United States H JLL Research Report. Investment Outlook. Continued low-yield environment driving renewed investor creativity

Transcription

1 United States H JLL Research Report Investment Outlook Continued low-yield environment driving renewed investor creativity

2 Selectivity and rational underwriting are dampening overall transactions volume The U.S. economy finished 2017 on firm footing and is poised for continued buoyant growth in 2018, despite recently increased financial market volatility. The world s major economies are now moving in sync, with many seeing a recent boost to growth projections. Strong employment levels are underpinning property demand fundamentals. Yet national commercial real estate transaction volumes softened by 9.0 percent in 2017 as investors pulled back from big-ticket single-asset transactions in gateway markets. The slowdown in volumes has largely been expected; the redeployment of capital and exit pricing assumptions remain key areas of concern for investors underwriting acquisitions at current pricing. Liquidity in the real estate debt markets is simultaneously resulting in more refinancing activity. At the same time, appetite for real estate debt and equity remains high, and investors both domestic and international are seeking to double down on their exposure to real estate. And investors have ever more pressure to deploy capital to achieve returns. This, in an environment of low yields, and amid rational and disciplined underwriting, is driving investor creativity: Investors are moving into new geographies, with a greater focus on secondary markets, and are rebalancing their overall allocations by property sector, which will create opportunities for buyers and sellers alike. The robust level of active value add capital is a key factor in this activity. Investors are now formulating more thematic strategies for capital allocations and investments focusing on micro-markets, alternative property sectors and nonconventional deal structures. These present opportunities for investors to adopt more granular, targeted approaches to understanding markets and capital dynamics. Off-shore investors diversification into secondary markets is expected to increase and represent a sustained trend, as off-shore capital sources pursue higher-yielding investments and gain deeper understanding of and familiarity with markets outside of the key gateways. Based on current in-progress transactions, we expect to see a higher level of portfolios, joint ventures, recaps and entity- or GP-level investments as a means of increasing real estate exposure. It is expected that these transactions will drive a greater share of investor activity in 2018 as pure-play transactions see further softening. Underpinning activity in 2018 will be a healthy lending environment, with traditional lending sources joined by debt funds. Equity and debt investors will continue to look to unique opportunities, deal structures and asset types in search of yield in line with their risk appetite with a focus on income fundamentals given the softening of capital appreciation. This shift in approach will favor those with longer-term capital strategies and reward those who embrace creativity. However, the deployment of capital will remain a challenge for those focused on more traditional, macrobased strategies. - Jonathan Geanakos & Sean Coghlan President, JLL Capital Markets Director, Investor Research

3 Investment Outlook United States H Contents It s all in the numbers the 2017 breakdown 4 Transactions 5 Global capital 7 Fundraising 9 Debt 10 Property sectors Office 12 Industrial 19 Multifamily 25 Retail 31 Hotels 37 Net Lease 43

4 4 Investment Outlook United States H It s all in the numbers the 2017 breakdown Investment volumes decline 9.0 percent in 2017 as the redeployment of capital and exit pricing assumptions remain areas of concern for investors United States $ % Investment sales (2017, billions of $US) 2017 investment sales growth (%) -15.0% 2018 investment sales forecast (%) Office Industrial Multifamily Retail Hotels* 12-month net absorption (as a % of inventory) 12-month completions (as a % of inventory) 12-month rent growth (p.s.f., %) 2017 investment sales growth (%) Investment sales volume (2017, billions of $US) 0.9% 1.9% 1.3% 0.7% 0.9% 1.4% 1.8% 1.4% 0.7% 1.8% 3.2% 5.4% 2.3% 5.5% 2.1% -12.0% 23.2% -8.3% -22.5% -18.0% $123.7 $59.2 $139.3 $51.5 $24.0 Net Lease Investment sales (2017, billions of $US) Overall investment $47.2 Office investment $20.3 Industrial investment $17.1 Retail investment $9.9 *In place of net absorption and rent growth, figures pertain to occupancy growth and average daily rate growth

5 Transactions 5 Investment Outlook United States H Selectivity and rational underwriting are dampening overall transactions volume; investors approach to primary vs. secondary markets is changing Continued uncertainty and selectivity are impacting transaction volumes. U.S. commercial real estate transaction volumes softened by approximately 9.0 percent in 2017, with nearly $400.0 billion in transactions in the year. Generally speaking, it is large transactions which have decreased the most, and this parallels declines seen in gateway markets such as New York. Transaction volumes marked a decrease across all sectors in 2017, with exception of the industrial sector: The industrial sector saw growth in transaction volumes of 23.2 percent in At nearly $60.0 billion, the sector saw the second-highest annual liquidity on record. Total portfolio volume capped the second-highest tally behind 2015 in sector history with 43.1 percent of activity. Multifamily real estate represented the most liquid real estate asset class overall in 2017, with a total of $139.3 billion in transactions. That said, volumes decreased 8.3 percent, mimicking the overall softening in volumes across commercial real estate. As an elevated number of new multifamily units delivered, the multifamily sector saw fundamentals soften over the course of However, confidence in the long-term outlook for multifamily fundamentals is supporting strong liquidity and the emergence of new sources of capital, notably from off-shore investors. While large-scale retail transactions are pending, to include Unibail-Rodamco s bid for Westfield, and Brookfield s potential acquisition of GGP, the sector saw the most protracted declines of the real estate asset types. Volumes decreased 22.5 percent in 2017 to reach $51.5 billion. Given heightened risk with regard to retail sales and tenant performance, investors are cautiously tailoring retail strategies and avoiding transactions where they lack certainty. However, the sector s pending large portfolio acquisitions exhibit confidence in a sector undergoing heightened scrutiny and are expected to bring clarity and new benchmarks to U.S. mall pricing. Hotel transaction volume in 2017 totaled $24.0 billion. This represents an 18.0 percent decrease relative to 2016, resulting from a decrease in purchases by offshore investors and fewer portfolio transactions. The past several months have seen an acceleration in operating fundamentals which is pushing investor confidence notably more positive. But a factor that will hamper meaningful growth in transactions in 2018 is the active lending environment which will lead some owners to embrace refinancing activities as an alternative to selling. Office dynamics are in line with the broader market: A 12.0 percent decline in transactions in 2017 paralleled a pullback in large, single-asset transactions across primary markets driven by a continued low yield environment and conservative underwriting. But investors need to deploy capital and requirement to achieve yield is not lessening. As such, investors remain focused on value add, urban transactions across primary and secondary markets. This has spurred a concentration of value add liquidity in the capital markets, at a time when core liquidity has weakened.

6 Transaction volumes (billions $US) 6 Investment Outlook United States H While domestic and off-shore capital remains active, U.S. transactions activity declined 9.0 percent in 2017 Multifamily represents most liquid sector in the U.S. for third year in a row $600.0 $500.0 $400.0 $300.0 Multifamily Office Retail Industrial Hotels 15% 6% 13% % Multifamily Office Industrial Retail $ % Hotel $100.0 $0.0 Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) The U.S. continued to be a top target for global capital in 2017, and foreign acquisition volumes totaled $44.7 billion in Foreign investors accounted for 11.2 percent in 2017, down from 14.4 percent in This slowdown, however small, does reflect foreign buyers becoming more disciplined and selective with their investments as they gain experience and exposure in the U.S. market. We expect foreign capital in 2018 to remain selective as pricing remains elevated in primary markets across the country. This has the opportunity to drive foreign investors to seek purchases in secondary markets, and to continue to push off-shore investors to increase their exposure to the various real estate asset classes in the U.S. We have already seen this shift, benefitting liquidity in high-growth secondary markets and the alternative and multifamily sectors, most recently. We expect commercial real estate transaction volumes to soften globally by 5.0 to 10.0 percent in 2018, with the U.S. seeing a decline of 15.0 percent. The market is also recording a higher concentration of less conventional single-asset sales, reflected in more joint ventures, recaps and entity-level investments. Given the prolonged timeline for these transactions, these profiles of transactions are expected to become increasingly apparent into 2018.

7 Off-shore investment volumes (billions of $US) Total Asian investment (billions of $US) Capital Global capital 7 Investment Outlook United States H Asian capital remains dominant in U.S. and is now impacting all sectors While the U.S. continued to be a top target of global capital in 2017, foreign investment into U.S. property fell for the second year in a row. Foreign acquisition volumes totaled $44.7 billion in 2017, down 28.7 percent year-over-year, as transactions in gateway markets experienced disproportionately protracted decreases. As a share of overall investment activity, the proportion of foreign capital remained relatively stable at 11.2 percent of transactions in 2017 compared to 14.4 percent in This slowdown, however small, does reflect foreign buyers becoming more disciplined and selective with their investments as they gain experience and exposure in the U.S. market. Asian investment accounts for second-highest share of foreign capital on record $30.0 Total Asian investment 40.0% (Billions of $US) $20.0 Asian investment as % 30.0% of total 20.0% $10.0 $- Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) 10.0% 0.0% Volume of off-shore purchases decreases in 2017 with pull-back of gateway city trophy sales; but proportion to overall investment holds steady $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $ Multifamily Hotels Industrial Office Retail Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions)

8 8 Investment Outlook United States H Canadian investors remained the largest single source of foreign capital in 2017, accounting for 38.5 percent of cross-border activity. Yet it is investors from Asia who are making among the boldest moves. Singapore and China were the second- and third- largest contributors to foreign capital flows into the U.S. with 13.3 and 11.4 percent of foreign investment respectively. Asian countries as a whole accounted for 35.9 percent of foreign capital into the U.S. in 2017, their second-highest share yet. And their sights are set on all of the major property sectors. As investment targets of Asian investments continue to expand, volumes will continue to diversify into new sectors. Driven by large transactions such as HNA Group s $2.2 billion acquisition of 245 Park in New York and Canada Pension Plan Investment Board s $1.2 billion acquisition of Parkway, Inc., the office sector accounted for nearly half of foreign investment at 47.0 percent. But off-shore investors strategies are shifting and broadening. Foreign investment activities are increasingly focusing on industrial, multifamily and alternatives, which are now attracting a greater share of total cross-border capital a trend which will continue. Cross-border investment into industrial rose 35.9 percent year-over-year, reaching its second-highest annual share on record. Foreign investors continue to ramp up their investment into alternative sectors. This is particularly evident in student housing. For the second year in a row, a total of $1.8 billion of foreign investment flowed into the student housing sector. As was the case in 2016, these elevated activity levels continue to be largely driven by Canada Pension Plan Investment Board and Singapore-based GIC as joint venture partners, and Singapore-headquartered Mapletree Investments. We expect foreign capital in 2018 to remain active, but selective as pricing remains elevated in primary markets across the country. This has the opportunity to drive foreign investors to seek purchases in secondary markets, and to continue to push off-shore investors to increase their exposure to the various real estate asset classes in the U.S. Nearly half of off-shore capital flows into U.S. in 2017 target office real estate but purview is broadening Retail 10% Hotels 8% Industrial 12% Foreign capital by sector 2017 Multifamily 23% Office 47% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions)

