Jones Lang LaSalle:Global Market Perspective April 2010

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Global Market Perspective
April 2010
Property Hits a More Confident Stride
Could this quarter become known as the period when property's stride changed? Supporting the sector’s increasingly
energetic steps is the easing of credit conditions and the consequent boost to investor activity, rising capital values in
core markets, the REIT sector revival and the re-emergence of sale and leasebacks. With half the deals in Q1 being
cross-border, the property market is walking taller around the world. There are still concerns though that property’s stride
could be knocked off balance by further economic challenges, by growing concerns over inflationary pressures in the
fast moving markets of Asia Pacific, and by the possibilities of sovereign debt default and the consequences of inevitable
tightening of monetary policy.
Despite these worries the real estate sector has regained its serious appeal to a wide range of investors and as
economies continue to recover the volumes of capital targeting property are increasing. The corporate world, still with an
eye on cost management and value creation are themselves finding innovative solutions to financing space and to
mitigating lease liabilities.
While the pace varies global property markets seem back on track.
Highlights
• Economic recovery filtering through to real estate
• Broad range of investors now active
• Cross-border momentum building
• Debt availability improving, but chasing narrow band of assets
• Growth in corporate sale-leasebacks activity
• 35-45% growth in investment volumes projected for 2010
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Global Market Perspective April 2010
Global Economy
One year into recovery
The global economy has now been in recovery since Q2 2009 and a year on there is increasing evidence that the
recovery in the business environment is filtering through to real estate. Improving fundamentals and credit conditions are
boosting real estate investor activity, encouraging more cross-border deals and driving up capital values in some core
markets. Even leasing volumes, which have lagged the real economy, are beginning to recover.
The latest Global Real Estate Health Monitor (GREHM) shows that most major economies are growing, although
recovery in Europe remains patchy and fragile. In the United States, the first substantial evidence of job creation has
emerged and employment is also growing across the Asia Pacific region. China’s annual economic growth has surged to
nearly 12% in Q1. The world’s main stock markets are at an 18-month high and the REIT sector has also seen a revival
in tandem with the rally in the equity market.
Global Real Estate Health Monitor
April 2010 US UK Germany France Japan China Australia
Official Interest Rate 0 - 0.25% 0.5% 1.0% 1.0% 0.1% 5.3% 4.25%
GDP QOQ % 1.4% 0.4% 0.0% 0.7% 0.9% 11.9% 0.9%
CPI YOY% 2.1% 3.0% 1.1% 1.6% -1.5% 2.4% 2.1%
Consumer Confidence MOM % 13.2% 8.1% 0.0% -3.0% n/a 0.7% 0.2%
Employment YOY % -1.4% -1.6% -0.4% -1.8% -0.5% 1.0% 1.7%
Retail Trade MOM % 0.3% 1.0% 0.0% 0.1% 0.9% -2.7% -1.4%
Housing Starts YOY % 0.2% -12.0% n/a -31.1% -9.1% n/a 26.0%
OECD Leading Indicator MOM% 0.9% 0.4% 0.9% 0.1% 1.3% 0.0% 0.6%
Manufacturing PMI, Index level 59.6 57.2 60.2 56.5 52.4 57.0 50.2
Stock Market, MOM to 31 Mar 5.9% 6.1% 9.9% 7.2% 9.5% 1.9% 5.1%
REIT Market, MOM to 31 Mar 9.5% 5.1% 3.8% 5.8% 7.6% n/a -0.1%
General Trend Recovery Recovery Recovery Recovery Recovery Growth Growth
* Chinese GDP YOY
General Trend: Worsening, Neutral, Improving
Sources: Global Insight, UK ONS, ABS, OECD, Markit Economics, Reserve Bank of Australia, Federal Reserve Bank of New York, Jones Lang LaSalle
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 3
Global Market Perspective April 2010
In the Asia Pacific region, economic forecasts are upbeat. However, there are concerns about inflationary pressures
particularly in the residential market, which has prompted anti-speculative measures from governments. These include
the introduction of stamp duty for sellers in Singapore and regulation by the Chinese government to discourage
development by state-owned enterprises whose core businesses are not real estate. More government measures are
likely to be implemented during 2010 if asset prices further inflate.
In the EMEA region, sovereign debt issues continue to weigh on the market. Despite Eurozone leaders agreeing to a
support plan of coordinated bilateral loans for Greece, concerns remain that sovereign debt default could threaten
economic recovery. In the Gulf region, the Dubai government has unveiled a long-anticipated debt restructuring plan,
pledging to inject US$9.5 billion into Dubai World, a commitment welcomed by the business community.
