Q4 2013
GLOBAL VISION
The Investment Outlook For Major Property Markets
DISCLAIMER
Forecasts and projections regarding the likelihood of various sectoral, market and investment outcomes are
hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
CBRE Global Investors' clients may have acquired properties in the sectors and regions described in this research
report. In addition, CBRE Global Investors is continuously marketing to new clients that will invest in properties
within the sectors and regions covered.
CBRE Global Investors Middle East Limited provides this material on behalf of CBRE Global Investors. CBRE Global
Investors Middle East Limited is regulated by the Dubai Financial Services Authority. This marketing material is
intended only for Professional Clients (as defined by the DFSA), no other persons should act upon it. Past or
projected performance is not necessarily a reliable indicator of future results.
GLOBAL VISION | Q4 2013
WELCOME TO GLOBAL VISION
I’ve always believed that retail is by far the most complex of the four major property sectors. I still do, but as I
travel the globe I’m convinced the world’s office markets are increasingly complex. This complexity provides
challenges and opportunities for real estate investors.
The U.S. is a prime example. Four years into the economic recovery, the overall office market has improved
only haltingly. Net absorption has been held back by cyclical and structural factors – only moderate
employment gains, “shadow “ space that needs to be backfilled before firms take on new commitments, and
denser office utilization trends.
But the anemic top line demand masks a complex story. Absorption has been highly concentrated in certain
metro areas – primarily ones with large concentrations of technology and energy companies. Within metro
areas, there’s also a huge variation by submarket. Neighborhoods that weren't even considered office
locations a few years back are thriving while many traditional financial districts languish.
Examples of these emerging areas abound throughout the States – Manhattan’s Flatiron and Meatpacking
districts, the Seaport in Boston, Silicon Beach on L.A.’s Westside, Lake Union in Seattle, River North in
Chicago. All have much tighter vacancies than their overall metros. Why? They attract expanding creative
and tech industries by providing the “work/live/play”, non-corporate environments the firm’s tech-savvy
younger employees seek.
A similar phenomenon is evident on the other side of the pond. In London, the banking and finance sector
has receded as the primary source of demand, while tech, media and telecom (TMT) are burgeoning. TMT
firms have tended to cluster in locations not popular with traditional office occupiers in places such as
Shoreditch or Soho, but this too is changing. Overlaying the demand shift, London is undergoing substantial
transportation infrastructure changes. The under construction Crossrail rapid train route will make formerly
underutilized locations across Central London increasingly more accessible.
The appeal of alternative, non-corporate environments with cutting edge amenities alongside upcoming
transport improvements is re-writing the office market. Amazon, Goldman Sachs and Google’s recent
commitments to the still somewhat gritty Farringdon and Kings Cross neighborhoods are testaments to the
trend. Even the definition of the formerly sacrosanct West End is expanding as occupiers jump north of
Oxford Street.
In Asia, circumstances are somewhat different. In Tokyo, tech firms prefer edgier locations, like youthful
Shibuya or Roppongi – known only for its bars ten years ago, but now attracting the likes of Apple and
Google. But overall the region is experiencing much more net demand than in the States or Europe. Firms
are generally trying to upgrade their space – sometimes in less dense layouts to attract premium talent.
Building quality, efficient floorplates, reliable HVAC and seismic safety are all key to attract tenants. Even in
relatively stable Tokyo, many buildings are being torn down for new, higher quality construction. And in
China, developers are constantly putting up “better mousetraps.”
These global trends challenge investors. Many traditional “main and main” financial districts populated with
an older stock of buildings will be less competitive, and thus relatively less valued going forward. But with
informed local insight, metros, submarkets and buildings with the right characteristics can be identified.
These assets can outperform even in anemic or highly competitive office conditions.
One thing is for sure – office is not the commodity it was once perceived to be. As with all sectors and
markets, one must dig to find the best opportunities. At CBRE Global Investors, our goal is to provide insight
to help unearth the gems.
Doug Herzbrun
Global Head of Research
GLOBAL VISION | Q4 2013
GLOBAL VISION | Q4 2013
GLOBAL VISION
Q4 2013
TABLE OF CONTENTS
GLOBAL ECONOMIC OUTLOOK ...................................................................................1
GLOBAL & ASIAN CAPITAL MARKETS ..........................................................................3
U.S. & EUROPEAN CAPITAL MARKETS ..........................................................................5
RETURN FORECASTS ......................................................................................................7
NORTH AMERICA
UNITED STATES ........................................................................................................9
EUROPE
UNITED KINGDOM ............................................................................................... 11
GERMANY ............................................................................................................. 13
FRANCE ................................................................................................................ 15
NETHERLANDS ...................................................................................................... 17
SPAIN.................................................................................................................... 19
ASIA PACIFIC
JAPAN ................................................................................................................... 21
CHINA .................................................................................................................. 23
AUSTRALIA ............................................................................................................ 25
SOUTH KOREA ...................................................................................................... 27
GLOBAL VISION | Q4 2013
GLOBAL ECONOMIC OUTLOOK
 There are two major economic stories that will
color the real estate investment backdrop in
every major market: the U.S. taper and the
China rebalancing.
 As we suggested in the last Global Vision, the
U.S. is the first major market to enter a sustained
economic recovery and, therefore, the first to
normalize interest rates. Despite Washington’s
shutdown and the inactivity on the debt ceiling,
we believe that this will pass, and with
Bernanke’s warning of a QE tapering as soon as
this quarter, bond markets and most
commentators are now pricing in a first rise in
the policy rate in 2015. This expectation has
pushed up the bond yield curve, with the result
that 10 year bond yields are a percentage point
higher than in Q2, and Moody’s Analytics is
forecasting that they will rise to 5% in 2016.
(Figure 1)
 We will discuss the implications of this for U.S.
real estate pricing on page 9, but if unchecked,
such a rise in borrowing costs will likely take
some of the heat out of the U.S. housing-led
recovery – and indeed the threat that this is
already happening is arguably behind the Fed’s
inaction in September.
 The normalization is also having an impact on
smaller, highly open emerging markets that rely
on U.S. Dollar liquidity and run current account
deficits, such as India and Turkey. Moreover, a
rise in U.S. interest rates could have implications
for those parts of the global economy that are
importers of U.S. monetary policy, such as Hong
Kong and Singapore. However, history shows
that if rates rise because of a strong economic
recovery (and one can’t imagine why the Fed
would raise rates under any other conditions),
this could actually be positive for real estate
markets in those countries.
 Even in developed markets, with the US setting
the global price of debt, we will see upward
pressure on bond yields. This will be of particular
concern in the more fiscally challenged parts of
the Eurozone and the UK, which are highly
sensitive to a rise in their borrowing costs.
 The second major story of the past quarter was
the Chinese central bank inducing an interbank
crunch, making clear its commitment to reduce
credit growth and, more widely, to better
regulate the shadow banking sector. This is part
of a laudable strategy to create better balanced
but lower growth, as China moves beyond the
rapid catch-up of years of industrialization into a
more mature phase of domestic-demand-led
growth. However, as the “Shibor shock” in June
showed, the strategy is not without its risks. We
are likely to experience sporadic bursts of
financial market volatility as markets adjust to the
new regime. Moreover, at the real economy level,
the rebalancing toward domestic demand has
already manifested itself in weaker demand for
commodities, which has in turn had a knock-on
impact on growth in Australia and Brazil.
(Figure 2)
 The upshot is that since the last edition of Global
Vision, we have seen substantial downward
revisions to the economic forecasts for China,
and therefore Brazil, Hong Kong and Australia,
as well as more minor downward revisions for
Canada. (Figure 3)
 In contrast, the EIU has markedly upgraded its
forecasts for the UK economy, reflecting high
frequency data that has consistently surprised on
the upside for the past two quarters.
The
recovery appears to be broad-based. That said,
the regional picture is not as balanced, with a
continued and marked southern bias. Moreover,
we remain concerned about how far the recent
positive momentum can be sustained given the
planned fiscal austerity measures. (Figure 4)
 The picture in the Eurozone is also positive. The
region emerged from recession in Q2 and the
monthly data suggest that Q3 will also deliver
weakly positive growth. Germany continues to
be in the vanguard, while France surprised on
the upside. Perhaps even more significantly, we
are starting to see the fruits of structural reform
and austerity measures taken in the South. Lower
relative costs, shrinking primary budget deficits
and lower current account deficits speak to a
region that has taken tough action and is finally
moving through its crisis. (Figure 5)
 Finally, in Japan, while Shinzo Abe has
succeeded in buoying confidence and asset
prices with his expansionary fiscal and monetary
policy, the jury is still out on whether he will push
through
much-needed
structural
reform.
Meanwhile, the economic forecasts have been
revised up purely on the renewed momentum,
particularly in the business services sector, which
should feed through into office demand.
 Overall, there has not been a significant change
to the relative macro-economic outlook for the
major markets.
The U.S. still has a relatively
good performance outlook, but Japan now looks
equally strong. We expect that Europe is
preparing to enter a recovery period. (Figure 6)
GLOBAL VISION | Q4 2013 | 1
GLOBAL ECONOMIC OUTLOOK – CHARTS
FIGURE 1 US FED FUNDS RATE
History
Moody's
FIGURE 2: CHINESE DAILY INTEREST RATES
Market Implied
EIU
O/N Shibor
16%
7%
1m T-bill
14%
6%
12%
5%
10%
4%
8%
3%
6%
2%
4%
1%
2%
0%
0%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
08
09
10
11
12
13
Sources: Reuters (history); forecasts as shown
Source: Reuters
FIGURE 3: ODP FORECAST REVISIONS SINCE THE Q3
GLOBAL VISION, PP
FIGURE 4: UK FISCAL AUSTERITY AS A % OF GDP
2013 F
1.0
2014 F
0.5
-2
0.0
0
-0.5
2
-1.0
4
-1.5
6
-2.0
8
10
Other Spending
Debt interest
Benefits
Sources: Moody’s Analytics (USA); Economist Intelligence Unit (all others)
Source: Bank of England August Inflation Report
FIGURE 5: EUROPEAN BUDGET DEFICITS AS A % OF GDP
FIGURE 6: GDP FORECASTS, % YOY
Northern Creditors
Maastricht Treaty Floor
Southern Debtors
2012
2013 F
2014 F
Investment
Taxes
LT Average
10%
2%
8%
0%
6%
-2%
4%
-4%
2%
-6%
0%
-8%
-2%
-10%
-12%
01
03
05
07
Source: Economist Intelligence Unit
09
11
13
15
17
Sources: Moody’s Analytics (USA); Economist Intelligence Unit (all others)
Countries ranked left to right on 2013 and 2014 relative to LT average
GLOBAL VISION | Q4 2013 | 2
GLOBAL & ASIAN CAPITAL MARKETS
 Global direct transaction volumes came in at
USD234bn in Q2 2013, down 2% on the
quarter but up 23% on the year. The region
with the fastest growth was Asia, but once we
strip out the rapid increase in Chinese land
sales, the region actually saw a 5% YOY fall in
transactions.
