Invesco Real Estate House View H Global Market Outlook

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1 Invesco Real Estate House View H Global Market Outlook

2 Invesco Real Estate Global Research Team Global Asia Pacific Europe North America Timothy Bellman Head of Global Research Thomas Au Head of Research, Asia Pacific Christian Eder Director Mike Sobolik Head of Research, North America Sabrina Unger Catherine Chen Director Matthew Hall Director Nicholas Buss Senior Director Katherine Seamans Project Coordinator Jerry Song Vice President Guy-Young Lamé Director Parmesh Iyer Associate Director Jade Tan Julia Maurer Associate Joshua Bova Lauren van Aanholt Brock Lacy Joyce Galvan Associate Invesco Real Estate locations Atlanta Beijing Dallas Hong Kong Hyderabad London Luxembourg Madrid Milan Munich New York Newport Beach Paris Prague San Francisco Seoul Shanghai Singapore Sydney Tokyo Warsaw Cover image: Shanghai, China, at a high level greater clarity is emerging about differences in the regional real estate outlook. This document is for Professional Clients only in Dubai, Continental Europe (as defined in the important information), Ireland and the UK, for Qualified Investors in Switzerland, for Institutional Investors only in the United States, Australia and Singapore, and for Professional Investors only in Hong Kong and in Japan as defined under the Financial Instruments and Exchange Law of Japan. In Canada, the document is intended only for accredited investors as defined under National Instrument It is not intended 2 for and Invesco should Real not Estate be distributed House View to, or H1 relied 2018 upon Global by, Market the public Outlookor retail investors. Please do not redistribute this document.

Global real estate investment context H1 2018 Globally, economic growth is supporting real estate fundamentals Where we are: Synchronized economic growth is supporting demand.

3 Global real estate investment context H Globally, economic growth is supporting real estate fundamentals Where we are: Synchronized economic growth is supporting demand. Supply remains modest in most markets. The level and cost of leverage generally remains low. Real estate yields/cap rates are close to historic lows. Yet, spreads between real estate yields/cap rates and long-term government bond yields are in normal ranges. Risks abound, with potential for: Escalating trade wars to undermine growth. Monetary policy normalization to be destabilizing. Image: Despite global risks that cloud the outlook, a synchronized global economic expansion is underpinning real estate market fundamentals worldwide. What we intend to do: Be mindful of cyclical and secular trends. Emphasize bottom-up execution and asset selection. Target assets in long-term outperforming markets or submarkets, or markets in a strong cyclical upswing. Invest in assets benefiting from secular trends in demographics and technology. Invest in specialty sectors benefiting most from growing long-term demand. Tactically tilt towards Asia Pacific and the US in our unlisted global core portfolios. Invesco Real Estate House View H Global Market Outlook 1

4 Cyclical: Real estate yield/cap rate spreads over 10-yr government bond yields Real estate seems fairly priced, with spreads within normal bounds in most countries Yield/cap rate spreads over 10-year government bond yields Current spread Q Q avg. +/-1 Std. deviation basis points Sweden Spread above LTA Spread at LTA Spread below LTA Spain UK France Germany Note: Current spread is calculated as the spread between the Q yield/cap rate and the March 30, 2018, 10-yr bond rate. Countries are ordered from left to right by the difference between the current spread and the long term average (LTA). Spreads at LTA are within +/-25 bps of LTA. RCA yields/cap rates reflect properties $5 million or greater and include all asset classes, not just prime properties. Source: Invesco Real Estate using data from Real Capital Analytics and Macrobond as of March 2018 Japan Hong Kong Australia US Canada Singapore The yield/cap rate spread over long-term government bond yields is a metric to compare real estate and other asset classes. The average and range of spread varies by country, city and sector. Two-thirds of the time, spreads are within +/- one standard deviation of the average this is what we consider to be the normal range. If rental growth is expected, the spread is likely to be closer to minus one standard deviation; if not, it should be nearer to plus one standard deviation. In Q rising long-term government bond yields pushed spreads down, especially in the US where real estate pricing is supported by fundamentals and robust capital availability. In Europe, where bond rates remain exceptionally low, spreads are above the long-term average. In Asia Pacific, spreads are close to the longterm average in Hong Kong and Japan, modestly below average in Australia and significantly below average in Singapore where strong growth is anticipated. 2 Invesco Real Estate House View H Global Market Outlook

