Global Investor Sentiment Survey

GLOBAL INVESTOR SENTIMENT SURVEYQuarter 1 2010

Global Real estate InvestmentMarch 2010

Global real estate capital flows plummeted in 2009, falling 46% relative to 2008 and 79% below 2007 levels. Real estate transactions from all regions of the world totaled just US$141 billion in 2009, an amount just below what the Americas recorded in Q1 2007 alone. After such a steep fall-off and in an effort to better understand the mindset of real estate investors, Colliers International undertook the task of surveying real estate professionals from all corners of the globe. The result is a snapshot of the current sentiment and outlook for the global real estate marketplace, providing valuable insight into how property markets are expected to perform over the coming months and years. Much uncertainty still exists, but capital flows are showing signs of coming off the bottom and current investor sentiment indicates we are on the verge of the next up-cycle for property markets around the world.

Jamie HorneExecutive SponsorColliers InternationalGlobal Investment Services Team (GIST)

about the Survey

• The 2010 Global Investor Sentiment Survey was launched on February 15th and closed on March 1st 2010

• The survey contained a wide variety of questions generated by Colliers International Research in collaboration with senior Colliers professionals from the Colliers International Global Investment Services Team (GIST)

• Major Institutional and Private investors representing a broad cross-section of property investors across the globe were invited to complete the survey; There were a total of 244 respondents, whose combined investment portfolio exceeds $300 billion

• The global survey follows the success of our Australian investor survey and provides some interesting insight on current investor sentiment

• The primary purpose of the survey was to better understand global investor sentiment in the current marketplace; including investors’ outlook on the coming 12 months

KEY FINDINGS• Most investors (almost two thirds) are looking to expand their real estate

portfolios, leaving just under a third either holding steady or rebalancing their existing portfolios

• The vast majority (80%) have little or no appetite for cross-border investment (outside their domestic market)

• Investors - such as those in the USA, Australia, Canada, Germany and the UK - are predominantly interested in their respective domestic markets only. However, they also singled out a number of emerging countries - such as Poland, Ukraine, Vietnam, Brazil and India - for possible future investment.

• Globally, rents are anticipated to hit bottom this year. The most frequent response was Q4 2010 for the Office market, followed by Q2 and Q3 2010 for Industrial and Q3 or Q4 2010 for Retail

• Considerable divergence exists when asked when a more “normal”* market will emerge, but most investors listed either late 2010 or early 2011

• Investors in Asia and the Pacific (Australia and New Zealand) expect the market to return to normal by Q4 2010, followed by those in Canada, Latin America, Eastern Europe and Western Europe by Q1 2011, and those in the USA who said in Q2 2011

• While a clear majority of investors were looking to expand their real estate portfolios, most expressed high degrees of caution and significantly more rigorous due diligence

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• Respondents also overwhelmingly reported a shift toward high-quality, well-performing assets and a simultaneous shift out of non-income producing real estate or anything with a “high risk” profile

• Many investors viewed the events of the past two years as a good reminder that commercial real estate is highly cyclical and timing (both in and out of the market) is critical to making profits

* Most determined “normal” yields (capitalization rates) as 7.0 - 7.5% for office, 8.0-8.5% for industrial and 6.5%-7.5% for retail product; considerable variation exists around these price ranges with some regions already back to these levels and beginning to track back down.

GLOBAL INVESTOR SENTIMENT SURVEY

a review of investor sentiment

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64% oF ResPonDents aRe looKInG to eXPanD tHeIR PoRtFolIos DURInG tHe neXt 12 montHs

PROPERTY INVESTMENT STRATEGYThe events of the past two years had a measurable effect on investors, with no region spared. But while many investors are dealing with portfolios that are under-performing relative to expectations, the majority (64%) of survey respondents indicated that they are looking to add to their existing portfolios over the coming 12 months.

STRATEGY: HOW WOULD YOU DESCRIBE YOUR PROPERTY INVESTMENT STRATEGY FOR THE NExT 12 MONTHS?

Contract RebalanceExpandRemain the same

0

10

20

30

40

50

60

70

80

5%11%

64%

20%

Perc

enta

ge

5

BUYING PROPERTYBUYING PROPERTY: DURING THE NExT 12 MONTHS, DO YOU INTEND TO BUY PROPERTY OFF-SHORE (OVERSEAS)?