 By contrast, the Americas saw a c20% YOY
increase in deals, but this actually signaled a
loss of momentum from the very strong
recovery seen in 2010 and 2011, perhaps
reflecting lower cap rates and a more uncertain
policy climate.
Meanwhile, in Europe
transaction volumes rose 10% YOY in both
Euro and US Dollar terms. (Figure 1)
 If we turn first to the Asian capital markets, in
the last edition of Global Vision we wrote that
while there had been an improvement in
sentiment and investor confidence in Japan, we
had not yet seen the pick-up in occupier
demand. Since then, we have started to see
tangible signs of improvement, with rents
bottoming out, and maybe even increasing in
the office sector.
The investment market
remains strong, driven by domestic institutional
demand.
 All this is evidenced in the Japanese IPD
valuations based indices. They show that total
returns to investors on institutional grade
property have risen to 4.5% YOY – their highest
level since August 2008, with residential
property returning 7% and retail and other
(mainly industrial) 6.2% compared to offices,
the laggard at 2%. (Figure 2) Cap rates are
starting to fall, running at just over 5% in retail
and residential, and just under 5% in the office
sector. However, with the all-in cost of debt
near 1%, the income premium still looks
attractive, with a likely rental recovery adding to
the sector’s attraction.
 In Australia, despite the modest economic
slowdown, total returns have held steady at
around 9% YOY on the IPD Quarterly Index.
Striking convergence across the sectors hides
the underlying story. In the industrial sector,
Western Australia continues to see returns of
over 25% despite the waning commodity boom.
And at the other end of the spectrum, smaller
regional malls are the worst performing
property type as the housing slowdown impacts
spending. (Figure 3)
 Looking ahead, the economic slowdown is
arguably boosting returns thanks to the impact
of cheaper debt financing as the central bank
cuts interest rates, lowering the all-in cost of
debt to sub 5%. This has been especially
beneficial to Asian investors, particularly from
Singapore, who typically use local debt as a
natural hedge to the currency.
Moreover,
Australian yields remain relatively high
compared to other major regional markets.
(Figure 4)
 In Emerging Asia, we saw deal volumes fall,
partly because of one-off policy changes. For
instance, in Hong Kong, we saw the
introduction of double stamp duty, and in
Taiwan the introduction of a minimum
commercial property yield for domestic
institutional investors.
 Meanwhile in China, the deal volumes ex land
fell modestly, but conversely we are seeing
increased investor interest, particularly from the
U.S. Accordingly, we should see volumes pick
up in 2014. As Figure 4 shows, within the
Emerging Markets, Chinese industrial offers the
most attractive yields, with good structural
underpinnings:
strong demand from retail
distributors but a scarcity of good quality space.
 We have seen an upturn in capital raising in the
region, which should in turn flow into increased
deal activity in 2014. In particular, we have
seen U.S. investors back in the region favoring
unlisted funds targeting Japan and China. The
secondaries opportunity has, however, largely
closed up.
 In the listed space, Japanese REITs massively
outperformed the other Asian markets in the 12
months to the end of July, with returns of c70%.
This made for an attractive environment in
which to list, and Prologis brought its Nippon
Industrial REIT to the market in February. That
said, we did see the equity market pull back
over the summer as the initial run up in the
wake of Abenomics faded. In Australia and
Hong Kong, REITs just under-performed the
broader market thanks to the housing-led
slowdown and stamp duty rise respectively.
 However, the broader picture from Figure 5 is
that bond yields are starting to rise, and returns
fall, in reaction to the US taper, making listed
and unlisted real estate an attractive alternative,
particularly in markets such as Hong Kong and
Singapore which are more exposed to U.S.
monetary policy tightening. Moreover, as
Figure 6 shows, Asian listed securities, even in
Japan, are still trading at significant discounts
to NAV that are in most cases larger than the
long-run average.
GLOBAL VISION | Q4 2013 | 3
GLOBAL & ASIAN CAPITAL MARKETS – CHARTS
FIGURE 1:TRANSACTION VOLUMES, % YOY
Europe (EUR)
Asia ex China land (USD)
FIGURE 2: JAPANESE TOTAL RETURNS, % YOY
Americas (USD)
Retail
Office
Residential
Other
20%
200
15%
150
10%
100
5%
50
0%
0
-5%
-50
-10%
-100 08
09
10
11
12
05
13
06
07
08
09
10
11
Source: Real Capital Analytics
Source: IPD Japan Monthly Sourcebook
FIGURE 3: AUSTRALIAN TOTAL RETURNS, % YOY
FIGURE 4: PRIME VALUATION YIELDS, %
(as of Q2 2013)
Retail
Office
Office
Industrial
Retail
12
13
Industrial
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
25%
20%
15%
10%
5%
0%
-5%
-10%
03
04
05
06
07
08
09
10
11
12
13
Source: IPD Australia Quarterly Digest
Source: CBRE Global Research
FIGURE 5: TOTAL RETURNS, % YOY AT END JULY 2013
FIGURE 6: LISTED PROPERTY SECURITIES NET ASSET
VALUE PREMIUM/DISCOUNT BY REGION
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
Listed Real Estate
Main Index
Bonds
Sources: S&P, MSCI, JP Morgan, returns in local currency
31st July 2013
10 Year Average
20%
10%
0%
-10%
-20%
-30%
-40%
Sources: Factset & Bloomberg, as of 07/31/2013 *Average since Dec
2004
GLOBAL VISION | Q4 2013 | 4
U.S. & EUROPEAN CAPITAL MARKETS
 The U.S. capital markets remain robust despite
the fact that pricing on many quality assets has
fully recovered. Cap rates for multi-family and
gateway market grade A offices are back to
2007 levels. And, as is natural at this point in
the cycle, we are now seeing yield compression
in “next tier” markets. In addition, at the
margin, we are seeing a rotation out of multifamily and into sectors such as industrial and
retail where there is more room for cap rates to
decrease. Indeed, we can see something of this
in the sharp upturn in the retail capital value
index produced by Moody’s/RCA, while U.S.
super-regional malls have been strong
performers on the IPD Index. (Figures 1 and 2)
 The uncertainty surrounding US monetary policy
has resulted in bond yield volatility and this is
already having an impact on the stability and
level of the pricing of debt. On the other side of
the coin, investing in and issuing real estate
debt remain attractive, with mezzanine debt
offering returns of c12-14%.
 In the unlisted fund market, there are very few
closed-end funds coming to market, perhaps
because boutique managers are still dealing
with legacy issues. (Figure 3) That said, we
sense that the appetite for value-add funds is
increasing and the lack of product will become
problematic for the consultant-led money.
Open-ended funds are still in favor, with c$6bn
of capital queued to get in. But the big story is
really in the secondaries market, where a
handful of large portfolio trades by public plans
looking to withdraw from the market have
garnered a lot of attention. These structured
transactions have changed pricing, with
traditional investors in secondaries struggling to
compete with the portfolio investors.
 Meanwhile, as an interest-rate sensitive sector,
listed real estate securities have suffered from
the uncertainty surrounding the U.S. taper,
returning c9% YOY to the end of July. This was
lower than the wider equity market and one of
the weakest performances globally.
 Turning to Continental Europe, although capital
values have yet to recover, we are starting to see
the preconditions for that – greater investor
interest, liquidity and transparency. Improving
sentiment has dropped safe rates and spreads
throughout Europe. In the direct market, the
number of bidders has increased – even in
Spain, where there is greater visibility on yields.
And we are also seeing greater risk-appetite,
particularly in Southern Europe, where investors
are looking for opportunities to buy assets or
loans from distressed sellers. (Figure 4)
 There has been limited issuance of new pooled
funds, with more deal-led JV activity. To date,
this has concentrated on the major Northern
markets of the UK, France and Germany.
(Figure 5) The most popular sectors are
healthcare, student housing, retail, industrial,
hotels and offices – especially for standalone
deals. That said, we are seeing more funds
close ahead of target, with markedly more
interest from U.S. investors. One example is a
Nordics logistics fund that came to the market in
2012 looking for EUR500m but closed in H1
2013 four times oversubscribed.
 Secondaries are being priced at anywhere from
a 15% to 40% discount to NAV depending on
whether the buyer is institutional
or
opportunistic, and the quality of the portfolio.
Activity remains concentrated in the core funds,
with very little interest in the value-add or
opportunistic funds, despite the fact that they
have started to seriously tackle their structuring
problems and work out portfolios. (Figure 6)
 In the listed market, investors are still sticking to
core, income producing assets in the stronger
Northern markets. German residential remains
hot, but still represents value given that the
underlying market has cheaper relative capital
values and affordable rents.
 We have seen two German residential REITs
IPO, and an Irish REIT. The Irish REIT is up 20%
even though it hasn’t bought an asset yet, but
the strategy is to buy prime Dublin at c7-8%.
There hasn’t been much bond issuance in the
listed sector – a big theme from 2012 –
although Unibail-Rodamco just placed a large
bond at 1.875% fixed. Also, GAGFA issued two
CMBS, with interest rates in the 2 to 3% range –
a dramatic change from a year ago when it was
doubtful if they would be able to refinance at
all. All issues were heavily over-subscribed.
 Meanwhile, in the UK, prime yields are still
edging lower though near their previous historic
trough, and even major regional cities are
seeing strong price increases. We are, therefore,
seeing a move up the risk curve in unlisted fund
origination and in the REIT market, with strong
performance of small cap stocks. The impact of
the U.S. taper speculation has been seen more
in the UK than in Continental Europe. However,
it could just be that UK stocks have had such a
run-up that there were looking for a trigger for
a re-rating.
GLOBAL VISION | Q4 2013 | 5
U.S. & EUROPEAN CAPITAL MARKETS - CHARTS
FIGURE 1: MOODY’S/RCA CPPI CAPITAL VALUE INDEX
Apartment
Industrial
Retail
CBD Office
FIGURE 2: U.S. IPD TOTAL RETURNS, % YOY
Multi-family
CBD Office
Super Regional Mall
220
Industrial
Suburban Office
30%
200
20%
180
10%
160
0%
140
-10%
120
-20%
100
-30%
80
04
01 02 03 04 05 06 07 08 09 10 11 12 13
05
06
07
08
09
10
11
12
Source: Moody’s/Real Capital Analytics
Source: IPD USA Quarterly Digest
FIGURE 3: U.S. VALUE-ADD GROSS RETURNS INDEX
FIGURE 4: EUROPEAN BANK DISPOSALS, EURbn
New Build Offices
Shopping Centres
Retail Warehouses
All Property
120
100
30
Loan Sales
25
Other Bank Sales
13
Sales Out of Distress
20
80
60
15
40
10
20
5
0
0
04
05
06
07
08
09
10
11
12
09
13
10
11
12
13
Source: NCREIF-Townsend Value-weighted value-add closed-end fund
index
Source: Real Capital Analytics
FIGURE 5: INVESTOR INTENTIONS & COMMITTED
CAPITAL IN 2012
FIGURE 6: EUROPEAN BANK DISPOSALS, EURbn
Investor Intentions
Committed Capital
Difference
40%
30%
20%
10%
0%
-10%
-20%
Value Add Closed-End Funds
Core Funds
60
50
40
30
20
10
0
01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: INREV Investor Intentions Survey & Real Capital Analytics
Source: INREV
GLOBAL VISION | Q4 2013 | 6
RETURN FORECASTS
METHODOLOGY
SUMMARY OF RESULTS
 The charts in this section show the aggregate
results of the CBRE Global Investors’ latest
proprietary real estate forecasts.
