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DR. RICHARD BARKHAMGlobal Chief Economist & Head of Americas Research CBRE Research
GLOBAL ECONOMICAND REAL ESTATE OUTLOOK
.
COVID-19 AND EMERGING MARKETS
2 JUNE 2020
THE CURVE IS ALMOST BENT IN THE DEVELOPED WORLD Cumulative number of confirmed cases, by number of days since 100th case
Source: Financial Times, CBRE Research, European Centre for Disease Prevention, Macrobond, 2 Jun 2020.
USA
Italy
China
South Korea
France
Japan
100
1,000
10,000
100,000
1,000,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125
Num
ber
of C
ases
…EVERY 2 DAYS
…EVERY 3 DAYS
…EVERY WEEK
Days Since 100 Cases
Spain
Germany
U.K.
CASES DOUBLE EVERY DAY
World
ItalySouth Korea
China
Spain
Germany
UK
France
Japan
New York State
USA excl. NY (right axis)
0
5,000
10,000
15,000
20,000
25,000
30,000
0
2,000
4,000
6,000
8,000
10,000
12,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
Num
ber
of C
ases
WE ARE GENERALLY PAST THE PEAK IN NEW INFECTIONSDaily new cases in 7-day moving averages
Source: CBRE Research, European Centre for Disease Prevention, COVID Tracking Project, Macrobond, 2 Jun 2020.Note: Number reported as a 7-day moving average.
USA an outlier –why? Is it a risk?
Days Since Daily Increase Exceeds 100
DEVELOPED ECONOMIES ARE MOVING OUT OF LOCKDOWNGDP-lead indicator and lockdown stage comparison
SEMI-EASING LOCKDOWNRECESSION
GRADUAL OPENINGSTABLIZATION
70% NORMAL LIFEGROWTH
LOCKDOWNFREEFALL
China
CanadaAustralia
USASpain
Austria DenmarkCzechNorway
FranceItaly
Netherlands
NO LOCKDOWN• South Korea• Taiwan• Japan• Sweden
Source: CBRE Research, 2 Jun 2020.* Iran re-lockdown one province due to a second-wave increase of cases.
UKSingapore
TurkeyRussia
Brazil
GermanySwitzerland
IndiaPeruIran*
PortugalBelgium
WHAT IS THE SHAPE OF RECOVERY?Stylized GDP growth trajectory
WHAT IS THE SHAPE OF RECOVERY?Stylized GDP growth trajectory
WHAT IS THE SHAPE OF RECOVERY?Stylized GDP growth trajectory
U.S. ECONOMY REBOUNDS, DRIVEN BY RETAIL SALES The U.S. Weekly Economic Index
Source: Federal Reserve Bank of New York, May 2020.
-9.9
-12
-10
-8
-6
-4
-2
0
2
4
6
Perc
ent (
GD
P G
row
th U
nits
)
CHINA IS BOUNCING BACK NICELY AFTER END TO LOCKDOWNCurrent Economic Activity Indicator
Source: CBRE Research, May 2020.
2%
-4
-3
-2
-1
1
2
-10
-5
0
5
10
15
20
Econ
omic
Act
ivity
Indi
cato
r
Real
GD
P G
row
th (Y
-o-Y
, %)
Real GDP Growth (lhs) CBRE Current Activity Indicator (rhs)
WE EXPECT A RELATIVELY RAPID BOUNCE BACK IN THE USU.S. unemployment rate, 16 years old and above
Source: BLS, CBRE Research, May 2020.
Forecast
0
2
4
6
8
10
12
14
16
18
20
Une
mpl
oym
ent
Rate
(%)
Peak at 18.1% 12.5% by
end of 2020
PENT UP DEMAND
-100
-80
-60
-40
-20
0
20
40
2/18 2/25 3/3 3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28 5/5 5/12 5/19 5/26
Y-o-
Y C
hang
e (%
)
United States United Kingdom Germany Australia Mexico
SIGNS OF LIFE IN THE RESTAURANT SECTORY-o-Y change in OpenTable restaurant booking
Source: OpenTable, 1 Jun 2020.
FED IS WORKING VERY HARD BEHIND THE SCENESTotal of federal reserve banks, by asset type, US $trillion
Source: Federal Reserve, CBRE Research, May 2020.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
US
$Tril
lions
Treasury Security Holdings Agency MBS Holdings Agency Debt Holdings
COVID-19 Impact
FISCAL STIMULUSFiscal stimulus packages in percent of GDP
Source: CBRE Research, Oxford Economics, May 2020.
0
5
10
15
20
25
Perc
ent o
f GD
P
More on the way?
