OFFICE 37% • In contrast, the proportion of investor funds targeting retail property was investors much lower than in other cities, at just 11% in H2 2014, a sharp decline from All property total return 3.4% 2008-13 (p.a.) INDUSTRIAL the previous year. Nonetheless, prime retail yields have continued to fall and 9% Income return 2008-13 (p.a.) 4.8% remain only a little above the other main German cities. Capital growth 2008-13 (p.a.) -1.4% RETAIL 11% • As elsewhere in Germany, investors have been increasingly willing to explore Office prime yield Q4 2014 4.5% RESIDENTIAL secondary locations offering higher returns, and the increase in sales of Source: RCA; IPD 35% development sites offers a further sign of the depth of demand. OTHER/MIXED 8% • While prime city centre office rents have remained broadly stable over the last 12 months, out of town office rents have risen by around 5%. Source: RCA
International property handbook H1 2015 38 Munich – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Lenbach Gärten Office Sep 14 231 AM alpha Norges Bank Invt Mgmt; Conde Nast; 699,660 sq ft Luisenstrasse, 14 BNP Paribas McKinsey & Company
Art Deco Palais Office Dec 14 199 Blue Colibri AG BNP Paribas Deutsche Post; 403,650 sq ft Arnulfstrasse, 56-60 Kienbaum; E.ON; Consense
Deutsche Bahn office Office Sep 14 190 Hannover Leasing Quantum Immobilien AG DB Netz AG 678,132 sq ft Richelstrasse, 3
Le Meridien Munich Hotel Mar 15 177 Kildare partners DekaBank NA 381 units Bayerstrasse, 41
Bruckmann Quartier Office Oct 14 101 Bruckmann Holding Rock Capital GmbH Designworks USA; Brand 269,100 sq ft Nymphenburger Strasse 84-86 David; Mein Prospekt
Source: RCA Share of investment by property type • Investment into real estate in Munich in 2014 was up around 10.5% on Market metrics H2 2014 the total in 2014, and prime office yields remain the lowest among the top Total investment 2014 US$6,618 m German cities. Percentage from foreign 32.5% OFFICE 58% • After domestic investors, who took a 68% share of the market in Q4 2014, investors US buyers – both equity funds and institutions – were the next most active All property total return 6.3% 2008-13 (p.a.) INDUSTRIAL with 17%. French institutions were also keen purchasers during this period. 3% Income return 2008-13 (p.a.) 4.9% Capital growth 2008-13 (p.a.) 1.4% RETAIL 18% • As elsewhere, the office sector has been most in demand, particularly among foreign buyers, however retail took a larger share of the market than in the Office prime yield Q4 2014 4.0% RESIDENTIAL other cities covered, and domestic investors completed a significant number Source: RCA; IPD 4% of hotel deals during the final quarter, reflecting the current strength of OTHER/MIXED 17% Munich’s tourism sector. • A shortage of supply of new office space in the city centre has helped bring Source: RCA average vacancy rates down to their lowest in more than a decade. Healthy levels of demand in Munich have driven the strongest rental growth among the largest German centres.
International property handbook H1 2015 39 Hamburg – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Uberseequartier (4 office & Mixed Dec 14 293 Gross & Partner; Hines Postbank, La Baracca, 489,644 sq ft 1 apartment property) Propertize KanAsia 64 units
Axel Springer Haus Office Jan 15 157 Axel Springer AG City of Hamburg Axel Springer AG 592,020 sq ft Axel Springer Platz, 1
Hamburg Apartments Apartment Nov 14 131 City of Hamburg SAGA GWG Stiftung NA 900 units portfolio Nachbarschaft
Millerntorplatz 1 Office Dec 14 119 Credit Suisse Dream Global REIT City of Hamburg; Deutsche 375,987 sq ft Rentenversicherung
Hotel Atlantic Kempinski Hotel Dec 14 87 Octavian Hotel Asklepios Kliniken; NA 245 units An Der Alster 72 Holding GmbH Dr Broermann Hotels & Residences GmbH
Source: RCA Share of investment by property type • Over 46% of investment in Hamburg during 2014 was made by foreign Market metrics H2 2014 buyers, a greater share than in both Munich and Frankfurt. US, UK and Total investment – 2014 US$5,234 m Sweden were the top three countries of origin. Percentage from foreign 46.1% OFFICE 62% • The demand among investors for offices was notably higher than in 2013, investors while in all other sectors, and for retail in particular, the volume of deals All property total return 4.5% 2008-13 (p.a.) INDUSTRIAL declined. 5% Income return – 2008-13 (p.a.) 5.0% Capital growth – 2008-13 (p.a.) -0.5% RETAIL 16% • Well below average supply of new office space over the last two years, combined with a sharp increase in take-up in 2014, have resulted in a further Office prime yield – Q4 2014 4.5% RESIDENTIAL fall in the city centre vacancy rate and increased interest in more fringe Source: RCA; IPD 12% locations. OTHER/MIXED 5% • Although making up a relatively small proportion of the investment market, the industrial sector is an important part of the Hamburg market, and prime Source: RCA yields at the end of last year were at their lowest in over ten years.
International property handbook H1 2015 40 Ireland
GDP in Ireland grew by 4.8% in 2014 and is forecast to expand a Economy further 2.5% in 2015. However, relatively high unemployment and tighter lending restrictions could affect growth. The investment market has rebounded sharply, with total activity more Property then doubling year on year. Total returns on commercial real estates DUBLIN investment reached an extraordinary 40.1% over 2014. Investor demand has driven significant yield compression in all sectors Yields of the prime property market, but there remains room for some further downward movement. Strong rental growth has been seen in the prime office market over the last year, driven both by healthy demand and low supply. Industrial Rents rents have also increased but much more moderately, while retail rental growth has been largely confined to prime Dublin stock.
Total property investment US$ bn Economic & political background Prime yields 7 Population 2014 4.6 m Office 4.50% 6 Parliament – coalition between Fine Gael Retail 4.00% 5 and the Labour Party. Taoiseach (prime Industrial 6.25% minister) – Enda Kenny of Fine Gael 4 Election Before April Property market background 3 2016 Investment market size (2014) US$5.8 bn 2 GDP 2014 US$242.3 bn Percentage from foreign 52.4% 1 GDP per capita 2014 US$51,790 investors 0 GDP growth 2014 4.8% All property total return 2014 40.1% 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 Economic indicators, end Q1 2015 Tax rates Source: RCA CPI Inflation 0.2% Transfer 1% – 2% Unemployment 10% Corporate 12.5% on trading income. Local market contact income 25% on non-trading Base rate 0.05% Padraic Whelan income. 10 year bond 0.75% Partner, Tax Tax on dividends Up to 20% Exchange rate 1US$ to 0.9215EUR Head of Real Estate & Infrastructure Group Tax on interest Up to 20% +353 (1) 417 2848, [email protected] Source: EIU, RCA, IPD, Deloitte Capital gains 33%
International property handbook H1 2015 41 Ireland – economic overview
Economic output and inflation • The Irish economy grew by around 4.8% in 2014, the fastest rate of
8% expansion in Europe, despite a weaker end to the year. Much of the reason 6% for this performance lies in the tight economic links with the US and the UK, 4% two of the other strongest performing economies. 2% • Consumer spending returned to positive growth last year, and although 0% -2% forecasts show only a shallow pick-up over the next two years, a degree of -4% confidence has returned as average incomes show a real rise, and evidence -6% of this can be seen in the influx of new retailers to the Irish market. The -8% unemployment rate remains relatively high but is steadily declining. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Inflation is expected to remain low this year and next, due to a combination GDP growth CPI inflation of factors including high unemployment, moderate wage growth and Source: EIU the global fall in commodity prices; CPI was around 0.2% in 2014. The construction sector is slowly recovering after the housing market collapse in 2008. Consumer spending and unemployment 20% • The Central Bank has imposed tighter restrictions on mortgage lending to prevent another housing price bubble, a move that could hold back GDP 15% growth. 10%
5% Forecasts 2014 2015F 2016F Real GDP (growth) 4.8% 2.5% 2.9% 0% Industrial output (% real change pa) 3% 2.5% 2.3% -5% Consumer spending (% real change pa) 0.8% 1.1% 1.2% -10% CPI 0.2% -0.2% 0.7% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 11.3% 10.1% 9.6% Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 42 Ireland – real estate performance
Total return by asset class – by period • Returns on Irish assets in 2014 were the highest across the Eurozone. 50% In an economy with nearly zero inflation, stocks and bonds returned around 17% and 23% respectively, but property was the real star, achieving a total 40% return of over 40%. This exceptional total return is the highest recorded in
30% the IPD annual series, which extends back to 1984. • Annual capital growth has seen an exceptional recovery, increasing from 20% 3% in 2013 to close to 31%, driven by the revival in the economy and the 10% consequent increase in demand for prime office and retail space.
0% • The office sector returned the best performance, with rental values up 2010-14 annualised 2014 31% and capital growth of just under 36%. However the retail sector saw Direct property Equities Bonds a notable recovery from a weaker position. Source: IPD; Bloomberg
All property total returns Capital growth by sector 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% -30% -30% -40% -40% -50% -50% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Source: IPD Source: IPD
International property handbook H1 2015 43 Ireland – investment market
• Activity in the investment market more than doubled in 2014, to US$5.8bn. Total property investment However, there were signs at the end of the year that the momentum had US$ bn started to ease, with the final quarter recording a lower total than Q3 or Q2. 7 • In the early part of the year, the office sector dominated investors’ attention, 6 but retail came through strongly and took the largest share of deals over the 5 second half. This was driven as much by an increase in supply to the market 4 as by a change in sentiment among investors. 3 2 • Among overseas investors, US buyers dominated activity, just as US occupiers 1 have taken significant amounts of new office space in Dublin. 0 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4
Source: RCA
Share of investment by property type – H2 2014 Share Sharof investmente of investment by by Share Sharof fore eignof for investmenteign investment by by investorinvestor type – type H2 2014– H2 2014 investorinvestor origin origin– H2 2014– H2 2014
OFFICE OthersOthers 30% 13% 13% ListedListed INDUSTRIAL 10% companiescompanies 28% 28% FundsFunds EuropeEurope RETAIL 50% 50% 22% 22% UnitedUnited 30% Occupier/Occupier/ StatesStates other other PrivatePrivate 65% 65% 1% RESIDENTIAL 14% 1% companiescompanies 21% 21% OTHER/MIXED 16%
Source: RCA Source:Sour RCce:A RCA Source:Sour RCce:A RCA
International property handbook H1 2015 44 Dublin – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Orange NAMA Residential Apartment Sep 14 277 NAMA Irish Residential Properties NA 761 units portfolio REIT
NAMA Retail Portfolio Retail Oct 14 197 NAMA Marathon Asset Mgmt; Currys; Halfords; Carphone 660,059 sq ft IPUT Warehouse
The Atrium, Blackthorn Rd Office Nov 14 125 Pat Gunne Blackstone Microsoft; Salesforce 346,000 sq ft
Plum Portfolio Apartment Apr 15 129 NAMA Marathon Asset Mgmt NA 588 units
Bishops Square, Office Mar 15 103 King Street Capital Hines Global REIT II Commissioners of Public Works; 153,548 sq ft Lower Kevin St Mgmt. International Financial Data Services
Source: RCA
Share of investment by property type • A number of new investors have recently entered the Irish investment market, Market metrics H2 2014 with interest in secondary locations increasing and strategies becoming less Total investment 2014 US$4,976 m opportunistic and closer to core. Institutional funds have dominated activity Percentage from foreign 50.0% OFFICE 51% over recent months. investors • Following a record year for office take-up in Dublin, the market is now All property total return -2.2% 2008-13 (p.a.) INDUSTRIAL concerned about the shortage of new space. After three years of negligible 3% Income return 2008-13 (p.a.) 9.3% new construction, development on city centre sites has now resumed. Capital growth 2008-13 (p.a.) -10.6% RETAIL As a consequence, office rents have moved up sharply with further increases 22% Office prime yield Q4 2014 4.50% expected this year. RESIDENTIAL Source: RCA; IPD 11% • Overseas buyers have acquired a number of shopping centre and retail parks. OTHER/MIXED Retail space has also been in high demand by occupiers, with vacancy rates at 13% prime locations reducing to below 4%. Source: RCA
International property handbook H1 2015 45 Italy
Despite a contraction of 0.4% in 2014 the Italian economy is forecast to grow by 0.5% in 2015. Consumer confidence has started to return with MILAN Economy private consumption expected to increase by 0.7% in both 2015 and 2016. Investment grew by around 10% last year to reach its highest total Property since 2008. Foreign capital was the main driver of the market, investment accounting for just over 75% of transactions. Half of all deals involved retail property. Prime yields in all sectors compressed slightly over 2014, but a more Yields significant downward shift was seen in good secondary assets, as investors’ appetites improved. Rental values remained depressed in almost all prime sectors last year, Rents with the exception of offices in Milan. Prime shopping centre rents have not risen in four years.
Economic background Prime yields Total property investment Population 61.1 m Office 5.00% Parliament – Coalition led by Partito Retail 4.50% US$ bn Democratico (310/630 seats); Prime Industrial 7.50% 12 Minister – Matteo Renzi 10 Election May 2018 Property market background GDP 2014 US$2.15 tn Investment market size 2014 US$7.1 bn 8 GDP per capita 2014 US$35,210 Percentage from foreign 77.1% 6 investors GDP growth 2014 -0.4% 4 All property total return 2014 3.6% 2 Tax rates Economic indicators, end Q1 2015 0 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 0.2% Transfer 0.2% stamp duty on shares. Depends on Q1 Q2 Q3 Q4 Unemployment 12.8% property type Base rate 0.05% Source: RCA Corporate 31.4% (IRES: 27.5% and 10 year bond 1.29% income IRAP: 3.9%) Local market contact Exchange rate 1US$ to 0.9215 EUR Tax on dividends Up to 26% Elena Vistarini Partner, National Real Estate & Construction Leader Source: EIU, RCA, IPD, Deloitte Tax on interest Up to 26% +39 02 833 25122 Capital gains Ordinary corporation [email protected] tax rate
International property handbook H1 2015 46 Italy – economic overview
Economic output and inflation • The Italian economy saw a further annual contraction in 2014, of 0.4%,
4% despite an improving export position, as household consumption remained flat and business investment deteriorated. The Italian economy is forecast to 2% grow by 0.5% in 2015 and by a further 1% in 2016. 0% • The unemployment rate has been steadily climbing since 2011 and is -2% only now showing signs of stabilising. However expectations in the jobs market, along with household confidence generally, have shown a marked -4% improvement since the start of this year. A gradual pick-up in consumer -6% spending, boosted by low price inflation, will support expected GDP growth 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 this year and next. GDP growth CPI inflation • Industrial output contracted in three of the quarters in 2014, and investment Source: EIU intentions among industrial firms receded sharply over the second half of the year, as confidence in the economic recovery remained fragile.
Consumer spending and unemployment • Nonetheless, business confidence survey results among production
15% companies have risen in Q1, as an increase in public investment, tentative signs of an improvement in GDP growth, and increased construction output 10% data emerged.
5% Forecasts 2014 2015F 2016F Real GDP growth -0.4% 0.5% 1.0% 0% Industrial output (% real change pa) -1.4% 0.6% 0.9% Consumer spending (% real change pa) 0.3% 0.7% 0.7% -5% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CPI Inflation 0.2% 0.0% 0.6% Unemployment rate 12.7% 12.5% 12.2% Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 47 Italy – real estate performance
Total return by asset class and period • Italian property continued its run of weak performance last year, with only
20% a modest improvement in total returns, from 2.5% in 2013 to 3.6%. Both values and rents have been falling over most of the market for the last seven 15% years. 10% • Reflecting the generally high level of caution among investors, returns on 5% government bonds jumped from 8.7% in 2013 to 19.6% last year, while the 0% riskier class of equities slumped from returns of 16.1% to zero over the same period. -5%
-10% • The best sector performance came from industrial property with a total 2010-14 annualised 2014 return of 7.6%, driven partly by a strong income return. This was the only Direct property Property equities Equities Bonds sector to show positive capital growth in 2014.
Source: IPD, Bloomberg • At the end of 2014 capital values stood around 17% below their 2007 peak.
