Global Market Perspective

Transcription

1 November 2017 Global Market Perspective JLL Global Research

2 Global Market Perspective 3 A solid 2018 in prospect, barring major geopolitical or macroeconomic shocks Global Economy 7 Global economy in best shape since the Global Financial Crisis Global Real Estate Health Monitor 10 Sydney, Chicago and Madrid lead office rental performance Real Estate Capital Markets 11 Investment activity resilient on strong demand; 2018 volumes likely to soften due to challenges deploying capital Capital Values and Yields 17 Office capital value growth rebounds, but prime yields diverge Corporate Occupiers 19 Talent, technology and flexibility Office Markets 21 Leasing activity is robust; rental growth exceeds expectations Retail Markets 32 Structural change leading to polarisation in performance Industrial Markets 34 Strong momentum as demand continues to surge ahead Hotels Markets 35 Transaction volumes decline despite investor confidence; hospitality sector performance strengthens Residential Markets 38 Rental growth softens in U.S. multifamily market Key Investment Transactions in Q Largest single-asset deals in London and Singapore Illustrative Office Occupational Transactions in Q Co-working operators are active 2

3 Late-Cycle Momentum Extends into 2018 A solid 2018 in prospect, barring major geopolitical or macroeconomic shocks As we move into the final quarter, 2017 is turning out to be a robust year for commercial real estate and, barring any major shocks, 2018 is set for more of the same. Office leasing markets continue to see expansionary activity and are expected to remain buoyant through Delivery of prime office space is anticipated to peak this year, providing more options for corporate occupiers. Meanwhile, the logistics sector continues to surge ahead with rental uplifts projected in both the U.S. and Europe next year. Investor demand for real estate is unabated with full-year 2017 investment activity on pace to match last year, although volumes are likely to soften marginally in 2018 due to a shortage of product and investors exercising late-cycle caution. Global Commercial Real Estate Market Prospects, 2018 Leasing, vacancy, development, rents and capital values relate to the office sector. Source: JLL, October investment activity on pace to match last year as investor demand stays strong Global transactional volumes in the third quarter of 2017 were virtually identical to levels in Q3 2016, bringing year-to-date volumes to US$464 billion, 1% higher than 2016 s first three quarters. In a quarter where investors had to cope with geopolitical tensions, an ambiguous legislative agenda in the U.S. and the prospect of rising interest rates, global real estate investment has been resilient, with levels still 23% higher than the long-run Q3 average. 3

4 The weight of capital seeking to access the sector is still significant and, despite being deep in the cycle, investors are actively looking for new ways to deploy funds. Global gateway markets remain liquid and occupier fundamentals are still supportive of investment activity. Given this, we expect 2017 transactional volumes to stay level with the US$650 billion we recorded last year. Even with an expanding weight of money targeting real estate, the challenges of deploying capital in a market short of product, combined with greater investor discipline and late-cycle caution, are likely to constrain volume growth next year and we predict that volumes will soften by 5%-10% in 2018 to around US$600 billion. Global office leasing activity is robust Office leasing activity has remained solid over the first nine months of 2017 and is up 3% globally on the same period of All three global regions have recorded an improvement in demand over Europe (+6%) has taken the lead on the back of employment growth and buoyant business sentiment, while the U.S. has witnessed a strong surge in demand in Q3 as supply options increase. Globally, we are on track to hit our original projections for the full-year 2017, with leasing volumes between 2%-5% higher than We forecast another good year for occupier demand in 2018, with annual volumes expected to be broadly stable on 2017 levels, supported by higher global economic growth and increasing supply options. Vacancy trending gradually upwards The global office vacancy rate increased marginally during Q to 12.0%. With the delivery of new offices projected to be at a relatively elevated level during 2018, vacancy is expected to edge up further, pushing above the 12% threshold by year-end 2017 and getting close to 12.5% by the end of Supply is trending upwards in both the U.S. and Asia Pacific, and by end-2018 regional vacancy rates are likely to reach 15.5% in the Americas (from 14.9% in Q3 2017) and 12.3% in Asia Pacific (from 11.1%). By contrast Europe, which has experienced yet another fall in vacancy rate to 7.6%, will probably see rates remain generally steady over the next 18 months. Office rental growth exceeds expectations Rents for prime offices across 26 major markets are growing at a healthy clip of 4% year-on-year, an improvement on the 2.7% recorded for the full-year With a projected uplift of 4% for the full year, it looks likely that office rental growth in 2017 will be double our expectations at the beginning of the year, when we were predicting no more than 2%. Momentum is expected to continue into 2018 at an annualised rate of about 3%. 4

5 Rental change (y-o-y %) Rental Growth for Prime Offices, % 8.0% % 0.9% 3.6% 4.0% 2.7% 4.0% 3.0% F 2018F Unweighted average of 26 markets Source: JLL, October 2017 Polarisation of performance in global retail markets Structural change in global retail markets, driven by e-commerce, the rise of technology and changing consumer spending patterns, continues to lead to widely varying performance within the sector. Retailers are increasingly exploring options to manage their lease liabilities, including the introduction of smaller store formats or the negotiation of more break options. Many major markets in the U.S. are moving to their cyclical peak as restrained construction keeps rents inching upwards, while net absorption softens as quality space becomes harder to find. Despite an increase in consumer sales in Europe driven by record levels of employment, prime rents remain stable in most markets. In Asia Pacific, there is a focus on experience as F&B operators continue to open new outlets. Logistics markets continue to surge ahead Strong momentum in global logistics markets was maintained during the third quarter of 2017 as robust demand outpaced new supply, putting upward pressure on rents. Spurred by an increase in absorption and persistently low market vacancy, U.S. industrial rents edged up further to reach a new all-time high. In Europe, take-up is on course for a record-setting level in 2017, while the regional vacancy rate is projected to fall to a new cyclical low by year-end. Supported by the recent uplift in trade performance, rents have inched up further in most markets across Asia Pacific. Going forward, we expect rents to face more upward pressure due to a lack of available inventory and continued vigorous leasing demand. Hotel transaction volumes lower despite investor confidence Solid economic fundamentals coupled with promising hotel performance have helped strengthen investor confidence in the international hotel market. However, the lack of properties available for 5

6 sale in key markets has contributed to a decline in global hotel transactions volumes, which totalled US$38.1 billion over the first nine months of 2017, down 17% from the same period last year. The investment landscape is being driven by an increasingly diverse group, with institutional investors and Asian capital now growing their footprints in the hotel market. Rental growth softens in U.S. residential apartments despite sustained demand Demand for U.S. rental apartments remains solid heading into the final months of 2017 with absorption firming during Q At the same time, a substantial supply wave is gradually increasing vacancy rates from very low levels and moderating rental growth significantly. In the third quarter, national annual rental growth softened to 2.4% having steadily declined from 2016 s year-end figure of 3.3%. Institutional investment remains strong in most continental European markets, with sales momentum picking up pace in Germany, while the Netherlands is set for record volumes in The UK institutional market is expected to grow rapidly as a significant pipeline of build-to-rent properties currently under construction are delivered. In Asia Pacific, a restrictive policy environment and limited supply have continued to dampen sales volumes in Shanghai. New launches have boosted sales in Hong Kong, while a further improvement in market sentiment is underpinning a solid recovery in Singapore. 6

7 Global Economy Global activity remains robust After a strong start to the year, the global economy has seen momentum maintained over the summer. This is despite some mid-year headwinds, notably the severe hurricane season in the Americas. In broad terms, sentiment indicates the strongest global conditions for several years, though the pace of recovery remains slower than in the past and concerns about potential risks persist. In Europe, politics rather than economics still dominates. German elections delivered a fourth term for Angela Merkel, but with a reduced majority. This will distract the Chancellor from Eurozone reforms, as favoured by the new French president. More worrying, an illegal referendum in Catalonia and the imposition of direct rule that followed have brought an unexpected political crisis in Spain. Behind the headlines, the Eurozone recovery continues to build and forecasts have edged higher this quarter with no signs of a drag yet from the strong euro. This is in stark contrast to the UK, which received another downgrade. Part of this was a technical adjustment after data revisions, but it also reflects concerns about the progress of Brexit negotiations and the Bank of England tightening interest rates earlier than expected. There was a slight dent to U.S. prospects from Hurricanes Harvey and Irma in the third quarter, though it is not set to be reflected in reduced growth for the year. Underlying this temporary disruption is a sustained healthy expansion in domestic demand, albeit that income growth remains modest. Manoeuvring has continued on the fiscal front and there is still a chance that a stimulus package will be passed for Asian markets had a mixed quarter. China s performance was stronger than expected and the growth outlook for the year has improved. Japan too has seen growth predictions edge higher thanks to robust investment and export levels. By contrast, the largest downgrade in the major economies was witnessed in India, after weaker-than-projected H1 data and more subdued export prospects. GDP Projections for 2017 in Major Economies Recent Movements Australia China France Germany India Japan UK U.S. July October 2017 (Latest) Change (bps) Source: Oxford Economics, October