Across the globe, but particularly in Asia Pacific, investors are reminded that an improving economic environment will be
accompanied by tighter monetary policy over the next 12 to 24 months. Yields on government debt are being pushed
higher and the Reserve Bank of Australia continues to lead the way by raising interest rates by another 25 basis points
to 4.25%. Investors should recognise that the withdrawal of extraordinary monetary and fiscal policy stimuli could restrain
growth and have a negative impact on the real estate sector over the medium term.
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Global Market Perspective April 2010
Global Property
Wide range of investors targeting real estate
Capital targeting the real estate sector is on the increase. The sector’s performance is appealing to a broad range of
investors as the world’s economies emerge from recession. This is driving a weight of money in search of secure income
today and upside potential as the leasing markets start to recover. This trend is evident worldwide and real estate
investor confidence has returned. A wide range of investors are now active, with a notable return of the recapitalised
REIT sector and resurgent interest from fund managers.
Capital-raising is evident across all three regions, boosting the volume of funds targeting real estate. Strong investor
competition and a shortage of prime product in all core markets are pushing up capital values and encouraging some
investors to move up the risk curve into second tier markets and value-added opportunities. Capital placement is now
becoming the biggest challenge. Debt is gradually freeing up, although both debt and equity are chasing the same
narrow band of top tier product. So banks are very focused on prime real estate, while lending for secondary properties
is thin, and is restricted to good quality real estate in secondary markets (rather than poor quality real estate in core
markets) with higher margins and lower LTVs.
Overall, the capital markets are discounting the immediate macro-economic challenges in order to capture future growth
in leasing markets as it becomes more established. This will happen at different speeds since the major economies are
at different stages of recovery; economic growth is still fragile in Europe and the United States but resurgent in Asia
Pacific. Investor interest is already beginning to reflect these fundamentals.
Deal velocity increasing
In Q1 2010, direct commercial real estate volumes stood at US$ 63 billion1, representing a 57% increase on the same
period in 2009. Volumes were down marginally on Q4 2009, reflecting a combination of seasonality and currency
movement, but the underlying trend remains upwards. Among the world’s major real estate investment markets, Japan
and Germany have seen the largest rises during Q1 2010, while the US, UK and Australia have each paused for breath.
The Asia Pacific region has shown the largest increases in Q1, underpinned by strong growth in Japan, South Korea and
Hong Kong. China continues to rise up the investment rank, and is now the world’s fifth most active market.
Cross-border momentum building
A feature of Q1 2010 was the return of the cross-border investor, although they never entirely left in Europe. Globally,
cross-border deals accounted for almost half of all investment activity in Q1 2010, compared to just a quarter in Q1
2009. In Asia Pacific, cross-border activity rose by 35% in Q1, and while most cross-border deals are from Asian-based
investors (e.g. Korean, Malaysian, Singaporean and Japanese), Middle Eastern and German investors are also
returning. Middle Eastern investors (notably capital from Qatar) are also active in the US and UK, and are broadening
their global search into selected markets in Latin America and Southeast Asia. Some Australian investors are
withdrawing from the direct overseas markets as they rebalance their portfolios in favour of domestic markets.
Encouragingly, cross-border activity in the US has risen from 26% of overall investment in Q3 2009 to 44% in Q1 2010,
and in fact most major US transactions have had some level of cross-border involvement. Interest in US real estate from
Asian investors (Chinese, Japanese and Korean groups) has intensified in recent months, with the focus on top-tier
coastal markets. In Europe, global capital is taking a broader look across the continent, and while the focus continues to
be on the UK, funds are moving into Paris and Germany as the first targets in continental Europe.
