European Valuation Monitor (EVM) MarketView Q2 2013 Q2 ALL PROPERTY -0.1% Q2 OFFICE -0.1% Q2 RETAIL Global Research and Consulting Q2 INDUSTRIAL -0.2% CAPITAL VALUES STABLE WITH EVIDENCE OF YIELD COMPRESSION AT PRIME END OF THE MARKET Quick Stats QoQ YoY Office -0.1-1.7 Retail 0.0 1.9 Industrial -0.2-3.5 All Property -0.1-2.1 Chart 1: Pan-Europe sector capital values (Q4 2007 =100) 100.00 All Property Industrial 95.00 Retail Offices 90.00 85.00 QoQ YoY 80.00 1 Office ex-uk -0.3-2.4 Retail ex-uk 0.0-1.7 Industrial ex-uk -0.3-3.9 All Property ex-uk -0.2-2.4 TOP QUARTILE ASSETS HAVE SEEN YIELD COMPRESSION OVER THE PAST 18 MONTHS AS THE PAN- EUROPEAN INDEX REACHES AN INFLECTION POINT 75.00 70.00 Q4 07 Q2 08 Q4 08 Q2 09 Q4 09 Q2 10 Q4 10 Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 European capital values were virtually stable in the second quarter of 2013, falling just -0.1% over the quarter and with growth recorded in core Western Europe (+0.1%) for the first time since Q3 2011. The pace of decline in the pan-european index has been slowing for three consecutive quarters and values are now virtually at a standstill, fractionally below the previous trough of Q3 2009. North-south split within Europe Core Western European property saw a positive change in capital values (0.1%), with the UK and France both recording capital value growth (0.3% and 0.2% respectively). German values were virtually unchanged; down just - 0.1% over the quarter. By contrast, while the declines moderated, Southern Europe & Ireland was the worst performing region again - the fifth time in the last 6 quarters (- 0.9% Q2; -8.8% year on year). Polarisation As evidenced in chart 8, Quartile 1 yields have fallen over the past 18 months. While the pace of yield rises across the other quartiles has, in line with capital values, almost stopped in Q2, the spread between the best assets (Quartile 1) and the remainder has continued to widen. Even if the market as a whole is reaching a trough, performance is remaining polarised and demand concentrated at the prime end of the market. Logistics outperforming within industrial The trend of logistics outperforming the wider industrial sector continued in Q2, with light/other industrial values falling by an additional 0.5%. Overall, yields were broadly flat across the sector in Q2, although it was negative yield movement that caused the differentiation in performance of light/other industrial compared to logistics where yields held up. 2013, Ltd
Q2 2013 European Valuation Monitor MarketView REGIONAL PERFORMANCE CAPITAL VALUES Chart 2: Regional European capital values (Q4 2007 =100) 110 100 90 80 70 60 France UK Southern Europe Nordic Germany Netherlands CEE Chart 3: Annual Change Q2 2013 and Q2 2012 Europe Europe ex. UK UK (GBP) France Germany Netherlands CEE Southern Europe + Ireland Nordic 2Q13 2Q12-1 -7.0% - 3.0% 2 Quick Stats QonQ YonY France 0.2 0.2 Germany -0.1-1.3 UK 0.3-1.5 Netherlands -0.7-5.1 Southern Europe + Ireland -0.9-8.8 Nordics -0.1 0.2 CEE -0.4-3.9 UK saw the best annual performance in Q2 2013 (+0.3%) All regions saw very stable quarterly capital value changes in Q2 2013 (all within +/- 1%) Economic uncertainty weighed on capital values in Southern Europe and Ireland (-0.9% Q2 2013) Sectors Retail continued to be the best performing sector in Q2 2013, bringing its record to 16 of the 22 quarters measured. Despite the overall flat performance of the sector in the quarter () there was regional divergence in the results. France was the best performing in Q2 (+0.8%), but values in the UK, Germany and CEE were also positive. As may be expected given their economies, weakest performers were the Southern Europe & Ireland states (). Within retail there was not much divergence between the sectors, with shopping centres, retail warehouses, and high street shops all within 0.1% of the overall result. Regions Over the first 6 months of the year, Nordic offices have been the best performing sector (+1.6%). This was driven by prime CBD offices where both occupier and investor demand remains strong. In particular, Sweden has limited supply and low vacancy levels, and saw a strong investment market pick-up in Q2. With France maintaining its quarterly performance in Q2 (+0.2%, +0.5% YTD), the UK also saw positive capital value change (+0.3%), which was much stronger than the Q1 result; office and industrial sectors led the growth, with non Central-London offices showing a positive figure for the first time for two years. Despite its investment market benefitting from strong demand from both domestic investors and overseas (+37% Q2 on Q2), capital values in Germany did not quite reach positive territory, falling -0.1% in Q2. In particular, as liquidity has gradually returned, pricing transparency has revealed how polarised the market is for secondary and tertiary assets; especially in the office and industrial sectors. Values in the Netherlands continue to be pulled down by its office sector (- 1.2% in Q2), which is now almost 50% below its Q4 2007 level. The weak sentiment also seemed to catch up with its retail sector in Q2 (-0.6%), although values have been far more resilient over the history of the index.
