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Money into Property Global 2013

Liquidity becomes next differentiator

DTZ Research

1 May 2013

Contents

Introduction 2

Section 1 – Stock and gap update 3

Section 2 – Market sentiment 5

Section 3 – Liquidity and value 9

Authors

Nigel Almond

Head of Strategy Research

+ 44 (0) 20 3296 2328

[email protected]

Hans Vrensen

Global Head of Research

+ 44 (0)20 3296 2159

[email protected]

Focus on further downside potential has receded over the last year. As a result, the macro outlook is more balanced and the recovery expected to continue. For the first time in a long while, we can see a surprise on the upside next year.

Global invested stock set another new record in 2012, despite modest growth of only 1%. But, Asia Pacific was the only region to post strong growth of 8%, offsetting declines in both Europe and North America.

Deleveraging continued across all three regions in 2012, with equity growth close to 5% and debt unchanged. But, non-bank lending and corporate bond issuance continued their growth, while bank lending remained flat.

Property market sentiment remains mixed, despite the improving macro outlook. Lenders are more cautious than investors in our annual survey. While still selective, more lenders expect growth. Investors feel buying opportunities remain have returned to normal and that debt availability has improved. In our view, sentiment has been slow to improve due to the debt-related workout, especially in Europe. But, things are not as bad as they seem, considering:

Global investment volumes were up 4% in 2012. Strong 15% growth in North America offset declines in both Asia Pacific and Europe. Cross-border volumes also improved and have now returned to their 2005 level.

More than two thirds of markets are classified as very attractive, with less than 10% as unattractive. In fact, relative value is at its best level in eight years, due to lower bond yields and a better growth outlook.

Total liquidity has returned to near its 10-year average, with North America ranking top. However, based on inter-regional liquidity Europe is most attractive for new investors. With relative value now less of a differentiating factor, we think investors should consider liquidity and size more closely.

Figure 1

Stock size, long term liquidity and relative value

Ove

rpri

ced

Un

de

rpri

ced

Low liquidity

UKUS

SE

SG

JP

CN

FR

IR

ES

IT

DEAU

High liquidity

$500 bn

$250 bn

$100 bn Europe

Asia Pacific

USA

Stock Region

DTZ Research

Global 2013

www.dtz.com Money into Property 2

Introduction

It is with great pleasure that we present the 39

th edition of

Money into Property. The focus of this report is Global. We have published similar reports for Asia Pacific, Europe, North America and the UK. This report is divided into three main sections. The first section provides a detailed update of invested stock, which is defined as investment-grade commercial real estate held by investors. Invested stock is different from owner occupied real estate, both investment and non-investment grade (Box 1). The majority of stock globally (37%) is currently invested. A further 26% is considered investable, but is owner-occupied (Figure 2). The debt funding gap is defined as the difference between the current debt secured by commercial property minus the new debt available to replace it. Our analysis also accounts for regulation and alternative lending sources, which is particularly relevant for Europe where the gap has hindered the recovery in many markets (Figure 3). Market sentiment is the focus of the second section, where we share the findings of our investors’ and lenders’ surveys which were undertaken between February and March 2013. The surveys provide an insight into current sentiment. In the final section we provide an update on transaction volumes and associated liquidity across markets. Finally, we consider whether investment is focused on the relatively most attractive markets, using the DTZ Fair Value Index

TM.

The appendix provides an overview of definitions and methodologies used.

Figure 2

Breakdown of total stock, 2012, USD tn

37%

26%

36%

10 10 13 33

Europe North America Asia Pacific Global

Non-investable

Investable(owner-occupied)

Invested

Source: DTZ Research

Figure 3

Conceptual breakdown of debt funding gap

0

50

100

150

200

1 2 3

Regulation

Refinancinggap

Non-bankfinance

Net debt funding gap


Box 1: Stock definition

Total stock is all commercial real estate, measured by either monetary value or space. Total stock comprises non-investable owner occupied stock, investable owner occupied stock and invested stock.

Non-investable owner occupied stock is commercial real estate that is not available to investors due to use or quality of the property.

Investable owner occupied stock is commercial real estate stock that is currently held by occupiers but is attractive to investors in terms of use and quality. This represents potential for investors as occupiers sell their properties or undertake sale and leasebacks.

Invested stock is commercial real estate held by investors in the relevant country. As a consequence the invested stock should:- a) Rise as owner occupiers sell property to investors b) Rise as new developments are unveiled and added to the invested stock c) Rise with the general rise in capital values d) Be negatively impacted by depreciation and retirement of stock.