9 Capital raised (billions $US) Fundraising 9 Investment Outlook United States H Commercial real estate fundraising: moderate slowdown but investors staying in the game Fundraising activities targeting commercial real estate in 2017 reached $63.1 billion, compared to the $72.9 billion in 2016, a 13.4 percent decline. The decline was noticeably driven by a 57.8 percent decline in opportunistic fundraising, which saw the lowest capital raised since As opportunistic fundraising declined, value-add strategies have taken a large percentage of its market share. In 2016, value-add funds accounted for 27.1 percent of overall fundraising; in 2017, value-add funds increased their market share to 42.2 percent. Of note, debt funds raised $17.9 billion in 2017, their highest annual level on record. Commercial real estate remains preferred asset class, despite 13.4 percent decline in fundraising in 2017 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 Source: JLL Research, Preqin The shifting composition of fundraising is further reflective of the pressure between active dry powder and deployment pressures. While value-add funds raised a record $26.7 billion of capital in 2017, they were able to deploy similar levels of capital the most productive yet for this profile of capital in the cycle thus far. However, opportunistic funds, which are sitting on $49.0 billion of dry powder more than 11.0 percent greater than value-add funds, deployed less than half the capital of value-add funds. With the low yield environment holding stable, deployment pressures will continue to be felt, and funds thus will continue to be more targeted and thematic in their strategies. Value-add funds deployed nearly $27.0 billion in 2017, in excess of 50.0 percent more than opportunistic funds Value add Debt Opportunistic Core Core-plus Distressed Source: JLL Research, Preqin $10.0 $0.0 $10.0 $20.0 $30.0 Net deployment of active dry powder These shifts echo the notion that deals have been harder to come by, but more importantly, this represents a timely shift towards more moderate risk/reward strategies which is how investors can keep their skin in the game without putting too much at stake. As commercial real estate transaction volumes mark some further softening, and interest rates gradually increase, we expect to see fundraising trends in 2018 corroborate what the market recorded in Despite fundraising marking a decline in 2017, dry powder globally for commercial real estate acquisitions remains at an all-time high, with capital disproportionately targeting assets in North America. That said, the amount of funds appears to be plateauing.

10 CMBS Issuance (billions of $US) Debt 10 Investment Outlook United States H Lending remains stable amid comeback from CMBS and increased presence from debt funds Despite equity markets showing renewed volatility, little has deterred the bull market. A strengthening national and global economy continue to underpin investor confidence. With 2017 ending with a large-scale tax overhaul plan, markets continue to build off of the momentum. Debt funds continue to emerge as a viable lending option. While their pricing tends to be higher, they represent a higher-leverage alternative than banks and life companies which in some instances are reaching capacity and/or have become more risk averse. That said, these staples in commercial real estate financing did not slow down drastically, but rather have been exercising caution as they lend in a more competitive lending environment marked concurrently by more conservative underwriting. CMBS lending is back A notable story has been the reemergence of CMBS as a lending source. In 2017, with stability in the financial markets and tighter spreads, CMBS originations rose to $95.4 billion, a 25.6 percent increase, representing the second-highest year for originations since AAA spreads on new issuances ended 2017 at 87 basis points and BBB- spreads ended 2017 at 370 basis points, the lowest level since mid While often viewed as a less favorable option, due in part to the complexity of its structure, CMBS regained ground as a feasible and often sought-after lending option. In an environment of softening transactions volumes, relatively stable cap rates and limited catalysts such as the great wall of maturities, which have now mostly been addressed, the ability to generate another stellar year for originations is lower. But provided that there are not any macro-market shocks that would increase volatility in the stock and bond markets, the CMBS market is expected to remain strong in CMBS originations rebounded in 2017, marking 25.6 percent more loan volume than in 2016 $ % $ % 68.1% CMBS Issuance Average LTV $150.0 $100.0 $50.0 $ % 66.2% 67.0% % 67.6% Source: JLL Research, Commercial Mortgage Alert % % 61.7% % 65.5% 64.4% 57.0% 59.9%

11 Volume (Billions of $US) 11 Investment Outlook United States H Life companies finish year with strong lending With data for the first three quarters of 2017 available, life companies made commitments at $47.8 billion, which is the second-highest commitment level for this time period. In the third quarter of 2017, life companies pledged commitments of $15.1 billion, the second-highest amount for any third quarter on record. Life companies continue to lend at healthy levels, though overall originations are below the 2016 peak $100.0 $80.0 $60.0 $40.0 $20.0 $39 $54 $55 $57 $39 $43 $44 $43 Commitments $37 $27 $22 $16 $31$33 Originations $59 $61 $52 $51 $53 $53 $46 $46 $76 $71 $63 $67 $65 $ Source: JLL Research, Commercial Mortgage Alert, ACLI (2017 commitments data is T-12 through Q3 2017; originations figures not yet available) Most of these commitments are targeting multifamily and office assets, sectors which saw $6.4 billion and $4.0 billion in commitments respectively during the first three quarters of Leverage levels across property types averaged nearly 60.0 percent. Life companies will continue to lend, and once published, full-year originations data is expected to be around the same or slightly below the 2016 levels. Balance sheet lenders exercising more caution Banks continue to be active after a post-2007 historic year of lending in Despite the strength in lending in 2016, 2017 had seen some uneasiness of higher concentrations of loans in smaller regional banks, as well as exposure to construction loans among banks overall. While these marked some cautionary alerts, there was less mention of this in the second half of According to the Fed Senior Loan Officer Opinion Survey on Bank Lending Practices, bank lending overall marked some weakening in the third quarter of The survey reported weaker demand for loans secured by multifamily residential properties, and also for construction and land development loans. The shift towards more cautious underwriting was also signaled by lending standards tightening for multifamily assets, according to the survey. With increased discipline, yearly loans outstanding among large domestic banks and small domestic banks have grown at the slowest rate since Despite this caution, banks are in search of ways to increase their competitiveness, lending in spaces they typically do not lend in, such as bridge lending. Debt funds remain the big story Debt funds have emerged and have made it known that they are a viable lending force. North America-specific closed-end debt funds raised $18.0 billion in 2017, a 59.5 percent increase over 2016 and the most raised ever. As traditional lenders such as life companies and banks slow lending, debt funds cannot lend enough, participating in transactions that would typically go to life companies and banks, as well as maintaining their ability to stay competitive within bridge financing, traditionally their strong suit. In addition, debt funds represent a higherleverage lending alternative that has the ability to finance an entire deal in one capital stack, even if at a higher cost than traditional lenders. Given the softening in transactions, debt funds are uniquely positioned to structure their capital to offer favorable lending terms that banks and life companies may not be able to do. Furthermore, debt funds activities are resulting in increased competition among lenders overall. Liquidity in the U.S. lending markets for real estate is expected to remain strong in Despite traditional lenders exercising caution, debt availability for commercial real estate is plentiful, even if at somewhat higher overall absolute interest rates. If the financial markets remain stable and interest rates don t climb significantly, CMBS lending is expected to stay strong. In addition to these traditional lending sources, a lategame entrant in the form of debt funds will continue to offer capital in spaces that may need it the most. This liquidity and the current equity investment environment will remain accretive for refinancing options for owners of commercial property.

12 12 Investment Outlook United States Office H Office

13 Construction starts (millions s.f.) Office the Office 2017 breakdown 13 It s all in the numbers Investment Outlook United States Office H Rational and disciplined underwriting remains the norm for office product Property market month change in total vacancy (bps) 0.9% 12-month net absorption (as % of inventory) 1.4% 12-month completions (as % of inventory) 3.2% 12-month rent growth (p.s.f.) Demand Investment market $123.7 Investment sales (2017, billions of $US) -12.0% 2017 investment sales growth 4.3% Average cap rate flat 12-month change in cap rate (bps) Despite a strong second half of 2017, overall net absorption slowed by 11.3 percent as compared to As a result, the Class A office vacancy rate nationally increased by 70 basis points to 14.8 percent in Lower preleasing rates at new deliveries, givebacks and rightsizing tenants are expected to further push up vacancy in the coming quarters. With this, absorption will remain subdued in 2018 and remain so in part because companies are struggling to expand their workforce to fuel growth given the low unemployment rate. As the economic expansion continues, so too should the balancing act between supply and demand dynamics. Construction starts peaked in 2016 at 60.8 million square feet nationally and new deliveries are expected to reach a cyclical high in 2018; concerns regarding oversupply in select markets are expected to intensify. This will continue to impact investor behavior and underwriting in Office vacancy rises moderately in 2017 as new supply delivered and give-backs increased The economy and its underlying growth drivers are showing increased vigor, underpinning leasing fundamentals in the office sector. Rent growth rebounded in the fourth quarter of 2017, boosted by high-priced blocks hitting the market. At year-end, this supported Class A rent growth of 3.8 percent. After a slow first quarter, leasing demand rallied during the rest of 2017 and reached 12.8 million square feet of positive net absorption in the fourth quarter, above the five-year average. In fact, this represented the highest net absorption since late Seattle-Bellevue and Dallas were responsible for more than one-quarter of net absorption nationally in Developers and lenders becoming more restrained to avoid oversupply; starts decrease in Source: JLL Research