0
2
4
6
8
10
12
14
16
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
(%) US Unemployment World GDP Growth
THE US REMAINS A KEY DRIVER OF GLOBAL GROWTHU.S. unemployment rate %, a common indicator of economic cycle
Source: Bureau of Labor Statistics, CBRE Research, May 2020.
3y 6y 4m 7y 8m 10y 6y 1m 10y 9m
A SURGE IN GLOBAL MONEY SUPPLY Money supply for USA, EU19, Japan and the UK (y-o-y growth)
Source: OECD, CBRE Research, April 2020.
0%
2%
4%
6%
8%
10%
12%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Broad money (M3) Narrow money (M1)
WHAT ABOUT EMERGING MARKETS?
US, CHINA RECOVERY GOOD FOR LATAMBrazil & Mexico exports by destinations,12-month moving average
Source: Brazil Ministry of DIF, Mexican NIGS, CBRE Research, May 2020.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Shar
e of
Tot
al E
xpor
ts
Brazil
USA EU & UK China
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Mexico
USA EU & UK China
EUROPE IS KEY FOR RUSSIA; INDIA NICELY DIVERSIFIEDIndia & Russia exports by destinations,12-month moving average
Source: Indian Ministry of Commerce & Industry, Russia Customs Service, CBRE Research, April 2020.
0%
10%
20%
30%
40%
50%
60%
70%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Shar
e of
Tot
al E
xpor
ts
India
USA EU & UK China & UK U.A.E.
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Russia
USA EU & UK China
India
China
Brazil
100
1,000
10,000
100,000
1,000,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125
Num
ber
of C
ases
…EVERY 2 DAYS
…EVERY 3 DAYS
…EVERY WEEK
Days Since 100 Cases
Russia
Mexico
CASES DOUBLE EVERY DAY
World
MANY EMS STILL STRUGGLING TO CONTAIN THE VIRUS Cumulative number of confirmed cases, by number of days since 100th case
Source: Financial Times, CBRE Research, European Centre for Disease Prevention, Macrobond, 2 Jun 2020.
Source: CBRE House-View, May 2020.
BUT WE EXPECT AN EMERGING MARKET RECOVERY IN Q4 2020GDP growth forecast by CBRE House-View
-26%
25%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
China India Brazil Mexico Russia
FISCAL SUPPORT IS NOT SO STRONGGeneral government debt as percent of GDP
Source: IMF Fiscal Monitor, CBRE Research, May 2020.
0
20
40
60
80
100
120
140
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Brazil
India
China
Mexico
Russia
Advanced economies
Emerging Markets
Forecast
INTEREST RATE CUTS WILL HELPPolicy rate (%)
Source: National Sources, Macrobond, CBRE Research, May 2020.
0
5
10
15
20
25
30
Turkey Brazil South Africa Mexico Russia India Saudi Arabia Indonesia Poland China
A Year Ago Now
EMERGING MARKETSHIGH RISK
OR MAJOR OPPORTUNITY
THE MACRO PLAY
FOREIGN INVESTMENT FALLS SHARPLY DURING RECESSIONS Total inbound capital flows to Brazil, Mexico, Russia, India, China
Source: CBRE Research, Q1 2020.
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020
US$
Bill
ion
Mexico
Russia
Brazil
India
China
FOREIGN INVESTMENT FALLS SHARPLY DURING RECESSIONS Total inbound capital flows to Brazil, Mexico, Russia, India
Source: CBRE Research, Q1 2020.
0
1
2
3
4
5
6
7
8
9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020
US$
Bill
ion
Mexico
Russia
Brazil
India
AND CAPITAL DEPLOYMENT TO REBOUND, DESPITE A LAG Total inbound capital flows to Brazil, Mexico, Russia, India, China
Source: CBRE Research, Q1 2020.
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018 2019 2020F 2021F 2022F
US$
Bill
ion
82% drop
55% recovery
Forecast
32% drop
EMERGING MARKET CURRENCIES APPRECIATE AGAINST US$? Forecast real exchange rates versus US$ index (2010=100)
Source: Oxford Economics, CBRE Research, Q2 2020.
40
60
80
100
120
140
160
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
China
India
Russia
Mexico
Brazil
Per US$
7.13
75.60
70.64
22.13
5.43
CURRENCY TO GIVE US$ INVESTORS A BOOST IN RETURNS 5-year unlevered IRR (Internal Rate of Return) on prime office assets
Assumptions: The property is acquired at the end of 2020, rent declines by 10% and occupancy/rent collection falls by 20% in 2020.Source: CBRE Research, May 2020.
12%
23%
43%
-10%
0%
10%
20%
30%
40%
50%
Mexico City Mumbai São Paulo
Pre-COVID IRR Post-COVID Estimate Currency Gains
YIELD SPREAD WIDENED IN EMERGING MARKETS Emerging market bond yields over the U.S. 10-year treasury yield
Source: National Sources, Macrobond, CBRE Research, May 2020.
