Invesco Real Estate House View

Transcription

1 Invesco Real Estate House View European Market Outlook Second Half of 2013 This document is for Professional Clients only in Dubai, Continental Europe, Ireland and the UK, for Institutional Investors only in the United States, Australia and Singapore, and for Professional Investors only in Hong Kong and in Japan as defined under the Financial Instruments and Exchange Law of Japan. In Canada, the document is intended only for accredited investors as defined under National Instrument It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. Please do not redistribute this document.

2 Invesco Real Estate Global Research Team Timothy Bellman Head of Global Research Europe Asia Pacific North America Kim Politzer Director Research, Europe Thomas Au Director Research, Asia Pacific Mike Sobolik, CFA, CRE Senior Director Research, North America Christian Eder Associate Director Research, Europe Guy-Young Lamé Associate Director Research, Europe guy-young.lame@invesco.com Matthew Hall Associate Director Research Europe matthew.hall@invesco.com Keiichi Sakata Analyst Research, Asia Pacific keiichi.sakata@invesco.com Gordon Yu Analyst Research, Asia Pacific gordon.yu@invesco.com Matthew Starr Research Coordinator, Asia Pacific matthew_starr@au.invesco.com Michael Zhu Research Coordinator, Asia Pacific michael.zhu@invesco.com Nicholas Buss, Ph.D. Director Research, North America nicholas.buss@invesco.com Erik Gilliland Senior Analyst Research, North America erik.gilliland@invesco.com Parmesh Iyer Analyst Research, North America parmesh.iyer@invesco.com Joyce Galvan Associate Research, North America joyce.galvan@invesco.com Invesco Contact Information Joe Di Massimo SVP, Institutional Investments Invesco 120 Bloor Street East, Suite 700 Toronto, Ontario M4W 1B7 (416) (Cover Image: Madrid, Spain) (Interior Images: Malmo, Sweden; Warsaw, Poland)

3 Table of Contents 01 Executive Summary 03 Economic Conditions and Outlook 07 Real Estate Market Outlook 17 Conclusions and Strategic Implications 19 Tables 26 Country Summaries

4 Executive Summary Improving sentiment has begun to filter through into the real estate investment markets and there is growing evidence that investors are implementing a wider range of strategies within Europe. As expected, this broadening of risk appetite has been focused on value-add opportunities in the most robust countries. However, we have also seen an improvement in investment activity in Southern Europe. The improvement in economic conditions over the spring and summer of 2013 have been broadly in line with our expectations, and the economic forecasts that underpin our House View continue to indicate that Europe is re-embarking on a gradual recovery. However, we continue to expect that recovery will be slow and uneven as the deleveraging process continues. Real estate can potentially offer investors an attractive alternative to fixed income in a period when even modest rises in interest rates are likely to limit the performance of traditional fixed income products. Under these conditions we continue to believe that there are compelling reasons to invest in real estate as an asset class. Real estate, given its income characteristics, can potentially offer investors an attractive alternative to fixed income in a period when even modest rises in interest rates are likely to limit the performance of traditional fixed income products. Given the expectation of economic recovery, equities should continue to perform well, but although real estate may lag equities in performance, it is expected to also benefit from improving fundamentals and may be viewed as an investment opportunity that offers income and growth. Given the gradual improvement in economic conditions, our rental growth forecasts have been modestly upgraded, particularly in Southern Europe, where we believe rental values are now stabilising. The strongest rental growth is forecast in the office sector, which is projected to benefit from improvements in business confidence early in the recovery. We expect a recovery in rental values in the retail sector to be delayed as high unemployment and household deleveraging continue to weigh on consumer spending growth, and growth is also limited by structural changes in the sector. Demand is expected to be robust in the logistics sector as a result of the strong outlook for e-commerce. But given that supply is relatively elastic, we do not expect this demand to drive real rental growth over the next five years. In general, prime yields are expected to be broadly stable over the next five years. Where we do forecast inward yield shift, it is limited to c.25 bps, with the exception of some high yielding Southern and Eastern European markets, where yields are forecast to harden by up to c.50 bps. In some lower yielding markets, especially in Germany and the Nordics, we forecast modest outward yield shift at the end of our forecast period as rents and capital values reach or exceed historic peaks and the real estate risk premium becomes squeezed. In contrast, increased risk appetite is likely to result in a hardening of secondary yields, and yield shift is likely to make a significant contribution to performance in secondary property/markets. 1 Invesco Real Estate House View

5 Figure 1 - Total Return Expectations Vary Across Europe, Q Q2 2018f % pa E. Europe Industrial E. Europe Retail E. Europe Offices S. Europe Industrial S. Europe Retail S. Europe Offices C. Europe Industrial C. Europe Retail C. Europe Offices Nordic Industrial Nordic Retail Nordic Offices W. Europe Industrial W. Europe Retail W. Europe Offices Source: Invesco Real Estate, H f= forecast Green box indicates range of city returns within each regional market Returns % pa Value-add strategies now look appropriate in gateway cities where economic fundamentals look most robust, and new supply continues to be constrained. The prime logistics sector continues to offer the strongest five-year total returns (Figure 1) as retail and office markets do not offer sufficient additional rental growth to offset the difference in yields between the sectors. The stronger forecast rental growth outlook for offices points to the sector offering the best opportunities for more value-add strategies, particularly in the major gateway cities where employment and GDP growth are expected to be strongest and grade A supply is relatively constrained. In the retail sector there continues to be a polarisation in our forecast outlook. Dominant shopping centres and high street are expected to deliver stronger rental growth as they are able to capture demand from new entrants into the market and are unlikely to suffer from store rationalisation programmes. Smaller retail centres are likely to continue to suffer from competition from e-commerce and less ability to offer a retail experience to drive footfall. Both hotels and residential have outperformed conventional commercial real estate over the past five years. In our view, both sectors offer good opportunities for attractive income returns and increasing capital values. Prime, rack rented buildings in gateway cities are expected to continue to offer stable, but relatively low returns, and appear to offer investors a relatively defensive position in the short term given some downside risks remain. However, moving up the risk curve, Europe remains well placed to offer investors a wide range of opportunities. Value-add strategies now look appropriate in gateway cities where economic fundamentals look most robust, and new supply continues to be constrained. 2 European Market Outlook, H2 2013

6 Economic Conditions and Outlook During the first half of 2012 there has been little to change our view that the path of economic recovery in Europe will continue to be long and bumpy. Q2 GDP data generally surprised on the upside, with most core European economies recording modest GDP growth, thereby marking the end of a mild recession in the eurozone. In Southern Europe GDP growth remained in negative territory but the rate of decline has moderated. Leading indicators such as PMI surveys and consumer confidence surveys suggest that growth has accelerated during the summer, and when combined with steady improvements in the US private sector and in Japan, there is growing belief that Europe is once again on the path to recovery. Our forecasts continue to indicate that the recovery will be slow and bumpy. Our forecasts continue to indicate that the recovery will be slow and bumpy, with few countries expected to grow at rates at or above pre-gfc (Global Financial Crisis) levels. However, a year on from Mario Draghi s, President of the ECB, promises to do what was required to keep the eurozone together, it appears that this has provided the stability required for a gradual improvement in sentiment and, finally, growth. Figure 2 - GDP Growth Is Forecast to Accelerate, 2013f To 2017f with non-eurozone countries continuing to outperform 2013f 2014f 2015f 2016f 2017f Cumulative GDP growth 2013f to 2017f % In the short term, economic growth is forecast to be underpinned by export growth, which is, in turn, supported by general global recovery. -5 Portugal Italy Spain Netherlands France Belgium Source: Oxford Economics, H f = forecast Germany Austria Denmark Switzerland Finland In the short term, economic growth is forecast to be underpinned by export growth, which is, in turn, supported by general global recovery. Medium term growth is driven firstly by business investment and then by a gradual recovery in consumer expenditure (as unemployment begins to fall). However, it should be noted that the countries that have recorded the strongest growth recently have seen broad growth across all areas of the economy, including household consumption. Hungary Czech Republic Sweden UK Norway Ireland Romania Poland Slovakia Bulgaria Russia Regionally the themes remain broadly unchanged (Figure 2). In developed Europe the strongest economic growth is expected in the UK and the Nordics. Growth in Ireland is also forecast to be strong, but at 2.7% pa on average, this growth is still well below pre-crisis growth, and employment remains below peak levels beyond the end of Oxford Economics forecast horizon of The Southern European markets continue to underperform, but are expected to exit recession in 2014, and over the five-year forecast horizon only lag slightly behind their core European counterparts (Figure 3). 3 Invesco Real Estate House View