1 All Q1 investment transactions figures are provisional.
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Global Market Perspective April 2010
Direct Commercial Real Estate Investment, 2007-2010
0
10
20
30
40
50
60
70
80
90
100
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Americas Europe Asia Pacific
$US billions
188
206
205
160
137
103
90
49
40 35
64
70
xx Global Quarterly Total
$US billions
63
Source: Jones Lang LaSalle
Direct Commercial Real Estate Investment, 2009-10, Regional Trends
$US Billions Q1 10 Q4 09 % change Q1 09 % change
Americas 13.9 15.4 -10% 10.1 38%
Europe 27.8 36.4 -24% 15.3 82%
Asia Pacific 21.6 18.7 15% 15.1 43%
TOTAL 63.3 70.5 -10% 40.4 57%
Source: Jones Lang LaSalle
Direct Commercial Real Estate Investment, 2009-10, Largest Markets
$US Billions Q1 10 Q4 09 % change Q1 09 % change
USA 11.6 11.5 1% 9.0 28%
UK 10.1 12.2 -17% 5.5 83%
Japan 9.4 4.9 92% 10.7 -12%
Germany 6.3 4.3 46% 2.2 188%
China 4.4 5.2 -15% 0.5 731%
France 2.4 5.5 -56% 1.0 149%
Australia 2.1 2.5 -15% 0.9 152%
Source: Jones Lang LaSalle
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Global Market Perspective April 2010
Grade A Offices – Capital Value Change, Q1 2010
-10 -5 0 5 10 15 20 25
% change
Asia Pacific Europe North America
Amsterdam
Brussels
Frankfurt
London
Madrid
Moscow
Paris
Chicago
Los Angeles
New York
San Francisco
Toronto
Washington DC
Hong Kong
Mumbai
Shanghai
Singapore
Sydney
Tokyo
The percentage change in capital values is representative of only a narrow band of the highest quality assets in these markets; it is not representative of trends in the
overall market
Source: Jones Lang LaSalle
Improving fundamentals underpin rising investment volumes in Asia Pacific
A combination of strengthening economic growth and employment prospects, returning business confidence, improved
credit conditions, rising leasing volumes and falling vacancies is underpinning a revival in the Asia Pacific investment
market. Land and residential property are the main investor focus (particularly in Singapore, Hong Kong and China), but
commercial real estate transactions have also been strong in Q1 2010, up by a further 15% during the quarter and by
43% on Q1 2009. Domestic investors, many of whom have purchased for their own occupation, still dominate,
particularly in Greater China. Nonetheless, foreign funds are still keen on securing prime assets that generate stable and
secure rental income, including acquisitions in Japan by SEB Asset Management and RREEF Alternative Investments.
Notably, the Japanese investment market is starting to find traction and has recorded one of the largest increases in
commercial real estate volumes globally, up 90% in Q1 2010.
Consistent with this improving trend, a number of Asia Pacific markets, notably in Greater China, posted rising capital
values in Q1 2010. On the other hand, a few markets (for example Bangkok, which continues to suffer political
uncertainties) are still registering declines. Yields in most markets have stabilised or shown a moderate compression.
In China, domestic investors continue to support the investment market while foreign funds (including Goldman Sachs,
Morgan Stanley and Macquarie Group) are selectively selling their Chinese property holdings in the past year, riding on
the back of the rebound in prices, especially in the residential market. Hong Kong also saw continued interest from
mainland Chinese and local investors.
In Australia, commercial property sales have remained robust in Q1 2010 with strong demand from both domestic
investors and a range of Asian investors. Some Australian investors are withdrawing from the direct overseas markets, a
trend that is likely to leave only around half a dozen Australian investors with an overseas platform. Australia’s
superannuation funds could start to look at the Global REIT sector.
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Global Market Perspective April 2010
Portfolio deals move European markets
All major investor types have now returned to the European market. Direct commercial real estate investment totalled
US$28 billion (€20 billion) in Q1 2010; nearly double that of Q1 2009. Q1 volumes are below Q4, but this reflects
seasonality and currency movement rather than slowing activity. Germany and Sweden recorded the largest increase in
activity compared to Q4 2009. Europe’s largest market, the UK, which accounts for one-third of European investment,
has seen activity continues to stabilise in Q1. In Europe’s smaller markets, investment activity continues to be sluggish.
Large, multi-country portfolio deals returned in Q1 2010, with Corio agreeing to purchase a shopping centre portfolio in
Germany, Spain and Portugal (developed by Multi-Corporation) for €1.3 billion (US$1.8 billion), and Unibail Rodamco
acquiring a 50% share of a shopping centre portfolio for €715 million (US$990 million). Both deals provide firm evidence
that the listed REITs are buying again, backed by strong balance sheets and corporate level debt facilities. During the
whole of 2009, REITs made purchases of just €2.2 billion (US$3 billion) in continental Europe, whereas in Q1 2010 the
top four REIT deals alone made up over €2.3 billion (US$3.2 billion). UK REITs, which have now recapitalised and are
back in their domestic market, are also starting to look again at continental Europe.
European institutional investors continue to be very active. Munich-based insurer, Allianz has been one of the most
active investors in Europe at the start of 2010. Fund managers are increasingly active, once more targeting new ground
with freshly raised capital. These funds, which typically play within the core+ segment, will look to take on value-added
opportunities during 2010.