14 Transaction volumes (billions of $US) Transactions Top transactions what s happening and where 14 Investment Outlook United States Office H Rational and disciplined underwriting remains the norm for office product The office sector is posting declines in transaction volumes, driven by disciplined underwriting for transactions across markets notably in those seeing a slowing of demand and elevated construction activity. Fullyear 2017 office transaction volumes decreased by 12.0 percent, paralleling the broader slowdown seen across commercial real estate in the U.S. overall activity, respectively. However, we expect recapitalizations and entity-level investment to increase in the coming quarters. Shifts have been most notable with regard to big-ticket sales. The volume of transactions over $200 million in value declined by 25.2 percent in Investors are exhibiting rational and disciplined underwriting behavior and pulling back from select investment opportunities given current pricing and returns. Office investment volumes soften to $123.7 billion $250.0 National office investment volumes have fallen for two consecutive years since the most recent peak in The slowdown in volumes has largely been expected; the redeployment of capital and exit pricing assumptions remain key areas of concern for investors underwriting acquisitions at current pricing. Liquidity in the real estate debt markets is simultaneously resulting in more refinancing activity. $200.0 $150.0 $100.0 $50.0 Q1 Q2 Q3 Q4 As a percentage of overall transaction volume, volumes remain relatively consistent across different transaction profiles. Portfolios and recapitalizations are largely in line with recent averages at 23.7 and 14.1 percent of $0.0 Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions) Notable primary market transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) New York 825 Eighth Ave RXR Realty $840,075,000 2,049,553 $842 Los Angeles N Sepulveda Blvd Starwood Capital $605,454,000 1,588,089 $381 New York 1440 Broadway CIM Group $520,000, ,000 $694 Notable secondary market transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) Phoenix E Rio Salado Pkwy Transwestern Investment Group $928,000,000 2,024,139 $458 Minneapolis 50 S 6th St Mapletree $258,500, ,606 $370 Denver 1401 Lawrence St Heitman $225,000, ,113 $723 Oakland-East Bay 1954 Telegraph Ave CIM Group $180,000, ,622 $472

15 Transaction volumes (billions of $US) Markets Secondary markets account for increased share 15 of activity Investment Outlook United States Office H Secondary markets accounted for an increased 50.0 percent of transactions in 2017, up from 45.9 percent in Secondary and tertiary markets represented a larger share of overall activity due to investors need to deploy capital and requirement to achieve yield. This dynamic is further supported by the concentration of value add liquidity in the capital markets, at a time when core liquidity has weakened. A notable growth story for 2017 was Houston, which saw significantly increased liquidity. With some green shoots in the energy market, volumes increased to $4.9 billion in Activity in the market was driven by portfolio acquisitions made by Canadian Pension Plan Investment Board (CPPIB) and Brookfield. Brookfield acquired 1221 and 1301 McKinney for roughly $900.0 million, underpinning market liquidity. Behind much of the slowdown in primary markets is New York, which saw volumes drop 45.7 percent. Bucking the trend were Washington, DC and Silicon Valley, which saw increases in transactions of 11.0 and 22.8 percent, respectively. Secondary and tertiary market investment as percentage of overall transaction volume increases to 50.0 percent in 2017, marking eight-year high $250.0 $200.0 $150.0 $100.0 $ % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% $- 0.0% Primary Market Investment Secondary and Tertiary Market Investment Secondary and Tertiary % of Total Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

16 16 Investment Outlook United States Office H National Office CBD Class A cap rate map San Francisco 4.00% % Silicon Valley 5.00% % Portland 4.70% % Seattle 4.25% WA % OR Sacramento 6.00% % Oakland / East Bay NV 5.00% CA % Los Angeles 4.00% % Orange County 5.00% % San Diego 5.00% % ID AZ MT Salt Lake City 6.00% % UT Phoenix 6.00% % WY Denver 4.50% % CO NM ND SD NE KS OK Austin TX 5.00% % Dallas 4.50% % Houston 5.50% % MN VT Minneapolis NH Boston WI Detroit 5.75% % NY MA 4.50% % 8.00% % Pittsburgh CT New York Chicago Cleveland MI 6.50% % 4.50% % 4.50%- 6.50% 8.00% % Philadelphia IA New Jersey Columbus NJ Indianapolis 6.00% % 6.00% % 8.50% 8.00% % IL IN % OH St. Louis Cincinnati PA Washington, DC Baltimore WV 8.00% % 5.50% % 4.0% % 6.50% % MO VA Richmond KY 7.50% % AR LA MS Nashville TN 5.50% % AL Atlanta SC 4.50% % GA NC Orlando FL 6.00%-7.00% Tampa 5.00% % Miami 4.50% % ME Raleigh-Durham 6.50% % National Office Suburbs Class A cap rate map Silicon Valley 5.00% % % % % % % % 9.00% + Seattle 5.50% WA % Portland 5.90% % OR Sacramento 6.75% % Oakland / East Bay NV 6.50% CA % Los Angeles 5.50% % Orange County 5.50% % San Diego 5.00% % ID AZ MT Salt Lake City 6.25% % UT Phoenix 6.00% % WY NM Denver 5.50% CO % ND SD NE KS OK Dallas 4.10% % Austin TX 6.00% % MN VT NH Boston Minneapolis WI NY MA 5.50% % 6.50% % Detroit 8.00% % Pittsburgh CTNew York MI Chicago Cleveland 6.50% % 5.50% % Philadelphia IA 5.50% % 9.00% % NJ New Jersey Indianapolis Columbus 6.00% % 7.50% % St. Louis IL 8.00% -IN9.00% OH 8.00% % Washington, DC PA Cincinnati 6.50% % WV 6.00% % Baltimore 7.50% % Richmond 7.25% % MO VA KY 7.50% % AR Houston 7.00% % LA MS Nashville TN 6.50% % SC Atlanta AL 5.50% -GA 7.00% NC FLOrlando 6.50% % Tampa 6.50% % Miami 5.50% % ME Raleigh-Durham 7.00% %

17 17 Investment Outlook United States Office H Sources capital of Share of off-shore investment holds steady, foreign investors increasingly targeting secondary markets Foreign investors continue to be drawn to the relative stability of U.S. real estate. Off-shore purchases of office assets totaled some $21.0 billion in 2017, comprising 17.0 percent of all activity. This compares to $25.3 billion and 18.2 percent in The six most active inbound capital sources in 2017 were Canada, China, Germany, Japan, Singapore and Japan. Together, these six countries accounted for 81.5 percent of overall foreign investment into the sector. Canadian investors purchases in the sector increased by 98.5 percent in 2017, reaching $5.5 billion. One of the main drivers was Canadian Pension Plan Investment Board s purchase of Houston-based REIT Parkway, Inc. and its underlying assets for approximately $1.2 billion. For the second year in a row, the proportion of off-shore capital targeting secondary and tertiary markets has risen, reaching 28.9 percent in While remaining selective, diversification into secondary markets is expected to increase and represent a sustained trend, as off-shore capital sources pursue higher-yielding investments and gain deeper understanding of and familiarity with markets outside of the key gateways. Canadian investors are making bold plays in secondary markets, and we expect this to be mirrored by an increasing number of Asian investors in One example of this foray into new markets is Singapore-based Mapletree s acquisition of Fifty South Sixth in Minneapolis for approximately $260 million, representing the largest office transaction in Minneapolis in Driven by a strong first quarter in 2017, Chinese investors were among the top foreign groups, but as expected, their activity trailed off as the year progressed. The increased scrutiny of outbound capital by the Chinese government is expected to further temper activity in This will likely have some impact on the range of bids for prime assets, as Chinese investors have in recent past represented some of the top bids. Off-shore purchases as proportion of total volumes hold steady in 2017; top six countries account for 81.5 percent of all foreign volume All Others South Korea Singapore Japan Germany China Canada $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 Foreign transaction volume 2017 (billions of $US) Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

18 Share of office transactions by cap rate range Transaction volume Four-quarter moving average (billions of $US) 18 Investment Outlook United States Office H risk Sources of Despite pressure to deploy capital, investors demonstrating rational underwriting With the economic expansion soon entering its ninth year, the office sector having posted its seventh consecutive year of growth in rents, and pricing elevated across most markets, investment opportunities have become more varied geographically. Investors have shifted from strategies anchored in market diversification to investment approaches which are thematic and increasingly focused at the submarket- or asset-level. Investors need to deploy capital and requirement to achieve yield is not lessening. However, despite the appetite for yield, we are seeing a tightening in appetites for real estate risk. As value add liquidity has remained elevated and the most productive in deployment efforts, this has been evident in the pullback in opportunistic fundraising and the growth of debt strategies in the capital markets from institutional and private equity investors. In transactions, investors remain focused on value add, urban transactions across primary and secondary markets, and even emerging fringe submarkets given demand-side shifts evident in markets. Investors will continue to look to unique opportunities, deal structures and asset types in search of yield, in line with their risk appetite. Proportion of transactions with cap rates below 7.0 percent decreases since peaking in mid-2016, signaling shift in risk profile 100.0% $ % 80.0% $ % 60.0% $ % 40.0% $ % 20.0% $ % 0.0% $- 0-5% 5-7% 7-9% 9%+ Investment Volumes Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

