Property Market Recovery: Myth or Reality?

1. Welcome…….. Myth or Reality ? Is the property market really in recovery and, if so, what is it going to look like ?

2. Your starter for ten…….. • Steve Mallen • Principal, Steve Mallen Consulting • Catz, 1984, Geography • Robert Peto • Chairman, DTZ Investment Management • Corpus, 1968, Economics/Land Economy • Clive Bush • Co-Founder, Exemplar Properties • Johns, 1987, Economics/Land Economy • Michael Brodtman • Head of Valuation & Advisory, CBRE • Magdalene, 1978, Economics/Land Economy • Mike Bryant • Head of Asset Management (Europe), GE Capital Real Estate • Queens, 1985, Geography/Land Economy

3. Agenda……...

5. 2013………From this……

6. ……to this……Things are looking up…

7. Time to Brainstorm……. Steve Mallen

8. Real UK GDP (1980 – 2017) 30 yr Average (1980-2010) = 2.19% Forecast % Recovery Resumes Source: HM Treasury Steve Mallen

9. Quarterly UK GDP (2007 to 2013) % Source: Bank of England Steve Mallen

10. Profile of UK Recession & Recovery GDP Change from Peak Economy is still smaller than it was Source: NIESR Steve Mallen

11. UK Construction Sector GDP(2006 – 2013) % Source: ONS Steve Mallen

12. Construction Sector Confidence(2004-2013)

13. Economic Growth Components(Q1 2011 to Q3 2013) % Source: ONS Steve Mallen

14. Euro-Zone GDP (1999 to 2013) % Source: Capital Economics

17. UK Commercial Property – Capital Growth(1971 to 2012) % Source: IPD

18. UK Commercial Property – Capital Growth (June 2009 – October 2013) % Source: IPD

19. UK Commercial Total Return Forecasts % Source: IPF Steve Mallen

20. UK Property & Gilt Yield Spread (2001 to 2016) % Source: IPD, Datastream, Henderson Global Investors

21. Euro-Zone Property & Gilt Yield Spread (1996 to 2016) % Source: Capital Economics

22. Cambridge – Office Availability(2008 – 2013) Grade A Grade B/C Steve Mallen

23. UK Gross Mortgage Lending £ billion Source: CML

24. Planning for Growth………

25. New Private Housing Construction Output(2000 – 2013) £ million Q1 2008 Q2 2013 Source: ONS

26. Net Additional Dwellings: England(2000/1 to 2012/13) Current Annual Need Source: DCLG Steve Mallen

27. Market Trends 2013 Robert Peto MA FRICS – Chairman, DTZ Investment Management PRIVATE & CONFIDENTIAL www.dtz.com

28. Key Trends & Issues TRENDS • Improving Economic environment • Weight of money – Yield Advantage, Safe Haven, Pension Auto enrolment. • Secondary Property Yield Compression • Loosening of debt scarcity • London v. Regions • Government Policy support for demand side on Residential ISSUES • Interest Rates – purchase yields and “trailing yields” – Fair Value • Inflation/deflation • The wrong type of inflation – Excessive real Wage Growth • Economic Fragility and impact on Occupier Demand • “Events, Dear Boy, Events!” • London v. Regions • Property Supply Side – Capacity and Pricing OUTCOME • ?

29. Impact of Rising Yields on Fair Values

30. Downward trend in Inflation Inflation – 3 month annualised Source: ONS, DTZ IM, BOE

31. Is Deflation a possibility? Monthly change in inflation Source: ONS, BOE

32. Consumer balance sheets are still weighed down by high levels of household debt, meaning any interest rate hikes will have a big impact on households ability to spend % of mortgage debt that would be unaffordable with a rise in interest rates % Household debt as a % of income • Consumer Sector: Household debt Household debt as a % of income Source: PMA, ONS, BOE

33. GDP growth of 0.8% represented the strongest growth rate in 3 years. There are concerns that the UK economy still remains heavily reliant on the consumer and housing market. Output indices Q1 2008=100: Source: FT

34. Services output fell by c.4% in the UK in 2009 and has now recovered to pre-crisis levels in London and the South East. UK Services Output Forecast Source: Oxford Economics, DTZ IM

35. New supply pipelines across all sectors of the UK property market remain subdued, promising improving supply and demand fundamentals Office Pipeline Retail Pipeline New office supply as a % of total stock Town Centre Retail completions (millions sq ft) Source: PMA Source: DTZ Research Industrial pipeline Town Centre & Shopping Centre completions (millions sq ft) Industrial completions (millions sq ft) Source: PMA Source: PMA

36. UK Construction output – Private & Public Coalition Government Brownomics: “Building Britain’s Future” Housing investment to treble to £2.1bn Austerity & Double-dip Help to Buy & Government guarantee & improving economy Source: ONS

37. Construction employment in the UK has fallen by 13% since 2008 UK Construction employment 2008 = 100 Forecast 2.3m 2m Source: Oxford Economics, DTZ IM

38. Property Yields v. Gilts, Swaps & Dividends Where next?

40. CLIVE BUSH Exemplar Properties Cambridge university land SOCIETY

41. Central London Development Outlook • Prime London Residential vs Offices • Construction Market Cambridge university land SOCIETY

42. Cambridge university land SOCIETY Livex Fine Wine 100 Source: Liv-ex Fine Wine 100 Component wines and vintages

43. Cambridge university land SOCIETY Central London Residential and Office Capital Values Source - CBRE

44. Cambridge university land SOCIETY Capital Value Differentials – Residential vs Office (£ per sqft) Source - CBRE

45. Cambridge university land SOCIETY Construction Risk

46. Cambridge university land SOCIETY London Construction Prices Source – EC Harris

47. CULS MARKET TRENDS SEMINAR • Michael Brodtman Head of Valuation & Advisory Thursday 21st November 2013

48. UK All Property Rental and Capital Value Growth CBRE Monthly Index rebased to Dec - 99 Index Source: CBRE Monthly Index

49. UK AVERAGE PRIME YIELDS % Source: CBRE Prime Rent and Yield Index

50. UK Prime vs Secondary All Property Yield Excluding Central London Spread (%) Yield (%) Source: CBRE