7 Figure 3 - GDP Growth in Southern Europe Forecast to Close the Gap on Core Europe from 2015 Onwards Core Europe Southern Europe GDP growth % f 2014f 2015f 2016f 2017f Source: Oxford Economics, H f = forecast Relatively weak medium term growth in countries such as Germany and Italy is beginning to reflect the impact of aging populations, with labour forces expected to have shrunk by the end of the five-year forecast horizon. This is a structural issue that is expected to reduce growth potential over the course of each economic cycle in these countries. Across Europe, gateway cities are still expected to outperform their national averages, especially in the second half of the forecast period once business investment and household consumption growth accelerate. Growth in emerging Europe remains robust, continuing the themes of rapid economic development and a growing middle class, but the demographic issues are a concern in these countries too. However, continued urbanisation means that the major cities are the main beneficiaries of growth and outperform their country averages, especially in Eastern Europe. Across Europe, gateway cities are still expected to outperform their national averages, especially in the second half of the forecast period once business investment and household consumption growth accelerate. The difference is less marked in the short term as the key driver of economic growth is exports in many countries, and gateway cities tend to have a low share of main GDP. As the economy improves, focus will begin to switch to how the extraordinary monetary policy of the past five years is successfully unwound. This is not without risk, as evidenced by the markets response to the May announcement by Ben Bernanke, Chairman of the Federal Reserve, that the Federal Reserve was expecting to begin tapering its support in the final quarter of Yields on 10-year government bonds across the world rose by c bps in response and swap rates have also been rising. Nevertheless, forward guidance from the Bank of England (BoE) and the ECB suggest that the first bank base rate rises are unlikely before We therefore continue to expect that real estate investment markets will operate in a relatively low interest rate environment over the next five years. While the threat of a eurozone break-up remains a downside scenario, the probability associated with it has been reduced by Oxford Economics, largely as a result of Mario Draghi s promise that the ECB would do what was needed to keep the eurozone together. Nevertheless, a destabilising political backlash remains a danger given the very high unemployment rates in countries such as Greece and Spain. There is also a risk from a global shock that comes about through a disorderly unwinding of Quantative Easing (QE) policies in the US given recent market sensitivities to the Federal Reserve s actions. We have explored some of the implication of this scenario and, while the impacts are considerable in the US, it has a relatively modest impact on the outlook for European markets. On the upside, recovery may accelerate faster than in our central scenario, driven by stronger than expected performance in business investment, and this could then begin to generate further momentum in growth in the private sector. 4 European Market Outlook, H2 2013

8 Financing conditions Following the Federal Reserve s May announcement on tapering, interest rates have trended up (Figure 4). Swap rates have increased by c bps from their spring lows, but not all of this increase has fed through into financing costs for real estate investors, as banks appear to be willing to squeeze margins. However, we believe that there is little scope for further decreases as this would mean banks squeezing their risk margins. Figure 4 5-Year Swap Rates Have Trended Sharply Up Since May 2013 There has been an increased appetite for lending to real estate and banks have followed investors in broadening their definition of prime. Eurozone Swap rate % UK 0 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 12 Jul 12 Source: Macrobond, September 2013 There has also been an increased appetite for lending to real estate and banks have also followed investors in broadening their definition of prime. Consequently, debt is becoming more available for a wider range of locations, good quality value-add opportunities in major markets, larger lot sizes and non-core real estate sectors. Some of this change in attitude appears to be linked to the challenges that banks are facing in meeting their lending targets for the year, and may also be why margins have been improving. There continues to be good competition for lending in major markets in the UK, Germany and France, and also in newer markets such as Poland. This could provide a window of opportunity to investors currently considering larger deals in the 200m-to- 300m range. Banks are viewing these deals as a good opportunity to meet lending plans quickly. On deals of this size they will still use syndication, but a smaller number of parties are generally involved as banks are willing to keep as much as 150m on their own books. While there continues to be good competition for lending in major markets in the UK, Germany and France, and also in newer markets such as Poland, there is still no appetite for underwriting more opportunistic investments. In Germany, aggressive competition has resulted in financing costs coming down to close to 100 bps on prime properties. The cost of financing has risen or remains high in places such as the Czech Republic, the Netherlands and Spain, where economic conditions continue to be challenging. There is limited competition in these countries following the withdrawal of a number of banks due to the relatively small size of the current investment market. In Spain, finance may be available for very prime opportunities, but only for existing clients where the relationship is very strong. All-in costs for finance from domestic banks in Spain is still c bps. The availability of debt in Sweden continues to provide cross-border investors with a challenge. Domestic banks continue to be very focussed on their existing domestic key clients, and cross-border investors can find it difficult to develop new relationships, especially if the size of their planned investment is relatively small. German banks have proved willing to provide finance in Sweden, but their terms are not particularly competitive as currency issues add to the costs of the debt. 5 Invesco Real Estate House View

9 For genuinely pan-european investors, FX hedging can also prove challenging as not all lenders will provide this and some banks will require additional fund level guarantees. Insurance companies remain active in the real estate debt market, but they favour asset deals that have bond-like characteristics, with long leases and strong covenants. For this type of asset, they are very competitive with banks, but generally are not competing outside of this area. Insurance companies remain active in the real estate debt market, but they favour asset deals that have bond-like characteristics, with long leases and strong covenants. Value-add investors therefore continue to need a sizable equity stake, although some debt is now available. However, banks can require considerable involvement in the asset management plan for such assets, and, therefore, investors can face challenges in implementing asset management plans unhindered. Given the continuing restrictions in the European real estate financing market, we believe that there are significant opportunities to unlock value from debt investing, which fund managers are likely to continue to investigate. However, strong relationships with lenders are important in unlocking these opportunities. While there is upward pressure on interest rates at present, and, therefore, on all-in costs, which could put downward pressure on leveraged returns, we believe that the impact will be moderated by narrower margins. 6 European Market Outlook, H2 2013

10 Real Estate Market Outlook The improvement in investor confidence linked to a greater sense of stability within the eurozone has been reflected in modest changes in investors focus during H Investors attitude to risk appears to have moderated once again; broadening definitions of prime and increasing appetite for more core plus/value-add type investments. Investors attitude to risk appears to have moderated once again; broadening definitions of prime and increasing appetite for more core plus/value-add type investments. This is most clearly seen in the strong improvement in investment volumes in Southern European markets, albeit from a low base (Figure 5). CEE markets have also benefitted from this change in sentiment. In contrast there has been a marked change in sentiment towards the Dutch real estate markets. The Netherlands economy is still in recession and demand for real estate from domestic investors is very weak. As a result we have also recorded a softening of yields in the Dutch markets that we cover. Investors are still focussed on the largest and most liquid markets as reflected by on-going strong growth in transaction volumes in the UK and Germany. This demand is driven primarily by global capital, which remains very focussed on key gateway cities across Europe. In contrast, during H European capital has clearly moved its focus away from the gateway cities to second-tier cities. Domestic investors, have struggled with the competitiveness of gateway cities for some time, and during 2011 and 2012 were net dis-investors in their markets. However, they have become more active during H as confidence has improved and they have therefore been willing to invest in assets in second-tier markets. Figure 5 - European Transaction Volumes Rental growth across our 45 cities was slightly positive in the first half of 2013, with more centres recording modest rental growth than those recording declines. Transaction Volumes Yield Transaction volumes Billions Average Office Yield % Q Q Q Q Q Q Q Source: Real Capital Analytics, September Country H H Change % Benelux 3.24 bn % CEE % France % Germany % Italy % Nordics % Spain % UK % On average in H yields were stable in all three sectors. Within the retail warehouse sector there was a slight softening of yields in Southern Europe and the Netherlands, reflecting the lack of investor appetite for such product in more distressed markets. In contrast, shopping centre yields hardened slightly given strong investor demand for dominant schemes. Rental growth across our 45 cities was slightly positive in the first half of 2013, with more centres recording modest rental growth than those recording declines. In general rents continued to decline in economies with weaker economic fundamentals, while growth was focussed in the German and the Nordic markets and in the office and retail sectors. 7 Invesco Real Estate House View