19 19 Investment Outlook United States Industrial H Industrial

20 Q4 Industrial It s all in the numbers 20 the Industrial 2017 breakdown Investment Outlook United States Industrial H Garnering continued attention, industrial transaction activity represented the only sector to experience growth within the U.S. in Volumes amounted to the second highest total in industrial history Property market month change in total vacancy (bps) 1.9% 12-month net absorption (as % of inventory) 1.8% 12-month completions (as % of inventory) 5.4% 12-month rent growth (p.s.f.) Demand Investment market $59.2 Investment sales (2017, billions of $US) 23.2% 2017 investment sales growth 4.8% Average cap rate month change in cap rate (bps) Development continues to respond to the need for modern bulk distribution space, with 2017 accumulating m.s.f. of new deliveries. There is m.s.f. of space still under construction, but nearly half is concentrated in seven major big box distribution markets: Atlanta, Eastern/Central Pennsylvania, Dallas, the Inland Empire, Chicago, the Central Valley in Northern California and Central New Jersey. These markets are also absorbing strong levels of space relative to overall inventory, with each totaling net absorption of more than 2.5 percent vs. total inventory. The only exception being Chicago, which still totaled a strong 1.5 percent, compared to the U.S. average of 1.8 percent. Finally, pre-leasing overall was down slightly at the end of 2017, but speculative deliveries, which represent 75.5 percent of all new completions, were up to 31.6 percent in the fourth quarter, from 29.1 percent in the third quarter. National vacancy has halved since 2010 to 5.0 percent, 240 bps lower than past peak Industrial leasing experienced a strong bounce-back in the fourth quarter, reaching m.s.f. That figure is down by 6.1 percent in 2016, however still remains higher than 2015 and The aggregate U.S. endured some slowing in the second and third quarters, but net absorption totaled nearly 80.0 m.s.f. in the fourth quarter. National vacancy is just 5.0 percent, which continues to push fundamentals. Top markets are experiencing vacancy below 3.0 percent. National vacancy has halved since 2010, and is now 240 basis points lower than the past peak set in On the heels of record-low vacancy, national rents rose to an all-time high $5.49 p.s.f., up 5.4 percent on Tight vacancy drives strong rent growth, indicating strength of demand 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 5.6% 90 Source: JLL Research % -2.8% % Change in vacancy (bps) Annualized rent growth (%) Vacancy 0.5% 0.7% 5.4% 4.5% 3.5% % %

21 Transactions Top transactions what s happening and where 21 Investment Outlook United States Industrial H Volumes for 2017 set second-highest tally on record Investment volumes in 2017 continued their momentous drive, posting year-over-year growth of nearly 25.0 percent. Total volume amounted to just under $60.0 billion, representing the second-highest total in sector history. With volumes second only to 2015, the year saw both single-asset and portfolio volumes nearly 65.0 percent higher than their 10-year averages. Single-asset transactions emerged as a significant market driver, exceeding their previous record high total set in 2016 and totaling 56.9 percent of transactions activity. Total portfolio volume capped the second-highest tally in sector history with 43.1 percent of activity. Industrial volumes in 2018 will be progressively lifted by large-scale portfolio trades, as over $5.5 billion of currently tracked under contract large-scale portfolios are expected to close by the first half of the year. Additionally, almost $7.0 billion of currently tracked largescale portfolios are coming to market in 2018, which does not include off-market transactions such as Blackstone s announced acquisition of a nearly $2.0 billion Cabot portfolio, or the anticipated Blackstone-sponsored Blackstone Real Estate Income Trust Inc. non-traded REIT acquisition of Pure Industrial Real Estate Trust (PIRET) for $3.8 billion. The continuation of the surge in interest within the industrial sector is poised to guide capital placement in 2018, as many investors attempt to gain exposure to the asset class. Notable single asset transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) Inland Empire I-120 Logistics Center III Liberty Property Trust $94,200, ,668 $134 Inland Empire Krameria Ave Invesco Advisors $80,100,000 1,000,000 $80 Philadelphia-C. PA Whirpool Kingston Industrial Property $78,264,000 1,100,000 $71 Seattle-Bellevue East Valley Commerce Park Clarion Partners $67,027, ,100 $140 Chicago Core5 Logistics Center Core5 $49,363,500 1,026,000 $48 New Jersey 95 Demarest Dr Center Point Properties $43,263, ,253 $265 Notable portfolio transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) National Prologis National Portfolio Blackstone $325,000,000 4,600,000 $71 National First Potomac Realty Trust / Office & Ind. / Mid-Atlantic / (Ind.) 38 bldgs Government Properties Income Trust $172,990,093 2,646,838 $65 New Jersey Rockefeller Group (JV) Alfieri / Ind. / New Jersey / 2 bldgs Clarion Partners $168,500,000 1,240,967 $136 National IDI Gazeley MS Ind. Port. / Ind. / National / 3 bldgs Granite REIT $122,800,000 2,170,719 $57

22 Single market-focused portfolio volume (millions of $US) Markets Primary market activity drives bulk of investment 22 in second half of 2017 Investment Outlook United States Industrial H Principally reflective of the capital placement in national, large-scale portfolio transactions that were prominent throughout 2017, primary markets led transaction volumes in As investors continue to seek diverse assortments of assets in gateway markets in order to ensure stability in their investments, primary markets such as Atlanta, Chicago, Dallas-Ft. Worth, Inland Empire, New Jersey, and Philadelphia largely benefited in terms of overall deal flow, with nearly every primary market setting a second-best total volume at year-end, surpassed only by their 2015 totals. The second half of 2017 heralded a significant influx of investment to all of the primary markets, with Los Angeles and then Chicago constituting the largest positive flows. The scarcity of opportunities in these markets helped to elevate prices to far exceed five-year averages, with this trend expected to accelerate further in Chicago and Atlanta hit record volumes in 2017 $7,000.0 $6,000.0 $5,000.0 $4,000.0 $3,000.0 $2,000.0 $1,000.0 $ Q Q Q Q Q Q4 Most active primary markets Most active secondary markets Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions) National Industrial Class A cap rate map Seattle 3.95% WA- 5.00% Portland 4.50% % OR SF Bay Area Reno Salt Lake City 3.90% % 5.50% % 5.50% % NV Sacramento UT CA 5.00% % Las Vegas Southern California 5.25% % 3.90% % Inland Empire 4.00% % AZ % % % % % % 9.00% + San Diego 5.00% % ID Phoenix 5.25% % MT WY Denver 5.25% % CO NM ND MN Minneapolis NH Boston NY SD 5.75% % WI MA 6.00% % CT Chicago MIColumbus Harrisburg 4.75%- 5.75% 5.50% % 4.75% % New Jersey IA NE Cincinnati Philadelpia- NJ 4.00% % 5.50% % South NJ Eastern PA IL IN OH PA 4.75% % Indianapolis 4.75% % WV Kansas City Baltimore/DC St. Louis 5.50% % KS6.00% % MO VA 4.95% % 6.00% % Louisville KY 5.50% % NC Nashville Charlotte TN OK Memphis 5.25% % 5.50% % AR 6.00% % SC TX Dallas 4.50% % Houston 5.00% % LA Atlanta MS 4.75% - AL 5.50% GA VT FLOrlando Tampa 5.50% % 5.75% % Miami 3.90% % ME

23 23 Investment Outlook United States Industrial H Sources capital of Off-shore capital deployment accelerates further, now facing fierce domestic competition Off-shore investment into the U.S. industrial sector in 2017 at $4.9 billion marked its second-highest total in history, second only to 2015, where it was $15.8 billion. Foreign investment exceeded the 10-year average of $2.5 billion by 76.7 percent in If the outlier year of 2015 is removed from the 10-year average, 2017 totals were almost three times higher than average. Despite the pronounced expansion of capital from foreign sources coming into the industrial sector over the past three years, off-shore investment as a percentage of total volume has remained just over 10.0 percent on average since U.S.-based institutional investors and REITs have emerged as two other substantial drivers of the record expansion within industrial investment, topping 2017 with $11.2 billion and $14.5 billion respectively, an increase of 53.8 and percent over their 10-year average investment totals. Peak foreign-based investment in the industrial sector was capped in 2015, as a fundamental shift in the perception and ability for institutional capital to deploy at scale was catalyzed by the GLP-GIC acquisition of Blackstone s IndCor. Foreign-based capital has often aggressively outbid domestic buyers in 2015 and 2016 for bulk industrial portfolios, as their investment timelines assumed when underwriting are significantly longer than traditional assumptions for U.S.-based buyers. While overall capital volumes from foreign-based investors continue to expand, 2017 can be characterized as a year in which domestic capital sources began to successfully outbid foreign capital sources, with investors such as Gramercy and Blackstone expanding their acquisitions, representing almost $10.0 billion in closed and undercontract deal-flow since the beginning of Limited supply of capital placement opportunities drives buyer-type participation records Transaction volume (as a % of total) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 4% 5% 3% 6% 9% 11% 9% 68% 14% 10% 3% 24% 36% 23% 50% 23% 1% 16% 30% 32% 1% 24% 12% 8% 8% 14% 15% 18% 29% 30% 29% 1% 25% 20% 39% 37% 5% 9% Foreign High Net Worth REIT-REOC Developer-Operator Institution-Advisor User-Other Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m)

24 24 Investment Outlook United States Industrial H risk Sources of Intensifying buy-side competition driving pronounced shifts in investment environment In 2018, the notable strength in demand displayed within the industrial leasing market will continue to greatly contribute to intensified interest in the industrial sector by an extended investor-base, many of whom now view themselves as underweight in the sector. Additionally, the risk premium perception of the sector continues to evolve when compared to its peer groups as e-commerce and third-party logistics assets shift downward on the risk curve for a broadening group of investors. This is particularly true as added attention is garnered due to expanding announcements of retail store closings and retailer bankruptcies, with industrial assets offering investors the opportunity to gain exposure to growing e-commerce activity. A significant mid-term trend to monitor is what will happen as the industrial sector progresses through its evolution to a more widely-accepted institutionalized asset class. The very nature of the formerly-standard investment environment will develop, as longer assumed investment horizons shift the new normal due to the type of underwriting that is typically associated with institutional investments. Already outpaced by buyer demand, a continuation and expansion of scarcity of acquisition targets will only become more compounded over the next five to 10 years, as assets being acquired by institutional capital are expected to have notably longer investment timeframes, and as such less product will come back onto the market. The acquisition environment in five to 10 years will drive ever more aggressive underwriting, particularly as new-to-the-sector investors seek to gain exposure to the industrial sector. Scarcity of opportunities, strength of rent growth driving modest and sustained cap rate compression in primary markets 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 128 bps 10-year Treasury yield (%) Average weighted primary cap rate (%) Average weighted secondary cap rate (%) Primary cap rates 100 bps wider spread than % 237 bps % Exposure to e-commerce and last mile primary market assets drives compression Scarcity of opportunities in primary markets may drive capital toward secondary markets Source: JLL Research, NCREIF, Board of Governors of Federal Reserve System

