The Investment Outlook For Major Property Markets 3Q2013 - WWW - Metrecarre.ma

Q3 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 | Q3 2013
WELCOME TO GLOBAL VISION

I often ask myself if we cant get some unambiguously good news. Since the start of the year, the Japanese economy has surged, Chinese wage growth has accelerated, and the U.S. federal budget deficit has shrunk. Unambiguously good news? Apparently not. Perhaps prejudiced by five years of Global Financial Crisis and a disappointing recovery, the prognosticators have identified a dark side to each one of these events. Arguably the biggest economic news of the year has been the shift in sentiment and the revival of the real economy in Japan. After being mired in recession and false start recoveries for two decades, the worlds third largest national economy is experiencing a palpable change with the introduction of Abenomics. A government program to re-inflate the economy has contributed to the Yen falling by more than 20%. Convinced that this will make exports more competitive and drive corporate profitability, the Japanese stock market is up sharply so far this year. And its not just expectations. The nations GDP grew at a 3.5 percent annual real rate in the first quarter, supported by consumption growth and exports to the U.S. Sure, Japan is hardly out of the woods: Business investment needs to pick up, wages need to grow as import prices increase, and Prime Minister Abe must address structural issues through deregulation. But anytime their economy grows faster than the States, and accelerates as China cools, is a cause for the Japanese to celebrate. But is the world celebrating? Not entirely. Mixed in with the headlines of Japans apparent turnaround has been hand-wringing about the threats. Yens Fall Aids Japan, Worries Others. Japan produces high value added goods. So does South Korea. And so does Germany the shining star in Europe. A more competitive Japan will challenge these countries exports. It may even hold back other Asian nations that are trying to move up the value-added manufacturing chain. Across the sea, Chinese workers have seen their wages accelerate. They rose 14 percent in 2012, supporting double digit retail sales gains. Chinese consumers are getting a larger slice of the pie, in line with the governments attempts to rebalance the economy to be more consumption oriented. But whats the headline? Rising Wages Pose Dilemma for China. Higher labor costs cut into profitability. And Chinese export production could be less competitive, particularly vulnerable to lower cost Asian alternatives. Higher value add goods could be threatened by a resilient Japan. In the U.S., the big surprise is the rapidly shrinking Federal deficit. Higher tax rates, an uptick in the economy and a surging stock market are driving increased tax revenues. Federally-backed mortgage agencies are benefiting from the resurgent housing market. And sequestration spending cuts are kicking in. The response in the press? An improving federal fiscal situation removes the sense of urgency to deal with longer-term challenges. Potentially game-changing budget battles will be delayed. The uncertainty about long-term tax and spending policies will drag on. I certainly dont want to see Korean and German exports decline, Chinese companies become unprofitable or Americas structural fiscal challenges drag on without resolution. But the world is far better off with a reinvigorated Japan contributing to global growth. A more prosperous Chinese consumer is crucial for that economy to rebalance. And a shrinking U.S. deficit, no matter how haphazardly attained, moves the States in the right direction. Im hoping we get news from Europe soon. News that is so surprisingly good that pundits wring their hands over it. Only then will I feel confident the world has moved beyond the GFC.
Doug Herzbrun Global Head of Research
GLOBAL VISION
Q3 2013
TABLE OF CONTENTS
GLOBAL ECONOMIC OUTLOOK .................................................................................. 1 GLOBAL DIRECT INVESTMENT MARKET ...................................................................... 3 GLOBAL UNLISTED FUNDS MARKET ........................................................................... 5 GLOBAL LISTED SECURITIES & DEBT ........................................................................... 7 RETURN FORECASTS ..................................................................................................... 9 NORTH AMERICA UNITED STATES ..................................................................................................... 11 EUROPE UNITED KINGDOM ............................................................................................... 13 GERMANY ............................................................................................................. 15 FRANCE ................................................................................................................ 17 NETHERLANDS ...................................................................................................... 19 SPAIN.................................................................................................................... 21 ASIA PACIFIC JAPAN ................................................................................................................... 23 CHINA .................................................................................................................. 25 AUSTRALIA ............................................................................................................ 27 HONG KONG ....................................................................................................... 29 SOUTH KOREA ...................................................................................................... 31
GLOBAL ECONOMIC OUTLOOK
The major economic story in 2013 has been the startling rebound in investor and consumer sentiment in Japan. Both the Nikkei 225 and consumer confidence are at their highest levels since 2007, and the Yen has fallen over 15% against both the Euro and the Dollar. (Figure 1) However, the Tankan manufacturing survey and industrial production are still contracting; the retail survey and retail sales are still sluggish; and while business sector confidence is near record highs, we have not seen a meaningful increase in hiringyet. (Figure 2.) Moreover, while the 10 year Japanese Government Bond did initially fall from 0.8% to 0.4% it has since risen back to that level. And, once you strip out the impact of the planned rise in the consumption tax in 2014, index-linked JGBs are only pricing in inflation of 1% in 2015, against Abes target of 2%. We are also mindful that it will take meaningful structural reform of the Japanese supply side to end deflation. Accordingly, the cautiously optimistic forecast for a weak recovery in Japanese growth in 2014, shown in Figure 3, seems plausible. Ironically, perhaps the more significant impact of Abenomics has been outside Japan, where a number of central banks have cut rates to offset the negative impact on their exporters of the Yens sharp fall. Weve seen cuts in Kenya, Israel, Poland, Estonia, New Zealand, Brazil, South Korea and the Eurozone since the last edition of Global Vision, and all but the Eurozone openly cited currency movements as a major reason to change. Even in the Eurozone, where domestic economic weakness certainly justifies looser monetary policy, the central bank governor hinted at the possibility of negative deposit rates a move interpreted by many as an attempt to verbally talk down the Euro. The exception to the trend toward looser monetary policy has been China, where policymakers have been stuck between continued weakness in the manufacturing export sector and a rapidly reflating housing market. (Figure 4) Weaker economic growth is to be expected given Chinese policymakers laudable new reluctance to manage aggregate demand by pumping credit via state-owned banks and local government balance sheets into infrastructure development and real estate. Still, the legacy of just such a pump priming in 2009-2010 is a credit position that is rather opaque, rather large, and thus a potential risk to future growth. That said, if the new trend rate of Chinese growth is really c7-8%, the forecasts shown in Figure 3 are
not as bad as suggested relative to the now inappropriately high long-term average. Back to Europe, and the ECB rate cut will have little impact on monetary conditions in the Eurozone given the continued sharp deleveraging that is being endured, particularly in the South. The central outlook remains for recession in 2013 and a weak recovery in 2014. The downside risk related to weaker Eurozone members being forced out of the Euro has sharply diminished however, and even the Cypriot bail-out has not reversed the trend of normalizing Southern Eurozone bond yields. The most interesting question is whether the North can remain resilient to the deleveraging and weak import demand from the South. Figure 5 shows that while Germany narrowly escaped a technical recession in Q1 2013, the high frequency indicators look soft despite record low unemployment and what is, by German standards, a frothy housing market. Industrial production has been contracting for a year, and capacity utilization is falling. Worse still, the Japanese devaluation poses a disproportionate threat to Germany given its high GDP share in the tradable goods sector. Accordingly, one could argue that Germany now has a larger downside risk to its central economic forecast than any of the Southern European nations. Over to the UK and the recent high frequency data has been marginally better than expected, although the central forecast remains for a medium-term austerity-led deleveraging that keeps growth pinned to c1% over the next five years. Although the affluent South-East will fare better, with employment growth faster than in the other regions, it will remain markedly weaker than its own historic trend, and therefore too slow to power a typical post-recession surge in occupier demand. Finally, in the USA, once the near-term fiscal drag of the Sequester has been traversed, forecasts are for a robust housing-led recovery in economic growth from 2014. (Figure 6) Given that the USA is the major market with the most positive economic forecast, it should also logically be the market where bond yields and policy rates start to normalize first. However, the Fed will be reluctant to raise rates ahead of the curve given the impact this would have on the Dollar and US exports. Accordingly, the USA could hit a sweet spot in 2014-2015 of a strong real economic recovery and monetary policy that is still accommodative relative to that strength.
GLOBAL VISION | Q3 2013 | 1
GLOBAL ECONOMIC OUTLOOK CHARTS
FIGURE 1 CURRENCY APPRECIATION, 1/1/13 to 5/10/13

5% 0% -5% -10% -15% -20%
USA Source: Reuters EUR CNY CAD AUD KRW GBP JPY
FIGURE 2: JAPAN - TANKAN CONFIDENCE SURVEYS

Manufacturing Business services Retail
Against the US Dollar
Against the Euro 40 30 20 10 0 -10 -20 -30 -40 -50 -60
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Bank of Japan
FIGURE 3: GLOBAL GDP FORECASTS, % Y/Y

2012 10% 8% 6% 4% 2% 0% -2% 2013 F 2014 F LT Average
FIGURE 4: CHINA BUSINESS CONFIDENCE SURVEYS

Private Sector Companies Real Estate Companies
150 140 130 120 110 100 90 80 70 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: Economist Intelligence Unit & Moodys Analytics. Countries ranked left to right based on 2013F relative to long-term average.
Source: National Bureau of Statistics, China
FIGURE 5: GERMANY BUSINESS CONFIDENCE SURVEYS

Manufacturing Business Services Retail
FIGURE 6: USA HOUSE PRICES & RETAIL SALES, % Y/Y

House Prices (left hand axis) Retail Sales (right hand axis)
30 20 10 0 -10 -20 -30 -40 -50 02 03 04 05 06 07 08 09 10 11 12 13