8 Central Banks plan re-normalisation The Federal Reserve has made no further rate moves since its June rate hike, although another increase is anticipated for late 2017 or early next year. Despite subdued underlying inflation, Fed gradualism is expected to continue into the medium term. Meanwhile, Chair Yellen has announced that the Fed will begin to sell off its huge stocks of bonds in Q This re-normalisation like the QE that preceded it, is unprecedented. But the plan is cautious and has been well signalled, so it is not likely to cause disruption to global markets. Other central banks are not as far advanced in their monetary tightening; however, they are also looking forward. The ECB has recently announced a taper to its QE efforts, which began much later than the Fed. The expectation is that the ECB s programme will not be wound down before at least end-2018, which hints that interest rates could start to rise the year after. Much will depend on the euro s fortunes and the resilience of the Eurozone recovery. In contrast, the Bank of England s Monetary Policy Committee surprised markets with a rate rise in November, despite softer activity data. This may be a one-off gesture, reversing the emergency cut of last year. The current UK spike in inflation relates to the slump in sterling after the EU referendum and should soon ease, while other factors point to limited pressure. World expansion hits its stride (at last) The last quarter has not seen the same upside momentum as in H1, but the global recovery remains on track. After a half-decade of patchy, below-trend growth this is a major development, especially since sentiment suggests that risks may be shifting to the upside. What is important here is that developed and emerging markets are expanding together for the first time since the last recession. Asia Pacific will continue to be the world s most dynamic region. In China, government efforts have reversed the slowdown with GDP growth predicted to stabilise at just below 7% this year. Although there will be upside risks after a strong H1, the long-established trend of deceleration is set to resume thereafter. India led Asia s upturn last year, but the economy has faltered since with demonetisation and tax changes combining with export weakness; even so, long-term potential remains. Although Japan s fortunes have improved, its expansion is expected to stay locked in the 1%-2% range of recent years. The European recovery is still on course for a post-gfc high in In the core, accommodative policy, solid domestic demand and reviving job creation are driving activity. German growth is set to stabilise at 2% over the next two years, while France sees further improvement. Elsewhere, Brexit has reversed the growth rankings, with the UK falling well behind its neighbours during the transition. Although the UK s slowdown is mild, activity hits a five-year low in and there is downside potential if EU negotiations continue to be antagonistic. A year on from the U.S. elections, the promised acceleration in growth has not materialised. This is not surprising given weaker underlying productivity and demographic growth, as well as delays with the fiscal stimulus. The U.S. growth trajectory continues to be firmly sub-3% over the next two years, but modest near-term progress is in prospect, although much will depend on the actual form a prospective fiscal stimulus package takes. 8

9 Global Outlook, GDP Change, Global Asia Pacific Australia China India Japan Americas U.S MENA Europe France Germany UK Source: Oxford Economics, October

10 Global Real Estate Health Monitor Economy Real Estate Investment Markets Real Estate Occupier Markets City Metro City Investment Capital Area Investment Volumes Value Prime Yield Rental Net Vacancy Supply GDP Volumes Change Change Yield Gap Change Absorption Rate Pipeline Beijing 7.3% % 1.7% 6.2% % 6.0% 5.6% 16.7% Boston 2.9% % -7.3% 4.1% % 0.8% 13.7% 1.5% Brussels 1.7% 2.2-8% 15.2% 4.5% % 2.5% 8.6% 3.0% Chicago 1.5% % 1.7% 5.2% % 0.5% 16.8% 1.9% Dubai 2.2% % 0.0% 7.5% na 0.0% na 14.0% 2.2% Frankfurt 2.4% % 31.2% 3.3% % 0.3% 8.2% 4.0% Hong Kong 3.5% % 24.8% 2.8% % 0.1% 5.1% 4.3% London 1.8% % -4.3% 3.5% % 0.6% 4.9% 6.7% Los Angeles 2.2% % 1.1% 4.3% % 0.7% 14.7% 0.1% Madrid 3.7% % 17.1% 3.8% % -2.3% 10.9% 1.4% Mexico City 3.4% % -4.2% 7.6% % 4.4% 16.0% 9.8% Milan 1.7% 3.1 8% 22.7% 3.8% % 0.1% 13.5% 2.6% Moscow 1.6% % 5.0% 10.0% % 1.8% 15.0% 6.0% Mumbai 7.2% % 0.6% 9.6% % 5.8% 16.7% 13.7% New York 1.2% % -2.3% 3.6% % 0.1% 10.2% 2.7% Paris 1.8% % -3.2% 3.0% % 0.7% 6.7% 4.5% San Francisco 3.7% % -8.2% 3.8% % 0.1% 8.2% 5.4% Sao Paulo -0.3% % 2.2% 9.5% % 1.8% 25.4% 4.9% Seoul 2.3% % -4.9% 4.4% % 4.4% 11.5% 4.8% Shanghai 6.9% % 0.4% 5.7% % 12.5% 17.9% 22.2% Singapore 2.7% % 5.3% 3.5% % 2.3% 11.9% 2.5% Stockholm 4.1% % 17.5% 3.5% % 0.9% 7.7% 2.5% Sydney 1.8% % 18.7% 4.9% % 0.8% 6.6% 2.9% Tokyo 1.3% % 3.2% 2.9% % 3.1% 3.0% 13.4% Toronto 3.8% % 14.6% 4.3% % 1.7% 9.7% 1.3% Washington DC 1.8% % -1.7% 4.5% % -0.1% 17.1% 2.9% Real estate data as at end Q See page 48 for definitions and sources. 10

11 Real Estate Capital Markets Investment Volumes Despite geopolitical uncertainties, investor demand for real estate stays strong Global transactional volumes were unchanged in the third quarter of 2017 compared to the same period a year ago, coming in at US$165 billion. This brings year-to-date 2017 volumes to US$464 billion, 2% higher than the first three quarters of In a quarter where investors had to cope with geopolitical tensions, an ambiguous legislative agenda in the U.S. and the prospect of rising interest rates, global real estate investment has been resilient with levels still 23% higher than the long-run Q3 average. Declining activity in the U.S. drags on the Americas Investment activity in the Americas declined for the third successive quarter as the U.S. market continues to cool. Third quarter volumes are down 20% from Q3 last year, bringing year-to-date investment to US$184 million, 11% down on the same period in Much of this decrease came from the U.S. where Q3 transactional volumes fell 23% to US$55 billion and year-to-date volumes dropped by 15% to US$165 billion. While Mexico saw volumes decline by 11% over the first nine months, both Brazil and Canada managed to better their performance from last year with volumes in Canada up 31% year-to-date to US$14 billion, their highest such level on record. Europe pushes ahead thanks to strong performances in Germany and the Netherlands European capital markets remain active as third quarter investment volumes expanded by 24% relative to last year. This brings year-to-date volumes to US$183 billion,14% higher than the same period a year ago. The German and Dutch markets have continued to perform with investment rising by 9% and 115% respectively over the first nine months of the year and both reaching cyclical highs. These gains have been balanced by falls in France (-17%), Sweden (-17%) and Poland (-8%), all unable to maintain last year s pace. The UK s quarterly and year-to-date volumes are up 97% and 28% respectively in a bounceback from a year marred by Brexit uncertainty, with Q3 activity only 4% lower than the average in the three years prior to the vote to leave the EU. Robust activity in Singapore, Hong Kong and India keep Asia Pacific on track Continued demand for property in Asia Pacific saw Q3 transaction volumes jump 5% compared to the third quarter of last year, bringing year-to-date volumes to US$97 billion, 12% higher than last year s nine-month total. After a sluggish start to the year, Singapore bounced back and registered its second best quarterly result on record to bring volumes over the first three quarters up 28% on the equivalent period in In Hong Kong, a flurry of activity from domestic investors helped boost Q3 volumes by double digits, bringing year-to-date investment up 17%. Similarly, strong domestic trading in China has year-to-date volumes up 11%. Japan was unable to better its third quarter performance from 2016 but, thanks to an impressive start to the year, volumes are still up 3% compared to the first three quarters of last year. Year-to-date activity in Australia is up 5% after a strong third quarter and a mega-deal in India has brought investment to its highest level on record. 11

12 US$ billions 2017 investment activity still on pace to match last year Political concerns remain front and centre as we move into the final quarter of From Korea to Catalonia, investors have reason to be cautious as geopolitical tensions persist around the world. Meanwhile, the Fed has confirmed that it will begin to normalise its balance sheet after years of asset purchases. Moreover, market expectations for an additional rate hike by the end of the year are rising steadily thanks to forward guidance from central bankers. With the prospect of higher interest rates on the horizon, some investors may be rethinking their strategies. Despite these challenges, global commercial real estate is poised to continue its strong performance. The weight of capital seeking to access the sector is still significant and, despite being deep in the cycle, investors are actively looking for new ways to deploy funds. Global gateway markets remain liquid and occupier fundamentals are still supportive of investment activity. Given this, we expect 2017 transactional volumes to keep level with the US$650 billion we recorded last year. Investors accessing real estate through multiple channels Even with an expanding weight of money targeting real estate, we project that investment volumes will soften by 5%-10% in 2018 to around US$600 billion. The challenges of deploying capital in a market short of product, combined with greater investor discipline and late-cycle caution are likely to constrain volume growth next year. This evolution in capital markets will drive investors to consider new strategies, with less emphasis on traditional single-asset transactions and a greater focus on new channels such as entity-level deals, recapitalisations and debt financing. Direct Commercial Real Estate Investment, (F) 2018 (F) ~0% -5-10% % -15% +10% -10% ~0% +5% Americas EMEA Asia Pacific Global xx% Projected change xx% Projected change Source: JLL, October

13 Direct Commercial Real Estate Investment Regional Volumes, Source: JLL, October 2017 Direct Commercial Real Estate Investment Largest Markets, Source: JLL, October