All property total returns Capital growth by sector 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% -4% -4% -6% -6% 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Other Source: IPD Source: IPD
International property handbook H1 2015 48 Italy – investment market
• Increased interest from non-domestic sources of capital lifted the total Total property investment volume of transactions in Italy last year to just over US$7bn, around 10% US$ bn higher than in 2013. 12
• Foreign investment contributed just over three-quarters of the total 10
investment volume, with a broad spread of regions represented, and US 8 funds the most prominent type. 6
• Half of investment was into the retail sector, where funds dominated activity, 4 particularly during the spate of large deals completed in the final quarter of 2 the year. This saw US$1.7bn flow into this sector alone, almost half the annual 0 total. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 • There was an increased interest in hotels, and in this sector alone private companies were the major players. Elsewhere, transaction levels in the Source: RCA industrial sector were notably subdued, while a shortage of available stock held back office deal volumes.
Share of investment by property type – H2 2014 Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 Listed companies OFFICE 32% 6% Asia Private Pacific companies 14% INDUSTRIAL 11% Middle 2% East United States Occupier/ Others 11% 42% RETAIL 50% other 1% 4% Funds RESIDENTIAL 79% Europe 1% 32% OTHER/MIXED 15%
Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 49 Milan – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Porta Nuova (4 office Mixed Feb 15 1,354 Hines; TIAA-CREF; Unipol Qatar Investment Google; UniCredit 1,637,839 sq ft / & 8 apartment properties) Gruppo Finanziario Authority 392 units
Fondo Olinda Retail Feb 15 359 Olinda Fondo Shops AXA Real Estate; Virgin Active; Unieuro; 2,958,076 sq ft Apollo Global RE Play City; OVS; IL Gusto Via Monte Rosa, 91 & Viale Office Feb 15 263 Torre Sgr Partners Group PwC; Il Sole 24 Ore; Pirelli 1,234,631 sq ft Sarca 222
Ream SGR portfolio Office Jan 15 241 REAM SGR (Core Nord Blackstone UniCredit 498,373 sq ft (3 properties) Ovest REIF)
Diamantini Office Nov 14 118 Hines Samsung Group Samsung 134,550 sq ft Via Fratelli Castiglioni
Source: RCA Market metrics Share of investment by property type • In contrast to the market across Italy as a whole, in Milan offices were the Total investment 2014 US$4,976 m H2 2014 most sought-after property type during H2 2014, with equity and institutional Percentage from foreign investors 73.8% funds making 85% of purchases. All property total return 1.9% 2008-13 (p.a.) OFFICE 62% • Domestic purchasers took a slightly larger slice of the market in Milan than All property income return 4.9% nationally, due to global funds’ appetite for portfolios and other large lots. 2008-13 (p.a.) INDUSTRIAL 6% All property capital growth -2.9% • The volume of activity picked up quarter on quarter through 2014, with over 2008-13 (p.a.) RETAIL 23% US$860m of deals taking place in Q4, when the focus shifted towards the Office prime yield Q4 2014 5.00% retail sector. Source: RCA; IPD RESIDENTIAL 3% • This momentum has been maintained into Q1 2015. Some of the largest recent deals completed in February, including the Qatar Investment Authority OTHER/MIXED 6% investing over US$1bn in two office assets.
Source: RCA • Despite a rise in the office vacancy rate last year, an improving economic picture should see occupier demand pick up and raise rental growth prospects.
International property handbook H1 2015 50 Japan
GDP growth slowed sharply in 2014 to just 0.1%, due in large part to Economy the increase in consumption tax rate from 5% to 8%. However, the outlook for 2015 and 16 sees a recovery in the pace of expansion. In 2014 the investment market maintained the confidence it regained Property the previous year, with overseas buyers taking a 16% share of activity. investment The Tokyo office market continues to hold a strong attraction for global investors. TOKYO Prime yields in Japan are among the lowest of the major international Yields investment locations. Nonetheless, yields compressed during 2014 in all sectors. OSAKA Office rents in the dominant Tokyo market have been pushed up by Rents a falling vacancy rate, and despite significant new space coming onto the market this year, the outlook remains positive.
Economic background Prime yields Total property investment Population 2014 127 m Office 3.4% US$ bn Parliament – Coalition led by Retail 3.6% 70 The Liberal Democratic Party (LDP) Industrial 5.0% (291 of 475 seats) 60 Election Dec 2018 Property market background 50 GDP 2014 US$4.6 tn Investment market size 2014 US$52.4 bn 40 GDP per capita 2014 US$36,260 Percentage from foreign 16.3% 30 investors GDP growth 2014 0.1 % 20 All property total return 2014 7.4% 10 Economic indicators, end Q1 2015 Tax rates 0 CPI Inflation 2.7% 2007 2008 2009 2010 2011 2012 2013 2014 Transfer Stamp duty on documents and transfer Q1 Q2 Q3 Q4 Unemployment 3.6% of certain assets. Source: RCA Base rate 0.00% Corporate income 35.64% or 38% 10 year bond 0.40% depending on fiscal year Local market contact Exchange rate 1US$ to 120.48 JPY Tax on dividends Up to 20.42% Hiroki Kitagata Partner, Tokyo Region Audit Services Source: EIU, IPD, RCA, Deloitte Tax on interest Up to 20.42% Capital gains Ordinary corporation tax +81 (0) 906 0415350 [email protected]
International property handbook H1 2015 51 Japan – economic overview
Economic output and inflation • The Japanese economy grew by just 0.1% in 2014, and an important part of
6% the reason for the slowdown was a fall in consumer spending, brought about 4% by higher consumption tax. 2% • This was raised from 5% to 8%, with plans to further increase it to 10% by 0% April 2017. This is expected to keep private consumption growth at a low -2% 0.7% per year average in 2015-19. -4% • The tax rise resulted in a boost to inflation, although in recent months the -6% impact of lower energy prices has served to reverse some of the effect, and -8% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 inflation in 2015 is forecast to drop back further. GDP growth CPI inflation • Unemployment has been steadily falling: the rate is now below the pre- Source: EIU 2008 level, and is projected to reduce further. Meanwhile, wages are rising. • The outlook is for stronger economic growth from 2015, but early indications suggest that the rebound may take longer to materialise than either the central bank or market commentators had hoped. Consumer spending and unemployment
6% Forecasts 2014 2015F 2016F 5% Real GDP growth 0.1% 1.3% 2.0% 4% Industrial output growth 1.0% 1.5% 1.5% 3% 2% Consumer spending growth -1.1% 0.5% 1.1% 1% CPI Inflation 2.7% 1.0% 1.6% 0% Unemployment rate 3.6% 3.4% 3.3% -1% Source: EIU -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 52 Japan – real estate performance
Total return by asset class period • The performance of directly held Japanese real estate took a number of years
20% to recover from the lows of 2009, but in 2014 total returns reached just under 8%. More importantly, this represented a return to meaningful capital
15% value growth – although this was seen most clearly in the residential and ‘other’ sectors. 10% • Amongst the major property types, retail fared noticeably better in 2014 than offices, especially in Tokyo. However, industrial returns have been even 5% stronger, with capital value growth exceeding 5% in 2014. N/A 0% • The J-REIT market has delivered a fairly steady performance over the last five 2010-14 annualised 2014 years, around the middle of the international range of REIT indices. Growth Direct property Property equities Equities Bonds over the last three years was just under 15%.
Source: IPD, Bloomberg
All property total returns Capital growth by sector
15% 15%
10% 10%
5% 5%
0% 0%
-5% -5%
-10% -10%
-15% -15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Residential Other Source: IPD Source: IPD
International property handbook H1 2015 53 Japan – investment market
• Investment reached US$52.4bn in 2014, marginally above the level seen in Total property investment 2013. Foreign purchasers accounted for 16% of the total investment volume US$ bn in 2014, with investors from Asia posting the highest market share and 70 growth rate in 2014. 60 • Active across all major property types, foreign investors were most prevalent 50 in the hotel sector, where they accounted for a quarter of transactions by 40 volume. 30 20 • Not surprisingly given Japan’s highly developed REIT market, listed real estate investors represent a large share of transactions. Half of their investment was 10 0 directed towards offices in 2014. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 • Three quarters of Japan’s investment transactions took place in Tokyo and Osaka during 2014, however significant investment also takes place outside Source: RCA these main locations, for example in the logistics sector, which has recently attracted interest from overseas investors.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 H2 2014 Others 1% OFFICE 52% INDUSTRIAL 10% Funds 26% United Listed RETAIL Asia States 15% companies Pacific 39% 42% Occupier/ 53% RESIDENTIAL 9% other Private 9% OTHER/MIXED companies 14% 23% Source: RCA Europe 7%
Source: RCA Source: RCA
International property handbook H1 2015 54 Tokyo – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Pacific Century Place (8F-31F) Office Oct 14 1,700 Secured Capital GIC (Govt. of Singapore) IS Holdings 420,890 sq ft 1-11-1 Marunouchi Chiyoda-ku MTG fmr Mizuho Bank HQ Office Nov 14 1,415 Mitsubishi Estate Mizuho Financial Group NA 797,488 sq ft 1-3-3 Marunouchi Chiyoda-ku Meguro Gajoen Office Jan 15 1,169 Mori Trust LaSalle Investment; Amazon; Merck; 1,677,250 sq ft 1-8-1 Shimomeguro Meguro-ku China Investment Corp Walt Disney Co Shinjuku Island Tower (22-23F) Office Oct 14 433 UR Tokyu Land UR 412,830 sq ft 6-5-1 Nishi-shinjuku Dentsu office portfolio Office Dec 14 261 Dentsu Sumitomo Realty & Dev NA 597,643 sq ft
Source: RCA
Share of investment by property type • Tokyo is the third largest investment market globally, after New York and Market metrics H2 2014 London. The market continues to grow in 2015, with significant investment Total investment 2014 US$35,114 m from Asian countries. The office sector attracted 71% of the total investment Percentage from foreign 16.0% volume in the second half of 2014, and 80% of all foreign investment. investors OFFICE 71% All property total return 0.6% • The market expectation is for further growth in investment activity, especially 2008-13 (p.a.) INDUSTRIAL for the hotel sector, given the 2020 Olympics. The resultant infrastructure All property income return 4.8% 3% 2008-13 (p.a.) improvements will also serve to increase the attractiveness of the city to All property capital growth -4.0% RETAIL 6% investors. 2008-13 (p.a.) Office prime yield Q4 2014 4.75% RESIDENTIAL • Tokyo accounts for about 60% of Japan’s office stock. Vacancy rates have 10% been in decline over the past year, putting upward pressure on rents. Stock Source: RCA; IPD OTHER/MIXED will be increased as new supply hits the market in 2015, although current 10% indications suggest that this will not take too long to let. Source: RCA
International property handbook H1 2015 55 Osaka – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Universal Citywalk Osaka Retail Sep 14 149 Elliott Nomura Master Fund Hard Rock Café; Lawson; 191,270 sq ft 6-2-61 Shimaya Konohana-ku Pinklatte Soyu Western City Umeda Square Office Apr 15 130 Hypo Real Estate Group Japan RE Investment Kansai University; Okasan 111,612 sq ft 1-12-17 Umeda Kita-ku Securities; Osaka Gas Osaka Kokusai Bldg Office Dec 14 109 RE-SEED Mitsubishi UFJ Daiwabo Information Systems; 698,432 sq ft 2-3-13 Azuchimachi Chuo-ku AFLAC; DTS Blumer Hat Kobe Retail Apr 15 92 Fukoku Mutual Life Kenedix Retail REIT 109 Cinemas; Babies "R" Us; 260,328 sq ft 2-2 Wakinohamakaigandori Sanki; Right-on Chuo-Ku Dojima Plaza Office Dec 14 80 Tozai Real Estate ORIX JREIT Inc EMC Corporation Task-Force 108,200 sq ft 1-5-30 Dojima Kita-ku Co. Ltd Source: RCA
Share of investment by property type • REITs and listed funds accounted for 45% of transactions in the second half Market metrics H2 2014 of 2014, with private and unlisted funds taking a further 25%. Total investment 2014 US$5,335 m Percentage from foreign 12.5% • Most of the recent large deals have taken place in the office sector. Vacancy investors OFFICE 32% rates have been falling in the Osaka office market for some time but prime Office prime yield Q4 2014 4.13% office rental growth has been modest. Source: RCA; IPD INDUSTRIAL 17% • The retail and hotels markets in Osaka are faring well, thanks to increasing RETAIL 23% numbers of foreign visitors to the city. A number of foreign retailers are seeking to enter the market. RESIDENTIAL 8% • The logistics market is an important part of the wider Osaka region, and is seeing a spate of large scale developments. OTHER/MIXED 20%
Source: RCA
International property handbook H1 2015 56 Netherlands
The economy moved into expansion in 2014 and is projected to gain Economy further momentum in 2015 as growth in consumer demand supports
the strong export trade. Investment volumes rose sharply last year driven by a further influx of Property foreign capital. US funds were particularly evident, with German and investment AMSTERDAM UK players also active. Prime yields have fallen under the buying pressure from a range of investors, but compared with other European centres Amsterdam Yields remains attractively priced. Yields on secondary stock have fallen more sharply, however, as investors seek opportunities for higher returns. Office rents generally remain under pressure with growth seen in only Rents the best assets. In the retail sector only Amsterdam is seeing rental increases.
Total property investment
US$ bn Economic background Prime yields 25 Population 2014 16.8 m Office 6.20% 20 Parliament – Led by People’s Party for Retail 4.10% Freedom and Democracy (VVD) – 41 of Industrial 7.40% 15 150 seats. Prime Minister – Mark Rutte (VDD) Property market background 10 Election March 2017 Investment market size 2014 US$11.5bn 5 GDP 2014 US$868 bn Percentage from foreign 65.9% GDP per capita 2014 US$51,590 investors 0 2007 2008 2009 2010 2011 2012 2013 2014 GDP growth 2014 0.8% All property total return 2014 4% Q1 Q2 Q3 Q4
Economic indicators, end Q1 2015 Tax rates Source: RCA CPI Inflation 0.3% Transfer 6% (2% for residential) Unemployment 6.8% Corporate income 25% Local market contact Paul Meulenberg Base rate 0.05% Tax on dividends Up to 15% Partner, Financial Advisory 10 year bond 0.34% Tax on interest 0% +31 (0) 6533 19411 Exchange rate 1US$ 0.9216 EUR Capital gains Ordinary corporation [email protected] tax rate – participation Source: EIU, RCA, IPD, Deloitte exemptions may apply.
International property handbook H1 2015 57 Netherlands – economic overview
Economic output and inflation • After two years of contraction, GDP in the Netherlands expanded by
6% 0.8% in 2014, driven almost entirely by growth in external trade. The next two years are expected to show further steady growth in output as domestic 4% consumption starts to play a larger role. 2% • However, it is not until 2016 that GDP is expected to have regained the
0% ground lost since the credit crisis.
-2% • Relative to other European economies, the Netherlands has a lower than average unemployment rate and lower debt as a proportion of GDP. Along -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 with its role as a key logistics centre within Europe, it is therefore well placed to take advantage of an improving global economy. GDP growth CPI inflation Source: EIU • Confidence, both on the consumer and production sides, rose significantly during the second half of 2014, to above the Eurozone average. Employment prospects have improved, with job numbers set to rise this year after two Consumer spending and unemployment years of contraction, and wage growth forecast to pick up. 8% • A significant increase in housing investment is planned to start this year. 6%
4% Forecasts 2014 2015F 2016F 2% Real GDP growth 0.8% 0.9% 1.4% 0% Industrial output (% real change pa) -1.5% 0.2% 0.8% -2% Consumer spending (% real change pa) 0.1% 0.4% 0.7% CPI Inflation 0.3% -0.2% 0.7% -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 6.8% 6.8% 6.7%
Source: EIU Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 58 Netherlands – real estate performance
Total return by asset class and period • The total return on Netherlands’ directly-held property was 4.4% in 2014,
40% a significant improvement on the meagre results of the two previous years, but trailing the performance of other asset classes and, in particular, behind
30% real estate equities which delivered a spectacular return of 32.7%. • Over the longer-term also, direct property has produced the lowest returns, 20% just 2.9% annualised over five years. Performance has been dragged down by falling values over each of the last seven years to stand around 18% lower at 10% the end of 2014 compared with the end of 2007.
0% • Industrial property has been by far the best performer recently, producing a 2010-14 annualised 2014 total return of 9.8% last year. Aside from residential property, industrial was Direct property Property equities Equities Bonds the only sector to see capital growth in 2014.
Source: IPD, Bloomberg • Rental growth in the commercial sector is generally negative, with just ‘other’ property recording a rise.