0

10

20

30

40

50

60

Yes No off-shore portfolioNo

20% 20%

60%

Perc

enta

ge

Despite a fairly negative global economic backdrop, survey respondents felt that real estate prices today represent good value, and many are willing to look past what could be a difficult period in terms of rents and vacancies. Indeed, respondents expect industrial rents to bottom out as soon as mid-year 2010, retail by the end of the third quarter and office by year-end. This almost certainly goes a long way to explain why survey respondents expect the investment market to be back to normal by either 2010 or early 2011. In the meantime, however, 60% of investors indicated a real reluctance to invest beyond their own borders, reflecting a more cautious stance taken by many. Another 20% do not even have an off-shore portfolio, leaving 80% out of cross-border investing, at least for the time being.

The investment mantra from all corners of the globe appears to be “stick to what you know” and, unless the potential upside is significant, “stay close to home and be content with more modest returns”. This approach was born out of a desire to invest in more mature economies, forgoing the investment potential in less mature markets. Until there is a positive shift in the global market, most investment will likely be contained to domestic transactions in the G7 economies and English speaking countries. However, as investors’ tolerance for risk increases, respondents listed a number of countries that hold appeal for future investment, including Poland, Ukraine, Brazil, Vietnam and India.

This tendency to invest domestically is almost certainly a short-term phenomenon. The return of cross-border investing is sure to be seen once investors have a greater comfort level concerning the global economy and the global financial system.

80% oF InvestoRs InDICateD eItHeR a

Real RelUCtanCe to Invest beYonD tHeIR

oWn boRDeRs – oR Do not even Have

a CRoss-boRDeR PoRtFolIo

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THE

GLOB

AL P

ROPE

RTY

CLO

CK

DownSw

ingupSw

ing

1211

10

9

8

76

5

4

3

2

1

21%

2%

19%

14% 20%

12%

peak

trough

MARKET SENTIMENT: THINKING ABOUT THE GLOBAL PROPERTY CLOCK, WHAT STAGE OF THE PROPERTY CYCLE DO YOU BELIEVE YOUR REGION TO BE IN CURRENTLY?

• Most investors feel their that domestic market is nearing the bottom, with 41% indicating that the market is between 5:00 and 6:00 on the Global Property Clock *

• 19% believe that their domestic market has already moved off the bottom and is sitting at 8:00 on the Global Property Clock *

CURRent CYCle

DownSw

ingupSw

ing

7

MARKET SENTIMENT: WHERE DO YOU ANTICIPATE THE GLOBAL PROPERTY CYCLE IN YOUR REGION WILL BE IN 12 MONTHS?

• By comparison, in 12 months, 51% (a slight majority) believe that their domestic market will be moving into an upswing (between 7:00 and 8:00) on the Global Property Clock *

* Majority results based on median of 244 responses

CYCle In 12 montHs

16%

14%

30% 3%

21% 4%

1211

10

9

8

76

5

4

3

2

1

peak

trough

THE

GLOB

AL P

ROPE

RTY

CLO

CK

REGIONAL PROPERTY CLOCKCURRENT CYCLE CYCLE IN 12 MONTHS

8

6:00 8:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

ASIA DOW

NSWING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets are at or near the bottom and projected to be in recovery mode in one year.

7:00 8:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

PACI

FIC

AUS

/ NZ

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets are already through the worst and will be in recovery mode in one year.

8:30

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

LATI

N AM

ERIC

A

8:30

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets are already in recovery mode and will still be characterized by a general upswing in leasing activity one yearfrom now.

CURRENT CYCLE CYCLE IN 12 MONTHS

9

6:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

USA

7:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets are at or near the bottom and are expected to be showing signs of recovery one year from now.

5:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

CANA

DA

7:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets nearing the bottom and are expected to be showing signs of recovery one year from now.

5:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

WES

TERN

EU

ROPE

7:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets nearing the bottom and are expected to be showing signs of recovery one year from now.

