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Global Real EstateOutlook
UNCKenan-FlaglerBusiness School Jacques Gordon
Global Strategist
February 10, 2011
2
Source: Bloomberg, NAREIT, LaSalle Investment Management Research
U.S. Stock Market
($12.9 Trillion)
Global real estate assets are a sizable component of world wealth Investable real estate universe is estimated at $6 trillion
Global Stock Market
$46 Trillion
Commercial Real Estate$6 Trillion
Real Estate SecuritiesMarket Cap: $1.2 TrillionAssets worth: $2 Trillion
Real Estate – A Significant Asset Class
3
The Real Estate Investable Universe 2010
Source: Investment Property Databank, LaSalle Investment Management As of 3Q 2010
All Commercial Real Estate
US$ 34.4 trillion
Institutional Public & Private US$ 6.0 trillion
Public Real Estate
US$ 2.0 trillion
4
Global Real Estate Universes by Region 2010
Listed Real EstateTotal = $2.0 trillion
Institutional Real EstateTotal = $6.0 trillion
Source: Investment Property Databank, LaSalle Investment Management As of 3Q 2010Note: The Listed Real Estate Universe includes all publicly listed property companies, primarily REITs and REOC. Diversified development companies are included in emerging markets, but homebuilders are excluded. The Institutional Real Estate Universe includes all institutional investor-owned property, public and private.
Europe34.6%
Middle East & North Africa3.5%
Asia Pacific24.8%
Americas36.2%
Europe18.5%
Middle East and Africa
3.3%
Asia Pacific42.9%
Americas35.3%
5
Global Stocks Global Bonds Global Listed Real Estate
Global Private Real Estate
Global Stocks 1.0
Global Government Bonds -.07 1.0
Global Listed Real Estate .67 .02 1.0
Global Direct Real Estate .25 -.36 .33 1.0
Global Asset Class Correlations –Twenty Year Total Returns
Direct RE: Offers diversification benefits for a portfolio that consists of stocks and bonds. Listed RE: Diversification benefits are weaker, but offer other advantages (liquidity, transaction costs)
Source: IPD, Bloomberg, EPRA, LaSalle Investment Management Data through December 31, 2009Note: Stocks = MSCI All Country TR Local Currency; World Govt. Bonds = Citigroup World Government Bond Index Local Currency; REITs = EPRA/NAREIT Developed World Index TR USD; Direct RE = IPD Global TR Index USD. Correlations are based on annual returns.
6
Real Estate Provides Competitive Risk-Adjusted Returns
Source: Sources: Large Cap Stock: MSCI All Country TR Local Currency; Public Real Estate: EPRA Global Developed Index TR USD; Private Real Estate: IPD Global Index TR USD; Bonds: Citigroup World Government Bond Index TR Local Currency. US Dollars used when no local currency index available. Based on annual data.
Through December 31, 2009
20 Year Risk and Return
Global ListedReal Estate
Global Stocks
Global Direct Real Estate
WorldGovernment Bonds
3%
4%
5%
6%
7%
8%
9%
10%
0% 5% 10% 15% 20% 25% 30%Risk (Annual Standard Deviation of Return)
% A
nnua
l Tot
al R
etur
n
7
Investing in a multi-speed world
Low-Low-Low countries: The G-7- Low growth rates- Low interest rates- Low inflation- Lower nominal returns from all asset classes
Grow-Grow-Grow countries: China, India, Brazil, Australia, Sing, HK- Higher growth rates- Rising/higher interest rates- Rising inflation- Growth, rather than value, strategies work best
8
A Multi-Speed Recovery
Forecast as of Q1 2011
-6%
-4%
-2%
0%
2%
4%
6%
8%
Eurozone UnitedKingdom
Japan NorthAmerica
CEE World LatinAmerica
Asia-Pacific
ex-Japan
Rea
l Ann
ual G
DP
Gro
wth
.
2009 2010 2011 2012
High Growth
Slow Growth
9
The 2011 Outlook (as of early February)
Global economic outlook much-improved in last 60 days.
US picking up steam…despite longer-term concerns about fiscal health.
Germany, S. Korea and Singapore gaining strength through exports/manufacturing.