Ratio of capital chasing product now at 3:1
We estimate that there is now a 3:1 ratio of capital chasing available product in Europe - this ratio was 5:1 at the market
peak and as low as 1:5 at the lowest point in the cycle. The current market is providing significantly fewer opportunities
than at the peak. This is having an inevitable impact on pricing as investors compete to secure the same assets. The
number of bidders is higher in the UK than continental Europe, although in France and Germany it is now increasing,
while secondary product is still finding it difficult to secure buyers.
The sources of new investment product are thin. Developers who have held over during the worst of the downturn are
now bringing product to market. A number of institutions are rebalancing their portfolios while some REITs are selling
non-core assets. In the UK investors are now trading positions they took during 2009, and taking profit largely on the
back of the significant inward yield shift.
Measured recovery in US deal velocity
A combination of distressed mortgages, a log-jam of properties in special servicing, and a banking system with a diehard
strategy of loan extensions is contributing to continuing low transaction volumes. Volumes of closed transactions
over Q1 2010 have stabilised at around US$11.5 billion, although new offerings have steadily increased since Q3 2009
as the bid-ask gap closes across all product types and asset qualities. Leading indicators point towards a measured
recovery in deal velocity.
Yields have compressed over the past six months, particularly in top-tier markets and for high quality assets. Sellers are
gaining confidence as yields have come off cyclical highs and holders of core assets are able to sell at a profit. At the
same time, buyers now realise a prime opportunity to purchase at close to the market bottom may be passing. The
relatively shallow supply of desirable core assets, combined with sturdy demand from numerous capital sources, is
causing renewed compression in yields. Despite continuing weak fundamentals, capital values have begun to increase
in certain segments. The credit markets have steadily improved for several quarters and balance sheet lenders are now
readily available and offering increasingly attractive terms for well-leased Class A properties at 60-70% LTVs.
America’s appealing top-tier markets
The markets garnering most attention from domestic and cross-border investors alike continue to be Washington DC,
New York, Boston, San Francisco and Los Angeles. Toronto, Rio de Janeiro and Mexico City are also shortlisted among
cross-border investors. On the whole, interest among cross-border investors is strengthening across the top-tier markets
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 8
Global Market Perspective April 2010
as current valuations present a very attractive entry point given the nascent economic expansion and improving
fundamentals in the majority of markets.
Foreign interest moves south of the US border
In Latin America, international investors are showing strong confidence in Brazil and are raising their stakes in Brazilian
property companies. Given the paucity of standing opportunities, investment is also flowing to Brazil’s developers.
Foreign investor interest is also spreading across the region with rising corporate real estate interest in Colombia, thanks
to its more favourable economic and political environment. Activity is also rising in Panama City where corporate
outsourcing is just beginning and the country’s business-friendly tax reforms are encouraging large global corporations
to move their regional headquarters into the city. The Panama Canal expansion is also driving infrastructure investment
from Middle Eastern, European, Latin American and US investors as the project moves toward completion in 2014.
Argentina has fallen out of favour with most foreign investors, and there continues to be an exodus of investors out of
Venezuela.
Global hotels: on the upswing
The global hotel real estate market has started 2010 on a decidedly positive note. Hotel operating fundamentals have
posted generally favourable results in Q1, with hotel demand increasing and average daily rates showing signs of
stabilisation across several global gateway cities including Sydney, Singapore, London, Hong Kong and Berlin. Having
now completed extensive cost containment measures, major hotel owners and operators are also sounding
progressively more optimistic about continued recovery.
The increased visibility of improving operating fundamentals has set the tone for more positive investor sentiment for
hotel real estate. At the same time, a noticeable increase in stock is being offered to market, spurred in part by greater
sales activity from banks and other lenders who have taken control of more assets over the last year and/or are trying to
reduce their hotel loan portfolios. Combined with the substantial weight of capital looking for acquisition opportunities,
transactional activity has accelerated significantly since the start of 2010. For the first three months of the year, total
transaction volumes amounted to US$2.8 billion – a hefty 53% increase over Q1 2009.
Global Hotels – Investment Volumes
Americas
$991M Americas
$583M
Asia Pacific
$736M
Asia Pacific
$515M
EMEA
$1,092M
EMEA
$749M
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1Q10 1Q09
Americas Asia Pacific EMEA
Millions
Source: Jones Lang LaSalle
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Global Market Perspective April 2010
Real Estate Capital
CMBS Watch
As widely predicted, a tentative return of the CMBS market is evident across a range of markets and assets. In the US,
the Federal Reserve’s TALF programme has been an important part of the rally seen across the board in US securitised
products. CMBS spreads in the last year have come in from over 1,200 basis points to under 300 today. While the TALF
programme for existing CMBS ended in March, economic recovery and investors’ increased appetite for risk should
ensure that the resurgence in CMBS and other structured products in the US will continue.
