Transcript Islamic Real Estate Finance 2004 London, 29th June UK & European Markets Robin N Goodchild PhD FRICS Head of European Strategy.

Islamic Real Estate Finance 2004
London, 29th June
UK & European Markets
Robin N Goodchild PhD FRICS
Head of European Strategy
1
Agenda – Real Estate in UK, EuroZone and Central Europe

European Economy & Capital Markets

Offices

Retail

Warehouse

Investment Markets

Best Picks
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2
A Good 2004 But With Rising Risks

2004 set to see global economic growth
rise at its fastest level since boom of 2000

US elections means highly simulative fiscal
policy… for this year

Global growth further buoyed by Japan,
China and South East Asia

Eurozone remains depressed, strong euro
dampens prospects for export led recovery

Terrorism, oil prices, US hangover ~
anything to look forward to in 2005?

Stronger growth to resume 2006/7
Global Real GDP %
4
3
Forecast
2
Source: EIU
1
1997
2000
2003
2006
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3
The Europe and especially the EuroZone will Lag
GDP %
7.0
2003
2004
2005
6.0
5.0
4.0
3.0
2.0
1.0
0.0
US
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UK
Euro-Zone
Asia Pacific excl.
Japan
Japan
Source: EIU, March 2004
4
The Fringes Continue To Grow Faster
Poland
Ireland
Hungary
Czech Rep
Spain
UK
Sweden
Portugal
EU
France
Belgium
Italy
Core Europe are the laggards
Netherlands
Germany
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
GDP growth % per annum end 03 -08
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Source: PMA
Source: LaSalle Investment Management
5
Business Confidence Indicators Improving
Balance
Germany
20
Spain
France
Italy
Sweden
UK
10
0
-10
-20
-30
-40
1998
xxxxCxxx
1999
2000
2001
2002
2003
2004
Source: DataStream
6
Consumer Confidence Index – Moving Sideways
Balance
30
20
10
0
-10
-20
-30
-40
1998
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Germany
Spain
France
Italy
Sweden
UK
1999
2000
2001
2002
2003
Source: DataStream
7
UK House Price to Earnings Ratio – well into uncharted water
2003
1999
1995
1991
1987
1983
1979
1975
1971
1967
1963
3.64
Source: LaSalle Investment Management
xxxxCxxx
8
The Shape of the Recovery: The Economy

UK at heart of global recovery – key risk its housing market

Europe will take several years to get back to trend

In a low inflation world low cost providers will do well - the fringe

But there are still some sweet spots :
–
provision of modern space
: logistics, multi-anchored retail, big box
–
local 'monopolies'
: Brussels as EU capital (particularly CBD)
–
corporate sale and leaseback
: provincial markets - growth + yield
–
capacity constrained markets
bounce back in 2005/06
: Barcelona, Paris, Stockholm, Madrid?
xxxxCxxx
9
5 Year Swap Rate – 2002 to date
6
5.68
UK
EUROZONE
5.09
5
5.63
5.22
4.93
3.91
4
3.67
3
3.14
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Ap
r-0
4
Ja
n04
Oc
t-0
3
Ju
l-0
3
Ap
r-0
3
Ja
n03
Oc
t-0
2
Ju
l-0
2
Ap
r-0
2
Ja
n02
2
Source: Thomson DataStream
10
Office Markets
11
Summary of Q1 2004 : the Roller Coaster Reaches Bottom