China holding steady at high growth levels…despite concern that the Bank of China needs to reign in inflation.
Deal flow picked up globally in 2H ’10; growth will continue in 2011.
Tenants/Occupiers are profitable, but reluctant to hire or lease.
Fundamentals will improve slowly from a weak position in most markets.
Buyers focusing on top tier, leased assets - to broaden in 2011.
10
Economic Cycle: The Driver of Demand
Type ofBusiness:
Recession Recovery Expansion Soft Landing
Economic Cycle
Workouts/Portfolio
RestructuringLeading-Edge
InvestingLeasing/
DevelopmentActive
Management
-10%
-5%
0%
5%
10%
15%
11
Economic vs. Property Cycle (fundamentals)
Type ofBusiness:
Recession Recovery Expansion Soft Landing
Property CycleEconomic Cycle
Workouts/Portfolio
RestructuringLeading-Edge
InvestingLeasing/
DevelopmentActive
Management
-10%
-5%
0%
5%
10%
15%
12
Economic vs. Property vs. Capital Cycle
Recession Recovery Expansion Soft Landing
Property CycleEconomic Cycle
Capital Cycle-10%
-5%
0%
5%
10%
15%
-15%
Workouts/Portfolio
RestructuringLeading-Edge
InvestingLeasing/
DevelopmentActive
ManagementType ofBusiness:
13
Interest Rates Moving Higher
Source: Bloomberg As of 3 February 2011
In the US, higher inflation expectations and expectations for stronger growth have driven interest rates higher. The swaps market implies that yields will rise over 150 bps to 5% by 2014, a trend that should eventually apply upward pressure to cap rates.
5Y Low: 2.065Y High: 5.30Current: 3.64
Historic 10 Year Treasury Rate Swap Market 10Y Treasury Rate Forecast
1 Jan. ‘11
October ‘10
Current
14
Policy Interest Rates Low in Most Developed EconomiesBut Rising in China and Commodity-Driven Markets
0
1
2
3
4
5
6
7
8O
ct-0
5
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
%
United States Fed Funds Rate Bank of Canada Policy RateECB Policy Rate Bank of England Policy RateReserve Bank of Australia Policy Rate Bank of Japan Policy RateChina One Year Benchmark Lending Rate
Source: Bloomberg As of 4 February 2011Note: Chart displays monthly rates.
The ECB held its benchmark rate constant in February and signaled that it did not expect to raise rates in the short term. While China raised its benchmark interest rate, its fixed exchange rate forces it to effectively import America’s loose monetary policy.
Global Policy Interest RatesChina Benchmark Rate Raised 25 bps on 25 Dec.
15
Big Jump in Deal Flow in 4Q 2010Americas Volume Doubles in 2010, Asia and Europe up 30%
Source: Real Capital Analytics, includes land sales, which comprise about 75% of transactions in Asia-Pacific but less than 10% in Europe and the AmericasData through December 2010
Fourth quarter transaction volume was the strongest since 2007 in the Americas.
