Real estate: which way forward? Funding, lending, spending Nabarro 2011 Conference Wednesday 12 October 2011

1. Real estate:which way forward? Funding, lending, spending Nabarro 2011 Conference Wednesday 12 October 2011

2. Are We On Track? The Economic Outlook Ian Whittock, Chief Investment Officer

3. GDP Growth The Economic Outlook • Economists expect the UK to be locked into a period of low economic growth. • This should be reflected in low profits and rental growth. • Investors should anticipate a lower investment return environment.

4. RPI vs 10 Year Bond Yields The Economic Outlook • Policy decisions are interfering with normal market dynamics.

5. More QE? The Economic Outlook • If the BoE chooses to offer more stimulus it will be through QE. • QE means that asset sellers will have more money that they can spend or use to buy other assets. • This pushes up their price, making owners better off…which boosts spending. 9 March 2009 - BoE starts Q.E. July 2007 = 100

6. Eurozone Break Up – The Big Risk The Economic Outlook • If Greece alone were to leave, it would suffer the most, but others would not be immune. • Under a total break up, output could fall by 10%+ in the first two years… • …the losses, just to Germany, would dwarf the effects of the Lehman Brothers bankruptcy. Source: ING Financial Markets.

7. Investment Yields The Property Outlook • Investors require a premium yield from property to reflect its illiquidity. • The risks in the investment market are probably greater for the other asset classes. • Investors who don’t require liquidity are well rewarded. UK INVESTMENT YIELDS (AS AT OCTOBER 2011) 6.5 6.0 5.5 5.0 4.5 4.0 3.5 (Yield % per annum) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 IPD All-Property Cost of Borrowing FT All Share Gilts 10 yrs Source: IPD, DataStream

8. Rental Growth The Property Outlook • Rental values have stabilised and are close to the beginning of the next rental cycle. • This is a low risk point in the cycle. • But we don’t expect any significant growth for at least three years.

9. Prime Secondary Property Yields The Property Outlook • It is widely recognised that secondary property is overly discounted relative to prime on a long term basis. • The timing of the narrowing of the discount is impossible to discern. • But over the long term the gap should narrow. UK PRIME PROPERTY -v- SECONDARY YIELDS 11 45 40 10 35 9 30 8 25 (yield, %) (Secondary Discount, %) 20 7 15 6 10 5 5 4 0 Mar 04 Mar 05 Mar 06 Mar 10 Mar 11 Mar 07 Mar 08 Mar 09 Sep 03 Sep 04 Sep 05 Sep 06 Sep 10 Sep 11 Sep 09 Sep 07 Sep 08 Prime Secondary Source: CBRE, IPD, ING REIM

10. The Big Picture Conclusions • 1 x 3 = 3 • 2 x 3 = 6 • 3 x 3 = 9 • 4 x 3 = 12 • 5 x 3 = 16 • 6 x 3 = 18

11. Important Information ING Real Estate • This presentation has been prepared by ING Real Estate Investment Management (UK) Limited solely for the use of the addressee. • This document has been approved by ING Real Estate Investment Management (UK Funds) Limited (“ING REIMF)”) authorised and regulated by The Financial Services Authority. It may only be issued or passed on in the United Kingdom to persons falling within Articles 14 and 22 of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001. It must not be copied or distributed by any recipient without ING REIM (UK) prior written consent. The distribution of this document in jurisdictions other than the United Kingdom may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe any, such restrictions. • This document, any presentation made in conjunction herewith and any accompanying materials are tentative and are subject to verification, updating, revision and amendment. In particular, the information contained in this document is based on current market statistics and conditions and is subject to updating, revision and amendment. No representations or warranties, express or implied, are given by ING REIM (UK) as to the fairness, accuracy or completeness of the information or opinions contained in this document, any presentation made in conjunction herewith or the accompanying materials and none of such persons or the directors, Partners, officers, employees, agents or advisers of any of them accepts any liability in respect thereof. • Any comments with regard to taxation contained in this document, any presentation made in conjunction herewith or the accompanying materials are based on ING REIM (UK)’s understanding of the current position and may change. Taxation levels and bases can change and the availability of tax savings and reliefs will depend on the investor’s individual circumstances. Prospective investors should rely on their own tax advice. • No reliance may be placed in the information in this document, any presentation made in conjunction herewith or any accompanying materials when applying for partnership interests. • This document does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to purchase or subscribe for any securities nor shall it or any part of it for the basis of, or be relied upon in connection with, any contract or commitment whatsoever. • ING Real Estate Investment Management (UK) Limited • Registered office: 1st Floor, 60 London Wall, London, EC2M 5TQ