All property total returns Capital growth by sector 15% 15% 10% 10% 5% 5% 0%
0% -5% -10% -5% -15% -10% -20% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Other Source: IPD Source: IPD
International property handbook H1 2015 59 Netherlands – investment market
• Activity in the Netherlands investment market rose sharply last year, with the Total property investment volume of deals up around 60% on 2013, at US$11.5bn. This followed five US$ bn years of annual totals well below the US$10bn level. 25
• Foreign investors were the driving force behind this uplift, responsible for two 20 thirds of activity by value, and funds in particular were the dominant investor type. 15 • In line with many other European markets, US investors were highly 10 active purchasers during the second half of the year. Many of these were 5 opportunistic funds anticipating a stronger performance ahead for the 0 Dutch property market. German and UK buyers were the next most active. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 • The office sector was the star attraction for investors, with the total value of deals more than doubling between 2013 and 2014. Residential transactions Source: RCA also received a boost in the final quarter of 2014 owing to the closing of a tax exemption at the start of this year.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 H2 2014 Listed OFFICE companies 55% 9% INDUSTRIAL 10% Private companies United 19% Europe States Funds RETAIL 10% 52% 43% Occupier/ 71% other RESIDENTIAL 23% 1% OTHER/MIXED 2% Middle East 5% Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 60 Amsterdam – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
The Edge Office Jun 14 273 OVG Deka lmmobilien Deloitte; AKD 430,000 sq ft Gustav Mahlerlaan 2970
Kalvertoren Retail Nov 14 147 Deutsche AWM - Kroonenberg Groep HEMA; H&M; 123,786 sq ft 212-220, Kalverstraat Germany Mango; V&D
Casablancaweg 8-22 Industrial Dec 14 89 DHG Delin Capital Asset Mgmt Fetim; GE Aviation; 1,151,748 sq ft Heartland; KWE
Canals portfolio Office Oct 14 88 IVG Funds Lone Star; Ambog B.V Bureaugroep The Valley; 430,668 sq ft (5 properties) Cacaohandel Theobroma
INIT BuildingCzaar Office Apr 15 63 Prudential RE Investors Lone Star Funds de Persgroep; Flowtraders; 365,973 sq ft Peterstraat 213 Michel Post; Het Parool
Source: RCA Market metrics Share of investment by property type • Foreign investors accounted for almost exactly two thirds of transactions in Total investment 2014 US$ 3,643 m H2 2014 Amsterdam during 2014, a clear indication of their steadily growing influence Percentage from foreign investors 65.9% over recent years. Of these, over a third were global investors based outside All property total return 2.3% 2008-13 (p.a.) OFFICE Europe. 57% All property income return 5.4% • These global investors – principally US-based – were strongly attracted to 2008-13 (p.a.) INDUSTRIAL 11% hotels and industrial property, as well as the residential sector, where the All property capital growth -3.0% availability of larger lot sizes and portfolios was greater. 2008-13 (p.a.) RETAIL 13% Office prime yield Q4 – 2014 6.2% • In contrast, domestic investors concentrated on the retail and residential Source: RCA; IPD RESIDENTIAL sectors. The office sector, which accounted for well over half of deals in 16% H2 2014, was primarily the target of investors based elsewhere in Europe. OTHER/MIXED 3% • During Q4 last year, domestic investors increased their share of the market and interest in industrial and retail property picked up, typified by Source: RCA Kroonenberg Groep’s purchase of the Kalvertoren shopping centre for US$147m. • In 2014, take-up of office space in Amsterdam was broadly in line with 2013, with little movement on availability.
International property handbook H1 2015 61 Norway
The 2.2% GDP growth in 2014 will be followed by much slower rate of Economy expansion this year – around 0.8% - as the global fall in oil prices takes effect. However, a significant recovery is expected in 2016. Property investment volumes have risen to around US$4.9 bn, up Property 8% on 2013. Foreign buyers took a relatively small share of the market investment at 19%. Prime yields have fallen in each of the main sectors, after a relatively Yields stable period, driven in part by lower financing costs. Rents have remained broadly stable, as occupier demand has been OSLO Rents matched by new supply. Vacancy levels have seen some upward movement but rents are expected to remain flat.
Total property investment
US$ bn 8 Economic background Prime yields Population 2014 5.1 m Office 4.75% 6 Parliament – Coalition led by Retail 4.75% Conservative party leader Erna Solberg Industrial 6.25% 4 (96 of 169 seats)
Election September 2017 Property market background 2 GDP 2014 US$500 bn Investment market size 2014 US$4.95bn GDP per capita US$98,492 Percentage from foreign 18.6% 0 2007 2008 2009 2010 2011 2012 2013 2014 2014 investors GDP growth 2014 2.2% All property total return 2014 8.2% Q1 Q2 Q3 Q4 Source: RCA Economic indicators, end Q1 2015 Tax rates CPI Inflation 2.0% Transfer 2.5% stamp duty on Unemployment 3.5% deeds of conveyance Local market contact Thorvald Nyquist Base rate 1.25% Corporate income 27% Partner, Tax & Legal 10 year bond 1.49% Tax on dividends Up to 25% +47 95 75 31 41 Tax on interest 0% Exchange rate 1US$ to 8.018 NOK [email protected] Capital gains Ordinary corporation Source: EIU, RCA, IPD, Deloitte tax rate. Participation exemptions may apply.
International property handbook H1 2015 62 Norway – economic overview
Economic output and inflation • Norway’s immediate economic future relies heavily on the recovery of global
5% oil prices and an improvement in demand within the Eurozone. The outlook 4% for 2015 is therefore not favourable with growth of just 0.8% expected, but a pick-up in activity across the Eurozone in 2016 holds some promise for the 3% Norwegian economy. 2% 1% • Despite a 26% drop in tax receipts from the oil industry, the government’s 0% budget surplus will protect public spending from cuts this year. -1% • The unemployment rate is forecast to rise a little further, which will affect -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 consumer confidence and spending. However, the rate will remain well below the average across western Europe, and demand from the consumer sector is GDP growth CPI inflation expected to bounce back at a healthy rate in 2016. Source: EIU • Exports are becoming an increasing focus of activity, as the depreciated Krone and the recovering Eurozone economy provide the opportunity for Consumer spending and unemployment Norway to increase the volume of its external trade.
6% 5% Forecasts 2014 2015F 2016F 4% Real GDP growth 2.2% 0.8% 1.9% 3% Industrial output (% real change pa) 2.6% -0.7% -1.0% 2% Consumer spending (% real change pa) 2.2% 1.4% 2.5% 1% CPI Inflation 2.0% 1.4% 2.0% 0% Unemployment rate 3.5% 3.9% 3.7% -1% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 63 Norway – real estate performance
Total return by asset class and period • Stronger capital value growth pushed Norwegian real estate to its best
10% annual performance in four years, posting a total return of 8.2% last year, just a little behind the return on bonds. Over the longer period however, real 8% estate’s performance compares favourably with other asset classes. 6% 4% • Offices was the best-performing sector, with a total return of 9.1%, while 2% retail was the only sector to clearly underperform the market, held back by 0% meagre capital growth. -2% • Norway has produced a fairly stable set of returns over the last six years. -4% During this period, offices have generally delivered the best performance, 2010-14 annualised 2014 while industrial has been weaker but rebounded sharply last year. Direct property Equities Bonds • All property capital values grew 2.4% in 2014, led by offices and ‘other’ Source: IPD, Bloomberg property. Rental growth was 1.9% overall, evenly spread among the three main sectors.
All property total returns Capital growth by sector 20% 25% 15% 20% 10% 15% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Other Source: IPD Source: IPD
International property handbook H1 2015 64 Norway – investment market
• The total volume of investment in the Norwegian market in 2014 was up Total property investment around 8% year-on-year, at just under US$5bn, with the second half of the US$ bn year noticeably stronger, accounting for 72% of activity. 8 • The market is much more heavily dominated by domestic investors that some other major European cities, with foreign buyers involved in just 19% of the 6 deals by value. Among this group, US investors were the most active, while 4 Swedish buyers led those from elsewhere in Europe. • The office sector was the most popular in H2 2014, attracting 57% of the 2 market, with industrial also drawing significant interest, particularly from 0 funds. Demand for prime distribution centres with strong tenants has been 2007 2008 2009 2010 2011 2012 2013 2014 notably strong. Q1 Q2 Q3 Q4 • Retail saw very little investor interest over the second half of 2014, with only Source: RCA funds making any acquisitions.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – H2 2014 H2 2014 H2 2014 Occupier/ other OFFICE 57% 11% Europe INDUSTRIAL 24% 22% Private RETAIL 11% companies Funds United Middle East 29% 54% States 12% 66% RESIDENTIAL 5% Listed OTHER/MIXED 3% companies 6% Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 65 Oslo – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Oslo Office, Office Nov 14 259 ROM Eiendom AS KLP Eiendom AS Gjensidige; FSB Bank 344,448 sq ft Schweigaardsgate 21-23
Former Statnett HQ, Office Sep 14 113 Statnett Miliarium AS, JM AB NA 236,808 sq ft Husebybakken 28b
Karl Johans Gate 14 & Office Dec 14 107 Genesta Property AVA Eiendom AS TV2; Din Sko; Bluegarden; 189,446 sq ft Kirkegata 23-25 (2 property Nordic Gull Saksen Frisor; G-Star portofolio)
Lysaker Polaris, Office Feb 15 99 NCC AB Storebrand Technip Norge AS 212,954 sq ft Philip Pedersens Vei 7-9
Forskningsparken, Office Feb 15 91 OsloTech AS Arctic Securities OsloTech AS 322,920 sq ft Gaustadalleen 21
Source: RCA
Share of investment by property type • Oslo attracted for 59% of investment in Norway last year, half of which were Market metrics – H2 2014 transactions by equity and institutional funds. Total investment 2014 US$2.9 bn Percentage from foreign investors 12.4% • Foreign investors accounted for just over 12% of deals. Among these the All property total return OFFICE 6.5% 73% majority was made by US investors, with CPA:18 and WP Carey prominently 2008-13 (p.a.) active last year. All property income return 5.7% INDUSTRIAL 6% 2008-13 (p.a.) • The Oslo market is more heavily focused on the office sector, which made All property capital growth 0.7% RETAIL 8% up 73% of deals during H2 2014, and attracted particular attention from 2008-13 (p.a.) domestic investors. In contrast, all of the purchases in the retail sector were Office prime yield Q4 2014 4.75% made by foreign investors. RESIDENTIAL 9% Source: RCA; IPD • Prime property remains the target for the majority of investors, despite the OTHER/MIXED 4% availability of a good supply of secondary assets. Source: RCA • In the final quarter of 2014, the focus on offices increased even further, to 92% of the market.
International property handbook H1 2015 66 Poland The Polish economy expanded by a solid 3.3% in 2014 and is poised for Economy further growth as exports and consumer spending pick up. The high unemployment rate has also begun to come down. Investment is dominated by foreign capital, with US institutional funds Property the major buyer type. The total volume of transactions in 2014 was investment down slightly on 2013 but improving sentiment should see the level rise WARSAW this year. Prime office yields have been broadly stable. while in the logistics sector there has been some downward movement on prime space, Yields otherwise little movement. This is not expected to change in the short term. Office take-up has not improved, especially in Warsaw, where the Rents growing supply of new development is pushing effective rents down and vacancy levels up.
Total property investment
Economic background Prime yields US$ bn Population 2014 38.5 m Office 6.00% 6 Parliament – Sejm and Senate, Retail 5.80% 5 President – Bronislaw Komorowski Industrial 7.00% 4 Election Oct 2015 3 GDP 2014 US$546 bn Property market background GDP per capita 2014 US$14,180 Investment market size 2014 US$4.9 bn 2 GDP growth 2014 3.3% Percentage from foreign 82.4% 1 investors 0 All property total return 2014 5.0% 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end of Q1 2015 Q1 Q2 Q3 Q4 CPI Inflation 0.1% Tax rates Source: RCA Unemployment 12.3% Transfer 1% – 2% on certain Base rate 1.50% transactions Local market contact 10 year bond 2.31% Corporate income 19% Maciej Krason Partner, Audit, Exchange rate 1US$ to 3.774 PLN Tax on dividends Up to 19% +48 (22) 511 0360 Tax on interest Up to 20% Sources: EIU, IPD, RCA, Deloitte [email protected] Capital gains Ordinary corporation tax
International property handbook H1 2015 67 Poland – economic overview
Economic output and inflation • Poland is among the few European countries not to have seen annual GDP
8% growth fall below zero since the credit crisis. 2014 produced a further year of 7% solid expansion, with output up 3.3%, and broadly similar growth is expected 6% over the next two years. 5% • The 50 basis point cut in the base lending rate earlier this year to 1.5% has 4% 3% now been confirmed by the central bank as marking the end of the current 2% cycle. Although the zloty has strengthened following the start of the ECB’s 1% QE programme, and now trades at over four to the Euro, the central bank 0% remains unconcerned. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • The IMF recently revised its growth forecast over the next two years, in GDP growth CPI inflation light of improved outlook for Poland’s trading partners, particularly within Source: EIU the Eurozone. The unemployment rate has historically been high but recent data show it coming down at a fairly consistent rate, and it stood at 12% in February. Consumer spending and unemployment
25% • Consumer price inflation fell further below zero this year, with food prices down 3.6% as blocks on Russian exports continue. However, inflation is 20% forecast to regain positive growth this year. 15% Forecasts 2014 2015F 2016F 10% Real GDP growth 3.3% 3.3% 3.5% 5% Industrial output (% real change pa) 5.5% 6.5% 6.7% Consumer spending (% real change pa) 3.1% 2.5% 2.7% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CPI Inflation 0.1% 0.7% 2.4% Unemployment rate 12.3% 11.5% 10.9% Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 68 Poland – real estate performance
Total return by asset class and period • The 5.0% total return on Polish directly-held real estate was slightly below
20% the five year average performance, but represented a small improvement on 2013’s result and a superior return to the other large CEE countries. 15% • Bonds saw the best performance over 2014, producing a total return of 18%, 10% with equities delivering 10.7%.Over the five year period, direct property achieve marginally the best performance. 5% • However, on a wider international comparison, returns in 2014 were 0% comparatively weak, mainly due to a continued fall in capital values across -5% the office sector, although all three main sectors saw values fall last year. 2010-14 annualised 2014
Direct property Property equities Equities Bonds • Better performance was seen at the city level, with Warsaw’s retail sector recording total returns of almost 9% in 2014. Source: IPD, Bloomberg
All property total returns Capital growth by sector 20% 25% 15% 20% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Source: IPD Source: IPD
International property handbook H1 2015 69 Poland – investment market
• Over the last four years, the total volume of investment deals in the Polish Total property investment investment market has remained in the US$4.5–5.5bn range. 2014 saw the US$ bn annual total fall around 11% due to a weaker showing among domestic 6 investors. 5
• 82% of purchases last year were made by foreign investors, with US buyers 4 taking a similar share to those based elsewhere in Europe with German 3 buyers being the most prominent. In the final quarter however – the strongest of the year – domestic investors were notably more active, taking 2 a 30% share. 1 0 • A shrinking supply of prime assets brought a 46% year-on-year fall in 2007 2008 2009 2010 2011 2012 2013 2014 the volume of retail sales. The office sector was the most attractive with Q1 Q2 Q3 Q4 transactions rising 40%: stronger demand in Warsaw and other regional Source: RCA cities with an increase in supply of good new and refurbished stock have fed the market. Encouragingly, other regional cities such as Krakow and Wroclaw saw activity increase significantly.