 Asia Pacific is expected to outperform. Within
Asia Pacific, the structural shortage of modern
real estate stock, coupled with the large “catchup” potential, contribute positively to the real
estate return outlook.
 These forecasts are for core investments, without
leverage effects, held over a five year period, in
local currency terms. Most importantly, these
forecasts simulate a portfolio return to investors,
taking into account prevailing lease practices
and expense ratios in the different markets.
 This section shows our return forecasts by major
geography and property type. We invite our
clients to explore our more detailed forecasts for
over 300 metro/property combinations as these
will give a more nuanced and valuable insight
into the most attractive core portfolio returns in
the various markets.
 The return forecasts are a starting point in
developing and managing an investment
strategy. Submarket conditions and, to a greater
extent, property-specific characteristics greatly
impact overall returns.
 The U.S. results are driven by reasonable
economic growth, low construction pipelines
and generally attractive, below-replacement cost
pricing. However, increasing fixed income yields
over the forecast period are creating capital
markets headwinds and total returns may be
slightly lower than their long-term average.
 The headline result for Europe is slightly less
positive than the U.S., although this forecast is
an improvement from our Sping 2013 analysis.
We are now finding some attractive
opportunities to acquire high-quality properties
in many of the Southern markets. The
aggregate result continues to be influenced by
the inclusion of residential with its structurally
low in-going yields.
FIGURE 1: ASIA PACIFIC EXPECTED TO OUTPERFORM
5 Year Forecast Annualized Return
(2013-2017)
10%
8.9%
8%
7.2%
6.8%
6%
4%
2%
0%
Asia Pacific
U.S.
Europe
Source: CBRE Global Investors
The Asia Pacific and Europe regional returns reflect the weighted average of country/sector returns within the respective region, weighted by
the market share of the Global Investable Universe for real estate, as estimated by CBRE Global Investors.
GLOBAL VISION | Q4 2013 | 7
5 Year Forecast Annualized
Return 2013-2017
FIGURE 2: U.S. UNLEVERED CORE RETURNS BY PROPERTY TYPE
12%
10%
8%
7.7%
7.3%
Office
Industrial
6.7%
6.8%
7.2%
Apartment
Retail
U.S.
6%
4%
2%
0%
Source: CBRE Global Investors
5 Year Forecast Annualized
Return 2013-2017
FIGURE 3: EUROPEAN UNLEVERED CORE RETURNS BY PROPERTY TYPE
12%
10%
8%
8.2%
6.7%
6%
7.2%
6.8%
Retail
Europe
4.5%
4%
2%
0%
Office
Industrial
Residential
Source: CBRE Global Investors
5 Year Forecast Annualized
Return 2013-2017
FIGURE 4: ASIA PACIFIC UNLEVERED CORE RETURNS BY PROPERTY TYPE
12%
10%
10.1%
8.7%
8%
9.0%
8.9%
Retail
Asia Pacific
6.6%
6%
4%
2%
0%
Office
Industrial
Residential
Source: CBRE Global Investors
GLOBAL VISION | Q4 2013 | 8
UNITED STATES
 The U.S. economy performed slightly better
than expected in the second quarter and
annualized GDP growth accelerated to 2.5%.
Most economic indicators should begin to gain
momentum in the near term as several positive
trends remain on track: consumers are
shrugging off the impact from higher taxes and
lower federal spending, hiring remains
relatively strong and rising home prices are
boosting Americans’ confidence. (Figures 1
and 2)
 Further residential investment growth is
expected and the bulk of the fiscal tightening
may be over. Higher savings rates and a firmer
labor market should help encourage businesses
to continue a steady pace of restocking, and
most of the military wind-down may be
completed by the end of this year.
 Transaction volume increased to $71B in Q2, a
13% increase from a year earlier. Sales of
development sites (particulary for apartments)
dipped in the latest quarter. Recent data shows
an increased appetite for risk: unanchored strip
malls are outpacing the retail sector, unflagged
hotels had the largest rise in sales volume
among hotel types, and suburban office is
outperforming CBD office.
 The ratio of the NCREIF Property Index valueweighted transaction cap rate to the risk free
rate of return is tightening. The ratio of cap
rates to corporate bonds is also falling.
However, real estate continues to be an
attractive investment relative to other fixedincome alternatives. (Figure 3)
 The recovery of the highly cyclical office market
remains intact, boosted by an improving job
market. Absorption continued to trend upward
in the first half of 2013 and the vacancy rate
declined to 15.2% – 170 basis points below its
2010 peak. The second quarter continued the
pattern of a relatively slow and drawn-out
recovery for the office market. Fundamentals
continue to improve slowly as tenants adjust to
the space overhangs that were left in the wake
of the Great Recession. Demand is projected to
gain momentum in 2014, which, along with
modest supply, will drive the vacancy rate down
to 12.3% by 2017. Office rent growth
continued the positive trend. Rents are projected
to increase by 4.2% per year through 2018, the
highest of all the property types. (Figure 4)
 As the housing recovery has gathered
momentum and retail sales have rebounded,
the industrial sector has finally entered a period
of accelerated recovery. As such, the decline of
the national availability rate has picked up the
pace, now at 12.0% at mid-year 2013, down
250 bps from the peak three years prior. Fort
Worth (-290 bps), Trenton (-220), Raleigh
(-200), Las Vegas (-180), Nashville (-190) and
Fort Lauderdale (-170) have posted the largest
declines in their availability rates during the first
half of 2013. The national availability rate is
projected to steadily decline as absorption
strengthens, reaching 10.1% by 2016. Rent
growth will be slow to accelerate, as the
availability will still be relatively high near term.
Over the next five years, rents are projected to
increase 2.8% per year, the slowest of the
major property types. (Figure 5)
 The apartment market is the only property
sector where the current vacancy rate of 6.0% is
lower than its long-term average (6.3%). The
markets with the strongest absorption in the first
half of 2013 included Dallas, New York,
Houston, Atlanta, Seattle and San Antonio. San
Francisco continues to have the lowest vacancy
rate in the nation (3.5%, up slightly from the
first quarter), followed by Boston, Seattle and
the other metros in the San Francisco Bay Area
region. As the recovery has matured and the
development cycle has kicked in, the pace of
decline in the vacancy rate and the pace of
increases in rents has decelerated. The average
vacancy is projected to remain in the mid-6%
range for the foreseeable future. This relative
balance between supply and demand will result
in only modest rent growth going forward,
averaging 2.9% per year.
 The U.S. retail sector suffered severely in the
recession as retail sales, the prime driver of
shopping center absorption, plummeted in
2008-09. Retail sales have since rebounded
and are now well above pre-recession peaks,
and
the
availability
rate
for
neighborhood/community centers (12.3% at the
end of the second quarter) is down 90 basis
points from the peak two years ago. The
availability rate fell by 50 bps in the first half of
2013. Some of the top performing markets in
the first half were Louisville, Charlotte,
Orlando,
Fort
Worth
and
Memphis.
Strengthening consumer spending and very
limited new construction will help drive the
availability rate down. However, e-commerce is
ever-expanding and is slowing sales growth at
bricks-and-mortar stores. The U.S. availability
rate is projected to correct down to 9.1% by
2018 and rents are projected to increase 3.4%
per year.
GLOBAL VISION | Q4 2013 | 9
UNITED STATES – CHARTS
FIGURE 1: ANNUAL GDP GROWTH, %PA
FIGURE 2: MONTHLY EMPLOYMENT GAINS/LOSSES
NUMBER OF JOBS (000s) MOM CHANGE
5%
500
4%
300
3%
100
2%
1%
-100
0%
-300
-1%
-500
-2%
-700
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
-900
08
09
10
11
12
13
Source: Moody’s Analytics
Source: Bureau of Labor Statistics
FIGURE 3: ASSET CLASS YIELDS, %
FIGURE 4: NATIONAL OFFICE ABSORPTION &
VACANCY RATE FORECAST
NCREIF Transaction Cap Rate
Baa Corporate Bond
10-Year Treasury Yield
18%
16%
Base Case Absorption
125
20%
Vacancy Rate
Office Absorption
SF ( millions )
14%
12%
10%
8%
6%
4%
18%
75
16%
25
14%
-25
12%
10%
-75
8%
2%
00
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Sources: NCREIF, Moody’s Analytics
200
100
16%
6%
14%
5%
12%
4%
10%
0
8%
-100
-200
-300
00
02
04
06
08
10
12
14
16
Sources: CBRE Econometric Advisors, CBRE Global Investors
18
Availability Rate
Vacancy Rate
300
04
06
08
10
12
14
16
18
FIGURE 6: FORECASTED ANNUAL RENT GROWTH
FIVE YEAR AVERAGE (2014-2018)
Base Case Absorption
400
02
Sources: CBRE Econometric Advisors, CBRE Global Investors
FIGURE 5: NATIONAL INDUSTRIAL DEMAND &
AVAILABILITY RATE FORECAST
Absorption
SF (millions)
6%
-125
0%
Vacancy Rate
-3%
-4%
4.2%
3.4%
2.9%
2.8%
Apartment
Industrial
3%
2%
6%
1%
4%
0%
Office
Retail
Sources: CBRE Global Investors, CBRE-EA
GLOBAL VISION | Q4 2013 | 10
UNITED KINGDOM
 In the Q2 2013 edition of Global Vision, we used
the expression “unremittingly grim” to describe
the austerity-induced outlook for much of the UK
economy, suggesting the possibility of rapidly
depreciating Sterling leading to stagflation.
Given the recent steady stream of positive
economic news, the tone we struck a mere half
year ago looks decidedly spurious.
 A sustainable recovery is finally afoot in the UK.
Output growth in the first two quarters of the year
has been increasingly positive, and for the first
time since 2010 economic expansion is not
attributed to one-off factors. The trade deficit is
narrowing and business surveys are rising,
compellingly so in the all-important services
sector. (Figure 1) Consumers are increasingly
sanguine; spending more due to both stabilizing
employment and rising house prices. Given that
property performance is inextricably linked to the
prospects of the underlying economy, these
encouraging developments suggest that the case
for investing in UK property is as strong as it has
been in quite some time.
 To be fair, the recent spate of optimism has
meant that the bad news – of which some
certainly lingers – is being overshadowed. The
recent revisions to output data, though negating
a technical double dip recession, in fact mean
that the economy is further away from its 2008
peak. (Figure 2) We are mindful that average
earnings growth is below headline inflation, net
business lending is at low levels and youth
unemployment is uncomfortably high. Then, of
course, there is the recent outward shift in the
yield curve. (Figure 3) While some have
interpreted this to be a vote of no confidence in
the new Bank of England (BoE) governor, it could
ultimately result in jittery capital markets.