11 Rental growth Despite the clear improvement in sentiment, there has been little change in the key economic drivers underpinning our prime headline rental growth forecasts. Consequently, the overall tone of our rental growth forecasts is marginally stronger than in the forecasts reported in our H1 European House View, but not significantly different. Some of the biggest improvements are in the Southern European markets where we now believe rents are stabilising and there is very little further downward adjustment to come. In contrast, some of the largest downgrades to the outlook have been in markets such as Germany, where we have seen some rental growth this year and rents are approaching record high levels. We continue to forecast that growth will be weighted to the back end of the forecast period, with little growth expected in 2014 (Figure 6). Furthermore, at present we have seen little evidence of incentives packages being reduced, and we would expect to see these declining, reflecting a slight shift in the balance of power between occupiers and landlords, before we see much headline growth. Consequently, average net effective rental growth is likely to be greater than the headline prime rental growth that we forecast. With growth forecast to be weak, and generally below the rate of inflation in the short term, there is a risk that investments with indexed leases will become over-rented, and we could therefore see some outward yield shift to compensate for this position. Investment strategies will need to carefully consider how this risk can be managed. Figure 6 European Forecasts Q Q2 2018f Some of the biggest improvements are in the Southern European markets where we now believe rents are stabilising and there is very little further downward adjustment to come. 2013/14f 2014/15f 2015/16f 2016/17f 2017/18f E. Europe Industrial E. Europe Retail E. Europe Offices C. Europe Industrial C. Europe Retail C. Europe Offices S Europe Industrial S Europe Retail S Europe Offices Nordic Industrial Nordic Retail Nordic Offices W Europe Industrial W Europe Retail W Europe Offices Source: Invesco Real Estate, H f = forecast (%) However, the improvements that we have seen in many European economies are encouraging and, as a result Consensus forecasts have started to be revised upwards, but only back to the levels seen at the beginning of the year. There are clearly some upside risks to our forecasts, and if current improvements in growth are sustained into 2014, real rental growth could come through quicker than currently expected. The office forecasts have been the greatest beneficiaries of our upgrades, but the changes are generally quite small, averaging bps pa. Consequently, the office sector continues to be the strongest sector in terms of rental growth over the five-year forecast horizon, with rental growth averaging 1.5% pa. Retail rents are forecast to grow by 1.1% pa on average, while logistics rents are forecast to grow by just 1.0% pa. 8 European Market Outlook, H2 2013

12 Growth in the office market is supported by a combination of employment growth and shortages of prime supply in CBD locations (Figure 7). However, we do not expect a strong cyclical response to improving economic conditions, even in our more cyclical markets, given the modest nature of the economic recovery, combined with a steady stream of refurbished space delivered by investors seeking value-add angles within their portfolios. Furthermore, in some markets, the steady improvement that we have seen in headline rental values over the past three years place rents at or close to peak levels. Figure 7 - Identifying Office Markets With The Best Fundamentals Strong retail locations are expected to need to offer other forms of entertainment, and successful retailers are likely to see their stores as only one part of a multichannel strategy. Weaker Fundamentals Frankfurt Moscow Dusseldorf Madrid Amsterdam Barcelona Vacancy rate (Q2 2013) Average European office employment growth = 0.9% pa Rotterdam Lisbon Stronger Fundamentals 15 Budapest Glasgow London Gothenburg Prague Leeds Warsaw 10 M25 W Geneva 5 Marseille Zurich Lyon Munich Paris La Defense Stuttgart Average annual office employment growth ( ) Oslo Source: Invesco Real Estate, H2 2013, based on data from CBRE and Oxford Economics Average Office vacancy rate = 10.9% pa Our retail rental growth forecasts remain subdued and largely unchanged from the H1 European House View. The economic forecasts continue to indicate that the consumer sector is likely to be the last to regain significant momentum as consumer sentiment is unlikely to improve until unemployment is on a steady downward trajectory. This is expected to lag improvements in business investment. Austerity policies will also continue to squeeze consumers through higher taxation and benefit cuts. We continue to see evidence of the polarisation of the retail sector. The prime luxury goods high streets such as the Champs Élysées and Bond Street recorded strong increases in headline rents over the past 12 months, while growth in smaller mass market dominated high streets continued to stagnate or even decline. Oversupply, combined with structural changes in retailing as e-commerce continues to grow strongly, is expected to continue to exert downward pressure on smaller high streets and shopping centres unless they have a strong USP. Strong retail locations are expected to need to offer other forms of entertainment, and successful retailers are likely to see their stores as only one part of a multichannel strategy. Smaller retail centres are expected to experience rising vacancy and a shift from international/national covenant strength to local covenants, which could result in falling values. Logistics rents have remained very stable and our forecast rental outlook is broadly unchanged. The sector is expected to benefit from structural changes in the retail sector as demand from retailers and their logistics partners increases as e-commerce grows rapidly. However, logistics tenants tend to operate on tight margins and are very cost sensitive. Furthermore, supply is relatively elastic as development times are short and, therefore, build-to-suit development dominates the market. Therefore, we believe that rents are generally dictated by construction costs and land prices, and we do not expect growth to exceed the rate of inflation over the next five years in most locations. 9 Invesco Real Estate House View

13 Yield and total return forecasts Prime yields in a number of core gateway city office markets such as Munich, Paris CBD, London West End and Stockholm are now well below their long-run average levels. Nonetheless, we believe that there is unlikely to be much upward pressure on pricing in the short term. If anything, yields are likely to remain under downward pressure, especially in these largest and most liquid markets, where demand from global capital remains strong. There is evidence that domestic investors in the stronger markets (e.g., UK, Germany, Sweden) are pursuing more value-add strategies. There is evidence that domestic investors in the stronger markets (e.g., UK, Germany, Sweden) are pursuing more value-add strategies, looking for refurbishment opportunities, taking on some vacancy risk, or acquiring properties in second-tier markets (both regional cities and suburban markets), where yields have been more attractive. This trend may broaden and deepen in the year ahead if economic improvements are sustained. With 10-year government bond yields forecast by Oxford Economics to rise only slowly, there is less pressure on exit yields at the end of our forecast horizon from rising risk-free rates. Where there is upward pressure, it lies in years four-to-five of our forecast period and only in markets where current net yields are well below 5%. As our forecasts indicate a more stable economic position by 2017/18, we expect investors to display a more normal range of risk appetites and, consequently, for there to be less focus on best in class. Furthermore, a modest increase in bank base rates could result in an increase in the cost of debt, which could make the use of leverage less effective. We therefore expect a reversal of any short term hardening of yields in the key gateway cities, and possibly a further bps outward shift from current levels in the lowest yielding markets. However, our analysis suggests that the stronger rental growth forecast for years three-to-five will generally more than offset any outward yield shift that we are forecasting (Figure 8), thereby creating a steady improvement in year-on-year returns over our forecast period. In fact, the improving rental outlook from 2016 onwards should help to support pricing as rental growth expectations should allow investors to accept a smaller premium over bond yields in exchange for the expected rental growth. Overall, two-thirds of our markets are expected to generate appropriate or attractive total returns over a five-year hold period. Overall, two-thirds of our markets are expected to generate appropriate or attractive total returns over a five-year hold period. The industrial/logistics sector has the highest proportion of markets generating at least appropriate returns. The office market is the most polarised, having the greatest proportion of under-performing markets, but also the greatest proportion of three-tick (outperforming) markets. We continue to expect some inward yield shift in Southern European markets and second-tier markets (including edge of town centre and suburban office markets) over the five-year forecast period, driven by improving risk appetite. These markets appear to offer an attractive spread over the core gateway cities and, therefore, are forecast to generate some of the strongest absolute returns. This performance is underpinned by higher income returns, as a result of a higher net initial yield, and capital growth generated by our forecasts of inward yield shift and modest rental growth. Nevertheless, with the exception of Dublin, although market fundamentals are beginning to stabilise and absolute returns are relatively high in a pan-european context, our analysis suggests that returns in Southern Europe are still below required levels on a risk-adjusted basis. However, our current estimate of the risk premia for these markets may be overstated as a result of the recent lack of liquidity in these markets. 10 European Market Outlook, H2 2013