Global 2013


Section 1 – Stock and gap update

Invested stock trends

Asia Pacific drives global stock to new record level Following growth of 7.6% in 2011, invested stock grew by a more modest 1.5% in 2012 to reach a new record level of USD12.4tn (Figure 4). This masks differences across the regions. Asia Pacific was the only region to post growth in 2012 as its invested stock grew 8% to USD4.2tn. The region is now close to surpassing Europe to become the region with the largest stock. In North America stock fell by 0.5% driven by a fall in the US stock. Following growth in 2011 the stock in Europe fell 2.6% to USD4.4tn.

Currency movements impact Europe The continued weakness in Europe’s economies led to an appreciation of the dollar relative to the Euro. As a consequence Europe’s stock fell 3% in dollar terms, but in local currency terms it stock actually grew by 3% (Figure 5). Across North America the currency impacts were negligible, as they were too in Asia Pacific, although marginally stronger growth of 9% was recorded in local currency terms.

Debt hinders recovery in Europe Europe’s recovery continues to be hindered by its sizable debt funding gap (Figure 6). Our latest analysis estimates a refinancing gap across Europe of USD77bn, with regulatory impacts more than doubling this to a gross USD163bn. Efforts by some banks to delever their CRE loans has helped to shrink this figure. A further gap of USD22bn remains in Asia Pacific, and mostly in Japan where we see the gap reducing. New non-bank lenders – insurers and debt funds are helping to shrink this gap. So too is an increase in property company bond issuance. Globally there remains plentiful new equity capital (USD314bn) available for investment over the next two years, with over USD120bn available for investment across Europe. Combined with new non-bank lenders this should be sufficient to plug the funding gap in the near term.

Figure 4

Global real estate invested stock, USD tn

3.9 4.2

3.8 3.7

4.5 4.4

12.2 12.4

0

2

4

6

8

10

12

14Global

Europe

North America

Asia Pacific

2012

1.5%

-2.6%

-0.6%

8.0%


Figure 5

Change in invested stock, 2012

-1%

-3%

8%

1%

0%

3%

9%

4%

North America

Europe Asia Pacific Global

USD Local Currency


Figure 6

Net debt funding gap and available equity 2013-14, USDbn

0

50

100

150

200

250

300

350

Global Europe Asia Pacific North America

Available equityNet debt funding gap Projected non-bank debt


Global 2013


Sources of capital

Equity continues to recover Growth this year has again been driven by increases in the equity quadrants, albeit the pace of growth has moderated (Figure 7). Private equity added USD273bn to invested stock, and was main driver of global growth. The increase reflects a general recovery in capital values during 2012. Growth in public equity was more modest at less than 2% as listed companies continued to restructure in many markets with some becoming net sellers.

Rotation to non banks in deleveraging process Overall the value of debt outstanding fell marginally, although we did see some variations in growth across the different debt components (Figure 8). Following growth of 5% last year, debt outstanding to banks stood still in 2012 as many banks, particularly in Europe actively engaged in deleveraging. Bad banks also actively engaged in selling down loans. In contrast non-bank lenders, predominantly insurers showed growth as they picked-up market share from traditional banks.

Corporate bond issuance continues to grow In the public markets property companies (listed and non-listed) continued to use bond markets as a means of accessing cheap debt. Globally, new bond issuance grew by 30% to USD92bn triggered by attractive interest rates, leading to an aggregate growth in outstanding debt. This growth was not sufficient to offset the redemption of existing CMBS and covered bonds leading to an overall fall in public debt.

Deleveraging driven by equity growth Overall gearing levels in the market continued to fall across all regions. The global average fell to 59% from 60% last year (Figure 9). Similar reductions in gearing were observed in all other regions. With the exception of Asia Pacific, gearing is now back to levels seen in 2007. With the amount of debt outstanding remaining broadly flat globally, it was growth in equity that has again driven the reduction in aggregate gearing.