Source: European Commission
25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 00 01 02 03 04 05 06 07 08 09 10 11 12 13
15% 10% 5% 0% -5% -10% -15%
Sources: Case-Shiller Composite-20 HPI, US Department of Commerce
GLOBAL DIRECT INVESTMENT MARKET
Now that the full year results are in, we can see that institutionally held property portfolios delivered a total return of 7.4% in 2012, in line with the long-run average and, as one would expect, sitting between equities and bonds. Real estate equities outperformed for reasons explained in the Listed Securities section. Interestingly, directly held property returns were broadly the same as unlisted funds, showing that the impact of leverage was a wash at the global level, although accretive in the USA and Asia-Pacific, but negative in Europe. (Figure 1) Despite the specific macro issues in Europe, it is interesting to note that European returns were not markedly weaker than the Global average, with the stronger Northern European markets offsetting the performance in the South. The range of returns has also come in sharply since 2008 to 2010, suggesting that country allocation is less important now than sector and portfolio specifics. (Figure 2) Figures 3 and 4 show that we can broadly split global developed markets into two groups. In the first, capital values have rebounded strongly since the trough of the market. North America, and Sweden have benefited from sustained macro-economic recoveries and Australia from its export tilt toward Asia rather than Europe. Within Europe the two countries that house the largest most liquid safe haven markets the UK and France have performed best. By contrast, in the second group of markets capital values have not yet rebounded, with Spain the worst of the distressed Southern European markets. Within Asia, Japan did not register gains at the direct property level in 2012, and the interesting question for 2013 is whether, and how quickly, valuations on underlying real estate can catch up to the implied REIT pricing. A more detailed look at the 2012 returns shows highly variable performance across property types rather than the strong correlations seen in, most notably, CBD office markets, in 20082010. Figure 5 shows that Paris and London outperformed their wider national markets, with strong yield compression driving capital value growth. But in Frankfurt and Tokyo, the increasing supply of average quality offices led to capital value falls. In the USA, Figure 6 shows that New York, Los Angeles and Washington, D.C. underperformed, while the big story was the outperformance of Houston and Atlanta.
Looking ahead, our headline total return forecasts are shown on pp 9-10. In general, we think returns in the USA and Asia-Pacific region will outpace those in Europe. Looking at specific markets and sectors, within Continental Europe, we expect the North to be broadly stable rather than seeing further gains: we are even starting to see some resistance to further yield compression in Germany, despite the strong continued capital inflows. For poorer quality assets and the market in Spain and Italy in general, we are seeing an acceleration in write-downs. In the UK, capital value growth is still positive for long-leased assets, and there remains considerable appetite for assets in London submarkets where CrossRail infrastructure improvements are expected to drive increased occupier demand. Prime shopping center values are also increasing on the back of transactional evidence. By contrast, valuations are still falling for retail parks where vacancy is high. In Japan, we expect to see capital value growth drive total returns higher in the logistics sector where occupier market fundamentals have visibly improved. We are seeing more tentative signs of improvement in the office market, and worryingly, no real change in the demand for retail assets. In terms of pricing, the bid-ask spread remains wide with buyers and sellers reacting to fundamentals and sentiment respectively. In Australia, as in Japan, valuations are expected to increase as the falling cost of finance supports lower yields and the recovery in the housing market boosts demand for certain retail formats. However, as in the UK and US, weaker retail formats are expected to see further write-downs.
In the USA, we have seen continued but less
rapid appreciation in the valuations of core assets, with low debt costs helping to support prime yields that are already historically low. Perhaps the more interesting story will be the gradual decline in the prime-secondary yield gap, particularly in the immediate next tier office markets. (The gap has already vanished in the multi-family sector.) The other segment that could see a robust re-pricing is the light industrial sector that houses small businesses. By contrast, retail continues to lag the recovery due to investor fears about the strength of consumer balance sheets and the uncertainty about the impact of online retailing.
GLOBAL DIRECT INVESTMENT MARKET CHARTS

FIGURE 1:COMPARATIVE ASSET RETURNS TO DEC-12
1 year 50% 40% 30% 20% 10% 0% -10%
Real estate equities Equities Directly held real estate Unlisted funds Government bonds
FIGURE 2: DIRECT PROPERTY PORTFOLIO RETURNS, % YY
3 years
5 years 30% 20% 10% 0% -10% -20% -30% -40%
Min
Max
Global
Pan-European
00 01 02 03 04 05 06 07 08 09 10 11 12
Source: IPD Multi-National Digest
Sources: IPD Global Index, CBRE Clarion Securities
FIGURE 3: CAPITAL VALUES REBASED TO 100 AT PEAK

120 110 100 90 80 70 60 07 08 09 10 11 12
Canada +20%* Sweden +10% France +7% Australia +7% Global +7% USA +14% UK +6%
FIGURE 4: CAPITAL VALUES REBASED TO 100 AT PEAK

100 90 80 70 60 50 40 30 07 08 09 10 11 12
Germany -7%* Italy -13% Neth. -13% Global +7% Japan -22% Spain -29% Ireland -67%
Source: IPD Global Index market.
*Cumulative change since the trough of the
Source: IPD Global Index *Cumulative change since the trough of the market
FIGURE 5: OFFICE TOTAL RETURNS, % Y/Y AT DEC-12

Capital growth 12% 10% 8% 6% 4% 2% 0% -2% -4% Income return Total return
FIGURE 6: US TOTAL RETURNS, % Y/Y, AT DEC-12

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Source: IPD Global Cities Digest
Source: IPD USA Digest
GLOBAL UNLISTED FUNDS MARKET
In the Asia-Pacific region, there has been a notable increase in the number of funds coming to the market and the ease of raising capital. In the secondaries market, assets are still relatively cheap as core has yet to re-price in the region. In Japan, sentiment is frothy, and fund financing is historically very cheap, with the all in cost of debt now at c1% fixed for 7 year loans on decent quality portfolios. Given that yields in the direct market have yet to move in, this means that even without an Abenomics driven improvement in rental growth, the yield premia are attractive and the cash-on-cash return is in double-digits. However, that gap will narrow as direct market valuations close the gap on the implied yields in the REIT market. Australia also looks attractive given that property yields have not started to fall in this cycle while the cost of financing is falling on central bank policy rate cuts. These cuts are benefiting the housing market and related retail and logistics formats in particular. In these sectors one can buy into portfolios with underlying yields in the 8-10% range with an all in cost of debt that is below 5%. A similar yield premium over funding costs argument makes logistics in Hong Kong and China look attractive as well. Turning to the USA, Figures 1 and 2 show fund returns have decelerated as capital appreciation has tapered off. As a result, preserving or enhancing NOI growth is the major focus of attention. In the primary market, there was a notable improvement in fund raising in H2 2012. While most funds closed on less than their original targets this was still better than they might have feared in H1. That said, fund origination has been a minor story compared to the rise of the structured deal. This is typically motivated by a mature public plan disinvesting from real estate. Historically, fund of fund investors would have bought those stakes on a case by case basis, but today we are seeing non-traditional sources of capital investing at a portfolio level in complex JV/pref equity type structures at deep discounts to NAV. In the more conventional secondary market, the increase in liquidity has been marginal, although the bid-ask spread is at least narrowing. Entry queues to core open-ended funds remain historically high with cUS$6bn still waiting to be called on top of the US$6bn that was called last year and may not have yet been
deployed. This will no doubt drive pricing of core assets as the year progresses. Debt finance has become even cheaper, as we discuss in the next section, and this is also supporting values in the direct market. In the mezzanine space, we have seen positions taken at up to 95% in the capital stack in multi-family development, as one extreme example. Turning to Continental Europe, Figures 3 to 5 show that performance has unsurprisingly been strongest in the resilient North, with continued valuation falls dragging down performance in the South. These write-downs are expected to continue in 2013. In the primary market, fund-raising remains difficult and most deals are JVs and club deals. We are not yet seeing a pick-up in opportunistic funds targeting Spain although that is expected in 2014. More optimistically, the market for secondaries is slowly becoming more liquid, albeit heavily discounted. Even good quality funds are trading at a 5-10% discount to NAV, while funds with any kind of risk are trading at a 25-50% discount to NAV. That said, opportunistic buyers are becoming more active, and pricing discounts are getting smaller compared to 6 months ago. Redemption queues on open-ended funds have increased as investors exploit their only avenue for liquidity. The average all-in cost of debt for funds monitored by our Multi-Manager team has edged down from 5.2% in 2009 to 4.6% in 2012 but the wide polarity between financing in the North and South continues. Over the last quarter, while the South remains tough, lending conditions and costs have started to improve in the North. In the UK, the popular sectors are London offices taking advantage of the CrossRail infrastructure improvements, and long-lease funds targeting 25-30 year income streams. The queues to enter the latter remain long: unsurprisingly given the substantially above average fund returns delivered in 2012. (Figure 6) Secondary market liquidity and pricing is improving across the board. Good secondary quality fund discounts have narrowed from c15% to c7% while balanced funds and longleased funds trade at c5% premia. There are some redemption queues concentrated in problematic funds. However, more generally, investors are redeploying capital from core open-ended funds into value-add strategies.
GLOBAL UNLISTED FUNDS MARKET - CHARTS

FIGURE 1: US CORE OPEN END GROSS RETURNS, Y/Y
Income return Appreciation Total return
FIGURE 2: US VALUE ADD GROSS RETURNS, Y/Y

Income return Appreciation Total return
30% 20% 10% 0% -10% -20% -30% -40% -50% 00 01 02 03 04 05 06 07 08 09 10 11 12

Source: NFI-ODCE Equal Weight open-ended fund index
40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 00 01 02 03 04 05 06 07 08 09 10 11 12

Source: NCREIF-Townsend Value-weighted value-add closed-end fund index
FIGURE 3: EUROPEAN CORE FUND RETURNS, Y/Y

Income Return Capital Growth Total Return
FIGURE 4: EUROPEAN VALUE ADD FUND RETURNS, Y/Y

Income Return Capital Growth Total Return
20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 01 02 03 04 05 06 07 08 09 10 11 12
30% 20% 10% 0% -10% -20% -30% -40% 01 02 03 04 05 06 07 08 09 10 11 12