14 Figure 8 Components of Capital Growth Q Q2 2018f Rental growth Yield impact E. Europe Industrial E. Europe Retail E. Europe Offices The UK markets figure prominently in the list of strong performers. This performance is supported by good economic growth and relatively high initial yields. C. Europe Industrial C. Europe Retail C. Europe Offices S. Europe Industrial S. Europe Retail S. Europe Offices Nordic Industrial Nordic Retail Nordic Offices W. Europe Industrial W. Europe Retail W. Europe Offices Source: Invesco Real Estate, H f = forecast Absolute five-year capital growth % The UK markets figure prominently in the list of strong performers. This performance is supported by good economic growth and relatively high initial yields. The picture for Germany and the Nordics is more mixed given the current low net initial yields and forecast outward yield shift, despite the low hurdle rates in these markets. To achieve stronger returns in these markets, additional risk will need to be taken, but the robust economic and property markets fundamentals should support more value-add style strategies. Warsaw continues to be forecast to be the strongest market in the Central European region, despite a downgrade to office rental growth as a result of the current economic slowdown and the strong development pipeline. Generally, the CEE markets continue to generate appropriate returns, and strong absolute returns. Our total returns forecasts indicate that core prime logistics are likely to outperform the other sectors over the next five years. Within the sectors our total returns forecasts indicate that core prime logistics are likely to outperform the other sectors over the next five years (Figure 1). This outperformance is underpinned by the strong income growth generated by higher yields. The retail sector has the highest proportion of markets that produce returns that fall short of our hurdle rates. Traditionally, the retail sector has been a strong performer due to robust rental growth, despite the generally lower net initial yields. However, we expect the sector as a whole to continue to face challenges given the structural changes occurring within the industry, and its underperformance is therefore a consequence of lower net initial yields and weak rental growth. Nevertheless, dominant high streets and shopping centres should benefit from robust demand from retailers and, therefore, steady rental growth. In turn, this should generate appropriate returns. The office sector has the greatest diversity of results, with some of the best performing markets as a result of good rental growth expectations in supply constrained gateway city markets. However, capital values in over a quarter of office markets, mainly in Germany and the Nordics, have now exceeded their pre-crisis peaks as a result of recent rent and yield movements. It is these markets that are particularly vulnerable to some outward yield shift at the end of our forecast period. 11 Invesco Real Estate House View

15 Residential Residential is an important real estate investment asset class in Europe. Based upon data collected by Real Capital Analytics (RCA) over the last six and a half years, residential investment (which includes student housing) accounted for 9.5% of all professional real estate investment transactions and totalled 91.9bn. After a period of stable trading levels in 2008 and 2009 the levels of residential transactions have been steadily growing since Q2 2010, with transactions in Q reaching 7.6bn and accounting for 22% of real estate transactions as measured by RCA. Figure 9 shows residential investment activity in the five most actively traded markets in Europe with the remaining countries providing the balance. Germany has accounted for 50.2% of transactions over the time period, with Sweden (15.8%) and the UK (12.2%) being the next most active markets. Figure 9 Residential Transaction Volumes Have Been Growing Steadily Germany Sweden United Kingdom France Netherlands Other Residential transaction volumes Billions 8 With a growing interest in UK residential from both domestic and non-domestic investors, transaction levels are expected to grow over coming quarters Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 Source: Real Capital Analytics, September 2013 Levels of transactions are expected to be maintained in Germany and with a growing interest in UK residential from both domestic and non-domestic investors, transaction levels are expected to grow over coming quarters. Figure 10 - Residential Investment Buyer Type (Q to Q2 2013) Cross-border Institutional Public Listed/REITs Private User/other France 27.50% 46.90% 7.60% 8.60% 9.20% Netherlands 3.60% 39.20% 2.70% 48.80% 5.70% UK 54.00% 22.80% 8.70% 12.70% 2.00% Sweden 3.30% 30.00% 0.90% 44.10% 21.80% Germany 26.50% 27.40% 24.50% 20.30% 1.10% Source: Real Capital Analytics, September European Market Outlook, H2 2013

16 The types of investors differs in these five main markets. Figure 10 is based upon RCA analysis of the last three and a half years and shows the activity from international and domestic investors in these five countries. The UK, France and Germany have seen the greatest levels of cross-border investment, whilst Sweden and the Netherlands have seen virtually no cross-border investment over the same period. Germany has seen investment evenly spread across buyer types. The publicly-listed market in Germany is well developed and accounted for nearly 25% of transactions, a figure that is materially higher than any of the other markets. It is expected that the German market will continue to attract a broad spread of investors. The UK is expected to maintain a similar investor base, although some of the public-listed companies are starting to invest in residential as part of their broader business activities and therefore their share of investment activity may rise. Growing interest in the residential sector as an institutional investment opportunity has been underpinned by its robust performance. According to IPD data, residential real estate has outperformed the main commercial sectors and all property as measured by IPD over one, three and five years (Figure 11). Over five years, the European residential sector has delivered a 4.9% pa total return on average against the mainstream sectors measured, which ranged between 0.9% and 3.0% pa. Growing interest in the residential sector as an institutional investment opportunity has been underpinned by its robust performance. Over this five-year period, European residential was the only asset class measured that showed positive total returns in all five years. This demonstrates the defensive nature of residential as an investment opportunity. Furthermore, over the past 12 months, residential has provided outperformance, which in a low return environment has meant that there is a growing interest from institutions in residential as an investment asset class. Across Europe the returns generated by residential have differing levels income and capital returns, which allow investors to choose those markets that suit their own investment criteria. Invesco s analysis is that residential will continue to offer comparable levels of return to the commercial sectors, with cross-border investors continuing to focus on those markets which have sufficient scale and transparency, as has been the case over recent years. Figure 11 Institutional Pan-European Residential and Hotel Real Estate Have Outperformed Commercial Real Estate All Property Retail Office Industrial Residential Hotels Average annual return % year 3 year 5 year Sources: IPD Multinational Index, July 2013; IPD Pan-European Hotel Index, September Invesco Real Estate House View

17 Hotels As in the residential sector, investors are being attracted to the hotel sector by its robust performance characteristics. Over the past five years the European hotel sector has generated average total returns of 4.8% pa, and in 2012 delivered returns of 6.3% (Figure 11). The hotel sector has benefitted from solid demand as overnight stays rose by 4.1% in 2012, underpinned by growth both in resident and, particularly, non-resident stays. It is thought that tough economic conditions encouraged many Europeans to holiday with European borders rather than taking expensive long-haul trips, while Europe also benefitted from improving economic conditions in the US and Asia, with significant growth in US and Japanese visitor numbers. Growth has been particularly strong in CEE markets, with Poland benefitting strongly from the Euro-2012 football championships, while the UK also received a substantial boost, related to major events such as the Olympics and the Queens Golden Jubilee. Germany also recorded strong growth. Figure 12 - Trends in Numbers of Nights Spend in Hotels or Similar EU28, Investors are being attracted to the hotel sector by its robust performance characteristics. Nights spent by non-eu residents Index (2000 = 100) Nights spent by EU-residents P Source: Eurostat, September 2013 p = preliminary estimate It is estimated that big one-off events during the first eight months of the year boosted average daily rates (ADRs). However, towards the end of the year there was evidence of average length of stay declining, a trend towards occupation of more budget end accommodation, as well as increasing supply in some locations. The combination of these factors resulted in a considerable slowing in the rate of growth of ADRs and revenue per available room (RevPAR) in the last quarter of the year. While investment volumes in 2012 were down on 2011 levels according to RCA, there has been a strong start to 2013, with H transaction volumes up almost 50% on H levels, and at their strongest since European Market Outlook, H2 2013

