Dr. Richard BarkhamGlobal Chief Economist & Head of Americas Research CBRE Research

GLOBAL ECONOMIC

AND REAL ESTATE OUTLOOK.

MOVING ON FROM COVID-19?

14 MAY 2020

Wei LuoGlobal Associate Director Economics & Capital Markets CBRE Research

Daniel ChangGlobal Research Analyst Economics & Capital Markets CBRE Research

WE ARE PASSED THE PEAK IN NEW INFECTIONSDaily new cases in 7-day moving averages

Source: CBRE Research, European Centre for Disease Prevention, Macrobond, 14 May 2020.Note: Number reported as a 7-day moving average.

0

5000

10000

15000

20000

25000

30000

35000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80

Num

ber

of C

ase

s

Days Since Daily Increase Exceeds 100

USA (right axis)

Italy

Spain ChinaJapan

France

GermanySouth Korea

UK

USA, UK slow off the mark to control the virus

COVID-19 HAS BROUGHT AN ABRUPT END TO THIS CYCLEU.S. unemployment rate %, a common indicator of economic cycle

Source: Bureau of Labor Statistics, CBRE Research, May 2020.

0

2

4

6

8

10

12

14

16

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

1

201

4

201

7

202

0

(%)

3y 6y 4m 7y 8m 10y 6y 1m 10y 9m

Six economic cycles since 1970

BUT WE THINK THE ECONOMY CAN RECOVER QUITE QUICKLYU.S. unemployment rate, 16 years old and above

Source: BLS, CBRE Research, April 2020.

0

2

4

6

8

10

12

14

16

Unem

plo

ymen

t Rate

(%

)

ForecastPeak at

15.2%

8.7% by

end of

2020

U.S. PRIVATE SECTOR WELL POSITIONED PRIOR TO COVID-19Private domestic sector balance (household and businesses, net saving or borrowing)

Source: FRED, CBRE Research, Q1 2020.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

196

7

196

8

196

9

197

0

197

1

197

2

197

3

197

4

197

5

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Recession Private Domestic Sector Balance (4Q-Moving Average)

Net savingNet borrowing

THE FED HAS BEEN MEGA SUPPORTIVETotal of federal reserve banks, by asset type, US$ Trillion

Source: Federal Reserve, CBRE Research, May 2020.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US

$Tr

illio

ns

Treasury Security Holdings Agency MBS Holdings Agency Debt Holdings

COVID-19 Impact

0

20

40

60

80

100

120

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

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199

1

199

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199

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199

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199

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199

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199

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200

0

200

1

200

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200

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200

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201

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201

9

202

0

202

1

% o

f G

ross

GD

PGOVERNMENT SPENDING UP – MORE TO COMEU.S. debt held by the public*, as % of gross GDP

*Debt held by the public = Total national debt – Intra-governmental debt Source: CBO, CBRE Research, May 2020.

Not including the proposed $3 trillion

HEROES Act

THE FAMOUS V-SHAPED RECOVERYY-o-Y and quarterly annualized GDP growth forecast by CBRE House-View

Source: CBRE House-View, April 2020.

-36%

29%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2019 Q1 2019 Q3 2020 Q1 2020 Q3 2021 Q1 2021 Q3 2022 Q1 2022 Q3

Y-o-Y Q-o-Q Annualized (Seasonally Adjusted)

CORONAVIRUS IMPACT ON THE G7 ECONOMIES IN 20202020 annual GDP growth forecast

Source: CBRE House-View, April 2020.

-4.9 -4.8 -4.7-5.4

-6.1

-8.1

-6.8

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

USA Japan Germany UK France Italy Canada

Rea

l G

DP G

row

th (%

)

Pre-COVID19 Forecast Revised Forecast

EXPECTED REBOUND NEXT YEAR2021 annual GDP growth forecast

Source: CBRE House-View, April 2020.

6.1

3.9

5.2 5.0

6.2

4.4

9.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

USA Japan Germany France UK Italy Canada

Rea

l G

DP G

row

th (%

)

Pre-COVID19 Forecast Revised Forecast

HUNTING FOR GREEN SHOOTS

..OR A NEEDLE IN A HAYSTACK?

STOCK MARKETS HAVE RECOVERED SOME GROUNDEquity market indexes (1/1/2020 = 100)

Source: S&P, FTSE, Deutsche Boerse, Nikkei, Shanghai Stock Exchange, Macrobond, CBRE Research, 14 May 2020.

60

65

70

75

80

85

90

95

100

105

110

Index

S&P 500 FTSE 100 Nikkei 225 Shanghai SE DAX 30

RISK SPREADS HAVE STARTED TO COMPRESSU.S. BBB-rated corporate bond yield spread over 10-year treasury

Source: Macrobond, CBRE Research, 14 May 2020.