Figure 7

Global invested stock by capital source, USD tn

5.8 5.8

1.5 1.50.9 0.9

4.0 4.2

12.2 12.4

2008 2009 2010 2011 2012

Private equity

Public equityPublic debt

Private debt

5%

-3%2%

0%

2012

Global 1%


Figure 8

Change in components of global debt

-10%

-5%

0%

5%

10%

15%

20%

Banks Bad Banks Non-banks

CMBS Covered Bonds

Corporate Bonds

2011 2012

Private debt Public debt


Figure 9

Total debt as a percentage of invested stock

63%58%

73%

66%

55%54%

64%

59%

40%

50%

60%

70%

80%

2000 2002 2004 2006 2008 2010 2012

NorthAmerica

Global

Europe

Asia Pacific


Global 2013


Section 2 – Market sentiment Our lenders’ and investors’ surveys were undertaken in Q1 2013 canvassing the opinions of over 200 individuals. The results illustrate the prevailing market sentiment, which sets the stage for the future performance of commercial real estate markets.

Lenders’ survey

Loan originations grow In 2012 half of the respondents to our survey showed an increase in the value of new loan originations (Figure 10). On balance the value of loan extensions increased, although close to half of lenders reported no overall change in the value of extensions in 2012 compared to 2011. The positive balance in new loan originations appears somewhat surprising against the challenging markets conditions, especially in Europe, although with many banks having separated their non-core divisions, our analysis could reflect a more upbeat sentiment in new lending teams.

Growth in loan book Overall a positive balance of lenders in 2012 reported an increase in their loan book. The change in loan book was mostly driven by an increase in new lending reflecting limited new growth. This was primarily driven by a rotation towards non-bank lenders who showed the biggest net growth (Figure 11). This contrasted with a net 17% of bank lenders reporting a reduction in loan book. Looking forward to this year the expectation is for growth across the board. Whilst the non-banks continue to grow, the big change is with the traditional banks. Here a net balance of 11% expect growth. This is positive news, and implies banks are well underway in the workout of loans.

Recovery in lending conditions delayed again However this improvement is tempered in the outlook for lending conditions. 70% of lenders do not expect a substantial recovery in lending conditions until beyond 2014 (Figure 12). Throughout each of our past three surveys, lenders have showed a recovery coming later, with the proportion increasing. This shows lenders remain wary of the recovery and growth will be minimal.

Figure 10

Change in loan originations and extensions, 2012

0%

20%

40%

60%

80%

100%

Originations Extensions

Down

Same

Up


Figure 11

Change in loan book size by lender type

0%

20%

40%

60%

80%

100%

Banks Funds & Insurers

Other Banks Funds & Insurers

Other

Down

Same

Up

2012 2013

-17% 29% 62% Net 11% 43% 76%


Figure 12

Expectations for a substantial recovery in lending markets

0%

20%

40%

60%

80%

20102011Later 20112012Later 20122013Later 20132014Later

2010 Survey 2011 Survey 2012 Survey 2013 Survey


Global 2013


Substantial progress in non-prime workout Progress in working out problem loans is well underway, with lenders reporting some substantial progress in working out non-prime assets. In 2011 42% of respondents were reporting that the non-prime workout was well underway (Figure 13). In our survey this year, this portion has increased to 69%. Only 31% are reporting that there has been no start in the non-prime workout compared to over half two years ago. Progress on prime assets continues and over a fifth of respondents now report completion in the workout of prime. Surprisingly, 12% of respondents still highlight that the workout of prime has yet to start.

Lending activity in secondary assets and markets Over half of lenders have indicated that they have lent against both secondary assets and assets in tier 2 and 3 cities (Figure 14). Whilst banks remain more conservative in what could traditionally be called their traditional playing field, it is alternative lenders who are more active in these markets. This provides some positive news for investors who are seeking to increase their activity in these markets.

Lenders still selective in opportunities However, when we asked lenders about their expectation of lending by type of investment in Tier 1 and Tier 2&3 cities there remained a clear focus towards prime standing investments (Figure 15). Overall, a net balance of 74% are seeking to increase lending towards prime standing investments in Tier one cities. This balance shrank to a net 29% in Tier 2&3 cities. Lenders are more cautious towards non-prime investments. A positive balance (26%) are willing to lend in Tier 1 cities. This balance turns negative in Tier 2&3 cities. A similar picture emerges for pre-let development, whilst lending towards speculative development is mostly off bounds. Overall, this highlights that lenders still remain cautious in second and third tier cities, with a clear focus towards core assets.

