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.
Why Sell With Urban Cool KC - Listing Presentation
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
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.