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 Robert Peto Clive Bush
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) Steve Mallen %
30 yr Average ( ) = 2.19%
Forecast %
Recovery Resumes
Source: HM Treasury
Steve Mallen

9. Source: Bank of England
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
Q 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
21 November 2013
PRIVATE & CONFIDENTIAL

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!”
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. % Household debt as a % of income
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
Consumer Sector: Household debt
% Household debt as a % of income
% of mortgage debt that would be unaffordable with a rise in interest rates
The NMG Consulting survey asks households how much of their monthly income is left after tax, national insurance, housing costs (eg rent, mortgage repayments, council tax), loan repayments (eg personal loans, credit cards) and bills (eg electricity). The chart estimates the percentage of
mortgage debt held by mortgagors for whom this available income would be zero or negative after making higher interest payments on their secured and unsecured debt. The calculations do not account for the effect of fixed rates of interest on some loans.
If in fact there is a rise in interest rates which could potentially happen along
Source: PMA, ONS, BOE

33. GDP growth of 0. 8% represented the strongest growth rate in 3 years
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
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: DTZ Research
Source: PMA
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
Brownomics:
“Building Britain’s Future” Housing investment to treble to £2.1bn
Coalition Government
Austerity & Double-dip
Source: ONS
Help to Buy & Government guarantee & improving economy

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
CLIVE BUSH Exemplar Properties

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

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

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

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

45. Cambridge
university
land SOCIETY
Construction Risk

46. London Construction Prices
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
13/09/2013
Source: CBRE Monthly Index

49. UK AVERAGE PRIME YIELDS%
13/09/2013
Source: CBRE Prime Rent and Yield Index

50. UK Prime vs Secondary All Property Yield
Excluding Central London
Spread (%) Yield (%)
13/09/2013
Source: CBRE

51. CBRE Monthly Index Capital Values Changes
From turning point (Jun – 09) to Sep -13 %
Source:: CBRE Monthly Index

52. CBRE Investment in the UK
By investor type
£ Million
Source: CBRE/Property Data

53. LONDON INVESTMENT MARKET BOOMING
56.2% of total invested in 2013
Source: CBRE/Property Data

54. NET FLOWS TO PROPERTY UNIT TRUST/OEIC
% £ m
Source: IMA/IPD Monthly Index

55. TRANSACTION VOLUMES: YTD 2013 YIELD PROFILE
28%
Source: CBRE/Property Data

56. UK BANK LENDING TO PROPERTY COMPANIES
£ bn
Source: Macrobond

57. GROWING APPETITE FOR ALTERNATIVES
£1.65b of student accommodation deals
Residential & commercial ground rent portfolios
Pubs, Leisure, Healthcare
6 active annuity funds

58. keY THEMES OF 2013 / 14
Occupier markets stabilising in improving economy
Positive fund allocations and improving debt market
30% improvement in investment volumes leading to lower yields
Growing interest in alternatives
Strong momentum for 2014

59. Mike Bryant GE Capital Real Estate
November 2012

60. GE Capital Real Estate Global Picture - $40bn Assets
- GE shareholder monies
European Picture
- $11bn
- 50/50 Debt/Equity
- Present in all major markets
Strategy
- Structured sale programme of equity……
- …when supported by asset & market story
- Grow debt book

61. Key Themes Economies - UK vs Eurozone Organisational
- Regulation changing how we operate
Equity Book
- Occupational Markets …….. still favour the Tenant - Investment Markets…………….increasing risk appetite
Debt Book
- Strong competition for core deals – reduced spreads
- Need to differentiate offer to succeed

64. Questions……...?