Figure 13

Trends in work out of prime and non-prime loans

0%

20%

40%

60%

80%

100%

2011 2012 2013 2011 2012 2013

Alreadyfinished

Wellunderway

Not yetstarted

Prime Non-Prime


Figure 14

Lending to secondary assets and markets by lender type

0%

20%

40%

60%

80%

100%

Banks Funds & Insurers

Other Banks Funds & Insurers

Other

No

Yes

Secondary assets Tier 2 & 3 Cities


Figure 15

Willingness to lend in Tier 1 and Tier 2&3 cities

0%

20%

40%

60%

80%

100%

Tier 1 Tier 2&3

Tier 1 Tier 2&3

Tier 1 Tier 2&3

Tier 1 Tier 2&3

Up Same Down

Prime standing investments

Non-prime standinginvestments

Pre-letdevelopment

Speculative development


Global 2013


Investors’ survey

Real estate to underperform equities Investors’ expectation for the performance of commercial real estate compared to other assets shows a rather subdued view. Whilst a net majority (72%) expect real estate to outperform bonds, most on balance expect direct real estate to underperform relative to both equities and real state equities in 2013. A majority only marginally expect direct real estate to outperform property debt instruments (Figure 16).

Markets returning to normality Whereas last year many respondents highlighted difficulty in accessing prime products, in this year’s survey we have seen some improvement. More investors have indicated normal conditions in accessing prime, although just over half (51%) still report difficulty in accessing prime (Figure 17). For non-prime the vast majority (75%) have reported normal or easy conditions. Risk aversion amongst investors has meant many are focussed on prime. Our survey results suggest prime is being crowded out and we would expect to see more moving towards non-prime. With banks accelerating their work-out we could expect to see more interest in secondary, easing some of the pressure on prime.

Ease of access to debt finance With markets returning to normal, it is encouraging that over three quarters of investors find access to new acquisition finance not an issue compared to just 61% last year (Figure 18). Refinancing of existing debt is not considered a major issue with 70% of respondents having no issue in accessing debt.

Figure 16

Performance of CRE compared other asset classes

0%

20%

40%

60%

80%

100%

Bonds Property Bonds

Real Estate Equities

General Equities

Outperform

Same

Underperform

72% -25%-3%4% Net


Figure 17

Global buying opportunities by property grade

0%

20%

40%

60%

80%

100%

2011 2012 2013 2011 2012 2013

Hard

Normal

Easy

Prime Non-prime


Figure 18

Difficulty in obtaining debt finance

0%

20%

40%

60%

80%

100%

2011 Survey

2012 Survey

2013 Survey

2011 Survey

2012 Survey

2013 Survey

No

Yes

New acquisition finance Refinancing of existing debt


Global 2013


Non-bank lenders to pick up slack One of the reasons why investors feel relaxed is that they do not report any major issues in accessing debt. One of the reasons is the access to alterative sources (Figure 19). During 2012 a clear majority of investors felt that lending would be down from banks, with institutions picking up the slack. Move forward to this year and sentiment is clearly changing. Banks are expected to be net lenders again with a net 19% expecting the availability of debt to be up. An even higher proportion expect an increase in debt from institutions along with other sources of finance.

Exposure to loan and partial equity positions up The number of investors who have invested in loan or partial equity positions has increased marginally over the year from 42% to 45% (Figure 20). This trend reflects the growing appetite for funds to invest in loan positions. The portion investing in loan positions has shrunk, largely at the expense of funds who are taking a broader view and investing in both loan and equity positions. Of those who do not invest, we see a reduction in the proportion of respondents who have no capability.

Investors more positive than lenders Investors are more positive in their macro economic outlook. Outside of the base case of a slow recovery, investors are of the belief that the outlook will be marginally more positive (Figure 21). This contrasts with lenders who are marginally more pessimistic, with far more expecting a slightly worse outlook. Given the scale of debt issues, particularly across Europe, this trend is to be expected, although like investors we see a change in sentiment to the upside.

Figure 19

Availability of debt finance by lender type

0%

20%

40%

60%

80%

100%

2012 Survey

2013 Survey

2012 Survey

2013 Survey

2012 Survey

2013 Survey

Institutions Banks Other*

Up

Same

Down

*Other covers corporate bonds, covered bonds, CMBS and mezzanine finance Source: DTZ Research

Figure 20

Investors’ exposure to loan and partial equity positions

0%

20%

40%

60%

80%

100%

2012 Survey

2013 Survey

2012 Survey

2013 Survey

2012 Survey

2013 Survey

Yes

No

Propertyloans

Equityposition

Both

Nocapability

Nointerest

Yes No


Figure 21

Most likely economic scenario outside base case

0%

20%

40%

60%

80%

100%

Investors Lenders

Significantly more positive

Marginally more positive

Slightly worse

Signifcanlty worse


Global 2013


Section 3 – Liquidity and value

Economic Outlook

More balanced, as downside recedes The overall consensus outlook for economic growth has transitioned over the last year into a more balanced situation (Figure 22), similar to what our survey results show. The probability of our base case is now at its highest level in over a year at 60%. This implies a slow but steady recovery. Despite recent trouble in Cyprus, we see a reduced chance of the downside scenario coming through. A strong return for the upside scenario leaves us with a more balanced global economic outlook, compared to the recent past.