AAA US CMBS Markets
250
500
750
1000
1250
06/03/2009
06/04/2009
06/05/2009
06/06/2009
06/07/2009
06/08/2009
06/09/2009
06/10/2009
06/11/2009
06/12/2009
06/01/2010
06/02/2010
06/03/2010
Spread to Swaps
Source: Bloomberg
Investors are seeing relative value in existing commercial real estate securities and demanding new issue CMBS. RBS is
selling bonds backed by commercial mortgages from several borrowers in the first sale of its kind since June 2008. The
US$310 million offering, backed by 81 (primarily retail) properties across the US, includes US$241 million in top-rated
securities. Bank of America, JPMorgan, Deutsche Bank, Wells Fargo and Goldman Sachs are also planning issuances.
Australia is seeing encouraging signs of a return of the CMBS market. Colonial First State Capital Management (owned
by Commonwealth Bank of Australia) issued A$370 million of securities backed by commercial mortgages. This was the
first sale of its kind in Australia this year.
Singapore-based Ascendas issued S$300 million of commercial mortgage-backed securities in a sale that was 4.5 times
oversubscribed. The Ascendas notes, sold by special purpose vehicle Ruby Asset Pte., are secured against 19 industrial
properties in the city-state valued at S$937 million.
Ireland’s NAMA steps up a gear
In Europe, banks continue to sit on substantial real estate loan books. There is still little movement across much of the
region, with the exception of the UK, Ireland and Spain, where debt workout is now underway. Ireland has taken
significant and aggressive steps to address its debt issues, with the creation of the National Asset Management Agency
(NAMA). In March, NAMA moved into action with the purchase of the first batch of property loans from five of the
country's lenders at an average discount of 47%. This batch consists of 1,200 individual loans with a total face value of
€16 billion (US$22 billion) - NAMA is paying €8.5 billion (US$11.8 billion). NAMA expects to complete the transfer of the
remaining loans from the five institutions by the end of the year. Ireland accounts for about 70% of prospective assets; a
further 20% is in the UK and the remainder in the US and continental Europe.
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Global Market Perspective April 2010
Dubai addresses its debt issues
The Dubai government’s announcement of a standstill on debt repayments by Nakheel and its parent group, Dubai
World at the end of November, shocked the global financial community and broke the ‘too big to fail’ myth. Four months
to the day later, the basis for this debt restructuring was released. This proposal outlines how the government plans to
address the twin challenges of excessive debt and oversupply resulting from the market’s phenomenal growth over the
past eight years.
While the detail is yet to be finalised, this announcement has been broadly welcomed by the financial community and
other major stakeholders. It has provided a degree of much needed clarity and has shown that the government is
committed to deal with the real estate crisis, injecting up to US$9.5 billion in new funding. The positive reaction of the
financial community is measured by the tightening in the Credit Default Swap (CDS) levels for Dubai-based Government
Related Entities (GREs). Since the announcement of the proposed restructuring plan, CDS levels came in by more than
200 basis points below their highs of over 630 basis points in early 2010.
The proposed debt restructuring forms part of a fundamental rethink of how real estate investment should be financed
and what really constitutes sovereign-backed debt. There has been a general downgrading of all GRE debt in the UAE
but that has been particularly noticeable with Dubai entities, compared to those based in Abu Dhabi. Real estate
companies (such as Aldar and Emaar) have also been more impacted than non-real estate GREs such as Mubadala and
DEWA.
UAE – Moody’s Historical LT Issuer Rating
26.6.09 26.7.09 26.8.09 26.9.09 26.10.09 26.11.09 26.12.09 26.1.10 26.2.10 26.3.10
Mubadala IPIC TDIC Aldar DEWA DP World Emaar Dubai Holding Commercial Operations
Aaa
Aa2
A1
A3
Baa2
Ba1
Ba3
B2
Abu Dhabi-based companies
Dubai- Based Companies
Dubaibased
institutions
Abu Dhabibased
institutions
Source: Moodys
At the broader strategic level, Dubai’s debt issues have redefined relations between Dubai and Abu Dhabi (the two
largest emirates within the UAE). A closer integration of the two emirates could be one of the most important long term
consequences of the current situation and could provide the basis for more stable and sustainable long-term growth.
Dubai is pausing for a necessary reality check as the market matures from a period of excess to one of moderation.
There is a sense of returning to market fundamentals and paying increased attention to projects that provide more
predictable and stable returns. If Dubai is able to restructure, consolidate and commercialise the real estate market, the
lessons learnt from the recent challenges could form the basis for a more balanced and mature market with strong longterm
prospects.