100

200

300

400

500

600

700

800

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(Bps)(%)BBB-rated Corporate Bond Yield 10-Year Treasury Yield Spread (rhs)

YIELD CURVE NOT INVERTEDTreasury yield curves (%)

Source: FRED, Macrobond, CBRE Research, 14 May 2020.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Perc

ent

10-Year Minus 2-Year Treasury 10-Year Minus 3-Month Treasury

0

50

100

150

200

250

300

350

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

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201

4

201

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201

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201

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201

8

201

9

202

0

REIT PRICES HAVE RECOVERED SOONER THAN IN GFC U.S. REIT Index

Source: Wilshire Associates Incorporated, CBRE Research, 14 May 2020.

69% fall

43% fall10% recovered

HOSPITALITY TICKS UP IN CHINA – A MODEL FOR THE U.S.?Hotel occupancy compared

Source: CBRE Hotels Research, STR, May 2020.

Baseline Recovery Scenario

0

10

20

30

40

50

60

70

80

1 2 3 4 5 6 7 8 9 10 11 12 13 13 15 16 17 17 18

Occupancy Level (%)

Months of Impact

China History China Forecast U.S. History U.S. Baseline

US 3/7China 1/16

US 3/14China 1/21

China 2/8

China 5/2

US 4/15

US 6/15

US 5/2

CHINA – TRADE SLOWLY RESUMINGChina container freight rate, composite (y-o-y)

Source: People’s Bank of China, CBRE Research, May 2020.

-8%

-4%

0%

4%

8%

12%

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

Last two-year average

-100

-80

-60

-40

-20

0

20

2/18 2/25 3/3 3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28 5/5 5/12

Y-o

-Y C

hange

(%)

United States United Kingdom Germany Australia

SIGNS OF LIFE IN THE RESTAURANT SECTORY-o-Y change in OpenTable restaurant booking

Source: OpenTable, 14 May 2020.

AND, IF WE SQUINT, IN THE U.S. TRAVEL SECTOR TSA checkpoint travel numbers for 2020 and 2019

Source: TSA, 14 May 2020.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3/1 3/8 3/15 3/22 3/29 4/5 4/12 4/19 4/26 5/3 5/10

Mill

ions

Total Daily Traveler

2020

2019

7-day moving average

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

3/14 3/21 3/28 4/4 4/11 4/18 4/25 5/2 5/9

Mill

ions

Rolling 7-day difference

DOWNWARD TREND IN MULTIFAMILY RENT IS EASINGU.S. multifamily daily asking rent per sq. ft.

Source: CoStar, May 2020.

1.500

1.505

1.510

1.515

1.520

1.525

1.530

1.535

1.540

1.545

May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20

Daily

Ask

ing R

ent $

Per

SF

THE WORLD AFTER COVID-19

• How quickly do we move out of lockdown?

• How does real estate recover?

• Is the office dead?

• Will manufacturing be reshored to the U.S.?

KEY QUESTIONS

PROGRESS OUT OF LOCKDOWN IS SLOWGDP-lead indicator and lockdown stage comparison

SEMI-EASING LOCKDOWNRECESSION

GRADUAL OPENINGSTABLIZATION

70% NORMAL LIFEGROWTH

LOCKDOWNFREEFALL

China

ItalyCanada NetherlandsUSA

Spain India

Australia

Austria DenmarkCzechNorway

Iran

Germany France

NO LOCKDOWN

• South Korea• Taiwan• Japan

Source: CBRE Research, 14 May 2020.

UKSingapore

TurkeyRussia

Brazil

PortugalBelgiumSwitzerland

IT WILL TAKE A WHILE TO SHAKE THE CRISIS OFF U.S. GDP, rent and capital value indices (t=Q4 2019)

Source: CBRE Econometric Advisors, Q2 2020.

75

80

85

90

95

100

105

110

115

120

t-4 t t+4 t+8 t+12 t+14

Index

Current US Baseline

Pre-Covid US Baseline(Jan 2020)

US All-Property Rent(COVID-19)

US All-Property CV(COVID-19)

Leasing Recovery

0

20

40

60

80

100

120

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

2020Q4

2021Q1

2021Q2

2021Q3

2021Q4

2022Q1

2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2024Q3

2024Q4

Historical Data 2-Qtr Projection 1 Year Recovery

U.S. INDUSTRIAL LEASING VOLUME – 1 YR. RECOVERYMinimal effects from second wave of virus. Rapid bounce back in economy and property market

Note 1: Indexed from 2 years before the presumed start of the recession.Note 2: Dark shaded portion represents new deals. Lighter shaded portion represents renewals. New/renewal ratio was extracted from CBRE deals. Ratios are assumed to carry over to overall market trends.Note 3: Historical data has been normalized through noise reduction. Source: CBRE Research, CoStar, Q2 2020.

Beginning of Recession Secular shift upwards?

Leasing Recovery

0

20

40

60

80

100

120

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

2020Q4

2021Q1

2021Q2

2021Q3

2021Q4

2022Q1

2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2024Q3

2024Q4

Historical Data 2-Qtr Projection 2 Year Recovery

U.S. OFFICE LEASING VOLUME – 2 YR. RECOVERYBase case. Second wave controlled with mass testing, but unemployment slower to fall due to economic disruption.