Prime rents down just 0.4% in most Western markets

European vacancy rate has increased from 9.1% to 9.4%

JLL “showings” index has turned up in London

Office investment totalled at €36 billion, down by 17% on 2002. Cross-border deals
accounted for 50% of the market.
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12
Prime Office Rents Bottom, Incentives will Reduce Before Growth
Recovers
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Q1 2003
Q4 2003
Q1 2004
Pa
ris
M
i
Fr lan
an
St kfur
oc t
kh
ol
m
M
un
ic
h
M
Am adr
st i d
er
Ba dam
rc
e
Du lon
ss a
el
do
Br rf
us
se
W ls
ar
sa
w
Be
rli
Pr n
a
Bu gue
da
pe
st
Ly
on
Lo
nd
on
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
Source: Jones Lang LaSalle
13
Vacancy Rates Peaking
Q1 2003
20
Q4 2003
Q1 2004
15
10
5
0
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ris ilan f urt olm nich drid dam lona dorf sels saw erlin gue est yon End City
a
P
M ank kh
L st
u Ma ter rce sel rus
B Pra dap
ar
n
o
c
M
r
W
e
s
s
u
d
o
a
B
F St
B
W on
B Du
Am
n
L
do
n
Lo
Source: Jones Lang LaSalle
14
Pa
r
Lo is
nd
Br on
us
se
ls
M
ad
ri
M d
un
Fr ich
an
kf
ur
t
Be
St rli
oc n
k
Am hol
st m
er
Ba dam
rc
e
Du lon
ss a
el
do
W rf
ar
sa
w
Pr
ag
ue
M
Bu ilan
da
pe
st
Ly
on
Office Take-Up Trends : a Patchy Recovery
500
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Q1 2003
Q4 2003
Q1 2004
400
300
200
100
0
Source: Jones Lang LaSalle
15
Years to Absorb Office Space Coming Available in 2004/05
Years of Take-Up*
6
5
4
3
2
1
Pa
ris
on
Lo
nd
ad
rid
M
ru
ss
el
s
B
ub
lin
D
Fr
an
kf
ur
t
H
am
bu
rg
B
ar
ce
lo
na
un
ic
h
M
m
st
er
da
rf
m
el
do
A
D
us
s
B
er
lin
0
* Based on average gross take-up 1998/2003
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Source: LaSalle Investment Management
16
New Supply Set To Fall
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Source: PMA European Office Stock Completions - 18 largest markets
17
Jones Lang LaSalle Short Term Rental Cycle Q1 2004
Antwerp, Copenhagen
OFFICES
Moscow
Brussels
Note:
• This diagram illustrates where Jones Lang LaSalle
estimate each prime office market is within its
individual rental cycle as at end March 2004.
• Markets can move around the clock at different
speeds and directions.
• The diagram is a convenient method of comparing
the relative position of markets in their rental cycle.
• Their position is not necessarily representative of
investment or development market prospects.
• Their position refers to Prime Face Rental Values
Rental
growth
slowing
Rental
growth
accelerating
Lisbon
Rents
falling
Rents
bottoming
out
Frankfurt, Munich
Amsterdam, Düsseldorf
Dublin, Milan, Rome
Barcelona, Madrid
Paris, Berlin, Hamburg
Edinburgh, Lyon, Helsinki
Athens
Oslo, London, Luxembourg, Warsaw
Stockholm
Prague, Budapest
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18
Office Yields Still Resisting Upward Pressure but for how Long?
9
%
2000
2003
8
7
6
5
4
3
2
1
sb
o
Br n
us
se
ls
Pa
ris
Ma
d
Ba rid
rc
elo
na
Lo
nd
on
Mu
ni
ch
Be
Du rlin
ss
eld
or
f
Ro
m
Ha e
m
bu
rg
Mi
l
Fr an
an
kf
ur
t
Li
Ly
on
0
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Source: Jones Lang LaSalle
19
Retail Markets
20
Cross Border Investment in European Shopping Centres
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21
High Street Retail Yields Are Falling Except in Germany – is Value
Emerging in German Retail?
%
12
10
2000
2003
except in Germany
8
6
4
2
W
ar
sa
Pr w
ag
ue
L
Br yon
us
se
lls
B
Du erl
ss in
eld
Ha or
m f
b
Fr urg
an
kf
u
Mu rt
Am n
st ich
e
St rda
oc m
kh
ol
m
Pa
r
Ma is
Ba dri
rc d
elo
Lo na
nd
on
Mi
la
Du n
bl
in
0
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Source: Jones Lang LaSalle
22
Development Activity Strong in Southern Europe
SC completions 2004
By size band (m²)
40 k
10 to 40 k
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Source: PMA
23
Retail Provision: Still Below Par
Spain
Italy
Madrid
Pescara
Valencia
Torino
Alicante
Milano
Euro Average
Zaragoza
Sevilla
Genova
Barcelona
Pisa
2008
Tarragona
2003
0.00
xxxxCxxx
Euro Average
Roma
Source: PMA
0.10
0.20
0.30
2
Retail Floorspace (m ) per capita
0.40
0.50
2008
Bari
2003
0.00
0.10
0.20
0.30
0.40
0.50
Retail Floorspace (m 2) per capita
24
Shopping Centres: Rental Growth
Rental Growth 2004/07
Prime Yield (%)
Expected Inflation
Italy
6.3
Belgium
6.3
France
6.0
Spain
6.3
Sweden
6.3
Germany
5.8
Netherlands
6.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
“focus on Southern Europe, with possible exception of Sweden”
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Source: LaSalle Investment Management
25
Emerging Trends

Aging Core
Population
:
Experiential retail
:
mixed use

Increasing
Congestion
:
Multifunctional trips :
mixed use or out
of town

Collapse of the
big brands - C&A,
M&S…..Carrefour?
:
Growth of new
formats - Inditex
:
flexible space
provision