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The likely reason most investors are planning to expand their real estate portfolios in the coming year is that the majority believe that their respective domestic real estate markets are at or near the bottom. This was reflected by two thirds of respondents believing that their domestic markets are between 5:00 and 6:00 on the Global Property Clock, with 12:00 being the top of the market and 6:00 being the bottom. Furthermore, a significant percentage believe that their respective markets will be at either 7:00 or 8:00 in 12 months time. This point on the Global Property Clock indicates a growing market, characterized by a general upswing in demand for leasing and the beginning of rising rents.

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CURRENT CYCLE CYCLE IN 12 MONTHS

REGIONAL PROPERTY CLOCK

5:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

EAST

ERN

EURO

PE

5:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets nearing the bottom and are expected still be on the downward leg of the cycle one year from now.

4:30 7:00

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGHMID

DLE

EAST

DOWNSW

ING

UPSW

ING

1211

10

9

8

76

5

4

3

2

1

PEAK

TROUGH

Property markets still on the downward leg but are expected to be showing signs of recovery one year from now.

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CONCERNS AND FACTORS AFFECTING INVESTMENT

• Availability of debt and equity capital

• Availability of product (property to purchase)

• “Reasonable” pricing

• Economic conditions and associated leasing / letting risk

• The ability to trade up to higher quality real estate

• Risk avoidance and deleveraging where possible

• The ability to seek out “broken” condo deals

• Opportunities that may present themselves because of competitors’ misfortunes

Investors worldwide all expressed a real concern about the availability of capital. Real property is a capital-intensive industry, so it is not surprising that one of the top concerns for investors is an adequate supply of debt financing at a reasonable price. Interestingly, normal price in initial yield or capitalization rate terms varied by property type, but normal for office was felt to be 7.0%-7.5%, with 8.0%-8.5% for industrial and 6.5%-7.5% for retail. By these metrics, many regions have already risen to these “normal” levels and are now back on the way down, with the exception of the US, where capitalization rates have risen higher. The US cap rates have almost certainly escalated because of the abundance of distressed property in the marketplace.

Of equal concern was the lack of “for sale” high-performing core property, with many survey participants complaining that there was almost nothing to buy, certainly not at a reasonable price. Survey respondents indicated that new lending underwriting standards were not “consistent” with asking prices and was creating gridlock in the transactional sales market. Looking forward, investors will have to provide more equity than even today and accept lower returns, while sellers will have to drop their prices to reflect a weakened occupier market and more stringent financing conditions.

Consistent with a heightened sense of risk, investors also expressed an overwhelming desire to trade up to higher quality real estate. Whether it is a prime location, a major metropolitan area, the best physical structure or a tenant role comprising multinational corporations, investors showed a

strong desire to move up the “quality” ladder. Parallel with this flight to quality, investors have little appetite for risk, whether it be vacancy, refinancing, construction or in the case of global investing, currency or political instability.

Highlighting the competitive nature of property investing, one of the key themes running through the survey was that investors perceive an increasing ability to either acquire “distressed” assets - properties that just a short time ago were beyond their investment reach - or else can now put together a realistic “distressed” asset plan, an investment strategy they could not previously consider. Numerous bankruptcies, distressed property and the unwinding of joint venture partnerships are providing liquid investors the opportunity to expand their portfolios at their competitors expense.

67% oF InvestoRs Feel tHeIR maRKet Is neaRInG tHe bottom

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ACCESS TO DEBT

• 40% of survey respondents think access to debt is easier now than 12 months ago, but this is only marginally more (39%) than those who thought that debt is now more difficult to source

• The majority (52%) are finding that the cost of debt is higher today than 12 months ago

• Looking forward 12 months, 89% believe access to debt will be easier to find or at least the same as today, with only 11% thinking that debt will be more difficult to access

• Interestingly, while most think availability of debt will improve, 52% think that the cost will have increased relative to now

DEBT IN THE REGIONS• Investors in Asia, Canada, Latin

America and Western Europe indicated an improvement in access to debt over the last year, while those in the US and the Pacific registered no significant change. Meanwhile, investors in the Middle East and Eastern Europe saw less debt financing

• 12 months from now, investors in all regions are expecting better access to debt financing with the exception of the Middle East

• In terms of cost, investors in Western Europe, the Middle East, Eastern Europe, the USA and the Pacific all indicated that the cost of debt had increased over the past 12 months, with Asia and Latin America showing no change and Canada a slight decrease

• A year from now, investors in the US, Canada, Western Europe, the Middle East and the Pacific all expect borrowing costs to be up from where they are today. Investors in Asia do not anticipate any significant change, while those in Eastern Europe and Latin America expect borrowing costs to be lower

Cheap and ample debt is the elixir of a robust and growing real estate market; the 2002–2007 period demonstrated that perfectly. Beginning mid-2007 with the onset of the global credit crisis, access to debt financing was greatly reduced, and with only just a few exceptions, access to debt is still a challenge for many investors and was one of the primary concerns expressed by survey respondents.

