UK and Global Real Estate Trends – Opportunities for 2011/2012 20 September 2011, London

1. UK and Global Real Estate Trends – Opportunities for 2011/201220 September 2011, London

2. European Real Estate Outlook Peter Damesick EMEA Chief Economist, CBRE 20 September 2011

3. Agenda Global context Economic background Occupier market trends Capital flows in European real estate Performance and pricing Prospects

4. A world of differences GDP per person, % change Q2 2007 to Q2 2011 Source: Macrobond

5. CBRE Global Office Capital Value Index Asian values almost at previous peak, EMEA lagging Source: CBRE Research as of Q2 2011

6. Economic Divergence in Europe GDP, Q1 2008 = 100 Source:, Eurostat

7. Government debt to GDP ratio Source: IMF % of GDP

8. Trends in Unit Labour Costs Uncompetitive economies in European periphery a key structural issue Index (Q1 2000 = 100) Source: Macrobond, OECD

9. CBRE Global Office Rent Index Index (Q1 2001 = 100) Source: CBRE Research as of Q2 2011.

10. European Office Take-Up 28 Western European markets, 10 CEE markets Source: CB Richard Ellis 6 Month Rolling Totals (000’s Sq M) % of Stock

11. CBRE EU-27 Prime Office Rent Index Source: CB Richard Ellis Change per Annum (%) Index

12. Prime Office Rents: Recovery Progress Changes in rents: peak-to-trough and trough to Q2 2011 Source: CB Richard Ellis Change in Prime Rent (%)

13. Office Development Completions as % Total Stock Western Europe vs. CEE Source CB Richard Ellis % of Total Stock

14. Office Supply Pipeline Source: CB Richard Ellis % of Total Stock Vacant office space plus developments scheduled for completion by end of 2013

15. Shopping centre development pipeline, Q1 2011 Source: CB Richard Ellis Sq m per 1,000 population Schemes of 20,000 sq m or more * Data is for Moscow and St. Petersburg only

16. European retailer expansion plans Source: CB Richard Ellis Proportion of sampled (203) retailers targeting country

17. CB Richard Ellis EU-27 Prime Retail Rent Index Source: CB Richard Ellis Change per Annum (%) Index

18. Global Real Estate Investment Sales * *Commercial real estate only Source: Real Capital Analytics Billion US$

19. Real estate investment in Europe Source: CB Richard Ellis, Property Data, KTI Million €

20. Cross-region capital flows into Europe, 2010-H1 11 Non-European buyers invested €24 billion in Europe in 2010-H1 2011 North America € 13.1 bn Asia € 5.0 bn Middle East €4.2 bn Australia € 0.9 bn Source: CB Richard Ellis, PropertyData, KTI

21. Investment volumes by country Growth in German and CEE in H1 2011 Source: CB Richard Ellis, Property Data, KTI Billion €

22. Retail property investment in Europe Source: CB Richard Ellis Billion € %

23. Retail investment by country/region Source: CB Richard Ellis, Property Data, KTI Billion €

24. CB Richard Ellis EU-15 prime yield index Source: CB Richard Ellis Weighted average prime yield

25. European Property Value Indices Q4 2007 = 100 Source: CB Richard Ellis, European Valuation Monitor

26. European Property Value Indices Q4 2007 = 100 Source: CB Richard Ellis. European Valuation Monitor

27. ‘Prime’ versus ‘Average’ Office Capital Values Source: CB Richard Ellis Index June 2009 = 100 Average values taken from European Valuation Monitor

28. Average prime property yield minus 10-year govt bond Source: CB Richard Ellis, Macrobond Percentage points Yield gap evolution

29. Renewed Anxieties Downgrade of growth expectations Eurozone debt threatening banking stability Loss of faith in policy-makers Capacity for action – what tools left? Political divisions and obstacles Fall in business and consumer confidence Rise in investment risk aversion

30. Eurozone GDP Growth Alternative forecasts Source: Oxford Economics Real GDP Growth (%) Forecasts

31. “Muddling through” Euro debt crisis contained, but with recurrent stress points Fiscal austerity curbs growth Monetary policy stimulus maintained Deleveraging continues Consumers under pressure Gradual pick-up in business investment Overall slow growth with wide divergences in country performance

32. European Real Estate: Outlook Summary Slow growth environment Subdued occupier demand – cost-sensitive Rental growth limited - mainly prime space where in short supply Development restrained Debt market constraints Major refinancing needs Banks more active in managing loans Limited new lending – low risk Investor bias to larger, liquid markets Continued polarisation between prime and secondary Prime properties stable/improving with competition for core stock Good secondary in stronger markets - opportunity Concern for poorer secondary/tertiary stock – yields to soften further