14 Regions in focus Americas investment volumes trend down on slower U.S. sales Continuing a trend, sales transaction volumes across the Americas in the third quarter declined to US$62 billion, down 20% from Q For the year-to-date 2017, total volumes are at US$184 billion, 11% lower than the same period in These decreases are being driven by the U.S. market, where third quarter activity was down 23% to US$55 billion, and year-to-date volumes fell 15% to US$165 billion. Behind the weakening of U.S. transactional activity are shifts in the marketplace as the investment cycle matures and some investors become more cautious with respect to asset selection as latecycle strategies are refined. In addition, traditional balance sheet lenders are maintaining a disciplined stance as they tighten loan standards in response to the prospect of softening fundamentals on supply concerns and late-cycle risks. Conversely, some secondary markets and value-add investment plays as well as recapitalisations and other more highly structured financing deals are garnering greater interest from capital sources. Elsewhere in the region, Canada attracted increased investment in Q3 as transaction volumes grew 11% year-on-year to US$4.7 billion. In Brazil, investors are anticipating further improvement in the economy, reflected in volumes surging ahead to approximately US$1.5 billion over the third quarter. Meanwhile, in Mexico, investment slumped during Q3 2017, bringing volumes 11% lower for the year-to-date period. The rest of 2017 is expected to see a continuation of historically high investment activity in the Americas region, although incrementally falling from the cyclical peak levels reached in This will be driven by the U.S. experiencing a deceleration in conventional single-asset transactions as both the investment and leasing cycles mature. For the full-year 2017, total investment volumes in the Americas are projected to decrease by 10% from 2016 levels, and this deceleration in activity will continue into next year, with a further 15% fall forecast for EMEA transaction activity continues to increase in Q EMEA investment volumes rose by 24% year-on-year to US$69 billion in Q This has brought total investment over the year-to-date to US$183 billion, a 14% increase on the same period last year. The region is on track for full-year volumes to exceed 2016 levels by as much as 10%. The UK had a robust Q3 with investment volumes virtually double year-on-year to US$22.5 billion, pushing year-to-date levels up 28% on While investment is still below 2014 and 2015 levels, the UK is now in recovery mode following a post-referendum dip in After a very strong 2016 and start to 2017 in Germany, there are signs that investment activity is plateauing with Q3 volumes, at US$13.9 billion, representing an 11% annual drop. Year-to-date volumes are nevertheless up 9% on Although investment trading in France over the first nine months of 2017 has been rather sluggish (17% lower than in the same period last year), sentiment continues to be positive and we expect transactions to pick up in Q4. 14

15 Nordics and Benelux outperform, while CEE and Southern Europe are resilient The Nordic markets saw an annual increase in investment volumes of 76% in Q3 2017, and a 22% rise over the first nine months of the year compared to the same period in The Benelux region also outperformed with volumes 68% higher over the first three quarters, supported by a 115% rise in the Netherlands. Elsewhere in Europe, transactional activity in Central and Eastern Europe (CEE) remained resilient and was up 21% over the year-to-date. Investment activity in Southern Europe also continued to rise, increasing by 21% over the year-to-date period even after taking into account softer trading in Q3 in Spain (-24%). London stays on top as Los Angeles overtakes New York Investment volumes in London jumped 95% year-on-year in Q as it rebounded from last year s lows, contributing to a rise of 48% over the year-to-date, overtaking the 2016 full-year total. Los Angeles climbed into second place with volumes up 10% to their highest level on record for the first nine months, displacing New York, where transactional activity fell by 58%. North American markets continued to account for the majority of leading cities with Boston, Atlanta and San Francisco bucking the national trend and registering higher volumes over the first three quarters. In Europe, Berlin has emerged as a hotspot for cross-border investment and has posted its strongest quarter on record to push investment over the year-to-date up 114%. Direct Commercial Real Estate Investment, Top 20 Cities, YTD 2017 Source: JLL, October 2017 Investment volumes rise in Asia Pacific Investment volumes across Asia Pacific in the first nine months of 2017 have come in at US$97 billion, up 12% from the same period a year ago and on track to reach our annual forecast of US$130 billion, with a further 5% growth in prospect for next year. Cross-border investment volumes have remained healthy in the year to date, accounting for 30% of total deal volumes. Inter-regional purchasers continue to be active, particularly in India, China and Australia, representing one-third of all cross-border purchaser trading in the first nine months of

16 Domestic buyers continue to dominate in Japan Japan recorded US$6.9 billion of transaction volumes in Q3 2017, down 20% year-on-year, in part due to fewer large deals. Domestic buyers dominated the market in the quarter, accounting for over 80% of deals, although offshore investors maintained their interest. J-REITs and their sponsored companies remained active with their strong purchasing power and represented close to 30% of total transactional activity in Q transaction volumes (in yen terms) are likely be similar to or slightly exceed this year s level as more owners believe it is now a good time to sell with yields near to bottoming out. Offshore buyers outpace offshore sellers in Australia Investment volumes in Australia came in at US$6.8 billion in Q3 2017, 18% stronger than the previous year s third quarter. A significant proportion of demand originated from offshore capital sources, with cross-border buyer activity making up one-third of Australia s total deal volumes during the quarter. We expect deal availability to increase in the next 12 months as more owners are willing to divest in view of strong pricing in the current phase of the market cycle. Chinese buyers cautious in view of corporate deleveraging and government scrutiny China registered US$8.4 billion of transaction volumes in Q3 2017, about 14% lower year-onyear. Domestic investors generally refrained from high-profile purchases before China's Party Congress in October, and banks became more cautious with their lending. Looking ahead, the investment market is likely to remain stable as domestic money will aim to invest locally following the government s capital outflow restrictions. On the other hand, domestic developers may be more cautious in deploying capital as a result of the ongoing deleveraging efforts in the corporate sector as well as increased government scrutiny into deals. Direct Commercial Real Estate Investment Quarterly Trends, Source: JLL, October

17 Asia Pacific Americas Europe Capital Values and Yields Further appreciation in office capital values Capital value growth for prime assets across 26 major office markets has rebounded to 5.6% in the year to Q3 2017, the strongest growth in a year, reflecting an acceleration in income growth. Yearend capital value growth is expected to be maintained at the 6% level, exceeding our projections at the beginning of the year. Eight of the 26 major office markets have recorded double-digit capital value growth over the past year, a result of steady income growth and further yield compression. Frankfurt (+31.2%), Hong Kong (+24.8%) and Milan (+22.7%), where yields have compressed by 50 bps or more, are the top office market performers. Divergence in direction of yields While prime office yields are stable on average across the 26 major markets, there is increasing evidence of divergence between the U.S. and much of the rest of the world. Over the past year, prime yields have decompressed by bps in U.S. gateway cities as markets move into a latecycle phase. By contrast, several European cities (e.g. Frankfurt, Moscow, Milan, Brussels, Madrid and Stockholm), as well as Hong Kong and Sydney, have registered further yield compression of 25 bps or more. Prime Office Yield Shift, Q Q Brussels Q Q Frankfurt London Q Q Madrid Milan Moscow Paris Stockholm Boston Chicago Los Angeles New York San Francisco Toronto Washington DC Sao Paulo Mexico City Beijing Hong Kong Mumbai Seoul Shanghai Singapore Sydney Tokyo Basis point change Source: JLL, October

18 Prime Offices - Projected Change in Capital Values, 2017 and % Frankfurt, Hong Kong 10-20% Stockholm, Milan, Sydney Brussels, Moscow Moscow, Sao Paulo 5-10% Toronto, Singapore, Madrid Toronto, Singapore, Sydney 0-5% 0-5% Mumbai, Tokyo, Dubai, Chicago, New York Los Angeles, Washington DC, Sao Paulo, Paris, Shanghai Beijing, Boston, San Francisco, Mexico City, London, Seoul Madrid, Brussels, Hong Kong, Dubai, Boston Chicago, Los Angeles, New York, San Francisco Frankfurt, Shanghai, Mumbai, London, Tokyo Paris, Milan Seoul, Beijing, Washington DC 5-10% Stockholm, Mexico City New York Midtown, London West End, Paris CBD, Dubai DIFC. Nominal rates in local currency. Source: JLL, October 2017 Prime Offices Capital Value Change, Q Q Frankfurt Hong Kong Milan Sydney Stockholm Madrid Brussels Toronto Singapore Moscow Tokyo Sao Paulo Beijing Chicago Los Angeles Mumbai Shanghai Dubai Washington DC New York Paris Mexico City London Seoul Boston San Francisco Americas EMEA Asia Pacific % change Notional capital values based on rents and yields for Grade A space in CBD or equivalent. In local currency. Source: JLL, October

19 Corporate Occupiers Corporate occupiers around the world appear to be continuing on a path of cautious expansion alongside increased demand for workplace flexibility. With leasing activity up in all three global regions, we expect the year to close with growth in gross absorption despite the sustained push for smart efficiency in portfolios. Three defining themes for occupiers globally: Talent: Tightening employment conditions across North America and Western Europe have many companies realising that their workplaces can be a key differentiator in the battle for talent. This has led to increased corporate efforts around sustainability, as well as health and wellness in the workplace. Such efforts are also driving capital investment from landlords, who are discovering that building amenities which were once optional are now mandatory if they want to attract the most discerning employers and employees. Technology: The transformation of building operations and facility management due to technological innovation is just beginning to take shape, and the pace is accelerating rapidly. As the Internet of Things (IoT) allows building systems and services to be automated and connected, the ability to improve occupier service quality, while reducing cost, is increasing dramatically. Flexibility: The demand for portfolio flexibility, in response to the ever increasing speed of business change, is partially responsible for the expansion of the co-working industry over the past several quarters. JLL estimates that fully 30% of all commercial office space will have some flexible component by the year 2030, and the robust growth of the co-working space over the past year validates this trend. These themes concur with statements made in previous Global Market Perspectives that the human experience is now driving corporate real estate strategy. It is clear that a more intense focus on talent and productivity within corporate real estate portfolios is linked to an increasing emphasis on employee experience. 19

20 Global Office Market Conditions Matrix*, Chicago Brussels Beijing Los Angeles Frankfurt Hong Kong New York San Francisco London (West End) Madrid Mumbai Shanghai Toronto Washington DC Moscow Paris Singapore (CBD Overall) Sydney Mexico City Sao Paulo Stockholm Dubai Tokyo (CBD 5-kus) Tenant Favourable Neutral Market Landlord Favourable *Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: JLL, October

