Southern Europe Investment Briefing

Which sectors will offer the best opportunities in the region?

Alice Marwick – Savills European Research

19 September 2017

Where are the opportunities in Southern Europe?

2

Agenda

• Economics

• Investment

• Fundamentals

• Opportunities

Opportunities and risks

• Spain

• Italy

• Greece

• Portugal

Economics: Spain in full speed, slow but steady recovery for the rest

3Source: Focus Economics

• GDP growth in Spain 3.0%

• Portugal unemployment down to 9.4%

• Italy slow but stable positive economic growth

• Greece’s economic recovery is only starting

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2020

Unemployment % active population

Greece Italy Portugal Spain

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Gre

ece

Italy

Fra

nce

Be

lgiu

m

Germ

any

Euro

are

a

Fin

land

Au

str

ia

Ne

therlands

Port

ugal

Cyp

rus

Esto

nia

Spain

Slo

vakia

Lithuania

Latv

ia

Slo

venia

Malta

Luxem

bourg

GDP annual variation % 2017

H1 17 Investment volumes 58% up on 10-year average

4Savills

• H1 17 investment volume totalled over €9.8bn –up 27% yoy

• Southern Europe accounts for 10% of total European investment volume

• Since 2014 Spain has been taking lion’s share of SE investment volume

• Spain on course to surpass historic peak by year end

• Italian volumes in line with 2016

• Portugal volumes in line with LTA

• Greece is still playing catch up

• Full year volume set to hit €19bn

€0.1

€3.8

€0.9

€5.0

S Europe investment by country H1 17 (bn)

Greece Italy Portugal Spain

-

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f

€

Investment volume 2007-2017

Spain

Italy

Portugal

Greece

Investment: X-border investors account for 67% of total H1 activity

5Source Savills

• Xborder investors dominate the scene directly or through REITs in Spain (Socimi).

• In Spain cross border investors accounted for 62% of total volume

• Portugal retail attracting foreign investors

• Italy investors focussing on core assets or value add

• Greece still dominated by the local real estate investment companies, but international investors in the hospitality sector on the up

• European and US funds dominant players

75%

28%

38%

27%

48%

25%

72% 62

%

73% 52

%

0%10%20%30%40%50%60%70%80%90%

100%

Gre

ece

Italy

Spain

Port

ugal

EU

Cross border vs. domestic investment H1 2017

Domestic Investment Cross border Investment

Investment: Disparity between countries

6

• In Spain retail leading with over €2.4bn transacted in H1 17

• Portugal office investment overtaking retail

• In Italy office represented circa 50% of the total volume (€1.69bn)

• Greek hospitality sector has attracted most cross border interest

Via Cantù 2 | Milan

€100m

Vendor: Private

Buyer: Hines

46% 49%

25%

22%

28%48%

11%

5%

8%17%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU Italy Spain

Investment by sector H1 2017

Offices Retail Industrial Other

Investment: Yields have compressed below their past peak

7Source Savills

• In Spain prime office and retail yields are at record low

• In Italy both office and retail yields are below their past peak

• Yields continue to compress due to lack of product and high demand

• In Greece prime yields have just started to move in slowly after the market hit bottom low

• Southern European yields still more attractive compared to core, and are expected to fall further

Fundamentals: Prime rents are rising

8Source: Savills

• Q2 2017 Prime CBD office rents increased 7% yoy in Madrid, 6% yoy in Milan, 8.3% in Lisbon and 15% in Athens

• The lack of quality space in the CBD for sizeable requirements is universal and this pushes rents up

• Non-CBD rents are also rising at a slower pace as they benefit from tight supply in the centre

• Retail rents are rising more modestly

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Warsaw

Moscow

Oslo

Zurich

Athens

Prague

Helsinki

Brussels

Rome

Vienna

Copenhagen

Luxembourg

Lyon

Amsterdam

Budapest

Lisbon

Milan

Paris

Frankfurt

Hamburg

London

Munich

Berlin

Stockholm

Dublin

Barcelona

Madrid

average pa

Prime office rental growth 2016-2018

Risks - Political

9

Opportunities: Tourism is a healthy and growing industry

10World Travel & Tourism Council/Mastercard

• Tourist numbers are rising in all countries

• Travel & Tourism accounts for 18.6% of GDP in Greece

• Spain is the third largest tourist market in the world by number of visitors (+10.3% yoy)

• Chinese visitors up 19% to Portugal in 2016

0

5

10

15

20

25

Lon

do

n

Par

is

Ista

nb

ul

Bar

celo

na

Am

ster

dam

Mila

n

Ro

me

Vie

nn

a

Pra

gue

Mad

rid

(mill

ion

s)

Overnight International Visitors 2016

8.7%

Hamburg

8.0%

Berlin

7.8%

Istanbul

7.7%

Copenhagen

7.4%

Lisbon

Annual Growth Rate 2016

Opportunities: Competitive environment for Tech?

11Source Oxford Economics/Eurostat

• The expansion of ecommerce and

the growth of online retailers

creates the need for new logistics

space

• Barcelona has a strong culture of

co-working

• Madrid is enjoying a strong growth

in Tech GVA - forecast at 4.8% this

year

0%2%4%6%8%

10%12%14%16%

Po

rtu

gal

UK

Pola

nd

Net

her

lan

ds Fr

ance

Spai

n

Fin

lan

d

Ge

rman

y

Swed

en

Ital

y

Enterprise birth rates as % of all enterprises

0%

1%

2%

3%

4%

5%

6%

Du

blin

Lon

do

n

War

saw

Mu

nic

h

Mad

rid

Ber

lin

Par

is

Lisb

on

Fran

kfu

rt

Am

ster

da

m

Bar

celo

na

Mila

n

% p

a

Growth of Tech GVA 2018-2022

Conclusions and Outlook

12

• The countries are in different stages of their recovery path, but the worst has passed

• Spain has been the star performer

• Italy faces political challenges but Northern regions remain strong

• Greece is still under EU supervision

• Traditional sectors have become competitive and expensive in Spain and Italy

• There are still opportunities for yield compression for prime assets in Athens and Lisbon

• Tight CBD office markets will offer opportunistic investors strong returns from development or refurbishment

Thank you!

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