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Global Market Perspective April 2010
Corporate Occupier Markets
Growth in corporate sale-leasebacks
Having gone out of style during the economic downturn, sale-leasebacks activity has returned. Reasons for the
turnaround include a significant amount of equity seeking a home in real estate and improved conditions in the
commercial mortgage market. The record rally in the corporate bond market for both investment grade and belowinvestment
grade companies has also opened the door for companies to execute sale-leasebacks as an alternative
means of raising capital.
Corporate occupiers continue to look at their property portfolios to ensure that their capital is employed as effectively as
possible. There is increasing interest from corporate occupiers with prime covenants in releasing capital from real estate
as a means of raising finance. Below-investment grade, low-credit companies are looking to sale-leasebacks to
generate cash.
There is increasing interest in using the corporate capital markets to dispose of bundled lease liabilities. There are
several deals pending and if just one or two of these deals come to fruition, a wider selection of corporates will be
encouraged to consider this as a viable solution for their surplus leases.
A key issue in the background which will shape the corporate capital markets going forward are the current proposals
from the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to
bring all leases on balance sheet. Although the economics of leasing transactions will not change, their accounting will
and this may encourage a move to own rather than lease, or to go for shorter leases.
We are tracking the sale-leaseback market closely and recently conducted a global poll comparing yields at the end of
2009 to the end of 2008. We will update this chart quarterly.
Sales and Leasebacks
Net Operating Income Yields1 Debt
Office Industrial Retail Spreads LTV
YE 2008 YE 2009 YE 2008 YE 2009 YE 2008 YE 2009 YE 2008 YE 2009 YE 2008 YE 2009
EMEA
United Kingdom 5.25 - 6.00 4.75 - 5.50 7.00 6.50 4.50 4.00 250-300 225 50-60 65
Germany 5.40 - 5.70 5.35 - 6.00 7.00 - 8.00 7.25 - 8.25 4.25 4.25 220-240 220 50-60 65
Belgium 6.00 - 6.35 6.20 - 6.50 6.75 - 7.25 7.75 - 8.25 4.75 - 5.60 4.75 - 5.50 200-250 200-250 60 60
Sweden 5.25 - 5.75 5.50 - 6.00 6.75 - 7.25 7.75 - 7.75 5.25 - 5.75 5.50 - 6.00 300 300 50-60 50-60
Netherlands 5.70 - 6.20 5.80 - 6.30 6.75 - 7.25 7.00 - 7.50 4.65 - 5.15 5.00 - 5.50 200 200 55-65 55-65
Italy 5.00 - 5.25 5.10 - 5.30 6.75 - 7.25 7.50 - 7.75 5.00 - 5.25 5.00 - 5.25 200-250 200-250 60 60
Poland 7.00 7.25 - 7.25 8.00 - 8.00 8.75 - 8.75 6.50 - 6.75 7.00 250-300 250-300 50-60 50-60
Asia Pacific
Japan 3.00 - 3.50 4.00 - 4.50 4.75 - 5.25 5.75 - 6.25 4.00 - 4.50 5.00 - 5.50 150-200 250-300 65-75 50-60
India 11.00 12.00 12.00 13.00 12.50 13.50 350 350-650 60 50
Singapore 5.50 - 6.00 4.50 - 5.00 8.50 - 9.50 7.00 - 8.00 5.50 - 6.00 5.00 - 5.50 250-300 200 - 250 30-50 50 - 60
Thailand 6.50 6.50 8.50 9.00 - 9.50 9.00 - 10.00 10.00 - 11.00 200 300 60 - 65 50-60
Australia 6.50 7.00 7.00 8.00 8.25 8.75 50 200 65-70 50
China2,3 7.00 6.00 9.00 8.50 7.00 6.50+ 350-400 100 40-50 60-70
Hong Kong2 5.00 4.00 7.50 6.50 5.00 4.50 300-400 50-100 50 70
Americas
United States 7.00 - 7.75 6.75 - 7.50 8.00 - 9.00 7.75 - 8.75 7.00 - 8.00 7.50 - 8.50 300-450 250-300 50-60 55-65
Brazil 12.00 11.00 13.00 12.00 11.00 10.00 N/A 200-300 N/A 60-70
1Refers to primary yields in primary business centres
2Industrial yields for China and Hong Kong refer to logistics
3Spreads for China refers to offshore financing
Source: Jones Lang LaSalle
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Global Market Perspective April 2010
Outlook
Global investment volumes up 35-45% in 2010
An abundance of capital chasing real estate from an increasingly wide range of investor groups, combined with
significant capital raising activity, points to an upward trend in global real estate volumes. We project a 35-45% growth
in direct commercial real estate investment volumes in 2010. In the Asia Pacific region, rising volumes are being
supported by strong fundamentals and a recovery in their leasing markets. In Europe and the US, investment volumes
are expected to increase despite continued uncertainty about the strength of the recovery in market fundamentals and
continued tight supply of core product.