21 Office Markets Office Demand Dynamics Global office leasing activity is robust Office leasing activity has remained solid over the first nine months of 2017 and is up 3% globally on the same period in All three global regions have recorded an improvement in demand over Europe (+6%) has taken the lead on the back of employment growth and buoyant business sentiment, while the U.S. has seen a strong surge in demand in Q3 as supply options increase. Globally, we are on track to hit our forecasts for the full-year 2017 at levels 2%-5% higher than We project another good year for occupier demand in 2018, with annual volumes expected to be broadly stable on 2017 levels, supported by higher global economic growth and increasing supply options. Sub-regional/country divergence Healthy improvements on 2016 levels have been recorded in Southern Europe (+25% yearto-date) and China s Tier 1 Cities (+22%). The UK has also registered a step-up of 26% during the year, but from a particularly low base in Volumes remain firm in India (+8%), South East Asia (+6%) and Core Europe (+4%), where demand growth is led by Germany (+7%) and the Netherlands (+24%). Year-to-date 2017 leasing volumes have been generally steady in the United States (+2%) and Japan (-2%). Leasing volumes are well down in Australia (-14%), but this is off exceptional levels in Leasing volumes at elevated levels across most of Europe Third quarter take-up in Europe stands at 3.1 million square metres. This is 7% higher than Q and ahead of our initial forecast at the start of the year. Leasing volumes continue to be elevated across most of Europe, but there is increasing evidence of corporates struggling to fulfil their requirements, especially in the Grade A segment. The increase in development activity is providing corporates with some much-needed additional supply, and pre-letting activity has boosted take-up in Europe s tightest office markets: Take-up in London in Q3 rose significantly (+41% year-on-year) with activity boosted by a handful of large transactions. Overall office demand was strong in Q3, with London West End recording its highest quarterly leasing volume on record. In Greater Paris, take-up has reached 1.8 million square metres in the first nine months of 2017 (2% higher than the same period in 2016), with good momentum for larger units over 5,000 square metres, as well as in areas outside the Paris core. 21

22 In Germany the Big 5 office markets showed no signs of weakening, with third quarter take-up increasing by a further 5% year-on-year. Berlin (+12%) and Munich (+8%) saw steady increases, while Frankfurt posted one of the strongest quarters in the last 10 years. Expansionary demand across Europe continues to strengthen and we have increased our full-year 2017 forecast by +3.5% to 12.2 million square metres (11% ahead of the 10-year average). U.S. leasing volume surges as new and second-generation blocks open Tenants in the United States find themselves with increased options entering the final months of U.S. leasing volumes totalled 5.8 million square metres in Q3, the highest level in more than two years on the back of an increase in large-block availabilities across asset classes. Tenants continued to expand, even as talent shortages intensified across gateway markets, and strong occupancy growth in Q3 reversed a recent slowdown, in terms of net absorption. Dallas and Seattle continue to lead absorption, claiming greater than 35% of all U.S. growth year-to-date. Meanwhile, second-tier cities, such as Indianapolis, Nashville and San Antonio, are heading the uplift in leasing volumes in Office market in Canada continues improvement The Canadian office market recorded 71,000 square metres of net absorption in Q3, with a sturdy demand for space. As a result, total vacancy dropped 20 bps to hit 11.9%. Vancouver, Toronto and Montreal remain key drivers for occupancy growth with significant demand from the financial sector, technology and business services. Sound fundamentals underpin Asia Pacific leasing demand Overall leasing activity edged up 3% year-on-year in Asia Pacific in Q3. Tech firms and financials continue to stand out, while co-working operators are also actively leasing space. Delhi is still the regional leader for leasing volumes, with Tokyo and Manila also registering high volumes. Taipei and Seoul continue to see soft demand. Aggregate gross leasing for the four India Tier 1 cities in the third quarter climbed nearly 40% year-on-year. Broad-based demand has picked up the slack from IT/ITeS firms which are renewing and consolidating to control costs. Delhi keeps its position as the outperformer supported by big-ticket transactions and strong pre-leasing of the large upcoming supply pipeline. Co-working operators are active in Bengaluru and Mumbai. In Japan, gross leasing volumes have risen substantially in Q3. Pre-commitments to upcoming supply are bolstering new leasing activity, with several large deals signed in the quarter. While year-to-date gross leasing volumes for the three China Tier 1 cities are 22% higher than the same period in 2016, third quarter volumes have disappointed, down 23% yearon-year, with activity lower in all three cities. New leasing fell slightly in Shanghai as many tenants remain cost cautious, opting for more affordable options in decentralised areas. In Beijing, tighter vacancy in core submarkets partly contributed to a decline in leasing volumes. 22

23 Projection Projection millions sq m Leasing volumes have dropped by 34% year-on-year in Australia, with all markets registering falls in Q3 except for Perth. New leasing is down in Melbourne, in part due to lower vacancy despite occupiers still being active, including signing pre-commitments. Low vacancy is also impacting gross leasing volumes in Sydney, with demand staying generally healthy. Overall third quarter leasing volumes have risen in Hong Kong despite fewer transactions. Decentralisation requirements bolstered volumes as several tenants pre-committed to high-quality upcoming buildings in non-traditional core office areas. Singapore is seeing generally stable market conditions but sentiment has improved amid optimism about the economy. Asia Pacific regional leasing volumes this year are likely to be at a similar level to 2016, with the potential to surprise on the upside as activity improves towards year-end. We expect relatively stable conditions next year, although there are some pockets of uncertainty about the 2018 outlook which present downside risks, such as possible headwinds in the IT sector in India. Global Office Demand Annual Gross Leasing Volumes, markets in Europe; 50 markets in the U.S.; 22 markets in Asia Pacific Source: JLL, October

24 Office Supply Trends Global office vacancy rate edges up to 12% and trending upwards The global office vacancy rate increased marginally during Q3 to 12.0%. With the delivery of new offices projected to be at a relatively elevated level during 2018, vacancy is expected to edge up further, pushing above the 12% threshold by year-end 2017 and getting close to 12.5% by the end of next year. Supply is trending upwards in both the U.S. and Asia Pacific, and by end-2018 regional vacancy rates are likely to reach 15.5% in the Americas (up from 14.9% today) and 12.3% in Asia Pacific (from 11.1% in Q3 2017). By contrast Europe, which has experienced yet another fall in vacancy rate to 7.6%, will probably see rates remain broadly stable over the next 18 months. Peak in global development cycle hides regional differences The global office development cycle is likely to have peaked this year at 17.6 million square metres (compared to over 19 million square metres at the peak of the last cycle in 2008). There are differences, however, between the three global regions: In the U.S., development is forecast to peak this year, with new completions falling off progressively between 2018 and New deliveries are now exceeding new groundbreakings in a sign that the construction cycle is turning. In Asia Pacific, peak development is likely to be next year, with high levels of completions anticipated in Shanghai, Delhi, Bengaluru, Mumbai and Tokyo. In continental Europe, development is now gearing up, with deliveries probably peaking in European office vacancy decreases to 7.6% European office vacancy continued to decrease in Q3, dropping by 20 bps to 7.6%. We expect vacancy to stabilise at between 7.5%-8.0% despite the development pipeline increasing in At around 5-6 million square metres a year, the pipeline remains well below the 7 million square metre plus levels witnessed in and active pre-letting should absorb the lion s share of new space. Across most of Europe, availability continues to shrink. The vacancy rate decline has been strongest in the CEE capitals (notably Warsaw, Prague and Budapest), as well as Amsterdam. Meanwhile, Dublin, Milan and Stockholm all saw minor increases in vacancy in Q3 on the back of new supply. An anticipated 5 million square metres of full-year completions predicted at the start of 2017 now looks unlikely, with completion dates of many planned schemes slipping into The 2018 development pipeline will be more significant, with the majority of the increase concentrated in London, Paris, Dublin and the CEE markets. 24

25 U.S. vacancy continues slow but steady rise New supply has hit the U.S. market in greater volumes than previously seen this cycle and tenants are giving back space upon relocation. As a result, vacancy in the U.S. rose by an additional 20 bps during Q3 to 15%, the fourth consecutive quarter of increase after years of steady decline. Vacancy will increase further in upcoming quarters as new deliveries outpace net absorption. No further major spikes in new construction starts are now expected this cycle, following the previous rapid uptick in starts during Ground-breakings were close to average for the cycle in Q3, with developers and lenders maintaining caution due to oversupply concerns. Development activity is projected to continue at a moderate pace, suggesting that long-term supply and demand are unlikely to become significantly unbalanced. Latin American markets deal with large development pipelines A cresting wave of new supply caused Mexico City s vacancy rate to increase 200 bps to 16% in Q3, and further increases are anticipated. Meanwhile, although it is not keeping pace with supply, demand for space remains solidly positive, a trend that is expected to continue. As Brazil s economic recover commences, the office market is near its low point. The overall vacancy rate has peaked in Sao Paulo at around 25%, and rental decreases are diminishing and close to reaching a trough is well positioned as the year in which the country s turnaround reaches the office market. Tenants still enjoy all the leverage in the market, however that may begin to gradually shift as the development pipeline quickly empties and more tenants aggressively look for space. Steady stream of new supply in Asia Pacific Asia Pacific s vacancy rate was stable in Q3 at 11.1%, despite a steady stream of new supply. Vacancy rates have continued to decline in more than half of the region s markets during the third quarter, with those in Hanoi and Guangzhou dropping the most. With a healthy level of new supply forecast by year-end, regional vacancy is anticipated to edge up, led by higher rates in markets such as Jakarta and Manila. 25

26 Global Office Completions, markets in Europe; 25 markets in Asia Pacific; 50 markets in the U.S. Asia relates to Grade A only. Source: JLL, October 2017 Office Supply Pipeline Major Markets, Covers all office submarkets in each city. Tokyo CBD - 5 kus Source: JLL, October

