MIPIM 2012 - Wrap-Up Keynote address from Mark Roberts
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Austerity-Stimulus, Risks-Opportunities: Fresh insights and way forward. The US and Europe have embarked on fundamentally different paths in resolving their debt challenges: Austerity measures in Europe versus stimulus in the US. Policy outcomes will be different, and cannot be overlooked by real estate investors. There are many risks to consider and lots of opportunities ahead. How should investors approach the market today? What strategies are investors pursuing for a brighter tomorrow? Join us for the freshest insights on real estate markets: A combination of our panelists' research, your insights gathered during MIPIM conferences and events, and through our survey responses.
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MIPIM 2012 - Wrap-Up Keynote address from Mark Roberts
- 1. RREEF Real Estate Global Strategic Outlook MIPIM 9 March 2012 Mark G. Roberts, CFA®, Managing Director, Global Head of Research, mark-g.roberts@rreef.com, +1-212-454-0974 Certain information in this research report constitutes forward-looking statements. Due to various risks, uncertainties and assumptions made in our analysis, actual events or results or the actual performance of the markets covered by this research report may differ materially from those described. The information herein reflect our current views only, are subject to change, and are not intended to be promissory or relied upon by the reader. There can be no certainty that events will turn out as we have opined herein. RREEF Real Estate www.rreef.com Confidential – Not for Public Distribution
- 2. Section I Executive Summary & Global Portfolio Considerations
- 3. Summary of global outlook & real estate implications Region Descriptions Economic growth supports higher tenant demand for property. United States We recommend a pro-cyclical weighting with an overweight to industrial and office on a combined basis. Maintain a meaningful allocation to retail and apartments to protect against downside risk. Government, household and corporate balance sheets are healthier than other parts of the globe and supports growth. Asia Pacific Vacancy rates across are lower than other regions across the globe and we forecast higher rent growth. Retail and logistics benefit from rising domestic consumption Austerity programs and Euro crisis have resulted in higher unemployment and weaker tenant demand. Vacancy rates remain relatively stable with minimal rent growth. Europe Logistics in key logistics hubs provide higher income and protect on downside risk. Prime shopping centers outperform offices and logistics due to stable, yet low retail sales growth. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 3
- 4. Total returns favor Asia, while excess returns favor the U.S. Income yield levels higher in the U.S., capital value growth higher in Asia Regional Total and Excess Return Forecast Average 2012 to 2016* Total Return Spread to Risk-free Return 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% United States Europe Asia Pacific *Performance represents forecasted average annual total returns from January 1, 2012 through December 31, 2016. There is no guarantee these projections will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 4
- 5. Capital value trends globally Values remain well below peak levels and provide intrinsic value 20% Peak-to-Trough Decline Increase Since Trough Values Relative to Peak 15% 13% 10% 10% 4% 5% 5% 3% 2% 0% 1% 0% 0% 0% 0% -3% -3% -4% -3% -10% -9% -8% -8% -8% -7% -9%-10% -10% -12% -11% -11% -13% -14% -14% -15% -20% -23% -30% -28% -34% -33% -40% France Norway USA Australia UK Finland Canada Denmark New Zealand Portugal Sweden Netherlands Sources: RREEF Real Estate, IPD, data as of December 2010 for Denmark, Finland, Netherlands, Norway, Portugal and Sweden. Data as of 2Q2011 for France. Data as of 3Q2011 for Australia and New Zealand. Data as of December 2011 for UK, USA and Canada. All data represents most recent available. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 5
- 6. Spreads to risk free rates vary globally Due to low sovereign yields, real estate yields are attractive relative to bonds Global Risk Premia Cap Rates vs National Risk Free rates Spread Cap Rate Risk Free Rate United States, 555 bps Sweden, 528 bps Canada, 526 bps Japan, 512 bps Germany, 507 bps Australia, 476 bps United Kingdom, 474… France, 347 bps Singapore, 207 bps Hong Kong, 177 bps Spain, 141 bps 0% 2% 4% 6% 8% 10% Source: Real Capital Analytics . As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 6
- 7. Risk return matrix for IPD returns 10-Year Return vs. Risk of IPD Index Returns* 14.0 South Africa 12.0 Korea Canada Australia 10.0 France Denmark Norway Poland Portugal United Kingdom 8.0 Return Netherlands Spain Finland IPD Global Italy IPD Eurozone Czech Republic United States Austria Sweden 6.0 All IPD Europe Belgium Switzerland Japan 4.0 North America Ireland Germany 2.0 Europe Asia 0.0 0 2 4 6 Risk 8 10 12 14 *Represents average annual returns for past 10 years ending December 31, 2011 versus risk over same period as measured by return volatility. Sources: IPD, RREEF Real Estate. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 7