Direct Commercial Property Investment, 2005-2010
“35-45% increase in volumes in 2010”
0
50
100
150
200
250
300
350
Americas Europe Asia Pacific
US$ billions
2005 2006 2007 2008 2009 2010 Forecast
+50-60%
+30%
+30-50%
Source: Jones Lang LaSalle
Fundamentals underpinning rising volumes in Asia Pacific
In Asia Pacific’s commercial property market, a steady improvement in fundamentals, including stabilising/increasing
rentals is likely to underpin strengthening investment activity. Overall commercial investment volumes are expected to
increase by 30-50% this year. Asian-based private equity funds, sovereign wealth funds, insurance companies and
pension funds are likely to continue acquiring prime quality assets which offer stable and secure rental income. There
will be more portfolio and enbloc2 deals in the second half of 2010 as investor confidence bounces back. However,
further interest rate hikes that are expected across the region may have a negative impact on buying sentiment.
Larger deals in Europe
In Europe investment volumes are expected to increase throughout the year despite uncertainty about the path of
economic recovery. A number of large transactions over €100 million (US$138 million) and several portfolio deals are
currently under offer, which will help boost overall volumes. For the full year, we estimate that direct commercial real
estate investment volumes will reach at least €90 billion (US$125 billion), representing a 30% increase on 2009.
2 Enbloc refers to those deals involving a building and land in its entirety (typically under a single ownership), as opposed to strata deals where investors purchase
units in buildings.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 13
Global Market Perspective April 2010
US recovery likely to be muted
During 2010, transactions activity will continue to build, but the recovery may feel muted as the prevailing tendency of
banks toward loan extensions will likely continue for much of the year. As a result, there will remain a shortage of
suitable properties on the market for institutional, private and foreign investors. Given this imbalance, downward
pressure will remain on yields and the trend could somewhat broaden geographically beyond the top 8-10 markets in the
region as the search for yield among large multi-asset class investors is likely to intensify further.
While it is probable that banks will have at least begun a shift in strategy toward dealing with problem loans directly, this
may be a gradual transition as extensions and amendments will still dominate. Many of these challenged owners may be
allowed extensions until 2012 or 2013 in hope of finding a more permanent solution in the form of income growth or
substantially changed credit markets. A risk to the prospects for a solid recovery in the capital markets may be found in
the US labour markets; if significant private-sector job growth does not soon materialise and sustain, continued weak
fundamentals could catch up with a capital markets recovery.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 14
Global Market Perspective April 2010
Transactions
Recent key investment transactions – Asia
China
Chinese developer Shanghai Forte Land Co. agreed to pay US$328 million to a real estate principal investment arm of
Goldman Sachs Group Inc. for Shanghai Garden Plaza, a luxury gated residential development.
Hong Kong
The highlight of the Hong Kong commercial investment market during the quarter was the acquisition of the Fortis Centre
office building in Quarry Bay by a public organisation, the Hong Kong Housing Society, for HK$1.8 billion (US$230
million).
Japan
Secured Capital Japan recently acquired Pacific Century Place, a Grade A office property located in the prime business
district of Marunouchi, Tokyo. The 32-storey, 81,000 square metres property is one of the best known developments
adjacent to Tokyo Station. The price, in excess of US$1.5 billion, makes it the largest transaction in Japan since the start
of the global financial crisis.
Foreign funds are keen to acquire prime assets in Japan. German-based fund SEB Asset Management bought a fully-let
shopping centre in Chiba for US$126.7 million, while RREEF Alternative Investments acquired Frontier Ebisu, an office
building in Shibuya-Ku, Tokyo, for US$51.4 million.
The REIT sector has seen some revival. Simplex REIT Investment acquired the land and building of the former
Mitsukoshi Ikebukuro Department Store, owned by Mitsukoshi Ltd. (now Yamada Denki Japan Head Store) in Toshima
Ward, Tokyo, for JPY75 billion (US$800 million).
Recent key investment transactions – Europe
Large, multi-country portfolio deals have been a feature of Q1 2010:
Germany, Spain, Portugal
Corio purchased a shopping centre portfolio developed by Multi-Corporation for €1.3 billion (US$1.8 billion). It comprises
nine assets across Spain, Portugal and Germany - including five developments in Germany. Jones Lang LaSalle
advised Corio – this is the largest deal in Europe for two years.