Bond yields have come in In response to this more balanced global economic outlook and the strong monetary liquidity support, we have seen a strong reduction in risk aversion with investors across asset classes. As a result, government bond yields have tightened across the board, even in peripheral European markets. Of course, these still remain elevated relative to core markets globally (Figure 23). Australia’s yields are more related to the higher growth and inflationary concerns.

Transaction volumes

Global investment volumes up 4% in 2012 Global investment transactions volumes of commercial real estate in 2012 were up 3.5% on 2011 levels at USD475bn (Figure 24). 2012 volumes exceeded levels recorded in 2005 providing evidence of a normalisation in activity. Strong growth in North America offset declines in Asia Pacific and Europe. Also, the fourth quarter volumes were strong and made up for weaker volumes in the earlier quarters. Given the more balanced economic outlook, the re-balancing of the lending markets, we do expect further growth for 2013 and beyond. We do not expect a quick rush back to 2006/07 levels as debt issue remain. Future transaction volumes will be further helped by improving liquidity and good relative value.

Figure 22

Evolution of probabilities of various economic scenarios

10%

15%

45%

60%

35%

10%

10%

15%

0% 20% 40% 60% 80% 100%

Jan-12

Jul-12

Jan-13

Apr-13

Upside Base Case Other Downside

Source: Oxford Economics

Figure 23

Five year government bond yields in select countries

0%

5%

10%

15%

0%

1%

2%

3%

4%

Mar-13 Mar-12

Source: Bloomberg

Figure 24

Global investment volumes, USD bn

157 152

145 143

157 180

459 475

0

200

400

600

800

2005 2006 2007 2008 2009 2010 2011 2012

Global

2012

North America

Asia Pacific

Europe

3.5%

14.5%

-3.0%

-1.4%

Source: DTZ Research, Propertydata, RCA, RealNet

Global 2013


Cross-border investment activity back to 2005 level

Further evidence of a normalisation of the investment markets is provided, when we consider volumes by source region (Figure 25). Cross-border activity has returned to its 2005 level of 21%. Inter-regional activity (sourced from outside home country and region) has in fact now exceeded its 11% level from 2005. We do expect this trend to continue over the next few years, as sovereign wealth funds and investment fund managers start with or return to a strategy of more international portfolio diversification. This is a big positive for many property markets, as more active overseas buyers provide greater liquidity to local owners.

Market liquidity

Back to 10-year average, North America most liquid now Liquidity

1 has returned to its long run 10-year average on a

global level. But, in both Asia Pacific and North America it is well above and marginally higher than the historical average. As in most things, Europe lags behind. As highlighted above, there is still some remaining blockage from the workout of legacy debt (Figure 26). Since not all investors buy and sell in a single year, we do think that volatility in liquidity is relevant. As highlighted by the historical maximum and minimum levels, North America shows the greatest range over the period. Europe is also more volatile relative to Asia Pacific. We believe that liquidity is more relevant than market transparency. As long as an investor can buy into and sell out of a market, transparency is not material.

But, Europe is more attractive for cross-border buyers If we finally consider not just total liquidity but also the more limited inter-regional liquidity

2, we can see some

interesting regional trends over time. All three regions show a sort of boomerang effect – improving liquidity from 2003 to 2007 at peak of the cycle, but dropping back in 2012 (Figure 27). Overall, Asia Pacific shows less of a shift post peak, as volumes were support by robust growth in China. At year-end 2012, Europe shows the highest inter-regional liquidity of all regions at 0.8%. Within Europe, the UK is by far the most liquid market at 2.2% for overseas investors. This is well above the 0.2% in Asia Pacific and 0.4% in North America. This has been a consistent trend over the period. 1 Liquidity is defined as investment turnover as a percentage of invested stock