18 Figure 13 Hotel Sector Transaction Volumes Volume of hotel transactions Billions Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 Source: Real Capital Analytics, September 2013 Hotels typical long-term lease contracts underpin income stability, and a strong partnership between owners and operators/tenants should secure and enhance the underlying real estate value. Cross-border investors continue to dominate the market, although private investors are also important in the sector. About two-thirds of the cross-border capital is intra-regional, and tends to focus on budget and mid-market hotels. US investors have also been active in this space. Middle Eastern investors have made a number of high profile purchases, generally at the luxury end of the market. Strong demand from both investors and travellers for budget hotels, resulted in this segment posting the strongest returns in the IPD Hotels Index, at 6.5%, while luxury hotels lagged some way behind, generating total returns of only 4.1% in Lease type also had a significant impact on performance within the sector. Variable leases (leases based on turnover rents, or geared to some other form of operational performance, which can increase or decrease), outperformed as they have done for the past four years, generating total returns of 7.3%. Many budget hotels are let on variable leases, and therefore there may be some elements of commonality between the outperformance of these two sub-sets of the IPD hotel portfolio. While fixed and hybrid leases hotels did not perform as strongly, at 4.6% and 4.4% respectively, they still outperformed commercial real estate, and continue to offer investors an attractive secure income stream. Hotels typical long-term lease contracts underpin income stability, and a strong partnership between owners and operators/tenants should secure and enhance the underlying real estate value through regular re-investments into the properties on an on-going basis, without the loss of rental income during refurbishment periods. To fully leverage the asset class potential, however, sector-specific expertise remains key, so as to correctly judge long-term sustainable rental levels or timing and scope of re-investments, and to ensure the best risk-adjusted returns for institutional investors from this specialist real estate class. 1 IPD Hotels Index Report, December Invesco Real Estate House View

19

20 Conclusions and Strategic Implications Following a year of less economic and financial market uncertainty, investors have begun to broaden out their definition of prime real estate and there has been an increase in appetite for risk, be it country risk, market risk, or tenancy risk. As a greater range of strategies is sought, Europe remains well placed to offer investors a wide range of opportunities. Prime, rack rented buildings in gateway cities will continue, in our view, to offer stable, but relatively low returns. Our forecasts indicate that core prime logistics are likely to outperform the other sectors over the next five years. Prime, rack rented buildings in gateway cities will continue, in our view, to offer stable, but relatively low returns, and appear to offer investors a relatively defensive position in the short term given some downside risks remain. Yields for such properties are not expected to soften due to weight of money in these markets, and in the medium term, as fundamentals improve, these markets should deliver some rental growth. Furthermore, these assets continue to look fairly priced in the context of other asset classes. For investors willing to move up the risk curve, there are a range of opportunities: In peripheral markets where there is still economic distress, such as Spain, Italy and increasingly the Netherlands, we expect the focus to remain on core stock, but with the expectation of a yield premium to reflect country risk. Currently, taking leasing or tenant risk may be too great a risk, given the weakness of these economies. Short term performance of these assets is expected to be underpinned by the income return from the yield, but at the end of a five-year hold there should be some benefit from yield hardening and rental growth. In gateway cities, value-add strategies are becoming increasingly attractive. These cities are expected to benefit first from recovery, and therefore benefit earlier from increased tenant demand. Given the likely lagged response of the development pipeline, opportunities to manufacture-to-core, with the aim of delivering grade A space to the market in the next 24 months in order to capture improving demand and rental growth, should deliver improved returns over core investments. Multi-let assets in need of active asset management may also offer good opportunities for value-add strategies in core locations. Development/redevelopment opportunities are also likely to be considered in gateway cities, with investors able to obtain some yield premium for forward funding/forward purchase. Europe also has a steadily growing institutional market for alternative real estate investment. Both hotels and residential have outperformed conventional commercial real estate over the past five years. In our view, both sectors offer good opportunities for attractive income returns and increasing capital values. Given the on-going strong demand for core assets, the limited potential for further inward yield shift and the relatively limited expectations for rental growth in many markets in the next 18 months there may be a case for considering sales of this type of asset in the current market in order to realise value gains made from inward yield shift over the past three years. Our forecasts indicate that core prime logistics are likely to outperform the other sectors over the next five years. This outperformance is expected to be underpinned by strong income growth underpinned by higher yields. Strong growth in internet retailing should underpin demand for space, but we do not expect rental growth given that the sector remains relatively supply elastic. The office sector is forecast to generate the strongest rental growth over each of the next five years, although the difference between the sectors narrows in the second half of the forecast period. Rental growth is expected to be underpinned by steady growth in business services employment and limited development activity. Given the prospects for improving fundamentals, the office sector probably offers the best opportunities for value-add strategies. 17 Invesco Real Estate House View

21 Disciplined execution, asset selection and active asset management are expected to become more important to outperformance relative to market/sector selection. The retail sector is expected to continue to face challenges given the structural changes occurring within the industry. Dominant retail locations are likely to continue to benefit from good demand from retailers, and therefore steady rental growth. However non-core locations are likely to suffer from declining demand and rising vacancy. Value-add strategies within the sector should therefore focus on dominant schemes in need of asset management. Given the relatively modest core returns that we are forecasting, and the increased focus on valueadd strategies, disciplined execution, asset selection and active asset management are expected to become more important to outperformance relative to market/sector selection. It is therefore important to have a strong local platform to fully understand and access available opportunities. 18 European Market Outlook, H2 2013

22 Tables Offices Market Current Vacancy Jun 2013 Vacancy Trend Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime Rental Growth (long historical trend) Average Prime Rental Growth Jun Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun Jun Year Required Return as at Jun 2013 Outlook Berlin 9.3% Down sqm m % 0.9% 5.00% 5.15% 3.6% 5.5% Hamburg 8.5% Down sqm m % 1.3% 4.75% 4.90% 3.8% 4.2% Munich 7.8% Level sqm m % 1.7% 4.65% 4.80% 4.4% 4.3% Frankfurt 15.7% Level sqm m % 1.5% 4.80% 4.95% 4.3% 5.1% Dusseldorf 11.8% Down sqm m % 0.6% 4.90% 5.05% 3.4% 5.1% Stuttgart 5.4% Level sqm m % 1.4% 5.15% 5.30% 4.0% 5.3% Cologne 8.1% Down sqm m % 1.1% 5.20% 5.35% 3.9% 5.4% Vienna 6.5% Level sqm m % 0.9% 4.80% 4.95% 3.9% 5.4% Zurich 2.9% Level , sqm m % 0.7% 2.80% 3.00% 1.9% 4.2% Geneva 4.0% Level 1, , sqm m % 0.7% 3.00% 3.20% 1.8% 4.1% Amsterdam 16.4% Level sqm pa % 0.4% 6.20% 6.20% 5.6% 5.4% Rotterdam 22.0% Down sqm pa % 0.3% 6.45% 6.45% 5.8% 5.7% Paris (CBD) 5.9% Down sqm pa % 1.5% 4.25% 4.75% 2.8% 5.5% Paris (LD) 7.1% Level sqm pa % 1.4% 6.15% 5.75% 7.1% 6.6% Paris (Peri Defense) 16.3% Down sqm pa % 1.5% 6.25% 6.00% 6.2% 6.9% Paris (Neuilly/Lev) 11.3% Down sqm pa % 1.5% 5.00% 5.50% 3.0% 6.5% Paris (Northern River Bend) 16.3% Down sqm pa % 1.6% 6.25% 6.00% 6.2% 7.1% Paris (Southern River Bend) 9.8% Down sqm pa % 1.6% 5.75% 5.75% 5.2% 6.1% Paris (Rive Gauche) 4.0% Level sqm pa % 1.6% 5.25% 5.25% 4.9% 5.6% Lyon 6.2% Down sqm pa % 1.3% 5.70% 6.00% 5.8% 5.1% Lille 5.1% Level sqm pa % 1.2% 6.00% 6.10% 6.0% 5.5% Marseille 7.0% Down sqm pa % 1.2% 6.00% 6.00% 6.6% 5.4% Brussels 10.8% Down sqm pa % 1.3% 5.50% 5.50% 4.9% 5.9% Madrid 17.2% Down sqm pa % 1.4% 6.00% 5.50% 7.6% 9.6% Barcelona 15.4% Down sqm pa % 1.4% 6.00% 5.50% 7.3% 9.9% Lisbon 13.2% Down sqm m % 1.3% 8.25% 7.75% 8.8% 11.2% Rome 8.2% Level sqm pa % 1.3% 6.25% 6.00% 8.0% 8.7% Milan 12.2% Down sqm pa % 1.5% 6.00% 6.00% 7.1% 8.6% Helsinki 11.0% Down sqm pm % 2.2% 5.25% 5.55% 5.6% 6.0% Copenhagen 9.1% Down 1, , DK sqm pa % 2.3% 5.00% 5.45% 4.2% 5.5% Stockholm 9.5% Level 4, , SK sqm pa % 1.8% 4.50% 4.65% 4.8% 5.5% Gothenburg 10.0% Down 2, , SK sqm pa % 1.4% 5.00% 5.15% 4.3% 6.6% Oslo 6.9% Down 3, , NOK sqm pa % 3.3% 5.25% 5.45% 6.0% 7.2% 19 Invesco Real Estate House View