5 The real estate consequences of an escalating trade war Real estate fundamentals would be weaker and capital flows affected The post-war trend of globalization and free trade is now facing headwinds: The impact of the tariffs announced so far would likely be minor; much depends on the effect on confidence. Hence, the potential impact of a trade war on individual real estate markets and sectors remains unclear. In the meantime, simple, liquid investment structures are likely to be favored over illiquid assets. Both real estate market fundamentals and capital markets would be impacted: Cities with economies less dependent on trade would likely fare better. Local logistics and traditional industrial would likely do better than port logistics. In a flight to quality, domestic may replace international capital in buying prime assets in major cities. Potential implications Benign influence Negative influence Real estate fundamentals Real estate capital flows Large, closed economies Domestic cities Local logistics Traditional industrial Domestic tourism Open-end funds Domestic capital Gateway markets Prime Best asset pricing Small, open economies Trading cities Port logistics Retail International tourism Closed-end funds Cross-border capital Next tier markets Secondary All other pricing Invesco Real Estate House View H Global Market Outlook 3

6 Invesco Real Estate Global House View H Net operating income (NOI) growth is important, with regional differences emerging Global themes The total return outlook is stronger in Asia Pacific and the US; regional differences are now greater. There appear to be less region-specific risks; risks are now more global in nature. Generally, further yield/cap compression is not expected. NOI growth is an important focus; it is more broad-based in Asia Pacific and the US. In our unlisted global core portfolios, we have adopted a mild overweight to Asia Pacific and the US. Regional summary Asia Pacific Europe United States of America Outlook Fundamentals are improving amidst stronger economic growth conditions; we upgraded near-term rental growth. Current yield/cap rate spreads over government bond yields remain largely within historic long-term ranges. We expect pricing to be supported by stronger income growth prospects. Tactical allocation for global unlisted core strategies Prime rental growth is becoming more broad-based amidst stronger economic growth conditions in Continental Europe. A low inflation and interest rate environment is likely to support real estate pricing for two-three years. Delivering NOI growth remains the key; we plan to focus on submarket and asset-level attributes, long-term value creation and asset selection. Market returns are tapering off, but strong, embedded NOI is expected for the next twothree years. Tax law changes could drive enhanced short-term growth; as the cycle matures, we plan to focus on sectors with secular tailwinds. We plan to focus on relative pricing, long-term value creation and bottom-up execution and asset selection. Mild Overweight Underweight Mild Overweight 4 Invesco Real Estate House View H Global Market Outlook