Source: INREV
Source: INREV
FIGURE 5: EUROPEAN TOTAL RETURNS BY MARKET, % Y/Y AT DEC-12

8 6 4 2 0 -2 -4 -6 -8 1 yr 3 yr
FIGURE 6: UK FUND PERFORMANCE AT MARCH 2013
Annual Total Return 7 6 5 4 3 2 1 0
Quaterly Total return
Distribution Yield
Low Geared All Balanced Balanced Fund Fund Source: INREV
Specialist Fund
Long Income Fund
Direct Property
Source: IPD UK Pooled Property Fund Index
GLOBAL LISTED SECURITIES & DEBT
In the 12 months to end March, global listed real estate securities provided attractive doubledigit total returns in every region, beating the performance of the wider equity market and the government bond market. (Figure 1). This was driven by lower perceived risk in the Eurozone, optimism around Abenomics in Japan, increasingly accommodative central bank policy globally, as well as fundamental improvements in the valuations of the underlying real estate and strong earnings growth. On a regional basis, returns in Japan have been stellar, up over 70% y/y, but the other major Asia-Pacific markets have also performed well. Continental Europe and the UK continue to lag given the weaker occupier market fundamentals and more troubled financial market backdrop. And the US number still reflects the weakness in H2 2012 as uncertainty around fiscal policy took its toll. In 2013, equity markets have appeared to brush off the kind of macro-political uncertainty and bad news that might have set prices falling a year ago, such as the Cypriot bail-out and US Sequester. This is an encouraging sign of a less risk-averse investing environment as well as the trend toward looser monetary policy as discussed in our Economic Outlook section. The key question is whether the optimism has gone too far in Japan, where equities are pricing in valuation yields that are c100bps lower than the direct property, although the underlying corporate occupier market has yet to meaningfully improve. This is also shown in Figure 2 where the premium to NAV at endMarch was 46%, up from 17% at end-Jan. As discussed in our Unlisted Funds & Japan sections, we feel that the direct market will move toward the equity market implied valuations over the course of 2013 and 2014. Figure 3 shows that listed real estate securities still provide an attractive dividend yield premium over government bonds in all regions. That premium has widened over the last quarter as bond yields have in most cases fallen. That said, it is rare for the dividend yield premium to be the primary driver of investment for a sustained period, and as risk-aversion abates, we could be moving into a period where fundamentals earnings growth, management quality, asset quality etc become more important drivers of allocations.
The first quarter also saw a pick-up in IPO activity in the two most fashionable sectors Japanese logistics and German resi. Prologis spun off its Japanese portfolio into the c$1bn Nippon Prologis, and LEG Immobilien IPOd its 90,000 apartment portfolio. We also saw increased M&A activity in North America. Triple-net lease company Spirit Capital merged with the privately owned REIT Cole Property Trust II in a $7.1bn transaction. Lab space REIT Bio Med Realty also announced its acquisition of Wexford Science & Technology for $640m. In the debt markets, the US is the furthest toward normalization, with both activity and pricing resurgent. Senior lending has recovered for good quality assets and figures 4 through 6 show that mortgage bond yields and CMBS spreads are at a decade low, and CMBS issuance, at $20bn in Q1 2013, is at its highest level since 2007. The problem is that the AAArated space has seen so much issuance, with insurance companies competing with banks, that the fixed income investors have now filled their orders. Accordingly, issuers are having better luck issuing lower-rated debt to investors still hungry for yield relative to artificially suppressed government bonds. U.S. mezzanine has also become increasingly competitive, with debt in the 55% to 85% LTV range returning perhaps 8 to 10% where a year ago one might have expected 11% to 12.5%. There is still demand at these lower returns however, as they represent good value given that the underlying assets have been adequately written down. More worryingly, we are starting to see some style drift as funds launched promising higher IRRs than are now achievable, move into higher leverage tranches of mezzanine debt or into CMBS B-pieces. The continued strong investor preference for multi-family debt reflects trends we are seeing in the direct and unlisted fund sector. In contrast, interest in office debt is spottier. There is a feeling that the upturn in the hotel sector has run its course and that a lot of product is being issued, especially in the limited service sector, where one has to be extremely selective. In Europe, CMBS issuance has yet to return, but we are seeing similar trends in the mezzanine space, with potential IRRs coming down as the space becomes more crowded and some style drift within the first generation funds now having to issue senior debt to generate the mezzanine debt.
GLOBAL LISTED SECURITIES AND DEBT - CHARTS

FIGURE 1: 12M TRAILING TOTAL RETURNS, 3/31/2013 FIGURE 2: LISTED PROPERTY SECURITIES NET ASSET VALUE PREMIUM/DISCOUNT BY REGION
31st March 2013 31st January 2013 10 Year Average
80% 70% 60% 50% 40% 30% 20% 10% 0%
Listed Real Estate
Main Index
Bonds
50% 40% 30% 20% 10% 0% -10% -20% -30%
Sources: S&P, MSCI, JP Morgan, returns in local currency
Sources: Factset & Bloomberg, as of 03/31/2013 *Average since Dec 2004
FIGURE 3: PROPERTY EQUITY DIVIDEND YIELD SPREAD OVER GOVT BONDS

Dividend yield Current Spread LR Average Spread
FIGURE 4: FANNIE MAE US MORTGAGE BENCHMARK YIELDS

30 yr 10 yr 2 yr
6% 5% 4% 3% 2% 1% 0% -1% -2% -3%
7% 6% 5% 4% 3% 2% 1% 0% 03 04 05 06 07 08 09 10 11 12 13
Source: FactSet and Bloomberg, as of 03/31/2013
Source: Reuters
FIGURE 5: US CUMULATIVE DEBT OFFERINGS, USDbn
FIGURE 6: US COMMERCIAL MORTGAGE RATES, %

Commercial 7% 6% 5% 4% 3% 05 06 07 08 09 10 11 12 13 Multifamily
Private CMBS
Agency CMBS
Unsecured REIT
175 150 125 100 75 50 25 0 Jan-11 Jul-11 Jan-12 Jul-12
Source: Real Capital Analytics
Source: Real Capital Analytics. Fixed rate loans with 7-10 year terms
RETURN FORECASTS
METHODOLOGY
The charts in this section show the aggregate results of the CBRE Global Investors latest proprietary real estate forecasts. 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.
SUMMARY OF RESULTS
Asia Pacific and the U.S. are expected to outperform. Within Asia Pacific, the structural shortage of modern real estate stock, coupled with the large catch-up potential, contribute positively to the real estate return outlook. In the U.S., all sectors are expected to provide a c8% total return. The U.S. results are driven by reasonable economic growth, low construction pipelines and generally attractive, belowreplacement cost pricing. Industrial provides steady income and office will benefit from a strong cyclical upswing typically seen after a downturn. Although the headline result for Europe is less positive than the USA and the Asia-Pacific regions, this hides a wide dispersion of returns across the most resilient Northern markets and the most distressed Southern markets. Although the rent forecasts are relatively weak in the region, the aggregate result is actually more influenced by the inclusion of residential with its structurally low in-going yields.
FIGURE 1: ASIA PACIFIC AND U.S EXPECTED TO OUTPERFORM
10% 5 Year Forecast Annualized Return (2013-2017) 8% 6% 4% 2% 0% Asia Pacific

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.
8.1%
8.1% 6.4%
U.S.
Europe
FIGURE 2: U.S. UNLEVERED CORE RETURNS BY PROPERTY TYPE
5 Year Forecast Annualized Return 2013-2017
10% 8.4% 8% 6% 4% 2% 0% Office Industrial Apartment Retail U.S. 8.1% 7.8% 8.1% 8.1%
Source: CBRE Global Investors
FIGURE 3: EUROPEAN UNLEVERED CORE RETURNS BY PROPERTY TYPE
10% 8% 6.2% 6% 4.2% 4% 2% 0% Office Logistics Residential Retail Europe 7.9% 6.8% 6.4%
FIGURE 4: ASIA PACIFIC UNLEVERED CORE RETURNS BY PROPERTY TYPE
10% 8% 6% 4% 2% 0% Office 7.5%
9.4%
8.7% 5.9%
8.1%
Logistics
Residential
Retail
Asia Pacific
UNITED STATES
The U.S. economic recovery continued its modest pace in the first quarter of 2013. Growth was below its long-term trend and hiring, though solid, remains far below what is needed to make a sizeable dent in the nations unemployment. GDP increased by 2.5% in the first quarter on an annualized basis, up substantially from 0.4% in the prior quarter as consumers spent more and businesses restocked inventories. Job growth, after revisions, averaged 212,000 jobs per month in Q1. (Figures 1 and 2) Residential construction and consumer spending typically two of the economys driving forces continued to improve in the latest quarter. Home construction rose further in the first quarter and the S&P/Case-Shiller index increased by 9.3% YoY through February. Transaction volume increased to almost $73B in Q1, a 35% increase from a year earlier and the second highest quarterly volume since the recession. Cap rates remained mostly stable across all property types in Q1; however, cap rates have risen slightly in the past year because a larger share of sales activity is taking place in secondary and tertiary markets. The ratio of the NCREIF Property Index valueweighted transaction cap rate to the risk free rate of return has now been above 3.0 for a full year the highest levels seen in 30 years of data history. The ratio of cap rates to corporate bonds is also well above its long-term average. Real estate continues to be an attractive investment relative to other fixed-income alternatives. (Figure 3) Office demand is moving slower than molasses in January. Another 10 bps decline in the vacancy rate brings it to 15.3%, not even halfway back to its pre-recession trough (12.4%). Absorption in the first quarter of the year was roughly 35% of long-term levels, despite a robust jobs story in recent quarters. Prospective tenants could have been spooked by looming sequestration. Tenants are also looking to increase their space utilization rates (square foot/employee) by backfilling their "shadow space" before incurring additional leasing costs. Rent growth stalled in the most recent quarter after a 7% gain over two years. Office market fundamentals are expected to continue to improve in dribs and drabs in the near term before job growth kicks into higher gear. Keep an eye out for build-to-suits and corporate campuses. (Figure 4)
Buoyed by resurgent construction and manufacturing industries, as well as stable consumer spending and trade volumes, the industrial sector is gaining strength. The industrial availability rate fell a spectacular 50 bps to 12.3% in Q1, the largest quarterly decline since 2010. The availability rate is almost halfway back to its pre-recession trough (9.8%). Absorption has been exceptionally robust in the last two quarters. Although some dampening in near-term performance due to budget cuts and consumers adjusting to smaller paychecks may occur, continued improvements in housing and labor markets will cause further declines in availability rates. Annual construction levels are still a quarter of historic averages as rents have made only modest gains. (Figure 5) Apartments scored another quarter of strong performance and continued to confound market watchers. The much-dreaded supply pipeline is very much underway. But it was outgunned by solid demand, causing the vacancy rate to fall by 10 bps to 5.9%, now just 20 bps shy of its pre-recession trough. On the other hand, rent growth, though still positive, is slowing down as new supply enters the market. Asking and effective rents are nearly 4% above their 2007 peak, so a deceleration in rent increases is not completely unwarranted for some metros, though they also tend to be expensive for-sale housing markets (SF Bay Area, New York, DC). Further improvement in apartment market fundamentals, i.e., for demand to stay ahead of supply, is predicated not just on echo boomers leaving their parents' basements but also on acceleration in job growth. The availability rate for neighborhood and community shopping centers has so far experienced a very slow and modest decline from its peak of 13.1% (2011). At 12.5%, the availability rate was down 30 bps QoQ, the biggest quarterly decline since 2005. Helping drive positive demand is the rebound in housing. There are now 15 markets with vacancies below 10%. All but one (Pittsburgh) are coastal markets. Comparable chain store sales (excluding Wal Mart) increased a modest 2.5%, with March sales being subdued by cold winter weather. The internet continues to expand, and more retailers are going multichannel. Non-store retail sales (catalog and "pure" internet) increased 12.8%, YoY. The Marketplace Fairness Act, now being advanced, would level the playing field between internet and bricks-and-mortar stores.
UNITED STATES CHARTS

FIGURE 1: ANNUAL GDP GROWTH, %PA FIGURE 2: MONTHLY EMPLOYMENT GAINS/LOSSES NUMBER OF JOBS (000s) M/M CHANGE
500 300 100 -100 -300 -500 -700 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 -900 08 09 10 11 12 13
5% 4% 3% 2% 1% 0% -1% -2% -3% -4%
Source: Moodys Analytics
Source: Bureau of Labor Statistics
FIGURE 3: ASSET CLASS YIELDS, %

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Sources: NCREIF, Moodys Analytics
FIGURE 4: NATIONAL OFFICE ABSORPTION & VACANCY RATE FORECAST
NCREIF Transaction Cap Rate Baa Corporate Bond 10-Year Treasury Yield
125 Office Absorption SF ( millions ) 75 25
Base Case Absorption Vacancy Rate
20% 18% Vacancy Rate 16% 14% 12% 10% 8% 6%
-25 -75
-125 99 01 03 05 07 09 11 13 15 17
Sources: CBRE Econometric Advisors, CBRE Global Investors
FIGURE 5: NATIONAL INDUSTRIAL DEMAND & AVAILABILITY RATE FORECAST

