The Investment Outlook For Major Property Markets

H2 2013 EUROPEAN VISION The Investment Outlook For Major Property Markets

DISCLAIMER Forecasts and projections regarding the likelihood of various sectoral, market and investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. CBRE Global Investors' clients may have acquired properties in the sectors and regions described in this research report. In addition, CBRE Global Investors is continuously marketing to new clients that will invest in properties within the sectors and regions covered. CBRE Global Investors Middle East Limited provides this material on behalf of CBRE Global Investors. CBRE Global Investors Middle East Limited is regulated by the Dubai Financial Services Authority. This marketing material is intended only for Professional Clients (as defined by the DFSA) no other persons should act upon it. Past or projected performance is not necessarily a reliable indicator of future results. EUROPEAN VISION H2 2013

WELCOME TO EUROPEAN VISION The return of Europe! Europe is clearly back in the game. The financial crisis may not be over but a rapid change in sentiment and a reduction in downside risk is generating a new phase of opportunities in the European property markets. This shift is yield-driven, rather than rental, and in this part of the cycle repricing happens quickly. It may be led by sentiment or soft factors but it is translating into increasing transaction volumes across the markets and a wider range of assets becoming tradable again. For investors, this is resulting in a greater range of feasible investment strategies, and more interesting assets on the market, and it also provides weight to decisions to move up the risk spectrum towards value-add investing. There is further narrative evidence by looking at the pockets of activity. The global financial crisis saw investors turn their backs on risk and flock into a narrow collection of gateway cities with safe haven status. Here, healthy levels of transactions continued but it left large parts of Europe with a prolonged period of illiquidity. Now transaction activity is spreading south to Spain as well as to second tier cities across the region. We are seeing more and higher bids on a broader range of properties and this is originating from a wider range of capital sources by type, risk appetite and country, indicating that Europe is back on the agenda for many investors, including those from the Americas, Asia-Pacific and the Middle East. There is also an easing of lending conditions across Europe driven by sizable new entrants into the market, and a slight lessening of risk aversion making debt available for a broader range of strategies. These are not drastic changes but are at least going in the right direction. Finally, real estate is proving attractive to allocators who have one eye on the relative value of property as they consider the performance of their low-yielding bond portfolios in combination with the easing of historically cheap money. The healthy spread between property yields and government bond yields means that there is still time to take advantage even if that gap starts to narrow a little. The economic backdrop is, of course, important. Europe s growth story might still not be the most compelling nor certain, but even here there are positive signs. Take for instance the improvements in the OECD composite leading indicators and the European consumer confidence index (which hit its 10-year average). This was not just in core countries like the UK and Germany but also in peripheral Italy and Spain. That being said, this boost in consumer optimism has yet to translate into spending, with many countries still coping with record unemployment and real wage decline. The subdued economy does not provide a contradiction to the opportunities. Instead, the economic picture provides a healthy check on the approach. We remain prudent in underwriting, for example, by avoiding too much vacancy and only making assumptions for reasonable rental growth. The market is comforted by hardly any significant pipeline of new development, and while we remain cautious on real rental growth, this fact alone may cause positive surprises in rents in some submarkets. The structural argument also should not be forgotten. Europe represents around one third of the global investable property universe. This makes it a hard-to-miss target for international capital flows. Europe might be one continent but its many countries mean a strong collection of affluence levels, which adds up to more than 500 million wealthy consumers. This makes the broad collection of legal and tax systems, economic bases and demographic outlooks worth the effort, a fact often demonstrated by the queue of international retailers looking to plant roots in the region. This offers interesting inter- and intra-continental diversification potential in some of the world s most transparent and liquid property markets. With many signals turning green, this is a good time to return to Europe. I wish you pleasant reading. EUGENE PHILIPS Head of European Research EUROPEAN VISION H2 2013

EUROPEAN VISION H2 2013

EUROPEAN VISION H2 2013 TABLE OF CONTENTS OUTLOOK FOR EUROPEAN MARKETS... 1 BELGIUM... 7 FRANCE... 9 GERMANY... 11 ITALY... 13 NETHERLANDS... 15 NORDICS... 17 POLAND... 19 SPAIN... 21 UNITED KINGDOM... 23 EUROPEAN VISION H2 2013

OUTLOOK FOR EUROPEAN MARKETS ECONOMY An ongoing good newsflow has led to improvements in most soft indicators (Figure 3), which point increasingly at strengthening economic growth. Confidence indicators have reached levels not seen in several years. Not all hard indicators are as optimistic yet, as retail sales and industrial production still dropped, European unemployment is still record-high (Figure 3) and credit growth is still negative. The outlook for Europe still foresees a small contraction in 2013 and a weak recovery thereafter. Projections have been revised slightly upward though, which is a promising sign. With current economic conditions, it is more than likely that the ECB and BoE will keep rates at present or lower levels for an extended period of time. Eurozone money market rates rose, however, one of the ECB s current worries, but new liquidity injections are awaited. In addition to strengthened currencies, the text above gives reason to stay cautious on the strength of the recovery. Five-year projections show below-average growth for most European countries, ranging from 2-3% for CEE and several Northern countries, and bland stability in Southern countries. (Figure 1) OFFICE MARKETS Office, the most cyclical of the major real estate sectors, is typically not expected to offer a lot of fireworks around the turning point of the economic cycle. In line with this expectation, recent quarters have indeed been characterized by limited activity in the office occupier markets. Despite the lackluster changes on the occupier side, we did see the fuse being ignited for a more attractive spectacle on the investment side during the quarters ahead. The increasingly broad-based economic growth and an improvement in service sector confidence (Figure 3) are starting to set the stage for a return of positive rental growth from 2014. How economic growth translates into positive rent changes for office buildings depends on a number of factors. An important demand driver is job creation in office occupying industries. Sectors typically associated with office employment are financial and business services plus public administration. Although European economies are already heavily serviceoriented, with service sector jobs making up a quarter of overall European employment, these sectors are expected to outpace the rate of increase in total employment, especially within the major conurbations. (Figure 5) Unfortunately, not all employment growth will translate into net demand for office space. There is still a substantial amount of grey space available for companies that downsized in workforce during the crisis but did not downsize their premises. Moreover, we see a trend of increased implementation of new workplace strategies that require less space per employee. A final major contributor to the impact of economic growth on office rents is the existing available supply and the effect of construction activity. As a result of past overbuilding in many European cities and the GFC, average vacancy rates are currently around 1. (Figure 7). As a result of falling demand and lack of financing availability, construction activity is generally low in Europe, with exceptions such as London and Warsaw where 2014 will see the arrival of relatively large amounts of space. Over the forecast horizon (2013-2017) construction activity will be limited. In general we maintain our outlook for positive but muted rental growth for European office markets. (Figure 6) However, divergence in local supplydemand balances will create positive outliers where stronger than expected demand faces an increasingly tight supply side. The most significant changes in European office markets have arguably occurred on the investment side. The increasing yield gap between prime properties in core markets and all other commercial real estate has been a much debated topic in earlier editions of European Vision. A decrease in downside risk and low yields for prime real estate (Figure 8) have led to increased interest for segments that were too heavily penalized during the crisis. A move up the risk curve in a selective manner is likely to offer attractive returns in the years to come but underwriting rental growth, oor even vacancy reduction, should be done cautiously given the economic outlook and risk from structural vacancy issues for part of the office market. Some fireworks might have become too damp during the crisis to provide much of a spectacle. EUROPEAN VISION H2 2013 1

OUTLOOK - CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: CONSUMER CONFIDENCE 3% 1% Average 2013-2017 Average 1993-2012 Poland Norway Hungary Sweden Czech Republic Switzerland Ireland United Kingdom Austria Germany Denmark Finland France Belgium Netherlands Portugal Italy Greece Spain Hungary United Kingdom Italy Germany Sweden Spain Belgium Euro Area Czech Republic France Poland Romania Finland Portugal Netherlands -15-10 -5 0 5 10 15 Deviation 10- year average Source: Thomson Reuters Ecowin/DG ECFIN FIGURE 3: SERVICE SECTOR AND CONSUMER CONFIDENCE, UNEMPLOYMENT RATE (%) IN EUROPE FIGURE 4: MANUFACTURING CONFIDENCE AND EXPORTS 40 30 Service confidence service sector (LHS) Consumer confidence (LHS) Unemployment rate (RHS) 1 11% 40 30 Manufacturing Confidence Europe (LHS) Exports Europe, % Y/Y (RHS) 4 3 20 10 0-10 -20 1 9% 7% 20 10 0-10 -20 2 1-1 -2-30 -30-3 -40 01 02 03 04 05 06 07 08 09 10 11 12 13-40 01 02 03 04 05 06 07 08 09 10 11 12 13-4 Source: Thomson Reuters Ecowin/DG ECFIN Source: Thomson Reuters Ecowin/DG ECFIN FIGURE 5: HEADCOUNT OFFICE* EMPLOYMENT GROWTH, %Y/Y FIGURE 6: PRIME OFFICE RENTAL GROWTH 1. 1. 0. 0. Annual Growth 2013-2017 Office Total Office Total Office Total Germany France United Kingdom Peak to Trough Decline 2007-12 Cumulative Recovery Up to 2012 Cumulative Change 2013-15 -4-2 2 4 Benelux CEE France Germany Nordics Southern Europe United Kingdom Source: Experian September 2013 *Selection of industries predominantly occupying office space. Source: CBRE Global Investors EUROPEAN VISION H2 2013 2

