Real Estate Investment Strategy 8th of July, 2015 Alessandro Bronda Head of Global Real Estate Investment Strategy Group Real Estate
Zurich s real estate strategy Zurich has a systematic and structured investment approach. Our mission is to achieve superior risk adjusted returns relative to the Group s liabilities. The Group s current asset allocation to real estate is 5.5%. Real estate has attractive risk-adjusted returns and tends to have a low correlation and is thus an excellent risk diversifier to other asset classes. Real estate generates long-term stable income (ranging from 4% to 7%). As a consequence, Zurich aims to continue to invest directly in properties in good locations and to increase the global diversification of its real estate portfolio. 2
Zurich's real estate investment targets We are planning on increasing significantly our global real estate allocation from currently approx. USD 12bn (5.5%). During 2014 we increased our real estate exposure by USD 740m and we are planning on investing a similar amount this year. We currently have exposure to the US, UK, Switzerland, Austria, Germany, Chile, Malaysia, Italy and Spain. We currently have a bias towards investing into offices and residential, however, we also have exposure to retail and logistics. We are also considering other markets such as Australia, Japan, Canada and further countries within the Euro Zone. The biggest challenge is acquiring good quality real estate at fair prices as currently there is a large amount of capital targeting a limited stock of assets. 3
European Market Situation Institutions continue to increase their real estate allocations Q4 2014 saw a record 65bn of investment Globally, 395bn of capital is targeting real estate Cross-border investment activity continues to increase, as institutions allocate additional capital to non-domestic strategies in order to capture higher returns and improve diversification Increased interest in value-add and opportunistic strategies Nevertheless, institutions remain significantly under-invested relative to target allocations Yields continue to compress as the spread to bond rates remains wide Real estate has a relatively high income yield Vacancies are edging lower and development activity remains weak An improved economic outlook should support rental growth 4
A Multispeed Recovery European Real GDP Growth Index (2008=100) 120 110 100 90 80 70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 France UK Germany Italy Ireland Spain Switzerland France UK QE, cheap energy and a weak Euro are boosting growth in the Euro Zone Source: Zurich Macroeconomic Database, Consensus 5
Switzerland accounts for 3.4% of the global market Global RE Investment Market Size (USD bn) 1,240 2,238 US Japan 207 293 UK Germany France 379 Canada Switzerland 437 595 708 Other Europe accounts for 32% of the global universe Swiss investors would benefit from diversification Source: IPD, YE 2013 data 6
2014 European RE investment at highest level since 2007 Source: LaSalle Investment Management 7
Investors are globally active Investment in major global cities, Q2 2014-Q1 2015 USD bn. Source: DTZ Research, Real Capital Analytics 8
Anglo-Saxon markets have seen strong returns, but are more volatile Source: MSCI/IPD 9
Swiss total returns have been weak Total Returns 2014 vs. 2004-2014 20 18 16 14 12 10 8 2014 2004-2014 6 4 2 0 Source: IPD, Bloomberg 10
Most markets have not yet re-priced to 2008 levels Source: MSCI/IPD 11
10-year government bond yields European bond yields drop as ECB launches QE 10-Year Government Bold Yield 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 France UK Germany Italy Netherlands Spain Switzerland Source: Bloomberg 12
Real estate remains attractive relative to bonds Average yields (all property) compared to local bond yields 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 11 Year Average Spread Current Spread 1.5% 1.0% 0.5% 0.0% Netherlands Germany France Spain Italy UK Switzerland Source: IPD, Bloomberg 13
Prime Office: Rental Growth, % p.a. 2015-2019 London, Madrid and Barcelona expected to see strong rental growth -1% 0% 1% 2% 3% 4% 5% London (Midtown) London (City) Madrid London (WE) Barcelona Dublin Milan Munich Glasgow Stockholm Bucharest Moscow Paris (La Défense) Paris - Western Crescent Copenhagen Amsterdam Helsinki Berlin Hamburg Riga Oslo Zurich Budapest Brussels Tallinn Frankfurt Prague Paris (CBD) Rome Geneva Source: DTZ 14
Swiss markets have a poor outlook in European comparison Forecasted Office Total Returns, average p.a., 2015-2019 12% 10% 8% 6% 4% 2% 0% Source: DTZ 15
There are always uncertainties Major risks to the market outlook Source: DTZ Research 16
Thank you 17
Disclaimer This publication has been prepared by Zurich Insurance Group Ltd and the opinions expressed therein are those of Zurich Insurance Group Ltd as of the date of writing and are subject to change without notice. This publication has been produced solely for informational purposes. All information contained in this publication have been compiled and obtained from sources believed to be reliable and credible but no representation or warranty, express or implied, is made by Zurich Insurance Group Ltd or any of its subsidiaries (the Group ) as to their accuracy or completeness. This publication is not intended to be legal, underwriting, financial, investment or any other type of professional advice. The Group disclaims any and all liability whatsoever resulting from the use of or reliance upon this publication. Certain statements in this publication are forward-looking statements, including, but not limited to, statements that are predictions of or indicate future events, trends, plans, developments or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by numerous unforeseeable factors. The subject matter of this publication is also not tied to any specific insurance product nor will it ensure coverage under any insurance policy. This publication may not be distributed or reproduced either in whole, or in part, without prior written permission of Zurich Insurance Group Ltd, Mythenquai 2, 8002 Zurich, Switzerland. Neither Zurich Insurance Group Ltd nor any of its subsidiaries accept liability for any loss arising from the use or distribution of this publication. This publication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction. 18