12. Rocky road or plain sailing? UK real estate market outlook John Forrester Head of London Markets Group CEO DTZ 12 October 2011

13. Scene setting External drivers of capital flows Fair Value – where to spend it Contagion – scenario planning

14. Central London employment trends

15. Financial and insurance employment in Central London

16. External Drivers of Capital

17. UK bond yields falls to lows last seen during the Boer War Five year bond yield: UK Source: Bloomberg

18. External drivers of capital • Favourable position, particularly for Asian and US based investors Recent changes in sterling against the major reserve currencies

19. External drivers of capital • Finance rates and 10 year gilt yield • Significant lowering of the risk-free rate

20. External drivers of capital • Heightened volatility in the equities market • Investors nervous about visible volatility Aug/Sep Familiarity stable First to recover Why London Transparent Liquidity Growth in City prime capital value v FTSE100 index

21. Current dynamics : weight of money chasing prime assets • Central London investment transactions • Very sharp rebound in the appetite for Central London real estate • Momentum maintained

22. Current dynamics : weight of money chasing prime assets • Central London investment by purchaser nationality • Diverse and representative of many international geographies

23. Current dynamics : weight of money chasing prime assets • Central London investments by lot size • Lot size tolerance increasing as global equity sources become more ambitious and comfortable with the risks

24. Current dynamics : weight of money chasing prime assets • Central London prime yields • Yields now comparable with end 2005 • The drivers today are different

25. Beginning of outward yield movements in the UK regions UK office yields Source: DTZ Research

26. Historical and forecast of global investment volumes, 2005-2011 Global volumes to remain buoyant in 2011 42% Source: DTZ Research, Reis Services LLC, Property Data

27. UK investment transactions, 1997-2011 Investment activity in the UK to grow further 1997-2010 average Source: DTZ Research, Property Data

28. Investors’ and Lenders’ survey - views on non-prime markets Non–prime markets next in line for the work-out Investors ability to source non-prime deals Lenders progress in dealing with distressed debt Already finished Hard Easy Well underway Not yet started Normal Source: DTZ Research

29. Where to spend it

30. DTZ Fair Value Index™ Q2 2011 Europe and UK results 25 August 2011

31. The DTZ Fair Value Index™ ranges between 0 and 100 Index Value 15 25 50 75 85 • 100: all markets are HOT • 50: broadly, markets are WARM • 0: all markets are COLD

32. UK market warms supported by offices UK all-property and office ratings for Q1 2011 Source: DTZ Research

33. Majority of markets well priced Source: DTZ Research

34. Ranking of prominent UK and European markets Source: DTZ Research

35. Core office markets more expensive globally as yields tighten, but there remain several attractive markets Ranking of prominent global office markets Source: DTZ Research

36. UK DTZ Fair Value Index™ London remains attractive, many regional prime markets COLD Manchester industrial HOT Birmingham industrial Cardiff offices Edinburgh offices London City offices London West End offices London West End retail WARM Birmingham offices Bristol offices Glasgow retail Heathrow industrial Leeds offices Manchester offices COLD Source: DTZ Research

37. Contagion - DTZ Research scenario forecasts • DTZ Research is developing scenario forecast capabilities; • In late October we will release a report assessing how a debt default in peripheral Eurozone countries might impact on European office markets; • Such a scenario would drag most of Europe back into recession, the UK included; • Preliminary results suggest UK and Nordic markets could provide safe havens for investors, while eurozone markets (core and periphery) would suffer from rental declines.

38. Blow-up of eurozone crisis could push UK back into recession UK GDP %y/y 2011-15 Source: Oxford Economics, DTZ Research

39. Occupier demand and office rents would be hit hard UK office rents, 2011-15 %pa 2011-15 Source: DTZ Research

40. Impact on rents would be greatest in Eurozone markets Office rental growth, 2011-15 %pa Source: DTZ Research

41. But interest rates being held at record low could push yields down London City office yield and UK 10 year bond yield % Source: DTZ Research, Oxford Economics

42. Rocky road or plain sailing? UK real estate market outlook John Forrester Head of London Markets Group CEO DTZ 12 October 2011

43. Real estate:which way forward? Funding, lending, spending Nabarro 2011 Conference Wednesday 12 October 2011