RETAIL MARKETS Consumer confidence indicators across Europe have continued the improvement that started at the beginning of this year. Consumers became far more positive about the general economic situation and the EU28 indicator is back above its long-term average. While in the first quarter only Germany showed confidence levels above the long-term trend, more recently countries in the Nordics, UK, Spain and Italy have shown strong improvement. However, more austerity plans are coming, unemployment fears remain and big ticket purchases are being postponed. Hence, the continued uplift in confidence is yet too fragile to boost consumer spending in the short term. (Figures 2 & 3) On a European level, only limited retail sales growth was reported (0.3%) in the second quarter compared to the first quarter of 2013. Sustainable month-onmonth improvements point to a brightening nearterm outlook and suggest that consumption growth will gather pace in Q3. Amongst core countries, retail sales growth accelerated in UK while France surprised on the positive site. Disappointing growth was reported in Finland, the Netherlands and the Czech Republic. Sales growth for online retail again outperformed store based sales. Online sales are not growing at the same speed in each region. Besides the differences across the regions there are also great differences between the sectors on how well they sell online. We expect that many retailers will focus on becoming fully integrated multi-channel retailers. Besides having a bricks-and-mortar store, they will also offer an integrated online channel. Within the integrated strategy, physical stores are not losing importance. On the contrary: the focus on physical stores will continue but will be more evident for good performing shops and closing down nonperforming stores. (Figures 9 & 10) Continuing strong demand for prime retail locations will stimulate rental growth, although slowly in the years to follow. (Figure 11) In many cases secondary locations continue to struggle with further rental losses and rising vacancy levels. INDUSTRIAL MARKETS Investor interest in the European logistics real estate sector is surging in 2013. Equity is widely available from a range of players like Blackstone, Prologis/Norges Bank, Segro/PSP, Goodman and several others, while AEW sold a portfolio of 7 assets over the summer to Granite, a Canadian REIT. More portfolio deals are in the pipeline and pricing is likely to reflect a more competitive bidding process. So far in 2013, transaction volumes are at the highest level since the GFC. Although the beginning of the year it seemed uncertain, visibility is expected to improve in the Southern European markets this year as investors seek to benefit from the attractive cash on cash returns that can be achieved. The logistics sector has weathered the latest recession relatively well. (Figure 4) Despite lower take up the last few quarters, very limited speculative development enabled a balanced occupier market. (Figure 13) More broad based growth is still dependent on a recovery of domestic demand. But as supply chains are benefitting from increasing e- commerce activity, a selective growth story is unfolding even in a cautious scenario. We expect prime rents to hold steady or grow slightly, below inflation. (Figure 14) However, a more pronounced recovery is expected for economic rents as rent free periods and other incentives diminish, thus improving the income return. On a relative basis, the European logistics sector is well placed to attract investors as yields present high spreads to bonds and also other real estate sectors. The current gap between bond yields and European logistics yields is well over compared to an historical average gap of 3,. Even as bond yields normalize further in the coming years, this provides sufficient room for logistics yields to compress further. (Figure 15) The yield gap presents an interesting opportunity, particularly for North American investors, who have seen a rerating of yields in their home markets already. Investor demand for prime retail real estate is expected to hold up well in 2013 and thereafter, and investors start to broaden their scope to Spain and Northern Italy. For core European markets we expect prime yields to remain at the current low levels in 2013/2014, as investor demand is strong and scarcity of good quality products will remain. (Figure 12) Although investor sentiment is indicating revised interest in Southern European markets, transaction evidence is still limited but expected to materialize in the coming months. EUROPEAN VISION H2 2013 3

OUTLOOK CHARTS FIGURE 7: OFFICE VACANCY RATES FIGURE 8: PRIME OFFICE NET INITIAL YIELD* 3 2 2 1 1 Madrid Periphery Brussels Periphery Amsterdam South East Madrid City Centre Amsterdam Centre Brussels Leopold 6. 5. 5. 97 99 01 03 05 07 09 11 13 4. 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Research * European average, weighted by market cap. Source: CBRE Global Investors * European average, weighted by market cap. FIGURE 9: ONLINE RETAIL WESTERN EUROPE PER SECTOR (EUR bn) FIGURE 10: CONSUMER SPENDING GROWTH, % PA 25 20 15 10 Apparel Cons. Electronics & Video Games Media Products Food Beauty & Personal Care Consumer Appliances Home Improvement & Gardening Furniture & Homewares Toys & Games Consumer Healthcare 3% 1% -1% - -3% - 2011-2012 2013-2017 5 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Romania Poland Bulgaria Sweden Czech Republic United Kingdom Slovakia Finland Hungary France Denmark Germany Belgium Spain Netherlands Portugal Italy Source: Euromonitor Source: Experian, September 2013 FIGURE 11: PRIME SHOPPING CENTER RENTAL GROWTH Benelux Peak to Trough Decline 2007-12 Cumulative Recovery Up to 2012 Cumulative Change 2013-15 -2-1 - 1 FIGURE 12: PRIME SHOPPING CENTER NET INITIAL YIELD* 7% CEE France Germany Nordics Southern Europe United Kingdom 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Global Investors Source: CBRE Global Investors *European average, weighted by market cap EUROPEAN VISION H2 2013 4

RESIDENTIAL MARKETS Our coverage of the residential markets is confined to Germany, France and the Netherlands. When the rest of Europe showed strong house price growth, Germany remained quiet. When residential markets across Europe started to fall, house prices in Germany commenced on a steep upward path on the back of low interest rates, positive employment growth and relatively strong consumer confidence levels. We expect prices to maintain the trend over the next couple of years, but at a slower pace as affordability can start to become an issue for potential buyers. (Figure 16) The demand for German residential portfolios remains high in 2013, driven by the appetite for income-driven investments in safe haven destinations. German investors were most active, particularly the listed sector. The strong demand for German residential portfolios is expected to continue for the rest of the year. The Dutch housing market will be impacted by implemented and pending changes in regulation. Aggregate capital values have declined more than 2 since 2007 (Figure 16), following decades of steep increases. An adjustment in the generous mortgage interest tax deductibility has been approved after years of discussion. On the rental side, the biggest change is related to the strengthened link between rent levels for the large regulated segment of the market on one side and property quality and tenants income level on the other. The eventual return to positive economic growth and price levels are forecast to lead to increasingly positive house price growth as from 2015. House prices in France showed particularly strong growth in 2011. (Figure 16) 2012 was a year of consolidation but 2013 is likely to show a decrease in house prices across France. Even the Ile-de- France region with it supply constrained nature is forecast to show a limited value decline with significantly lower sales volumes. Price declines in other parts of France will be stronger. Concerning the investment market, the Duflot tax break could on one hand support the market by removing the obstacles to housing schemes, or stimulate construction. But it could, on the other hand, hinder the development of the market by limiting market rents, reinforcing control on market players or increasing the transfer tax. The tax break project is currently being debated at the National Assembly. Furthermore, although institutional investors are still active on the residential market, they are still largely risk-averse and focus on lower risk markets, especially Ile-de-France. INVESTMENT MARKETS European investment activity is growing slowly but streadily. The first 3 quarters of the year showed a 2 increase relative to the same period last year. Encouragingly, growth was reported in a broad group of countries and also in an expanding number of cities. In the UK, for example, a clear rise in interest in second tier cities is reported. Strong demand from institutional investors for high quality assets combined with a lack of supply of such properties led to the further tightening of yields. All sectors showed modest prime yield compression during Q3. The gap between prime and (good) secondary yields has been rising since the onset of the crisis. With investors starting to move up the risk curve, we foresee an end to the increasing gap. The preference for core is not likely to push core markets prime yields much further down in the short term, as economic fundamentals are rather weak, prime yields are already relatively low and bond yields are rising slightly. These factors will limit the return potential from core property investments and the relative pricing will push several investors further up the risk curve towards good secondary. In key peripheral markets, prime yields are still relatively high but likely to come down under renewed investors interest, thereby offering return potential. (Figures 8, 12) CONCLUSIONS Europe is clearly back in the game. A rapid change in sentiment and a reduction in downside risk is generating a new phase of opportunities in the European property markets. This shift is yield-driven, rather than rental, and in this part of the cycle repricing happens quickly. Transaction activity is spreading beyond safe havens and capital is searching for a broader range of properties originating from a wider range of sources by type, risk appetite and country. The healthy spread between property yields and government bond yields means there is still time to take advantage. Within the prime segment of the European real estate market, we continue to favor both the resilient retail sector and logistics assets that are in the best locations, due to their high income yield. Attractive income returns are particularly interesting during periods of only modest economic growth. If risk is a strong deciding factor, Northern and Western European markets are still forecast to show the most interesting investment opportunities. (Figure 18) These core markets could also offer value-add potential for investors willing and able to work on their properties. Southern Europe is expected to benefit from re-pricing as prime yields are still relatively high. For investors with a strong focus on total returns, Central and especially Eastern Europe show the best prospects. EUROPEAN VISION H2 2013 5