Share of investment by property type Share of investmentShare of investment by investor by typeinvestor type Share of forShareigne of investment foreign investment by investor by origininvestor origin – H2 2014 H2 2014H2 2014 H2 2014H2 2014 Listed Listed companiescompanies OFFICE 55% 17% 17% Occupier/Occupier/ other other INDUSTRIAL United 22% 2% 2% United States States Europe Europe Private Private 38% 38% 42% 42% RETAIL 10% companiescompanies Funds Funds 19% 19% 62% 62% RESIDENTIAL 3% Asia Asia Middle EastMiddle East Pacific Pacific 19% 19% OTHER/MIXED 10% 1% 1%
Source: RCA Source: RCSourA ce: RCA Source: RCSourA ce: RCA
International property handbook H1 2015 70 Warsaw – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Plac Unii, Office Dec 14 281 Liebrecht & Wood Invesco RE for BVK/NAEK jv ING Group; Dalkia; 611,395 sq ft Ul Pulawska 2 Massimo Dutti
Cirrus Office Oct 14 40 Castle Carbery Props Adgar Investment & Dev GSK; Alcatel; Regus; 150,771 sq ft Wincentego Deutsche Bank Rzymowskiego 53
Chmielna 25 Retail Dec 14 37 LHI Leasing Gmbh IVG Immobilien Smyk; LHI; Deutsche Hypo; 67,813 sq ft H&M; Nexstep
Robyg Business CentreAleja Office Dec 14 25 Robyg SA Millennium Leasing Robyg SA 107,640 sq ft Rzeczypospolitej 1
Universal Office Nov 14 24 Metro Project S+B Gruppe; Commerz Real SKK Warsaw NA Al Jerozolimskie 44
Source: RCA
Share of investment by property type • Warsaw accounted for more than 40% of total investment in Poland, with Market metrics – H2 2014 the contribution from domestic capital the lowest recorded among all major Total investment 2014 US$2,271 m European cities during H2 last year. Percentage from foreign investors 87.5% All property total return OFFICE 4.4% 70% • US investors were most prominent, who together with those from Germany 2008-13 (p.a.) and the UK made up 80% of all foreign investment, but equity funds were All property income return 6.3% INDUSTRIAL 8% notably absent from the market. 2008-13 (p.a.) All property capital growth -1.8% RETAIL 3% • The office sector saw the largest share of activity, boosted by the single 2008-13 (p.a.) largest deal, the Plac Unii office scheme jointly acquired by German Office prime yield Q4 2014 6.0 – 6.25% institutional funds BVK and NAEK for US$281m, over 12% of the H2 total RESIDENTIAL Source: RCA; IPD 6% volume. OTHER/MIXED 13% • The Warsaw office market has been marked by high levels of supply, and the pipeline shows further growth in new space coming forward in 2015 and Source: RCA 2016, including in the central district. So, despite healthy take-up volumes, the vacancy rate looks certain to continue to rise and rents to slide further.
International property handbook H1 2015 71 Russia
Russia’s GDP is expected to contract by 4% during 2015, as the effects Economy MOSCOW of trade sanctions and the slump in oil prices take their toll. The effect on property investment volumes has been severe: the total Property annual volume of activity shrank by 50% in 2014, as foreign and local investment purchasers scaled back their plans. As a consequence, yields have risen sharply in all sectors. Prime office Yields buildings and shopping centres have been the best protected sector. Rents are expected to fall across the market in 2015 as occupier demand remains depressed by the slump in economic activity. Rents The decline in foreign firms’ presence combined with oversupply of office stock will have a negative effect on central office rents.
Total property investment
US$ bn Economic background Prime yields 20 Population 2014 142.3 m Office 11.00% Parliament – United Russia party led by Retail 11.00% 15 PM Dmitry Medvedev (238 of 450 seats) Industrial 13.00% 10 Election March 2018 Property market background
GDP 2014 US$1,906 bn Investment market size 2014 US$6.15 bn 5 GDP per capita 2014 US$13,400 Percentage from foreign 20.1% investors GDP growth 2014 0.5% 0 2007 2008 2009 2010 2011 2012 2013 2014 Tax rates Economic indicators, end Q1 2015 Q1 Q2 Q3 Q4 Transfer Minimal stamp duty on CPI Inflation 7.8% Source: RCA transactional documents Unemployment 5.2% Corporate 20% Local market contact Base rate 14% income 10 year bond 12.13% Steve Openshaw Tax on Up to 13%, withholding tax Audit Partner, Real Estate Leader Exchange rate 1US$ to 58.14 RUB dividends up to 15% +7 (495) 787 0600 Source: EIU, IPD, RCA, Deloitte Tax on interest Up to 20% [email protected] Capital gains Ordinary corporation tax rate – participation exemptions may apply.
International property handbook H1 2015 72 Russia – economic overview
Economic output and inflation • GDP in Russia is projected to contract by 4% in 2015, stark evidence of
20% the effects of the international trade sanctions put in place in reaction to the situation in Ukraine, and the major fall over the last year in the price of 15% Russia’s biggest export commodity – oil. 10%
5% • The effects on the economy were already apparent in 2014 when GDP grew by just 0.5%: public spending was cut, real wages fell and unemployment 0% rose. All these measures are expected to deteriorate further this year, as CPI -5% inflation climbs to around 15%. -10% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • The bank lending rate, which was raised to 17% in December, has how been
GDP growth CPI inflation brought down to 14%. Source: EIU • However, the medium-term outlook, based on a slowly recovering oil price and economic sanctions not continuing indefinitely, suggests output will see positive growth again in 2016 as domestic consumption picks back up. Consumer spending and unemployment Average growth over the following two years is expected to be around 2%,
20% but much depends on how political events unfold.
15%
10% Forecasts 2014 2015F 2016F
5% Real GDP growth 0.50% -4.00% 0.30% Industrial output (% real change pa) 1.70% -2.00% 1.20% 0% Consumer spending (% real change pa) 0.90% -6.20% 0.50% -5% CPI Inflation 7.80% 15.20% 5.70% -10% Unemployment rate 5.20% 7.10% 6.60% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: EIU Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 73 Russia – investment market
• The total volume of investment deals in 2014 was less than half the Total property investment 2013 total, at US$6.2bn, as foreign buyers withdrew from the market. US$ bn Indicators point to a further slowdown in Q1 this year – around US$660m is 20 the provisional volume. Among foreign investors active in the country, those from Switzerland and Qatar were the most prominent. 15 • Unsurprisingly, domestic private property companies and owner/occupiers 10 accounted for the majority of the market activity. Close to 45% of all
purchases by private companies have been development sites. 5 • The market has been characterised by falling values, rising yields and 0 smaller deal sizes. Offices attracted a greater share of investment, as its 2007 2008 2009 2010 2011 2012 2013 2014 performance remained relatively stable compared with other sectors. Looking Q1 Q2 Q3 Q4
ahead, however, a record supply of new office space in 2014, with demand Source: RCA declining, points to office rents and capital values falling sharply in 2015.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – H2 2014 H2 2014 H2 2014
OFFICE 32% Listed companies Funds 18% 22% INDUSTRIAL 7% Middle East Switzerland 34% RETAIL 15% Occupier/ 53% other Private 27% RESIDENTIAL companies Rest of 16% 33% US Europe 12% OTHER/MIXED 30% 1%
Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 74 Moscow – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Moscow Cinema Portfolio Retail Nov 14 223 City of Moscow OOO Edisonenergo NA 1,786,824 sq ft
Hermitage Plaza Office Dec 14 195 NA Eastern Property Holdings VimpelCom 322,920 sq ft Krasnoproletarskaya Ul 4
Metropolis office building Office Mar 15 165 Capital Partners Hines NA 344,448 sq ft Leningradskoye Shosse
Severnoe Siyanie Office Oct 14 159 Bolshoy Gorod Eastern Property Holdings BNP Paribas; Heineken; 317,538 sq ft Ul Pravdy 26 Omron; Pioneer
Ul Udaltsova plot Dev site Oct 14 135 Miroslav Melnik Novatek NA NA
Source: RCA Share of investment by property type • Investment in Russia is heavily weighted towards Moscow: 70% of purchases Market metrics – H2 2014 were in the capital in 2014, somewhat below the long-term share of around Total investment 2014 US$4,542 m 80%. The volume of transactions in the capital fell by 55% year-on-year. Percentage from foreign investors 21.6% OFFICE 44% • In Q4 last year, transactions on development sites – which made up all Office prime yield Q4 2014 11.00% the other/mixed category – were a notably larger share of the market, as Source: RCA; INDUSTRIAL 8% purchasers took advantage of lower values. RETAIL 16% • Although the rouble has regained some strength over the last few months, climbing to around 52 to the US$ since falling to a record low of 69 in RESIDENTIAL January, confidence remains fragile. Investment deals virtually dried up in 21% February but March saw a degree of activity resume, including a purchase by OTHER/MIXED 11% Hines. • Take-up levels of office space have taken a severe hit, pulling asking rents Source: RCA down, with primary stock more notably affected.
International property handbook H1 2015 75 Singapore GDP growth slowed to 2.9% in 2014 owing partly to sluggish manufacturing activity due to lower demand from other Asian Economy countries. However, it is expected to gain momentum in 2015, driven by both increased exports and domestic consumption. 2014 saw a slowdown in investment activity as transaction volumes Property dipped to US$10.3 bn, representing a 39.5% Y-o-Y fall from investment US$17.1 bn in 2013. Yields for CBD grade A office space are comparatively attractive in the Asian region. However, a combination of recovering investment SINGAPORE Yields demand and limited purchasing opportunities in 2015 is likely to keep prices up and yields down. After a year of good rental growth in 2014, the pace is expected to Rents continue in 2015 for the office sector as the supply forecast remains limited for the year.
Total property investment Economic & political background Prime yields Population 5.5 m Office 4.25% US$ bn 30 Parliament – Led by People’s Action Retail – Party with 79 seats out of 87. Industrial – 25 Prime Minister – Lee Hsien Loon (PAP) 20 Election Jan 2017 Property market background 15 GDP 2014 US$303 bn Investment market size 2014 US$10.3 bn GDP per capita 2014 US$55,440 Percentage from foreign 11.8% 10 GDP growth 2014 2.9% investors 5 All property total return 2014 – 0 Economic indicators, end Q1 2015 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 1.0% Tax rates Q1 Q2 Q3 Q4 Unemployment 2.0% Transfer 3% on assets Source: RCA Base rate 0.34% 5-15% – residential assets 10 year bond 2.27% Local market contact Corporate income 17% Exchange rate 1US$ to 0.727SGD Wong Siew Eng Source: EIU, RCA, Deloitte Tax on dividends 0% Partner, Assurance & Advisory Services Tax on interest Up to 15% +65 6216 3138, [email protected] Capital gains Not taxed
International property handbook H1 2015 76 Singapore – economic overview
Economic output and inflation • Singapore has a highly developed free-market economy which depends
16% heavily on exports, particularly in consumer electronics, IT, pharmaceuticals 14% and, increasingly, on a growing financial services sector. 12% 10% • On a year-on-year basis, the country’s economy grew by 3.9% in 2013 but 8% growth fell to 2.9% in 2014 due to weaker manufacturing and transportation 6% output. It was also held back by a very tight labour market. 4% 2% • Growth is forecast to accelerate in 2015 thanks to stronger demand from 0% key export markets such as the US, and low inflation fuelling domestic -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 consumption. GDP growth CPI inflation • Headline inflation dipped into negative territory in the first quarter of 2015, Source: EIU although this was largely driven by lower accommodation and fuel costs. Other costs, such as food and services continue to rise. • The government recently announced plans to build a large new complex, Consumer spending and unemployment Terminal 5 (T5), at Changi Airport by the mid-2020s. 7% 6% 5% Forecasts 2014 2015F 2016F 4% Real GDP growth 2.9% 3.1% 3.2% 3% Industrial output (% real change pa) 3.0% 5.4% 5.3% 2% Consumer spending (% real change pa) 1.8% 3.3% 3.5% 1% CPI Inflation 1.0% 0.1% 1.4% 0% -1% Unemployment rate 2.0% 1.9% 1.9% -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate
Source: EIU
International property handbook H1 2015 77 Singapore – investment market
• 2014 saw investment activity fall by almost 40% compared with 2013, in part Total property investment due to fewer land transactions. US$ bn • In recent years development sites have accounted for a large portion of 30 investment, but their share fell back in 2014, partly because the government 25
released fewer land parcels for residential development. 20 • Office transactions dominated the second half of 2014, recording the 15 highest volume since early 2013. There were a few reasonably large industrial 10 transactions, and the retail sector has also seen a steady flow of deals, albeit 5 smaller in size. 0 2007 2008 2009 2010 2011 2012 2013 2014 • REITs/listed investors were behind more than half of all purchases in the Q1 Q2 Q3 Q4 second half of 2014, favouring the office sector, but they also accounted for two thirds of industrial sector purchases. Source: RCA • While Singapore attracts significant levels of foreign investment in commercial property, most still comes from the Asia Pacific region.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – H2 2014 – H2 2014 – H2 2014 Funds 5% OFFICE US 45% Europe 16% 1% INDUSTRIAL 9% Private Listed companies RETAIL 2% companies 33% 55% Asia RESIDENTIAL Pacific 5% 83% Occupier/ OTHER/MIXED 39% other 7% Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 78 Singapore – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Marina Bay Financial Centre, Office Dec 14 945 Keppel Land Ltd Keppel REIT WongPartnership LLP; 1,340,000 Tower 3, Marina Blvd Rio Tinto; McGraw Hill sq ft
Axa Tower Office Mar 15 859 Blackrock Perennial Real Estate, HCL Technologies; 670,200 8 Shenton Way HPRY Holdings; FTi Consulting; sq ft Low Keng Huat Tan Kok Quan
Crowne Plaza Hotel Hotel Jan 15 373 OUE OUE Hospitality Trust Crowne Plaza 320 rooms Changi Airport
The Straits Trading Bldg Office Sep 14 360 Straits Trading Sun Venture Spinelli SF Coffee Co; 199,839 9 Battery Rd Rajah & Tann LLP sq ft
Cyberhub, 20 Bendemeer Road Industrial Mar 15 65 Lee Family BS Capital Group Cyberhub; Acacia IT Services; 175,000 Grey Orange sq ft
Source: RCA
Share of investment by property type • One of the largest deals in recent months was Keppel Land’s sale of a third Market metrics – H2 2014 share in the Marina Bay Financial Centre office building to Keppel REIT. Total investment 2014 US$10.3 bn • The main office markets have seen little new space delivered over the Percentage from foreign 11.8% OFFICE 45% past year. Q4 did see a rise in the amount of office space completed, but investors Office prime yield Q4 2014 4.25% 9% a significant share has already been let to tenants, and with occupational INDUSTRIAL demand still strong (particularly amongst IT and telecommunications firms Source: RCA and legal services providers), vacancy rates have been falling. RETAIL 2% • There have been some notable hotel transactions since the start of the year, RESIDENTIAL 5% the largest being OUE Hospitality Trust’s purchase of the Crowne Plaza at Changi Airport, for a reported yield of 4.5%. OTHER/MIXED 39% • The largest recent retail deal was the sale of the S-11 food court for US$49m to a private investor. Source: RCA
International property handbook H1 2015 79 South Korea
SEOUL Economic growth recovered in 2014, with GDP expanding by 3.4%. Economy Forecasts indicate further improvement in output over the next two years.
2014 was a strong year for foreign investment in the commercial Property property market, with over US$2bn of purchases taking place – investment a 50% increase on 2013.
High investment demand for core property has kept yields under Yields downward pressure, due to lack of prime stock on the market and lower interest rates.
Rental levels on prime assets have been relatively stable with tenant Rents demand still strong, despite last year’s concentrated supply of redevelopment projects.
Total property investment Economic & political background Prime yields US$ bn Population 2014 50.5 m Office 5.00% 20 Parliament – Saenuri Party led by Retail 6.00% President, Park Guen-Hye (152 of Industrial 7.00 – 8.00% 300 seats) 15 Election May 2018 Property market background 10 GDP 2014 US$1.42 tn Investment market size (2014) US$17.9 bn GDP per capita 2014 US$28,110 Percentage from foreign 13.7% investors 5 GDP growth 2014 3.4% All property total return 2014 9.0% 0 Tax rates 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end Q1 2015 Transfer 4.6% on assets Q1 Q2 Q3 Q4 CPI Inflation 1.3% Corporate income 22% + 2.2% provincial tax Source: RCA Unemployment 3.5% Tax on dividends Residents 15.4% Base rate 1.75% & interest Non – residents 22% Local market contact 10 year bond 2.17% Capital gains Ordinary corporation tax Hyung Lee Exchange rate 1US$ to 1111.1KRW rate – potentially reduced if Partner, Real Estate Group Leader +82 (2) 6676 2251 Source: EIU, RCA, IPD, Deloitte Korean sourced gains. [email protected]
International property handbook H1 2015 80 South Korea – economic overview
Economic output and inflation • Although the central bank lowered its forecast for GDP growth in 2015,
8% pointing to a weak 4th quarter in 2014, the economy continues to expand at 7% a growing pace. 6% • Citing a period of lower inflation, the central bank cut the base rate to 5% 1.75% in March. 4% 3% • The government is currently operating a US$40bn fiscal stimulus programme, 2% designed to support growth, and a significant tranche of this is due to 1% be spent in the first half of 2015. There are also proposals for a new 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 infrastructure funding model in which the government will assume part of the cost and risk of projects alongside private sector investors. GDP growth CPI inflation Source: EIU • South Korea’s economy is export-dependent and while recovering demand from the US should provide a boost, this has to be weighed against weaker demand from parts of Europe. Consumer spending and unemployment • Nevertheless, domestic demand is improving, although this will be tempered 6% in the longer term by high levels of household debt. 5%
4% Forecasts 2014 2015F 2016F 3% Real GDP growth 3.4% 3.6% 3.8% 2% Industrial output (% real change pa) 3.5% 3.5% 3.5% 1% Consumer spending (% real change pa) 1.7% 3.2% 3.1% CPI inflation 1.3% 1.4% 2.1% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 3.5% 3.2% 3.1%
Source: EIU Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 81 South Korea – real estate performance
Total return by asset class and period • South Korean real estate produced a total return of 9.0% in 2014, up from
15% 8.0% in 2013 and the highest recorded since 2007. Compared with the other main asset classes, real estate has performed strongly, behind bonds, 10% with a higher return last year of 11.3%, but ahead of equities. This pattern is repeated in the five-year average figures. 5% • The improved total return last year was driven by a 2.9% rise in capital values. 0% Both the office and retail sectors saw an improvement but the latter achieved -5% the higher growth, with values up 3.6% over the year.