Somewhat surprising, however, was the near even split between those that think access to debt is more difficult today than 12 months ago and those that think it is easier. The discrepancy is most likely a function of the investors’ respective regions and the varying degrees of capital market strength. A year from now, however, the near consensus view is that debt will be either easier to find, or, at a minimum, the same as now. A slight majority also think the cost of debt will be up relative to today, most likely reflecting the view that many Central Banks will raise interest rates over the next 12 months, and long terms rates - and by default, mortgage rates will also likely see a similar increase.

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FINANCING: OVERALL, HOW HAS THE COST OF DEBT CAPITAL IN YOUR REGION CHANGED IN THE PAST 6 - 12 MONTHS?

0

10

20

30

40

50

60

Become less expensive

No changeBecome more expensive

32%

16%

52%

Perc

enta

ge

Cost of debt

FINANCING: OVERALL, HOW DO YOU THINK THE COST OF DEBT CAPITAL IN YOUR REGION WILL CHANGE IN THE NExT 6 - 12 MONTHS?

Become less expensive

No changeBecome more expensive

22%

37%41%

Perc

enta

ge

Cost of debt

0

10

20

30

40

50

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SUSTAINABLE BUILDINGS

• A slim majority (51%) appear willing to pay a premium to purchase a “sustainable” building

• If an investor was prepared to pay a premium, most would lower the yield/capitalization rate by 25 basis points, although 10 basis points was the most frequent response

• When asked why a premium might be worth paying for a sustainable property, the most frequent responses included lower future capital expenditures; higher value retention; social responsibility; the ability to attract large corporate and government tenants; free marketing; a competitive edge when trying to attract tenants; and “future proofing” with respect to possible carbon taxes

Worldwide, real estate investors have become considerably more attuned to the evolution of green building practices and the move towards more sustainable buildings. The perception is that green buildings are more expensive to construct so the question is will investors pay a premium? When asked this question, only a very small majority indicated that they would pay a premium. Indeed, almost no respondents would pay more than 25 basis points and the most frequent response was just 10 basis points. This was despite many respondents listing lower future capital expenditures as one of the key benefits of a green building. Other benefits included the ability to attract socially conscious corporate and government tenants and “future proofing” with respect to possible carbon emission taxes.

51% WoUlD PaY a PRemIUm to PURCHase a “sUstaInable” bUIlDInG

loWeR CaPItal eXPenDItURe &

HIGHeR valUe RetentIon WeRe JUst tWo oF tHe

Reasons WHY InvestoRs WoUlD

PaY a PRemIUm FoR a sUstaInable

PRoPeRtY

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SUSTAINABILITY: WHAT PREMIUM (LOWER CAP RATE / YIELD) WOULD YOU PAY FOR A SUSTAINABLE BUILDING? (ANSWERS IN BASIS POINTS)

0

5

10

15

20

25

30

35

Perc

enta

ge

Premium

31%

14%

17%

11%10%

12%

2%1% 1%

Level

-5

-10

-15

-20

-25

-30

-35

-40

SUSTAINABILITY: WOULD YOU PAY A PREMIUM FOR A SUSTAINABLE BUILDING?

Yes

No

51% 49%

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This survey was produced in collaboration with senior professionals from the Colliers International Global Investment Services Team (GIST). The group provides unparalleled knowledge and expertise in investment sales services to a broad range of institutional and private clients around the world.

Annually, GIST members negotiate billions of dollars in investment sales transactions. They have successfully assisted clients in maximising the value of their real estate assets in office, retail, multi-family, hotel, industrial and logistic transactions.