OUTLOOK CHARTS FIGURE 13: INDUSTRIAL DEMAND AND SUPPLY IN 15 EUROPEAN MARKETS FIGURE 14: PRIME LOGISTICS RENTAL GROWTH 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Take up (LHS; in 1,000 sqm; sum of last 4 quarters) Vacancy rate (RHS; in %) 09 10 11 12 13 10. 1 9. 9% 8. 7. 7% 6. Benelux CEE France Germany Nordics Southern Europe United Kingdom Peak to Trough Decline 2007-12 Cumulative Recovery Up to 2012 Cumulative Change 2013-15 -3-2 -1 1 Source: Jones Lang LaSalle Source: CBRE Global Investors FIGURE 15: LOGISTICS YIELDS FIGURE 16: HOUSE PRICE INDEX, 2007 = 100 1 9% European Industrial Yield European Yields 10-year avg 7,1% US Industrial Cap Rate US Cap rates 10-year avg 6,9% 140 130 120 110 Germany - National Germany - Top markets France - National Netherlands - National Paris 7% 100 01 03 05 07 09 11 13 90 80 70 07 08 09 10 11 12 13 14 15 Source: CBRE Research / Jones Lang LaSalle Source: CBRE Global Investors FIGURE 17: RESIDENTIAL MARKET RENTAL GROWTH FIGURE 18: RISK/RETURN PRIME INVESTMENT MARKETS* Netherlands France Germany Peak to Trough Decline 2007-12 Cumulative Recovery Up to 2012 Cumulative Change 2013-15 -4-2 2 4 lower expected return 2014-16 higher Central and Eastern Europe Romania Western and Northern Europe Slovakia Hungary Poland Netherlands Belgium Czech Republic UK Spain Germany France Italy Sweden Denmark Finland Portugal Southern Europe lower risk (6 cyclical + 4 structural) higher Source: CBRE Global Investors Source: CBRE Global Investors. *For all sectors excl. residential. Bubble sizes represent market sizes. UK reflects average quality. EUROPEAN VISION H2 2013 6

BELGIUM After a small contraction of 0.3% in 2012 (Figure 1), the Belgian economy stabilized in Q1 and improved only slightly in. The reason behind this slow economic activity is the lower demand from the Eurozone accompanied by slowing retail sales (Figure 3) and less government spending. Structural weaknesses in the Eurozone persits, and the lingering process of creating the banking and fiscal union slowly continues. In order to reduce the high level of debt, Belgian authorities continue to cut public spending, although at a pace less severe then initially planned and with an emphasis on maintaining household spending. The government is also deploying financial instruments, sale of assets and restructuring of existing debt and rates. Because of the current economic slowdown, it will be more difficult to achieve this year s deficit target of 1., as the economic growth figures are more modest then forecasted. However, Belgian economic growth is expected to be back at the average of the last 10 years by 2016. (Figure 1) The Belgian unemployment rate increased steadily over the past two years to a level of 8.9% in July, but decreased slightly in August. The positive results from implementing flexible employment measures can not yet outweigh the slower growth of the working age population, a weak economic climate and the restructuring of some larger corporates. As a result, the unemployment rate is not expected to improve until 2015. (Figure 2) Prime rents for shopping centers have been stable now for more than two years and we expect only marginal growth for the coming few years. (Figure 5) Rents and turnover have in general remained stable or are even growing. With consumer confidence at a high this will remain at least stable. Nevertheless, there is a historically low number of new developments coming to the market in 2013, despite a few extensions or renovations of existing shopping centers (Nivelles, Ville2, Wijnegem shopping center). This is expected to change in the period between 2014-2016, as larger projects are expected to come to the market (Uplace, Just under the sky, NEO). All of these projected deliveries are still in a speculative stage and have yet to achieve full permitting. The retail investment market was primarily active in high street and good retail warehouse properties by privates and REITs. After 5 stable quarters, prime yields for shopping centers in Belgium declined in to 5.7 (Figure 6), Super-prime high street retail in Antwerp and Brussels showed below- yields. The very scarce amount of prime products coming on the market will put even more downward pressure on prime yields. H1 office take-up in Brussels was slightly below take-up during the first half of 2012. Focusing on Brussels, significant activity was witnessed in the CBD (Leopold area) as well as in key peripheral locations (near the airport). Coroporates had a much larger share of leasing transactions in H1 than usual. More government leasing activity is expected for H2 of the year. Overall vacancy rates are fluctuating around 11 percent for several years now, and are now just below 11 percent. (Figure 4) The citywide aveage masks much lower vacancy in the CBD submarkets (Leopold and North station) of below 7% and Pentagon below, while several out-of-town submarkets suffer from substantial structural vacancy. Prime office rents remained stable in both the Brussels and Antwerp office market. The development pipeline remains low due to the current economic climate and the still low takeup. Speculative development is currently so low that vacancy rates for well-located space in prime properties are likely to decrease. Nevertheless, this decrease is mitigaged by limited take-up and we expect prime office rents to remain stable for the coming few years. (Figure 5) After a 25bp decline in, prime office yields for Brussels remained at 6.0 in Q3, where we expect them to stay for the coming 2 years. (Figure 6) The current economic outlook also restrains activity in the industrial sector where we see virtually stable prime industrial rents (Figure 5) despite low availability. For modern logistics sites, vacancy levels are almost at zero but speculative development is minimal and most new projects are build-to-suit. Investors are still hesitatant on forward acquisitions. Low rent levels and a restrictive lending environment are making it tough for developers to deliver new supply. Prime logistics market rents are therefore expected to rise slightly from their current level. EUROPEAN VISION H2 2013 7

BELGIUM CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: UNEMPLOYMENT RATE GDP 10yr Average 1 Recorded Unemployment Long Term Average 9% - 7% - 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 93 95 97 99 01 03 05 07 09 11 13 15 17 FIGURE 3: REAL RETAIL SALES GROWTH FIGURE 4: BRUSSELS OFFICE VACANCY RATE 3% 1 1 1 1% -1% - -3% 95 97 99 01 03 05 07 09 11 13 15 17 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Source: CBRE Research FIGURE 5: PRIME MARKET RENTAL GROWTH, % Y/Y FIGURE 6: PRIME NET INITIAL YIELDS Offices - Brussels Retail SC - Belgium Offices - Antwerp Logistics - Antwerp Offices - Brussels Retail SC - Belgium Offices - Antwerp Logistics - Antwerp 2 2 1 7% 1 - -1 05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Global Investors Source: CBRE Global Investors EUROPEAN VISION H2 2013 8