 These factors coupled with the gross
indebtedness across all sectors of the economy,
which was rightfully emphasized in our Q2
Global Vision, counter some of the positive news
that we have recently been enjoying.
 Much like the broader economy, commercial
property performance is also surprising to the
upside. At an all property level, total returns have
been improving at a steady clip on a monthly
basis. Rents appear to have reached a floor and
capital values are finally growing, an important
milestone in a market plagued by declines for a
year and half. (Figure 4)
 Quite importantly, occupational markets are
improving: new lettings are taking place and
incentives packages are dissipating. Our
experience in the multi-let industrial sector is
particularly encouraging. Voids have been
trending downward and, in contrast to other
sectors, there doesn't appear to be a strong
geographical bias in terms of activity. We are
mindful that this slice of the commercial property
market encompasses a wide range of UK
industry. Resilience in this sector is a potentially
powerful forward looking indicator, one which
has favorable implications across all sectors of
UK property.
 Improving investor sentiment is percolating
through to the UK property market. There is a
wall of money jostling to target segments
perceived to have been disproportionally hit in
valuations. Recently unsellable secondary assets
are attracting greater interest from a spectrum of
buyers. Smaller lot size assets, in particular, are
often trading ahead of recent valuations while
underwriting assumptions have seemingly
softened. With in-going yields sufficiently high in
many segments of the market, deals are often
attracting all-cash offers and activity is no longer
myopically constrained to London and the South
East. Owing to these factors, a narrowing of the
historically wide prime versus secondary yield
gap is imminent. (Figure 5)
 Clearly how this manifests itself is linked to
activity in other asset classes. Corporate bond
yield spreads to property remain compelling in
an historical context (Figure 6), which can be
taken to mean that there are few fears about the
viability of UK firms. Not only does this bode well
for required property yields, but it should also
support occupier demand, benefitting openmarket rental values. This is another reason to
think that investor sentiment will continue to
improve, with secondary assets in particular
standing to benefit.
 The new “forward guidance” adopted by the BoE
has restored some stability to the UK gilt market
after the sell-off initially precipitated by the Fed’s
signal to begin its QE taper. At a current yield of
ca. 3.0%, ten year nominal gilt yields continue to
reflect the BoE’s own ultra-loose monetary policy
and mean that the spread to property’s net initial
yields is still at a historically attractive level. More
importantly, the expected rise in yields of ca. 2575bps over the coming five years is unlikely to
derail a commercial property recovery. Arguably,
it may take some heat out of Central London and
other prime segments of the market that have
been priced off of suppressed gilt yields. It may
also further energize investor interest in regional
or secondary assets, segments which at current
in-going yields are much less sensitive to bond
yield movements. We interpret both of these
potential outcomes positively.
GLOBAL VISION | Q4 2013 | 11
UNITED KINGDOM – CHARTS
FIGURE 1: UK CIPS PMI SURVEYS. 50=BOOM-BUST LEVEL.
70
Manufacturing PMI
65
Services PMI
FIGURE 2: REAL GDP REBASED TO 100 AT Q1 2008.
100
99
60
98
55
97
50
96
45
95
40
94
35
93
down 3.6% from Q1 2008
up 1.4% from Q2 2012
up 0.6% from Q1 2013
92
30
07
00 01 02 03 04 05 06 07 08 09 10 11 12 13
08
09
10
11
12
13
Source: Thomsom Reuters Datastream
Source: National Statistics
FIGURE 3: IMPLIED FORECASTS FOR THE UK POLICY RATE
FROM BOND MARKET YIELD CURVES, %.
FIGURE 4: UK PROPERTY CAPITAL VALUES, % 3M/3M.
LATEST= Q2 2013.
30-Jun-11
29-Jun-12
30 Aug 13
5%
10%
30-Dec-11
31-Dec-12
July '09- Oct. '11
18% capital value rise
5%
4%
Q2 13:
0.2%
0%
3%
Nov. '11 - Apr. '13
5% capital value fall
-5%
-10%
1%
-15%
0%
-20%
0
12
24
36
48
June '07 - June '09
44% capital value fall
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
2%
60
Time to Maturity in Months
Source: Bank of England
Source: IPD Monthly Index
FIGURE 5: PRIME AND SECONDARY VALUATION YIELDS, %.
LATEST=SEPTEMBER 2013, ALL SECTORS.
FIGURE 6: DIFFERENCE BETWEEN 10 YEAR UK GILTS,
LINKERS & BBB CORPORATE DEBT AND THE IPD
ALL PROPERTY INITIAL YIELD.
14%
12%
8%
index-linked gilt yield
10 yr gilt yield
BBB corp.debt
8%
Prime
10%
6%
10%
Secondary
6%
598bps
Average: 260bps
4%
2%
4%
0%
2%
-2%
-4%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: CBRE Valuation Team
05
06
07
08
09
10
11
12
13
Sources: Thomsom Reuters Datastream, IPD
GLOBAL VISION | Q4 2013 | 12
GERMANY
 German economic growth improved again in
the first half of 2013. After stagnation in Q1
real GDP growth increased to 0.7% QOQ in
Q2, driven by rising exports and improving
domestic demand.
 The economic outlook is solid. The recession in
many European countries seems to be softening
and German economic leading indicators have
improved over the past months. Ongoing
demand from economies outside the Eurozone
and solid domestic consumer demand will
support moderate growth in 2013. Stronger
economic growth is expected from 2014
onward. (Figure 1)
 Modest economic growth in 2013 will prevent
German consumer demand from growing
strongly. Nevertheless, demand is expected to
stay solid, with the unemployment rate down
again to 6.8% (seasonally adjusted), the same
level as the previous year (Figure 2), and
further supported by wages expected to increase
and moderate short-term inflation.
 Demand for German office space was solid in
the first half of 2013, but somewhat below the
same period last year. In the Big-5 German
markets (Berlin, Frankfurt, Munich, Hamburg
and Dusseldorf), take up decreased by 4% YOY
during the first 6 months of 2013. Nevertheless,
given low construction activity, vacancy rates
came down in key markets, which then led to
moderate nominal prime rent growth.
 Office demand is not expected to grow strongly
in 2013 given the moderate economic growth
scenario. However, the low development
pipeline and sustained demand for prime space
will put moderate upward pressure on prime
rents. (Figure 3) Rents are forecast to increase
modestly in core markets in 2013, and more
notably thereafter, which is in line with the
positive economic outlook.
 Real retail sales did not grow further over the
first half 2013 YOY, but strong retailer demand
and tight availability for prime retail space kept
upward pressure on high street retail rents in
2013, which improved again by around 6% on
average in German key cities during the H1
2013.
 For the coming years, prime shopping center
rents are forecast to rise modestly. (Figure 4)
High street rents in core markets are expected
to continue to increase notably next year.
Retailers with multi-channel expansion strategies
are focusing on prime retail areas in Germany.
 Logistics demand picked up again. Take up
increased by 15% on a national level H1 2013,
which was mainly driven by owner-occupier
demand. Leasing volumes came down by 11%
YOY in the first half of 2013 in the Big 5 cities.
However, the overall volume is still solid and
above the 5-year average. Vacancy rates
remained at low levels of around 4% in Q2
2013. As a result, prime logistics rents
remained stable over the past quarters.
 The logistics leasing market is not expected to
outperform the previous year, in line with the
moderate economic growth expectations in
2013. Very low speculative construction activity
is likely in the near-to-medium-term, so no
downward pressure on rents is expected due to
new supply. Rents are forecast to remain stable
in 2013 and are likely to increase again in
2014, given the positive outlook for key logistics
drivers in Germany post-2013. (Figure 5)
 The demand for German residential portfolios
remained strong in H1 2013, driven by the
appetite for income-driven investments in safe
haven destinations. The total turnover was
around €6 bn in the first half of 2013 and only
11% below the record level in 2012. German
investors were most active, particularly the listed
sector. The strong demand for German
residential portfolios is expected to continue for
the rest of the year.
 German commercial investment turnover
outperformed and reached €12.6 bn in the first
half of 2013, which is 35% higher than in the
same period last year. Core acquisitions
remained dominant and office was the most
transacted asset class (44% of total transaction
activity) followed by retail (33%). Retail remains
the investor darling, but the availability of core
assets is tight. Logistics investment turnover
benefited and picked up, capturing 8% of total
investments in H1 2013. Overall, prime
property yields declined again in major office
markets and for prime logistics. Prime retail
yields have remained stable across the various
retail types, but are expected to decline
moderately in the second half of 2013.
 Next year’s demand for German real estate is
expected to hold up well. Prime yields are
forecast to remain at low levels in 2013/2014,
as investor demand is not expected to weaken
and economic growth strengthens. (Figure 6)
Core real estate is still projected to offer
favorable yields compared to competitive asset
classes. The attractive risk-spread between
property yields and bonds (government and
corporate) is not expected to change soon.
GLOBAL VISION | Q4 2013 | 13
GERMANY – CHARTS
FIGURE 1: REAL GDP GROWTH, % YOY
6%
FIGURE 2: UNEMPLOYMENT RATE, %
14%
Long-Term Average
4%
12%
2%
10%
Long-Term Average
8%
0%
6%
-2%
4%
-4%
2%
-6%
0%
93 95 97 99 01 03 05 07 09 11 13 15 17
92 94 96 98 00 02 04 06 08 10 12 14 16
Source: Economist Intelligence Unit
Source: Economist Intelligence Unit
FIGURE 3: OFFICE NET ADDITIONS TO STOCK*
(% OF STOCK)
FIGURE 4: MARKET RENTAL GROWTH, % YOY
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Shopping Center (IPD)
Office (Prime)
Logistics (Prime)
15%
Long-Term Average
10%
5%
0%
-5%
-10%
-15%
-20%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
92 94 96 98 00 02 04 06 08 10 12 14
Sources: Property Market Analysis, CBRE Global Investors
*Average German Big 5 markets
Source: CBRE Global Investors
FIGURE 5: KEY LOGISTICS DRIVERS (2007 = 100)
FIGURE 6: PRIME NET INITIAL YIELD, %
Office
150
Industrial Production
140
Import Volume of Goods
Export Volume of Goods
130
Logistics
8%
Real Private Consumption
120
Shopping Centres
9%
7%
110
6%
100
5%
90
4%
80
70
3%
07
08
09
10
Source: Economist Intelligence Unit
11
12
13
14
15
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: CBRE Global Investors
GLOBAL VISION | Q4 2013 | 14
FRANCE
 The surprising performance of French GDP
during the 2nd quarter has changed the
economic growth scenario in France. Thanks to
the improvement of export and domestic
demand, the French recovery seems to be
happening faster than expected. Consequently,
after forecasting -0.2% during the 1st quarter,
INSEE increased its GDP forecast to 0.1% for
2013. This assumption is partly based on the
recent recovery of survey results among the
purchasing managers of large companies
(Services and Industry PMIs). The EIU has also
improved its forecasts from -0.4% to -0.2% for
2013. (Figure 1)
 Despite the recent improvement in economic
growth, retail sales are likely to remain subdued
in 2013. (Figure 2) A recovery of retail sales is
expected in 2014, when the economic rebound
will allow an improvement in purchasing power.
