THE CHANGING REAL ESTATE MARKET TRANSPARENCY IN

THE EUROPEAN REAL ESTATE MARKETS

PROFESSOR GRAEME NEWELL

University of Western Sydney(g.newell@uws.edu.au)

June 2015

• Significance of real estate transparency

• Focus: Europe

• JLL Real Estate Transparency Index

• Transparency analysis- JLL - WEF - TI

• Are European real estate markets becoming more transparent ???

• Real estate investment implications

PURPOSE OF PAPER

GLOBAL INVESTABLE UNIVERSE OF REAL ESTATE

Source: CBRE (2011)

PLAYERS IN THE GLOBAL REAL ESTATE INVESTMENT LANDSCAPE

Local International

REITs/PCs Unlisted RE funds

Private equity funds Pension funds

Sovereign wealth funds

Insurance companies

High wealth individuals

• Brookfield : #1

• CBRE Global Investors : #2

• Blackstone : #3

• TIAA Henderson : #4

• AXA : #5

• UBS : #6

• LaSalle : #10

• Credit Suisse : #12

• Deutsche : #14

• M & G : #16

• APG : #17

MAJOR REAL ESTATE INVESTMENT MANAGERS

CONTEXT: EUROPEAN REAL ESTATE MARKET TRANSPARENCY

• Increased REITs

• Increased regulations

• Increased players @ RE

• Increased RE information, data

• Increased RE services

• Increased RE market sophistication

• Impact on European RE transparency???

PREVIOUS TRANSPARENCY RESEARCH : MARKETS

• Newell : PRPRJ : 2008

• Chin et. al : JREPM : 2006

• Brounen et. al : JREPM : 2007

• Lieser and Groh : JREPM : 2011

• Various market “maturity” papers;e.g: Keogh and D’Arcy; Ke and Sieracki

PREVIOUS TRANSPARENCY

RESEARCH : LISTED• Eichholtz et. al: JREFE: 2011

• Newell and Lee: JPIF: 2012

• An et. al: REE: 2011

• Lecomte and Ooi: JREFE: 2013

• Issues: Corporate governance, disclosure

• Established 1999

• 2014 = 8th edition; each 2 years

• 102 markets assessed; tiers; growth

• Levels of transparency (5)- Highly transparent (9) -Transparent (19)

- Semi-transparent (33) - Low transparency (21)

- Opaque (20)

• Real estate transparency index: scored 1.0 – 5.0- 1.0 = high transparency

- 5.0 = low transparency

JLL REAL ESTATE TRANSPARENCY INDEX

• 5 transparency sub-indices: contributions- Performance measurement : 25%

- Market fundamentals : 20%

- Governance of listed vehicles : 10%

- Regulatory and legal : 30%

- Transaction process : 15%

• 13 transparency topics

• 115 transparency measures- Quantitative (56) - Qualitative (59)

- Market data, survey information

JLL REAL ESTATE TRANSPARENCY INDEX

• Developed (21) ; Emerging (81)

• Americas (20) ; Europe (33) ; Asia-Pacific (21) ;

Middle East/ North Africa (16) ; Sub-Sahara Africa (12)

JLL REAL ESTATE TRANSPARENCY INDEX

TRANSPARENCY SUB-INDICES

REAL ESTATE TRANSPARENCY MAP

GLOBAL REAL ESTATE TRANSPARENCY INDEX: 2014

TRANSPARENCY LEVELS : 2014

Level # %

High transparency

9 8.8%

Transparent 19 18.6%

Semi-transparent

33 32.4%

Low transparency

21 20.6%

Opaque 20 19.6%

Total 102

#1 : UK : 1.25

#2 : US : 1.34

#3 : Australia : 1.36

#4 : New Zealand : 1.44

#5 : France : 1.52

#6 : Canada : 1.52

#7 : Netherlands : 1.57

#8 : Ireland : 1.62

#9 : Finland : 1.69

HIGHLY TRANSPARENT REAL ESTATE MARKETS

#93 : Pakistan : 4.25

#94 : Belarus : 4.29

#95 : Angola : 4.36

#96 : Honduras : 4.41

#97 : Iraq : 4.45

#98 : Ethiopia : 4.46

#99 : Mongolia : 4.47

#100 : Myanmar : 4.48

#101 : Senegal : 4.52

#102 : Libya : 4.63

OPAQUE REAL ESTATE MARKETS

• High transparency (5/9): UK (1), France (5), Netherlands (7), Ireland (8), Finland (9)