27 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Vacancy Rate (%) San Francisco Toronto New York Boston Los Angeles Mexico City Chicago Washington DC Sao Paulo London Paris Stockholm Frankfurt Brussels Madrid Milan Moscow Tokyo Hong Kong Beijing Sydney Seoul Singapore Mumbai Shanghai Office Vacancy Rates in Major Markets, Q Global 12.0% 30% 25% Americas 14.9% Europe 7.6% Asia Pacific 11.1% Quarterly movement Increased Decreased Stable 20% 15% 10% 5% 0% Regional vacancy rates based on 62 markets in the Americas, 24 markets in Europe and 25 markets in Asia Pacific. Covers all office submarkets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD 5 kus. Source: JLL, October 2017 Global and Regional Office Vacancy Rates, % % 14.9% Americas % 10.3% 12.0% GLOBAL 11.1% Asia Pacific 9 7.6% Europe 7 62 markets in the Americas, 24 markets in Europe, 25 markets in Asia Pacific. All grades except Asia and Latin America (Grade A only). Source: JLL, October

28 Office Rental Trends Rental growth exceeds expectations Rents for prime offices across 26 major markets are growing at a healthy clip of 4% year-on-year, an improvement on the 2.7% recorded for the full-year With a projected uplift of 4% for the full year, it looks likely that office rental growth in 2017 will be double our expectations at the beginning of the year, when we were predicting no more than 2%. Momentum is expected to continue into 2018 at an annualised rate of about 3%. Strong uplifts have been recorded in Sydney (+30.1% year-on-year) and Toronto (+9.5%). This duo should finish the year among the top global performers in Several U.S. cities have also registered robust growth, notably Chicago (+10.2%), although there is mounting evidence that primary U.S. office markets are approaching a rental peak. Among the larger European markets the leading rental performers on an annual basis include Amsterdam (+10%), Madrid (+9.8%), Stockholm (+9.7%), Brussels (+9.1%) and Milan (+7%), where supply constraints and healthy demand have boosted premium rents. Significantly, Singapore is bouncing back vigorously (up 4.9% quarter-on-quarter) and Hong Kong, the world s most expensive office market, continues to register uplift in its Central area. European Office Rental Index reaches record high The European Office Rental Index has risen by 0.5% quarter-on quarter, with 9 of the 24 Index markets seeing growth. As at Q the Index exceeded the previous record high dating back to Q3 2008, reflecting strong sentiment across most European office leasing markets. Germany is still headlining the European rental growth story with Berlin (+3.6%), Munich (+1.4%) and Frankfurt (+1.4%) all recording further quarterly uplifts as the markets tightened further. Dutch rental growth hotspots Amsterdam and Utrecht also continued to deliver growth. In London, prime rents remained stable in Q Letting conditions at the prime end of the market appear to have steadied and we have adjusted our prime rental forecast for 2017 and 2018 to stable, where we previously expected an additional 5% rental decline. In Paris, prime rents fell by 1.3% in Q3 2017, but this minor adjustment is not unusual for the French capital and does not reflect a change in the positive market sentiment witnessed over the past 18 months. Rental growth across Southern Europe also continued apace, with Madrid (+2.5%), Barcelona (2.2%) and Milan (1.9%) all registering quarterly growth as competition for Grade A prelettings heats up. In Central and Eastern Europe (CEE), prime rents in Warsaw seem to have bottomed out after decreasing by 8% since Q as new supply flooded the market. 28

29 As tight market conditions continue to put upward pressure on rents, we have adjusted our European rental growth forecast for full-year 2017 and 2018 to +3.1% and +1.9% respectively. U.S. rental growth maintains healthy pace, but off recent highs In the U.S., class A rental growth slowed by 120 bps in Q3, but remained firmly positive at 2.5% year-on-year. As recently delivered space continues to be taken off the market and lower-priced second-generation and sublease blocks become more prominent, rents are expected to stabilise. Overall rental growth edges up in Asia Pacific, in line with the previous quarter Asia Pacific rents increased by 1.1% quarter-on-quarter and 3.6% year-on-year in the third quarter, maintaining their steady pace of growth: The strongest quarterly growth was recorded in Singapore as landlords of high-quality buildings increased rents and some scaled back incentives, while Sydney maintained its position atop the annual growth ranking. Supply again pressured Shanghai rents, while domestic leasing activity provided a modest uplift to Beijing rents. In Tokyo, quarterly rental growth was flat again as landlords keep fixed on securing tenants ahead of a supply wave. A tight vacancy environment and ongoing demand from PRC firms pushed Hong Kong Central rents higher. Prime Offices Rental Change, Q Q Sydney Chicago Madrid Stockholm Toronto Brussels Milan Hong Kong Washington DC Los Angeles New York Singapore Frankfurt Tokyo Mexico City Beijing Boston Dubai Moscow San Francisco Sao Paulo Mumbai Shanghai Paris London Seoul Americas EMEA Asia Pacific % change Based on rents for Grade A space in CBD or equivalent. In local currency. Source: JLL, October

30 Rental change (y-o-y %) Prime Offices Rental Change, % 8.0% % 0.9% 3.6% 4.0% 2.7% 4.0% 3.0% F 2018F Prime office rental growth: unweighted average of 26 major markets. Source: JLL, October 2017 Prime Offices Projected Changes in Rental Values, 2017 and % Sydney 10-20% Stockholm, Toronto Singapore 5-10% 0-5% 0-5% Brussels, Chicago, Washington DC Dubai, Milan, Singapore, Madrid, Hong Kong Frankfurt, Boston, Los Angeles, New York San Francisco, Mumbai, Paris, Tokyo Shanghai, London, Moscow Sao Paulo, Mexico City, Beijing, Seoul Sydney, Dubai, Toronto, Moscow Madrid, Brussels, Boston, Chicago Los Angeles, New York, San Francisco Sao Paulo, Hong Kong, Stockholm Frankfurt, Paris, Seoul, Milan, Shanghai Mumbai, London, Tokyo Washington DC, Mexico City, Beijing New York Midtown, London West End, Paris CBD, Dubai DIFC. Nominal rates in local currency. Source: JLL, October

31 Prime Offices Rental Clock, Q Beijing, Washington DC Paris, New York, Chicago, San Francisco Tokyo, Hong Kong Dallas Los Angeles Boston Frankfurt, Prague Stockholm Berlin Rental Growth Slowing Rental Values Falling Shanghai Amsterdam, Madrid, Sydney, Toronto Istanbul, Houston Milan Brussels Rental Growth Accelerating Rental Values Bottoming Out Seoul London Singapore Delhi Mumbai Mexico City Dubai Sao Paulo Moscow, Johannesburg, Warsaw, Zurich Americas EMEA Asia Pacific Based on rents for Grade A space in CBD or equivalent. U.S. positions relate to the overall market. Source: JLL, October

32 Retail Markets U.S. retail market slowing despite limited development Market fundamentals in the U.S. retail sector are in a holding pattern of sorts. Vacancy levels remain at their low of 4.8% for this cycle, while net absorption is softening as quality space becomes harder to find due to limited development in recent years. Restrained construction has also kept rents inching upwards, moving many major markets to their cyclical peak. Performance within the sector varies widely, as the top 25% of retail properties continue to show excellent performance, accounting for 40% of total leasing volume in the last three years. These properties have strong demographics, are close to daytime sales drivers and are situated in areas with relatively constrained supply. Even within categories with high closures, performance is variable. Many of the store closures we are now seeing for apparel stores are as a result of a handful of retailer bankruptcies, including Wet Seal, American Apparel and The Limited. Job creation boosting consumer spending across Europe The retail market s structural change, driven by e-commerce, the rise of technology and changing consumer spending patterns requires retailers and leisure operators to rethink their business strategies. European retailers are increasingly exploring options to manage their lease liabilities, including the introduction of smaller store formats or the negotiation of more break options. While U.S. brands have recently become more selective with their European expansion, the stronger European brands continue to look for opportunities across the continent. Prime retail rents remained stable in most markets during Q3 across all asset classes with notable quarterly prime rental growth registered for shopping centres in Greece (+12.5% quarter-onquarter), Sweden (+7.1%) and the Czech Republic (+4.3%), and for high street retail in Barcelona (+3.7%). A focus on F&B in Asia Pacific In Asia Pacific, select F&B segments continued to open new outlets in China s Tier 1 cities during the third quarter. In Shanghai, international casual and sportswear retailers remained popular, while cosmetics gained traction among landlords due to high margins and rental affordability and were also active in Hong Kong. CBD retail space is still the most sought-after in Australia given the high foot traffic. Limited rental growth was witnessed across the region in Q3. Leading malls in Shanghai experienced strong sales and led rental performance, while Singapore rents moved lower, with the steepest decline recorded in the Marina submarket. 32

33 Prime Retail Rental Clock, Q London, Boston, Chicago Los Angeles, Washington DC Beijing, Paris Tokyo Houston, New York, San Francisco Madrid Rental Growth Slowing Rental Values Falling Dubai Milan Shanghai Mumbai Rental Growth Accelerating Rental Values Bottoming Out Berlin Singapore Delhi Hong Kong Moscow, Sydney Americas EMEA Asia Pacific Prime Industrial Rental Clock, Q Amsterdam San Francisco New York, Dallas Tokyo Beijing Philadelphia Chicago, Los Angeles Houston, Atlanta Rental Growth Slowing Rental Values Falling Boston, London Shanghai, Sydney Milan, Stockholm Frankfurt Rental Growth Accelerating Rental Values Bottoming Out Singapore Madrid Moscow Paris, Warsaw, Istanbul, Hong Kong Americas EMEA Asia Pacific Relates to prime space. U.S. positions relate to the overall market. Source: JLL, October