-10% • The strongest capital growth, however, was seen in the smaller but 2010-14 annualised 2014 increasingly important ‘other’ property sector, where capital growth rose Direct property Equities Bonds to 10.3%, and the total return in 2014 was 16.3%.
Source: IPD, Bloomberg
All property total returns Capital growth by sector
30% 20%
25% 15% 20% 10% 15%
10% 5% 5% 0% 0% -5% -5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Other Source: IPD Source: IPD
International property handbook H1 2015 82
15.3 26.7 5.4 6.9 5.5 8.6 7.6 8.0 9.0 South Korea – investment market
• In 2014, domestic buyers contributed 86% of the total investment in Total property investment South Korea. Investment from the US jumped several-fold, accounting for US$ bn 7% of the total. 20 • However these figures were distorted by a single domestic transaction: a Hyundai-led group paid a record price of US$9.8bn for a single asset, 15 the development site for its new headquarters. This Q4 deal represented 10 55% of the annual total last year. • Korea ranks more highly than other developed countries including the 5 United States, Japan, Germany and Australia on the World Bank’s index 0 of investor protection, making the country attractive to foreign investors. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4
Source: RCA
Share of investment by property type – H2 2014 Share of investmentShare of investment by by Share of forShareigne investmentof foreign investment by by investor typeinvestor – H2 2014type – H2 2014 investor origininvestor – H2 origin 2014 – H2 2014
OFFICE 18% Funds Funds INDUSTRIAL 24% 24% Europe Europe 1% 29% 29% United United Occupier/ Occupier/ Private Private States States RETAIL other other companiescompanies 9% 53% 53% 69% 69% 6% 6% Asia Asia RESIDENTIAL Listed Listed Pacific Pacific 0% companiescompanies 18% 18% 1% 1% OTHER/MIXED 72%
Source: RCA Source: RCSourA ce: RCA Source: RCSourA ce: RCA
International property handbook H1 2015 83 Seoul – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size KEPCO HQ; 512 Yeongdong-daero Dev site Nov 14 9,851 KEPCO Hyundai Motor Co; NA 854,037 sq ft Gangnam-gu KIA Motors State Tower Namsam Office Nov 14 469 SH Asset Management CBRE Bain & Co; Korea 719,025 sq ft 88 Hoehyeondong 2(i)ga Jung-gu Global Investors Investment Corp; BMW Olive Tower Office Dec 14 311 Midas International Asset Mgmt; Deutsche AWM Rolls-Royce; KDB Life 642,000 sq ft 135 Seosomun-dong Jung-gu RREEF Fondimmobiliari SGR Germany Insurance; LG SK Networks Gangnam Branch Office Nov 14 289 SK Networks IGIS; NH Bank SK Networks; Hyundai 513,600 sq ft 948 Daechi-dong Gangnam-gu Autoever Jeongdong Bldg 15-5 Jung-gu Jeong-dong Office Dec 14 249 Samsung Asset Management IGIS Kim & Chang Law; Korea 421,378 sq ft Institute for Curriculum
Source: RCA • In Seoul, offices accounted for 20% of investment in the second half of 2014. Market metrics Share of investment by Foreign investors were responsible for 11% of total investment over this Total investment 2014 US$16,398 m property type – H2 2014 period. Percentage from foreign investors 10.7% • Both of these shares have been depressed by a major investment in All property total return 6.9% OFFICE 20% development land by Hyundai Motors, which accounts for the 75% share of 2008-13 (p.a.) investment attributed to ‘other/mixed’ property. All property income return 6% INDUSTRIAL 1% 2008-13 (p.a.) • In Seoul, the office sector attracts by far the largest share of foreign All property capital growth 0.9% 2008-13 (p.a.) RETAIL 4% investment – almost 90% of the total foreign investment volume was focused on this sector alone. Office prime yield Q4 2014 5.0% Source: RCA; IPD RESIDENTIAL 0% • With limited new supply expected over the next few years, the vacancy rate among prime assets is expected to come down. An additional fall in OTHER/MIXED 75% prime yields for office properties in the CBD is likely, due to sustained buying pressure from major institutional investors. Source: RCA • Interest in retail and industrial property has increased over the last couple of years where long-term master lease agreements are in place.
International property handbook H1 2015 84 Spain
The economy grew by 1.4% in 2014 and is expected to grow by MADRID Economy 2.5% in 2015, among the fastest expansion in the Eurozone.
Property investment more than doubled between 2013 and 2014 and Property looks set to remain high as interest from foreign investors increases. investment Q3 last year saw the highest quarterly volume of deals since 2008.
A shortage of prime stock and increasing confidence in the economy Yields suggest that yields will continue to fall this year.
BARCELONA Rental growth has remained moderate, particularly outside the Rents office sector. However as the economy gathers momentum, upward pressure should emerge.
Total commercial property investment Economic background Prime yields Population 2014 47.1 m Office 5.00% US$ bn 16 Parliament – Congress of Deputies, Retail 4.40% 14 Prime Minister Mariano Rajoy Brey of Industrial 7.50% Partido Popular. 12 10 Election Dec 15 Property market background 8 GDP 2014 US$1401 bn Investment market size 2014 US$13.4bn 6 GDP per capita2014 US$29,770 Percentage from foreign 40% 4 GDP growth 2014 1.4% investors 2 All property total return 2014 10.1% 0 Economic indicators, end Q1 2014 2007 2008 2009 2010 2011 2012 2013 2014 Tax rates CPI Inflation -0.2% Office Industrial Retail Hotels Transfer 7% on assets Unemployment 24.4% Corporate income 28% Source: RCA Base rate 0.05% Tax on dividends Up to 20% 10 year bond 1.21% Local market contact Tax on interest Up to 20% Javier Parada Exchange rate 1US$ to 0.9215 EUR Capital gains Ordinary corporation Partner, Audit Source: EIU, RCA, IPD, Deloitte tax rate – participation +34 6291 42071 exemptions may apply. [email protected]
International property handbook H1 2015 85 Spain – economic overview
Economic output and inflation • Spain is recovering from a prolonged period of recession, with last year’s
6% GDP growth of 1.4% the first positive result in six years. In 2015, however, it is expected to be the fastest expanding of the four largest economies in the 4% Eurozone. 2% • Over the next four years, Spain’s economy is forecast to grow at an average
0% rate of 1.6%, driven mainly by increased private consumption, which will be boosted by current negative inflation. -2% • Despite a pick-up in economic activity, CPI inflation should remain subdued, -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 averaging around 1.3% for the next four years.
GDP growth CPI inflation • Unemployment is expected to gradually diminish but to remain extremely Source: EIU high – above 20% until 2018 – as workforce numbers see only muted expansion. • Gross fixed investment rose 3.4% in 2014 and is forecast to stabilise in Consumer spending and unemployment 2015 and 2016. 30% 25% 20% 15% Forecasts 2014 2015F 2016F 10% Real GDP growth 1.4% 2.5% 2.0% 5% Industrial output (% real change pa) 0.7% 1.5% 1.5% 0% Consumer spending (% real change pa) 2.4% 2.9% 2.3% -5% CPI Inflation -0.2% -0.6% 0.9% -10% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 24.5% 22.9% 21.4%
Source: EIU Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 86 Spain – real estate performance
Total return by asset class and period • Spanish real estate produced a total return of 10.1% in 2014, an impressive
30% rebound from 0.3% in 2013, and well ahead of the average achieved over the 25% last five years at just 3.1%. While this outperformed the stock market, it was 20% 15% some way behind the 24.5% annual return delivered by government bonds. 10% 5% • Thanks to stronger income return, the best-performing property sector was 0% industrial, with a total return of 14.4%. However, the spread between sectors -5% -10% was fairly narrow, with ‘other’ property the weakest with 8.5%. Over longer -15% periods, ‘other’ property has consistently produced the best total returns. -20% -25% -30% • After six years of declining capital values, Spanish property posted a rise 2010-14 annualised 2014 of 4.2% in 2014, led again by industrials but all sectors saw an increase in Direct property Property equities Equities Bonds values. Rental growth remains scarce however, with only the office sector recording growth last year (3.3%) dragging the overall performance to 0.5%. Source: IPD, Bloomberg
All property total returns Capital growth by sector 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Other Source: IPD Source: IPD
International property handbook H1 2015 87 Spain – commercial investment market
• Confidence returned to the Spanish investment market last year as the total Total commercial property investment volume more than doubled, to US$9.6bn, with the majority of activity (76%) US$ bn coming in the second half of the year. Just over 40% of purchases were made 16 by foreign investors, many sensing that the market had reached a turning 14 point as an improving economy pointed to better prospects. Domestic REITs 12 (Socomis) were also major purchasers. 10 8 • Among foreign investors in the second half of 2014, US-based funds and 6 companies were by far the most active, and accounted for almost two-thirds 4 of deals. Buyers based elsewhere in Europe made up the remainder. 2 0 • Investment has been broadly spread across the main sectors, although Spain 2007 2008 2009 2010 2011 2012 2013 2014 is unusual in having retail taking the largest share last year, with 56% of the Office Industrial Retail Hotels market. Source: RCA
Share of investment by property type SharShare ofe of investment investment by by SharShare ofe of for foreigneign investment investment by by – H2 2014 investorinvestor type type – H2– H2 2014 2014 investorinvestor origin origin – H2– H2 2014 2014
PrivatePrivate OccupiersOccupiers OFFICE 30% investorsinvestors 5%5% 5%5% INDUSTRIAL 8% FoForeignreign RETAIL 56% 40%40% DomesticDomestic 60%60% HOTELS InstitutionalInstitutional 6% investorsinvestors 90%90% Source: DTT
SourSource:ce: DT DTT T SourSource:ce: DT DTT T
International property handbook H1 2015 88 Madrid – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Gran Via 32 Retail Jan 15 483 Drago Capital; Ponte Gadia Primark; H&M; Mango; Lefties 391,810 sq ft PSP Investments
Centro Comercial Plenilunio, Retail Mar 15 420 Orion Capital Managers Klepierre Primark; Media Markt; Zara; 753,840 sq ft Calle de Aracne Vodafone; Bershka
Islazul Retail Oct 14 292 Ivanhoe Cambridge TIAA Henderson C&A; Benetton Group; Zara; 968.760 sq ft 1, Calle De La Calderilla Eroski Hyper Market
Bankia IT head office Office Dec 14 162 SEB ImmoPortfolio Bankia Bankia 470,387 sq ft 1, Calle De Gabriel García Márquez
Torre Saint Gobain Office Jan 15 107 Grupo BBVA GMP BBVA 174,377 sq ft Paseo De La Castellana 77
Source: RCA Market metrics Share of investment by property type • Madrid accounted for over 31% of the total investment into Spain during – H2 2014 H2 2014, with volumes surging towards the end of the year, up more than Total commercial investment 2014 US$3,396 m 60% between Q3 and Q4. Offices were the most attractive property type, Percentage from foreign investors 47.5% OFFICE accounting for 52% of the market. All property total return -1.5% 52% 2008-13 (p.a.) INDUSTRIAL • Institutional investors were the dominant buyer type for offices, making up All property income return 5.2% 17% 2008-13 (p.a.) 84% of the total volume. All property capital growth -6.4% RETAIL 29% • Spanish REITs (Socimi) are competing in the acquisition of the scarce number 2008-13 (p.a.) of trophy assets, while those such as Hispania have been particularly active at Office prime yield Q4 2014 5% HOTELS 2% the smaller end of the market. Source: DTT, RCA; IPD Source: DTT • Private investors accounted for 15% of commercial property investment into Madrid during H2 2014. The sale of prime projects is driving the investment profile and forces the ‘high yield’ investor to undertake riskier deals.
International property handbook H1 2015 89 Barcelona – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Torre Telefonica Office Sep 14 140 Zona Franca Consortium Telefonica Telefonica (lease to Jan ’60) 365,976 sq ft Placa De Llevant
Apartment portfolio Apartment Jan 15 109 Aguirre Newman Goldman Sachs NA 18 properties
Anec Blau Retail Sep 14 90 IGIPT SPAIN LAR – SOCIMI Mercadona; Inditex Group; 310,678 sq ft Avenida Josep Tarradellas H&M
Diagonal 199 Office Dec 14 50 Credit Suisse AXIARE Omnicom 165,238 sq ft Avenida Diagonal 197-199
Banesto HQ Office Feb 15 50 SAREB Pontegadea NA 147,465 sq ft Plaza de Cataluña
Source: RCA
Market metrics Share of investment by property type • The volume of investment in Barcelona, at just over US$710m in H2 2014, Total commercial investment 2014 US$1,090 m – H2 2014 was a little more than a third that of Madrid, and in terms of growth last year Percentage from foreign investors 61.2% did not match the attraction of Madrid. Nonetheless, Barcelona saw a robust OFFICE All property total return 0.1% 80% year-on-year increase of around 24%, into a market much more heavily 2008-13 (p.a.) focused on the office sector. All property income return 5.3% INDUSTRIAL 13% 2008-13 (p.a.) • Foreign capital has a smaller, but still high, share of the market than in All property capital growth -5.1% Madrid, accounting for 45% of investment during H2 2014, and an even RETAIL 7% 2008-13 (p.a.) smaller share of purchases were made by investors based outside Europe. Office prime yield Q4 2014 5% HOTELS 0% • Institutional investors, as in Madrid, were the dominant buyer type for offices Source: DTT, RCA; IPD Source: DTT during H2 last year representing 82% of the total volume. • Although new office supply is at a low level, and annual take-up increased by 50% in 2014, interest in development sites remains subdued, in contrast to Madrid.
International property handbook H1 2015 90 Sweden
GDP growth of 2% in 2014 is expected to accelerate to 2.6% in 2015. Economy Increased consumption, falling unemployment and a looser monetary stance are set to fuel further growth.
The total volume of investment grew by around 20% between Property 2013 and 2014, with Q4 last year particularly active. Domestic buyers investment dominate the market, but foreign interest is increasing.
Prime office yields in Stockholm have fallen to around 4.25%, while Yields STOCKHOLM yields on the best logistics property stand at 6%. Rents on Stockholm and Gothenburg offices picked up during 2014 – Rents in secondary locations as well as central districts. An improving occupier picture and limited new supply should maintain these levels.
Economic background Prime yields Population 2014 9.7 m Office 4.25% Parliament – Coalition of SAP and Green Retail 4.25% Total property investment Party. Prime Minister – Stefan Lofven. Industrial 6.00% Election Sept 2018 US$ bn 25 GDP 2014 US$569.1 bn Property market background GDP per capita 2014 US$58,720 Investment market size 2014 US$18.2 bn 20 GDP growth 2014 2.0% Percentage from foreign 14.8% 15 investors Economic indicators, end Q1 2015 All property total return 2014 8.1% 10 CPI Inflation -0.2% Unemployment 7.9% Tax rates 5 Transfer 4.25% stamp duty on assets Base rate -0.25% 0 2007 2008 2009 2010 2011 2012 2013 2014 10 year bond 0.42% Corporate 22% Exchange rate 1US$ to 8.63SEK income Q1 Q2 Q3 Q4 Tax on Up to 30% Source: RCA Source: EIU, RCA, IPD, Deloitte dividends Tax on interest 0% Local market contact Capital gains Ordinary corporation tax rate Lars Franck, Partner, Corporate Tax +46 75 246 2126, [email protected]
International property handbook H1 2015 91 Sweden – economic overview
Economic output and inflation • GDP in Sweden grew by 2% in 2014 with momentum picking up in the last
8% quarter, supporting forecasted further expansion in 2015. 6% • Robust consumer spending growth combined with rising business investment 4% activity was the main driver of GDP growth. Tax cuts, weak inflation and an 2% improving labour market are helping to lift private consumption. 0% • The drop in oil prices pushed CPI inflation below zero last year but as that -2% pressure eases economic growth will see it rise to around 2% next year. The -4% Riksbank has adopted a looser monetary stance to boost inflation to a level of -6% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 around 2%. The base rate is not expected to be raised until well into 2016.