7 Investment risks The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of the property is generally a matter of an independent valuer s opinion. Important information This document is for Professional Clients only in Dubai, Continental Europe, Ireland and the UK, for Qualified Investors in Switzerland, for Institutional Investors only in the United States, Australia and Singapore, and for Professional Investors only in Hong Kong and in Japan as defined under the Financial Instruments and Exchange Law of Japan. In Canada, the document is intended only for accredited investors as defined under National Instrument It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. Please do not redistribute this document. For distribution of this document, Continental Europe is defined Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain and Sweden. By accepting this document, you consent to communicate with us in English, unless you inform us otherwise. Source of all data is Invesco Real Estate, as of March 2018, unless otherwise stated. The views expressed herein are those of Invesco Real Estate professionals based on current market conditions and other factors and are not necessarily those of other Invesco professionals. The views expressed herein do not refer to any specific Invesco product. Target figures, where mentioned, are not the actual allocations of a specific Invesco product. Opinions and forecasts are subject to change without notice. Past performance is not a guide to future returns. This document contains general information only and does not form part of any prospectus. It is not an invitation to subscribe for shares in a fund nor is it to be construed as an offer to buy or sell any financial instruments. As with all investments, there are associated inherent risks. The information contained in this document may not have been prepared or tailored for any audience. It does not take into account individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. This should not be considered a recommendation to purchase any investment product. This does not constitute a recommendation of any investment strategy for a particular investor. Investors should consult a financial professional before making any investment decisions if they are uncertain whether an investment is suitable for them. You may only reproduce, circulate and use this document (or any part of it) with the consent of Invesco. This material may contain statements that are not purely historical in nature but are forward-looking statements. These include, among other things, projections, forecasts, estimates of income, yield and return. These forward-looking statements can be identified by the use of forward looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue, target, believe, the negatives thereof, other variations thereon or comparable terminology. All forward-looking statements included herein are based on information available on the date hereof and Invesco assumes no duty to update any forward-looking statement (except as required by law). They are based upon certain beliefs, assumptions and expectations, some of which are described herein. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Actual events are difficult to predict, are beyond the issuers control, and may substantially differ from those assumed. Accordingly, there can be no assurance that estimated returns or projections can be realized, that forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. You should not place undue reliance on these forward-looking statements. This document is issued in: Australia by Invesco Australia Limited (ABN ), Level 26, 333 Collins Street, Melbourne, Victoria, 3000, Australia which holds an Australian Financial Services Licence number Austria by Invesco Asset Management Österreich Zweigniederlassung der Invesco Asset Management Deutschland GmbH, Rotenturmstraße 16 18, 1010 Vienna. Belgium by Invesco Asset Management SA Belgian Branch (France), Avenue Louise 235, B-1050 Brussels, Belgium. Canada by Invesco Canada Ltd., 5140 Yonge Street, Suite 800, Toronto, Ontario, M2N 6X7, Canada. the Czech Republic by Invesco Real Estate s.r.o., Praha City Center, Klimentska 46, Prague 1, Czech Republic. Denmark, Finland, and Norway by Invesco Asset Management SA, 18, rue de Londres, F-75009, Paris, France. Dubai by Invesco Asset Management Limited, PO Box , DIFC Precinct Building No 4, Level 3, Office 305, Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority. France by both Invesco Real Estate Limited Paris Branch and Invesco Asset Management SA, rue de Londres, F-75009, Paris, France. Germany by Invesco Asset Management Deutschland GmbH, An der Welle 5, D Frankfurt am Main. Hong Kong by Invesco Hong Kong Limited 景順投資管理有限公司, 41/F, Champion Tower, Three Garden Road, Central, Hong Kong. Ireland by Invesco Global Asset Management DAC, Central Quay, Riverside IV, Sir John Rogerson s Quay, Dublin 2, Ireland, regulated by the Central Bank of Ireland. Italy by Invesco Asset Management SA Sede Secondaria, Via Bocchetto 6, Milan, Italy. Japan by 1) Invesco Asset Management (Japan) Limited, Roppongi Hills Mori Tower 14F, Roppongi, Minatoku, Tokyo ; Registration Number: The Director- General of Kanto Local Finance Bureau (Kin-sho) 306; Member of the Investment Trusts Association, Japan and the Japan Investment Advisers Association, and/or 2) Invesco Global Real Estate Asia Pacific, Inc., Roppongi Hills Mori Tower 14F, Roppongi, Minato-ku, Tokyo ; Registration Number: The Director-General of Kanto Local Finance Bureau (Kin-sho) 583; Member of the Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. Luxembourg by both Invesco Real Estate Management S.a r.l., President Building, Avenue JF Kennedy 37A, L Luxembourg and Invesco Asset Management SA, 18 rue de Londres F Paris, France. the Netherlands by Invesco Asset Management S.A. Dutch Branch, Vinoly Building, Claude Debussylaan 26, 1082 MD Amsterdam, Netherlands. Singapore by Invesco Asset Management Singapore Ltd, 9 Raffles Place, #18-01 Republic Plaza, Singapore Spain by Invesco Asset Management Sucursal en España, Calle Recoletos 15 Piso1, E Madrid, Spain. Sweden by Invesco Asset Management S.A. Swedish Filial (France), Stureplan 4c, 4th Floor, Stockholm, SE Stockholm, Sweden. Switzerland by Invesco Asset Management (Schweiz) AG, Talacker 34, CH-8001 Zürich, Switzerland. the UK by Invesco Real Estate, a division of Invesco Asset Management Limited, Portman Square, London, W1H 6LY, UK. Authorized and regulated by the Financial Conduct Authority. the United States of America by Invesco Advisers, Inc., Two Peachtree Pointe, 1555 Peachtree Street N.E., Atlanta, Georgia 30309, USA.

Invesco Real Estate Client Portfolio Managers North America Europe Asia Pacific Max Swango +1 (972) 715-7431 Max.Swango@invesco.com Simon Redman +44 20 7543 3584 Simon.Redman@invesco.

8 Invesco Real Estate Client Portfolio Managers North America Europe Asia Pacific Max Swango +1 (972) Simon Redman Kent Yang Kent.Yang@invesco.com De Juan Collins +1 (972) DeJuan.Collins@invesco.com Laler DeCosta +1 (404) Laler.DeCosta@invesco.com Tracey Luke +1 (415) Tracey.Luke@invesco.com Brooks Monroe +1 (972) Brooks.Monroe@invesco.com Walt Stabell +1 (713) Walt.Stabell@invesco.com David Wertheim +1 (972) David.Wertheim@invesco.com Sebastien Daguenet Sebastien.Daguenet@invesco.com Henrik Haeuszler Henrik.Haeuszler@invesco.com Andrew Hills Andrew.Hills@invesco.com Robert Stolfo Robert.Stolfo@invesco.com Linlin Chang Linlin.Chang@invesco.com Hideyasu Kato Hideyasu.Kato@invesco.com Regional offices North America Trammell Crow Center 2001 Ross Ave., Ste 3400 Dallas, TX 75201, USA Europe Portman Square House Portman Square London, W1H 6LY, UK Asia Pacific 41/F Champion Tower Three Garden Road Central, Hong Kong II-REHVG-COM-1 05/18 GL208

Invesco Real Estate House View

Invesco Real Estate House View European summary H1 2018 This document is for Professional Clients only in Dubai, Continental Europe, Ireland and the UK, for Qualified Investors only in Switzerland, for