• Transparent (13/19): Switzerland (10), Sweden (11), Germany (12), Belgium (15), Denmark (16), Poland (17), Spain (18), Norway (19), Austria (21), Italy (22), Portugal (23), Czech Republic (24), Hungary (25)

• Semi-transparent (8/33): Romania (30), Israel (31), Slovakia (32), Greece (33), Turkey (34), Russia – Tier 1 (37), Croatia (46), Russia – Tier 2 (59)

• Low transparency (5/21): Slovenia (62), Serbia (65), Bulgaria (66), Russia – Tier 3 (70), Ukraine (74)

• Opaque (2/20): Kazakhstan (84), Belarus (94)

EUROPEAN REAL ESTATE MARKET TRANSPARENCY: 2014

• High transparency : UK (1.25), France (1.52), Netherlands (1.57), Ireland (1.62), Finland (1.69)

• Transparent : Switzerland (1.73), Sweden (1.79), Germany (1.79), Belgium (1.92), Denmark (1.96), Poland (2.02), Spain (2.05), Norway (2.07), Austria (2.10), Italy (2.10), Portugal (2.18), Czech Republic (2.20), Hungary (2.21)

• Semi-transparent : Romania (2.56), Israel (2.63), Slovakia (2.66), Greece (2.71), Turkey (2.72), Russia – Tier 1 (2.82), Croatia (3.00), Russia – Tier 2 (3.37)

• Low transparency : Slovenia (3.47), Serbia (3.55), Bulgaria (3.55), Russia – Tier 3 (3.63), Ukraine (3.71)

• Opaque : Kazakhstan (3.98), Belarus (4.29)

EUROPEAN REAL ESTATE MARKET TRANSPARENCY: 2014

TRANSPARENCY LEVELS: 2014

Category Average transparency

Transparency levels

High transparency(1.00 - 1.70)

1.48 1.25 – 1.69

Transparent(1.71 – 2.45)

2.04 1.73 – 2.44

Semi-transparent(2.46 – 3.46)

3.00 2.55 – 3.44

Low transparency(3.47 – 3.97)

3.69 3.47 – 3.97

Opaque(3.98 – 5.00)

4.27 3.98 – 4.63

TRANSPARENCY ANALYSIS: 2014Category Average transparency

All 3.08

Developed 1.75

Emerging 3.42

Americas 3.35

Asia-Pacific 2.81

Europe 2.50

MENA 3.81

Sub-Sahara Africa 3.72

TRANSPARENCY ANALYSIS: 2014

CategoryAverage

transparencySpread

(Dev. vs Emerg.)