25 25 Investment Outlook United States Multifamily H Multifamily

26 Multifamily It s all in the numbers 26 the Multifamily 2017 breakdown Investment Outlook United States Multifamily H Despite elevated deliveries, multifamily transaction activity ended 2017 on a strong note. Excluding a weak Q1, 2017 activity levels kept pace with 2015 and 2016, indicating continued robust liquidity Property market month change in total vacancy (bps) 1.3% 12-month net absorption (as % of inventory) 1.4% 12-month completions (as % of inventory) 2.3% 12-month rent growth (p.s.f.) Demand Investment market $139.3 Investment sales (2017,billions of $US) -8.3% 2017 investment sales growth 4.2% Average cap rate flat 12-month change in cap rate (bps) the country, driven by labor shortages. The expectation was that 2017 would be the year of peak deliveries and 2018 would see significant tapering of development. Due to continued labor shortages in the construction industry, a substantial number of projects were delayed and their expected deliveries were readjusted from 2017 to With this shift of deliveries in mind, leasing fundamentals are not expected to show any significant improvement over the next 12 months. That said, our outlook for multifamily demand in the mid to long-term is very positive. The home ownership rate in the U.S. remains near historical lows, and the newly passed Tax Cuts and Jobs Act could push that rate lower. Elevated deliveries continue to weigh on rent growth As an elevated number of new multifamily units delivered across the country in 2017, the sector saw fundamentals soften over the course of the year. That said, through the fourth quarter, indicators appeared to flatten despite leasing velocity slowing for the winter season. At year-end, effective rent growth was 100 basis points lower than one year ago at 2.3 percent. Over the same period, vacancy rose 20 basis points to 5.2 percent nationally. Further indicative of a market in the middle of a construction boom, new unit deliveries in 2017 outnumbered net absorption for the second year in a row. On the topic of the construction pipeline, one particularly important shift in the second half of the year was the rise of construction delays for many multifamily projects across Both rent growth and vacancy flattened through Q4 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Source: JLL Research, Axiometrics Effective Rent Growth Vacancy 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

27 Transactions Top transactions what s happening and where 27 Investment Outlook United States Multifamily H More entity-level transactions expected Volumes decreased 8.3 percent in 2017, mimicking the overall softening in volumes across the commercial real estate sector. On closer inspection though, activity levels remained at record levels from the second through the fourth quarter. Compared to the same period in 2016, volumes were actually slightly higher in For the third year in a row, the sector saw more transaction activity than any other property sector. This indicates a continued environment of strong liquidity for multifamily assets. Single-asset transactions continued to represent the majority of deals in 2017, accounting for 75.9 percent of sales, roughly on par with the long-term average. This also represents a healthy transaction environment with demand from across investor types remaining strong. Portfolio sales saw a 16.8 percent decrease in 2017, but entity-level transactions rose. This was driven in large part by Greystar, APG, GIC and Ivanhoe Cambridge s acquisition of Monogram Residential for $4.4 billion. The fourth quarter marked the closing of Harbor Group s $1.8 billion acquisition of a 25-property portfolio. The portfolio was concentrated in the Northeast with several assets in the Chicago area. Looking to 2018, we expect to see portfolio and entity-level activity increase as institutional investors seek additional exposure to the sector. Despite softening of short-term rental fundamentals, long-term demand fundamentals for the sector remain strong and the sector continues to be attractive to institutional capital. Notable primary market transactions, Q Market Property Buyer Price ($) Units Price (unit) New York 180 Water Street Metro Loft $405,900, $787,000 Seattle-Bellevue Tower 12 Apartments Weidner Apartment Homes $225,093, $719,000 Seattle-Bellevue Shorewood Heights Greystar $209,838, $325,000 Boston One Greenway PGIM Real Estate $144,500, $666,000 Chicago Park Evanston New York Life $127,000, $449,000 Notable secondary market transactions, Q Market Property Buyer Price ($) Units Price (unit) Oakland-East Bay Summer House Blackstone $230,800, $375,000 Northern New Jersey The Duchess Post Brothers $166,000, $519,000 Denver Steele Creek UDR $141,500, $649,000 San Diego Avion at Spectrum Prime Group $139,975, $312,000 West Palm Beach 850 Boca AvalonBay $138,000, $373,000 Notable portfolio transactions, Q Market Property Buyer Price ($) Units Price (unit) National Lone Star Multifamily Portfolio Harbor Group International $1,799,500,000 9,676 $186,000 National Steadfast Income REIT Multifamily Portfolio Blackstone $460,800,000 4,584 $112,000 Seattle-Bellevue Holland Seattle Multifamily Portfolio Blackstone $324,589, $462,000 Mid-Atlantic Rockpoint-Saywer Multifamily Portfolio Morgan Properties $277,500,000 2,729 $102,000 Orlando Carroll Orlando Multifamily Portfolio Bluerock Res Growth REIT $183,300,000 1,042 $176,000

28 Cap rate Cap rate spread (basis points) Markets Pricing spread in primary vs. secondary 28 markets tightening Investment Outlook United States Multifamily H Driven by continued price appreciation and the risk posed by new supply, investors gradually shifted their focus away from primary markets in During the year, primary markets accounted for 40.3 percent of transaction activity. This is down from 44.0 percent in 2016 and 48.2 percent in The biggest contributor to this decrease was New York. The Big Apple saw volumes fall 48.1 percent yearover-year. Dallas-Ft. Worth thereby surpassed New York for the most active market in the country, ending a six-year streak of New York leading all U.S. markets in transaction volumes. While primary market activity slowed, secondary and tertiary markets saw their share of investment volumes trend upward. Both Milwaukee and Detroit saw transaction volume more than double in 2017, while Salt Lake City, Philadelphia and Jacksonville all posted significant increases in activity. This surge in interest from investors has not only led to increased volume, but also drove yields lower. One way to look at this is to use the proxy of mid/high-rise (primary, urban) as compared to garden-style pricing Pricing spread between mid/high-rise and garden style assets continues to narrow 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% Spread Garden-Style Mid/high-rise Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions) (secondary/tertiary, suburban). The spread between the two is the most narrow it has been in five years after tightening nearly 30 basis points during As this spread continues to tighten, investors may start to turn their attention back to urban submarkets as the opportunity for relatively higher yields in suburbs lessens National Multifamily Class A cap rate map SF Bay Area 4.00% % Orange County 4.0% % % % % % % % 9.00% + Seattle-Bellevue 4.00% WA- 4.60% Portland 4.30% % OR Sacramento 4.60% % NV CA Inland Empire 4.50% % Los Angeles 4.00% % San Diego 4.00% % ID Las Vegas 5.00% % UT AZ Phoenix 4.90% % MT WY Denver 4.60% CO % NM ND SD Austin 4.15% % TX NE KS San Antonio 5.00% % OK Dallas 4.20% % MN Minneapolis WI 4.40% % IA Chicago 4.50% % MO AR LA Houston 4.25% % IL MS AL KY Nashville TN 4.75% % Atlanta SC 4.70% % GA VA Charlotte NC 4.75% % NY VT Pittsburgh MI 5.75% % Philadelphia Columbus NJ 4.60% % 6.40% % IN OH Washington, Cincinnati PA DC WV4.75% % 6.30% % North / Central Florida 5.30% FL % South Florida 4.30% % NH MA CT ME Boston 3.50% % New York 3.30% % New Jersey 4.20% % Raleigh-Durham 4.75% %

29 Transaction volume (as % of total) 29 Investment Outlook United States Multifamily H Sources capital of Buyer pool remains diverse; foreign activity is up Despite softening fundamentals, demand for multifamily investments from the majority of buyer groups remains strong. Unchanged from previous years, private capital remained the dominant source of investment in 2017, comprising almost two-thirds of purchase volumes. Institutional investors represented the second largest source of investments. Although they saw a slight decrease in volume, they remain active in portfolios and entity-level transactions and made up five of the top-10 investors in Noticeably missing from the top-10 investors were REITs. Overall, acquisitions by REITs decreased 22.6 percent in 2017, driven by a 53.6 percent decrease in portfolio purchases. While institutional and private capital both remain active on this front, most REITs have shied away from major portfolio purchases. As the economic cycle progresses and pricing becomes more challenging, REITs have an increasingly difficult time underwriting returns that align with return hurdles. Foreign investment activity saw an uptick in 2017, with acquisitions funded by off-shore investors increasing 15.6 percent. Canada and Singapore continued to be the primary countries of origin. Combined, they accounted for 65.9 percent of foreign investment. Also of note, for the second year in a row, roughly 20 percent of foreign investment went into student housing properties. Interest in the niche sector from cross-border buyers continues to be driven by three investors, CPPIB, GIC and Mapletree. Private investors continue to be dominant source of capital 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 9.8% 10.3% 6.0% 7.0% 6.0% 5.0% 23.4% 8.9% 4.9% 5.8% 7.4% 4.1% 24.4% 23.5% 22.0% 29.2% 40.8% 23.1% 57.8% 59.8% 60.5% 53.9% 42.8% 47.1% Developer-Operator Institution-Advisor Foreign REIT-REOC User-Other High Net Worth Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

30 High-rise transaction volume trailing 12-mo (billions of $US) High-rise asset volume share of total volume (%) 30 Investment Outlook United States Multifamily H Sources risk of Risk of oversupply for multifamily persists in the short-term, but U.S. housing market as a whole remains undersupplied Sentiment among multifamily investors remains cautious but largely optimistic. The focus of most investors in 2018 remains around the impact of new supply. With 365,000 new units having delivered in 2017 and another 370,000 units projected to come online in 2018, the reality will be a competitive leasing environment in the short to mid-term. While the supply story has been national in scope, the product that has delivered or is currently under construction has skewed toward urban submarkets. As a consequence of this, and with yields in cities at record lows, investment into urban multifamily assets in 2017 declined significantly. High-rise acquisitions fell by 41.5 percent. Conversely, capital flocked to the suburbs, purchasing garden-style product at an elevated rate. Garden-style assets represented 65.9 percent of all multifamily acquisitions, the highest rate during the past ten years. Beyond these short to mid-term supply risks, the outlook for multifamily remains positive for several reasons. First, the home ownership rate in the U.S. remains near historic lows, and first-time home buyers are facing rapidly increasing home prices. Second, the recently signed Tax Cut and Jobs Act did little to incentivize home ownership in the U.S., and will likely keep the home ownership rate from ticking up. Thirdly, despite the current multifamily building boom, the U.S. housing market as a whole remains undersupplied. A study released in 2017 from the National Multifamily Housing Council and National Apartment Association highlighted the need for at least 325,000 new units to be constructed every year until 2030 to keep pace with demand. The annual average of newly delivered units over the past decade is a lesser 250,000 units. Investors shy away from high-rise product as pricing and new deliveries pose challenges $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $ % 20.0% 15.0% 10.0% 5.0% 0.0% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

