September 2016
European Regional Economic Growth Index Introduction to E-REGI What is E-REGI? Launched in 2000-2016 is the 17 th edition of E-REGI Europe-wide coverage - 32 countries - 295 European regions - Focus on 100 cities Shows relative economic performance - compared to the European average Strong relationship with real estate - Proxy for occupier demand - Framework for investment LaSalle Investment Management E-REGI 2016 2
Correlation Robust relationship E-REGI and occupier demand 80% Correlation E-REGI Score with Office Take-up in 3 following years 70% 60% 64% 67% 68% 72% 64% 65% 65% 68% Average: 62% 64% 63% 50% 49% 55% 51% 53% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 E-REGI Year Source: LaSalle (09/16), PMA (09/16), JLL (09/2016) LaSalle Investment Management E-REGI 2016 3
Agenda E-REGI 2016 Methodology 2016 Headline Results Theme 1: Human Capital Theme 2: Politics Conclusions & Discussion LaSalle Investment Management E-REGI 2016 4
Methodology and Headline Results E-REGI 2016 LaSalle Investment Management E-REGI 2016 5
Three categories of economic strength E-REGI methodology 2.50 All European regions (n=295) E-REGI 2016 scores Regions with Strong Scores Regions with Medium Scores Regions with Weak Scores 2.00 1.50 1.00 European average = 1 0.50 0.00 Other Regions Cities with Strong Scores Cities with Medium Scores Cities with Weak Scores Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 6
Components of E-REGI scores E-REGI Methodology 60% Growth E-REGI Score 20% Wealth GDP per Capita current 15% 22.5% 22.5% Human Capital: LaSalle s proprietary index 2016 Service Employment: 5 year forecast: growth and absolute 3 year historic growth GDP: 5 year forecast: growth and absolute 3 year historic growth 20% Business Environment Political Stability, Default, Regulatory and Trade Credit Risk, Inclusion in EU/EMU current Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 7
2016 Headline results E-REGI 2015 1. London 2. Paris 3. Istanbul 4. Stockholm 5. Luxembourg 6. Oslo 7. Munich 8. Copenhagen-Malmö 9. Stuttgart 10. Zürich 11. Madrid 12. Dublin 13. Gothenburg 14. Geneva 15. Barcelona E-REGI 2016 1. Paris 2. London 3. Stockholm 4. Munich 5. Luxembourg 6. Istanbul 7. Dublin 8. Madrid 9. Stuttgart 10. Oslo 11. Copenhagen-Malmö 12. Zürich 13. Lyon +11 14. Brussels +4 15. Barcelona 16. Berlin +19 Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 8
2016 Headline results E-REGI 2016 1. Paris 2. London 3. Stockholm 4. Munich 5. Luxembourg 6. Istanbul 7. Dublin 8. Madrid 9. Stuttgart 10. Oslo 11. Copenhagen-Malmö 12. Zürich 13. Lyon 14. Brussels 15. Barcelona 16. Berlin 0.00 0.50 1.00 1.50 2.00 2.50 0.69 0.73 0.47 0.38 0.37 0.83 0.61 0.65 0.55 0.46 0.34 2016 Scores GDP Employment Human Capital Wealth Business Environment Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 9
Human Capital E-REGI 2016 LaSalle Investment Management E-REGI 2016 10
Quality of workforce, level of creativity and availability of capital How we measure Human Capital Theme Indicator Variable Data source Weight Skilled Workforce Education level Tertiary Education Attainment Level of population aged 30-34 years Eurostat 25% Quality of education University Ranking score Center for World University Rankings (CWUR) 15% Creativity Patent production Number of patents filed OECD 20% Agglomeration effect Population density Eurostat 10% Investments R&D Investments R&D expenditure as % GDP Eurostat 20% Tech Venture Capital Investments Venture capital investments in Tech firms Thomson Reuters 10% Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 11
Human Capital Score 2016 Most cities perform relatively better on Human Capital Comparison Human Capital Index 2016 vs R&D 2015 4.0 Paris 3.5 3.0 London Stockholm Munich Stuttgart 2.5 Moscow Berlin Brussels Helsinki Lyon Copenhagen 2.0 1.5 Edinburgh Gothenburg Frankfurt 1.0 Average score Other Regions Cities 0.5 0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 R&D Score 2015 Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 12