 On the retail letting market, growth strategies
have been replaced by streamlining and
reorganization policies. Consequently, retailers
are closing less profitable shops and are
focusing on the best locations to consolidate or
improve performance. Prime retail locations,
especially high streets, continue to benefit from
strong demand from retailers, supporting prime
rents. However, secondary locations across all
retail formats continue to suffer from low levels
of demand and increasing vacancy.
 The office occupier market was not spared by
the economic slowdown. Take-up of offices in
Ile-de-France stood at 833,000 m² in H1 2013,
i.e a fall of 19% compared to the same period in
2012. Most of the districts were affected by this
decline. Some districts fared better, such as Paris
CBD. Availability in Ile-de-France has risen since
the beginning of the year (+2%) to 4.8 million
m². Leasing transactions are likely to fall
significantly over the full year 2013, probably to
about 1.8 million m² (vs 2.4 million m² in 2012).
Due to rising vacancy, office rents will likely
decline in 2013, but we expect a mild recovery
thereafter when the economic growth should
spur company expansions. (Figure 3)
 Concerning logistics, 675,000 m² of warehouses
were transacted in Ile-de-France in 1H 2013, i.e.
a decline of 24% in one year. The market is,
therefore, continuing the slide that started in
2011. Immediate supply has risen significantly
(+14% YoY) and reached 1.5 million m². This
increase in overall supply is affecting secondary
and obsolete premises. However, the best
locations remain resilient, with a stability of
prime rents and yields. (Figure 3)
 In 2013, the deterioration of the economic
situation and the lack of transparency will affect
home sales. Futhermore, the new legislation
project, currently being debated at the National
Assembly, is likely to hinder the development of
the market by limiting market rents, reinforcing
control on market players or increasing the
transfer tax. Thus, home sales are expected to
decrease significantly in 2013 (between 15%
and 20% compared to the long term average).
Consequently, we expect a slight decrease of
capital values in Île-de-France in 2013, while
some other regions are likely to suffer from
more significant depreciations. Transaction
volumes should start recovering in 2014 as
demand will be supported by the recovery of
economic
growth
and
a
decreasing
unemployment rate. (Figure 4)
 Regarding the investment market, commercial
real estate in France has been particularly robust
in this challenging context since the beginning of
2013. Indeed, € 8 bn has been invested during
the first 8 months of 2013. (Figure 5) Île-deFrance accounted for the lion’s share (80%) of
acquisitions in France.
 Most of investors are still focused on prime
assets. Offices remain in the majority, attracting
67% of investment, retail remains favored with
17%. Despite the healthy performance of the
market, the shortage of secure assets for sale is
likely to limit the development of the investment
market. The volume of investment expected in
2013 should remain stable compared to 2012
(around € 16 bn). As a result of scarcity of the
prime assets at the best locations – especially
Paris intra-muros – investors are going to extend
their geographical criteria. They will remain
focused on secured assets located in mature
business districts close to Paris such as Paris
Western business districts.
 Concerning prime yields, we forecast some
slight contractions in 2013 in some submarkets
such as Paris WBD or in such regions outside Îlede-France, but generally speaking, most prime
yields are likely to remain constant. (Figure 6) In
the medium term, despite the rise in bond yields,
the trend of prime yields should remain quite
stable, considering that the recovery of the
economic situation will allow investors to accept
a contraction of the risk premium.
GLOBAL VISION | Q4 2013 | 15
FRANCE – CHARTS
FIGURE 2: PRIVATE CONSUMPTION AND RETAIL
SALES (% CHANGE YOY)
FIGURE 1: REAL GDP GROWTH, % YOY
4%
3.0%
France
EU15 (Agg.)
3%
Retail sales
Consumption
2.5%
2%
2.0%
1%
1.5%
0%
1.0%
-1%
0.5%
-2%
0.0%
-3%
-0.5%
-4%
-1.0%
-5%
05 06 07 08 09 10 11 12 13 14 15 16 17
05 06 07 08 09 10 11 12 13 14 15 16 17
Sources: INSEE, Economist Intelligence Unit (forecast)
Source: INSEE, Economist Intelligence Unit (forecast)
FIGURE 3: PRIME MARKET RENTAL GROWTH
(% YOY)
FIGURE 4: EXISTING HOUSING PRICE INDEX
Office
Logistics
15%
Shopping Centres
Residential
10%
5%
Price index
100 = Q1 2010
150
Paris
Ile-de-France excl. Paris
130
Regions
110
90
0%
70
-5%
50
-10%
02
05 06 07 08 09 10 11 12 13 14 15 16 17
03
04
05
06
07
08
09
10
Sources: CBRE, CBRE Global Investors
Source: INSEE
FIGURE 5: INVESTMENT VOLUME (€ bn)
FIGURE 6: PRIME NET INITIAL YIELD (%)
30,000
Industrial / Logistics
Retail
Offices
25,000
20,000
9%
Office
High Street
11
12
13
Logistics
8%
7%
6%
15,000
5%
10,000
3%
4%
2%
5,000
1%
0%
0
05
Source: CBRE
06
07
08
09
10
11
12
13
YTD
05 06 07 08 09 10 11 12 13 14 15 16 17
Source: CBRE, CBRE Global Investors
GLOBAL VISION | Q4 2013 | 16
NETHERLANDS
 Most economic figures have been revised
downward from the outlook six months ago.
GDP growth is currently expected to end up at 1.4% for 2013. Although the outlook remains
subdued for the remainder of the forecast
period, economic growth is expected to enter
positive territory from 2014 onward. (Figure 1)
Unemployment continued to increase to 8.7% in
July 2013.
 Our cautious view of a mild recovery in the
medium term is underpinned by the movements
of the OECD composite leading indicator for the
Netherlands. This indicator, designed to provide
early signals of turning points between
expansions and slowdowns of economic activity,
increased slightly in the first half of 2013. (Figure
2)
 Office take-up figures continued to be weak, as
occupiers remain cautious and prefer to extend
expiring contracts, often for a relatively short
period at favourable terms. A number of trends
in the office occupier market suggest that future
demand for space will continue to be subdued.
Trends such as the “New World of Working”
(which includes more flexibility and work-fromhome options), cost consciousness of companies,
concentration of office activities, mergers and
acquisitions, and sustainability suggest that office
space per employee will decline further in the
future.
 Although overall vacancy remains at relatively
high levels due to weak demand, there are
significant differences between submarkets in this
respect. Prime inner city and CBD locations in
Amsterdam appear to be fairly resilient to falling
demand, and vacancy in these prime locations
continues to decline. (Figure 3)
 Following the substantial fall in real personal
disposable income, retail turnover continued to
decrease. Overall decreasing turnover was only
mitigated by growth in the supermarket
segments, whereas turnover of all other major
categories remains particularly feeble. (Figure 4)
 Demand for prime retail locations from both
domestic and international retailers remains
relatively strong as these assure dense pedestrian
flows and solid turnover. However, retail in
secondary locations continues to suffer from
lower retail spending levels. This is most clearly
evident in the relatively high levels of vacancy at
these secondary locations. Although the market
outlook for prime retail areas is positive, prime
yields saw an increase of 10 to 40 bp in Q2
2013. This increase is regarded a one-time
correction, as yields are at relatively low levels
and experienced almost no yield shift since 2010.
 Underpinned by scarcity, the logistics real estate
sector is one of the most resilient real estate
sectors. Take up so far in 2013 was solid despite
weak domestic demand while the vacancy rate
remained low at 6.5% (CBRE) compared to 6.3%
as per Q1. As modern supply is tight, the
development pipeline is predominantly pre-let
and available space mostly relates to older stock,
we maintain our expectation of single digit rental
growth for the year 2013 for the main logistics
markets in the South.
 The outlook for logistics drivers compared to last
quarter deteriorated only slightly but some
indicators are turning the corner. For example
the Purchasing Manager Index at 53.5 per
August points to stronger growth and was the
highest reading in more than 2 years. (Figure 5)
Investment demand is strong so far this year.
With several portfolios trading or about to, we
believe current pricing level will hold and even
may sharpen further.
 The housing market reforms proposed by the new
government have largely been approved by
parliament. Most prominent measures are a
gradual reduction of mortgage tax deductibility
and a revised policy for the regulated rental
market in which rental levels are more geared
towards the property’s location and the tenant’s
income. The latter results in higher rental growth
prospects for regulated rental housing. However,
part of the extra rental income will flow back to
the government in the form of a landlord charge.
 Residential transaction volumes showed an
upswing in the past few months, with the number
of residential units sold being up 30% yoy in July
and 19% yoy in August 2013 (Figure 6).
Although this increase in activity mitigated
negative price growth, house prices are still 3.6%
down compared to year-end 2012. The negative
outlook for the for-sale market led building
production to drop to historically low levels, while
the number of households continues to grow. This
could lead to tight demand-supply ratios in the
future.
GLOBAL VISION | Q4 2013 | 17
NETHERLANDS – CHARTS
FIGURE 1: REAL GDP GROWTH, % YOY
FIGURE 2: OECD LEADING INDICATOR NETHERLANDS
2%
104
OECD Composite Leading Indicator
102
1%
100
98
0%
96
-1%
Jan 2013
Jul 2013
-2%
2013
2014
2015
2016
2017
94
92
90
2009
2010
2011
2012
2013
Source: Economist Intelligence Unit
Source: OECD
FIGURE 3: FINANCIAL DISTRICT VACANCY RATES
FIGURE 4: RETAIL TURNOVER, Q2 2013, YOY
OFFICES
Amsterdam
A'dam South-Axis
Rotterdam
30%
A'dam Centre
Schiphol
The Hague
25%
4%
2%
-12%
Source: CBRE EMEA Research
Source: CBS
FIGURE 5: LOGISTICS
FIGURE 6: RESIDENTIAL SALES AND PRICE GROWTH
Feb-09
Feb-10
Sources: Markit economics / Nevi
Feb-11
Feb-12
Feb-13
Aug-13
35
Feb-13
40
Aug-12
45
Feb-12
50
Aug-11
55
Feb-11
60
Feb-10
20
15
10
5
0
-5
-10
-15
-20
65
30
Feb-08
Total Monthly Transaction Volume (000's) (LHS)
% Nominal House Price Growth (YoY) (RHS)
12%
9%
6%
3%
0%
-3%
-6%
-9%
-12%
Aug-10
NL PMI Manufacturing
Cons. electronics
Do-It-Yourself
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
07 08 08 09 09 10 10 11 11 12 12 13
Home appliances
-10%
0%
Home furnishing
-8%
5%
Fashion retail
-6%
Non-food
10%
Speciality stores
-4%
Supermarkets
15%
Food
-2%
Total retail
0%
20%
Source: CBS
GLOBAL VISION | Q4 2013 | 18
SPAIN
 Although the process of correcting accumulated
imbalances is still ongoing, the Spanish
economy is benefiting from the easing of
financial pressures and the gradual return of
capital flows. The 2012 national reform plan
has set the basis for a modest economic
recovery that might occur during the next
quarters thanks to the positive contribution of
external demand. (Figure 1)
 However, private consumption is expected to
remain weak and might slightly erode growth
during the coming quarters, as the effect of the
September 2012 tax increases will continue to
impact private expenditure. (Figure 3)
 Despite that, the destruction of private-sector
jobs is stabilizing due to the moderate
deterioration of the economy, unemployment
rates are expected to slightly increase as public
employment is being affected by the fiscal
consolidation. (Figures 2 and 4)
 Fiscal consolidation is expected to drain growth
during 2013 and to a lesser extent during
2014. The recently approved extension of the
deadline to reduce the public deficit to 3% of
GDP might change the composition of the
adjustment, reducing the tax burden and
focusing the reductions on public expenditure.
