European Market Outlook The Risks & the Opportunities Guy-young LAMÉ Associate Director Research Europe, Invesco Real Estate This presentation is issued by Invesco Real Estate for Professional Clients only in France. It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. INVESCO REAL ESTATE North America: Dallas - San Francisco - Newport Beach - New York - Atlanta Europe: London - Paris - Munich - Prague - Madrid - Luxembourg Asia Pacific: Hong Kong - Shanghai - Tokyo - Seoul Singapore - Sydney - Beijing
Invesco Real Estate As of 30 June 2013 40.9 Billion Under Management 356 Employees Worldwide; 18 Offices Global player with a world view and in-depth local insight European Direct Real Estate Investments 5.1bn under management 104 employees 6 offices Since 1996 North American Direct Real Estate Investments 14.3bn under management Since 1983 Real Estate Securities Management 17.5bn under management Since 1988 Asian Direct Real Estate Investments 4.0bn under management Since 2006 2 Source: Invesco Real Estate as of 30 June 2013
Understand the market opportunities Applied Research Economic Outlook Market Characteristics Property Sector Relative Value Return Forecasts Target Markets House View Target Sectors Market Opportunities Generic Strategies Market Reports Forecasts Client Strategies Recent Trades and Leasing Local Market Intelligence Qualified Markets Local Insight For information purposes only. 3
European GDP growth prospects... Varied across Europe Slow recovery in Western Europe Germany continues to be the most robust economy in the eurozone Southern Europe to converge with core European GDP growth trend from 2015 onwards CEE continue to outperform with Poland and Russia growing the most Source: Oxford Economics, September 2013; f=forecasts 4
Bond yields forecast to rise gradually but to remain low for longer Source: Oxford Economics, H2 2013; f=forecast 5
European transaction volumes are rising modestly Southern Europe showing signs of improvement H1 2012 H1 2013 Change % Benelux 3.24bn 2.62bn -19% CEE 5.76bn 7.07bn 23% France 9.11bn 7.68bn -16% Germany 14.28bn 17.42bn 22% Italy 1.10bn 2.43bn 121% Nordics 11.04bn 8.68bn -21% Spain 0.60bn 1.29bn 117% UK 18.19bn 20.22bn 11% Europe 66.19bn 73.59bn 11% Source: RCA, Q3 2013 6
In our view, spreads still look attractive in core markets It remains important to recognise the underlying drivers of current sovereign bonds levels, e.g. political uncertainty. Some sovereign bonds are not genuinely risk-free. A process of normalisation is beginning. The spreads between real estate yields and bond yields remain a key warning signal for us to monitor. Source: Invesco Real Estate, CB Richard Ellis, Datastream, yields at the end of Q2 2013. Real estate yields reflect an unweighted average of all sectors. 7
Capital values in history Several markets have already re-priced and some others offer stronger potential of growth European property market capital values indices 8 Source: Invesco Real Estate, as of September 2013 based on data from Oxford Economics and CBRE, August 2013; SSU = standard shop unit; SHC = Shopping Centre ; RW = Retail Warehouse
Capital values in history Some markets offer stronger growth prospects potential European property market capital values 9 Source: Invesco Real Estate, as of September 2013 based on data from Oxford Economics and CBRE, August 2013; SSU = standard shop unit; SHC = Shopping Centre ; RW = Retail Warehouse
Office: Market-led rental growth is forecast to be weak especially in the short term Lack of development pipeline, low vacancies and modest occupier demand are expected to support current headline rents in the short term. Total prime office market rental growth Q2 2013- Q2 2018f Occupiers are currently not prepared to compromise on the fundamentals, so take up remains focused on CBD locations. Stronger rental growth is expected from 2015, correlated with strengthening GDP growth. Upside: GDP growth returns sooner, bringing forward rental growth. We will focus on asset management to deliver rental growth Source: Invesco Real estate, H2 2013,f=forecast 10
Logistics: Online sales forecast to continue to grow rapidly E-commerce as a proportion of retail sales Prime European net initial yields In Western Europe, e-commerce sales are forecast to grow by 11% pa over the next five years to 191bn. This growth should continue to support a steady increase in demand for logistics units across Europe. Rental growth forecast to be low, but in line with historic norms. We are still a buyer of long-let logistics Source: Invesco Real Estate, as of September 2013; Forrester Research, 2013. f = forecast 11