16
0
50
100
150
200
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Americas EMEA Asia Pacific
US$ billions
188206 203
158
137
10391
4840 35
6470 65
7368
Direct Commercial Real Estate Investment, Quarterly Trends
Source: Jones Lang LaSalle, January 2011
111
17
Direct Commercial Real Estate Investment, 2005-2011
0
50
100
150
200
250
300
350
Americas Europe Asia Pacific
US$ b
illion
s
2005 2006 2007 2008 2009 2010 2011 ProjectionSource: Jones Lang LaSalle, January 2011
+40%+10-15%
+15%
“A further 20-25% increase in volumes in 2011”
18
Capital Value growth slowing
Capital Value growth
accelerating
Capital Value bottoming out
Capital Value falling
AmericasEMEAAsia Pacific
Hong Kong, LondonWashington DC
Sao Paulo
Shanghai
Prime Offices - Capital Value Clock
Q4 2010
As of Q4 2010The Jones Lang LaSalle Property Clocks SM
MumbaiSydney, Tokyo
Hong KongMoscow
Capital Value growth slowing
Capital Value growth
accelerating
Capital Value bottoming out
Capital Value falling
Paris, SydneyNew York, San Francisco
Sao Paulo
LondonShanghai
Singapore
Frankfurt
Chicago, Brussels, Mumbai, TokyoToronto, Los Angeles, Amsterdam
Madrid
Q4 2009
Los Angeles, Singapore
Brussels, Madrid
Moscow
Paris
FrankfurtAmsterdam
Washington DC
New YorkSan FranciscoChicago, Toronto
19
Hong Kong
Shanghai
Prime Offices – Rental Clock
Q4 2010
As of Q4 2010The Jones Lang LaSalle Property Clocks SM
Shanghai
Rental Value growth slowing
Rental Value growth
accelerating
Rental Values bottoming out
Rental Values falling
London, Sao Paulo Hong Kong, Sydney
Singapore
Chicago, Los Angeles
Mumbai
Amsterdam, Brussels Frankfurt, Madrid
Toronto
Tokyo
Q4 2009
New York, San Francisco Rental Value growth slowing
Rental Value growth
accelerating
Rental Values bottoming out
Rental Values falling
Moscow
ParisWashington DC
Dubai
AmericasEMEAAsia Pacific
TokyoMumbai Paris
Sydney
Singapore Washington DC
DubaiChicagoLos Angeles
New York, AmsterdamSan Francisco
London
MadridBrussels
Toronto, FrankfurtMoscow
Sao Paulo
20
0 10 20 30 40 50 60
TokyoSydneyMadrid
FrankfurtAmsterdam
MumbaiLos Angeles
BrusselsShanghai
SingaporeParis
ChicagoHong Kong
New YorkLondonTorontoMoscow
Washington DCSan Francisco
% change
Prime Offices – Capital Value Change, 2010
Americas Europe Asia Pacific
Source: Jones Lang LaSalle, January 2011. Local Currency.
21
-200 -150 -100 -50 0
Bp change
Prime Offices – Yield Shift, 2010
Source: Jones Lang LaSalle, January 2011
ChicagoLos AngelesNew YorkSan FranciscoTorontoWashington DC
AmsterdamBrusselsFrankfurtLondonMadridMoscowParis
Hong KongMumbaiShanghaiSingaporeSydneyTokyo
Americas Europe Asia Pacific
22
-35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35
DubaiMadrid
Los AngelesFrankfurt
TokyoAmsterdam
New YorkChicagoMumbaiSydneyToronto
ParisWashington DCSan Francisco
BrusselsLondon
ShanghaiMoscow
SingaporeHong Kong
% change
Prime Offices – Rental Change, 2010
Source: Jones Lang LaSalle, January 2011. Local currency. Americas Europe Asia Pacific
23
0 10 20 30 40 50 60
ChicagoNew York
San FranciscoLos Angeles
TorontoWashington
FrankfurtBrussels
MadridLondon
AmsterdamParis
Hong KongSydney
MoscowTokyo
SingaporeDubai
ShanghaiMumbai
Completions as % of existing stock
Office Supply Pipeline in Major Markets, 2011-2012
Source: Jones Lang LaSalle, January 2011. Relates to Metro Areas
20112012
24
Prime Offices –Projected Value Change in 2011
+ 10-20%
Capital ValuesRental Values