Note 1: Indexed from 2 years before the presumed start of the recession.Note 2: Dark shaded portion represents new deals. Lighter shaded portion represents renewals. New/renewal ratio was extracted from CBRE deals. Ratios are assumed to carry over to overall market trends.Note 3: Historical data has been normalized through noise reduction. Source: CBRE Research, CoStar, Q2 2020.

Beginning of Recession

Zone of debate

U.S. RETAIL LEASING VOLUME – 3 YR. RECOVERYMinimal effects from second wave of virus. Rapid bounce back in economy and property market.

Note 1: Indexed from 2 years before the presumed start of the recession.Note 2: Dark shaded portion represents new deals. Lighter shaded portion represents renewals. New/renewal ratio was extracted from CBRE deals. Ratios are assumed to carry over to overall market trends.Note 3: Historical data has been normalized through noise reduction. Source: CBRE Research, CoStar, Q2 2020.

Leasing Recovery

0

20

40

60

80

100

120

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

2020Q4

2021Q1

2021Q2

2021Q3

2021Q4

2022Q1

2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2024Q3

2024Q4

Historical Data 2-Qtr Projection 3 Year Recovery

Beginning of Recession

Secular shift down?

OVERALL OFFICE DEMAND UNLIKELY TO SHRINK Occupied and vacant office stock in the U.S. – the long-term picture

Source: CBRE Econometric Advisors, Q2 2020.

12

14

16

18

20

22

24

2.0

2.5

3.0

3.5

4.0

4.5

5.0

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

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202

5

Mill

ions

of Jo

bs

Bill

ion S

q. Ft.

Occupied Stock Vacant Stock Office-Using Employment (rhs)

BUT WORK AND THE WORKPLACE WILL CHANGEThe growth of American workers by where they work

Source: CBRE Research, 2020.

15%Growth

38%Growth

79%Growth

0%

20%

40%

60%

80%

100%

120%

140%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Usually Worked at Workplace

Conducted Some Work at Home

Usually Worked at Home

Digital reports available for download via interactive digital landing page as well as printed reports for key offices and events.

REAL ESTATE 2030

A CERTAIN AMOUNT OF RESHORING WILL TAKE PLACEChina’s industrial sectors ranked by likelihood of production shift back to the U.S.

0.40 0.45 0.50 0.55 0.60 0.65 0.70

Ferrous Metal Smelting & Pressing

Non Ferrous Metal Smelting & Pressing

General Equipment

Leather, Fur, Feather & its Product & Shoes

Garment & Apparel

Fabricated Metal Product

Textile

Printing & Record Medium Reproduction

Special Equipment

Paper Making

Furniture Total Asset Current Inventory

Computer, Communication & Other Electronic Equipment

Cultural, Educational, Art, Craft, Sport & Recreational Product

Non Metallic Mineral Product

Pharmaceutical

Rubber & Plastic Product

Rail, Ship, Aircraft, Spacecraft & Other Transport Equipment

Chemical Material & Product

Chemical Fiber

Wood Processing, Wood, Bamboo, Rattan, Palm & Grass Product

Electrical Machinery & Equipment

Automobile

More vulnerable to reshoring

Source: Enodo Economics, CBRE Research, May 2020.

WILL POLITICS CHANGE? Post-crisis institutional change in the U.K. and U.S.

Institutions created during/after the Great Depression in the U.S.

• Fannie Mae, created to increase the number of lenders in the mortgage market.

• Federal Deposit Insurance Corporation (FDIC) to increase insurance for banks.

• Securities and Exchange Commission (SEC) for enforcement of the federal securities law.

• Fair Labor Standards Act of 1938 that gave Americans the right to a minimum wage.

• Social Security Act that provided Americans with unemployment, disability and pensions for old age.

Institutions created during/after WWII in the U.K.:

• National Health Service, a health care system that is publicly funded by taxes and provides subsidized healthcare services to all U.K. residents.

• National Insurance Act, workers’ weekly contributions were rewarded with a wide range of social security benefits, including a pension.

• Education Act of 1944, aimed to increase the openness of secondary education to girls and the working class.

• Family Allowance Act of 1945, provided family allowances based on number of children.

• How quickly do we move out of lockdown?

• How does real estate recover?

• Is the office dead?

• Will manufacturing be reshored to the U.S.?

CONCLUSIONS

THANK YOU!PLEASE DON’T HESITATE TO CONTACT US.

This presentation has been prepared in good faith based on CBRE’s current views of the commercial real-estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they aresubject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current marketcircumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its viewsherein if its opinions, projections, analyses or market circumstances later change.Nothing in this presentation should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities – of CBREor any other company – based on the views herein. CBRE disclaims all liability for securities purchased or sold based on information herein, and by viewing this presentation, you waive all claims against CBRE and thepresenter as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the information herein.© Copyright 2020 CBRE

Dr. Richard BarkhamGlobal Chief Economist & Head of Americas Research CBRE Research +1 617 912 5215richard.barkham@cbre.com

Wei LuoGlobal Associate Director Economics & Capital Markets CBRE Research +1 212 984 8153wei.luo@cbre.com

Daniel ChangGlobal Research Analyst Economics & Capital Markets CBRE Research +1 617 912 5254daniel.chang@cbre.com