100 cities average score reached a record high in 2016 Impact of Human Capital inclusion to E-REGI city scores 1.18 Average Score of the 100 E-REGI cities 1.16 1.14 1.16 1.12 1.10 1.10 1.12 1.11 1.10 1.11 1.12 1.13 1.11 1.12 1.13 1.08 1.09 1.09 1.08 1.08 1.06 1.06 1.04 1.04 1.02 1.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: LaSalle (09/16) LaSalle Investment Management E-REGI 2016 13
Educational attainment level of population aged 30-34 Presence of the young and well-educated crucial for human capital Zurich-Lyon Corridor Source: LaSalle (2016), Eurostat (2015) LaSalle Investment Management E-REGI 2016 14
Educational attainment level of population aged 30-34 Presence of the young and well-educated crucial for human capital Germany Source: LaSalle (2016), Eurostat (2015) LaSalle Investment Management E-REGI 2016 15
CWUR evaluates quality of 400 European universities 63% of European regions have at least one university Southern Italy Source: LaSalle (2016), CWUR (2015) LaSalle Investment Management E-REGI 2016 16
Number of patents filed across all sectors A measure of concentration of innovation and creativity in the region South East UK Source: LaSalle (2016), OECD (2016) LaSalle Investment Management E-REGI 2016 17
Population density captures the agglomeration effect Recognizing the transferable element of human capital Frankfurt-Stuttgart Corridor Source: LaSalle (2016), Eurostat (2015) LaSalle Investment Management E-REGI 2016 18
Expenditure in R&D as share of GDP Private and public investments in innovation and research Amsterdam-Brussels Source: LaSalle (2016), Eurostat (2014) LaSalle Investment Management E-REGI 2016 19
Venture Capital Investments in Tech firms Level of investment in the fast-growing tech sector Paris area Source: LaSalle (2016), Thomson Reuters (2016) LaSalle Investment Management E-REGI 2016 20
Losers Winners Winners and losers from Human Capital inclusion in E-REGI Which cities and countries are most affected and why? Main cities affected Key determinants of change UK & Ireland London & Dublin Bristol & Edinburgh Educational attainment Venture capital Benelux Brussels Rotterdam-The Hague Educational attainment Density Russia Moscow St Petersburg Educational attainment R&D expenditure France Paris Lyon Quality of Universities Patents Production Germany Leipzig-Dresden Frankfurt & Nuremberg Educational attainment Venture capital Switzerland Bern Basel-Mulhouse Educational attainment Venture capital Italy Naples & Palermo Turin Educational attainment R&D expenditure Turkey Antalya Izmir Educational attainment R&D expenditure Source: LaSalle (09/16). Note: Information reduced for presentation purposes LaSalle Investment Management E-REGI 2016 21
Productivity and productivity growth now better captured Importance of Human Capital for E-REGI GDP = Productivity * f(investment, Labour) Productivity = GDP / capita Future productivity growth R&D expenditure GDP = Productivity * Human Capital * f(investment, Labour) Source: LaSalle (09/16), Solow (1957), Mankiw, Romer and Weil (1992) LaSalle Investment Management E-REGI 2016 22
Clusters of Human Capital = higher rent and price expectations Importance of Human Capital for real estate strategy Higher Human Capital Higher Rents and Prices Greater Productivity Growth Bigger Urban Clusters Stronger Economic Growth LaSalle Investment Management E-REGI 2016 23
Politics E-REGI 2016 LaSalle Investment Management E-REGI 2016 24
Economic outlook of cities derailed by political events Political decisions explain changes in cities scores 2016 Losers Change in score, 2016 v 2015-0.1-0.3-0.5 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 25
Economic outlook of cities derailed by political events Political decisions explain changes in cities scores 2016 Losers Change in score, 2016 v 2015-0.1 UK cities -0.3-0.5 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 26
LaSalle Investment Management E-REGI 2016 27
