International Property Handbook H1 2015
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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.