23 Offices Market Current Vacancy Jun 2013 Vacancy Trend Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime Rental Growth (long historical trend) Average Prime Rental Growth Jun Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun Jun Year Required Return as at Jun 2013 Outlook Dublin 17.2% Down sqm pa % 2.6% 6.25% 6.00% 8.1% 8.3% London (City) 9.5% Down sqft pa % 4.3% 4.75% 5.00% 7.3% 6.0% London (WE) 6.3% Level sqft pa % 3.8% 4.00% 4.25% 6.2% 5.3% London (Midtown) 7.8% Down sqft pa % 3.6% 5.25% 5.20% 8.3% 5.6% London (Docklands) 9.5% Down sqft pa % 2.8% 5.50% 5.35% 7.9% 5.6% Birmingham 12.9% Down sqft pa % 1.3% 6.25% 6.00% 7.6% 6.3% Manchester 15.2% Down sqft pa % 1.4% 6.00% 6.00% 6.8% 6.7% Glasgow 12.8% Down sqft pa % 1.4% 6.50% 6.25% 8.0% 6.7% Edinburgh 12.1% Down sqft pa % 1.5% 6.50% 6.25% 8.1% 6.5% Cardiff 4.9% Level sqft pa % 1.1% 6.75% 6.65% 7.2% 6.5% Bristol 12.0% Down sqft pa % 1.3% 6.50% 6.25% 7.9% 6.5% Leeds 7.0% Level sqft pa % 1.4% 6.50% 6.25% 7.8% 6.2% M25 West 10.3% Down sqft pa % 2.0% 6.50% 6.35% 7.7% 6.7% Warsaw 10.8% Down sqm m % 0.8% 6.10% 6.10% 5.7% 6.0% Budapest 19.9% Down sqm m % 1.0% 7.50% 7.50% 7.4% 9.0% Prague 12.8% Down sqm m % 1.1% 6.10% 6.10% 5.9% 6.2% Bratislava 13.6% Down sqm m % 1.0% 7.25% 7.25% 7.2% 9.0% Bucharest 15.1% Down sqm m % 0.7% 8.25% 8.50% 7.8% 9.5% Sofia 23.7% Down sqm m % 0.7% 9.30% 9.25% 9.2% 9.6% All tables in this appendix are source: Oxford Economics, CBRE, Wüest & Partner, Invesco Real Estate, H There are three categories: = Most opportunities are expected to exceed target returns (excess return is > 1%). = Most opportunities are expected to meet target returns (excess return between -1% and +1%). = Only exceptional opportunities will be of interest (excess return < -1%). 1 Current prime rents are headline and therefore exclude incentives. 2 Average prime rental growth is the average annual change in headline rental values over the identified period. 3 Current prime yields are based on the appropriate market definition for a rack rented property; as a result, they cannot be used for a direct comparison of available net initial returns. 4 Expected total returns are based on estimates of income return and capital growth over a five-year hold period. Returns are pre-tax and fund costs, ungeared, in local currency after transaction costs and operating expenses. 5 Outlooks are based on excess return (the difference between expected and required returns in local currency). Required returns represent Invesco Real Estate s estimates of the appropriate total return given a suitable risk-free rate and risk premium. 6 Long-run trend data vary from country to country due to length of available data series. 20 European Market Outlook, H2 2013

24 High Street Retail (SSU) Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime (long historical trend) Average Prime Jun Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun 2013 Jun Year Required Return as at Jun 2013 Outlook Berlin sqm m % 0.9% 4.50% 4.70% 3.8% 4.0% Hamburg sqm m % 0.8% 4.30% 4.40% 4.0% 4.3% Munich sqm m % 1.5% 4.00% 4.10% 4.4% 4.4% Frankfurt sqm m % 1.3% 4.40% 4.60% 4.1% 4.5% Dusseldorf sqm m % 0.3% 4.40% 4.50% 3.5% 5.2% Stuttgart sqm m % 1.3% 4.70% 4.90% 4.5% 5.0% Cologne sqm m % 0.4% 4.50% 4.60% 3.8% 4.7% Vienna 2, , sqm pa % 1.4% 4.10% 4.30% 3.8% 6.8% Amsterdam 2, , sqm pa % 0.7% 4.70% 4.90% 3.8% 5.0% Rotterdam 1, , sqm pa % 0.6% 4.80% 5.00% 3.8% 5.0% Paris (CBD) 12, , sqm pa % 1.6% 4.00% 4.25% 4.2% 5.0% Lyon 2, , sqm pa % 1.6% 4.75% 4.75% 5.6% 5.9% Lille 1, , sqm pa % 1.6% 4.75% 4.75% 6.0% 5.9% Marseille 1, , sqm pa % 1.6% 4.75% 4.75% 5.0% 5.9% Brussels 1, , sqm pa % 0.9% 4.25% 4.75% 3.2% 6.4% Madrid 1, , sqm pa % 1.1% 5.00% 5.00% 6.2% 9.0% Barcelona 1, , sqm pa % 1.1% 5.00% 5.00% 6.1% 8.6% Lisbon sqm m % 0.0% 7.50% 7.00% 8.4% 11.4% Milan 3, , sqm pa % 0.1% 5.00% 5.00% 5.0% 8.0% Rome 2, , sqm pa % 0.8% 5.00% 5.00% 5.5% 8.0% Helsinki sqm m % 1.6% 5.25% 5.45% 6.2% 6.0% Copenhagen 14, , DK sqm pa % 1.0% 4.90% 5.00% 5.1% 6.2% Stockholm 13, , SK sqm pa % 1.8% 4.50% 4.65% 5.2% 4.8% Oslo 15, , NOK sqm pa % 0.8% 5.25% 5.35% 5.9% 8.1% Dublin 2, , sqm pa % 1.6% 5.75% 5.50% 8.1% 7.6% London (WE) 1, , sqft Zone A pa % 2.0% 3.00% 3.35% 2.8% 5.6% Birmingham sqft Zone A pa % 1.4% 5.25% 5.25% 6.5% 5.5% Manchester sqft Zone A pa % 1.7% 5.25% 5.25% 6.9% 5.0% Glasgow sqft Zone A pa % 1.5% 5.25% 5.25% 6.7% 5.4% Edinburgh sqft Zone A pa % 1.4% 5.25% 5.25% 6.5% 5.9% Cardiff sqft Zone A pa % 0.9% 5.35% 5.35% 6.1% 6.5% Bristol sqft Zone A pa % 1.2% 5.75% 5.75% 6.8% 5.9% Leeds sqft Zone A pa % 0.8% 5.50% 5.50% 6.2% 5.8% Warsaw sqm m % 2.1% 6.00% 6.00% 8.2% 6.1% Budapest sqm m % 1.0% 7.25% 7.25% 8.7% 12.1% Prague sqm m % 0.8% 5.75% 5.75% 6.7% 7.1% Bratislava sqm m % 1.3% 7.25% 7.25% 8.5% 10.8% Bucharest sqm m % 1.1% 10.00% 9.50% 12.8% 13.5% Sofia sqm pa % 0.4% 10.00% 9.75% 11.4% 11.2% 21 Invesco Real Estate House View