Shanghai, Singapore, Tokyo, Moscow, Sao Paulo
+ 5-10%
+ 0-5%
- 0-5%
- 5-10%
London*, ParisNew York*, San Francisco
Toronto, Washington DC, Sydney
Amsterdam, Brussels, Frankfurt Chicago, Los Angeles, Mumbai
Madrid
+ 20%
Shanghai, Singapore, Tokyo, New York* Moscow, Paris
San Francisco, Toronto, Sao Paulo
London*, Los Angeles Washington DC
Amsterdam, Brussels Frankfurt, Chicago Mumbai, Sydney
Madrid
*New York – Midtown, London – West End. Nominal rates in local currency. Source: Jones Lang LaSalle, January 2011
Hong Kong
- 10-20% Dubai Dubai
Hong Kong
25
0 2 4 6 8 10
SpainItaly
JapanFrance
United KingdomGermany
United StatesCanadaSweden
AustraliaSouth Korea
MexicoRussiaPolandTurkey
BrazilIndia
China
% GDP Change
The Hierarchy of Economic Performance, 2011-2012Economic growth led by China, India and Brazil
Source: Global Insight Q1 2011Asia Pacific EMEA America
26
The Globalization of Real Estate Services and Investment Management
Global Private Equity ManagersAEW Capital Management Angelo GordonAREA – Property PartnersBlackstone GroupCB Richard Ellis Investors, LLCDB-RREEFING Clarion PartnersHeitman HinesJP Morgan Asset ManagementLaSalle Investment ManagementLone Star FundsMorgan StanleyPrudential Real Estate InvestorsUBS Global Asset Management
27
Largest Listed Real Estate Companies
28
The Largest Market Cap Real Estate Company USD $52 Billion
29
World’s Largest Public RE Companies 7 out of 10 Are Based in Asia
0
10
20
30
40
50
60
Sun
Hun
g K
ai (H
K)
Wes
tfiel
d G
roup
(AU
S)
Sim
on P
rope
rty G
roup
(US)
Mits
ubis
hi E
stat
e (J
P)
Han
g Lu
ng P
rope
rties
(HK
)
Uni
bail
SA (E
U)
Wha
rf H
oldi
ngs
(HK
)
Publ
ic S
tora
ge (U
S)
Chi
na O
vers
eas
Land
& In
v.(H
K)
Mits
ui F
udos
an (J
P)
Dol
lars
, In
Bill
ions
Dec-07 Feb-09 Nov-10
Source: Bloomberg As of 3 November 2010
30
0
10
20
30
40
50
60S
un K
ung
Hai
(HK
)
Sim
on P
rope
rty G
roup
(US
)
Mits
ubis
hi E
stat
e (J
P)
Wes
tfiel
d G
roup
(AU
S)
Wha
rf H
oldi
ngs
(HK
)
Han
g Lu
ng P
rope
rties
(HK
)
Pub
lic S
tora
ge (U
S)
Mits
ui F
udos
an (J
P)
Uni
bail
SA
(EU
)
Vor
nado
(US
)
Chi
na O
vers
eas
Land
(H
K)
Equ
ity R
esid
entia
l (U
S)
Hen
ders
on L
and
Dev
. (H
K)
Gen
eral
Gro
wth
(US
)
HC
P (U
S)
Bos
ton
Pro
perti
es (U
S)
Hon
g K
ong
Land
(SP
)
Hos
t Hot
els
(US
)
Cap
itala
nd (S
P)
Sum
itom
o R
ealty
(JP
)
Sin
o La
nd (H
K)
Chi
na R
esou
rces
(HK
)
Ava
lon
Bay
(US
)
Sto
ckla
nd (A
US
)
Ven
tas
(US
)
Dol
lars
, In
Bill
ions
.
Dec-07 Feb-09 Feb-11
Most of World’s Largest Public RE Companies Based in Asia
Source: Bloomberg As of 3 February 2011
Westfield fell several spots in December after spinning off some of its Australian assets into a new REIT
31
Largest Real Estate Companies by Market CapitalizationSeven of the Top 25 are US-Based; Seven are HK-Based
Company (HQ)
(2010 ranking)Market Capitalization ($Billions as of 2/2011)
Countries Invested
1. Sun Hung Kai Properties (HK) 43.8 2
2. Westfield (Australia) 23.7 4
3. Mitsubishi Estate (Japan) 27.0 3
4. Simon Property Group (US) 30.7 7
5. Unibail-Rodamco (France) 17.5 13
6. China Overseas Land & Inv. (HK) 15.6 2
7. Mitsui Fudosan (Japan) 18.4 5
8. Hang Lung Properties (HK) 19.8 2
9. Public Storage (US) 19.6 8
10. Henderson Land (HK) 19.8 2
11. Wharf Holdings (HK) 21.1 2
12. Vornado (US) 15.9 1
13. Capitaland (Singapore) 12.1 10Sources: LaSalle Investment Management, Bloomberg. As of 2/5/11. Only EPRA/NAREIT Global Index qualifying companies included.