FRANCE The surprising performance of French GDP during the 2 nd quarter has changed the economic growth scenario in France. Thanks to the improvement of export and domestic demand, the French recovery seems to be happening faster than expected. Consequently, after forecasting slightly negative 2013 GDP growth at the start of the year, INSEE has changed its GDP forecast to slightly positive for 2013. This assumption is partly based on the recent recovery of survey results among the purchasing managers of large companies (Services and Industry PMIs). The EIU has also improved its forecasts and now expects positive GDP growth for 2013. (Figure 1) Despite the recent improvement in economic growth, retail sales are likely to remain subdued in 2013. (Figure 2) A recovery of retail sales is expected in 2014, when the economic rebound will allow an improvement in purchasing power. On the retail letting market, growth strategies have been replaced by streamlining and reorganization policies. Consequently, retailers are closing less profitable shops and are focusing on the best locations to consolidate or improve performance. Prime retail locations, especially high streets, continue to benefit from strong demand from retailers, supporting prime rents. However, secondary locations across all retail formats continue to suffer from low levels of demand and increasing vacancy. The office occupier market was not spared by the economic slowdown. Take-up of offices in Ile-de- France stood at 833,000 m² in H1 2013, i.e a fall of 19% compared to the same period in 2012. Most of the districts were affected by this decline. Some districts fared better, such as Paris CBD. Availability in Ile-de-France has risen since the beginning of the year (+) to 4.8 million m². Leasing transactions are likely to fall significantly over the full year 2013, probably to about 1.8 million m² (vs 2.4 million m² in 2012). Due to rising vacancy, office rents will likely decline in 2013, but we expect a mild recovery thereafter when the economic growth should spur company expansions. (Figure 3) Concerning logistics, 675,000 m² of warehouses were transacted in Ile-de-France in 1H 2013, i.e. a decline of 2 in one year. The market is, therefore, continuing the slide that started in 2011. Immediate supply has risen significantly (+1 YoY) and reached 1.5 million m². This increase in overall supply is affecting secondary and obsolete premises. However, the best locations remain resilient, with a stability of prime rents and yields. (Figure 3) In 2013, the deterioration of the economic situation and the lack of transparency will affect home sales. Futhermore, the new legislation project, currently being debated at the National Assembly, is likely to hinder the development of the market by limiting market rents, reinforcing control on market players or increasing the transfer tax. Thus, home sales are expected to decrease significantly in 2013 (between 1 and 2 compared to the long term average). Consequently, we expect a slight decrease of capital values in Île-de-France in 2013, while some other regions are likely to suffer from more significant depreciations. Transaction volumes should start recovering in 2014 as demand will be supported by the recovery of economic growth and a decreasing unemployment rate. (Figure 4) Regarding the investment market, commercial real estate in France has been particularly robust in this challenging context since the beginning of 2013. Indeed, 8 bn has been invested during the first 8 months of 2013. (Figure 5) Île-de- France accounted for the lion s share (8) of acquisitions in France. Most of investors are still focused on prime assets. Offices remain in the majority, attracting 67% of investment, retail remains favored with 17%. Despite the healthy performance of the market, the shortage of secure assets for sale is likely to limit the development of the investment market. The volume of investment expected in 2013 should remain stable compared to 2012 (around 16 bn). As a result of scarcity of the prime assets at the best locations especially Paris intra-muros investors are going to extend their geographical criteria. They will remain focused on secured assets located in mature business districts close to Paris such as Paris Western business districts. Concerning prime yields, we forecast some slight contractions in 2013 in some submarkets such as Paris WBD or in such regions outside Île-de- France, but generally speaking, most prime yields are likely to remain constant. (Figure 6) In the medium term, despite the rise in bond yields, the trend of prime yields should remain quite stable, considering that the recovery of the economic situation will allow investors to accept a contraction of the risk premium. EUROPEAN VISION H2 2013 9

FRANCE CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: PRIVATE CONSUMPTION AND RETAIL SALES (% CHANGE Y/Y) 3% 1% -1% - -3% - - France EU15 (Agg.) 05 06 07 08 09 10 11 12 13 14 15 16 17 3. 2. 2. 1. 1. 0. 0. -0. -1. Retail sales Consumption 05 06 07 08 09 10 11 12 13 14 15 16 17 Sources: INSEE, Economist Intelligence Unit (forecast) Source: INSEE, Economist Intelligence Unit (forecast) FIGURE 3: PRIME MARKET RENTAL GROWTH (% Y/Y) FIGURE 4: EXISTING HOUSING PRICE INDEX, Q1 2010 = 100 1 1 Office Logistics Shopping Centres Residential 150 130 Paris Ile-de-France excl. Paris Regions 110 - -1 05 06 07 08 09 10 11 12 13 14 15 16 17 90 70 50 02 03 04 05 06 07 08 09 10 11 12 13 Sources: CBRE Research, CBRE Global Investors Source: INSEE FIGURE 5: INVESTMENT VOLUME (EUR M) FIGURE 6: PRIME NET INITIAL YIELD 30,000 25,000 20,000 15,000 10,000 5,000 0 Industrial / Logistics Retail Offices 05 06 07 08 09 10 11 12 13 YTD 9% 7% 3% 1% Office High Street Logistics 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: CBRE Research Source: CBRE Research, CBRE Global Investors EUROPEAN VISION H2 2013 10

GERMANY German economic growth improved again in the first half of 2013. Real GDP growth increased to 0.7% q/q in, driven by rising exports and improving domestic demand. The economic outlook is solid. The recession in many European countries seems to be softening and German economic leading indicators have improved over the past months. Ongoing demand from economies outside the Eurozone and solid domestic consumer demand will support moderate growth in 2013. Stronger economic growth is expected from 2014 onward. (Figure 1) Modest economic growth in 2013 will prevent German consumer demand from growing strongly. Nevertheless, demand is expected to stay solid, with the unemployment rate down again to 6. (seasonally adjusted), the same level as the previous year (Figure 2), and further supported by wages expected to increase and moderate short-term inflation. Demand for German office space was solid in the first half of 2013, but somewhat below the same period last year. In the Big-5 German markets (Berlin, Frankfurt, Munich, Hamburg and Dusseldorf), take up decreased by YOY during the first 6 months of 2013. Nevertheless, given low construction activity, vacancy rates came down in key markets, which then led to moderate nominal prime rent growth. Office demand is not expected to grow strongly in 2013 given the moderate economic growth scenario. However, the low development pipeline and sustained demand for prime space will put moderate upward pressure on prime rents. (Figure 3) Rents are forecast to increase modestly in core markets in 2013, and more notably thereafter, which is in line with the positive economic outlook. Real retail sales did not grow further over the first half 2013 YOY, but strong retailer demand and tight availability for prime retail space kept upward pressure on high street retail rents in 2013, which improved again by around on average in German key cities during the H1 2013. For the coming years, prime shopping center rents are forecast to rise modestly. (Figure 4) High street rents in core markets are expected to continue to increase notably next year. Retailers with multi-channel expansion strategies are focusing on prime retail areas in Germany. Logistics demand picked up again. Take up increased by 1 on a national level H1 2013, which was mainly driven by owner-occupier demand. Leasing volumes came down by 11% YOY in the first half of 2013 in the Big 5 cities. However, the overall volume is still solid and above the 5-year average. Vacancy rates remained at low levels of around in 2013. As a result, prime logistics rents remained stable over the past quarters. The logistics leasing market is not expected to outperform the previous year, in line with the moderate economic growth expectations in 2013. Very low speculative construction activity is likely in the near-to-medium-term, so no downward pressure on rents is expected due to new supply. Rents are forecast to remain stable in 2013 and are likely to increase again in 2014, given the positive outlook for key logistics drivers in Germany post-2013. (Figure 5) The demand for German residential portfolios remained strong in H1 2013, driven by the appetite for income-driven investments in safe haven destinations. The total turnover was around 6 bn in the first half of 2013 and only 11% below the record level in 2012. German investors were most active, particularly the listed sector. The strong demand for German residential portfolios is expected to continue for the rest of the year. German commercial investment turnover outperformed and reached 12.6 bn in the first half of 2013, which is 3 higher than in the same period last year. Core acquisitions remained dominant and office was the most transacted asset class (4 of total transaction activity) followed by retail (33%). Retail remains the investor darling, but the availability of core assets is tight. Logistics investment turnover benefited and picked up, capturing of total investments in H1 2013. Overall, prime property yields declined again in major office markets and for prime logistics. Prime retail yields have remained stable across the various retail types, but are expected to decline moderately in the second half of 2013. Next year s demand for German real estate is expected to hold up well. Prime yields are forecast to remain at low levels in 2013/2014, as investor demand is not expected to weaken and economic growth strengthens. (Figure 6) Core real estate is still projected to offer favorable yields compared to competitive asset classes. The attractive risk-spread between property yields and bonds (government and corporate) is not expected to change soon. EUROPEAN VISION H2 2013 11