GDP growth CPI inflation • The weaker Krona has made Swedish products more competitive elsewhere Source: EIU and export volumes are expected to increase by over 6% this year and continue to grow over the following years. • The unemployment rate has fallen since 2013 and is forecast to follow Consumer spending and unemployment a further steady decline. 10%
8%
6% Forecasts 2014 2015F 2016F Real GDP growth 2.0% 2.6% 2.2% 4% Industrial output (% real change pa) 2.7% 3.5% 3.8% 2% Consumer spending (% real change pa) 2.5% 2.6% 2.3% CPI Inflation -0.2% 1.1% 2.0% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 7.9% 7.6% 7.3% Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 92 Sweden – real estate performance
Total return by asset class and period • The total return on direct property in Sweden in 2014 was 8.1%, an
40% improvement on the 6.8% posted in 2013, but still below both the five and ten year average performance. In comparison with other asset classes, direct
30% property can be seen to have underperformed: both bonds and equities delivered returns in the mid-teens, and indirect real estate produced an
20% impressive 36% total return last year. • The office sector – just over half of the IPD dataset – produced the strongest 10% performance at 8.9%, marginally ahead of residential. This was the first time since 2000 that offices had been the top-performing sector. 0% 2010-14 annualised 2014 • Residential property achieved the highest capital value growth for the third Direct property Property equities Equities Bonds successive year, at 4.5%. Industrial was the only sector where values declined, seeing the third successive year of marginal falls. Among the commercial Source: IPD, Bloomberg sectors, offices had the strongest rental growth, at 2.3%.
All property total returns Capital growth by sector 20% 20% 15% 15% 10% 10% 5% 5% 0% -5% 0% -10% -5% -15% -10% -20% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Other Source: IPD Source: IPD
International property handbook H1 2015 93 Sweden – investment market
• Investment into Swedish property last year rose by around 20% year-on-year, Total property investment to a little over US$18bn, around 10% below the volume in 2007. The final US$ bn quarter’s total, just over US$6.4bn, was the highest in six years, suggesting 25 the market will remain healthy into 2015. 20 • The majority of capital came from domestic investors – just under 15% of deals were cross-border purchases last year – so the pick-up in economic 15 activity has been a strong driver of the market. However, international 10 investors’ attraction to Swedish property has grown over the last six years. 5 • Interest in the main sectors was broadly split during H2 last year, with offices 0 accounting for 40% of deals and residential property taking a significant 2007 2008 2009 2010 2011 2012 2013 2014 share. All sectors except retail saw year-on-year growth in volumes, with Q1 Q2 Q3 Q4 industrial property in particular picking up strongly thanks in part to a Source: RCA number of large portfolio transactions. • Sweden’s second city, Gothenburg, also saw a significant rise in investment activity last year.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin H2 2014 H2 2014 H2 2014
OFFICE 40% Listed US INDUSTRIAL companies Funds 16% 31% Occupier/ 23% 40% other RETAIL 12% 3% Europe Private 69% RESIDENTIAL companies 26% 34% OTHER/MIXED 6% Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 94 Stockholm – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Kista portfolio (4 properties) Office Dec 14 268 AREIM Kungsleden AB Ericsson; Rinkeby-Kista 774,265 Stadsdelsforvaltning sq ft
Mentorn 1 Office Dec 14 209 Vital Forsikring AMF Fastigheter Google; Bonnier; 190,501 Kungsbron 2 FAR Akademi; DTZ sq ft
Fabege Office Dec 14 191 Fabege AB FastPartner AB Nasdaq OMX; GANT; 756,881 Stockholm office Siemens sq ft
Stora Katrineberg 16 Office Dec 14 147 LaSalle Investment Atrium Ljungberg AB Grontmij; Roche; 430,560 Liljeholmsstranden 5 Stockholm lans sq ft
Wallenstam Stockholm Apartment Dec 14 134 Wallenstam AFA Fastigheter NA 267 units apartments
Source: RCA
Share of investment by property type • The total value of investment in Stockholm almost doubled between Q3 and Market metrics H2 2014 Q4 last year, bringing the H2 total to just under US$4bn. Foreign investment Total investment 2014 US$7,981 m accounted for 14% of the market during this period, the majority of this Percentage from foreign investors 14.2% from other European-based funds, with Norway the most notable country of OFFICE 68% All property total return 6.7% origin. 2008-13 (p.a.) INDUSTRIAL • Equity and institutional funds made almost half of purchases, with private All property income return 5.0% 7% 2008-13 (p.a.) companies also highly active, particularly in the residential market. All property capital growth 1.7% RETAIL 4% • Overall, though, activity in the city is concentrated on office stock, and 2008-13 (p.a.) Office prime yield Q4 2014 4.25% RESIDENTIAL Kungsleden’s purchase of four office buildings in the Kista district illustrated 16% the appetite for portfolio acquisitions seen elsewhere across the country. Source: RCA; IPD OTHER/MIXED 5% • Demand for good quality space is strong, both in the CBD and the submarkets, and, with only a limited amount of speculative stock in the Source: RCA pipeline, recent rental growth should be maintained.
International property handbook H1 2015 95 Taiwan
At 3.5% in 2014, economic growth was around the long run average Economy and is expected to pick up in 2015.
There is significant potential for foreign investment to increase but Property ultra-low yields are likely to deter those who do not need to purchase TAIPEI Investment property for their own use. Domestic investors may increasingly be tempted by higher yields in other markets.
Yields are some of the lowest in the world and there is little scope for Yields further meaningful compression.
Office rents have been falling, and new supply coming to the market Rents could push up vacancy rates. However, some tenants are upgrading and showing a willingness to take better quality space.
Total property investment Economic background Prime yields Population 2014 23.4 m Office 1.85% US$ bn Parliament – Led by Kuomintang (KMT) Retail 2.25% 12 with 65 seats out of 113 Industrial 3.00% 10 Election Jan 2016 8 GDP 2014 US$529 bn Property market background GDP per capita 2014 US$22,632 Investment market size 2014 US $8.8 bn 6 GDP growth 2014 3.5% Percentage from foreign 6% 4 investors 2 Economic indicators, end Q1 2015 All property total return 2014 – 0 CPI Inflation 1.20% 2007 2008 2009 2010 2011 2012 2013 2014 Tax rates Unemployment 4.00% Q1 Q2 Q3 Q4 Transfer 2% – 6% Base rate 1.88% Corporate income 17% Source: RCA 10 year bond 1.54% Tax on dividends Up to 20% Exchange rate 1US$ to 31.25 TWD Local market contact Tax on interest Up to 10% Ching Cheng Yang Source: EIU, RCA, IPD, Deloitte Capital gains Ordinary corporation Partner, Audit tax rate. Sale of land +886 (2) 2545 9988 subject to Land Value [email protected] Incremental Tax.
International property handbook H1 2015 96 Taiwan – economic overview
Economic output and inflation • After relatively low growth in 2012 and 2013, GDP expanded more strongly
12% in 2014. The pace of growth is forecast to rise further in 2015 as consumption 10% and exports benefit from lower oil prices. 8% • The fall in the oil price has seen a drop in the value of refined petroleum 6% exports, but other sectors of industry, such as electronics and semi-conductor 4% production have continued to see robust exports growth in the first few 2% 0% months of 2015. -2% • Inflation has dropped to low levels and is not expected to pick up significantly -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 in the short-term – part of the reason behind the Central Bank’s decision to keep base rates on hold at 1.875% since 2011. GDP growth CPI inflation
Source: EIU • In 2014 unemployment fell below 4% for the first time in six years, although slower employment growth suggests a period of stabilisation in the labour market. Nominal wage growth has slowed, but combined with very low Consumer spending and unemployment inflation, real wage growth is still present, lending support to the consumer
8% sector.
6%
4% Forecasts 2014 2015F 2016F Real GDP growth 3.5% 4.0% 3.0% 2% Industrial output (% real change pa) 3.3% 3.0% 2.7% 0% Consumer spending (% real change pa) 2.6% 2.8% 2.3% CPI inflation 1.2% 0.4% 1.2% -2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Unemployment rate 4.0% 3.8% 3.7%
Consumer expenditure growth Unemployment rate Source: EIU Source: EIU
International property handbook H1 2015 97 Taiwan – investment market
• Investment activity in Taiwan has improved in recent years with expanded Total property investment cross-Strait trade with mainland China and expansion of trade links with other US$ bn partners in the Asia Pacific region, as well as reforms to enhance investment- 12 related regulations. Over half the investment activity in 2014 took place in the Taipei market. 10 8 • There were just two deals recorded in the second half of 2014 involving 6 foreign investment, both involving Chinese capital, some of which was routed through the British Virgin Islands. This represented just 4% of overall activity. 4 Over the year as a whole there were just five transactions, with Singapore 2 playing the most significant role. 0 2007 2008 2009 2010 2011 2012 2013 2014 • An important feature of the Taiwanese market is that a relatively high share Q1 Q2 Q3 Q4 of properties are purchased by the occupier. Source: RCA
Share of investment by property type Share of investmentShare of investment by investor by type investor type Share of forShareigne of investment foreign investment by investor by origin investor origin H2 2014 H2 2014H2 2014 H2 2014H2 2014
OFFICE 21% Listed ListedFunds Funds companiescompanies16% 16% INDUSTRIAL 23% 17% 17% Private Private companiescompanies RETAIL 3% Asia Asia 21% 21% Occupier/Occupier/ Pacific Pacific RESIDENTIAL other other 100% 100% 0% 46% 46% OTHER/MIXED 53% Source: RCSourA ce: RCA Source: RCSourA ce: RCA Source: RCA
International property handbook H1 2015 98 Taipei – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Shin Kong Tunnan Mansion Office Sep 14 374 Cathay Financial Holdings Baofeng NA 327,941 sq ft (3F-11F) 243 245 Sec 1 Dunhua S Rd
Goldsun Group Building Office Nov 14 131 Gallop No. 1 REIT Kee Tai Properties NA 254,693 sq ft 137-139 Zhengzhou Rd
Chung Ding Building (10-22F) Office Dec 14 92 Gallop No. 1 REIT Ruilong Co Ltd NA 133,483 sq ft 77 Sec 2 Dunhua S Rd
Shin Kong Ruihu Tech Building Office Jan 15 75 Shin Kong Life Insurance Gamania Digital NA 211,618 sq ft 111 Ruihu St Neihu District Entertainment Co Ltd
Costco Distribution Industrial Dec 14 68 Far Glory Life Insurance NA Costco 504,832 sq ft Taoyuan
Source: RCA
Share of investment by property type • Yields for prime, centrally located office buildings in Taipei are some of the Market metrics H2 2014 lowest in the world, at just under 2.0%. Retail yields can be even lower. Total investment 2014 US$5,041 m One of the reasons that Taiwanese insurance firms have embraced the Percentage from foreign 9.4% OFFICE 31% lifting of the ban on foreign investment is to access higher yielding markets. investors • The proposed purchase of a 37.2% stake in the Taipei 101 tower by Malaysian Office prime yield Q4 2014 1.85% INDUSTRIAL 18% IOI Properties collapsed in March amidst opposition from the Taiwanese Source: RCA finance ministry. The finance ministry is now seeking a majority stake in RETAIL 2% the asset.
RESIDENTIAL • The Taipei office market has seen new space delivered in 2014, with more 0% to come during 2015. Although some of this space is already leased, the OTHER/MIXED remainder will be available to the market and this is likely to push up vacancy 49% rates initially, and thus potentially reduce landlords’ bargaining power in Source: RCA some instances. • The industrial market accounted for almost a quarter of investment activity in H2 2014, but a high proportion of deals were purchases by owner-occupiers.
International property handbook H1 2015 99 United Kingdom
GDP is expected to expand a little faster in 2015, at around 2.7%, as confidence returns to consumers mainly through low inflation. Better Economy prospects in the rest of Europe should support an improvement in exports.
2015 has started strongly, with the volume of deals well ahead of last investment year’s pace. Overseas capital remains the key driver, but domestic MANCHESTER funds are also very active. LONDON Yields in central London and some south east markets have been Yields pushed down to all-time lows. Further compression is expected in regional markets.
Rental growth has been strong in the central London office markets Rents and is emerging in the major regional centres. The retail sector remains fragile away from prime London locations.
Economic background Prime yields Total property investment Population 2014 64.9 m Office 3.50% US$ bn Parliament – Conservative Party majority Retail 4.25% 120 government Industrial 5.00% Prime minister – David Cameron 100 Election May 2020 80 Property market background GDP 2014 US$2.9 tn Investment market size 2014 US$92.3 bn 60 GDP per capita 2014 US$46,020 Percentage from foreign 53.7% 40 GDP growth 2014 2.6% investors 20 All property total return 2014 17.9% Economic indicators, end Q1 2015 0 2007 2008 2009 2010 2011 2012 2013 2014 CPI Inflation 1.5% Tax rates Q1 Q2 Q3 Q4 Unemployment 6.0% Transfer Stamp duty on property Base rate 0.50% 0%-4% on non-residential Source: RCA Local market contact 10 year bond 1.58% 7%-12% on residential Nigel Shilton Exchange rate 1US$ to 0.674GBP Corporate income 21% Tax on dividends 0% (except 20% on REITs) Partner, Deloitte Real Estate +44 20 7007 7934 Source: EIU, RCA, IPD, Deloitte Tax on interest Up to 20% [email protected] Capital gains Part of a company's taxable profits
International property handbook H1 2015 100 United Kingdom – economic overview
Economic output and inflation • Despite a weak first quarter, the UK economy looks set to produce a further
6% year of strong expansion in 2015 following GDP growth of 2.6% last year. Service and manufacturing business activity surveys during the early part of 4% this year have indicated good levels of growth in these sectors, albeit lower 2% than those seen last year. 0% • Nonetheless, household spending will remain the backbone of growth. -2% Confidence among consumers has improved steadily and retail sales figures -4% continue to rise. However, the improvement in consumers’ spending power -6% owes more to lower inflation than it does to earnings growth. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Around 800,000 new jobs were created last year, exceptional growth GDP growth CPI inflation achieved both through expansion of the workforce and a declining Source: EIU unemployment rate. Further falls will put increased upward pressure on wages – currently rising 2.2% year-on-year excluding bonuses – which will in turn eventually trigger a rise in the base rate, although the likely date Consumer spending and unemployment continues to be pushed back. 10% 8% Forecasts 2014 2015F 2016F 6% Real GDP growth 2.6% 2.7% 2.4% 4% Industrial output (% real change pa) 1.5% 2.0% 1.8% 2% Consumer spending (% real change pa) 2.0% 2.8% 2.4% 0% CPI Inflation 1.5% 0.2% 1.4% -2% Unemployment rate 6.0% 5.5% 5.5% -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 101 United Kingdom – real estate performance
Total return by asset class and period • The total return on UK property in 2014 was 17.9%, its strongest
40% performance since 2005. This was more than matched, however, by the return achieved by real estate equities at over 24%. 30% • Over the last five years, both direct and indirectly-held property has produced a superior return to both the wider stock market and government bonds. 20% • Capital values rose by 11.9% last year, almost entirely driven by an average 10% yield compression of around 65bps. Performance was led by the office and industrial sectors, as sentiment in the retail sector remained uncertain. 0% 2010-14 annualised 2014 • The West End and Midtown office submarkets in London achieved the strongest capital value growth, of almost 20%, while industrial property in Direct property Property equities Equities Bonds the South East also performed notably, with annual capital value growth Source: IPD, Bloomberg of 17%.