25 Shopping Centres (ShC) Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime (long historical trend) Average Prime Jun Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun Jun Year Required Return as at Jun 2013 Outlook Berlin 1, , sqm pa % 0.5% 4.75% 5.00% 4.3% 4.1% Hamburg 1, , sqm pa % 0.4% 4.75% 5.00% 4.2% 4.5% Munich 2, , sqm pa % 1.1% 4.65% 4.75% 5.4% 4.6% Frankfurt 2, , sqm pa % 1.1% 4.75% 5.00% 4.9% 4.6% Amsterdam sqm pa % 1.8% 5.75% 5.75% 6.0% 5.2% Paris (CBD) 2, , sqm pa % 1.4% 4.75% 4.75% 5.8% 5.2% Lyon 1, , sqm pa % 1.5% 5.00% 5.00% 5.0% 6.2% Lille 1, , sqm pa % 1.5% 5.00% 5.00% 5.0% 6.2% Marseille 1, , sqm pa % 1.5% 5.00% 5.00% 5.0% 6.1% Brussels 1, , sqm pa % 1.5% 5.50% 5.70% 6.6% 6.7% Madrid sqm pa % 0.7% 6.75% 6.50% 7.6% 9.3% Barcelona sqm pa % 1.0% 6.75% 6.50% 7.8% 9.3% Lisbon sqm pa % 0.0% 7.75% 7.50% 7.4% 11.8% Rome sqm pa % 1.2% 6.25% 6.25% 6.9% 8.2% Milan sqm pa % 1.3% 6.25% 6.25% 7.0% 8.2% Copenhagen 5, , DK sqm pa % 0.5% 5.50% 5.65% 4.5% 6.1% Stockholm 7, , SK sqm pa % 0.0% 5.25% 5.25% 4.3% 4.7% Oslo 9, , NOK sqm pa % 1.3% 5.50% 5.50% 6.0% 7.9% Dublin 3, , sqm pa % 0.5% 7.50% 6.75% 9.9% 7.9% London (WE) sqft Zone A pa % 1.8% 5.00% 4.85% 7.4% 5.8% Birmingham sqft Zone A pa % 1.6% 5.25% 5.00% 7.8% 5.7% Manchester sqft Zone A pa % 1.8% 5.25% 5.00% 7.9% 5.2% Glasgow sqft Zone A pa % 1.5% 5.75% 5.65% 7.6% 5.6% Edinburgh sqft Zone A pa % 1.4% 5.75% 5.75% 7.1% 6.1% Cardiff sqft Zone A pa % 0.9% 5.75% 5.75% 6.6% 6.7% Bristol sqft Zone A pa % 1.0% 5.50% 5.35% 7.1% 6.1% Leeds sqft Zone A pa % 0.5% 5.50% 5.40% 6.4% 6.0% Warsaw 1, , sqm pa % 1.7% 5.65% 5.65% 7.5% 6.4% Budapest sqm pa % 0.5% 7.50% 7.50% 8.4% 11.3% Prague 1, , sqm pa % 1.2% 5.75% 5.75% 7.1% 7.5% Bucharest sqm pa % 0.5% 8.75% 8.75% 9.7% 12.5% 22 European Market Outlook, H2 2013

26 Retail Parks (RW) Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime (long historical trend) Average Prime Jun 2013 Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun 2013 Jun Year Required Return as at Jun 2013 Outlook Berlin sqm pa % 0.8% 6.25% 6.40% 4.4% 4.2% Hamburg sqm pa % 0.8% 6.00% 6.20% 4.2% 4.6% Munich sqm pa % 0.9% 6.00% 6.20% 4.5% 4.7% Frankfurt sqm pa % 1.0% 6.00% 6.20% 4.5% 4.8% Vienna sqm pa % 0.7% 6.30% 6.50% 4.2% 7.3% Amsterdam sqm pa % 1.1% 6.75% 6.80% 5.1% 5.4% Rotterdam sqm pa % 1.1% 6.75% 6.80% 5.1% 5.3% Paris (CBD) sqm pa % 1.5% 5.25% 5.25% 5.4% 5.3% Lyon sqm pa % 1.4% 6.00% 6.00% 5.8% 6.3% Lille sqm pa % 1.4% 6.00% 6.00% 6.2% 6.3% Marseille sqm pa % 1.4% 6.00% 6.00% 5.8% 6.2% Brussels sqm pa % 1.0% 6.00% 6.25% 5.4% 6.8% Madrid sqm pa % 0.7% 7.75% 7.50% 7.9% 9.5% Barcelona sqm pa % 0.7% 7.75% 7.50% 7.9% 9.0% Lisbon sqm pa % 1.0% 10.25% 10.00% 8.5% 12.0% Rome sqm pa % 0.9% 7.75% 7.25% 8.5% 8.3% Milan sqm pa % 0.9% 7.75% 7.25% 8.6% 8.4% Stockholm 1, , SK sqm pa % 2.0% 5.75% 5.55% 6.4% 4.5% Dublin sqm pa % 0.9% 8.10% 7.75% 8.3% 8.1% London (WE) sqft pa % 1.3% 5.85% 5.75% 7.0% 6.0% Birmingham sqft pa % 1.1% 5.85% 5.75% 6.7% 5.9% Manchester sqft pa % 0.9% 5.85% 5.75% 6.3% 5.3% Glasgow sqft pa % 1.0% 5.85% 5.75% 6.5% 5.7% Edinburgh sqft pa % 1.2% 5.85% 5.75% 6.7% 6.2% Cardiff sqft pa % 1.0% 5.85% 5.75% 6.5% 6.9% Bristol sqft pa % 1.1% 5.85% 5.75% 6.5% 6.2% Leeds sqft pa % 1.2% 5.85% 5.75% 6.7% 6.2% Warsaw sqm pa % 1.0% 7.35% 7.25% 7.5% 6.6% Budapest sqm pa % 1.1% 9.00% 9.00% 8.5% 8.6% Prague sqm pa % 1.2% 7.75% 7.60% 8.0% 7.7% 23 Invesco Real Estate House View