GERMANY CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: UNEMPLOYMENT RATE Long-Term Average 1 1 Long-Term Average 1 - - - 93 95 97 99 01 03 05 07 09 11 13 15 17 92 94 96 98 00 02 04 06 08 10 12 14 16 FIGURE 3: OFFICE NET ADDITIONS TO STOCK* (% OF STOCK) FIGURE 4: MARKET RENTAL GROWTH, % Y/Y 5. 4. 4. 3. 3. 2. 2. 1. 1. 0. 0. Long-Term Average 92 94 96 98 00 02 04 06 08 10 12 14 1 1 - -1-1 -2 Shopping Center (IPD) Office (Prime) Logistics (Prime) 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Sources: Property Market Analysis, CBRE Global Investors *Average German Big 5 markets Source: CBRE Global Investors FIGURE 5: KEY LOGISTICS DRIVERS, 2007 = 100 FIGURE 6: PRIME NET INITIAL YIELD 150 140 130 120 Industrial Production Import Volume of Goods Export Volume of Goods Real Private Consumption 9% 7% Office Shopping Centres Logistics 110 100 90 80 70 07 08 09 10 11 12 13 14 15 3% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Global Investors EUROPEAN VISION H2 2013 12

ITALY The policies and reforms implemented by Letta s left-right coalition government to improve economic growth have still not had time to significantly impact the Italian economy. Italy s current political situation is still unstable, although a recent, unexpected vote of confidence has given it the power to continue and avoid holding new elections. The government, which has recently increased VAT to 2, is now expected to move ahead reforms to improve labour rules (including reducing excessive taxes) and the review of the electoral law and justice system to stimulate economic growth. The scope of these reforms, however, still depends on a shaky coalition. The Italian economy contracted by 2. in 2012, driven by a sharp fall in domestic demand. Despite some improvements in GDP growth and consumer confidence in recent quarters, 2013 will continue to be challenging, with negative growth (-1.) and only limited growth expected thereafter (average gain of 0. in 2014-2017). (Figures 1 & 2) The unemployment rate is forecasted to reach 12. at the end of 2013, up from 10.7% at the end of 2012. Office occupier demand remains weak, as it continues to suffer from the poor economic situation. Total take-up in the Milan office market was 74,000 sqm in H1, 3 less than the same period of 2012. Most take-up involved Grade A office space with 41% located in the periphery. Total take-up for 2013 is expected to be around 170,000 sqm, significantly below 2011 and 2012 figures. (Figure 3) The Milan CBD vacancy rate is currently around 9%, whilst total vacancy of the Milan market is 12. and stable. Due to lack of demand and many tenants renegotiating lease terms with their current landlords, prime rents in the CBD have again decreased in 2013 to Euro 480/sqm/yr, and further pressure is also expected on rents in semi-central and periphery locations in the coming quarters. Rents for Grade B and C buildings are also under pressure. Absorption is driven by rent reductions in this tenant-friendly market in which substantial incentives can be achieved. Office take-up in Rome reached approximately 100,000 sqm in Q1 and 2013, a considerable improvement on 2012 take-up of 64,000 sqm for the whole year. In the retail sector, prime rents in prime core shopping centers and high streets remained stable in H1 due to good demand. (Figure 5) While retailers are still cautious about their expansion plans, they are carrying out shop fitouts to renew older stores to remain competitive with newer formats. Prime consolidated centers with strong track records, high quality tenant mix and good overall design still rank at the top for expansion plans by many international tenants. Furthermore, an improvement in consumer confidence has had a positive effect on retail sales since 2013. Italian logistics take-up in H1 totaled approximately 205,000 sqm, down 5 on H1 2012, as it still suffers from weak international demand. Activity was concentrated principally on Milan and Rome. Third-party logistics companies represented more than 7 of the total absorption, suggesting a drive to outsource these activities in the search for greater efficiency. There is a notable lack of new, high quality product, although limited development activity is helping to sustain headline rents. Prime rents remained stable in the Milan area at EUR 48-50/sqm, although due to an increase in incentives, net rents are decreasing. (Figure 6) Investors appetite for Italian real estate has increased over the last few quarters. A total of Euro 2,026 million were invested in Italy during the first half of 2013, exceeding the half year average of 2012 by 1. A high percentage of this capital (6) was of foreign origin and the focus continues to be on core office property. Retail, on the other hand, is attracting increasing attention from foreign investors including those with a value added and opportunistic approach. Foreign investors are currently taking advantage of the market cycle to enter the Italian retail market, where domestic players are essentially not present to date. A number of retail transactions in factory outlets, retail parks and shopping centers are under negotiation and should take place before year end. Funding remains difficult although there is somewhat more availability from banks to finance prime product. Prime yields for most sectors remained stable in 2013, particularly in offices in the Milan CBD and core business districts, whilst yields face strong upward pressure in peripheral locations and for non-core assets. In the retail sector, a yield shift may take place shortly depending on whether the mismatch between buyers and sellers expectations persists. Prime yields for the logistic sector are likely to remain stable. H2 2013 may see completion of several transactions, confirming the investors interest in the logistic sector. (Figure 4) EUROPEAN VISION H2 2013 13

ITALY CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: CONTRIBUTION TO REAL GDP GROWTH GDP 20yr average 3% Private Consumption External Balance Stockbuilding Government Consumption Gross Fixed Investment GDP Growth 1% - - -1% - - 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17-3% 10 11 12 13 14 15 FIGURE 3: TAKE-UP & VACANCY RATE MILAN OFFICE MARKET FIGURE 4: PRIME NET INITIAL YIELDS Sq m ('000) 120 100 80 60 40 20 - Take-up Total - LHS Take-up - Grade B -LHS Take-up - Grade A - LHS Vacancy Rate - RHS 07 08 08 09 09 10 10 11 11 12 12 13 13% 11% 9% 7% 8. 8. 7. 7. 6. 6. 5. 5. 4. Milan Office Rome Office Italy Shopping Centers Milan High Street Rome High Street Milan Logistic 11 12 13 14 15 Source: CBRE Research Source: CBRE Global Investors FIGURE 5: RETAIL PRIME RENTS & PRIME YIELDS FIGURE 6: LOGISTICS PRIME RENTS & YIELDS EUR/Sqm/pa 4,100 4,000 3,900 3,800 3,700 3,600 3,500 3,400 Prime Rent HS Milan - LHS Prime Yield HS Milan - RHS Prime Yield HS Rome - RHS 07 08 08 09 09 10 10 11 Prime Rent HS Rome - LHS Prime Yield SC Milan - RHS 11 12 12 13 7% 3% EUR/Sqm/pa 70 60 50 40 30 20 10 0 07 Milan Prime Rent - LHS 08 08 09 09 10 10 11 Prime Yield - RHS 11 12 12 13 1 9% 7% Source: CBRE Research Source: CBRE Research EUROPEAN VISION H2 2013 14

NETHERLANDS Economic growth is expected to enter positive territory from 2014 onward, although the outlook remains subdued in the near term. Most economic figures have been revised downward from the outlook six months ago. GDP growth is currently expected to end up at negative 1. for 2013. (Figure 1) Unemployment continued to increase to 8.7% in July 2013. Our cautious view of a mild recovery in the medium term is underpinned by the movements of the OECD composite leading indicator for the Netherlands. This indicator, designed to provide early signals of turning points between expansions and slowdowns of economic activity, increased slightly in the first half of 2013. (Figure 2) Office take-up figures continued to be weak, as occupiers remain cautious and prefer to extend expiring contracts, often for a relatively short period at favourable terms. A number of trends in the office occupier market suggest that future demand for space will continue to be subdued. Trends such as the New World of Working (which includes more flexibility and work-fromhome options), cost consciousness of companies, concentration of office activities, mergers and acquisitions, and sustainability suggest that office space per employee will decline further in the future. Although overall vacancy remains at relatively high levels due to weak demand, there are significant differences between submarkets in this respect. Prime inner city and CBD locations in Amsterdam appear to be fairly resilient to falling demand, and vacancy in these prime locations continues to decline. (Figure 3) Following the substantial fall in real personal disposable income, retail turnover continued to decrease. Overall decreasing turnover was only mitigated by growth in the supermarket segments, whereas turnover of all other major categories remains particularly feeble. (Figure 4) Demand for prime retail locations from both domestic and international retailers remains relatively strong as these assure dense pedestrian flows and solid turnover. However, retail in secondary locations continues to suffer from lower retail spending levels. This is most clearly evident in the relatively high levels of vacancy at these secondary locations. Although the market outlook for prime retail areas is positive, prime yields saw an increase of 10 to 40 bp in 2013. This increase is regarded a one-time correction, as yields are at relatively low levels and experienced almost no yield shift since 2010. Underpinned by scarcity, the logistics real estate sector is one of the most resilient real estate sectors. Take up so far in 2013 was solid despite weak domestic demand while the vacancy rate remained low at 6. (CBRE) compared to 6.3% as per Q1. As modern supply is tight, the development pipeline is predominantly pre-let and available space mostly relates to older stock, we maintain our expectation of single digit rental growth for the year 2013 for the main logistics markets in the South. The outlook for logistics drivers compared to last quarter deteriorated only slightly but some indicators are turning the corner. For example the Purchasing Manager Index at 53.5 per August points to stronger growth and was the highest reading in more than 2 years. (Figure 5) Investment demand is strong so far this year. With several portfolios trading or about to, we believe current pricing level will hold and even may sharpen further. The housing market reforms proposed by the new government have largely been approved by parliament. Most prominent measures are a gradual reduction of mortgage tax deductibility and a revised policy for the regulated rental market in which rental levels are more geared towards the property s location and the tenant s income. The latter results in higher rental growth prospects for regulated rental housing. However, part of the extra rental income will flow back to the government in the form of a landlord charge. Residential transaction volumes showed an upswing in the past few months, with the number of residential units sold being up 3 yoy in July and 19% yoy in August 2013 (Figure 6). Although this increase in activity mitigated negative price growth, house prices are still 3. down compared to year-end 2012. The negative outlook for the for-sale market led building production to drop to historically low levels, while the number of households continues to grow. This could lead to tight demand-supply ratios in the future. EUROPEAN VISION H2 2013 15