34 Industrial Markets U.S. industrial supply and demand surge ahead during Q3 The third quarter of 2017 brought momentum back to the U.S. industrial market with both new completions and net absorption of industrial space exceeding Q2 levels. Year-to-date, the U.S. has absorbed nearly million square feet, and over the same time period has delivered 161 million square feet of new industrial product - a clear sign of demand continuing to outpace new supply. E-commerce continues to be the fastest-expanding sector, with nearly 25% of total U.S. leasing demand in Q3 from e-commerce companies expanding their footprints. Also, for the first time in the past year, a higher number of e-commerce lease transactions were executed in existing facilities versus proposed buildings or space under construction. Spurred by an increase in absorption and persistently low market vacancy, U.S. industrial rents inched up further over the third quarter, reaching US$5.40 per square foot, an all-time high. On an annualised basis, rents increased by 5.3%. Going forward, we expect asking rents for industrial space to face continuous upward pressure due to a lack of available inventory and continued strong leasing demand. European warehousing markets on path for a new record-setting level in 2017 Spurred by improved EU economic growth coupled with strong online sales growth, automation, digital alignment of operational processes and the need for new city logistics networks, European warehousing take-up has reached a new record so far this year. Coupled with JLL s latest Supply Chain Activity Index maintaining its upward trajectory, this confirms predictions that 2017 will end with total take-up in excess of last year s 19 million square metres. The European aggregate vacancy rate has edged further down in Q3 and by year-end is forecast to fall to around 5%, marking a new cyclical low. Despite slowing supply levels, prime rents were largely flat across the region in the quarter and rental growth potential in the final quarter of 2017 is limited to only a few markets. However, growth should accelerate in 2018 with an expanding number of European markets likely to see rental increases. 3PLs and e-commerce firms drive demand for logistics space in Asia Pacific 3PL companies remained the primary demand driver in China and Tokyo in the third quarter, along with retailers and manufacturing firms. The recent uplift in economic and trade performance helped to support the leasing of logistics space in Singapore. The Sydney and Melbourne markets saw elevated pre-lease activity in Q3, and demand from retail and e-commerce related users has buoyed occupier activity. Rents edged up further in most markets across the region in Q3. Melbourne rents continued to demonstrate strong growth, while non-bonded rents in Beijing and Shanghai edged up on landlords stronger bargaining power in prime locations amid tight vacancy. Overall rents increased slightly in Hong Kong as vacancy remains low, while higher rates in newly-added facilities were seen in Tokyo. 34

35 Hotel Markets Hospitality sector performance strengthens Despite geopolitical uncertainty throughout the course of 2017, the strengthening global economy has helped boost international tourism with the number of arrivals in the first half of 2017 achieving the strongest uplift since 2010 according to the UNWTO. Europe recorded the largest regional increase (up 8% year-on-year), while Asia Pacific and the Americas were also positive with arrivals rising by 6% and 3% respectively. The encouraging results in tourism figures were replicated in hotel operating performance. The latest results from STR indicate that as of year-to-date August 2017, Barcelona, Lisbon, Madrid, Sydney, Hanoi and Toronto all registered double-digit increases in revenue per available room (RevPAR) compared to the same period in the previous year. Washington DC, Seattle, Bangkok, Hong Kong, Dublin, Milan, Edinburgh and Berlin posted RevPAR growth of up to 10%, while Paris, Brussels and Istanbul, where hotel performance has been affected by terrorist attacks, are back on track, reporting RevPAR uplifts of 9%, 17% and 3% respectively. Hotel transaction volumes lower despite investor confidence Solid economic fundamentals together with promising hotel performance have helped strengthen investor confidence. However, the lack of properties available for sale in some markets and the bid-ask gap has led to a drop in global hotel investment volumes, which totalled US$38.1 billion in the first nine months of 2017, down 17% from 2016 s same period. While EMEA volumes were largely flat, the Americas posted a decline of 23% in the year to date, mostly due to a high comparison base with a large portfolio transaction last year. Asia Pacific also saw volumes fall (by 26%), largely due to limited stock, with a drop in both single-asset transactions and portfolio sales. The U.S. remains the most liquid country in the world, accounting for 43% of global investment volumes. While the volume of portfolio sales was down 55% relative to the same nine months last year, single-asset deals stayed consistent at US$13.5 billion, representing over 70% of total volumes. Global Hotel Investment Volumes, YTD 2016-YTD 2017 US$ billions YTD 2016 YTD 2017 % change YTD 16-YTD 17 Americas % EMEA % Asia Pacific % Total % Source: JLL, October

36 In EMEA the UK is now back in the driver s seat, recording the largest amount of investment sales ahead of Germany. One year after the Brexit vote, the country has posted a 20% uplift in deal volume to US$4 billion compared to the same year-to-date period in The lower currency has had a positive impact on the UK tourism industry, bringing in a record level of international visitors. This has resulted in a 5.8% year-on-year increase in RevPAR as of August The positive market fundamentals have attracted foreign investors who are keen to gain a share of the UK market. London remains the most desired investment destination, and regional cities such as Manchester, Birmingham, Edinburgh and Bristol have also reported an uplift in hotel sales. The UK is likely to exceed last year s volumes by year-end, with a couple of portfolios expected to close soon. Spain, one of the three most visited countries in the world, has gone from strength to strength, with investment volumes up 33% to US$1.9 billion over the year to date. A booming tourism industry together with outstanding hotel operating performance have not only attracted domestic investors, but also buyers from the UK, Germany and France as well as the Middle East. In Asia Pacific, Hong Kong holds top spot in terms of hotel investments. Eleven transactions worth US$1.5 billion were completed in the first nine months of 2017, whereas 2016 saw no notable transactions. Investors are attracted to asset price increases and the possibility to convert hotels to other uses. On the other hand, Japan and Australia witnessed a decline in deal volumes, down 60% and 45% respectively, largely due to the lack of properties available for sale in the market. Investment driven by a diversified group Investment funds and private equity firms dominated the global hotel investment landscape in Q3, accounting for one-third of total volumes. However, buyer composition differed in all three regions. In the U.S., investment from REITs has grown significantly, from 10% in 2016 to 30% as of year-to-date Q In EMEA, institutional investors are now a key buyer group, taking up 24% of hotel deals. In Asia Pacific, HNWI and hotel operators represented 22% and 12% of deal flow respectively in the first nine months of Hotel Transactions: Capital Outflows and Inflows, YTD 2017 Mainland China Asia Europe North America Middle East Australasia South America US$ billions Outflows Inflows *Excludes multijurisdictional portfolio transactions Source: JLL, October

37 North America attracting largest amount of offshore capital International capital accounted for approximately 20% of global hotel transactions over the year to date, with North America attracting the largest share as cross-border investment reached US$3.1 billion. Europe has become an increasingly attractive destination, with investment from overseas investors surging 50% in Q3 from the first half of the year to US$2.4 billion. Mainland China remains the largest source of outbound capital in the year to date, but momentum has slowed due to the government's restrictions on overseas investment, with no transactions in Q3 from this capital source. The rest of Asia is now catching up, with outbound investment growing 80% from US$1 billion in H to US$1.8 billion over the first nine months of the year. Who will be top buyers during the next 12 months? Looking ahead, China s restrictions on outbound capital have changed buyer compositions, with an increased level of transactions from Asian buyers and institutional investors, who are likely to fill the gap from Chinese capital. Investors from Singapore have demonstrated solid interest in the hotel market, with the acquisition of the Pullman Hotel in Munich by CDL Hospitality Trusts a recent example. Institutional investors will continue to grow their footprint in the hotel market, while yields remain attractive, to complement their more traditional office and retail investments. One example is Invesco Real Estate, which has recently launched an open-ended fund which invests exclusively in hotels in Europe. The initial 179 million equity for the fund came from 10 institutional investors, and Invesco expects the fund to grow to 500 million after two years, confirming their confidence in the hotel industry. The United States and Europe continue to be the key priorities for investors, with Germany and the UK the prime areas of interest in Europe. 37

38 Residential Markets Demand intact, though rental growth softens in U.S. residential apartments Demand for U.S. rental apartments remains solid heading into the final months of 2017, with national absorption as a percentage of inventory firming 30 bps quarter-on-quarter to 1.3% during Q3. Nashville leads all markets for the third quarter with 4.8% absorption, while 18 markets witnessed gains at or above 2.0% and all tracked markets saw positive absorption. At the same time, a substantial supply wave is gradually increasing vacancy rates from very low levels and moderating rental growth significantly. In the third quarter, national annual rental growth softened 10 bps quarter-on-quarter to 2.4%, the continuation of a steady decline from year-end 2016 s figure of 3.3%. The top seven leading markets for annual rental growth hail from the West region. UK institutional investment expected to rise as stabilised assets become available The UK housing market continues to bear the impacts of last year's Brexit vote, with widespread moderation in price growth. Crucially, outside of London, there has been limited negative price movements, although sales volumes have been curbed. Base rates are expected to push out as the prospect of sustained price inflation forces the Bank of England into action. This will weigh on mortgage costs in 2018, and constrained affordability will keep a lid on price growth. In contrast, institutional investment in the build-to-rent sector carries on apace, with the British Property Federation s latest estimates suggesting there are now over 100,000 units in the pipeline. Stabilised asset sales have yet to happen, so current market volumes reflect forward funding deals. This transition to larger asset deals will trigger a seismic uptick in capital allocated to the sector over the next few years. Momentum continues to pick up speed in Germany Residential investment volumes have remained high in the German market over the first nine months of 2017 and, at 10.9 billion, are 30% above the 10-year average. The market is expected to gain momentum towards the end of the year, with volumes for the full year forecast to reach between 16 and 17 billion. Demand for residential product in Berlin continues to grow, with 95% of last year's total volumes already achieved by the end of the third quarter. With transactional activity of 2.7 billion so far this year, Berlin represents a quarter of total year-to-date residential investment volumes in the national market. Transactional activity set for record year in the Netherlands The investment market in the Netherlands witnessed another strong quarter in Q3, reflected in total transaction volumes over the first nine months reaching close to 3 billion. With several large portfolios currently being marketed, total investment volumes for 2017 are likely to set a new record annual high of around 3.4 billion. This is a result of robust demand from both domestic and international investors which is leading to significant yield compression. 38