As a group, the majority of respondents expressed a relatively high degree of optimism in the overall global economy and state of the real estate market, reflected by a wish to expand their property portfolios. But many also have serious concerns, mostly tied to the underlying economy, particularly post-government stimuli. Most respondents also recognized that financing is central to any type of return to a more normal market. With property values down by as much as 40% worldwide, as is the case in the United States, refinancing is going to be very difficult, at least in the near future, particularly in the absence of a public debt market (CMBS; Commercial Mortgage Backed Securities). While more traditional lenders are slowly returning to the market, depressed property values and stricter underwriting standards are going to be a serious limiting factor.

Another theme running through the survey results was a seismic shift toward high-quality, well-performing assets and a simultaneous shift out of non-income producing real estate or anything with a “high risk” profile. The move back towards income and less emphasis on capital appreciation was best captured by the sentiment from one survey respondent who stated, “capital gains are just a bonus; we buy property for income”.

Lastly, many investors expressed the view that real estate cycles are now shorter and more severe compared to historical norms, which serves as a warning to others that, going forward, market participants will need to be more nimble, and access to current and insightful analysis will be more important than ever.

CONCLUSION

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Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections.

Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © 2010

GLOBAL INVESTMENT SERVICES ExECUTIVE TEAM

ASIA PACIFICaustraliaJohn MarascoManaging Director - Investment Sales DDI +613 9612 [email protected]

Hong KongAntonio WuRegional Director - Asia Investment SalesDDI +852 2822 [email protected]

JapanBrett JensenAccount Manager – West JapanDDI +816 6232 [email protected]

MIDDLE EASTUae, Qatar, saudi arabia, bahrain, Kuwait & omanJohn DavisChief Executive OfficerDDI +971 4 423 [email protected]

General enquiries: +44 207 935 4499

EUROPEGermanyThomas DänzelChairman - EMEA Investment TeamDDI +49 89 [email protected]

netherlandsJos SchüsselChairman – EMEA Investment TeamDDI +31 20 675 [email protected]

United KingdomAndré JamesHead of Investment MarketplaceDDI +44 20 7344 [email protected]

THE AMERICASCanadaMilton LambSenior Vice President - InvestmentDDI +1 416 607 [email protected]

north americaLisa CampoliExecutive Vice President - BostonDDI +1 617 330 [email protected]

James murphyExecutive Managing Director – New YorkDDI +1 212 716 [email protected]

latin americaRicardo BetancourtPresident – InternationalDDI +55 11 3323 [email protected]

COLLIERS INTERNATIONAL GLOBAL RESEARCH TEAM:

Global analysis /the americasRoss [email protected] DDI + 1 617 896 7611

asiaSimon [email protected] DDI +852 2822 0511

PacificFelice [email protected] DDI +61 2 9257 0289

emeaDamian [email protected] DDI + 420 226 537 624

global inveStMent ServiceS executive teaM

aSia paciFicAustraliaJohn MarascoManaging Director - Investment Sales DDI +613 9612 [email protected]

Hong KongAntonio WuRegional Director - Asia Investment SalesDDI +852 2822 [email protected]

JapanBrett JensenAccount Manager – West JapanDDI +816 6232 [email protected]

MiDDle eaStUAE, Qatar, Saudi Arabia, Bahrain, Kuwait & OmanJohn DavisChief Executive OfficerDDI +971 4 423 [email protected]

General enquiries: +44 207 935 4499

europeGermanyThomas DänzelChairman - EMEA Investment TeamDDI +49 89 [email protected]

NetherlandsJos SchüsselChairman – EMEA Investment TeamDDI +31 20 675 [email protected]

United KingdomAndré JamesHead of Investment MarketplaceDDI +44 20 7344 [email protected]

the aMericaSCanadaMilton LambSenior Vice President - InvestmentDDI +1 416 607 [email protected]

North AmericaLisa CampoliExecutive Vice President - BostonDDI +1 617 330 [email protected]

James MurphyExecutive Managing Director – New YorkDDI +1 212 716 [email protected]

Latin AmericaRicardo BetancourtPresident – InternationalDDI +55 11 3323 [email protected]

collierS international global reSearch teaM:

Global Analysis / The AmericasRoss [email protected] DDI + 1 617 896 7611

AsiaSimon [email protected] DDI +852 2822 0511

PacificFelice [email protected] DDI +61 2 9257 0289

EMEADamian Harringtondamian.harrington@ colliers.com DDI + 420 226 537 624

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