Retail: Shopping centre yields have hardened But prospects for rental growth are currently limited Consumer spending forecast to remain weak (% Growth) There has been a significant hardening of yields over the past 12 months. But rents remain under pressure due to weak spending growth. Outlook for rents is limited by continued slow consumption growth. Retail is still a focus for IRE, but not as dominant as last year Source: Real Capital Analytics, based on shopping centre transactions in excess of 100m; Oxford Economics, Q2 2013 12
Drivers of capital growth vary by region Developed Europe is vulnerable to outward yield shift Components of capital growth Q2 2013-Q2 2018f Source: Invesco Real Estate, H2 2013 13
Prime real estate returns are expected to be modest Stronger economic prospects in the Nordics are expected to drive better total returns in the short term, with outward yield shift in the medium term limiting 5-year returns Unleveraged prime total return expectations, Q2 2013 Q2 2018f Low initial yields in western European and Nordics markets exposes a risk of modest outward yield shift Recovery in Southern Europe is expected towards the end of the forecast period (2015+) The most attractive long-term returns are expected in Central & Eastern Europe but these carry higher market risk Offices are the sector expected to be the best short-term performer with logistics outperforming in the longer-term. 14 Source: Invesco Real Estate, September 2013. f = forecast
Where are the opportunities in Europe? European Wave Capital value cycle Office: Finland, Norway, London, UK Retail: London, Paris Office: Switzerland Retail: Finland Log: Poland Log: Ireland Office: Sweden Office: Germany Retail: Poland Office: Paris, France Retail: Germany Retail: Ireland Retail: French regions Logistics: Germany, NL Office: Austria Retail: Norway, Sweden DECLINING Log: Portugal Office: Portugal, Spain Retail: Portugal Log: Spain Logistics: Italy Office: Ireland Office: Italy Retail: Spain Retail: Denmark Italy Log: UK, Belgium Office: NL Retail: Cz Rep, UK regions Log: France Office: Cz Rep, Denmark Retail: NL Retail: Belgium Log: Cz Rep Office: Poland Log: Sweden Office: Belgium, UK regions Retail: Austria Log: Finland RECOVERING 15 Source: Invesco Real Estate, H2 2013
Important information This document is for Professional Clients only in France. It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. The views expressed herein are those of Invesco Real Estate professionals based on current market conditions and other factors and are not necessarily those of other Invesco professionals. Target figures, where mentioned, are not the actual allocations of a specific Invesco product. Opinions and forecasts are subject to change without notice. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns. Property and land can be difficult to sell. The value of the property is generally a matter of an independent valuer s opinion. This document is issued in: France, the Netherlands, Finland, Norway and Luxembourg by Invesco Asset Management S.A., 18, rue de Londres, F-75009 Paris, France. This document does not form part of any prospectus. It contains general information only and does not take into account individual objectives, taxation position or individual financial needs. It does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Nor does it constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. This material may contain statements that are not purely historical in nature but are forward-looking statements. These include, among other things, projections, forecasts, estimates of income, yield and return. These forward-looking statements can be identified by the use of forward looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue, target, believe, the negatives thereof, other variations thereon or comparable terminology. All forward-looking statements included herein are based on information available on the date hereof and Invesco assumes no duty to update any forward-looking statement (except as required by law). They are based upon certain beliefs, assumptions and expectations, some of which are described herein. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Actual events are difficult to predict, are beyond the issuers control, and may substantially differ from those assumed. Accordingly, there can be no assurance that estimated returns or projections can be realized, that forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. You should not place undue reliance on these forward-looking statements. 16