(Figure 2)
 In spite of a gradually improving economic
outlook, expected and imminent growth is still
very vulnerable. Risks remain on the downside,
focused on the slow pace of constructing the
European Banking Union, the sustainability of
export
growth
and
intensifying
fiscal
adjustments.
 Property
markets
continued
performing
negatively during the first quarters of 2013,
although to a lesser extent than in previous
years. The recent slowdown in rental declines
and the stabilization of vacancy rates suggest a
near term change in the property cycle.
 Vacancy rates remained stable between 11%
and 15% in practically all sectors, helped by the
almost non-existent pipeline counteracting the
space rationalization process started by
companies in early stages of the crisis. However,
space availability is expected to slightly increase,
especially in the office sector, as the
rationalization public program progresses.
 Take-up levels were stable during the first half
of 2013, aligned with the short term private
consumption outlook hindering any increase in
the demand for property space. The 50%
increase in take up levels in the Madrid office
market during the first half of 2013 is due to






exceptional company re-allocations rather than
market fundamentals.
The stabilization of vacancy rates among
practically all sectors has contributed to a
slowdown in the correction in prime rents
during the last quarters. Nevertheless, prime
rents among sectors have registered 30% to
40% nominal accumulated falls since the peak
and are likely to continue falling during the
coming quarters, although at a slower pace.
(Figure 5)
Financing continues to be limited to core assets
although expensive, with a limited contribution
to property returns. This will create
opportunities for investors chasing after
refinancing situations. Loan applications are
completely different from those from pre-crisis
and focus in detail on micro factors.
The sharp value correction in the Spanish
property markets (between 40% and 50%
accumulated value decline since the peak,
depending on the sector) has pushed property
values significantly below historical averages
(circa 30%). In addition, property yields remain
high when compared to pre-crisis levels (circa
250 bps higher) and still reflect a risk premium
where other markets (government bonds) have
already normalized. (Figure 6)
Since the beginning of 2013, foreign investors
sentiment has improved significantly due to
reduced uncertainties (thanks to the ESM and
the structural reforms undertaken) and the
possible near term change in the cycle.
Given the attractiveness of current prices and
high income returns, demand for investing in
Spanish real estate has increased rapidly since
the beginning of 2013. Investors continue to be
polarized into two segments, core and
opportunistic. As the Spanish bad bank “SAREB”
accelerated the disposal strategy at the start of
the year, transactions have registered several
portfolio deals (mainly residential) and others
related to non-performing loans in the
opportunistic niche. The tempting core play to
secure income cash flows is becoming crowded
and capital sources might be pushed up the
risk specturem where there is currently very little
competition.
Investment volumes still remain low, also due to
the lack of product restricting further
transactions. However, with foreign investors
returning to Spain, we expect volumes to
increase in the coming quarters.
GLOBAL VISION | Q4 2013 | 19
SPAIN – CHARTS
FIGURE 1: REAL GDP GROWTH, % YOY
FIGURE 2: BUDGET BALANCE AS % OF GDP
Euro Area
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
12%
Spain
10.7%
9.5%
9%
7.2%
6.8%
5.7%
6%
3%
06
07
08
09
10
11
12
13
14
15
16
17
0%
11
12
13
14
15
Source: Economist Intelligence Unit
Sources: Spanish Tesoro Publico and Economist Intelligence Unit
FIGURE 3: PRIVATE CONSUMPTION GROWTH, % YOY
FIGURE 4: UNEMPLOYMENT RATES
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
Euro Area
Spain
30%
Spain
Euro Area
25%
20%
15%
10%
5%
0%
06
07
08
09
10
11
12
13
14
15
16
9908
17
09
10
11
12
13
14
Source: Economist Intelligence Unit
Source: Economist Intelligence Unit
FIGURE 5: PRIME MARKET RENTAL GROWTH, % YOY
FIGURE 6: PRIME NET INITIAL YIELDS
30%
20%
Offices
Shopping Centres
Logistics
10%
Offices Madrid
Shopping Centres
15
16
17
Logistics Barcelona
9%
8%
7%
0%
6%
-10%
5%
-20%
4%
-30%
06 07 08 09 10 11 12 13 14 15 16 17
Sources: CBRE Global Investors
3%
06 07 08 09 10 11 12 13 14 15 16 17
Source: Historic, JLL, CBRE, PMA; Forecast, CBRE Global Investors
GLOBAL VISION | Q4 2013 | 20
JAPAN
 According to second estimates, the Japanese
economy expanded much stronger than initially
expected in Q2, as GDP revised upward from
annualized growth rate of 2.6% to 3.7%. This
was mainly led by a marked improvement in
business investment. (Figure 1) In addition,
consumer prices came out of deflation in June for
the first time in twelve months with overall CPI
rising 0.2% over last year, adding to growing
signs that a solid recovery is underway. Although,
concerns regarding a slow pace of overseas
economic recovery remains a key downside risk,
it is expected that the current recovery of the
Japanese economy will likely be sustained over
the medium term. According to Consensus
Economics (as of August 2013), GDP growth of
1.9% and 1.5% is projected for 2013 and 2014
respectively.
 To add to the positive momentum, Tokyo was
recently awarded the 2020 Olympics, which may
further
bolster
optimism
and
boost
consumer/business confidence. The Tokyo
government estimates that the likely economic
impact of hosting the Olympics to be
approximtely 3 trillion yen, with an additional
150,000 new jobs. Real estate companies are
expected
to
benefit
from
the
new
construction/renovation of sporting venues and
athlete village. (Figure 2) Hotels and housing
near the venues are also likely to benefit and
may possibly lead to an increase in values.
 Rents for the overall Tokyo office market
continued to fall but the rate of decline has
narrowed, down only 1.2% in H1 2013 from H2
2012. Rents for large, high quality buildings
continued to rise gradually, but a similar trend
was also found in mid-to-large sized high quality
buildings. Asking rents for mid- to-large sized
new buildings have now increased by 14% in H1
2013 compared to H2 2012 (Figure 3),
suggesting landlords have started to push up
rents in buildings with superior quality facilities
regardless of the sizes in good locations. Both
landlords and tenants have realized that leasing
inqueries have become more active and that the
vacancy rate is evidently declining. Office supply
in Tokyo 3 Wards over the next five years (2013 2017) is forecast to fall below the 1998 – 2012
historical average. Over the next four years,
reconstruction projects will account for roughly
85% of the new supply within Tokyo 3 Wards.
During the five year forecast period, Tokyo
offices are likely to outperform the other major
sectors as total unlevered returns are expected to
average 8.3% annually.
 Rents for Tokyo Residential units are expected to
pick up modestly in the near future although
growth will likely be limited. In order for a robust
recovery in residential rents to take place,
household incomes would need to increase and
trend upward. Cap rate compression for Tokyo
residential has already progressed and cap rates
are now quite low with some traded at NOI cap
rates below 5%. During the five year forecast
period, total unlevered returns are expected to
average roughly 7.5% for residential assets
located in Tokyo. As the window of opportunity to
acquire Tokyo Residential continues to narrow,
more domestic and foreign players have started
to increase their investment allocations in
secondary cities. (Figure 4) Hence, cap rates
have started to compress for regional cities such
as Osaka and Nagoya.
 Demand from internet retailers and third-party
logistics companies continue to drive demand
and the leasing market of logistics properties in
Greater Tokyo displayed further improvement in
Q2 2013. The average vacancy rate for multitenant logistics facilities located in Greater Tokyo
declined to a record low 2.7% at the end of June
2013. (Figure 5) As the overall supply-demand
balance remained tight, rents have started to
marginally increase for all major cities within
Greater Tokyo in Q2 2013. Despite there is a
significant amount of supply expected to come
into the market in the latter half of this year,
going forward, a buoyant leasing market will
likely continue in the near term as supported by
solid demand. During the five year forecast
period, we expect an average unlevered total
return of 8.2% for logistics facilities located in
Greater Tokyo.
 High street retail rents in Tokyo are at a historical
low level but have recently witnessed a slight
increase in rents, as they benefited from the
improved consumer sentiment boosted by the
measures of Abenomics. (Figure 6) Rents are
expected to pick up for quality assets in good
locations and cap rates are expected to compress
moderately given that the debt supply and equity
investments remain fairly strong. During the five
year forecast period, total unlevered returns are
expected to average roughly 7.1% for high street
retail located in Tokyo.
GLOBAL VISION | Q4 2013 | 21
JAPAN – CHARTS
FIGURE 1: BREAKDOWN OF GDP BY COMPONENTS
Growth Rate (qoq)
Private Consumption
Government Consumption
Exports
GDP
FIGURE 2: PROPOSED OLYMPIC VENUES
Business Investment
Public Investment
Imports
8%
6%
4%
2%
0%
-2%
-4%
-6%
1Q 12
2Q 12
3Q 12
4Q 12
1Q 13
2Q 13
Source: Cabinet Office
Source: Tokyo 2020 Olympics Bid Committee
FIGURE 3: TOKYO 5 WARDS OFFICE RENT TRENDS
FIGURE 4: JREIT RESIDENTIAL TRANSACTION TRENDS
40%
35,000
30%
30,000
20%
25,000
10%
20,000
0%
15,000
-10%
10,000
-20%
% Share of Total Residential
Transaction
JPY per tsubo
40,000
% Change YoY
Asking Rents (New Buildings)
% Change YoY
-30%
5,000
03 03 04 05 06 07 08 08 09 10 11 12 13
Regional Residential
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Avg.
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
10 10 10 10 11 11 11 11 12 12 12 12 13 13
Note: refer to new office buildings with floor plate over 100 tsubo
Source: Miki Shoji
Source: ARES
FIGURE 5: VACANCY TREND FOR GREATER TOKYO
LOGISTICS
FIGURE 6: TOKYO HIGH STREET RETAIL RENT TRENDS,
YOY CHANGE
All Facilities
Existing Facilities
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Ginza Average Prime Rent
Harajuku Average Prime Rent
Omotesando Average Prime Rent
Shibuya Average Prime Rent
Shinjuku Average Prime Rent
40%
% Change YoY
30%
20%
10%
0%
-10%
-20%
-30%
2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q
04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13
Source: CBRE
-40%
07
08
09
10
11
12
1Q
13
Source: CBRE
GLOBAL VISION | Q4 2013 | 22
CHINA


China’s GDP grew by 7.5% YOY in Q2,
slowing further from 7.7% YOY in Q1. This
was primarily due to weaker exports as a
consequence of a soft global demand and
RMB appreciation. Domestic demand has
stabilized with retail sales picking up modestly
in Q2 from Q1. New starts in the property
sector increased by 8.8% YOY in Q2,
compared with a decline of 2.7% in Q1, also
helped to support domestic demand. Latest
economic data suggests a broad-based
recovery with not only a rebound in the
manufacturing sector but also stronger
infrastructure
investment.