2 Inter-regional liquidity is investment from capital sources outside of the region as a percentage of invested stock

Figure 25

Global investment volumes by source of capital

10% 10% 9%

11% 9% 12%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Domestic Intra-Regional Inter-Regional

Source: DTZ Research, Propertydata, RCA, RealNet

Figure 26

Trends in regional and global liquidity ratios 2003-2012

0%

2%

4%

6%

8%

10%

Asia Pacific Europe North America

Global

10-y Max

10-y Average

2012

10-y Min


Figure 27

Regional total and inter-regional liquidity & stock size

AM 2012

APAC 2003

EU 2003

AM 2003

APAC 2012

APAC 2007

EU 2007

AM 2007

EU 2012

-0.1%

0.3%

0.7%

1.1%

1.5%

0.0% 2.5% 5.0% 7.5% 10.0%

Inte

r-re

gio

nal

liq

uid

ity

Total liquidity Source: DTZ Research

Global 2013


Relative Market Value

US currently ranks top across regions Based on our latest Fair Value Index

TM (FVI), more than two

thirds of our 201 covered markets are classified as very attractive (hot) (Figure 28). This is not really surprising, given that our classification is based on the difference between expected and required returns for each market. As highlighted above, lower bond yields and reduced investors’ risk aversion have brought down the required “hurdle” rate well below our forecasted market returns. In many Western markets, the prolonged lack of new development activity and a return to positive economic growth and space demand has also increased our expected returns. The net effect of these two trends is that all regions show many attractive. But, the US markets are most attractive across the three main regions.

Best relative value across global property in eight years When we look back at relative value historically, we note that the FVI score is highest since Q1 2005 (Figure 29). In fact, the global FVI score is currently at a new record high. It is not only up from 58 a year ago, but has recovered from the low point of 16 in 2008. Therefore, it has never been a better time to invest in commercial property. Investors have 136 attractive markets to choose from and only 15 unattractive markets to avoid. Good liquidity and stock size essential for new investors New generations of Asian investors continue to emerge onto the global investment market. But, as risk aversion recedes further, many European and American investors are also expected to return to a more active international diversification strategy in the coming years. For both new and returning investors in markets, we think that apart from the currently abundant relative value, good liquidity and stock size is essential. If you cannot buy (and later sell) into a market, relative value is immaterial. Based on this, the US, UK, Germany, China and Japan are especially attractive for international investors based on pricing and liquidity (Figure 30 and Map 1). Singapore and Sweden also look attractive from a liquidity perspective, but offer less attractive pricing.

Figure 28

Global and regional fair value index scores for Q1 2013

0%

20%

40%

60%

80%

100%

Europe Asia Pacific US Global

Cold Warm Hot

77 81 87 80


Figure 29

Evolution of Global fair value index scores Q1

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Cold Warm Hot

58 16 80


Figure 30

Stock size, long term liquidity and relative value

Ove

rpri

ced

Un

de

rpri

ced

Low liquidity

UKUS

SE

SG

JP

CN

FR

IR

ES

IT

DEAU

High liquidity

$500 bn

$250 bn

$100 bn Europe

Asia Pacific

USA

Stock Region


Global 2013


Map 1

Market liquidity versus fair value scores


Global 2013


Global 2013


Definitions Invested stock refers to the value of investment grade commercial real estate held by different investor groups.

The total value of the real estate capital market is defined as the total volume of commercial real estate debt outstanding plus the total value of equity in commercial real estate holdings.

Private debt refers to the total outstanding loan value to the real estate sector that is not held in the form of listed financial securities. Loans granted and subsequently securitised prior to maturity are not included in this data. Private debt relates to the activity of all participants involved in the provision of commercial real estate loans including institutional lenders, commercial bank lending and insurance companies.

Public debt refers to the total outstanding loan value to the real estate sector held in the form of listed financial securities, i.e. property company corporate bonds, covered bonds with commercial property as collateral and commercial mortgage backed securities (CMBS).

Private equity refers to the equity proportion of the commercial real estate holdings of insurance companies, pension funds, private property companies, high net worth individuals and unlisted property vehicles. The debt proportion has been stripped out by applying a different gearing ratio for each investor group.

Public equity refers to the equity proportion of the commercial real estate holdings of listed property companies, REITs and other listed property vehicles. The debt proportion has been stripped out by applying a different gearing ratio for each investor group.