Asia-Pacific:DevelopedEmerging

1.743.14

1.40

Europe:DevelopedEmerging

1.803.01 1.21

AmericasDevelopedEmerging

1.433.56 2.13

#1 : Romania : 2.96 2.56

#2 : Portugal : 2.54 2.18

#3 : Ireland* : 1.96 1.62

#4 : Hungary : 2.53 2.21

#5 : Slovakia : 2.90 2.66

#6 : Serbia : 3.78 3.55

#6 : Belarus : 4.52 4.29

#8 : Israel : 2.85 2.63

#9 : Croatia : 3.16 3.00

#10: Belgium : 2.07 1.92

EUROPE TRANSPARENCY: TOP IMPROVERS: 2012 - 2014

* : improved real estate transparency level

#1 : Nigeria

#2 : Peru*

#2 : Colombia

#4 : Qatar*

#5 : Zambia

#6 : Ghana

#7 : Romania

#8 : Portugal

#9 : Jordan

#10 : Ireland*

* : improved real estate transparency level

GLOBAL TRANSPARENCY : TOP IMPROVERS: 2012 - 2014

#1 : Turkey*: 3.75 2.72

#2 : Croatia: 3.42 3.00

#3 : Romania: 2.92 2.56

#4 : Poland: 2.37 2.02

#5 : Hungary*: 2.50 2.21

#6 : Belarus: 4.53 4.29

#7 : Switzerland: 1.87 1.73

#8 : Czech Republic: 2.32 2.20

#9 : Greece: 2.79 2.71

#10 : Kazakhstan: 4.04 3.98

* : improved real estate transparency level

EUROPE TRANSPARENCY: TOP IMPROVERS: 2008 - 2014

#1 : Turkey*

#2 : China – Tier 3*

#3 : Vietnam

#4 : Indonesia*

#5 : China – Tier 2 *

#6 : China – Tier 1

#7 : Algeria

#8 : Taiwan

#9 : India – Tier 3*

#10 : Brazil*, India – Tier 2, India – Tier 1

* : improved real estate transparency level

GLOBAL TRANSPARENCY: TOP IMPROVERS: 2008 - 2014

#1 : Romania**: 4.71 2.56

#2 : Turkey**: 4.50 2.72

#3 : Poland*: 3.12 2.02

#4 : Russia – Tier 1* : 3.64 2.82

#5 : Czech Republic*: 2.88 2.20

#6 : Portugal*: 2.85 2.18

#6 : Hungary*: 2.88 2.21

#8 : Italy*: 2.73 2.10

#9 : Greece: 3.31 2.71

#10 : Israel: 3.21 2.63

*,** : improved real estate transparency level

EUROPE TRANSPARENCY: TOP IMPROVERS: 2004 - 2014

#1 : Romania**

#2 : Turkey**

#3 : Indonesia*

#4 : Brazil**

#5 : Abu Dhabi*

#6 : Poland*

#6 : Saudi Arabia*

#8 : India*

#9 : Vietnam*

#10 : Egypt*

#11 : China*

*,** : improved real estate transparency level

GLOBAL TRANSPARENCY: TOP IMPROVERS: 2004 - 2014

• 2012 vs 2014 : 96 markets

• Improved RE transparency- All (96) : 72%

- Asia-Pacific (19) : 79%

- Europe (33) : 73%

- Americas (20) : 55%

- MENA (15) : 73%

- Sub-Sahara Africa (9) : 89%

IS REAL ESTATE TRANSPARENCY IMPROVING ?

• 2004 vs 2014

• USE ALL JLL MARKETS EACH YEAR ? ………. NO

• “ALL YEARS” MARKETS ONLY : 49 markets- Asia-Pacific* : 14 - Europe* : 23

- Americas* : 8 - MENA : 3

- Sub-Sahara Africa : 1

IS REAL ESTATE TRANSPARENCY IMPROVING ?

IS REAL ESTATE TRANSPARENCY IMPROVING ?

Region 2004 2006 2008 2010 2012 2014

All 2.81 2.58 2.40 2.32 2.45 2.37

Asia-Pacific 2.89 2.69 2.66 2.61 2.51 2.43

Europe 2.34 2.26 2.00 1.85 2.14 2.05

Americas 3.06 2.83 2.75 2.73 2.83 2.76

Europe improving

• WEF Global Competitiveness Index- 148 countries

- Rated 1 to 7

• Transparency International Corruption Perception Index- 175 countries

- Rated 1 to 100

RELATED MEASURES

REAL ESTATE TRANSPARENCY AND CORRUPTION

Category R2

All 59.3%

Americas 44.9%

Asia-Pacific 68.9%

Europe 72.3%

MENA 74.0%

Sub-Sahara Africa 72.3%

• Significance of “over – achievers” and “under – achievers”

REAL ESTATE TRANSPARENCY AND GLOBAL COMPETITIVENESS

Category R2

All 64.0%

Americas 77.4%

Asia-Pacific 70.6%

Europe 54.8%

MENA 59.3%

Sub-Sahara Africa 22.1%

• Increased real estate transparency

• Europe

• Investor landscape

• Importance of real estate transparency for RE investors’ decision-making

• Future improvements in real estate transparency : 2016 (?)

- Switzerland ? - Sweden ? - Germany ?

- Romania? - Israel? - Slovakia ?

- Slovenia ? - Serbia ? - Bulgaria ?

REAL ESTATE INVESTMENT IMPLICATIONS

• Regional analyses : Asia – Pacific , Americas

• Transparency drivers : panel analysis

• JLL real estate environmental sustainability transparency index : analysis

- 2014 - 33 countries

FUTURE TRANSPARENCY RESEARCH

REAL ESTATE ENVIRONMENTAL SUSTAINABILITY TRANSPARENCY

INDEX 2014

Source: JLL (2014)

ACKNOWLEDGEMENT

• JLL