- 8. U.S. and U.K. have higher betas over the last 10 years 10 Year Betas in Relation to the IPD Global Index* BETAS 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 Sources: IPD, RREEF Real Estate. Based on average annual returns for 2001-2010. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 8
- 10. Global GDP forecast map – 2012 While recession risks have risen in Europe, Asia-Pacific continues to lead, followed by the Americas and Europe Source: DB Research. As at January 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 10
- 11. Debt vs. Demographics: Asia favorable, U.S. has time, Europe addressing risks today Median age vs Debt/GDP ratio, bubbles represent relative size of debt outstanding 160 Asia Europe North America t Greece 150 140 Italy Japan 130 Debt as % of GDP (percent) 120 United States 110 Ireland Portugal 100 Canada Germany 90 France 80 United Kingdom Netherlands 70 Poland Norway 60 Spain China 50 Czech Republic Sweden 40 South Korea 30 Hong Kong 20 10 Australia 0 34 35 36 37 38 39 40 41 42 43 44 45 Bubble size is in relation to relative nominal GDP. Median Age (years) Sources: IMF, CIA WorldFactbook. As of 2011. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 11
- 12. Projected GDP growth 30.0 Percent 2012f 2013f 2014f 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 f=forecast. There is no guarantee the projections or forecasts highlighted will materialize. Source: IHS Global Insight. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 12
- 13. The market is settling and volatility is dropping Global Equity Indices FTSEuroFirst 300 Index (Europe) MSCI Emerging Markets Index Topix Index (Tokyo) S&P500 (U.S) 120 110 100 90 80 70 01/2010 04/2010 07/2010 10/2010 01/2011 04/2011 07/2011 10/2011 01/2012 VIX (volatility index) 60 50 40 30 20 10 0 01-2010 04-2010 07-2010 10-2010 01-2011 04-2011 07-2011 10-2011 01-2012 Source: Bloomberg. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 13
- 14. Inflation has moved up due to commodities, but will likely settle U. S. Producer Inflation Gold Prices Oil Prices Food Prices Metals 180 170 160 150 140 130 120 110 100 90 80 Sources: Daily Press, Federal Reserve Bank of St. Louis: FRED, U.S. Department of Agriculture (USDA), and U.S. Bureau of Labor Statistics (BLS). As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 14
- 15. Inflation will likely be tame globally during next five years Average Annual Inflation Rate: 2012 to 2016 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Represents forecasted average annual inflation from 2012 to 2016. There is no guarantee the levels if inflation highlighted will materialize. Sources: IHS Global Insight, RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 15
- 16. Interest rates expected to remain stable Long term interest rates* 2012f 2016f 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% *f=forecast. There is no guarantee forecast rates will materialize. Sources: IHS Global Insight, RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 16
- 17. Global transaction volume Global Transaction Volume U.S. $ in Billions United States AsiaPac EMEA Global Average $140 $120 $100 $80 $60 $40 $20 $0 2007 2008 2009 2010 2007 2008 2009 2010 2011 2011 Source: Real Capital Analytics. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 17
- 19. Vacancy rate forecasts: 2012 - 2016 National U.S. Vacancy Rate Trends Forecast Forecast Forecast Forecast Forecast 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f Apartment 6.8% 8.2% 6.7% 5.3% 4.5% 4.1% 4.0% 4.8% 5.4% Industrial 11.8% 14.3% 14.3% 13.5% 12.3% 11.1% 10.3% 10.2% 10.2% Office 14.2% 16.6% 16.5% 16.1% 15.5% 14.2% 12.6% 12.0% 12.3% Retail 8.7% 10.3% 10.7% 10.8% 10.3% 9.6% 9.3% 9.0% 9.1% f=forecast. There is no guarantee the forecast vacancy rates shown will materialize. *Office properties experienced higher vacancy rates during the 1990’s downturn, but all other properties hit historical highs. Forecasts are of the market and not of a RREEF Real Estate product. Sources: REIS , CBRE-EA (history), RREEF Real Estate (forecast). As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 19
- 20. U.S. average rent growth in sum of markets surveyed, by sector Rent growth from market peak: office to outperform in the longer term Apartments - NNN Industrial Office CBD - NNN Office Suburban - NNN Retail Sector* 2011 2012 2013 2014 2015 2016 Forecast Period 160 Apartments 5.8% 4.9% 5.9% 4.6% 2.9% 1.8% 150 Industrial 0.6% 2.6% 5.7% 6.9% 5.8% 4.3% Office-CBD 1.0% 1.6% 4.9% 8.1% 7.8% 4.4% 140 Office-Suburb 1.1% 1.2% 3.7% 6.9% 7.4% 4.4% 130 Retail 0.5% 1.5% 4.0% 3.5% 3.5% 3.0% 120 NNN Equivalent Growth Apartments 7.7% 6.2% 7.6% 5.7% 3.3% 1.7% 110 Office CBD 0.3% 1.4% 6.9% 12.0% 11.1% 5.6% 100 Office Suburb 0.5% 0.7% 4.8% 10.0% 10.6% 5.7% 90 CBD office will be top performer 80 Retail will lag 2007 2008 2009 2010 2011 f 2012 f 2013 f 2014 f 2015 f 2016 Apartment growth will recede f=forecast 2011 = 100 *Industrial and Retail are forecast on a NNN basis (“NNN” – tenant pays for all property taxes, insurance, and building maintenance). Apartments and Office are forecast based on Gross Rents, and these are converted to NNN equivalent , assuming 2% per year expense increases, for consistency in comparison across sectors . Data represents the unweighted average of markets surveyed by RREEF. Past performance is not indicative of future results. There is no guarantee the forecast rates shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 20