Gearing (or LTV) ratio is defined as debt/(debt+equity). The various investor groups have different gearing levels based on their risk profile, investment strategy, as well as their capital sources.

Money into Property methodology Private debt allocation In order to capture the value of commercial real estate loans issued by domestic banks to fund

cross-border investment and likewise by foreign banks to fund domestic property investment, private debt is allocated based on the pattern of cross-border investment transactions.

Cross-border allocation in invested stock

The value of the commercial real estate held by different investor groups is allocated based on the location of the property rather than the origin of investor.

Currency conversions Invested stock and its components are converted by using the average quarterly exchange rate for each year under review.

Transaction volumes Transaction volumes represent the buying and selling of property and are independent of stock. For example there

can be a lot of transactions, but if price does not change and the property is already in the invested stock figures then there will be no change in invested stock. The only change is the owner of the property, which could trigger a change in quadrant (say public to private). Higher transaction volumes do indicate interest in the market, they tend to imply more development activity or capital values are rising.

Global 2013


Fair value methodology The DTZ Fair Value Index

TM was launched in August 2010 and has now been rolled out for all 201 markets covered by DTZ

forecasts. Fair value is the value at which an investor is indifferent between a risk free return and the expected return from holding property, taking into account the extra risk of investing in the property asset class. When the property price is at fair value, an investor is being adequately compensated for the risk taken in choosing to purchase real estate; similarly, when the property price is below the fair value price, an investor is being more than compensated for the risk taken in choosing to purchase real estate. When buying at or below fair value, an investor does not necessarily buy at the bottom of the market. Our fair value analysis focuses on prime assets and a five-year investment horizon, and hold for the market overall; individual transactions may provide opportunities and risks beyond the average market view. For more information see the note DTZ Fair Value Estimates – Methodology and Examples at www.dtz.com

http://www.dtz.com/

Global 2013


Other DTZ Research Reports Other research reports can be downloaded from www.dtz.com/research. These include:

Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices Obligations of Occupation Americas Obligations of Occupation Asia Pacific Obligations of Occupation EMEA Office Occupier Review Asia Pacific Office Occupier Review Europe The TMT Sector - October 2012 The European Insurance Sector - June 2012

Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian.

Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden and the UK.

Money into Property For nearly 40 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe, North America and UK.

Foresight & Outlook Quarterly commentary, analysis and insight into our in-house data forecasts, including the DTZ Fair Value Index™. Available for the following regions: Global, Asia Pacific, Europe and in the UK. In addition, we have been publishing our Annual Global Outlook report for the last three years. This report provides a concise market outlook for the year ahead and is presented to key client audiences around the globe.

Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. China Healthcare – April 2013 European Sustainability Guide – April 2013 Great Wall of Money – March 2013 European Retail Guide - Shopping Centres – March 2013 China Property Market Sentiment Survey - January 2013 India Special Economic Zones - December 2012 Singapore Executive Condominiums - December 2012 UK Secondary market pricing - December 2012 Singapore office demand - December 2012 China Ecommerce & Logistics - November 2012 Net Debt Funding Gap - November 2012 German Open Ended Funds - October 2012

DTZ Research Data Services

The following data is available for subscription. Please contact [email protected] for more information.

Property Market Indicators Time series of commercial property market data in Asia Pacific and Europe.

Real Estate Forecasts, including the DTZ Fair Value Index

TM

Five-year rolling forecasts of over 200 commercial property markets in Asia Pacific, Europe and the USA.

Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe.

Money into Property Data covering capital flows, size, structure, ownership, developments and findings of annual investor and lender surveys.

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DTZ Research Contacts

Global Head of Research

Hans Vrensen

Phone: +44 (0)20 3296 2159

Email: [email protected]

Head of Strategy Research

Nigel Almond

Phone: +44 (0)20 3296 2328


Head of Global Forecasting

Fergus Hicks

Phone: +44 (0)20 3296 2307


Head of Asia Pacific Forecasting

Kate Barrow

Phone: +852 2250 8864


Head of Research Information Management

Graham Bruty

Phone: +44 (0)20 3296 2297


Head of CEMEA Research

Magali Marton

Phone: +33 1 49 64 49 54


Head of UK Research

Ben Burston

Phone: +44 (0)20 3296 2296


Head of SEA & ANZ Research

Dominic Brown

Phone: +61 (0)2 8243 9999


Head of Americas Research

John Wickes

Phone: +1 312 424 8087


DISCLAIMER

This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ.

© DTZ May 2013

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