Consensus
Economics’ latest mean forecast of full year
GDP growth is 7.5% and 7.4% in 2013 and
2014 respectively. (Figure 1)
CPI stabilized at 2.6% YOY in August while
year-to-date average of 2.5% YOY CPI was
recorded. Core goods and service prices
stayed largely flat while food prices continued
to be the driving force. Despite CPI possibly
picking up in Q4 due to seasonal uptrend of
food prices, overall inflation should remain
within a comfortable range from a monetary
policy point of view. Although real interest
rates are currently positive, it is likely they will
turn negative towards the end of this year
(Figure 2) and that may force depositors to
look for alternative ways to preserve their
cash savings.

China’s new bank loans amounted to RMB
711 billion in August, reflecting a steady
growth of bank lending of 14% YOY. (Figure
3) Year-to-date new lending of RMB 6.5
trillion is inline with the seasonal pattern.
Therefore, new bank loans are expected to
slow gradually for the remainder of 2013. In
contrast, medium & long term corporate
loans have remained strong with growth
picking up recently, supporting both public
and private sector investment. Looking
forward, the Beijing authority will likely
maintain the current monetary stance with the
focus of a more sustainable growth path.

Transaction volume (excluding land sales)
totaled over US $3.7 billion in Q2 (Figure 4),
which saw a pick-up of 32% QOQ from Q1
but still down 53% YOY from a year ago.
Retail overtook office to become the most
traded sector with close to US $2 billion of
transactions in the quarter. Indeed, investors
showed
high
interest
in
value-add
opportunities and retail projects that are
targeting the fast growing middle class. The
office sector also recorded US $1.4 billion of
transactions in the quarter with investors now
focusing more on quality offices in
decentralized locations given there is currently
a lack of available stocks for sale in the core
CBD areas, especially in tier one cities. In
contrast, land transactions continued to be
very active in Q2 with a total volume of US
$83 billion. Together with the US $83 billion
volume in Q1, the land market is gaining
momentum with a growth of 77% YOY in H1
2013.

According to the National Bureau of Statistics,
66 of the monitored cities reported MOM
residential price increases in August. In fact,
the number of cities reporting MOM
residential price increases outnumbered the
number of cities reported MOM residential
price decreases since June 2012. (Figure 5)
Majority of the cities monitored registered a
residential price rally for over a year now.
Solid demand from both first time home
buyers and upgraders is pushing up
residential prices and has led to upbeat
sentiment among developers in land
acquisitions.

As the national trend of service sector
office
demand
expansion
continues,
remained broadly stable in the first half of
2013 with domestic companies and stateowned enterprises the key drivers in
absorbing office space. The positive
momentum continues in Beijing given limited
new supply and solid demand. (Figure 6) In
Shanghai, however, financial institutions and
MNCs are generally more cautious given the
higher than historical average of new supply
that has led to flat rental performance in H1
2013.
There
have
been
divergent
performances among the core CBDs and
emerging new CBDs across China. Other
than higher vacancies in the emerging new
CBDs, a large amount of future new supply is
also expected in these new areas thus
exerting huge pressure on rents.
GLOBAL VISION | Q4 2013 | 23
CHINA – CHARTS
FIGURE 1: CHINA’S REAL GDP & COMPONENTS,
%YOY
Net Exports
Gov't consumption
Real GDP
FIGURE 2: INFLATION, DEPOSIT RATE AND REAL*
INTEREST RATE
Fixed investment
Private consumption
CPI
1Y Deposit Rate
Real Interest Rate
10%
8%
6%
15%
4%
10%
2%
0%
5%
-2%
0%
-4%
-6%
-5%
01 02 03 04 05 06 07 08 09 10 11 12 13
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Economist Intelligence Unit
Source: CEIC
FIGURE 3: CHINA NET NEW LOANS, BN RMB,
OUTSTANDING LOAN GROWTH, %YOY
FIGURE 4: CHINA INVESTMENT VOLUMES OF STANDING
ASSETS, USD BN PER QUARTER
Net New Loans (LHS)
Outstanding Loan Growth (RHS)
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
40%
10
30%
8
20%
*“Real interest rate” defined as 1Y deposit rate minus CPI
Office
Retail
Industrial
Others
6
4
10%
0%
02 03 04 05 06 07 08 09 10 11 12 13
2
0
07
08
09
10
11
12
13
Sources: CEIC, CBRE Global Investors
Sources: RCA, CBRE Global Investors
FIGURE 5: RESIDENTIAL PRICE MOVEMENT IN 70
MAJOR CHINESE CITIES, MONTH ON
MONTH PRICE TRENDS, # OF CITIES
FIGURE 6: OFFICE RENTAL INDEX, 2003Q1=100
80
60
40
20
0
Jan-11
Jul-11
Jan-12
Sources: CEIC, CBRE Global Investors
Jul-12
Beijing
Shanghai
260
240
220
200
180
160
140
120
100
80
Price Decrease
Price Stability
Price Increase
Jan-13
Jul-13
03
04
05
06
07
Guangzhou
Shenzhen
08
09
10
11
12
13
Sources: CBRE Research, CBRE Global Investors
GLOBAL VISION | Q4 2013 | 24
AUSTRALIA
 Australia’s economy achieved a growth rate of
2.6% in Q2 2013, roughly 100 basis points
below its long term trend, as mining investments
slow down. The Consensus Economics’ mean
forecast for 2013 and 2014 (as of August 2013)
is 2.6% and 3.0% respectively; while the EIU is
also forecasting growth below its long-term
average. (Figure 1) Despite low interest rates,
business and consumer confidence remains low
in H1 2013, reflecting a sluggish outllook for
the economy over the next six months.
 Earlier in August, the Reserve Bank of Australia
(RBA) cut its 2013 economic growth forecast
from 2.5% to 2.25%, as the decline of the
resources investment boom is having a negative
effect on the broader economy. In response, the
official cash rate was reduced by another 25
basis points, bringing it to yet another record
low of 2.5%. The RBA expects growth to recover
in the non-mining sectors in 2014, when the
effects of the current policies begin to
materialize. The AUD depreciation against USD
by roughly 15% since May 2013, should aid
exports in non-manufacturing sectors, as well as
attracting inbound tourism, and other sectors
including education (Australian universities have
a high share of foreign students). However, the
RBA is prepared to cut rates further in Q4 2013
if credit growth and business confidence
remains subdued.
 Easing monetary policies should lead to lower
government bond yields over the short term,
however. With the expectation of rising interest
rates in the US, Australian bond yields are
forecast to rise in the medium term. (Figure 2)
With the economic challenges, the labor
markets have seen a slight increase in the
official unemployment rate from 5.3% to 5.7%
between January and June 2013. Over the next
12 months, the unemployment
rate is
anticipated to increase further, reverting to its
long term trend of above 6% before stabilising.
 Attractive yields, and a wide yield spread to the
risk free rate, across most sectors are attracting
both offshore and domestic investors and thus
investment activities remained active in H1 2013.
It is likely that such a trend will persist in H2
2013 and 2014. International investors continue
to be attracted to the relatively high and stable
income returns offered by real estate, in addition
to its large size, high transparency and high
degree of liquidity. Asian capital sources alone
purchased over USD 2.0 bn in real estate assets
in H1 2013, according to RCA.
 The performance of most markets in H1 2013
has weakened slightly in spite of low supply
pipelines. “All property” delivered total returns of
9.1% YOY in H1 according to the IPD/PCA index,
down from the strongest post-recession return of
10.4% in 2011. (Figure 3) It is likely that a weak
performance may persist over the next 12-18
months before a meaningful recovery.
 The office sector has recorded total returns of
9.4% YOY, with 7.3% derived from income and
2.1% from capital growth for the H1 2013.
(Figure 4) The Sydney office market experienced
weak leasing activity in Q2 2013, and face rents
fell 0.9% for prime assets. Incentives invariably
rose to attract tenants negatively impacting
effective rents. The Finance and Insurance sector,
accounting for 52% of CBD office space
demand, is expected to cut jobs further as well
as the public sector reducing employment
numbers in the coming years. We expect the
Sydney CBD office market to experience weak
and even negative rental growth in 2013 and
H1 2014, before a recovery in late 2014/2015.
We are forecasting mid-high single digit total
returns over the next five years.
 Retail continues to be the weakest performing
sector, with weak job prospects and security
causing consumers to cut down on discretionary
spending. Leasing conditions are challenging
and resulted in net effective rents declining by
4.1% in H1 2013. Even with aggressive interest
rate cuts by the Reserve Bank, confidence levels
remain low and caution prevails. Total returns of
8.8% in H1 2013 have been recorded and we
continue to forecast weakness in Sydney and the
other main shopping center markets in the
coming few years. Total return performance over
the next five years is well below its long term
average (15 year) of 11%. (Figure 5)
 The Sydney industrial sector continues to
experience moderate demand growth in H1
2013, particularly for quality assets, as vacancy
is low and the supply pipeline over the next 12
months is limited; this will aid a rental rate
increase in 2014. (Figure 6) All precincts
recorded a fall in vacant space throughout the
quarter. We expect this sector to deliver high
single digit growth over the next five years, and
larger space assets are likely to be in greater
demand.
GLOBAL VISION | Q4 2013 | 25
AUSTRALIA – CHARTS
FIGURE 1: GDP GROWTH FORECAST, % YOY
7%
Real YoY GDP Growth
10 Year Hist. Avg.
25 Year Hist. Avg.
6%
5%
FIGURE 2: LONG TERM GOVERNMENT BOND YIELD
18%
16%
14%
4%
12%
3%
10%
2%
8%
1%
6%
0%
4%
-1%
2%
-2%
81 84 87 90 93 96 99 02 05 08 11 14 17
Long-term bond yield
10 Year Hist. Avg.
25 Year Hist. Avg.
0%
81 84 87 90 93 96 99 02 05 08 11 14 17
Source: Economist Intelligence Unit
Source: Economist Intelligence Unit
FIGURE 3: PROPERTY TOTAL RETURNS BY SECTOR
FIGURE 4: SYDNEY OFFICE RENT AND CAPITAL VALUE
GROWTH TRENDS
35%
Retail
Office
Industrial
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
H1
Rent
Capital Value
LTA Rental Growth
LTA Capital Value Growth
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: Property Council of Australia/International Property Databank
Source: CBRE Research, CBRE Global Investors
FIGURE 5: SYDNEY SHOPPING CENTRE RENT AND
CAPITAL VALUE GROWTH TRENDS
FIGURE 6: SYDNEY INDUSTRIAL RENT AND CAPITAL
VALUE GROWTH TRENDS
Rent
LTA Rental Growth
Rent
LTA Rental Growth
Capital Value
LTA Capital Value Growth
Capital Value
LTA Capital Value Growth
20%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
95 97 99 01 03 05 07 09 11 13 15 17
Source: CBRE Research, CBRE Global Investors
95
97
99
01
03
05
07
09
11
13
15
17
Sources: CBRE Research, CBRE Global Investors
GLOBAL VISION | Q4 2013 | 26
SOUTH KOREA
 Real GDP growth far exceeded market
expectations by rising 1.1% QOQ in Q2
(seasonally adjusted), the largest increase in over
two years. The rise was mainly driven by a sharp
boost from fiscal policy with public consumption
rising 2.4% QOQ and overall construction
investment up 3.4% QOQ. However, the
underlying performance of the economy remains
much patchier than indicated by the GDP figure.