39 Housing market conditions continue to improve in Spain Investor demand for residential development land continues to increase across prime locations in Spain, placing further pressure on pricing in these locations. A lack of zoned development land, particularly in Madrid, is frustrating developers as they try to scale up to take advantage of the improved market conditions. We expect land prices to continue on their upward trend in the short term, especially in Madrid and Barcelona. Investment in standing stock and land totalled 304 million during Q3 and is at 1.2 billion for the year-to-date, already substantially above last year s volumes as both domestic and international investors remain active in acquiring income-producing residential assets. Transaction volumes lower in Sweden Sweden s housing market has been extremely strong for several years with rising prices and declining yields as supply lagged demand. This picture is now changing as the number of housing starts has increased significantly. In combination with more restrictive financing in the private sector and high levels of private debt for individuals, this has caused some hesitation from investors, and this has been reflected in Q3 transaction volumes falling to SEK 5.1 billion in Q from SEK 9.3 billion in Q New measures to foster growth of leasing market in China Local governments across China continued to keep a tight grip on policy levers to maintain stability in Q3, while new measures were announced to promote the leasing market. Under a restrictive policy environment and limited supply, high-end sales levels in Shanghai remained low in the quarter, while market sentiment in Guangzhou stayed subdued as the government provided further details about earlier-announced policies. New launches in the primary market sustained record strong sales in Hong Kong, with subscription rates often outpacing the numbers of units available. A solid recovery continued in Singapore in the third quarter, with further improvement in sentiment underpinning higher activity. Families looking to secure units prior to the school season drove a pick-up in leasing activity in Hong Kong in Q3, pushing luxury rents higher; however, the top end of the market remains challenging amid an ongoing downgrading trend. A better performance from Singapore s economy supported slightly higher leasing activity, while an increase in rents was fuelled by fewer units being available for lease as some owners placed their apartments on the sales market. Shanghai remained a draw for non-local talent and this helped to maintain rental growth. 39

40 Key Investment Transactions in Q Europe, Middle East and Africa Country City Property Sector Sales price US$m Comments Finland Multiple Portfolio Mixed 4,465 Blackstone has purchased Finnish property firm Sponda for 3.8 billion. The Helsinkiheadquartered company owns 1.2 million sq m of office and retail properties across Finland. France Multiple Simply Hotels Portfolio Hotel 104 The French investment fund Dolmen Capital Partners has bought the portfolio from Blackstone. It includes 45 hotels with brands such as Campanile, Comfort and Ibis Styles. France Paris DUO Office 636 The insurance arm of French financial services group Natixis has acquired a 50% stake in the scheme from developer-investor Ivanhoé Cambridge. France Paris In/Out Office 520 Société Fonciére Lyonnaise (SFL) has sold the 35,000 sq m building to French fund Primonial. The building was designed and built by SFL through a redevelopment of the historical Thompson headquarters. Germany Berlin Axel Springer Mixed 885 Axel Springer, one of Germany s biggest publishers, has sold its new headquarters and neighbouring office and shopping complex, Axel Springer Passage, for a combined 755 million. Norges Bank Real Estate Management has acquired a 100% interest in the under-construction Axel Springer Neubau, while the existing Axel Springer Passage has been sold to Blackstone and Quincap Investment Partners. Germany Frankfurt Sono West Office 106 Generali Real Estate, the property arm of the Italian insurance giant, has purchased a pre-let office project from Germany's Patrizia and developer OFB for around 90 million. Multiple Multiple Apollo Portfolio Hotel 630 Invesco's European Hotel Fund has acquired a portfolio of 13 hotels across Germany and the Netherlands from Apollo Global Management. Multiple Multiple Warimpex Hotel 252 U City Public Company Limited, a developer from Thailand, has acquired 50% of Warimpex's eighthotel portfolio across the Czech Republic, Poland and Romania. Netherlands Multiple Portfolio Mixed 730 Toronto-listed Dream Global REIT has bought a Dutch real estate platform for 622 million from JV partners TPG and Patron Capital Partners. Merin, which manages a portfolio of 170 office and industrial assets in the Netherlands, will provide Dream Global REIT with an immediate presence in the Dutch property market. 40

41 Country City Property Sector Sales price US$m Comments Netherlands Multiple Solit Portfolio Retail 245 DELA Real Estate and Lone Star have agreed on the sale of a portfolio consisting of 73 solitaire stores, 4 shopping centres, more than 15,000 sq m of office space, 2 parking garages and 90 homes. Netherlands Multiple Bilderberg Portfolio Hotel 242 Singapore's First Sponsor Group Limited has purchased the Bilderberg Portfolio, consisting of 17 hotels with 1,695 rooms and 13,661 sq m of conference space, from KKR Asset Management Ltd. Spain Multiple Meliá Portfolio Hotel 263 Developer London & Regional Properties has acquired a portfolio of four Spanish hotels from Starwood Capital. The sale involved 2,070 rooms and was the largest hotel transaction in Spain during Q UK Cheshire Birchwood Park UK London 10 Hammersmith Grove UK Various QHotels Portfolio Office 262 Warrington Borough Council has acquired the 123- acre business park for 200 million from Oaktree Capital Management. The park is located within an Enterprise Zone and houses more than 150 businesses occupying over 1.2 million sq ft. Office 147 Hong Kong investor Tai United Holdings has purchased the office building from Brockton Capital for million. It is let to six tenants including Fox, UKTV, Philip Morris and Accor on 10 and 20-year leases and produces an annual income of 5.6 million. Hotel 704 Aprirose, backed by Chinese investment fund Cindat, has completed its acquisition of the QHotels portfolio which consists of 26 hotels across the UK. UK Birmingham, London Hilton Metropole Hotels Hotel 652 The Tonstate Group Ltd has sold two high-profile hotels located in London and Birmingham to Henderson Park Capital Partners. UK Multiple Portfolio Student housing 575 European Property Investors Special Opportunities IV (EPISO 4) has acquired a 90% interest in the JV which owns a 2,756-bed portfolio of six halls in some of the most prestigious university cities across the UK. 41

42 Asia Pacific Country City Property Sector Sales price US$m Comments Australia Melbourne Highpoint Shopping Centre Australia Multiple Motor Accident Commission (MAC) held properties Australia Sydney Wynyard Place China Beijing CapitaMall Anzhen China Beijing Dongfangwen hua Art Centre North Building China Multiple e-shang Redwood Logistics Assets China Shanghai Songjiang New Century Grand Hong Kong Hong Kong Kowloon City Plaza Hong Kong Hong Kong Mapletree Logistics Hub Tsing Yi India Gurgaon DLF rental arm Retail 521 The GPT Group has snapped up a 25% stake from the Besen family on a passing yield of approximately 4.2%. Mixed 278 Blackstone has emerged as the successful bidder for the 11-property portfolio, acquiring it from the Government of South Australia. Office 709 AMP Capital and UniSuper have acquired a combined 50% share of the 7,000 sq m, 27-floor premium grade tower from Brookfield Property Partners. Retail 169 CapitaLand Retail China Trust Management Limited has sold its entire interest in the 43,442 sq m mall. The deal was transacted on a passing yield of 5.9% to Beijing Hualian Group. Office 610 The 79,000 sq m property, previously owned by a JV between Hopson Development and BMI Funds Ltd, has been divested to Golden Harmony Investments Limited. Industrial 300 Invesco has acquired a majority stake in the portfolio from e-shang Redwood. Hotel 120 The 446-room hotel has been purchased by Hangzhou Industrial & Commercial Trust from a Hong Kong REIT, New Century Real Estate Investment Trust. Retail 640 A PRC private investor has purchased the 59,457 sq m mall from a Hong Kong private investor with a passing yield of 2.8%. Industrial 614 Mapletree Logistics Trust has acquired the property, an 11-storey modern ramp-up warehouse with NLA of 148,065 sq m, from Mapletree Overseas Holdings. Office 1,384 A private Indian investor has sold its stake in DLF Cyber City Developers Ltd (DCCDL) to GIC for a gross value of Rs 11,900 crore. The deal means DLF will have a 66.66% stake and GIC will hold the remaining equity in DCCDL. India Changdigarh Elante Mall Retail 342 Blackstone-backed Nexus Malls has purchased the 106,839 sq m building from a private Indian investor. 42