31 31 Investment Outlook United States Retail H Retail

32 Q Q Q Q4 Average rent rate (US$) Average US vacancy (%) Retail the Retail 2017 breakdown 32 It s all in the numbers Investment Outlook United States Retail H While investors remain cautious with regard to retail and buyer pools continue to thin, increased retail sales volume is expected for 2018 Property market month change in total vacancy (bps) 0.7% 12-month net absorption (as % of inventory) 0.7% 12-month completions (as % of inventory) 5.5% 12-month rent growth (p.s.f.) Investment market $51.5 Investment sales (2017, billions of $US) -22.5% 2017 investment sales growth 4.3% Average cap rate flat 12-month change in cap rate (bps) Rents grew by 5.5 percent in 2017, marking a slowdown from the rate seen in Rent affordability will remain a key concern in 2018 as retailers continue to announce store closures. J.Crew, for example, more than doubled its planned store closures to over 50 locations set to be shuttered in early 2018, including its 21-year-old SoHo flagship store, after the company experienced a 12.0 percent dip in same-store sales. In 2018, the retail sector will likely continue to see closure announcements, though with less frequency than in Further announced strategic store openings are also anticipated as retailers streamline their physical strategies and e-tailers debut physical locations. Demand New development is very calculated; focus is on investing in and densifying existing space Retail fundamentals continued to grow in 2017, though at a slower pace than in previous years. Against that backdrop, retail construction continues to slow, with more of an emphasis on mixed-use properties. Developers remain conservative with new projects, recognizing the difficulties that retail space is undergoing. New development is more calculated than ever before. Rather than taking on new projects, owners are investing millions into centers to create mixed-use destinations for the evolving shopper including the addition of residential units, office space, hotels, entertainment options, and community and open spaces, or even pivoting entirely to non-retail uses. While retail rent grew by 5.5 percent in 2017, fundamentals are losing speed across markets $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 Source: JLL Research Rent rate (US$) Vacancy rate (%) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

33 Transactions Top transactions what s happening and where 33 Investment Outlook United States Retail H Investment volumes are down considerably, smaller deals get more traction Retail transaction volume decreased by 22.5 percent to $51.5 billion in The pullback was felt by all asset subtypes, aside from general purpose centers which saw a 10.5 percent increase in transactions. While previous years had larger transactions at the forefront, much of 2017 was comprised of necessity-based, one-off transactions. The consensus is that bigger is not always better. Power center transactions remained steady with cap rates stabilizing by year-end. Community center and neighborhood center transactions were also steady throughout the year each seeing some, albeit minimal growth in transaction volume. But lifestyle centers were rare to come to market and difficult to transact, with the asset type recording volume declines of 48.5 percent in Mall transactions experienced the largest volume declines in 2017, decreasing by 53.5 percent. This is down significantly from 2016 which saw several large-scale transactions including three mall transactions over $1.0 billion in Las Vegas. Pricing continues to be bifurcated with fewer strongly-performing assets coming to market. Mall assets are becoming more difficult to transact given heightened underwriting standards, providing another reason for investors to sidestep malls for the time being. Some misalignment of buyer and seller pricing expectations is anticipated to linger in Underwriting for both malls and power centers has become increasingly complicated. Over the past few years, there has been a shift in the buyer pool towards private investors, particularly for assets that are of less than the highest quality. These local or regional private investors are struggling to rationalize the higher loan to value ratios, and the lower availability of debt is presenting challenges. At times, they are walking away from transactions due to complicated pricing structures and the impact on their returns. Sellers seeking to transact assets quickly will have to further negotiate concessions and remain flexible in deal structuring. Notable primary market transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) Philadelphia Centerton Square Prestige Properties & Development $129,615, ,327 $300 Los Angeles Whittwood Town Center Kimco $123,000, ,000 $164 San Francisco Pacific Place (Retail) Ponte Gadea $97,990, ,295 $967 Boston Brattle Street Asana Partners $85,495,380 36,000 $2,375 Washington, DC North Bethesda Market (Retail) CBRE Global Investors $84,100, ,153 $422 Philadelphia Centerton Square Prestige Properties & Development $129,615, ,327 $300 Los Angeles Whittwood Town Center Kimco $123,000, ,000 $164 Notable secondary market transactions, Q Market Property Buyer Price ($) Size (s.f.) Price (p.s.f.) Milwaukee Bayshore Town Center (Retail) AIG $209,200, ,000 $223 San Diego Scripps Ranch Marketplace Regency Centers $81,600, ,000 $618 Inland Empire Moreno Valley Mall International Growth Properties $61,375, ,875 $124 Orlando Lake Nona Landing Clarion Partners $58,000, ,000 $173 Los Angeles The Triangle Unimat Commercial $55,350, ,523 $271 Milwaukee Bayshore Town Center (Retail) AIG $209,200, ,000 $223 San Diego Scripps Ranch Marketplace Regency Centers $81,600, ,000 $618

34 Markets With primary markets stagnating, the hunt for 34 pockets of out-performance intensifies Investment Outlook United States Retail H With the fluctuation in retail performance in 2017, investors are looking to hedge risk by finding pockets of geographic safety for their acquisitions. Most gateway markets saw investment decline, with San Francisco and Boston as the exception. San Francisco volume increased by 78.8 percent from 2016, rebounding after a low year, due in part to the purchase of mixed-use complex Pacific Place by Spanish investor Ponte Gadea in the fourth quarter for $475.0 million, of which the retail component comprised roughly $98.0 million. While transaction volume is lower, investor interest in primary markets has not wavered. Rather, there is limited supply available for purchase. Investors selling in core markets are likely to move proceeds to another sector altogether as similar-caliber retail assets are few and far between. Prime Urban Retail cap rate map % % % % % % 9.00% + Seattle Pike WA Street 4.50% % OR San Francisco Union Square NV 4.00% CA- 4.50% ID Los Angeles Beverly Hills Triangle 3.00% % AZ Gateway market transaction volumes decline while secondary markets see growth in 2017 Transaction volume (billions of $US) $6.0 $4.0 $2.0 $0.0 Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions) UT MT WY NM CO Los Angeles Chicago Houston Philadelphia Fort Lauderdale TX ND SD NE KS OK MN $2.9 $2.5 $1.4 $1.4 $1.3 $ IA MO AR LA WI While gateway markets continue to experience declines in transaction activity, secondary and smaller primary markets are experiencing some growth. The Southeast was a standout in Of the $13.3 billion in acquisitions by REITs in 2017, $3.2 billion was invested in the Southeast region. As an example, Tampa s retail transaction volume grew by 23.5 percent, with $604.0 million in volume. Markets seeing strong population and job growth outperformed, such as Houston and Fort Lauderdale, with 14.0 percent and 41.0 percent volume growth respectively. These cities are emerging as attractive destinations for capital. This trend is expected to continue throughout 2018, with investors evaluating retail opportunities throughout the entire country. Investors are taking all factors into consideration including market and demographics and weighing traditional data points less heavily. Chicago Oak Street 4.50% % IL MS IN AL MI TN KY GA FL NC ME VT Boston NH NY Newbury Street MA 4.00% % CT Philadelphia New York Walnut Street Fifth NJ Avenue 4.00% % 3.00% % OH Washington, PA DC WV M Street 4.00% VA % SC Miami Lincoln Road 4.00% %

35 Transaction volume (billions of $US) 35 Investment Outlook United States Retail H Sources capital of Composition of buyers shifts with tightened underwriting parameters The year 2017 brought with it challenges for the retail sector, and in reaction to these shifts, investors tightened target asset parameters, leading to less viable deals. Institutional investors in particular pulled back and invested 41.8 percent less in Where active, institutional investors are looking for very particular buying criteria, including non-mall assets in core markets with strong tenancy but some opportunity for yield. Of note, LaSalle purchased Costco-anchored Greenway Commons in Houston for $84.0 million. Acquisitions by REITs increased by 12.0 percent with $9.2 billion focused on general-purpose centers. While REITs interest in general purpose centers grew by 47.7 percent, mall investment has consistently declined since 2015, falling by 38.7 percent in 2016 and further still by 50.0 percent in While lack of activity by mall REITs prevails, attributed to the lack of opportunity, shopping center REITs see increased transactions in 2017, specifically focusing on grocery-anchored centers. In fact, investment from REITs into grocery centers increased by 7.4 percent in 2017, boasting the second-highest grocery transaction volume aside from the peak in 2015 with $3.5 billion. In 2018, targeted grocery and necessity-based transactions are expected from both REITs and institutional investors as these assets are still viewed as a safe investment when tenanted with strong grocers. Foreign investment into retail declined by 56.7 percent in Appetite for retail from off-shore investors has become very narrow, focusing largely on core assets with some upside, and will likely remain thin through Foreign capital was chiefly placed in general-purpose shopping centers with over $1.0 billion transacted. These transactions were led by Canadian capital with $592.0 million, followed by German capital with $142.0 million. These two inbound capital sources led foreign investment across retail asset types in Retail buyer pools shift in 2017 as some investors pull back $40.0 $30.0 $20.0 $10.0 $0.0 Developer-Operator REIT-REOC Institution-Advisor Developer-Operator transaction volume declined by 14.6 percent in Despite decreases, developer-operators were the most active retail investors with $25.5 billion in purchases. Though trending down over the last four years, REIT-REOC transaction volume increased by 12.0 percent with $9.2 billion in purchases, focused on general-purpose centers. Transaction parameters continue to narrow for Institution-Advisor investors, leading to fewer acquisitions. Institutional investment declined by 41.8 percent in 2017, making way for private investors. Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0 million, includes entity-level transactions)