27 Industrial/Logistics Current Prime Rent (local definition) Jun 2013 Jun 2018 Quoting terms Current Prime Rent ( sqm pm) Jun 2013 Average Prime Rental Growth (long historical trend) Average Prime Jun 2013 Jun 2018 Current Prime Yield (local definition) Jun 2013 Exit Prime Yield (local definition) Jun 2018 Expected Total Return 5-Year Average Jun 2013 Jun Year Required Return as at Jun 2013 Outlook Berlin sqm m % 0.8% 6.90% 7.25% 4.4% 6.6% Hamburg sqm m % 1.1% 6.50% 6.75% 4.7% 4.7% Munich sqm m % 1.1% 6.50% 6.75% 4.8% 4.7% Frankfurt sqm m % 1.0% 6.50% 6.75% 4.6% 4.9% Dusseldorf sqm m % 1.1% 6.65% 6.90% 4.8% 5.3% Stuttgart sqm m % 1.0% 6.75% 7.00% 5.0% 5.5% Cologne sqm m % 0.9% 6.85% 7.10% 5.0% 5.4% Amsterdam sqm pa % 0.2% 6.90% 7.00% 4.4% 5.1% Rotterdam sqm pa % 0.4% 6.90% 7.00% 4.6% 5.5% Vienna sqm m % 1.2% 7.25% 7.25% 5.9% 8.1% Paris (IDF) sqm pa % 0.6% 7.25% 7.25% 6.7% 5.9% Lyon sqm pa % 0.5% 7.25% 7.25% 6.6% 6.9% Lille sqm pa % 0.5% 7.25% 7.25% 6.5% 6.9% Marseille sqm pa % 0.6% 7.25% 7.25% 6.6% 6.9% Brussels sqm pa % 0.8% 7.00% 7.00% 5.5% 6.8% Madrid sqm pa % 1.4% 8.50% 8.00% 8.7% 9.1% Barcelona sqm pa % 1.4% 8.50% 8.00% 8.7% 9.4% Lisbon sqm m % 0.4% 9.50% 9.20% 8.2% 13.0% Rome sqm pa % 1.1% 8.50% 8.00% 8.9% 8.9% Milan sqm pa % 1.2% 8.50% 8.00% 8.6% 9.0% Helsinki sqm m % 0.5% 7.25% 7.50% 5.9% 5.9% Copenhagen DK sqm pa % 2.5% 8.00% 8.00% 9.5% 6.5% Stockholm SK sqm pa % 3.2% 6.50% 6.60% 7.5% 5.8% Gothenburg SK sqm pa % 1.4% 6.50% 6.60% 6.3% 6.2% Oslo 1, , NOK sqm pa % 2.6% 6.50% 6.80% 5.4% 7.6% Dublin sqm pa % -0.1% 8.75% 8.00% 9.3% 8.8% Greater London sqft pa % 1.3% 6.10% 6.10% 7.0% 6.4% Birmingham sqft pa % 1.2% 6.75% 6.75% 6.6% 6.6% Manchester sqft pa % 1.2% 7.50% 7.50% 7.5% 7.0% Glasgow sqft pa % 1.0% 7.75% 7.75% 7.6% 7.0% Edinburgh sqft pa % 0.8% 7.75% 7.75% 7.5% 7.5% Cardiff sqft pa % 0.9% 8.00% 8.00% 7.7% 7.5% Bristol sqft pa % 1.2% 7.25% 7.25% 7.4% 7.0% Leeds sqft pa % 1.1% 7.50% 7.50% 7.3% 7.4% Warsaw sqm m % 1.3% 7.60% 7.50% 6.9% 7.4% Budapest sqm m % 0.6% 9.75% 9.50% 8.7% 11.9% Prague sqm m % 1.4% 8.10% 8.00% 7.4% 7.3% Moscow $ sqm pa % 0.6% 11.50% 11.50% 11.5% 11.6% St Petersburg $ sqm pa % 0.0% 13.00% 13.00% 12.7% 12.7% Bratislava sqm m % 1.0% 8.50% 8.25% 7.8% 9.4% Bucharest sqm m % 1.1% 10.25% 10.25% 9.9% 11.3% Sofia sqm m % 1.1% 12.00% 12.00% 11.9% 10.9% 24 European Market Outlook, H2 2013

28 Economics National Economic Data & Forecast Local* Economic Data & Forecast National GDP Growth pa National Inflation pa ILO Unemployment 10yr bond yield Population (thousands) Year End 2012 Year End 2017 Jun 2013 Jun 2018 Year End 2012 Metro GDP per capita ( ) Year End 2012 Consumer spending potential per capita ( ) Year End 2012 Local GDP growth pa ILO Unemployment Year End 2012 Berlin 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% 3, , , % 10.6% Hamburg 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% 1, , , % 5.4% Munich 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% 1, , , % 3.6% Frankfurt 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% , , % 6.2% Dusseldorf 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% , , % 6.6% Stuttgart 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% , , % 4.6% Cologne 0.7% 1.5% 1.7% 1.7% 5.5% 4.8% 1.73% 3.21% 1, , , % 6.8% Amsterdam -0.1% 0.9% 1.9% 1.4% 5.3% 7.0% 2.13% 3.51% 1, , , % 5.9% Rotterdam -0.1% 0.9% 1.9% 1.4% 5.3% 7.0% 2.13% 3.51% 1, , , % 7.3% Vienna 0.6% 1.5% 2.3% 1.8% 4.4% 4.5% 2.17% 3.55% 1, , , % 7.8% Zurich 1.2% 1.7% 0.4% 1.1% 4.2% 4.3% 0.99% 2.78% 1, , , % 3.6% Geneva 1.2% 1.7% 0.4% 1.1% 4.2% 4.3% 0.99% 2.78% , , % 6.6% Paris (IDF) 0.1% 1.1% 1.9% 1.4% 10.2% 10.8% 2.35% 4.01% 11, , , % 8.5% Lyon 0.1% 1.1% 1.9% 1.4% 10.2% 10.8% 2.35% 4.01% 1, , , % 8.4% Lille 0.1% 1.1% 1.9% 1.4% 10.2% 10.8% 2.35% 4.01% 2, , , % 13.7% Marseille 0.1% 1.1% 1.9% 1.4% 10.2% 10.8% 2.35% 4.01% 2, , , % 10.6% Rome -1.4% 0.8% 2.4% 1.4% 10.7% 11.4% 4.55% 4.94% 4, , , % 10.2% Milan -1.4% 0.8% 2.4% 1.4% 10.7% 11.4% 4.55% 4.94% 3, , , % 7.7% Brussels 0.4% 1.3% 2.5% 2.0% 7.6% 7.6% 2.65% 3.75% 1, , , % 17.6% Madrid -0.8% 1.0% 2.3% 1.0% 25.0% 25.1% 4.74% 5.40% 6, , , % 19.0% Barcelona -0.8% 1.0% 2.3% 1.0% 25.0% 25.1% 4.74% 5.40% 5, , , % 22.6% Lisbon -1.2% 0.6% 1.9% 0.8% 15.9% 15.7% 6.44% 5.60% 2, , , % 17.4% Helsinki -0.6% 2.0% 2.7% 1.7% 7.8% 6.8% 2.01% 3.46% 1, , , % 6.3% Stockholm 1.0% 2.1% 1.9% 1.7% 8.0% 6.3% 2.20% 3.58% 2, , , % 6.8% Gothenburg 1.0% 2.1% 1.9% 1.7% 8.0% 6.3% 2.20% 3.58% 1, , , % 8.0% Copenhagen -0.9% 1.7% 2.4% 1.8% 7.5% 7.1% 1.88% 3.50% , , % 10.1% Oslo 0.6% 2.3% 2.0% 2.5% 3.2% 2.7% 2.52% 4.09% , , % 3.7% Dublin -1.2% 2.7% 0.6% 1.6% 14.7% 11.2% 4.04% 5.03% 1, , , % 12.4% Greater London -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% 8, , , % 8.6% Birmingham -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% 1, , , % 13.2% Manchester -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% 1, , , % 9.5% Glasgow -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% , , % 11.5% Edinburgh -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% , , % 6.5% Cardiff -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% , , % 8.4% Bristol -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% , , % 7.6% Leeds -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% , , % 8.3% M25 West -0.4% 2.3% 3.3% 1.9% 7.9% 6.8% 2.44% 3.85% 2, , , % 6.2% Warsaw 3.4% 2.8% 3.7% 2.3% 10.1% 8.3% 3.95% 5.39% 1, , , % 5.7% Budapest -1.0% 1.8% 4.9% 2.8% 10.9% 10.3% 6.02% 5.75% 1, , , % 8.7% Prague 0.3% 2.0% 2.7% 2.0% 7.0% 6.7% 2.34% 3.64% 1, , , % 3.1% Bratislava 2.1% 2.9% 2.7% 2.1% 14.0% 11.2% 2.45% 5.18% , , % 5.6% Bucharest 0.5% 2.5% 5.7% 3.4% 7.1% 5.9% 5.43% 5.79% 1, , , % 5.5% Sofia 0.7% 3.3% 4.8% 2.9% 12.3% 7.8% 3.40% 4.78% 1, , , % 7.6% * For the purpose of economic data, local areas are defined using the European Union s NUTS3 definitions, with the exception of Paris (IDF) and Greater London. 25 Invesco Real Estate House View

29 Country Summaries Key to Tables # > 2.5% pa & in the range 1.5% pa to 2.5% pa 1 in the range -1.5% pa to +1.5% pa ( in the range -1.5% pa to -2.5% pa $ < -2.5% pa $ Yields falling by > 25 bps 1 Yields within ± 25 bps of starting yield # Yields rising by > 25 bps # Vacancy rate rising by > 100 bps from current level 1 Vacancy rate within ± 100 bps of current level $ Vacancy rate falling by > 100 bps from current level Five-Year Outlook 3 Only exceptional opportunities 1 will be of interest (excess return < -1%) 33 Most opportunities 1 are expected to meet target returns (excess return between -1% and +1%) 333 Most opportunities 1 are expected to exceed target returns (excess return is > 1%) 1 Where investment is a grade A quality building with a long and secure income stream, let to a good covenant in a prime location, at a current market rent.