400 300 200 Absorption SF (millions) 100 10% 0 -100 -200 -300
99 01 03 05 07 09 11 13 15 17
FIGURE 6: FORECASTED ANNUAL RENT GROWTH FIVE YEAR AVERAGE (2013-2017)

16% 14% Availability Rate 12% 6% 5% 4% 3% 2% 1% 0%
4.2% 3.0% 3.3% 2.7%
8% 6% 4%
Office
Retail
Apartment
Industrial
Sources: CBRE Econometric Advisors, CBRE Global Investors
Sources: CBRE Global Investors, CBRE-EA
UNITED KINGDOM
The UK economy is amidst a prolonged period of subdued activity. The broad picture is effectively unchanged since our last Global Vision: output growth is being restrained by fiscal retrenchment, private-sector deleveraging, a challenged banking sector, rising energy costs and subdued demand from key trading partners. While the economy has avoided a triple dip recession, the road ahead will nevertheless be bumpy and commercial property faces yet another arduous year. April 2013 saw Fitch follow Moodys decision to downgrade the UK from its AAA sovereign credit rating. Excluding Japan, Britain has by far the highest deficit to GDP ratio of major Western economies and its lagging fiscal performance relative to other large economies looks to remain pronounced over the near term. While the re-rating is indeed a blemish, we feel that the broader economy is not actually any worse off and the downgrade was nothing more than a reflection of what we already knew. (Figure 1) Unsurprisingly, the sovereign downgrade has accelerated the fall in Sterling (Figure 2). While neither the Bank of England nor the Treasury will freely admit it, this is what both had been trying to achieve in the hope of stimulating export growth. An obvious implication for overseas investors is that UK property pricing is likely to remain attractive despite the weak economic underpinnings. Though the inevitable rising inflation (Figure 3) is likely to eat away at real rental growth, we believe that deep and diverse sources of overseas capital will still be compelled to the UK in general, and London in particular. The performance of UK property as well as our outlook is also broadly in line with the last Global Vision. According to the March 2013 IPD Quarterly Index, total returns at the all property level have been lackluster: 1.1% QoQ and 3.0% over the preceding year. This is due, in part, to the downward dribble of capital values, which have now fallen for six consecutive quarters, amounting to -3.6% since Q4 2011. Although occupational markets outside of London are generally weak, we are starting to see incentives packages stabilize (Figure 4) and believe that rents are reaching a floor. It is of course difficult to generalize industrial rents are broadly stable, while rental values in some parts of the retail and office sectors still appear to be overstated in many valuations. A prevailing theme across all sectors and markets is that landlords have to invest in their properties to attract tenants. Owing to competitive pressure on occupiers, we expect rental values to
face downward pressure this year. Those segments of the market closely correlated with personal consumption, namely discretionary retail and logistics, are likely to be disproportionately impacted. The rental outlook for the Central London office market remains challenged due to latent occupier uncertainty, a surplus of grey space and a growing supply pipeline. A prevailing theme across sectors and markets has been a widening gap between prime and secondary asset pricing. The fact that certain smaller lot size assets are trading ahead of valuations coupled with the saleability of recently unsalable assets, leads us to believe that this widening yield gap may be culminating. We surmise that by this time next year, this current historically wide yield gap will have begun to narrow. This is reflected in our improved All Property capital value outlook for 2013 (Figure 5). We now expect year-on-year declines of 1.7%, an improvement of around 100bps since last quarter. Value falls are likely to be front-ended, with a stabilization later this year and a gradual improvement coming in 2014. In terms of direct property investment, volumes YTD have been in line with last year. UK institutions and listed property companies continue to be reasonably active; but the dominant force in the market is overseas investors, accounting for almost 50% of all transactions. Looking ahead, we expect capital flows to continue to favor prime assets, but with a budding interest in good quality secondary property. While core strategies in Central London and the South East are likely to remain in vogue (Figure 6), we are starting to see investors step up the risk curve in the capital and select regional office markets. Equity investors, irrespective of domicile or risk profile, continue to have the upper hand. We believe that the period of Central London offices handily outperforming the rest of the market is drawing to a close. While the sector is expected to remain a target of foreign capital, initial yields look low relative to our downwardly revised rental outlook. The result is that total returns will lag the market average over both the next three and five years. This is juxtaposed by South East offices, a sector that we feel has been disproportionally penalized in terms of capital value falls and one that should outperform due to a high income return. Industrials, should also outperform for this same reason.
UNITED KINGDOM CHARTS

FIGURE 1: GDP FORECASTS AS COMMUNICATED IN UK BUDGETS AND AUTUMN STATEMENTS, % Y/Y
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 10 11 12 13 14 15 16 17 Jun-10 Nov-10 Mar-11 Nov-11 Mar-12 Dec-12 Mar-13
FIGURE 2: STERLING TRADE-WEIGHTED INDEX, JAN. 2007=100

105 100 95 90 85 80 75 70 65 07 08 09 low-point 10 11 12 13 Average since 2009
Source: The Office for Budget Responsibility
Source: Thomson Reuters
FIGURE 3: INFLATION, % Y/Y
FIGURE 4: SELECT REGIONAL UK OFFICE RENT FREE PERIODS, MONTHS
6 5 4 3 2 1 0 -1 -2
CPI RPI BoE target
60 50 40 30 20 10 0
Birmingham Leeds Manchester
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Sources: National Statistics, Economist Intelligence Unit, CBRE Global Investors
08
09
10
11
12
Source: CBRE
FIGURE 5: ALL PROPERTY CAPITAL VALUE GROWTH, Y/Y
FIGURE 6: DIRECT PROPERTY INVESTMENT YTD THROUGH END APRIL 2013, % OF TRANSACTIONS BY VALUE
Central London Office Rest of UK Office Shopping Centre Retail Warehouse Shop / Supermarket Industrial Leisure Other
4% 3% 2% 1% 0% -1% -2% -3% 12 13 14
CBRE Global Investors IPF February 2013 Consensus
15
16
17
13/17
Source: Property Data
Sources: CBRE Global Investors, IPF
GERMANY
German economic growth became slightly negative by the end of 2012. Real GDP growth declined by 0.6% q/q in Q4 2012. However, the economic outlook is still solid despite the recession in many European countries. Ongoing demand from economies outside the Eurozone and solid domestic consumer demand is expected to balance recessionary trends. GDP growth in 2013 is not expected to outperform 2012, stronger economic growth is expected from 2014 onwards. (Figure 1) The unemployment rate increased to 7.4% in January 2013 (seasonally induced), which reflects the same level as the previous year. (Figure 2) The low rate, in addition to expected wage increases and solid external demand, should help restrain recessionary developments. However, the still unsolved Eurozone sovereign debt crisis remains the key downside risk for our outlook on Germany. Demand for German office space slowed during 2012. In the Big-5 German markets (Berlin, Frankfurt, Munich, Hamburg and Dsseldorf), take up during in 2012 decreased by 8% y/y. Given low construction activity, vacancy rates remained stable or even came down in a few markets, which then led to moderate nominal prime rent growth. Office demand is not expected to outperform 2013 given the weaker growth scenario. However, the low development pipeline and sustained demand for prime space will limit downward pressure on prime rents. (Figure 3) Rents are actually forecast to increase modestly in 2013 in some core markets, and more notably thereafter, which is in line with increasing economic growth. Consumer demand was somewhat weaker in 2012. Real retail sales growth was slightly positive by 0.3% y/y. Strong retailer demand and tight availability for prime retail space kept upward pressure on high street retail rents in Q4 2012, which improved again in Berlin by 3.4% q/q. The weaker growth expectation and planned austerity measures in 2013 will likely constrain gains in consumer demand. But, this could be partially mitigated by the sound labor market, wage increases and moderate short-term inflation. Prime shopping center rents are forecast to rise modestly in 2013. (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 has slowed down, after historically high levels of take-up over the past two years. Leasing volumes came down in key markets by 23% y/y in 2012. However, the overall volume is still solid and above the 5year average. Vacancy rates remained at low levels of around 4% in Q4 2012. As a result, prime logistics rents increased slightly in Munich and Hamburg at year end. Logistics demand is expected to continue to weaken in 2013, in line with moderate economic growth expectations. 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 was boosted in 2012 by a strong appetite for income-driven investments in safe haven destinations. The total turnover of around 11.3 bn in 2012 was the highest since 2007. More than 200,000 residential units changed hands last year and the listed sector was the most active. The strong demand for German residential portfolios is expected to continue this year. German commercial investment turnover was 25bn overall in 2012, which is 11% above the previous year. Core acquisitions remained dominant and office was the most transacted asset class (44% of total transaction activity) followed by retail (36%). Retail remains the investor darling, but the availability of core assets is tight. Logistics investment turnover improved in 2012, capturing almost 7% of total investments. Overall, prime property yields declined again in some major office markets and for prime retail. They remained stable in key logistics hubs in Q4. Demand for German real estate is expected to hold up well in 2013, although occupier markets may moderate and debt availability could tighten. 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.
GERMANY CHARTS
FIGURE 1: REAL GDP GROWTH, % Y/Y
6% 4% 2% 0% -2% -4% -6%
93 95 97 99 01 03 05 07 09 11 13 15 17
FIGURE 2: UNEMPLOYMENT RATE, %

14% 12% 10% 8% 6% 4% 2% 0%
92 94 96 98 00 02 04 06 08 10 12 14 16
Long-Term Average
Long-Term Average
Source: Economist Intelligence Unit
FIGURE 3: OFFICE NET ADDITIONS TO STOCK*

5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 92 94
FIGURE 4: MARKET RENTAL GROWTH, % Y/Y

Shopping Center (IPD) Office (Prime) Logistics (Prime)
Long-Term Average
15% 10% 5% 0% -5% -10% -15% -20%
96
98
00
02
04
06
08
10
12
14
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Sources: Property Market Analysis, CBRE Global Investors *Average German Big 5 markets
FIGURE 5: KEY LOGISTICS DRIVERS (2007 = 100)

150 140
Index 2007 = 100 Industrial Production Import Volume of Goods Export Volume of Goods Real Private Consumption
FIGURE 6: PRIME NET INITIAL YIELDS, %

