The European Real Estate Market: Summary

Overview and Urbanization Trends

Jason Oram

Partner, Fund Manager

Europa Capital

European Economic and Real Estate Overview

• Economic climate

• GDP Growth

• Unemployment and inflation

• Real estate market

• Yield spreads

• Investment volumes

• Rental Growth

• Urbanisation trends

• Job creation and household formation

• Demand and supply dynamics

Europe Key Economic Forecasts

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

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

EU (%)

GDP Growth Inflation UnemploymentSource: Capital Economics, 30 June 2019.

Real Estate Yield Spread

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316

Q416

Q117

Q217

Q317

Q417

Q118

Q218

Q318

Q418

Q119

Q219

Weighted Yield Spread (2005 - 2019)

European - All Property Yield (Weighted) European - Risk free Rate (Weighted)

Min Spread = 1.21% (Q2 2007)

Max Spread = 5.82% (Q1 2015)

Source: Cushman & Wakefield, 30 June 2019.

Increasing Allocation to Real Estate

Weighted Average Target Allocations to Real Estate (As a % of AUM)

8.9%

9.3%

9.6%

9.9%

10.1%

10.4%

10.6%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

2013 2014 2015 2016 2017 2018 2019 (Projected)

Source: Cornell University’s Baker Program in Real Estate – Hodes Weill & Associates, December 2018.

European Investment Volumes & Outlook (€bn)

0

50

100

150

200

250

300

350

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

European Investment Volumes (€ bn)

Retail Office Industrial Other

Source: Cushman & Wakefield, 30 June 2019, RCA

Rental Growth

Source: Cushman & Wakefield, 30 June 2019, RCA

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Last calendar year Next 3 years Next 5 years

All Sector Rental Growth (% pa, weighted by GDP)

Northern Europe Middle Europe Central Europe South Europe

European Urbanisation Trends

• 20 selected target cities

• Demonstrate positive data

• Scale to attract institutional

investment

Population Growth: 2015-2030Population growth in target cities much faster than EU rate

0%

5%

10%

15%

20%

25%

Population Growth: Cumulative Growth 2015-2030

Source: Oxford Economics, Global Data Workstation, December 2018

Population Growth: 2015-20305.4 million more people projected to enter these target cities

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Number of Additional People: 2015-2030

Source: Oxford Economics, Global Data Workstation, December 2018

Young Population of Cities vs CountriesCities are getting younger, whilst countries are getting older

Source: Oxford Economics, Global Data Workstation, December 2018

71,000,000

71,500,000

72,000,000

72,500,000

73,000,000

73,500,000

74,000,000

10,700,000

10,800,000

10,900,000

11,000,000

11,100,000

11,200,000

2015 2016 2017 2018 2019 2020 2021 2022 2023

Number of People Aged 15-29

Population Aged 15-29 in 20 European Cities Population Aged 15-29 in 13 Respective Countries

Students in Higher EducationMajor cities are centres of education and youth

Source: Europa Capital, May 2019

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

Brussels

Leipzig

Oslo

Frankfurt

Dublin

Birmingham

Stockholm

Manchester

Amsterdam

Munich

Copenhagen

Berlin

Barcelona

Milan

Rome

Madrid

Warsaw

Prague

Paris

London

Number of Students in Higher Education

Real GDP Growth: 2015-2030Urban GDP growth projections also outperform national trends

Source: Oxford Economics, Global Data Workstation, December 2018

66%

54%

50%

46% 45%

42% 42%39%

36% 36%

32% 31% 30% 29%27%

24% 23%21%

16% 15%

Cumulative Rate of Growth: 2015-2030

Job Creation: 2015-2030Job growth resulting in a shortage of office space

Source: Oxford Economics, Global Data Workstation, December 2018

0%

5%

10%

15%

20%

25%

Job Growth: Cumulative Growth in Total Employment 2015-2030

Tech Job Growth: 2015-2030Major cities are hubs for tech employment

Source: Oxford Economics, Global Data Workstation, December 2018

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

100,000

200,000

300,000

400,000

500,000

600,000

Number of Tech Jobs

Total Employment (2018) Cumulative Rate of Growth 2015-2030

Cumulative Rate of Tech Job Growth

Office Sector DynamicsVacancy rates below 10 year average in most target cities

Source: Cushman & Wakefield, Quarterly Datasheet, Q2 2019

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Vacancy Rate (%)

Q2 19 10 Year average

Office Sector DynamicsRental growth greater than inflation in most of these cities

Source: Cushman & Wakefield, Quarterly Datasheet, Q2 2019, Oxford Economics, Global Data Workstation, December 2018

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Average office rental growth p.a. 2019 - 2023

5 yr Growth Forecast 2019-23, pa 5 yr National Inflation 2019-22, pa

Disposable Income Growth: 2015-2030Major cities will get wealthier and will have more to spend

Source: Oxford Economics, Global Data Workstation, March 2019

124%120%

69% 69%

61% 60% 58% 56%53%

50% 50% 47%44%

40% 39%36% 35% 35% 34%

31%

Cumulative Growth in Disposable Income: 2015-2030

Household Formation: 2015-2030Demand for new households exceeds residential supply

Source: Oxford Economics, Global Data Workstation, December 2018

0%

5%

10%

15%

20%

25%

Growth in Number of Households (%)

Residential Sector DynamicsDemand for households exceeds supply of new residential units

Source: Knight Frank, February 2019, Oxford Economics, Global Data Workstation, December 2018

321%

Number of Excess New Households Relative to Supply of New Residential Units

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Number of New Households less Number of Completed Residential Units: 2013-2023

Residential Sector DynamicsRental growth greater than inflation in most of these cities

Source: Knight Frank, January 2019, Oxford Economics, Global Data Workstation, December 2018

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Oslo Dublin Madrid Leipzig Berlin London Frankfurt Munich Manchester Amsterdam Paris Copenhagen Barcelona

Rental Growth and Inflation (Per Annum)

5 yr Growth Forecast 2019-23, pa National Inflation 2019-2023 pa

Property Sector DynamicsRental growth driven by office and residential supply shortages

Source: Cushman & Wakefield, Quarterly Datasheet, Q3 2018; Knight Frank, January 2019; Oxford Economics, Global Data Workstation, December 2018

100

102

104

106

108

110

2019 2020 2021 2022 2023

Index

Average Office Rental Growth - Index Average Residential Rental Growth - Index Average National Inflation Growth - Index

Market DislocationMultiple factors causing disruption

Real Estate

2018 European investment

volumes have fallen, but UK still

largest market

Global investor allocations to real

estate are increasing

Supply in European office and

residential sectors will remain

constrained

Rental growth projections

reduced, but still positive

Economic

Reduced global GDP growth

expectations, but not recession

Europe vulnerable to slowdown in

US and China

Concerns over Brexit disruption

to European trade

Italian bond yields represent

largest EU threat

Political

Brexit negotiations extended

beyond Q1 2019

Transition period may extend

beyond December 2022

Immigration now primary focus on

EU agenda and was a principal

cause of Brexit

Political framework is unstable

within the EU