36 Investment Outlook United States Retail H risk Sources of Despite heightened risk with regard to fundamentals, large portfolio acquisitions in the pipeline for 2018 Given heightened risk with regard to retail sales and tenant performance, investors are cautiously tailoring retail strategies and even avoiding transactions where they lack certainty. With that, we expect to continue to see an increase in one-off, small single-asset transactions in As opposed to larger-scale transactions that can bring with them a higher number of risky tenants, investors are opting for smaller centers with growth potential. For example, Katz Properties purchased Richland Marketplace in Philadelphia for $47.3 million from Kimco in the fourth quarter of This was one of 15 transactions to take place in Philadelphia in Q4 all but one being under $50.0 million. Portfolios in 2017 have had the opposite reception, with some small-to-mid size portfolios failing to gain traction while large-scale acquisitions garnered momentum coming into Australian retail REIT Westfield has agreed to be acquired by Europe s largest real estate company, Unibail-Rodamco, for approximately $15.8 billion. In addition, Brookfield Property Partners bid a reported $14.8 billion to acquire U.S. mall owner GGP. These acquisitions are likely to have a positive impact on the retail market, boosting transaction volume significantly, creating momentum in the mall transactions space, and bringing some clarity and new benchmarks to U.S. mall pricing in While trophy assets see continued cap rate compression, urban, mall and general-purpose center properties generally seeing softening 10.0% 8.0% 6.0% 10-year Treasury yield (%) Average primary market cap rate (%) Average secondary market cap rate (%) Average cap rate by retail subsector Urban Mall General-Purpose Center 5.1% % 8.9% 4.0% 2.0% 4.4% 4.2% % 6.3% 6.8% 0.0% % 6.1% 7.0% Source: JLL Research, Real Capital Analytics, NCREIF. Cap rate information is based on best-in-class, institutional-grade assets

37 37 Investment Outlook United States Hotels H Hotels

38 Hotels the Hotels 2017 breakdown 38 It s all in the numbers Investment Outlook United States Hotels H Public REITs make a resounding comeback in 2017, accounting for 26.0% of hotel transaction volume Property market 0.9% 12-month occupancy growth 2.1% 12-month ADR growth 3.0% 12-month RevPAR growth 1.8% 12-month supply growth Demand Investment market $24.0 Investment sales (2017, billions of $US) -18.0% 2017 investment sales growth 7.3% Average cap rate flat 12-month change in cap rate (bps) 0.9 percent. The year marked the eight consecutive year of increases to hotel operating performance. The fourth quarter of 2017 saw an acceleration in revenue per available room growth underpinned by a healthy economy and strong corporate profits. Demand growth is outpacing supply growth at the national level. In 2018, hotel revenue per available room is expected to grow by just under 3.0 percent. International visitation into the U.S. saw a dip in 2017, in part due to the relatively strong U.S. dollar and some trepidation to visit the U.S. due in part to ongoing political rhetoric. In addition, markets that had been impacted by terrorist activities during the past several years, such as Paris, rebounded strongly in 2017 and are again posing a greater competitive alternative for global travelers vis-à-vis New York and Miami, for instance. U.S. hotel revenue per available room growth marks recent acceleration 5.0% Q sees acceleration in operating fundamentals pushing investor confidence more positive The hotel sector is benefiting from healthy demand fundamentals in the three major sources of business corporate transient travel, group and conventions business, and leisure travel. All of these demand sources are moving in sync which is resulting in fuller hotels and operators ability to push room rates. Given growth in employment and rising household incomes, long-deferred family vacations are taking place, and travelers are spending more on hotel rooms and other activities on their trips. Hotel revenue per available room marked 3.0 percent growth in This was driven by increases to average room rates of 2.1 percent; occupancy rose by a lesser 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Full-year 2017 Q December 2017 Source: STR Inc., JLL Research

39 Transactions Top transactions what s happening and where 39 Investment Outlook United States Hotels H Transactions decline in 2017 due to fewer high-profile portfolios Hotel transaction volume in 2017 totaled $24.0 billion. This represents an 18.0 percent decline relative to 2016, resulting from a decrease in purchases by off-shore investors and fewer portfolio transactions. Transaction activity in 2016 was bolstered by Anbang Insurance Group s purchase of 15 assets from Strategic Hotels & Resorts for approximately $5.5 billion; if this trade is excluded from the 2016 total, activity in 2017 held steady. Single-asset transactions drove the bulk of activity in 2017, accounting for over 70.0 percent of volume. Of the $17 billion of single assets that sold in 2017, 40.0 percent were situated in urban locations, a decrease from 2016 as primary markets such as New York saw a decline in liquidity. The decrease also points to investors concerns over the supply dynamics of top urban markets. Investor appetite for single assets in resort locations observed a notable increase in 2017, accounting for 24.0 percent of total single-asset volume. The state of Hawaii overtook New York as the state with the highest volume of single-asset transactions, notching $1.7 billion in sales, a 19.0 percent increase relative to Investors focus on resort markets is expected to hold strong in A factor that will hamper meaningful growth in transaction volume in 2018 is the open and active lending environment, which is boosting refinancing activities; some owners will embrace this as an alternative to selling. Notable primary market single asset hotel transactions, Q Market Price Rooms Price per room Buyer Turtle Bay Resort Kahuku - Oahu Hawaii $332,500, $736,000 Blackstone Marriott Key Bridge Arlington Washington, D.C. $181,584, $312,000 Oaktree Capital Management, LLC Fairmont The Copley Plaza Boston Boston $170,000, $444,000 Undisclosed Ritz-Carlton Pentagon City Washington, D.C. $105,000, $288,000 Xenia Hotels & Resorts, Inc. Notable secondary market single asset hotel transactions, Q Market Price Rooms Price per room Buyer Marriott Plano Plano $104,000, $257,000 ROCH Capital InterContinental Hotel Dallas Addison Addison Undisclosed 528 Undisclosed Columbia Sussex Corporation Hilton Indianapolis Indianapolis $82,500, $248,000 Southwest Value Partners Westin Savannah Harbor Golf Resort Savannah Savannah $77,000, $191,000 Clearview Hotel Capital, LLC Notable portfolio hotel transactions, Q Market Price Rooms Price per room Buyer Hyatt Two-Property Phoenix Portfolio Multiple $305,000, $498,000 Xenia Hotels & Resorts, Inc. Noble Four-Property Portfolio Multiple $164,000, $252,000 Summit Hotel Properties, Inc. XSS Four-Property Portfolio Multiple $83,225, $164,000 Blackstone REIT Nana Development Two-Property Portfolio Multiple $57,500, $190,000 Undisclosed

40 Nashville, TN New York, NY Seattle, WA Denver, CO Dallas, TX Boston, MA Miami/Hialeah, FL Minneapolis/St Paul, MN-WI Philadelphia, PA-NJ Houston, TX Los Angeles/Long Beach, CA San Diego, CA Atlanta, GA Detroit, MI Orlando, FL Chicago, IL San Francisco/San Mateo, CA St Louis, MO-IL New Orleans, LA Tampa/St Petersburg, FL Washington, DC-MD-VA Anaheim/Santa Ana, CA Phoenix, AZ Norfolk/Virginia Beach, VA Oahu Island, HI Existing number of rooms Rooms under construction as a % of existing supply Markets Elevated new supply dampens growth in 40 major markets Investment Outlook United States Hotels H With 2017 representing the eight consecutive year of growth in fundamentals, growth has become more uneven and varied. A number of markets are notching stellar performance, while others are seeing a dip in operating performance due to the impact of new supply additions. Standouts include Houston and Orlando, each observing double-digit increases in revenue per available room in Houston s hotel performance was boosted by displaced residents seeking hotel accommodations following the landfall of Hurricane Harvey. Occupancy grew by a pronounced 7.1 percent, turning around performance in a market which had been under pressure for several years. Strong consumer sentiment underpinned travel to Orlando, with the market seeing nearly 5.0 percent growth in room rates and occupancy. On the flip side, hotel revenues are under pressure in a number of major markets. Driven by elevated supply deliveries, Chicago, Dallas, Minneapolis, New Orleans and Philadelphia are posting negative growth, which is resulting in more tepid underwriting and investor activity. New York saw new room additions peak at approximately 5.0 percent of existing supply in Hotel performance declines are leveling off with the market seeing just a -0.4 percent dip in revenue per available room in An Full service CBD Hotel Cap Rate Map Note: Based on JLL's Hotel Investor Sentiment Survey conducted in December % % % % % % 9.00% + San Francisco CA 6.50% Seattle-Bellevue 6.90% WA OR Los Angeles 6.80% San Diego 7.00% NV Hawaii 6.30% ID AZ Phoenix 8.00% UT MT WY NM CO anomaly for the year was San Francisco, one of the top growth markets of late, which saw a dip in demand in 2017 as renovations at the Moscone Center resulted in fewer conventions taking place. That said, declines were kept at bay given the city s minimal new supply pipeline in a market where construction in other property sectors is burgeoning. Hotel supply pipeline varies greatly by market 140, , ,000 80,000 60,000 40,000 20,000 Source: STR Inc., JLL Research Note: Data as of December 2017 TX ND SD - NE KS OK Dallas 7.70% MN Houston 8.30% existing # of rooms rooms under construction as a % of existing supply IA MO AR LA WI Chicago 7.50% IL MS IN AL MI TN KY OH Atlanta 7.50% GA FL VA NC NY NH Boston MA 6.7% New CTYork 6.30% NJ VT Washington, PA DC WV 7.00% SC Miami 7.00% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% ME

41 Foreign hotel volume (billions of $US) % of total hotel investment 41 Investment Outlook United States Hotels H Sources capital of Buyer pool driven by domestic purchasers In 2017, the U.S. hotel investment market saw a dramatic shift in the buyer pool. Following 2016 where a record 43.0 percent of volume stemmed from off-shore investors, the buyer pool was more domestically-driven in Domestic sources of capital accounted for over 80.0 percent of purchases in Public hotel real estate investment trusts notched significant growth in purchases in 2017, accounting for 26.0 percent of acquisition volume, a 23 percentage point increase relative to the group s buyer proportion in Real estate investment trusts are concentrating their acquisitions on luxury and upper upscale properties in top urban and resort locations. Private equity groups accounted for 29.0 percent of acquisitions in Foreign investment in U.S. hotels slowed in 2017 and became more diversified. As expected, capital from Mainland China decreased notably with the country s restrictions on outbound capital. The country s investment proportion dropped from 73.0 percent of off-shore investment in 2016 to 18.0 percent in At the same time, other countries in Asia, such as Japan and Korea, continued to deploy capital into the U.S. and accounted for a larger share of cross-border investment for the year. Europe also made notable investments in U.S. hotels, acquiring assets such as The Everly Hotel in Los Angeles and Pacific Beach Hotel in Honolulu. These transactions expanded Europe s share of cross-border investment in the U.S. to 28.0 percent in 2017, up from 9.0 percent in Buyer pool more domestic following record share of off-shore purchases in 2016 $14.0 Foreign hotel volume (billions of $US) 45.0% $12.0 % of total hotel volume 40.0% $ % 30.0% $ % $ % $ % 10.0% $ % $0.0 Source: JLL Research %