Office 9% 8% 7% 6% 5% 4% SC Logistics
130 120 110 100 90 80 70

07
08
09
10
11
12
13
14
15
3%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Global Investors
FRANCE
The French economy fell into recession in Q1 2013 and the full year forecast is for 0.2% contraction. (Figure1) Consumption, the historical driver of French economic growth, is going to be impacted by unemployment, which peaked in March 2013 at 11.0%. In addition, French consumers will be hit by tax increases. The economic outlook will follow a more favorable path starting in 2015, with annual economic growth over 1%.
This situation has pushed some tenants to renegotiate their leases. During the coming quarters the logistics market is going to be affected by an increase of supply combined with a fall in demand. However, the best locations remain resilient. In 2012, the residential market in France has reflected the difficult economic situation. The deterioration of household income and purchasing power has led to a drop in residential sales. New housing starts fell by 16% between 2011 and 2012 and reservations were 18% lower. Furthermore, investors demand has been affected by the tax reforms. After strong activity in 2011, existing home sales fell by 11% in 2012. While the average price of new homes remained resilient, the trend was different for second-hand premises, which recorded a moderate fall of 1.6% in 2012. This trend was more pronounced for houses compared to apartments and more focused in the French Regions compared to Ile-de-France (Figure 5). Regarding the investment market, the beginning of the year was quite exceptional in this economic environment with 2.6 bn invested during Q1 (40% higher than Q1 2012). However, most of the large transactions were already under negotiation in 2012. Investors remain particularly risk-averse and focused on prime. Cash investors such as insurance companies or sovereign funds remain the main buyers. During the coming quarters there are some notable transactions expected to take place. One of the most important high street retail premises (Le Printemps) should be acquired by a Qatari fund for 1.6 bn. The appetite of investors for prime assets could be further fuelled by the closing of some important German open-ended funds.
The fragile economic environment has already impacted the real estate markets, especially occupiers demand. The companies expansion policies have been replaced by streamlining strategies. Consequently in Ile-de-France, office take-up has recorded a decrease of 24% during Q1 2013 compared to Q1 2012. Net absorption is therefore expected to be limited in the coming quarters. (Figure 3) Moreover, the decline in consumption (Figure 2), mainly due to the decline of purchasing power, is going to affect retailers throughout 2013. The slowdown should influence almost all retail sectors, although automobile and textile-leather will probably be more affected by the fall in household consumption. E-commerce is taking a growing share of retail sales and will continue to push retailers to adapt and restructure their distribution. Some retailers have decided to close the worst-performing sales points (e.g., Virgin, FNAC, Phone House). Other retailers are developing expansion policies with innovative business models in strategic locations (MAC, KIKO, Abercrombie & Fitch). Household consumption demand at retailers located in shopping centers is going to be more selective. Investors should focus on the best locations that provide better guarantees in terms of flows and sales. Secondary locations are likely to suffer from a decline in demand. After a buoyant year in 2011, the logistics occupier market dropped. Take-up volumes in 2012 decreased by 28% compared to 2011. During the 1st quarter of 2013, take-up fell by 13% compared to Q1 2012. This trend was mainly due to the wait-and-see attitude of occupiers and, more particularly, logistics providers in the midst of a weak economic environment. This is evidence of logistics being one of the property sectors most vulnerable to economic growth. (Figure 4)
This year is likely to see a bifurcated market. On
one side, a stabilization or a slight increase of yields for quality assets located in the best business district such as Paris CBD (Figure 6). For this kind of assets the demand will largely exceed the supply. On the other side, the expiry of many fund portfolios should bring secondary assets to the market. For this segment demand will be low and capital values will be affected.
FRANCE CHARTS
FIGURE 1: GDP COMPONENTS
Private consumption Corporate investment GDP growth Government consumption Net exports
FIGURE 2: PRIVATE CONSUMPTION AND RETAIL SALES (%Y/Y)

3.0% 2.5% 2.0% 1.5% Retail sales Consumption
4%
0%
1.0% 0.5% 0.0%
-4% 05 06 07 08 09 10 11 12 13 14 15
Sources: INSEE, Economist Intelligence Unit (forecast)
-0.5% 05 06 07 08 09 10 11 12 13 14 15
FIGURE 3: PRIME MARKET RENTAL GROWTH % Y/Y

Office Logistics Shopping centres Residential
FIGURE 4: TOTAL RETURN, % Y/Y

Office 30 25 20 15 10 5 0 -5 -10 Industrial - logistics Retail Residential
15% 10% 5% 0% -5% -10%
05 06 07 08 09 10 11 12 13 14 15
Sources: CBRE, CBRE Global Investors
02
Source: IPD
03
04
05
06
07
08
09
10
11
12
FIGURE 5: EXISTING HOUSING PRICE INDEX

Price index 100 = Q1 2010
FIGURE 6: PRIME MARKET YIELD

9% 8% 7% 6% Office Logistics Shopping centres Residential
Collective homes
150 130 110 90 70 50
Paris Ile-de-France excl. Paris Regions
5% 4% 3% 02 03 04 05 06 07 08 09 10 11 12 05 06 07 08 09 10 11 12 13 14 15
Source: INSEE
Source: CBRE, CBRE Global Investors
NETHERLANDS
2012 turned out to be a year of recession for The Netherlands. GDP forecasts for 2013 were again lowered and the recession is expected to continue this year. For 2014, the economic outlook remains subdued; GDP growth is expected to be just above the historical average (1.2%) for the remainder of the forecast period. (Figure 1) Our cautious view for 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, contracted significantly in the second half of 2011 and has not shown recovery yet. (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 an excess supply, 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 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. As a result of favorable tenant and investor demand, the market outlook for prime retail areas is positive. However, as yields are already at relatively low levels, further yield compression seems unlikely.
Underpinned by scarcity, the logistics real estate sector appears to be one of the most resilient real estate sectors. Take up over 2012 was close to 1 million sqm (CBRE) just below the 2011 level, confirming a relatively healthy market benefitting from solid demand related to e-commerce. Following a strong final quarter, a drop of the national vacancy rate to 6.3% underpins current rent levels and will shift negotiation power back to developers and landlords. Therefore, 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 somewhat. However, threeyear trade growth remains well above 3% and the new order component in the Purchasing Manager Index seems to be recovering so far in 2013, albeit still in negative territory. (Figure 4) Support should come from the East as the German Purchasing Managers Index rose above 50 again, benefitting from a 21-months high in new order growth. Investment activity remained limited by the lack of suitable product, which we believe will continue to keep prime net yields in the current trading range around 6.8%. 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 propertys location and the tenants 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. The number of homes sold surged in the last month of 2012 as this was the last opportunity for buyers to benefit from the favourable fiscal regime. However, this could not prevent house prices from declining by 6.7% in 2012. Transaction volumes dropped sharply in January and prices declined a further 1.6% in Q1. (Figure 6) 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.
NETHERLANDS CHARTS
FIGURE 1: GDP GROWTH, % Y/Y
2%
FIGURE 2: OECD LEADING INDICATOR NETHERLANDS

104 102 100 98
January 2013 October 2012
OECD Composite Leading Indicator
1%
0%
96 94 92
-1% 12 13 14 15 16 17
90 2009 2010 2011 2012
Source: OECD
FIGURE 3: FINANCIAL DISTRICT VACANCY RATES

OFFICES
Amsterdam Amsterdam Zuidas Rotterdam Utrecht Amsterdam Center Schiphol The Hague
FIGURE 4: RETAIL TURNOVER, Q4 2012, Y/Y
30% 25% 20% 15% 10% 5% 0%
4% 2% 0% Food -4% -6% -8% -10% -12% Home furnishing 6% 4% 2% 0% -2% -4% -6% -8% -10% -12%
Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
Speciality stores
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 07 08 08 09 09 10 10 11 11 12 12
Source: CBRE EMEA Research
Source: CBS
FIGURE 5: LOGISTICS
NL PMI Manufacturing (LHS) 65 60 55 50 45 40 35 30 08 09 10 11 12 13 NL New order component (RHS) 30 20 10 0 -10 -20 -30 -40
FIGURE 6: RESIDENTIAL SALES AND PRICE GROWTH

Total Monthly Transaction Volume (000's) (LHS) % Nominal House Price Growth (YoY) 20 15 10 5 0
Mar-10 Source: CBS
Sources: Markit economics / Nevi
Consumer electronics
Home appliances
Fashion retail
Non-food
Do-It-Yourself
-2% Total retail
Supermarkets
SPAIN
The budget imbalances accumulated during the pre-crisis period, the fiscal consolidation process and the persistence of financial tensions continue to have a negative impact on the domestic demand in Spain. GDP recorded a 0.3% fall during the last quarter of 2012 and a 1.4% drop for the full year 2012. The VAT hike in September resulted in strong private consumption contraction, affecting most retail sectors, especially leisure and food retailers/restaurants. (Figures 1 & 2) Spains public deficit might end at around 7% of GDP for the full year of 2012, which is above the established targets. This reflects a substantial reduction in public spending and the recession that the Spanish economy is going through. (Figure 3) Although the steep job losses in the private sector have stabilised in recent quarters, the unavoidable reduction in public spending has contributed to a continued downward trend in the number of jobs. (Figure 4) The introduction of the OMT program by the European Central bank dissipated doubts concerning the reversibility of the euro pact, which significantly reduced Spanish risk premia. Moreover, despite the recent question mark over deposit insurance in Cyprus, we have not seen material capital flight from Spain. The Spanish employment market continued to contract during the last quarter of 2012 with unemployment rates reaching levels of c25%. In the short-term, further deterioration of the employment market is to be expected, as structural measures are likely to cause an economic contraction before any improvements start to materialize. (Figure 4) Property markets performed negatively, driven by weaknesses in both occupier and investment markets. During 2012, companies continued their downsizing process and freed up space in their aim to rationalise costs, which is likely to continue during 2013. Accordingly, office vacancy rates increased in all locations standing at levels of 12 and 14% for Madrid and Barcelona at the end of 2012. Logistics vacancy rates for the two cities reached 16 and 10%, respectively. Take-up levels continued their downward trend, especially in the office markets where just 230,000 square meters in Madrid and 200,000 square meters in Barcelona were transacted during 2012 (meaning circa -20% change when compared with 2011). In this environment of weak occupier demand, tenants have continued renegotiating lease contracts, and especially rental levels, which have declined by between 3% and 7% in Madrid and Barcelona during 2012, respectively. Accordingly, prime rents continue to experience a downward correction. The combination of high vacancy levels and weak office demand is likely to lead to further rental declines. (Figure 5) Iberian financing markets remained practically closed during 2012 and, when available, financing required high associated costs which lowered expected returns. The investment market continues to be polarised into core and opportunistic niches with a complete absence of value added players. In addition, the Spanish bad bank Sareb is also contributing to depressed real estate prices by offering its real estate portfolios at prices that are intended to attract strong interest from potential investors. Investment volumes still remain well below precrisis levels as investors concentrate on secure assets with long-term leases and prestigious tenants from stable sectors. Investment activity has been concentrated in domestic private investors with reduced dependence of financing although with reduced investment capacity. Consequently, property yields suffered upward movements during 2012 within a range of 2575 bps in the prime niche. The increase in cap rates may continue, driven by the weak prospects from occupier demand and lack of financing which hinders investors appetite. (Figure 6) However, there is a slight improvement in the investment sentiment derived from the ECB statements combined with more realistic pricing. Opportunistic approaches are increasing their activity as opportunites are arising rapidly and might increase investment volumes. All the above will depend on whether distressed sellers might accept the wide discounts buyers are seeking.
SPAIN CHARTS
FIGURE 1: REAL GDP GROWTH, % Y/Y
5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% 06 07 08 09 Euro Area Spain
FIGURE 2: PRIVATE CONSUMPTION GROWTH, % Y/Y