COMPONENTS OF CAPITAL VALUE CHANGE YIELD AND ERV The latest Prime Rent and Yield data shows that the All Property Prime Yield across Europe fell slightly in Q2, dropping by 3 basis points. There was evidence of yield improvements across all commercial sectors, with industrial yields improving the most (-9 bps), reflecting the strength of demand for logistics assets. All Property At the ex-uk all property level, the capital value changes in the European Valuation Monitor have been driven by yield changes over the past 18 months, with the exception of Q4 2012. In Q2 2013, capital value declines slowed almost to a standstill (-0.2%), with marginal declines in ERVs the most significant contributor. Industrial Whereas yield movements have historically accounted for the majority of capital value decline in other sectors, the picture of ex-uk industrial capital value changes has been more mixed. Following a significant yield adjustment in Q1, ex-uk industrial capital values were pulled down by ERV changes in Q2 (-0.3%), with yields having virtually no impact. Notably, there was also stability across the industrial yield quartiles. The question now being whether the expansion of Quartile 4 yields (secondary/tertiary assets) has merely paused for breath, or whether the market is starting to find a bottom. Retail Retail capital values were stable over the quarter, as the sector continued to outperform. Both ERVs and yields recorded by the European Valuation Monitor were virtually stable. Retail remained the strongest performer over the course of 2012 and despite weakening consumer indicators, this looks set to continue in 2013. Chart 4: All Property Components - Chart 5: Industrial Components - Chart 6: Retail Components Q2 2013 European Valuation Monitor MarketView Office Marginal declines in both ERVs and yields continued edge capital values in the office sector slightly lower overall (- 0.3%). Yield driven capital value recoveries were notable in both France and the UK, whereas yields continued to pull values down in Southern Europe & Ireland. - Chart 7: Office Components 3 Overall, capital values were virtually unchanged in Q2 (- 0.2%) with some polarisation continuing to emerge both geographically, and between prime and tertiary assets. Despite very little yield driven change, the spread between the best properties (represented by Quartile 1 in chart 8) and the rest continued to grow. However, the pace slowed significantly, and with optimism returning to pockets of the market, competition for core assets is leading to very strong pricing, and a significant pick up in investment volumes, signs of an inflection point may be beginning to emerge. - 3
Q2 2013 European Valuation Monitor MarketView KEY INDICATORS European Valuation Monitor Q2 2013 Index, Q4 2007 = 100 Region % 3 months % Year-to-date % 12 months 3Q12 4Q12 1Q13 2Q13 France 0.2 0.5 0.2 87.0 86.9 87.1 87.3 Germany -0.1-1.0-1.3 82.5 82.4 81.6 81.6 UK 0.3-0.1-1.5 75.6 75.0 74.7 74.9 Netherlands -0.7-1.8-5.1 68.1 67.3 66.6 66.1 Southern Europe + Ireland -0.9-3.0-8.8 66.4 63.8 62.4 61.9 Nordics -0.1-0.3 0.2 88.3 89.0 88.8 88.7 CEE -0.4-1.1-3.9 84.4 82.5 82.0 81.7 European Valuation Monitor Q2 2013 Index, Q4 2007 = 100 Sector % 3 months % Year-to-date % 12 months 3Q12 4Q12 1Q13 2Q13 Office -0.1-0.8-1.7 80.8 80.4 79.9 79.8 Retail 0.0-0.4-19 83.0 82.1 81.8 81.8 Industrial -0.2-1.1-3.5 73.7 73.0 72.3 72.1 All Property -0.1-0.7-2.1 80.1 79.5 79.0 78.9 All Property ex-uk -0.2-0.9-2.4 80.8 80.1 79.6 79.4 4 Chart 8: Cumulative evolution of yield quartiles (bps) 4Q11 = 0 120 100 80 Qrtl 1 60 Qrtl 2 40 Qrtl 3 Qrtl 4 20 0-20 Q4 11 Yield Polarisation Grouping equivalent yields into quartiles and then tracking like-forlike movements from the preceding quarter, highlights polarisation and/or convergence of yields over time. Quartile 1, consisting of properties with the lowest equivalent yields, has seen yield compression Equivalent Yields in quartile 4 have risen by 99 bps by contrast Spread of yields over Quartile 1 have continued to expand for past 18 months
CONTACTS For more information about this Regional MarketView, please contact: EMEA Research Richard Holberton Director EMEA Research t: +44 20 7182 3348 e: richard.holberton@cbre.com Explanatory Note Andrew Barber Senior Director Valuation Advisory t: +44 20 7182 2452 e: andrew.barber@cbre.com Simon Threlfall Associate Director Valuation Advisory t: +44 20 7182 2530 e: simon.threlfall@cbre.com The figures reported in this document are based on regular valuations of standing-investment portfolios carried out by s international and national valuation teams in Europe. The reported country and sector index categories are produced by weighting the raw results according to the estimated size of the investment market in each country/region, and the sector distribution typical of institutional portfolios. The UK is represented in the results by the UK Monthly Index. A fuller technical appendix is available on request. Q2 2013 European Valuation Monitor MarketView The measures reported here are intended as a general indication of capital value movements in the European property market, and are provided for information only. They are not intended as the basis for investment or financial decisions, and any forecasts or other analysis derived from these figures are the sole responsibility of the client organisation and should not be sourced or attributed to. These measures should not be regarded as proxies or lead indicators of any other market indices, including those that are, or come to be, used as the basis for financial trading; nor should they be used as a benchmark for portfolio or manager performance. offers no guarantee that it will continue to produce these measures indefinitely in the future, nor that the size, asset distribution or weighting structure of the sample will remain unchanged. + FOLLOW US GOOGLE+ FACEBOOK TWITTER 5 Global Research and Consulting This report was prepared by the EMEA Research Team which forms part of Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of. www.cbre.eu 5