All property total returns Capital growth by sector 30% 20%
20% 10% 10% 0% 0% -10% -10%
-20% -20%
-30% -30% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Source: IPD Source: IPD
International property handbook H1 2015 102 United Kingdom – investment market
• A strong final quarter helped push the total volume of deals in 2014 to over Total property investment US$92bn, the highest since 2007 and around 19% up on 2013. Q1 volumes US$ bn this year – up almost 38% on the 2014 figure – suggest that 2015 will be a 120 further year of high demand. 100
• The increasingly important part played by overseas investors was a key 80 feature of the market last year: their share was just over 53% for the year 60 as a whole. Among them US investors were highly prominent, buoyed by the strength of the dollar and with large cash reserves to spend. There was 40 a notable increase in the volume of portfolio sales last year, particularly those 20 made up of industrial property which saw annual volumes rise 48%, and 0 US funds were keen purchasers of these large lot sizes. 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 • Within the retail sector, a swathe of shopping centre transactions followed Source: RCA the benchmark-setting sale of a share of the Bluewater centre in July at a yield of 4.1%
Share of investment by property type Share of investmentShare of investment by investor by type investor type Share of forShareigne of investment foreign investment by investor by origin investor origin – H2 2014 H2 2014H2 2014 H2 2014H2 2014 Listed Listed companiescompanies OFFICE 12% 12% 50% Others Others 15% 15% Middle EastMiddle East INDUSTRIAL Private Private 13% 10% 10% United United companiescompanies States States 18% RETAIL 18% Funds Funds 41% 41% 23% 66% 66% Europe Europe Occupier/Occupier/ 15% 15% RESIDENTIAL other other Asia Asia 4% 4% 4% Pacific Pacific 19% 19% OTHER/MIXED 10% Source: RCSourA ce: RCA Source: RCSourA ce: RCA Source: RCA
International property handbook H1 2015 103 London – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
Canary Wharf Mixed Apr 15 3,864 Canary Wharf Group Brookfield Property Partners; Various 7,031,314 sq ft portfolio Qatar Investment Authority
HSBC HQ Office Dec 14 1,717 National Pension Service Qatar Investment Authority HSBC 1,184,030 sq ft 8 Canada Square (Korea)
Swiss RE Tower Office Nov 14 1,158 IVG Immobilien; Safra Group Swiss RE; Allianz; 506,281 sq ft 30 St Mary Axe Evans Randall Kirkland & Ellis
New Scotland Yard Office Dec 14 577 Metropolitan Police Abu Dhabi Financial Group NA 400,000 sq ft 10a Broadway
Tower Place Office Jan 15 506 Deutsche Bank Ping An Insurance Marsh & 375,983 sq ft 1 Tower Pl McLeannan
Source: RCA Share of investment by • London attracts a greater share of foreign investment than the UK as a Market metrics property type – H2 2014 whole, at over two thirds in 2014. Central London stock remained the focus Total investment 2014 US$45.6 bn for the majority of Middle and Far Eastern investors willing to pay prices at Percentage from foreign investors 67.6% yields at the bottom of their long-term range, while UK funds’ sights have OFFICE 78% All property total return 11.2% generally moved to higher-yielding assets elsewhere in the country. 2008-13 (p.a.) INDUSTRIAL • The market is dominated by the office sector, but retail property in the West All property income return 5.3% 3% 2008-13 (p.a.) End, particularly on Bond Street, is highly prized by international purchasers. RETAIL 9% All property capital growth 5.7% • Rental growth prospects in the office sector have been a strong incentive 2008-13 (p.a.) Office prime yield Q4 2014 3.50% RESIDENTIAL for investors in recent quarters. Stock with shorter leases left to run – which 2% would allow owners to capture the expected growth – has performed more Source: RCA OTHER/MIXED 8% strongly than that with longer term income. • Demand from occupiers has been particularly strong around the central Source: RCA stations of the new Crossrail train service due to start in 2018.
International property handbook H1 2015 104 Manchester – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size
MediaCityUK Industrial Mar 15 387 Peel Group Legal & General Property BBC; ITV 1,600,000 sq ft Salford Quays
3 Hardman Square Office Dec 14 143 CS Euroreal Prudential plc World Pay; Michael Page; 178,508 sq ft Gartside Street i2 Office; TLT Solicitors
Omega South Retail Dec 14 74 Miller Developments LondonMetric The Hut Group 690,000 sq ft Distribution Park Property M62, Warrington
Argos warehouse Industrial Apr 15 51 NA Tritax Assets Argos (lease expiry 381,106 sq ft Pilsworth Rd Apr 28)
4 Hardman Square Office Dec 14 48 GLL Real Estate Partners Orchard Street Invt Mgmt; Grant Thornton LLP; HSBC 52,000 sq ft St James's Place PF
Source: RCA
Share of investment by • The investment market in Manchester is more balanced across the sectors Market metrics property type – H2 2014 than in London, with offices accounting for just a third of deals in the second Total investment 2014 US$4.2 bn half of 2014. Equally, domestic purchasers take a far larger share of the Percentage from foreign investors 37.0% market. OFFICE 34% All property total return 6.9% • UK institutional funds, in particular, have taken a strong interest in prime 2008-13 (p.a.) INDUSTRIAL office property in the major regional cities, and amongst these Manchester All property income return 6.3% 22% 2008-13 (p.a.) stands out as the major target. RETAIL 20% All property capital growth 0.6% • Funds were increasingly the dominant purchaser type during 2014, building 2008-13 (p.a.) Office prime yield Q4 2014 5.00% RESIDENTIAL from 52% of the Manchester market in Q1 to 73% in Q4. In the office sector 7% funds accounted for 95% of deals in the final quarter. With the supply of Source: RCA OTHER/MIXED grade A office space still low, investors have ventured away from the CBD, 17% into the Northern Quarter for example where Kames Capital have been Source: RCA active. • Occupier demand remains healthy: the North West region, centred on Manchester, saw a strong rise in new jobs last year, with business services well represented.
International property handbook H1 2015 105 United States
WASHINGTON DC The US economic recovery is well underway and current forecasts Economy suggest 2015 will see an even stronger pace of growth than last year. CHICAGO SEATTLE Investment in the US property market grew by 17% over 2014. Property BOSTON Sentiment, and data relating to the first quarter of 2015, indicate that investment SAN FRANCISCO 2015 will see a similar level of investment. NEW YORK Yields in all property sectors have been relatively stable since 2007, Yields ranging from 6.5% to 7.5%. However, after a brief period up to ATLANTA 2010 when they rose, yields have since declined. LOS ANGELES The occupational markets in the US are recovering on the back of stronger Rents economic fundamentals – and most importantly, falling unemployment. DALLAS HOUSTON
Total property investment Economic background Prime yields US$ bn Population 2014 318.8 m Office 4.1% 700 Political structure – Federal government. Retail 6.8% 600 President: Barack Obama (Democrat) Industrial 7.2% 500 Election Nov 2016 400 GDP 2014 US$17.4 trn Property market background 300 GDP per capita 2014 US$54,640 Investment market size 2014 US$420bn 200 GDP growth 2014 2.4 % Percentage from foreign 11.6% investors 100 All property total return 2014 11.2% 0 2007 2008 2009 2010 2011 2012 2013 2014 Economic indicators, end Q1 2015 Tax rates Q1 Q2 Q3 Q4 CPI Inflation 1.6% Transfer Transfer tax varies. Source: RCA Unemployment 6.2% Possible mortgage Base rate 0.25% recording tax Local market contact 10 year bond 1.93% Corporate income 35% Robert O’Brien Partner, Real Estate Services Exchange rate 1US$ to 0.674GBP Tax on dividends Up to 30% +1 312 486 2717 Tax on interest Up to 30% Source: RCA [email protected] Capital gains Ordinary corporation tax rate
International property handbook H1 2015 106 United States – economic overview
Economic output and inflation • The US is forecast to see its strongest rate of GDP growth for ten years in
5% 2015, as unemployment continues to reduce and consumer confidence 4% increases. 3% 2% • Low inflation is providing a further support to consumers. The projected 1% CPI for 2015 is low primarily due to the fall in global crude oil prices and 0% the impact of a strengthening dollar on the prices of imported goods. -1% This situation will be short lived as CPI is expected to rise above the -2% -3% 2% mark from 2016 onwards. -4% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • In contrast to many other developed economies, the US government has increased spending as a proportion of GDP, creating further momentum in GDP growth CPI inflation the economy. Source: EIU • Nevertheless, it will not be all plain sailing – the rising dollar could dampen demand for US exports, particularly to markets such as Europe, where demand is less strong to begin with. As ever, there are also some Consumer spending and unemployment uncertainties on the horizon, not least the next round of elections and questions over the timing of the Federal Reserve’s raising of interest rates. 11% 9% Forecasts 2014 2015F 2016F 7% Real GDP growth 2.4% 3.4% 2.5% 5% Industrial output growth 2.8% 3.0% 3.5% 3% Consumer spending growth 2.5% 3.1% 2.4% 1% CPI Inflation 1.6% 0.4% 2.2% -1% Unemployment rate 6.2% 5.4% 5.2% -3% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: EIU
Consumer expenditure growth Unemployment rate Source: EIU
International property handbook H1 2015 107 United States – real estate performance
Total return by asset class and period • Property equities gave the highest returns, both in 2014 and in the last
30% 5 years, followed by equities, direct property investments and lastly bonds.
25% • Direct property total returns were 11.2% in 2014, a marginal decline of 40 bps compared with 2013. Since 2010, property returns have, on average, 20% given a return of 12.6% 15% • Of the broad property types, the industrial sector saw the highest level of 10% capital growth in 2014 at 7.1%, but the detailed data shows pockets of major 5% outperformance: markets such as San Francisco offices or Boston industrial 0% saw values increase at almost twice this pace. 2010-14 annualised 2014 • The US REIT market saw very strong performance in 2014, boosted by a Direct property Property equities Equities Bonds combination of low interest rates and recovering economic growth. Source: IPD, Bloomberg
All property total returns Capital growth by sector
30% 20%
20% 10%
10% 0% 0% -10% -10%
-20% -20%
-30% -30% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Income return Capital growth Total return Retail Office Industrial Residential Other Source: IPD Source: IPD
International property handbook H1 2015 108 United States – investment market
• US real estate investment reached US$420bn in 2014, up from around Total property investment US$360bn in 2013. New York city saw the highest volume of activity with US$ bn about 15% of total investment in the US, followed by Los Angeles and San 700 Francisco. 600 • Transactions are spread very broadly across the country – the combined 500 investment from the 10 US markets covered in this handbook only accounts 400 for 50% of total US investment. This is in stark contrast to much of Europe or 300 Asia where single cities often account for the bulk of a country’s investment 200 activity. 100 0 • Foreign purchases were 12% of the total volume, and close to half of this was 2007 2008 2009 2010 2011 2012 2013 2014 concentrated in the office sector. Canada has remained the single biggest Q1 Q2 Q3 Q4 source of foreign capital for US real estate. Source: RCA • The weight of capital – both domestic and foreign – still targeting the US market suggests 2015 will see another year of robust investment activity.
Share of investment by property type Share of investment by investor type Share of foreign investment by investor origin – H2 2014 H2 2014 H2 2014
OFFICE 31% Listed companies Occupier/ 17% INDUSTRIAL other Europe Canada 11% Funds 5% 35% 36% 37% RETAIL 17% Private companies RESIDENTIAL Asia 29% 41% Pacific Middle East 21% OTHER/MIXED 12% 8%
Source: RCA Source: RCA Source: RCA
International property handbook H1 2015 109 New York – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size 1095 Sixth Ave (GF-5F & Office Jan 15 2,250 Blackstone Ivanhoe Cambridge MetLife; Dechert; NAP Verizon 1,030,000 sq ft 13F-40F); 1095 Sixth Ave Callahan Capital Partners Communications Waldorf Astoria 301 Park Hotel Feb 15 1,950 Hilton Worldwide Anbang Insurance Group NA 1,425 rooms Ave 11 Times Square Office Feb 15 1,400 Prudential RE Investors David Werner RE Proskauer; Rose; Microsoft; 1,100,000 sq ft Moore Capital Mgmt. Glimcher Retail Portfolio 15 Retail Jan 15 1,090 Glimcher Realty Trust Simon Property Group Cohoes Fashions; Burlington 1,463,971 sq ft Coat; Forever 21; Marshalls; Loews Theatres 1345 Avenue of the Office Dec 14 980 Rockpoint Group JP Morgan Asset NA 1,896,140 sq ft Americas Management
Source: RCA • New York remains the largest city for real estate investment globally, with Market metrics volumes in 2014 a third higher than in London, the second largest market. Total investment 2014 US$61.4 bn Share of investment by property type Percentage from foreign 16.0% H2 2014 • Unlike the UK capital, New York attracted only 16% of its total investment investors from foreign sources, with purchasers from Canada and China leading. Office All property total return 7.3% and retail space remained the primary focus of foreign investors. 2008-13 (p.a.) OFFICE 41% All property income return 5.6% • Office investment has been climbing as market fundamentals continue to 2008-13 (p.a.) INDUSTRIAL improve. Vacancy rates have dropped to their lowest levels since 2009 across All property capital growth 1.3% 23% 2008-13 (p.a.) all of the major office locations but the impact on rental levels, while positive, Office prime yield Q4 2014 4.10% RETAIL has been modest to date. 2% Source: RCA; IPD • Apartment blocks are another part of the market seeing rapid growth in RESIDENTIAL 4% investment demand, with purchases in 2014 almost ten times higher than at the recent low point in 2009. OTHER/MIXED 37%
Source: RCA
International property handbook H1 2015 110 Los Angeles – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size The Reserve 13031 W Office Jan 15 316 Shorenstein Properties Invesco RE TMZ; Microsoft; Sony; Verizon 380,000 sq ft Jefferson Blvd Communications Aon Center, 707 Wilshire Office Oct 14 270 Beacon Capital Partners Shorenstein Properties Wells Fargo; Aon Insurance 1,095,488 sq ft Boulevard KPMG Centre, 550 S Hope St Office Dec 14 240 LBA Realty; Principal Real Morgan Stanley KPMG; Shangri-La Construction 556,434 sq ft Estate Investors MTV Building 2600-2700 Office Apr 15 284 M David Paul Assoc; Five Mile Invesco RE MTV; Viacom; Comedy Central 310,800 sq ft Colorado Blvd Capital; Centurion Real Estate 8th & Hope, 805 S Hope St Apartment Feb 15 200 Wood Partners Essex Property Trust NA 209 units
Source: RCA
Share of investment by property type • Overall investment activity has been edging higher in the LA market, driven Market metrics H2 2014 largely by private funds and institutions, which accounted for around 75% of Total investment 2014 US$30.9 bn purchases in 2014. Percentage from foreign 11.3% investors OFFICE 25% • Office vacancy rates soared in the aftermath of the economic downturn, All property total return 5.0% but have been in decline since mid-2013. This has attracted a new phase of 2008-13 (p.a.) INDUSTRIAL development with a number of large schemes in the pipeline, including the All property income return 6.0% 17% 2008-13 (p.a.) Wilshire Grand project, which will add 400,000 sq ft of office space and All property capital growth -1.0% RETAIL 24% 900 hotel rooms. 2008-13 (p.a.) Office prime yield Q4 2014 5.20% RESIDENTIAL • The influence of the technology and creative industries has led to demand for 21% more innovative workspaces, and some older buildings are being converted Source: RCA; IPD OTHER/MIXED 13% to provide this environment. • The largest recent retail transaction was Macerich’s purchase of its JV Source: RCA partner’s 49% stake in a five mall portfolio, three of which were in Los Angeles county. • Rapid population growth over the last decade has lent strength to the residential market, especially since 2008.