43 Country City Property Sector Sales price US$m Comments Japan Kanagawa Ocean Gate Minato Mirai Japan Nara Hotel Nikko Nara Japan Osaka Prologis Park Ibaraki Office 354 Tokyu Land Corporation has sold its 99% stake in the 54,090 sq m asset to a segregated portfolio company (SPC) of PAG. Hotel 94 Japan Hotel REIT has completed the acquisition of the 330-room hotel from Nippon Life Insurance and Mitsui Fudosan. Industrial 345 Nippon Prologis REIT has acquired the asset from a segregated portfolio company (SPC) of Prologis on an initial yield of 4.5%. Korea Seoul NC Tower 2 Office 156 NCsoft Corporation has sold the building to IGIS Asset Management on an initial yield of 4.8%. Malaysia Langkawi Four Seasons Resort Langkawi (90%) Singapore Singapore Asia Square Tower 2 Singapore Singapore Jurong Island aromatics plant Singapore Singapore Golden Shoe Car Park Redevelopme nt Project Hotel 90 Singapore's HPL Hotels & Resorts has acquired 90% of the resort from Kingdom Hotel Investments. Office 1,540 CapitaLand Commercial Trust has purchased the 72,345 sq m building from BlackRock Asia Property Fund III at an initial yield of 3.6%. Industrial 1,449 Jurong Aromatics Corporation has sold the asset to ExxonMobil Asia Pacific. Mixed 452 CapitaLand Commercial Trust has sold a 55% stake to form a JV with CapitaLand (45%) and MEC (10%). The redevelopment project will have 51 storeys and a GFA of approximately 1,000,000 sq m. Americas Country City Property Sector Sales price US$m Comments Brazil Belo Horizonte Diamond Mall Retail 132 Multiplan has acquired a 50% stake in this more than 21,000 sq m retail asset from Clube Atlético Mineiro. Brazil São Paulo Parque da Cidade Corporate - Torre Sucupira Office 137 Fosun Property Holdings has purchased the 36,600 sq m office asset in the Berrini/Chucri submarket from HSI at a reported 8.6% initial yield. Brazil São Paulo EZ Towers - Torre B Office 206 EZTEC has sold this 47,000 sq m office property, also located in the Berrini/Chucri submarket, to Brookfield Brasil. Canada Edmonton Baseline Village Retail 68 Fiera Properties has acquired the more than 21,000 sq m retail property located in Strathcona County from Strathallen Capital at a reported 6.25% initial yield. 43

44 Country City Property Sector Sales price US$m Comments Canada Ottawa Constitution Square Canada Toronto Kellogg Canada Mexico Multiple Northern Mexico Industrial Properties Office 383 A JV of Greystone and Canderel has acquired this 98,000 sq m office property located in Ottawa's CBD from OMERS/CPP Investment Board. Industrial 81 Orlando Corporation has sold the 71,000 sq m warehouse asset located in the Brampton submarket to PIRET (Pure Industrial Real Estate Trust) at a reported 5% initial yield. Industrial 53 Mexican REIT Terrafina purchased the 84,000 sq m industrial portfolio at a reported 8.7% initial yield in September. U.S. Atlanta Park Center I Office 275 Transwestern has acquired the 54,000 sq m Suburban Dunwoody office property from KDC. U.S. Atlanta Georgia- Pacific Industrial 67 ADIA has sold this 84,000 sq m McDonough warehouse property to Lexington Realty Trust. U.S. Austin The Parke Retail 112 InvenTrust Properties has purchased the 38,000 sq m Leander shopping centre from Endeavor Real Estate Group. U.S. Los Angeles 9665 Wilshire Boulevard Office 185 QIA has acquired the 16,000 sq m Beverly Hills office asset from Blackstone. U.S. Los Angeles River Oaks Retail 115 SPI Holdings has sold this 25,000 sq m Santa Clarita retail asset to InvenTrust Properties. U.S. New York 375 Hudson Street Office 580 Trinity Real Estate has acquired the 101,000 sq m Manhattan office property from Tishman Speyer. U.S. Oakland - East Bay One Concord Center Office 70 Bridge Investment Group has purchased the 33,000 sq m suburban Concord office asset from Swift Real Estate Partners. U.S. Orange County Five Point Gateway Office 443 Broadcom has sold this 195,000 sq m office asset located in the Irvine submarket to Fivepoint Communities. U.S. Philadelphia Quakertown Distribution Center Industrial 74 WPT Industrial REIT has acquired this 87,000 sq m distribution centre located in Quakertown at a reported 5.5% initial yield from AMB. U.S. West Palm Beach Office Depot HQ Office 132 Office Depot has purchased the 58,000 sq m office property from Equity Commonwealth. 44

45 Illustrative Office Occupational Transactions in Q Europe Country City Property Tenant Industry Sector Floorspace sq m Germany Hamburg Am Lohsepark Gruner + Jahr Media 34,500 Germany Berlin Königliche Direktion, Schöneberger Ufer 1-3 Bundesanstalt für Immobilienaufgaben BImA Public Administration 15,500 Germany Munich Gustav- Heinemann-Ring Gewofag Real Estate 13,000 Germany Stuttgart Calwer Passage CMS Hasche Sigle Business Services 11,300 Russia Moscow Comcity Tele2 Telecommunications 13,053 Russia Moscow Krasina str., 3 Polyus Gold Manufacturing 12,014 Russia Moscow Aquamarine III Confidential Banking & Financial Services 8,196 Russia Moscow Northern Tower Stroytransgaz Construction 5,714 France Paris Pont d'issy, Issyles-Moulineaux France Paris Octant Sextant, Levallois-Perret France Paris 87 rue de Richelieu Orange Telecommunications 57,000 Lagardère Active Media 27,800 Altarea Cogedim Real Estate 22,000 UK London 80 Charlotte Street, W1 The Boston Consulting Group Business Services 11,472 UK London Adelphi, WC2 Spotify ITES 9,390 UK London 21 Moorfields, EC2 UK London 20 Old Bailey, EC4 Deutsche Bank Banking & Financial Services 52,397 Withers Business Services 5,581 45

46 Asia Pacific Country City Property Tenant Industry Sector Floorspace sq m Australia Melbourne The Foundry, 405 Bourke Street NAB Banking & Financial Services 40,000 Australia Melbourne Collins Square Building 5, 735 Collins Street Australia Sydney International House Sydney, 49 Hickson Road NBN Telecommunications 19,500 Accenture Business Services 6,890 China Beijing Radiance Alibaba ITES 17,680 China Shanghai Baowu Tower Bank of Tianjin Banking & Financial Services 6,562 China Shanghai Fuhui Project Tower C WeWork Real Estate 9,520 Hong Kong Hong Kong Mapletree Bay Point WeWork Real Estate 5,416 Hong Kong Hong Kong Goldin Financial Global Centre Otis Manufacturing 4,829 India Delhi Novus Tower PWC Professional Services 8,361 India Mumbai Parinee Crescenzo Awfis Real Estate 1,648 Japan Tokyo* Shin Hibiya Project EY Japan Business Services 26,000* Japan Tokyo* Msb Tamachi. Tamachi Station Tower S Mitsubishi Motors Manufacturing 21,000* Malaysia Kuala Lumpur The Pinnacle Sunway Accenture Business Services 2,238 Singapore Singapore Republic Plaza II KBC Bank Banking & Financial Services Singapore Singapore OCBC Centre WEX Asia Banking & Financial Services South Korea Seoul Seoul Square SK Planet ITES 14,000 *JLL estimate 46

47 Americas Country City Property Tenant Industry Sector Floorspace sq m Brazil Rio de Janeiro Torre Oscar Niemeyer - FGV Vale Energy 9,700 Brazil São Paulo Arquiteto Carlos Bratke 99 Transportation 10,065 Brazil São Paulo CENU - Centro Empresarial Nações Unidas - Torre Norte Canada Montreal 1350 René-Lévesque Boulevard West WeWork Real Estate 9,273 GWL Realty Advisors Real Estate 9,129 Canada Toronto TD Centre Torys Legal Services 17,001 Canada Toronto TD Canada Trust Tower TD Bank Banking & Financial Services 16,351 Canada Toronto Centro Square Telecon Telecommunications 11,148 Canada Toronto Duncan House Thomson Reuters Media 9,794 Canada Toronto 5000 Yonge Street Franklin Templeton Investments Banking & Financial Services 9,476 U.S. Austin Domain 11 HomeAway ITES 27,761 U.S. Chicago CNA Center Northern Trust Banking & Financial Services 42,921 U.S. Houston One Shell Plaza NRG Energy 40,070 U.S. New York 50 Hudson Yards BlackRock Banking & Financial Services 78,968 U.S. New York th Avenue New York City Housing Authority U.S. New York 498 Seventh Avenue 1199SEIU United Healthcare Workers East Public Administration 55,277 Associations 53,884 U.S. New York The JACX Bloomingdale's Retail 51,097 U.S. U.S. U.S. Orange County San Francisco Washington DC Five Point Gateway Broadcom ITES 61,399 Zynga Building Airbnb ITES 26,663 Marriott HQ Marriott Leisure and Hospitality 66,890 U.S. Washington DC TSA HQ Transportation Security Administration Public Administration 58,064 U.S. Washington DC One Town Center U.S. Citizenship and Immigration Services Public Administration 53,398 47

48 Global Real Estate Health Monitor Definitions and Sources Metro Area GDP: Change in Real GDP. Metropolitan Area Projection, Source: Oxford Economics City Investment Volumes: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Total in USD Billion. Source: JLL City Investment Volumes Change: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Change. Source: JLL Capital Value Change: Notional Prime Office Capital Values. Year-on-Year Change. Latest Quarter. Source: JLL Prime Yield: Indicative Yield on Prime/Grade-A Offices. Latest Quarter. Source: JLL Yield Gap: Basis Points that Prime Office Yields are above or below 10-year Government Bond Yields. Latest Quarter. Source: JLL, Datastream Rental Change: Prime Office Rents. Year-on-Year Change. Latest Quarter. Source: JLL Net Absorption: Annual Net Absorption as % of Occupied Office Stock. Rolling Annual. Source: JLL Vacancy Rate: Metro Area Office Vacancy Rate. Latest Quarter. Source: JLL Supply Pipeline: Metro Area Office Completions ( ) as % of Existing Stock. Source: JLL 48

49 For further information contact: Jeremy Kelly Director Global Research Matthew McAuley Senior Analyst Global Research About JLL JLL (NYSE: JLL) is a leading professional services firm that specialises in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 450 global research professionals track and analyse economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fuelled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. Our regional offices Chicago 200 East Randolph Street Chicago, IL London 30 Warwick Street London, W1B 5NH +44 (0) Singapore 9 Raffles Place #39-00 Republic Plaza Singapore COPYRIGHT JONES LANG LASALLE IP, INC All Rights Reserved 49