NETHERLANDS CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: OECD LEADING INDICATOR NETHERLANDS 1% 104 102 100 98 96 OECD Composite Leading Indicator -1% - Jan 2013 Jul 2013 2013 2014 2015 2016 2017 94 92 90 2009 2010 2011 2012 2013 Source: OECD FIGURE 3: FINANCIAL DISTRICT VACANCY RATES OFFICES FIGURE 4: RETAIL TURNOVER, 2013, % Y/Y 3 2 2 1 1 07 08 Amsterdam A'dam South-Axis Rotterdam 08 09 09 10 10 11 A'dam Centre Schiphol The Hague 11 12 12 13 - - - - -1-1 Total retail Food Supermarkets Speciality stores Non-food Fashion retail Home furnishing Home appliances Do-It-Yourself Cons. electronics Source: CBRE EMEA Research Source: CBS FIGURE 5: MANUFACTURING PMI FIGURE 6: RESIDENTIAL SALES AND PRICE GROWTH NL PMI Manufacturing 65 60 55 50 45 40 35 30 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 20 15 10 5 0-5 -10-15 -20 Feb-10 Total Monthly Transaction Volume (000's) (LHS) % Nominal House Price Growth (Y/Y) (RHS) 1 9% 3% -3% - -9% -1 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Sources: Markit economics / Nevi Source: CBS EUROPEAN VISION H2 2013 16

NORDICS Economic growth in the Nordics remains strong, continuing to outpace the Euro Area, and the Norwegian economy has clearly been the star performer during the recovery. annualized GDP growth was 0. in Denmark, 0. in Norway and 0.1% in Sweden. The Finnish economy contracted by 1.1%. (Figure 1) The Nordic economies have in general shown resilience during recent years. The region stands out from the rest of the developed world with its relatively strong growth, stable country balances and low GPD/government debt ratios. The Nordic macro-economic outlook is therefore, among other factors, promising. (Figure 2) 2013 is anticipated to be the bottom of the cycle, and growth will pick up rapidly in 2014 and onwards. The average per annum forecasted GDP growth during the period of 2014 to 2017 is expected either to be on par or significantly above the average annual growth of the last 10-years. The main factor that adds insecurity to the Nordic economies is their export dependence around half the Nordic GDP consists of exports, of which a large proportion goes to the EU. The relatively sluggish growth of the sector has increased the importance of domestic demand as a driver of economic growth. The sentiment in important export markets have nevertheless improved during 2013 and the export sector is expected to witness a strong rebound going forward. The expected four-year average annual export volume growth in the Nordics ranges from 1. to 5., depending on country selection. The consumer confidence in 2013 has gradually improved in Sweden and Denmark, while Finland has witnessed a declining trend. (Figure 3) Sweden and Denmark are now experiencing confidence levels above the long term average. The decline in consumer confidence in Finland is likely a response to the general economic situation, but also to the fiscal austerity measures implemented with the aim to cut the government budget deficit. The business confidence paints a slightly more downbeat picture than the confidence of the consumers. The confidence levels are still below long term average in Denmark, Finland and Sweden. The trend is nevertheless positive in Sweden, which is encouraging. (Figure 4) Finland has witnessed a gradual contraction since May, reflecting structural difficulties, especially in the large telecommunications, shipbuilding and forestry sectors. Prime retail rent development has mainly remained stable during the first half of 2013, with the exception of prime retail premises in Oslo. The prime high-street market in Oslo witnessed solid double digit rent growth in the second quarter of 2013. The rental uplift was an effect from new international fashion players entering the market. The office vacancy rate in the Nordic capital cities ranges from around 7% to around 1, although it should be noted that the vacancy rate is considerably lower when narrowing down to the capital cities CBDs. The office market is at the moment polarized and the vacancy rate is generally higher in the suburban areas of the capital cities. There are inherent differences in the more secondary markets; some of these markets have seen vacancy levels edge down during 2013; while others moved in the opposite direction. The Nordic transaction market started to slow in the beginning of 2013. The transaction volume was down 29% y/y at the end of the first quarter of 2013. (Figure 5) The transaction volume improved +2 y/y during the second quarter of 2013. The total transaction volume of the first half year was down 7% y/y despite the improvement. Local and pan-nordic players continue to be the most active participants in the market, but there are several international players screening the market. Figure 6 outlines the transaction volume per country and sector. The office sector continues to attract investors and its transaction volume share is clearly the largest of all of the commercial real estate property types. The low shopping centre (SC) transaction volume could be explained by supply characteristics, and the relatively high SC transaction volumes of 2012. Prime Net Initial Yields (NIY) have remained static for most of the sectors. The exception is the prime Helsinki office yield, which compressed with some 5 bps during second quarter of 2013. The prime NIY is expected to remain at current levels, although some softening in prime yield levels can t be ruled out, mainly driven by a narrowing yield-gap between prime yields and the 10Ygovernment bond yields. Investor interest for good quality secondary properties is expected to grow going forward, which may drive down the current yield spread between the prime and secondary property segment somewhat. EUROPEAN VISION H2 2013 17

NORDICS CHARTS FIGURE 1: VOLUME GDP GROWTH, % Y/Y FIGURE 2: MACRO OUTLOOK, % Y/Y Denmark Finland Sweden Norway Euro 17 2013 10Y pa historical average average pa forecast 2014-17 - - 11 Q1 11 11 Q3 11 12 Q1 12 12 Q3 12 13 Q1 13 - - GDP Export Private C GDP Export Private C GDP Export Private C GDP Export Private C Denmark Finland Sweden Norway Source: Eurostat FIGURE 3: CONSUMER CONFIDENCE, LTA=100 FIGURE 4: BUSINESS CONFIDENCE, LTA=100 Denmark Euro 17 Finland Sweden Denmark Finland Norway Sweden 102 101 101 100 100 99 99 98 98 97 Source: OECD Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 97 Source: OECD Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 FIGURE 5: NORDIC TRANSACTION VOLUME (EUR M) FIGURE 6: TRANSACTION VOLUME PER SECTOR H1 2013 (EUR M) 12,000 Sweden Norway Finland Denmark 2,000 Denmark Finland Norway Sweden 10,000 8,000 1,500 6,000 1,000 4,000 500 2,000 0 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 0 Office Industrial Shopping centers Other refers to residential, hotel & multi-use Other retail Other Source: CBRE Research Source: CBRE Research EUROPEAN VISION H2 2013 18