Export volume increased modestly but has
outpaced imports, which were held back by
destocking. Consumer spending rose 0.6% on the
quarter after falling in Q1.
 While the economy is being supported by
expansionary monetary and fiscal policy, as well
as low inflation, it is currently being limited by
subdued global trade flows, high levels of
uncertainty, weak business sentiment and a
lackluster trend in consumer spending. Bear in
mind that falling housing prices are strongly
correlated with rising household delinquencies,
which puts the central bank in a difficult spot. It
is unlikely to hike rates before the end of this year.
The latest EIU forecast projects 2013 real GDP
growth at 2.8% before picking up to 3.4% in
2014. (Figure 1) Consensus Economics’ forecasts
of CPI growth for 2013 and 2014 are 1.6% and
2.6%, respectively. Over the outlook period
(2013-17), employment is projected to increase
at just 0.3% per year, however the unemployment
rate is expected to remain at a very low level:
around 2.6% on average over the same period.
(Figure 2)
 Seoul’s Grade A office market showed a
downturn in demand in Q2 compared to
previous quarters, with absorption in all three
districts amounting to approximately negative
2,637 sqm. CBD rental performance, take-up
and Seoul average face rent all declined with the
newly constructed
N Tower entering the
market at a face rent below market average.
GBD continued its tenuous state with an increase
in the vacancy rate affected by gradual move outs
of tenants. YBD resolved a large amount of
vacant space of Two IFC, thereby becoming the
only district with a lowered vacancy rate. Seoul’s
Grade A office market, with the continuation of its
oversupplied status, is expected to be tenantdriven over the next few quarters. The overall
vacancy rate of Seoul Grade A office averaged
8.6% in Q2. The YBD vacancy actually came
down from the 10%-level to 8.6%, while CBD and
GBD recorded 13.1% and 3.3% in average
vacancy rate, respectively, rising modestly from
the previous quarter. (Figure 3) Over the forecast
period (2013-17), Seoul prime office rents are
forecast to decline by 0.3% per annum on
average, while prime rents in the CBD and YBD
are expected to be weaker, with average declines
of 1.8% and 2.5% per year respectively, with near
term deterioration but positive growth returning in
the latter part of the outlook period. (Figure 4)
 Despite weak domestic consumption, consumer
sentiment has turned mildly positive since Q2, as
the consumer sentiment index improved to 105 in
July from 102 in April. Private consumption
accounts for nearly 60% of GDP in Korea. Hence
a small change in consumption tends to have a
large impact on GDP. High household leverage
and weak income growth will continue to restrain
private consumption over the next several
quarters. However, the central bank’s rate cut,
along with selective tax reductions related to
housing should put a floor on aggregate
consumption in H2 2013. According to the EIU in
September 2013, retail sales are projected to
grow at 4.8% in 2013, in tandem with a
resurgence in consumer expenditures at 8.2% in
2013. (Figure 5)
 New completions in Q2 2013 included Up
Square mall in Ulsan. Local fashion brands are
restructuring brand lines and re-launching
existing fashion brands as SPA brands (specialty
retailers of private label apparel) in order to gain
competitiveness against global SPA brands in the
midst of economic recession and sluggish
consumer spending. Cap rates for standalone
hypermarkets with key retailer anchors have
considerably compressed to far below 6% since
2012. Recent bidding for disposing the four
Tesco Homeplus stores suggests that tighter
range of mid 5% or somewhat lower cap rate
may be achievable later this year. In addition to
declining interest rates, this cap rate compression
is largely encouraged by the resurgence of riskaversion on the part of investors in the wake of
global economic uncertainty, leading them to
focus on what they perceive to be less-risky
property types, with relatively stable dividend
returns subject to long-term leaseback clauses.
Cap rates for shopping malls in the Greater
Seoul Metro ranged from 5.7-6.2% in Q2. Over
the outlook period (2013-17), Seoul shopping
mall rents are forecast to increase by 5.2% per
year, while capital values are expected to grow at
6.1% per year. (Figure 6)
 So far in Q2 2013, there have not been any
major logistics transactions, particularly by
domestic institutional investors. However, local
investors’ are increasingly searching for highquality distribution centres.
GLOBAL VISION | Q4 2013 | 27
SOUTH KOREA – CHARTS
FIGURE 1: GDP GROWTH FORECAST, % YOY
Real GDP
FIGURE 2: EMPLOYMENT GROWTH FORECAST &
UNEMPLOYMENT RATE
Ave. 2003-2012
Employment Growth (LHS)
5%
Unemployment (RHS)
3%
5%
4%
4%
2%
3%
3%
1%
2%
2%
0%
1%
1%
0%
-1%
0%
13
14
15
16
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
17
Source: Economist Intelligence Unit
Source: Economist Intelligence Unit
FIGURE 3: SEOUL PRIME OFFICE VACANCY RATES
FIGURE 4: PRIME OFFICE RENT & CAPITAL VALUE TRENDS
CBD
GBD
YBD
Total
20%
15%
Rental Growth
25%
Capital Value Growth
15%
10%
5%
5%
0%
-5%
-5%
Q1
02
Q2
03
Q3
04
Q4
05
Q1
07
Q2
08
Q3
09
Q4
10
Q1
12
Q2
13
-15%
03
05
07
09
11
13
15
17
Source: CBRE Research
Source: CBRE Global Investors
FIGURE 5: REAL RETAIL SALES & CONSUMER
EXPENDITURE,% PA
FIGURE 6: PRIME RETAIL RENT & CAPITAL VALUE TRENDS
Retail Sales
Consumer Expenditure
25%
Rental Growth
30%
Capital Value Growth
20%
20%
15%
10%
10%
5%
0%
0%
-5%
-10%
-10%
-15%
-20%
03
05
07
09
Source: Economist Intelligence Unit
11
13
15
17
-20%
07
08
09
10
11
12
13
14
15
16
17
Source: CBRE Global Investors
GLOBAL VISION | Q4 2013 | 28
CBRE GLOBAL INVESTORS
CBRE Global Investors is one of the world’s largest real estate investment management
firms with $88.2 billion in assets under management. 1 The firm sponsors real estate
investment programs across the risk/return spectrum in North America, Europe and Asia for
investors worldwide including public and private pension funds, insurance companies,
sovereign wealth funds, foundations, endowments and private individuals. Programs
include core/core-plus, value-added and opportunistic strategies through separate accounts
and commingled equity funds, debt investment, global multi manager programs and listed
global real estate securities vehicles.
A cornerstone of CBRE Global Investors is a timely, disciplined research process. Our
dedicated global Investment Research Group provides a strategic understanding of both
local real estate markets and global economic and capital markets trends, which shapes
highly informed real estate investment strategies and decisions.
DOUG HERZBRUN, GLOBAL HEAD OF RESEARCH
Mr. Herzbrun is responsible for CBRE Global Investors' research activities. He directs
strategic analysis of the economies, capital markets and property markets in North
America, Europe and Asia. These analyses support the portfolio management and
acquisition processes, and the development of new product concepts. He communicates
research insights to the firm’s clients and prospects, and to the real estate community. He
serves on the Global, Americas and Global Multi Manager investment committees.
Mr. Herzbrun has over 32 years of real estate investment research experience. He joined
CBRE Global Investors in 1984 after four and one-half years with Coldwell Banker Real
Estate Consultation Services.
Mr. Herzbrun received a B.A. in History from the University of California at Berkeley and a
Master of City and Regional Planning from Harvard University. He is a member of the
Education Committee of the National Council of Real Estate Investment Fiduciaries
(NCREIF) where he is an instructor at their Academy program series. He is also a member
of the Research Affinity Group of the Pension Real Estate Association (PREA), and of the
Urban Land Institute (ULI).
SABINA KALYAN, GLOBAL CHIEF ECONOMIST
Based in London, Sabina is responsible for developing CBRE Global Investors’ house
views on the outlook for the global economy and financial markets, and analyzing their
impact on real estate markets. She has been with the company for four years, and prior
to this role, was the European Head of Research.
Sabina joins CBRE Global Investors from IPD where she was Chief Economist. Prior to this
she worked for Capital Economics, where she developed their UK residential and
commercial property market analysis and forecasting service.
Sabina studied economics at Lincoln College, Oxford University and is a member of the
Society of Business Economists, the Society of Property Researchers and the Investment
Property Forum.
1
Assets under management (AUM) refers to fair market value of real estate-related assets with respect to which CBRE Global Investors provides, on a global basis, oversight, investment
management services and other advice, and which generally consists of properties and real estate-related loans; securities portfolios; and investments in operating companies, joint
ventures and in private real estate funds under its fund of funds program. This AUM is intended principally to reflect the extent of CBRE Global Investors' presence in the global real
estate market, and its calculation of AUM may differ from the calculations of other asset managers. As of June 30, 2013.
GLOBAL VISION | Q4 2013 | 29
This document has been prepared by the Strategy & Research Team:
Assia Amore
Andrew Angeli
Marije Braam
Isaac Carrascal
Juliet Cha
Jane Dorrel
Angela Du
Doug Herzbrun
Maarten Jennen
Shubhra Jha
Sabina Kalyan
Johan Kamminga
Charlotte Keeling
Gerben Koops
Danny Lee
Miriam Leung
Joaquin Linares
Trey Long
David Morrison
Christian Muller
Eugene Philips
Chas Sun
Els Swaen
Shane Taylor
Marcel Theebe
Shinnosuke Tomita
Ondrej Vlk
Anthony Wirth
Karel Zeman
REGIONAL HEADS OF RESEARCH
NORTH AMERICA
EUROPE
ASIA PACIFIC
DOUG HERZBRUN
Global Head of Research
EUGENE PHILIPS
Head of European Research
SHANE TAYLOR
Head of Asia Pacific Research
TEL: + 1 213 683 4238
TEL: +31 20 202 2337
TEL: +852 2846 3042
douglas.herzbrun@cbreglobalinvestors.com
eugene.philips@cbreglobalinvestors.com
shane.taylor@cbreglobalinvestors.com
GLOBAL VISION | Q4 2013 | 30
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