PRIVATE & CONFIDENTIAL European Market Outlook April 2012.

PRIVATE & CONFIDENTIALwww.dtz.com

European Market Outlook

April 2012

Agenda

• European overview

• European property market – recent trends and forecasts

• Capital market trends

• European scenario analysis

2

Divergent economic outlook

Source: Various Statistics Agencies, DTZ Research

3

GDP growth forecasts for 2012

-2%

-1%

0%

1%

2%

3%

4%

5% Core euro Nordics CEEEuro periphery

Bond markets calmer following LTRO, but Italian and Spanish yields have risen once again

Source: Bloomberg, DTZ Research

4

5 year government bond yields, selected countries

0%

4%

8%

12%

16%

20%

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

UK Germany France Spain Italy Ireland Portugal

LTRO announcement LTRO II

Agenda

European overview

European property market – recent trends and forecasts

Capital market trends

European scenario analysis

5

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2002-2006 2007-2011 2012-2016

average annual rental growth

Office Retail Industrial

Little rental growth expected in near term

Source: DTZ Research

6

European rental growth

Prime office and retail rents mostly flat in recent months

6 month % change, Q3-11 to Q1-12

7

Prime rents

Source: DTZ Research

-2%0%0%0%0%0%0%0%0%0%0%1%1%3%3%4%4%5%6%

8%

-30% -20% -10% 0% 10% 20% 30%

MilanBarcelona

BerlinBudapest

CopenhagenDublin

FrankfurtHamburg

MadridMunichPrague

StockholmDusseldorf

London (WE)Helsinki

BrusselsWarsaw

AmsterdamOslo

Paris (CBD)

Europe

0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%

1%2%

9%

-30% -20% -10% 0% 10%

AmsterdamBarcelona

BerlinBudapest

CopenhagenDublin

FrankfurtLondon (WE)

MadridMilan

MunichOsloParis

PragueStockholm

WarsawHelsinki

Brussels

Europe

Vacancy rates stable in most markets

Q3-11 and Q1-12, %

8

Office market vacancy rates

Source: DTZ Research

Q1-2012 X Q3-2011 Region Average

0%

5%

10%

15%

20%

25%

Q1-2012 Q3-2011 Average

Average= 11.3%

-2%-1%0%1%2%3%4%5%6%7%8%9%

Top Five Bottom Five

rental growth

Strongest growth seen in Eastern Europe

Source: DTZ Research

9

Office rental growth 2012

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2002-2006 2007-2011 2012-2016

average annual capital growth

Office Retail Industrial

Stable yields points to period of weak capital growth

Source: DTZ Research

10

European capital growth

Office and retail yields also little changed over past 6 months

Q1-12 yields and 6 month bps change, Q3-11 to Q1-12

11

Prime office yields

Source: DTZ Research

-25-25

-15-5-5

000000000000

1010

30

6.25%7.25%5.50%4.70%5.00%4.50%4.50%4.70%5.00%5.05%5.25%5.25%5.25%5.75%6.00%6.25%7.75%6.10%6.25%6.30%

-80 -40 0 40 80

PragueDublin

HelsinkiStockholm

BerlinLondon (WE)

Paris (CBD)Munich

HamburgFrankfurt

CopenhagenDusseldorf

OsloMadrid

BarcelonaWarsaw

BudapestAmsterdam

BrusselsMilan

Europe

-15-10-10-10

-50000000000000

4.75%4.80%4.90%5.40%4.70%4.25%4.25%4.75%5.00%5.00%5.00%5.25%5.75%5.75%6.00%6.25%6.25%7.50%

-80 -40 0 40 80

BerlinAmsterdam

FrankfurtHelsinki

StockholmLondon (WE)

MunichParis

CopenhagenOslo

BrusselsMilan

BarcelonaMadrid

WarsawDublin

PragueBudapest

Europe

Yields in core markets to edge upward as interest rates normalise....

Source: DTZ Research

12

Prime yield forecasts for selected markets – 2012-16

.....yields in CEE to edge inward as the European economy recovers

Source: DTZ Research

2012-2016 (%pa)