Slower Growth Core
:
increased focus on
value for money
:
out of town

Faster growth fringe
:
main demand for
manufactures
:
logistics
relocation?
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26
Warehouse Markets
27
European Comparison: Rental Levels and “Growth”
58
48
49
Brussels
100
Antwerp
161
Paris
€/sqm/pa
150
70
95
84
50
73
70
79
37
50
57
63
5
% change prime rent
0
2
0
0
-5
3
3
0
-1
-3
-5
-10
-15
-13
-20
-25
Prague
Budapest
Warsaw
Barcelona
Madrid
Milan
Lyon
Frankfurt
7
Amsterdam
10
Rotterdam
London
0
-14
-19
-30
-35
xxxxCxxx
-33
Source: Jones Lang LaSalle
28
Pr
ag
W ue
ar
sa
w
Be
St
oc rlin
kh
ol
m
Du Lyo
ss n
eld
or
f
Pa
Br ris
us
se
l
Mu ls
ni
ch
M
F r ila n
an
Ba kfur
rc t
el
on
Ma a
d
Ha rid
m
Am bu
st rg
er
da
m
Du
b
L o lin
nd
on
Warehouse Yields : Yields Still Falling
%
14
12
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2000
2003
10
8
6
4
2
0
Source: Jones Lang LaSalle
29
Forecast Prime Warehousing Rents 2004-2007
Nominal Rental Change
Prime Yield (%)
Paris
8.75
Lyon
8.9
Milan*
8.1
Rome
8.5
Barcelona
8.4
Madrid
8.1
Amsterdam*
7.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
* Rental growth does not match inflation over the forecast period
% pa
“focus on markets that have not yet started to outsource to specialist operators”
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Source: LaSalle Investment Management
30
The Pull to the East
Main Markets
Significant Markets
GDP
2004
Pop.
(m)
Poland
3.7
39
Czech
Republic
3.7
10.3
Hungary
3.2
10.1
Source: Eurostat
xxxxCxxx
Source: King Sturge
31
France: Main markets
LONDON
ROTTERDAM
RUHR

Current Stock

Principal Distribution Hubs

Secondary Road Hubs

Secondary Maritime Ports
LOMBARDY
BARCA
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32
Ile-de-France: Investment Yields ~ Stability & Still a Significant Yield Gap
14
12
Warehouse
8.50-8.75%
10
%
8
6
OAT 4.38%
21.05.04
4
2
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Q1 04
Q4 03
Q3 03
Q2 03
Q1 03
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
Source: Jones Lang LaSalle
33
Investment & Future Prospects
34
UK Property: Capital & Rental Value Movements
12%
Rental Values
Capital Growth
10%
8%
6%
4%
2%
0%
-2%
Quarterly trend pa
-4%
1997
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1998
1999
2000
2001
2002
2003
2004
Source: IPD Monthly
35
Capital Flows into German Open-Ended Funds
20,000
Euro millions
16,000
12,000
8,000
4,000
0
-4,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
est
Source: BVI, LaSalle Investment Management
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36
Drivers of Property Yields
(+ ve )

Inflation/Inflationary Expectations

Real Risk Free Rate – Index Linked Gilts
- ve

Property Yield / 5 Year Swap Rate Spread
- ve

Acceleration in Rental Growth
+ ve
xxxxCxxx
37
UK Long Run Yield Comparison
Property Yield
Gilt Yield
Stock Dividend Yield
16
14
12
10
8
6
4
2
0
1977
1980
1983
1986
1989
1992
1995
1998
2001
Source : Thomson Financial, IPD
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38
Conclusions on Yields

2004 UK returns 12 - 15%

Property Yields shouldn’t go lower – IPD Monthly 6% initial yield key threshold

Number of Signals Pointing to Higher Yields:

–
Rise in Index Linkers Yields in 2004
–
Narrowing of 5 Year Swap spread over Equivalent Yield
Strong Momentum could well take the Market to Irrational Levels
–
Continuing Track Record
–
Improving Fundamentals
–
New Forms of Vehicle: PIFs, New Authorised PUTs
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39
UK Total Returns Forecasts - Risks
14
Total Return pa %
12
10
8
6
4
2
0
2002
2003
2004
2005
2006
2007
2008
Source: IPD, LaSalle Investment Management
xxxxCxxx
Source: LaSalle Investment Management
40
European Property 2004 – Best Opportunities

Exploit office market recovery
–
London, Madrid, Paris
–
But avoid Germany

Retail for core stable returns

Warehouses for a leveraged income play
–

especially in France
Key Property Risks
–
scale of new spec development
–
attitude of the banks on new lending
–
housing market correction
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41