- 21. After 2012, rent growth in the office sector should match the retail sector in Europe European Aggregate Rental Growth Rate (%), 2011 - 2016 Logistics Office Shopping Centre 115 110 105 100 95 90 85 80 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f f=forecast Forecasts are of the market and not of a RREEF Real Estate product. There is no guarantee the forecast rates shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 21
- 22. Asian rent growth like to be rapid, but more so in industrial and retail sectors Asia- Pacific Aggregate Rental Growth Rate (%), 2007 - 2016 Office Retail Industrial 130 125 120 115 110 105 100 95 90 85 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f f=forecast Forecasts are of the market and not of a RREEF Real Estate product. There is no guarantee the forecast rates shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 22
- 23. Global office return metrics 7.0% U.S. Europe Asia 6.0% 5.0% 4Q11 Office Yield Premium 4.0% 3.0% 2.0% Beijing, Shanghai 1.0% 0.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Average Office NOI growth 2012 – 2016f f=forecast Forecasts are of the market and not of a RREEF Real Estate product. There is no guarantee the forecast shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 23
- 24. Global retail return metrics 7.0% U.S. Europe Asia 6.0% Toyko 5.0% 4Q11 Retail Yield Premium 4.0% 3.0% 2.0% Beijing 1.0% 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% -1.0% -2.0% Average Retail NOI growth 2012 – 2016f f=forecast Forecasts are of the market and not of a RREEF Real Estate product. There is no guarantee the forecast shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 24
- 25. Global industrial return metrics 6.5% U.S. Europe Asia 6.0% 5.5% 5.0% 4Q11 Industrial Yield Premium 4.5% 4.0% 3.5% Beijing, Shanghai 3.0% 2.5% 2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Average Industrial NOI growth 2012 – 2016f f=forecast Forecasts are of the market and not of a RREEF Real Estate product. There is no guarantee the forecast shown will materialize. Source: RREEF Real Estate. As of February 2012. RREEF Real Estate – Global Strategic Outlook – 9 March 2012 25
Notas del editor
- Turing to slide 7, so on a trailing basis, the US outperformed, Europe was the low performer and Asia-pacific had a mix. Looking ahead, we still see the same relative performance on a total return basis with Asia-Pacific leading, followed by the US and then Europe. In addition, because we are looking at “global cities” which represent some of the more liquid markets, overall total returns have come in by roughly 100 bps. Last year, the US and Asia Pacific had a similar excess return of roughly 7.2%, while Europe trailed at 5.3%. This year, the US has an expected excess return of 6.6% which is higher than APAC at 6.1% and Europe trails at 4.4%. So there’s this trade-off between income yields and growth. So all things being equal, the US deserves at least a neutral weight similar to last year, but with higher income yields and solid growth prospects in the short run, I’d recommend moving it to a slight overweightBased on invested stock, the weights are APAC at 31%, Europe 37% and US 32%. In percentage terms, it suggests the US and APAC at closer to 34% each and Europe closer to 30%-32%.Within each region,
- Relative to a year ago, the spreads have increased with the exception of Spain which saw spreads narrow and sovereign rates increased.Hong Kong to me represents a risk. Certainly is has some very strong fundamentals, yet we are projecting that vacancy rates climb. With initial yield spreads this narrow, it argues for caution.
- Longer term,Europe needs to manage it’s debt issues today because it’s population is older. In aggregate, Europe has roughly 67% of the debt outstanding which the US has.The US has time.With the exception of Japan, the debt issues in Asia-Pacific are significantly lower than the US or Europe. The risk for those countries is whether or not the US and Europe suddenly about face and start to save and pay down debt more. That would impair GDP growth in the region and raise their level of indebtedness to GDPIn the short run, this underscores why Europe is focused on Debt while the US is focused on growth.It implies that Europe will continue to save and pay down debt and limit investment initiatives. It suggests limited new construction and lower tenant demand, less inflation risk and total returns driven more so by income versus appreciation.