13

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

2011 2012 2013 2014 2015 2016

Budapest Moscow Prague Tallinn Vilnius Warsaw

Prime yield forecasts for selected markets – 2012-16

Agenda

• European overview

• European property market – recent trends and forecasts

• Capital market trends

• European scenario analysis

14

87

124

147

203

230

111

62

104 110

2003 2004 2005 2006 2007 2008 2009 2010 2011

€bn

Q1 Q2 Q3 Q4

Full year volumes up 6% year on year despite increased caution

Source: DTZ Research; Propertydata

15

European investment activity

39

23

3028

31

2010.4 2011.1 2011.2 2011.3 2011.4

€bn

UK Germany France Benelux Nordics CEE Other

Contrasting fortunes across Europe

Source: DTZ Research; Propertydata

16

European investment activity by geography

62.5

103.9109.9

6.4

3.8

35.1

2.2

2009 2010 2011

€bn

Volume CV impact Trading impact

2011 growth mostly driven by capital value increases

Source: DTZ Research

17

Drivers of European investment activity

0

5

10

15

20

25

30

35

40

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%€m

Under 20m 20-100m 100-500m Above 500m Average Lot size

Rise in lot size over the quarter, but down for the year as a whole

Source: DTZ Research

18

Investment activity by lot size

2830

16

101 2

17

24

19

23 23

39

23

2927

31

2008

.2

2008

.3

2008

.4

2009

.1

2009

.2

2009

.3

2009

.4

2010

.1

2010

.2

2010

.3

2010

.4

2011

.1

2011

.2

2011

.3

2011

.4

€bn

Domestic Intra-regional Inter-regional

Growth in domestic investment …

Source: DTZ Research

19

European investment activity by source of capital

-2.5

-0.4-1.1

-2.5

-1.2

0.5

-1.0

0.3 0.3

-2.0

2.0

1.5 0.8

2.2 3.2

2010.4 2011.1 2011.2 2011.3 2011.4

€bn

Domestic Intra-regional Inter-regional

But non-European investors remain net-buyers

Source: DTZ Research

20

Net investment by source of capital

2010.2 2010.3 2010.4 2011.1 2011.2 2011.3 2011.4

Private Property Vehicle Private Property Company Institution

Private Investor Listed Property Companies Corporate

Other

Listed property companies less active on the buy-side

Source: DTZ Research

21

Investment activity by investor type

and become net sellers in Q4

Source: DTZ Research22

Net investment by investor type

-1.2

-5.7

3.3

5.5

1.2

-2.7

3.22.22.5

-1.8

1.3

-0.3

2.0

-3.6

3.6

1.3

-2.3

-0.7

3.1

1.3

Listed Property Companies

Private Property Company

Private Property Vehicle

Institutions

€bn

2010.4 2011.1 2011.2 2011.3 2011.4

17

811 9

15

12

9

109

9

5

2

23

2

3

3

22

3

1

1

32

2

2010.4 2011.1 2011.2 2011.3 2011.4

€bn

Office Retail Mixed Use Industrial Other/Unknown

Growth in office investment and retail holds steady over the year

Source: DTZ Research 23

European investment activity by sector

Shopping Centre61%High Street

16%

Retail Park/ Warehouse

13%

Supermarket8%

Leisure/ Other2%

0

50

100

150

200

250

€bn

Uncertainty could push volumes lower in 2012

Source: DTZ Research

24

European investment volume forecast

Agenda

• European overview

• European property market – recent trends and forecasts

• Capital market trends

• European scenario analysis

25

Why do scenario analysis?

• This is NOT our base case forecast, which shows continued recovery

• But, many market participants focused on managing downside risks

• Scenario analysis helps quantify the downside for office markets

• Using a four-step approach in our scenario analysis:– Define the downside economic scenario– Measure impact across 45 European office occupier markets– Take into account yield impact and quantify total return change– Use DTZ Fair Value Index methodology to assess attractiveness

26

European scenario analysis assumptions

• Base case probability = 45%, break-up scenario probability = 10%. Supplied by Oxford Economics, Jan 2012;

• Disorderly defaults in Greece, Portugal and Ireland which hit banks hard, particularly in France and Germany;

• Business and consumer confidence fall, firms cut back on investment, labour markets weaken and economies across Europe are plunged back into recession;

• Authorities hold interest rates at record lows for an extended period;

• Impact of crisis reaches well beyond the borders of the Single Currency bloc, tipping the UK back into recession as well.

27

Euro-zone break-up scenario prompts deep recession in Europe

Source: DTZ Research, Oxford Economics

%y/y

EU27 GDP

Average %pa

Base case 1.8

Scenario 1.0

2012-16

• Euro-zone to break up

•Greece, Ireland, Italy, Portugal and Spain leave single currency

•Banks suffer heavy losses

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

Base Case Euro-zone Break-up

Forecast

28

Nordics/UK/Emerging Europe hold up better than Eurozone

Source: DTZ Research, Oxford Economics

%pa

GDP, 2012-2016

2012 %pa

Spain -4.6%

Italy -4.2%

Ireland -4.0%Belgium -3.9%

EU 27 -2.0%

France -1.6%

Netherlands -1.5%

Finland -1.5%

Eurozone -1.3%

Sweden -1.1%Germany -0.7%

UK -0.7%

Poland -0.3%

Turkey -0.2%

Russia 0.1%

Eurozone markets in grey

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Base Case Euro-zone Break-up Scenario

29

Euro break-up scenario sees rental declines in many markets

Source: DTZ Research

Prime rents pa 2012-2016

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Base Case Euro-zone Break-up Scenario

OFFICE RETAIL INDUSTRIAL

30

Risk aversion and recession push yields higher under euro break-up

Source: DTZ Research

European prime yields by sector

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Retail Office Industrial

Solid = Base CaseDashed = Euro Break-up Scenario

Forecast

31

Euro break-up results in capital value declines in some markets

Source: DTZ Research

Prime capital values 2012-2016

Cumulative % change

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Base Case Eurozone Break-up scenario

OFFICE RETAIL INDUSTRIAL

32

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