1. 1 UK & European Markets Robin N Goodchild PhD FRICS Head of European Strategy Islamic Real Estate Finance 2004 London, 29 th June

2. xxxxCxxx 22 Agenda – Real Estate in UK, EuroZone and Central Europe  European Economy & Capital Markets  Offices  Retail  Warehouse  Investment Markets  Best Picks

3. xxxxCxxx 33 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 Source: EIU

4. xxxxCxxx 44 The Europe and especially the EuroZone will Lag Source: EIU, March 2004 GDP %

5. xxxxCxxx 55 The Fringes Continue To Grow Faster Source: LaSalle Investment Management Source: PMA Core Europe are the laggards

6. xxxxCxxx 66 Business Confidence Indicators Improving Balance Source: DataStream

7. xxxxCxxx 77 Consumer Confidence Index – Moving Sideways Balance Source: DataStream

8. xxxxCxxx 88 UK House Price to Earnings Ratio – well into uncharted water Source: LaSalle Investment Management 3.64

9. xxxxCxxx 99 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?

10. xxxxCxxx 10 5 Year Swap Rate – 2002 to date Source: Thomson DataStream

11. 11 Office Markets

12. xxxxCxxx 12 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.

13. xxxxCxxx 13 Prime Office Rents Bottom, Incentives will Reduce Before Growth Recovers Source: Jones Lang LaSalle €

14. xxxxCxxx 14 Vacancy Rates Peaking Source: Jones Lang LaSalle %

15. xxxxCxxx 15 Office Take-Up Trends : a Patchy Recovery Source: Jones Lang LaSalle (‘000 sqm)

16. xxxxCxxx 16 Years to Absorb Office Space Coming Available in 2004/05 Years of Take-Up* * Based on average gross take-up 1998/2003 Source: LaSalle Investment Management

17. xxxxCxxx 17 New Supply Set To Fall Source: PMA European Office Stock Completions - 18 largest markets

18. xxxxCxxx 18 Jones Lang LaSalle Short Term Rental Cycle Q1 2004 Rental growth slowing Rents falling Rental growth accelerating Rents bottoming out Antwerp, Copenhagen Dublin, Milan, Rome Amsterdam, Düsseldorf Brussels Prague, Budapest Stockholm OFFICES Edinburgh, Lyon, Helsinki Lisbon Oslo, London, Luxembourg, Warsaw 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 Frankfurt, Munich Paris, Berlin, Hamburg Moscow Athens Barcelona, Madrid

19. xxxxCxxx 19 Office Yields Still Resisting Upward Pressure but for how Long? Source: Jones Lang LaSalle

20. 20 Retail Markets

21. xxxxCxxx 21 Cross Border Investment in European Shopping Centres

22. xxxxCxxx 22 High Street Retail Yields Are Falling Except in Germany – is Value Emerging in German Retail? Source: Jones Lang LaSalle except in Germany

23. xxxxCxxx 23 Development Activity Strong in Southern Europe Source: PMA SC completions 2004 By size band (m²)  40 k 10 to 40 k

24. xxxxCxxx 24 Retail Provision: Still Below Par SpainItaly Source: PMA Euro Average

25. xxxxCxxx 25 Shopping Centres: Rental Growth “focus on Southern Europe, with possible exception of Sweden” Source: LaSalle Investment Management Rental Growth 2004/07 Prime Yield (%) 6.3 6.0 6.3 5.8 6.3 Expected Inflation

26. xxxxCxxx 26 Emerging Trends  Aging Core : Experiential retail : mixed use Population  Increasing : Multifunctional trips : mixed use or out Congestionof town  Collapse of the : Growth of new : flexible space big brands - C&A, formats - Inditexprovision M&S…..Carrefour?  Slower Growth Core : increased focus on : out of town value for money  Faster growth fringe : main demand for : logistics manufacturesrelocation?

27. 27 Warehouse Markets

28. xxxxCxxx 28 European Comparison: Rental Levels and “Growth” Source: Jones Lang LaSalle

29. xxxxCxxx 29 Warehouse Yields : Yields Still Falling Source: Jones Lang LaSalle

30. xxxxCxxx 30 Forecast Prime Warehousing Rents 2004-2007 “focus on markets that have not yet started to outsource to specialist operators” Source: LaSalle Investment Management Nominal Rental Change Prime Yield (%) 8.75 8.9 8.1 8.5 8.4 8.1 7.1 * Rental growth does not match inflation over the forecast period % pa

31. xxxxCxxx 31 The Pull to the East Source: King Sturge Main Markets Significant Markets GDP 2004 Pop. (m) Poland 3.739 Czech Republic 3.710.3 Hungary 3.210.1 Source: Eurostat

32. xxxxCxxx 32 France: Main markets LONDONROTTERDAM RUHR BARCA LOMBARDY  Current Stock  Principal Distribution Hubs  Secondary Road Hubs  Secondary Maritime Ports

33. xxxxCxxx 33 Ile-de-France: Investment Yields ~ Stability & Still a Significant Yield Gap Source: Jones Lang LaSalle Warehouse 8.50-8.75% OAT 4.38% 21.05.04

34. 34 Investment & Future Prospects

35. xxxxCxxx 35 Source: IPD Monthly Quarterly trend pa UK Property: Capital & Rental Value Movements

36. xxxxCxxx 36 Capital Flows into German Open-Ended Funds Source: BVI, LaSalle Investment Management

37. xxxxCxxx 37 Drivers of Property Yields  Inflation/Inflationary Expectations  Real Risk Free Rate – Index Linked Gilts  Property Yield / 5 Year Swap Rate Spread  Acceleration in Rental Growth (+ ve ) - ve + ve - ve

38. xxxxCxxx 38 UK Long Run Yield Comparison Source : Thomson Financial, IPD

39. xxxxCxxx 39 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

40. xxxxCxxx 40 UK Total Returns Forecasts - Risks Source: LaSalle Investment Management Source: IPD, LaSalle Investment Management

41. xxxxCxxx 41 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