Sentiment as a guide to trends in the real estate sector February 2019 Simon Rubinsohn Chief Economist, RICS

The RICS – what we do? RICS is a professional body which promotes and enforces the highest professional qualifications and standards in the development and management of land, real estate, construction and infrastructure A key element of this is collaboration with like-minded organisations to set international standards in areas such as valuation, measurement, construction costs and ethics – I will return to this at the very end The organisation accredits over 130,000 professionals in over 100 countries worldwide and any individual or firm registered with RICS is subject to quality assurance As part of a thought leadership role within the sector, RICS draws on its members and other professionals working in the built environment to provide insight on key market trends

The RICS dataset RICS began gathering market insight in 1978 when the (monthly) UK Residential Market Survey was established; this was followed by similar products covering the commercial and construction sectors (on a quarterly frequency) During the 2000s, the commercial survey was expanded into a global product and was followed most recently by residential surveys in Hong Kong and Portugal. We are currently in the process of enlarging the construction survey and considering the scope to set up further residential products The RICS suite of surveys are sentiment based designed to capture current trends and expectations across markets. They do not aim to provide data on actual prices or transactions The response rate is not based on a fixed panel; this may contribute to some level of volatility but the last Global Commercial Property Monitor was based on nearly 3000 contributions

Some examples: the most high profile survey, UK Residential, with a six month lead

While RICS commercial data in Europe also appears encouraging

A strength of the commercial dataset is that it also focuses on the occupier market

Correlations between RICS and CBRE (and Nareit) Our basic tests show that adding RICS to Nareit data improves explanatory power against CBRE

Survey data also includes: Perceptions about market point in cycle (example of Germany) Perceptions about valuation Twelve month rent and capital value projections (example of Germany) Next Steps: Strengthening consistency of sample size Testing data beyond Europe

Finally – to ensure statistics are comparable, measurement needs to be standardised Inconsistent Measurement = Lack of transparency = Increased Risk Same office area measured according to 5 different standards IPMS 3 = 440 sqm Germany = 500 sqm +14% Difference in areas & € psm Italy = 420 sqm - 5% Difference & € psm Swiss = 415 sqm - 6% Difference & € psm UK = 350 sqm - 20% Difference & € psm Overall Range of Difference = 34% Inconsistent Measurement = inaccurate analysis of sales and leases