France, Poland
A 50% share in a shopping centre portfolio was bought by Unibail Rodamco for €715 million (US$990 million). The
portfolio comprises a mixture of income and development opportunities and a share in seven shopping centres in Poland
and France. The vendor, Simon Ivanhoe, retained a 50% interest.
Italy, Hungary
Germany’s giant insurer Allianz acquired the Porta di Roma mall in Rome for about €430 million (US$600 million), as
well as a 50% stake in Budapest mall Allee.
UK
In London, improving occupational markets are adding further support to investor demand, with overseas buyers
continuing to dominate the market despite renewed interest from UK funds and institutions. This is demonstrated by the
largest deal in London's West End since 2007: Bloomsbury Square was purchased by M1 Real Estate for £175 million
(US$260 million). The mixed use building is more than 50% leased to government backed tenants. Jones Lang LaSalle
represented M1 Real Estate.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 15
Global Market Perspective April 2010
Recent key investment transactions – Americas
In the Americas, a growing source of capital, especially cross-border, can be found from non-real estate-related
corporations and private, high net-worth individuals. Key examples include:
Chicago, US
Mexico’s Beckmann family closed in late 2009 on a Class A tower, 303 W. Madison Street in the Chicago CBD for
US$60 million, representing an estimated capitalisation rate of 8.2%.
Miami, US
Spanish billionaire Armancio Ortega, whose Ponte Gadea Group recently purchased a newly-developed 15-storey tower
in Miami, housing the Bacardi USA headquarters, for US$102 million. This acquisition followed the investor’s purchase of
the 50 Milk Street office tower in Boston for US$170 million in 2008.
Portland, US
Further evidence of strong interest in US real estate from cross-border high net-worth individuals was the purchase at
the end of 2009 of Koin Tower in Portland. American Pacific International, backed primarily by funds from a group of
wealthy private Asian investors bought the building for US$57 million.
Institutional cross-border investors are also showing signs of reinvigorated confidence in North American property
markets:
Houston, US
In February, Canadian advisor Brookfield Asset Management purchased a 2.9 million square feet, 16-property portfolio
of office buildings while leasing back 60% of the space to JP Morgan. Included in the sale was the Chase Bank Building
in downtown Houston.
Toronto, Canada
US REIT Entertainment Properties Trust purchased, out of receivership, the high-profile Dundas Square retail and
entertainment complex in downtown Toronto. The REIT acquired the 330,000 square feet centre by paying off the senior
debt of approximately US$118 million.
Global hotels – key investment transactions
Los Angeles
A notable cross-border transaction involving Chinese capital was the acquisition of the Marriott Los Angeles Downtown
by China-based Shenzhen New World who acquired the 469-room hotel for US$63 million.
Australia
Indicative of strong Asian buyer interest in Australian hotel assets, Singapore-listed CDL Hospitality Trusts purchased
the TAHL (Tourism Asset Holdings Limited) hotels portfolio for A$175 million (US$160 million). The portfolio comprises
five properties totalling 1,139 rooms, leased and managed by the Accor Group.
Corporate sale and leasebacks
Recent sale-leasebacks around the globe include:
Australia
Leighton Holdings Limited announced that it has signed a contract to sell the South Tower in Brisbane’s Fortitude Valley
to AFIAA for A$94 million (US$87 million). AFIAA is the investment foundation of 18 Swiss pension funds. The tower is
fully leased to Leighton as its new headquarters on a fixed 10-year lease.
Spain
Banco Sadabell agreed to a €403 million ($US560 million) sale-leaseback on a portfolio of bank branches. The sale to
UK investor Moor Park Capital Partners, consisting of 378 branches, reflects an initial yield of 6.65%. Banco Sadabell
will formalise a long-term lease.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2010. All Rights Reserved 16
Global Market Perspective April 2010
United Kingdom
Liberty Plc sold its flagship store in London’s Regent Street for £41.5 million ($US62 million) in a sale-leaseback. The
company sold the freehold interest in the 125,000 square feet store to private property investment firm Sirosa. Liberty will
take a 30-year lease on the building at an initial annual rent of £2.1 million (US$2.9 million), with five yearly fixed rent
reviews.
United States
Brookfield Asset Management is looking to sell two Tampa office buildings, fully leased to JPMorgan. The buildings,
which encompass 321,000 square feet, are expected to attract bids of at least US$55 million, equating to an initial yield
of less than 7%. The two buildings were part of a larger US$200 million portfolio transaction in April. As part of that deal,
JPMorgan signed a 15-year lease on one building and a 20-year lease on the other.