32
Real Estate Transparency Index –Key Enhancements
Enhanced Questions on Debt Addressing:- Availability of information on commercial real
estate debt- The role of bank regulators in monitoring and
publishing information on real estate debt
New Geographies- North Africa and the Levant
New Transparency Website- www.joneslanglasalle.com/Transparency
33
Real Estate Transparency Index - Methodology
Our survey addresses five categories of transparency:
1. Investment Performance Indices (7)
2. Availability of Market Fundamentals Data (5)
3. Listed Vehicles Financials (3)
4. Regulatory and Legal Factors (11)
5. Professional Standards and Transaction Process (7)
High Transparency
Transparent
Semi-Transparent
Low Transparency
Opaque
Tier 1
Tier 2
Tier 3
Tier 4
Tier 5
34
Real Estate Transparency Index81 markets worldwide
High TransparencyTransparentSemi-TransparentLow TransparencyOpaqueNot Covered
36
The 12 Most Transparent Countries, 2010
Note: Scores shown rounded to two decimal places; rankings are based on unrounded scores. Sources: Jones Lang LaSalle, LaSalle Investment Management
2010 Composite Rank Market 2010 Composite Score 2010 Composite Tier
1 Australia 1.22 1
2 Canada 1.23 1
3 United Kingdom 1.24 1
4 New Zealand 1.25 1
4 Sweden 1.25 1
6 United States 1.25 1
7 Ireland 1.27 1
8 France 1.28 1
9 Netherlands 1.38 1
10 Germany 1.38 1
11 Belgium 1.46 1
12 Denmark 1.50 1
37
The Largest Improvers, 2008 - 2010
Turkey moves up 27 ranks – registering world’s strongest improvement – aligning its legal and regulatory with EU
Transparency improvements in China and Indiarippling into 2nd and 3rd Tier cities
Continued progress in CEE markets – Poland, Romania, Hungary European markets moving into highest tier –
Germany, Ireland, Denmark
Note: Scores shown rounded to two decimal places; rankings are based on unrounded scores. Sources: Jones Lang LaSalle, LaSalle Investment Management
0.0 0.2 0.4 0.6 0.8 1.0
India Tier 1 CitiesIreland
GermanyRomania
China Tier 3 CitiesIndia Tier 2 Cities
PortugalChina Tier 2 Cities
PolandTurkey
score change
38
Real Estate Transparency Index –A Forward Perspective
Global Financial Crisis shows that high transparency does not eliminate risk or prevent market volatility
High transparency will help markets open up after the financial crisis
The recap of real estate will be helped by the free flow of information and protection of property rights
Regulators will emphasise the importance of more disclosure.
Transparency of real estate debt will therefore increase
Higher transparency moves real estate from the world of uncertainty (unknown hazards and outcomes)
to the world of risk (known hazards, probabilistic outcomes)
39
Harnessing the Power of Yield Compression:An Investment Strategy for Semi-Transparent Markets
Higher Cost of Capital
Lower Cost of Capital
Income
Balanced/Core
Value-Add
Opportunistic
• Plentiful information• Full financials• Efficient capital markets
• Information scarce• Inefficient capital markets• Under-performing assets
BUY
SELL/HOLD
Risk
Ret
urn
RisklessRate
40
This information is intended to assist professional investors in deciding whether they wish to consider the investment further. This publication does notconstitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in investment funds sponsored by, or the advisory servicesof, LaSalle Investment Management and is subject to correction, completion and amendment without notice. Any such offer, if made, will only be madeby means of a confidential prospectus. The prospectus will include information regarding investment risk and investors should have the financial abilityand willingness to accept these risks. All information obtained from third party sources is believed to be reliable and current, but accuracy cannot beguaranteed and we do not undertake to update any information contained in this document. All assumptions, figures and calculations contained in theinformation must be independently verified by the professional investor. This publication has been prepared without regard to the specific investmentobjectives, financial situation or particular needs of recipients. No legal or tax advice is provided. Recipients should independently evaluate specificinvestments and trading strategies. By accepting receipt of this publication, the recipient acknowledges that this publication is confidential and agreesnot to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general informationpurposes. Copyright © 2010 LaSalle Investment Management. All rights reserved. No part of this publication may be reproduced by any means,whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, orincluded in any information store and/or retrieval system without prior permission of LaSalle Investment Management.
Jacques Gordon – Global Investment StrategistTel +1 312 228 2760E-mail [email protected]