5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Euro Area Spain
10
11
12
13
14
15
16
17
06 07 08 09 10 11 12 13 14 15 16 17
FIGURE 3: PUBLIC DEBT AS % OF GDP

12% 9.3% 9% 6% 3% 0% 2010 2011 2012 2013 2014 8.9% 7%
FIGURE 4: UNEMPLOYMENT RATES

25% Spain 20% 15% Euro Area
4.5% 2.1%
10% 5% 0% Previous 09 10yr 10 11 12 13 14 15 16 17
Source: Spanish Tesoro Publico
FIGURE 5: PRIME MARKET RENTAL GROWTH, % Y/Y

Offices Shopping Centres Logistics
FIGURE 6: PRIME NET INITIAL YIELDS, %
30% 20% 10% 0% -10% -20% -30% 06 07
10% 9% 8% 7% 6% 5% 4%
Offices Shopping Centres Logistics
08
09
10
11
12
13
14
15
3% 06 07 08 09 10 11 12 13 14 15
JAPAN
Five months after the election of the Abe administration in late 2012, improved sentiment has been seen among both business leaders and consumers as a result of the Abenomics policy. The new administrations push to boost growth is being felt nationally. According to the first preliminary estimates released by the Cabinet Office, the Japanese economy expanded at an annual rate of 3.5% in Q1. This was the second straight quarter of positive growth and was a stronger outcome than the market had expected. Private consumption and exports made positive contributions. Household consumption contributed 2.2% to the increase. Consensus Economics mean forecast is for GDP growth of 1.4% in both 2013 and 2014. (Figure 1) As a result of the expectations that the real estate market is on the path of recovery due to improved market fundamentals, benchmark JREIT index for Q1 2013 achieved a 47.4% increase from the previous quarter. Financial institutions have become active lenders in the real estate arena. The debt financing environment has also started to show stronger signs of recovery since late 2012. Japans core property markets are in the initial stages of a cyclical recovery, supported by improving business sentiment. The latest data from IPD suggest that total returns for all major property types are now in the positive territory but as this data is appraisal-based and generally lags, it may not fully reflect some of the strong pricing in the prime segment of the market recorded in Q4 2012. (Figure 2) The national, all property total return was 3.8%, with a 5.2% income return and -1.3% capital return (IPD as of April 2013). Rents for the overall Tokyo office market only declined 0.4% in Q1 2013 from the previous quarter, suggesting that rents may have bottomed and a turnaround is possible in the near future. There are some early signs of rebounding market confidence. Positive net absorption has been observed since 2011 with relatively strong growth recorded in 2012, above its long term average. Corporate tenants are taking advantage of the historically low levels of rents to facilitate upgrades and expansions.
Asking rents for Tokyo A Class buildings have increased by 1.0% from the previous year and for mid-to-large new buildings rents were up 8.3% in Q1 2013. As new supply is expected to be low going forward, office rents are expected to bottom out soon and possibily start to increase in the latter half of this year. (Figure 3) During the five year forecast period, unlevered core total returns for the Tokyo office market are expected to average 7.9% per annum. Capital values will also start to pick up in 2013 and the office sector is likely to outperform. Rents for Tokyo residential units remain unchanged from the previous year as there were no visible improvements in employment conditions. Investor participation in the market in recent years has pushed up pricing as Tokyo residential cap rates have already compressed by 60 bps from 2009 through 2012 and are now quite low. (Figure 4) During the five year forecast period, total unlevered returns are expected to average roughly 6.0% for prime residential markets located in Tokyo. The average vacancy rate for multi-tenant logistics facilities located in Greater Tokyo significantly improved from the 2010 year end figure of 11.5% to just 2.8% in Q1 2013, a low level not seen since 2004. (Figure 5) Although a significant increase of new supply is expected for this year, the overall supply-demand balance is likely to remain tight as pre-leasing activities have progressed faster than expected with roughly 60% of new supply already precommitted. However, logistics occupiers tend to be very cost sensitive; hence, we expect limited effective rental growth of around 1.0% annually over the next 5 years. During the five year forecast period, we expect an average unlevered total return of 7.0% for logistics facilities located in Greater Tokyo. The retail sector will likely remain the least favored sector. Limited market rent growth is expected given the deflationary environment. The yield compression outlook is also quite modest. Without a robust recovery in retail sales (Figure 6), downward pressure on rents will continue in the weaker sub-markets. Selective opportunities may exist for good assets in the prime locations or where asset management can be notably improved.
JAPAN CHARTS
FIGURE 1: COMPOSITE BUSINESS CONDITIONS INDEX

Real GDP 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% 2011 2012 2013F 2014F Avg. 1992 - 2011
FIGURE 2: IPD ANNUALIZED TOTAL RETURN BY SECTOR % Y/Y

Office All Property 25% 20% 15% 10% 5% 0% -5% -10% -15% 05
Source: IPD
Residential Other
Retail
06
07
08
09
10
11
12
Sources: Cabinet Office, Consensus Economics
FIGURE 3: OFFICE RENTAL, VACANCY RATE AND SUPPLY HISTORY AND FORECAST
New Supply as % of Stock (GFA tsubo) Vacancy % Rent per tsubo 27,000 per tsubo (JPY)
25,000 23,000
FIGURE 4: RESIDENTIAL CAP RATE TRENDS
8% 6% 4% 2% 0%
8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 04 05
Tokyo (Standard Studio/Multi- family) Sapporo Nagoya Osaka Fukuoka
21,000 19,000 17,000
000102030405060708091011121314151617
15,000
06
07
08
09
10
11
12
Note: refers to large size (over 200 tsubo) office buildings in Tokyo 3 Central wards. Sources: Sanko Estate, CBRE Global Investors Research & Strategy
Sources: JREI
FIGURE 5: VACANCY TRENDS FOR GREATER TOKYO LOGISTICS

All Facilities 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 04
Source: CBRE
FIGURE 6: RETAIL SALES TRENDS, Y/Y CHANGE
Existing Facilities
4% 2% 0% -2% -4% -6% -8% -10% -12%
Shopping Centers (SC) Department Stores (DS) Chain Stores (CS)
05
06
07
09
10
11
12
94
96
98
00
02
04
06
08
10
12
Source: Japan Council of Shopping Centers
CHINA
Chinas GDP grew by 7.7% y/y in Q1, slightly below market expectations after a solid year end performance in 2012. This was primarily due to lower consumption as a result of the frugality campaign by the new leadership, as well as a slowdown of property starts (especially in March) in response to new tightening measures. Export growth rebounded to 14.7% y/y in April from 10.0% y/y in March. While exports to developed economies were generally slow, exports to Southeast Asian countries were the bright spot. The pace of growth is expected to pick up in Q2, supported by investment and production activities. (Figure 1) Consensus Economics latest mean forecast of full year GDP growth is 7.9% in 2013 and 2014. April CPI rose slightly to 2.4% y/y from March (2.1% y/y). After a relatively higher CPI (3.2% y/y) in February due to the Lunar New Year, inflation has been quite stable through the first four months of the year. This gives room for policy makers to cut rates further if necessary. Real interest rates remain positive and may stay there for sometime (Figure 2). The latest credit expansion in March reveals that the favorable inflation outlook has led to a less restrictive monetary policy stance than in 2012. Transaction volume (excluding land sales) totaled over US $2.5 billion in Q1 (Figure 3), which was a visible slowdown from the previous quarter and a year ago. The office sector saw the most activity with almost US $1.6 billion of transactions recorded. Other than the domination of domestic end-users which has led to low availability of en-bloc assets, aggressive pricing also makes it challenging for yield-driven investors. Over the long term, market depth will inevitably continue to expand against the backdrop of the recent regulatory changes which allow local institutional investors such as insurance companies and pension funds to gradually invest in income producing real estate.
Overall land acquisition volumes rebounded and returned to the level seen in late 2010 (Figure 4). Total volumes (measured by planned GFA) reached 810 million sqm in 2012, down by a mere 7% from 2011. Transactions of mixed use, commercial and industrial land parcels are rising compared to residential land. The government is promoting a more efficienct use of land by increasing the mixed use zoning and plot ratios. There is a growing trend towards mixed use development as land prices are generally more competitive when multiple uses are planned. This also diversifies some of the policy risk in the residential sector. According to the National Bureau of Statistics, 68 of the monitored cities reported m/m residential price increases in March. This was a further increase from the 66 cities that recorded gains in February (Figure 5). The number of cities that reported a m/m residential price increase is at the highest level since this series was first introduced in 2011. Other than solid demand, house prices were also pushed up by anxious buyers attempting to close out transactions ahead of the implementation of the new tightening measures. However, most local guidelines lack details (except Beijing) about specific ways to collect the 20% capital gains tax, or to restrict mortgages for additional units. Both domestic and global financial and business services firms have slowed their pace of expansion into Chinas key cities. As a result, nationwide office take up in Q1 fell to its lowest level since early 2009. At the same time, the number of new completions also dropped substantially, thus offsetting some of the impact of slower demand. Rents for first tier cities were largely flat (Figure 6). However, a number of second and third tier cities are expected to see large amount of completions in the next few quarters, thus rents are under pressure in those locations.
CHINA CHARTS
FIGURE 1: CHINAS REAL GDP & COMPONENTS, %Y/Y FIGURE 2: INFLATION, DEPOSIT RATE AND REAL* INTEREST RATE, %
CPI 10% 8% 6% 4% 2% 5% 0% -5% 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Net Exports Gov't consumption Real GDP 15% 10%
Fixed investment Private consumption
1Y Deposit Rate
Real Interest Rate
0% -2% -4% -6% 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: CEIC *Real interest rate defined as 1Y deposit rate minus CPI
FIGURE 3: CHINA INVESTMENT VOLUMES OF STANDING ASSETS, USD BN PER QUARTER