42 Net Balance of Responses with Regard to Hotel Performance Decrease / No Change / Increase 42 Investment Outlook United States Hotels H risk Sources of Demand picture improves and supply pipeline is cresting Investors have a more confident outlook as compared to one year ago, as there is more clarity around what have been the main risks to continued growth. Openings of new hotels dampened selected markets performance in 2016 and Supply risk remains top of mind; however, the construction cycle appears to be cresting. The number of hotel rooms under construction in the U.S. remained flat or declined for three consecutive months as of year-end The number of rooms under construction as of December decreased by nearly 4.0 percent when compared to the same month in 2016, marking the largest monthly decrease in six years. Slowing deliveries will bolster hotel performance as demand remains at an all-time high. Following trepidation surrounding the impact of alternative accommodations and home sharing, signs point to maturing growth in the number of home sharing listings. Disruption from shared accommodations remains relatively small in terms of the global hotel market. Cities with high hotel occupancy tend to have a higher number of home sharing listings. This reflects how home sharing sites induce travel demand in sought-after markets. It allows travelers to make a journey which was not previously possible due to low hotel room availability and high price. The industry lodging is poised to respond to these forces as cities continue to place restrictions on home sharing alternatives and hotel operators make lodging product innovation a top priority. North American Markets: Investors' Hotel Operating Performance Sentiment 80% 60% 40% 20% 0% -20% -40% -60% Investment community expresses renewed vigor -80% Short Term (Six Months) Medium Term (Two Years) Source: JLL Research

43 43 Investment Outlook United States Net Lease H Net Lease

44 Transactions Top transactions what s happening and where 44 Investment Outlook United States Net Lease H Net lease transaction volumes parallel broader commercial real estate transaction trends and represent more normalized activity In 2017, the net lease sector notched $47.2 billion in transactions valued at above $2.5 million. This represents a transaction volume decrease of 9.8 percent on 2016 levels, driven in part by primary markets seeing a decrease in large transactions. In line with broader commercial real estate transactions trends, the industrial sector fared best with volumes remaining largely flat on 2016, while the net lease office and retail sectors saw declines. With over $330 billion of net lease product transacting during the past 10 years, a slowdown in opportunities does not come as a surprise. Investor selectivity and buyers changing market investment strategies are two significant factors impacting transactions. The volume of transactions in 2017 represents more sustainable, normalized activity following years where volumes were elevated due to above-average activity from non-traded REITs in 2014 and The broader market is increasingly focusing on income, as capital appreciation has slowed. In the net lease space, buyers are similarly seeking to mitigate risks. Bidder pools are for deepest net lease assets offering creditworthy tenants, a strong location and mission criticality. This liquidity in core transactions is unique, given softer bidder pool on multi-tenanted core transactions. For net lease transactions not checking all of these boxes, buyer pools are more limited. Appetite for capital deployment remains elevated, and the recent tax reform stands to benefit real estate fundamentals and thus investor sentiment. The tax reform is expected to put more money in consumers hands, which benefits retail demand, which in turn also help industrial given the criticality of supply chains to fulfill this growing demand. Overall Net Lease $47.2 Investment sales (2017, billions of $US) 6.1% Average cap rate (%) Net Lease Industrial $17.1 Investment sales (2017, billions of $US) 6.1% Average cap rate (%) Net Lease Office $20.3 Investment sales (2017, billions of $US) 6.6% Average cap rate (%) Net Lease Retail $9.9 Investment sales (2017, billions of $US) 5.8% Average cap rate (%)

45 Share of net lease transactions in secondary/tertiary markets Markets Secondary markets see increased share of 45 large transactions Investment Outlook United States Net Lease H Throughout 2017, investors with growth pressures continued to deploy capital in the net lease space, with some becoming increasingly flexible in their risk profile in return for accretive yields. With measured underwriting for large transactions in primary markets where yields are lower, the year 2017 saw an increased proportion of large opportunities transact in secondary markets. Secondary markets are generally seeing economic and demographic growth trends that surpass the averages seen in major gateways. The robust fundamentals in these cities compounded by some investors being outbid in primary markets gives investors the comfort of placing significant swaths of capital in secondary markets, and there is the added benefit of getting yields that are more accretive. A secondary market of note in 2017 was Tempe, Arizona, which posted a near-record year driven by the saleleaseback of the State Farm Insurance campus by Transwestern Investment Group for approximately $928 million, completed in the fourth quarter. Investors in the net lease sector will continue to look farther afield for opportunities and are pursuing investments in markets with greater arbitrage opportunity. This trend is expected to progress in 2018 as pricing for core product remains competitive. Increased liquidity for large transactions in secondary markets 57.9% 59.9% 58.9% 60.0% 39.0% 36.5% 46.0% 49.0% Transactions $100.0 million+ All transactions ($2.5 million+) Source: JLL Research, Real Capital Analytics (Transactions larger than $2.5m, includes entity-level transactions)

46 Transaction volume (as a % of total) 46 Investment Outlook United States Net Lease H capital Sources of Buyer pool steady and diversified; foreign activity ticks up Private investors remain the most active in net lease acquisitions, having accounted for 35.7 percent of purchases by volume in With yields having compressed for multiple consecutive years, well-priced opportunities in primary markets are harder to come by; institutional investors have marked some pull-back in 2017, in line with decreased net new acquisition activity we are seeing from these groups more broadly. The share of activity by traded and non-traded REITs is down considerably from the 2014 and 2015 levels. Foreign investors increased their share of purchase volume in Investors from Singapore and Canada well over doubled their investment over the course of the year, reaching $1.5 and $1.0 billion, respectively. Chinese investors allocated roughly $1.0 billion into the sector, though activity from buyers based in China trailed off as the year progressed and is expected to remain dampened due to increased controls on capital outflows. Among notable purchases of foreign investors is Singapore s Mapletree Investments acquisition of a data center portfolio spanning nine states for a reported $750.0 million. Furthermore, Germany s GLL RE Partners purchased a net lease office asset leased by Apple Inc. in Austin for a reported $96.0 million. Increases in foreign market activity outside of the major markets represents a trend seen across real estate capital markets more broadly, and the net lease sector remains a gateway for this capital into secondary and tertiary markets. This is a sign that off-shore capital has confidence in the sector and foreign buyers are considering unique strategies to find yield. Focus on income and conservative underwriting slows institutional investment in 2017; that said, foreign investment is up 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 7.6% 15.9% 10.4% 11.3% 9.2% 9.5% 6.8% 9.3% 18.0% 33.0% 31.6% 21.2% 17.6% 28.9% 22.5% 17.5% 32.7% 28.2% 33.1% 35.7% Private Institution-Advisor REIT-REOC User-Other Foreign Source: JLL Research, Real Capital Analytics (Transactions larger than $2.5m, includes entity-level transactions)

47 Average net lease cap rate (%) 47 Investment Outlook United States Net Lease H risk Sources of Compressed yields pushing investors to think outside of the box Over the past several years, net lease investors have increasingly looked to secondary and tertiary markets to seek yield. Once hesitant to deploy capital outside of primary markets, foreign investors are following that trend too. For instance, China-based Lesso Group acquired a net lease retail asset on Long Island for just under $80.0 million. With this broadening approach to investing, buyers are relaxing their assessments of risk in two or more of the five key investment parameters long-term leases, investmentgrade tenancies, strong rent growth, mission critical use and location to find yield. In years past, these values were a prerequisite, but in the current market, fewer of these checking the box means more yield, and a wider universe of transactions to pursue and thus capital to deploy. In line with the broader market, industrial net lease assets remain the favored investment type, with cap rates compressing by a further approximately 60 basis points in Office investments have seen cap rates holding steady, mirroring trends in the broader market. Retail buyers are becoming increasingly selective due to the state of the retail industry, notwithstanding a potential boost to consumers spending power in 2018 driven in part by the tax reform. But retail cap rates stand to mark some gradual increases. Smaller retail transactions, such as discount stores and grocery stores, are already seeing investors pricing in more risk, resulting in higher cap rates. This will present opportunities for higher-risk capital. Other investors are adhering to their strict acquisition discipline, accepting smaller target allocations and sacrificing short-term growth for long-term stability. This is one of the factors which has dampened overall deal volumes throughout 2017, and we expect this trend to continue in Investors will remain attracted to the sector given net lease s bond-like returns and favorable long-term performance. Amid a healthy and steady economic outlook, notwithstanding the recent increase in stock volatility, cautious optimism is expected to remain the prevailing sentiment. Industrial cap rates continue to tighten while office and retail sectors see cap rates stabilize 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 10-Year Treasury (%) Net lease industrial Overall net lease Net lease office Net lease retail Source: JLL Research, Real Capital Analytics (Transactions larger than $2.5m, includes entity-level transactions) 6.6% 6.1% 6.1% 5.8% Five macro investment parameters Long-term leases 12+ years of lease term Investment-grade credit S&P: AAA to BBB- Strong rent growth Steady rent increases through the life of the lease Mission critical location Site-level operations are dependent on the regional area Primary market Specifically classified for each sector

48 Investor Research: Sean Coghlan Director, Investor Research Lauro Ferroni Director, Investor Research Office: Industrial: Multifamily: Retail: David Hoebbel Peter Kroner Sean Kane Arielle Einhorn Net Lease: Lauro Ferroni Hotels: Geraldine Guichardo Debt & Equity: Ronak Sheth About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 billion of real estate assets under 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 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled 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 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.