POLAND Poland has taken the lead when comparing economic growth statistics across Europe. Driven by its large domestic market, Poland benefited from a large influx of investments and solid consumer spending. Infrastructure improvements supported by EU funds helped sustain strong economic growth recently. (Figure 1) Also, during the recent economic downturn, Poland has been holding up well, never going into recession. Although the growth forecasted for 2013 remains limited, the outlook for 2014 and beyond is much brighter. Similarly to other Central European countries, Poland is not immune to the economic situation in Europe. Whilst on the surface the situation appears solid, there are clear trends of weakening fundamentals in the industrial sector, export volumes and consumer spending some of the main drivers of the economy. In spite of the reviewed figures showing economic growth, The National Bank of Poland continues with its fiscal policy. The benchmark interest rate is expected to remain unchanged at 2.5, where it was lowered in July. In spite of the introduced austerity measures, the economic growth in 2013 is now more positive, mainly due to an improved situation in the Western Europe. In medium term, the economic growth is expected to accelerate the growth and lead the CEE markets. In spite of an apparent slowdown in activity in the second quarter, the real estate investment market showed a solid performance in H1 2013. In year on year comparison there was approximately a 21% increase in total volume of investment into real estate. Poland remains the most attractive among CEE investment markets, with over 5 of the investment targeting the country. Both prime and secondary retail yields have remained stable in H1 2013. Especially at the prime end of the spectrum, the yields are rather sharp. This opens the opportunity for good quality stock in secondary cities. In the office and industrial sector, yields have remained stable too. For offices, however, there is an excess of investment supply over demand, so there is a possibility of minor outward yield movement in H2 2013. The excessive development pipeline could also result in a drop of capital values in the short to medium term. For logistics, yield levels are anticipated to remain stable too, as the industrial production has an improved forecast and the demand for industrial and logistics space is expected to slowly revive. Yields should, however, resume a downward trend in the medium and long term, although the downward trend will be modest compared to other CEE markets. (Figure 2) Office rental growth in Warsaw was negative in the first half of 2013 and is expected to continue to decline near term. As a result of strong development activity, the vacancy has increased well above 1 (Figure 3), which puts pressure on both rents and level of incentives provided. The market has now become strongly in favour of tenants. Although the demand remains relatively strong, the volume of new completions was excessive, resulting in negative net absorption. The excess supply is not expected to be absorbed by the market in the short term, more so because further completions are expected. This trend will not reverse before 2015, when the market will have reacted to the current trends and a return of positive rental growth can be expected. (Figure 4) Retail rental growth will slow down in 2013 given more risk awareness (labour market developments, inflation, austerity measures), but is likely to remain in positive territory due to rising GDP and positive retail sales growth. (Figure 5) The age of majority of retail stock indicates that large part of the inventory will be re-let in following years, which will also contribute to rental growth in medium term. As for logistics, the market has seen long-term negative nominal rental growth. With ongoing infrastructure developments, more land becomes available for logistics developments, including in the prime zone of Warsaw, which effectively pushes rents down. After positive growth in 2011, rents came under pressure in 2012 and will remain so throughout 2013, stabilizing towards the year end. Land availability enables new logistics development; however, current vacancy over 1 lowers the pipeline. Improved economic forecasts also indicate growth in industrial production to begin in 2013 (Figure 6), which should revive the constrained demand. The market is now to a large extent driven by renegotiations; increased industrial production should boost new demand and in the longer term contribute to rental growth. EUROPEAN VISION H2 2013 19

POLAND CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: PRIME GROSS INITIAL YIELDS Euro Area Poland 1 9% Office Retail Logistics 7% - - - 05 06 07 08 09 10 11 12 13 14 15 16 17 05 06 07 08 09 10 11 12 13 14 15 Source: CBRE Global Investors FIGURE 3: WARSAW OFFICE VACANCY RATE FIGURE 4: PRIME MARKET RENTAL GROWTH, % Y/Y 1 Office Retail Logistics 4 9% 3 2 1 3% - 06 07 08 09 10 11 12 13-1 05 06 07 08 09 10 11 12 13 14 15 Source: Property Market Analysis Source: CBRE Global Investors FIGURE 5: RETAIL SALES GROWTH, % Y/Y FIGURE 6: INDUSTRIAL PRODUCTION, % Y/Y 7% GDP Growth Retail Sales 2 1 1 Industrial Production Volume of Exports 3% 1% - 05 06 07 08 09 10 11 12 13 14 15 16 17-1 05 06 07 08 09 10 11 12 13 14 15 16 17 EUROPEAN VISION H2 2013 20

SPAIN Although the process of correcting accumulated imbalances is still ongoing, the Spanish economy is benefiting from the easing of financial pressures and the gradual return of capital flows. The 2012 national reform plan has set the basis for a modest economic recovery that might occur during the next quarters thanks to the positive contribution of external demand. (Figure 1) However, private consumption is expected to remain weak and might slightly erode growth during the coming quarters, as the effect of the September 2012 tax increases will continue to impact private expenditure. (Figure 3) Despite that, the destruction of private-sector jobs is stabilizing due to the moderate deterioration of the economy, unemployment rates are expected to slightly increase as public employment is being affected by the fiscal consolidation. (Figures 2 and 4) Fiscal consolidation is expected to drain growth during 2013 and to a lesser extent during 2014. The recently approved extension of the deadline to reduce the public deficit to 3% of GDP might change the composition of the adjustment, reducing the tax burden and focusing the reductions on public expenditure. (Figure 2) In spite of a gradually improving economic outlook, expected and imminent growth is still very vulnerable. Risks remain on the downside, focused on the slow pace of constructing the European Banking Union, the sustainability of export growth and intensifying fiscal adjustments. Property markets continued performing negatively during the first quarters of 2013, although to a lesser extent than in previous years. The recent slowdown in rental declines and the stabilization of vacancy rates suggest a near term change in the property cycle. Vacancy rates remained stable between 11% and 1 in practically all sectors, helped by the almost non-existent pipeline counteracting the space rationalization process started by companies in early stages of the crisis. However, space availability is expected to slightly increase, especially in the office sector, as the rationalization public program progresses. Take-up levels were stable during the first half of 2013, aligned with the short term private consumption outlook hindering any increase in the demand for property space. The 5 increase in take up levels in the Madrid office market during the first half of 2013 is due to exceptional company re-allocations rather than market fundamentals. The stabilization of vacancy rates among practically all sectors has contributed to a slowdown in the correction in prime rents during the last quarters. Nevertheless, prime rents among sectors have registered 3 to 4 nominal accumulated falls since the peak and are likely to continue falling during the coming quarters, although at a slower pace. (Figure 5) Financing continues to be limited to core assets although expensive, with a limited contribution to property returns. This will create opportunities for investors chasing after refinancing situations. Loan applications are completely different from those from pre-crisis and focus in detail on micro factors. The sharp value correction in the Spanish property markets (between 4 and 5 accumulated value decline since the peak, depending on the sector) has pushed property values significantly below historical averages (circa 3). In addition, property yields remain high when compared to pre-crisis levels (circa 250 bps higher) and still reflect a risk premium where other markets (government bonds) have already normalized. (Figure 6) Since the beginning of 2013, foreign investors sentiment has improved significantly due to reduced uncertainties (thanks to the ESM and the structural reforms undertaken) and the possible near term change in the cycle. Given the attractiveness of current prices and high income returns, demand for investing in Spanish real estate has increased rapidly since the beginning of 2013. Investors continue to be polarized into two segments, core and opportunistic. As the Spanish bad bank SAREB accelerated the disposal strategy at the start of the year, transactions have registered several portfolio deals (mainly residential) and others related to non-performing loans in the opportunistic niche. The tempting core play to secure income cash flows is becoming crowded and capital sources might be pushed up the risk specturem where there is currently very little competition. Investment volumes still remain low, also due to the lack of product restricting further transactions. However, with foreign investors returning to Spain, we expect volumes to increase in the coming quarters. EUROPEAN VISION H2 2013 21

SPAIN CHARTS FIGURE 1: REAL GDP GROWTH, % Y/Y FIGURE 2: BUDGET BALANCE AS % OF GDP 3% 1% -1% - -3% - - Euro Area Spain 06 07 08 09 10 11 12 13 14 15 16 17 1 9% 3% 10.7% 9. 7. 6. 5.7% 11 12 13 14 15 Sources: Spanish Tesoro Publico, Economist Intelligence Unit FIGURE 3: PRIVATE CONSUMPTION GROWTH, % Y/Y FIGURE 4: UNEMPLOYMENT RATES 3% 1% -1% - -3% - - Euro Area Spain 06 07 08 09 10 11 12 13 14 15 16 17 3 2 2 1 1 99-08 Spain Euro Area 09 10 11 12 13 14 15 16 17 FIGURE 5: PRIME MARKET RENTAL GROWTH, % Y/Y FIGURE 6: PRIME NET INITIAL YIELDS 3 2 1-1 -2 Offices Shopping Centres Logistics Offices Madrid Shopping Centres Logistics Barcelona 9% 7% -3 06 07 08 09 10 11 12 13 14 15 16 17 3% 06 07 08 09 10 11 12 13 14 15 16 17 Sources: CBRE Global Investors Source: CBRE Global Investors EUROPEAN VISION H2 2013 22