34. China Matters: What are the real estate opportunities? Real Estate Breakfast Seminar London, September 2011 Amy L. Sommers, Partner K&L Gates - Shanghai

35. Topics: • 2025: Planning for China’s built environment • Urban planning 2001 to 2011: Xintiandi as a case study • Gov’t policy aims and concerns: where the next opportunities may lie

36. First, some context…

37. China by 2025…

38. Past Decade: Urban re-development has been a key driver Improving housing stock Upgrading lifestyle from socialist, planned housing to market-driven, invested-oriented housing Next Decade: Widening to Tier 2 and 3 cities Linking cities/regions through infrastructure (transport/energy) Demographically-driven opportunities Real Estate Development in China

39. Red China …or Grey? • “China’s demographic challenges are captured neatly in the popular saying that the country “will grow old before it grows rich.” China will start going grey some time this decade, and the process will accelerate after 2020. • “ By 2030, China is projected to have more than 300 million citizens beyond retirement age. This will present what the Chinese call a “4-2-1” problem: a single child with two parents and four grandparents to care for. • “Given the significant burdens this will impose, the government is already looking at ways to better fund healthcare. Beijing allocated $124 billion last year for healthcare reform, aiming for basic universal health coverage in the coming years.” • Source: http://docs.eurasiagroup.net/chinaoutlook.pdf

40. Past Decade - Urban Redevelopment: Re-imagining Old Shanghai - Xintiandi

41. Xintiandi - completed 2001 • Lifestyle project in central Shanghai • Based on re-imagined use of vernacular structures

42. Xintiandi site in 1998 • At the time many considered China too poor/unsophisticated - project was doomed to fail or to attract only expatriates

43. Xintiandi - 10th Anniversary Huge success - in 5 yrs will double to 1.2M SQM Lesson: Predicting what will be popular in China is a mystery…

44. Demographics & policy: key drivers in China’s real estate sector

45. Improvement of services at grass-roots level: including support for the development of 2000 county-level hospitals; construction or expansion of 3700 urban community health care centers and 11,000 community heath care stations within three years. China’s Healthcare Aims - an example of how policy can drive development…

46. Opportunities & Pressures • Obviously, these forecasts for urbanization spell potential opportunities for all sorts of stakeholders, such as: • makers of transit system equipment • architects/designers/engineering services, building/construction material providers • suppliers of energy and energy infrastructure • health care/aged care

47. China’s 12th Five-Year Plan • Proposed by the Chinese Communist Party’s Central Committee in 10/10, adopted by National People’s Congress in 3/11 • 7 “Strategic Emerging Industries” have been identified and are focused on health care, energy, technology sectors • Focus is on ‘inclusive growth’ of the economy, which will take the form of social benefits (health care), improved living standards (environmental concerns such as clean energy), and value-added industries (growth in R&D facilities)

48. Implications for the built environment • Implementation of the aims articulated in the 12th FYP will involve development of China’s built environment, e.g.: • construction of hospital facilities • Water treatment facilities, power transmission systems, development of energy-efficient buildings • R&D activities in IT and other areas will require suitable facilities and these users will require housing/amenities for associated workers Source:http://apcoworldwideinc.com/Content/PDFs/Chinas_12th_Five-Year_Plan.pdf

49. Opportunities & Pressures • What about pressures? • Power generation: 700 - 900 gigawatts of new coal-fired power capacity will be constructed from 2005-2025 • Arable land supply is diminishing – worst case, 20% decline • Inadequate supplies of potable water – today, 59% of China’s river water is below international standards for potability Concerns re overheating of real property sector mean that whether foreign-invested real estate projects will obtain needed approvals will be driven in part by whether their organization’s projects/services will (a) help address or redress these pressures or (b) to achieve FYP goals

50. Contradictions betw/ national & local govts abound: Nat’l govt banned construction of new golf courses in ‘04 June 20: People’s Daily reported over 400 golf courses have been constructed since 2004 How? Often by registration as sports parks, recreational parks and forestation areas "Some local governments have undertaken such programs in an effort to to boost their economies. So they register the clubs under different classifications, and the local government turns a blind eye on farmland and forest acquisition.”* *Yan Jinming, vice-president of the School for Public Administration at Renmin University Opportunities & Pressures (cont)