International property handbook H1 2015 111 San Francisco – key recent deals
Asset Type Date Price (US$ mn) Vendor Purchaser Key tenants Size Blackstone CA office/dev Office Mar 15 3,500 Blackstone Hudson Pacific QuinStreet; Netsuite; Oracle; 26 properties site portfolio 2014 Properties Wal Mart; Xerox Villas Parkmerced Apartment Oct 14 983 Fortress Rockpoint Group Maximus RE NA 3,221 units 3711 19th Ave Partners 50 Fremont St Office Feb 15 640 TIAA – CREF Salesforce GSA – Comptroller of the Currency; 817,412 sq ft Pillsbury Winthrop, Salesforce Parc 55 Wyndham Hotel Feb 15 530 Blackstone; Rockpoint Group; Hilton Worldwide Hilton Worldwide 1,024 rooms 55 Cyril Magnin St Highgate Holdings Menlo Science and Office Feb 15 400 Prologis Facebook Facebook 21 buildings on Technology Center 56 acres
Source: RCA, Real Estate Alert
Share of investment by property type • In 2014, investment activity in San Francisco reached the highest level since Market metrics H2 2014 before the downturn. The most dramatic recovery has been seen in office Total investment 2014 US$28.6 bn sector, where purchasing activity was double that recorded in 2013. Percentage from foreign 12.7% investors OFFICE 47% • The office sector is benefitting from an improving economic backdrop, All property total return 7.0% propelled by the rapidly growing technology industry. Office vacancy rates 2008-13 (p.a.) INDUSTRIAL have declined steadily over the past year and the market is seeing rental All property income return 5.9% 13% 2008-13 (p.a.) growth. All property capital growth 1.1% RETAIL 8% 2008-13 (p.a.) • The residential sector accounts for a sizeable share of investment and has Office prime yield Q4 2014 3.70% RESIDENTIAL seen renewed interest as the economy has improved. It has also been 21% supported by significant population growth. Yields have been on Source: RCA; IPD OTHER/MIXED 11% a downward trend for a number of years as investor interest grows. • The industrial markets around San Francisco remain buoyant – indeed, Source: RCA the first quarter of 2015 saw the highest level of transactions for at least 10 years. Like the office markets, the sector is benefitting from growth in the technology sector. Occupier demand for space is high and vacancy is low.
International property handbook H1 2015 112 Washington DC – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Dweck Properties’ DC office Office Feb 15 500 Dweck Properties Jamestown; LP Jones Day; Siemens; Business 461,484 sq ft portfolio Roundtable; Comcast (2 properties) Springfield Town Center Retail Mar 14 465 Vornado Realty Trust PREIT JC Penney; Macy’s; Target; Dick’s 1,415,660 sq ft 6500 Springfield Mall Sporting Goods; Regal Cinema 1801 K St NW Office Jan 15 445 Somerset Partners Mirae Asset Global Lockton Companies; Bank of America; 563,795 sq ft Investments KPMG; Federal Reserve Bank PNC Place Office Oct 14 392 PNC Financial Services Norges Bank Invt PNC Bank; Holland & Knight Analysis 365,000 sq ft 800 17th St Mgmt; TIAA-CREF Group Patriots Park Office Oct 14 321 Boston Properties Hyundai Securities GSA – Defence Intelligence Agency; 706,000 sq ft 12290 Sunrise Valley Dr GSA – Director of National Intelligence
Source: RCA, Real Estate Alert • 2014 saw a lower level of investment overall than in 2013, although in terms Market metrics of quarterly volumes, activity has broadly been on the rise since mid-2013, Total investment 2014 US$15.1 bn Share of investment by property type and indications for the first quarter of 2015 continue to support an improving Percentage from foreign 26.2% H2 2014 trend. investors All property total return 6.3% • In particular, the first quarter of 2015 has seen a rebound in retail investment, 2008-13 (p.a.) OFFICE with a number of significant mall sales. Vacancy rates have been declining All property income return 5.8% 47% 2008-13 (p.a.) since 2013, and therefore the market is likely to be able to absorb the INDUSTRIAL All property capital growth 0.4% 7% shopping centre development underway in a number of suburbs. 2008-13 (p.a.) Office prime yield Q4 2014 5.10% RETAIL 10% • The strengthening economy has had a positive impact on the office market, helping to stabilise vacancy rates during 2014 and supporting rental levels. Source: RCA; IPD RESIDENTIAL 26% However, an important influence on demand in the market is the federal government, which is aiming for greater real estate efficiency, and this is likely OTHER/MIXED 10% to keep availability relatively high. • Over a quarter of investment in 2014 came from foreign investors, with those Source: RCA from Europe taking the top spot.
International property handbook H1 2015 113 Chicago – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size 353 North Clark Street Office Nov 14 715 Tishman Speyer Hietman Jenner & Block; Mesirow Financial; 1,184,000 sq ft Mid Continental Plaza Office Jan 15 367 Glenstar Properties; Prudential RE Investors Sargent & Lundy; NORC; Goldberg 1,300,000 sq ft 55 E Monroe St Walton St Capital Kohn; Thompson Coburn OneEleven 111 W Wacker Dr Apartment Jan 15 323 Related companies Heitman NA 504 units Fifth Third Center Office Dec 14 225 TIER REIT Deutsche AWM; Fifth Third Bank; Raymond James; 1,184,432 sq ft 222 S Riverside Lincoln Property Co Deutsche Bank 300 South Riverside Plaza Office Feb 15 220 David Werner RE Joseph World Wide Group; JPMC; Zurich North America; 1,048,367 sq ft Mizrachi Cammeby’s Int’l Group Newark corp; PCM Logistics
Source: RCA
Share of investment by property type • The Chicago market has seen a steady recovery in recent years, and one that Market metrics H2 2014 has encompassed all property types. Private funds account for a significant Total investment 2014 US$13.8 bn share of purchases, especially in the residential sector. Percentage from foreign 12.9% investors OFFICE 47% • The Chicago office investment market has staged an impressive rebound All property total return 4.9% since transactions ground to a halt in 2010, and almost a quarter of purchases 2008-13 (p.a.) INDUSTRIAL made in 2014 were by foreign investors. All property income return 6.5% 18% 2008-13 (p.a.) • After a number of years of very limited development activity, a rise in tenant All property capital growth -1.5% RETAIL 14% 2008-13 (p.a.) demand is pushing down office vacancy rates, and like other large cities, Office prime yield Q4 2014 5.40% RESIDENTIAL Chicago is seeing office space converted to other uses. 16% Source: RCA; IPD • Industrial yields have declined as transactions have seen a sharp increase over OTHER/MIXED 5% the past 18 months.
Source: RCA
International property handbook H1 2015 114 Dallas – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Carter Burgess Plaza Office Dec 14 167 Cousins Properties Ivanhoe Cambridge Crescent RE Holdings; 954,895 sq ft 777 Main St Callahan Capital Partners Keystone Exploration; The Residence at North Apartment Feb 15 81 Post Investment Group Anbang Insurance Group NA 1,032 units Dallas 18665 Midway Rd Las Colinas Office Sep 14 70 GE Real Estate Finance Brookwood Financial NA 446,031 sq ft 125 E John Carpenter Fwy Partners 5950 Sherry Ln Office Nov 14 62 RREEF Funds TIER REIT Phoenix Property Company; 1,184,432 sq ft Robertson Griege & Thoele
Centrum Tower Office Dec 14 54 Alliance Global Group Quadrant Invt Prop Compass Health Care 367,251 sq ft 3111 Welborn
Source: RCA • Investment in Dallas reached levels not seen for a decade in the last quarter Market metrics of 2014. Activity declined in the first quarter of 2015 but the broad trend of Total investment 2014 US$13.3 bn Share of investment by property type improving transaction volumes remains intact. The market is characterized by Percentage from foreign 4.6% H2 2014 a very high share of domestic purchasers. investors All property total return 7.4% • Investment is weighted towards the multifamily residential market, which 2008-13 (p.a.) OFFICE performed well in 2014, against the backdrop of a strong labour market All property income return 6.6% 23% 2008-13 (p.a.) recovery. Vacancy remains low, rents have been rising, and developers have INDUSTRIAL All property capital growth 0.8% 14% been delivering more stock to the market. 2008-13 (p.a.) Office prime yield Q4 2014 6.40% RETAIL 10% • The office sector has accounted for many of the larger investment transactions in recent quarters. A fairly broad-based occupational recovery is Source: RCA; IPD RESIDENTIAL 44% underway, with rents having risen during 2014, although a significant amount Source: RCA of stock is currently in development. OTHER/MIXED 9% • The industrial sector took a relatively small share of the market in the second half of 2014, but this is more reflective of the limited volume of stock being brought to the market.
International property handbook H1 2015 115 Boston – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Blackstone Cambridge Office Sep 14 1,530 Blackstone Oxford Properties Group; NA 2,100,706 sq ft Office Portfolio 2014 JP Morgan Chase 100 Cambridge Street Office Mar 15 280 Commonwealth of InterContinental State of Massachusetts 599,500 sq ft Massachusetts Developers Inc Atmark Apartments Apartment Mar 15 208 CC&F AEW Capital Mgmt NA 428 units 80 Fawcett St MTV Building 2600-2700 Office Jan 15 176 MIT Alexandria RE Equities Sanofi; Boston Biomedical 225,748 sq ft Colorado Blvd 8th & Hope, 805 S Hope St Office Nov 14 170 Shorenstein Properties Meritage Properties; CV JP Morgan; Boston Herald; 469,000 sq ft Properties Monster Worldwide, Source: RCA
Share of investment by property type • The office sector attracted a major share of investment into Boston last year, Market metrics H2 2014 and proved especially attractive to foreign purchasers – over 95% of foreign Total investment 2014 US$13.3 bn investment was focused on this sector. Percentage from foreign 30.8% investors OFFICE 71% • Norges Bank’s investment management arm made the biggest single deal in All property total return 5.7% the office sector in 2014, with the purchase of a stake in a three-asset office 2008-13 (p.a.) INDUSTRIAL portfolio (two of which were in Boston) at a pro-rated price of US$1,827m. All property income return 5.8% 6% 2008-13 (p.a.) • More generally, investment into Boston has been increasing consistently All property capital growth 0.0% RETAIL 4% 2008-13 (p.a.) since Q3 2009. However, even without the recent spate of major office Office prime yield Q4 2014 4.50% RESIDENTIAL transactions, it has been the office sector that has led the recovery. 8% Source: RCA; IPD • Industrial and retail volumes have struggled to gain momentum in recent OTHER/MIXED 11% years, although activity in the residential sector began 2015 with a strong first quarter, which saw transactions approach US$1bn. Source: RCA
International property handbook H1 2015 116 Atlanta – key recent deals
Asset Type Date Price (US$ mn) Vendor Purchaser Key tenants Size Concourse Center 5 & 6 & dev Mixed Apr 15 489 Regent Partners; Farallon Building & Land NA 1,602,307 sq ft site; Concourse Pkwy Capital Mgmt.; GEM Realty Technology Northpark Town Center Office Sep14 348 AEW Capital Mgmt.; Cousins Properties AIG; Equifax Inc., GE; AT&T; Oracle 1,527,720 sq ft 1000-1100 Abernathy Rd Bank of Ireland AT&T Lenox Park Campus Office Nov 14 290 Columbia Property Trust Fortress AT&T 1,077,599 sq ft 1055 Lenox Park Blvd NE TIAA GA office portfolio Office Jan 15 201 TIAA-CREF Brookdale Group Morgan Stanley, UBS Axiom, 706,121 sq ft Houlihan Lokey One Buckhead Plaza Office Jan 15 157 Metzler Real Estate Parkway Properties Morgan Keegan 461,669 sq ft 3060 Peachtree Rd NW
Source: RCA, Real Estate Alert
Share of investment by property type • 2014 began with relatively modest investment of around US$2.5bn in Atlanta, Market metrics H2 2014 but finished the year on a high as quarterly activity rose to over US$5bn. Total investment 2014 US$12.3 bn The first quarter of 2015 has since seen volumes fall back somewhat, to Percentage from foreign 3.9% around US$3bn. investors OFFICE 20% All property total return 3.8% • The residential investment market was responsible for almost half of the total 2008-13 (p.a.) INDUSTRIAL transactions volume in the second half of 2014. In contrast to many other All property income return 6.7% 16% 2008-13 (p.a.) city markets, two thirds of all foreign investments into Atlanta in 2014 was All property capital growth -2.7% RETAIL 11% concentrated in the residential sector, primarily on larger apartment buildings. 2008-13 (p.a.) Office prime yield Q4 2014 6.50% RESIDENTIAL • Accounting for around a fifth of the investment market, the office sector did 46% not see a significant increase in transactions activity during 2014. Vacancy Source: RCA; IPD OTHER/MIXED remains relatively high, but recent construction activity has been limited, 7% suggesting scope for this to fall in 2015. Source: RCA • The industrial sector deserves mention: in Q4 2014, quarterly activity breached US$1bn for the first time.
International property handbook H1 2015 117 Houston – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size Reliant Energy Plaza Office Mar 15 440 Invesco RE Union Investment RE Shell Oil; GenOn Energy; 837,130 sq ft 1000 Main St Marsh USA Inland American Hotel Hotel Nov 14 107 Inland American REIT Chatham Lodging Trust NA 575 rooms Portfolio 14 Virage Apartments Office Dec 14 106 JLB Crow Holdings NA 383 units 100 Detering St Archstone Memorial Heights Apartment Oct 14 105 AvalonBay Lionstone Investments; NA 556 units 201 S Heights Blvd Midway Companies 8 West Centre Office Sep 14 76 Core Real Estate; Azrieli Group Helix Energy Solutions; 231,280 sq ft 3505 W Sam Houston Pkwy N Prudential RE Cameron International Source: RCA
Share of investment by property type • Investment activity in the Houston market is driven almost entirely by Market metrics H2 2014 domestic investment, a large share of which is directed towards the Total investment 2014 US$10.9 bn residential market. Percentage from foreign 7.3% investors OFFICE 25% • The residential market is very active, but characterised by smaller lot-sizes, All property total return 8.4% with few recent trades over US$100m. 2008-13 (p.a.) INDUSTRIAL All property income return 6.2% 6% • Investor demand appears to have been affected by the slump in oil prices, 2008-13 (p.a.) as the office market saw something of a slowdown in activity during 2014, All property capital growth 2.0% RETAIL 8% 2008-13 (p.a.) although the trend turned more positive from the second half of the year. Office prime yield Q4 2014 6.50% RESIDENTIAL Transactions have focused on the suburban markets. 49% Source: RCA; IPD • The office market itself is in good health, with strong leasing demand and OTHER/MIXED 12% rapidly falling vacancy rates. The pace of employment growth in Houston is one of the fastest in the US at present. Source: RCA • The industrial and retail investment markets are small in comparison to those in other US cities, with limited trading volumes and small lot sizes.
International property handbook H1 2015 118 Seattle – key recent deals
Asset Type Date Price (US$m) Vendor Purchaser Key tenants Size The Summit I & II Office Mar 15 319 Ivanhoe Cambridge Hines Global REIT Puget Sound Energy; Bright 524,000 sq ft 355 110th Ave NE Horizons; Bentall Capital Ivanhoe Cambridge Office Office Nov 14 280 Walton Street Capital Ivanhoe Cambridge Umpqua Bank; Lyons Law 678,593 sq ft Portfolio Offices; United Healthcare Metropolitan Park portfolio Office Mar 15 273 Brookfield Property CBRE Global Investors Facebook; Virginia Mason 730.000 sq ft Partners Medical Cntr; Jack Henry & Associates Inc. Civica Office Commons Office Feb 15 205 Brickman Associates Hines Wells Fargo; Waggener Edstrom; 305,835 sq ft 205 108th Ave NE Microsoft
Stack House 1280 Harrison St Apartment Dec 14 150 Vulcan Real Estate JP Morgan Asset Mgmt. NA 278 units
Source: RCA, Real Estate Alert • 2014 began with relatively modest investment of around US$2.5bn in Atlanta, Market metrics but finished the year on a high as quarterly activity rose to over US$5bn. Total investment 2014 US$7.9 bn Share of investment by property type The first quarter of 2015 has since seen volumes fall back somewhat, to Percentage from foreign 9.9% H2 2014 around US$3bn. investors All property total return 5.7% • The residential investment market was responsible for almost half of the total 2008-13 (p.a.) OFFICE transaction volume in the second half of 2014. In contrast to many other All property income return 6.3% 25% 2008-13 (p.a.) city markets, two thirds of all foreign investment into Atlanta in 2014 was INDUSTRIAL All property capital growth -0.5% 7% concentrated in the residential sector, primarily on larger apartment buildings. 2008-13 (p.a.) Office prime yield Q4 2014 5.30% RETAIL 15% • Accounting for around a fifth of the investment market, the office sector did not see a significant increase in activity during 2014. Vacancy remains Source: RCA; IPD RESIDENTIAL 47% relatively high, but recent construction activity has been limited, suggesting scope for this to fall in 2015. OTHER/MIXED 6% • The industrial sector deserves mention: in Q4 2014, quarterly activity breached US$1bn for the first time. Source: RCA
International property handbook H1 2015 119 Recent global research
Global economic outlook Asia Pacific economic M&A Index European CFO Survey Q2 2015 outlook Q2 2015 H1 2015 Q1 2015
Expectations & Market Reflexions magazine 2015 Commercial Real UK Real Estate Predictions Realities in Real Estate 2015: April 2015 Estate Outlook (US) 2015 Scaling new heights February 2015
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