Office 10 Retail Industrial Others
FIGURE 4: CHINA LAND TRANSACTION VOLUMES, PLANNED GFA MN SQM PER MONTH
Residential/Mixed use 140 120 100 80 60 40 20 0
Commercial
Industrial
8 6 4 2 0 07 08 09 10 11 12 13
Source: RCA, CBRE Global Investors
07
08
09
10
11
12
13
Source: Soufun, CBRE Global Investors Note: land transacted in key 50 cities in China
FIGURE 5: RESIDENTIAL PRICE MOVEMENT IN 70 MAJOR CHINESE CITIES, MONTH ON MONTH PRICE TRENDS, # OF CITIES
Price Decrease Price Increase Price Stability
FIGURE 6: OFFICE RENTAL INDEX, 2003Q1=100
80 60 40 20 0 Jan-11
240 220 200 180 160 140 120 100 80
Beijing Shanghai
Guangzhou Shenzhen
Jul-11
Jan-12
Jul-12
Jan-13
03
04
05
06
07
08
09
10
11
12
13
Source: Soufun, CBRE Global Investors
Source: CBRE Research, CBRE Global Investors
AUSTRALIA
Australias economy achieved a growth rate of 3.4% in 2012, which is in line with its long term trend and a respectable rate compared to other OECD economies. Investments in the mining sectors continue to drive growth, but positive contributions from manufacturing, health and finance were also recorded. The Consensus Economics mean forecast for 2013 and 2014 is 2.6% and 3.0% respectively. The EIU is also forecasting growth right around its long-term average. (Figure 1) Despite improvement in business confidence in Q1 2013, corporations generally remain cautious on the economic outlook for H2 2013. Mining investments are expected to peak over the next two years. The Reserve Bank of Australia (RBA) is trying to encourage growth in non-mining sectors with yet another 25 bps interest rate cut in May, bringing down the base rate to 2.75%. This is the lowest policy rate since it first began setting monetary policy in 1990. RBA also hinted of another possible rate cut in H2 2013 if credit growth and business confidence remain subdued over the next few months. Lower policy rates could mean that the AUD may depreciate against the USD in 2013, and this should give some respite to exporters and other sectors including education (Australian universities have a high share of foreign students) and tourism. Exports values are expected to slowly recover, helped by improving Chinese demand and a potential pick-up in commodity prices. Easing monetary policy should support domestic demand by reducing the interest burden of households. Housing approvals in non-mining states, which has seen negative growth in the past year, may also see improvement. Government bond yields have trended lower as base rates have fallen. (Figure 2) With the macro-economic challenges, the labor markets have seen a slight increase in the official jobless rate from 5.3% to 5.5%, between November 2012 and March 2013. In the largest state of New South Wales, the jobless rate was a touch lower at 5.1%. Solid real estate fundamentals and high yields across most sectors are attracting investors and we expect an increase in real estate investment activities in 2013 from both offshore and domestic investors. Foreign investors continue to be attracted to the relatively high income returns offered by the asset class, in addition to its large
size, high transparency and high degree of liquidity. Asian capital sources alone, purchased over US $5.0 billion of real estate assets in 2012, according to RCA, and this is expected to increase further in 2013. The performance of commercial real esate was mixed in 2012 despite low supply pipelines. All property delivered total returns of 9.4% in 2012 according to the IPD/PCA index, down from the 10.4% total return in 2011, which had been the strongest 12 month period in the rebound phase. Office and Industrial have outperformed retail and we expect this trend to continue over the next few years. (Figure 3) The office sector has recorded total returns of 9.7%, with 7.4% derived from income and 2.2% from capital growth for 2012. (Figure 4) The Sydney office market witnessed an increase in leasing activities in Q1, as rents generally become more affordable. The Finance and Insurance sector, which accounts for 52% of CBD office space demand, is expected to increase hiring over the next two years, according to Deloitte Access Economics. Business sentiment is also expected to improve over the next 18 months. The Sydney CBD office market is projected to experience a rebound in 2014 with possible yield compression. Low double digit total returns are forecast over the next five years. Retail continues to be the weakest performing sector and headwinds against consumers persist, such as high consumer debt. Even with aggressive interest rate cuts by RBA, much of which has been passed on to borrowers and to holders of adjustable-rate mortgages, confidence remains low and caution prevails. Total returns of 9.0% in 2012 have been recorded. Sydney and the other main shopping center markets are expected to experience weakness in the next few years. With a long term average (15 year) total return performance exceeding 11%, retails recent and forecast performance is clearly below trend. (Figure 5) Sydneys industrial demand continued to moderate in Q1. But low vacancy and a limited supply pipeline in 2013 will likely support a modest rent increase in 2013. (Figure 6) All precincts recorded a decrease in vacant space in the most recent quarter. The industrial sector is forecast to deliver low double digit growth over the next five years, and larger assets are likely to be in greater demand.
AUSTRALIA CHARTS
FIGURE 1: GDP GROWTH FORECAST, % Y/Y
7% 6% 5% 4% 3% 2% 1% 0% -1% -2%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Source: Economist Intelligence Unit
FIGURE 2: LONG TERM GOVERNMENT BOND YIELD

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Source: Economist Intelligence Unit
Real YoY GDP Growth 10 Year Hist Average 25 Year Hist Average
Long-term bond yield 10 Year Hist Average 25 Year Hist Average
FIGURE 3: PROPERTY TOTAL RETURNS BY SECTOR, % Y/Y

35% 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 15 17
FIGURE 4: SYDNEY OFFICE RENT AND CAPITAL VALUE GROWTH TRENDS, % Y/Y
35% 25% 15% 5% -5% -15% -25% -35%
91 93 95 97 99 01 03 05 07 09 11 13 15 17
Retail Office Industrial
Rent
Capital Value
Sources: Property Council of Australia/International Property Databank for historical (national) index, CBRE Research for forecasts (for Sydney)
Sources: CBRE Research, CBRE Global Investors
FIGURE 5: SYDNEY SHOPPING CENTRE RENT AND CAPITAL VALUE GROWTH TRENDS
35% 30% 25% 20% 15% 10% 5% 0% -5% 91 93 95 97 99 01 03 05 07 09 11 13 15 17
FIGURE 6: SYDNEY INDUSTRIAL RENT AND CAPITAL VALUE GROWTH TRENDS

20% 15% 10% 5% 0% -5% -10% -15% 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Rent
Capital Value
Rent
Capital Value
HONG KONG
Hong Kongs 2.8% Q1 real GDP growth matched the previous quarter. The domestic economy remains resilient and private consumption, which accounted for more than 60% of Q1 GDP, increased 7.0% y/y, higher than 4.1% y/y in Q4. Both imports and exports grew at a slower pace in Q1. Export growth slowed to 3.9% y/y in Q1 from 7% y/y, mainly because of the continued weakness of external demand in major advanced economies. The slower pace of import growth at 4.9% y/y suggested the cooling property market has somewhat impacted domestic household spending. As economic activies in China regather pace and the global economy gradually improves, the Hong Kong economy should see growth pick up in the latter part of 2013. The government forecasts GDP to grow at a pace between 1.5% and 3.5% in 2013, whereas Consensus Economics mean forecast and the EIU are more optimistic at 3.3% and 3.1%, respectively. (Figure 1) The labour market in Hong Kong remained very tight with the unemployment rate hovering at 3.4% at Q1, underpinned by positive hiring. Overall net hiring intentions remained at a high level (Figure 2). Compared with the previous reading of 37%, the latest reading (released in March) indicated that 48% of the surveyed employers planned to increase headcount in the coming three-month period. Of all industries, the banking & financial services sector saw the highest jump in readings: 48% of employers planned to increase headcount, up from 27% in the previous quarter. The trend is consistent with the improving office demand in Central. Employers from the IT&T industries remained the most positive with the latest reading at 58%. The consumer sector ranked second and gradually returned to pre-GFC levels at 56%, driven by robust mainland tourism and retail sales. Central Grade A office demand remains weak but is showing signs of an uptick. Prime rent in Central registered a decline of -6.2% y/y in Q1, significantly improved from -13.9% y/y in Q4 2012. It was the 7th consecutive quarterly fall since Q3 2011. Grade A office rent was still 24% below its peak in Q1 2011. (Figure 3) Due to the stagnated demand from whole floor occupiers in the financial sector in Central, landlords signed leases for smaller spaces at lower rents. As such, vacancy rate came down further to 4.9% from the recent peak of 5.7%
in Q1 2012. Local companies and costcautious occupiers generated healthy demand in other submarkets, narrowing the rental gap between Central and other submarkets. For 2013, we forecast office rents and capital values to grow by 2% and 4.7% y/y, respectively. The persistent shortage of modern logistics facilities continued to push up industrial rents. Despite lackluster export growth (Figure 4), rising tourist arrivals and resilient domestic consumption kept demand for quality warehouses constant. Rents for warehouse properties grew 9.3% y/y in Q1. However, investment activities, especially for strata-titled sales, were slow due to the policy of an additional stamp duty becoming applicable to all real estate asset classes. The falling transaction volume trend will likely continue until there is a shift of policy direction. The government intended to increase industrial land supply as noted in its 2013/14 budget speech. Yet, the current under-supply situation is unlikely to change in the next few years. We forecast that rents and capital values will increase 13% and 25% y/y, respectively, in 2013. The concern over weakness in retail sales in the past few months has been overwhelming. Retail sales growth actually gathered pace in early 2013, underpinned by growing tourist arrivals. On a rolling 3-month y/y basis, retail sales (Figure 5) grew 13% y/y in March after reaching its low growth level in Q3 2012 (5.8% y/y). For the first 3 months in 2013, a total of 12.7 million tourists visited Hong Kong, up 14% y/y, of which 52% were mainlanders. Soaring rents have started to reduce the profitability of retailers. Thus, we expect retail rents will grow at a slower pace of 12% y/y in 2013. The policies of a new stamp duty and lowering LTV ratios, coupled with an increase in mortgage interest rates, have further dampened transaction volumes in the residential sector. The higher transaction costs started to deter overall investment demand in the sector. In addition, the newly implemented regulation of Sale of First-hand Residential Properties on April 29 significantly affected the pace of new launches in the primary market. We believe the residential market will undergo a prolonged period of low transaction volumes with prices coming down on a gradual basis. (Figure 6)
HONG KONG CHARTS

FIGURE 1: FORECAST GDP GROWTH, 2012-2016, PA FIGURE 2: UNEMPLOYMENT RATE AND NET HIRING INTENTIONS
Unemployment (LHS) Net Hiring Intention (RHS)
5% 4% 3% 2% 1% 0%
LTA (02-11)
6% 5% 4% 3% 2% 1% 0%
80% 60% 40% 20% 0%
2Q2012
2012F
2014F
2016F
07
08
09
10
11
12
Sources: Census & Statistics Department; Hudson
FIGURE 3: CENTRAL GRADE A OFFICE RENT & VACANCY

Rental Index 400 350 300 250 200 150 100 50 0
03 04 05 06 07 08 09 10 11 12 13
FIGURE 4 : IMPORTS AND EXPORTS Y/Y CHANGE
HK Office Rent (LHS) HK Vacancy (RHS) 25% 20% 15% 10% 5% 0%
40% 20% 0% -20% -40% 08
Imports Exports
09
10
11
12
13
Source: CBRE Research
Source: : Census & Statistics Department
FIGURE 5: RETAIL SALES AND TOURIST ARRIVALS