UNITED KINGDOM In the 2013 edition of Global Vision, we used the expression unremittingly grim to describe the austerity-induced outlook for much of the UK economy, suggesting the possibility of rapidly depreciating Sterling leading to stagflation. Given the recent steady stream of positive economic news, the tone we struck a mere half year ago looks decidedly spurious. A sustainable recovery is finally afoot in the UK. Output growth in the first two quarters of the year has been increasingly positive, and for the first time since 2010 economic expansion is not attributed to one-off factors. The trade deficit is narrowing and business surveys are rising, compellingly so in the all-important services sector. (Figure 1) Consumers are increasingly sanguine; spending more due to both stabilizing employment and rising house prices. Given that property performance is inextricably linked to the prospects of the underlying economy, these encouraging developments suggest that the case for investing in UK property is as strong as it has been in quite some time. To be fair, the recent spate of optimism has meant that the bad news of which some certainly lingers is being overshadowed. The recent revisions to output data, though negating a technical double dip recession, in fact mean that the economy is further away from its 2008 peak. (Figure 2) We are mindful that average earnings growth is below headline inflation, net business lending is at low levels and youth unemployment is uncomfortably high. Then, of course, there is the recent outward shift in the yield curve. (Figure 3) While some have interpreted this to be a vote of no confidence in the new Bank of England (BoE) governor, it could ultimately result in jittery capital markets. These factors coupled with the gross indebtedness across all sectors of the economy, which was rightfully emphasized in our Global Vision, counter some of the positive news that we have recently been enjoying. Much like the broader economy, commercial property performance is also surprising to the upside. At an all property level, total returns have been improving at a steady clip on a monthly basis. Rents appear to have reached a floor and capital values are finally growing, an important milestone in a market plagued by declines for a year and half. (Figure 4) Quite importantly, occupational markets are improving: new lettings are taking place and incentives packages are dissipating. Our experience in the multi-let industrial sector is particularly encouraging. Voids have been trending downward and, in contrast to other sectors, there doesn't appear to be a strong geographical bias in terms of activity. We are mindful that this slice of the commercial property market encompasses a wide range of UK industry. Resilience in this sector is a potentially powerful forward looking indicator, one which has favorable implications across all sectors of UK property. Improving investor sentiment is percolating through to the UK property market. There is a wall of money jostling to target segments perceived to have been disproportionally hit in valuations. Recently unsellable secondary assets are attracting greater interest from a spectrum of buyers. Smaller lot size assets, in particular, are often trading ahead of recent valuations while underwriting assumptions have seemingly softened. With in-going yields sufficiently high in many segments of the market, deals are often attracting all-cash offers and activity is no longer myopically constrained to London and the South East. Owing to these factors, a narrowing of the historically wide prime versus secondary yield gap is imminent. (Figure 5) Clearly how this manifests itself is linked to activity in other asset classes. Corporate bond yield spreads to property remain compelling in an historical context (Figure 6), which can be taken to mean that there are few fears about the viability of UK firms. Not only does this bode well for required property yields, but it should also support occupier demand, benefitting openmarket rental values. This is another reason to think that investor sentiment will continue to improve, with secondary assets in particular standing to benefit. The new forward guidance adopted by the BoE has restored some stability to the UK gilt market after the sell-off initially precipitated by the Fed s signal to begin its QE taper. At a current yield of ca. 3., ten year nominal gilt yields continue to reflect the BoE s own ultra-loose monetary policy and mean that the spread to property s net initial yields is still at a historically attractive level. More importantly, the expected rise in yields of ca. 25-75bps over the coming five years is unlikely to derail a commercial property recovery. Arguably, it may take some heat out of Central London and other prime segments of the market that have been priced off of suppressed gilt yields. It may also further energize investor interest in regional or secondary assets, segments which at current in-going yields are much less sensitive to bond yield movements. We interpret both of these potential outcomes positively. EUROPEAN VISION H2 2013 23

UNITED KINGDOM CHARTS FIGURE 1: UK CIPS PMI SURVEYS. 50=BOOM-BUST LEVEL FIGURE 2: REAL GDP REBASED, Q1 2008 = 100 70 Manufacturing PMI 65 Services PMI 60 55 50 45 40 35 30 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Thomsom Reuters Datastream 100 99 98 97 96 95 94 93 92 07 08 09 10 11 12 13 Source: Office of National Statistics down 3. from Q1 2008 up 1. from 2012 up 0. from Q1 2013 FIGURE 3: IMPLIED FORECASTS FOR THE UK POLICY RATE FROM BOND MARKET YIELD CURVES FIGURE 4: UK PROPERTY CAPITAL VALUES, % 3M/3M LATEST= 2013 30-Jun-11 29-Jun-12 30 Aug 13 30-Dec-11 31-Dec-12 1 July '09- Oct. '11 1 capital value rise 13: 0. 3% - -1 Nov. '11 - Apr. '13 capital value fall 1% 0 12 24 36 48 60 Time to Maturity in Months -1-2 June '07 - June '09 4 capital value fall Q1 07 07 Q3 07 07 Q1 08 08 Q3 08 08 Q1 09 09 Q3 09 09 Q1 10 10 Q3 10 10 Q1 11 11 Q3 11 11 Q1 12 12 Q3 12 12 Q1 13 13 Source: Bank of England Source: Investment Property Databank FIGURE 5: PRIME AND SECONDARY VALUATION YIELDS LATEST=SEPTEMBER 2013, ALL SECTORS FIGURE 6: DIFFERENCE BETWEEN 10 YEAR UK GILTS, LINKERS & BBB CORPORATE DEBT AND THE IPD ALL PROPERTY INITIAL YIELD 1 1 1 Secondary Prime 1 index-linked gilt yield 10 yr gilt yield BBB corp.debt 598bps Average: 260bps - 00 01 02 03 04 05 06 07 08 09 10 11 12 13-05 06 07 08 09 10 11 12 13 Source: CBRE Valuation Team Sources: Thomsom Reuters Datastream, Investment Property Databank EUROPEAN VISION H2 2013 24

CBRE GLOBAL INVESTORS CBRE Global Investors is one of the world s largest real estate investment management firms with $88.2 billion in assets under management. 1 The firm sponsors real estate investment programs across the risk/return spectrum in North America, Europe and Asia for investors worldwide including public and private pension funds, insurance companies, sovereign wealth funds, foundations, endowments and private individuals. Programs include core/core-plus, value-added and opportunistic strategies through separate accounts and commingled equity funds, debt investment, global multi manager programs and listed global real estate securities vehicles. A cornerstone of CBRE Global Investors is a timely, disciplined research process. Our dedicated global Investment Research Group provides a strategic understanding of both local real estate markets and global economic and capital markets trends, which shapes highly informed real estate investment strategies and decisions. 1 Assets under management (AUM) refers to fair market value of real estate-related assets with respect to which CBRE Global Investors provides, on a global basis, oversight, investment management services and other advice, and which generally consist of properties and real estate-related loans; securities portfolios; and investments in operating companies, joint ventures and in private real estate funds under its fund of funds program. This AUM is intended principally to reflect the extent of CBRE Global Investors' presence in the global real estate market, and its calculation of AUM may differ from the calculations of other asset managers. As of June 30, 2013. EUROPEAN VISION H2 2013 25

This document has been prepared by the Strategy & Research Team: Assia Amore Andrew Angeli Marije Braam Isaac Carrascal Arthur De Four Anna Furber Erik Hamrin Maarten Jennen Johan Kamminga Charlotte Keeling Gerben Koops Joaquin Linares Christian Muller Eugene Philips Els Swaen Marcel Theebe Ondrej Vlk Karel Zeman REGIONAL HEADS OF RESEARCH NORTH AMERICA EUROPE ASIA PACIFIC DOUG HERZBRUN Global Head of Research douglas.herzbrun@cbreglobalinvestors.com TEL: + 1 213 683 4238 EUGENE PHILIPS Head of European Research eugene.philips@cbreglobalinvestors.com TEL: +31 20 202 2337 SHANE TAYLOR Head of Asia Pacific Research shane.taylor@cbreglobalinvestors.com TEL: +852 2846 3042 EUROPEAN VISION H2 2013 26

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