E-REGI 2016 Forecast 2016-20 Brexit hit all UK cities Biggest impact comes from weaker employment growth outlook 10% Service sector employment growth E-REGI 2016 v. E-REGI 2015 Bubble size: Service sector employment in 2015 Upgrade 8% 6% 4% 2% Downgrade 0% -2% -2% 0% 2% 4% 6% 8% 10% E-REGI 2015 Forecast 2015-19 Source: Oxford Economics / LaSalle (2016). Excludes Turkish & Russian cities LaSalle Investment Management E-REGI 2016 28
E-REGI 2016 Forecast 2016-20 Brexit hit all UK cities Biggest impact comes from weaker employment growth outlook 10% Service sector employment growth E-REGI 2016 v. E-REGI 2015 Bubble size: Service sector employment in 2015 Upgrade 8% 6% 4% 2% 0% Nottingham -Derby Bristol Leeds Belfast Cardiff Birmingham Sheffield Edinburgh Newcastle Liverpool Glasgow -2% -2% 0% 2% 4% 6% 8% 10% E-REGI 2015 Forecast 2015-19 Manchester London Downgrade Source: Oxford Economics / LaSalle (2016). Excludes Turkish & Russian cities LaSalle Investment Management E-REGI 2016 29
London, Bristol & Manchester remain strong regions UK - Changes in scores and ranks 2016 v. 2015 2016 2015 Glasgow 79/-8 Edinburgh 50/0 Belfast 86/-5 Newcastle 89/-1 Manchester 57/-40 Liverpool 85/-17 Cardiff 84/-12 Leeds 70/-14 Sheffield 87/-5 Nottingham-Derby 64/-13 Birmingham 62/-25 Source: LaSalle, 2016 Cities name: 2016 Rank / Change in ranking from 2015 Bristol 29/-4 London 2/-1 LaSalle Investment Management E-REGI 2016 30
Economic outlook of cities derailed by political events Political decisions explain changes in cities scores 2016 Losers Change in score, 2016 v 2015-0.1 Polish cities -0.3-0.5 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 31
LaSalle Investment Management E-REGI 2016 32
Protectionist policies could harm Poland s open economy Weaker GDP growth outlook 8.0% 7.0% 6.0% Polish GDP growth E-REGI 2016 v. 2015 Warsaw Krakow E-REGI 2016 scores breakdown Polish cities 0.00 0.50 1.00 1.50 2.00 2.50 5.0% Poznan 4.0% Katowice 3.0% 2.0% 1.0% 0.0% E-REGI 2016 E-REGI 2015 Wroclaw Tricity (Gdansk) Lodz Szczecin European average GDP Employment Human Capital Wealth Business Environment Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 33
Protectionist policies could harm Poland s open economy Weaker GDP growth outlook 8.0% 7.0% 6.0% Polish GDP growth E-REGI 2016 v. 2015 10 15 20 0 10 20 30 Warsaw Krakow E-REGI 2016 scores breakdown Polish cities 0.00 0.50 1.00 1.50 2.00 2.50 5.0% 44 46 40 Poznan 4.0% 3.0% 2.0% 1.0% 0.0% 75 E-REGI 2016 E-REGI 2015 Warsaw E-REGI rank (RHS) 50 60 70 80 90 100 Katowice Wroclaw Tricity (Gdansk) Lodz Szczecin European average GDP Employment Human Capital Wealth Business Environment Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 34
Economic outlook of cities derailed by political events Political decisions explain changes in cities scores 2016 Losers Change in score, 2016 v 2015-0.1 Turkish cities -0.3-0.5 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 35
LaSalle Investment Management E-REGI 2016 36
Weakened Rule of Law in Turkey as Erdoğan tightens his grip Lower business environment score in Turkey 1.60 Business Environment Score E-REGI 2016 v. E-REGI 2015 1.40 2015 2016 1.20 1.00 0.80 0.60 0.40 0.20 0.00-0.20-0.40 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 37
Weaker GDP per capita, but Swiss cities remain very strong Switzerland - Changes in scores and ranks 2016 v. 2015 0% -1% -2% E-REGI 2016 v 2015 GDP per capita -3% CHF / EUR 2016 39/-5 Basel-Mulhouse Zürich 12/-2-3% -4% -4% 30/-7 Bern -5% 2015 23/-9 Geneva Source: LaSalle, 2016 Cities name: 2016 Rank / Change in ranking from 2015 LaSalle Investment Management E-REGI 2016 38
Successful policies boosted the scores of German & French cities Stronger employment growth outlook 0.6 2016 Winners Change in score, 2016 v 2015 0.4 0.2 0.0 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 39
Successful policies boosted the scores of German & French cities Stronger employment growth outlook 0.6 2016 Winners Change in score, 2016 v 2015 French cities 0.4 0.2 0.0 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 40
LaSalle Investment Management E-REGI 2016 41
Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 ILO unemployment rate (%) Private, service sector jobs (million) Government measures have helped create jobs in 2015 Ongoing labour market recovery & increase in corporates profit margins 10.5 ILO unemployment & private service sector jobs France 11.8 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 11.6 11.4 11.2 11.0 10.8 6.0 10.6 ILO Unemployment rate Private, service sector jobs (RHS) Source: INSEE (09/2016) LaSalle Investment Management E-REGI 2016 42
E-REGI 2016 Forecast 2016-20 French cities benefit from a stronger employment growth outlook Upgrade from a low base 10% Upgrade Service sector employment growth E-REGI 2016 v. E-REGI 2015 Bubble size: Service sector employment in 2015 8% 6% 4% 2% Downgrade 0% -2% -2% 0% 2% 4% 6% 8% 10% E-REGI 2015 Forecast 2015-19 Source: Oxford Economics / LaSalle (2016). Excludes Turkish & Russian cities LaSalle Investment Management E-REGI 2016 43
E-REGI 2016 Forecast 2016-20 French cities benefit from a stronger employment growth outlook Upgrade from a low base 10% Upgrade Service sector employment growth E-REGI 2016 v. E-REGI 2015 Bubble size: Service sector employment in 2015 8% 6% Toulouse Nantes Bordeaux Lyon 4% Paris Lille Rouen-Le Havre Strasbourg Marseilles-Nice 2% Downgrade 0% -2% -2% 0% 2% 4% 6% 8% 10% E-REGI 2015 Forecast 2015-19 Source: Oxford Economics / LaSalle (2016). Excludes Turkish & Russian cities LaSalle Investment Management E-REGI 2016 44
Record number of strong French regions France - Changes in scores and ranks 2016 v. 2015 2016 Rouen-Le Havre 72/+15 Lille 52/+32 Paris 1/+1 Strasbourg 63/+16 2015 Nantes 42/+20 Basel-Mulhouse 39/-5 Lyon 13/+11 Bordeaux 45/+10 Toulouse 24/+5 Marseilles-Nice 32/+12 Source: LaSalle, 2016 Cities name: 2016 Rank / Change in ranking from 2015 LaSalle Investment Management E-REGI 2016 45
Successful policies boosted the scores of German & French cities Stronger employment growth outlook 0.6 2016 Winners Change in score, 2016 v 2015 German cities 0.4 0.2 0.0 Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 46
LaSalle Investment Management E-REGI 2016 47
% Labour force increase driven by women, senior & foreigners Policies aiming at increasing participation rates were successful 80 Employment rate of the working-age population Germany 70 60 50 69% 69% 59% 59% 57% 57% 40 30 45% 35% 38% 20 10 15% 0 Total working-age population Women 55-60 60-65 Foreigners 2005 2014 Source: Bundesagentur für Arbeit (2016) LaSalle Investment Management E-REGI 2016 48
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Employment rolling annual Minimum wage introduction had no impact on employment growth German labour market shows extra spare capacity 40,000,000 Employment (Jobs + Mini-jobs) Germany Minimum wage introduction 39,000,000 38,000,000 37,000,000 36,000,000 35,000,000 34,000,000 33,000,000 32,000,000 Source: Bundesagentur für Arbeit (2016) LaSalle Investment Management E-REGI 2016 49
Munich, Berlin & Hamburg improving further Germany - Changes in scores and ranks 2016 v. 2015 2016 Bremen 48/+1 Hannover 55/-1 Hamburg 28/+11 Berlin 16/+19 Bielefeld 68/-2 2015 Ruhr 59/+4 Düsseldorf 36/+6 Cologne-Bonn 35/-5 Frankfurt 22/-3 Leipzig- Dresden 60/+5 Nuremberg 44/-11 Saarland 78/+8 Mannheim-Karlsruhe 25/-3 Source: LaSalle, 2016 Cities name: 2016 Rank / Change in ranking from 2015 Stuttgart 9/0 Munich 4/+3 LaSalle Investment Management E-REGI 2016 50
E-REGI 2016 Key takeaways Paris takes top spot from London, followed by Stockholm & Munich This year s changes are best explained by: #1 Human Capital highlighting urban agglomeration effect #2 Political decisions determining economic future Brexit puts future of UK cities at risk, but human capital strengths provide cushion French cities improve most due to government policies and new human capital factors Germany s main cities become more successful in creating and filling jobs More political risks looming on the horizon LaSalle Investment Management E-REGI 2016 51
E-REGI 2016 - Scores Source: LaSalle, 2016 LaSalle Investment Management E-REGI 2016 52