(HK$ mn) 50,000 40,000 30,000 20% 20,000 10,000 0
08 09 10 11 12 13
FIGURE 6: RESIDENTIAL RENT INDEX
Retail sales value (LHS) Retail sales yoy (RHS) Tourist arrivals yoy (RHS)
60%
160 150 140 130 120 110 100 90 80 70 60
Mass Residentail Luxury Residential
40%
0%
-20%
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: Ratings & Valuation Department, Government of Hong Kong
Source: Census & Statistics Department
SOUTH KOREA
Real GDP grew by 1.5% y/y in Q1 (seasonally adjusted), similar to the previous quarter. In March, the projection for Koreas 2013 GDP growth projection was revised down to 2.3% from 3.0% three months earlier, by the Ministry of Strategy and Finance. The Consensus Economics mean forecast is for 2.8% growth in 2013, accelerating to 3.6% in 2014. The latest EIU forecast projects 2013 real GDP growth at 2.9% before picking up to 3.8% in 2014. (Figure 1) Consensus Economics expectations for CPI growth for 2013 and 2014 are 2.1% and 2.8%, respectively. Over the outlook period (2013-17), the employment growth rate is anticipated to barely increase at just 0.14% per year; however, the unemployment rate is expected to remain at a very low level by global standards: around 2.7% on average over the same period. (Figure 2) In March, the newly elected government unveiled a US $1.3 billion fund to tackle the countrys mounting household debt problem, amid warnings of moral hazard. According to the government plan, a program of KRW 500 billion paid-in-capital which has launched earlier, will expand to at least KRW 1.5 trillion over the next five years supported by bond and asset-backed securities sales. The fund will buy, from financial institutions, loans worth less than KRW 100 million that are more than six months in arrears, and write off up to 70% of their value. However, this plan has its detractors, who claim that this would cause an increase in the default rate as debtors expectations about the government backstop change. In Q1 2013, the Seoul Grade A office market showed a slight upward trend in take-up in comparison to previous quarter. CBD recorded a positive net absorption of approximately 35,860 sqm, even though a fully vacant new building (State Tower Gwanghwamun) was delivered. GBD held onto its tenuous state in anticipation of the exodus of tenants starting in Q2 2013, and going forward, a fierce competition among offices to attract and retain tenants is expected. YBD continued to suffer from the large amount of vacant space persisting at Two IFC. Although the Seoul Grade A office market is confronted with an oversupply issue, it showed a positive improvement in demand in Q1 2013.
The Seoul Grade A office market posted net absorption of 25,820 sq m in Q1 2013. The overall vacancy rate averaged 7.9% in Q1 2013. The vacancy rate in CBD and GBD averaged 11.4% and 2.5%, respectively, dropping slightly from the previous quarter. (Figure 3) The total transaction volume of Seoul offices was US $435 million in Q1. Over the forecast period (2013-17), Seoul prime office rent is forecast to barely increase at 0.5% per annum on average, while prime rents in the CBD and YBD are expected to be weaker, with average declines of 0.3% and 1.0% per year respectively with near term deterioration but positive growth returning in the latter part of the outlook period. (Figure 4) Retail sales are projected to grow at 4.5% in 2013, according to the EIU in May 2013. Private consumption is expected to remain slow in the near term amid weak domestic demand although upside surprise is possible given the governments new program of purchasing consumer loans from financial institutions. (Figure 5) A major new completion in Q1 2013 included One Mount Shopping Mall in Ilsan and Hyhill Outlet in Gasan, Seoul. Changing consumption patterns with an emphasis on thrift and one-stop entertainment are causing consumers to prefer outlets and shopping malls over traditional department stores. Fast fashion continues to be the main driving force behind retail leasing market, with both local and international brands executing aggressive expansion across the nation. Over the outlook period (2013-17), Seoul shopping mall rents are forecast to increase at around 5.2% per year, while capital values are expected to grow at 5.6% per year. (Figure 6) The logistics sector did not record any notable transactions in Q1 2013. But, quality logistics continue to attract investors due to relatively high expected returns. Interest in the hotel sector within Seoul remained sanguine in Q1. Occupancy and room rates have increased since 2007 as demand from tourism has been generally favorable. However, current shortage of supply is expected to change in 2015, considering the ongoing hotel development pipeline in Seoul. (Ministry of Culture, Sports and Tourism, October, 2012.)
SOUTH KOREA CHARTS

FIGURE 1: GDP GROWTH FORECAST, % Y/Y FIGURE 2: EMPLOYMENT GROWTH FORECAST & UNEMPLOYMENT RATE
Employment Growth (LHS) 3% Unemployment (RHS) 5% 4% 2% 3% 1% 2% 0% 1% 0% 13 14 15 16 17
5% 4% 3%
Real GDP
Ave. 2003-2012
2% 1% 0%
-1% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
-1%
FIGURE 3: SEOUL PRIME OFFICE VACANCY RATES

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% CBD GBD YBD Total
FIGURE 4: PRIME OFFICE RENT & CAPITAL VALUE TRENDS

25% 15% 5% -5% -15% Rental Growth Capital Value Growth
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 02 03 04 05 06 07 08 09 10 11 12 13
Source: CBRE Research
-25% 03 05 07 09 11 13 15 17
FIGURE 5: REAL RETAIL SALES & CONSUMER EXPENDITURE,% PA

Retail Sales 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 03 05 07 09 11 13 15 17
FIGURE 6: PRIME RETAIL RENT & CAPITAL VALUE TRENDS
Consumer Expenditure
25% 20% 15% 10% 5% 0% -5% -10% -15% 07 08
Rental Growth
Capital Value Growth
09
10
11
12
13
14
15
16
17
CBRE GLOBAL INVESTORS

CBRE Global Investors is one of the worlds largest real estate investment management firms with $90.7 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 firms 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 March 31, 2013.
This document has been prepared by:

Andrew Angeli Marije Braam Isaac Carrascal Annabelle Cavin Juliet Cha Jane Dorrel Angela Du Maarten Jennen Shubhra Jha Johan Kamminga Charlotte Keeling Gerben Koops Danny Lee Miriam Leung Joaquin Linares Trey Long Christian Muller Chas Sun Els Swaen Marcel Theebe Shinnosuke Tomita Jaap Van Berkel Ondrej Vlk Anthony Wirth Karel Zeman
REGIONAL HEADS OF RESEARCH

NORTH AMERICA
DOUG HERZBRUN Global Head of Research
douglas.herzbrun@cbreglobalinvestors.com
EUROPE
EUGENE PHILIPS Head of European Research
eugene.philips@cbreglobalinvestors.com
ASIA PACIFIC
SHANE TAYLOR Head of Asia Pacific Research
shane.taylor@cbreglobalinvestors.com
TEL: + 1 213 683 4238
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The Investment Outlook For Major Property Markets 3Q2013 - WWW - Metrecarre.ma

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The Investment Outlook For Major Property Markets 3Q2013 - WWW - Metrecarre.ma

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Q3 2013

GLOBAL VISION | Q3 2013

WELCOME TO GLOBAL VISION

Doug Herzbrun Global Head of Research

GLOBAL VISION | Q3 2013

GLOBAL VISION | Q3 2013

GLOBAL VISION | Q3 2013

GLOBAL ECONOMIC OUTLOOK

GLOBAL ECONOMIC OUTLOOK CHARTS

FIGURE 1 CURRENCY APPRECIATION, 1/1/13 to 5/10/13

FIGURE 2: JAPAN - TANKAN CONFIDENCE SURVEYS

Against the US Dollar

Against the Euro 40 30 20 10 0 -10 -20 -30 -40 -50 -60

FIGURE 3: GLOBAL GDP FORECASTS, % Y/Y

FIGURE 4: CHINA BUSINESS CONFIDENCE SURVEYS

150 140 130 120 110 100 90 80 70 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: National Bureau of Statistics, China

FIGURE 5: GERMANY BUSINESS CONFIDENCE SURVEYS

FIGURE 6: USA HOUSE PRICES & RETAIL SALES, % Y/Y

30 20 10 0 -10 -20 -30 -40 -50 02 03 04 05 06 07 08 09 10 11 12 13

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 00 01 02 03 04 05 06 07 08 09 10 11 12 13

15% 10% 5% 0% -5% -10% -15%

Sources: Case-Shiller Composite-20 HPI, US Department of Commerce

GLOBAL VISION | Q3 2013 | 2

GLOBAL DIRECT INVESTMENT MARKET

In the USA, we have seen continued but less

GLOBAL VISION | Q3 2013 | 3

GLOBAL DIRECT INVESTMENT MARKET CHARTS

FIGURE 2: DIRECT PROPERTY PORTFOLIO RETURNS, % YY

5 years 30% 20% 10% 0% -10% -20% -30% -40%

Sources: IPD Global Index, CBRE Clarion Securities

FIGURE 3: CAPITAL VALUES REBASED TO 100 AT PEAK

FIGURE 4: CAPITAL VALUES REBASED TO 100 AT PEAK

Source: IPD Global Index market.

*Cumulative change since the trough of the

FIGURE 5: OFFICE TOTAL RETURNS, % Y/Y AT DEC-12

FIGURE 6: US TOTAL RETURNS, % Y/Y, AT DEC-12

Source: IPD Global Cities Digest

Source: IPD USA Digest

GLOBAL VISION | Q3 2013 | 4

GLOBAL UNLISTED FUNDS MARKET

GLOBAL UNLISTED FUNDS MARKET - CHARTS

FIGURE 2: US VALUE ADD GROSS RETURNS, Y/Y

30% 20% 10% 0% -10% -20% -30% -40% -50% 00 01 02 03 04 05 06 07 08 09 10 11 12

40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 00 01 02 03 04 05 06 07 08 09 10 11 12

FIGURE 3: EUROPEAN CORE FUND RETURNS, Y/Y

FIGURE 4: EUROPEAN VALUE ADD FUND RETURNS, Y/Y

20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 01 02 03 04 05 06 07 08 09 10 11 12

30% 20% 10% 0% -10% -20% -30% -40% 01 02 03 04 05 06 07 08 09 10 11 12

FIGURE 5: EUROPEAN TOTAL RETURNS BY MARKET, % Y/Y AT DEC-12

FIGURE 6: UK FUND PERFORMANCE AT MARCH 2013

Annual Total Return 7 6 5 4 3 2 1 0

Quaterly Total return

Low Geared All Balanced Balanced Fund Fund Source: INREV

Long Income Fund

Source: IPD UK Pooled Property Fund Index

GLOBAL VISION | Q3 2013 | 6

GLOBAL LISTED SECURITIES & DEBT

GLOBAL LISTED SECURITIES AND DEBT - CHARTS

80% 70% 60% 50% 40% 30% 20% 10% 0%

Listed Real Estate

50% 40% 30% 20% 10% 0% -10% -20% -30%

Sources: S&P, MSCI, JP Morgan, returns in local currency

Sources: Factset & Bloomberg, as of 03/31/2013 *Average since Dec 2004

FIGURE 3: PROPERTY EQUITY DIVIDEND YIELD SPREAD OVER GOVT BONDS

FIGURE 4: FANNIE MAE US MORTGAGE BENCHMARK YIELDS