0
1
2
3
4
5
6
7
8
Brazil China India Mexico Russia
(%) Pre-COVID March May
THE CYCLE PLAY
GLOBAL OFFICE RENT TRACKER
Source: CBRE Research, Q1 2020.
Explore prime office market data for major global markets.
RENTSAT PEAK
RENTALDECLINE
ACCELERATING
RENTALDECLINE
MODERATING
RENTALDECLINE
SLOWINGRENTS ATTROUGH
RENTALGROWTH
ACCELERATING
RENTALGROWTH
MODERATING
RENTALGROWTHSLOWING
RENTSAT PEAKPLATEAU
Rio de Janeiro
São Paulo Calgary | Mexico City
AucklandShanghai
Hong Kong SARSingapore
New York – DowntownNew York – Midtown
New York – Midtown-SouthTokyo
Chicago | Los AngelesParis | Sydney | Toronto
Mumbai | New Delhi
Frankfurt | London CityLondon West End
Madrid
Q1 2020 DATAAVAILABLE
www.cbre.com/renttracker
THE CHANGINGGLOBALIZATION PLAY
SOUTHEAST ASIA TO GAIN FROM U.S.-CHINA DECOUPLING Inbound foreign direct investment per capita (USD)
Source: Oxford Economics, Macrobond, CBRE Research, Q2 2020.
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
USD
per
Cap
ita
China Mexico Vietnam Cambodia Philippines
Upside potential for Mexico
INDIA: A LEADING GLOBAL OFFICE OUTSOURCING DESTINATION
Source: CBRE’s India mid-sized Corporate Sentiment Survey, IOOS 2019, CBRE Research, 2019.
• Over 250 mn. sq. ft. of office space leased during 2015-19, more than 60% from global occupiers across various tenant sectors.
• India has now moved up the ‘knowledge and skill’ curve.
OTHER TOP TIPS
• Core: Prime Office in São Paulo (Jardins, Faria Lima)– Robust demand, balanced vacancy
• Core: Logistics within 30 km of São Paulo – E-commerce growth
• Core plus: Offices in Marginal Pinheiros– Robust demand, low vacancy
• Opportunistic: Residential condos for sale / multi-family
BRAZIL
• Core: Domestically focused logistics– Mexico City, Guadalajara, Monterrey
• Opportunistic: Production and export focused industrial– Bajío, Tijuana, Ciudad Juarez
MEXICO
• Core – core plus: Leased up offices in Bangalore, Mumbai, Gurgaon and Hyderabad– Strong corporate / back-office demand; low vacancy; robust rent growth
• Core – core plus: Leased up warehouses in top 6 cities– Strong E-commerce & 3PL demand; growth potential; policy support
• Value add: Land parcels for build to suit offices in Bangalore and Hyderabad– Lack of ready-to-move-in space to lease; strong leasing demand
• Value add: Industrial assets, for essential products in top 6 cities– Manufacturing shift from China; growth potential
• Value add: Refurbished / repurposed facilities for last mile logistics in top 6 cities– Strong E-commerce demand; growth potential; policy support
• Opportunistic: Data centers in Mumbai and Chennai– Strong corporate demand; cloud computing growth; policy support; international cable landing stations
INDIA
• A wide V-shaped trajectory for GDP growth– Stabilization in Q3 and recovery in Q4– Strong growth in 2021– Developed economies lead, EMS follow– Major virus risks remain
• Real estate strategy in the EMs– Higher risk, need substantive expertise, but many opportunities– Macro opportunities– Cyclical opportunities– Geopolitical and structural opportunities
CONCLUSIONS
THANK YOU!PLEASE DON’T HESITATE TO CONTACT US.
This presentation has been prepared in good faith based on CBRE’s current views of the commercial real-estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they aresubject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current marketcircumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its viewsherein if its opinions, projections, analyses or market circumstances later change.Nothing in this presentation should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities – of CBREor any other company – based on the views herein. CBRE disclaims all liability for securities purchased or sold based on information herein, and by viewing this presentation, you waive all claims against CBRE and thepresenter as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the information herein.© Copyright 2020 CBRE
Dr. Richard BarkhamGlobal Chief Economist & Head of Americas Research CBRE Research +1 617 912 5215richard.barkham@cbre.com
Wei LuoGlobal Associate Director Economics & Capital Markets CBRE Research +1 212 984 8153wei.luo@cbre.com
Daniel ChangGlobal Research Analyst Economics & Capital Markets CBRE Research +1 617 912 5254daniel.chang@cbre.com
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